Operating and Sublicense Agreement - EarthShell Corp. and Sweetheart Cup Co. Inc.
OPERATING AND SUBLICENSE AGREEMENT
This OPERATING AND SUBLICENSE AGREEMENT (this "AGREEMENT"), dated as of
October 3, 2002 (the "EFFECTIVE DATE"), is by and between EARTHSHELL
CORPORATION, a Delaware corporation formerly known as "EarthShell Container
Corporation" ("EARTHSHELL"), and SWEETHEART CUP COMPANY INC., a Delaware
corporation ("SWEETHEART," and together with EarthShell, individually a "PARTY"
and collectively the "PARTIES"), with reference to the following facts:
RECITALS
A Pursuant to that certain Amended and Restated License Agreement, dated
February 28, 1995, as amended (the "EKI LICENSE AGREEMENT"), between E.
Khashoggi Industries, LLC, a Delaware limited liability company ("EKI"), and
EarthShell, EarthShell has the exclusive, worldwide right to utilize, and to
sublicense to others the right to utilize, specified technology to manufacture
and sell certain food service disposables ("EKI PRODUCTS"). Concurrently
herewith, EKI, EarthShell and Sweetheart are entering into a EKI Recognition and
Non-Disturbance Agreement (the "EKI AGREEMENT") pursuant to which EKI is
providing Sweetheart certain assurances with respect to the EKI License
Agreement, the rights granted by EarthShell to Sweetheart hereunder, the
maintenance of the Licensed Patents and related matters, all upon and subject to
the terms and conditions contained in the EKI Agreement.
B. The Parties have previously entered into a Confidentiality Agreement,
dated as of October 16, 1997, as amended by that certain letter agreement, dated
October 1, 2002 (as so amended, the "CONFIDENTIALITY AGREEMENT"). The Parties
also contemplate entering into an agreement relating to the termination of their
prior business arrangement (the "TERMINATION AGREEMENT," and, together with the
Confidentiality Agreement, the EKI Agreement, and any agreements or instruments
now or hereafter executed and delivered by one or both Parties hereunder or
thereunder, are collectively referred to herein as the "ANCILLARY AGREEMENTS").
C. EarthShell has licensed and certified certain equipment manufacturers,
and may hereafter license and certify additional equipment manufacturers, to
supply equipment to its sublicensees for the manufacture of EKI Products (the
"CERTIFIED EQUIPMENT VENDORS"), including Detroit Tool and Engineering, Inc.
("DTE").
D. EarthShell is willing to grant, and Sweetheart desires to accept, a
sublicense of the technology licensed by EKI to EarthShell pursuant to the EKI
License Agreement for use in manufacturing certain food service disposable
products to be sold and distributed within North America, upon the terms and
conditions set forth herein.
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AGREEMENT
In consideration of the foregoing recitals and the covenants and
agreements set forth herein, together with other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:
1. DEFINITIONS.
Capitalized terms used herein shall have the meanings set forth below:
(a) The term "AGREEMENT" shall have the meaning set forth in the preamble,
as the same may be amended from time to time.
(b) The term "ANCILLARY AGREEMENTS" shall have the meaning set forth in
Recital B.
(c) The term "BANKRUPTCY" shall mean, with respect to any Person, (i) such
Person (A) generally fails to pay, or admits in writing its inability to pay,
its debts as they come due, or (B) makes an assignment for the benefit of, or
any composition or arrangement with, its creditors, (ii) a trustee, receiver,
liquidator or other custodian is appointed for itself, its business or all or a
substantial part of its property, (iii) any case or proceeding under any
bankruptcy, insolvency or similar law of any applicable jurisdiction, or any
dissolution, winding up or liquidation case or proceeding shall be commenced in
respect of such Person and, in the case of an involuntary proceeding, such
proceeding shall not be dismissed within ninety (90) days following the
commencement of such proceeding, or (iv) such Person takes any action to
authorize, or in furtherance of, any of the events described in clauses (i),
(ii) or (iii) above.
(d) The term "CERTIFIED EQUIPMENT VENDORS" shall have the meaning set
forth in Recital C and shall consist of equipment vendors meeting certain
certification requirements prescribed by EarthShell.
(e) The term "CONFIDENTIAL INFORMATION" shall have the meaning set forth
in Section 16.
(f) The term "CONFIDENTIALITY AGREEMENT" shall have the meaning set forth
in Recital B, as the same may be extended or modified.
(g) The term "CUSTOMERS" shall have the meaning set forth in Section 2(e).
(h) The term "DTE" shall have the meaning set forth in Recital C.
(i) The term "EARTHSHELL" shall have the meaning set forth in the
preamble.
(j) The term "EARTHSHELL IMPROVEMENTS" shall have the meaning set forth in
Section 6(a).
(k) The term "EARTHSHELL INFRINGEMENT ACTION" shall have the meaning set
forth in Section 8(c).
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(l) The term "EARTHSHELL PURCHASE OBLIGATION" shall have the meaning set
forth in Section 3(b).
(m) The term "EC PROFIT DISTRIBUTION" shall have the meaning set forth in
Section 4(a).
(n) The term "EFFECTIVE DATE" shall have the meaning set forth in the
preamble.
(o) The term "EXCLUDED MARKET SEGMENTS" shall mean the market segments
shown on Exhibit B as not having been licensed to Sweetheart.
(p) The term "EKI" shall have the meaning set forth in Recital A.
(q) The term "EKI AGREEMENT" shall have the meaning set forth in Recital
A.
(r) The term "EKI LICENSE AGREEMENT" shall have the meaning set forth in
Recital A.
(s) The term "EKI PRODUCTS" shall have the meaning set forth in Recital A.
(t) The term "EQUIPMENT" shall have the meaning set forth in Section 3(a).
(u) The term "EXCLUSIVITY PERIOD" shall have the meaning set forth in
Section 2(e).
(v) The term "FORCE MAJEURE EVENT" shall have the meaning set forth in
Section 25.
(w) The term "GROSS SALES" shall mean, for any relevant calendar period
after the Effective Date, the gross invoice price of Products sold by Sweetheart
to Customers now or hereafter existing (but excluding discounts, returns, taxes
and freight and transportation charges payable by Sweetheart); provided,
however, that intercompany sales between Sweetheart and any of its subsidiaries
or affiliated companies shall not be included in Gross Sales.
(x) The term "IMPROVEMENT" shall mean any improvement, enhancement,
refinement, modification or other invention or discovery, whether patentable or
unpatentable, deriving from or otherwise relating to, in whole or in part, any
of the claims of any of the Patents described in Exhibit A hereto, any of the
Trade Secrets, the Products, the Raw Materials and/or the Equipment, including,
without limitation, all process, product and design Improvements.
(y) The term "INITIAL MODULES" shall have the meaning set forth in Section
13(d).
(z) The term "JOINT IMPROVEMENTS" shall have the meaning set forth in
Section 6(c).
(aa) The term "LICENSED PATENTS" shall mean, as modified by the
penultimate sentence in Section 11(a), the Patents that are directly or
indirectly licensed or otherwise transferred to EarthShell by EKI pursuant to
the EKI License Agreement or otherwise, including, without limitation, the
Patents that are described on Exhibit A hereto and all Patents covering
Improvements that hereafter are acquired by or licensed to EarthShell (in the
case of any such Patents that are hereafter licensed to EarthShell, subject to
EarthShell having the right to grant sublicenses thereunder and Sweetheart
agreeing to comply with all applicable terms of the license agreement under
which such Patents are licensed to EarthShell, including without limitation any
obligation imposed thereunder to pay any royalty in connection with exercising
rights under any such sublicense); provided, however, that no such royalty or
other compensation shall be payable with respect to Joint Improvements,
EarthShell Improvements or Improvements directly or indirectly acquired from EKI
(except to the extent EarthShell is required to reimburse EKI for its
out-of-pocket costs in acquiring or purchasing any such Improvement from a third
party, as reasonably allocated to Sweetheart's right to use such Improvements).
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(bb) The term "LINE" shall mean Equipment capable of producing finished
commercial Products from the mixing of Raw Materials through the packaging of
finished Products in accordance with the applicable specifications. A Line will
contain one or more Modules.
(cc) The term "MARKET SEGMENTS" shall mean the broad U.S. market segments
in all or any part of the Territory for the manufacture, distribution and/or
sale of any or all of the Products which are depicted on Exhibit B as having
been granted to Sweetheart, and any equivalent market segments in Canada and
Mexico.
(dd) The term "MCDONALD'S CONTRIBUTION MARGIN" shall mean the Net Sales
realized from the sale or distribution of Products consisting of clamshell or
other hinged sandwich containers to McDonald's Corporation (or to Perseco or
another purchasing agent for sale to, or use by, customers of McDonald's
Corporation) for any calendar period, less, for such Net Sales:: (i) all direct
costs of manufacturing, including any direct manufacturing overhead, raw
materials, packaging, direct line labor, energy, maintenance and repair parts,
and (ii) a reasonable allocation of fixed manufacturing costs; but excluding
depreciation, amortization, taxes, interest or other financing charges, selling,
general or administrative expenses, research and development expenditures, the
EC Profit Distribution and extraordinary items, determined pursuant to generally
accepted accounting principles, consistently applied, and as certified by
Sweetheart's Chief Financial Officer.
(ee) The term "MILESTONES" shall have the meaning set forth in Section
2(e).
(ff) The term "MILESTONE FAILURE" shall have the meaning set forth in
Section 3(d).
(gg) The term "MINIMUM MARKET SEGMENT THRESHOLD PERCENTAGE" shall have the
meaning set forth in Exhibit B.
(hh) The term "MODULES" shall mean a manufacturing unit capable of
forming, trimming and laminating substrates for Products (such as, for example,
a DTE "Cobra" or comparable unit).
(ii) The term "NET SALES" shall mean, for any relevant calendar period
with respect to the Products, the Gross Sales for such calendar period,
increased by any uncollectible receivables previously written off to the extent
ultimately collected, and reduced by (i) actual cash, trade or quantity
discounts or credits, including "off-invoice discounts," actually given or
allowed by Sweetheart; (ii) uncollectible receivables and bad debt expenses with
regard to receivables previously included as Net Sales (as written off by
Sweetheart for financial statement reporting purposes), (iii) sales, use,
value-added, import, export, excise or similar taxes to the extent paid by
Sweetheart, and (iv) insurance, freight and transportation costs paid by
Sweetheart in connection with the delivery and shipment of the Products, whether
or not included as a separate item in the invoice (but exclusive of discounts,
returns, taxes or freight and transportation charges deducted in computing Gross
Sales).
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(jj) The term "OFFERED RAW MATERIALS" shall have the meaning set forth in
Section 10(h).
(kk) The terms "PARTY" and "PARTIES" shall have the meaning set forth in
the preamble.
(ll) The term "PATENTS" shall mean unexpired patents, utility models,
industrial designs, certificates of invention or similar grants of intellectual
property rights that are now or hereafter filed, registered, issued or granted
in the Territory or any part thereof, including without limitation, any
divisionals, reissues, continuations, continuations-in-part, renewals,
reexaminations, and extensions of any of the foregoing, and any applications
therefor (and Patents which may issue on such applications).
(mm) The term "PERSON" shall mean an individual, partnership, corporation,
limited liability company, trust, governmental or political subdivision and any
other entity that has legal capacity to own property in its own name and to sue
or be sued.
(nn) The term "PLANT FACILITIES" shall have the meaning set forth in
Section 3(a).
(oo) The term "PLATE LINE" shall mean the eight (8) Modules that comprise
a part of the Initial Modules and used to manufacture plates.
(pp) The term "PRELIMINARY VALIDATION DATE" shall have the meaning set
forth in Section 13(d).
(qq) The term "PRODUCTS" shall mean any and all of the food service
disposable foam laminate products incorporating the Technology and consisting of
plates, bowls (other than noodle bowls), hinged sandwich containers, and subject
to Section 2(h), cups for hot beverages.
(rr) The term "Raw Materials" shall have the meaning set forth in Section
10(h).
(ss) The term "REPORT" shall have the meaning set forth in Section 4(e).
(tt) The term "REPRESENTATIVE" shall have the meaning set forth in Section
5(a).
(uu) The term "REQUIRED SPECIFICATIONS" shall have the meaning set forth
in Section 13(d).
(vv) The term "START DATE" shall have the meaning set forth in Section
4(a).
(ww) The term "SUBLICENSE" shall have the meaning set forth in Section
2(a).
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(xx) The term "SUBLICENSEE IMPROVEMENTS" shall have the meaning set forth
in Section 6(a).
(yy) The term "SWEETHEART" shall have the meaning set forth in the
preamble.
(zz) The term "SWEETHEART IMPROVEMENT" shall mean any Improvement
developed by or for Sweetheart independently of EarthShell or its affiliated
companies or sublicensees.
(aaa) The term "SUPPLEMENTAL MODULES" shall mean the Initial Modules other
than the Plate Line.
(bbb) The term "TECHNOLOGY" shall mean the Licensed Patents and the Trade
Secrets or any part thereof.
(ccc) The term "TERRITORY" shall mean the United States, Mexico and Canada
and any part thereof.
(ddd) The term "THIRD-PARTY SUBLICENSEES" shall have the meaning set forth
in Section 2(a)(iii).
(eee) The term "TRADE SECRETS" shall mean (i) know-how, formulas, methods,
processes, systems and other proprietary information owned by EarthShell or
licensed to EarthShell pursuant to the EKI License Agreement or otherwise that
are or may be useful or necessary in the production, distribution, use,
marketing or sale of any of the Products, and (ii) subject to Section 6, any
non-patented Improvement or other proprietary information now or hereafter owned
by or licensed to EarthShell that is or may be useful or necessary in the
production, distribution, use, marketing or sale of any of the Products.
(fff) The term "TRADEMARKS" shall have the meaning set forth in Section
2(d).
(ggg) The term "UNFULFILLED CUSTOMER REQUIREMENTS" shall have the meaning
set forth in Section 2(f).
2. THE SUBLICENSE; CUSTOMER PRIORITY PERIOD; PRICE PROTECTION.
(a) Subject to and upon the terms and conditions of this Agreement,
including the terms and conditions of Sweetheart's exclusive rights to the
Technology pursuant to Section 2(e), EarthShell hereby grants to Sweetheart a
non-exclusive, royalty-bearing sublicense to the Technology (the "SUBLICENSE"):
(i) to make or have made, at the Plant Facilities or elsewhere
within the Territory, the Products;
(ii) to use, sell, offer to sell, import into, distribute and
otherwise dispose of and commercialize the Products within the Market Segments
and within the Territory; and
(iii) to manufacture, sell, distribute and otherwise dispose of the
Products to Persons to whom EarthShell now or hereafter sublicenses the
Technology to manufacture, sell, distribute and otherwise dispose of the
Products within the Territory, but only during the term of the sublicense
agreement between EarthShell and such sublicensee (the "THIRD-PARTY
SUBLICENSEES").
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(b) Sweetheart shall not otherwise have the right to sublicense or
transfer the Technology, or any interest in or rights under the Sublicense;
provided, however, that the rights and obligations of Sweetheart in, to and
under this Agreement may be assigned to the extent provided by Sections 2(e) and
23. Any purported sublicense or transfer by Sweetheart without such consent
shall be null and void and shall constitute a material breach for purposes of
Section 13(b) hereof.
(c) Except as permitted under Section 2(a)(iii) and except for waste
materials, Sweetheart shall not, directly or indirectly, market, distribute,
sell or attempt to dispose of any Product to any Person outside of the Market
Segments or outside of the Territory, or to any Person within the Market
Segments or within the Territory, if Sweetheart knows or has reason to believe
that such Person intends to use such Product outside the Market Segments or
outside the Territory. A breach of the foregoing shall constitute a material
breach for purposes of Section 13(b) hereof.
(d) Subject to Section 10(a), Sweetheart is authorized and required to
use, in connection with the marketing, distribution and sale of Products in the
Territory, the trademarks and service marks (collectively, the "TRADEMARKS")
owned by or licensed to EarthShell that are designated to Sweetheart by
EarthShell prior to commercial production of the Products by Sweetheart or from
time to time thereafter; provided, however, that Sweetheart shall have received
not less than ninety (90) days' advance notice of the effective date of such
designation and provided, further, however, that any such designation shall not
apply to work in progress, finished goods or other inventories existing as of
the effective date of such designation.
(e) Notwithstanding anything to the contrary in Section 2(a), whether
expressed or implied, and subject to the provisions of Section 25, in the event
Sweetheart timely meets all applicable Net Sales milestones set forth in Exhibit
C hereto with respect to the sale or distribution of Products within the Market
Segments and within the Territory (such milestones shall be determined on a
cumulative basis such that prior Net Sales will be aggregated with prior and
current milestones benchmarks to determine whether the applicable milestone has
been achieved), and in the further event that Sweetheart timely complies with
its Equipment purchase obligation set forth in Sections 3(a) and 13(d) (such Net
Sales milestones and Equipment purchase obligations are collectively referred to
as the "MILESTONES"), then until the earliest to occur of (i) the date
Sweetheart fails to meet one or more of the Milestones, as the same may be
satisfied by the payment of equivalent EC Profit Distributions pursuant to
Section 4(f), (ii) the date this Agreement is terminated pursuant to Section 13,
(iii) the date Sweetheart achieves $500 million in Net Sales for a continuous
twelve (12) month period, (iv) December 31, 2007, or (v) the date Sweetheart
notifies EarthShell pursuant to Section 3(b) that it has triggered the
EarthShell Purchase Obligation and Sweetheart has been released from any
obligation related thereto pursuant to the terms of the contract with DTE (the
period commencing on the Effective Date and ending on the earliest of such dates
is referred to herein as the "EXCLUSIVITY PERIOD"), and subject to the
conditions imposed by this Section 2(e) and Sections 2(f) and (h) and 3(a), and
subject further to the non-exclusive rights, if any, of the EarthShell
sublicensees listed on Exhibit E, Sweetheart shall have the exclusive right to
make, use, sell, offer to sell, import into, distribute and otherwise dispose of
and commercialize the Products to Persons within the Market Segment and within
the Territory (such Persons are referred to herein as "CUSTOMERS"). For the
avoidance of doubt, in accordance with Section 4(f), Sweetheart may satisfy any
Milestone relating to Net Sales by payment to EarthShell of EC Profit
Distributions, and, if necessary, supplemental payments, as shall equal the EC
Profit Distributions that would have been paid to EarthShell had the Net Sales
Milestone been achieved, and Sweetheart shall be deemed to have satisfied or met
the Net Sales Milestone in question by making such payments.
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(f) Subject to Sections 2(e) and (h) and 3(a) and this Section 2(f),
EarthShell covenants that, during the Exclusivity Period, it shall not
sublicense, license or otherwise grant to or permit any Person other than
Sweetheart the right to, nor shall it utilize the Technology or any part
thereof, to make, have made, use, sell, offer to sell, import into or otherwise
commercialize any Product within the Market Segments and within the Territory
(subject to the non-exclusive rights, if any, of EarthShell's sublicensees under
those certain sublicense agreements listed on Exhibit E), provided that if
Sweetheart is unable to satisfy fully the requirements of any Customer for
Products because of insufficient plant capacity within nine (9) months after
such Customer has given Sweetheart notice of such requirements in writing (the
amount of such unsatisfied requirements being referred to as "UNFULFILLED
CUSTOMER REQUIREMENTS"), Sweetheart agrees that the Unfulfilled Customer
Requirements for Products, or any portion thereof, may be satisfied by other
EarthShell sublicensees designated by Sweetheart without violating the exclusive
rights granted by EarthShell hereunder; provided, however, that Sweetheart shall
in such event retain its Customer exclusivity with respect to all Product
requirements of such Customer that Sweetheart has sufficient capacity to fulfill
on a timely basis.
(g) Following the end of the Exclusivity Period, the exclusivity
restrictions set forth in Sections 2(e) and (f) shall cease to apply, and
EarthShell may itself, or sublicense, license or otherwise grant to any Person
the non-exclusive right to, or to utilize the Technology or any part thereof, to
make, have made, use, sell, offer to sell, import into or otherwise
commercialize any Product to any Person within the Market Segments and within
the Territory. Notwithstanding anything contained herein to the contrary, if,
following the end of the Exclusivity Period, the Net Sales realized by
Sweetheart for any calendar year thereafter for any category of the Market
Segments set forth on Exhibit B are less than the product obtained by
multiplying (i) the lesser of (A) the total Net Sales achieved by Sweetheart
during the twelve (12) month period ending with the calendar quarter immediately
preceding the end of the Exclusivity Period, and (B) $50 million, by (ii) the
Minimum Market Segment Threshold Percentage for such category of Market Segment
for the applicable calendar year, as determined on a cumulative basis for each
calendar year following the end of the Exclusivity Period, then EarthShell shall
have the right, upon thirty (30) days' prior notice to Sweetheart, to terminate
Sweetheart's rights under this Agreement with respect to such category of the
Market Segment; provided, however, that Sweetheart may continue to sell or
distribute unlimited quantities of Products to Customers within such terminated
category of the Market Segment for whom it was actively selling and distributing
Products at the time it receives the termination notice (although it shall not
have any further rights to sell or distribute Products to any other Customer
within such terminated category of the Market Segment).
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(h) Notwithstanding any provision of this Agreement to the contrary, the
Sublicense granted Sweetheart pursuant to Section 2(a) and Sweetheart's
exclusive rights pursuant to Section 2(e) shall terminate with respect to cups
for hot beverages, and such "hot cups" will no longer be included in the
definition of Products, if Sweetheart fails to fund such amount and within such
a time frame as will reasonably enable Sweetheart to commercially operate, on or
before December 31, 2003, a commercially effective manufacturing process or
production capability for such "hot cups," and to have at least $2 million in
Net Sales by the end of the first calendar quarter of 2004.
3. PLANT FACILITIES; EQUIPMENT PURCHASES
(a) Subject to Section 3(b), from and after the Effective Date, Sweetheart
shall be responsible for its requirements for the manufacture, sale and
distribution of Products within the Market Segments and within the Territory at
such facilities within the Territory as Sweetheart shall select in order to
manufacture and distribute the Products (separately, a "PLANT FACILITY" and,
collectively, the "PLANT FACILITIES"); provided, however, that it is anticipated
that the initial Plate Line will be installed at Sweetheart's St. Thomas
facility in Owings Mills, Maryland. Subject to Sections 3(b) and 13(d),
Sweetheart shall order and purchase from Certified Equipment Vendors, and shall
install and debug, such quantity of Modules and Lines as shall reasonably enable
it to meet the next succeeding Net Sales Milestones set forth on Exhibit C
(collectively, the "EQUIPMENT") on such terms and conditions as are acceptable
to Sweetheart in its sole discretion (it is understood that Sweetheart's
purchase and installation of the Initial Modules will enable it to have the
capacity to meet the initial Net Sales Milestones as set forth on Exhibit C).
Except as set forth in Section 13(d), Sweetheart's failure to achieve any such
Milestones will not allow EarthShell to terminate this Agreement, but will, and
as its sole remedy, permit it to end the Exclusivity Period upon notice given by
EarthShell to Sweetheart (which notice shall be delivered not more than ninety
(90) days following Sweetheart's notification to EarthShell that it has failed
to meet the Milestone in question, it being agreed that EarthShell's failure to
timely give such notice will automatically result in the Milestone being deemed
to have been achieved). The purchase order for the Initial Modules in the manner
contemplated in Section 13(d) shall take place on or before October 31, 2002,
and the installation and debugging of the Plate Line and, if purchased by
Sweetheart, the Supplemental Modules, shall take place at a Plant Facility on or
before May 15, 2003 (unless such date is delayed by the Certified Equipment
Vendor through no fault of Sweetheart, in which event either Party may elect to
terminate this Agreement under Section 13(d) if the Plate Line and, if purchased
by Sweetheart, the Supplemental Modules meeting the Required Specifications are
not installed and debugged at a Plant Facility by May 15, 2003; provided,
however, that a Force Majeure Event shall be deemed to occur if the Plate Line,
and if purchased by Sweetheart, the Supplemental Modules, meeting the Required
Specifications are not installed and debugged at a Plant Facility on or before
May 15, 2003 through no fault of Sweetheart. Except as provided in Section 3(b),
the cost of procuring and installing the Equipment shall be borne solely by
Sweetheart.
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(b) In the event that Sweetheart notifies EarthShell that it is unable or
unwilling to secure financing for its purchase of the Supplemental Modules
(which notification must be made prior to the installation of the Supplemental
Modules at a Plant Facility), and assuming that the Preliminary Validation Date
has occurred (or if it has not occurred, neither Party has elected to terminate
this Agreement pursuant to Section 13(e)), then, at Sweetheart's request,
EarthShell shall thereupon be deemed to have assumed Sweetheart's obligation to
purchase the Supplemental Modules and shall indemnify and hold Sweetheart
harmless for any amounts payable, and, within (30) days following receipt of
such notice, shall reimburse Sweetheart for any amounts paid, as applicable, to
DTE (whether as a deposit or otherwise) in connection with the purchase of such
Supplemental Modules. In connection with such assumption and reimbursement,
Sweetheart shall assign to EarthShell or its assignees, without recourse, all of
its right, title and interest in and to the Supplemental Modules (including any
rights under the purchase agreement with DTE for the Supplemental Modules), free
of all liens, encumbrances and adverse claims of any kind, and including
Sweetheart's right to enforce warranty obligations and damage remedies relating
to the Supplemental Modules. The obligations under this Section 3(b) shall
survive any termination of this Agreement.
(c) Sweetheart shall keep EarthShell reasonably apprised on a calendar
quarter basis of, and shall provide EarthShell with such documentation as it may
reasonably request evidencing, the number of Modules ordered and the number of
Modules and Lines installed by Sweetheart, the cancellation or deferment of any
prior purchase orders for the Modules and the reasons therefor, the Plant
Facilities where the Modules had been installed, the estimated production
capability of the Modules ordered and not yet delivered and the estimated
production capability of the Modules and Lines actually installed, the number of
Products actually manufactured and distributed during the quarterly period
covered by the report and the approximate purchase price for the Equipment
ordered as of the date of the report and the purchase price for the Equipment
that had been installed as of the date of the report.
(d) Notwithstanding anything contained in this Agreement, whether
expressed or implied, it is unconditionally and irrevocably acknowledged and
agreed that (i) Sweetheart shall have no liability or obligation to order,
purchase, install, operate or use Modules, Lines or other Equipment and/or to
manufacture and/or to promote, advertise, use, sell, offer to sell, import into,
distribute or otherwise dispose of the Products within all or any part of the
Market Segment or within the Territory, and EarthShell's sole and exclusive
remedy at law, in equity, under this Agreement or otherwise in the event
Sweetheart in its sole discretion, for any reason or for no reason elects not to
undertake all or any of the foregoing, or fails to meet any or all of the
Milestones is to terminate the exclusivity rights or, only in the case of a
failure to meet the Milestones set forth in Section 13(d), to terminate this
Agreement (in each case, a "MILESTONE FAILURE"). In furtherance of the
foregoing, EarthShell hereby irrevocably waives and releases Sweetheart and its
affiliates and their respective shareholders, officers and directors from any
and all claims, causes of action or demands that arise solely with respect to a
Milestone Failure, whether pursuant to breach of contract, tort or any other
legal theory. The provisions of this Section 3(d) shall survive the expiration
or sooner termination of this Agreement.
(e) Sweetheart shall maintain and operate the lines of Equipment in
material compliance with all legal and administrative code standards applicable
to the Equipment throughout the term of this Agreement.
(f) Sweetheart, upon reasonable advance notice from EarthShell and during
normal business hours, will permit EarthShell personnel or consultants access to
the Plant Facilities as is reasonably necessary in order for them to fulfill
EarthShell's obligations or protect or enforce its rights under this Agreement.
Prospective or existing licensee/sublicensee joint venture partners of
EarthShell will be permitted to have reasonable access to the Plant Facilities,
upon reasonable advance notice by EarthShell and during normal business hours,
for the purpose of observing the Plant Facilities in operation. Notwithstanding
the foregoing, Sweetheart will have no obligation to provide access to any Plant
Facility to any prospective or existing licensee/joint venture partner of
EarthShell that has not agreed to permit access to any plant facility owned or
leased by it or a joint venture entity that is being or in the future will be
used to manufacture the EarthShell products.
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(g) The list of the current Certified Equipment Vendors is attached hereto
as Exhibit D. EarthShell shall provide Sweetheart with an updated list of
Certified Equipment Vendors from time to time and upon Sweetheart's request. At
Sweetheart's request, EarthShell shall not unreasonably withhold or delay its
consent to license or certify other equipment vendors on licensing or
certification terms and conditions that are not materially different from the
terms and conditions offered to the then existing Certified Equipment Vendors
(subject to any restrictions in the certification or licensing agreements with
the then existing Certified Equipment Vendors). To the extent that EarthShell
can do so without violating any confidentiality undertakings that may be
applicable, EarthShell will cooperate in providing Sweetheart with copies of any
agreements into which EarthShell enters with any Certified Equipment Vendors.
4. EC PROFIT DISTRIBUTION.
(a) During the term of this Agreement, Sweetheart shall pay to EarthShell
an amount (the "EC PROFIT DISTRIBUTION") equal to twenty percent (20%) of the
Net Sales of Products by Sweetheart, if any (other than Net Sales of Products to
Third-Party Sublicensees for sale to their customers). Notwithstanding the
foregoing, but subject to Section 4(d), in view of Sweetheart's anticipated
start-up costs, the EC Profit Distribution shall be (i) adjusted by fifty
percent (50%) to ten percent (10%) of Net Sales during the twelve (12)-month
period following the earlier of (A) June 30, 2003, and (B) the date the Plate
Line is installed at a Plant Facility, meets the Required Specifications and is
accepted by Sweetheart (which acceptance shall not be unreasonably declined)
(the "START DATE"), and (ii) adjusted by twenty-five percent (25%) to fifteen
percent (15%) of Net Sales during the period commencing on the day following the
first anniversary of the Start Date and terminating on the second anniversary of
the Start Date.
(b) Following the second anniversary of the Start Date, the EC Profit
Distribution will be restored to twenty percent (20%) of Net Sales; provided
that the EC Profit Distribution shall be reduced to fifteen percent (15%) of Net
Sales if, by the end of the second anniversary of the Start Date, EarthShell
does not provide to Sweetheart at least one qualified vendor who agrees to
provide film for Sweetheart's reasonably projected volume of Products at a price
that is at least 25% less per pound than the quoted price (FOB U.S. vendor) of
film made from 100% virgin materials. Such price quotes shall be predicated on
(i) the film having 50% recycled content, (ii) the recycled materials being
furnished at zero cost to the vendor, and (iii) Sweetheart agreeing to provide
to such vendor, and such vendor agreeing to accept from Sweetheart, all of
Sweetheart's film scrap material, and Sweetheart further agreeing to purchase
from such vendor all or substantially all of the film to be used by Sweetheart
to manufacture the Products under a long-term supply contract.
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(c) Notwithstanding anything in Section 4(b) to the contrary, upon the
sale or distribution by any existing or future sublicensee of EarthShell of any
Product within any Market Segment within the Territory and during the
Exclusivity Period under a right to do so granted under the terms of any
existing or future license or sublicense agreement to which EarthShell or any of
its predecessor or successor entities is a party, then, upon the later of the
second anniversary of the Start Date, or the date of such sale or distribution,
and until the end of the Exclusivity Period, the EC Profit Distribution shall be
reduced to ten percent (10%) of Net Sales (it being recognized that the
reduction in the EC Profit Distribution shall not limit the rights and remedies
Sweetheart may have, in law or equity, under this Agreement or otherwise, with
respect to EarthShell's intentional misconduct in granting future licenses or
sublicensees to third parties in derogation of Sweetheart's rights hereunder).
In this regard, EarthShell covenants to use its reasonable best efforts (without
paying any sum) to terminate the rights of the sublicensees listed in Exhibit E
to sell Products within the Market Segments and within the Territory during the
Exclusivity Period.
(d) Notwithstanding anything to the contrary in this Agreement, during the
Exclusivity Period, the total EC Profit Distribution payable with regard to the
Net Sales of clamshell or other hinged sandwich containers to McDonald's
Corporation (or to Perseco or any other purchasing agent which purchases such
Products for ultimate sale or use by customers of McDonald's Corporation) for
all calendar years following the Effective Date shall not exceed 50% of the
McDonald's Contribution Margin achieved by Sweetheart with regard to such Net
Sales during such calendar years, determined on a cumulative basis.
(e) Within thirty (30) days of the last day of each month, Sweetheart
shall pay to EarthShell the EC Profit Distribution in respect of all Products
shipped and invoiced by Sweetheart during such month, if any. Each payment of
the EC Profit Distribution shall be accompanied by a written report (the
"REPORT") prepared by Sweetheart and certified as materially accurate by the
Chief Financial Officer or Treasurer of Sweetheart. Each Report shall set forth,
for the month covered by the Report, (i) the number of each of the Products
shipped by Sweetheart, (ii) the gross invoice price for each of such Products,
and (iii) any reductions to the gross invoice price for purposes of calculating
Net Sales.
(f) Notwithstanding anything to the contrary in this Agreement, Sweetheart
shall have the right to meet a Net Sales Milestone for a particular calendar
quarter or year (as is specified in Exhibit C) by paying to EarthShell the
difference between the total EC Profit Distribution that EarthShell would have
received had the Net Sales Milestone been met and the amount of EC Profit
Distribution actually received by EarthShell for such calendar quarter or year,
such amount to be paid within sixty (60) days following the end of the
applicable calendar quarter or year (there shall be no cure period for the
failure to make this payment).
(g) All payments of the EC Profit Distribution due under this Agreement
shall be calculated and paid by Sweetheart in United States dollars.
(h) If Sweetheart fails to make a timely payment due under this Section 4,
interest at an annual rate equal to twelve percent (12%), compounded annually,
shall accrue on the amount of payment for each day such payment is overdue;
provided, however, that such interest rate shall in no event exceed the maximum
rate permitted by applicable law.
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(i) Any failure to pay any EC Profit Distribution within thirty (30) days
following the date Sweetheart receives notice from EarthShell that it is due
shall constitute a material breach for purposes of Section 13(b) hereof.
5. RIGHT TO AUDIT.
(a) Sweetheart shall keep and maintain at its principal executive offices
or at such other locations as the Parties shall agree complete and accurate
records concerning the purchase and installation of the Modules (including
copies of the monthly reports referred to in Section 3(b) and the documentation
supporting the information contained in such report), the Net Sales generated
from the sale or distribution of the Products within any particular Market
Segment, and the McDonald's Contribution Margin, to the extent applicable.
EarthShell or its designated representative (the "REPRESENTATIVE") shall have
the right at EarthShell's cost and expense to review the financial and other
records of Sweetheart relating to such Net Sales on a quarterly basis during the
term of this Agreement during normal business hours and upon reasonable prior
notice to Sweetheart.
(b) If Sweetheart is ultimately determined to have failed to pay to
EarthShell all of the EC Profit Distributions actually due hereunder, Sweetheart
shall promptly pay the full amount of such discrepancy to EarthShell, with
interest thereon, at an annual rate equal to twelve percent (12%), compounded
annually; provided, however, that such interest rate shall in no event exceed
the maximum rate permitted by applicable law. Furthermore, should the results of
an audit reveal an underpayment of an EC Profit Distribution payment due
hereunder in excess of five percent (5%), then all costs and expenses related to
such audit shall be reimbursed to EarthShell by Sweetheart within thirty (30)
days of the completion of such credit.
(c) If Sweetheart is ultimately determined to have overpaid EarthShell an
EC Profit Distribution payment actually due hereunder, EarthShell shall promptly
pay the full amount of the overpayment to Sweetheart, with interest thereon, at
an annual rate equal to twelve percent (12%), compounded annually, provided,
however, that such interest rate shall in no event exceed the maximum rate
permitted by applicable law.
6. IMPROVEMENTS TO TECHNOLOGY.
(a) EarthShell will own all Improvements developed by or for EarthShell
(but, if developed for EarthShell, only to the extent the third-party agreement
permits EarthShell to sublicense the Improvement without restriction or cost)
(the "EARTHSHELL Improvements"), and, subject to any third-party agreements, all
Improvements developed by or for a licensee, sublicensee, or other contracting
party of EarthShell ("SUBLICENSEE IMPROVEMENTS"). All EarthShell Improvements
shall be included in the Technology licensed hereunder to Sweetheart without
additional royalty or other obligation being imposed on Sweetheart. Sweetheart
shall have no right by virtue of this Agreement to utilize the Sublicensee
Improvements and the Sublicensee Improvements shall not be included in the
Technology licensed hereunder to Sweetheart.
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(b) Sweetheart will own all Sweetheart Improvements and shall not be
obligated to allow EarthShell or any of its licensees or sublicensees to utilize
such Sweetheart Improvements. Sweetheart may utilize all Sweetheart Improvements
in any commercial activity, except that during the term of this Agreement and
following the termination of this Agreement, Sweetheart may not utilize the
Sweetheart Improvements to manufacture biodegradable foam food service
disposable packaging that competes with the Products sold or distributed by
EarthShell or its licensees or sublicensees.
(c) Improvements developed jointly by EarthShell and Sweetheart ("JOINT
IMPROVEMENTS") shall be owned by EarthShell. All Joint Improvements shall be
included in the Technology licensed hereunder to Sweetheart without additional
royalty or other obligation being imposed on Sweetheart. Sweetheart acknowledges
that EarthShell shall have the right to license Joint Improvements to third
parties on such terms and conditions as it shall determine which shall not
conflict within this Agreement.
(d) Each Party that develops or acquires a material Improvement during the
term hereof will disclose such Improvement to the other Party promptly after the
development or acquisition of such Improvement by such Party, and, to the extent
such Improvement is not licensed to Sweetheart or EarthShell (or their
respective licensees or sublicensees) pursuant to the terms of this Section 6,
then, at the request of the other Party, the developing or acquiring Party shall
enter into good faith negotiations to allow the other Party (or its licensees or
sublicensees) to utilize such Improvement under such terms and conditions,
including royalty obligations, as are commercially reasonable under the
circumstances and such other additional restrictions and financial obligations
as may be imposed by any third party developing the Improvement in question, it
being understood that, in the event the Parties cannot come to terms with
respect to the utilization of such Improvement despite their good faith efforts
to negotiate commercially reasonable terms to do so, the acquiring or developing
Party shall have no further obligation to allow the other Party to utilize the
Improvement.
7. PATENT MATTERS.
(a) EarthShell shall have the right, in its sole discretion, to (i)
affirmatively seek patent protection for any EarthShell Improvement, Sublicensee
Improvement or Joint Improvement at its sole cost and expense or (ii) maintain
any such Improvement as a trade secret; provided that such Improvement shall be
maintained as a trade secret during the pendency of any patent application.
Sweetheart shall provide EarthShell, at EarthShell's expense, with such
assistance as may be reasonably requested, from time to time, in connection with
efforts to seek patent protection for any Improvement in accordance with this
Section 7(a), including the execution of any documents necessary to obtain and
maintain such patent protection.
(b) Sweetheart shall have the right, in its sole discretion, to (i)
affirmatively seek patent protection for any Sweetheart Improvement at its sole
cost and expense or (ii) maintain any such Sweetheart Improvement as a trade
secret; provided that such Sweetheart Improvement shall be maintained as a trade
secret during the pendency of any patent application. EarthShell shall provide
Sweetheart, at Sweetheart's expense, with such assistance as may be reasonably
requested, from time to time, in connection with efforts to seek patent
protection for any Sweetheart Product Improvement in accordance with this
Section 7(b), including the execution of any documents necessary to obtain and
maintain such patent protection.
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8. INFRINGEMENT MATTERS.
(a) Each of EarthShell and Sweetheart will promptly, and in any event
within thirty (30) days of actual discovery, notify the other of any apparent
infringement of the Technology in the Territory which comes to its attention
while this Agreement remains in effect. Except with respect to a Sweetheart
Improvement, EarthShell shall have the sole right, at its sole cost and expense
and in its absolute discretion, to bring any suit to enjoin such infringement
and to recover damages therefor for its sole account; provided that, if
Sweetheart shall have requested that EarthShell pursue an infringement action
against an apparent infringer of the Technology within the Market Segment and
within the Territory, and EarthShell fails to notify Sweetheart within thirty
(30) days following such request, of its election to pursue and diligently
prosecute any action against such apparent infringer, Sweetheart shall have the
right to bring such action against such infringer; provided that Sweetheart
agrees that EarthShell may intervene, at its sole cost and expense at any time
in such action, and, if it does intervene, EarthShell shall control such action
in all respects, including, without limitation, with respect to claim
construction issues and the assertion of an invalidity defense by the
infringement defendant. Except in the case of an infringement action relating to
an EarthShell Improvement or a Joint Improvement, to the extent Sweetheart does
pursue an action against an apparent infringer pursuant to this Section 8(a),
Sweetheart shall be entitled to withhold EC Profit Distribution payments from
EarthShell under this Agreement to the extent necessary to reimburse it for all
reasonable, third-party, out-of-pocket costs (including attorneys' fees)
actually paid by Sweetheart and directly related to the pursuit of such action.
Any such withheld EC Profit Distribution payments shall be deemed paid for the
purpose of determining whether Sweetheart has achieved its Milestones.
(b) In any action brought pursuant to Section 8(a) hereof, each Party
shall cooperate reasonably with the other Party and provide whatever assistance
is reasonably requested by the other Party in connection with such action,
including the preparation and signing of documents at the other Party's expense.
(c) Sweetheart shall promptly notify EarthShell of (i) any claim or to its
knowledge threatened claim by any Person that the use of the Technology or any
part thereof by Sweetheart in connection with the manufacture, use or sale of
any Product by Sweetheart or any Customer infringes or violates the patent,
trade secret or other intellectual property rights of such Person in the
Territory or any part thereof and (ii) the commencement of any lawsuit against
Sweetheart, or any of its respective Customers, asserting any such claim (an
"EARTHSHELL INFRINGEMENT ACTION"). EarthShell shall assume and control the
defense of any EarthShell Infringement Action, at its sole cost and expense,
irrespective of whether EarthShell is named as a defendant therein. Sweetheart
will assist EarthShell in the defense of any EarthShell Infringement Action by
providing such information, fact witnesses and other cooperation as EarthShell
may reasonably request from time to time; provided that EarthShell shall
reimburse Sweetheart for any reasonable, third-party, out-of-pocket expenses
incurred by Sweetheart in connection therewith. Sweetheart shall have the right
to be represented in connection with an EarthShell Infringement Action by its
own legal counsel, at its own expense, provided that such legal counsel will act
only in an advisory capacity. If EarthShell does not assume the defense of any
EarthShell Infringement Action, Sweetheart shall have the right, but not the
obligation, to assume the defense of such lawsuit, utilizing legal counsel of
its choice. EarthShell shall bear the reasonable costs and expenses of such
legal counsel. If Sweetheart so assumes the defense of an EarthShell
Infringement Action, Sweetheart shall have no right to settle such EarthShell
Infringement Action unless Sweetheart shall have received the prior written
consent of EarthShell which shall not be unreasonably withheld or delayed.
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(d) If the court, in any EarthShell Infringement Action, enters a final
and non-appealable order finding that the Technology infringes or violates, in
whole or in part, the intellectual property rights of another Person in any of
the Market Segments and within the Territory and requiring Sweetheart (i) to
obtain a license under any third party's patent not licensed hereunder in order
to continue make and sell in the Territory Products incorporating Technology as
contemplated by this Agreement, and to pay a royalty or fee under such license,
and the infringement of such patent cannot reasonably be avoided by Sweetheart,
or (ii) to pay any damages on account of such infringement or violation,
EarthShell shall pay the amount of any such fee or royalty payable and any such
damages to the extent that the infringement or violation found by such court
resulted from Sweetheart's use of Technology in the Territory within the scope
of the Sublicense granted hereunder; provided that, in no event shall
EarthShell's liability under this Section 8(d) exceed the specified amount in
Section 12(b) hereof.
9. DUTIES AND OBLIGATIONS OF EARTHSHELL.
In addition to, and not in limitation of, the other duties and obligations
of EarthShell, as set forth in this Agreement, EarthShell shall have the
following obligations hereunder:
(a) EarthShell has heretofore provided to Sweetheart, at EarthShell's
cost, each of the following items as they existed as of September 15, 2002:
(i) technical and engineering specifications and typical engineering
layouts for the manufacturing process for the Products;
(ii) detailed engineering specifications for molds and tooling for
the Products;
(iii) detailed specifications for raw materials required for the
manufacture of the Products and lists of approved vendors thereof; and
(iv) detailed mix designs and process parameters for manufacturing
the Products.
(b) EarthShell shall, at Sweetheart's reasonable request and subject to
Sweetheart reimbursing EarthShell for its out-of-pocket costs, provide to
Sweetheart technical support, including assisting Sweetheart in revising or
modifying any of the items referred to in Section 9(a), training the Sweetheart
employees to operate the Equipment and manufacture and package the Products,
installing the Equipment, and providing direct engineering, design, and
debugging services to Sweetheart in connection with the operation of the Plant
Facilities. EarthShell's reimbursable costs shall include all direct costs
incurred in performing the related services, including the allocable portion of
the standard hourly rates or other compensation and benefits payable to
personnel involved with the project, the cost of supplies and raw materials, and
a reasonably allocable share of EarthShell's indirect costs and overhead.
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(c) During the term of this Agreement, EarthShell shall, at its cost,
timely take all steps reasonably necessary, including the payment of patent
maintenance fees, to maintain the existence of all Licensed Patents within the
Market Segments and within the Territory, but only to the extent that the
failure to maintain a Licensed Patent would materially adversely affect the Net
Sales Sweetheart is reasonably anticipated to achieve during the term of this
Agreement.
(d) EarthShell shall satisfy the EarthShell Purchase Obligation to the
extent required under Section 3(b), which obligation shall survive the
expiration or sooner termination of this Agreement.
10. OTHER DUTIES AND OBLIGATIONS OF SWEETHEART.
In addition to, and not in limitation of, the other duties and obligations
of Sweetheart, as set forth in this Agreement, Sweetheart shall have the
following obligations hereunder:
(a) Subject to Section 2(d), Sweetheart shall prominently display and
utilize such Trademarks (whether owned by or licensed to EarthShell) as may be
designated by EarthShell from time to time in connection with the advertisement,
marketing, distribution and sale of the Products. The right to use such
Trademarks is included within the Sublicense herein granted. Except as otherwise
agreed by EarthShell, Sweetheart shall use its reasonable efforts to cause each
Product manufactured by Sweetheart to bear at least one of the Trademarks
designated by EarthShell. The specific placement, size, and detail of any
Trademark on each Product must be approved by EarthShell (which approval shall
not be unreasonably withheld or delayed). Sweetheart shall not in any manner
represent that it has any ownership interest any Trademarks licensed hereunder.
Sweetheart acknowledges that use of the Trademarks shall not create in its own
favor any right, title, or interest in or to the Trademarks, and that all uses
thereof by Sweetheart shall inure to the benefit of EarthShell. Sweetheart shall
reasonably cooperate with EarthShell in the execution of any appropriate and
necessary documents in connection with the registration of any Trademarks.
(b) Upon termination of this Agreement, Sweetheart shall cease and desist
from use of the Trademarks in any way, including any word or phrase that is
similar to or likely to be confused with any of the Trademarks. However, in the
event of termination of this Agreement, Sweetheart shall have the right to
utilize for the manufacture and/or sale of Products existing stock and inventory
of raw materials, work in progress and manufactured Products for a period of one
(1) year, provided Sweetheart disposes of such existing stock and inventory in
as expeditiously a manner as is commercially reasonable under the circumstances.
(c) To the best of its knowledge, Sweetheart acknowledges that the
Technology in existence on the date hereof is novel and unique in the food
service disposable products industry. Subject to the provisions of Section 8
hereof and EarthShell's compliance with its obligations hereunder, (i)
Sweetheart shall not challenge or question the validity or ownership of the
Trademarks or, subject to the provisions of applicable law, any Licensed
Patents; and (ii) Sweetheart shall continue to make all required payments under
this Agreement to EarthShell during any challenge of the validity of any of the
Licensed Patents (or claims thereof) included in the Technology; provided,
however, that, to the extent EarthShell does not take all reasonable steps
necessary to defend such action following a written request by Sweetheart to do
so, or EarthShell does not give Sweetheart adequate assurances that it will
comply with its obligations under Section 8(d) in the event it is unsuccessful
in the defense of such action, then Sweetheart shall have the right to place
that amount of payments into escrow as shall reasonably be necessary to
discharge its obligations to the party challenging the validity of the Licensed
Patents (or claims thereof), based on Sweetheart's reasonable estimation of the
likely outcome of the action and the obligations that it will reasonably incur
in respect of such party based on such likely outcome. Except as provided in the
immediately preceding sentence, in the event Sweetheart fails to continue to
make any payments owed to EarthShell hereunder based upon or in connection with
such a challenge, EarthShell may at its option terminate this Agreement upon
notice to Sweetheart and Sweetheart's failure to cure such non-payment within
the applicable cure period.
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(d) Sweetheart represents, warrants and covenants to EarthShell that from
and after the Effective Date, and except to the extent attributable to a breach
of warranty provided to Sweetheart by EarthShell or the Certified Equipment
Vendor, (i) the Products manufactured and commercially sold by Sweetheart to all
Persons (other than intercompany sales which do not constitute Gross Sales)
shall conform to all of the specifications provided by EarthShell pursuant to
Section 9(a) and (ii) Sweetheart shall maintain quality standards for the
Products in conformity with EarthShell's standard quality control manual or
procedures, which EarthShell agrees shall be commercially reasonable.
(e) Sweetheart shall obtain or provide, and maintain at all times, product
liability insurance as is reasonable and customary for the industry with such
insurer as shall be reasonably satisfactory to EarthShell; provided, however,
any insurer rated by AM Best (or a comparable agency) at a rating of A-10 or
better (or a comparable rating) shall at all times be deemed a reasonably
satisfactory insurer. Each such insurance policy will require that the insurer
give EarthShell at least thirty (30) days' prior written notice of any
alteration in or cancellation of the terms of such policy. Sweetheart shall
furnish to EarthShell a certificate or other evidence reasonably satisfactory to
EarthShell that such insurance coverage is in effect and that EarthShell is an
additional insured with respect to such policy.
(f) Sweetheart shall mark all of the Products and related documents with
all applicable patent numbers, in accordance with EarthShell's instructions and
as required by the patent laws in effect in the Territory or as reasonably
instructed by EarthShell.
(g) Sweetheart shall retain, and train, suitably qualified employees to
operate the Equipment and manufacture the Products and shall be solely
responsible for the payment and discharge of any taxes, duties, or withholdings
relating to any transaction of Sweetheart or its agents in connection with the
manufacture, use, sale or commercialization of the Technology or the Products in
the Territory, excluding any tax or duty based on the income of EarthShell.
(h) Subject to Section 4(b), Sweetheart grants EarthShell a right of first
offer to supply to Sweetheart all (but not less than all) of any category of raw
material (e.g., starch) necessary to manufacture the Products (the "RAW
MATERIALS"). Sweetheart shall regularly and routinely inform EarthShell of all
of its requirements for a category of Raw Material prior to purchasing the type
of Raw Material from any other Person, and, except for price, the material terms
on which Sweetheart proposes to purchase such Raw Materials, and EarthShell may,
at its option, submit a bid or proposal offer for the supply of the particular
Raw Material, provided such bid or offer is submitted to Sweetheart within ten
(10) days following the request for same. If EarthShell timely submits such a
bid or offer to supply all (but not less than all) of the category of Raw
Material requested by Sweetheart ("OFFERED RAW MATERIALS"), Sweetheart shall
have the right, exercisable in its sole discretion, to (i) elect to accept such
bid or offer for Raw Materials, or (ii) pursue bids or offers from other third
parties in which event Sweetheart shall be free to enter into purchase orders
for such Raw Materials, provided such orders or other agreements are on terms,
including price, quality assurances and delivery dates, that are no less
favorable to Sweetheart than those offered or proposed by EarthShell.
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11. REPRESENTATIONS AND WARRANTIES OF EARTHSHELL.
(a) EarthShell hereby represents and warrants to Sweetheart that
EarthShell has a valid and enforceable exclusive license to use the Technology
to manufacture, distribute and sell the Products in the Territory and the right
to sublicense the Technology to Sweetheart as set forth in this Agreement and
that except as expressly set forth in this Agreement, there are no outstanding
assignments, security interests, licenses or agreements, either written or oral,
or implied, as would affect or be in derogation of the license granted hereunder
(except as set forth on Exhibit E and except for the EKI Agreement). EarthShell
further warrants that it has no present knowledge that any Technology infringes
or is claimed to infringe any patent or other proprietary rights of others, and
that all of the Licensed Patents have been duly filed (or their applications are
pending), and, except for the pending patent applications, are currently in
force. EarthShell covenants that any Patent owned or licensed to EarthShell as
of the Effective Date shall be deemed to constitute a Licensed Patent to the
extent such Patent is necessary to manufacture, sell or distribute the Products
as contemplated under this Agreement. EarthShell further represents and warrants
that the only sublicensees that have previously been granted rights to utilize
the Technology to manufacture, sell or distribute Products within the Market
Segments and within the Territory, and whose sublicense agreements have not been
formally terminated, are the Persons listed on Exhibit E attached hereto
(although, view of the terms of the applicable sublicense agreements, EarthShell
does not believe that such Persons have any valid claims or rights to continue
to exploit the Technology to manufacture, sell or distribute Products within the
Territory).
(b) EXCEPT AS EXPRESSLY SET FORTH IN SECTION 11(a) OF THIS AGREEMENT,
EARTHSHELL DOES NOT MAKE OR GIVE, AND HEREBY EXPRESSLY DISCLAIMS, ANY AND ALL
WARRANTIES, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, IN REGARD TO
(i) ANY PRODUCTS WHICH MAY BE MANUFACTURED, USED OR SOLD BY SWEETHEART AND WHICH
ARE BASED UPON OR UTILIZE ANY OF THE TECHNOLOGY; AND (ii) IN REGARD TO ANY
SERVICES PROVIDED TO SWEETHEART BY EARTHSHELL HEREUNDER.
(c) Nothing in this Agreement shall be construed as:
(i) a warranty or representation by EarthShell as to the validity or
scope of any Licensed Patents (except as set forth in Section 11(a));
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(ii) except as set forth in Section 9(c), a requirement that
EarthShell file any patent application, secure any patent or maintain any patent
in force;
(iii) except as and to the extent specifically provided herein,
conferring a right to use in advertising, publicity or otherwise any Trademark
of EarthShell; or
(iv) granting by implication, estoppel, or otherwise any license or
rights under patent or other intellectual property rights of EarthShell other
than the Licensed Patents and other intellectual property rights included in the
Technology, to the extent sublicensed as provided in Section 2.
12. NO CONSEQUENTIAL DAMAGES; LIMITATION OF LIABILITY.
(a) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER PARTY UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL
LOSSES, EXPENSES OR DAMAGES WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, LOSS OF
REVENUE OR PROFITS, INCREASED COSTS OF PRODUCTION, DAMAGES OR LOSSES AS A RESULT
OF SUCH OTHER PARTY'S INABILITY TO OPERATE, INABILITY TO FULFILL CONTRACTS WITH
THIRD PARTIES, OR SIMILAR MATTERS OR EVENTS ARISING FROM THE USE OR INABILITY TO
SELL THE PRODUCTS OR ANY FAILURE TO FULFILL A PURCHASE ORDER IN A TIMELY
FASHION. The limitations, exclusions and disclaimers in this Agreement shall
apply irrespective of the nature of the cause of the action or demand, including
but not limited to breach of contract, negligence, tort or any other legal
theory and shall survive any breach or breaches and/or failure of the essential
purpose of this Agreement, or any remedy contained in this Agreement.
(b) EXCEPT IN THE CASE OF EARTHSHELL'S INTENTIONAL MISCONDUCT IN BREACHING
ITS OBLIGATIONS UNDER SECTION 2(F) OF THIS AGREEMENT (IN WHICH CASE SWEETHEART'S
DAMAGES RESULTING THEREFROM WILL BE REDUCED BY THE DIFFERENCE BETWEEN THE EC
PROFIT DISTRIBUTION THAT WOULD HAVE BEEN PAYABLE UNDER SECTION 4(A) HAD THE
BREACH NOT OCCURRED AND THE EC PROFIT DISTRIBUTION THAT IS THEN PAYABLE UNDER
CLAUSE (ii) OF SECTION 4(A) AS A RESULT OF SUCH BREACH), OR ITS FAILURE TO
TIMELY PERFORM ITS EARTHSHELL PURCHASE OBLIGATION UNDER SECTION 3.1(B), IN NO
EVENT SHALL EARTHSHELL'S CUMULATIVE LIABILITY IN RESPECT OF CLAIMS ARISING UNDER
THIS AGREEMENT OR OTHERWISE RELATING TO THE USE, MANUFACTURE OR SALE OF PRODUCTS
(WHETHER IN CONTRACT, TORT OR ANY OTHER THEORY OF LIABILITY) EXCEED THE
AGGREGATE AMOUNT OF EC PROFIT DISTRIBUTION THERETOFORE PAID OR PAYABLE TO
EARTHSHELL HEREUNDER. NOTWITHSTANDING THE FOREGOING OR ANYTHING TO THE CONTRARY
IN THIS AGREEMENT, IN THE EVENT ANY EXISTING EARTHSHELL SUBLICENSEE SELLS OR
DISTRIBUTES PRODUCTS DURING THE EXCLUSIVITY PERIOD TO ANY PERSON WITHIN THE
MARKET SEGMENT AND WITHIN THE TERRITORY UNDER A RIGHT TO DO SO SET FORTH IN THE
SUBLICENSE (OR SIMILAR) AGREEMENT, SWEETHEART'S SOLE REMEDY SHALL BE TO REDUCE
THE EC PROFIT DISTRIBUTION FROM TWENTY PERCENT (20%) TO TEN PERCENT (10%) AS SET
FORTH IN SECTION 4(A).
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13. TERM AND TERMINATION.
(a) The term of this Agreement shall commence on the Effective Date and,
subject to earlier termination or extension as provided herein and in Section
30, shall continue for a period of ten (10) years (the "INITIAL TERM") following
the Effective Date; provided that, upon the mutual agreement of the Parties, the
term of this Agreement may extend for renewal terms of additional periods of two
(2) years. Notwithstanding the foregoing, Sweetheart has the right, at its
option, to extend the term of this Agreement, for renewal terms of twenty-four
(24) months, provided that Sweetheart has generated at least $100 million in Net
Sales (or, alternatively, has paid EarthShell an equivalent amount of EC Profit
Distributions) during the last 12-month period of the Initial Term of this
Agreement, and Sweetheart continues to generate at least $100 million in Net
Sales (or, alternatively, pays EarthShell an equivalent amount of EC Profit
Distributions) during each 12-month period following the extension of the
Initial Term (as determined on a cumulative basis, commencing with the first day
of the extended term of this Agreement). To the extent Sweetheart fails to meet
these Net Sales (or EC Profit Distribution) Milestones during any 12-month
period following the extension of the Initial Term, EarthShell may, at its
option, terminate this Agreement upon thirty (30) days' written notice, such
termination to take effect no sooner than the end of the extended term of this
Agreement. Following the expiration or sooner termination of this Agreement,
other than by reason of a material breach by Sweetheart, Sweetheart will become
a Certified Equipment Vendor under substantially the same conditions and terms
as are applied to other similarly situated Certified Equipment Vendors.
(b) Either Party may terminate this Agreement for a material breach by the
other Party of the terms and conditions of this Agreement or the Ancillary
Agreements upon written notice to the breaching party, which is given no less
than thirty (30) days prior to an effective date of termination in the case of a
monetary breach, and sixty (60) days prior to an effective date of termination
in the case of a non-monetary breach, and which specifies in reasonable detail
the nature of such breach. If the breaching Party cures such breach prior to the
effective date of termination, this Agreement and the Ancillary Agreements shall
not terminate and will continue in full force and effect.
(c) Either Party may, by giving the other Party written notice of
termination, immediately terminate this Agreement following the Bankruptcy of
the other Party.
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<PAGE>
(d) Notwithstanding any provision of this Agreement to the contrary, this
Agreement shall terminate, at either EarthShell's or Sweetheart's option
evidenced by its delivery of notice of termination to the other Party, if: (i)
on or before October 31, 2002, Sweetheart and/or EarthShell fail to execute a
purchase order with DTE, in form and content satisfactory to EarthShell and
Sweetheart, in their sole discretion (A) obligating Sweetheart to purchase the
Plate Line, and, subject to Section 3(b), obligating Sweetheart or EarthShell,
as the case may be, to purchase the Supplemental Modules (the Plate Line and the
Supplemental Modules are referred to herein as the "INITIAL MODULES"), (B)
requiring DTE to install and debug at a Plant Facility, on or before April 15,
2003, the Plate Line and, if purchased by Sweetheart, the Supplemental Modules,
meeting all of the material terms, conditions and specifications, including
performance and efficiency criteria, set forth in the purchase orders for the
Plate Line and, if purchased by Sweetheart, the Supplemental Modules (the
"REQUIRED SPECIFICATIONS"), (C) permitting Sweetheart and/or EarthShell to
cancel their purchase orders without penalty (and permitting EarthShell to
cancel the EarthShell Purchase Obligation without penalty) if (aa) the Parties
terminate this Agreement pursuant to Section 13(e) as a result of DTE not
meeting the Preliminary Validation Date, or (bb) DTE fails to install and debug
the Initial Modules meeting the Required Specifications at the Plant Facility
designated by Sweetheart (or EarthShell, as applicable), on or before April 15,
2003; through no fault of Sweetheart, (D) allowing Sweetheart to assign and
delegate to EarthShell or to EarthShell's designee, without penalty, all of
Sweetheart's rights and obligations under the DTE purchase agreement to
purchase, install and debug the Supplemental Modules in the event the EarthShell
Purchase Obligation is triggered pursuant to Section 3(b), and for Sweetheart to
be released from all liability thereunder, (E) providing for waxing and stacking
capability for each Product to be produced by the Initial Modules; or (ii) the
purchase order for the Plate Line is terminated by Sweetheart, or the
installation or debugging of the Plate Line is delayed beyond May 15, 2003; or
(iii) Sweetheart fails to deliver commercially acceptable Products to Customers
on or before June 30, 2003 (subject to extension as a result of a Force Majeure
Event). The Initial Modules shall be comprised of (aa) eight (8) Modules for the
purpose of producing plates (the "PLATE LINE"), and (bb) up to seven additional
Modules, as mutually agreed by the Parties, having the capability of producing
the McDonald's Big Mac clamshell and a range of bowls and plates (the seven
Modules, as ultimately agreed to by the Parties, are referred to herein as the
"SUPPLEMENTAL MODULES"). For the avoidance of doubt, Sweetheart shall have no
obligation to finance or complete the purchase of the Supplemental Modules in
the event the EarthShell Purchase Obligation is triggered under Section 3(b),
and in the event it is triggered, EarthShell shall have the right to direct DTE
as to the place or places where the Supplemental Modules will be delivered and
installed.
(e) Either Party may terminate this Agreement in the event DTE shall fail,
on or before January 31, 2003, as such date may be mutually extended by the
Parties (such date, as it may be extended, is referred to as the "PRELIMINARY
VALIDATION DATE"), to demonstrate, to the reasonable satisfaction of the
Parties, that the Initial Modules are reasonably likely to meet the Required
Specifications through performance and efficiency tests run on a sample
Module(s) under conditions that are reasonably expected to replicate the
conditions at the St. Thomas facility with respect to a fully integrated Line,
such termination to be effected by the one Party giving the other Party written
notice of termination within (30) days following the Preliminary Validation
Date.
(f) Except as expressly provided in this Agreement, from and after the
Effective Date of the expiration of the term of this Agreement or the
termination of this Agreement pursuant to this Section 13 hereof, Sweetheart
shall have no right, whatsoever, to utilize the Technology or Trademarks, and
Sweetheart shall promptly return to EarthShell all written materials or other
tangible media containing any Trade Secrets which are then in the possession of
Sweetheart. Sections 3(b), 4, 5, 6, 8, 10(g), 12, 13(d), (e) and (f), 14, 15,
16, 17, 18, 19, and 21 shall survive termination of this Agreement. The
obligation of Sweetheart to pay to EarthShell the EC Profit Distribution for all
Products actually sold by Sweetheart prior to the Effective Date of the
expiration or termination of this Agreement shall survive the expiration or
termination of this Agreement.
22
<PAGE>
14. RELATIONSHIP OF THE PARTIES.
This Agreement shall not create any partnership, joint venture or similar
relationship between Sweetheart and EarthShell (except for income tax purposes
and solely for the purpose of characterizing the EC Profit Distribution as a
profit distribution and without adverse consequences to Sweetheart), and no
representation to the contrary shall be made by either Party. Neither Sweetheart
nor EarthShell shall have any authority to act for or on behalf of or to bind
the other in any fashion, and no representation to the contrary shall be made by
either such party.
15. NOTICES.
(a) Any notice, request, consent, election, approval, or other
communication (each a "NOTICE") which is required or permitted to be given to a
Party pursuant to this Agreement shall be effective only if such notice is
reduced to writing and (a) delivered personally, or (b) sent by a reputable
overnight courier service to the Person in question to the address given below:
IF TO EARTHSHELL: EarthShell Corporation
800 Miramonte Drive
Santa Barbara, CA 93109-1419
Attn: Scott Houston
Chief Financial Officer
Telephone: 805-897-2294
Fax: 805-899-3517
with a copy to:
Vince Truant
President and Chief Operating Officer
EarthShell Corporation
1301 York Road, Suite 200
Lutherville, MD 21093
IF TO SWEETHEART: Sweetheart Cup Company Inc.
10100 Reisterstown Road
Owings Mills, Maryland 21117
Attn: Tom Uleau
Vice Chairman and Chief Operating Officer
Telephone: (410) 998-1270
Fax: (410) 998-1471
23
<PAGE>
with a copy to:
Harvey L. Friedman
General Counsel
Sweetheart Cup Company
115 Stevens Avenue
Valhalla, NY 10595
Telephone: (914) 747-8095
Fax: (914) 747-9293
or to such other address as either Party shall have specified by notice to the
other Party at a later point of time.
(b) If delivered personally, a notice shall be deemed delivered when
actually received at the address specified above. Any notice given by a
reputable overnight courier shall be deemed delivered on the next business day
following the date it is placed in the possession of such courier.
16. CONFIDENTIALITY.
Any confidential and proprietary information relating to this Agreement,
the Technology or the business of Sweetheart or EarthShell is hereinafter
referred to as "CONFIDENTIAL INFORMATION." The Parties' respective rights and
obligations concerning the use, protection and disclosure of all Confidential
Information shall be governed by the terms of the Confidentiality Agreement.
17. SAVINGS CLAUSE.
Should any part or provision of this Agreement be rendered or declared
invalid by reason of any law or by decree of a court of competent jurisdiction,
the invalidation of such part or provision of this Agreement shall not
invalidate the remaining parts or provisions hereof, and the remaining parts and
provisions of this Agreement shall remain in full force and effect.
18. WAIVER.
Neither the failure or delay on the part of either Party to exercise any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or privilege preclude any other
or further exercise thereof or of any other right or privilege.
19. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, without giving effect to the choice of law rules
thereof.
20. AMENDMENT.
This Agreement may be amended only by the consent of each of the Parties
expressed in writing, signed by their duly authorized representatives.
24
<PAGE>
21. VENUE; ATTORNEYS FEES.
(a) Any action to enforce any provision of this Agreement shall be brought
only in the United States District Court for the Central District of California
or any state court located in Santa Barbara, California. Each Party hereto
consents to the in personam jurisdiction of any such court and irrevocably
waives any right it may have to assert forum non conveniens as a defense to such
jurisdiction. Each Party hereby waives its right to a jury trial.
(b) In the event of any litigation between the Parties as to any matter
arising under this Agreement, the prevailing party in such litigation, as
determined by the judicial or administrative body adjudicating such litigation
and resulting in a final determination, shall recover from the other Party its
reasonable attorneys fees and costs.
22. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, and by
facsimile signature, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
23. ASSIGNMENT.
The rights and obligations in, to and under this Agreement shall be
binding upon and inure to the benefit of the Parties, their legal
representatives, successors and assigns. Neither Party may assign this Agreement
or any rights hereunder without the prior consent of the other Party (such
consent not to be unreasonably withheld or delayed), except in connection with
the sale, exchange or transfer of all or substantially all of the assets of the
Party to a non-affiliated party pursuant to a merger, combination,
reorganization, asset sale or similar event; provided that, in the event of such
merger, combination, etc. of Sweetheart, EarthShell's consent shall still be
required if the successor party is not a major packaging manufacturer with a
comparable reputation as Sweetheart. Notwithstanding the foregoing, Sweetheart
reserves the right to pledge as collateral its Equipment, Raw Materials,
finished and unfinished goods and inventory, the license to complete and/or sell
such goods and inventory, and any other tangible personal property used in
connection with the activities contemplated under this Agreement to any lender
who provides it with the funding necessary to purchase the Equipment and/or to
retrofit or improve the Plant Facilities to comply with its obligations under
this Agreement, and EarthShell reserves the right to assign its rights under
this Agreement to EKI.
24. ENTIRE AGREEMENT.
This Agreement supersedes any prior understandings or agreements, whether
written or oral, and any contemporaneous oral agreements, between the Parties
hereto in regard to the subject matter hereof, and, except for the Ancillary
Agreements, contains the entire agreement between the Parties in regard to the
subject matter hereof.
25
<PAGE>
25. FORCE MAJEURE.
Neither Party shall be liable to the other for delays or failures in
performance (including, in the case of Sweetheart, a failure to achieve a Net
Sales Milestone or a Milestone relating to the purchase, installation or
debugging of Equipment) resulting from causes beyond the reasonable control of
that Party, including, without limitation, acts of God, riots, acts of war,
governmental regulations, labor strikes, failure of a Certified Equipment Vendor
to timely deliver, install or debug Equipment meeting the Required
Specifications (despite Sweetheart being in compliance with all applicable terms
under the related purchase order or agreement), or a communication or utility
failures (a "FORCE MAJEURE EVENT"); provided performance will be excused under
this Section 25 for not more ninety (90) days after the occurrence of the Force
Majeure Event in question. Each Party shall use commercially reasonable efforts
to mitigate the effects of any such delays and failures, and each Party affected
by such an event shall resume performance under this Agreement immediately after
the delaying cause ceases. For the avoidance of doubt, the failure of DTE to
install and debug the Initial Modules meeting the Required Specifications at a
Plant Facility on or before May 15, 2003 (time being of the essence) shall be
considered a Force Majeure Event and shall automatically extend all Net Sales
and other Milestones by ninety (90) days.
26. PRESS RELEASES.
Neither Party shall issue any press releases, or public announcements,
concerning this Agreement or the transactions contemplated hereunder without the
prior consent of the other Party, which consent shall not be unreasonably
withheld or delayed, and which shall be given in all events if the release or
announcement is required in order to comply with applicable law. The Parties
have agreed to the wording of the press releases to be issued by Sweetheart and
EarthShell, respectively, in connection with the execution and delivery of this
Agreement.
27. FURTHER ASSURANCES.
Each Party agrees on behalf of itself and its successors and assigns,
without additional consideration, to prepare, execute, acknowledge, file,
record, publish and deliver in good faith such documents, certificates,
statements, agreements and instruments within a reasonable period from receipt
of written request therefor which are reasonably necessary or convenient to
consummate the transactions contemplated by this Agreement or the Ancillary
Agreements or to more effectively carry out the purposes of this Agreement.
Except as specifically provided herein, all such documents, etc. executed and
delivered by the Parties hereto shall contain such terms, conditions,
representations, warranties and covenants as are standard and customary under
Delaware law to consummate the transaction to which such documents, etc. relate.
No Party shall be required to execute or deliver any document, etc. which is
contrary to the terms or conditions of this Agreement or the Ancillary
Agreements.
28. THIRD PARTY BENEFICIARIES.
Except as specifically set forth herein, this Agreement is not intended to
create any rights or remedies in favor of any Person who is not a Party to this
Agreement, or in any way create any third-party beneficiary rights or remedies.
26
<PAGE>
29. EFFECT OF BANKRUPTCY PROCEEDINGS.
(a) Sweetheart agrees that, if for any reason it becomes a debtor in a
case under the U.S. Bankruptcy Code, this Agreement, pursuant to Section
365(c)(1) of the U.S. Bankruptcy Code, is not, and shall not be, assumable under
Section 365 of the U.S. Bankruptcy Code, it being agreed and acknowledged that
applicable patent law would excuse EarthShell from accepting performance from or
rendering performance to any entity other than Sweetheart, whether or not this
Agreement prohibited or restricted assignment of rights or delegation of duties.
Accordingly, pursuant to Section 365(e)(2) of the U.S. Bankruptcy Code, this
Agreement will automatically terminate upon Sweetheart becoming a debtor in a
case under the U.S. Bankruptcy Code, notwithstanding the provisions of Section
365(e)(1) of the U.S. Bankruptcy Code.
(b) The Parties agree that the Technology constitutes "intellectual
property" as defined in the U.S Bankruptcy Code, and that the Sublicense granted
to Sweetheart under this Agreement is entitled to the benefits of Section
ss.365(n) of the U.S. Bankruptcy Code.
30. EARTHSHELL BOARD APPROVAL.
This Agreement requires the approval of the EarthShell Board of Directors,
which approval shall be obtained, if at all, within ten (10) days following the
Effective Date, failing which Sweetheart shall have the right to terminate this
Agreement upon notice to EarthShell.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
and delivered by their duly authorized representatives upon the date first
herein written.
EARTHSHELL CORPORATION
By: /s/ Vincent J. Truant
-----------------------------------
Name: Vincent J. Truant
Title: President & COO
SWEETHEART CUP COMPANY INC.
By: /s/ Thomas Uleau
-----------------------------------
Name: Thomas Uleau
Title: Vice Chairman, COO
27
<PAGE>
EXHIBIT A
LIST OF LICENSED PATENTS
U.S. PATENTS
5,376,320
5,576,049
5,580,624
5,618,341
5,660,900
5,658,603
5,683,772
5,679,145
5,705,239
5,709,827
5,753,308
5,783,126
5,830,305
5,849,155
5,868,824
6,030,673
6,090,195
6,146,573
U.S. PENDING APPLICATION
09/390,583
MEXICO PENDING APPLICATION
94/1240
CANADA PENDING APPLICATIONS
2,156,050
2,202,869
28
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EXHIBIT B
U.S. MARKET SEGMENTATION FOR SWEETHEART CUP
COMPANY REGARDING EARTHSHELL PACKAGING
<CAPTION>
U.S. MARKET SEGMENTS GRANTED U.S. MARKET SEGMENTS EXCLUDED
CATEGORY A: (i) QUICK SERVICE RESTAURANTS--national, regional. Mass Merchandisers - e.g. Wal-Mart, K-Mart,
local--e.g., McDonald's, Burger King, Wendy's; (ii) SPECIALTY COFFEE Target, etc.
- National, regional, local. e.g. Starbucks, Java City, Brew Ha Ha,
Einstein Bros. Bagels; (iii) PIZZA - e.g. Pizza Hut, Domino's, Papa Casual Dining - e.g. TGI Fridays, Ruby Tuesdays,
John's; and (iv) DONUTS - e.g. Dunkin Donuts, Krispy Kreme. Applebee's, etc.
Drug Stores - e.g. Walgreen, CVS, Rite Aid, Eckerd,
etc., and Health Food Stores
CATEGORY B: (i) DISTRIBUTORS: Broadline, paper, system. e.g. Sysco, Government - Federal, state, provincial, and local.
Bunzl, Acme, Martin-Brower; (ii) CONTRACT MANAGEMENT - e.g. Aramark, e.g. Depart of the Interior, Department of Agriculture,
Sodexho, Compass/Eurest, Wood, Sports Service; (iii) SUBS - e.g. Department of Energy, Department of Defense, etc.
Subway, Blimpie, Cousins; (iv) ICE CREAM - e.g. Baskin Robin, Ben &
Jerry's, Carvel; and (v) FAST CASUAL - e.g. Friendly's, Schlotsky's
CATEGORY C: (i) CONVENIENCE STORES - National, regional, local. e.g.
Southland, Circle K, AM/PM, Wawa, Shore Stop; (ii) CLUB STORES -
e.g. Sam's, Costco, BJ's; and (iii) ALL GROCERY: e.g. Safeway,
Giant/Ahold, Kroger, Jewel.
CATEGORY D: Bottlers - e.g. Coca Cola, Pepsi.
THE MINIMUM PERCENTAGE OF TOTAL NET SALES FOR THE TWELVE (12)-MONTH PERIOD
ENDING PRIOR TO THE EXPIRATION OF THE EXCLUSIVITY PERIOD TO MAINTAIN
NON-EXCLUSIVITY IN THE RESPECTIVE CATEGORIES OF THE MARKET SEGMENTS SET FORTH
ABOVE ARE AS FOLLOWS: CATEGORY A: 20% THROUGH DECEMBER 31, 2004; 30% FOLLOWING
DECEMBER 31, 2004; CATEGORY B: 25%; CATEGORY C: 10%; AND CATEGORY D: 5%. SUCH
PERCENTAGES ARE REFERRED TO IN THE AGREEMENT AS THE "MINIMUM MARKET SEGMENT
THRESHOLD PERCENTAGES."
29
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EXHIBIT C
REVENUE MILESTONES
TO RETAIN MARKET EXCLUSIVITY
----------------------------------- --------------------------------------------
Calendar Quarter/Year Revenue Milestones
----------------------------------- --------------------------------------------
Q4 03 $5 MM Net Sales
----------------------------------- --------------------------------------------
Q1 04 $10 MM Net Sales
----------------------------------- --------------------------------------------
Q2 04 $15 MM Net Sales
----------------------------------- --------------------------------------------
Q3 04 $20 MM Net Sales
----------------------------------- --------------------------------------------
Q4 04 $30 MM Net Sales
----------------------------------- --------------------------------------------
Calendar Year 2005 $130 MM Net Sales
----------------------------------- --------------------------------------------
Calendar Year 2006 $250 MM Net Sales
----------------------------------- --------------------------------------------
Calendar Year 2007 and thereafter $500MM Net Sales
----------------------------------- --------------------------------------------
Pursuant to Section 25 of the Agreement to which this Exhibit C is attached, the
foregoing calendar quarters through the calendar year ending December 31, 2004
shall be extended by 90 days following the occurrence of a Force Majeure Event.
Furthermore, pursuant to Section 25, if the Force Majeure Event occurs prior to,
or during, the 2005 calendar year or any succeeding calendar year, the Net Sales
Milestones for such affected calendar year and each succeeding year shall be
applied on a fiscal year basis measured from April 1 of the calendar year in
question through March 31 of the succeeding calendar year. For the avoidance of
doubt, DTE's failure to install and debug the Initial Modules at Sweetheart's
St. Thomas Facility on or before May 15, 2003 through no fault of Sweetheart,
shall be deemed to be a Force Majeure Event and shall extend the foregoing
calendar quarters and years by 90 days.
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EXHIBIT D
[LIST OF CERTIFIED EQUIPMENT VENDORS]
DETROIT TOOL & ENGINEERING
RTS WRIGHT
ATS
DOERFFER ENGINEERING
31
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EXHIBIT E
LIST OF SUBLICENSES PREVIOUSLY GRANTED
1. SUBLICENSE AGREEMENT BETWEEN EARTHSHELL AND GENPAK CORPORATION, DATED
NOVEMBER 9, 1994.
2. LICENSE AGREEMENT BETWEEN EARTHSHELL AND MOBILE CHEMICAL COMPANY, DATED
JUNE, 1993.
3. SUBLICENSE AGREEMENT BETWEEN EARTHSHELL AND DOPACO, INC., DATED JUNE
19, 1995.
4. AGREEMENT BETWEEN EARTHSHELL AND INTERNATIONAL PAPER COMPANY, DATED
OCTOBER 21, 1993.
32