Operating and Sublicense Agreement [Amendment No. 1] - EarthShell Corp. and Sweetheart Cup Co. Inc.
FIRST AMENDMENT TO
OPERATING AND SUBLICENSE AGREEMENT
This FIRST AMENDMENT TO OPERATING AND SUBLICENSE AGREEMENT (this
"AMENDMENT"), dated as of July 11, 2003 (the "AMENDMENT 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," together with EarthShell, the
"PARTIES"), with reference to the following facts:
RECITAL
The Parties have previously entered into an Operating and Sublicense
Agreement dated as of October 3,2002 (the "Agreement") and wish to modify and
amend the Agreement upon and subject to the terms, covenants and conditions
hereinafter set forth. Defined terms appearing in this Amendment and not defined
herein will have the meanings set forth in the Agreement.
In consideration of the foregoing recital 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 hereby
agree, and amend the Agreement, as follows:
1. (a) Notwithstanding anything to the contrary in the Agreement,
whether expressed or implied, including, without limitation,
Sections 2(a), 2(e) and 2(g) thereof, and subject to Sections
2(f) and 25 of the Agreement, provided that Sweetheart timely
satisfies each of the Equipment Milestones (as defined in
Subparagraph 1(d) hereof) (the "Equipment Milestones") then, from
and after the Amendment Date and until the earlier to occur of
(i) the first anniversary of the date Sweetheart orders the third
Line; and (ii) the date Sweetheart fails to meet an Equipment
Milestone (the "Initial Exclusivity Period"), Sweetheart shall
have the exclusive right to make, use, sell, offer to sell,
import into, distribute and otherwise dispose of and
commercialize any and all products now and/or hereafter
incorporating the Technology, including, without limitation, the
Products, and hot cups, to Persons within any and all Market
Segments, except only the Institutional Market Segments provided
that "Products" shall in all events include cups for hot
beverages (it being agreed that the inclusion of cups for hot
beverages shall not be subject to the provisions of Section 2(h),
which provisions are hereby terminated). For the purposes hereof,
(i) the term "Institutional Market Segments shall mean market
segments involving anything that is sold for away from home
dining or consumption, directly or indirectly and (ii) the term
"Retail Market Segments" shall mean those Market Segment not
included as part of the Institutional market Segments, meaning
those Market Segments where consumers purchase Products for their
own use. Throughout the term of the Agreement Sweetheart shall
have all such non-exclusive rights in the Institutional Market
Segments and, following the end of the Initial Exclusivity
Period, Sweetheart shall have all such non-exclusive rights in
all Market Segments. In furtherance of the foregoing, Exhibit B
to the Agreement, and all references thereto, will be deleted as
they pertain to this Amendment within 30 days of the signing of
this Amendment. In furtherance of the foregoing, the Sublicense
is hereby amended to comports with Sweetheart's rights as amended
by this Amendment.
(b) EarthShell covenants that during the Initial 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,
import into or otherwise commercialize any EarthShell Product within
the Territory except only in the institutional Market Segments. In
furtherance of the foregoing, except for non-exclusive rights in the
institutional Market Segments, EarthShell shall, promptly following
the Amendment Date, terminate all rights, if any, of EarthShell's
sublicensees, including, without limitation, any such rights under
the sublicenses and other agreements listed on Exhibit B to the
Agreement, and Sections 2(e) and 4(c) of the Agreement are hereby
deleted in their entirety and shall be of no further force or
effect.
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(c) Sweetheart's rights will not be subject to, Unfilled Customer
Requirements, Revenue Milestones, Net Sales Milestones, or any other
Milestone except the Equipment Milestones. Section 2(e) of the
Agreement and Exhibit C to the Agreement (Revenue Milestones) are
hereby deleted in their entirety and shall be of no further force or
effect.
(d) The "Equipment Milestones" shall be as follows:
(i) order Line by the date which should be five (5) days
following the Amendment Date;
(ii) order line two by the date which shall be thirty (30)
days following the purchase, installation and
Sweetheart's final acceptance of Line one at a Plant
Facility; and
(iii) order Line three by the date of the first anniversary of
the purchase, installation and Sweetheart's final
acceptance of Line two at a Plant Facility.
(e) The provisions of Sections 3(a), 3(b) and 13(d) of the Agreement
relating to the purchase of Equipment shall be deemed to have been
satisfied on the Amendment Date.
2. The EC Profit Distribution shall not be earned until Sweetheart has
realized, for a period of 3 consecutive months, a positive gross
profit on Product sales ("GROSS PROFIT") including a charge for
Sweetheart's interest expense on capital deployed on Equipment and
other EarthShell fixed assets. At such time as a Gross Profit is
realized, the EC Profit Distribution shall be an amount equal to
fifty percent (50%) of such Gross Profit until such time as
EarthShell's share reaches an amount equal to twelve percent (12%)
of Net Sales; provided, however, that if from time to time
Sweetheart sells film sketons (waste), such twelve percent (12%) cap
shall be increased by the percentage points comparable to the waste
proceeds as a percentage of Net Sales. All calculations pursuant to
this Section shall be made monthly.
3. (a) (i) Concurrently herewith, EarthShell and Sweetheart shall
execute and deliver a Termination Agreement in substantially the
form annexed hereto as EXHIBIT A and made a part hereof and (ii) EKI
and Sweetheart shall execute and deliver a Recognition Agreement in
substantially the form annexed hereto and made a part hereof; and
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(b) EarthShell and Sweetheart have concurrently herewith reconciled
the following current accounts:
(i) Open trade account due to Sweetheart from EarthShell
6/16/03 $100,000;
(ii) Satisfaction of unpaid rent on Sweetheart's St. Thomas
warehouse at Owings Mill, Maryland 1/02 - 6/03;
(iii) EarthShell transfer of molds for first 8 Modules to
Sweetheart; and
(iv) Sweetheart agreement to fund interim operation to
produce Products at DTE site prior to Equipment
installation at a Plant Facility.
4. Except as amended hereby, the Agreement is hereby ratified and
confirmed and shall remain in full force and effect in accordance
with the terms, covenants and conditions thereof. In the event of
any conflict between the terms, covenants and conditions of this
Amendment and the Agreement, the terms, covenants and conditions of
this Amendment shall control.
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed
and delivered by their duly authorized representatives as of 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
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EXHIBIT A
TERMINATION AGREEMENT
This Termination Agreement (this "Agreement"), dated as of July 11, 2003
(the "Effective Date"), is entered into between EarthShell Corporation, a
Delaware corporation ("EarthShell"), and Sweetheart Cup Company Inc., a Delaware
corporation ("Sweetheart," and together with EarthShell, collectively, the
"Parties" and individually a "Party"), with reference to the following facts:
RECITALS
A. EarthShell and Sweetheart are parties to (a) that certain Operating
Agreement for the Production of Hinged Sandwich Containers for McDonald's
Corporation, dated as of October 16, 1997 (the "Operating Agreement"), (b) that
certain Sublicense Agreement, dated as of October 16, 1997 (the "Sublicense
Agreement"), and (c) that certain Confidentiality Agreement, dated as of October
16, 1997 (the "Confidentiality Agreement"). Capitalized terms appearing in this
Agreement and not defined herein shall have the meaning ascribed to such terms
in the Operating Agreement or the Sublicense Agreement, as the case may be.
B. EarthShell and Sweetheart are parties to that certain Operating and
Sublicense Agreement dated as of October 3, 2002, as amended by that certain
First Amendment to Operating and Sublicense Agreement dated as of the Effective
Date (collectively the "New Agreement").
C. EKI, EarthShell and Sweetheart are parties to that certain Agreement
dated as of the Effective Date (the "Recognition Agreement").
D. By entering into this Agreement, the Parties desire to terminate the
Operating Agreement and the Sublicense Agreement as of the Effective Date upon
and subject to the terms, covenants, and conditions hereinafter set forth.
AGREEMENT
In view of the foregoing premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:
1. Except as set forth in Section 2 of this Agreement, (a) the Operating
Agreement; and (b) the Sublicense Agreement, and the respective rights and
obligations of the Parties thereunder, are hereby terminated and shall be of no
further force or effect.
2. Notwithstanding Section 12.23 of the Operating Agreement to the
contrary, only the rights, duties and obligations of the Parties under Article
X, Sections 10.1(a), (b), and (c), Sections 10.2(a) and (b), and Section 10.3,
and, subject to the foregoing limitation with respect to Section 12.23, Article
XII of the Operating Agreement and Paragraph 6 of the Sublicense Agreement,
shall survive the termination of the Operating Agreement and the Sublicense
Agreement with respect to any acts, omissions or occurrences arising or relating
to any period ending on or prior to the Effective Date. Notwithstanding Section
11.7 of the Operating Agreement to the contrary, all receivables or deposits
which arose or were created or established by EarthShell pursuant to the
Operating Agreement during any fiscal period ending on or prior to the Effective
Date, and any proceeds from the sale of inventory and/or Equipment on hand as of
the Effective Date, shall be applied, in the manner directed by EarthShell, to
pay the outstanding balance of any unrelated third party liabilities or expenses
that were incurred or which are accrued as of the Effective Date, provided,
that, such proceeds shall be applied first to any such third party costs for
which Sweetheart may be held responsible. If any of such liabilities or expenses
remain unsatisfied following the Effective Date and after application of such
proceeds, EarthShell shall pay such liabilities and expenses to the same extent
that it would have been obligated to pay such liabilities or expenses under the
terms of the Operating Agreement or Sublicense Agreement.
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3. EarthShell shall, on or before December 31, 2003 and at its risk, cost
and expense,
a. dismantle, load and remove from the Facility all of its furniture,
equipment and other personal property, including, without
limitation, the equipment listed on Exhibit C to the Operating
Agreement (the "EarthShell Equipment") except for (i) the Support
Systems and Utilities; and (ii) those items of EarthShell Equipment,
if any, as EarthShell may hereafter agree to sell to Sweetheart and
Sweetheart may hereafter agree to purchase from EarthShell. Such
removal shall include, without limitation, disconnecting the
EarthShell Equipment from all utility hook-ups and capping the
applicable utility supply lines.
b. at Sweetheart's election, (i) remove any and all portions made or
installed by or for Earthshell (except those portions creating the
mixer room and storage rooms); and (ii) seal and make water-tight,
all roof and other penetrations made by Tenant; and (iii) repair all
damage to the Facility and/or other property caused by such removal.
All work to be performed by or for EarthShell pursuant to this Section
shall be performed using reasonable care, and in compliance with all applicable
governmental and insurance requirements. EarthShell shall keep the Facility free
of all mechanics' and materialmen's liens in connection with any labor or
services furnished at EarthShell's request in connection with the performance of
such work. If any lien is filed, EarthShell shall cause such lien to be released
or removed within ten (10) days after the date of filing, and if EarthShell
fails to do so, Sweetheart may take such action as may be necessary to remove
such lien. If EarthShell fails to timely remove the EarthShell Equipment or its
furniture, equipment or other personal property, the same shall be deemed to
have been abandoned by EarthShell and Sweetheart shall have the right to dispose
of the same in such manner as Sweetheart shall determine in its sole discretion.
4. Except for the timely performance of the duties and obligations of the
Parties under (a) this Agreement; (b) the Operating Agreement and the Sublicense
Agreement which survive their termination as set forth in Section 2 of this
Agreement; (c) the Confidentiality Agreement; (d) the New Agreement which arise
from and after the Effective Date and (e) the Recognition Agreement, each of the
Parties, for itself, its successors and assigns, hereby covenants not to sue,
releases and forever discharges the other Party, its respective successors,
assigns, affiliated entities (including in the case of EarthShell, EKI and
EarthShell Maryland, LLC), directors, officers, managers, beneficial owners, and
legal representatives, of and from any claims, demands, actions, cause and
causes of action, suits, liabilities, obligations, promises, injuries or
damages, of any name, nature or description in law or in equity, whether known
or unknown, asserted or unasserted, suspected or unsuspected, or fixed or
contingent, which the releasing Party now has, or ever had, or which it shall or
may have in the future, by reason of any matter, cause or thing arising on or
prior to the Effective Date (including, without limitation, any act or omission
arising out of or by reason of the Operating Agreement or the Sublicense
Agreement, or any action taken or omitted under any of them). Each Party further
understands that this is a general release and intends to be legally bound by
it.
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5. To the extent that any of the provisions of California Civil Code
Section 1542 might apply to the releases contemplated hereunder, each of the
parties to this Agreement hereby waives the protections of that section,
applicable case law, and similar provisions. Civil Code Section 1542 provides,
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
6. For the avoidance of doubt, neither the Confidentiality Agreement, the
New Agreement nor the Recognition Agreement shall be terminated or otherwise
modified and shall continue in full force and effect.
7. This Agreement constitutes the entire agreement between the Parties
with respect to the termination of the Operating Agreement and the Sublicense
Agreement and shall supersede all prior negotiations and agreements with respect
to the subject matter of this Agreement, including any contrary or conflicting
provision in the Operating Agreement and/or the Sublicense Agreement.
8. The Parties agree to cooperate with each other and to execute, deliver
and record such other agreements and documents and to take such other actions as
are reasonably necessary or helpful to more effectively consummate the
transactions contemplated under this Agreement and to carry out its purpose and
intent.
9. This Agreement may be amended only by the consent of each of the
Parties expressed in writing, signed by their duly authorized representatives.
10. 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.
11. Should any part or provision of this Agreement be rendered or declared
invalid by reason of any law or by decree of a court or 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.
12. 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.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of California, may be executed by facsimile signature and in
counterparts which, together, shall constitute a single agreement, and is
executed and delivered as of Effective Date.
EARTHSHELL CORPORATION SWEETHEART CUP COMPANY INC.
By: /s/ Vincent J. Truant By: /s/ Thomas Uleau
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A duly authorized signatory A duly authorized signatory
Name: Vincent J. Truant Name: Thomas Uleau
Its: President and COO Its: Vice Chairman
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