om ragingbull:
PROPOSAL FOR A POTENTIAL TRANSACTION
between
E. KHASHOGGI INDUSTRIES, LLC
and
EARTHSHELL CORPORATION
as of
March 22, 2007
This non-binding term sheet proposal (the "Proposal") describes the key terms of a possible transaction between E. Khashoggi Industries LLC, a Delaware limited liability company ("EKI"), and EarthShell Corporation, a Delaware corporation ("EarthShell," and collectively with EKI, the "Parties" and each of them, a "Party"). It rescinds all prior offers or proposals made by EKI to EarthShell concerning the transfer or sale of EKI’s foam analog patents and the license of EKI’s fiber dispersion patents.
Non-Binding
This Proposal is non-binding and is intended solely as a summary of the terms that are currently proposed by EKI. A binding agreement will not occur unless and until all necessary corporate and limited liability company approvals have been obtained and the Parties have negotiated, approved, executed and delivered the appropriate definitive agreements. Either Party may, at any time prior to the approval, execution and delivery of such definitive agreements, propose different terms from those summarized herein or unilaterally terminate all negotiations pursuant to this Proposal for any reason and without any liability whatsoever to the other Party. Unless otherwise agreed to in writing, each Party shall be liable for all of its own fees, costs and other expenses in conjunction with negotiation and preparation of any definitive agreements pursuant to this Proposal.
Proposed Transaction
This Proposal summarizes the principal terms of a proposed new exclusive license agreement (the "License Agreement") that would become effective pursuant to a confirmed Chapter 11 plan of organization of which EKI and EarthShell would be co-proponents (the "Plan"). The transactions would include the following terms:
• The License Agreement would provide for EarthShell to issue to EKI pursuant to the Plan 25 million shares of EarthShell common stock (or, if greater, such number of shares as will result in EKI owning, together with its existing shares, at least 51% of the EarthShell common stock upon consummation of the Plan) in consideration of a grant by EKI of an exclusive, royalty-free, fully-paid and worldwide license to EKI's packaging technology for all packaging applications other than food service disposable products, with the effect that EKI thereby would become the holder of a majority of the outstanding shares of EarthShell common stock. EKI believes that the License Agreement will have considerable value to EarthShell (thus warranting the issuance of the shares of EarthShell common stock to EKI), given the expanded scope of EarthShell’s field of use. EKI believes that the new field of use (i.e., all packaging applications other than food service disposables) is significantly greater in terms of accessible markets and potential applications than the field of use currently licensed to EarthShell.
• Except for the issuance of the shares of EarthShell common stock to EKI and the change in the field of use from food service disposable products to all packaging applications other than food service disposable products, the terms of the License Agreement would be substantially the same as the terms as the existing license agreement between EKI and EarthShell relating to food service disposable products (the "Existing License Agreement"). The Existing License Agreement would not be terminated or modified as a result of the issuance of the License Agreement. EKI and EarthShell, however, would make appropriate amendments to the existing intercompany agreements concerning the sharing of costs with respect to the procurement and maintenance of patents and improvements to the licensed technology to take account of the License Agreement.
• The term of the License Agreement would be for the greater of 20 years or the life of the existing and later issued patents that cover EKI's packaging technology.
• All security interests and claims of EarthShell creditors (including the lien of Cornell Capital) would be discharged upon consummation of the Plan. EKI may allow a certain amount of unsecured indebtedness to remain following consummation of the Plan, provided it is satisfied with the payment terms.
• All existing shares of EarthShell common stock would be retained under the Plan and, except for shares of EarthShell common stock that may be issued to discharge or partially discharge the claims of unsecured creditors, no new shares of EarthShell common stock will be issued upon consummation of the Plan..
• The Plan would designate new senior management and a new Board of Directors selected by EKI who would assume responsibility upon consummation of the Plan.
• EKI would agree to loan to EarthShell up to $1.5 million as senior, unsecured indebtedness, which EKI projects would be sufficient to fund all ongoing operating expenses of EarthShell until such time as operating revenues (royalties, license fees, etc.) are received. The Parties shall agree on the interest rate, maturity date and other material terms.
• This Proposal assumes that the Existing License Agreement will be assigned to the highest qualified bidder pursuant to Bankruptcy Code Section 363(b) and is wholly independent of the status or disposition of the Existing License Agreement.
• EKI will receive the requisite comfort that EarthShell's existing net operating and capital loss carryovers will be preserved following consummation of the Plan and will be usable against is future income or gains.
