DEBT CONVERSION AND MUTUAL RELEASE AGREEMENT
This Debt Conversion and Mutual Release Agreement (the "Agreement") is
entered into as of the 11th day of October, 2005 by and among EarthShell
Corporation, a Delaware corporation ("EarthShell"), and E. Khashoggi Industries,
LLC, a Delaware limited liability company ("EKI"), with reference to the
following facts:
RECITALS:
A. bio-tec Biologische Naturverpackungen GmbH & Co. KG, an indirect,
wholly owned subsidiary of EKI ("Biotec") was owed $837,145.69 by EarthShell
(the "Biotec Receivable") as a result of fees owed by EarthShell under that
certain License and Information Transfer Agreement, dated as of July 29, 2002,
between EarthShell, Biotec, EKI and Biotec's affiliated entities (the "Original
Biotec License Agreement"). The Biotec Receivable has not heretofore accrued
interest.
B. Biotec has assigned the Biotec Receivable to EKI.
C. EarthShell has requested that EKI convert the entire amount of the
Biotec Receivable into shares of EarthShell common stock (the "Common Stock"),
and EKI is willing to convert the Biotec Receivable into EarthShell shares of
common stock, in full satisfaction of the Biotec Receivable, pursuant to the
terms and conditions set forth herein.
D. In conjunction with the sale of EKI's indirect interest in Biotec,
EarthShell and Biotec entered into an Amended and Restated License Agreement,
dated August 31, 2005 (the "Restated Biotec License Agreement").
E. The parties also wish to resolve any outstanding issues between them as
to past transactions.
AGREEMENT:
1. Conversion. The parties hereby convert the entire balance of the Biotec
Receivable into shares of Common Stock at the conversion price of $3.00 per
share. Upon the conversion, EarthShell shall have no further obligation to EKI
in respect of the Biotec Receivable and it shall be deemed to have been
satisfied in full through the issuance of the Common Stock as set forth in
Section 2 below.
2. Mechanics of the Conversion. The conversion of the Biotec Receivable
shall take place upon (i) EarthShell's delivery to EKI of a stock certificate or
certificates in the name of EKI evidencing its ownership of 279,048 shares of
Common Stock (the "Conversion Shares"), (ii) EarthShell's payment of $1.69 to
EKI, and (iii) EKI's delivery to EarthShell of written evidence reasonably
satisfactory to EarthShell that the instrument evidencing the Biotec Receivable
has been cancelled.
3. Registration; Legends. EKI understands that the Conversion Shares
constitute "restricted securities" inasmuch as they are being acquired from
EarthShell in a transaction not involving a public offering, and accordingly may
not be resold or transferred without registration under the Securities Act of
1933, as amended or an applicable exemption from such registration. Unless the
Conversion Shares are subsequently registered, EKI may be required to bear the
economic risk of such investment indefinitely. EKI further acknowledges that
each certificate representing the Conversion Shares may be endorsed with
substantially the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT COVERING SUCH SECURITIES OR IF SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER
THE SECURITIES ACT.
4. Mutual Release.
(a) Release. The parties hereto fully, finally, and forever release,
quit claim, and discharge one another from any and all claims, liabilities,
demands, debts, accounts, obligations, actions, and causes of action ("Claims"),
known or unknown, at law or in equity, of whatever character in any way that
each party hereto may have against the other party through the date of this
Agreement, that arise out of, relate to, or otherwise concern the Biotec
Receivable or the Original Biotec License Agreement, including, without
limitation, the timely performance of any monetary or non-monetary obligations
thereunder and the prior conversion of a portion of the accrued payable owed to
Biotec into shares of EarthShell common stock (collectively, the "Released
Matters"), excluding, however, any and all Claims pursuant to this Agreement or
that certain Promissory Note, dated of even date herewith, made by EarthShell in
favor of EKI (the "Excluded Matters"). The Released Matters expressly include,
but are not limited to, any claims for indemnity, contribution, subrogation, or
other similar principal of recovery that one of the parties may have against the
other party with regard to the Released Matters now or in the future. EarthShell
agrees and acknowledges that EKI is not a party to, and has no obligations
under, the Restated Agreement, and therefore EarthShell has no Claims thereunder
to be asserted against EKI.
(b) Release of Unknown Claims. Except for the Excluded Matters, each
of the parties hereto acknowledges and agrees that this release extends to all
Claims relating to the Released Matters of every nature and kind whatsoever,
known or unknown, suspected or unsuspected, that exist as of the date of this
Agreement. Each party expressly intends that this Agreement shall be effective
as a full and final accord and satisfaction, and release, of each and every of
the Released Matters. The parties acknowledge that they are familiar with
Section 1542 of the California Civil Code, which provides as follows:
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
this release, which if known by him must have materially affected
his settlement with debtor.
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The parties waive and relinquish every right or benefit that they
have or may have under Section 1542 of the California Civil Code or any similar
provision in any jurisdiction, to the full extent that lawfully they may waive
such a right or benefit. The parties acknowledge that they may later discover
facts in addition to, or different from, those which they now know or believe to
be true, but that it is their intention to fully, finally, and forever settle
and release all of the Released Matters, whether known or unknown, suspected or
unsuspected, which now exist, may exist in the future, or have previously
existed, between the persons or entities granted releases.
(c) Covenant Not to Xxx. Each of the parties hereto shall not
initiate, file, institute, maintain or proceed upon, or encourage, advise or
voluntarily assist any other person or entity to initiate, institute, maintain
or proceed upon, any claim against the other party with regard to any of the
Released Matters.
(d) Third Party Beneficiaries. . Each of the parties expressly
agrees that this release shall inure to the benefit of the parties and their
respective officers, directors, managers, agents, servants, employees,
attorneys, affiliated and subsidiary entities, successors, predecessors and
assigns, past and present.
(e) No Admissions. The parties acknowledge and agree that this
release is entered into as a compromise of doubtful and disputed claims, and is
not to be construed as an admission of liability on the part of any party, by
each of whom all liability is expressly denied.
(f) No Assignments. Each of the parties hereto represents and
warrants that it has not heretofore assigned or transferred, or purported to
have assigned or transferred, to any firm, corporation or person whatsoever, any
claim, debt, liability, demand, obligation, cost, expense, action or cause of
action herein released and agrees to indemnify and hold harmless the other party
against any claim, debt, liability, demand, obligation, cost, expense, action or
cause of action based on, arising out of or in connection with any such transfer
or assignment or purported transfer or assignment.
5. Miscellaneous.
(a) Construction. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of California, without
regard to the conflicts of law provisions thereof.
(b) Entire Agreement. This Agreement contains the entire
understanding of the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof.
(c) Invalid Provisions. In the event that any provision of this
Agreement or any word, phrase, clause, sentence or other portion thereof should
be held to be unenforceable or invalid for any reason, such provision or portion
thereof shall be modified or deleted in such a manner so as to make this
Agreement, as modified, legal and enforceable to the fullest extent permitted
under applicable laws.
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(d) Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
(e) Successors and Assigns. Subject to the following sentence, this
Agreement will be binding upon, and will inure to the benefit of, the
successors, assigns, heirs, executors and estates of the parties hereto.
(f) Opportunity to Consult Counsel and Other Advisors. Each of the
parties hereto acknowledges and understands that such party has had an
opportunity to consult with the legal, tax, business and other advisors of such
party's choice regarding this Agreement and the transactions contemplated hereby
and that such party has read this Agreement carefully and fully understands all
of the terms and provisions contained herein and their significance.
(g) Further Assurances. Each party hereto shall execute and deliver
such further instruments, and take such other actions, as any other party hereto
may reasonably request in order to carry out this Agreement and to fully
consummate the transactions contemplated hereby.
(h) Arbitration and Litigation. Any controversy, claim or dispute
arising out of or relating to this Agreement or the breach, termination,
enforcement, interpretation or validity thereof, including the determination of
the scope or applicability of this agreement to arbitrate, shall be determined
by arbitration in Santa Barbara, California, before a sole arbitrator, in
accordance with the laws of the State of California for agreements made in and
to be performed in California. The arbitration shall be administered by the
American Arbitration Association ("AAA"). Judgment on the award may be entered
in any court having jurisdiction. Either party may, without inconsistency with
this Agreement, seek from a court any interim or provisional relief that is
necessary to protect the rights or property of that party, pending the
appointment of the arbitrator. The exclusive forum for such application shall be
the Los Angeles Superior Court or the United States District Court for the
Central District of California. Upon the request of any party, a mediation shall
be conducted prior to the arbitration pursuant to the Mediation Rules of the
AAA. In the event of any dispute under this Agreement, the prevailing party as
determined by the arbitrator shall be entitled to recover its reasonable
attorneys fees and expenses and arbitration costs.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
EARTHSHELL CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
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Name: Xxxxxxx X. Xxxxxx
Title: Chief Executive Officer
E. KHASHOGGI INDUSTRIES, LLC
By: /s/ Xxxxx Xxxxxxxxx
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Name: Xxxxx Xxxxxxxxx
Title: Chairman and Chief Executive Officer
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