EARTHSHELL CONTAINER CORP, S-1/A, 1997-10-08

EARTHSHELL CONTAINER CORP
S-1/A, 1997-10-08
PAPERBOARD CONTAINERS & BOXES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1997

REGISTRATION NO. 333-13287

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------

AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

EARTHSHELL CONTAINER CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
------------------------------

<TABLE>
<S> <C> <C>
DELAWARE 2656 77-0322379
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>

800 MIRAMONTE DRIVE
SANTA BARBARA, CALIFORNIA 93109
(805) 897-2294
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------------

SIMON K. HODSON
CHIEF EXECUTIVE OFFICER
EARTHSHELL CONTAINER CORPORATION
800 MIRAMONTE DRIVE
SANTA BARBARA, CALIFORNIA 93109
(805) 897-2294
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------------
WITH COPIES TO:

ROBERT K. MONTGOMERY PATRICK T. SEAVER
CLAY A. HALVORSEN CHARLES K. RUCK
Gibson, Dunn & Crutcher LLP Latham & Watkins
2029 Century Park East, Suite 4000 650 Town Center Drive, 20th Floor
Los Angeles, California 90067 Costa Mesa, California 92626
(310) 552-8500 (714) 540-1235

------------------------------

Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering./ /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
<S> <C> <C>
Common Stock $.01 par value........................................... $318,780,000.00 $96,600.00(3)
</TABLE>

(1) Includes shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.

(3) Includes $75,758.00 which has previously been paid.

------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.

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- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>

PROSPECTUS SUBJECT TO COMPLETION

DATED OCTOBER 8, 1997

13,200,000 SHARES [LOGO]

EARTHSHELL CORPORATION

COMMON STOCK
($.01 PAR VALUE)

Of the 13,200,000 shares of Common Stock, $.01 par value per share (the "Common
Stock"), being offered (the "Shares"), 10,526,316 Shares are being sold by
EarthShell Corporation (the "Company"), and 2,673,684 Shares are being sold by
the Selling Stockholders. None of the officers or directors of the Company is
selling any shares of Common Stock in the offering. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
the Shares of Common Stock by the Selling Stockholders.

Of the Shares being offered, 10,560,000 Shares are being offered in the United
States and Canada (the "U.S. Offering") and 2,640,000 shares are being offered
in a concurrent International Offering outside the United States and Canada (the
"International Offering" and, together with the U.S. Offering, the "Offering"),
subject to transfers between the U.S. Underwriters and the International
Managers. The Price to Public and Underwriting Discount per Share will be
identical for the U.S. Offering and the International Offering. See
"Underwriting." The closing of the U.S. Offering and International Offering are
conditioned upon each other.

Prior to the Offering, there has been no public market for the Common Stock. It
is anticipated that the initial public offering price will be between $17.00 and
$21.00 per share. For information relating to the factors considered in
determining the initial offering price to the public, see "Underwriting."
Application will be made to list the Common Stock on The Nasdaq Stock Market's
National Market under the symbol "ERTH."

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT COMPANY(1) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
Total(2)..................... $ $ $ $
- -------------------------------------------------------------------------------------------------
</TABLE>

(1) Before deducting expenses payable by the Company, estimated at $1,000,000.

(2) The Company and certain of the Selling Stockholders have granted to the U.S.
Underwriters and the International Managers 30-day options to purchase up to
an aggregate of 1,980,000 additional shares of Common Stock at the Price to
Public, less Underwriting Discount, solely to cover over-allotments, if any.
If the Underwriters exercise such options in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
and , respectively. See "Underwriting."

The Shares are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Shares will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1997.

SALOMON BROTHERS INC CREDIT SUISSE FIRST BOSTON

The date of this Prospectus is , 1997.

<PAGE>

[Picture of EARTHSHELL cups, bowls,
hinged-lid container, tray,
breakfast platter and plate with a
quote as follows, "Finally, fast
food packaging that Mother Earth can
love!"--Essam Khashoggi, Chairman of
the Board of EarthShell Corporation]

------------------------

The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information.

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. SUCH TRANSACTIONS, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE
ACTIVITIES SEE "UNDERWRITING."

EARTHSHELL-REGISTERED TRADEMARK- IS A REGISTERED TRADEMARK OF THE COMPANY.
ALI-ITE-REGISTERED TRADEMARK- IS A REGISTERED TRADEMARK OF E. KHASHOGGI
INDUSTRIES, LLC. BIG MAC-REGISTERED TRADEMARK- AND QUARTER POUNDER-REGISTERED
TRADEMARK- ARE REGISTERED TRADEMARKS OF MCDONALD'S CORPORATION. THIS PROSPECTUS
ALSO CONTAINS THE REGISTERED TRADEMARKS OF OTHER COMPANIES.

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING THE FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. INVESTORS SHOULD ALSO CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS" AND ARE URGED TO READ
THIS PROSPECTUS IN ITS ENTIRETY.

THE COMPANY

EarthShell Corporation (the "Company") is a development stage company
engaged in the licensing and commercialization of a proprietary composite
material for the manufacture of disposable packaging for the food service
industry, such as cups, plates, bowls and hinged-lid containers. This new
composite material is made primarily from commonly available raw materials such
as limestone, natural potato, corn and other starch binders, natural fibers and
functional coatings. The Company believes that food service disposables made of
this material ("EARTHSHELL products") can be designed to have certain superior
performance characteristics, such as greater strength and rigidity, and can be
commercially produced at a cost that is competitive with comparable paper and
polystyrene food service disposables. EARTHSHELL products also offer a number of
attractive environmental features that are expected to appeal to customers
concerned about the environment.

According to an industry study, more than $8.3 billion was spent in the
United States in 1994 on the types of food service disposables that the Company
believes can be replaced by EARTHSHELL products, and the Company believes that
international markets represent additional significant opportunities for
EARTHSHELL products. Food service disposables are currently manufactured from a
variety of materials, including paper and polystyrene. The Company believes that
none of these materials fully addresses all three principal concerns of the food
service industry--performance, cost and environmental impact. The Company
believes that EARTHSHELL products will best address all of these concerns and
therefore will be able to achieve significant penetration of the food service
disposables market.

The Company intends to establish EARTHSHELL products as the preferred
disposable packaging for the food service industry. The Company's strategy
includes both working with major purchasers of food service disposables to build
consumer demand for EARTHSHELL products and licensing or joint venturing with
existing manufacturers of disposable packaging to produce and distribute
EARTHSHELL products. An additional component of the Company's strategy is to
utilize outside experts in their respective fields to assist in the
commercialization of EARTHSHELL products.

As the first step in this strategy, the Company has worked closely with
McDonald's Corporation ("McDonald's") in developing and testing prototype
products. As a result of this work, McDonald's has approved the EARTHSHELL Big
Mac sandwich container for use in McDonald's restaurants in the United States.
The Company expects McDonald's primary packaging supplier, Perseco, to place a
purchase order for the purchase of 1.8 billion EARTHSHELL Big Mac sandwich
containers over a three-year period. The Company currently expects its licensee
to make the first shipment of this commercial product for use in McDonald's
restaurants as early as the fourth quarter of 1998. See "Business--Relationship
with McDonald's."

To accelerate the market penetration of EARTHSHELL products, the Company
will joint venture with or license its technology to existing manufacturers
experienced in the manufacture, sale and marketing of food service disposables.
To date, the Company has entered into licensing agreements with several of these
manufacturers, including Sweetheart Cup Company Inc. ("Sweetheart"), Genpak
Corporation ("Genpak") and Dopaco, Inc. ("Dopaco"), each of which has agreed to
pay an effective royalty of 20% of the wholesale price of EARTHSHELL products.
To promote the rapid ramp-up of product manufacturing capacity, the Company
intends to contract with leading design engineers to construct turnkey
manufacturing lines for lease to licensees or contribution to joint ventures.
The Company intends to use $44.0 million of the proceeds of this Offering to
fund the initial procurement of such manufacturing lines. By the

3
<PAGE>

end of 1999, the Company expects to have supplied equipment to licensees and
joint venture partners at multiple production sites for the manufacture of a
broad range of EARTHSHELL products, including cold cups, hot cups, plates,
bowls, sandwich containers and other hinged-lid containers.

The development of the composite material used to make EARTHSHELL products
("ALI-ITE composite material") is the result of more than 10 years of basic
materials science research by E. Khashoggi Industries, LLC and its predecessors
("EKI"). EKI is the Company's principal stockholder. EKI has obtained 35 U.S.
and 20 foreign patents and has 35 U.S. and 119 foreign patent applications
pending which are applicable to EARTHSHELL products utilizing the EKI
technology. The Company believes that these patents and patent applications
represent a strategic web of protection broadly covering EARTHSHELL products,
their material composition and the manufacturing processes used to make them.

Since the Company's inception in November 1992, the Company has not
generated any revenues from operations and has expended approximately $63.0
million for research and development, patent expenses and general and
administrative costs. The Company has an exclusive, worldwide, royalty-free
license to use and license the EKI technology to manufacture and sell
disposable, single-use containers for packaging or serving food or beverages
intended for consumption within a short period of time (less than 24 hours). See
"Business--Relationship with EKI."

THE OFFERING

<TABLE>
<CAPTION>
Common Stock offered by:
<S> <C>
The Company..................... 10,526,316 shares
The Selling Stockholders........ 2,673,684 shares
-----------------
Total......................... 13,200,000 shares
Common Stock offered for sale in:
U.S. Offering................... 10,560,000 shares
International Offering.......... 2,640,000 shares
-----------------
Total......................... 13,200,000 shares
Common Stock to be outstanding
after the Offering.............. 100,045,166 shares (1)
Use of proceeds................... To construct turnkey manufacturing lines for lease to
licensees or contribution to joint ventures; expand
EARTHSHELL's product development center; repay
indebtedness to EKI and bank borrowings; market the
introduction of EARTHSHELL products; secure patent
protection; pay accrued dividends; and for general
corporate purposes, including anticipated operating
losses.
Proposed Nasdaq National Market
symbol.......................... ERTH
</TABLE>

(1) Excludes options outstanding on the date hereof to purchase 1,037,520 shares
of Common Stock and warrants to purchase 37,321 shares of Common Stock
(assuming an initial public offering price of $19.00 per share) issuable
upon completion of the Offering, and assumes that the 26,675 shares of
Series A Preferred Stock of the Company outstanding on the date hereof will
be converted into 6,988,850 shares of Common Stock.

4
<PAGE>

RISK FACTORS

As a development stage company, the Company faces numerous risks in
connection with the development, commercialization and introduction of
EARTHSHELL products, including risks related to the limited experience of the
Company and its licensees in manufacturing EARTHSHELL products, the need to
construct integrated manufacturing lines which can produce EARTHSHELL products
at competitive costs, anticipated continuing operating losses until EARTHSHELL
products achieve significant market penetration, the reliance on third party
licensees and joint venture partners for the manufacture and distribution of
EARTHSHELL products and the right of certain licensees to terminate their
license agreements at any time. For a description of certain risks to be
considered before making an investment in the Common Stock, see "Risk Factors."

------------------------

UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS HAS BEEN
ADJUSTED TO REFLECT (I) A RECAPITALIZATION AND STOCK SPLIT, TO BE EFFECTIVE
IMMEDIATELY PRIOR TO THE OFFERING, IN WHICH EACH SHARE OF THE COMMON STOCK THEN
OUTSTANDING WILL BE CONVERTED INTO 262 SHARES OF COMMON STOCK, $.01 PAR VALUE
PER SHARE, (II) THE AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND
BYLAWS TO, AMONG OTHER THINGS, CHANGE THE COMPANY'S NAME TO EARTHSHELL
CORPORATION FROM EARTHSHELL CONTAINER CORPORATION AND (III) THE ASSUMED
CONVERSION OF THE 26,675 SHARES OF SERIES A PREFERRED STOCK OF THE COMPANY INTO
6,988,850 SHARES OF COMMON STOCK. ADDITIONALLY, UNLESS OTHERWISE INDICATED, THE
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. SEE "DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITING."

The Company was incorporated in Delaware on November 1, 1992. The Company's
principal executive offices are located at 800 Miramonte Drive, Santa Barbara,
California 93109, and its telephone number is (805) 897-2294.

5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NOVEMBER 1,
SIX MONTHS ENDED JUNE 1992
YEAR ENDED DECEMBER 31, 30, (INCEPTION)
------------------------------------------------ ------------------------ THROUGH JUNE
1993(1) 1994 1995 1996 1996 1997 30, 1997
----------- --------- --------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Research and development
expenses................ $ 3,309 $ 10,930 $ 9,100 $ 10,159 $ 5,306 $ 4,294 $ 37,792
General and administrative
expenses................ 2,500 3,428 2,363 3,406 1,093 884 12,581
Interest (income)
expenses, net........... (147) (290) 478 1,692 647 1,572 3,305
Depreciation and
amortization............ 601 797 44 311 116 237 1,990
Patent expenses........... 1,520 1,717 1,929 1,382 782 480 7,028
Net loss.................. (7,783) (16,582) (13,914) (16,950) (7,944) (7,467) (62,696)
Pro forma net loss per
share(2)(3)............. $ (.17) $ (.06)
Weighted average number of
shares used in computing
pro forma net loss per
share(3)................ 92,638,409 92,638,409
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(2) ADJUSTED(4)
--------- ------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 127 $ 127 $ 141,836
Working capital (deficit)............................................ (38,764) (46,745) 140,255
Total assets......................................................... 2,710 2,710 144,419
Notes payable, payable to majority shareholder, accrued interest and
accrued dividends.................................................. 37,310 45,291 --
Deficit accumulated during development stage......................... (62,696) (70,677) (70,677)
Stockholders' equity (deficit)(5).................................... (36,199) (44,180) 142,820
</TABLE>

- ----------------------------------

(1) Includes the financial results for the period from November 1, 1992
(inception) through December 31, 1992.

(2) Pro forma to give effect to the assumed conversion of Series A Preferred
Stock into Common Stock and the accrual of preferred dividends of $7,981,000
(as of June 30, 1997) payable upon such conversion.

(3) As a result of the planned stock split of 262-for-one and the significant
pro forma changes in the capitalization of the Company, pro forma net loss
per share and weighted average shares outstanding information is presented
only for the most recent fiscal year and interim period. Pro forma loss per
share has been calculated by dividing net loss per share less interest
expense by a) common stock issued and outstanding (82,530,000 shares); b)
common stock issuable related to the assumed conversion of Series A
Preferred Stock (6,988,850 shares); c) the number of shares (priced at
$19.00 per share) the proceeds from which will be used to repay the note
payable, account payable and accrued interest owed to majority stockholder
($28,310,000) and the note payable to bank ($9,000,000) plus ($7,981,000) in
dividends payable (2,383,714 shares); and d) the net shares issuable related
to stock options using the Treasury Stock Method (735,845 shares).

(4) Adjusted to give effect to the receipt of the net proceeds of $187,000,000
from the sale of shares of Common Stock offered by the Company hereby (at an
assumed initial public offering price of $19.00 per share and after
deducting underwriting discounts and estimated offering expenses) and the
application of the estimated net proceeds therefrom for the repayment of
$28,310,000 in indebtedness to EKI, $9,000,000 in note payable to Imperial
Bank and the payment of preferred dividends of $7,981,000. See "Use of
Proceeds" and "Capitalization."

(5) No cash dividends were declared or paid in any of the periods presented
except as noted in note (2) above.

----------------------------------

6
<PAGE>
RISK FACTORS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. DISCUSSIONS CONTAINING
SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH UNDER
"PROSPECTUS SUMMARY," "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES"
AND "BUSINESS," AS WELL AS WITHIN THE PROSPECTUS GENERALLY. ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF THE RISK FACTORS SET FORTH BELOW AND THE MATTERS SET FORTH IN THE
PROSPECTUS GENERALLY. INVESTMENT IN THE SHARES OFFERED HEREBY IS SPECULATIVE AND
INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY
THE FOLLOWING FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, IN EVALUATING AN INVESTMENT IN THE SHARES.

GOING CONCERN AUDITOR'S OPINION; HISTORY OF OPERATING LOSSES

The Company has incurred aggregate net operating losses of approximately
$63.0 million from its inception in November 1992 through June 30, 1997. At June
30, 1997, the Company had a working capital deficit of approximately $39.0
million and a stockholders' deficit of $36.0 million. Since February 1995, the
Company's operations have been financed through loans from EKI, its principal
stockholder, and Imperial Bank. EKI and Imperial Bank, however, are under no
obligation to make additional loans or capital contributions to the Company. The
Company's outstanding borrowings from Imperial Bank total $9.0 million and are
due and payable on December 31, 1997. In addition, amounts owed to EKI are
payable on demand. Primarily because of the Company's history of operating
losses and its reliance on its principal stockholder to provide cash to sustain
operations, there is substantial doubt about the Company's ability to continue
as a going concern unless the Company is able to obtain equity financing through
the Offering, additional loans from its principal stockholder or other funding.
In the absence of a significant level of sales of EARTHSHELL products, the
Company will continue to generate significant losses, and, in this regard, the
Company's independent accounting firm has issued a "going concern" qualification
to its opinion on the Company's financial statements included herein. There is
no assurance that the Company's operations will be successful or will result in
a profit in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

UNCERTAIN PRODUCTION COSTS

EARTHSHELL products are currently in various stages of development and have
yet to be produced on a fully integrated production line. The EARTHSHELL
sandwich containers tested by McDonald's were produced on a pilot manufacturing
line. The actual cost of manufacturing EARTHSHELL products therefore is unproven
and no assurance can be given that they will be manufactured at competitive
costs. As licensees and joint ventures begin commercial production of EARTHSHELL
products, difficulties may be encountered that cause costs of production to
exceed those currently anticipated by the Company. No assurances can be given
that EARTHSHELL products can be manufactured at commercially competitive costs.
See "Business--Manufacturing of EARTHSHELL Products."

ENVIRONMENTAL PERCEPTION OF EARTHSHELL PRODUCTS

The Company's success depends, in substantial part, on the ability of the
Company to design, develop and manufacture food service disposables having a
reduced environmental impact as compared to disposable food service containers
made from paper, plastic and polystyrene. While the Company, many environmental
groups and some industry leaders believe that EARTHSHELL products offer a number
of environmental advantages, they may also possess certain characteristics which
may be perceived as negative for the environment. In particular, EARTHSHELL
products may result in more solid waste by weight and, in a dry environment, by
volume, and their manufacture and distribution may result in the release of
greater amounts of some pollutants (and lesser amount of other pollutants).
Whether, on balance, EARTHSHELL products are better for the environment is a
qualitative judgment based in large part on the weights assigned to various
criteria, and is not determinable solely on objective bases. The Company has
enjoyed the support of a wide variety of environmental groups,

7
<PAGE>

although in the past a limited number of environmental groups have been critical
of EARTHSHELL products and opposed the introduction of an EARTHSHELL sandwich
container. The Company believes that it has addressed the concerns of these
groups by redesigning and lowering the weight of an EARTHSHELL sandwich
container, and that it now enjoys the support of these groups. No assurance can
be given, however, that environmental groups, regulators, customers or consumers
will agree that EARTHSHELL products have an environmental advantage over
conventional packaging. In addition, there can be no assurance that all future
EARTHSHELL products, which may require unique material formulations and
coatings, will have a reduced environmental impact. If EARTHSHELL products do
not have or are not recognized as having a reduced environmental impact, market
acceptance of these products, and the business, financial condition and results
of operations of the Company, would be adversely affected.

RISK OF ADVERSE PERFORMANCE CHARACTERISTICS

While the Company believes that EARTHSHELL products can be engineered to
meet the critical performance requirements of the marketplace, individual
products may have one or more adverse performance characteristics when compared
to conventional food service disposables. Many EARTHSHELL products are under
development and their performance characteristics have not yet been fully
evaluated. The failure of the Company to develop EARTHSHELL products with
comparable performance characteristics when compared to conventional food
service disposables would have an adverse effect on market acceptance of such
EARTHSHELL products and on the business, financial condition and results of
operations of the Company.

DEVELOPMENT STAGE COMPANY; NEED FOR ADDITIONAL PRODUCTS

To date, there have been no revenues from the sales of any EARTHSHELL
product. The Company is a development stage company with no commercial operating
history and is therefore subject to the risks inherent in the establishment of a
new business enterprise. While the Company has developed a number of prototype
products, such as cups, plates and bowls, these prototypes remain subject to
further development and customer specific modification. The Company must, among
other things, develop additional products, achieve market acceptance of
EARTHSHELL products, develop manufacturing processes and capacity, respond to
competitive developments, attract, retain and motivate qualified personnel and
develop systems to effectively manage its growth. The Company currently expects
the first commercial EARTHSHELL product, the EARTHSHELL Big Mac sandwich
container, will be introduced as early as the fourth quarter of 1998. However,
due to the uncertainties inherent in product development, market acceptance of
newly-developed products and reliance on the Company's licensees and joint
venture partners to manufacture, distribute and sell EARTHSHELL products, the
Company is unable to predict when it will receive significant revenues from any
EARTHSHELL product. The Company expects to continue to incur substantial
operating losses until sales of EARTHSHELL products achieve significant market
penetration. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

RISKS OF DELAY

There are substantial risks of delay, some of which are beyond the Company's
control, associated with the development of the Company's products and related
manufacturing processes, market acceptance of and demand for the Company's
products and the development of sufficient production capacity for the
production of EARTHSHELL products. For example, the Company has experienced
significant delays in the initial pilot production of a sandwich container for
McDonald's. These delays resulted from, among other things, difficulties in
system integration. Such delays may result in financial obligations for the
Company under the letter of intent with Sweetheart. There can be no assurance
that the Company or its licensees or joint venture partners will not experience
similar or other problems in start-up or ongoing operations. Delays in the
introduction or market acceptance of one or more EARTHSHELL products could have
an adverse effect on the business, financial condition and results of operations
of the Company. See "--No Existing Manufacturing Capacity," "--Dependence on
Licensee and Joint Venture Partners,"

8
<PAGE>

"--Reliance on Few Customers," "--Raw Material Supplies" and "Business--License
and Joint Venture Relationships."

NO EXISTING MANUFACTURING CAPACITY

EARTHSHELL products have not been manufactured on a fully integrated
production line or at the consistent manufacturing throughput required to
successfully commercialize EARTHSHELL products. The integration of this
equipment in a coordinated manufacturing line producing at commercial
efficiencies could require greater time and effort than anticipated by the
Company. In addition, there can be no assurance that adequate manufacturing
equipment will be available when needed to permit a timely roll-out of
EARTHSHELL products. The Company has engaged two engineering consulting firms to
assist in the engineering and design of, and intends to also engage such firms
to assist in constructing, turnkey manufacturing lines for lease to its
licensees or contribution to its joint ventures. There can be no assurance that
the Company will be successful in building such manufacturing facilities on a
timely basis or at expected cost. The failure of adequate manufacturing
equipment to be available and properly working in an integrated manner when
needed to permit a timely roll-out of EARTHSHELL products could have an adverse
effect on market acceptance of EARTHSHELL products and on the business,
financial condition and results of operations of the Company. See
"Business--Manufacturing of EARTHSHELL Products."

DEPENDENCE ON LICENSEES AND JOINT VENTURE PARTNERS

The Company has no experience in the commercial manufacture, distribution
and marketing of food service disposables. The Company will be dependent on its
licensees and joint venture partners for the manufacture and distribution of
EARTHSHELL products. The Company has entered into nonexclusive license
agreements with a number of existing manufacturers of food service disposables,
including Sweetheart, Genpak and Dopaco, permitting the manufacture and sale of
certain food service disposable packaging products and the Company intends to
enter into additional license agreements as well as joint venture relationships
in the future. None of the licensees have commercially produced or distributed
any EARTHSHELL products. Licensee manufacturers are not obligated to achieve
minimum sales quotas and have the right to terminate their respective license
agreements at any time without penalty. Many of the Company's licensees and
joint venture partners manufacture paper, plastic or foil packaging which will
compete with EARTHSHELL products. There can be no assurance that the Company's
licensees and joint venture partners will devote sufficient resources or
otherwise be able to successfully manufacture, distribute or market EARTHSHELL
products, and the failure of such persons to do so would have an adverse effect
on the business, financial condition and results of operations of the Company.

DEVELOPMENT OF MANUFACTURING PLANTS

The Company anticipates that it may be necessary, among other things, to
provide manufacturing equipment by leasing or contributing the equipment to
licensees or joint venture partners or to guarantee the performance of its
equipment in order to induce existing manufacturers of food service disposables
to begin production of EARTHSHELL products during their initial commercial
introduction. Under the Company's letters of intent with Sweetheart and Prairie,
the Company would be required to fund negative operating cash flow prior to the
date on which the turnkey manufacturing lines first meet certain efficiency
criteria and additional costs incurred as a result of the equipment not
continuing to satisfy these criteria for a two-year period following such date.
The Company's obligation to guarantee performance of manufacturing lines, fund
negative operating cash flows of its licensees or failure of the Company to
receive an adequate return on its investment in the equipment, may adversely
affect the business, financial condition and results of operations of the
Company. See "Business--License and Joint Venture Relationships."

9
<PAGE>

RELIANCE ON FEW CUSTOMERS

McDonald's will be the first food service operator using EARTHSHELL
products. Under the terms of a non-binding letter agreement between McDonald's
and the Company, it is contemplated that McDonald's will have the right, under
certain circumstances, to purchase the first commercial production available for
any subsequently developed EARTHSHELL products in the quick-serve restaurant
industry and to require that EARTHSHELL satisfy McDonald's demand for any
quick-serve packages prior to sale to any other organizations. The loss of
McDonald's or any other initial purchasers of the Company's products, or the
exercise of McDonald's priority rights under certain circumstances, could delay
the introduction and market acceptance of one or more EARTHSHELL products and
have an adverse effect on the Company's business, financial condition and
results of operations. See "Business--Relationship with McDonald's."

RELIANCE ON EKI

The Company does not own the technology for ALI-ITE material and is
dependent upon its royalty-free, exclusive license from EKI for the use of the
technology. The Company's use of the technology is limited to the development,
manufacture and sale of certain specified food service disposables for use in
the food service industry and the Company has no right to exploit opportunities
for the application of this technology or improvements outside this field of
use. EKI may terminate the license at any time if the Company is in breach of
any material obligations under the Amended and Restated License Agreement
between the Company and EKI (the "License Agreement") and does not cure such
breach within a specified period. If EKI were to file for or be declared
bankrupt, the Company would likely be able to retain its rights under the
License Agreement with respect to U.S. patents; however, it is possible that
steps could be taken to terminate its rights under the License Agreement with
respect to international patents. The Company shares certain key management
personnel with EKI, relies on EKI and EKI's scientific and technical personnel
for substantially all of its scientific and technical services and leases all of
its current facilities from EKI. Scientific and technical services are provided
to the Company by EKI pursuant to an Amended and Restated Technical Services and
Sublease Agreement (the "Technical Services Agreement"), terminating on December
31, 2002, for the design and development of EARTHSHELL products and the
operation of its product development center. The Company is also dependent on
EKI for further development and refinement of the basic technology used in
EARTHSHELL products, although EKI is not obligated to complete any further
development or refinement under the terms of the License Agreement. Any
disruptions in the operations or financial condition of EKI or the failure by
EKI to perform services required by the Company could have an adverse effect on
the business, financial condition and results of operations of the Company. See
"Business--Relationship with EKI."

POTENTIAL CONFLICTS WITH EKI

The Company and EKI are both controlled by a common indirect, majority
equity owner, Essam Khashoggi, and they share certain directors and officers,
including Mr. Khashoggi, who is also the Chairman of the Board of the Company,
and Simon Hodson, the Vice Chairman of the Board, Chief Executive Officer and
President of the Company. Certain conflicts may arise between EKI and the
Company, particularly with respect to corporate opportunities, including, the
development of new markets and uses for products based on the ALI-ITE composite
material, the allocation of research and development resources, the devotion of
the common directors' and officers' time to the respective businesses and the
performance by EKI and the Company of their respective obligations under the
License Agreement, the Technical Services Agreement and the Amended and Restated
Agreement for Allocation of Patent Costs (the "Patent Allocation Agreement").
Under the Patent Allocation Agreement, the Company is obligated to pay or
reimburse EKI for all costs and expenses associated with filing, prosecuting,
acquiring and maintaining certain patents or patent applications. The costs and
expenses incurred in connection with these patents and patent applications will
be controlled by EKI. Any patents granted will be the property of EKI, and EKI
may obtain a benefit therefrom other than under the License

10
<PAGE>

Agreement, including the utilization and/or licensing of the patents and related
technology in a manner or for uses unrelated to the license granted to the
Company. See "Business--Relationship with EKI" and "--The Technology."

CONTROL BY PRINCIPAL STOCKHOLDER

Upon completion of the Offering, Essam Khashoggi, the Chairman of the Board
of the Company, will be the beneficial owner of approximately 73.4% of the
outstanding shares of Common Stock directly or indirectly through various
entities that he controls, including EKI. Thus, Mr. Khashoggi will have the
ability to elect all of the directors of the Company, to control the direction
and policies of the Company, to determine the outcome of corporate transactions
requiring the approval of the Company's stockholders, including mergers,
consolidations and the sale of all or substantially all of the assets of the
Company, and to prevent or cause a change in control of the Company. Mr.
Khashoggi also will have the power to control the Company's relationship with
EKI, which he also controls, and upon which the Company is dependent, among
other things, for its research and development efforts. See "--Reliance on EKI",
"--Potential Conflicts with EKI" and "Principal and Selling Stockholders."

CERTAIN FEDERAL TAX CONSEQUENCES

The Company intends to take appropriate measures to avoid being classified
as a personal holding company, including primarily entering into joint venture
relationships to reduce its royalty and other passive type income to less than
60% of its "adjusted ordinary gross income" (generally, ordinary gross income,
as distinguished from capital gains income, adjusted to reflect certain
statutory exclusions and deductions) for any given year. If the Company were to
be classified as a personal holding company for federal income tax purposes, the
Company would be subject to an additional federal tax equal to 39.6%, generally,
of its undistributed after tax earnings for each taxable year in which it is so
classified. There can be no assurance that the Company will be successful in its
effort to avoid classification as a personal holding company. In the event that
the Company is unsuccessful in these efforts, the Company intends to make
distributions to its stockholders of all or part of its after tax earnings for
the applicable taxable year to minimize its liability for the personal holding
company tax. There can be no assurance, however, that the Company will have
adequate cash reserves to make such distributions. If made, such distributions
would likely be treated as dividends taxable as ordinary income for federal and
state income tax purposes. The application of the personal holding company tax
to the Company's undistributed after tax earnings would have an adverse effect
on the business, financial condition and results of operations of the Company.
See "Dividends" and "Certain United States Federal Tax Considerations."

PROTECTION OF PROPRIETARY TECHNOLOGY

The Company's ability to compete effectively will depend in part on its
ability to maintain the proprietary nature of the licensed technology. Although
the Company and EKI seek to protect the licensed technology through, among other
things, U.S. and foreign patents, there can be no assurance that the patent and
patent applications licensed to the Company are sufficient to protect the
Company's technology or that any patent obtained by EKI and licensed to the
Company will not be held invalid, circumvented or infringed by others. The
Company also relies on trade secrets and proprietary know-how that it seeks to
protect in part by confidentiality agreements with its licensee manufacturers,
proposed joint venture partners, employees and consultants. These agreements
have limited terms (typically five years or less) and there can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
become known or be independently developed by the Company's competitors.

11
<PAGE>

proceedings or in other litigation or infringement proceedings to which the
Company may become a party could subject the Company to significant liabilities
and costs to third parties or require the Company to seek licenses from third
parties. The Company could incur substantial costs in seeking enforcement of its
licensed patents against infringement or the unauthorized use of its trade
secrets and proprietary know-how by others or in defending itself against claims
of infringement by others. Accordingly, an adverse determination in a judicial
or administrative proceeding or failure to obtain necessary licenses would
prevent the Company from manufacturing or licensing others to manufacture
certain of its products, which could have an adverse effect on the Company's
business, financial condition and results of operations.

DEVELOPMENT OF EARTHSHELL PAPER PRODUCTS

The Company's sandwich container is, and certain other EARTHSHELL products
will be, made out of the proprietary ALI-ITE material which is formed into a
moldable, foamed material. EKI has also licensed to the Company technology to
develop a paper-like, sheet application of ALI-ITE material which the Company
has formed into prototype food service disposables, such as paper cups, french
fry scoops and paper plates. EKI and the Company have not completed the
development of EARTHSHELL paper roll stock or related manufacturing processes.
If the Company decides to continue the development of the paper-like sheet
application of ALI-ITE material, such development would require substantial
time, effort and expense. No assurance can be given that EKI or the Company will
be successful in developing EARTHSHELL paper roll stock, related manufacturing
processes, or specific EARTHSHELL paper products, or when such products might be
commercially introduced. See "Business--Food Service Disposables Market."

RAW MATERIAL SUPPLIES

While the Company and certain of its licensees believe that sufficient
quantities of all raw materials used in EARTHSHELL products are generally
available, the unavailability of any raw materials could result in delays in the
commercial introduction and could hinder acceptance of EARTHSHELL products,
thereby adversely affecting the Company's business, financial condition and
results of operations. In addition, the Company and its licensees may become
significant consumers of certain key raw materials, such as starch, and if such
consumption is substantial in relation to the available resources, raw materials
prices may increase which in turn may increase the price of EARTHSHELL products.
See "Business--Manufacturing of EARTHSHELL Products" and "--Raw Materials."

COMPETITION; RISK OF TECHNOLOGICAL ADVANCEMENT

Competition among existing food and beverage container manufacturers in the
food service industry is intense. At present, most of these competitors have
substantially greater financial and marketing resources at their disposal than
does the Company, and many have well-established supply, production and
distribution relationships and channels. Companies producing competitive
products may reduce their prices or engage in advertising or marketing campaigns
designed to protect their respective market shares and impede market acceptance
of EARTHSHELL products.

Recently, a number of paper and plastic disposable packaging manufacturers
and converters and others have made efforts to increase the recycling of these
products. Increased recycling of paper and plastic products could lessen their
negative environmental impact, one significant basis upon which the Company
intends to compete. A number of companies have introduced starch-based materials
or are attempting to develop plastics that they claim are biodegradable and
other specialty polymers as potential environmentally superior packaging
alternatives. It is expected that many existing packaging manufacturers may
actively seek competitive alternatives to the Company's products and processes.
The development of competitive, environmentally attractive, disposable food
service containers, whether or not based on the Company's products and
technology, could render the Company's technology obsolete and could have an
adverse effect on the business, financial condition and results of operations of
the Company. See "--Dependence on Licensee and Joint Venture Partners."

12
<PAGE>

DEPENDENCE ON KEY MANAGEMENT AND PERSONNEL

At present the Company is largely dependent upon obtaining and retaining the
services of qualified scientific and technical personnel. In addition, the
Company is highly dependent upon its Vice Chairman of the Board, Chief Executive
Officer and President, Simon Hodson. The loss of Mr. Hodson could adversely
affect the Company. Mr. Hodson has entered into a two-year employment agreement
with the Company that expires on September 30, 1999, subject to the Company's
right to renew the contract for one additional year. The Company does not hold
keyman insurance on any of its personnel. See "Management--Executive Officers
and Directors."

FDA REGULATION

The manufacture, sale and use of EARTHSHELL products is subject to
regulation by the U.S. Food and Drug Administration (the "FDA"). The FDA's
regulations are concerned with substances used in food packaging materials, not
with specific finished food packaging products. Thus, food or beverage
containers should be acceptable to the FDA if the components used in the food
and beverage containers: (i) are approved by the FDA as indirect food additives
for their intended uses and comply with the applicable FDA indirect food
additive regulations; or (ii) are generally recognized as safe ("GRAS") for
their intended uses and are of suitable purity for those intended uses. Each of
the components of the EARTHSHELL BigMac sandwich container and all other current
prototype products is either approved by the FDA as an indirect food additive
for its intended use, codified in the FDA's regulations as GRAS for its intended
use, or regarded by the Company and its consultants as GRAS for its intended
use. The Company has not sought the concurrence of the FDA and there can be no
assurance that the FDA would agree with these conclusions.

If the FDA were to disagree with the Company's determinations with respect
to the EARTHSHELL sandwich container or future products, the FDA could ask the
Company to voluntarily withdraw the products from the marketplace. They could
also initiate legal action to remove the products from the marketplace and, if
appropriate, pursue additional sanctions against the Company and its management.
Such actions by the FDA could have an adverse effect on the business, financial
condition and results of operations of the Company. See "Business--Government
Regulation."

BENEFITS OF OFFERING TO CERTAIN STOCKHOLDERS

Certain stockholders of the Company will receive substantial benefits from
the sale of Common Stock offered hereby. Specifically, (i) the Company intends
to use approximately $28.3 million of the net proceeds of the Offering to repay
certain indebtedness to its principal stockholder, EKI, (ii) upon the intended
repayment of approximately $9.0 million of Company borrowings under a line of
credit with Imperial Bank, EKI and the Chairman of the Board of the Company, Mr.
Essam Khashoggi, will be released from personal guarantees with respect to such
borrowings, and (iii) the Company intends to use approximately $8.0 million (as
of June 30, 1997) to pay accrued dividends on the Series A Preferred Stock. In
addition, the Selling Stockholders will sell 2,673,684 shares of Common Stock in
the Offering and receive approximately $47.8 million in net proceeds (2,763,684
shares and $66.6 million in net proceeds if the over-allotment option is
exercised in full), based upon an initial public offering price of $19.00 per
share (the midpoint of the estimated initial public offering price range) after
deducting the estimated underwriting discounts, but excluding any expenses to be
reimbursed. See "Certain Transactions."

ABSENCE OF PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public trading market for the
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after the Offering. The stock market from time to time
has experienced extreme price and volume fluctuations which often have been
unrelated to the operating performance of particular companies. Announcements of
technological innovations or new commercial products by the Company or its
competitors, development or disputes concerning proprietary rights, changes in
earnings estimated by analysts, and economic and other

13
<PAGE>
external factors, as well as period-to-period fluctuations in financial results
of the Company, may have a significant impact on the market price and
marketability of the Common Stock. Fluctuations or decreases in the trading
price of the Common Stock may adversely affect the liquidity of the trading
market for the Common Stock and the Company's ability to raise capital through
future equity financing. The initial public offering price of the Common Stock
in the Offering will be determined by negotiations among the Company, the
Selling Stockholders and the Representatives of the Underwriters based on
several factors and may not be indicative of prices that will prevail in the
trading market. See "Underwriting."

DILUTION AND ABSENCE OF DIVIDENDS

The initial public offering price per share of the Common Stock will exceed
the net tangible book value per share of the Common Stock. Accordingly, the
purchasers of shares of Common Stock in the offering will experience immediate
and substantial dilution of net tangible book value per share of $17.57. To
date, the Company has not paid any dividends on its Common Stock. Although the
Company currently intends to retain all available funds for use in its business
to the extent possible, the Company intends to pay accrued dividends, which were
approximately $8.0 million as of June 30, 1997, on its Series A Preferred Stock
immediately following completion of the Offering and if necessary intends to
make distributions of its earnings to stockholders in order to minimize the
personal holding company tax levied on its undistributed personal holding
company income, if any. See "--Certain Federal Tax Consequences," "Dividend
Policy" and "Certain United States Federal Tax Considerations."

EFFECT ON SHARE PRICE OF SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the 13,200,000 shares offered hereby
(15,180,000 shares if the over-allotment option is exercised in full) will be
eligible for immediate sale in the public market without restriction unless they
are held by affiliates of the Company. The 86,845,166 outstanding shares not
sold in the Offering will be "restricted securities" within the meaning of Rule
144 ("Rule 144") promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including the
exemptions contained in Rule 144. Of these shares, approximately 84,534,588
shares held by current stockholders will be eligible for sale pursuant to Rule
144 beginning 90 days after the completion of the Offering, subject to the
volume and manner of sale limitations of Rule 144. The directors, officers and
certain principal stockholders of the Company, none of whom are Selling
Stockholders, beneficially holding (upon completion of the Offering) an
aggregate of 74,457,256 shares, have agreed, subject to certain exceptions, not
to sell or otherwise dispose of any such shares for at least 180 days after the
date of the Underwriting Agreement relating to the Offering without the prior
written consent of the Representatives of the Underwriters. All other
stockholders of the Company beneficially holding (upon completion of the
Offering) an aggregate of 15,061,594 shares have agreed, subject to certain
exceptions, not to sell or otherwise dispose of any such shares for at least 270
days after the date of the Underwriting Agreement relating to the Offering
without the prior written consent of the Representatives of the Underwriters.
All of the Company's current stockholders, including EKI, have been granted
certain "demand" and "piggy-back" registration rights with respect to the shares
of Common Stock owned by them. No predictions can be made as to the effect, if
any, that public sales of shares or the availability of shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public market, particularly by
directors and officers of the Company, or the perception that such sales could
occur, could have an adverse impact on the market price. See "Certain
Transactions" and "Shares Eligible for Future Sale."

ANTI-TAKEOVER PROVISIONS

The Company's Certificate of Incorporation and Bylaws and the Delaware
General Corporation Law include provisions that may have the effect of
discouraging persons from pursuing a non-negotiated takeover of the Company and
preventing certain changes of control. See "Description of Capital Stock--
Anti-Takeover Law and Charter Provisions."

14
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 10,526,316 shares
offered by the Company are estimated to be approximately $187.0 million ($215
million if the over-allotment option is exercised) based upon an assumed
offering price of $19.00 per share and after deducting underwriting discounts
and commissions and estimated offering expenses. The Company will not receive
any proceeds from the sale of Common Stock by the Selling Stockholders. The
Company currently intends to use the net proceeds of the Offering to: (i)
facilitate the development of manufacturing capacity for EARTHSHELL products by
constructing turnkey manufacturing lines for lease to licensees or contribution
to joint ventures (approximately $44.0 million); (ii) expand the EARTHSHELL
product development center (approximately $10.0 million); (iii) launch an
initial public relations and advertising campaign (approximately $10.0 million);
(iv) pay for additional patent applications for its licensed technology; and (v)
establish a fund for the enforcement and protection of patents (together,
approximately $10.0 million), and (vi) pay accrued dividends on the Series A
Preferred Stock (approximately $8.0 million as of June 30, 1997).

In addition, approximately $37.3 million of the net proceeds of the Offering
will be used by the Company to repay certain indebtedness owed to its principal
stockholder, EKI (approximately $28.3 million in principal, accrued interest and
accounts payable as of June 30, 1997), and Imperial Bank (approximately $9.0
million as of June 30, 1997). The debt owed to EKI, which was incurred at
various times between February 1995 and June 30, 1997, bears interest at the
prime rate published in THE WALL STREET JOURNAL as adjusted on the first day of
each calendar quarter, and is due and payable upon demand by EKI. At June 30,
1997, this indebtedness bore interest at an annual rate of 8.5%. The
indebtedness to Imperial Bank, which was incurred in June, July and November
1996, bears interest at an annual rate of 1% in excess of the Bank's prime
lending rate as announced from time to time. At June 30, 1997, this indebtedness
bore interest at an annual rate of 9.5%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

The remaining net proceeds (approximately $68.0 million) will be used by the
Company for general corporate purposes, including the employment of additional
personnel, the continued design and development of EARTHSHELL products and
anticipated operating losses. Except as indicated, the Company cannot presently
determine the specific amounts of funds, and the timing of any payments, that
may be required in connection with the use of the portion of the net proceeds
allocated to general corporate purposes. The Company's management will have
broad discretion in applying the net proceeds, and the Company reserves the
right to change the use of proceeds if unanticipated developments in the
Company's business or changes in economic or competitive conditions make shifts
in the allocation of net proceeds necessary or desirable. Pending application of
the net proceeds for the above purposes, the Company intends to invest the net
proceeds from the Offering in investment-grade, short-term, interest-bearing
securities.

DIVIDEND POLICY

The Company expects to pay accrued dividends (approximately $8.0 million as
of June 30, 1997) on its Series A Preferred Stock following completion of the
Offering. Other than these contemplated dividends, the Company has never paid
dividends on its capital stock. The Company currently intends to retain all
available funds for use in its business; provided, however, that if the Company
is subject to personal holding company tax on its undistributed income, the
Company intends to make distributions of all or part of its after tax earnings
to stockholders if necessary to minimize this tax liability. See "Risk
Factors--Certain Federal Tax Consequences."

15
<PAGE>
CAPITALIZATION

The following table sets forth, at June 30, 1997, the actual capitalization
of the Company, and the pro forma capitalization of the Company (i) as if the
conversion of the Company's outstanding Series A Preferred Stock had occurred as
of such date and (ii) as further adjusted to give effect to the sale of the
10,526,316 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $19.00 per share and the application of the
estimated net proceeds thereof as described under "Use of Proceeds." This table
should be read in conjunction with the Management's Discussion and Analysis of
Financial Condition and Results of Operations, the Financial Statements and
notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA (1) ADJUSTED (1)(2)
---------- -------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Note payable, accounts payable, and accrued interest to majority
stockholder...................................................... $ 28,310 $ 28,310 $ --
Note payable to bank............................................... 9,000 9,000 --
Dividends payable.................................................. -- 7,981 --
---------- -------------- ----------------
Total indebtedness and dividends payable....................... $ 37,310 $ 45,291 --
---------- -------------- ----------------
---------- -------------- ----------------
Preferred Stock, par value $.01 per share: 10,000,000 shares
authorized; 35,000 Series A shares designated; 26,675 Series A
shares issued and outstanding; no shares outstanding pro forma
and as adjusted.................................................. 70 -- --
Common stock, par value $.01 per share: 200,000,000 shares
authorized; 82,530,000 shares issued and outstanding; (pro forma
89,518,850); 100,045,166 shares issued and outstanding as
adjusted (3)..................................................... $ 825 $ 895 1,000
Additional paid-in capital (preferred and common).................. 25,602 25,602 212,497
Deficit accumulated during the development stage................... (62,696) (70,677)(4) (70,677)(4)
---------- -------------- ----------------
Total stockholders' equity (deficit)........................... $ (36,199) $ (44,180) $ 142,820
---------- -------------- ----------------
---------- -------------- ----------------
</TABLE>

- ------------------------------

(1) Pro forma to give effect to the assumed conversion of the 26,675 shares of
Series A Preferred Stock of the Company outstanding into 6,988,850 shares of
Common Stock and the accrual of $7,981,000 in dividends (as of June 30,
1997) on such preferred stock which are payable upon such conversion.

(2) Pro forma as adjusted to give effect to the receipt of the net proceeds of
$187,000,000 from the sale of shares of Common Stock offered by the Company
hereby (at an assumed initial public offering price of $19.00 per share and
after deducting underwriting discounts and commissions and estimated
offering expenses) and the application of the estimated net proceeds
therefrom for the repayment of $28,310,000 in indebtedness to EKI,
$9,000,000 in a note payable to Imperial Bank and the payment of preferred
dividends of $7,981,000. See "Use of Proceeds" and "Capitalization."

(3) Excludes 1,037,520 shares issuable upon exercise of outstanding stock
options. See "Management--Stock Option Plans."

(4) Gives effect to $7,981,000 of dividends payable (as of June 30, 1997) upon
conversion of shares of Series A Preferred Stock to shares of Common Stock.

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<PAGE>
DILUTION

The pro forma net tangible deficit of the Company as of June 30, 1997 was
$44.2 million, or $.49 per share, assuming the conversion of the Company's
outstanding Series A Preferred Stock into 6,988,850 shares of Common Stock as of
such date. Net tangible deficit per share is determined by dividing the tangible
deficit of the Company (tangible assets less total liabilities) by the number of
shares outstanding. Without taking into account any changes in such pro forma
net tangible deficit after June 30, 1997 other than to give effect to the sale
of the 10,526,316 shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $19.00 per share, pro forma net
tangible book value of the Company as of June 30, 1997 would have been
approximately $142.8 million, or $1.43 per share (after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company). This represents an immediate increase in pro forma net tangible
book value of $1.92 per share to existing stockholders and an immediate dilution
of $17.57 per share to new stockholders. Dilution to new stockholders is
determined by subtracting the pro forma net tangible book value per share after
the Offering from the initial public offering price per share. The following
table illustrates this per-share dilution.

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $ 19.00

Pro forma net tangible deficit per share before Offering
(1).................................................... $ (.49)

Increase per share attributable to new stockholders...... 1.92

Pro forma net tangible book value per share after
Offering................................................. 1.43

Dilution per share to new stockholders..................... $ 17.57
</TABLE>

- ------------------------------

(1) The table excludes shares issuable and proceeds that would be received upon
exercise of options outstanding on June 30, 1997. See "Management--Stock
Option Plans" and "Description of Capital Stock."

The following table summarizes, as of June 30, 1997, the number of shares
purchased from the Company, the total investment made and the average price per
share invested by existing stockholders and new stockholders.

<TABLE>
<CAPTION>
SHARES
PURCHASED (1)(2) TOTAL INVESTMENT AVERAGE
----------------- -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 89,518,850 89.5% $26,685,000 11.8% $ .30
New stockholders.............. 10,526,316 10.5 200,000,000 88.2 19.00
------- ------- ----------- ------- ---------
Total..................... 100,045,166 100% $226,685,000 100% $ 2.27
------- ------- ----------- ------- ---------
------- ------- ----------- ------- ---------
</TABLE>

- ------------------------------

(1) Includes shares of Common Stock issuable upon conversion of the 26,675
shares of Series A Preferred Stock of the Company outstanding into 6,988,850
shares of Common Stock. Excludes 1,037,520 shares issuable upon the exercise
of 1,037,520 stock options outstanding. See "Management--Stock Option Plans"
and "Description of Capital Stock."

(2) Sales by the Selling Stockholders in the Offering will reduce the number of
shares held by existing stockholders to 86,845,166 or approximately 86.8%
(or approximately 85.1% if the Underwriters' over-allotment option is
exercised in full) and will increase the number of shares purchased by new
stockholders to 15,180,000 shares (or approximately 15.2% if the
Underwriters' over-allotment option is exercised in full) of the total
number of shares of Common Stock outstanding after the Offering.

17
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected financial data presented below at December 31, 1995 and 1996,
and for each of the years in the three-year period ended December 31, 1996, are
derived from the financial statements of the Company, audited by Deloitte &
Touche LLP, independent auditors, included elsewhere in this Prospectus. The
balance sheet information for the years ended December 31, 1993 and 1994 are
derived from audited financial statement balance sheets that are not included
elsewhere in this Prospectus. The financial data for the year ended December 31,
1993 also includes the Company's results of operations for the period from
November 1, 1992 (inception) through December 31, 1992. The selected financial
data for the six months ended June 30, 1996 and 1997, and for the period from
inception, November 1, 1992, through June 30, 1997, have been derived from the
unaudited financial statements of the Company. In the opinion of management, the
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for these periods. The results for the
six-month period ended June 30, 1997 are not necessarily indicative of the
results to be expected for the entire year.

<TABLE>
<CAPTION>
NOVEMBER 1,
1992
SIX MONTHS ENDED (INCEPTION)
YEAR ENDED DECEMBER 31, JUNE 30, THROUGH JUNE
------------------------------------------------ ------------------------ 30,
1993 (1) 1994 1995 1996 1996 1997 1997
----------- --------- --------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Research and development expenses........ $ 3,309 $ 10,930 $ 9,100 $ 10,159 $ 5,306 $ 4,294 $ 37,792
General and administrative expenses...... 2,500 3,428 2,363 3,406 1,093 884 12,581
Interest (income) expenses, net.......... (147) (290) 478 1,692 647 1,572 3,305
Depreciation and amortization............ 601 797 44 311 116 237 1,990
Patent expenses.......................... 1,520 1,717 1,929 1,382 782 480 7,028
Net loss................................. (7,783) (16,582) (13,914) (16,950) (7,944) (7,467) (62,696)
Pro forma net loss per share (2)(3)...... $ (.17) $ (.06)
Weighted average shares used in computing
pro forma net loss per share (3)....... 92,638,409 92,638,409
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997
------------------------------------------ -------------------------
1993 1994 1995 1996 ACTUAL PRO FORMA (2)
--------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 16,170 $ 2,885 $ 266 $ 21 $ 127 $ 127
Working capital (deficit)......................... 15,230 (124) (14,569) (31,489) (38,764) (46,745)
Total assets...................................... 17,640 3,250 2,228 2,817 2,710 2,710
Notes payables, payable to majority stockholder,
accrued interest and accrued dividends.......... 624 3,267 13,560 29,873 37,310 45,291
Deficit accumulated during development stage...... (7,783) (24,365) (38,279) (55,229) (62,696) (70,677)
Stockholders' equity (deficit) (4)................ 16,700 118 (12,678) (28,732) (36,199) (44,180)
</TABLE>

- ------------------------------

(1) Includes the financial results for the period from November 1, 1992
(inception) through December 31, 1992.

(2) Pro forma to give effect to the assumed conversion of Series A Preferred
Stock of the Company outstanding into Common Stock and the accrual of
preferred dividends of $7,981,000 (as of June 30, 1997) payable upon such
conversion.

(3) As a result of the planned stock split of 262-for-one and the significant
pro forma changes in the capitalization of the Company, pro forma net loss
per share and weighted average shares outstanding information is presented
only for the most recent fiscal year and interim period. Pro forma loss per
share has been calculated by dividing net loss less interest expense by a)
common stock issued and outstanding (82,530,000 shares); b) common stock
issuable related to the assumed conversion of Series A Preferred Stock
(6,988,850 shares); c) the number of shares (priced at $19.00 per share) the
proceeds from which will be used to repay the note payable, account payable
and accrued interest owed to majority stockholder ($28,310,000) and the note
payable to bank ($9,000,000) plus ($7,981,000) in dividends payable
(2,383,714 shares); and d) the net shares issuable related to stock options
using the Treasury Stock method (735,845 shares).

(4) No cash dividends were declared or paid in any of the periods presented
except as noted in note (2) above.

18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
Company's audited Financial Statements and unaudited interim financial
statements and the notes thereto, appearing elsewhere in the Prospectus.

OVERVIEW

The Company was organized in November 1992 as a Delaware corporation and
remains a development stage enterprise. The Company's principal stockholder, EKI
has been involved since July 1985 in the development of various new material
technologies including the ALI-ITE composite material. The Company was formed to
develop, license and commercialize food service disposables made of ALI-ITE
composite material. The Company has an exclusive, worldwide, royalty-free
license from EKI to use certain technology for this purpose. The Company intends
to license or joint venture with existing manufacturers of food service
disposables for the manufacture and distribution of EARTHSHELL products. The
Company expects to derive revenues primarily from license royalties, income from
joint ventures and lease payments from equipment leased to manufacturers of
EARTHSHELL products.

The Company has incurred aggregate net losses of approximately $63.0 million
from its inception in November 1992 through June 30, 1997. The Company has been
unprofitable to date and expects to continue to suffer operating losses until
its products are commercially introduced and achieve widespread market
acceptance and significant market penetration. Since its inception, the Company
has not generated any revenues from operations. Successful future operations
will depend upon the ability of the Company, its licensees and joint venture
partners to commercialize EARTHSHELL products.

The Company has financed its operations from inception primarily through the
private placement of preferred stock and loans from its principal stockholder,
EKI, and Imperial Bank. The Company's principal activities to date have included
material and product development, development of commercial manufacturing
processes, demonstration of the licensed technology, licensing the technology to
key manufacturers and producers and seeking patent protection of the licensed
technology. The Financial Statements reflect the costs and expenses related to
the development of the licensed technology as it relates to food service
disposables since the Company's formation in 1992.

Since inception, the Company has relied on EKI to provide extensive
administrative, management and technical support. The Company and EKI entered
into the Technical Services Agreement which continues through December 31, 2002.
Under the terms of the Technical Services Agreement, the Company pays EKI for
all direct project labor hours incurred by technical personnel and direct
expenses incurred on approved projects. In addition, under the Patent Allocation
Agreement, the Company reimburses EKI for the costs and expenses of filing,
prosecuting, acquiring and maintaining certain patents and patent applications
relating to the technology licensed to the Company under the License Agreement.
The Technical Services Agreement superseded a Technical Services and Sublease
Agreement which terminated on September 30, 1997 (the "Prior Technical Services
Agreement") and the Patent Allocation Agreement superseded an Agreement for
Allocation of Patent Costs which terminated on September 30, 1997 (the "Prior
Patent Allocation Agreement"). See "Business--Relationship with EKI."

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

The Company's net loss decreased $477,000 from $7.9 million for the six
months ended June 30, 1996 to $7.5 million for the six months ended June 30,
1997.

19
<PAGE>

RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenditures for the development of EARTHSHELL products decreased $1.0 million
from $5.3 million for the six months ended June 30, 1996 to $4.3 million for the
six months ended June 30, 1997. Research and development services billed by EKI
to the Company decreased $757,000 from $4.6 million for the six months ended
June 30, 1996 to $3.9 million for the six months ended June 30, 1997. In 1996,
the Company incurred increased research and development expenses primarily due
to the Company's development manufacturing efforts on the EARTHSHELL sandwich
container pilot line at a research facility in Rock Hill, South Carolina
operated by Genpak. The Company completed its efforts at Genpak near the end of
1996 and relocated the pilot line to Santa Barbara, California. Accordingly,
costs related to this off-site manufacturing effort in 1996 have not been
incurred during the first six months of 1997. The Company anticipates that
during the one-year period following the Offering, research and development
expenses will increase compared to the prior one-year period as the Company
requires greater effort from EKI's technical staff to prepare for commercial
production of the EARTHSHELL Big Mac sandwich container and other EARTHSHELL
products. During this period, the Company anticipates that it will also add 13
product development employees to its staff.

GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative
expenses decreased $210,000 from $1.1 million for the six months ended June 30,
1996 to $883,000 for the six months ended June 30, 1997. This decrease was
primarily due to the recognition of compensation expense of $325,000 related to
the stock options of one executive which vested in March 1996. The Company
anticipates that during the one-year period following the Offering, general and
administrative expenses will increase compared to the prior one-year period as
the Company adds management and administrative staff to support the commercial
introduction of EARTHSHELL products. During this period, the Company anticipates
that sales and marketing expenditures, as compared to the prior one-year period,
will also increase as the Company begins implementation of its marketing plan to
develop consumer awareness of the EARTHSHELL brand name and the environmental
advantages of EARTHSHELL products.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $121,000 from $116,000 for the six months ended June 30, 1996
to $237,000 for the six months ended June 30, 1997. The increase in depreciation
was mainly due to the purchase of commercial scale pilot manufacturing
equipment.

PATENT EXPENSES. Legal fees under the Prior Patent Allocation Agreement
with EKI decreased $302,000 from $782,000 for the six months ended June 30, 1996
to $480,000 for the six months ended June 30, 1997. The decrease was primarily a
result of filing fewer patent applications.

INTEREST INCOME/EXPENSE. Total interest expense increased $925,000 from
$647,000 for the six months ended June 30, 1996 to $1.6 million for the six
months ended June 30, 1997. The increase in interest expense was mainly due to
additional borrowings from EKI of $5.3 million and borrowings of $1.9 million
against the line of credit during the six months ended June 30, 1997.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

The Company's net loss increased $3.0 million from $14.0 million for the
year ended December 31, 1995 to $17.0 million for the year ended December 31,
1996.

RESEARCH AND DEVELOPMENT EXPENSES. Total research and development
expenditures for the development of EARTHSHELL products increased $1.1 million
from $9.1 million for the year ended December 31, 1995 to $10.2 million for the
year ended December 31, 1996. The increase for the year ended December 31, 1996
compared to 1995, was primarily due to the Company's development manufacturing
efforts on the EARTHSHELL sandwich container pilot line at the Genpak research
facility in South Carolina and its relocation near the end of 1996 to Santa
Barbara. Also, in preparation for the Offering, the Company increased its
efforts in the environmental science and marketing areas related to the
EARTHSHELL sandwich container resulting in increased expenses from $543,000 to
$914,000 for the

20
<PAGE>

years ended December 31, 1995 and 1996, respectively. The Company was billed by
EKI for research and development services totaling $9.1 million and $8.4 million
for the years ended December 31, 1996 and 1995, respectively.

GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative
expenses increased $1.0 million from $2.4 million for the year ended December
31, 1995 to $3.4 million for the year ended December 31, 1996. This increase was
primarily due to the recognition of compensation expense of $650,000 related to
one executive's stock options which vested during 1996, a severance payment of
$75,000, and legal and filing fees related to the Offering of $427,000.

DEPRECIATION EXPENSE. Depreciation expense increased $267,000 from $44,000
for the year ended December 31, 1995 to $311,000 for the year ended December 31,
1996. The increase was primarily due to purchase of commercial scale pilot
manufacturing equipment for EARTHSHELL sandwich containers which totaled $1.2
million in 1996.

PATENT EXPENSES. Legal fees under the Prior Patent Allocation Agreement
with EKI decreased $547,000 from $1.9 million for the year ended December 31,
1995 to $1.4 million for the year ended December 31, 1996. The decrease was
primarily a result of filing fewer patent applications.

INTEREST INCOME/EXPENSE. Total interest expense increased $1.2 million from
$510,000 for the year ended December 31, 1995 to $1.7 million for the year ended
December 31, 1996. The increase in interest expense was due to additional
borrowings from EKI of $9.2 million and borrowings against the line of credit of
$7.1 million for the year ended December 31, 1996. Due to the reduction of
excess cash for investment purposes in 1996, interest income decreased $29,000
from $32,000 for the year ended December 31, 1995 to $3,000 for the year ended
December 31, 1996.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

The Company's net loss decreased $2.7 million from $16.6 million for the
year ended December 31, 1994 to $13.9 million for the year ended December 31,
1995.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenditures
for the development of EARTHSHELL products decreased $1.8 million from $10.9
million for the year ended December 31, 1994 to $9.1 million for the year ended
December 31, 1995. The decrease was primarily due to the change in the billing
structure between the Company and EKI under the Prior Technical Services
Agreement and a reduction in project costs related to the development and
testing of a commercial scale paper line totaling $1.2 million. The Company was
billed by EKI for technical services totaling $8.4 million and $9.5 million for
the years ended December 31, 1995 and 1994, respectively.

GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative
expenses decreased $1.0 million from $3.4 million for the year ended December
31, 1994 to $2.4 million for the year ended December 31, 1995. This decrease was
due primarily to the elimination in 1995 of the $1.2 million in administrative
fees which were paid to EKI in 1994. Other significant but largely offsetting
changes in general and administrative expenses in 1995 compared to 1994 included
an increase in salary expense. In the latter part of 1994, the Company hired key
executives to position itself for commercial product introduction. As a result,
the Company's compensation expense increased $251,000 from $861,000 for the year
ended December 31, 1994 to $1.1 million for the year ended December 31, 1995. In
addition, general legal fees increased $168,000 from $548,000 for the year ended
December 31,1995 to $380,000 for the year ended December 31, 1994. The Company
recorded a $51,000 write down of assets in the first quarter of 1994. In 1995,
surplus research materials and equipment were sold for $89,000. In total, these
equipment expense related transactions resulted in a reduction in miscellaneous
income and expense of $140,000.

21
<PAGE>

PATENT EXPENSES. Legal fees under the Prior Patent Allocation Agreement
with EKI increased $212,000 from $1.7 million for the year ended December 31,
1994 to $1.9 million for the year ended December 31, 1995. The increase was due
primarily to the filing of additional patent applications in foreign countries.

DEPRECIATION EXPENSE. Depreciation expense decreased $753,000 from $797,000
for the year ended December 31, 1994 to $44,000 for the year ended December 31,
1995. The decrease was largely due to the sale on December 31, 1994 of
substantially all of the Company's laboratory equipment and leasehold
improvements to EKI at their original acquisition price. In addition, the
Company sold commercial process equipment originally purchased for a pilot
manufacturing line to a third party in March 1995. During 1995, the Company
purchased additional commercial processing equipment. As of December 31, 1995,
the Company's fixed assets consisted of office equipment and deposits on
equipment related to the sandwich container production line with a net book
value of $1.9 million, whereas at December 31, 1994 the Company's fixed assets
had a net book value of $242,000.

INTEREST INCOME. Interest income for the year ended December 31, 1995
totaled $32,000 compared to $291,000 for the year ended December 31, 1994. The
reduction in interest income was due to the reduced level of excess cash
available for investment purposes. During 1995, the Company obtained working
capital loans from EKI which totaled $6.2 million. Intercompany charges payable
to EKI under the Prior Technical Services Agreement and Prior Patent Allocation
Agreement totaling $8.6 million were converted to demand notes in 1995.
Accordingly, interest expense for 1995 was $510,000.

LIQUIDITY AND CAPITAL RESOURCES

As a development stage company since inception in November 1992, the Company
has had no operating revenues and does not expect to have any revenues until at
least the fiscal quarter ending March 31, 1999. Through June 30, 1997 the
Company has incurred aggregate net operating losses of approximately $63.0
million.

Funds to finance the operation of the Company through June 30, 1997 have
been obtained primarily from a private placement of its Series A Preferred Stock
and borrowings from EKI and Imperial Bank. In September 1993, the Company raised
$25.7 million from the private placement of Series A Preferred Stock with
issuance costs of $1.2 million. Since inception, the Company has borrowed
approximately $9.0 million from EKI (excluding the payables owed to EKI) and
$9.0 million from Imperial Bank under a line of credit. In connection with the
line of credit, the Company executed a general security agreement that grants
Imperial Bank a security interest in the Company's License Agreement with EKI.
From inception through June 30,1997, the Company received approximately $42.4
million in cash from financing activities. Outstanding loans from, and payables
owed to, EKI totaled $28.3 million as of June 30, 1997. Credit extended under
the Imperial Bank line of credit as of June 30, 1997 totaled $9.0 million.

From inception through June 30, 1997, the Company has used approximately
$37.2 million of cash for operating activities and approximately $5.1 million of
cash in investing activities. Net cash used in investing activities has
consisted primarily of manufacturing and lab equipment purchases. Since
inception, capital expenditures have amounted to $5.8 million.

Primarily because of the Company's history of operating losses and its
reliance on its stockholders to provide cash flow to sustain operations, there
is substantial doubt about the Company's ability to continue as a going concern
unless the Company is able to obtain equity financing through the Offering,
loans from its principal stockholder or otherwise. Without the proceeds of the
Offering or other funding, the Company would run out of cash to fund its
operations. The report of independent accountants on the Company's financial
statements included herein includes an explanatory paragraph to this effect.

The Company anticipates that it will borrow from third-party lenders a
portion of the funds required to purchase equipment and construct turnkey
manufacturing lines for its licensee and joint venture

22
<PAGE>

partners. The Company believes that the net proceeds of the Offering (estimated
to be approximately $187 million) together with such third-party financing will
be sufficient to meet its foreseeable working capital requirements through at
least the next two years. The Company currently intends to use the net proceeds
to facilitate the development of manufacturing capacity for EARTHSHELL products
by directly purchasing manufacturing equipment for lease to licensees or
contribution to joint ventures, to expand the Company's product development
center, to repay certain indebtedness to its principal stockholder, EKI, and
Imperial Bank, to launch an initial public relations and advertising campaign of
EARTHSHELL products, to prosecute additional patent applications for its
licensed technology and to establish a fund for the enforcement and protection
of patents, to pay accrued dividends on the Series A Preferred Stock, and for
general corporate purposes, including anticipated operating losses. Proceeds
available for working capital are currently estimated to be approximately $68.0
million.

The Company has no commitments for any additional financing, and there can
be no assurance that any such commitments can be obtained on favorable terms, if
at all. If the Company is unable to obtain additional financing as needed, the
Company may be required to reduce the scope of its anticipated manufacturing
ramp-up and products introduction, which could have an adverse effect on the
Company's business, financial condition and results of operations.

NET OPERATING LOSS TAX CARRYFORWARDS

The Company has sustained net operating losses ("NOLs") for federal income
tax purposes in the aggregate amount of approximately $34.3 million from its
inception through December 31, 1996. Under the Internal Revenue Code of 1986, as
amended (the "Code"), the Company generally is entitled to reduce its future
federal income tax liabilities by carrying unused NOLs forward for a period of
15 years to offset future taxable income earned.

In the event that the Company is subject to the federal personal holding
company tax in any taxable year, the Company can only use its NOLs, if any, from
the immediately preceding taxable year to offset its income subject to the
personal holding company tax for such year. See "Certain United States Federal
Tax Considerations."

23
<PAGE>

BUSINESS

According to an industry study, more than $8.3 billion was spent in the
United States in 1994 on the types of food service disposables that the Company
believes can be replaced by EARTHSHELL products. The Company believes that
international markets represent additional significant opportunities for
EARTHSHELL products. Food service disposables are currently manufactured from a
variety of materials, including paper and polystyrene. The Company believes that
none of these materials fully addresses all three principal concerns of the food
service industry--performance, cost and environmental impact. The Company
believes that EARTHSHELL products will best address all of these concerns and
therefore will be able to achieve significant penetration of the food service
disposables market.

24
<PAGE>

these patents and patent applications represent a strategic web of protection
broadly covering EARTHSHELL products, their material composition and the
manufacturing processes used to make them.

BACKGROUND

Disposable food and beverage containers used in the food service industry
are currently manufactured from a variety of materials, including paper, plastic
and polystyrene. The Company believes that no disposable packaging material has
been developed, however, which fully addresses all three principal concerns of
the food service industry--performance, cost and environmental impact.

For example, while polystyrene products are relatively inexpensive and
provide good insulation, their manufacture and disposal have been shown to have
adverse environmental consequences. Production of polystyrene products results
in the depletion of certain non-renewable resources, such as crude oil and
natural gas, and also results in the release of significant amounts of
hydrocarbons into the atmosphere, which can contribute to the formation of smog.
Because polystyrene does not easily degrade, polystyrene litter can accumulate
and remain visible on beaches, lake shores and roadways. Environmentally
concerned consumers have actively lobbied against the use of polystyrene
packaging, and a number of communities have banned polystyrene disposables.
Because of environmental concerns, a number of quick-serve restaurant chains
have reduced their use of polystyrene products in favor of paper.

Paper products in many instances are more expensive than polystyrene
products, may offer reduced functional performance and have their own set of
adverse environmental consequences. The paper industry uses the wood from
millions of trees each year, and the manufacture of paper products requires
substantial amounts of energy and releases significant amounts of pollutants
into both the air and water. Corrugated paper-plastic laminate sandwich
containers and paper wraps have both been used as replacements for polystyrene
sandwich containers, but are generally less rigid and offer inferior heat
insulation. Similarly, paper hot cups are much less effective at heat insulation
than polystyrene foam cups, resulting in "double cupping" in some instances.

A number of companies have introduced plastic and starch-based materials as
potential environmentally superior packaging alternatives. To date, many of
these materials have suffered from unacceptable performance limitations and have
not proven to be economically viable as disposable packaging.

THE EARTHSHELL SOLUTION

The Company believes that EARTHSHELL products best address all three
principal concerns of the food service industry--performance, cost and
environmental impact.

PERFORMANCE CHARACTERISTICS. The Company has produced a full line of
prototype food service disposables that the Company believes meet the critical
performance requirements of the marketplace, including rigidity, graphic
capabilities, insulation, stacking and shipping and handling performance. In
addition, the Company believes that EARTHSHELL products can be designed to have
certain superior performance characteristics. For example, EARTHSHELL products
have been designed to have greater strength and rigidity compared to
conventional food service disposables and better insulating performance than
paper packaging products. In addition, the prototype EARTHSHELL hot cup has been
designed to have a more desirable hand and mouth feel and EARTHSHELL prototype
sandwich containers and hot cups were preferred over comparable conventional
products in consumer focus groups.

25
<PAGE>

COST COMPETITIVE. The Company believes that EARTHSHELL products can be
manufactured at costs which are competitive with comparable existing food
service disposables. While EARTHSHELL products have not yet been produced
commercially on fully integrated production lines and there can be no assurance
as to their actual cost when so produced, based on material and machinery costs
received from vendors and suppliers, the Company believes that the total cost of
EARTHSHELL products (including the Company's royalty) will be approximately
equal to or less than the cost of comparable paper and polystyrene products. The
Company expects that the cost of producing EARTHSHELL products will decrease
over time as the technology and initial production processes are further
refined.

ENVIRONMENTAL IMPACT. EARTHSHELL products offer a number of attractive
environmental features which are expected to appeal to customers concerned about
the environment. Through the use of a "cradle-to-grave" environmental assessment
and in consultation with leading environmental experts, EARTHSHELL products have
been designed to reduce the environmental burdens of rigid packaging through the
careful selection of raw materials, processes and suppliers. EARTHSHELL products
are made primarily from limestone, natural starch binders, natural fibers
(including in many instances post-consumer recycled fiber which does not require
the cutting of trees), biodegradable polymer and wax coatings, and water.

When crushed or broken, the EARTHSHELL sandwich container will biodegrade in
moisture and physically dissolve in water, according to research commissioned by
the Company and performed by Cal Recovery Inc., an international waste
management consulting company. As a result, the Company believes that EARTHSHELL
products substantially reduce the risk to wildlife when compared to polystyrene
food service disposables and may help mitigate the litter concern created by
their improper disposal.

EARTHSHELL products can be composted and, as a result, they can offer a
disposal alternative not available with polystyrene packaging. Research
performed by Cal Recovery Inc. shows that EARTHSHELL sandwich containers can be
composted in a backyard compost pile, and used as a soil conditioner. The State
University of New York, Stony Brook has completed a field test commissioned by
the Company, using the Town of Easthampton composting facility on Long Island,
New York to demonstrate that EARTHSHELL sandwich containers can be composted
commercially. While food service disposables are not commonly recycled through
composting, the ability of EARTHSHELL products to be composted may be a
significant advantage if this method of recycling becomes more widely used.

BUSINESS STRATEGY

The Company's objective is to establish EARTHSHELL products as the preferred
disposable packaging for the food service industry throughout the world. A
component of the Company's strategy is to utilize outside experts to assist in
the commercialization of EARTHSHELL products. The key elements of the Company's
strategy for attaining this objective are:

CREATE CONSUMER DEMAND FOR EARTHSHELL PRODUCTS. The Company will continue
to work with the major purchasers of food service disposables in the development
and testing of prototype hot and cold cups, plates, bowls and trays to
demonstrate product performance and cost benefits and to build demand for
EARTHSHELL products. The Company believes that the use of EARTHSHELL products by
influential food service operators will accelerate the acceptance of EARTHSHELL
products by other users. The Company intends to use $10.0 million of the
proceeds of the Offering to expand its product development center at which it
produces prototype EARTHSHELL products for commercial testing by food service
operators. In connection with the commercial introduction of its products, the
Company plans to use a portion of the proceeds of the Offering to launch public
relations and advertising campaigns. The Company also intends to promote the
environmental benefits of EARTHSHELL products to environmental groups, policy
makers, legislators, the media and the general public through student media
packages, network television and print advertising. The Company also expects
that the EARTHSHELL brand name will appear on most EARTHSHELL products. See
"Marketing."

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<PAGE>

LICENSE EXISTING MANUFACTURERS OF FOOD SERVICE DISPOSABLES. The Company's
strategy includes licensing or joint venturing with existing manufacturers of
disposable packaging for the manufacture and distribution of EARTHSHELL
products. By licensing its technology or entering into joint venture
relationships on a non-exclusive basis with such companies as Sweetheart, Genpak
and Dopaco, the Company believes it can take advantage of the manufacturing
experience and distribution networks of existing manufacturers, thereby
accelerating the market penetration of EARTHSHELL products. The Company intends
to provide its licensees and joint venture partners with technical and ongoing
support designed to facilitate the application of EARTHSHELL technology, further
refine manufacturing processes and reduce production costs. The Company will
also monitor licensee and joint venture operations to ensure product quality.

DEVELOP PRODUCTION CAPACITY. The Company intends to use $44.0 million of
the proceeds of the Offering to support the development of sufficient production
capacity to meet anticipated customer demand for EARTHSHELL products. The first
phase of ramp-up is expected to be completed as early as the end of 1998 and
will include the construction of a multi-line manufacturing operation at
Sweetheart's Owings Mill, Maryland plant to supply containers for McDonald's Big
Mac sandwich. Subsequent lines for sandwich container and other EARTHSHELL
products will be constructed at strategic locations determined in conjunction
with the Company's licensees. By the end of 1999, the Company expects to have
supplied equipment to licensees at multiple production sites for the manufacture
of a broad range of EARTHSHELL products including cold cups, hot cups, plates,
bowls, sandwich containers and other hinged-lid containers. The Company intends
to engage leading engineering and construction firms to deliver manufacturing
lines at the licensee's or joint venture partner's facilities in order to ensure
that manufacturing equipment is properly installed, integrated and producing
EARTHSHELL products to meet anticipated market demands.

DEVELOP INTERNATIONAL MARKETS. The Company's international strategy is to
introduce EARTHSHELL products in foreign markets through quick-serve restaurant
industry leaders who will have already introduced EARTHSHELL food service
disposables in the United States. The Company intends to enter into strategic
licenses or joint ventures with key international packaging suppliers. The
Company does not expect to begin building overseas manufacturing capability
before the end of 1999.

PROTECT EARTHSHELL TECHNOLOGY. The Company, together with EKI, will
continue to seek to develop and maintain a web of patent protection covering
EARTHSHELL products, the material composition and the manufacturing processes
used to make them. EKI has received 35 U.S. and 20 foreign patents with regard
to the compounds, manufacturing processes and product designs applicable to
EARTHSHELL products and has 35 U.S. and 119 foreign patent applications pending.
The Company and EKI intend to continue to seek domestic and international patent
protection for further developments in the technology and intend to vigorously
enforce their rights against any person infringing the technology.

FOOD SERVICE DISPOSABLES MARKET

According to an industry study, more than $8.3 billion was spent in the
United States during 1994 on the types of food service disposables that the
Company believes can be replaced by EARTHSHELL products. In addition, according
to another industry study, approximately $4.4 billion was spent in the United
Kingdom, France, Germany, Belgium, the Netherlands, Japan, Australia and Brazil
on such products. The Company believes that the remaining unquantified
international markets also present significant opportunities for EARTHSHELL
products.

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<PAGE>

The following data details the $8.3 billion of U.S. sales of those food
service disposables targeted for replacement by EARTHSHELL products:

<TABLE>
<CAPTION>
EARTHSHELL TARGET MARKET
1994 U.S. PURCHASES
(DOLLARS IN MILLIONS)
- -------------------------------------------------------------------------------------------------
AMOUNT OF
PRODUCT TYPE PURCHASES PERCENT
- ----------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Cold cups.............................................................. $ 1,460 17.6%
Hot cups............................................................... 850 10.2
Cups for home use...................................................... 440 5.3
Plates and bowls....................................................... 1,640 19.8
Containers, trays and carriers......................................... 1,230 14.8
Pizza boxes............................................................ 680 8.2
Beverage lids.......................................................... 620 7.5
Cutlery................................................................ 600 7.2
Hinged-lid containers.................................................. 500 6.0
Wraps.................................................................. 280 3.4
----------- -----
Total.............................................................. $ 8,300 100.0%
----------- -----
----------- -----
</TABLE>

According to an industry study on the U.S. market, approximately 48% of the
total food service disposables purchased in 1994 were purchased by quick-serve
restaurants, 40% by other institutions, such as hospitals, stadiums, airlines,
schools and restaurants (other than quick-serve restaurants), and the remaining
12% by retail stores. Of the food service disposables purchased in the United
States by quick-serve restaurants and other institutions, approximately 55% were
made of paper and 45% were made of plastic or polystyrene or foil.

THE TECHNOLOGY

The new composite material used to make EARTHSHELL products ("ALI-ITE
composite material") is the result of more than 10 years of basic research by
EKI in the materials science of natural minerals (such as limestone and sand)
and natural binders (such as starch). EKI has employed materials science
methodologies and state-of-the-art analytical equipment and research methods to
develop this proprietary composite material and related manufacturing processes.
EKI has carefully considered the environmental impact in the selection of these
materials and processes.

EKI made several significant discoveries that led to the commercial
potential of this new composite material. For example, EKI developed a method of
using a high percentage of natural, low-cost fillers (such as limestone and
sand) in the composite. These fillers reduce cost and provide rigidity, thermal
stability and environmental benefits to the materials, without significantly
compromising strength, flexibility and moldability. EKI also developed a
manufacturing process to disperse fibers into the material at a lower water
content than paper processing, resulting in a reduction in the amount of natural
fibers necessary to give the material flexibility and toughness. EKI also
modified the ALI-ITE composite material to allow the manufacturing of EARTHSHELL
products using known processes such as heated mold forming systems. The result
of these discoveries is a new composite material which can be made from low-cost
materials, which can be processed using known manufacturing processes and
equipment and which the Company has engineered for specific product applications
and performance characteristics. The EKI technology also allows the use of a
broad range of locally available sources of raw materials, specifically
limestone, fiber and starch. The product composition is readily tailored to use
widely available raw materials while maintaining product properties and
performance.

The Company's initial research and development efforts have focused on
EARTHSHELL products made from a moldable foam-like formulation of ALI-ITE
composite material. The EARTHSHELL sandwich container and the Company's current
prototype products are made of this formulation. There is also a

28
<PAGE>

paper-like application of ALI-ITE composite material that the Company believes
can also be formulated into EARTHSHELL food service disposables in the future.

Although the initial development of ALI-ITE composite material was conducted
by EKI, the Company has incurred substantial expenses in connection with the
commercial application of this technology for the food service packaging market
since the Company's formation in 1992. The Company's research and development
expenses in the years ended December 31, 1994, 1995 and 1996 were approximately
$10.9 million, $9.1 million and $10.2 million, respectively. The Company's
research and development efforts are ongoing and the Company expects to continue
to incur substantial research and development expenses in the future.

MANUFACTURING OF EARTHSHELL PRODUCTS

While the Company's pilot manufacturing line utilizes commercial equipment,
EARTHSHELL products have not been manufactured on a fully integrated production
line or at the consistent manufacturing throughputs which will be required to
successfully manufacture EARTHSHELL products at the costs and in the quantities
necessary for their commercial introduction. Based on the limited production of
the EARTHSHELL sandwich containers by the Company, the Company believes that
EARTHSHELL products can be manufactured on known commercial processing
equipment, subject to certain application specific modifications. The EARTHSHELL
manufacturing process consists of blending the component ingredients of ALI-ITE
composite material in a mixer, depositing the mixture into heated cavity molds,
heating the molded mixture for approximately one minute, removing the product
and trimming excess material, spraying on functional coatings and printing any
desired graphics. The Company estimates that the cost of the machinery and
installation required for a fully integrated commercial manufacturing line with
annual production capability of 170 million sandwich containers or 550 million
cups is approximately $2.0 million.

The Company has identified multiple equipment manufacturers that produce
machinery on which the Company believes that EARTHSHELL products can be
produced, subject to application specific modifications. The Company believes
that these and other equipment manufacturers can produce a sufficient amount of
equipment to support the projected commercial introduction of EARTHSHELL
products. The Company believes that the design, construction and start up of the
first commercial plant to produce the EARTHSHELL Big Mac sandwich container will
take approximately 12 months, and that the design, construction and start up of
the first commercial plant for other EARTHSHELL product lines, such as hot and
cold cups, hinged-lid containers, and plates and bowls will take a similar
period of time. The Company believes that the design, construction and start up
of subsequent manufacturing lines for previously introduced product lines will
take approximately nine months. There can be no assurance that delays will not
be encountered in the construction and operation of commercial production lines.
See "Risk Factors--No Existing Manufacturing Capacity."

As part of the Company's strategy of supporting the development of
sufficient production capacity to meet anticipated customer demand for
EARTHSHELL products, the Company intends to use $44.0 million of the proceeds of
the Offering to construct turnkey manufacturing lines for its licensees and
joint ventures. The first phase of ramp up is expected to be completed as early
as the end of 1998 and will include the construction of a multi-line
manufacturing operation at Sweetheart's Owings Mill, Maryland plant to supply
containers for McDonald's Big Mac sandwich. In addition, the Company intends to
expand its product development center in Santa Barbara, California by adding
mold design capacity and pilot manufacturing lines to support the development,
testing and introduction of new products in each major product category.
Subsequent lines for producing additional sandwich container and other
EARTHSHELL products will be built at strategic locations determined in
conjunction with licensees. By as early as the end of 1999, the Company expects
to have supplied equipment to licensees and joint venture partners at multiple
production sites for the manufacture of a broad range of EARTHSHELL products,
including cold cups, hot cups, plates, bowls, sandwich containers and other
hinged-lid containers. The Company intends to engage leading design engineering
firms to deliver manufacturing

29
<PAGE>

lines on a turnkey basis in order to ensure that enough manufacturing equipment
is properly installed, integrated and producing EARTHSHELL products to meet the
ramp-up demands.

Most EARTHSHELL products will require one or more product specific coatings
to deliver specific performance characteristics. The EARTHSHELL Big Mac sandwich
container has an interior (food contact side) wax coating which serves
principally as a moisture barrier. The container also has an exterior coating
which contributes to the flexibility and stability of the product. The Company
intends to identify and develop other product specific coatings and additives
for use with its products on an ongoing basis.

EARTHSHELL products use commonly available raw materials, such as limestone,
natural potato and corn starch, natural fiber and functional coatings. The
Company and certain of its licensees believe that these raw materials are
currently available from multiple existing suppliers in amounts sufficient to
satisfy projected demand. The Company and its licensees have identified and
qualified a number of suitable suppliers of raw materials for manufacturers of
EARTHSHELL products. See "Risk Factors--Raw Material Supplies."

MARKETING

The Company's primary marketing strategies are to develop consumer awareness
of the brand name EARTHSHELL and the environmental advantages of EARTHSHELL
products and to work directly with major users and distributors of food service
disposables to encourage the purchase of EARTHSHELL products. In working with
significant food service operators, the Company has developed specific sample
products designed to meet operator specifications. These operators are able to
use the sample products to perform market tests and determine product
performance and cost. The Company believes that the adoption of EARTHSHELL
products by influential users will accelerate market penetration of EARTHSHELL
products, as well as promote the interest of existing container manufacturers in
producing and distributing EARTHSHELL products.

The Company intends to use a portion of the proceeds of the Offering to
expand its product development center at which it intends to develop and produce
sample EARTHSHELL products for commercial testing by food service operators. The
product development center will enable Company engineers to computer design and
produce sample products and make sample product machine molds. The facility is
also expected to include one or more demonstration commercial production lines
at which the laboratory produced molds can be used to produce prototype products
in sufficient quantities to permit in-store testing for potential customers and
training of new licensees. The Company intends to hire approximately 13
employees, including product development engineers, and technical support staff
in the first year following the Offering to staff this facility.

In order to introduce EARTHSHELL products to the public, the Company intends
to use a portion of the proceeds of the Offering to launch an advertising
campaign which will include school media, network television and print
advertising describing the benefits of EARTHSHELL products. This advertising
campaign will be designed to develop a high level of consumer awareness of the
brand name EARTHSHELL and the environmental benefits of EARTHSHELL products. As
an additional part of the Company's strategy of establishing brand name
recognition, licensees will be required to place the EARTHSHELL logo on all
EARTHSHELL products or will be required to pay an additional 2% royalty.

Distribution of EARTHSHELL products is expected to be accomplished through
the established product distribution networks of existing manufacturers and
distributors of food service disposables who become licensees of or joint
venture partners with the Company. Because these manufacturers have extensive
experience in the marketing and distribution of food service disposables, the
Company does not expect to employ substantial numbers of sales or marketing
personnel.

RELATIONSHIP WITH MCDONALD'S

Since 1991, the Company has worked closely with McDonald's in developing and
testing products, including the Big Mac sandwich container and a sandwich
container for the Quarter Pounder with Cheese sandwich ("QPC"). The Company is
not a party to any development contract with McDonald's,

30
<PAGE>

and McDonald's is free to discontinue its development relationship with the
Company at any time. McDonald's is a stockholder in the Company.

Extensive testing of the EARTHSHELL QPC sandwich container by McDonald's
included a market test in approximately 40 Las Vegas area restaurants from
September to November 1996. While the Company's QPC sandwich container
experienced certain product performance shortcomings during this Las Vegas test,
the Company has made ongoing improvements to the EARTHSHELL sandwich container
in response to feedback from McDonald's. As a result of this process, McDonald's
recently approved the EARTHSHELL Big Mac sandwich container for use in
McDonald's restaurants in the United States. This approval is expressed in a
non-binding letter agreement which sets forth various terms and conditions for
the use of the EARTHSHELL sandwich container in McDonald's restaurants,
including many of the terms and conditions expected to be included in the
Perseco purchase order as described below.

The Company expects McDonald's primary packaging supplier, Perseco, to place
a purchase order with Sweetheart, a leading manufacturer of disposable
packaging, for 1.8 billion EARTHSHELL Big Mac containers over a three-year
period. The Company has entered into a letter of intent with Sweetheart which
contemplates that the Company will fund and build at Sweetheart's Owings Mills,
Maryland facility the manufacturing capacity necessary to produce the EARTHSHELL
Big Mac sandwich containers to be sold to Perseco. See "--License and Joint
Venture Relationships." The Perseco purchase order is expected to include a
number of terms and conditions, including compliance with product
specifications, favorable market acceptance of the EARTHSHELL sandwich container
as determined at McDonald's reasonable discretion, a long-term goal of improving
certain environmental characteristics of EARTHSHELL, assurance of
non-infringement of the patent or other intellectual property rights of others
and under certain circumstances, the right of McDonald's to purchase the first
commercial production available for any subsequently developed EARTHSHELL
products in the quick-serve restaurant industry and satisfaction of McDonald's
demand for any quick-serve package prior to the sale to any other organizations.
The letter agreement expressly provides that orders for containers will only
come from McDonald's primary supplier of disposable packaging, Perseco, or other
approved independent distribution centers.

LICENSE AND JOINT VENTURE RELATIONSHIPS

The Company intends to grant licenses to, and enter into joint venture
relationships with, a broad group of companies throughout the world to
manufacture and distribute EARTHSHELL products. Both license agreements and
joint venture relationships will typically be on a non-exclusive basis (except
in some foreign countries where an exclusive relationship may be appropriate)
with a specific geographic and product scope.

Currently, the Company has license agreements with Sweetheart, Genpak,
Dopaco, Mobil Oil Corporation ("Mobil") and International Paper Company
("International Paper") for the manufacture and sale of specific EARTHSHELL
products in the United States, and, in the case of certain of the license
agreements, Canada, Mexico, Central America and the Caribbean. Sweetheart,
Genpak and Dopaco are required to pay to the Company a royalty of 22% (less a 2%
discount if EARTHSHELL products produced by the licensees bear the EARTHSHELL
logo) of the gross sales price of EARTHSHELL products sold by each of them.
Mobil and International Paper are required to pay to the Company a royalty of
20% of the gross sales price of EARTHSHELL products sold by each of them and are
required to place the EARTHSHELL logo on all products. Under the terms of these
agreements, the manufacturers are not obligated to achieve minimum sales quotas
and have the right to terminate the license agreements at their election without
penalty. Unless sooner terminated, each license continues in effect until the
expiration of the Company's license from EKI. Each of the Sweetheart, Genpak and
Dopaco license agreements also provides that, during the first three years of
its term, if the licensee experiences an adverse material change in
circumstances, such as a significant and unexpected increase in the cost of
necessary raw materials, the Company and the licensee will negotiate appropriate
adjustments in the terms of the license. Under the agreements, all domestic
licenses (within the United States of America)

31
<PAGE>

granted by the Company are required to contain substantially the same terms and
conditions so that no domestic licensee will gain a material advantage over
another licensee by virtue of the license agreement. None of the licensees are
currently producing or distributing any products under the terms of these
license agreements.

In addition, the Company expects to enter into joint venture or combined
joint venture and license relationships in which it would expect to derive joint
venture and license revenues of not less than 20% of the wholesale price of the
EARTHSHELL products sold by the joint venture. The terms of such joint ventures
may include the contribution by the Company of turnkey manufacturing lines, the
grant of exclusive or non-exclusive licenses for defined territories and, may
provide during the initial commercial introduction of EARTHSHELL products,
guarantees of manufacturing line efficiency for a limited period of time and,
funding to meet the joint venture's start-up costs. The Company anticipates,
however, that the terms of such relationships may vary significantly between
joint ventures.

The Company and Sweetheart have entered into a non-binding letter of intent
pursuant to which the Company will license its technology to Sweetheart for the
manufacture and distribution of large, hinged-lid sandwich containers to Perseco
for McDonald's. If definitive operating and license agreements embodying the
terms of the letter of intent are signed, the Company's existing license
agreement with Sweetheart would terminate and be superseded by these new
agreements. Assuming that the definitive agreements embody the terms of the
letter of intent, it is expected that the Company would license its technology
to Sweetheart for the manufacture and distribution of the EARTHSHELL sandwich
containers in exchange for a 20% royalty (computed in the same manner as under
the current license agreement with Sweetheart) that will commence to accrue at
the time certain efficiency and cost levels relating to the equipment are met
(the "Start Date"). The Company would purchase, install and make available to
Sweetheart four lines of equipment to manufacture the EARTHSHELL sandwich
containers in return for the Company's right to receive certain equity
distributions in addition to the royalty. The letter of intent contemplates that
the Company will fund certain costs prior to the Start Date and certain
incremental costs incurred by Sweetheart as a result of the equipment not
satisfying certain efficiency and cost levels for a two-year period following
the Start Date. The Company has also entered into a similar letter of intent
with Prairie Packaging Inc. ("Prairie") which contains comparable terms. There
can be no assurance that the Company will enter into a definitive agreement with
Sweetheart or Prairie embodying the terms of the letters of intent.

The Company intends to provide ongoing assistance and technical support to
its licensee manufacturers and joint venture partners. This support will be
designed to facilitate the application of the licensed technology, further
develop manufacturing processes, reduce production costs and allow the Company
to monitor product quality. Support will be provided by the Company primarily
through EKI technical personnel working on behalf of the Company pursuant to the
Technical Services Agreement and through outside independent consulting firms
which have assisted the Company in developing its products.

Although it has no current intention of doing so, in addition to license
agreements and joint venture relationships, the Company may also decide to
construct its own commercial production facilities and manufacture and
distribute EARTHSHELL products directly.

PATENTS, PROPRIETARY RIGHTS AND TRADEMARKS

The Company's licensed technology is the subject of numerous issued and
pending patents in both the United States and foreign countries. The Company
believes that these patent and patent applications represent a strategic web of
patent protection broadly covering the EARTHSHELL products, their material
composition and the manufacturing processes used to make them. The Company has a
license from EKI to the rights to 35 U.S. and 20 foreign patents, as well as 35
U.S. and 119 foreign pending patent applications relating to the compositions,
products and manufacturing processes used to produce EARTHSHELL food and
beverage containers. Six of the issued patents relate specifically to molded
food

32
<PAGE>

and beverage containers manufactured from ALI-ITE composite material, the
formulation of ALI-ITE composite material used in the EARTHSHELL Big Mac
sandwich container and substantially all of the EARTHSHELL products currently
under development. EKI has also received eight notices of allowance with respect
to patent applications relating specifically to molded products. While the
Company and EKI intend to continue to seek broad patent protection, there can be
no assurance that the pending patents relating to the Company's products or
other additional patents will be issued or that the Company or EKI will develop
new technology that is patentable. Moreover, there can be no assurance that
patents and patent applications licensed to the Company are sufficient to
protect the Company's technology or that any patent issued to EKI and licensed
to the Company will not be held invalid, circumvented or infringed by others.
Patent and patent applications on formulations of ALI-ITE composite material are
based in part on specific proportional mixtures of the components of the
material. The Company continues to undergo testing and modification of the
components and their proportional mixtures to balance environmental, economic
and performance concerns. There can be no assurance that the mixture that is
ultimately determined to be optimal will be protected under the Company's
patents or that it will not be subject to a patent held by others. The Company
is aware of at least one other patent held by others which protects materials
and methods for manufacturing materials containing some similar components as
are found in ALI-ITE composite material. If the optimal mixture is not protected
under the Company's patents or is subject to a patent held by others, it would
have an adverse effect on the Company's business, financial condition and
results of operations.

Litigation may be necessary to enforce patents issued or licensed to the
Company, to protect trade secrets or know-how owned by the Company or to
determine the enforceability, scope and validity of the proprietary rights of
others. Although the Company knows of no infringement by its products of patents
held by others, it is always possible that a third party may assert
infringement. The Company believes that it owns or has the rights to use all
technology incorporated into its products, but an adverse determination in any
such proceedings or in other litigation or infringement proceedings to which the
Company may become a party could subject the Company to significant liabilities
to third parties or require the Company to seek licenses from third parties.
Although patent and intellectual property disputes have often been settled
through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that necessary licenses would be
available to the Company on satisfactory terms or at all. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses would prevent the Company from manufacturing or
licensing others to manufacture certain of its products, which could have an
adverse effect on the Company's business, financial condition and results of
operations.

The Company also relies on proprietary know-how and trade secrets which are
not the subject of patents. Some of this proprietary information is licensed
from EKI and some has been developed by the Company. To protect its rights in
proprietary know-how and trade secrets, both the Company and EKI require certain
employees, consultants, advisors and collaborators to enter into confidentiality
agreements. These confidentiality agreements, however, have limited terms
(typically, five years or less), and there can be no assurance that these
agreements will provide meaningful protection for the Company's and EKI's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure. In addition, the Company's business may be
adversely affected by competitors who independently develop competing
technologies.

The Company owns the trademark EARTHSHELL and certain other trademarks, and
has been licensed by EKI to use the trademark ALI-ITE.

COMPETITION

Competition among existing food and beverage container manufacturers in the
food service industry is intense. Currently, a small number of large U.S. and
Canadian manufacturers have a dominant

33
<PAGE>

share of the market for paper roll stock and expanded polystyrene resin. A large
number of manufacturers worldwide convert paper roll stock and expanded
polystyrene resin into paper and polystyrene food service disposables. Most of
these competitors currently have substantially greater financial and marketing
resources than the Company, and many have well-established supply, production
and distribution relationships and channels. To be successful, EARTHSHELL
products must be recognized as being superior, in either or both their
performance and environmental impact, to existing products and must be capable
of commercial production at prices competitive with those of existing products.
There can be no assurance that the EARTHSHELL products can be manufactured at
cost-competitive prices or that they will be able to achieve such recognition,
nor can there be any assurance that companies producing competitive products
will not reduce their prices or engage in advertising or marketing campaigns
designed to protect their respective market shares and impede market acceptance
of EARTHSHELL products. Additionally, some of the Company's licensees and joint
venture partners manufacture paper, plastic and foil packaging which will
compete with EARTHSHELL products.

Recently, a number of paper and plastic disposable packaging manufacturers
and converters and others have made efforts to increase the recycling of these
products. Increased recycling of paper and plastic products could lessen their
negative environmental impact, one significant basis upon which the Company
intends to compete. A number of companies have introduced starch-based materials
as potential environmentally superior packaging alternatives, although, to date,
many of these products have suffered from performance limitations and they have
not proven to be economically viable methods of packaging. A number of companies
are developing composites or other materials which may be used to manufacture
food service disposables with reduced environmental impact. To date, plastic
packaging that is claimed to be biodegradable has also suffered from cost and
performance limitations. It is expected that many existing packaging
manufacturers may actively seek competitive alternatives to the Company's
products and processes. The development of competitive, environmentally
attractive, disposable food service containers could render the Company's
technology obsolete and could have a material adverse effect on the business,
financial condition and results of operations of the Company. See "Risk
Factors--Competition; Risk of Technological Advancement."

GOVERNMENT REGULATION

The U.S. Food and Drug Administration (the "FDA") administers the Federal
Food, Drug and Cosmetic Act, which regulates food packaging substances that may
migrate from packaging material to food. The FDA's regulations are concerned
with substances used in food packaging materials, not with specific finished
food packaging products. Thus, food or beverage containers will be in compliance
with FDA Regulations if the components used in the food and beverage containers:
(i) are approved by the FDA as indirect food additives for their intended uses
and comply with the applicable FDA indirect food additive regulations; or (ii)
are generally recognized as safe ("GRAS") for their intended uses and are of
suitable purity for those intended uses.

The manufacture, sale and use of EARTHSHELL products are subject to
regulation by the FDA. Each of the components of the EARTHSHELL BigMac sandwich
container and all other current prototype products is either approved by the FDA
as an indirect food additive for its intended use, codified in the FDA's
regulations as GRAS for its intended use, or regarded by the Company and its
consultants as GRAS for its intended use. The Company, however, has not sought
the concurrence of the FDA. The Company intends to ensure that the raw materials
used in the EARTHSHELL Big Mac sandwich container are of suitable purity for
their intended uses by specifying standards to be met by suppliers of raw
materials and by material and product testing. There is no requirement that the
Company or a manufacturer of EARTHSHELL products seek FDA concurrence that
certain components are GRAS for their intended uses or that the raw materials
are of suitable purity for their intended uses. As a result, the Company
believes that the EARTHSHELL Big Mac sandwich container and other current
prototype products will be in compliance with all requirements of the FDA and
does not require FDA approval. There can be no assurance, however, that the FDA
would agree with these conclusions.

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<PAGE>
Other EARTHSHELL products under development may use components that are not
approved by the FDA as indirect food additives, or that cannot reasonably be
considered GRAS for their intended uses. If such a component is used, it will be
necessary for the manufacturers of the product, or the Company on their behalf,
to: (i) obtain an FDA indirect food additive approval covering the component and
its intended uses; or (ii) obtain an informal determination from the FDA stating
that the substance will not be regulated as an indirect food additive because
the amount of the substance migrating to food is considered insignificant by the
FDA and therefore below the FDA's threshold of regulation. A food additive
petition must be supported by detailed information concerning the composition
and manufacture of the food additive, as well as by the results of testing to
establish the safety of the additive. Typically, safety testing at exaggerated
doses in several species of laboratory animals is required. The testing required
to support a food additive petition could take a considerable length of time to
perform. According to FDA data, from October 1994 to March 1995, the average
time for FDA review and approval of a food additive petition was 48 months from
the date of submission. A request to the FDA for an informal determination that
a substance need not be the subject of an indirect food additive petition must
be supported by a more limited amount of data than needed to support an indirect
food additive petition. The FDA has announced that it anticipates being able to
respond to these informal determination requests within three to four months.
See "Risk Factors--FDA Regulation."

RELATIONSHIP WITH EKI

EKI is the Company's principal stockholder and, upon consummation of the
Offering, will own approximately 63.7% of the Company's outstanding Common
Stock. EKI has licensed certain of its technology to the Company and has entered
into various other agreements with the Company pursuant to which it provides
technical and other services upon the Company's request.

LICENSE AGREEMENT

The Company's principal asset is a world-wide, exclusive, royalty-free
license (the "License") to use and license others the right to use EKI's
proprietary technology in manufacturing, selling, and otherwise commercially
developing EARTHSHELL "Food Service Disposables."

Pursuant to the License Agreement, the Company is authorized and empowered
to grant licenses to manufacturers of food and beverage containers and also to
enter into joint ventures with or invest in other domestic or foreign entities
which will utilize EKI's technology for "Food Service Disposables." The license
grants the Company exclusive rights to current and future issued patents,
pending patents, patents based on issued or pending patents, patent improvements
and trade secrets to the extent that they relate to "Food Service Disposables"
produced from inorganic-based materials. "Food Service Disposables" are
generally defined as disposable, single use containers, for packaging, serving
or dispensing food or beverages intended for consumption within a short period
of time (less than 24 hours) which incorporate in whole or in part any portion
of the technology. "Food Service Disposables" do not include (i) sealed
containers for the long-term storage of liquids whether for single or multiple
portions (E.G., soft drink cans, milk cartons, sealed juice or drink
containers), except that single service (E.G., 16 oz. or less) milk-containing
cartons are within the scope of "Food Service Disposables," (ii) boxes or
containers for the long-term storage of single or multiple servings of foods or
which are designed to extend the shelf life of foods beyond same-day consumption
(E.G., dry cereal boxes, egg cartons, pre-packaged frozen food containers and
packaging, dairy product containers, produce containers, condiment packaging,
and meat and deli trays), (iii) aseptic or sealed packaging, (iv) secondary
packaging (E.G., corrugated containers and paper bags) and (v) wrapping products
for consumer use.

The License expires in the United States on the date the last U.S. patent of
EKI (including any extensions or subsequently filed additional patents) relating
to the licensed technology expires, and expires outside the United States on the
date the last patent of EKI issued anywhere in the world relating to the
licensed technology expires. EKI currently has patents granted in the United
States that would extend protection of the licensed technology through 2014 and
anticipates that it will file additional patent applications that would extend
this protection to a later date. Following the expiration of these

35
<PAGE>
patents and the License, the technology will no longer be subject to patent
protection and can be used by the Company and others without license from EKI.

Under the terms of the License Agreement, the Company is required to use
commercially reasonable efforts to diligently exploit the License by actively
and aggressively manufacturing, marketing, advertising or selling "Food Service
Disposables" and granting sublicenses or entering into joint ventures to do the
same. If the Company develops or acquires any improvements to the "Food Service
Disposables," under the terms of the License Agreement the Company must assign
its rights in the improvement to EKI, and EKI will grant a license to such
improvement to the Company.

TECHNICAL SERVICES AGREEMENT

The Company's research and development activities are currently carried on
by EKI personnel pursuant to the terms of certain intercompany agreements which
are described below. The Company anticipates that following completion of the
Offering it will employ its own product design personnel who will be responsible
for the research and development of EARTHSHELL products for use in the
quick-serve restaurant and food service industries, while EKI will continue
broad research and development efforts with respect to the materials science of
inorganic materials and the specific use of ALI-ITE composite material in other
types of packaging.

Effective October 1, 1997, the Company and EKI entered into the Technical
Services Agreement and the Patent Allocation Agreement which supersede,
respectively, the Prior Technical Services Agreement and the Prior Patent
Allocation Agreement. Under the Technical Services Agreement, the Company has a
first priority right to the services of certain EKI technical personnel. The
Company is required to pay EKI for technical services requested by the Company
based on established hourly billing rates and reimburse EKI for its
out-of-pocket expenses related to specific research projects commissioned by the
Company. A leading technical consulting firm reviewed the hourly rates and
concluded that they were comparable to industry standards. EKI is not entitled
to receive compensation or reimbursement for services performed by non-technical
personnel, such as administrative staff, or for indirect and other overhead
charges that are not specifically related to a Company project. The Technical
Services Agreement expires on December 31, 2002. The agreement also extends the
sublease of the Company's headquarters through December 31, 2002, subject to the
Company's right to terminate the sublease on 30 days notice. Pursuant to the
Prior Technical Services Agreement and its predecessor agreement, the Company
became obligated to pay EKI approximately $9.5 million, $8.4 million and $9.1
million in 1994, 1995 and 1996, respectively.

PATENT ALLOCATION AGREEMENT

Under the Prior Patent Allocation Agreement (which terminated on September
30, 1997), the Company became obligated to pay or reimburse EKI for all costs
and expenses for technology which was directly related to food and beverage
containers within the field of use licensed to the Company under the License
Agreement or which had significant teachings with respect to such containers,
even though outside of the field of use. These patents are the property of EKI,
and EKI may obtain a benefit therefrom other than under the License, including
the utilization and/or licensing of the patents and related technology in a
manner or for uses unrelated to the License. Pursuant to the Prior Patent
Allocation Agreement, the Company became obligated to reimburse EKI a total of
$1.7 million, $1.9 million and $1.4 million in 1994, 1995 and 1996,
respectively.

Under the Patent Allocation Agreement, the Company will continue to pay and
reimburse EKI for all costs and expenses associated with filing, prosecuting and
maintaining patents and patent applications in connection with existing
technology (and associated improvements) that directly relate to Food Service
Disposables (as defined in the License Agreement) including the process of
manufacturing such articles. The Company will also pay and reimburse EKI for all
costs and expenses associated with filing, prosecuting, acquiring and
maintaining patents and patent applications in connection with new technology
that primarily benefits Food Service Disposables, including the process of
manufacturing such

36
<PAGE>

articles, EKI will pay for all other costs and expenses associated with patents
and patent applications relating to the technology licensed to the Company under
the License Agreement.

INDEBTEDNESS OWED TO EKI

Subsequent to December 31, 1994, the Company's operations have been funded
with loans from, and accounts payables owed to, EKI. As of June 30, 1997, the
indebtedness owed to EKI totaled $28.3 million, including a note payable in the
amount of $27.2 million, $512,000 in accrued interest and $583,000 in accrued
payables under the Prior Patent Allocation Agreement and Prior Technical
Services Agreement. The promissory note is payable on demand and provides for
interest at an initial annual rate of 8.50% compounded quarterly. The interest
rate on the note payable to EKI is adjusted quarterly to equal the current prime
rate as published in THE WALL STREET JOURNAL. Although the indebtedness owed to
EKI was incurred by the Company to fund its ongoing operations, EKI is under no
obligation to make additional loans or capital contributions to the Company.

GUARANTEES OF CREDIT AGREEMENT

EKI, Mr. Essam Khashoggi, the Chairman of the Board and an indirect
controlling shareholder of the Company, and a trust controlled by Mr. Khashoggi
guaranteed the borrowings under the $9.0 million line of credit provided by
Imperial Bank to the Company in 1996.

PERSONNEL

As of June 30, 1997, the Company had six employees. In addition, pursuant to
the terms of the Technical Services Agreement, the Company has a priority right
to the services of 27 technical personnel serving as employees of EKI as of June
30, 1997. The Company anticipates that during the one-year period following
completion of the Offering, the Company will add an additional 19 employees, of
whom 13 will be involved in product development, five will be involved in
administration and one will be involved in management. None of the Company's
employees is represented by a labor union and the Company believes that its
relationship with its employees is good.

PROPERTY

The Company's executive offices are located in Santa Barbara, California.
The Company subleases 1,600 square feet of office and research and development
space from EKI. This sublease expires upon the earlier of December 31, 2002 or
30 days after notice by the Company. The Company's monthly lease payments with
respect to this space are $5,600.

37
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
Essam Khashoggi (1)(2)............... 58 Chairman of the Board
Simon K. Hodson (2).................. 42 Chief Executive Officer, President and Vice Chairman of the Board
Richard K. Hulme..................... 42 Executive Vice President and Chief Operating Officer
D. Scott Houston..................... 43 Chief Financial Officer
John Daoud (3)....................... 61 Secretary and Director
James P. Argyropoulos................ 53 Director
Ellis B. Jones (1)(3)(4)............. 43 Director
Layla Khashoggi...................... 40 Director
Mark A. Koob (5)..................... 43 Director
William Marquard..................... 77 Director
Jerold H. Rubinstein (1)(3)(4)(5).... 59 Director
</TABLE>

- ------------------------------

(1) Member of the Compensation Committee.

(2) Member of the Executive Committee.

(3) Member of the Audit Committee.

(4) Member of the Stock Option Committee.

(5) Member of the Conflicts Committee.

ESSAM KHASHOGGI has served as Chairman of the Board of the Company since its
organization in November 1992. Mr. Khashoggi has also served as Chairman of the
Management Committee and Chief Executive Officer of EKI from its inception in
June 1991. Since August 1987, Mr. Khashoggi has served as Chairman of the Board
of Concrete Technology Corporation ("CTC"), a member of EKI. Mr. Khashoggi has
also served as a director and officer of a number of domestic and foreign
companies engaged in manufacturing, real estate and design and has served as a
Trustee at the University of California Santa Barbara Foundation since August
1995.

SIMON K. HODSON has served as Chief Executive Officer and Vice Chairman of
the Board of the Company since its organization in 1992 and President of the
Company since October 15, 1997. Mr. Hodson also served as President of the
Company from December 1995 until May 1996. He also has served as President and
on the Management Committee of EKI from its inception in June 1991 and as
President and director of CTC since August 1987. Mr. Hodson was President of
National Cement & Ceramics Laboratories, Inc. ("NCCL"), a company previously
engaged in materials science research, from June 1990 through 1995. He is a
co-inventor of 38 issued U.S. patents and 25 issued foreign patents, all
belonging to EKI. He is an Executive Committee Member of the Infrastructure
Technology Institute (Northwestern University) and Board Member of the Federal
Highway Innovative Technology Evaluation Center.

RICHARD K. HULME has served as an Executive Vice President since September
1996, and Chief Operating Officer since December 1995, as well as from February
1995 to May 1995. Mr. Hulme also served as a Director of the Company from
September 1994 through January 1997. Mr. Hulme served as President from
September 1994 until December 1995. From February 1991 until joining the
Company, Mr. Hulme was a Project Director and later a Vice President of JLW
Realty Advisors, an international real estate firm. From February 1986 through
January 1991, Mr. Hulme served as Vice President, Marketing/ Operations for CTC
and was involved in organizing and managing NCCL.

D. SCOTT HOUSTON has served as Chief Financial Officer of the Company since
July 1993. From August 1986 until joining the Company, Mr. Houston served EKI
and its affiliates in various positions,

38
<PAGE>

including as Chief Financial Officer and Vice President of CTC from 1986 to
1990, as an officer and Director of NCCL from 1989 to 1991, and as a consultant
from 1991 to 1993. Prior to August 1986, Mr. Houston operated Houston &
Associates, a consulting firm working with start-up and troubled companies and
real estate projects, which he founded in September 1983. From July 1980 until
September 1983, Mr. Houston held various positions with the Management
Information Consulting Division of Arthur Andersen & Co., an international
accounting and consulting firm.

JOHN DAOUD has served as Assistant Secretary and a Director of the Company
since its organization in 1992 and became its Secretary in May 1996. Mr. Daoud
has served as Chief Financial Officer and Secretary of EKI since its inception
in June 1991. Mr. Daoud has also served as President of Condas International
since 1987, and in such capacity and in his individual capacity has advised Mr.
Essam Khashoggi and his affiliated entities on certain financial matters since
1972. From 1970 to 1972, Mr. Daoud was a Senior Auditor with Price Waterhouse
and Company.

JAMES P. ARGYROPOULOS has served as a Director of the Company since January
1997. From 1989 to 1997, Mr. Argyropoulos has been a private investor in the
consumer goods industry and real estate. Mr. Argyropoulos has also been the
Chairman of the Board and Chief Executive Officer of The Walking Company, a
lifestyle specialty retailer, since August 1991. Mr. Argyropoulos acted as the
Chairman of the Board and Chief Executive Officer of The Cherokee Group Inc., a
shoe manufacturing and apparel business, between 1972 and 1989. Mr. Argyropoulos
is also a director of Corporate Express Inc., a delivery service company.

ELLIS B. JONES has served as a Director of the Company since December 1995.
Mr. Jones has been a Managing Director of Wasserstein Perella & Co., Inc. since
February 1995. Mr. Jones was also a Managing Director, from 1993 until February
1995, and a Director, from 1990 to 1992, in Corporate Finance of Salomon
Brothers Inc. Prior to that time, Mr. Jones was a Vice President at The First
Boston Corporation.

LAYLA KHASHOGGI has served as a Director of the Company since its
organization in 1992. Ms. Khashoggi currently serves as director and officer of
the Santa Barbara Zoo and the Laguna Blanca School. Ms. Khashoggi is Essam
Khashoggi's spouse.

MARK A. KOOB has served as a Director of the Company since July 1993. From
July 1993 until September 1994, Mr. Koob also served as President and Chief
Operating Officer of the Company. From September 1994 to February 1995, Mr. Koob
served as Acting Director, Paper Development. Mr. Koob has over 20 years of
consumer products experience in the fields of general management and sales and
marketing. From 1992 until joining the Company, he served as Vice President and
General Manager-- Fluid Dairy Products of the Borden Company. Mr. Koob began at
Bumble Bee Seafoods, Inc. in 1986 as Director of Marketing and progressed to
President and Chief Executive Officer of Bumble Bee Seafoods, Inc. from 1990 to
1992 and since 1997 has served as President as well.

WILLIAM MARQUARD has served as a Director of the Company since June 1994.
Mr. Marquard is a retired businessman. From 1952 through 1985, Mr. Marquard
served in various capacities for American Standard Corp. (and its predecessor,
Mosler, Inc.), including as President, Chief Executive Officer and Chairman. He
continued to serve as the Chairman of American Standard's Executive Committee
until 1988 and later served as its Chairman of the Board from 1989 until March
1992. Mr. Marquard serves as Chairman of the Board of Arkansas Best Corporation
and Mosler, Inc. He also serves as a Director of Americold Corporation, Earle M.
Jorgensen Co., Earle M. Jorgensen Holding Co., Kelso and Company, and Treadco,
Inc.

JEROLD H. RUBINSTEIN has served as a Director of the Company since June
1994. Mr. Rubinstein has served as the Chairman and Chief Executive Officer of
DMX, Inc., a start-up music network using new technologies and new presentations
of music listening, since 1986. From 1981 to 1987, Mr. Rubinstein was the
General Partner at JRC Oil, a Northern Colorado oil-drilling and exploration
company, as well as

39
<PAGE>
the co-founder and Chairman of Los Angeles-based Bel-Air Savings and Loan. From
December 1978 until January 1980, he was the Chairman and Chief Executive
Officer of United Artists Records, which he had purchased with a partner. From
January 1975 until March 1978, he was the Chairman and Chief Executive Officer
of the American Broadcasting Company music division. Mr. Rubinstein was also a
founder of, and from 1971 to 1975 was a partner in, Segel, Rubinstein & Goldman,
a business management firm that handled the financial affairs of a number of
prominent members of the entertainment industry. Mr. Rubinstein is a Director of
United Service Advisors Inc.

The Company's Board of Directors is divided into three classes. One class of
directors will be elected at each annual meeting of stockholders for a
three-year term and until their successors have been elected and qualified. The
Board is currently composed of three Class I directors (Messrs. Argyropolous,
Jones and Koob), three Class II directors (Messrs. Daoud, Marquard and
Rubinstein) and three Class III directors (Messrs. Khashoggi and Hodson and Ms.
Khashoggi). The officers of the Company are elected annually and serve at the
discretion of the Board of Directors. The holders of the Company's outstanding
Series A Preferred Stock currently have the right to elect one director. Mr.
Marquard was elected by the Series A stockholders. This right will terminate
upon the conversion or redemption of the Series A Preferred Stock, which the
Company currently anticipates will happen approximately 60 days after the
completion of the Offering. See "Description of Capital Stock--Preferred Stock."

At least a majority of the members of the Board's Audit Committee and
Compensation Committee are independent directors. All of the members of the
Board's Conflicts Committee are disinterested directors with respect to the
financial interests of EKI. All of the members of the Board's Stock Option
Committee are disinterested directors. The Compensation Committee establishes
salaries, incentives and other forms of compensation for Directors, officers and
other employees of the Company, and is charged with administering various
incentive compensation and benefit plans. The Audit Committee oversees actions
taken by the Company's independent auditors and reviews internal audit controls.
The Conflicts Committee administers on behalf of the Company the License
Agreement, the Technical Services Agreement and the Patent Allocation Agreement.
The Stock Option Committee oversees and administers the Company's 1995 Stock
Incentive Plan and 1994 Stock Option Plan.

In addition to the above-named Directors and executive officers, the
following employees of EKI have been instrumental in the development of the
Company's business:

DR. PER JUST ANDERSEN has served as the Vice President of Product
Engineering at EKI and has led EKI's technical development since he joined EKI
in 1992. Dr. Andersen's professional experience includes work as a Project
Manager and Industrial Researcher. Since 1983, he has worked with Royal
Copenhagen Porcelain, the Technological Institute of Denmark and was a worldwide
consultant in advanced concrete projects as a Senior Engineer at G.M. Idorn
Consult, Inc., where he held the position of Manager of Materials Optimization
and Instrumentation Development. In this capacity, Dr. Andersen led and
participated in major concrete consulting projects around the world, including
consulting with Spie-Battinole on the design of the concrete on the French side
of the French-English tunnel, with the U.S. Strategic Highway Research Program
in conjunction with Pennsylvania State University on concrete microstructure as
well as with major U.S. corporations and universities including Ameron, Gifford-
Hill American, Price Brothers, Purdue University, Northwestern University, and
University of Illinois at Champaign-Urbana. Dr. Andersen is the co-inventor of
28 U.S. patents and 22 foreign patents all relating to the EARTHSHELL
technology. Dr. Andersen received a M.Sc. in Chemical Engineering from the
Engineering Academy of Denmark, a M.Sc. in Materials Science from Pennsylvania
State University, and a Ph.D. in Materials Science from the Technical University
in Denmark. Dr. Andersen has over 25 publications in international scientific
journals, has co-authored several book chapters and has frequently presented
papers at professional meetings around the world.

40
<PAGE>

DR. BRUCE CHRISTENSEN has served as a Research Scientist of EKI since May
1994. From June 1993 until April 1994, Dr. Christensen was a Post-Doctoral
Fellow in the Materials Science and Engineering Department of Northwestern
University in the area of cement-based materials. During this period, Dr.
Christensen also served as a materials consultant to EKI. Dr. Christensen has
over 20 publications in international scientific journals, has co-authored two
book chapters and has presented approximately 15 papers at various professional
meetings on the subjects of cement chemistry and impedance spectroscopy. Dr.
Christensen earned a B.Sc. in Chemical Engineering and a B.Sc. in Materials
Science and Engineering from the University of Minnesota in June 1989, and a
Ph.D. in Materials Science and Engineering from Northwestern University in June
1993.

DR. DAVID DELLINGER has served as a Research Scientist of EKI since April
1992. From 1977 through 1982, Dr. Dellinger did field and laboratory geological
work for the U.S. Geological Survey. From 1982 until April 1992, he was enrolled
in the Ph.D. program in Geological Sciences at the University of California,
Santa Barbara, where he researched igneous petrology and geochemistry and taught
optical petrographic microscopy. From 1982 through 1996, Dr. Dellinger continued
to work concurrently as a geologist at the U.S. Geological Survey, and from 1990
through 1992 he worked as a geological consultant. Dr. Dellinger received a
B.Sc. in Geology at Stanford University in 1977 and a Ph.D. from the University
of California, Santa Barbara in March 1996.

DR. DIPANJAN SENGUPTA has served as a Research Scientist of EKI since April
1996. Dr. Sengupta served as a research associate specializing in synthetic
organic chemistry/polymer chemistry in the Department of Chemistry at the
University of California, Santa Barbara from October 1994 to April 1996. From
May 1991 to September 1994, Dr. Sengupta was a Chemistry Department research
associate at the State University of New York at Albany. Dr. Sengupta has 12
publications in international scientific journals and is a member of the
American Chemical Society. Dr. Sengupta received an M.S in Chemistry in 1982 and
a Ph.D. in Organic Chemistry in 1987 from Jadapur University in India.

DR. AMITABHA KUMAR has served as a Research Scientist of EKI since June
1994. From May 1988 through May 1994, Dr. Kumar worked as a Senior Research
Scientist at the Central Glass and Ceramic Research Institute in Calcutta,
India. Dr. Kumar currently also serves as associate editor for The Indian
Ceramic Society and has over 35 publications in international scientific
journals and has presented approximately 20 papers at seminars and symposiums.
Dr. Kumar is the co-inventor of two pending patents regarding the EARTHSHELL
technology; in addition, he has three patents from previous assignments in
India. Dr. Kumar earned a B.Sc. in Ceramics from Banaras Hindu University in
June 1978, and a M.Sc. and a Ph.D. in Solid State Science from Pennsylvania
State University in August 1985.

DR. JAN PER AXEL LOFVANDER has served as a Research Scientist of EKI since
December 1993. From August 1989 until November 1993, Dr. Lofvander was a
research engineer studying microstructural characterization in the Materials
Department at the University of California, Santa Barbara. Dr. Lofvander's
professional experience includes managing projects at the High Performance
Composites Center at University of California, Santa Barbara. Dr. Lofvander has
36 publications in international scientific journals and six industrial reports
relating to materials applications. Dr. Lofvander was co-founder of a consulting
company specializing in the manufacture and analysis of advanced materials. Dr.
Lofvander received his M.Sc. in Metallurgy and Materials Science from the Royal
Institute of Technology in Stockholm, Sweden in December 1984, and a Ph.D. in
Materials Science and Engineering from University of Illinois, Urbana-Champaign,
Illinois in June 1989.

DR. SHAODE ONG has served as a Research Scientist of EKI since June 1994.
Prior to joining EKI, Dr. Ong worked as a Research Associate in the Materials
Group in the School of Civil Engineering at Purdue University from January 1988
until May 1993. Dr. Ong is co-inventor for three pending patents regarding the
EARTHSHELL technology. He has 12 publications in international scientific
journals, and he has presented 10 papers at seminars and symposiums. Dr. Ong
received his B.Sc. in Building Materials

41
<PAGE>
Science from Tongji University, Shanghai, China in July 1986, and a M.Sc. E. and
a Ph.D. in Civil Engineering Materials from Purdue University, West Lafayette,
Indiana in May 1993.

SANDEEP KUMAR has served as a Research Scientist of EKI since August 1992.
Mr. Kumar received a B.Sc. in Ceramic Engineering from the Institute of
Technology in India in June 1988, and a M.Sc. in Material Engineering from the
University of California, Santa Barbara in December 1995. From September 1988 to
June 1992, Mr. Kumar served as a research/engineering assistant for the
Engineering Materials Department at the University of California, Santa Barbara.

DENISE MILLER has served as a Research Scientist of EKI since August 1992.
From March 1989 until June 1992, Ms. Miller was a Graduate Research Assistant in
the Engineering Materials Department of the University of California, Santa
Barbara. Ms. Miller has several professional publications as well as prior work
experience as an engineering consultant to Chevron. Ms. Miller received a B.Sc.
in Chemical Engineering from the University of California, Santa Barbara in
1986. In 1992, she obtained a M.Sc. in Mechanical Engineering with an emphasis
in Materials Processing at the University of California, Santa Barbara.

VERA JACQUELINE RUBLEE has served as a Research Scientist of EKI since
August 1993. From 1981 to 1992, Ms. Rublee pursued geological field research
with the British Columbia Geological Survey, as well as private exploration for
various companies and research at several academic institutions. Ms. Rublee
received a B.Sc. in Geology from the University of British Columbia in May 1985,
and a M.Sc. in Geology from the University of Ottawa in March 1994.

KRISTOPHER TURNER has served as a Research Scientist of the Company since
November 1993. From September 1990 until October 1993, Mr. Turner was a Graduate
Student Researcher at the University of California, Santa Barbara. Mr. Turner
received a B.Sc. in Metallurgical Engineering from the University of Texas, El
Paso in December 1989, and a M.Sc. in Materials from the University of
California, Santa Barbara in July 1993.

COMPENSATION OF DIRECTORS

Directors may be eligible to receive automatic option grants to purchase
5,240 shares on an annual basis pursuant to the Company's 1995 Stock Incentive
Plan. Options granted to Directors in January 1997 under the 1995 Stock
Incentive Plan are exercisable at 80% of the price per share at which the
Company's Common Stock is first sold to the public. These options vested
immediately and expire no later than January 2002. See "-- Stock Option Plans."
The Directors have never received any cash compensation for their service as
directors other than reimbursement for out-of-pocket expenses incurred in
connection with attendance at such meetings and the Company has no current
intention of paying cash compensation to the Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

All decisions relating to executive compensation during 1996 were made by
the Company's Board of Directors. Mr. Hodson, Chief Executive Officer and
President of the Company participated in deliberations of the Board of Directors
concerning 1996 executive officer compensation. Mr. Hodson did not receive any
cash compensation from the Company in 1996. Mr. Hulme, Executive Vice President
of the Company since September 1996, did not participate in deliberations of the
Board of Directors concerning 1996 executive officer compensation.

42
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth, for the year ended December 31, 1996, the
cash compensation of the Chief Executive Officer and the other executive
officers of the Company who received compensation in excess of $100,000 in such
year (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY* BONUS (NUMBER OF OPTIONS) COMPENSATION
- ------------------------------------------ --------- ----------- ----------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C>
Simon K. Hodson(1)........................ 1996 $ -- -- -- $ --
Chief Executive Officer
Graham H. Phillips(2)..................... 1996 230,300 -- -- --
President
Richard K. Hulme.......................... 1996 220,275 -- -- --
Executive Vice President and Chief
Operating Officer
D. Scott Houston.......................... 1996 180,000 -- 124,450 --
Chief Financial Officer
Laird Q. Cagan(3)......................... 1996 125,000 -- 262,000 --
Senior Vice President--Corporate
Development
</TABLE>

- ------------------------------

* The Company provides various perquisites to its executives which are not
disclosed in accordance with SEC regulations because the value of such
perquisites is less than 10% of the executive's salary.

(1) Mr. Hodson did not receive any compensation directly from the Company in
1996. Mr. Hodson was an employee of and was paid a salary by EKI until
October 1, 1997 when Mr. Hodson entered into an employment agreement with
the Company. See "--Employment Agreements." In addition to serving as Chief
Executive Officer of the Company since its inception, Mr. Hodson served as
President of the Company from September 1995 through May 1996. See note 2.

(2) Mr. Phillips tendered his resignation as President of the Company effective
October 15, 1997 to become Chairman of Burson Marsteller Worldwide, a major
international public relations company. The Board of Directors expects to
nominate Mr. Phillips to serve on the Board of Directors beginning on
January 1, 1998. He continues as a consultant to the Company and is paid a
nominal retainer.

(3) Mr. Cagan resigned from the Company on October 15, 1996.

43
<PAGE>

The following table sets forth information with respect to options to
purchase shares of the Company's Common Stock granted in 1996 to the Chief
Executive Officer and the other Named Executive Officers.

STOCK OPTION GRANTS IN 1996

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED RATES
SHARES OPTIONS OF STOCK APPRECIATION
UNDERLYING GRANTED EXERCISE FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES PRICE EXPIRATION --------------------------
NAME GRANTED IN 1996 (PER SHARE) DATE 5% 10%
- ----------------------------- ----------- ----------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Simon K. Hodson.............. -- -- -- -- -- --
Graham H. Phillips........... -- -- -- -- -- --
Richard K. Hulme............. -- -- -- -- -- --
D. Scott Houston............. 124,450 -- $ 7.63 1/31/06 $ 2,902,049 $ 5,183,480
Laird Q. Cagan(2)............ 131,000 -- $ 7.63 1/1/06 $ 3,054,789 $ 5,456,295
</TABLE>

- ------------------------------

(1) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. The Company used
the midpoint of the range of the initial public offering of $19.00 as the
fair market value of the shares of Common Stock to compute these Potential
Realizable Values.

(2) Excludes 131,000 options which were canceled at the time of Mr. Cagan's
resignation.

The following table sets forth, for the Chief Executive Officer and the
Named Executive Officers, information with respect to options exercised,
unexercised options and year-end option values, in each case with respect to
options to purchase shares of the Company's Common Stock.

AGGREGATED OPTION EXERCISES IN 1996 AND 1996 YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1996 AT DECEMBER 31, 1996(1)
ACQUIRED ON VALUE ---------------------------- --------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- --------------- ------------- ------------ -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Simon K. Hodson....... -- -- 5,240 -- $ 63,299.20 --
Graham H. Phillips.... -- -- 131,000 131,000 $ 1,582,480.00 $ 1,582,480.00
Richard K. Hulme...... -- -- 136,240 131,000 $ 1,645,779.20 $ 1,582,480.00
D. Scott Houston...... -- -- 78,600 183,400 $ 949,488.00 $ 2,215,472.00
Laird Q. Cagan........ -- -- 131,000 -- $ 1,582,480.00 --
</TABLE>

- ------------------------------

(1) The Company used the midpoint of the range of the initial public offering of
$19.00 as the fair market value of the shares of Common Stock to compute
these Values.

EMPLOYMENT AGREEMENTS

Simon K. Hodson entered into a two-year employment agreement with the
Company that expires on September 30, 1999, subject to the Company's option to
extend the agreement for an additional one-year term. Under the terms of the
employment agreement, Mr. Hodson may be terminated at any time with or without
cause upon written notice. The agreement provides for an annual salary of
$500,000, subject to annual review and increase at the discretion of the Board
of Directors.

D. Scott Houston entered into an employment agreement with the Company
effective October 15, 1993. Mr. Houston's employment agreement provides that his
employment is "at will" at the discretion of

44
<PAGE>

the Company, and that he may be terminated at any time for cause, and at any
time with or without cause subject to 30 days written notice. Mr. Houston's
employment agreement provides for an annual salary of $180,000, subject to
annual review and increase at the discretion of the Board of Directors.

STOCK OPTION PLANS

1995 STOCK INCENTIVE PLAN

The Board of Directors of the Company has adopted the 1995 Stock Incentive
Plan (the "1995 Plan"), pursuant to which employees, directors and consultants
of the Company will be eligible to receive options to purchase Common Stock. The
following is a description of the material features of the 1995 Plan. The
following description does not purport to be complete and is qualified in its
entirety by reference to the full text of the 1995 Plan, which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.

The purpose of the 1995 Plan is to enable the Company to attract, retain and
motivate employees, directors and consultants by providing for or increasing
their proprietary interests in the Company. Every employee and consultant of the
Company or any of its subsidiaries and any director of the Company is eligible
to be considered for the grant of awards under the 1995 Plan. Directors may be
eligible to receive annual automatic grants pursuant to the 1995 Plan. The term
"employees" in the following discussion is used to refer to employees (including
employee directors) and consultants.

The 1995 Plan authorizes the Stock Option Committee (the "Committee") to
enter into any type of arrangement with an eligible employee that, by its terms,
involves or might involve the issuance of (i) Common Stock or (ii) a derivative
security with an exercise or conversion privilege at a price related to the
Common Stock with a value derived from the value of the Common Stock. Awards
under the 1995 Plan are not restricted to any specified form or structure and
may include arrangements such as sales or bonuses of stock, restricted stock,
stock options, reload stock options, stock purchase warrants, other rights to
acquire stock, securities convertible into or redeemable for stock, stock
appreciation rights, phantom stock, dividend equivalents, performance units or
performance shares. An award may consist of one such arrangement or two or more
such arrangements in tandem or in the alternative. Any stock option granted to
an employee may be an Incentive Stock Option ("ISO") or a non-qualified stock
option.

The 1995 Plan generally provides that no one employee may be granted options
or other awards with respect to more than 393,000 shares of Common Stock in any
one calendar year, subject to certain anti-dilution adjustments. The
anti-dilution provisions of the 1995 Plan generally provide that no adjustment
shall be made under those provisions to the extent such adjustment would cause
ISOs issued or issuable under the 1995 Plan to be treated as other than ISOs, or
to the extent the Committee determines that such adjustment would result in the
disallowance of a federal income tax deduction for compensation attributable to
awards by causing such compensation to be treated as other than "performance-
based compensation," as defined under Section 162 of the Code. Awards may not be
granted under the 1995 Plan on or after the tenth anniversary of its adoption.

1994 STOCK OPTION PLAN

The Board of Directors of the Company adopted the 1994 Stock Option Plan
(the "1994 Plan"), pursuant to which employees and consultants of the Company
were eligible to receive options to purchase Common Stock granted prior to the
adoption of the 1995 Plan. The following is a description of the material
features of the 1994 Plan. The following description does not purport to be
complete and is qualified in its entirety by reference to the full text of the
1994 Plan, which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part.

45
<PAGE>

The purpose of the 1994 Plan is to provide incentives to key employees and
consultants to pursue actions that will create stockholder value and promote the
overall success of the Company and to attract and retain key talent for
positions of substantial responsibility. Every employee and consultant of the
Company or any of its subsidiaries is eligible to be considered for the grant of
awards under the 1994 Plan. The term "employees" in the following discussion is
used to refer to employees (including employee directors) and consultants. The
1994 Plan authorizes the Committee to award ISOs and non-statutory stock options
to employees. Awards may not be granted under the 1994 Plan on or after the
tenth anniversary of its adoption. The 1995 Plan effectively supersedes the 1994
Plan for options issued on or after the date of adoption of the 1995 Plan.

CERTAIN PROVISIONS APPLICABLE TO THE 1995 PLAN AND THE 1994 PLAN

Awards may be issued under the 1995 Plan and the 1994 Plan (collectively,
the "Plans") for any lawful consideration including services rendered by the
employee. The maximum number of shares of Common Stock that may be issued
pursuant to awards granted under the Plans is 4,585,000 (subject to adjustment
to prevent dilution).

Except for provisions in the Plans setting minimum exercise prices for ISOs,
the Plans do not specify a minimum amount that employees are required to pay to
acquire the benefits in connection with an award. Any such amount will be
established by the Committee and set forth in the agreement evidencing the
award. For federal income tax purposes, the maximum compensation payable to
employees pursuant to the Plans, during the term of the Plans and awards granted
thereunder, is equal to the number of shares of Common Stock with respect to
which awards may be issued thereunder, multiplied by the value of such shares on
the date such compensation is measured (which, in the case of non-statutory
options, will generally be the date of exercise of the options).

An award under the Plans may permit the recipient to pay all or part of the
purchase price of the shares or other property issuable pursuant thereto by,
among other things (i) delivering previously owned shares of capital stock of
the Company or (ii) delivering a promissory note, the terms and conditions of
which will be determined by the Committee. Previously owned shares of stock of
the Company acquired upon exercise of an option, however, may be used to pay the
purchase price for shares pursuant to an option only if such previously owned
shares have been owned by the grantee for more than six months.

The Plans are designed to comply with Rule 16b-3. The Company intends to
file a registration statement under the Securities Act to register shares to be
issued pursuant to the Plans. See "Shares Eligible for Future Sale."

The Plans are administered by the Committee. The Committee has full and
final authority to select the employees to receive awards pursuant to the Plans
and to grant such awards. Subject to the provisions of each of the Plans, the
Committee has a wide degree of flexibility in determining the terms and
conditions of any award and the number of shares to be issued pursuant such
award. The expenses of administering the Plans will be borne by the Company.

46
<PAGE>
CERTAIN TRANSACTIONS

LICENSE AGREEMENT AND PATENT ALLOCATION AGREEMENT

Pursuant to the License Agreement, the Company has been granted a
world-wide, exclusive, royalty-free license to utilize and sublicense others to
utilize EKI's proprietary technology in manufacturing, selling, and otherwise
commercially developing EARTHSHELL "Food Service Disposables". See
"Business--Relationship with EKI." The License grants the Company exclusive
rights to issued patents, pending patents and trade secrets to the extent that
they relate to food-service disposables produced from inorganic-based materials.
The Company also has certain business, reporting, indemnification and
confidentiality obligations under the License Agreement.

Pursuant to its Patent Allocation Agreement with EKI, the Company is
obligated to pay or reimburse EKI for all costs and expenses associated with
filing, prosecuting and maintaining patents and patent applications in
connection with existing technology (and any associated improvements) that
directly relate to Food Service Disposables (as defined in the License
Agreement) or the process of manufacturing Food Service Disposables. The Company
will also pay or reimburse EKI for all costs and expenses associated with
filing, prosecuting, acquiring and maintaining patents and patent applications
in connection with new technology that primarily benefits Food Service
Disposables or the process of manufacturing same. Under the Prior Patent
Allocation Agreement, the Company incurred, or reimbursed EKI for, total costs
of $1.7 million, $1.9 million, $1.4 million and $480,000 in connection with the
applications during 1994, 1995 and 1996 and the six months ended June 30, 1997,
respectively. The patents and patent applications are the property of EKI, and
EKI may obtain a benefit therefrom other than under the License, including the
utilization and/or licensing of the patents and related technology in a manner
or for uses unrelated to the License.

TECHNICAL SERVICES AGREEMENT

In addition to the License Agreement and the Patent Allocation Agreement,
the Company has entered into the Technical Services and Sublease Agreement dated
October 1, 1997 with EKI that supersedes the Prior Technical Services Agreement.
Pursuant to the Technical Services Agreement which expires on December 31, 2002,
the Company has a first priority right to the services of certain EKI technical
personnel. The Company pays EKI for technical services specifically requested by
the Company based on established hourly billing rates and reimburses EKI for
out-of-pocket expenses related to specific research projects. In addition, the
Technical Services Agreement extends the sublease of the Company's headquarters,
comprising approximately 1,600 square feet, through December 31, 2002, subject
to the right of the Company to terminate the sublease on 30 days' written
notice. The Company paid $67,000 to EKI each year for the sublease of this space
during 1995 and 1996.

The Technical Services Agreement superseded the Prior Technical Services and
Sublease Agreement that was entered into between the Company and EKI on July 1,
1994 and which terminated on September 30, 1997. Like the Technical Services
Agreement, the Prior Technical Services Agreement required EKI to render
technical services to the Company on a priority basis based on established
hourly billing rates and to reimburse EKI for its direct, out of pocket expenses
incurred in connection with the Company's specific research projects. The
Company paid an aggregate of $9.5 million, $8.4 million and $9.1 million to EKI
for these services under the prior Technical Services Agreement during 1994,
1995 and 1996, respectively.

47
<PAGE>
REGISTRATION RIGHTS

As additional consideration for EKI's services under the Technical Services
Agreement, the Company has entered into a Registration Rights Agreement with EKI
(the "Registration Rights Agreement"). The Registration Rights Agreement
provides certain registration rights for the 82,530,000 shares of Common Stock
originally issued to EKI (whether held by EKI or subsequent transferees). The
Company is also obligated, following the date one year after the consummation of
the Offering, to prepare and keep in place (at the Company's expense) a
Registration Statement on Form S-3 covering certain shares of Common Stock
currently held by EKI which will be issued upon the exercise of options to be
granted by EKI to its employees and consultants.

The Registration Rights Agreement grants two "piggyback" registration rights
for offerings of Common Stock by the Company (subject to cutback provisions for
the registration rights of other holders of Common Stock and the holders of the
Company's Series A Preferred Stock) and the right to participate in one demand
registration upon a request by the holders of 20,632,500 shares of Common Stock
originally issued to EKI, some of which shares have been transferred to other
holders. The holders of such shares will be responsible, on a pro-rata basis,
for most of the expenses relating to the exercise of the demand registration
right and a portion of the expenses relating to the exercise of their piggyback
registration rights. See "Shares Eligible for Future Sale."

INDEBTEDNESS OWED TO EKI

GUARANTEES OF CREDIT AGREEMENT

48
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of each class of the Company's voting securities as of
September 30, 1997, and as adjusted to reflect the sale of 10,526,316 shares of
Common Stock by the Company and the sale of 2,673,684 shares of Common Stock by
the Selling Stockholders, by (i) each person known by the Company to own
beneficially more than 5% of any class of voting securities of the Company, (ii)
each Director of the Company, (iii) each Named Executive Officer of the Company,
(iv) all Directors and executive officers as a group and (v) the Selling
Stockholders.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PRIOR TO OFFERING
------------------------------------------------- COMMON SHARES BENEFICIALLY
PREFERRED, SERIES
COMMON A OWNED AFTER OFFERING (1)
---------------------------- ------------------ NUMBER OF SHARES ----------------------------
PERCENT OF PERCENT OF OF COMMON STOCK PERCENT OF
NAME AND ADDRESS(3) NUMBER CLASS (2) NUMBER CLASS BEING OFFERED NUMBER CLASS
- ------------------------- ---------- ---------- ------ ---------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Essam Khashoggi.......... 73,419,736(4)(5) 82.0% -- -- 73,419,736(4)(5) 73.4%
Simon K. Hodson.......... 10,480(5))6) * -- -- -- 10,480(5)(6) *
Graham H. Phillips....... 235,800(7) * -- -- -- 235,800(7) *
Richard K. Hulme......... 299,728(5) * -- -- -- 299,728(5) *
D. Scott Houston......... 168,728(7) * -- -- -- 168,728(7) *
James P. Argyopolous..... 1,048,000(8) 1.2% -- -- -- 1,048,000(8) 1.0%
John Daoud............... 36,680(5) * -- -- -- 36,680(5) *
Ellis Jones.............. 18,340(8) * -- -- -- 18,340(5) *
Layla Khashoggi(9)....... 10,480(5) * -- -- -- 10,480(5) *
Mark A. Koob............. 10,480(5) * -- -- -- 10,480(5) *
William Marquard......... 10,480(5) * -- -- -- 10,480(5) *
Jerold H. Rubinstein..... 10,480(5) * -- -- -- 10,480(5) *
Laird Q. Cagan(10)....... 131,000(7) * 22 * -- 136,764(7) *
All Directors and
Executive Officers as a
Group (12 Persons)..... 75,410,412(5)(7)(8) 84.2% 22 * -- 75,410,417(5)(7)(8) 75.4%
Selling Stockholders.....
</TABLE>

- ------------------------------

* Indicates ownership of less than one percent.

(1) Assumes that all 26,675 shares of Series A Preferred Stock currently
outstanding are converted into shares of Common Stock. See "Description of
Capital Stock."

(2) Computed by treating the 6,988,850 shares of Common Stock into which the
shares of Series A Preferred Stock are convertible as issued and
outstanding.

(3) Unless otherwise indicated, the address of each of these persons is c/o
EarthShell Corporation, 800 Miramonte Drive, Santa Barbara, California
93109.

(4) Includes 63,778,398 shares held by EKI of which Mr. Khashoggi indirectly
owns a 90% beneficial interest and 9,630,858 shares held by Mr. Khashoggi's
other affiliated entities. Mr. Khashoggi has sole voting and dispositive
power with respect to all such 73,409,256 shares.

(5) Includes options to purchase 10,480 shares of Common Stock issued to
directors under the 1995 Stock Incentive Plan.

(6) Does not include any of the shares held by EKI or CTC in which Mr. Hodson
holds an indirect 10% interest or shares held by CTC.

(7) Represents options to purchase shares of Common Stock that are fully vested
and exercisable.

(8) Includes options to purchase 5,240 shares of Common Stock issued to
directors under the 1995 Stock Incentive Plan.

(9) Ms. Khashoggi is Mr. Essam Khashoggi's spouse.

(10) Mr. Cagan's address is 1170 Coast Village Road, Santa Barbara, California
93108.

49
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 200,000,000 shares
of Common Stock, par value $.01 per share, and 10,000,000 shares of Preferred
Stock, par value $.01 per share. The following statements are summaries of
certain provisions applicable to the Company's capital stock.

COMMON STOCK

As of September 30, 1997, there were 82,530,000 shares of Common Stock
outstanding, held of record by 83 stockholders. The holders of Common Stock are
entitled to one vote per share on all matters submitted to a vote of
stockholders. Holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, holders of Common Stock would be entitled to share ratably in the
Company's assets remaining after payment of liabilities, and after provision is
made for each class of stock, if any, having preference over the Common Stock
(including as of the date of this Prospectus the Series A Preferred Stock
described below). Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. All of the outstanding shares of Common Stock
are, and the Common Stock offered by the Company hereby, when issued for the
consideration set forth in this Prospectus, will be, fully paid and
nonassessable.

PREFERRED STOCK

The Board of Directors has the authority, without further action by
shareholders, to issue up to 10,000,000 shares of Preferred Stock in one or more
series and to fix the powers, designations, rights, preferences, privileges,
qualifications and restrictions thereof, including dividend rights, conversion
rights, voting rights, rights and terms of redemption, liquidation preferences
and sinking fund terms, any or all of which may be greater than the rights of
the Common Stock. The Board of Directors, without shareholder approval, can
issue Preferred Stock with voting, conversion, and other rights which could
adversely affect the voting power and other rights of the holders of Common
Stock. The issuance of Preferred Stock in certain circumstances may have the
effect of delaying, deferring or preventing a change of control of the Company
without further action by the stockholders, may discourage bids for the
Company's Common Stock at a premium over the market price of the Common Stock,
and may adversely affect the market price of the Common Stock. At present, the
Company has no plans to issue any additional shares of Preferred Stock.

As of September 30, 1997, there were 26,675 shares of Series A Preferred
Stock outstanding (convertible into 6,988,850 shares of Common Stock), held of
record by 49 stockholders. Concurrently with or shortly following the
consummation of the Offering, the Company will deliver to the holders of the
Series A Preferred Stock notice of the Company's election to redeem all
outstanding shares of the Series A Preferred Stock approximately 60 days after
the date of such notice. The holders of the Series A Preferred Stock have the
right pursuant to the terms thereof to convert their Series A Preferred Stock
into Common Stock, with each share of Series A Preferred Stock being convertible
into 262 shares of Common Stock (assuming completion of the anticipated
262-for-one stock split of the Common Stock). The Company expects that all of
the holders of Series A Preferred Stock will convert such stock into Common
Stock prior to redemption. Any shares of Series A Preferred Stock not converted
will be redeemed by the Company at a price of $3.87 per share plus accrued
dividends, the equivalent of $3.87 per common share plus accrued dividends on an
as converted basis.

ANTI-TAKEOVER LAW AND CHARTER PROVISIONS

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which restricts certain transactions and business
combinations between a corporation and an "Interested Stockholder" owning 15% or
more of the corporation's outstanding voting stock, for a period of three years
from the date the stockholder becomes an Interested Stockholder. Subject to
certain

50
<PAGE>
exceptions, unless the transaction is approved by the board of directors and the
holders of at least 66 2/3% of the outstanding voting stock of the corporation
(excluding shares held by the Interested Stockholder), Section 203 prohibits
significant business transactions such as a merger with, disposition of assets
to, or receipt of disproportionate financial benefits by the Interested
Stockholder, or any other transaction that would increase the Interested
Stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an Interested Stockholder, the
Interested Stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans).

The Company's Certificate of Incorporation and Bylaws include a number of
provisions which may have the effect of discouraging persons from pursuing
non-negotiated takeover attempts. These provisions include a classified Board of
Directors with staggered terms, prohibitions on the ability of stockholders to
take action by written consent, to remove directors without cause, to fill
vacancies on the Board of Directors and to call special meetings of
stockholders, and a requirement of advance notice for the submission of
stockholder proposals or director nominees. In addition, the Company's
Certificate of Incorporation requires that certain business combinations be
approved by the holders of 66 2/3% of the Common Stock (which requirement is
substantially similar to the provisions of Section 203 of the Delaware General
Corporation Law discussed above).

LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a company will not be personally liable for monetary damages for
breach of their fiduciary duties as directors, except for liability for (i) any
breach of their duty of loyalty to the company or its stockholders, (ii) acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) unlawful payment of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law, or (iv) any transaction from which the director derived an
improper personal benefit.

The Company's Bylaws provide that the Company shall indemnify its officers,
directors, employees and other agents to the maximum extent permitted by
Delaware law. The Company's Bylaws also permit it to secure insurance on behalf
of any officer, Director, employee or other agent for any liability arising out
of his or her actions in such capacity, regardless of whether the Bylaws would
permit indemnification.

The Company believes that the provisions in its Certificate of Incorporation
and its Bylaws are necessary to attract and retain qualified persons as officers
and Directors.

OTHER ATTRIBUTES OF THE STOCK OF THE COMPANY

The Company is a corporation organized under the laws of Delaware and
generally the laws of the state of incorporation govern the corporate operations
of a corporation and the rights of its stockholders. Certain provisions of the
California Corporations Code become applicable to a corporation incorporated
outside of California, however, if (i) the corporation transacts business in
California and the average of its California property, payroll and sales factors
(as defined in the California Revenue and Taxation Code) with respect to it is
more than 50% during its latest fiscal year, (ii) more than one-half of its
outstanding voting securities are held of record by persons having addresses in
California and (iii) the corporation is not otherwise exempt. An exemption is
provided if the corporation has outstanding securities qualified for trading as
a national market security on the National Association of Securities Dealers
Automated Quotation System ("Nasdaq") if such corporation has at least 800
record and nominee holders of its equity securities as of the record date of its
most recent annual meeting of stockholders.

The Company intends to apply for the quotation of its Common Stock on The
Nasdaq National Market. At present, most of the Company's activities occur in
California and approximately 63.7% of the

51
<PAGE>
Common Stock will be owned upon completion of the Offering by EKI. EKI's
principal office is located in California, so that certain provisions of
California corporate law may apply to the Company, as described below, unless as
a result of the Offering there are more than 800 holders of its equity
securities as of the applicable date.

Except as discussed herein, provisions of California law which could be
applicable to the Company if the Company meets these tests and is not exempt
include, without limitation, those provisions relating to the number of
directors to be elected each year (all directors must be elected each year under
California law while the Delaware law permits staggered election of directors),
the stockholders' right to cumulate votes in elections of directors (cumulative
voting is mandatory under California law), the stockholders' right to remove
directors without cause (which under California law is subject to the
stockholders' right to cumulate votes), the right of stockholders to call a
special meeting (such right is mandatory under California law if the requesting
stockholder owns at least 10% of the voting stock) and the Company's ability to
indemnify its officers, directors and employees (which is more limited in
California than in Delaware). Notwithstanding the foregoing, a corporation may
provide for a classified board of directors, or eliminate cumulative voting, or
both if it is a "listed corporation." A "listed corporation" means a corporation
with outstanding shares listed on the New York Stock Exchange or the American
Stock Exchange, or a corporation with outstanding securities qualified for
trading as a national market security on Nasdaq if such corporation has at least
800 holders of its equity securities as of the record date of its most recent
annual meeting of stockholders.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is
.

52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering and assuming the conversion of the
outstanding shares of Series A Preferred Stock into Common Stock, the Company
will have 100,045,166 shares of Common Stock outstanding (assuming no exercise
of the Underwriters' over-allotment option to purchase up to an additional
1,980,000 shares). The shares sold in the Offering (15,180,000 shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction under the Securities Act, except for any such
shares held at any time by an "affiliate" of the Company, as such term is
defined under Rule 144 promulgated under the Securities Act.

The remaining 86,845,166 shares were issued and sold by the Company in
private transactions and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. In general, under Rule 144, as currently in
effect, a person who has beneficially owned shares for at least one year,
including an "affiliate," as that term is defined in Rule 144, is entitled to
sell, within any three-month period, a number of "restricted" shares that does
not exceed the greater of one percent (1%) of the then outstanding shares of
Common Stock 1,000,452 shares immediately after the Offering) or the average
weekly trading volume during the four calendar weeks preceding such sale. Sales
under Rule 144 are subject to certain manner of sale limitations, notice
requirements and the availability of current public information about the
Company. Rule 144(k) provides that a person who is not deemed an "affiliate" and
who has beneficially owned shares for at least two years is entitled to sell
such shares at any time under Rule 144 without regard to the limitations
described above. Of the 86,845,166 remaining shares outstanding, affiliates hold
74,482,932 shares, and have owned such shares for Rule 144 purposes since the
incorporation of the Company. Of the shares owned by non-affiliates, 11,535,598
shares have been held by such non-affiliates in excess of two years.

Any employee, officer, director, advisor or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after the Company becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934.

The holders of 1,746,754 shares of Common Stock, and the holders of 26,675
shares of Series A Preferred Stock convertible into 6,988,850 shares of Common
Stock, have been granted demand and piggyback registration rights with respect
to such shares of Common Stock under various registration rights agreements.
Under their demand registration rights, subject to certain conditions, the
holders of at least 25% of such registrable securities may require the Company
to use commercially reasonable efforts to register such shares under the
Securities Act. The Company is obligated to complete no more than two demand
registrations, and in no event is the Company required to complete a demand
registration within six months after the effective date of its most recent
registration statement. Under their piggyback registration rights, these persons
may elect to participate and sell their registrable securities in up to a
maximum of two (assuming all securities requested to be registered are so
registered) subsequent public offerings in which the Company issues additional
securities for its own behalf, subject to reduction (with all shares of the
Company first being registered) in the event that the managing underwriter in
such offering advises the Company that the number of securities sought to be
registered exceeds the number of shares of Common Stock which could be sold
without having an adverse effect on the offering.

Holders of an additional 475,006 shares of Common Stock have been granted
piggyback registration rights entitling them to sell their registrable
securities in subsequent public offerings in which the Company issues additional
securities for its own behalf, subject to reduction (with all Company shares

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<PAGE>
and registrable securities referenced in the preceding paragraph first being
registered) in the event that the managing underwriter in such offering advises
the Company that the number of securities sought to be registered exceeds the
number of shares of Common Stock which could be sold without having an adverse
effect on the offering.

The Company has also entered into a Registration Rights Agreement with EKI
(the "EKI Registration Rights Agreement"). The EKI Registration Rights Agreement
provides certain registration rights for the 82,530,000 shares of Common Stock
originally issued to EKI (whether held by EKI or subsequent transferees). The
Company is also obligated, following the date one year after the consummation of
the Offering, to prepare and keep in place (at the Company's expense) a
Registration Statement on Form S-3 covering certain shares of Common Stock
currently held by EKI which may be transferred upon the exercise of options to
be granted by EKI to its employees and consultants. The EKI Registration Rights
Agreement grants two "piggyback" registration rights for offerings of Common
Stock by the Company (subject to cutback provisions for the registration rights
of other holders of Common Stock and the holders of the Company's Series A
Preferred Stock) and the right to participate in one demand registration upon a
request by the holders of 20,632,500 of the 82,530,000 shares of Common Stock
originally issued to EKI, some of which shares have been transferred to other
holders. The holders of such shares will be responsible, on a pro-rata basis,
for most of the expenses relating to the exercise of the demand registration
right and a portion of the expenses relating to the exercise of their piggyback
registration rights. See "Certain Transactions."

Except as noted above, the cost of all registrations pursuant to the
foregoing registration rights will be borne by the Company, except for
underwriters' commissions and discounts which will be borne by the sellers of
the registrable securities.

As of September 30, 1997, there were outstanding stock options to purchase
an aggregate of 1,037,520 shares of Common Stock. All outstanding stock options
are held by Directors and officers of the Company and are subject to the lock-up
arrangements described below. Following the Offering, the Company intends to
file a Registration Statement on Form S-8 covering an aggregate of 4,585,000
shares of Common Stock that have been reserved for issuance under the Company's
1995 Stock Incentive Plan and 1994 Stock Option Plan, thus permitting the resale
of such shares in the public market without restriction under the Securities Act
upon the expiration of the lock-up period described below and the exercise of
such options. See "Management--Stock Option Plan."

The Company and all stockholders who are officers, Directors or affiliates,
none of whom are Selling Stockholders, have agreed with the Underwriters not to
sell or otherwise dispose of any shares of Common Stock for a period of 180 days
from the date of this Prospectus without the prior written consent of Salomon
Brothers Inc. All other stockholders of the Company have agreed, subject to
certain exceptions, not to sell or otherwise dispose of any shares of Common
Stock for a period of 270 days from the date of this Prospectus without the
prior written consent of Salomon Brothers Inc.

The Company is unable to estimate the number of shares that may be sold in
the future by its existing stockholders or the effect, if any, that sales of
shares by such stockholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
existing stockholders could adversely affect prevailing market prices.

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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS

The following is a summary of certain of the United States federal tax
considerations that may be relevant to the purchase, ownership and disposition
of the Common Stock by investors who hold the Common Stock as a capital asset
and does not purport to be a complete analysis of all the potential tax
consequences thereof. The discussion is based upon the Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations, Internal Revenue Service
("IRS") rulings and judicial decisions now in effect, all of which are subject
to change at any time by legislative, judicial or administrative action. Any
such changes could be retroactively applied in a manner that adversely affects
holders of such Common Stock. Potential investors should be aware that the
discussion does not address all of the tax considerations that may be relevant
to particular investors in light of their individual circumstances or to holders
subject to special treatment under United States federal tax laws, such as
dealers in securities, insurance companies, tax-exempt organizations and
financial institutions.

PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
UNITED STATES FEDERAL TAX CONSEQUENCES, AS WELL AS ALL APPLICABLE STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
COMMON STOCK.

PERSONAL HOLDING COMPANY TAX

As a corporation, the Company will be subject to federal, state, local and
foreign income taxes on its taxable income. In addition, because more than 50%
of the value of the Company's outstanding stock will be owned directly or
indirectly by five or fewer individuals, and a substantial portion of the
Company's income is expected to be derived from royalties and equipment leasing,
there is a significant risk that the Company will be classified as a "personal
holding company." As a personal holding company, the Company will be subject to
an additional federal tax equal to 39.6% of, in general, its undistributed after
tax earnings for any year in which, generally, the Company's royalty and other
passive type income constitutes 60% or more of its "adjusted ordinary gross
income" (I.E., ordinary gross income, as distinguished from capital gains
income, adjusted to reflect certain statutory exclusions and deductions) for the
year. In the event that the Company is subject to the personal holding company
tax in a taxable year, the Company will only be able to use its net operating
loss, if any, for the immediately preceding year to offset its income subject to
the personal holding company tax for such year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Net Operating Loss
Tax Carryforwards."

The Company intends to minimize its liability for the personal holding
company tax either by deriving more than 40% of its adjusted ordinary gross
income for each year from non-passive sources (such as through joint venture
arrangements with manufacturing or other operating companies), or by
distributing all or part of its personal holding company income for any taxable
year in which that threshold cannot be satisfied. The amount of any such
distribution generally will be treated as a dividend taxable as ordinary income.

TAXATION OF UNITED STATES HOLDERS

As used herein, the term "United States Holder" means a holder of shares of
Common Stock who (for United States Federal income tax purposes): (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership, or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, (iii) is an estate, the income of which is
subject to United States Federal income taxation regardless of its source or
(iv) is a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust.

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DIVIDENDS

A distribution made with respect to the Common Stock will be treated as a
dividend, taxable as ordinary income to the extent of the Company's current or
accumulated earnings and profits for tax purposes. Distributions in excess of
the current or accumulated earnings and profits of the Company will be treated
for federal income tax purposes first as a return of the holder's adjusted tax
basis in its shares and then as a gain from the sale or exchange of such shares.
In general, certain distributions of Common Stock and Preferred Stock and
distributions of promissory notes or other property will be taxable in an amount
equal to the fair market value of such property even though no cash is received.

A distribution treated as a dividend should qualify for the 70%
intercorporate dividends-received deduction subject to the minimum holding
period (generally at least 46 days within a 90 day period beginning 45 days
before the relevant ex-dividend date) and other applicable requirements. Under
certain circumstances, a corporate holder may be subject to the alternative
minimum tax with respect to the amount of its dividends-received deduction.

GAIN OR LOSS ON DISPOSITION OF COMMON STOCK

Upon any sale or other taxable disposition of Common Stock, a United States
Holder will recognize gain or loss for Federal income tax purposes in an amount
equal to the difference between (i) the amount of cash and the fair market value
of any property received on such sale or other taxable disposition and (ii) the
holder's adjusted basis in such shares of Common Stock for tax purposes. Such
gain or loss will be capital gain or loss if the shares have been held by the
United States Holder as a capital asset and, with respect to a non-corporate
United States Holder, will be mid-term or long-term gain or loss if such shares
have been held for more than one year or eighteen months, respectively.

BACKUP WITHHOLDING

Certain noncorporate holders may be subject to backup withholding at a rate
of 31% on dividends and redemption proceeds received with respect to the Common
Stock. Generally, backup withholding applies only when the taxpayer fails to
furnish or certify a proper Taxpayer Identification Number or when the taxpayer
is notified by the IRS that the taxpayer has failed to report payments of
interests and dividends properly. The Company may require holders of the Common
Stock to establish an exemption from backup withholding or to make arrangements
satisfactory to the Company with respect to the payment of backup withholding. A
Holder who does not provide the Company with a current Taxpayer Identification
Number may be subject to penalties imposed by the IRS. Holders should consult
their tax advisors regarding their qualification for exemption from backup
withholding and the procedure for obtaining any applicable exemption.

TAXATION OF NON-UNITED STATES HOLDERS

The following is a general discussion of the principal United States federal
tax consequences of the ownership and disposition of Common Stock by a holder of
Common Stock that, for United States federal tax purposes, is a Non-United
States Holder. For purposes of this discussion, a "Non-United States Holder" is
any person who is, for United States federal income tax purposes, a foreign
corporation, a non-resident alien individual, a foreign partnership or a foreign
estate or trust, and for United States Federal Estate tax purposes, non-resident
not a citizen of the United States (as specifically defined for United States
federal estate tax purposes). This discussion does not consider any specific
facts or circumstances that may apply to a particular Non-United States Holder
and applies only to Non-United States Holders that hold Common Stock as a
capital asset. Prospective investors are urged to consult their tax advisors
regarding the United States federal tax consequences of acquiring, holding and
disposing of Common Stock (including such investor's status as a United States
person or Non-

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United States Holder), as well as any tax consequences that may arise under the
laws of any state, municipality or other taxing jurisdiction.

DIVIDENDS

Dividends paid to a Non-United States Holder generally will be subject to
withholding of United States federal income tax on a gross basis (that is,
without allowance of deductions) at the rate of 30%, unless the withholding rate
is reduced under an applicable income tax treaty between the United States and
the country of tax residence of the Non-United States Holder. A Non-United
States Holder may be required to satisfy certain certification requirements in
order to claim treaty benefits or to otherwise claim a reduction of or exemption
from withholding. The 30% withholding tax will not apply if the dividend is
effectively connected with a trade or business conducted within the United
States by the Non-United States Holder (or, alternatively, where an income tax
treaty applies, if the dividend is attributable to a permanent establishment
maintained within the United States by the Non-United States Holder). In such
event, the dividend, less any deductions available to the holder in respect of
such dividend, will be subject to the United States federal income tax at a
maximum marginal rate of 39.6% for individuals and 35% for corporations.
Corporate holders may also be subject to the branch profits tax imposed under
Section 884 of the Code.

GAIN ON DISPOSITION OF COMMON STOCK

A Non-United States Holder generally will not be subject to United States
federal income tax on gain recognized on a sale or other disposition of Common
Stock unless the gain is effectively connected with a trade or business
conducted within the United States by the Non-United States Holder (or,
alternatively, where an income tax treaty applies, unless the gain is
attributable to a permanent establishment maintained within the United States by
the Non-United States Holder). Any such effectively connected gain would be
subject to the United States federal income tax on net income that applies to
United States persons (and, with respect to corporate holders, also may be
subject to the branch profits tax). In addition, a Non-United States Holder who
is an individual generally will be subject to federal income tax at a 30% rate
on any gain recognized on the disposition of Common Stock if such individual is
present in the United States for 183 days or more in the taxable year of
disposition and either (i) has a "tax home" in the United States (as
specifically defined for purposes of the United States federal income tax), or
(ii) maintains an office or other fixed place of business in the United States
and the gain from the sale of the stock is attributable to such office or other
fixed place of business.

If the Company is or becomes a "United States real property holding
corporation" ('USRPHC"), Non-United States Holders may be subject to federal
income tax on any gain recognized upon the disposition of the Common Stock. As a
very general rule, the Company will be considered a USRPHC if 50% or more of the
value of its assets consist of United States real property interests. The
Company believes that it has not been, is not currently, and is not likely to
become, a USRPHC.

Legislation was proposed as recently as 1995 that, if enacted, would have
resulted under certain circumstances in the imposition of United States federal
income tax on gain realized from the disposition of Common Stock by certain
Non-United States Holders who own or owned, directly or by attribution, 10% or
more of the Common Stock. It is impossible to predict whether or in what form
any such legislation or other legislation might be enacted and what the scope or
effective date of any such legislation might be.

UNITED STATES FEDERAL ESTATE TAXES

Common Stock owned or treated as owned by a Non-United States Holder at his
or her date of death, or Common Stock subject to certain lifetime transfers made
by such an individual, will be subject to United States federal estate tax
unless an applicable estate tax treaty provides otherwise.

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<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING

The Company must report annually to the IRS and to each Non-United States
Holder the amount of dividends paid to, and the tax withheld with respect to,
such holder, regardless of whether any tax was actually withheld. That
information may also be made available to the tax authorities of the country in
which a Non-United States Holder resides.

United States federal backup withholding tax (which generally is imposed at
the rate of 31% on certain payments to persons not otherwise exempt who fail to
furnish information required under United States information reporting
requirements) generally will not apply to dividends paid to a Non-United States
Holder either at an address outside the United States under temporary United
States Treasury regulations (provided that the payor does not have actual
knowledge that the payee is a United States person), or if the dividends are
subject to withholding at the 30% rate (or lower treaty rate). As a general
matter, information reporting and backup withholding also will not apply to a
payment of the proceeds of a sale of Common Stock by a foreign office of a
broker. However, information reporting requirements (but not backup withholding)
will apply to a payment of the proceeds of a sale of Common Stock by a foreign
office of a broker that is a United States person, or by a foreign office of a
foreign broker that derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States, or that is a
"controlled foreign corporation," as to the United States, unless the broker has
documentary evidence in its records that the holder is a Non-United States
Holder and certain conditions are met, or the holder otherwise establishes an
exemption. Payment by a United States office of a broker of the proceeds of a
sale of Common Stock is subject to both backup withholding and information
reporting unless the holder certifies as to its non-United States status under
penalties of perjury or otherwise establishes an exemption.

The backup withholding tax is not an additional tax and may be credited
against the Non-United States Holder's United States federal income tax
liability or refunded to the extent excess amounts are withheld, provided that
the required information is supplied to the IRS.

PROPOSED REGULATIONS

The United States Treasury Department recently issued proposed Treasury
Regulations regarding the withholding and information reporting rules discussed
above. In general, the proposed Treasury Regulations would not alter the
substantive withholding and information reporting requirements. Instead, the
proposed regulations would unify current certification procedures and forms and
clarify and modify reliance standards. If finalized in their current form,
unofficial IRS pronouncements indicate that the proposed Treasury Regulations
would generally be effective for payments made after December 31, 1998, subject
to certain transition rules.

LEGISLATIVE PROPOSALS/REFORMS

A wide variety of legislation has been proposed, some of which, if enacted,
would substantially modify and replace the current federal income tax system. It
is impossible to predict whether or in what form any such legislation or other
legislation might be enacted and what the scope or effective date of any such
legislation might be.

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UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
among the Company and the U.S. Underwriters (the "U.S. Underwriting Agreement"),
the Company has agreed to sell to each of the U.S. Underwriters named below (the
"U.S. Underwriters"), and each of the U.S. Underwriters, for whom Salomon
Brothers Inc and Credit Suisse First Boston are acting as the representatives
(the "U.S. Representatives"), has severally agreed to purchase the number of
Shares set forth opposite its name below:

<TABLE>
<CAPTION>
UNDERWRITING
U.S. UNDERWRITER COMMITMENT
- ------------------------------------------------------------------------------- ---------------
<S> <C>
Salomon Brothers Inc...........................................................
Credit Suisse First Boston Corporation.........................................
-----
Total........................................................................
-----
-----
</TABLE>

The Company has been advised by the U.S. Representatives that the several
U.S. Underwriters initially propose to offer such Shares to the public at the
Price to Public set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per Share. The U.S.
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per Share to other dealers. After the Offering, the Price to Public
and such concessions may be changed.

The Company and certain of the Selling Stockholders have granted to the U.S.
Underwriters and the international underwriters (the "International
Underwriters" and, collectively with the U.S. Underwriters, the "Underwriters")
options, exercisable during the 30-day period after the date of this Prospectus,
to purchase up to 1,980,000 additional shares of Common Stock from the Company
and certain of the Selling Stockholders at the Price to Public less the
Underwriting Discount, solely to cover over-allotments. To the extent that the
U.S. Underwriters and the International Underwriters exercise such options, each
of the U.S. Underwriters and the International Underwriters, as the case may be,
will be committed, subject to certain conditions, to purchase a number of option
shares proportionate to such U.S. Underwriter's or International Underwriter's
initial commitment. The U.S. Underwriting Agreement provides that, in the event
of a default by a U.S. Underwriter, in certain circumstances the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.

The Company has entered into an International Underwriting Agreement with
the International Underwriters named therein, for whom Salomon Brothers
International Limited and Credit Suisse First Boston Corporation are acting as
the representatives (the "International Representatives" and, together with the
U.S. Representatives, the "Representatives"), providing for the concurrent offer
and sale of 2,640,000 Shares (in addition to the shares covered by the
over-allotment options described above) outside the United States and Canada.
Both the U.S. Underwriting Agreement and the International Underwriting
Agreement provide that the obligations of the U.S. Underwriters and the
International Underwriters are such that if any of the Shares are purchased by
the U.S. Underwriters pursuant to the U.S. Underwriting Agreement, or by the
International Underwriters pursuant to the International Underwriting Agreement,
all the Shares agreed to be purchased by either the U.S. Underwriters or the
International Underwriters, as the case may be, pursuant to their respective
agreements must be so purchased. The Price to Public and Underwriting Discount
per Share for the U.S. Offering and the International Offering will be
identical. The closing of the International Offering is a condition to the
closing of the U.S. Offering and the closing of the U.S. Offering is a condition
to the closing of the International Offering.

Each U.S. Underwriter has severally agreed that, as part of the distribution
of the 10,560,000 Shares offered by the U.S. Underwriters, (i) it is not
purchasing any Shares for the account of anyone other than a United States or
Canadian Person, (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any Shares or distribute this Prospectus to any person
outside of the United States or Canada,

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<PAGE>

or to anyone other than a United States or Canadian Person and (iii) any dealer
to whom it may sell any Shares will represent that it is not purchasing for the
account of anyone other than a United States or Canadian Person and agree that
it will not offer or resell, directly or indirectly, any Shares outside of the
United States or Canada, or to anyone other than a United States or Canadian
Person or to any other dealer who does not so represent and agree. Each
International Underwriter has severally agreed that, as part of the distribution
of the 2,640,000 Shares offered by the International Underwriters, (i) it is not
purchasing any Shares for the account of any United States or Canadian Person,
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any Shares or distribute any Prospectus relating to the
International Offering to any person in the United States or Canada, or to any
United States or Canadian Person and (iii) any dealer to whom it may sell any
Shares will represent that it is not purchasing for the account of any United
States or Canadian Person and agree that it will not offer or resell, directly
or indirectly, any Shares in the United States or Canada, or to any United
States or Canadian Person or to any other dealer who does not so represent and
agree.

The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and International Underwriters. "United States or Canadian Person" means any
person who is a national or resident of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or of any political subdivision thereof, and
any estate or trust the income of which is subject to United States or Canadian
federal income taxation, regardless of its source (other than any non-United
States or non-Canadian branch of any United States or Canadian Person), and
includes any United States or Canadian branch of a person other than a United
States or Canadian Person.

Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of Shares as may be mutually agreed.
The price of any Shares so sold shall be the Price to Public, less an amount not
greater than the concession to securities dealers. To the extent that there are
sales between the U.S. Underwriters and the International Underwriters pursuant
to the Agreement Between U.S. Underwriters and International Underwriters, the
number of Shares initially available for sale by the U.S. Underwriters or by the
International Underwriters may be more or less than the amount specified on the
cover page of this Prospectus. Neither the U.S. Underwriters nor the
International Underwriters are obligated to purchase from the other any unsold
shares of Common Stock.

Any offer of the Shares in Canada will be made only pursuant to an exemption
from the prospectus filing requirement and an exemption from the dealer
registration requirement (where such an exemption is not available, offers shall
be made only by a registered dealer) in the relevant Canadian jurisdiction where
such offer is made.

The U.S. Underwriting Agreement provides that the Company will indemnify the
U.S. Underwriters against certain liabilities and expenses, including
liabilities under the Securities Act, or contribute to payments the U.S.
Underwriters may be required to make in respect thereof.

Subject to certain exceptions, the Company, its parent and certain directors
and officers of the Company, none of whom are Selling Stockholders, have agreed
not to offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, or announce the offering of any shares of Common Stock, including
any such shares beneficially or indirectly owned or controlled by the Company,
or any securities convertible into, or exchangeable or exercisable for, shares
of Common Stock, for 180 days from the date of this Prospectus, without the
prior written consent of Salomon Brothers Inc. All other stockholders of the
Company have agreed to the foregoing restrictions for a period 270 days from the
date of this Prospectus.

At the Company's request, the U.S. Underwriters have reserved up to
shares of Common Stock (the "Directed Shares") for sale at the Price
to Public to persons who are directors, officers or employees of, or otherwise
associated with, the Company and its affiliates and who have advised the Company
of their desire to purchase such Shares. The number of Shares of Common Stock
available for

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<PAGE>

sale to the general public will be reduced to the extent of sales of Directed
Shares to any of the persons for whom they have been reserved. Any Shares not so
purchased will be offered by the U.S. Underwriters on the same basis as all
other Shares offered hereby.

During and after the Offerings, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include overallotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offerings. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members of other
broker-dealers in respect of the Shares of Common Stock sold in the Offerings
for their account may be reclaimed by the syndicate if such Shares are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Stock which may be higher than the price that might otherwise prevail in
the open market.

Prior to the Offerings, there has been no public market for the Common
Stock. The Price to Public was determined by negotiations between the Company
and the Representatives. Among the factors considered in determining the Price
to Public were prevailing market conditions, the market values of publicly
traded companies that the Underwriters believed to be somewhat comparable to the
Company, the demand for the Shares and for similar securities of publicly traded
companies that the Underwriters believed to be somewhat comparable to the
Company, the future prospects of the Company and its industry in general, sales,
earnings and certain other financial and operating information of the Company in
recent periods, and other factors deemed relevant. There can be no assurance
that the prices at which the Shares will sell in the public market after the
Offerings will not be lower than the Price to Public.

The Underwriters and Representatives have informed the Company that they do
not expect discretionary sales by the Underwriters to exceed 5% of the shares
being offered hereby.

Application will be made to list the shares of Common Stock on the Nasdaq
Stock Market's National Market under the symbol "ERTH".

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of the Common Stock are effected. Accordingly, any resale of the
Common Stock in Canada must be made in accordance with applicable securities
laws which will vary depending on the relevant jurisdiction, and which may
require resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the Common Stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of the Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from whom
such purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Common Stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."

RIGHTS OF ACTION AND ENFORCEMENT

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common

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<PAGE>
law rights of action for damages or rescission or rights of action under the
civil liability provisions of the U.S. federal securities laws.

All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
Company or such persons. All or a substantial portion of the assets of the
Company and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the Company or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such Company
or persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of the Common Stock to whom the SECURITIES ACT (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Common Stock acquired by such purchaser pursuant to the Offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from the Company. Only
one such report must be filed in respect of the Common Stock acquired on the
same date and under the same prospectus exemption.

LEGAL MATTERS

The legality of the Common Stock being offered hereby will be passed upon
for the Company by Gibson, Dunn & Crutcher LLP, Los Angeles, California. Certain
legal matters will be passed upon for the Underwriters by Latham & Watkins,
Costa Mesa, California.

EXPERTS

The financial statements of the Company as of December 31, 1995 and 1996,
and for each of the three years in the period ended December 31, 1996, and for
the period from inception through December 31, 1996 included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report (which report contains an emphasis paragraph relating to the
Company's ability to continue as a going concern), and have been so included in
reliance upon the report of such firm given upon their authority as experts in
auditing and accounting.

The portions of this Prospectus entitled "Risk Factors--Protection of
Proprietary Technology" and "Business--Patents, Proprietary Rights and
Trademarks" have been reviewed and approved by Workman, Nydegger & Seeley, Salt
Lake City, Utah, as experts in patent law.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which constitutes
part of the Registration Statement, omits certain of the information contained
in the Registration Statement and the exhibits and schedules thereto on file
with the Commission pursuant to the Securities Act and the rules and regulations
of the Commission thereunder. The Registration Statement, including exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies
may be obtained at the prescribed rates from the Public Reference Section of the
Commission at its principal office in Washington, D.C. The Commission maintains
a web site that contains reports, proxy and information statements and other
information filed electronically with the Commission at http://www.sec.gov.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.

62
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EARTHSHELL CORPORATION

Independent Auditors' Report.............................................................. F-2

Balance Sheets as of December 31, 1995 and
1996 and (unaudited) June 30, 1997 and pro forma June 30, 1997.......................... F-3

Statements of Operations for the years ended
December 31, 1994, 1995 and 1996, and for the
period from November 1, 1992 (inception)
through December 31, 1996 and (unaudited) the
six months ended June 30, 1996 and 1997 and inception through June 30, 1997............. F-4

Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1993, 1994, 1995 and 1996 and
(unaudited) the six months ended
June 30, 1997 and pro forma June 30, 1997............................................... F-5

Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996, and for the
period from November 1, 1992 (inception)
through December 31, 1996 and (unaudited)
the six months ended June 30, 1996 and 1997 and inception through June 30, 1997......... F-6

Notes to Financial Statements............................................................. F-7
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
EarthShell Container Corporation:

We have audited the accompanying balance sheets of EarthShell Container
Corporation (a development stage enterprise -- the "Company") as of December 31,
1996 and 1995, and the related statements of operations, stockholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 1996 and for the period from inception through December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of EarthShell Container Corporation as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 and for the
period from inception through December 31, 1996 in conformity with generally
accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company is
a development stage enterprise that has incurred losses in its operations since
inception, currently has a stockholders' deficit and negative working capital,
and continues to rely on its stockholders and borrowings from a financial
institution to provide cash flow to sustain its operations. Although the
Company's operations subsequent to December 31, 1996 have been funded in part by
loans from its majority stockholder, the stockholder is under no obligation to
continue to fund the Company, and without additional funding from its
stockholders or other sources, there is substantial doubt about the Company's
ability to continue as a going concern. Management's plans to procure additional
long-term funding are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

Deloitte & Touche LLP

Los Angeles, California

February 14, 1997

F-2
<PAGE>
EARTHSHELL CONTAINER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- JUNE 30, 1997
1995 1996 JUNE 30, 1997 (NOTE 1)
------------ ------------ -------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 266,046 $ 21,179 $ 127,417 $ 127,417
Prepaid insurance.......................... 68,862 12,443 4,148 4,148
Other assets............................... 1,641 26,877 13,584 13,584
------------ ------------ -------------- ---------------
Total current assets....................... 336,549 60,499 145,149 145,149
PROPERTY AND EQUIPMENT, NET.................. 1,891,122 2,756,935 2,565,321 2,565,321
------------ ------------ -------------- ---------------
TOTAL........................................ $ 2,227,671 $ 2,817,434 $ 2,710,470 $ 2,710,470
------------ ------------ -------------- ---------------
------------ ------------ -------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Notes payable and accrued interest to
majority stockholder..................... $ 12,984,736 $ 22,215,793 $ 27,727,169 $ 27,727,169
Note payable to bank....................... 6,904,775 9,000,000 9,000,000
Dividends payable.......................... 7,980,575
Payable to majority stockholder............ 574,857 752,192 582,934 582,934
Accounts payable and accrued expenses...... 1,346,179 1,676,642 1,599,145 1,599,145
------------ ------------ -------------- ---------------
Total current liabilities................ 14,905,772 31,549,402 38,909,248 46,889,823
------------ ------------ -------------- ---------------
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.01 par value, 100,000
shares authorized; 35,000 Series A shares
designated; 26,675 Series A shares issued
and outstanding as of December 31, 1995
and 1996 and (unaudited) June 30, 1997... 267 267 267
Additional paid-in preferred capital....... 24,472,734 24,472,734 24,472,734
Common stock, $.01 par value, 1,000,000
shares authorized; 315,000 issued and
outstanding as of December 31, 1995 and
1996 and (unaudited) June 30, 1997 (Pro
forma 89,518,850 shares)................. 3,150 3,150 3,150 895,189
Additional paid-in common capital.......... 1,124,573 2,020,843 2,020,843 25,601,805
Deficit accumulated during the development
stage.................................... (38,278,825) (55,228,962) (62,695,772) (70,676,347)
------------ ------------ -------------- ---------------
Total stockholders' equity (deficit)..... (12,678,101) (28,731,968) (36,198,778) (44,179,353)
------------ ------------ -------------- ---------------
TOTAL........................................ $ 2,227,671 $ 2,817,434 $ 2,710,470 $ 2,710,470
------------ ------------ -------------- ---------------
------------ ------------ -------------- ---------------
</TABLE>

See notes to financial statements.

F-3
<PAGE>

EARTHSHELL CONTAINER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
INCEPTION SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, THROUGH JUNE 30, INCEPTION
------------------------------------- DECEMBER 31, -------------------------- THROUGH JUNE
1994 1995 1996 1996 1996 1997 30,1997
----------- ----------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
EXPENSES:

Related party research and
development................. $ 9,472,220 $ 8,427,239 $ 9,060,523 $30,269,213 $4,632,708 $ 3,876,177 $ 34,145,390
Other research and
development................. 1,458,076 672,992 1,098,787 3,229,855 673,176 417,553 3,647,408
Related party general and
administrative expenses..... 1,233,600 67,200 67,200 1,734,400 33,600 33,600 1,768,000
Other general and
administrative expenses..... 2,194,031 2,294,301 3,338,263 9,959,538 1,058,302 849,026 10,808,564
Depreciation and
amortization................ 796,826 44,047 310,776 1,752,831 116,195 237,465 1,990,296
Related party patent
expenses.................... 1,716,560 1,929,266 1,382,185 6,547,740 782,047 480,373 7,028,113
----------- ----------- ----------- ------------ ----------- ----------- -------------
Total expenses.............. 16,871,313 13,435,045 15,257,734 53,493,577 7,296,028 5,894,194 59,387,771

Related party interest
expense....................... -- 509,926 1,453,966 1,963,892 644,581 955,433 2,919,325
Other interest (income) expense,
net........................... (290,033) (31,577) 237,637 (231,707) 2,675 616,383 384,676
----------- ----------- ----------- ------------ ----------- ----------- -------------
LOSS BEFORE INCOME TAXES........ 16,581,280 13,913,394 16,949,337 55,225,762 7,943,284 7,466,010 62,691,772

INCOME TAXES.................... 800 800 800 3,200 800 800 4,000
----------- ----------- ----------- ------------ ----------- ----------- -------------
NET LOSS........................ $16,582,080 $13,914,194 $16,950,137 $55,228,962 $7,944,084 $ 7,466,810 $ 62,695,772
----------- ----------- ----------- ------------ ----------- ----------- -------------
----------- ----------- ----------- ------------ ----------- ----------- -------------
PRO FORMA NET LOSS PER SHARE
(Note 1)...................... $ .17 $ .06
----------- -----------
----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES USED IN COMPUTING PRO
FORMA NET LOSS PER SHARE (Note
1)............................ 92,638,409 92,638,409
----------- -----------
----------- -----------
</TABLE>

See notes to financial statements.

F-4
<PAGE>
EARTHSHELL CONTAINER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
CUMULATIVE
CONVERTIBLE DEFICIT
PREFERRED STOCK ADDITIONAL ADDITIONAL ACCUMULATED
SERIES A PAID-IN COMMON STOCK PAID-IN DURING
--------------- PREFERRED ---------------------- COMMON DEVELOPMENT
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL STAGE
------- ------ ------------ --------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ISSUANCE OF COMMON STOCK AT
INCEPTION ($.03 per
share)...................... 315,000 $ 3,150 $ 6,850
Sale of preferred stock,
net......................... 26,675 $ 267 $ 24,472,734
Net loss...................... $ (7,782,551)
------- ------ ------------ --------- ---------- ----------- --------------
BALANCE, DECEMBER 31, 1993.... 26,675 267 24,472,734 315,000 3,150 6,850 (7,782,551)
Net loss...................... (16,582,080)
------- ------ ------------ --------- ---------- ----------- --------------
BALANCE, DECEMBER 31, 1994.... 26,675 267 24,472,734 315,000 3,150 6,850 (24,364,631)
Contribution to equity........ 1,117,723
Net loss...................... (13,914,194)
------- ------ ------------ --------- ---------- ----------- --------------
BALANCE, DECEMBER 31, 1995.... 26,675 267 24,472,734 315,000 3,150 1,124,573 (38,278,825)
Contribution to equity........ 650,000
Issuance of stock warrant..... 246,270
Net loss...................... (16,950,137)
------- ------ ------------ --------- ---------- ----------- --------------
BALANCE, DECEMBER 31, 1996.... 26,675 267 24,472,734 315,000 3,150 2,020,843 (55,228,962)
Net loss (unaudited).......... (7,466,810)
------- ------ ------------ --------- ---------- ----------- --------------
BALANCE, JUNE 30, 1997
(UNAUDITED) 26,675 267 24,472,734 315,000 3,150 2,020,843 (62,695,772)
Conversion (on a pro forma
basis) of preferred stock to
common stock (unaudited).... (26,675) (267) (24,472,734) 26,675 267 24,472,734
Accrual of preferred stock
dividends (unaudited)....... (7,980,575)
Stock Split 262:1
(unaudited)................. 89,177,175 891,772 (891,772)
------- ------ ------------ --------- ---------- ----------- --------------
PRO FORMA BALANCE, JUNE 30,
1997
(Unaudited) (Note 1)........ -- $ -- $ -- 89,518,850 $ 895,189 $25,601,805 $ (70,676,347)
------- ------ ------------ --------- ---------- ----------- --------------
------- ------ ------------ --------- ---------- ----------- --------------

TOTAL
--------------
<S> <C>
ISSUANCE OF COMMON STOCK AT
INCEPTION ($.03 per
share)...................... $ 10,000
Sale of preferred stock,
net......................... 24,473,001
Net loss...................... (7,782,551)
--------------
BALANCE, DECEMBER 31, 1993.... 16,700,450
Net loss...................... (16,582,080)
--------------
BALANCE, DECEMBER 31, 1994.... 118,370
Contribution to equity........ 1,117,723
Net loss...................... (13,914,194)
--------------
BALANCE, DECEMBER 31, 1995.... (12,678,101)
Contribution to equity........ 650,000
Issuance of stock warrant..... 246,270
Net loss...................... (16,950,137)
--------------
BALANCE, DECEMBER 31, 1996.... (28,731,968)
Net loss (unaudited).......... (7,466,810)
--------------
BALANCE, JUNE 30, 1997
(UNAUDITED) (36,198,778)
Conversion (on a pro forma
basis) of preferred stock to
common stock (unaudited)....
Accrual of preferred stock
dividends (unaudited)....... (7,980,575)
Stock Split 262:1
(unaudited).................
--------------
PRO FORMA BALANCE, JUNE 30,
1997
(Unaudited) (Note 1)........ $ (44,179,353)
--------------
--------------
</TABLE>

See notes to financial statements.

F-5
<PAGE>
EARTHSHELL CONTAINER CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
INCEPTION SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, THROUGH
---------------------------------------- DECEMBER 31, ---------------------------
1994 1995 1996 1996 1996 1997
------------ ------------ ------------ ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss........................... $(16,582,080) $(13,914,194) $(16,950,137) $(55,228,962) $(7,944,084) $(7,466,810)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization.... 796,826 44,047 310,776 1,752,831 116,195 237,465
Issuance of stock options to
officer........................ 650,000 650,000 325,000
Amortization of debt issue
costs.......................... 41,045 41,045 205,225
Loss on sale or disposal of
property and equipment......... 65,099 65,639
Net loss on sale of
investments.................... 32,496 32,496
Accretion of discounts on
investments.................... (294,867) (410,084)
Changes in operating assets and
liabilities:
Prepaid expenses and other
assets......................... (53,676) 52,533 31,183 (39,320) 35,118 21,588
Accounts payable and accrued
expenses....................... 449,566 580,914 330,463 1,676,642 (213,435) (77,497)
Payable to majority
stockholder.................... 643,221 7,866,439 7,346,761 16,480,048 6,025,938 4,375,980
Accrued interest on notes payable
to majority stockholder........ 234,510 196,631 431,141 119,400 81,138
------------ ------------ ------------ ------------- ------------ ------------
Net cash used in operating
activities................. (14,943,415) (5,135,751) (8,043,278) (34,548,524) (1,535,868) (2,622,911)
------------ ------------ ------------ ------------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of investments--U.S.
government securities............ (3,496,532) (36,918,254)
Proceeds from sales and redemptions
of investments................... 16,594,712 2,704,011 37,295,842
Proceeds from sale of property and
equipment........................ 72,670 225,000 297,670
Purchase of property and
equipment........................ (676,311) (1,918,152) (1,176,589) (5,773,556) (726,431) (45,851)
------------ ------------ ------------ ------------- ------------ ------------
Net cash provided by (used
in) investing activities... 12,494,539 1,010,859 (1,176,589) (5,098,298) (726,431) (45,851)
------------ ------------ ------------ ------------- ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of notes
payable to stockholders.......... 2,000,000 6,210,000 2,335,000 10,545,000 2,057,750 885,000
Proceeds from drawings on line of
credit with bank................. 7,110,000 7,110,000 1,890,000
Proceeds from issuance of common
stock............................ 10,000
Proceeds from issuance of preferred
stock............................ 25,675,000
Preferred stock issuance costs..... -- (1,201,999)
Repayment of note payable.......... (2,000,000) (470,000) (2,470,000)
------------ ------------ ------------ ------------- ------------ ------------
Net cash provided by
financing activities....... 2,000,000 4,210,000 8,975,000 39,668,001 2,057,750 2,775,000
------------ ------------ ------------ ------------- ------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................. (448,876) 85,108 (244,867) 21,179 (204,549) 106,238
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD.............. 629,814 180,938 266,046 266,046 21,179
------------ ------------ ------------ ------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 180,938 $ 266,046 $ 21,179 $ 21,179 $ 61,497 $ 127,417
------------ ------------ ------------ ------------- ------------ ------------
------------ ------------ ------------ ------------- ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION--
Cash paid for:
Income taxes..................... $ 800 $ 800 $ 800 $ 3,200 $ 800 $ 800
Interest......................... $ 500 $ 275,415 $ 199,494 $ 475,746 $ 5,391 $ 411,193
Warrants issued with debt........ $ 246,270 $ 246,270

INCEPTION
THROUGH JUNE
30, 1997
-------------
(UNAUDITED)
<S> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss........................... $ (62,695,772)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization.... 1,990,296
Issuance of stock options to
officer........................ 650,000
Amortization of debt issue
costs.......................... 246,270
Loss on sale or disposal of
property and equipment......... 65,639
Net loss on sale of
investments.................... 32,496
Accretion of discounts on
investments.................... (410,084)
Changes in operating assets and
liabilities:
Prepaid expenses and other
assets......................... (17,732)
Accounts payable and accrued
expenses....................... 1,599,145
Payable to majority
stockholder.................... 20,856,028
Accrued interest on notes payable
to majority stockholder........ 512,279
-------------
Net cash used in operating
activities................. (37,171,435)
-------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of investments--U.S.
government securities............ (36,918,254)
Proceeds from sales and redemptions
of investments................... 37,295,842
Proceeds from sale of property and
equipment........................ 297,670
Purchase of property and
equipment........................ (5,819,407)
-------------
Net cash provided by (used
in) investing activities... (5,144,149)
-------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of notes
payable to stockholders.......... 11,430,000
Proceeds from drawings on line of
credit with bank................. 9,000,000
Proceeds from issuance of common
stock............................ 10,000
Proceeds from issuance of preferred
stock............................ 25,675,000
Preferred stock issuance costs..... (1,201,999)
Repayment of note payable.......... (2,470,000)
-------------
Net cash provided by
financing activities....... 42,443,001
-------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................. 127,417
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD..............
-------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 127,417
-------------
-------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION--
Cash paid for:
Income taxes..................... $ 4,000
Interest......................... $ 886,939
Warrants issued with debt........ 246,270
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Non-cash compensation of $650,000 represents the difference between fair
market value and exercise price of options on the date of grant.

In consideration of the $9,000,000 line of credit established in 1996, the
Company issued stock warrants to Imperial Bank which entitle the lender to
purchase a total of $750,000 of common stock issuable upon the completion of
the initial public offering, $300,000 at a per share price equal to the
initial public offering price of the Company's common stock and $450,000 at
a price per share equal to 110% of the initial public offering price. These
warrants were valued and recorded at $246,270 based upon the Company's
option pricing model with the following weighted average assumptions:
risk-free interest rate of 6.0%; expected life of 4.25 years; and expected
volatility of 20.0%.

On December 31, 1994, the Company sold substantially all of its equipment and
leasehold improvements to EKI resulting in a gain of $1,117,723 which was
offset against the note receivable from EKI related to the sale. During
1995, the note receivable was eliminated, and the gain was recorded as a
contribution to additional paid-in common capital.

See notes to financial statements.

F-6
<PAGE>
EARTHSHELL CONTAINER CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)

1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

EarthShell Container Corporation (the "Company") was incorporated in
Delaware on November 1, 1992 and is a subsidiary of E. Khashoggi Industries
("EKI"). Both the Company and EKI are development stage enterprises. In
connection with the formation of the Company, the Company entered into a license
agreement (see Note 3) for certain technology developed by EKI, exclusively for
use in connection with the manufacture and sale of selected disposable food and
beverage containers for use in the food-service industry. The accompanying
financial statements reflect only the costs and expenses related to this
application of the technology under development since the Company's formation on
November 1, 1992. Expenses incurred prior to November 1, 1992 by EKI and its
predecessor entities have been excluded, as they related to broader applications
of the technology not included in the license agreement. The accompanying
financial statements have been presented as if the Company commenced operations
on January 1, 1993. Expenses for the two-month period from November 1, 1992
(date of inception) to December 31, 1992 totaled $2,749 and are included in the
1993 financial statements.

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, from the date of inception to June 30, 1997, the Company incurred
accumulated losses of $62,695,772, and as of June 30, 1997, the Company's
current liabilities exceeded its current assets by $38,764,099. As a development
stage enterprise, the Company has primarily relied on funding from its
stockholders to sustain its operations. In September 1993, the Company completed
a private placement offering of preferred stock, raising $24,473,001 in net
proceeds (see Note 6). During the remainder of 1993 and 1994, the Company
applied substantially all of these proceeds to the furtherance of its research
and development activities and the repayment of stockholder advances. During and
subsequent to December 31, 1995, the Company's operations have been
substantially funded with loans from its majority stockholder and borrowings
from a bank. However, the majority stockholder is under no obligation to loan or
make additional capital contributions to the Company.

Management is currently preparing for a public offering of the Company's
common stock to obtain additional funds so that the Company can meet its
obligations, sustain its development activities, achieve positive cash flow from
operations and repay the stockholder loans and other debt. Management
anticipates that the offering will be initiated upon the completion of certain
product commercialization activities currently in process.

If the Company is unable to successfully complete an offering or obtain
funding from other sources, the Company may not be able to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.

F-7
<PAGE>
EARTHSHELL CONTAINER CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)

1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT

Property and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are recorded on the straight-line
basis over the estimated useful lives of the assets of three years.

INVESTMENTS

Investments are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115 and are classified as available for sale.

STATEMENT OF CASH FLOWS

For presentation purposes, cash and cash equivalents include cash and funds
invested in short-term money market accounts with original maturities of three
months or less (see disclosure of noncash activities in Note 3).

UNAUDITED PRO FORMA INFORMATION

The Company anticipates a 262-for-one stock split of its Common Stock. All
pro forma amounts included in the accompanying financial statements and
footnotes reflect the assumed stock split.

As of June 30, 1997, the unaudited pro forma balance sheet and statement of
stockholders' equity (deficit) have been presented assuming the conversion of
the Company's Series A cumulative senior convertible preferred stock. It is
contemplated that all of the outstanding shares of the Company's Series A
cumulative senior convertible preferred stock will be converted to an aggregate
of 6,988,850 shares of the Company's common stock. In addition, upon conversion,
the Company will declare dividends of $7,980,575 in accordance with the terms of
the Series A cumulative senior convertible preferred stock.

Net loss per common and common equivalent share for the year ended December
31, 1996 and for the six months ended June 30, 1997 have been determined by
dividing net loss less interest expense by the weighted average common and
common equivalent shares outstanding during the period, the conversion of Series
A preferred stock into Common Stock (6,988,850 shares) plus the assumed sale of
shares at $19.00 per share to repay the note payable, account payable, and
accrued interest to majority stockholder (1,490,000 shares), note payable to
bank (473,684 shares), and dividends payable (420,030 shares) all of which will
be repaid from proceeds of the planned offering. As required by rules
promulgated by the Securities and Exchange Commission, shares, options, warrants
or convertible preferred shares issued at prices below the offering price in the
twelve months prior to the initial public offering and the number of shares
whose net proceeds are required to fund the repayment of debt have been included
in the calculation of weighted average common and common equivalent shares as if
outstanding using the treasury stock method. Loss per share for all periods
prior to the year ended December 31, 1996 has not been presented as such
information is not indicative of the Company as an on-going entity.

F-8
<PAGE>
EARTHSHELL CONTAINER CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)

1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES

Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and income tax bases of assets and
liabilities. Such deferred income tax asset and liability computations are based
on enacted tax laws and rates applicable to periods in which the differences are
expected to reverse. Valuation allowances are established, when necessary, to
reduce deferred income tax assets to the amounts expected to be realized. Income
tax expense is the tax payable or refundable for the period plus or minus the
change during the period in deferred income tax assets and liabilities.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The recorded values of the Company's financial instruments approximate their
fair values. The Company's financial instruments are primarily composed of
investments in U.S. government securities and notes payable. The investments are
short term in nature and carry current market rates. Notes payable initially
bear interest at the prime rate in effect at the date of issuance, which is
adjusted to the prime rate in effect on the first day of each calendar quarter.

USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

UNAUDITED FINANCIAL STATEMENTS

In the opinion of management, the unaudited financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position and the results of operations as of such
dates and for such periods.

RECLASSIFICATIONS

Certain reclassifications have been made to prior years financial statements
to conform to 1996 and 1997 classifications.

F-9
<PAGE>
EARTHSHELL CONTAINER CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)

2. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30, 1997
1995 1996 (UNAUDITED)
------------- ------------- -------------
<S> <C> <C> <C>
Furniture and lab equipment..................... $ 426,089 $ 1,327,273 $ 1,599,948
Deposits on equipment........................... 1,513,187 1,788,592 1,561,768
------------- ------------- -------------
1,939,276 3,115,865 3,161,716
Accumulated depreciation and amortization....... (48,154) (358,930) (596,395)
------------- ------------- -------------
Property and equipment, net..................... $ 1,891,122 $ 2,756,935 $ 2,565,321
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

3. RELATED PARTY TRANSACTIONS

The Company's administrative and research offices are located in shared
facilities with EKI. In addition, the conduct of the Company's current
operations requires sharing of technical support and management personnel of
EKI, primarily to assist in furthering the Company's development of the licensed
technology and product applications. To confirm these arrangements, the Company
and EKI entered into certain intercompany agreements. From September 1, 1993
through June 30, 1994, the Company operated under a management, administrative
services and professional services agreement (the "Management Services
Agreement"). Under the terms of the Management Services Agreement, the Company
reimbursed EKI for all direct payroll costs and related expenses incurred on
approved projects, plus an allocation of EKI's overhead and general and
administrative costs. Overhead and general and administrative costs were
allocated to the Company based on payroll costs charged to Company-specific
projects compared to EKI's total payroll cost. The Management Services Agreement
also provided for the payment of monthly administrative fees from September 1,
1993 through the first two quarters of 1994. Administrative fees totaled
$400,000 and $1,200,000 in 1993 and 1994, respectively. Effective July 1, 1994
the Company and EKI entered into a Technical Services and Sublease Agreement
(the "Prior Technical Services Agreement"), which superseded the Management
Services Agreement. Under the terms of the Prior Technical Services Agreement,
the Company pays EKI for all direct project labor hours incurred at specified
hourly billing rates, which are subject to revision semiannually, and direct
expenses incurred on approved projects. The technical services portion of the
Prior Technical Services Agreement was effective through June 30, 1997. The
Company subleases office space from EKI for $5,600 per month under this
agreement. The sublease was effective through June 30, 1997. Total rent expense
included in 1995 and 1996 general and administrative expenses was $67,200 for
each year. For the six months ended June 30, 1996 and 1997, the Company paid or
accrued $4,632,708 and $3,876,177, respectively, for services performed under
the Technical Services Agreement and $33,600 in sublease payments for each of
the respective periods.

Included in 1994, 1995, and 1996 research and development expenses are
$9,472,220, $8,427,239, and $9,060,523, respectively, in project costs incurred
under the Prior Technical Services Agreement and/or the Management Services
Agreement.

F-10
<PAGE>
EARTHSHELL CONTAINER CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)

3. RELATED PARTY TRANSACTIONS (CONTINUED)

Projects conducted by EKI for the Company include development efforts
related to the technology, such as development of commercial production
processes. In addition, during 1993 and 1994, the Company leased certain
Company-owned equipment to EKI for use by EKI employees on Company projects.
During 1993 and 1994, $156,000 and $348,000, respectively, of lease income
related to this arrangement was reported net of an equal amount of lease charges
paid by the Company to EKI under its various projects. No such transactions
occurred in 1996 or 1995. On December 31, 1994, the Company sold substantially
all of its equipment and leasehold improvements to EKI. EKI issued a note to the
Company totaling $2,018,204, representing the Company's original cost of the
assets. The transaction resulted in a gain of $1,117,723, which was offset
against the note receivable from EKI. The net note receivable balance of
$900,481 was netted against the payable to EKI in the accompanying 1994
financial statements. During 1995, the note receivable was offset by notes
payable that were issued to EKI. As a result, the note receivable was
eliminated, and the gain was recorded as a contribution to additional paid-in
common capital.

In connection with the formation of the Company, the Company entered into a
license agreement with EKI to manufacture, use, sell and sublicense certain
technology rights and to use certain trademarks owned by EKI in connection with
the products covered under the License Agreement. The license covers the period
of the patents covering the technologies. Under an Agreement for Allocation of
Patent Costs (the "Prior Patent Allocation Agreement"), the Company is required
to reimburse EKI for all costs and expenses associated with filing, prosecuting
and maintaining patents or patent applications or technology which is directly
related to food and beverage containers within the field of use licensed to the
Company under the License Agreement, or which is outside the field of use under
the License Agreement, but which has significant teachings, claims or
applications for such uses. Under this agreement, legal fees of $1,716,560,
$1,929,266, and $1,382,185, were paid to or on behalf of EKI during 1994, 1995
and 1996, respectively. In addition, legal fees of $480,373 and $782,047 were
paid to or on behalf of EKI for the six months ended June 30, 1997 and 1996,
respectively.

At December 31, 1996, the notes payable to the majority stockholder of
$21,784,652 include amounts due to EKI under the Prior Technical Services
Agreement and the Prior Patent Allocation Agreement. During 1996, $13,709,652 of
the payables to EKI were converted to notes payable and several other notes
payable were issued to EKI for cash loans totaling $8,075,000. The notes
initially bear interest at the prime rate in effect at the date of issuance. The
interest rates are adjusted to the prime rate in effect on the first day of each
calendar quarter. At December 31, 1996 and June 30, 1997, all of the notes
accrued interest at 8.25% and 8.50%, respectively, and were payable on demand.

During the six months ended June 30, 1997, $3,670,945 of billings due under
the Prior Technical Services Agreement and Prior Patent Allocation Agreement and
$874,293 of interest due to EKI were converted to notes payable. In addition,
several other notes were issued to EKI for cash loans totaling $885,000. As a
result, total notes payable to EKI increased from $21,784,652 as of December 31,
1996 to $27,214,890 as of June 30, 1997. These notes payable were combined into
one note payable dated June 30, 1997.

The amount payable to the majority stockholder of $574,857, $752,192 and
$582,934 as of December 31, 1995 and 1996 and June 30, 1997 includes amounts due
to EKI under the Prior Technical Services Agreement and the Prior Patent
Allocation Agreement.

F-11
<PAGE>
EARTHSHELL CONTAINER CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)

3. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company borrowed $2,000,000 from a preferred stockholder on December 21,
1994 and executed a demand note payable that accrued interest at the rate of 8%
per annum. The note was fully repaid in February 1995.

4. NOTES PAYABLE

As of June 30, 1997, notes payable include a $27,214,890 note payable due to
EKI, the majority stockholder, as described in Note 3, and $9,000,000
outstanding on a line of credit less an original issue discount of $246,270
related to the stock warrants described in Note 8.

In 1996, the Company established a $9,000,000 line of credit with a bank
which originally expired on May 30, 1997 and was extended to December 31, 1997.
The extension of credit has been guaranteed by EKI, Mr. Essam Khashoggi, the
Chairman of the Board and indirect controlling shareholder of the Company, and a
trust controlled by Mr. Khashoggi. In addition, the Company executed a general
security agreement that grants the bank a security interest in the license
agreement entered into by the Company with EKI. Interest is payable monthly at
an annual rate of 1% in excess of the bank's announced prime lending rate. At
December 31, 1996 the bank's prime lending rate was 8.25% and the outstanding
principal was $7,110,000 and is shown net of the $205,225 unamortized portion of
an original issue discount related to the stock warrants described in Note 8.
The discount is amortized on a straight-line basis over the term of the line of
credit. At June 30, 1997 the bank's prime lending rate was 8.50% and the
outstanding principal was $9,000,000.

5. COMMITMENTS

At December 31, 1996 and for the six months ended June 30, 1997, the unpaid
balances due to vendors for equipment purchases totaled $186,798 and $66,709,
respectively.

6. CUMULATIVE CONVERTIBLE PREFERRED STOCK

On September 17, 1993, the Company completed a private placement of
preferred stock totaling $26,675,000, with net proceeds to the Company totaling
$24,473,001. Under the Series A Cumulative Senior Convertible Preferred Stock
Purchase Agreement, the Company issued 26,675 shares of Series A cumulative
senior convertible preferred stock at $1,000 per share. Dividends, when
declared, are payable on a quarterly basis at 8% per annum. At December 31,
1996, and June 30, 1997 cumulative undeclared dividends totaled $7,016,000 and
$7,980,575, respectively. Each share of preferred stock is convertible into 262
shares of common stock (assuming completion of the anticipated 262-for-one stock
split of the common stock). Subject to the right of the holders of the preferred
stock to convert their shares into common stock, the Company has the right to
redeem the preferred stock at a price of $1,015 per share between September 30,
1997 and September 30, 1998 and at a price of $1,000 per share after September
30, 1998. After three years from the issuance, registration rights enable the
preferred stockholders to cause the Company to effect two registration
statements for the common stock into which their shares of preferred stock are
convertible. Preferred stockholders have the right to vote with the common stock
as if the preferred stock had converted to common stock of the Company.
Preferred stockholders have the right to elect one member to the Board of
Directors.

F-12
<PAGE>
EARTHSHELL CONTAINER CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)

7. STOCK OPTIONS

The Company adopted the EarthShell Container Corporation 1994 Stock Option
Plan on June 22, 1994 (the "1994 Plan"). The Company subsequently adopted the
EarthShell Container Corporation 1995 Stock Incentive Plan effective as of
November 27, 1995 (the "1995 Plan") which effectively supersedes the 1994 Plan
for options issued on or after the date of the 1995 Plan's adoption. The 1994
and 1995 Plans provide that the Company may grant an aggregate number of options
for up to 17,500 shares of common stock to employees or other eligible persons
as defined by the Plans. Options issued to date under the 1994 Plan and the 1995
Plan generally vest at varying rates from 0 to 5 years and generally expire 10
years from the date of grant. During 1994, options for 2,945 shares were
granted. Options for 160 fully vested shares were granted to directors in 1995
under the 1995 Plan at an exercise price of $2,000 per share. In determining
that the exercise price of the options was equivalent to the fair market value
of the underlying shares of Common Stock, the directors considered various
objective criteria, including the price obtained for the Company's shares in
several isolated third party sales of the Common Stock under arm's length terms.
Options for 400 shares were canceled during 1995. In January 1996, options for
1,575 shares were granted under the 1995 Plan at an exercise price of $2,000 per
share vesting over two years. Of these options, 1,000 shares were granted
whereby the individual will be reimbursed $1,300 per share by EKI upon exercise.
Accordingly, compensation expense of $650,000 representing the portion of the
exercise price to be reimbursed by EKI for options that were considered to be
vested in 1996, was recognized during the year ended December 31, 1996, as a
contribution to capital. Options for 500 shares were canceled during 1996. At
December 31, 1996, options exercisable into 2,545 shares of Common Stock were
outstanding at a per share exercise price of $1,000 for options issued under the
1994 Plan and $2,000 for options issued under the 1995 Plan. During the six
months ended June 30, 1997, options for 180 shares were granted to directors
under the 1995 Plan at an exercise price equal to 80% of the initial public
offering price (as adjusted to take account of the anticipated stock split) and
vested immediately. The modest discount from the initial offering price was
determined to represent the fair market value of the underlying shares at the
time of option grant based on such objective criteria as the restricted nature
of the securities, the absence of a public trading market, and the anticipated
length of time to consummate the initial public offering. At June 30, 1997,
options for 3,960 shares were outstanding, of which 3,254 were exercisable.

F-13
<PAGE>
EARTHSHELL CONTAINER CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)

7. STOCK OPTIONS (CONTINUED)

Stock option activity is as follows:

<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
--------- -------------------------
<S> <C> <C>
Outstanding at January 1,1994...................................... -0-
Options granted.................................................... 2,945 $1,000
---------
Outstanding at December 31, 1994................................... 2,945 $1,000
Options granted.................................................... 160 $2,000
Options canceled................................................... (400) $1,000
---------
Outstanding at December 31, 1995................................... 2,705
Options granted.................................................... 1,575 $2,000
Options canceled................................................... (500) $2,000
---------
Outstanding at December 31, 1996................................... 3,780
Options granted (unaudited)........................................ 180 80% of Offering Price
---------
Outstanding at June 30, 1997 (unaudited)........................... 3,960
---------
---------
</TABLE>

The Company accounts for its plans in accordance with Accounting Principles
Board Opinion No. 25. Had compensation costs for the plans been determined
consistent with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," pro forma net loss for 1996 would have been
$17,277,664. The pro forma net loss for the six months ended June 30, 1997 would
have been $8,246,091.

The weighted average fair value of stock options granted during 1996 was
$1,552,361. The fair value of stock options was estimated on the grant date
using the Black Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 6.8%; expected life of 6.4 years; and
expected volatility of 20.0%.

The weighted average fair value of stock options granted during 1997 was
$354,643. The fair value of stock options was estimated on the grant date using
the Black Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 6.0%; expected life of 4.25 years; and
expected volatility of 20.0%.

The fair value of stock options granted during 1995 was not material.

8. STOCK WARRANTS

On June 7, 1996, in consideration of a $3,000,000 line of credit financing
arrangement, the Company issued a warrant which entitles the lender to purchase
common stock shares equal to $150,000 divided by the price per share of the
Company's common stock in the initial public offering. The warrant exercise
price is equal to the initial public offering price and can be exercised at any
time following six months after the initial public offering by the Company and
prior to its expiration date of June 7, 2001.

On July 2, 1996, the line of credit was increased to $4,500,000 and an
additional warrant was issued which entitles the lender to purchase another
$150,000 in common stock on terms similar to those in the previously issued
warrant of June 7, 1996.

F-14
<PAGE>
EARTHSHELL CONTAINER CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)

8. STOCK WARRANTS (CONTINUED)

On November 15, 1996, the line of credit was increased to $9,000,000 and an
additional warrant was issued which entitles the lender to purchase $450,000 in
common stock at a price per share equal to 110% of the initial public offering
price. This warrant expires on November 15, 2003.

The foregoing warrants were valued and recorded at $246,270 based upon the
Company's option pricing model (see Note 7).

9. INCOME TAXES

Deferred income taxes result from temporary differences in the recognition
of revenues and expenses for financial and tax reporting purposes. At December
31, deferred tax assets were composed primarily of the following:

<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Federal:
Depreciation............................................. $ 88,176 $ 96,934
Capitalized operating expenses........................... 3,952,663 2,435,923
Capitalized research and development..................... 2,744,130 1,655,379
Accrued interest to related party........................ 146,588
Deferred contributions................................... 359,721
Net operating loss carryforward.......................... 11,671,200 8,843,661
--------------- ---------------
18,962,478 13,031,897
--------------- ---------------
State:
Depreciation............................................. 3,747 1,883
Capitalized operating expenses........................... 1,081,170 666,296
Capitalized research and development..................... 3,617,279 2,268,314
Accrued interest to related party........................ 40,096
Deferred contributions................................... 93,981
Net operating loss carryforward.......................... 105,953 378,400
--------------- ---------------
4,942,226 3,314,893
--------------- ---------------
Deferred tax asset......................................... 23,904,704 16,346,790
Valuation allowance........................................ (23,904,704) (16,346,790)
--------------- ---------------
Net deferred tax asset................................... $ -- $ --
--------------- ---------------
--------------- ---------------
</TABLE>

The increases in the valuation allowance of $7,557,914 at December 31, 1996
as compared to December 31, 1995 and $6,189,088 at December 31, 1995 as compared
to December 31, 1994 were the result of changes in the components of the
deferred tax items.

For federal income tax purposes, the Company has net operating loss
carryforwards of $34,327,059 as of December 31, 1996 that expire through 2011.
For state income tax purposes, the Company has net operating loss carryforwards
of $1,139,281 as of December 31, 1996 that expire through 2001.

Income tax expense for 1996, 1995 and 1994 consists of the minimum state
franchise tax expense.

F-15
<PAGE>

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS, OR ANY OF THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Dilution.................................................................. 17
Selected Financial Data................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 19
Business.................................................................. 24
Management................................................................ 38
Certain Transactions...................................................... 47
Principal and Selling Stockholders........................................ 49
Description of Capital Stock.............................................. 50
Shares Eligible for Future Sale........................................... 53
Certain United States Federal Income Tax Considerations................... 55
Underwriting.............................................................. 59
Notice to Canadian Residents.............................................. 61
Legal Matters............................................................. 62
Experts................................................................... 62
Additional Information.................................................... 62
Index to Financial Statements............................................. F-1
</TABLE>

------------------------

UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

13,200,000 SHARES

EARTHSHELL
CORPORATION

COMMON STOCK

($.01 PAR VALUE)

[Logo]

SALOMON BROTHERS INC
CREDIT SUISSE FIRST BOSTON
PROSPECTUS

DATED ____________, 1997

<PAGE>
[ALTERNATE COVER PAGE OF INTERNATIONAL PROSPECTUS]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>

PROSPECTUS SUBJECT TO COMPLETION

DATED OCTOBER 8, 1997

13,200,000 SHARES [LOGO]

EARTHSHELL CORPORATION

COMMON STOCK

($.01 PAR VALUE)

Of the 13,200,000 shares of Common Stock, $.01 par value per share (the "Common
Stock"), being offered (the "Shares"), 10,526,316 shares are being sold by
EarthShell Corporation (the "Company"), and 2,637,684 shares are being sold by
the Selling Stockholders. None of the officers or directors of the Company is
selling any Shares of Common Stock in the offering. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
the shares of Common Stock by the Selling Stockholders.

Of the Shares being offered, 10,560,000 Shares are being offered in the United
States and Canada (the "U.S. Offering") and 2,640,000 shares are being offered
in a concurrent International Offering outside the United States and Canada (the
"International Offering and, together with the U.S. Offering, the "Offering"),
subject to transfers between the U.S. Underwriters and the International
Managers. The Price to Public and Underwriting Discount per Share will be
identical for the U.S. Offering and the International Offering. See
"Underwriting." The closing of the U.S. Offering and International Offering are
conditioned upon each other.

Prior to the Offering, there has been no public market for the Common Stock. It
is anticipated that the initial public offering price will be between $17.00 and
$21.00 per share. For information relating to the factors considered in
determining the initial offering price to the public, see "Subscription and
Sale." Application will be made to list the Common Stock on The Nasdaq Stock
Market's National Market under the symbol "ERTH."

--------------

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

-------------

<TABLE>
<CAPTION>
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
PROCEEDS TO PROCEEDS TO
PRICE TO UNDERWRITING THE SELLING
PUBLIC DISCOUNTS COMPANY(1) STOCKHOLDERS
Per Share................................ $ $ $ $
Total (2)................................ $ $ $ $
- --------------------------------------------------------------------------------------------------
</TABLE>

(1) Before deducting expenses payable by the Company estimated at $1,000,000.

(2) The Company and certain of the Selling Stockholders have granted the U.S.
Underwriters and the International Managers 30-day options to purchase up to
an aggregate of 1,980,000 additional shares of Common Stock at the Price to
Public, less Underwriting Discount, solely to cover over-allotments, if any.
If the Underwriters exercise such options in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ , and
, respectively. See "Underwriting."

The Shares are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Shares will be made at the office of Salomon
Brothers Inc, Seven World Trade Center, New York, New York, or through the
facilities of The Depository Trust Company, on or about , 1997.

SALOMON BROTHERS INTERNATIONAL LIMITED CREDIT SUISSE FIRST BOSTON

The date of this Prospectus is , 1997.

<PAGE>

[Picture of EARTHSHELL cups,
bowls, hinged-lid container, tray,
breakfast plates and plate with a
quote as follows, "Finally, fast
food packaging that Mother Earth
can love!"]

In this Prospectus, references to "dollars" and "$" are to United States
dollars.

<PAGE>
[ALTERNATE UNDERWRITING SECTION OF INTERNATIONAL PROSPECTUS]

SUBSCRIPTION AND SALE

The institutions named below (the "Managers") have, pursuant to a
Subscription Agreement dated , 1997 (the "Subscription Agreement"),
severally and not jointly, agreed with the Company and the Selling Stockholders
to subscribe and pay for the following respective numbers of International
Shares as set forth opposite their names:

<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL
MANAGER SHARES
- -------------------------------------------------------------------------------- ------------
<S> <C>
Salomon Brothers International Limited..........................................
Credit Suisse First Boston......................................................
------------
Total.......................................................................
------------
------------
</TABLE>

The Subscription Agreement provides that the obligations of the Managers are
such that, subject to certain conditions precedent, the Managers will be
obligated to purchase all the International Shares of the Common Stock offered
hereby (other than those shares covered by the over-allotment option discussed
below) if any are purchased. The Subscription Agreement provides that, in the
event of a default by a Manager, in certain circumstances the purchase
commitments of the non-defaulting managers may be increased or the Subscription
Agreement may be terminated.

The Company and the Selling Stockholders have entered into an Underwriting
Agreement with the U.S. Underwriters of the U.S. Offering (the "U.S.
Underwriters") providing for the concurrent offer and sale of the U.S. Shares in
the United States and Canada. The closing of the U.S. Offering is a condition to
the closing of the International Offering and vice versa.

The Company and certain of the Selling Stockholders have granted to the
Managers and the U.S. Underwriters an option, exercisable by Salomon Brothers
Inc, expiring at the close of business on the 30th day after the date of this
Prospectus, to purchase up to 1,980,000 additional shares at the initial public
offering price, less the underwriting discounts and commissions, all as set
forth on the cover page of this Prospectus. Such option may be exercised only to
cover over-allotments in the sale of the shares of Common Stock offered hereby.
To the extent that this option to purchase is exercised, each Manager and each
U.S. Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of additional shares being sold to
the Managers and the U.S. Underwriters as the number of International Shares set
forth next to such Manager's name in the preceding table and as the number set
forth next to such U.S. Underwriter's name in the corresponding table in the
Prospectus relating to the U.S. Offering bears to the sum of the total number of
shares of Common Stock in such tables.

The Company and the Selling Stockholders have been advised by Salomon
Brothers International Limited, on behalf of the Managers, that the Managers
propose to offer the International Shares outside the United States and Canada
initially at the public offering price set forth on the cover page of this
Prospectus and, through the Managers, to certain dealers at such price less a
commission of $ per share and that the Managers and such dealers may
reallow a commission of $ per share on sales to certain other dealers.
After the initial public offering, the public offering price and commission and
reallowance may be changed by the Managers.

The offering price and the aggregate underwriting discounts and commissions
per share and per share commission and re-allowance to dealers for the
International Offering and the concurrent U.S. Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and Managers (the
"Intersyndicate Agreement") relating to the Common Stock Offering, changes in
the offering price, the aggregate underwriting discounts and commissions per
share and per share commission and reallowance to dealers will be made only upon
the mutual agreement of Salomon Brothers International Limited, on behalf of the
Managers, and Salomon Brothers Inc, as representative of the U.S. Underwriters.

59
<PAGE>
Pursuant to the Intersyndicate Agreement, each of the Managers has agreed
that, as part of the distribution of International Shares and subject to certain
exceptions, it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Common Stock or distribute any prospectus relating to
the Common Stock in the United States or Canada or to any other dealer who does
not so agree. Each of the U.S. Underwriters has agreed that, as part of the
distribution of the U.S. Shares and subject to certain exceptions, it has not
offered or sold and will not offer or sell, directly or indirectly, any shares
of Common Stock or distribute any prospectus relating to the Common Stock to any
person outside the United States and Canada or to any other dealer who does not
so agree. The foregoing limitations do not apply to stabilization transactions
or to transactions between the Managers and the U.S. Underwriters pursuant to
the Intersyndicate Agreement. As used herein, "United States" means the United
States of America (including the States and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction, "Canada"
means Canada, its provinces, territories, possessions and other areas subject to
its jurisdiction, and an offer or sale shall be in the United States or Canada
if it is made to (i) any individual resident in the United States or Canada or
(ii) any corporation, partnership, pension, profit-sharing or other trust or
other entity (including any such entity acting as an investment adviser with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.

Pursuant to the Intersyndicate Agreement, sales may be made between the
Managers and the U.S. Underwriters of such number of shares of Common Stock as
may be mutually agreed upon. The price of any shares so sold will be the public
offering price less such amount agreed upon by Salomon Brothers International
Limited, on behalf of the Managers, and Salomon Brothers Inc, as representative
of the U.S. Underwriters, but not exceeding the selling concession applicable to
such shares. To the extent there are sales between the Managers and the U.S.
Underwriters pursuant to the Intersyndicate Agreement, the number of shares of
Common Stock initially available for sale by the Managers or by the U.S.
Underwriters may be more or less than the amount appearing on the cover page of
this Prospectus. Neither the Managers nor the U.S. Underwriters are obligated to
purchase from the other any unsold shares of Common Stock.

Each of the Managers and the U.S. Underwriters severally represents and
agrees that: (i) it has not offered or sold and prior to the date six months
after the date of issue of the Common Stock will not offer or sell any Common
Stock to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Class A Common Stock in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received by
it in connection with the issue of the Class A Common Stock to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on.

The Company and all stockholders who are officers, directors or affiliates
have agreed that they will not offer, sell, contract to sell, announce their
intentions to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission a registration statement under
the Securities Act of 1933 (the "Securities Act") relating to, any additional
shares of Common Stock or securities convertible into or exchangeable or
exercisable for any shares of Common Stock without the prior written consent of
Salomon Brothers Inc for a period of 180 days after the date of this Prospectus,
except for grants of employee stock options or rights by the Company pursuant to
a plan in effect on the date of this Prospectus, issuances pursuant to the
exercise of such options or rights and any filing of a registration statement
under the Securities Act with respect to any of the foregoing permitted
issuances or grants.

60
<PAGE>
The Company and the Selling Stockholders have agreed to indemnify the
Managers and the U.S. Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or to contribute to payments that the
Managers and the U.S. Underwriters may be required to make in respect thereof.

61
<PAGE>

[ALTERNATE BACK COVER OF INTERNATIONAL PROSPECTUS]

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Dilution.................................................................. 17
Selected Consolidated Financial Data...................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 19
Business.................................................................. 24
Management................................................................ 38
Certain Transactions...................................................... 47
Principal and Selling Stockholders........................................ 49
Description of Capital Stock.............................................. 50
Shares Eligible for Future Sale........................................... 53
Certain United States Federal Income Tax Considerations................... 55
Subscription and Sale..................................................... 59
Notice to Canadian Residents.............................................. 61
Legal Matters............................................................. 62
Experts................................................................... 62
Additional Information.................................................... 62
Index to Financial Statements............................................. F-1
</TABLE>

------------------------

13,200,000 SHARES

EARTHSHELL
CORPORATION

COMMON STOCK
($.01 PAR VALUE)

[Logo]

SALOMON BROTHERS
INTERNATIONAL LIMITED
CREDIT SUISSE FIRST BOSTON

PROSPECTUS

DATED ____________, 1997
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The estimated expenses in connection with the offering are as follows:

<TABLE>
<CAPTION>
EXPENSES AMOUNT
- --------------------------------------------------------------------------------- -----------
<S> <C>
Registration Fee................................................................. $ 96,600
NASD Fees........................................................................ 25,500
Nasdaq National Market Fees...................................................... 50,000
Printing Expenses................................................................ *
Legal Fees and Expenses.......................................................... *
Transfer Agent and Registrar Fees................................................ *
Accounting Fees and Expenses..................................................... *
Blue Sky Fees and Expenses....................................................... 12,000
Miscellaneous Expenses........................................................... *
-----------
TOTAL.......................................................................... $ *
-----------
-----------
</TABLE>

- ------------------------

* To be filed by amendment.

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors in terms
sufficiently broad to indemnify officers and directors of the Company under
certain circumstances from liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. The Company's Charter and
Bylaws provide, in effect, that, to the fullest extent and under the
circumstances permitted by Section 145 of the DGCL, the Company will indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is a
director or officer of the Company or is or was serving at the request of the
Company as a director or officer of another corporation or enterprise. The
Company may, in its discretion, similarly indemnify its employees and agents.
The Charter relieves its directors from monetary damages to the Company or its
stockholders for breach of such director's fiduciary duty as directors to the
fullest extent permitted by the DGCL. Under Section 102(b)(7) of the DGCL, a
corporation may relieve its directors from personal liability to such
corporation or its stockholders for monetary damages for any breach of their
fiduciary duty as directors except (i) for a breach of the duty of loyalty, (ii)
for failure to act in good faith, (iii) for intentional misconduct or knowing
violation of law, (iv) for willful or negligent violation of certain provisions
in the DGCL imposing certain requirements with respect to stock repurchases,
redemption and dividends, or (v) for any transactions from which the director
derived an improper personal benefit. Depending upon the character of the
proceeding, under Delaware law, the Company may indemnify against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any action, suit or
proceeding if the person indemnified acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interest of the
Company, and, with respect to any criminal action or proceeding, had no cause to
believe his or her conduct was unlawful. To the extent that a director or
officer of the Company has been successful in the defense of any action, suit or
proceeding referred to above, the Company will be obligated to indemnify him or
her against expenses (including attorneys' fees) actually and reasonably
incurred in connection therewith.

II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On November 2, 1992 the Company authorized the issuance of 315,000 shares of
Common Stock for $10,000 cash to E. Khashoggi Industries, a California
partnership in which Essam Khashoggi, a director of the Company, owns a 90%
beneficial interest. The sale of these shares was exempt from registration
pursuant to Section 4(2) of the Securities Act.

In September 1993, the Company sold an aggregate of 26,675 shares of its
Series A Preferred Stock at $1,000 per share for an aggregate of $26,675,000 in
private transactions with 24 individual and institutional investors, each of
which the Company believes to be an "accredited investor" within the meaning of
Rule 501 of the Securities Act. Salomon Brothers Inc served as placement agent
and earned a placement agent fee of $1,000,000 and 1,000 shares of Series A
Preferred Stock. The sales of shares in the offering were exempt from
registration pursuant to Section 4(2) of the Securities Act.

In November 1996, in consideration of the extension of a $9,000,000 line of
credit financing arrangement, the Company issued a warrant to Imperial Bank
which entitles the lender to purchase common stock shares equal to $300,000,
divided by the price per share of the Company's Common Stock in an initial
public offering and $450,000 at a price per share of 110% of the initial public
offering price. The issuance of this warrant was exempt from registration
pursuant to Section 4(2) of the Securities Act.

In October 1997, in consideration of an increase of a line of credit
financing arrangement from $9,000,000 to $13,000,000, the Company issued a
warrant to Imperial Bank which entitles the lender to purchase common stock
shares equal to $250,000 at a price per share of 110% of the initial public
offering price. The issuance of this warrant was exempt from registration
pursuant to Section 4(2) of the Securities Act.

ITEM 16. EXHIBITS.

(a) Exhibits.

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- ----------- -------------------------------------------------------------------------------------- -----------------------
<C> <S> <C>
10.5 Registration Rights Agreement dated as of September 16, 1993 by and between the
Company and the persons named therein, as amended.+
10.6 Sublicense Agreement dated June 19, 1995 by and between the Company and Dopaco, Inc,
as amended.+
10.7 Sublicense Agreement dated November 9, 1994 by and between the Company and Genpak
Corporation, as amended.+
10.8 Sublicense Agreement dated October 7, 1994 by and between the Company and Sweetheart
Cup Company Inc.+
10.9 Sublicense Agreement dated October 21, 1993 by and between the Company and
International Paper.+
10.10 Sublicense Agreement dated October 4, 1993 by and between the Company and Mobil
Chemical Company.+
10.11 EarthShell Container Corporation 1994 Stock Option Plan.+
10.12 EarthShell Container Corporation 1995 Stock Incentive Plan.+
10.13 Form of Stock Option Agreement under the EarthShell Container Corporation 1994 Stock
Option Plan.+
10.14 Form of Stock Option Agreement under the EarthShell Container Corporation 1995 Stock
Incentive Plan.+
10.15 Promissory Note dated July 5, 1996 in the principal amount of $4,500,000 made by the
Company in favor of Imperial Bank.+
10.16 Warrant to Purchase Stock issued July 2, 1996 by the Company to Imperial Bank.+
10.17 Credit Agreement dated June 7, 1996 by and between the Company and Imperial Bank.+
10.18 Warrant to Purchase Stock issued June 7, 1996 by the Company to Imperial Bank.+
10.19 Employment Agreement dated October 1, 1997 by and between the Company and Simon K.
Hodson.*
10.20 Amended and Restated Technical Services and Sublease Agreement dated October 1, 1997
by and between the Company and EKI.*
10.21 Amended and Restated Agreement for Allocation of Patent Costs dated October 1, 1997 by
and between the Company and EKI.*
10.22 Promissory Note dated October 6, 1997 in the principal amount of $13,000,000 made by
the Company in favor of Imperial Bank.
10.23 Credit Agreement dated November 15, 1996 by and between the Company and Imperial Bank.
10.24 Letter of Intent dated July 23, 1997 by and between Sweetheart Cup Company Inc. and
the Company.
10.25 Letter of Intent dated November 13, 1996 by and between Prairie Packaging Inc. and the
Company.
10.26 Warrant to Purchase Stock issued November 15, 1996 by the Company to Imperial Bank.
10.27 Promissory Note dated June 30, 1997 in the principal amount of $27,214,890 made by the
Company in favor of EKI.
10.28 Letters dated August 22, 1997 from Shelby Yastrow to Simon K. Hodson and Simon K.
Hodson to Shelby Yastrow.*
</TABLE>

II-3

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- ----------- -------------------------------------------------------------------------------------- -----------------------
<C> <S> <C>
10.29 First Amendment to Credit Agreement dated October 6, 1997 by and between the Company
and Imperial Bank.
10.30 Warrant to Purchase Stock issued October 6, 1997 by the Company to Imperial Bank.
11.1 Statement Regarding Computation of Per Share Earnings.
23.1 Consent of Deloitte & Touche LLP.
23.3 Consent of Workman, Nydegger & Seeley.*
23.2 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).*
24.1 Power of Attorney (included on signature page).+
27.1 Financial Data Schedule.
</TABLE>

- ------------------------

* To be filed by amendment.

+ Previously filed.

II-4
<PAGE>
ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising out of the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable, in the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense in any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this registration statement as of the time it was declared
effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.

II-5
<PAGE>
SIGNATURES AND POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Barbara, State of
California, on October 8, 1997.

EARTHSHELL CONTAINER CORPORATION

By: /s/ SIMON K. HODSON
-----------------------------------------
Simon K. Hodson
VICE CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Simon K. Hodson, Richard K. Hulme and D.
Scott Houston his or her true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
to this Registration Statement, and to file the same, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

*
- ------------------------------ Chairman of the Board October 8, 1997
Essam Khashoggi

Vice Chairman of the Board
/s/ SIMON K. HODSON and Chief Executive
- ------------------------------ (Principal Executive October 8, 1997
Simon K. Hodson Officer)

* Chief Financial Officer
- ------------------------------ (Principal Financial and October 8, 1997
D. Scott Houston Accounting Officer)

*
- ------------------------------ Secretary and Director October 8, 1997
John Daoud
</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
- ------------------------------ Director October 8, 1997
James P. Argyropoulos

*
- ------------------------------ Director October 8, 1997
Ellis Jones

*
- ------------------------------ Director October 8, 1997
Layla Khashoggi

*
- ------------------------------ Director October 8, 1997
Mark A. Koob

*
- ------------------------------ Director October 8, 1997
William A. Marquard

*
- ------------------------------ Director October 8, 1997
Jerold H. Rubinstein

By: /s/ SIMON K.
HODSON
- ------------------------------ October 8, 1997
Simon K. Hodson
ATTORNEY-IN-FACT
</TABLE>

II-7
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- ----------- -------------------------------------------------------------------------------------- -----------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.*
1.2 Form of International Subscription Agreement.*
3.1 Certificate of Incorporation of the Company.+
3.2 Bylaws of EarthShell Container Corporation.+
3.3 Certificate of Designation, Preferences Relative, Participating, Optional and Other
Special Rights of the Company's Series A Cumulative Senior Convertible Preferred
Stock.+
3.4 Form of Amendment to Certificate of Incorporation of the Company.
3.5 Form of Amended and Restated Bylaws of the Company.
4.1 Specimen certificate of Common Stock.*
5.1 Opinion and consent of Gibson, Dunn & Crutcher LLP.*
10.1 Amended and Restated License Agreement dated February 28, 1995 by and between the
Company and E. Khashoggi Industries ("EKI").+
10.2 Registration Rights Agreement dated as of February 28, 1995 by and between the Company
and EKI, as amended.+
10.3 Employment Agreement dated October 19, 1993 by and between the Company and Scott
Houston, as amended.+
10.4 Stock Purchase Agreement dated as of September 16, 1993 by and between the Company and
the persons named therein.+
10.5 Registration Rights Agreement dated as of September 16, 1993 by and between the
Company and the persons named therein, as amended.+
10.6 Sublicense Agreement dated June 19, 1995 by and between the Company and Dopaco, Inc,
as amended.+
10.7 Sublicense Agreement dated November 9, 1994 by and between the Company and Genpak
Corporation, as amended.+
10.8 Sublicense Agreement dated October 7, 1994 by and between the Company and Sweetheart
Cup Company Inc.+
10.9 Sublicense Agreement dated October 21, 1993 by and between the Company and
International Paper.+
10.10 Sublicense Agreement dated October 4, 1993 by and between the Company and Mobil
Chemical Company.+
10.11 EarthShell Container Corporation 1994 Stock Option Plan.+
10.12 EarthShell Container Corporation 1995 Stock Incentive Plan.+
10.13 Form of Stock Option Agreement under the EarthShell Container Corporation 1994 Stock
Option Plan.+
10.14 Form of Stock Option Agreement under the EarthShell Container Corporation 1995 Stock
Incentive Plan.+
10.15 Promissory Note dated July 5, 1996 in the principal amount of $4,500,000 made by the
Company in favor of Imperial Bank.+
10.16 Warrant to Purchase Stock issued July 2, 1996 by the Company to Imperial Bank.+
10.17 Credit Agreement dated June 7, 1996 by and between the Company and Imperial Bank.+
10.18 Warrant to Purchase Stock issued June 7, 1996 by the Company to Imperial Bank.+
10.19 Employment Agreement dated October 1, 1997 by and between the Company and Simon K.
Hodson.*
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- ----------- -------------------------------------------------------------------------------------- -----------------------
<C> <S> <C>
10.20 Amended and Restated Technical Services and Sublease Agreement dated October 1, 1997
by and between the Company and EKI.*
10.21 Amended and Restated Agreement for Allocation of Patent Costs dated October 1, 1997 by
and between the Company and EKI.*
10.22 Promissory Note dated October 6, 1997 in the principal amount of $13,000,000 made by
the Company in favor of Imperial Bank.
10.23 Credit Agreement dated November 15, 1996 by and between the Company and Imperial Bank.
10.24 Letter of Intent dated July 23, 1997 by and between Sweetheart Cup Company Inc. and
the Company.
10.25 Letter of Intent dated November 13, 1996 by and between Prairie Packaging Inc. and the
Company.
10.26 Warrant to Purchase Stock issued November 15, 1996 by the Company to Imperial Bank.
10.27 Promissory Note dated June 30, 1997 in the principal amount of $27,214,890 made by the
Company in favor of EKI.
10.28 Letters dated August 22, 1997 from Shelby Yastrow to Simon K. Hodson and Simon K.
Hodson to Shelby Yastrow.*
10.29 First Amendment to Credit Agreement dated October 6, 1997 by and between the Company
and Imperial Bank.
10.30 Warrant to Purchase Stock issued October 6, 1997 by the Company to Imperial Bank.
11.1 Statement Regarding Computation of Per Share Earnings.
23.1 Consent of Deloitte & Touche LLP.
23.3 Consent of Workman, Nydegger & Seeley.*
23.2 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).*
24.1 Power of Attorney (included on signature page).+
27.1 Financial Data Schedule.
</TABLE>

- ------------------------

* To be filed by amendment.

+ Previously filed.

<PAGE>

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

EARTHSHELL CONTAINER CORPORATION

The undersigned, _____________ and _______________, do hereby certify
that:

1. They are the President and Secretary, respectively, of EarthShell
Container Corporation, a Delaware corporation (the "Corporation").

2. The name of the Corporation is EarthShell Container Corporation.
The Corporation was originally incorporated under the name EarthCrete Container
Corporation. The date of filing of its original Certificate of Incorporation
with the Secretary of State of Delaware was October 27, 1992.

3. This Amended and Restated Certificate of Incorporation and the
amendments set forth herein have been duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware and by a written consent of the stockholders pursuant to Section 228
of the General Corporation Law of the State of Delaware.

4. The Corporation's Certificate of Incorporation is hereby amended
and restated in its entirety as follows:

<PAGE>

ARTICLE I: Name

The name of the Corporation is EarthShell Corporation.

ARTICLE II: Definitions

For purposes of this Certificate of Incorporation, the following terms
shall have the meanings indicated, and all capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in
Section 203(c) of the Delaware General Corporation Law, as in effect on the date
hereof:

(A) "Board" shall mean the Board of Directors of the
Corporation.

(B) "Business Combination" shall have the meaning ascribed
to it in Section 203(c)(3) of the Delaware General Corporation Law;
provided, however, that for purposes hereof the term "interested
stockholder" appearing therein shall have the meaning ascribed to it in
Article II(E) hereof.

(C) "Disinterested Shares" shall mean the shares of Voting
Stock of the Corporation held by Persons other than an Interested
Stockholder, and each reference herein to a percentage or portion of the
Disinterested Shares shall refer to such percentage or portion of the votes
entitled to be cast by the holders of such Disinterested Shares.

(D) "Independent Directors" shall mean the members of the
Board who (i) were directors of the Corporation prior to any Person
becoming an Interested Stockholder (the "Pre-Existing Directors"),
(ii) were recommended for election or elected to succeed such Pre-Existing
Directors by a majority of such directors or (iii) were elected to succeed
the directors named in (ii) by a majority of the directors named in (i) and
(ii).

(E) "Interested Stockholder" shall mean any Person (other
than the Corporation and any direct or indirect majority-owned subsidiary
of the Corporation) that (1) is the Owner of 15% or more of the outstanding
Voting Stock, or (2) is an Affiliate or Associate of the Corporation and
was the Owner of 15% or more of the outstanding Voting Stock at any time
within the three-year period immediately prior to the date on which it is
sought to be determined whether such Person is an Interested Stockholder,
or (3) is an Affiliate or Associate of a Person described in (1) or (2)
preceding; provided,

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however, that the term "Interested Stockholder" shall not include (i) any
Person who (a) owned shares in excess of the 15% limitation set forth
herein as of the first date upon which shares of Voting Stock of the
Corporation are held of record or beneficially by more than one hundred
(100) stockholders and either (1) continued to own shares in excess of such
15% limitation or would have owned such shares but for action by the
Corporation or (2) is an Affiliate or Associate of the Corporation and so
continued (or so would have continued but for action by the Corporation) to
be the owner of 15% or more of the outstanding Voting Stock of the
Corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such Person is an
Interested Stockholder or (b) acquired such shares from a Person described
in (a) above by gift, inheritance or in a transaction in which no
consideration was exchanged; or (ii) any Person whose ownership of shares
in excess of the 15% limitation set forth herein is the result of action
taken solely by the Corporation, provided that such Person shall be an
Interested Stockholder if thereafter such Person acquires additional shares
of Voting Stock except as a result of further corporate action not caused,
directly or indirectly, by such Person. For the purpose of determining
whether a Person is an Interested Stockholder, (1) the Voting Stock deemed
to be outstanding shall include stock deemed to be owned by the Person
through application of Section 203(c)(8) of the Delaware General
Corporation Law, except that the Voting Stock deemed to be outstanding
shall not include any other unissued stock of the Corporation which may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise, and (2) a
Person engaged in business as an underwriter of securities shall not be
deemed to own any Voting Stock acquired through such Person's participation
in good faith in a firm commitment underwriting until the expiration of 40
days after the date of such acquisition.

(F) "Voting Stock" shall mean stock of the Corporation of
any class or series entitled to vote generally in the election of directors
of the Corporation, and, with respect to any entity that is not a
corporation, any equity interest entitled to vote generally in the election
of the governing body of such entity. Each reference herein to a
percentage or portion of shares of Voting Stock shall refer to such
percentage or portion of the votes entitled to be cast by the holders of
such shares.

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ARTICLE III: Registered Office

The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle, and the name of its registered agent at that address is
The Corporation Trust Company.

ARTICLE IV: Purpose

The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.

ARTICLE V: Authorized Capital Stock

SECTION 1. NUMBER OF AUTHORIZED SHARES. The Corporation shall be
authorized to issue two classes of shares of stock to be designated,
respectively, "Common Stock" and "Preferred Stock"; the total number of shares
of all classes of stock that the Corporation shall have authority to issue is
Two Hundred Ten Million (210,000,000) shares, consisting of Two Hundred Million
(200,000,000) shares of Common Stock, par value $.01 per share, and Ten Million
(10,000,000) shares of Preferred Stock, par value $.01 per share.

SECTION 2. COMMON STOCK. All shares of Common Stock shall be one
class without series and shall be denominated "Common Stock."

SECTION 3. PREFERRED STOCK. Shares of Preferred Stock may be issued
from time to time in one or more series. Shares of Preferred Stock that are
redeemed, purchased or otherwise acquired by the Corporation may be reissued
except as otherwise provided by law. The Board is hereby authorized to fix or
alter the designations, powers and preferences, and relative, participating,
optional or other rights, if any, and qualifications, limitations or
restrictions thereof, including, without limitation, dividend rights (and
whether dividends are cumulative), conversion rights, if any, voting rights
(including the number of votes, if any, per share, as well as the number of
members, if any, of the Board or the percentage of members, if any, of the Board
each class or series of Preferred Stock may be entitled to elect), rights and
terms of redemption (including sinking fund provisions, if any), unissued series
of Preferred Stock, and the number of shares constituting any such series and
the designation thereof, and to increase or decrease the number of shares of any
such series subsequent to the issuance of shares of such series, but not below
the number of shares of such series then outstanding. Notwithstanding the
foregoing, the Board shall have no power to

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alter the rights of any shares of Preferred Stock then outstanding without the
consent of the required percentage of the holders of such Preferred Stock.

SECTION 4. DISTRIBUTIONS UPON LIQUIDATION. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation, the holders of each series of
Preferred Stock shall be entitled to receive, out of the net assets of the
Corporation, an amount for each share of such series of Preferred Stock equal to
the amount fixed and determined by the Board in the resolution or resolutions
creating such series and providing for the issuance of such shares, and no more,
before any of the assets of the Corporation shall be distributed or paid over to
the holders of shares of Common Stock. After payment in full of said amounts to
the holders of Preferred Stock of all series, the remaining assets and funds of
the Corporation shall be divided among and paid to the holders of shares of
Common Stock. If, upon such dissolution, liquidation or winding up, the assets
of the Corporation distributable as aforesaid among the holders of Preferred
Stock of all series shall be insufficient to permit full payment to them of said
preferential amounts, then such assets shall be distributed ratably among such
holders of Preferred Stock in proportion to the respective total amounts which
they shall be entitled to receive as provided in this Section 4.

ARTICLE VI: Annual Meetings of Stockholders

The annual meeting of stockholders shall be held at such time, on such
date and at such place (within or without the State of Delaware) as provided in
the Bylaws of the Corporation. Subject to any requirement of applicable law,
the books of the Corporation may be kept outside the State of Delaware at such
place or places as may be designated from time to time by the Board or in the
Bylaws of the Corporation. Elections of directors need not be by written ballot
unless the Bylaws of the Corporation shall so provide.

ARTICLE VII: Call of Special Meetings of Stockholders

Special meetings of stockholders of the Corporation for any purpose or
purposes may be called at any time by a majority of the members of the Board of
Directors or by a committee of the Board of Directors which has been duly
designated by the Board of Directors and whose power and authority, as provided
in a resolution by the Board of Directors or by the Bylaws of the Corporation,
includes the power to call such meetings, but such special meetings of

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stockholders of the Corporation may not be called by any other Person or Persons
or in any other manner; provided, however, that if a proposal requiring
stockholder approval is made by or on behalf of an Interested Stockholder or a
director who is an Affiliate or Associate of an Interested Stockholder, or if an
Interested Stockholder otherwise seeks action requiring stockholder approval,
then the affirmative vote of a majority of the Independent Directors shall also
be required to call a special meeting of stockholders for the purpose of
considering such proposal or obtaining such approval; and provided further that
if and to the extent that any special meeting of stockholders may be called by
any other Person or Persons specified in any certificate of designations filed
under Section 151(g) of the Delaware General Corporation Law (or its successor
statute as in effect from time to time), then such special meeting may also be
called by the Person or Persons, in the manner, at the times and for the
purposes so specified.

ARTICLE VIII: Number of Directors

The number of directors that shall constitute the whole Board shall be
as specified in the Bylaws of the Corporation, as the same may be amended from
time to time. Notwithstanding the foregoing, during any period in which the
holders of any one or more series of Preferred Stock, voting as a class, shall
be entitled to elect a specified number of directors by reason of dividend
arrearages or other contingencies giving them the right to do so, then and
during such time as such right continues, (A) the then otherwise authorized
number of directors shall be increased by such specified number of directors and
the holders of shares of such series of Preferred Stock, voting as a class,
shall be entitled to elect such specified number of directors in accordance with
the procedure set forth in the resolution or resolutions of the Board creating
such series and providing for the issuance of such shares and (B) each such
additional director shall serve until his or her successor shall be elected and
shall qualify, or until his or her right to hold such office terminates pursuant
to the resolution or resolutions of the Board creating such series of Preferred
Stock and providing for the issuance of shares of such series, whichever occurs
earlier. Whenever the holders of shares of such series of Preferred Stock are
divested of such right to elect directors pursuant to the resolution or
resolutions of the Board creating such series and providing for the issuance of
such shares, the terms of office of all directors elected by the holders of such
series of Preferred Stock pursuant to such rights, or elected to fill any
vacancies resulting from the death, resignation or removal of directors so
elected by the holders of such series, shall forthwith terminate and the
authorized number of directors shall be reduced accordingly.

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<PAGE>

ARTICLE IX: Stockholder Action by Written Consent

Any election of directors or other action by the stockholders of the
Corporation may be effected at an annual or special meeting of stockholders or
by written consent in lieu of such meeting.

ARTICLE X: Election of Directors

SECTION 1. CLASSIFIED BOARD. Except to the extent otherwise provided
in any certificate of designations filed under Section 151(g) of the Delaware
General Corporation Law (or its successor statute as in effect from time to
time), the Board of Directors shall be and is divided into three classes: Class
I, Class II and Class III. Such classes shall be as nearly equal in number of
directors as reasonably possible. Each director shall serve for a term ending
on the third annual meeting following the annual meeting at which such director
was elected; provided, however, that the directors first elected to Class I
shall serve for a term ending on the annual meeting date next following the end
of calendar year 1995, the directors first elected to Class II shall serve for a
term ending on the second annual meeting date next following the end of calendar
year 1995, and the directors first elected to Class III shall serve for a term
ending on the third annual meeting date next following the end of calendar year
1995. The foregoing notwithstanding, each director shall serve until his or her
successor shall have been duly elected and qualified unless he or she shall die,
resign, become disqualified or shall otherwise be removed.

At each annual election, the directors chosen to succeed those whose
terms then expire shall be of the same class of the directors they succeed
unless, by reason of any intervening changes in the authorized number of
directors, the designated board shall designate one or more directorships whose
term then expires as directorships of another class in order more nearly to
achieve equality of number of directors among the classes. If a director dies,
resigns or is removed, the director chosen to fill the vacant directorship shall
be of the same class as the director he or she succeeds, unless, by reason of
any previous changes in the authorized number of directors, the Board shall
designate such vacant directorship as a directorship of another class in order
more nearly to achieve equality in the number of directors among the classes.

Notwithstanding the rule that the three classes shall be as nearly
equal in number of directors as reasonably possible, in the event of any change
in the authorized number of directors, each director then continuing to serve as
such shall nevertheless continue as a director of the class of which he or she
is a member until the expiration of his or her

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<PAGE>

current term or his or her prior death, resignation, disqualification or
removal. If any newly created directorship may, consistently with the rule that
the three classes shall be as nearly equal in number of directors as reasonably
possible, be allocated to one of two or more classes, the Board shall allocate
it to that of the available classes whose term of office is due to expire at the
earliest date following such allocation.

Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the stockholders having
the right to vote as a single class may, unless the Board of Directors
determines otherwise, only be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director; provided,
however, that if the holders of any class or classes of stock or series thereof
are entitled to elect one or more directors, vacancies and newly created
directorships of such class or classes or series may only be filled by a
majority of the directors elected by such class or classes or series thereof
then in office, or by a sole remaining director so elected.

SECTION 2. STOCKHOLDER NOMINEES. Nominations by stockholders of
persons for election to the Board shall be made only in accordance with the
procedures set forth in the Bylaws of the Corporation.

SECTION 3. REMOVAL. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, any director, or the entire Board,
may be removed from office only for cause at any time, and only by the
affirmative vote of the holders of a majority of the shares of Voting Stock then
outstanding; provided, however, that if a proposal to remove a director is made
by or on behalf of an Interested Stockholder or a director who is an Affiliate
or Associate of an Interested Stockholder, then such removal shall also require
the affirmative vote of the holders of a majority of the Disinterested Shares
then outstanding.

ARTICLE XI: Business Combinations

SECTION 1. VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS. In
addition to any affirmative vote required by applicable law or any other
provision of this Certificate of Incorporation or specified in any agreement,
and in addition to any voting rights granted to or held by the holders of Common
Stock or any series of Preferred Stock, the approval or authorization of any
Business Combination that has not been approved in advance by a majority of the
Independent Directors shall require the affirmative vote of the holders of not
less than 66-2/3% of the Disinterested Shares then outstanding.

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<PAGE>

SECTION 2. DETERMINATION OF COMPLIANCE. A majority of the
Independent Directors shall have the power and duty to determine, on the basis
of information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article XI, including, without limitation,
(A) whether a Person is an Interested Stockholder; (B) the number of shares of
Voting Stock owned by any Person, (C) whether a Person is an Affiliate or
Associate of another Person, (D) whether a proposed transaction is a Business
Combination and (E) whether a Business Combination shall have been approved in
advance by a majority of the Independent Directors; and any such determination
made in good faith by a majority of the Independent Directors shall be
conclusive and binding for all purposes of this Article XI.

ARTICLE XII: Liability and Indemnification

To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (the "Delaware Law"), a
director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
The Corporation shall indemnify, in the manner and to the fullest extent
permitted by the Delaware Law, any person (or the estate of any person) who is
or was a party to, or is threatened to be made a party to, any threatened,
pending or completed action, suit or proceeding, whether or not by or in the
right of the Corporation, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director, officer or manager of another corporation,
partnership, limited liability company, joint venture, trust or other
enterprise. The Corporation may indemnify, in the manner and to the fullest
extent permitted by the Delaware Law, any person (or the estate of any person)
who is or was a party to, or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether or not by
or in the right of the Corporation, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is or was an
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, limited
liability company, joint venture, trust or other enterprise. The Corporation
may, to the fullest extent permitted by the Delaware Law, purchase and maintain
insurance on behalf of any such director, officer, employee or agent against any
liability which may be asserted against such person. To the fullest extent
permitted by the Delaware Law, the indemnification provided herein shall include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement and, in

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<PAGE>

the manner provided by the Delaware Law, any such expenses may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit
the right of the Corporation to indemnify any other person for any such expenses
to the fullest extent permitted by the Delaware Law, nor shall it be deemed
exclusive of any other rights to which any person seeking indemnification from
the Corporation may be entitled under any agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.

No repeal or modification of the foregoing paragraph shall adversely
affect any right or protection of a director of the Corporation existing by
virtue of the foregoing paragraph at the time of such repeal or modification.

ARTICLE XIII: Amendment of Corporate Documents

SECTION 1. CERTIFICATE OF INCORPORATION. In addition to any
affirmative vote required by applicable law or any other provision of this
Certificate of Incorporation or specified in any agreement, and in addition to
any voting rights granted to or held by the holders of Common Stock or any
series of Preferred Stock, any alteration, amendment, repeal or rescission (any
"Change") of any provision of this Certificate of Incorporation must be approved
by a majority of the directors of the Corporation then in office and by the
affirmative vote of the holders of a majority of the Voting Stock then
outstanding; provided, however, that: (A) if any such Change relates to any
Article other than Articles I, III or VI hereof, such Change must also be
approved either (i) by a majority of the authorized number of directors and, if
one or more Interested Stockholders exist, by a majority of the Independent
Directors, or (ii) by the affirmative vote of the holders of not less than
66-2/3% of the shares of Voting Stock then outstanding; and (B) if any such
Change is proposed by or on behalf of an Interested Stockholder or a director
who is an Affiliate or Associate of an Interested Stockholder, such holders of a
majority of the Disinterested Shares then outstanding. Subject to the
foregoing, the Corporation reserves the right to alter, amend, repeal or rescind
any provision contained in this Certificate of Incorporation in any manner now
or hereafter prescribed by law.

SECTION 2. BYLAWS. In addition to any affirmative vote required by
applicable law and any voting rights granted to or held by the holders of Common
Stock or of any series Preferred Stock, any Change of any provision of the
Bylaws of the Corporation must be approved either (A) by a majority of the
authorized number of directors and, if one or more

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<PAGE>

Interested Stockholders exist, by a majority of the Independent Directors, or
(B) by the affirmative vote of the holders of not less than 66-2/3% of the
shares of Voting Stock then outstanding and, if the Change is proposed by or on
behalf of an Interested Stockholder or a director who is an Affiliate or
Associate of an Interested Stockholder, by the affirmative vote of the holders
of a majority of the Disinterested Shares then outstanding. Subject to the
foregoing, the Board shall have the power to make, alter, amend, repeal or
rescind the Bylaws of the Corporation.

ARTICLE XIV: Constituencies

The Board of Directors, when evaluating any proposed transaction that
would result in a person or entity becoming an Interested Stockholder or an
Interested Stockholder increasing his ownership of capital stock of the
Corporation, or any transaction or any proposed transaction with another party
which would constitute a Business Combination if the other party to the
transaction were an Interested Stockholder, shall, in connection with the
exercise of its judgment in determining what is in the best interests of the
Corporation and its stockholders, give due consideration to all relevant
factors, including without limitation, the independence and integrity of the
Corporation's operations, the social, economic and environmental effects on the
stockholders, employees, customers, suppliers and other constituents of the
Corporation and its subsidiaries and on the communities in which the Corporation
and its subsidiaries operate or are located or in which they serve.

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IN WITNESS WHEREOF, the undersigned, being the President and Secretary
of the Corporation, hereby affirm and acknowledge under penalty of perjury that
the filing of the Amended and Restated Certificate of Incorporation is the act
and deed of the Corporation.

------------------------
[Name of President]

Attest:------------------------
[Name of Secretary]

CA952850.057/6+

<PAGE>

RESTATED

BYLAWS

EARTHSHELL CONTAINER CORPORATION

A DELAWARE CORPORATION

ARTICLE I: OFFICES

SECTION 1.1 REGISTERED OFFICE. The registered office of Earthshell
Corporation (the "Corporation") shall be at Corporate Trust Center,
1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware,
and the name of the registered agent in charge thereof shall be The Corporation
Trust Company.

SECTION 1.2 PRINCIPAL OFFICE. The principal office for the
transaction of the business of the Corporation shall be at such place as the
Board of Directors of the Corporation (the "Board") may determine. The Board is
hereby granted full power and authority to change said principal office from one
location to another.

SECTION 1.3 OTHER OFFICES. The Corporation may also have an office
or offices at such other place or places, either within or without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.

ARTICLE II: MEETINGS OF STOCKHOLDERS

SECTION 2.1 PLACE OF MEETINGS. All annual meetings of stockholders
and all other meetings of stockholders shall be held either at the principal
office of the Corporation or at any other place within or without the State of
Delaware that may be designated by the Board pursuant to authority hereinafter
granted to the Board.

SECTION 2.2 ANNUAL MEETINGS. Annual meetings of stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time and place and on such date as the Board shall determine by resolution.

<PAGE>

SECTION 2.3 SPECIAL MEETINGS. Special meetings of stockholders of
the Corporation for any purpose or purposes may only be called in accordance
with the provisions of the Certificate of Incorporation.

SECTION 2.4 NOTICE OF MEETINGS. Except as otherwise required by law,
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 days nor more than 60 days before the date of the meeting
to each stockholder of record entitled to vote at such meeting by delivering a
typewritten or printed notice thereof to such stockholder personally, or by
depositing such notice in the United States mail, in a postage prepaid envelope,
directed to such stockholder at such stockholder's post office address furnished
by such stockholder to the Secretary of the Corporation for such purpose, or, if
such stockholder shall not have furnished an address to the Secretary for such
purpose, then at such stockholder's post office address last known to the
Secretary, or by transmitting a notice thereof to such stockholder at such
address by telegraph, cable, wireless or fax. Except as otherwise expressly
required by law, no publication of any notice of a meeting of stockholders shall
be required. Every notice of a meeting of stockholders shall state the place,
date and hour of the meeting and, in the case of a special meeting, shall also
state the purpose for which the meeting is called. Notice of any meeting of
stockholders shall not be required to be given to any stockholder to whom notice
may be omitted pursuant to applicable Delaware law or who shall have waived such
notice, and such notice shall be deemed waived by any stockholder who shall
attend such meeting in person or by proxy, except a stockholder who shall attend
such meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Except as otherwise expressly required by law, notice of
any adjourned meeting of stockholders need not be given if the time and place
thereof are announced at the meeting at which the adjournment is taken.

SECTION 2.5 QUORUM. Except as otherwise required by law, the holders
of record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of
stockholders of the Corporation or any adjournment thereof. Subject to the
requirement of a larger percentage vote contained in the Certificate of
Incorporation, these Bylaws or by statute, the stockholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding any withdrawal of stockholders that may leave
less than a quorum remaining, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
In the absence of a quorum at any meeting or any adjournment thereof, a majority
in voting interest of the stockholders present in person or by proxy and

<PAGE>

entitled to vote thereat or, in the absence therefrom of all the stockholders,
any officer entitled to preside at, or to act as secretary of, such meeting may
adjourn such meeting from time to time. At any such adjourned meeting at which
a quorum is present, any business may be transacted that might have been
transacted at the meeting as originally called.

SECTION 2.6 VOTING.

(A) Each stockholder shall, at each meeting of stockholders, be
entitled to vote in person or by proxy each share of the stock of the
Corporation that has voting rights on the matter in question and that
shall have been held by such stockholder and registered in such
stockholder's name on the books of the Corporation:

(i) on the date fixed pursuant to Section 6.5 of these
Bylaws as the record date for the determination of stockholders
entitled to notice of and to vote at such meeting; or

(ii) if no such record date shall have been so fixed, then
(a) at the close of business on the day next preceding the day
upon which notice of the meeting shall be given or (b) if notice
of the meeting shall be waived, at the close of business on the
day next preceding the day upon which the meeting shall be held.

(B) Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in
the election of directors in such other corporation is held, directly
or indirectly, by the Corporation, shall neither be entitled to vote
nor be counted for quorum purposes. Persons holding stock of the
Corporation in a fiduciary capacity shall be entitled to vote such
stock. Persons whose stock is pledged shall be entitled to vote,
unless in the transfer by the pledgor on the books of the Corporation
the pledgor shall have expressly empowered the pledgee to vote
thereon, in which case only the pledgee, or the pledgee's proxy, may
represent such stock and vote thereon. Stock having voting power
standing of record in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by the entirety or otherwise, or with respect to which
two or more persons have the same fiduciary relationship, shall be
voted in accordance with the provisions of the Delaware General
Corporation Law.

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<PAGE>

(C) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by such stockholder's proxy appointed by
an instrument in writing, subscribed by such stockholder or by such
stockholder's attorney thereunto authorized and delivered to the
secretary of the meeting; provided, however, that no proxy shall be
voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the
effect of revoking the same unless such stockholder shall in writing
so notify the secretary of the meeting prior to the voting of the
proxy. At any meeting of stockholders, all matters, except as
otherwise provided in the Certificate of Incorporation, in these
Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and
entitled to vote thereat and thereon, a quorum being present. The
vote at any meeting of stockholders on any question need not be by
ballot, unless so directed by the chairman of the meeting. On a vote
by ballot, each ballot shall be signed by the stockholder voting, or
by such stockholder's proxy, if there be such proxy, and it shall
state the number of shares voted.

SECTION 2.7 JUDGES. If at any meeting of stockholders a vote by
written ballot shall be taken on any question, the chairman of such meeting may
appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath faithfully to execute the duties of a
judge at such meeting with strict impartiality and according to the best of such
judge's ability. Such judges shall decide upon the qualification of the voters
and shall report the number of shares represented at the meeting and entitled to
vote on such question, shall conduct and accept the votes, and, when the voting
is completed, shall ascertain and report the number of shares voted respectively
for and against the question. Reports of judges shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation. The
judges need not be stockholders of the Corporation, and any officer of the
Corporation may be a judge on any question other than a vote for or against a
proposal in which such officer shall have a material interest.

SECTION 2.8 ADVANCE NOTICE OF STOCKHOLDER PROPOSALS AND STOCKHOLDER
NOMINATIONS.

(A) At any meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting (i) by or
at the direction of the Board or (ii) by any stockholder of the
Corporation who complies with the notice procedures set forth in this

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Section 2.8(A). For business to be properly brought before any meeting
of the stockholders by a stockholder, the stockholder must have given
notice thereof in writing to the Secretary of the Corporation not less
than 90 days in advance of such meeting or, if later, the seventh day
following the first public announcement of the date of such meeting. A
stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the meeting (1) a brief
description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (2) the name
and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (3) the class and number of shares of
the Corporation that are beneficially owned by the stockholder, and (4)
any material interest of the stockholder in such business. In addition,
the stockholder making such proposal shall promptly provide any other
information reasonably requested by the Corporation. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted
at any meeting of the stockholders except in accordance with the
procedures set forth in this Section 2.8. The Chairman of any such
meeting shall direct that any business not properly brought before the
meeting shall not be considered.

(B) Nominations for the election of directors may be made by the
Board or by any stockholder entitled to vote in the election of
directors; provided, however, that a stockholder may nominate a person
for election as a director at a meeting only if written notice of such
stockholder's intent to make such nomination has been given to the
Secretary of the Corporation not later than 90 days in advance of such
meeting or, if later, the seventh day following the first public
announcement of the date of such meeting. Each such notice shall set
forth: (i) the name and address of the stockholder who intends to
make the nomination and of the person or persons to be nominated;
(ii) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting and nominate the person
or persons specified in the notice; (iii) a description of all
arrangements or understandings between the stockholder and each
nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (iv) such other information regarding each
nominee proposed by such stockholder as would be required to be
included in a proxy statement filed

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pursuant to the proxy rules of the United States Securities and Exchange
Commission had the nominee been nominated, or intended to be nominated, by
the Board; and (v) the consent of each nominee to serve as a director of
the Corporation if so elected. In addition, the stockholder making such
nomination shall promptly provide any other information reasonably
requested by the Corporation. No person shall be eligible for election as
a director of the Corporation unless nominated in accordance with the
procedures set forth in this Section 2.8(B). The Chairman of any meeting
of stockholders shall direct that any nomination not made in accordance
with these procedures be disregarded.

SECTION 2.9 RECORD DATE FOR STOCKHOLDER ACTION BY WRITTEN CONSENT.
In order that the Corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board, and which date shall not be more
than 10 days after the date upon which the resolution fixing the record date is
adopted by the Board. Any stockholder of record seeking to have the
stockholders authorize or take corporate action by written consent shall, by
written notice to the Secretary, request the Board to fix a record date. The
Board shall promptly, but in all events within 10 days after the date upon which
such request is received, adopt a resolution fixing the record date. If no
record date has been fixed by the Board within 10 days of the date upon which
such request is received, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting, when no prior
action by the Board is required by applicable law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded, addressed to the attention of the Secretary.
Delivery shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board and prior action by
the Board is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board adopts
the resolution taking such prior action.

ARTICLE III: BOARD OF DIRECTORS

SECTION 3.1 GENERAL POWERS. Subject to any requirements in the
Certificate of Incorporation, these Bylaws,

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and of the Delaware General Corporation Law as to action which must be
authorized or approved by the stockholders, any and all corporate powers shall
be exercised by or under the authority of, and the business and affairs of the
Corporation shall be under the direction of, the Board to the fullest extent
permitted by law. Without limiting the generality of the foregoing, it is
hereby expressly declared that the Board shall have the following powers, to
wit:

(A) to select and remove all the officers, agents and employees
of the Corporation, prescribe such powers and duties for them as may
not be inconsistent with law, the Certificate of Incorporation or
these Bylaws, fix their compensation, and require from them security
for faithful service;

(B) to conduct, manage and control the affairs and business of
the Corporation, and to make such rules and regulations therefor not
inconsistent with law, the Certificate of Incorporation or these
Bylaws, as it may deem best;

(C) to change the location of the registered office of the
Corporation in Section 1.1 hereof; to change the principal office and
the principal office for the transaction of the business of the
Corporation from one location to another as provided in Section 1.2
hereof; to fix and locate from time to time one or more subsidiary
offices of the Corporation within or without the State of Delaware as
provided in Section 1.3 hereof; to designate any place within or
without the State of Delaware for the holding of any meeting or
meetings of stockholders; and to adopt, make and use a corporate seal,
and to prescribe the forms of certificates of stock, and to alter the
form of such seal and of such certificates from time to time, and in
its judgment as it may deem best, provided such seal and such
certificate shall at all times comply with the provisions of law;

(D) to authorize the issue of shares of stock of the Corporation
from time to time, upon such terms and for such considerations as may
be lawful;

(E) to borrow money and incur indebtedness for the purposes of
the Corporation, and to cause to be executed and delivered therefor,
in the corporate name, promissory notes, bonds, debentures, deeds of
trust and securities therefor; and

(F) by resolution adopted by a majority of the authorized number
of directors, to designate an executive and other committees of the
Board, each

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consisting of one or more directors, to serve at the pleasure of the Board,
and to prescribe the manner in which proceedings of such committee or
committees shall be conducted.

SECTION 3.2 NUMBER AND TERM OF OFFICE. The authorized number of
directors of the Corporation shall be not less than 5 nor more than 11 until
this Section 3.2 is amended by a resolution duly adopted by the Board or by the
stockholders of the Corporation, in either case in accordance with the
provisions of Article XIII of the Certificate of Incorporation. The exact
number of directors shall be fixed from time to time, within the limits
specified, by resolution of the Board or the stockholders, provided that the
votes cast in favor of such resolution would be sufficient to amend this
Section 3.2 in accordance with the provisions of Article III of the Certificate
of Incorporation. Directors need not be stockholders. Each of the directors of
the Corporation shall hold office until such director's successor shall have
been duly elected and shall qualify or until such director shall resign or shall
have been removed in the manner provided in these Bylaws.

SECTION 3.3 ELECTION OF DIRECTORS. The directors shall be elected by
the stockholders of the Corporation, and at each election, the persons receiving
the greater number of votes, up to the number of directors then to be elected,
shall be the persons then elected. The election of directors is subject to any
provisions contained in the Certificate of Incorporation relating thereto,
including any provision for a classified Board and any provision granting the
holders of preferred stock the right to elect directors.

SECTION 3.4 RESIGNATIONS. Any director of the Corporation may resign
at any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.

SECTION 3.5 VACANCIES. Except as otherwise provided in the
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors, or
any other cause, may be filled by vote of the majority of the remaining
directors, although less than a quorum, or by a sole remaining director;
provided, however, that whenever the holders of any class or series of shares
are entitled to elect one or more directors, any vacancy or newly created
directorship of such class or series may be filled by a majority of the
directors elected by such class or series then in office, or by a sole remaining
director so elected. Each director so chosen to fill a vacancy shall hold

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office until such director's successor shall have been elected and shall qualify
or until such director shall resign or shall have been removed. No reduction of
the authorized number of directors shall have the effect of removing any
director prior to the expiration of such director's term of office.

SECTION 3.6 PLACE OF MEETING. The Board or any committee thereof may
hold any of its meetings at such place or places within or without the State of
Delaware as the Board or such committee may from time to time by resolution
designate or as shall be designated by the person or persons calling the meeting
or in the notice or a waiver of notice of any such meeting. Directors may
participate in any regular or special meeting of the Board or any committee
thereof by means of conference telephone or similar communications equipment
pursuant to which all persons participating in the meeting of the Board or such
committee can hear each other, and such participation shall constitute presence
in person at such meeting.

SECTION 3.7 REGULAR MEETINGS. Regular meetings of the Board may be
held at such times as the Board shall from time to time by resolution determine.
If any day fixed for a regular meeting shall be a legal holiday at the place
where the meeting is to be held, then the meeting shall be held at the same hour
and place on the next succeeding business day not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.

SECTION 3.8 SPECIAL MEETINGS. Special meetings of the Board for any
purpose or purposes shall be called at any time by the Chairman of the Board or,
if the Chairman of the Board is absent or unable or refuses to act, by the Chief
Executive Officer or the President. Except as otherwise provided by law or by
these Bylaws, written notice of the time and place of special meetings shall be
delivered personally or by fax to each director, or sent to each director by
mail or by other form of written communication, charges prepaid, addressed to
such director at such director's address as it is shown upon the records of the
Corporation, or, if it is not so shown on such records and is not readily
ascertainable, at the place in which the meetings of the directors are regularly
held. In case such notice is mailed or telegraphed, it shall be deposited in
the United States mail or delivered to the telegraph company in the County in
which the principal office for the transaction of the business of the
Corporation is located at least 48 hours prior to the time of the holding of the
meeting. In case such notice is delivered personally or by fax as above
provided, it shall be delivered at least 24 hours prior to the time of the
holding of the meeting. Such mailing, telegraphing, delivery or faxing as above
provided shall be due, legal and personal notice to such director. Except where
otherwise required by law or by these Bylaws, notice of the purpose of a special
meeting need not be given. Notice of any meeting of the Board shall not be
required

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to be given to any director who is present at such meeting, except a director
who shall attend such meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.

SECTION 3.9 QUORUM AND MANNER OF ACTING. Except as otherwise
provided in these Bylaws, the Certificate of Incorporation or by applicable law,
the presence of a majority of the authorized number of directors shall be
required to constitute a quorum for the transaction of business at any meeting
of the Board, and all matters shall be decided at any such meeting, a quorum
being present, by the affirmative votes of a majority of the directors present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, provided any action taken
is approved by at least a majority of the required quorum for such meeting. In
the absence of a quorum, a majority of directors present at any meeting may
adjourn the same from time to time until a quorum shall be present. Notice of
any adjourned meeting need not be given. The directors shall act only as a
Board, and the individual directors shall have no power as such.

SECTION 3.10 ACTION BY CONSENT. Any action required or permitted to
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if consent in writing is given thereto by all members of the
Board or of such committee, as the case may be, and such consent is filed with
the minutes of proceedings of the Board or of such committee.

SECTION 3.11 COMPENSATION. Directors, whether or not employees of
the Corporation or any of its subsidiaries, may receive an annual fee for their
services as directors in an amount fixed by resolution of the Board, and, in
addition, a fixed fee, with or without expenses of attendance, may be allowed by
resolution of the Board for attendance at each meeting, including each meeting
of a committee of the Board. Such fees may be in the form of cash or other
lawful consideration, including, without limitation, stock grants and stock
options. Nothing herein contained shall be construed to preclude any director
from serving the Corporation in any other capacity as an officer, agent,
employee, or otherwise, and receiving compensation therefor.

SECTION 3.12 COMMITTEES. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in the resolution of the Board and subject to any
restrictions or limitations on the delegation of power and authority imposed by
applicable law, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize

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the seal of the Corporation to be affixed to all papers which may require it.
Any such committee shall keep written minutes of its meetings and report the
same to the Board at the next regular meeting of the Board. Unless the Board or
these Bylaws shall otherwise prescribe the manner of proceedings of any such
committee, meetings of such committee may be regularly scheduled in advance and
may be called at any time by the chairman of the committee or by any two members
thereof; otherwise, the provisions of these Bylaws with respect to notice and
conduct of meetings of the Board shall govern.

ARTICLE IV: OFFICERS

SECTION 4.1 OFFICERS. The officers of the Corporation shall be a
Chief Executive Officer, a President and Chief Operating Officer, a Chief
Financial Officer, one or more Vice Presidents (the number thereof and their
respective titles to be determined by the Board), a Secretary, and such other
officers as may be appointed at the discretion of the Board in accordance with
the provisions of Section 4.3 hereof.

SECTION 4.2 ELECTION. The officers of the Corporation, except such
officers as may be appointed or elected in accordance with the provisions of
Sections 4.3 or 4.5 hereof, shall be chosen annually by the Board at the first
meeting thereof, and each officer shall hold office until such officer shall
resign or shall be removed or otherwise disqualified to serve, or until such
officer's successor shall be elected and qualified.

SECTION 4.3 OTHER OFFICERS. In addition to the officers chosen
annually by the Board at its first meeting, the Board also may appoint or elect
such other officers as the business of the Corporation may require, each of whom
shall have such authority and perform such duties as are provided in these
Bylaws or as the Board may from time to time specify, and shall hold office
until such officer shall resign or shall be removed or otherwise disqualified to
serve, or until such officer's successor shall be elected and qualified.

SECTION 4.4 REMOVAL AND RESIGNATION. Any officer may be removed,
either with or without cause, by resolution of the Board passed by a majority of
the directors at the time in office, at any regular or special meeting of the
Board, or except in case of an officer chosen by the Board, by any officer upon
whom such power of removal may be conferred by the Board.

SECTION 4.5 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to such office.

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SECTION 4.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall, subject to the control of the Board, have general supervision, direction
and control of the business and affairs of the Corporation and shall have such
other powers and duties with respect to the administration of the business and
affairs of the Corporation as may from time to time be assigned to the Chief
Executive Officer by the Board or as may be prescribed by these Bylaws.

SECTION 4.7 PRESIDENT AND CHIEF OPERATING OFFICER. The President
and Chief Operating Officer shall be the chief operating officer of the
Corporation and shall have such other powers and duties with respect to the
administration of the business and affairs of the Corporation as may from time
to time be assigned to the President and Chief Operating Officer by the Board or
the Chief Executive Officer or as may be prescribed by these Bylaws.

SECTION 4.8 CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall have the general responsibility for maintaining the financial records of
the Corporation and such other powers and duties with respect to the
administration of the business and affairs of the Corporation as may from time
to time be assigned to the Chief Financial Officer by the Board or the Chief
Executive Officer or as may be prescribed by these Bylaws.

SECTION 4.9 VICE PRESIDENT. Each Vice President shall have such
powers and perform such duties with respect to the administration of the
business and affairs of the Corporation as may from time to time be assigned to
such Vice President by the Board or the Chief Executive Officer or as may be
prescribed by these Bylaws. In the absence or disability of the Chairman of the
Board, the Chief Executive Officer, the President and the Chief Operating
Officer, the Vice Presidents in order of their rank as fixed by the Board, or if
not ranked, the Vice President designated by the Board, shall perform all of the
duties of the Chairman of the Board, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the Chairman of the
Board.

SECTION 4.10 SECRETARY.

(A) The Secretary shall keep, or cause to be kept, at the
principal office of the Corporation, or such other place as the Board
may order, a book of minutes of all meetings of directors and
stockholders, with the time and place of holding, whether regular or
special, and if special, how authorized and the notice thereof given,
the names of those present at meetings of directors, the number of
shares present or represented at meetings of stockholders, and the
proceedings thereof.

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(B) The Secretary shall keep, or cause to be kept, at the
principal office of the Corporation's transfer agent, a share
register, or a duplicate share register, showing the name of each
stockholder, the number of shares of each class held by such
stockholder, the number and date of certificates issued for such
shares, and the number and date of cancellation of every certificate
surrendered for cancellation.

(B) The Secretary shall give, or cause to be given, notice of
all meetings of stockholders and of the Board required by these Bylaws
or by law to be given, and shall keep the seal of the Corporation in
safe custody and shall affix and attest the seal to all documents to
be executed on behalf of the Corporation under its seal, and shall
have such other powers and perform such other duties as may be
prescribed by these Bylaws or assigned by the Board, the Chairman of
the Board or any officer of the Corporation to whom the Secretary may
report. If for any reason the Secretary shall fail to give notice of
any special meeting of the Board called by one or more of the persons
identified in Section 3.8 hereof, then any such person or persons may
give notice of any such special meeting.

ARTICLE V: CONTRACTS, CHECKS, DRAFTS,
BANK ACCOUNTS, ETC.

SECTION 5.1 EXECUTION OF CONTRACTS. The Board, except as in these
Bylaws otherwise provided, may authorize any officer or officers, or agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances; and unless so authorized by the Board or by these Bylaws, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or in any amount.

SECTION 5.2 CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for payment of money, notes or other evidence of indebtedness, issued in the
name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such officer, assistant, agent or attorney
shall give such bond, if any, as the Board may require.

SECTION 5.3 DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or

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other depositories as the Board may select, or as may be selected by any officer
or officers, assistant or assistants, agent or agents, or attorney or attorneys
of the Corporation to whom such power shall have been delegated by the Board.
For the purpose of deposit and for the purpose of collection for the account of
the Corporation, the Chairman of the Board, the Vice Chairman of the Board, the
Chief Executive Officer, the President and Chief Operating Officer, the Chief
Financial Officer, any Vice President and the Secretary (or any other officer or
officers, assistant or assistants, agent or agents, or attorney or attorneys of
the Corporation who shall from time to time be determined by the Board) may
endorse, assign and deliver checks, drafts and other orders for the payment of
money which are payable to the order of the Corporation.

SECTION 5.4 GENERAL AND SPECIAL BANK ACCOUNTS. The Board may from
time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation to whom
such power shall have been delegated by the Board. The Board may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these Bylaws, as it may deem expedient.

ARTICLE VI: SHARES AND THEIR TRANSFER

SECTION 6.1 CERTIFICATES FOR STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class or
series of shares of the stock of the Corporation owned by such owner. The
certificates representing shares of such stock shall be numbered in the order in
which they shall be issued and shall be signed in the name of the Corporation by
the Chairman of the Board, the President or any Vice President, and by the
Secretary, any Assistant Secretary or the Treasurer. Any or all of the
signatures on the certificates may be a facsimile. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any such certificate, shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, such certificate
may nevertheless be issued by the Corporation with the same effect as though the
person who signed such certificate, or whose facsimile signature shall have been
placed thereupon, were such officer, transfer agent or registrar at the date of
issue. A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class or series of shares represented by such certificates, respectively, and
the respective dates thereof, and in case of cancellation, the respective dates
of cancellation. Every

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certificate surrendered to the Corporation for exchange or transfer shall be
cancelled, and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate shall have been so
cancelled, except in cases provided for in Section 6.4 hereof.

SECTION 6.2 TRANSFERS OF STOCK. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by such holder's attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary, or with a transfer clerk or
a transfer agent appointed as provided in Section 6.3 hereof, and upon surrender
of the certificate or certificates for such shares properly endorsed and the
payment of all taxes thereon. The person in whose name shares of stock stand on
the books of the Corporation shall be deemed the owner thereof for all purposes
as regards the Corporation. Whenever any transfer of shares shall be made for
collateral security, and not absolutely, such fact shall be so expressed in the
entry of transfer if, when the certificate or certificates shall be presented to
the Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.

SECTION 6.3 REGULATIONS. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer clerks or one or more transfer agents
and one or more registrars, and may require all certificates for stock to bear
the signature or signatures of any of them.

SECTION 6.4 LOST, STOLEN, DESTROYED, AND MUTILATED CERTIFICATES. In
any case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper so to do.

SECTION 6.5 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any other
change, conversion or exchange of stock or for the purpose of any other lawful
action other than to consent to corporate action in writing without a meeting,
the Board may fix, in advance, a record date, which shall not be more than 60

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nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any such other action. If in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders the Board shall not fix such a record date, then the record date
for determining stockholders for such purpose shall be the close of business on
the day on which the Board shall adopt the resolution relating thereto. A
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of such meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.

ARTICLE VII: INDEMNIFICATION

SECTION 7.1 SCOPE OF INDEMNIFICATION. The Corporation shall
indemnify, in the manner and to the fullest extent permitted by the Delaware
General Corporation Law, as the same exists or may hereinafter be amended (the
"Delaware Law"), and by the Certificate of Incorporation, any person (or the
estate of any person) who is or was a party, or is threatened to be made a party
to, any threatened, pending or completed action, suit or proceeding, whether or
not by or in the right of the Corporation, and whether civil, criminal,
administrative, investigative or otherwise, by reason of the fact that such
person is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation as a director, officer or manager of another
corporation, partnership, limited liability company, joint venture, trust or
other enterprise. The Corporation may, to the fullest extent permitted by the
Delaware Law, purchase and maintain insurance on behalf of any such person
against any liability which may be asserted against such person. The
Corporation may create a trust fund, grant a security interest or use other
means (including without limitation a letter of credit) to ensure the payment of
such sums as may become necessary to effect the indemnification as provided
herein. The indemnification provided herein shall not be deemed to limit the
right of the Corporation to indemnify any other person, including any employee
or agent, to the fullest extent permitted by the Delaware Law, nor shall it be
deemed exclusive of any other rights to which any person seeking indemnification
from the Corporation may be entitled under any agreement, vote of stockholders
or disinterested directors, or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.

SECTION 7.2 INDEMNIFICATION AGREEMENTS. The Corporation may enter
into indemnification agreements with any one or more directors, officers,
employees and agents upon resolution duly adopted by the Board. Such agreements
may indemnify such persons to the fullest extent permitted by the Delaware Law,
the Certificate of Incorporation and this Article VII.

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ARTICLE VIII: MISCELLANEOUS

SECTION 8.1 SEAL. The Board shall adopt a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation and
words showing that the Corporation was incorporated in the State of Delaware.

SECTION 8.2 WAIVER OF NOTICES. Whenever notice is required to be
given by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.

SECTION 8.3 AMENDMENTS. Except as otherwise provided herein or in
the Certificate of Incorporation, these Bylaws or any of them may be altered,
amended, repealed or rescinded and new Bylaws may be adopted by the Board or by
the stockholders at any annual or special meeting of stockholders, provided that
notice of such proposed alteration, amendment, repeal, rescission or adoption is
given in the notice of such meeting.

SECTION 8.4 REPRESENTATION OF OTHER CORPORATIONS. The Chairman of
the Board, Vice Chairman of the Board, Chief Executive Officer, President, Chief
Operating Officer, Chief Financial Officer or the Secretary or any Vice
President of the Corporation is authorized to vote, represent and exercise on
behalf of the Corporation all rights incident to any and all shares or ownership
interests of any other corporation or corporations, partnership or limited
liability company standing in the name of the Corporation. The authority herein
granted to said officers to vote or represent on behalf of the Corporation any
and all shares held by the Corporation in any other corporation or corporations
may be exercised either by such officers in person or by any person authorized
so to do by proxy or power of attorney duly executed by such officers.

<PAGE>
EXHIBIT 10.22

[LOGO]

NOTE

$ 13,000,000 Inglewood, California, October 6, 1997

On December 31, 1997, and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking
corporation, or order, at its Los Angeles Airport Regional office, the
principal sum of $13,000,000.00 MAXIMUM or such sums up to the maximum if so
stated as the bank may now or hereafter advance to or for the benefit of the
undersigned in accourdance with the terms hereof, together with interest from
date of disbursement or N/A , whichever is later, on the unpaid principal
balance / / at the rate of ________ per year /X/ at the rate of 1.000% per
year in excess of the rate of interest which Bank has announced as the prime
lending rate (the "Prime Rate"), which shall vary concurrently with any
change in such Prime Rate, or $250.00, whichever is greater. Interest shall
be computed at the above rate on the basis of the actual number of days
during which the principal balance is outstanding, divided by 360, which
should, for interest computation purposes, be considered one year.

Interest shall be payable /X/ monthly / / quarterly / / included with
principal / / in addition to principal / / ________________ beginning
October 31, 1997, and if not so paid shall become a part of the principal.
All payments shall be applied first to any late charges owing, then to
interest and the remainder, if any, to principal. / / (if checked),
Principal shall be payable in installments of $_______________ or more, each
installment on the ________ day of each________________, beginning
________________________. Advances not to exceed any unpaid balance owing at
any one time equal to the maximum amount specified above, may be made at the
option of the Bank.

Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal
or interest when due, or in the performance or observance, when due, of any
item, covenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extensions thereof) occuring or pertaining to
this note, at the option of the holder hereof and without notice or demand, the
entire balance of principal and accrued interest then remaining unpaid shall (a)
become immediately due and payable, and (b) thereafter bear interest, until paid
in full, at the increased rate of 5% per year in excess of the rate provided for
above, as it may vary from time to time.

Defaults shall include, but not be limited to, the failure of the maker(s)
to pay principal or interest when due; the filing as to each person obligated
hereon, whether as maker, co-maker, endorsor or guarantor (individually or
collectively referred to as the "Obligor") of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act; the issuance of any
attachment or execution against any asset of any Obligor, the death of any
Obligor, or any deterioration of the financial condition of any Obligor which
results in the holder hereof considering itself, in good faith, insecure.

/X/If any installment payment, interest payment, principal payment or
principal balance payment due hereunder is delinquent ten or more days, Obligor
agrees to pay Bank a late charge in the amount of 5% of the payment so due and
unpaid, in addition to the payment; but nothing in this paragraph is to be
construed as any obligation on the part of the holder of this note to accept
payment of any payment past due or less than the total unpaid principal balance
after maturity.

If this note is not paid when due, each Obligor promises to pay all costs
and expenses of collection and reasonable attorneys fees incurred by the holder
hereof on account of such collection, plus interest at the rate applicable to
principal, whether or not suit is filed hereon. Each Obligor shall be jointly
and severally liable hereon and consents to renewals, replacements and
extensions of time for payment hereof, before, at, or after maturity; consents
to the acceptance, release or substitution of security for this note, and waives
demand amd protest and the right to assert any statute of limitations. Any
married person who sighs this note agrees that recourse may be had against
separate property for any abligations hereunder. The indebtedness evidenced
hereby shall be payable in lawful money of the United States. In any action
brought under or arising out of this note, each Obligor, including successor(s)
or assign(s) hereby cosents to the application of California law, to the
jurisdiction of any competant court within the State of California, and to
service of process by any means authorized by California law.

No single or partial exercise of any power hereunder, or under any deed of
trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect to
any of the security. Any delay or omission on the part of the holder hereof in
exercising any right hereunder, or under any deed of trust, security agreement
or other agreement, shall not operate as a waiver of such right, or at any other
right, under this note or any deed of trust, security agreement or other
agreement in connection herewith.

EARTHSHELL CONTAINER CORPORATION
BY /s/ SCOTT HOUSTON
- ---------------------------------------- ----------------------------------

- ---------------------------------------- ----------------------------------

<PAGE>

CREDIT AGREEMENT

This Agreement is made and between Earthshell Container Corporation, A
Delaware Corporation ("Borrower") and Imperial Bank, a California banking
corporation, ("Bank").

In consideration of mutual covenants and conditions hereof, the parties
hereto agree as follows:

1. REPRESENTATIONS OF BORROWER

Borrower represents and warrants that, as of the date hereof,

1.01 EXISTENCE AND RIGHTS. Borrower is a Corporation duly organized and
existing and in good standing under the laws of Delaware, without limit as to
the duration of its existence and is authorized and in good standing to do
business in the State of California; Borrower has corporate powers and adequate
authority, rights and franchises to own its property and to carry on its
business as now conducted, and is duly qualified and in good standing in each
State in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary; and Borrower has the
power and adequate authority to make and carry out this Agreement. Borrower has
no investment in any other business entity.

1.02 AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; are not in contravention of or
in conflict with any law or regulation or any term or provision of Borrower's
Articles of Incorporation, by-laws, as the case may be, and this Agreement is
the valid, binding and legally enforceable obligation of Borrower in accordance
with its terms; subject only to bankruptcy, insolvency or similar laws affecting
creditors rights generally.

1.03 NO CONFLICT. The execution, delivery and performance of this
Agreement are not in contravention of or in conflict with any agreement,
indenture or undertaking to which Borrower is a party or by which it or any of
its property may be bound or affected, and do not cause any lien, charge or
other encumbrance to be created or imposed upon any such property by reason
thereof.

1.04 LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower which if determined adversely to
Borrower or its interest would have a material adverse effect on the financial
condition of Borrower, and Borrower is not in default with respect to any order,
writ, injunction, decree or demand of any court or other governmental or
regulatory authority.

1
<PAGE>

1.05 FINANCIAL CONDITION. The balance sheet of Borrower as of June 30,
1996, a copy of which has heretofore been delivered to Bank by Borrower, and all
other statements and data submitted in writing by Borrower to Bank in connection
with this request for credit are true and correct, and said balance sheet truly
presents the financial condition of Borrower as of the date thereof, and has
been prepared in accordance with generally accepted accounting principles on a
basis consistently maintained. Since such date, there have been no material
adverse changes in the ordinary course of business. Borrower has no knowledge
of any liabilities, contingent or otherwise, at such date not reflected in said
balance sheet, and Borrower has not entered into any special commitments or
substantial contracts which are not reflected in said balance sheet, other than
in the ordinary and normal course of its business, which may have a materially
adverse effect upon its financial condition, operations or business as now
conducted.

1.06 TITLE TO ASSETS. Borrower has good title to its assets, and the same
are not subject to any liens or encumbrances other than those permitted by
Section 3.03 hereof.

1.07 TAX STATUS. Borrower has no liability for any delinquent state, local
or federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.

1.08 TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others that would have a material adverse affect on the financial condition
of Borrower.

1.09 REGULATION U. The proceeds of the Loan shall not be used to purchase
or carry margin stock (as defined within Regulation U of the Board of Governors
of the Federal Reserve system).

2. AFFIRMATIVE COVENANTS OF BORROWER

Borrower agrees that so long as it is indebted to Bank, under that
certain promissory note in the face amount of $9,000,000, dated November 15,
1996 (the "Indebtedness"), it will, unless Bank shall otherwise consent in
writing:

2.01 RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.

2
<PAGE>

2.02 INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment.

2.03 TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties and all its
other liabilities at any time existing, except to the extent and so long as:

a. The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
effect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and

b. It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed by
it adequate with respect thereto.

2.04 RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access to,
and to examine its properties, books and records at all reasonable times and
upon reasonable notice during normal business hours; and furnish Bank:

a. QUARTERLY FINANCIAL STATEMENT. Within forty five (45) days
after the close of each quarter of each fiscal year of Borrower,
commencing with the quarter next ending, a balance sheet, profit and
loss statement and reconciliation of Borrower's capital accounts as
of the close of such period and covering operations for the portion
of Borrower's fiscal year ending on the last day of such period, all
in reasonable detail, prepared in accordance with generally accepted
accounting principles on a basis consistently maintained by Borrower
and certified by an appropriate officer of Borrower;

b. ANNUAL FINANCIAL STATEMENT. As soon as available, and in any
event within ninety (90) days after the close of each fiscal year of
Borrower, a report of audit of Company as of the close of and for
such fiscal year, all in reasonable detail, prepared on an audited
basis by an independent certified public accountant selected by
Borrower and reasonably acceptable to Bank, in accordance with
generally accepted accounting principles on a basis consistently
maintained by Borrower;

3
<PAGE>

c. Upon request, within ninety (90) days after the end of the
fiscal year ended of Borrower, a certificate of the chief financial
officer of Borrower, stating that Borrower has performed and
observed each and every covenant contained in this Agreement to be
performed by it and that no event has occurred and no condition then
exists which constitutes an event of default hereunder or would
constitute such an event of default upon the lapse of time or upon
the giving of notice and the lapse of time specified herein; or, if
any such event has occurred or any such condition exists, specifying
the nature thereof;

d. Promptly after the receipt thereof by Borrower, copies of any
detailed audit reports submitted to Borrower by independent
accountants in connection with each annual or interim audit of the
accounts of Borrower made by such accountants;

e. Such other information relating to the affairs of Borrower as
the Bank reasonably may request from time to time;

f. In connection with each fiscal year end financial statement
furnished to Bank hereunder, any management letter of Borrower's
independent certified public accountant.

3. NEGATIVE COVENANTS OF BORROWER

Borrower agrees that so long as it is indebted to Bank in connection
with the Indebtedness, it will not, without Bank's written consent:

3.01 TYPE OF BUSINESS; MANAGEMENT. Make any substantial change in the
character of its by business.

3.02 OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys, other than loans from the Bank, except
obligations now existing as shown in the financial statement dated June 30,
1996, and obligations owed to E. Khashoggi Industries and to equipment vendors
and excluding those obligations being refinanced by Bank, or sell or transfer,
either with or without recourse, any accounts or notes receivable or any moneys
due to become due.

3.03 LIENS AND ENCUMBRANCES. Create, incur, or assume any mortgage,
pledge, encumbrance, lien or charge of any kind upon any asset now owned, other
than liens for taxes not delinquent and liens in Bank's favor, except for those
already existing as of June 30, 1996 and a lien for purchase money indebtedness
on equipment.

4
<PAGE>

3.04 LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances
to any person or other entity other than in the ordinary and normal course of
its business as now conducted or make any investment in the securities of any
person or other entity (excluding investments in joint ventures or limited
liability companies in the course of its business) other than the United States
Government; or guarantee or otherwise become liable upon the obligation of any
person or other entity, except by endorsement of negotiable instruments for
deposit or collection in the ordinary and normal course of its business.

3.05 ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings therefor;
or sell any assets except in the ordinary and normal course of its business as
now conducted; or sell, lease, assign, or transfer any substantial part of its
business or fixed assets, (excluding the leasing or contributions of equipment
to venture partners) or any property or other assets necessary for the
continuance of its business as now conducted (other than the sublicensing of
Borrower's technology), including without limitation the selling of any
dividends, property or other asset accompanied by the leasing back of the same.

3.06 CAPITAL EXPENDITURES. Make or incur obligations for capital
expenditures, which includes purchase money indebtedness or capital lease
obligations, in excess of $10,000,000 in fiscal year ending December 31, 1996
and in any fiscal year thereafter.

3.07 LEASE LIABILITY. Make or incur additional liability for payments of
rent under leases of real or personal property in excess of $500,000 in fiscal
year ending December 31, 1996 and in any fiscal year thereafter.

4. EVENTS OF DEFAULT

Notwithstanding anything to the contrary in the Note and General
Security Agreement, the occurrence of any of the following events of default
shall, at Bank's option, terminate Bank's commitment to lend and make all sums
of principal and interest then remaining unpaid on all Borrower's Indebtedness
to Bank immediately due and payable, all without demand, presentment or notice,
all of which are hereby expressly waived:

4.01 FAILURE TO PAY NOTE. Failure to pay any installment of principal or
interest on the Indebtedness.

4.02 BREACH OF COVENANT. Failure of Borrower to perform any other material
term or condition of this Agreement binding upon Borrower.

5
<PAGE>

4.03 BREACH OF WARRANTY. Any of Borrower's representations or warranties
made herein or any statement or certificate at any time given in writing
pursuant hereto or in connection herewith shall be false or misleading in any
material respect.

4.04 INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or
admit its inability to pay its debts as they mature; or make an assignment for
the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.

4.05 JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against Borrower or any
of its assets and shall remain unvacated, unbonded or unstayed for a period
later than five days prior to the date of any proposed sale thereunder.

4.06 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall be consented to.

5. MISCELLANEOUS PROVISIONS

5.01 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Bank or any holder of Note issued hereunder, in the exercise of any power, right
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege. All rights
and remedies existing under this Agreement or the Note issued in connection with
the Indebtedness that Bank may make hereunder, are cumulative to, and not
exclusive of, any rights or remedies otherwise available.

5.02 NOTICE OF DEFAULT. Borrower shall promptly notify Bank in writing of
the occurrence of any event of default hereunder or any event which upon notice
and lapse of time would be an event of default.

5.03 OPERATING ACCOUNTS. Borrower shall maintain primary accounts and
banking relationship with Bank during the term of the Indebtedness. Borrower
shall maintain, or cause to be maintained, on deposit with Imperial Bank,
non-interest bearing demand deposit balances sufficient to the reserve to
compensate Bank for all services provided by Bank. Balances shall be calculated
after reduction for requirement of the Federal Reserve Board and uncollected
funds. Any deficiencies shall be charged directly to the Borrower on a monthly
basis.

6
<PAGE>

5.04 PREPAYMENT PENALTY. There shall be no penalty for repaying the
Indebtedness prior to the Maturity date.

5.05 ATTORNEY'S FEES. Borrower will pay promptly to Bank without demand
after notice, with interest thereon from the date of expenditure at the rate
applicable to the Indebtedness, reasonable attorneys' fees and all costs and
expenses paid or incurred by Bank in collecting or compromising the Indebtedness
after the occurrence of an event of default, whether or not suit is filed. If
suit is brought to enforce any provision of this Agreement, the prevailing party
shall be entitled to recover its reasonable attorneys' fees and court costs in
addition to any other remedy or recovery awarded by the court.

5.06 ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.

5.07 INUREMENT. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assigns of
Borrower.

5.08 APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California, to the jurisdiction
of whose courts the parties hereby agree to submit.

5.09 OFFSET. In addition to and not in limitation of all rights of offset
that Bank or other holder of the Note evidencing the Indebtedness may have under
applicable law, Bank or other holder of the Note shall, upon the occurrence of
any Event of Default or any event which with the passage of time or notice would
constitute such an Event of Default, have the right to appropriate and apply to
the payment of the Note any and all balances, credits, deposits, accounts or
monies of Borrower then or thereafter with Bank or other holder, within ten (10)
days after the Event of Default, and notice of the occurrence of any Event of
Default by Bank to Borrower.

5.10 SEVERABILITY. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.

5.11 TIME OF THE ESSENCE. Time is hereby declared to be of the essence of
this Agreement and of every part hereof.

5.12 INTEGRATION CLAUSES. Except for documents and instruments
specifically referenced herein, the Agreement constitutes the entire agreement
between Bank and Borrower regarding the Indebtedness, and all prior
communications verbal or written between Borrower and Bank shall be of no
further effect or evidentiary value. In the event of a conflict or
inconsistency among any other documents and instruments and this Agreement, the
provisions of this Agreement shall prevail.

7
<PAGE>

5.13 ACCOUNTING. All accounting terms shall have the meanings applied
under generally accepted accounting principles unless otherwise specified.

5.14 This Agreement may be modified only by a writing signed by both
parties hereto.

Dated: 11/15/96
----------

IMPERIAL BANK ("BANK")

By: /s/ Richard H. Myers, Jr.
--------------------------
Richard H. Myers, Jr.
Senior Vice President

EARTHSHELL CONTAINER CORPORATION ("BORROWER")

By: /s/ Scott Houston
--------------------------
Scott Houston
Chief Financial Officer

<PAGE>

Exhibit 10.24

CONFIDENTIAL

[LETTERHEAD LOGO]

July 23, 1997

Mr. William F. McLaughlin
President and Chief Executive Officer
Sweetheart Cup Company Inc.
I0100 Reisterstown Road
Owings Mills, MD 21117

Re: JOINT VENTURE FOR MCDONALD'S CONTAINERS

Dear Bill:

The purpose of this letter is to set forth our current mutual intentions
regarding a proposed business arrangement between Sweetheart Cup Company Inc.
("Sweetheart") and EarthShell Container Corporation ("ECC") with respect to
the utilization by a division of Sweetheart ("JV") of ECC's technology to
manufacture and distribute large hinged sandwich containers to The Perseco
Company ("Perseco") for McDonald's Corporation (the "Product"). The terms
"ECC" and "Sweetheart" shall also refer to their respective parent and
subsidiary corporations. This letter supersedes in its entirety the letter
agreement between the parties dated November 21, 1996.

1. GENERAL STRUCTURE.

a. ECC and Sweetheart have previously entered into a sublicense
agreement dated October 7, 1994 (the "Current License") to utilize ECC's
technology as identified therein (the "Technology") to manufacture and
distribute certain foodservice disposable products within a defined territory
(the "Territory"). Upon entering into the Definitive Agreements (as defined in
Section 15(a) below), the Current License shall be terminated and superseded
by ECC's sublicense of the Technology to JV. Pursuant to the new sublicense
agreement (the "Sublicense Agreement"), ECC shall receive a 20% royalty on
the net sales price ("Net Sales") derived by JV from the sale of the Products
after the Start Date (as defined below), computed in the same manner as under
the Current License. The Sublicense Agreement shall grant JV a non-exclusive
right to manufacture and distribute the Products in the Territory. JV will
conduct the business of manufacturing, marketing and distributing the
Products. Except as otherwise provided, Sweetheart will be in charge of JV's
operations.

<PAGE>

Mr. William McLaughlin CONFIDENTIAL
July 23, 1997
Page 2

b. Subject to the terms below, either party may engage in other
business activities, regardless of whether such activities are competitive
with JV.

c. ECC shall provide JV with lines of manufacturing equipment
("Equipment") on a "turn-key" basis. ECC shall provide JV with all technical
information necessary to commercially manufacture the Product including
material composition, raw materials specifications, process equipment
specifications, processing conditions, output standards and quality assurance
methods. ECC shall warrant for all periods ending on or before the Warranty
Termination Date (as defined in Section 2(a)(iii)) that, by combining the
materials and operating the Equipment in accordance with the technical
information supplied, the Equipment will produce Products that are in
conformity with approved samples and that the Equipment will perform in
accordance with the Model Efficiency Levels set forth in Section 2(a)(i)(B).
The Technology licensed to JV shall be based, in part, on specific patents
(both issued and pending) that shall be listed in the Sublicense Agreement.

d. The parties have, attached hereto as Exhibit A, a redacted
version of the economic model dated July 23, 1997 (the "Economic Model") that
illustrates, on a hypothetical basis, the expected revenue and cost
components for the annual production and sale of approximately 600 million
units of Product. The model assumes that each line of Equipment will be
tooled for and dedicated to only one specific sandwich container.

e. Immediately following the execution of this letter, Sweetheart
shall use commercially reasonable efforts to negotiate and procure a contract
with Perseco relating to the purchase and sale of the Product (the "Perseco
Contract"). Pursuant to such contract, Perseco shall be obligated to
purchase, and JV shall be obligated to sell annually, at least 600 million
units of Product; provided, however, that ECC shall approve any material
terms or conditions that may result in an additional financial or performance
obligation by ECC beyond those set forth in the Economic Model, including
such terms as product specifications, quality requirements and timing of
delivery.

(i) The expected price of the Product is an amount for the
QPC variation of the Product expected to be sold, and is set forth in the
attached Economic Model, and is based upon the size and weight of the
variations of the Product that ECC believes will be introduced by McDonald's
Corp. in its stores in the US and Canada, and certain other assumptions set
forth in the Economic Model. The price estimate is subject to adjustments to
reflect changes in Product specifications and/or processing conditions for
the Product as set forth in the Perseco Contract. The Economic Model shall be
adjusted to reflect any differences between the assumptions made in the
Economic Model and the actual terms of the Perseco Contract, including
changes in Product mix, Product specifications or processing conditions;
provided, however, that the Sweetheart Preliminary Profit Distribution
payable after the Start Date shall not be less than the amount provided in
Exhibit E.

<PAGE>

Mr. William McLaughlin CONFIDENTIAL
July 23, 1997
Page 3

(ii) The parties shall cooperate with one another and use all
commercially reasonable efforts to ensure that JV timely fulfills its
obligations under the Perseco Contract.

f. This business arrangement shall be treated as a partnership for
tax purposes only.

2. CONTRIBUTIONS.

a. ECC'S OBLIGATIONS.

(i) INSTALLATION OF EQUIPMENT.

(A) ECC shall reserve the first four lines of Equipment
for JV subject to the last sentence of this Section 2(a)(i)(A). Following
execution of the Perseco Contract, ECC shall acquire and install, at its
cost, at least four fully integrated lines of Equipment at the Plant Facility
described in Section 2(b)(i) below and lease them, and any mutually agreed
upon additions or improvements thereto, to JV on a triple net lease basis
pursuant to the terms set forth in the Definitive Agreements. ECC shall
acquire and install, on a timely basis, additional lines of Equipment if
Perseco purchases more than 600 million units annually of the Product
pursuant to the Perseco Contract. The Equipment shall be installed at such
times as will reasonably allow JV to satisfy its delivery commitments under
the Perseco Contract. If for any reason JV is unable to obtain the Perseco
Contract within the time period outlined in Section 17 and another ECC
licensee does obtain such a purchase commitment within the same time period
required of Sweetheart and at a price no less than that offered by Sweetheart
to Perseco, JV shall relinquish its priority right to the Equipment.

(B) Following installation, the initial four lines of
Equipment must run for at least 14 consecutive days, 24 hours per day, and
produce, on an annualized basis, 600 million units of Product meeting the
product and quality specifications set forth in the Perseco Contract, and
satisfying, on an overall basis, the staffing and raw materials usage and
throughput requirements set forth in the Economic Model (the "Model
Efficiency Level"). The "Start Date" shall be the date by which (i) ECC has
reduced the Direct Conversion Cost Deficit ("DCCD") to zero, which may be
accomplished by paying the DCCD to zero, and (ii)(x) the initial four lines
of Equipment have achieved the Model Efficiency Level, or (y) the initial
four lines of Equipment are producing sufficient Product to satisfy the
Perseco Contract at the quality and service levels required by Perseco and
ECC agrees to assume the economic consequence of not having achieved the
Model Efficiency Level, or (z) Sweetheart agrees that the Start Date has
commenced. The DCCD shall be funded quarterly by ECC and is defined as the
amount by which the sum of JV's Direct Cost of Sales exceed JV's Net Sales
(as such terms are defined in the attached Exhibit D), determined on a
cumulative basis.

<PAGE>

Mr. William McLaughlin CONFIDENTIAL
July 23, 1997
Page 4

(D) ECC shall be responsible for any costs incurred in
procuring, installing and testing the Equipment (including the items set
forth in Exhibit B under the column "ECC Responsibility") that exceed the
total estimated capitalization figure set forth in the Economic Model (the
capitalization figure utilized in the Economic Model is defined herein as
the "Standard Equipment Cost"). These additional capital costs shall be
repaid prior to the Start Date from available cash to the extent provided on
Exhibit D, and after the Start Date, the unpaid capital costs shall be
amortized at the same rate and over the same term utilized to amortize the
Standard Equipment Costs in the Economic Model and shall be credited, to the
extent not paid, to ECC's Deficit Account on a monthly basis. ECC shall
separately pay, without reimbursement by JV, the one time costs to have
Simons Engineering perform the detailed design and engineering of the basic
commercial ECC manufacturing line.

(E) In consideration for providing each line of
Equipment to JV, ECC shall be entitled to receive the ECC Equipment Profit
Participation in the amount and for the term set forth in the Economic Model.
The ECC Equipment Profit Participation shall commence to accrue on the date
the initial four lines of Equipment are installed and operational (the
"Operations Date").

(ii) MANUFACTURING PRE-START DATE OPERATIONS. ECC shall
manage the manufacturing operations of JV on and prior to the Start Date and
shall review and approve all costs of JV contributing to the DCCD. ECC
approval shall not be unreasonably withheld as long as such costs are
consistent with the costs projected in the economic model.

(iii) FAILURES. After the Start Date, ECC shall pay to JV,
as the ECC Performance Guarantee, any incremental costs incurred by JV and
which are attributable to the failure of the Equipment, on an aggregate
basis, to operate at the Model Efficiency Level due to deficiencies in the
Technology, Product design and specifications, or the Equipment (provided
such failures are not the result of Sweetheart's operation or maintenance of
the Equipment). Such costs, to the extent they represent additional capital
expenditures only, shall be credited to ECC's Deficit Account and shall be
amortized at the same rate and over the same term utilized to amortize the
Standard Equipment Costs. Once the initial four lines of Equipment have
operated for a 24 month continuous period at the Model Efficiency Level, ECC
may elect to terminate ECC's Performance Guarantee at any time. SCC, on the
other hand, may elect to terminate ECC's Performance Guarantee at any time.
SCC, on the other hand, may elect to terminate ECC's Performance Guarantee at
any time following the Start Date. The date ECC's Performance Guarantee is
terminated is defined as the "Warranty Termination Date." Following the
Warranty Termination Date: (x) Sweetheart shall receive 100% of all Final
Distributions (as defined in Exhibit E); (y) the Sweetheart and EarthShell
Preliminary Profit Distributions (as defined in Exhibit E) shall cease; and
(z) Sweetheart shall cease to receive distributions of Unfavorable Variance
Costs (as defined in Exhibit E).

<PAGE>

Mr. William McLaughlin CONFIDENTIAL
July 23, 1997
Page 5

(iv) TECHNOLOGY. Pursuant to the Sublicense Agreement, ECC
shall sublicense to JV the Technology and other intellectual property
relating to the Products.

(v) IMPROVEMENTS. ECC shall provide JV with improvements
to the Technology and Equipment.

b. SWEETHEART'S OBLIGATIONS.

(i) PLANT FACILITY. On or before the date the first Line
of Equipment is to be installed by ECC, Sweetheart shall provide to JV a
portion of its facility in Maryland, with appropriate capacity and utility
hook-ups, to safely house and operate at least four Lines of Equipment, and
to provide suitable supply and inventory space, transportation facilities and
other functions necessary to successfully manufacture and distribute the
Products. If additional Lines of Equipment are added to JV, Sweetheart shall
provide similar facility space. The physical location and specifications of
the plant facilities (referred to herein collectively as the "Plant Facility")
shall be subject to ECC's reasonable approval. ECC personnel or consultants
will be permitted access to the Plant Facility and shall be provided office
space as is reasonably necessary in order for them to fulfill ECC's
obligations or protect its rights under the Definitive Agreements. The Plant
Facility shall meet all applicable legal and administrative code standards.
In consideration for its building out the facility space to accommodate JV's
operations, (including the costs set forth in Exhibit B under the column
"Sweetheart Responsibility") Sweetheart shall receive the Infrastructure
Enhancement Distribution in the amount set forth in the Economic Model (which
assumes a specific capitalization figure for Sweetheart in improving the
Plant Facility and an amortization rate and term over which the
capitalization figure is to be amortized). Any out-of-pocket costs incurred
by Sweetheart in improving the Plant Facility to accommodate JV's operations
that exceed the estimated capitalization figure set forth in the Economic
Model (such capitalization figure being defined herein as the "Standard
Infrastructure Enhancement Cost") shall be capitalized and be repaid prior to
the Start Date from available cash to the extent provided in Exhibit
D, and after the Start Date, the unpaid capital costs shall be amortized at
the same rate and over the same term utilized in the Economic Model, and the
amortization charge, to the extent not paid, shall be credited monthly to
Sweetheart's Deficit Account. In addition, in consideration for furnishing
the Plant Facility, Sweetheart shall receive the Plant Facility Rental in
the amount set forth in the Economic Model. The Infrastructure Enhancement
Distribution and the Plant Facility Rental shall commence accruing on the
Operations Date.

(ii) WORKING CAPITAL. Sweetheart shall contribute all of
the working capital required to operate JV, inclusive of its manufacturing,
marketing and distribution functions, but exclusive of the capital ECC is
required to contribute.

(iii) EMPLOYEES. Sweetheart shall provide JV, at
Sweetheart's cost, with the employees necessary to staff and operate the
Equipment and to otherwise attend to the administration, supervisory,
marketing, sales and distribution functions of JV, all as set forth in the
Economic Model.

<PAGE>

Mr. William McLaughlin CONFIDENTIAL
July 23, 1997
Page 6

(iv) MATERIALS. Sweetheart shall purchase the raw materials
and, except for Equipment to be provided by ECC, provide material handling
and storage, including for raw materials, work-in-process and finished goods,
all in accordance with the attached Exhibit B.

(v) INSURANCE. Sweetheart shall provide or obtain
replacement cost insurance for the Plant Facility and Equipment.

(vi) TECHNICAL. Sweetheart shall provide technical support
to JV for the production of the Products.

(vii) PERSECO CONTRACT. Sweetheart shall manage the Perseco
and McDonald's relationships.

3. LICENSE TERMS/TECHNICAL SERVICES.

a. SUBLICENSE AGREEMENT. An outline of the proposed Sublicense
Agreement is attached as Exhibit C.

b. TECHNICAL SERVICES. In the event that JV elects to contract
with ECC for technical services that it is not obligated to perform under the
terms of the Definitive Agreements, JV will be charged at a rate equal to
ECC's cost for such technical services. Likewise, any such services provided
by Sweetheart will be charged to JV at Sweetheart's cost for such services.

4. DISTRIBUTIONS BY JV.

a. PRE-START DATE. See Distribution Schedule attached as
Exhibit D.

b. POST-START DATE. See Distribution Schedule attached as
Exhibit E.

5. MANAGEMENT.

a. OPERATIONS. JV's day to day manufacturing operations shall be
managed by ECC representatives prior to the Start Date and by Sweetheart
representatives on and after the Start Date. All other JV operations,
including the administration of the Perseco Contract, warehousing, raw
material purchases, labor procurement and supervision, shipping and
receiving shall be managed by Sweetheart both prior to and after the Start
Date.

b. BOARD OR POLICY CONTROL.

<PAGE>

Mr. William McLaughlin CONFIDENTIAL
July 23, 1997
Page 7

(i) JV's fundamental business strategies shall be governed by
a Board of Managers comprised of four individuals--two appointed by ECC and
two appointed by Sweetheart.

(ii) Decisions of the Board shall be made by a majority of the
Managers, and Board approval shall be required for such critical issues as
(A) annual and capital budgets, including, standard material costs and labor
rates, intercompany allocations of fixed or variable overhead or pricing for
services which are inconsistent with the Economic Model, distribution
policies or any material deviations therefrom, (B) modifications to the
Equipment beyond those minor modifications that do not detrimentally affect
efficiency levels or materially impair its value, (C) modifications to the
composition and process "specifications" for the Product, (D) the entering
into, or material amendment of, or early termination of the Perseco Contract,
(E) any transaction that would materially increase the obligations of either
party beyond those contemplated in the Definitive Agreements, and (F) any
sale or disposition by ECC or Sweetheart of their interest in JV or its
assets, excluding a disposition to an affiliate (provided the transferring
party remains liable for its obligations with respect to JV or the other
party), or a disposition to a non-affiliate pursuant to a merger or sale or
disposition of all or substantially all of the party's assets (provided the
non-affiliate assumes liability for the obligations of the transferring party
with respect to JV or the other party).

(iii) The Board shall take all commercially reasonable steps to
ensure that JV makes cash distributions to the parties in amounts necessary
to timely discharge their federal and state income tax liabilities associated
with the taxable income generated by JV.

(iv) The Board shall meet quarterly for the first two years
after the Effective Date and periodically as agreed upon by Sweetheart and
ECC thereafter. The location of the meetings shall alternate between
Sweetheart and ECC, unless otherwise established by the Board.

6. MCDONALD'S PRIORITY. JV will conform to the McDonald's Priority
Agreement.

7. TERM. The term of JV shall be ten years commencing on the
Operations Date.

8. TERMINATION. At anytime during the term of JV, the parties may
mutually agree to terminate the Definitive Agreements and to determine the
effect of such termination. Either party may unilaterally terminate the
Definitive Agreements during the term of JV only under the following
conditions:

a. PRE-START DATE. Either party may terminate the Definitive
Agreements in the event the Start Date is delayed more than 18 months beyond
the date the first line of Equipment is installed. If ECC elects to
terminate, Sweetheart shall have the right to purchase the Equipment pursuant
to Section 9(b) (the "Purchase Right"). If Sweetheart elects to terminate, it
shall have no Purchase Right.

<PAGE>

Mr. William McLaughlin CONFIDENTIAL
July 23, 1997
Page 8

b. POST START DATE. During the initial term of the Perseco
Contract (expected to be three years), neither party shall have the right to
terminate the Definitive Agreements following the Start Date. After the
initial term of the Perseco Contract:

(i) ECC may terminate the Definitive Agreements upon (A)
six month's written notice to Sweetheart (provided, however, such termination
shall not be effective prior to the end of any extended term of the Perseco
Contract), (B) Sweetheart's material breach of the Definitive Agreements and
failure to cure within a reasonable period following notice, or (C)
Sweetheart's bankruptcy; and

(ii) Sweetheart may terminate the Definitive Agreements upon
(A) written notice to ECC (provided, however such termination shall not be
effective prior to the end of any extended term of the Perseco Contract), (B)
ECC's material breach of the Definitive Agreements and failure to cure within
a reasonable period following notice, or (C) ECC's bankruptcy.

(iii) Sweetheart may terminate the Operating and Lease
Agreements, but continue the Sublicense and purchase the Equipment pursuant
to the Purchase Right set forth in Section 9(b) upon 90 days written notice
to ECC, provided that such termination shall not be effective prior to the
Warranty Termination Date.

(iv) In the event the Definitive Agreements are terminated
by ECC pursuant to Section 8(b)(i)(A) or by Sweetheart pursuant to Section
8(b)(ii)(B) or (C), or in the event Sweetheart terminates the Operating
Agreement pursuant to Section 8(b)(iii), Sweetheart shall have the Purchase
Right set forth in Section 9(b).

9. EFFECT OF TERMINATION.

a. TERMINATION. Except as provided in Sections 9(b) and 9(c)
below, upon the effective date of termination of the Definitive Agreements
pursuant to Section 8 above, the ECC Equipment Profit Distribution and the
Sweetheart Plant Facility Lease and Infrastructure Enhancement Distribution
shall cease to accrue, ownership of the Technology shall be allocated
pursuant to the Sublicense Agreement, any cash proceeds available upon or
following JV's termination, including any proceeds from the collection of
receivables or the sale of assets (other than the Equipment and the Plant
Facility) shall be applied to discharge all of JV's debts and obligations,
reserves for contingent liabilities shall be created and the balance of JV's
cash (including any funds ultimately released from reserves) shall be
distributed to the parties in the manner and in the priority set forth in
Section 4.

b. RIGHT TO PURCHASE. If Sweetheart has a Purchase Right upon
termination of the Operating and and Lease Agreements pursuant to Sections
8(a) or 8(b)(iii) or (iv), above, Sweetheart shall have the right to purchase
the Equipment on an "as is" basis for ECC's actual

<PAGE>

Mr. William McLaughlin CONFIDENTIAL
July 23, 1997
Page 9

unrecovered cost basis in the Equipment (which shall include any amount in
its Deficit Account) plus applicable sales taxes, if any, and continue the
Sublicense Agreement. Such option must be exercised within 90 days following
Sweetheart's notification of the event leading to the termination of the
Definitive Agreements.

(i) Following the Sweetheart's purchase of the Equipment,
ECC shall be granted a right of first offer to purchase the Equipment (or any
material component thereof) prior to Sweetheart's offer of same to a
non-affiliate purchaser, such right to exist for a period of ten years
following Sweetheart's purchase of the Equipment from ECC. ECC must exercise
such right within thirty days of being given written notice of the terms and
conditions of the offer (which offer, at a minimum, shall contain a cash
purchase price). If ECC does not timely elect to purchase the Equipment (or
component thereof) within said 30 day time period, Sweetheart shall be free
for a six month period thereafter to sell the Equipment (or component
thereof) to a non-affiliated purchaser on terms and conditions that are
comparable in all material respects to those offered to ECC. If Sweetheart is
unable to sell the Equipment (or component thereof) on comparable terms and
conditions within said six month period, the Equipment (or remaining
components thereof) shall again be subject to the right of first offer.
Following the end of the ten year period, Sweetheart shall have no obligation
to sell the equipment to ECC subject to subparagraph (ii) below.

(ii) ECC shall have the option, exercisable within 60 days
following termination of the Sublicense Agreement, to purchase all, but not
less than all, of the Equipment then owned by Sweetheart or its affiliates
for such Equipment's fair market value on the date the Sublicense Agreement
is terminated, as determined by Sweetheart and ECC or, in the event they
disagree, by any independent, qualified appraiser mutually selected by
Sweetheart and ECC (or by an arbitrator in the event either party invokes the
arbitration provisions set forth in the Definitive Agreements to determine
the purchase price). Unless the parties agree otherwise, if ECC timely elects
the purchase option, (i) ECC shall be required to purchase the Equipment
subject to the option "as is" and for a cash price payable within 60 days
after the fair market value of the Equipment is finally determined, and (ii)
assuming the purchase transaction closes, Sweetheart shall transfer good and
marketable title to the Equipment to ECC free of all liens and encumbrances.
If ECC does not timely elect to purchase the Equipment following termination
of the Sublicense Agreement, Sweetheart shall be free to dispose of the
Equipment in any manner it chooses.

(iii) ECC shall be responsible for all applicable sales taxes
on the sale of any Equipment to ECC pursuant to Subparagraph (i) and (ii)
above, and Sweetheart shall allow ECC representatives reasonable access to
inspect the Equipment for purposes of determining whether ECC desires to
exercise its rights under this Section. Subparagraphs (i) and (ii) shall not
apply to any sale or transfer by Sweetheart of the Equipment pursuant to a
sale or transfer of all or substantially all of its assets to another entity
(whether by transfer of assets, by merger of Sweetheart or pursuant to any
reorganization in which Sweetheart is not the surviving entity), provided
that the transferee assumes Sweetheart's rights and obligations under this
Section.

<PAGE>

Mr. William McLaughlin CONFIDENTIAL
July 23, 1997
Page 10

c. SWEETHEART EARLY TERMINATION. In the event Sweetheart terminates
the Definitive Agreements upon notice less than twelve months prior to the
effective date of such termination, Sweetheart shall pay to ECC the
EarthShell Equipment Profit Participation for the twelve month period
following termination.

10. CONFIDENTIALITY. Both parties shall be bound by a standard
Non-Disclosure Agreement relating to proprietary and confidential information
(including business terms) only, which agreement shall impose upon the
parties a mutually acceptable standard of reasonable care with respect to the
protection of the proprietary and confidential information.

11. INDEMNIFICATION.

a. By Sweetheart. Sweetheart shall indemnify ECC for claims other
than claims arising out of ECC negligent or intentional acts or failure to meet
the Model Efficiency Level relating to:

(i) Third party claims for personal injury or property damage
involving product produced after the Start Date;

(ii) Claims made by Sweetheart employees;

(iii) Raw material purchases by Sweetheart;

(iv) Operation and maintenance of the Plant Facility and
Equipment (except to the extent ECC is obligated therefore); and

(v) Intellectual property infringement or misappropriation for
improvements licensed by Sweetheart ECC.

b. By ECC. ECC shall indemnify Sweetheart for claims other than
claims arising out of Sweetheart negligent or intentional acts relating to:

(i) Safety of Equipment through the Warranty Termination Date,
including, but not limited to, OSHA compliance;

(ii) FDA compliance of Product that meets specification;

(iii) Intellectual property infringement or misappropriation for
Technology or Improvements licensed by ECC to Sweetheart;

(iv) Failure of ECC to meet its funding obligations pursuant
to the Definitive Agreements (including the Performance Guarantee); and

(v) Claims made by ECC employees.

c. JV shall carry product liability insurance (which shall be
considered a component of variable overhead) covering Sweetheart and ECC to
insure them against claims of personal injury or property damage made with
respect to Product that meets specifications (other than for claims covered
by a specific indemnification obligation under Sections 11(a) and (b) above).

<PAGE>

Mr. William McLaughlin CONFIDENTIAL
July 23, 1997
Page 11

12. AUDITS AND REPORTS. ECC shall have the right to review the books
and records relating to JV upon reasonable notice. JV shall provide the
parties with monthly balance sheets, P&L and such other management and
financial reports as shall be identified in the operating agreement.

13. DISPUTE RESOLUTION. Unless the parties mutually agree to a more
expedited process, in the event any controversy arises under the Definitive
Agreements, the parties shall first attempt to resolve it by informal
negotiations. The controversy shall next be referred to the executives of the
parties, then mediation and then binding arbitration.

14. GENERAL PROVISIONS. The Definitive Agreements shall contain the
following additional provisions:

a. Further Assurances -- agreements to cooperate
b. Amendments -- must be in writing
c. Notices -- method, timing and addresses
d. Entire Agreement -- the entire and exclusive agreement of the
parties relating to the subject matter
e. Severability -- terms are severable
f. Counterparts -- may be signed in counterparts
g. Governing Law -- Delaware
h. Successors -- binding on successors and assigns
i. Third Party Beneficiaries -- no third parties beneficiaries
j. Specific Performance -- parties entitled to specific performance
k. Waivers -- failure to enforce provision does not constitute waiver
l. Cumulative Remedies -- rights and remedies are cumulative
m. Expenses -- each party responsible for its own expenses

15. DEFINITIVE AGREEMENTS.

a. While the foregoing represents our current understanding, it is
agreed that this letter does not create any binding obligation, expressed or
implied, on the part of ECC or Sweetheart with respect to the matters
referred to herein, except as set forth in Sections 15(b) or 16 below.
Promptly after the execution of this letter, (i) Sweetheart shall take the
lead in negotiating and procuring the Perseco Contract, and (ii) the parties
shall negotiate and execute a definitive JV operating agreement, Sublicense
Agreement, lease agreement with respect to the Equipment and any other
agreements appropriate to the arrangements contemplated herein (collectively,
the "Definitive Agreements"), in form and substance mutually satisfactory to
the parties and containing terms, conditions, covenants and representations
customary to transactions of the type outlined above, including, without
limitation, the terms and conditions described herein. The parties may make
non-material modifications to the foregoing terms and conditions to satisfy
any tax or liability concerns, provided the economic substance of the
transactions described

<PAGE>

Mr. William McLaughlin CONFIDENTIAL
July 23, 1997
Page 12

herein is not altered in any material way. Until the Definitive Agreements
are entered into, the parties shall continue to be bound by any other written
agreements that may exist between them (including the Current License and any
confidentiality restrictions or other obligations of non-disclosure). Such
agreements shall terminate upon the due execution and delivery of the
Definitive Agreements. In addition, the parties shall negotiate and execute
agreements covering the production and sale of products other than the
Products to customers other than McDonald's, including an operating
agreement, sublicense agreement, equipment lease agreement and such other
agreements as may be desirable (the "Additional Agreements"). It is
anticipated that the Definitive Agreements and Additional Agreements shall be
executed prior to, and shall become effective upon, the execution of the
Perseco Contract.

b. Until the earlier of (i) November 21, 1997, or (ii) the Start
Date, ECC shall not enter into a sublicense agreement with a new sublicensee
(other than Prairie Packaging, Inc. or any additional sublicensee required by
Perseco as a condition for entering into the Perseco Contract) to utilize the
Technology to manufacture and distribute the ECC products specified in the
Current License within North America, provided, however, that this
restriction shall lapse if Sweetheart is unable to procure the Perseco
Contract (or an equivalent contract from another major customer) within the
time period set forth in Section 17.

16. EXPENSES. Each party shall bear its own legal and professional
expenses, as well as any finder's or similar fees, in connection with the
negotiation and execution of this letter and the Definitive Agreements.

17. TERMINATION. The parties will use reasonable efforts to complete
and enter into the Definitive Agreements within 60 days of the date hereof.
If the Definitive Agreements have not been entered into within 60 days
following the date of this letter, or if the Perseco Contract has not been
entered into within 90 days following the date of this letter, either party
may terminate this agreement by notifying the other in writing. Such
termination shall not affect the rights and obligations of the parties under
Sections 15(b) and 16 of this letter and any existing agreement between them
as of the date of termination, including the Current License and any
obligations of non-disclosure.

18. GOVERNING LAW. The terms of this letter shall be governed by and
construed in accordance with the laws of the State of Delaware without
reference to principles of conflicts of laws.

<PAGE>

Mr. William McLaughlin CONFIDENTIAL
July 23, 1997
Page 13

If the foregoing accurately reflects the agreement in principle between us,
please so indicate by executing this letter in the space provided below and
returning a copy to ECC.

EARTHSHELL CONTAINER CORPORATION

By: /s/ Simon Hodson
----------------------------------------
Simon Hodson, Vice Chairman of the Board
and Chief Executive Officer

Accepted and Agreed to this

25th day of July 1997
- --

SWEETHEART CUP COMPANY INC.

By: /s/ William McLaughlin
---------------------------------
William McLaughlin, President and
Chief Executive Officer

<PAGE>

EXHIBIT B

EARTHSHELL PROJECT ENGINEERING/CAPITAL RESPONSIBILITIES
-------------------------------------------------------

<TABLE>
<CAPTION>
ECC
SWEETHEART RESPON-
ITEM RESPONSIBILITY SIBILITY
<S> <C> <C>
- --------------------------------------------------- --------------------------- ----------
1. Electrical X To Motor Control Centers X
2. Water X To Manufacturing Area
3. Gas X To Manufacturing Area
4. Sewer (Employee Services) X
5. Sewer Treatment X
6. Sewer Process Drains X
7. HV - Oven room X
8. HVAC - Packaging Area X
9. Lighting (to a level for Food Grade Processing) X
10. Compressed Air X Source X (Dist.)
11. Vacuum X
12. Steam X
13. Environmental Conditioning Discharge: X (Penetration Hood, Stub)
A. Ovens X
B. Coatings X
C. Dust X
D. Noise X
14. Chilled/Processed Water X
15. Pretreatment of Air, Water for Process X
16. Structures for Manufacturing Support X
(restrooms, breakroom, offices, fire protection,
QC lab)
17. Control Room X Structure
18. Ingredient Supply/Equipment Systems/Material X
Handling Services
19. Scrap Handling Systems/Recycle X
20. Scrap Disposal X
21. Phones/Communication X
22. Security X
23. Fire Protection X
24. QC Test In-Line Process X
25. QC Equipment X
26. Demising Walls X

</TABLE>

<PAGE>

EXHIBIT C

OUTLINE OF SUBLICENSE AGREEMENT -- ECC/SWEETHEART CUP

I. GENERAL RECITALS AND DEFINITIONS

A. PURPOSE OF THE SUBLICENSE -- To authorize the contractual
joint venture formed by Sweetheart Cup Company Inc. and EarthShell Container
Corporation (the "JV") to use certain licensed technology as defined in the
Sublicense in the manufacture of large hinged sandwich containers for sale to
McDonald's Corporation (the "Products").

B. REFERENCE TO UNDERLYING OPERATING AGREEMENT -- ECC and
Sweetheart have entered in an Operating Agreement which defines their business
relationship and joint intention to commercialize ECC's technology relating to
the Products. This Sublicense covers the intention to commercialize ECC's
technology relating to the Products. This Sublicense covers the transfer of the
technology to be used by the IV in accordance with the Operating Agreement.

C. SCOPE OF THE TECHNOLOGY UNDER THE SUBLICENSE -- The
technology covered by the Sublicense falls into two general categories: (1)
ECC's current technology in the form of issued patents, pending patent
applications, trademarks and know-how/trade secret information, and (2) future
improvements to the licensed technology developed by ECC, Sweetheart, the JV or
third parties. ECC and Sweetheart are currently operating under an existing
License Agreement dated October 7, 1994 which will terminate upon execution of
the Sublicense.

DEFINITIONS

"TERRITORY" means the United States and Canada.

"PRODUCTS" means large hinged sandwich containers for McDonald's
Corporation manufactured by Sweetheart using the licensed
technology.

"FIELD OF USE" means any product, composition, apparatus or
process used in the manufacture of Products using the licensed
technology.

"PATENTS" means all issued U.S. and Canadian patents owned by or
licensed to ECC which are currently in force, as well as all
pending U.S. and Canadian ECC patent applications.

"LICENSED MARKS" means all federally registered and common law
trademarks and service marks owned by ECC.

"KNOW-HOW/TRADE SECRETS" means proprietary confidential
information relating to the licensed technology which is owned by
ECC.

II. SUBLICENSE GRANT

C-1
<PAGE>

A. GENERAL TECHNOLOGY GRANT -- ECC grants the JV a non-exclusive
right to utilize all of the technology defined below for purposes of
manufacturing and distributing licensed Products with the Territory.

B. SCIENTIFIC TECHNOLOGIES -- The licensed technology includes the
following three basic categories.

1. PATENT

a. ECC grants the JV a non-exclusive license to make,
use, and sell all Products and related processes covered be ECC's United States
and Canadian patents, as well as all pending U.S. and Canadian patent
applications covering the ECC technology. The existing patents and pending
applications are listed in Exhibit "A" to the Sublicense.

b. The above license grant to the JV will be limited
to the Field of Use within the defined Territory.

c. ECC will be solely responsible for maintaining any
issued patents covered by the Sublicense in full force, including the timely and
proper payment of PTO maintenance fees.

d. Sweetheart will have the right to review any
pending patent applications relating to the licensed technology on a
confidential basis prior to execution of the Sublicense.

2. TRADEMARKS

a. ECC grants a non-exclusive license to the JV to
use the Licensed Marks in the Territory in connection with the distribution and
sale of the Products (including product packaging). The Licensed Marks include
the federal registrations and common law trademarks owned by or licensed to ECC
as shown in Exhibit "B".

b. Sweetheart will have the right to use the Licensed
Marks in connection with the licensed Products in the manner prescribed by ECC.
However, Sweetheart will not be required to use the marks under circumstances
where the use conflicts with the packaging or labeling requirements or trademark
rights of McDonald's.

c. Sweetheart acknowledges the validity of the
Licensed Marks, the "good will" associated with the marks and ECC's right and
obligation to exorcize quality control over the use of such marks.

3. CONFIDENTIAL KNOW-HOW/TRADE SECRETS

a. The parties acknowledge that ECC has developed
certain proprietary confidential know-how and trade secret information relating
to the compositions,

C-2
<PAGE>

equipment design and methods of manufacturing Products covered by the
Sublicense. The general descriptions of such know-how/trade secret information
will be summarized in the sublicense (the "ECC Trade Secrets").

b. ECC grants Sweetheart a non-exclusive license to
use the ECC Trade Secrets for the purpose of manufacturing Products covered by
the Sublicense in the Field of Use.

c. Sweetheart agrees to maintain the confidentiality
of any ECC Trade Secrets and other ECC proprietary and confidential information.

III. ROYALTY PAYMENTS

A. ECC shall receive a royalty of 20% of the net revenue derived
from sale by the JV of licensed Products.

B. The "net revenue" for sales shall be calculated based on gross
sales less cash discounts, freight and other discounts and allowances.

C. Royalty payments shall be paid by Sweetheart to ECC on a monthly
basis and shall become due following payment to the JV for products shipped and
delivered.

D. MOST FAVORED NATIONS PROVISION. ECC shall agree that it will not
enter into a business arrangement with another sublicensee who has, or who
proposes to enter into, a contract to sell Products to Perseco or McDonald's
Corporation, that, when considered in the context of the overall financial
arrangement (including consideration of such items as royalty rate, equipment
lease payments or profit participations, share in operating profits or losses,
and equipment warranties and guarantees), is more favorable to the sublicensee
is determined to be more favorable than the arrangement with Sweetheart, ECC at
Sweetheart's election, shall modify the definitive Agreements in any reasonable
manner so that the disparity is eliminated to Sweetheart's reasonable
satisfaction.

IV. OWNERSHIP OF TECHNOLOGICAL IMPROVEMENTS -- All Product, Process, and
Design Improvements as such terms are defined in the Current License) to the
Technology (collectively, the "Improvements") developed by ECC, Sweetheart, JV
or a third party will be owned and licensed as follows:

A. ECC IMPROVEMENTS: ECC will own all Improvements developed by or
for ECC directly (and not by any of its licensees), and subject to ECC's rights
to do so, shall be licensed to JV without further royalty or other obligation
pursuant to the terms of the Sublicense Agreement.

C-3
<PAGE>

B. SWEETHEART IMPROVEMENTS: Sweetheart will own all Improvements
developed by or for Sweetheart on behalf of JV; provided that, subject to
Sweetheart's right to do so, Sweetheart will license such Improvements to ECC
with ECC having the right to sublicense such Improvements to others. Such
license will be limited to sue of such Improvements solely in connection with
the production and distribution of ECC products, and in the d\case of an ECC
sublicensee, shall provide for royalty payments to Sweetheart, reasonably
calculated in relation to the incremental economic value of such royalties by
ECC's sublicensees to Sweetheart), provided, however, that the annual royalty
rate shall not exceed 10% of such incremental economic value.

C. JOINTLY DEVELOPED IMPROVEMENTS: Improvements to the Technology
jointly developed be ECC and Sweetheart for JV shall be owned by ECC, but shall
be cross licensed to Sweetheart pursuant to the terms of the Sublicense
Agreement. Additionally, Sweetheart shall be irrevocably licensed under such
Improvements within Sweetheart's traditional field of use. ECC will not license
the Improvements to any third party who seeks to utilize such Improvements to
manufacture and distribute non-ECC products within Sweetheart's traditional
field of use. Neither ECC nor Sweetheart shall have any additional royalty or
other obligation under such license. ECC shall have the right to sublicense such
Improvements, in which case the ECC sublicensee shall pay to ECC and Sweetheart
a royalty reasonably calculated in relation to each party's contribution to the
incremental economic value of such Improvements, provided, however, that the
annual royalty rate shall not exceed 10% of such incremental economic value. If
commercially reasonable to do so, ECC commits at its sole expense to diligently
pursue on a commercially reasonable basis, the application, prosecution and
maintenance of patents within the Territory with respect to the Improvements
covered by this subparagraph.

D. THIRD PARTY IMPROVEMENTS: Any Improvements developed by or for a
third party (including an ECC licensee) and licensed to ECC shall, if adopted by
JV and subject to ECC's right to do so, be sublicensed to JV pursuant to the
terms of the Sublicense Agreement at the royalty rate charged to ECC.

E. NOTICE: Each party agrees to provide prompt notice to the other
of any Improvements which are developed, and agree to cooperate in the
preparation and filing of any patent applications covering such improvements.

V. WARRANTIES LIABILITIES AND INDEMNIFICATION

A. ECC WARRANTIES -- ECC warrants (1) that it has the right and
authority to enter into the Sublicense; and 2) that the licensed technology does
not infringe any existing U.S. or Canadian patent, trademark, trade name,
copyright or other intellectual property, including know-how/trade secret
information, belonging to a third party.

B. SWEETHEART WARRANTIES -- Sweetheart warrants (1) that it has the
right and authority to enter into the Sublicense and to perform its obligations
under the agreement; and (2) that it has not entered into any assignments,
licenses or other agreements which conflict with the terms of the Sublicense.

C-4

<PAGE>

C. INFRINGEMENT AND INDEMNIFICATION

1. ECC agrees to indemnify and hold Sweetheart harmless for any
alleged infringement of patents, trademarks or know-how/trade secrets owned
by third parties relating to the Technology or Products covered by the
Sublicense.

2. Sweetheart agrees to indemnify and hold ECC harmless with
respect to any liability for actions taken by Sweetheart on matters outside
the licensed Technology.

3. If ECC or Sweetheart learn of any infringement of any
intellectual property rights covered by the licensed Technology, ECC may, at
its own expense, bring suit to enjoin such infringement. If ECC elects not to
file suit, Sweetheart may file suit on behalf of ECC if it appears that the
infringement may have substantial and adverse consequences on Sweetheart's
business interests.

VI. TERM OF THE AGREEMENT AND TERMINATION

A. The term of the Sublicense shall begin upon execution by the
parties and will remain in effect until expiration of the last United States
or Canadian patent covering the technology.

B. The Sublicense will also terminate in accordance with
termination provisions of the Operating Agreement.

C-5

<PAGE>

EXHIBIT D

PRE-START DATE DISTRIBUTION SCHEDULE

- --------------------------------------------------------------------------------
PRE-START DATE(1)
QUARTERLY DISTRIBUTION PRIORITY

<S> <C>
- ---------------------------------------------------------------------------------------------------
Gross Sales Net Sales
- less Returns and Allowances
- ---------------------------------------------------------------------------------------------------
- - Standard material cost Standard Cost of Sales(2)
- - Standard labor cost
- ---------------------------------------------------------------------------------------------------
- - Non-allocated overhead costs attributable to ES ops Actual Overhead(3)
- - 10% interest on avg. raw materials inventory
- ---------------------------------------------------------------------------------------------------
- - Material production variance Production Variances(4)
- - Labor production variance
- ---------------------------------------------------------------------------------------------------
If Net Sales less than Standard Cost of Sales, Actual Overhead, and Direct conversion cost deficit
Production Variances (DCCD) to be funded quarterly
by ECC
- ---------------------------------------------------------------------------------------------------
If Net Sales greater than Standard Cost of Sales, Actual Overhead, Cumulative DCCD returned to
and Production Variances ECC
- ---------------------------------------------------------------------------------------------------
- - Other overhead allocations Distributions for non-cash
- - SGA of 2% of Net Sales cost allowances
- ---------------------------------------------------------------------------------------------------
- - Interest on actual cost of capital equipment - ECC Accrued interest on invested
- - Interest on actual cost of facility improvements - SCC capital (10%)
(int. accrual ends when Returns on Invested Capital begin)
- ---------------------------------------------------------------------------------------------------
- - Displaced Finished Goods - SCC actual costs up to $110,000 Other reimbursements for cash
annually until completion of new SCC distribution center costs
- ---------------------------------------------------------------------------------------------------
- - Plant Facility Rental (sq. ft. charge) to SCC Return on invested capital
- - Infrastructure Enhancement Distribution to SCC
- - Equipment Profit Participation to ECC
- ---------------------------------------------------------------------------------------------------
- - Facility capital improvements in excess of model Reimburse capital costs in
- - Capital equipment costs in excess of model excess of economic model
- ---------------------------------------------------------------------------------------------------
20% SCC/80% ECC until ECC receives 20% of Net Sales Initial Profit Split
- ---------------------------------------------------------------------------------------------
80% SCC/20% ECC Final Distribution
- ---------------------------------------------------------------------------------------------
</TABLE>
- --------------------------
(1) Start Date occurs when:
a) MEL is reached and DCCD is zero, or
b) at SCC election to accept the equipment on an economic Start Date
basis, or
c) at ECC election if Perseco contract production is being met and ECC
guarantees MEL economics
(2) The sum of these cost items is defined as the "Direct Cost of Sales"
(3) The sum of these cost items is defined as the "Direct Cost of Sales"
(4) The sum of these cost items is defined as the "Direct Cost of Sales"

D-1

<PAGE>

EXHIBIT E

POST-START DATE DISTRIBUTION SCHEDULE

- -------------------------------------------------------------------------------
POST-START DATE
QUARTERLY DISTRIBUTION PRIORITY

<S> <C>
- --------------------------------------------------------------------------------------------------
Gross Sales - less Returns and Allowances Net Sales
- --------------------------------------------------------------------------------------------------
20% of Net Sales to ECC Royalty(1)
- --------------------------------------------------------------------------------------------------
- - Standard material cost Standard Cost of Sales
- - Standard labor cost
- - Standard variable overhead
- --------------------------------------------------------------------------------------------------
Unfavorable production variances (payable to Sweetheart Unfavorable Production
prior to the Warranty Termination Date)(2) Variances
- --------------------------------------------------------------------------------------------------
- - Fixed overhead(3) Manufacturing & Sales Support
- - SGA of 2% of Net Sales
- --------------------------------------------------------------------------------------------------
$289,500 to SCC Sweetheart Preliminary
Profit Distribution(4)
- --------------------------------------------------------------------------------------------------
- - Plant Facility Rental (sq. ft. charge) to SCC Return on invested capital
- - Infrastructure Enhancement Distribution SCC
- - Equipment Profit Participation to ECC
- --------------------------------------------------------------------------------------------------
$72,375 to ECC EarthShell Preliminary Profit
Distribution(5)
- --------------------------------------------------------------------------------------------------
Accrued but unpaid post start date amounts to Sweetheart including: Deficit Accounts
- - Plant Facility Rental & Infrastructure Enhancement Distribution
- - unreimbursed rate variances
- - amortized payments on capital expenditures for facility
improvements in excess of the model
- - interest on the above unpaid amounts at 10%
- - displaced finished goods
- - any other post Start Date amounts to be paid to SCC

Accrued but unpaid post start date amounts to ECC including:
- - Equipment Profit Participation
- - amortized payments on capital expenditures for equipment in
excess of Standard Equipment Costs, including capitalized
expenditures made pursuant to the ECC Performance Guarantee
- - interest on the above unpaid amounts at 10%
- - any other post Start Date amounts to be paid to ECC
- --------------------------------------------------------------------------------------------------
80% SCC & 20% ECC Distribution until Warranty
Termination Date
- --------------------------------------------------------------------------------------------------
Then 100% to SCC Final Distribution
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------
(1) Royalty payments to be made monthly
(2) Unfavorable material usage, labor efficiency, and overhead efficiency
variances due to less than MEL operations (Performance Guaranties) will be
paid quarterly by ECC directly to SCC until Warranty Termination Date
(3) Excludes depreciation, equipment participation & facility rents
(4) PPD's cease upon Warranty Termination Date
(5) PPD's cease upon Warranty Termination Date

E-1

<PAGE>

[LOGO]

November 13, 1996

Mr. Earl W. Shapiro
President
Prairie Packaging, Inc.
7207 S. Mason Avenue
Bedford Park, Illinois 60638

Re: Development of Manufacturing Plant
----------------------------------

Dear Earl

Set forth below is a summary of the proposed business arrangement between
EarthShell Container Corporation or its subsidiary ("ECC") and Prairie
Packaging, Inc. or its subsidiary ("Prairie") concerning the equipping and
operation of a pioneer plant to be developed to manufacture and distribute
EarthShell containers and any other products agreed to by the parties (the
"Products").

In terms of a broad overview, and subject to the more specific discussion
below, the general structure of our arrangement with respect to the plant is
that Prairie and ECC will enter into a joint venture to manufacture and
distribute the Products. The legal form of the joint venture will be a Delaware
limited liability company (the "LLC") to be formed between Prairie and ECC. ECC
will sublicense its proprietary technology to the LLC to manufacture the
Products in exchange for a 20% royalty on product sales. The business of
operating the plant and manufacturing and distributing the Products will be
conducted by the LLC, which in turn will be managed by Prairie. As a condition
to ECC's entering into the arrangement, Prairie, on behalf of the LLC, will
negotiate and procure the McDonald's Contract (as defined in Section 1(g)
below).

Our mutual objective is to establish a long-term, profitable relationship
that, over time, will fairly and adequately compensate each party for its
contributions to, and assumptions of risk with respect to, the venture. In this
regard, each party shall cooperate with the other, and provide the LLC with such
technical assistance as may be required, in order for the LLC to become a
commercial success. As further described herein, ECC shall provide the LLC with
a viable Technology that consists of patents and other proprietary information,
specified product mixes, and a list of preferred equipment suppliers and
vendors.

<PAGE>

Mr. Earl W. Shapiro
November 13, 1996
Page 2

Each party will cooperate with the other and the LLC and take all
commercially reasonable steps to facilitate the realization by the LLC and each
party of its economic objectives and, in addition, will administer, implement
and enforce the terms and provisions of the Definitive Agreements (as defined in
Section 10 below) in manner that will reasonably (i) ensure the commercial
success of the LLC and the timely fulfillment of all of its obligations under
the McDonald's Contract, (ii) maintain, if not enhance, the credibility and
reputation of the parties in the business community and the consumer public at
large, (iii) enable each party to realize its stated economic objectives and
(iv) not unfairly deprive any party of its profit expectations.

With these basic objectives and principles in mind, I have outlined below
in more specific detail the framework for our letter of intent with respect to
the pioneer plant.

1. GENERAL STRUCTURE.

a. ECC will sublicense the Technology to the LLC pursuant to a
Sublicense Agreement in consideration for a 20% royalty on the gross revenue
derived by the LLC from the sale of Products. The Sublicense will grant the LLC
a non-exclusive right to manufacture, market and distribute the Products in the
Territory (to be defined in the Definitive Agreements). The Sublicense
Agreement will continue until the expiration of the last material patent
covering the Technology. The LLC will conduct the business of manufacturing,
marketing and distributing the Products licensed to the LLC. The LLC will be
owned by Prairie and ECC, with Prairie being in charge of its operations.

b. Subject to Section 10(b), either party may engage in other
business activities outside of the LLC, regardless of whether such activities
are competitive with the LLC. It is further acknowledged that ECC may be
obligated to deliver the first line of equipment designed to produce sandwich
containers to another party, with the LLC receiving the second line of equipment
and such additional lines of equipment as will be necessary for the LLC to
timely fulfill its delivery commitments under the McDonald's Contract.

c. The LLC will agree to render reports on monthly Product sales
within 20 days following the end of each calendar month.

d. ECC will indemnify the LLC and Prairie from any infringement
claims made by third parties with respect to the Technology.

e. ECC shall provide the LLC with "specifications" for production
(e.g., composition and process) of the Products to be commercialized by the
LLC as part of the process in developing an economic model for such Products.
The Technology licensed to the LLC will be based, in part, on specific
patents (both issued and pending) that will be listed in the Sublicense
Agreement. ECC will warrant that, by combining the materials and operating
the Equipment in accordance with such "specifications," the LLC will possess
the technical knowledge to produce Products that are in conformity with
prototype samples.

<PAGE>

Mr. Earl W. Shapiro
November 13, 1996
Page 3

f. The parties will develop an economic model which (the "Economic
Model") shall illustrate, on a hypothetical basis, the expected revenue and cost
components for the production and sale of the QPC sandwich container (which is
expected to be the first product ordered by McDonald's Corp.), and which shall
include such items as materials, process efficiency (both uptime and throughput
rate), facility expenses, staffing requirements, utility usage, packaging costs,
overhead and the capitalization and amortization rates for the Equipment and the
plant facility. The parties will cooperate with one another to develop
additional economic models for the other Products to be manufactured and
distributed by the LLC.

g. Immediately following the execution of this letter, Prairie shall
take the lead in negotiating and procuring an agreement with McDonald's Corp. or
its affiliates (the "McDonald's Contract"), pursuant to which McDonald's Corp.
will be obligated to purchase, and the LLC will be obligated to sell, at least
600 million units of QPC or other sandwich containers on an annual basis over
such periods of time, at such delivery dates and prices, and subject to such
product specifications, quality control measures and other material terms and
conditions as ECC and Prairie shall mutually agree (it being understood that any
price obtained for the QPC sandwich container which is at least equal to the
price set forth in the Economic Model will be acceptable to the parties).
Prairie will provide McDonald's Corp. with such reasonable assurances as
McDonald's may request relating to the LLC's ability to fulfill its obligations
under the McDonald's Contract. The parties shall cooperate with one another and
use all commercially reasonable efforts to ensure that the LLC timely fulfills
its obligations under the McDonald's Contract.

2. INSTALLATION OF EQUIPMENT AND PLANT; WORKING CAPITAL.

a. ECC'S OBLIGATIONS.

(i) INSTALLATION OF EQUIPMENT. Following execution of the
McDonald's Contract, ECC will acquire and install, at its cost, at least four
fully integrated lines of Equipment at the Plant Facility described in Section
2(b)(i) below and lease them to the LLC on a triple net lease basis pursuant to
the terms set forth in the Definitive Agreements (the "ECC Lease"). The lines
will be installed at such times as will be reasonably necessary to satisfy the
LLC's delivery commitments under the McDonald's Contract. Following
installation, each Line of Equipment must run for at least 30 continuous days,
24 hours per day, and produce units of commercially marketable QPC containers at
a rate of 150 million units per annum at the staffing levels set forth in the
Economic Model. The date each Line has achieved this standard is referred to as
the "Start Date" as to that particular Line. As more fully set forth in Section
2(a)(iii) below, ECC shall bear all costs in procuring, installing and testing
each Line of Equipment until the Start Date for that Line is met.

(ii) UPGRADES TO EQUIPMENT; REMOVAL.

(A) ECC will agree to upgrade each material component of an
existing Line of Equipment, at its cost, provided that ECC is reasonably
satisfied that the upgrade

<PAGE>

Mr. Earl W. Shapiro
November 13, 1996
Page 4

will result in at least a 33-1/3% reduction in the direct costs of operating
the component to be upgraded after factoring in the higher lease cost
attributable to the upgraded component (a "Required Upgrade"), or as
otherwise may be agreed to by ECC and Prairie. If a component is to be
replaced in its entirety, then the ECC Monthly Lease Payment (as defined
below) shall be appropriately adjusted to reflect the elimination of the
unamortized cost of the replaced component (computed on a seven-year life),
and the addition of the cost of the new component (computed also on a seven
year life from the date of installation).

(B) If Prairie elects to make an upgrade to the
Equipment which is not a Required Upgrade, and ECC approves such upgrade
(which approval shall not be unreasonably withheld), then Prairie shall fund
the pre-agreed costs of the upgrade and the Prairie Monthly Lease Payment
shall be appropriately adjusted to reflect the cost of the upgrade and the
amortization of such cost over a seven year period from the date the upgrade
is completed at the same amortization rate as would apply to an ECC upgrade.

(C) ECC shall have the right to remove at its sole cost
any Line of Equipment, or a component thereof, which is not being utilized by
the LLC for at least 75% of its rated daily capacity for a continuous 12
month period following the Start Date for such Line. The ECC Monthly Lease
Payment shall be appropriately adjusted to reflect the elimination of the
Line of Equipment or component thereof.

(iii) CONTRIBUTION OF CERTAIN START-UP COSTS.

(A) ECC will contribute to the LLC, as a capital
contribution, any costs incurred in procuring and installing the Equipment,
and in retrofitting and improving the Plant Facility to accommodate the LLC's
start-up operations, that exceed the total estimated capitalization figures
set forth in the Economic Model.

(B) Following the execution of the Definitive Agreements
(as defined in Section 10 below), ECC shall contribute to the LLC sufficient
funds to meet the LLC's start-up costs which are attributable to the testing
and start-up of each Line of Equipment until such Line has achieved its Start
Date (as defined in Section 2(a)(i) above). For this purpose, start-up costs
shall be defined as the difference, if any, between (i) the cash expenditures
incurred by the LLC prior to the Start Date for each Line of Equipment which
are attributable to the operation of such Line (inclusive of utility charges,
materials usage, labor, inventory build-up, packaging, maintenance, and
equipment insurance, but exclusive of depreciation, and the ECC and Prairie
Monthly Lease Payments), and (ii) the cash revenue (i.e., sales revenue less
royalty costs) associated with the sale of Products produced by the Line of
Equipment prior to its Start Date. ECC shall have the right to control all
costs of the LLC prior to the Start Date for each Line of Equipment.

b. PRAIRIE'S OBLIGATIONS.

<PAGE>

Mr. Earl W. Shapiro
November 13, 1996
Page 5

(i) LEASE OF PLANT. On or before the date the first Line of
Equipment is to be installed by ECC, Prairie will provide and lease to the
LLC, on a triple net lease, "turnkey" basis, a contiguous portion of its
main plant facility in the Chicago area (the "Plant Facility"), with
appropriate capacity and utility hook-ups, to safely house and operate the
Equipment, and to provide suitable office, supply and inventory space,
transportation facilities and other functions necessary to successfully
manufacture and distribute the Products (the "Prairie Lease"). The size,
physical location and specifications of the Plant will be subject to ECC's
reasonable approval. Prairie will be reimbursed for all costs it incurs in
operating the Plant Facility (e.g., facility insurance, property taxes,
security, common area expenses), provided such costs do not exceed the
amounts or allowances set forth in the Economic Model. ECC shall fund all
costs in retrofitting and improving the Plant Facility to accommodate the
LLC's start-up operations. ECC personnel or consultants will be permitted
access to the Plant Facility as is reasonably necessary in order for them to
fulfill ECC's obligations or protect its rights under the Definitive
Agreements.

(ii) CONTRIBUTION OF WORKING CAPITAL.

(A) Following the Start Date for each Line of Equipment,
Prairie shall contribute to the LLC an amount equal to the negative cash
flow attributable to the operation of that Line, provided, however, that
Prairie shall have the right to terminate the LLC pursuant to Section 7(c) if
Prairie's contributions under this Section exceeds $500,000 in the aggregate.

(B) Following the Start Date for all Lines of Equipment
(the "Completion Date"), Prairie shall contribute all of the capital required
to operate the LLC's business, and it shall also make a cash contribution
equal to the cost of all inventory on hand as of the Completion Date at the
cost per unit set forth in the Economic Model. Such cash contribution shall
be distributable to ECC to reimburse it for its inventory build-up
expenditures.

(iii) LOAN-OUT OF EMPLOYEES

(A) Prairie will enter into an employee loan-out
agreement with the LLC pursuant to which Prairie will provide the LLC, at
Prairie's cost, with the employees necessary to staff and operate the
Equipment and to otherwise attend to the administration, supervisory,
marketing and distribution functions of the LLC, all as set forth in the
Economic Model.

(B) Prairie shall be reimbursed for such costs out of
operating revenue (i.e., it shall be reimbursed prior to distributions being
made pursuant to Section 4(b) or (c)). Prairie shall be reimbursed for such
labor at the rates set forth in the Economic Model (which rates include an
allocable share of Prairie's employee benefits, taxes and workman's
compensation insurance), provided, however, in the event that within a
reasonable period of time following commencement of the LLC's operations, the
labor rates paid to Prairie employees change from the rates set forth in the
Economic Model, then the LLC Board shall modify the

<PAGE>

Mr. Earl W. Shapiro
November 13, 1996
Page 6

LLC's rates so that from that point forward, they are substantially
equivalent to the rates Prairie pays its similarly situated employees for
comparable services.

3. OWNERSHIP OF TECHNOLOGICAL IMPROVEMENTS.

a. ECC will own all Product, Process and Design Improvements
(collectively, the "Improvements") developed by the LLC. ECC shall license
such Improvements, as well as any other Improvements developed by ECC, either
individually or jointly with others (to the extent it is contractually
permitted to do so), to the LLC free of additional royalty expense. Following
termination of the LLC, ECC will grant Prairie a royalty free, non-exclusive
license to utilize or practice any Process Improvements developed exclusively
by Prairie during the term of the LLC.

b. The LLC will be charged at a rate equal to ECC's or Prairie's
cost for any technical services requested by the LLC to implement such
Improvements or to perform any other technical services that ECC or Prairie
is not obligated to perform under the terms of this agreement in principal.

4. DISTRIBUTIONS BY THE LLC.

a. From the LLC's gross revenue for each month, the LLC shall pay
(i) the 20% royalty owed to ECC, and (ii) all direct operating costs
associated with labor, supplies, marketing, distribution and facility
operations, repairs and maintenance of the Equipment and the Plant, product
and liability insurance premiums, property and other taxes, security,
utilities and any other expenses properly chargeable to the LLC or as agreed
to by the Board (discussed below).

b. After deducting the foregoing expenses, the "Net Revenue" shall
be distributed by the LLC at such times and in such total amounts as the LLC
board shall agree in the following manner (subject to Section 4(c)):

(i) First, to Prairie until Prairie has been repaid in full
its capital contributions to the LLC pursuant to Section 2(b)(ii) plus a 15%
per annum preferred return thereon calculated from the date such
contributions were made.

(ii) Second, to Prairie and ECC, in proportion to the Prairie
and ECC Monthly Lease Payments, until all lease amounts (due or past due)
have been paid in full. Any Monthly Lease Payments not paid when due will
bear interest at the rate of 15% per annum.

(A) The Prairie Monthly Lease Payment shall be fixed at
the amount set forth in the Economic Model and shall commence accruing on the
date that the Plant Facility is turned over to ECC for installation of the
first Line of Equipment, and ECC accepts such Plant Facility on behalf of the
LLC, which acceptance shall not be unreasonably withheld.

<PAGE>

Mr. Earl W. Shapiro
November 13, 1996
Page 7

The Prairie Monthly Lease Payment shall be adjusted for any Equipment
upgrades made by Prairie pursuant to Section 2(a)(ii)(B) in the manner
provided therein.

(B) The ECC Monthly Lease Payment for each Line of
Equipment shall be fixed in the Economic Model and shall commence on the
Start Date for such line. It is anticipated that the ECC Monthly Lease
Payment will approximate that amount sufficient to amortize ECC's out
of pocket costs that are incurred to (i) retrofit and improve the Plant
Facility to accommodate the LLC's start-up operations, and (ii) procure,
install and test the LLC's four Lines of Equipment, which costs are estimated
to aggregate $2.75 million per Line. Such costs shall be amortized over seven
years at a 12% interest rate (such total lease payment, as indicated in the
Economic Model is defined herein as the "Total ECC Lease Obligation"). A
similar lease rate shall be applied to the cost of Equipment upgrades. ECC
shall cease to receive the ECC Monthly Lease Payment in respect of a Line of
Equipment (or upgrade thereof) once it has received distributions under
Section 4(b)(ii) in respect of such Line of Equipment (or upgrade) equal to
the sum of (i) the Total ECC Lease Obligation with respect to such Line (or
upgrade), plus (ii) the 35% per annum return thereon in respect of any
delinquent ECC Monthly Lease Payments. The date that the ECC Monthly Lease
Payments cease in respect of the initial four Lines of Equipment is referred
to as the "Initial Lease Termination Date."

(iii) Finally, 80% to Prairie and 20% to ECC until the Initial
Lease Termination Date, and thereafter 60% to Prairie and 40% to ECC (with
proportionate adjustments to be made to such ratios in the event the
cessation of the ECC Monthly Lease Payments does not occur concurrently for
all of the four Lines of Equipment).

c. If the LLC's aggregate distributions pursuant to Section 4(b)
from the commencement of its operations through the end of any fiscal year
exceeds the cumulative distributions that the LLC was targeted to make
through the end of such fiscal year based on the Economic Model, then the LLC
shall distribute to ECC from such excess distributions an amount that it is
intended to amortize and repay to ECC over a five year period the total
amount of its capital contributions made to the LLC under Section 2(a)(iii).
Once such capital contributions have been repaid for any particular year, the
"excess" distributions will be distributed in the manner and priority set
forth in Section 4(b).

5. MANAGEMENT.

a. OPERATIONS. The LLC's day to day operations will be managed by
Prairie representatives.

b. BOARD OR POLICY CONTROL.

(i) Except as set forth in Section 5(a) above, the LLC's
fundamental business strategies will be governed by a Board of Managers
comprised of four individuals--two appointed by ECC and two appointed by
Prairie.

<PAGE>

Mr. Earl W. Shapiro
November 13, 1996
Page 8

(ii) Decisions of the Board will be made by a majority of the
Managers, and Board approval will be required for such critical issues as (i)
the LLC's ability to borrow money or encumber its assets, (ii) annual and
capital budgets, distribution policies or any material deviations therefrom,
(iii) material modifications to the Equipment (iv) modifications to the
composition and process "specifications" for any Product, (v) the disposition
of any material asset (other than inventory) or any merger, consolidation, or
similarly reorganization of the LLC, (vi) the entering into, or
modification of, any intercompany agreement between the LLC, on the one hand,
and ECC, Prairie or their affiliated companies, on the other hand, (vii)
modifications to preapproved insurance coverages, (viii) the issuance of LLC
interests to any other party, (ix) the implementation of, and changes to, the
fundamental business and marketing strategies as previously agreed upon by
the Board, and (x) the entering into, or amendment of, or termination of
material contracts, such as the McDonald's Contract. Notwithstanding the
foregoing, ECC shall have no veto right, or control over, annual budgets if,
for the immediately preceding fiscal year, the ECC Monthly Lease Payments are
current. Except as set forth in Section 1(g), Prairie shall have the right to
make all pricing decisions for the sale of the Products provided such prices
are at least equal to 90% of the amounts set forth in the Economic Model
developed with respect to such Product.

(iii) ECC will have the right to suspend the manufacture or
distribution of any Product by the LLC if its quality is substandard in
accordance with ECC's standard quality control manual or procedures to be
prepared and issued by ECC, which manual or procedures shall be commercially
reasonable.

(iv) The Board representatives shall endeavor to resolve all
issues in good faith and in a manner that is commercially reasonable under
the circumstances and, with respect to those issues affecting the McDonald's
Contract, in a manner that will reasonably assure the LLC's fulfillment of
its material obligations thereunder. If, after applying these standards, the
board members are unable to resolve any issue that is material to the ongoing
operations of the LLC, then the board will immediately submit the matter to
binding arbitration or other form of alternative dispute resolution.

(v) The Board shall take all commercially reasonable steps to
ensure that the LLC makes cash distributions to the parties in amounts
necessary to timely discharge their federal and state income tax liabilities
associated with the taxable income generated by the LLC.

6. MCDONALD'S PRIORITY. It is acknowledged by the parties that ECC may
have commitments to McDonald's Corp. to supply its U.S. domestic store owners
or franchisees with the production capacity from the first 16 lines of
equipment purchased and installed by ECC for the manufacture and distribution
of McDonald's sandwich containers, or such lesser capacity as ECC, in its
reasonable judgment, considers appropriate to satisfy McDonald's purchase
orders or equivalent commitments (the "McDonald's Production Priority"). Each
line of equipment shall be considered to have a production capacity of at
least 150 million units per year. It is anticipated that the LLC's Equipment
will be subject to McDonald's Production Priority and, in such event,

<PAGE>

Mr. Earl W. Shapiro
November 13, 1996
Page 9

the LLC will be operated in a manner that will enable ECC to fulfill its
obligations thereunder, provided such operations are consistent with the
terms and provisions of the McDonald's Contract. It is anticipated that the
LLC will be able to dedicate any production of sandwich containers in excess
of 600 million units per year (assuming four Lines of Equipment) to other
consumers or end users.

7. TERMINATION EVENTS.

a. EITHER PARTY. Except as set forth in Section 7(b) and (c)
below, neither party may terminate the LLC during the term of the McDonald's
Contract except by mutual consent. Following termination of the McDonald's
Contract, either party may terminate the LLC (i) upon the termination of the
Sublicense Agreement, or (ii) upon the other party's failure to perform any
material obligation under the LLC agreement after written notice and a 90 day
cure period. Each party's material obligations shall be defined in the
Definitive Agreements. It is expected that Prairie will be in breach of its
material obligations if it (A) materially modifies the Technology or the
composition or process specifications for any Product without ECC's consent,
which consent shall not be unreasonably withheld, (B) fails to operate the
Equipment in accordance with the manufacturer's operating manuals resulting
in material damage to the Equipment, (C) willfully violates commercially
reasonable control standards in marketing substandard Products utilizing
ECC's trade name, (D) fails to cause the LLC to pay the ECC Monthly Lease
Payment when it is due and payable in accordance with Section 4(b)(ii), and
(E) fails to make the capital contributions required under Section 2(b)(ii)
when due, provided that, in each of the cases under clauses (A) through (E),
the LLC or ECC is materially damaged thereby. In the case of ECC, such
material obligations will include the obligation to make the capital
contributions required under Section 2(a)(iii) when due.

b. ECC'S RIGHT TO TERMINATE. Upon 14 days notice, ECC may
terminate the LLC if (i) the ECC Monthly Lease Payment is six months or more
in arrears, or (ii) ECC has funded more than $3 million in capital
contributions under Section 2(a)(iii)(B) and it continues to have a funding
obligation under that Section.

c. PRAIRIE'S RIGHT TO TERMINATE. Upon 14 days notice, Prairie may
terminate the LLC if (i) the Prairie Monthly Lease Payment is six months or
more in arrears, or (ii) Prairie has funded more than $500,000 in capital
contributions under Section 2(b)(ii)(A) that have not been reimbursed under
Section 4(b)(i).

8. EFFECT OF TERMINATION.

a. EQUIPMENT AND PLANT. Upon termination of the LLC, the
Equipment and Plant Facility will revert back to ECC and Prairie,
respectively, in their capacities as lessors.

b. CASH PROCEEDS. Any cash proceeds available upon or following
the LLC's termination, including any proceeds from the collection of
receivables or the sale of inventory and assets (other than the Equipment and
the Plant) shall be applied to discharge all of the LLC's

<PAGE>

Mr. Earl W. Shapiro
November 13, 1996
Page 10

debts and obligations. The costs of removing and transporting the Equipment
("Equipment Removal Expenses"), and expenses incurred in returning the Plant
Facility to its pre-lease condition ("Plant Restoration Expenses"), shall be
expenses of the LLC and shall be satisfied prior to any equity distributions
being made to the parties under Section 4. After setting aside such reserves
for contingent liabilities as the Board shall agree, the balance of the LLC's
cash (including any funds ultimately released from reserves) shall be
distributed to the parties in the manner and in the priority set forth in
Section 4(b) and (c). If the LLC does not have sufficient cash on hand
following the payment of its obligations to satisfy the Equipment Removal and
Plant Restoration expenses, then the available cash shall be applied prorata
to reduce such expenses, and ECC shall pay for the remaining Equipment
Removal Expenses, and Prairie shall pay for the remaining Plant Restoration
Expenses.

c. TECHNOLOGY. Upon termination of the LLC, all Technology and
Improvements thereto will revert to ECC under the Sublicense Agreement
(subject to the provisions of Section 3(a)).

d. MCDONALD'S CONTRACT. Notwithstanding the foregoing, if any
party rightfully terminates or causes a termination event to occur during the
term of the McDonald's Contract, the non-terminating party may, at its
option, continue the operations of the LLC until a reasonable period of time
following the termination of the McDonald's Contract. Such operations will be
conducted in a manner that is reasonably required to satisfy the LLC's
material obligations under the McDonald's Contract. As soon as commercially
reasonable following such termination, an accounting shall be made, as of the
termination date, of the LLC's available cash, collectible receivables and
realizable value of inventory (collectively, the "Available Assets"), as well
as the LLC's accrued operating expenses and other current liabilities
(collectively, the "Current Liabilities"). In the event the Current
Liabilities exceed the Available Assets, then the Available Assets will be
applied to satisfy the Current Liabilities. If the Available Assets exceed
the Current Liabilities, the amount of the excess is referred to herein as
the "Net Available Assets." Promptly following such calculation and the
monetization of any non-cash assets comprising the Net Available Assets, the
LLC shall distribute to the terminating party that portion of the Net
Available Assets that it would have received had the net entire Net Available
Assets been reduced to cash as of the termination date and distributed to the
parties pursuant to Section 4(b) or (c), as applicable. Following such
payment, the terminating party shall have no further interest in the LLC or
its assets. The non-terminating party shall continue the operations of the
LLC following such termination and shall fund all expenses and receive all
revenues that are incurred or realized following the date of termination. The
non-terminating party shall also indemnify the terminating party from any
obligations incurred by the LLC following the termination date. Furthermore,
if Prairie is the terminating party, ECC shall assume Prairie's obligations,
if any, under the lease for the Plant Facility (assuming ECC elects to
continue the LLC). If the non-terminating party does not elect to continue
the LLC, the LLC's operations shall be wound up and its assets disposed of in
the manner set forth in Section 8(a), (b) and (c) above.

<PAGE>

Mr. Earl W. Shapiro
November 13, 1996
Page 11

9. ASSIGNMENT OF LLC INTERESTS.

a. VOLUNTARY TRANSFERS. Neither party may transfer its interest
in the LLC to a third party without the consent of the other party which
consent shall not be unreasonably withheld (except in the case of a merger or
sale of substantially all the assets of, or controlling interest in, a party
to the LLC).

b. ENCUMBRANCE OF ASSETS. It is acknowledged that the Equipment
and Plant may be encumbered by the respective lessors to facilitate
financing, related to the acquisition of the equipment and plant, provided
the financing will be incurred in a manner that will not disrupt pre-existing
financial arrangements of parties. Each lessor will agree to hold the LLC
harmless from any liability for such indebtedness.

c. TRANSFERS BY OPERATION OF LAW. Except as set forth in Section
9(a), if any party transfers its LLC interest by operation of law (e.g.,
bankruptcy, dissolution), the other party shall have an option to terminate
the LLC or purchase the interest of the transferring party for its fair
market value (as determined by third party appraisal).

10. DEFINITIVE AGREEMENTS.

a. While the foregoing represents our current understanding, it is
agreed that this letter of intent does not create any binding obligation,
expressed or implied, on the part of ECC or Prairie with respect to the
matters referred to herein, except as set forth in Section 11. Promptly after
the execution of this letter, (i) Prairie shall take the lead in negotiating
and procuring the McDonald's Contract, (ii) ECC will take the lead in
negotiating McDonald's Production Priority, and (iii) the parties shall
negotiate and execute a definitive LLC operating agreement, Sublicense
Agreement, Distribution Agreement (if required), Employee Loan-Out Agreement,
and lease agreements with respect to the Equipment and the Plant
(collectively, the "Definitive Agreements"), in form and substance mutually
satisfactory to the parties and containing terms, conditions, covenants and
representations customary to transactions of the type outlined above,
including, without limitation, the terms and conditions described herein. The
parties may make non-material modifications to the foregoing terms and
conditions to satisfy any tax or liability concerns, provided the economic
substance of the transactions described herein is not altered in any material
way. Until the Definitive Agreements are entered into, the parties shall
continue to be bound by any other written agreements that may exist between
them (including any confidentiality restrictions or other obligations of
non-disclosure). Such agreements shall terminate upon the due execution and
delivery of the Definitive Agreements. It is anticipated that the Definitive
Agreements will be executed prior to, and shall become effective upon, the
execution of the McDonald's Contract and the McDonald's Production Priority.

b. It is envisioned that, subject to the validity of such
arrangements under the antitrust laws, the Definitive Agreements will contain
three "exclusivity" provisions designed to protect Prairie's interests which
will be further developed by the parties.

<PAGE>

Mr. Earl W. Shapiro
November 13, 1996
Page 12

(i) The first exclusivity provision will restrict ECC and
any of its joint ventures or other affiliated entities ("ECC Affiliates")
from contracting with Sysco for the sale of ECC Products for a period of
three years from the date the Definitive Agreements are entered into, or
until the LLC has received $30 million in annual gross revenues from Product
sales to Sysco or its affiliates, whichever occurs first, subject, however,
to Sysco's approval of such restriction, and provided further that the Lines
of Equipment procured to satisfy Sysco's demands are operated at at least 75%
of the production levels set forth in the Economic Model.

(ii) The second exclusivity provision will restrict ECC from
directly competing with the LLC by engaging in the manufacture, distribution
or sale of ECC Products in the Territory until such time as the earlier of:

(A) The LLC has generated at least $40 million in gross
revenues on an annual basis; or

(B) The LLC is unable to satisfy customer demand for the
ECC Products in the Territory.

(iii) The third exclusivity provision will authorize ECC to
grant to the LLC a priority right (vis-a-vis ECC and its affiliated entities)
to negotiate with certain key customers identified by ECC and Prairie, and to
procure purchase orders or equivalent commitments from such customers for the
LLC's Products, for a three year period from the date the Equipment is
brought on line to satisfy the demands of such customer, provided the LLC (or
Prairie on behalf of the LLC) procures a material purchase order or other
commitment from such customer within nine months from the date of grant on
terms and conditions approved by the LLC Board. In the event that the
customer demands additional production beyond that which the Equipment
dedicated to that customer can supply, the LLC will have a first right of
refusal to acquire and lease from ECC the Equipment necessary to fulfill the
customer's demand upon such terms and conditions as the LLC board may approve.

11. EXPENSES. Each party shall bear its own legal and professional
expenses, as well as any finder's or similar fees, in connection with the
negotiation and execution of this letter of intent and the Definitive
Agreements.

12. TERMINATION. This letter shall terminate if the Definitive
Agreements have not been entered into within 45 days following the date of
this letter of intent, or if the McDonald's Contract has not been entered
into within 60 days following the date of this letter, unless the parties
mutually agree to an extension of such terms. Such termination shall not
affect the rights and obligations of the parties under any existing agreement
between them as of the date of termination, including any confidentiality
restrictions or other obligations of non-disclosure.

13. GOVERNING LAW. The terms of this letter shall be governed by and
construed in accordance with the laws of the State of Delaware without
reference to principles of conflicts of laws.

<PAGE>

Mr. Earl W. Shapiro
November 13, 1996
Page 13

If the foregoing accurately reflects the agreement in principle between
us, please so indicate by executing this letter in the space provided below
and returning a copy to ECC.

EARTHSHELL CONTAINER
CORPORATION

By: /s/ SIMON K. HODSON
---------------------------------
Simon K. Hodson, Vice Chairman of
the Board and Chief Executive
Officer

Accepted and Agreed to this
14th day of November 1996

PRAIRIE PACKAGING, INC.

By: /s/ EARL W. SHAPIRO
---------------------------------
Earl W. Shapiro, President

<PAGE>

[LOGO]

April 17, 1997

Mr. Earl W. Shapiro
President
Prairie Packaging, Inc.
7207 S. Mason Avenue
Bedford Park, IL 60638

Re: DEVELOPMENT OF MANUFACTURING PLANT

Dear Earl:

With reference to our letter agreement dated November 13, 1996 (the
"Letter of Intent"), this will confirm that we have agreed to amend Paragraph
12 of the Letter of Intent to read in its entirety as follows:

"12. TERMINATION. This letter shall terminate if the Definitive
Agreements have not been entered into by July 31, 1997, or if the
McDonald's Contract has not been entered into by August 31, 1997,
unless the parties mutually agree to an extension of this letter.
Such termination shall not affect the rights and obligations of the
parties under any existing agreement between them as of the date of
termination, including any confidentiality restrictions or other
obligations of non-disclosure."

Except as set forth above, the terms and provisions of the Letter of
Intent shall remain unmodified and shall continue in full force and effect.

If the foregoing accurately reflects our agreement, please so indicate
by executing this letter in the space provided below and returning one
executed copy to me. Thank you in advance for your attention to this matter.

EARTHSHELL CONTAINER CORPORATION

By /s/ SIMON K. HODSON
----------------------------------
Vice Chairman and Chief Executive
Officer

Accepted and Agreed to this
______ day of April 1997

PRAIRIE PACKAGING, INC.

By: /s/ EARL W. SHAPIRO
-------------------------------
Earl W. Shapiro, President

<PAGE>

September 3, 1997

Mr. Earl W. Shapiro
President
Prairie Packaging, Inc.
7207 S. Mason Avenue
Bedford Park, IL 60638

Re: DEVELOPMENT OF MANUFACTURING PLANT
----------------------------------

Dear Earl:

With reference to our letter agreement dated November 13, 1996 (the "Letter
of Intent"), this will confirm that we have agreed to amend Paragraph 12 of the
Letter of Intent to read in its entirety as follows:

"12. TERMINATION. This letter shall terminate if the Definitive
Agreements have not been entered into by November 30, 1997, or if the
McDonald's Contract has not been entered into by December 31, 1997, unless
the parties mutually agree to an extension of this letter. Such
termination shall not affect the rights and obligations of the parties
under any existing agreement between them as of the date of termination,
including any confidentiality restrictions or other obligations of
non-disclosure."

Except as set forth above, the terms and provisions of the Letter of Intent
shall remain unmodified and shall continue in full force and effect.

If the foregoing accurately reflects our agreement, please so indicate by
executing this letter in the space provided below and returning one executed
copy to me. Thank you in advance for your attention to this matter.

EARTHSHELL CONTAINER CORPORATION

By: /s/ Simon K. Hodson
-------------------------------
Simon K. Hodson, Chief Executive Officer

Accepted and Agreed to this
28 day of August 1997

PRAIRIE PACKAGING, INC.

By: /s/ Earl W. Shapiro
-------------------------------
Earl W. Shapiro, President

<PAGE>

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR
THE LAWS OF ANY STATE AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT AND LAWS OR AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE UNDER SUCH ACT AND LAWS.

WARRANT TO PURCHASE STOCK

Corporation: Earthshell Container Corporation, a Delaware corporation
Number of Shares: Equal to $450,000 divided by the Initial Exercise Price
Class of Stock: Common
Initial Exercise Price: Equal to 110% of the price per share of the initial
public offering.
Issue Date: November 15, 1996
Expiration Date: November 15, 2003 (subject to Article 4.1)

THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and
for other good and valuable consideration, IMPERIAL BANCORP as parent of
Imperial Bank ("Holder") is entitled to purchase the number of fully paid and
nonassessable shares of the class of securities (the "Shares") of the
corporation (the "Company") at the initial exercise price per Share (the
"Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of
this Warrant, subject to the provisions and upon the terms and conditions set
forth of this Warrant.

ARTICLE 1. EXERCISE

1.1 METHOD OF EXERCISE. At any time following six (6) months after the
Company's initial public offering of its common stock (the "IPO"), but prior to
the Expiration Date, Holder may exercise this Warrant by delivering this Warrant
and a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company. Unless Holder is exercising
the conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.

1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time following the IPO, convert this
Warrant, in whole or in part, into a number of Shares determined by dividing (a)
the aggregate fair market value of the Shares issuable upon exercise of this
Warrant minus the aggregate

<PAGE>

Warrant Price of such Shares by (b) the fair market value of one Share. The
fair market value of the Shares shall be determined pursuant to Section 1.3.

1.3 FAIR MARKET VALUE. If the Shares are traded on a public market, the
fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not traded on a
public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that
Holder disagrees with such determination, then the Company and Holder shall
promptly agree upon a reputable investment banking firm to undertake such
valuation. If the valuation of such investment banking firm is greater than
that determined by the Board of Directors, then all fees and expenses of such
investment banking firm shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.

1.4 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.

1.5 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, upon surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.

1.6 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.

1.6.1. "ACQUISITION". For the purpose of this Warrant, "Acquisition"
means any sale, or other disposition of all or substantially all of the assets
(including intellectual property) of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.

1.6.2. ASSUMPTION OF WARRANT. If upon the closing of any Acquisition
the successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price and the number and type
of securities subject to the

<PAGE>

Warrant shall be adjusted accordingly. The Company shall use reasonable efforts
to cause the surviving corporation to assume the obligations of this Warrant.
1.6.3. NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.

ARTICLE 2. ADJUSTMENTS TO THE SHARES.

2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend to holders of its common stock payable in common stock, or other
securities, subdivides the outstanding common stock into a greater amount of
common stock, or subdivides the Shares in a transaction that increases the
amount of common stock into which the Shares are convertible, then upon exercise
of this Warrant, for each Share acquired, Holder shall receive, without cost to
Holder, the total number and kind of securities to which Holder would have been
entitled had Holder owned the Shares of record as of the date the dividend or
subdivision occurred.

2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the Warrant Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.

2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased and the number
of Shares subject to the Warrant share be proportionately decreased.

2.4 NO IMPAIRMENT. The Company shall not, by amendment of its Articles of
Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying

<PAGE>

out all the provisions of this Article 2 and in taking all such action as may be
necessary or appropriate to protect Holder's rights under this Article against
impairment.

2.5 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.

2.6 NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle Holder to
any voting rights or other rights as a stockholder of the Company prior to the
exercise of the Holder's rights to acquire Shares as provided herein.

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY

3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.

3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the Company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (a) at least 7 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 7 days prior written notice of the date when the same
will take place (and specifying the date on which the holders of common stock
will be entitled to exchange their common stock for securities or other property
deliverable upon the occurrence of such event); and (3) in the case of the
matter referred to in (e) above, the same notice as is given to the holders of
such registration rights.

<PAGE>

3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all communiques to the shareholders of the Company, (b)
within ninety (90) days after the end of each fiscal year of the Company, the
annual audited financial statements of the Company certified by independent
public accountants of recognized standing and (c) within forty-five (45) days
after the end of each of the first three quarters of each fiscal year, the
Company's quarterly, unaudited financial statements.

3.4 REPURCHASE OBLIGATION. The Holder is not being granted any
registration rights with respect to the Shares. However, if a registration
statement for shares of the Company's common stock is declared effective under
the Securities Act of 1933, as amended, (other than (i) in connection with the
IPO, (ii) pursuant to a Registration Statement on Form S-4 or S-8 or any
successor forms, (iii) otherwise in connection with any exchange offer, merger,
sale of substantially all of the assets or other reorganization or
recapitalization of the Company or (iv) otherwise in connection with the
issuance of securities pursuant to employee stock options, stock awards or other
employee benefit plans) and the Company does not provide Holder the opportunity
to sell the Shares to be acquired upon exercise of the Warrant in such public
offering on substantially the same terms as the other selling shareholders ( or
if there are no selling shareholders, on such terms as are required by the
managing underwriter of such offering), then the Holder shall have the right for
a period of ten days following the closing of such public offering to require
the Company to purchase the Warrant at a price equal to the number of Shares
that would have been acquired upon exercise of the Warrant times the price per
share at which the shares of common stock were sold in such public offering,
less the Warrant Price with respect to such Shares.

ARTICLE 4. MISCELLANEOUS.

4.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or
in part, at any time and from time to time following six (6) months after the
Company's IPO but prior to the Expiration Date set forth above. The Company
shall give Holder written notice of Holder's right to exercise this Warrant in
the form attached as Appendix 2 not more than 90 days and not less than 30 days
before the Expiration Date. If the notice is not so given, the Expiration Date
shall automatically be extended until 30 days after the date the Company
delivers the notice to Holder.

4.2 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED
OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT

<PAGE>

AND LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE UNDER SUCH ACT
OR LAWS.

4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company). The Company
shall not require an opinion(s) of counsel if, in its reasonable determination,
there is no material question as to the availability of an exemption from the
registration and qualification requirements of the Securities Act of 1933 and
applicable state securities laws as to the transfer.

4.4 TRANSFER PROCEDURE. Subject to the provisions of Sections 4.2 and
4.3, Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder, if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.

4.5 NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.

4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.

4.7 ATTORNEYS' FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.

4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.

<PAGE>

4.9 HOLDER'S INTENT. This Warrant has been entered into by the Company in
reliance upon the following representation of Holder, which by its acceptance
hereof the Holder hereby confirms: The right to acquire Shares will be acquired
for investment and not with a view to the sale or distribution of any part
thereof, and the Holder has no present intention of selling or engaging in any
public distribution of the same except pursuant to a registration or exemption.

"COMPANY"

EARTHSHELL CONTAINER CORPORATION

By /s/ Simon K. Hodson
--------------------
Simon K. Hodson
Chief Executive Officer

By /s/ Scott Houston
--------------------
Scott Houston
Chief Financial Officer

<PAGE>

APPENDIX 1

NOTICE OF EXERCISE
-------------------

1. The undersigned hereby elects to purchase____________shares of the
Common Stock of___________________________pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.

1. The undersigned hereby elects to convert the attached Warrant into
Shares in the manner specified in the Warrant. This conversion is exercised
with respect to________________of the Shares covered by the Warrant.

[Strike paragraph that does not apply.]

2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below.

------------------------------
(Name)

------------------------------

------------------------------
(Address)

3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.

-------------------------------
(Signature)

- ----------------------------------
(Date)

<PAGE>

APPENDIX 2

NOTICE THAT WARRANT IS ABOUT TO EXPIRE
--------------------------------------

-----------

(Name of Holder)

(Address of Holder)

Attn: Chief Financial Officer

Dear____________________;

This is to advise you that the Warrant issued to you described below will
expire on___________________, 19___.

Issuer:

Issue Date:

Class of Security Issuable:

Exercise Price Per Share:

Number of Shares Issuable:

Procedure for Exercise:

Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.

(Name of Issuer)

Its

<PAGE>

Exhibit 10.27

DEMAND PROMISSORY NOTE

$27,214,890 June 30, 1997

FOR VALUE RECEIVED AND FOR THE PURPOSE OF CONSOLIDATING THE INDEBTEDNESS LISTED
ON THE ATTACHED EXHIBIT B, the undersigned promises to pay to E. Khashoggi
Industries or order, the principal amount of Twenty-Seven Million Two Hundred
Fourteen Thousand Eight Hundred Ninety Dollars ($27,214,890), together with
interest from date hereof at the initial rate of Eight and One-Half percent
(8.0%) per annum which represents the Prime Rate (as defined below) on June
30, 1997, on the unpaid balance, payable in lawful money of the United States
of America at the office of E. Khashoggi Industries without defalcation or
discount. The interest rate shall be adjusted to the Prime Rate in effect on
the first day of each calendar quarter (January 1, April 1, July 1 and
October 1) commencing July 1, 1997. The term "Prime Rate" means the highest
"Prime Rate" as published in the Wall Street Journal's "Money Rates" table,
which is described as the base rate on the corporate loans at large US money
center banks. Interest shall be compounded quarterly and paid at the last day
of each calendar quarter commencing on June 30, 1997. The unpaid principal
balance, and any accrued but unpaid interest, shall be payable upon demand
and in all events shall be due and payable on June 30, 2000. Any Interest not
paid when due shall be added to the principal balance. Unless otherwise
provided herein, all payments hereunder shall be applied first to accrued
interest and the balance to the reduction of principal. Any portion of
principal or interest not paid when due shall continue to bear interest as
stipulated above until paid.

In case of default in the payment of principal or interest hereunder,
proceedings may at once be instituted for the recovery of the same, and the
undersigned agrees to pay all costs of such proceedings and any other costs
of collection, including reasonable attorney's fees.

The undersigned may pay this Note in part or in full without penalty.

The undersigned severally waive presentment, protest and demand; and waive
notice of protest, demand and of dishonor and non-payment of this Note, and
expressly agrees that this Note, or any payment thereunder, may be extended
from time to time without in any way effecting the liability of the
undersigned.

Upon due execution and delivery of this Note, E. Khashoggi Industries will
deliver to the undersigned any promissory notes or other written obligations
evidencing the indebtedness listed in the attached Exhibit B, marked "canceled".

EARTHSHELL CONTAINER CORPORATION:

/s/ Simon K. Hodson
- -----------------------------
Simon K. Hodson
Chief Executive Officer

ATTEST:

/s/Scott Houston
- -----------------------------
Scott Houston
Chief Financial Officer

<PAGE>

FIRST AMENDMENT TO
CREDIT AGREEMENT

This First Amendment ("First Amendment") amends that certain Credit Agreement
dated November 15, 1996, by and between IMPERIAL BANK ("Bank") and EARTHSHELL
CONTAINER CORPORATION, a Delaware Corporation ("Borrower") (the "Agreement").
The parties desire to amend the Agreement and consideration of the mutual
covenants and conditions hereof, agree as follows:

1. The dollar amount of "$9,000,000" in Section 2. is hereby amended to read
"$13,000,000." The date of "November 15, 1996" is hereby amended to read
"October 6, 1997."

2. A new Section 5.15 is hereby added to read in its entirety as follows:

"REFERENCE PROVISION. a. Other than (i) non-judicial
foreclosure and all matters in connection therewith regarding security
interests in real or personal property; or (ii) the appointment of a
receiver, or the exercise of other provisional remedies (any and all of
which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to this
Credit Agreement or any Note issued pursuant thereto (collectively, the
"Agreement"), which controversy, dispute or claim is not settled in
writing within thirty (30) days after the "Claim Date" (defined as the
date on which a party subject to the Agreement gives written notice to
all other parties that a controversy, dispute or claim exists), will be
settled by a reference proceeding in California in accordance with the
provisions of Section 638 ET SEQ. of the California Code of Civil
Procedure, or their successor section ("CCP"), which shall constitute the
exclusive remedy for the settlement of any controversy, dispute or claim
concerning this Agreement, including whether such controversy, dispute or
claim is subject to the reference proceeding and except as set forth
above, the parties waive their rights to initiate any legal proceedings
against each other in any court or jurisdiction other than the Superior
Court in the County where the real property securing this Agreement, if
any, is located or Los Angeles County if none (the "Court"). The referee
shall be a retired Judge of the Court selected by mutual agreement of the
parties, and if they cannot so agree within forty-five (45) days after
the Claim Date, the referee shall be promptly selected by the Presiding
Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers of a
temporary judge, as authorized by law, and upon selection should take and
subscribe to the oath of office as provided for in Rule 244 of the
California Rules of Court (or any subsequently enacted Rule). Each party
shall have one peremptory challenge pursuant to CCP Section 170.6. The
referee shall (a) be requested to set the matter for hearing within sixty
(60) days after the Claim

<PAGE>

Date and (b) try any and all issues of law or fact and report a statement
of decision upon them, if possible, within ninety (90) days of the Claim
Date. Any decision rendered by the referee will be final, binding and
conclusive and judgment shall be entered pursuant to CCP Section 644 in
any court in the State of California having jurisdiction. Any party may
apply for a reference proceeding at any time after thirty (30) days
following notice to any other party of the nature of the controversy,
dispute or claim, by filing a petition for a hearing and/or trial. All
discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the
referee. The referee may extend such period in the event of a party's
refusal to provide requested discovery for any reason whatsoever,
including, without limitation, legal objections raised to such discovery
or unavailability of a witness due to absence or illness. No party shall
be entitled to "priority" in conducting discovery. Depositions may be
taken by either party upon seven (7) days written notice, and request for
production or inspection of documents shall be responded to within ten
(10) days after service. All disputes relating to discovery which cannot
be resolved by the parties shall be submitted to the referee whose
decision shall be final and binding upon the parties. Pending appointment
of the referee as provided herein, the Superior Court is empowered to
issue temporary and/or provisional remedies, as appropriate.

b. Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of
the reference proceeding. All proceedings and hearings conducted before
the referee, except for trial, shall be conducted without a court reporter,
except that when any party so requests, a court reporter will be used at
any hearing conducted before the referee. The party making such a request
shall have the obligation to arrange for and pay for the court reporter.
The costs of the court reporter at the trial shall be borne equally by the
parties.

c. The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California.
The rules of evidence applicable to proceedings at law in the State of
California will be applicable to the reference proceeding. The referee
shall be empowered to enter equitable as well as legal relief, to provide
all temporary and/or provisional remedies and to enter equitable orders
that will be binding upon the parties. The referee shall issue a single
judgment at the close of the reference proceeding which shall dispose of
all of the claims of the parties that are the subject of the reference.
The parties hereto expressly reserve the right to contest or appeal from
the final judgment or any appealable order or appealable judgment entered
by the referee. The parties hereto expressly reserve the right to findings
of fact, conclusions of law, a

2
<PAGE>

written statement of decision, and the right to move for a new trial or a
different judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.

d. In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is
enacted), any dispute between the parties that would otherwise be
determined by the reference procedure herein described will be resolved
and determined by arbitration. The arbitration will be conducted by a
retired judge of the Court, in accordance with the California Arbitration
Act, Section 1280 through Section 1294.2 of the CCP as amended from time
to time. The limitations with respect to discovery as set forth herein
above shall apply to any such arbitration proceeding."

5. Except as herein, the Agreement remains unchanged and hereby ratified and
confirmed.

6. This First Amendment shall be effective as of October 6, 1997 and the
parties hereby confirm that the Agreement as amended is in full force and
effect.

EARTHSHELL CONTAINER CORPORATION IMPERIAL BANK
"BORROWER" "BANK"

By:/s/ Scott Houston By:/s/ Donald D. Douthwright
----------------------------- -------------------------
Scott Houston Donald D. Douthwright
Chief Financial Officer Regional Vice President

<PAGE>

WARRANT TO PURCHASE STOCK

Corporation: Earthshell Container Corporation, a Delaware corporation
Number of Shares: Equal to $250,000 divided by the Initial Exercise Price
Class of Stock: Common
Initial Exercise Price: Equal to 110% of the price per share of the initial
public offering of the Company.
Issue Date: October 6, 1997
Expiration Date: October __, 2004 (subject to Article 4.1)

THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and
for other good and valuable consideration, IMPERIAL BANK or registered assignee
("Holder") is entitled to purchase the number of fully paid and nonassessable
shares of the class of securities (the "Shares") of the corporation (the
"Company") at the Initial exercise price per Share (the "Warrant Price") all as
set forth above and as adjusted pursuant to Article 2 of this Warrant, subject
to the provisions and upon the terms and conditions set forth of this Warrant.

ARTICLE 1. EXERCISE

1.1 METHOD OF EXERCISE. At any time following six (6) months after
the Company's initial public offering of its common stock (the "IPO"), but prior
to the Expiration Date, Holder may exercise this Warrant by delivering this
Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased,.

1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time following the IPO, convert this
Warrant, in whole or in part, into a number of Shares determined by dividing (a)
the aggregate fair market value of the Shares Issuable upon exercise of this
Warrant minus the aggregate

<PAGE>

Warrant Prince of such Shares by (b) the fair market value of one Share. The
fair market value of the Shares shall be determined pursuant to Section 1.3.

1.3 FAIR MARKET VALUE. If the Shares are traded on a public market,
the fair market value of the Shares shall be the closing price of the Shares
(or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not traded on a
public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgement. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that
Holder disagrees with such determination, then the Company and Holder shall
promptly agree upon a reputable investment banking firm to undertake such
valuation. If the valuation of such investment banking firm is greater than
that determined by the Board of Directors, then all fees and expenses of such
Investment banking firm shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.

1.6 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.

1.6.1. "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, or other disposition of all or substantially all
of the assets (including intellectual property) of the Company, or any
reorganization, consolidation, or merger of the Company where the holders of the
Company's securities before the transaction beneficially own less than 50% of
the outstanding voting securities of the surviving entity after the transaction.

1.6.2. ASSUMPTION OF WARRANT. If upon the closing of any
Acquisition the successor entity assumes the obligations of this Warrant, then
this Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price and the number and
type of securities subject to the Warrant shall

<PAGE>

be adjusted accordingly. The Company shall use reasonable efforts to cause the
surviving corporation to assume the obligations of this Warrant.

1.6.3. NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.

ARTICLE 2. ADJUSTMENTS TO THE SHARES.

2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend to holders of its common stock payable in common stock, or other
securities, subdivides the outstanding common stock into a greater amount of
common stock or subdivides the Shares in a transaction that increases the
amount of common stock into which the Shares are convertible, then upon
exercise of this Warrant, for each Share acquired, Holder shall receive,
without cost to Holder, the total number and kind of securities to which
Holder would have been entitled had Holder owned the Shares of record as of
the date the dividend or subdivision occurred.

2.2 RECLASSIFICIATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon
exercise or conversion of this Warrant, the number and kind of securities and
property that Holder would have received for the Shares if this Warrant had
been exercised immediately before such reclassification, exchange,
substitution, or other event. The Company or its successor shall promptly
issue to Holder a new Warrant for such new securities or other property. The
new Warrant shall provide for adjustments which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Article 2
including, without limitation, adjustments to the Warrant Price and to the
number of securities or property issuable upon exercise of the new Warrant.
The provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.

2.4 NO IMPAIRMENT. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger , dissolution, issue, or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed under this Warrant by the Company, but shall at all
times in good faith assist in carrying

<PAGE>

out all the provisions of this Article 2 and in taking all such action as may be
necessary or appropriate to protect Holder's rights under this Article against
impairment.

2.5 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment be based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.

3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents
and warrants to the Holder that all Shares which may be issued upon the
exercise of the purchase right represented by this Warrant, and all
securities, if any, issuable upon conversion of the Shares, shall, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable,
and free of any liens and encumbrances except for restrictions on transfer
provided for herein or under applicable federal and state securities laws.

3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class
or series of its stock any additional shares of stock of any class or series
or other rights; (c) to effect any reclassification or recapitalization of
common stock; (d) to merge or consolidate with or into any other corporation,
or sell, lease, license, or convey all or substantially all of its assets, or
to liquidate, dissolve or wind up; or (e) offer holders of registration
rights the opportunity to participate in an underwritten public offering of
the Company's securities for cash, then, in connection with each such event,
the Company shall give Holder (a) at least 7 days prior written notice of the
date on which a record will be taken for such dividend, distribution, or
subscription rights (and specifying the date on which the holders of common
stock will be entitled thereto) or for determining rights to vote, if any, in
respect of the matters referred to in (c) and (d) above; (2) in the case of
the matters referred to in (c) and (d) above at least 7 days prior written
notice of the date when the same will take place (and specifying the date on
which the holders of common stock will be entitled to exchange their common
stock for securities or other property deliverable upon the occurrence of
such event); and (3) in the case of the matter referred to in (e) above, the
same notice as is given to the holders of such registration rights.

<PAGE>

3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all communiques to the shareholders of the Company, (b)
within ninety (90) days after the end of each fiscal year of the Company, the
annual audited financial statements of the Company certified by independent
public accountants of recognized standing and (c) within forty-five (45) days
after the end of each of the first three quarters of each fiscal year, the
Company's quarterly, unaudited financial statements.

3.4 REPURCHASE OBLIGATION. The Holder is not being granted any
registration right with respect to the Shares. However, if a registration
statement for shares of the Company's common stock is declared effective
under the Securities Act of 1933, as amended, (other than (i) in connection
with the IPO, (ii) pursuant to a Registration Statement on Form S-4 or S-8 or
any successor forms, (iii) otherwise in connection with any exchange offer,
merger, sale of substantially all of the assets or other reorganization or
recapitalization of the Company or (iv) otherwise in connection with the
issuance of securities pursuant to employee stock options, stock awards or
other employee benefit plans) and the Company does not provide Holder the
opportunity to sell the Shares to be acquired upon exercise of the Warrant in
such public offering on substantially the same terms as the other selling
shareholders (or if there are no selling shareholders, on such terms as are
required by the managing underwriter of such offering), then the Holder shall
have the right for a period of ten days following the closing of such public
offering to require the Company to purchase the Warrant at a price equal to
the number of Shares that would have been acquired upon exercise of the
Warrant times the price per share at which the shares of common stock were
sold in such public offering, less the Warrant Price with respect to such
Shares.

ARTICLE 4. MISCELLANEOUS.

4.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the
Expiration Date set forth above. The Company shall give Holder written
notice of Holder's right to exercise this Warrant in the form attached as
Appendix 2 not more than 90 days and not less than 30 days before the
Expiration Date. If the notice is not so given, the Expiration Date shall
automatically be extended until 30 days after the date the Company delivers
the notice to Holder.

<PAGE>

AND LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE UNDER SUCH ACT
OR LAWS.

4.4 TRANSFER PROCEDURE. Subject to the provisions of Sections 4.2
and 4.3, Holder may transfer all or part of this Warrant or the Shares
issuable upon exercise of this Warrant (or the securities issuable, directly
or indirectly, upon conversion of the Shares, if any) by giving the Company
notice of the portion of the Warrant being transferred setting forth the
name, address and taxpayer identification number of the transferee and
surrendering this Warrant to the Company for reissuance to the transferee(s)
(and Holder, if applicable). Unless the Company is filing financial
information with the SEC pursuant to the Securities Exchange Act of 1934, the
Company shall have the right to refuse to transfer any portion of this
Warrant to any person who directly competes with the Company.

4.5 NOTICES. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.

4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.

<PAGE>

4.9 HOLDER'S INTENT. This Warrant has been entered into by the
Company in reliance upon the following representation of Holder, which by its
acceptance hereof the Holder hereby confirms: The right to acquire Shares
will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Holder has no present intention of
selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.

"COMPANY"

EARTHSHELL CONTAINER CORPORATION

By /s/ Simon K. Hodson
------------------------------------
Simon K. Hodson
Chief Executive Officer

By /s/ Scott Houston
------------------------------------
Scott Houston
Chief Financial Officer

<PAGE>

APPENDIX 1

NOTICE OF EXERCISE

1. The undersigned hereby elects to purchase ____________ shares of the
Common Stock of ____________________ pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.

1. The undersigned hereby elects to convert the attached Warrant into
Shares in the manner specified in the Warrant. This conversion is exercised
with respect to ____________ of the Shares covered by the Warrant.

[Strike paragraph that does not apply.]

2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:

-------------------------------- --------------
(Name)

--------------------------------

--------------------------------
(Address)

------------------------
(Signature)

- --------------------
(Date)

<PAGE>

APPENDIX 2

NOTICE THAT WARRANT IS ABOUT TO EXPIRE

------------,----

(Name of Holder)

(Address of Holder)

Attn: Chief Financial Officer

Dear _____________:

This is to advise you that the Warrant issued to you described below will
expire on _____________, 19__.

Issuer:

Issue Date:

Class of Security Issuable:

Exercise Price Per Share:

Number of Shares Issuable:

Procedure for Exercise:

Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.

(Name of Issuer)

By
-------------------------

Its
-------------------------

<PAGE>

EXHIBIT 11.1

STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
Year Six Months
Ended Ended
31-Dec-96 30-Jun-97
------------ ------------
(Unaudited)
<S> <C> <C>
Actual Net Loss.................................. $ 16,950 $ 7,467
Less: Interest Expense........................... (1,692) (1,572)
------------ ------------
Pro Forma Net Loss............................... $ 15,258 $ 5,895
------------ ------------
------------ ------------

Pro Forma Shares Outstanding:

Common Stock, issued and outstanding............. 82,530,000 82,530,000
Shares assumed issuable related to
conversion of Series A Preferred Stock.......... 6,988,850 6,988,850

Shares to be issued the proceeds from
which will be used to pay notes payable,
account payable, accrued interest and accrued
dividends at $19.00 per share................... 2,383,714 2,383,714
Stock options:
Shares issuable related to stock options........ 1,037,520
Less: Shares assumed repurchased at
$19.00 per share............................... (301,675)
---------
Shares to be issued related to stock options..... 735,845 735,845
------------ ------------
Pro Forma Shares Outstanding..................... 92,638,409 92,638,409
------------ ------------
------------ ------------

Pro Forma Net Loss Per Share..................... $ 0.17 $ 0.06
------------ ------------
------------ ------------
</TABLE>

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 1 to Registration Statement,
Registration No. 333-13287, of EarthShell Container Corporation on Form S-1
of our report (which report contains an explanatory paragraph related to the
Company's ability to continue as a going concern) dated February 14, 1997
appearing in the Prospectus which is a part of the Registration Statement and
to the references to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.

Deloitte & Touche LLP

Los Angeles, California

October 6, 1997

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 127,417
<SECURITIES> 0
<RECEIVABLES> 17,732
<ALLOWANCES> 0
<INVENTORY> 0
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24,473,001
0
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