<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
EARTHSHELL CORPORATION
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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</TABLE>
<PAGE>
EARTHSHELL CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 12, 2000
------------------------
The 2000 Annual Meeting of Stockholders of EarthShell Corporation (the
"Company") will be held at the Radisson Hotel Santa Barbara, 1111 E. Cabrillo
Boulevard, Santa Barbara, California 93103, on May 12, 2000 at 10:00 a.m.
Pacific Daylight Time, for the purposes of:
(1) electing seven directors to serve until the 2001 annual meeting of
stockholders and until their successors are elected and have qualified;
and
(2) transacting such other business as may properly come before the meeting
and at any adjournment or postponement thereof.
Only stockholders whose names appear of record on the books of the Company
at the close of business on March 15, 2000 are entitled to notice of, and to
vote at, such Annual Meeting or any adjournment or adjournments thereof.
You are cordially invited to attend the meeting in person. WHETHER OR NOT
YOU EXPECT TO ATTEND THIS MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT AS PROMPTLY AS POSSIBLE IN THE ENCLOSED SELF-ADDRESSED,
POSTAGE-PREPAID ENVELOPE. If you attend the Annual Meeting and wish to vote in
person, your proxy will not be used as long as, in accordance with the Company's
Bylaws, you have notified the Secretary in writing of your intention to revoke
your proxy before your proxy has been voted.
By Order of the Board of Directors
/s/ D. Scott Houston
D. Scott Houston
SECRETARY
Santa Barbara, California
April 14, 2000
<PAGE>
EARTHSHELL CORPORATION
----------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 2000
This Proxy Statement is furnished to the stockholders of EarthShell
Corporation, a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
2000 Annual Meeting of Stockholders (the "Annual Meeting") to be held at the
Radisson Hotel Santa Barbara, 1111 E. Cabrillo Boulevard, Santa Barbara,
California 93103, at 10:00 a.m. Pacific Daylight Time, on May 12, 2000, and at
any and all adjournments or postponements thereof. This Proxy Statement and the
form of proxy were mailed on or about April 14, 2000 to all stockholders
entitled to vote at the Annual Meeting.
The cost of the solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, directors and officers of the Company, without
receiving any additional compensation, may solicit proxies personally or by
telephone or telegraph. The Company will request brokerage houses, banks, and
other custodians or nominees holding stock in their names for others to forward
proxy materials to their customers or principals who are the beneficial owners
of shares and will reimburse them for their expenses in doing so. The Company
has retained the services of U.S. Stock Transfer Corporation to assist in the
solicitation of proxies from brokerage houses, banks and other custodians or
nominees holding stock in their names for others.
On March 15, 2000, the record date for the determination of stockholders
entitled to notice of, and to vote at, the Annual Meeting, the Company had
100,045,166 shares of common stock, par value $.01 per share (the "Common
Stock"), outstanding. Each such share of Common Stock is entitled to one vote on
all matters properly brought before the meeting. The vote of a plurality of the
shares cast in person or by proxy is required to elect a nominee for director.
With respect to the election of each director at the Annual Meeting, each holder
of Common Stock is entitled to vote the number of shares owned by such
stockholder. The nominees who receive the greater number of votes, up to the
number of directors then to be elected, shall be the persons then elected.
Stockholders are not permitted to cumulate their shares of Common Stock for the
purpose of electing directors or otherwise. The vote of a majority of shares
present in person or by proxy and entitled to vote is required to approve the
Proposals set forth below.
Presence at the Annual Meeting, in person or by proxy, of a majority of the
outstanding shares of Common Stock will constitute a quorum for the transaction
of business at the Annual Meeting or any adjournment thereof. Abstentions or
broker non-votes are counted for purposes of determining the presence of a
quorum for transaction of business. With regard to the election of directors,
votes may be cast in favor or withheld; votes that are withheld will be excluded
entirely from the vote and will have no effect. Abstentions may be specified on
proposals other than the election of directors and will be counted as present
for purposes of the item on which the abstention is noted, and therefore counted
in the tabulation of the votes cast on a proposal with the effect of a negative
vote. Broker non-votes are shares which are represented at the Annual Meeting
which a broker or nominee has indicated it does not have discretionary authority
to vote on with respect to a particular matter. A broker non-vote will generally
have the effect of a negative vote.
Simon K. Hodson and D. Scott Houston, the persons named as proxies on the
proxy card accompanying this Proxy Statement, were selected by the Board of
Directors to serve in such capacity. Mr. Hodson is a director of the Company.
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UNLESS CONTRARY INSTRUCTIONS ARE INDICATED ON THE PROXY, ALL SHARES OF
COMMON STOCK REPRESENTED BY VALID PROXIES RECEIVED PURSUANT TO THIS SOLICITATION
(AND NOT REVOKED IN WRITING BEFORE THEY ARE VOTED) WILL BE VOTED AT THE ANNUAL
MEETING FOR THE NOMINEES NAMED BELOW FOR ELECTION AS DIRECTORS AND FOR THE
PROPOSALS DESCRIBED HEREIN. With respect to any other business which may
properly come before the Annual Meeting and be submitted to a vote of
stockholders, proxies received by the Board of Directors will be voted in
accordance with the best judgment of the designated proxy holders. Under the
Company's Bylaws, stockholder proposals may be made at the Annual Meeting only
pursuant to a timely notice in writing delivered or mailed to the Secretary of
the Company. To be timely, a stockholder's written notice must be delivered or
mailed to the Secretary at the Company's offices at 800 Miramonte Drive, Santa
Barbara, California 93109 not more than the tenth day following the first public
announcement of the Annual Meeting. A stockholder may revoke his or her proxy at
any time before exercise by delivering to the Secretary of the Company a written
notice of such revocation, by filing with the Secretary of the Company a duly
executed proxy bearing a later date, or by voting in person at the Annual
Meeting, provided, however, that, in accordance with the Company's Bylaws, the
stockholder has delivered to the Secretary a written notice of the stockholder's
intention to revoke the proxy and vote in person prior to the voting of the
proxy.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Board of Directors of the Company is currently comprised of eight
members. At a meeting of the Board held on March 16, 2000 the Board was notified
of William Marquard's decision to retire and resign effective May 12, 2000, the
date of the Annual Meeting. The Board thereupon amended the Company's Bylaws to
reduce the authorized number of directors by one, effective May 12, 2000, and
there are therefore seven nominees for election as directors at the Annual
Meeting. All directors are elected each year at the annual meeting of
stockholders.
In the absence of instructions to the contrary, the persons named as proxy
holders in the accompanying proxy intend to vote in favor of the election of the
nominees designated below to serve until the next annual meeting of stockholders
and until their respective successors shall have been elected and qualified. The
Board of Directors expects that each of the nominees will be available to serve
as a director, but if any such nominee should become unavailable for election,
the shares of Common Stock represented by the enclosed proxy may (unless such
proxy contains instructions to the contrary) be voted for such other person or
persons as may be determined by the holders of such proxies.
Under the Company's Bylaws, nominations of persons for election to the
Board, other than those made by or at the direction of the Board, may be made at
the Annual Meeting only pursuant to a timely notice delivered or mailed to the
Secretary of the Company. To be timely, a stockholder's written notice must be
delivered or mailed to the Secretary at the Company's offices at 800 Miramonte
Drive, Santa Barbara, California 93109 not more than the tenth day following the
first public announcement of the Annual Meeting.
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The following table sets forth the name and age of each director, the year
the director was first elected and his or her position with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
- ---- -------- --------------------------------------------------- --------------
<S> <C> <C> <C>
Essam Khashoggi.......... 60 Chairman of the Board 1992
Simon K. Hodson.......... 45 Vice Chairman of the Board, Chief Executive Officer 1992
and President
John Daoud............... 64 Director 1992
Layla Khashoggi.......... 42 Director 1992
Howard J. Marsh.......... 75 Director 1999
Jerold H. Rubinstein..... 61 Director 1994
Lynn Scarlett............ 50 Director 1999
</TABLE>
The following is a biographical summary of the experience of the nominees
for director of the Company.
ESSAM KHASHOGGI has served as Chairman of the Board of the Company since
its organization in November 1992. Mr. Khashoggi also served as Chairman of the
Management Committee and Chief Executive Officer of E. Khashoggi Industries, LLC
("EKI") and its predecessor entity, E. Khashoggi Industries, since their
organization in October 1997 and June 1991, respectively. Mr. Khashoggi has
served as a director and officer of a number of domestic and foreign companies
engaged in licensing, manufacturing, real estate marketing and design and has
served as a Trustee for the University of California Santa Barbara Foundation.
SIMON K. HODSON has served as Vice Chairman of the Board and Chief
Executive Officer of the Company since its organization in November 1992, and as
President of the Company since May 1999 and previously from December 1995 until
May 1996. Mr. Hodson has also served as President and Vice Chairman of EKI and
its predecessor entity since their organization in October 1997 and June 1991,
respectively, and as President and Vice Chairman of Concrete Technology
Corporation since August 1987. Mr. Hodson was President of National Cement &
Ceramics Laboratories, Inc., a company previously engaged in materials science
research, from June 1990 through 1995. He is a co-inventor of 75 issued U.S.
patents and 45 issued foreign patents, as of March 22, 2000, all belonging to
EKI.
JOHN DAOUD has served as a Director of the Company since its organization
in November 1992. Mr. Daoud served as Secretary of the Company from
October 1996 through December 1999 and as the Assistant Secretary of the Company
from June 1993 until October 1996. Mr. Daoud also served as the Chief Financial
Officer and Secretary of EKI and its predecessor entity since their organization
in October 1997 and June 1991, respectively. Mr. Daoud has also served as the
Manager and Principal Officer of Condas International, LLC and its predecessor
since 1987 and, in such capacity and in his individual capacity, has advised
Mr. 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.
LAYLA KHASHOGGI has served as a Director of the Company since its
organization in November 1992. Ms. Khashoggi has also been a member of the
Management Committee of EKI since its organization in October 1997 and a
Director of CTC for the past five years. Ms. Khashoggi has served as an
Executive Committee member of the Laguna Blanca School Board, Chairman of the
Development Committee of Laguna Blanca School, Site Council Member of San Marcos
High School, Co-Chairman of the Budget Committee of San Marcos High School,
Executive Committee member of the Santa Barbara Zoo Board and Chairman of the
Marketing Committee of the Santa Barbara Zoo Board. Ms. Khashoggi is Essam
Khashoggi's spouse.
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 music network using new
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<PAGE>
technologies and new presentations of music listening, from 1986 through 1997.
From 1981 to 1987, Mr. Rubinstein was the General Partner at JRC Oil, a Northern
Colorado oil-drilling and exploration company, as well as 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 currently Chairman of
XTRA Music Services, Inc., a provider of digital music throughout Europe, the
Middle East and Russia. Mr. Rubinstein is a Director of U.S. Global
Investors, Inc., Santa Barbara Bowl Foundation and Laguna Blanca School.
HOWARD J. MARSH served as Secretary of the Company from its inception
through October 1996 and served as a full-time consultant of EKI from 1989
through 1993. Mr. Marsh was appointed a Director of the Company in April 1999.
In 1989, Mr. Marsh joined Concrete Technology Corporation, a predecessor of EKI,
as a consultant. Prior to joining the Company, Mr. Marsh served for several
years as an attorney and subsequently, as a shareholder and member of the Board
of Directors of Parsons, Behle & Latimer. From 1970 to 1973, Mr. Marsh was
President of Kona-Post Corporation. From 1960 to 1969, Mr. Marsh served as
General Counsel for Harvest Queen Mill & Elevator Co. and affiliated companies
and started his own private law practice. Mr. Marsh also served for several
years in government service, including service as a Special Agent in the FBI.
Mr. Marsh is presently the President of Tippyune, Inc., a family owned
corporation.
LYNN SCARLETT has served as a Director of the Company since May 1999.
Ms. Scarlett has served as Executive Director of the Reason Public Policy
Institute (RPPI), a Los Angeles-based public policy research organization since
1997, where she focuses on industrial ecology, solid waste and incentive-based
policy tools. She previously served as Vice President of Research at RPPI from
1990 to 1996. Since 1994, Ms. Scarlett has served as Chair of the Inspection and
Maintenance Review Committee, an appointment made by former California Governor
Pete Wilson. In addition, Ms. Scarlett served as a panelist on the Environmental
Protection Agency's "Pay-as-You-Throw" project in 1995 and as Technical Advisor
to the Solid Waste Association of North America's Integrated Waste Management
Project from 1995-1996. She served as a consultant to the California Department
of Conservation to reassess the state's bottle bill in 1997. Ms. Scarlett also
served as Advisor to the Houghton-Mifflin "Encyclopedia of the Environment"
project in 1992--1994 and contributed to the entry on source reduction. She is a
member of the Board of Trustees of the Laguna Blanca School in Santa Barbara,
the University of California, Santa Barbara Foundation, and Girls Inc. of
Carpinteria.
COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee of the Board of Directors consists of
Messrs. Khashoggi, Hodson and Daoud. The Audit Committee consists of
Messrs. Khashoggi, Rubinstein, Marsh and Marquard. Mr. Marquard has notified the
Board of Directors that he will resign as a director of the Company effective on
the date of the Annual Meeting, and so he will no longer serve on the Audit
Committee after that date. The Compensation Committee consists of
Messrs. Khashoggi and Rubinstein and Ms. Scarlett. The Stock Option Committee is
comprised of Messrs. Khashoggi and Rubinstein. The Conflicts Committee is
comprised of Messrs. Marsh and Rubinstein. The Company does not have a
nominating committee.
The Executive Committee held one meeting in 1999. The primary function of
the Executive Committee is to perform all of the duties otherwise vested in the
Board of Directors when the Board is not in session, except for the following
matters which have not been delegated to the Executive Committee: (1) declaring
cash or stock dividends or distributions to stockholders of the Company;
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(2) taking action on matters otherwise specifically delegated to other
committees of the Board of Directors; (3) amending or repealing the Certificate
of Incorporation or Bylaws of the Company or adopting new ones; (4) approving a
plan of merger, acquisition or divestiture or sale, lease or exchange of
substantially all of the business, properties or assets of the Company;
(5) authorizing or approving the issuance or sale of shares of stock of the
Company; (6) authorizing the Company to perform or make a contract or commitment
that is not contemplated by, or that has a financial commitment by the Company
that exceeds the applicable amount budgeted under the Operating Budget or
Capital Budget that has been approved by the Board of Directors, if such
contract or commitment, together with any other such contract or commitment,
involves a payment by the Company of more than $1 million in the aggregate, and
(7) electing or removing officers or directors or members of any committee of
the Board of Directors.
The Compensation Committee held two meetings in 1999. The functions of the
Compensation Committee include: (1) reviewing and recommending to the Board of
Directors the annual base salary, bonus and other benefits for the senior
executive officers of the Company; (2) reviewing and commenting upon new
executive compensation programs that the Company proposes to adopt;
(3) periodically reviewing the results of the Company's executive compensation
and perquisite programs to ensure that they are properly coordinated to yield
payments and benefits that are reasonably related to executive performance;
(4) ensuring that a significant portion of executive compensation is reasonably
related to the long-term interests of the stockholders; (5) participating in the
preparation of certain portions of the Company's annual proxy statement; (6) if
necessary, hiring a compensation expert to provide independent advice on
compensation levels and (7) ensuring that the Company undertakes appropriate
planning for management succession and advancement.
The Audit Committee held two meetings in 1999. The functions of the Audit
Committee include: (1) recommending the engagement of an accounting firm to act
as the Company's independent external auditor (the "Auditor"); (2) reviewing the
Auditor's compensation, the proposed terms of its engagement, its independence
and its performance during each year of its engagement; (3) reviewing the
Company's annual financial statements and any significant disputes between
management and the Auditor that arise in connection with the preparation of
those financial statements; (4) reviewing the results of each external audit;
(5) reviewing the procedures employed by the Company in preparing published
quarterly financial statements and related management commentaries;
(6) reviewing any major changes proposed to be made in auditing and accounting
principles and practices in connection with the Company's financial statements;
(7) reviewing the adequacy of the Company's internal financial controls and
(8) if the Company has appointed a Director of Internal Audit, meeting
periodically with the individual to evaluate compliance with the foregoing
duties.
The Stock Option Committee held three meetings in 1999. The Stock Option
Committee is responsible for administering the Company's 1994 Stock Option Plan
and 1995 Stock Incentive Plan (the "Plans") including, without limitation, the
following: (1) adopting, amending and rescinding rules relating to the Plans;
(2) determining who may participate in the Plans and what awards may be granted
to such participants; (3) granting awards to participants and determining the
terms and conditions thereof, including the number of shares of Common Stock
issuable pursuant to the awards; (4) determining the terms and conditions of
options automatically granted to directors pursuant to the Plans;
(5) determining whether and the extent to which adjustments are required
pursuant to the anti-dilution provisions of the Plans and (6) interpreting and
construing the Plans and the terms and conditions of any awards granted
thereunder.
The Conflicts Committee held three meetings in 1999. The functions of the
Conflicts Committee include: (1) reviewing proposed transactions between the
Company and (a) interested directors, (b) a controlling stockholder, (c) the
parent of the Company or (d) other similar transactions that involve possible
questions of conflicts or self-dealing; (2) reviewing transactions or conduct
involving the Company and an "interested" director to determine whether the
transaction is on at least as favorable
5
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terms to the Company as might be available from other third parties;
(3) reviewing the fairness of a transaction having self-dealing elements to
determine whether it is reasonably likely to further the Company's business
activities; (4) reviewing the fairness of a transaction having self-dealing
elements to determine whether the process by which the decision was approved or
ratified is fair; (5) ensuring that minority public stockholders that are
affected by a proposal receive fair treatment; (6) ensuring that all
conflict-of-interest transactions are disclosed in the Company filings with the
Securities and Exchange Commission and (7) if necessary, retaining an
independent expert to determine the advisability of the Company's entering into
a transaction involving a possible conflict of interest and to determine fair
terms for such a proposed transaction.
BOARD AND COMMITTEE ATTENDANCE AND COMPENSATION
In 1999 the Board of Directors held eight meetings. All directors attended
at least 75% of the aggregate of Board and committee meetings (for committees on
which each served) held in 1999.
COMPENSATION OF DIRECTORS
Until recently, the Company had never paid any cash compensation for the
directors' services as directors, other than reimbursement for out of pocket
expenses incurred in connection with attendance at such meetings. Based on a
study conducted by SCA Consulting LLC, the Board approved a plan to pay to each
non-employee director an annual retainer fee of $20,000, payable quarterly, plus
a fee of $1,000 for attending regular meetings and $500 for each additional day
of committee meetings attended. Messrs. Khashoggi, Daoud, Rubinstein and Marsh,
Ms. Khashoggi and Ms. Scarlett are currently considered to be non-employee
directors of the Company.
The Board recently approved an amendment to the Company's 1995 Stock
Incentive Plan to provide that each non-employee director who is elected at an
annual meeting of stockholders held on or after January 1, 2000 will
automatically be granted options to purchase 25,000 shares of the Company's
Common Stock, effective at the conclusion of each such annual meeting. All such
stock options will (i) vest one year after grant, assuming the individual is
serving as a director as of such vesting date, and (ii) have an exercise price
equal to the "fair market value" of the underlying shares, which is defined in
the Plan as the closing trading price on the day before each annual meeting. In
connection with this amendment, the Board also approved the grant of an
additional 25,000 stock options to each non-employee director who was elected at
the 1999 Annual Meeting of Stockholders and who was eligible to receive stock
options under the previous version of the Company's 1995 Stock Option Plan. The
grant of these options was effective on March 16, 2000 at the closing trading
price on May 13, 1999, the day before the 1999 Annual Meeting, or $10.69 per
share. These options will vest and become exercisable on May 12, 2000.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL ONE.
6
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of each class of the Company's voting securities as of
March 1, 2000, by (i) each person or company known by the Company to be the
beneficial owner of more than 5% of the Company's outstanding shares, (ii) each
director and director nominee of the Company, (iii) each of the Chief Executive
Officer of the Company and the executive officers of the Company whose cash
compensation exceeded $100,000 during the fiscal year ended December 31, 1999
(collectively, the "Named Executive Officers") and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OF
SHARES OF COMMON
COMMON STOCK
NAME AND ADDRESS(1) STOCK OUTSTANDING
- ------------------- ----------- -------------
<S> <C> <C>
Essam Khashoggi(2)(3)............................. 70,171,063 70.1%
Simon K. Hodson(4)................................ 521,960 *
John Daoud(5)..................................... 72,160 *
Layla Khashoggi(3)................................ 20,960 *
William A. Marquard(3)............................ 50,891 *
Jerold H. Rubinstein(3)........................... 20,960 *
Howard J. Marsh................................... 1,000 *
Lynn Scarlett..................................... 0 *
D. Scott Houston(6)............................... 292,000 *
Vincent J. Truant(7).............................. 58,500 *
William F. Spengler............................... 0 *
Michael Hagerty(8)................................ 25,000 *
Directors and Executive Officers as a group 71,234,494
(12 persons).................................... 71.2%
E. Khashoggi Industries, LLC...................... 57,892,730 57.9%
EKINVESCO......................................... 5,899,334 5.9%
</TABLE>
- ------------------------
* Indicates ownership of less than 1%.
(1) The address of all individuals, entities and shareholder groups listed in
the table is c/o EarthShell Corporation, 800 Miramonte Drive, Santa Barbara,
California 93109.
(2) Includes 57,892,730 shares held by E. Khashoggi Industries, LLC ("EKI"), and
5,899,334 shares held by EKINVESCO, each of which Mr. Khashoggi is the
controlling owner. Also includes 6,378,999 shares held by other entities,
including Concrete Technology Corporation ("CTC"), in which Mr. Khashoggi
also has a controlling ownership interest. Mr. Khashoggi has sole voting and
dispositive power with respect to all such 70,171,063 shares and is
therefore deemed to be the beneficial owner of such shares.
(3) Represents options to purchase 20,960 shares of Common Stock issued under
the 1995 Stock Incentive Plan, which are fully vested and exercisable.
(4) Represents options to purchase 20,960 shares of Common Stock issued under
the 1995 Stock Incentive Plan, which are fully vested and exercisable, but
does not include any of the shares held by EKI or 860,871 shares held by
CTC, in each of which Mr. Hodson holds a minority ownership interest.
(5) Represents options to purchase 25,000 shares of Common Stock issued to
Mr. Daoud in his capacity as an officer of EKI and options to purchase
47,160 shares of Common Stock issued under the 1995 Stock Incentive Plan,
which are fully vested and exercisable.
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(6) Represents options to purchase 137,550 shares of Common Stock issued under
the 1994 Stock Option Plan and options to purchase 154,450 shares of Common
Stock issued under the 1995 Stock Incentive Plan, which will be fully vested
and exercisable within 60 days of the date of this proxy statement.
(7) Represents options to purchase 57,500 shares of Common Stock issued under
the 1995 Stock Incentive Plan, which will be fully vested and exercisable
within 60 days of the date of this proxy statement.
(8) Represents options to purchase 25,000 shares of Common Stock issued under
the 1995 Stock Incentive Plan, which are fully vested and exercisable, but
which expired on March 28, 2000.
EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of each of the
Company's executive officers. Subject to rights pursuant to any employment
agreements, officers of the Company serve at the pleasure of the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION OFFICER SINCE
- ---- -------- -------------------------------------------- -------------
<S> <C> <C> <C>
Simon K. Hodson...................... 45 Vice Chairman of the Board, Chief Executive 1992
Officer and President
D. Scott Houston..................... 45 Chief Financial Officer and Secretary 1992
Vincent J. Truant.................... 52 Senior Vice President, Marketing, 1998
Environmental Affairs and Public Relations
</TABLE>
- ------------------------
The following is a biographical summary of the experience of the two
executive officers of the Company (other than Mr. Hodson, who is a director and
is described above).
D. SCOTT HOUSTON has served as Chief Financial Officer for the Company
since October 1999 and Secretary for the Company since December 1999. From
January 1999 to October 1999, Mr. Houston served as Senior Vice President of
Corporate Planning and Assistant Secretary. From July 1993 until January 1999,
Mr. Houston served as Chief Financial Officer of the Company. From August 1986
until joining the Company, he served EKI and its affiliates in various
positions, including as Chief Financial Officer and Vice President of CTC from
1986 to 1990. From 1984 to 1986, Mr. Houston operated Houston & Associates, a
consulting firm. 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.
VINCENT J. TRUANT has served as Senior Vice President, Marketing,
Environmental Affairs and Public Relations for the Company since October 1999.
From March 1999 to October 1999 he served as Vice President, Marketing,
Environmental Affairs and Public Relations, and from April 1998 to March 1999 as
Vice President, Marketing and Sales. During a prior 14-year tenure at
Sweetheart, Mr. Truant most recently served as Vice President and General
Manager for the National Accounts Group and the McDonald's Corporation Strategic
Business Units. Before joining Sweetheart, Mr. Truant was engaged in both
domestic and international marketing assignments for Philip Morris Inc. and its
subsidiaries. Before joining Philip Morris Inc., Mr. Truant held key marketing
and sales positions with both Miller Brewing Company and Eli Lilly & Company.
8
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to the Named
Executive Officers. The Company did not grant any restricted stock awards or
stock appreciation rights or make any long-term incentive plan payouts during
such period.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
FISCAL YEAR ANNUAL COMPENSATION AWARDS
ENDED ------------------------------------- ---------------------
DECEMBER SALARY BONUS OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION 31 ($)* ($) COMPENSATION($) OPTIONS(#)
- --------------------------- ----------- -------- -------- --------------- ---------------------
<S> <C> <C> <C> <C> <C>
Simon K. Hodson...................... 1999 $500,000 $ -- $ 4,800(4) --
Vice Chairman of the Board, 1998 520,834(1) 500,000(3) 625(4) --
Chief Executive Officer and
President 1997 125,000(2) -- 28,745(5) 15,720
D. Scott Houston..................... 1999 290,311 145,000 4,800(4) 250,000
Chief Financial Officer 1998 254,167 180,000 1,050(4) --
and Secretary 1997 180,000 -- -- --
Vincent J. Truant.................... 1999 231,266 351,000 4,800(4) 200,000
Senior Vice President, 1998 150,000(6) 50,000 1,125(4) 75,000
Marketing, Environmental 1997 -- -- -- --
Affairs and Public Relations
William F. Spengler.................. 1999 304,616(7) 430,000 -- --
Former Senior Vice President 1998 252,414(8) -- -- 100,000
and Chief Financial Officer 1997 -- -- -- --
Michael Hagerty...................... 1999 314,038(9) 570,000 4,800(4) 200,000
Former Vice President and 1998 141,684(10) 50,000 1,250(4) 100,000
Chief Technology Officer 1997 -- -- -- --
</TABLE>
- ------------------------------
* The Company provides various prerequisites to its executives which are not
disclosed in accordance with SEC regulations because the value of such
prerequisites is less than 10% of the executive's salary.
(1) The $20,834 paid to Mr. Hodson in 1998 over and above his $500,000 annual
salary, resulted from a change in the Company's payroll providers and a
related change in the timing of salary payments.
(2) 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. Mr. Hodson did not receive any compensation directly from the
Company for the first nine months of 1997 and this amount is the actual
amount that the Company paid Mr. Hodson in 1997.
(3) Represents the only bonus ever paid to Mr. Hodson by the Company since its
inception.
(4) Reflects payments under the Company's 401(k) plan.
(5) Reflects the Company's assumption of the remaining principal balance for an
automobile loan on Mr. Hodson's behalf.
(6) Reflects actual compensation paid to Mr. Truant from the commencement of
his employment with the Company on May 1, 1998 through December 31, 1998.
Mr. Truant's annual salary during this period was $225,000.
(7) Reflects actual compensation paid to Mr. Spengler from January 1, 1999
through October 7, 1999, the date of the termination of his employment with
the Company. Mr. Spengler's annual salary was $360,000.
(8) Reflects actual compensation paid to Mr. Spengler from the commencement of
his employment with the Company on April 20, 1998 through December 31,
1998. Mr. Spengler's annual salary was $360,000.
(9) Reflects actual compensation paid to Mr. Hagerty from January 1, 1999
through December 28, 1999, the date of the termination of his employment
with the Company. Includes $14,038 in accrued vacation paid upon
termination of employment. Mr. Hagerty's annual salary was $300,000.
(10) Reflects actual compensation paid to Mr. Hagerty from the commencement of
his employment with the Company on July 27, 1998 through December 31, 1998.
Mr. Hagerty's annual salary during this period was $250,000.
9
<PAGE>
STOCK OPTION GRANTS IN 1999
The following table sets forth information with respect to options to
purchase shares of the Company's Common Stock granted in 1999 to the Chief
Executive Officer and Named Executive Officers, excluding options granted in the
officer's capacity as a director of the Company.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL RATES OF STOCK
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (1)
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED IN 1999 (PER SHARE) DATE 5% 10%
- ---- ---------- ----------- ----------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Simon K. Hodson................... -- -- $ -- -- $ -- $ --
Vice Chairman of the Board,
Chief Executive Officer and
President
D. Scott Houston.................. 250,000 17.0% 5.00 10/01/2009 786,118 1,992,178
Chief Financial Officer and
Secretary
Vincent J. Truant................. 200,000 13.6% 5.00 10/01/2009 628,894 1,593,742
Senior Vice President,
Marketing, Environmental Affairs
and Public Relations
William F. Spengler............... -- -- -- -- -- --
Former Senior Vice President and
Chief Financial Officer
Michael Hagerty................... 200,000(2) 13.6% 5.00 10/01/2009(2) 0(2) 0(2)
Former Vice President and Chief
Technology Officer
</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. In each case, the
Company used the market price of the Common Stock on the date of grant to
compute the potential realizable values. The market price on the date of
grant was $5.00 per share for Messrs. Houston, Truant and Hagerty. Each of
the options listed in the table is presently out-of-the-money.
(2) These options were cancelled on December 28, 1999.
10
<PAGE>
AGGREGATED OPTION EXERCISES IN 1999 AND 1999 YEAR END OPTION VALUES
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.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END 1999 FISCAL YEAR END 1999
ACQUIRED VALUE --------------------------- ---------------------------
NAME AND PRINCIPAL POSITION ON EXERCISE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
- --------------------------- ----------- --------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Simon K. Hodson..................... -- -- -- 20,960 -- --
Vice Chairman of the Board,
Chief Executive Officer and
President
D. Scott Houston.................... -- -- 281,112 230,888 -- $42,640.50
Chief Financial Officer and
Secretary
Vincent J. Truant................... -- -- 256,250 18,750 -- --
Senior Vice President,
Marketing, Environmental
Affairs and Public Relations
William F. Spengler................. -- -- -- -- -- --
Former Senior Vice President
and Chief Financial Officer
Michael Hagerty..................... -- -- -- 25,000 -- --
Former Vice President and
Chief Technology Officer
</TABLE>
- --------------------------
(1) The closing price of the Common Stock on the NASDAQ Market on December 31,
1999 was $4.13.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
Simon Hodson entered into an employment agreement with the Company that
expires on September 30, 2000. The agreement provides for an annual salary of
$500,000, subject to annual review and increase at the discretion of the Board
of Directors. Mr. Hodson may also be entitled to receive (i) an annual bonus,
the amount of which shall be determined by the Compensation Committee of the
Board of Directors and (ii) options or other rights to acquire the Company's
Common Stock, under terms and conditions determined by the Stock Option
Committee of the Board of Directors. Pursuant to the terms of the employment
agreement, Mr. Hodson may be terminated at any time with or without cause upon
written notice.
D. Scott Houston entered into an employment agreement with the Company
effective October 15, 1993. 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. The Board of Directors increased
Mr. Houston's annual salary to $320,000, effective October 6, 1999.
Mr. Houston's employment agreement provides that his employment is "at will" at
the discretion of the Company, and that he may be terminated at any time with or
without cause, upon thirty (30) days written notice.
Vincent J. Truant entered into an employment agreement with the Company with
a commencement date of May 1, 1998. The agreement provides for an annual salary
of $225,000 and options to acquire 75,000 shares of the Company's Common Stock
at an exercise price equal to $21.00 per share, which is the price at which the
Company's Common Stock was first sold to the public in the Company's initial
public offering. Pursuant to the agreement, Mr. Truant received a $50,000
signing bonus. The Board of Directors increased Mr. Truant's annual salary to
$250,000 on September 29,
11
<PAGE>
1999. The Board of Directors further increased Mr. Truant's salary to $275,000
effective January 1, 2000. Mr. Truant may also be entitled to receive (i) an
annual bonus in an amount equal to one year's base salary, provided certain
financial and other milestones are met by Mr. Truant and the Company, as
determined by Mr. Truant and the Compensation Committee of the Board of
Directors and, in the event such milestones are not met, or are significantly
exceeded, such other lesser or greater bonus as the Compensation Committee shall
determine and (ii) options or other rights to acquire the Company's Common
Stock, under terms and conditions determined by the Stock Option Committee of
the Board of Directors. Pursuant to the terms of the employment agreement,
Mr. Truant may be terminated at any time with or without cause upon thirty
(30) days written notice, provided that, if the Company terminates Mr. Truant's
employment for other than cause, he shall be entitled to severance pay equal to
100% of his annual base salary.
William F. Spengler terminated his employment with the Company effective
October 7, 1999. Mr. Spengler had entered into an employment agreement with the
Company with a commencement date of April 13, 1998. The agreement provided for
an annual salary of $360,000 and options to acquire 100,000 shares of the
Company's Common Stock at an exercise price equal to $21.00 per share, which is
the price at which the Company's Common Stock was first sold to the public in
the Company's initial public offering. Pursuant to a letter amendment to
Mr. Spengler's employment agreement dated May 12, 1999, Mr. Spengler was granted
a bonus of $70,000 payable on August 11, 1999 and $70,000 payable on
December 15, 1999, although the December 15, 1999 bonus was never paid because
Mr. Spengler elected to leave the Company prior to that date.
Michael Hagerty terminated his employment with the Company effective
December 28, 1999. Mr. Hagerty had entered into an employment agreement with the
Company with a commencement date of July 27, 1998. The agreement provided for an
annual salary of $250,000 and options to acquire 100,000 shares of the Company's
Common Stock at an exercise price equal to $21.00 per share, which is the price
at which the Company's Common Stock was first sold to the public in the
Company's initial public offering. The Board of Directors increased
Mr. Hagerty's annual salary to $300,000 effective January 1, 1999. Pursuant to a
letter amendment to Mr. Hagerty's employment agreement dated May 12, 1999,
Mr. Hagerty was granted a bonus of $270,000, payable on the earlier of
December 15, 1999 or the date on which his employment is terminated by the
Company for any reason other than "Cause" as that term is defined in the
employment agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All decisions relating to executive compensation during 1999 were made by
the Company's Compensation Committee, which was comprised of Messrs. Khashoggi
and Rubinstein and Ms. Scarlett. None of the members were officers of the
Company in 1999. Mr. Khashoggi is the controlling shareholder in EKI, the
Company's principal stockholder with which the Company has certain relationships
and related transactions described below. EKI owns a 57.9% beneficial ownership
interest in the Company.
LICENSE AGREEMENT AND PATENT ALLOCATION AGREEMENT
Pursuant to an Amended and Restated License Agreement between the Company
and EKI (the "License Agreement"), the Company has been granted a world-wide,
exclusive, royalty-free license to utilize and sublicense others to utilize
EKI's propriety technology in manufacturing, selling, and otherwise commercially
developing EarthShell foodservice disposables. The License Agreement grants the
Company exclusive rights to issued patents, pending patents and trade secrets to
the extent that they relate to foodservice disposables produced from
inorganic-based materials. The Company also has certain business, reporting,
indemnification and confidentiality obligations under the License Agreement.
The Company and EKI entered into an Amended and Restated Agreement for
Allocation of Patent Costs (the "Patent Agreement"), effective October 1, 1997,
which supersedes certain provisions
12
<PAGE>
of the License Agreement and the Agreement for Allocation of Patent Costs
between the Company and EKI (the "Prior Patent Agreement"), which terminated on
September 30, 1997. Under the Patent Agreement, until September 30, 1999, the
Company was obligated to pay all costs associated with prosecuting, filing,
maintaining or acquiring patents and patent applications in connection with
patents and patent applications that are directly related to foodservice
disposables. After September 30, 1999, the Company is obligated to pay all costs
associated with prosecuting, filing, maintaining or acquiring patents and patent
applications in connection with technology that primarily benefits the
foodservice disposable applications licensed to the Company (as compared with
applications of such patents and patent applications outside the foodservice
disposables field of use). EKI will pay for all other patent related costs. EKI
and the Company will review, on a biennial basis, the comparative benefits of
each existing patent and patent application to determine whether the foodservice
disposables licensed to the Company derive the principal benefits from the
patent or patent application in question and will allocate the associated patent
costs for the ensuing two-year period accordingly. No party will have the right
to be reimbursed for any costs following notification in writing by the other
party that it does not desire to incur such costs. Under the Patent Agreement,
the Company paid legal fees amounting to $644,584 in 1999.
On February 16, 1998, EKI entered into a patent purchase agreement with a
third party for the purchase of certain technology that is applicable to
starch-based disposable packaging. Pursuant to the terms of the License
Agreement, EKI is licensing such technology to the Company. In connection with
this purchase, the Company entered an agreement to pay to EKI (for payment to
the seller of the technology) $3.5 million on or about December 31, 2003. The
Company's obligation will be reduced by 5% of the purchase price of any
equipment purchased by EKI, the Company or its licensees or joint ventures from
the seller of the technology. In addition, the Company is required to pay
$3 million over the five-year period commencing January 1, 2004 if EKI, the
Company or the Company's licensees or joint ventures have not purchased, by
December 31, 2003, at least $35 million of equipment from the seller of the
technology and EKI, the Company or the Company's licensees or joint ventures
actively use the purchased technology.
TECHNICAL SERVICES AGREEMENT
In addition to the License Agreement and the Patent Agreement, effective
October 1, 1997, the Company and EKI entered into an Amended and Restated
Technical Services Agreement (the "Technical Services Agreement") which
superseded the prior technical services agreement (the "Prior Technical Services
Agreement") that was entered into between the Company and EKI on July 1, 1994
and which terminated on September 30, 1997. 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 for technical services
specifically requested by the Company based on established hourly billing rates
and the Company reimburses EKI for out-of-pocket expenses related to specific
research projects. The intercompany rates were compared to a market rate study
previously prepared by an independent third party provider of similar services
and were within the range of average market rates for each job classification.
In addition, the Technical Services Agreement extends the sublease of the
Company's office space in Santa Barbara, comprising approximately 1,600 square
feet, through March 31, 2001, subject to the right of the Company to terminate
the sublease on 30 days' written notice. In 1999, The Company paid or accrued
$11,663,499 in costs for services performed under the Technical Services
Agreement and $67,200 in sublease payments. Pursuant to resolutions adopted by
the Board of Directors in 1999, the Company reimbursed EKI $146,909 for salaries
and benefits paid by EKI for administrative support personnel during the
12 months ended December 31, 1999.
INDEBTEDNESS OWED TO EKI
As of December 31, 1999, the indebtedness owed by the Company to EKI totaled
$1,385,737 under the Technical Services Agreement and the Patent Allocation
Agreement.
13
<PAGE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee (the "Committee") of the Board of Directors of
EarthShell Corporation is pleased to present its annual report on executive
compensation. This report describes the function of the Compensation Committee,
the objectives of the Company's executive compensation program, the various
components of compensation, and explains the basis upon which 1999 compensation
determinations were made by the Committee with respect to the executive officers
of the Company, including the officers that are named in the compensation
tables.
COMPENSATION COMMITTEE CHARTER
The Committee is charged with the following responsibilities:
- reviewing and recommending to the Board of Directors the annual base
salary, bonus and other benefits for the senior executive officers of the
Company;
- reviewing and commenting on new executive compensation programs that the
Company proposes to adopt;
- periodically reviewing the results of the Company's executive compensation
and perquisite programs to ensure that they are properly coordinated to
yield payments and benefits that are reasonably related to executive
performance;
- ensuring that a significant portion of executive compensation is
reasonably related to the long-term interests of the stockholders;
- participating in the preparation of certain portions of the Company's
annual proxy statement;
- if necessary, hiring a compensation expert to provide independent advice
on compensation levels; and
- ensuring that the Company undertakes appropriate planning for management
succession and advancement.
COMPENSATION PHILOSOPHY
The primary objective of the Company's executive compensation program is to
help the Company to achieve its strategic business objectives and to create
value for the Company's stockholders by attracting, motivating and retaining
highly qualified employees with outstanding ability. In addition, the
compensation program is designed to promote teamwork, initiative and
resourcefulness on the part of key employees whose performance and
responsibilities directly affect Company profits. The compensation program
strives to align compensation methods with stockholder interests to achieve
desired results and, above all, to pay for performance.
COMPENSATION COMPONENTS
The Company's executive compensation program consists of a mixture of base
salary, cash bonuses and stock options. In determining the mix and total amount
of compensation for each executive officer, the Compensation Committee
subjectively considers the executive's overall value to the Company including
past and expected contributions by the officer to the Company's goals. In
addition, the Compensation Committee strives to balance short-term and long-term
incentive compensation to achieve desired results.
Shortly following the Company's initial public offering in March 1998,
anticipating that it would be hiring several new executives as part of its next
stage of development, the Company commissioned SCA Consulting LLC ("SCA"), a Los
Angeles based executive compensation consulting firm, to update its executive
compensation strategy and total pay structure. As part of its assignment, SCA
developed a
14
<PAGE>
study of the compensation practices of newly public, development stage
companies. The Compensation Committee will reference this study as it
administers each of the three components of its executive compensation program
to ensure that its compensation practices are competitive and that the overall
compensation package appropriately attracts, motivates, rewards, and retains key
employees with outstanding abilities.
BASE SALARY. The Company has historically determined base salary for its
executives based on qualifications, job requirements and competitive market
salaries that such qualifications and job requirements command. As the Company
grows, it will continue to rely on peer group competitive compensation practices
to remain consistent and competitive in its compensation practices.
Pursuant to an employment agreement effective October 15, 1993, Mr. D. Scott
Houston, Chief Financial Officer and Secretary, received base compensation of
$290,311, reflecting the effects of various adjustments since 1993, including a
mid-year base salary increase from $280,000 to $320,000. The Company paid base
compensation to Mr. Vincent Truant, Senior Vice President, Marketing,
Environmental Affairs and Public Relations, in the amount of $231,666 for his
services to the Company during 1999, reflecting the effects of his mid-year base
salary increase from $225,000 to $250,000. In addition, the Company paid to each
of Mr. William Spengler, former Senior Vice President and Chief Financial
Officer and Mr. Michael Hagerty, former Vice President and Chief Technology
Officer in the amounts of $304,616 and $314,038, respectively, for the portion
of the year that each of them was employed by the Company in 1999, reflecting
that portion of their respective base salaries of $360,000 and $300,000.
Salaries for executives are reviewed by the Compensation Committee on an
annual basis and may be adjusted based upon their assessment of the individual's
contribution to and financial growth of the Company as well as competitive pay
levels. Based on the annual review of the Compensation Committee of the Board of
Directors, Mr. Houston was granted a base salary increase of approximately 14%
from $280,000 to $320,000 on October 6, 1999, but effective October 1, 1999.
This increase brought his base salary in line with the mid-point of the
Company's compensation peer group for Chief Financial Officers. Also based on
the annual review of the Compensation Committee of the Board of Directors,
Mr. Truant was granted a base salary increase of approximately 11% from $225,000
to $250,000 on October 6, 1999, but effective October 1, 1999. Mr. Truant was
granted an additional 10% increase in his base salary from $250,000 to $275,000,
effective January 1, 2000.
BONUS. Bonuses may be granted for a fiscal year after the financial results
for that fiscal year become available. The Compensation Committee meets to
consider annual bonuses for each executive based on individual performance as
well as overall financial results of the Company for the year. There is no plan
requiring that bonuses be paid. However, pursuant to their employment
agreements, certain executive officers may be entitled to receive an annual
bonus, the actual amount of which shall be determined in the sole discretion of
the Compensation Committee.
In May 1999 the Committee granted bonuses to Messrs. Truant, Spengler and
Hagerty in the amounts of $225,000, $430,000 and $570,000, respectively, in
recognition of their special efforts relating to the Company's announcement of
readiness for initial shipment of sandwich containers and for additional
services provided to the Company.
Based on the annual review of the Compensation Committee in 1999 the
Committee granted bonuses to Messrs. Truant and Houston in the amounts of
$126,000 and $145,000, respectively.
During 2000, the Compensation Committee will consider bonus compensation in
light of the accomplishment of specific milestones developed by management in
support of the 2000 strategic plan.
STOCK OPTIONS. The Company believes that significant equity interests in
the Company in the form of stock options held by the Company's management serve
to align the interests of the executive
15
<PAGE>
management team with shareholder interests. The Stock Option Committee,
comprised of members of the Board of Directors, may grant stock options and
restricted stock to executives and other key employees of the Company pursuant
to the 1995 Stock Incentive Plan. In 1999, options to acquire 250,000, 200,000
and 200,000 shares of the Company's Common Stock were granted to
Messrs. Houston, Hagerty and Truant, respectively, at an exercise price of $5.00
per share which equals the fair market value of the Company's Common Stock on
the date of grant.
The Stock Option Committee will continue to consider various methods to
provide additional incentives to management and employees of the Company,
including granting additional stock options and/or restricted stock. In
determining the grants of stock options and restricted stock, the Stock Option
Committee will take into account, among other things, the respective scope of
responsibility and the anticipated performance requirements and contributions to
the Company of each proposed award recipient as well as the amount of prior
grants.
COMPENSATION TO CHIEF EXECUTIVE OFFICER IN 1999
Pursuant to an employment agreement effective October 15, 1997, Mr. Simon
Hodson, the Company's Chief Executive Officer, received base compensation of
$500,000 during 1999.
Mr. Hodson's base salary was initially established by the Board of Directors
prior to the formation of the Compensation Committee. It was based on the
Board's assessment that Mr. Hodson was uniquely qualified to lead the Company
through its early development stages. The Board determined that his vision for
the Company, both from a technical and business viewpoint, would be pivotal to
bringing the Company to the verge of commercializing its first product lines.
A founder of the Company and co-innovator of the technology, Mr. Hodson has
been a driving force in making the Company--as a corporation and as a new
packaging concept--a reality. His concern for the environment, coupled with his
visionary leadership and commitment, has helped the Company achieve its current
state of development.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the deductibility of compensation over $1 million to certain
executive officers unless, in general, the compensation is paid pursuant to a
plan which is performance related, non-discretionary and has been approved by
the Company's stockholders. The Company did not pay any compensation in 1999
that would be subject to Code Section 162(m). The Compensation Committee intends
to establish policies regarding qualification of compensation under
Section 162(m) of the Code to the extent it considers such policies appropriate.
SUBMITTED BY THE COMPANY'S COMPENSATION
COMMITTEE
Essam Khashoggi
Jerold H. Rubinstein
Lynn Scarlett
16
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total return of the Company, the S&P
500 Index and the Dow Jones Containers & Packaging Industry Group (USA). The
measurement period for the comparison of the cumulative total return is from
March 24, 1998, the first day of trading of the Common Stock on the National
Association of Securities Dealers Automated Quotation System National Market
(the "NASDAQ Market"), to December 31, 1999. The comparison assumes $100 was
invested on March 24, 1998 in the Company's Common Stock and the foregoing index
and assumes reinvestment of dividends before consideration of income taxes.
The stock performance depicted in the graph below is not necessarily
indicative of future performance. The Stock Performance Graph shall not be
deemed to be "soliciting material" or to be "filed" with the Securities and
Exchange Commission or subject to Regulations 14A or 14C or to the liabilities
of Section 18 of the Exchange Act, except to the extent that the Company
specifically requests that such information be treated as soliciting material or
specifically incorporates it by reference into a filing under the Securities Act
or Exchange Act.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN
<S> <C> <C> <C>
SINCE MARCH 24, 1998
EarthShell Index S&P 500 Index Dow Jones CTR
3/24/98 100 100 100
4/30/98 62 104 98
5/31/98 48 102 97
6/30/98 41 106 87
7/31/98 37 105 83
8/31/98 23 90 68
9/30/98 31 95 61
10/31/98 39 103 70
11/30/98 58 109 76
12/31/98 51 116 77
1/31/99 46 120 76
2/28/99 40 117 70
3/31/99 41 121 70
4/30/99 41 126 82
5/31/99 32 123 82
6/30/99 30 130 84
7/31/99 29 126 79
8/31/99 21 125 75
9/30/99 16 122 69
10/31/99 15 130 72
11/30/99 13 132 65
12/31/99 18 140 72
</TABLE>
17
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All relationships and related transactions reported in this Proxy Statement
are included under the caption "Compensation Committee Interlocks and Insider
Participation."
OTHER MATTERS
SUBMISSION OF STOCKHOLDER PROPOSALS FOR NEXT YEAR'S ANNUAL
MEETING. Stockholders interested in presenting a proposal for consideration at
the Company's 2001 annual meeting of stockholders may do so by following the
procedures prescribed by Rule 14a-8 under the Securities Act of 1934 and the
Company's Bylaws. To be eligible for inclusion in the proxy statement and proxy
card, stockholders proposals must be received by the Company's Secretary at the
Company's offices at 800 Miramonte Drive, Santa Barbara, California 93109 no
later than December 15, 2000. Stockholders who intend to present a proposal at
the 2001 annual meeting, without including such proposal in the Company's proxy
statement, must provide the Company's Secretary with written notice of such
proposal no later than February 28, 2001.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Based solely upon
a review of Securities and Exchange Commission Forms 3, 4 and 5 furnished to the
Company and certain written representations, the Company believes that all
reports required by Section 16(a) of the Exchange Act with respect to the
Company's fiscal year ended December 31, 1999 have been filed by its officers
and directors, except that (i) a Form 3 Statement of Beneficial Ownership of
Securities was inadvertently filed late by Ms. Scarlett, (ii) one transaction
was inadvertently not timely reported on a Form 4 Statement of Beneficial
Ownership that was filed by Mr. Marsh, and (iii) one transaction was
inadvertently not timely reported on a Form 5 Annual Statement of Changes in
Beneficial Ownership that was filed by Mr. Hodson.
OTHER MATTERS. The Board of Directors of the Company knows of no matters to
be presented at the Annual Meeting other than those described in this proxy
statement. Other business may properly come before the meeting, and in that
event it is the intention of the persons named in the accompanying proxy to vote
in accordance with their judgment on such matters.
ANNUAL REPORT. The Company's Annual Report to Stockholders, including the
Company's audited financial statements for the year ended December 31, 1999, is
being mailed herewith to all stockholders of record. THE COMPANY WILL PROVIDE
WITHOUT CHARGE TO ANY PERSON SOLICITED HEREBY, UPON THE WRITTEN REQUEST OF ANY
SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K. SUCH REQUESTS
SHOULD BE DIRECTED TO THE CHIEF FINANCIAL OFFICER OF THE COMPANY AT 800
MIRAMONTE DRIVE, SANTA BARBARA, CALIFORNIA 93109-1419.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN THE ACCOMPANYING
PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
/s/ D. Scott Houston
D. Scott Houston
SECRETARY
Santa Barbara, California
April 14, 2000
18
<PAGE>
EARTHSHELL CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of EarthShell Corporation, a Delaware
corporation, acting under the Delaware General Corporation Law, hereby
constitutes and appoints Simon K. Hodson and D. Scott Houston and each of them,
the attorneys and proxies of the undersigned, each with the power of
substitution, to attend and act for the undersigned at the Annual Meeting of
Stockholders of said corporation to be held on May 12, 2000, at 10:00 A.M.
Pacific Daylight Time, at the Radisson Hotel, 1111 E. Cabrillo Blvd., Santa
Barbara, California, and at any adjournments thereof in connection therewith to
vote and represent all of the shares of common stock of said corporation which
the undersigned would be entitled to vote, as follows:
(1) ELECTION OF DIRECTORS
/ / FOR the nominees listed below / / WITHHOLD AUTHORITY
to vote for the
nominees listed below
If you wish to withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list below:
<TABLE>
<S> <C>
ESSAM KHASHOGGI LAYLA KHASHOGGI
SIMON K. HODSON JEROLD H. RUBINSTEIN
JOHN DAOUD HOWARD J. MARSH
LYNN SCARLETT
</TABLE>
(2) OTHER BUSINESS: In their discretion the proxies are authorized to vote upon
such other business as may properly come before the meeting or any
adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
EARTHSHELL CORPORATION
<PAGE>
Each of the above-named proxies present at said meeting, either in person or
by substitute, shall have and exercise all the powers of said proxies hereunder.
This proxy will be voted in accordance with the choices specified by the
undersigned on the other side of this proxy. IF NO INSTRUCTIONS TO THE CONTRARY
ARE INDICATED HEREON, THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE
FOR THE ELECTION OF THE NOMINEES FOR THE BOARD OF DIRECTORS NAMED ON THE OTHER
SIDE HEREOF AND AS A GRANT OF AUTHORITY TO VOTE ON ANY OTHER MATTERS THAT MAY
COME BEFORE THE MEETING.
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and Proxy Statement relating to the meeting.
----------------------------------
Signature
----------------------------------
Signature (if held jointly)
Date:
----------------------------------
Please sign your name exactly as
it appears on this Proxy. When
signing as an attorney, executor,
administrator, trustee or
guardian, please give your full
title as such.
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE SIGN, DATE
AND RETURN YOUR PROXY PROMPTLY IN THE POSTAGE PREPAID ENVELOPE PROVIDED.
I/we plan / / do not plan / / to attend the stockholders meeting.
