SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
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-12
EARTHSHELL CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
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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/ / 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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EARTHSHELL CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 8, 2001
The 2001 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 8, 2001 at 10:00 a.m. Pacific
Daylight Time, for the purposes of:
(1) Electing seven directors to serve until the 2002 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.
The Board of Directors has fixed the close of business on March 20, 2001 as
the record date for the determination of stockholders entitled to receive notice
of, and to vote at, the Annual Meeting and any adjournments or postponements
thereof, and only holders of record of the Company's common stock at the close
of business on that date will be entitled to receive notice of, and to vote at,
the Annual Meeting.
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 2, 2001
EARTHSHELL CORPORATION
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PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 8, 2001
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
2001 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 8, 2001, and at
any and all adjournments or postponements thereof. This Proxy Statement and the
form of proxy were mailed on or about April 9, 2001 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.
RECORD DATE AND VOTING
On March 20, 2001, the record date for the determination of stockholders
entitled to notice of, and to vote at, the Annual Meeting, the Company had
107,780,305 shares of common stock, par value $.0l 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 seven
members. 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.
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.
NAME AGE POSITION DIRECTOR SINCE
---- --- -------- --------------
Essam Khashoggi 61 Chairman of the Board 1992
Simon K. Hodson 46 Vice Chairman of the Board, 1992
Chief Executive Officer and President
John Daoud 65 Director 1992
Layla Khashoggi 43 Director 1992
Howard J. Marsh 76 Director 1999
Lynn Scarlett 51 Director 1999
Michael S. Noling 62 Director 2001
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3
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
additionally serves on the representation boards of the joint venture entities
the Company has formed with certain of its licensees. 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 he 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 62 issued U.S.
patents and 37 issued foreign patents, as of March 15, 2001, 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. Since 1972, Mr. Daoud has advised Mr. Khashoggi and his affiliated
entities on certain financial matters both in an individual capacity as well as
Manager and Principal Officer of Condas International, LLC and its predecessor.
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, Chairman of the
Marketing Committee of the Santa Barbara Zoo Board, and member of the Board of
Trustees of the Santa Barbara Public Education Foundation. Ms. Khashoggi is
Essam Khashoggi's spouse.
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 President and Chief Executive Officer of Reason
Foundation since January 2001. From 1997 to 2000 Ms. Scarlett served as
Executive Director and from 1990-1996 as Vice President of Research for Reason
Public Policy Institute, a subsidiary of Reason Foundation. 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
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bill in 1997. Ms. Scarlett also served as Advisor to the Houghton-Mifflin
"Encyclopedia of the Environment" project from 1992 to 1994 and contributed to
the entry on source reduction. Ms. Scarlett 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.
MICHAEL S. NOLING has served as Director of the Company since March 2001.
From September 1993 until June 1995, Mr. Noling served Wavefront Technologies as
President and Chief Executive Officer and was a member of the Board of
Directors. In June 1995, Wavefront was acquired by Silicon Graphics. Mr. Noling
served as a consultant to the new company until December 1996. Previously, Mr.
Noling had been a Managing Partner in Andersen Consulting (now Accenture). Mr.
Noling currently serves as Board Chair and Audit Committee Chair of Motion
Engineering, Centric Software, and Web Associates. Mr. Noling served on the
Board of Transoft Networks from December 1996 until May 1999, when it was
acquired by Hewlett Packard. Mr. Noling served on the Board of Mustang.com from
May 1995 until May 2000, when it was acquired by Quintus Corporation.
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. Noling and
Marsh and Ms. Scarlett. The Compensation Committee consists of Messrs. Khashoggi
and Marsh and Ms. Scarlett. The Stock Option Committee is comprised of Messrs.
Khashoggi and Marsh and Ms. Scarlett. The Conflicts Committee is comprised of
Mr. Marsh and Ms. Scarlett. The Company does not have a nominating committee.
EXECUTIVE COMMITTEE
The Executive Committee met routinely during 2000 as requested by senior
management to discuss strategy policy and budgetary items. 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; (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.
COMPENSATION COMMITTEE
The Compensation Committee held two meetings in 2000. 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.
AUDIT COMMITTEE
The Audit Committee held two meetings in 2000. 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
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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.
STOCK OPTION COMMITTEE
The Stock Option Committee held one meeting in 2000. 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.
CONFLICTS COMMITTEE
The Conflicts Committee held one meeting in 2000. 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 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 2000 the Board of Directors held ten meetings. All directors attended at
least 75% of the aggregate of Board and committee meetings (for committees on
which each served) held in 2000.
AUDIT FEES
For the year ended December 31, 2000, Deloitte & Touche, LLP, the Company's
independent public accountants, will charge the Company approximately an
aggregate of $80,000 for professional services rendered for the audit of the
Company's financial statements for such period and the review of the financial
statements included in the Company's Quarterly Reports on Form 10-Q during such
period.
ALL OTHER FEES
For the year ended December 31, 2000, Deloitte & Touche, LLP billed the
Company an aggregate of $27,200 for all other services not described above under
the caption "Audit Fees" during such period.
AUDIT COMMITTEE REPORT
The Audit Committee reviews the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process. The
6
Company's independent auditors are responsible for expressing an opinion on the
conformity of our audited financial statements to generally accepted accounting
principles.
In this context, the Audit Committee has reviewed and discussed with
management and the independent auditors the audited financial statements, and
the Audit Committee has also discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees). The Audit Committee also received from
the independent auditors the written disclosures required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees)
and discussed with them their independence from the Company and its management.
The Audit Committee has further considered whether the independent auditors'
provision of non-audit services provided by the auditors to the Company is
compatible with the firm's independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 for filing with the Securities and Exchange Commission.
Submitted by the Audit Committee:
Mr. Michael S. Noling;
Mr. Howard J. Marsh; and
Ms. Lynn Scarlett
The above report of the Audit Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not be deemed
filed under such Acts.
COMPENSATION OF DIRECTORS
Based on a study conducted by SCA Consulting LLC, the Board pays 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, Noling and Marsh, as
well as Ms. Khashoggi and Ms. Scarlett are currently considered to be
non-employee directors of the Company.
The 1995 Stock Incentive Plan, as amended, currently provides that each
non-employee director 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. It is currently contemplated that the plan will be amended by
the Board to change the vesting of director options such that the options will
vest 25% at the end of each calendar quarter following grant, provided the
director holding the option continues to serve as director at the end of such
quarter.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL ONE.
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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 15, 2001, 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, 2000
(collectively, the "Named Executive Officers") and (iv) all directors and Named
Executive Officers of the Company as a group.
PERCENTAGE OF SHARES OF
NUMBER OF SHARES OF COMMON STOCK
NAME AND ADDRESS (1) COMMON STOCK OUTSTANDING
--------------------------------------- ------------------- -----------------------
Essam Khashoggi (2)(3)................ 63,411,208 58.8%
Simon K. Hodson (4).................... 16,720 *
John Daoud (5)......................... 66,920 *
Layla Khashoggi (3).................... 40,720 *
Howard J. Marsh (6).................... 26,000 *
Lynn Scarlett (6)...................... 25,000 *
Michael S. Noling...................... 17,000 *
D. Scott Houston (7)................... 354,500 *
Vincent J. Truant (8).................. 107,500 *
Richard M. DiPasquale (9) 32,000 *
Robin D. O'Dell (10) 18,750 *
Directors and Named Executive Officers
as a group (12 persons).............. 64,116,318 59.5%
E. Khashoggi Industries, LLC........... 51,624,155 47.9%
EKINVESCO.............................. 5,399,334 5.0%
-------------------------------
* 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 51,624,155 shares held by E. Khashoggi Industries, LLC ("EKI"),
and 5,399,334 shares held by EKINVESCO, each of which Mr. Khashoggi is the
controlling owner. Also includes 6,392,959 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 63,370,488 shares and is
therefore deemed to be the beneficial owner of such shares.
(3) Includes options to purchase 40,720 shares of Common Stock issued under the
1995 Stock Incentive Plan, which are fully vested and exercisable.
(4) Includes options to purchase 15,720 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) Includes 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 40,720
shares of Common Stock issued under the 1995 Stock Incentive Plan, which
are fully vested and exercisable.
(6) Includes options to 25,000 shares of Common Stock issued under the 1995
Stock Incentive Plan, which are fully vested and exercisable.
(7) Represents options to purchase 137,550 shares of Common Stock issued under
the 1994 Stock Option Plan and options to purchase 216,950 shares of Common
Stock issued under the 1995 Stock Incentive Plan, which are fully vested
and exercisable.
(8) Represents options to purchase 107,500 shares of Common Stock issued under
the 1995 Stock Incentive Plan, which are fully vested and exercisable.
8
(9) Includes options to purchase 30,000 shares of Common Stock issued under the
1995 Stock Incentive Plan, which are fully vested and exercisable.
(10) Represents options to purchase 18,750 shares of Common Stock issued under
the 1995 Stock Incentive Plan, which are fully vested and exercisable, but
which expire on March 30, 2001.
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.
NAME AGE POSITION OFFICER SINCE
---- --- -------- -------------
Simon K. Hodson 46 Vice Chairman of the Board, Chief Executive Officer and 1992
President
D. Scott Houston 46 Chief Financial Officer and Secretary 1992
Vincent J. Truant 53 Senior Vice President and Chief Marketing Officer 1998
Richard M. DiPasquale 43 Chief Technology Officer 2000
Per J. Andersen 41 Chief Science Officer 2001
-------------------------------
The following is a biographical summary of the experience of the three
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 and Chief Marketing
Officer since March 2001. From October 1999 to March 2001 he 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.
RICHARD M. DIPASQUALE has served as Chief Technology Officer for the
Company since April 2000 and served as a consultant to the Company from January
2000 to April 2000. From April 1998 to December 1999 Mr. DiPasquale served as
Chief Operating Officer for Data Exchange and prior to that as President, US
Operations. During a prior 19-year tenure at Owens Corning, Mr. DiPasquale most
recently served as President, Latin America Operating Division and from
1995-1996 as plant manager in Battice, Belgium directing all operations,
including P&L management, for the largest glass fiber manufacturing facility in
Europe.
9
DR. PER JUST ANDERSEN has served as Chief Science Officer for the Company
since January 2001. Dr. Andersen led EKI's technical development serving as Vice
President of Product Engineering at EKI since he joined EKI from 1992 through
December 2000. Dr. Andersen's prior professional experience includes work as a
Project Manager and Industrial Researcher. From 1983 through 1992 Dr. Andersen
served 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 served as Manager of Materials Optimization
and Instrumentation Development. Dr. Andersen has over 25 publications in
international scientific journals, has co-authored several book chapters and has
presented papers at professional meetings around the world. Dr. Andersen is a
co-inventor of 56 issued U.S. patents and 37 issued foreign patents, as of March
20, 2001, all belonging to EKI.
10
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.
--------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------------------
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
FISCAL YEAR ---------------------------------------------------------------------
NAME AND ENDED OTHER ANNUAL SECURITIES UNDERLYING
PRINCIPAL POSITION DECEMBER 31 SALARY($)* BONUS($) COMPENSATION($) OPTIONS(#)
--------------------------------------------------------------------------------------------------------------------
Simon K. Hodson............. 2000 $500,000 -- $5,100 (3) --
Vice Chairman of the Board,
Chief Executive Officer and
President
1999 500,000 -- 4,800 (3) --
1998 520,834 (1) $500,000 (2) 625 (3) --
--------------------------------------------------------------------------------------------------------------------
D. Scott Houston............ 2000 320,498 (4) -- 5,100 (3) 30,000
Chief Financial Officer and
Secretary
1999 290,311 145,000 4,800 (3) 250,000
1998 254,167 180,000 1,050 (3) --
--------------------------------------------------------------------------------------------------------------------
Vincent J. Truant........... 2000 275,000 -- 5,100 (3) 20,000
Senior Vice President and
Chief Marketing Officer
1999 231,266 351,000 4,800 (3) 200,000
1998 150,000 (5) 50,000 1,125 (3) 75,000
--------------------------------------------------------------------------------------------------------------------
Richard M. DiPasquale....... 2000 177,083 -- 87,500 (6) 30,000
Chief Technology Officer
1999 -- -- --
1998 -- -- -- --
--------------------------------------------------------------------------------------------------------------------
Robin D. O'Dell............. 2000 194,250 (7) 50,000 3,960 (3)
Former Vice President,
Business Development
1999 70,961 -- 1,419 (3) 75,000
1998 -- -- -- --
--------------------------------------------------------------------------------------------------------------------
-------------------------------
* 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) Represents the only bonus ever paid to Mr. Hodson by the Company since its
inception.
(3) Reflects payments under the Company's 401(k) plan.
(4) The $498 paid to Mr. Houston in 2000 over and above his $320,000 annual
salary, resulted from a disbursement to Mr. Houston under the 1999
Cafeteria 125 Flexible Spending Plan.
(5) 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.
(6) Represents compensation paid to Mr. DiPasquale from January 3, 2000 through
April 14, 2001, when he was employed by the Company as a consultant.
(7) Reflects actual compensation paid to Mr. O'Dell through December 29, 2000,
the date of termination of his employment with the Company. Mr. O'Dell's
annual salary was $198,000.
11
STOCK OPTION GRANTS IN 2000
The following table sets forth information with respect to options to
purchase shares of the Company's Common Stock granted in 2000 to the Chief
Executive Officer and Named Executive Officers, excluding options granted in the
officer's capacity as a director of the Company.
Potential Realizable Value at
Assumed Rates of Stock
Individual Grants Appreciation for Option Term (1)
------------------------------------------------------ -------------------------------
Number of % of Total
Shares Options
Underlying Granted to
Options Employees in Exercise Price Expiration
Name Granted 2000 (per share) Date 5% 10%
-------------------------------- ---------- ------------- -------------- ------------ -------------- --------------
Simon K. Hodson................. -- -- -- -- --
Vice Chairman of the Board,
Chief Executive Officer and
President
D. Scott Houston................ 30,000 3.5% 5.00 2/28/2010 $244,334.19 $389,061.37
Chief Financial Officer and
Secretary
Vincent J. Truant............... 20,000 2.4% 5.00 2/28/2010 $162,889.46 $259,374.25
Senior Vice President and
Chief Marketing Officer
Richard M. DiPasquale........... 30,000 3.5% 4.00 1/3/2010 $195,467.36 $311,249.10
Chief Technology Officer
Robin D. O'Dell................. -- -- -- -- -- --
Former Vice President,
Business Development
-------------------------------
(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 and Truant and $4.00 per
share for Mr. DiPasquale. Each of the options listed in the table is
presently out-of-the-money.
12
AGGREGATED OPTION EXERCISES IN 2000 AND 2000 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.
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Options at Fiscal Year End Fiscal
2000 Year End 2000
---------------------------- ----------------------------
Shares
Acquired on Value
Name and Principal Position Exercise Realized Unexercisable Exercisable Unexercisable Exercisable
--------------------------- --------------- ---------- --------------- ------------ --------------- ------------
Simon K. Hodson............. -- -- 15,720 -- --
Vice Chairman of the
Board, Chief Executive
Officer and President
D. Scott Houston............ -- -- 187,500 354,500 --
Chief Financial Officer
and Secretary
Vincent J. Truant........... -- -- 187,500 107,500 -- --
Senior Vice President
and Chief Marketing
Officer
Richard M. DiPasquale....... -- -- -- 30,000 -- --
Chief Technology Officer
Robin D. O'Dell............. -- -- 56,250 18,750 -- --
Former Vice President,
Business Development
-------------------------------
(1) The closing price of the Common Stock on the NASDAQ Market on December 31,
2000 was $1.50.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
Simon Hodson entered into an employment agreement with the Company that
expires on September 30, 2001. 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, 1999. The Board of Directors further
increased Mr. Truant's salary to $275,000 effective January
13
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.
Richard M. DiPasquale entered into an employment agreement with the Company
effective April 15, 2000. Mr. DiPasquale's employment agreement provides for an
annual salary of $250,000. Under the terms of the Agreement, Mr. DiPasquale was
issued options to acquire 30,000 shares of the Company's common stock at a
purchase price of $4.00 per share. Mr. DiPasquale may also be entitled to
receive an annual bonus and incentive compensation in an amount equal to one
year's base salary, provided certain financial and other milestones are met by
Mr. DiPasquale and the Company, as determined by Mr. DiPasquale and the
Compensation Committee of the Board of Directors. Pursuant to the terms of the
agreement, the company agrees to pay up to $4,000 per year of professional
organization dues and fees. Mr. DiPasquale may be terminated at any time with or
without cause upon thirty (30) days written notice, provided that, if the
Company terminates Mr. DiPasquale's employment for other than cause, he shall be
entitled to severance pay equal to 100% of his annual base salary.
Robin D. O'Dell terminated his employment with the Company effective
December 29, 2000. Mr. O'Dell had entered into an offer of employment with the
Company effective August 9, 1999 at an annual salary of $180,000. Under the
terms of the offer, Mr. O'Dell received a guaranteed 1999 bonus payment of
$50,000 and options to acquire 25,000 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and persons who own more than 10% of the
Company's common stock to file reports of ownership and changes in ownership on
Forms 3, 4 and 5 with the SEC. Executive officers, directors and 10%
shareholders are required by the SEC to furnish the Company with copies of all
Forms 3, 4 and 5 that they file.
Based solely on the Company's review of the copies of such forms it has
received and representations from certain reporting persons that they were not
required to file a Form 5 for specified fiscal years, the Company believes that
all of its executive officers, directors and greater than 10% shareholders have
complied with all of the filing requirements applicable to them with respect to
transactions during the fiscal year ended December 31, 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All decisions relating to executive compensation during 2000 were made by
the Company's Compensation Committee, which was comprised of Messrs. Khashoggi
and Rubinstein, and Ms. Scarlett. Mr. Rubinstein resigned from the Board of
Directors effective December 31, 2000. None of the members were officers of the
Company in 2000. 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 47.9% beneficial ownership
interest in the Company.
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. At
no additional cost to the Company, EKI has agreed to expand the License
Agreement to include all meat tray products that constitute foodservice
disposables.
14
The Company and EKI entered into an Amended and Restated Agreement for
Allocation of Patent Costs (the "Patent Agreement"), effective October 1, 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. Under the Patent Agreement, the Company
paid or accrued legal fees amounting to $362,244 in 2000.
As of January 1, 2001, the Company began directly managing and paying for
the maintenance of the patent portfolio underlying its License Agreement with
EKI and anticipates amending the Patent Agreement accordingly to reflect its
reduced reliance on EKI.
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"). Pursuant to
the Technical Services Agreement, which was scheduled to expire 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 2000, the Company paid or accrued $8,654,612 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 2000, the Company
reimbursed EKI $117,289 for salaries and benefits paid by EKI for administrative
support personnel during the twelve months ended December 31, 2000.
As of January 1, 2001, the Company effectively terminated the Technical
Services Agreement and hired directly from EKI the scientific, technical and
administrative personnel it required for its business operations. Effective also
on January 1, 2001, the Company assumed direct responsibility for the lease
obligations related to the Company's office and laboratory space in Santa
Barbara and will enter into a new lease for such space (cancelable on
six-months' notice) beginning April 1, 2001. The Company has also purchased from
EKI certain operating equipment and machinery, furniture, supplies, tools and
leasehold improvements to facilitate the transfer of the EKI employees to the
Company. The purchase price for such tangible personal property will equal the
lesser of $900,000 or the appraised market value of the transferred property
(determined by knowledgeable third-party appraisers). Payment of the purchase
price has been deferred until the appraised value of the items has been
confirmed and payments will be made thereafter in such periodic installments as
the Company and EKI shall agree until the entire purchase price has been paid.
15
The Company is in the process of revising the intercompany agreements to
reflect the retention of such EKI employees and the Company's reduced reliance
on EKI. EKI will remain obligated to fund all employee compensation, employee
benefits and related costs, which accrue through December 31, 2000. The purpose
for the foregoing arrangement is to simplify EarthShell operations and to reduce
costs on a going forward basis.
INDEBTEDNESS OWED TO EKI
As of December 31, 2000, the indebtedness owed by the Company to EKI totaled
$266,312 under the Technical Services Agreement and the Patent Allocation
Agreement.
16
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 2000 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 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
17
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 $320,498, reflecting the effects of various adjustments since 1993. This
figure also includes $498, which resulted from a disbursement to Mr. Houston
under the 1999 Cafeteria 125 Flexible Spending Plan. The Company paid base
compensation to Mr. Vincent Truant, Senior Vice President and Chief Marketing
Officer in the amount of $275,000 for his services to the Company during 2000.
The Company paid base compensation to Mr. Richard DiPasquale in the amount of
$177,083 for his services to the Company for the portion of the year that he was
employed by the Company in 2000. In addition, the Company paid to Mr. Robin
O'Dell, former Vice President, base salary in the amount of $194,250, for the
portion of the year that he was employed by the Company in 2000, reflecting the
effects of his mid-year base salary increase from $180,000 to $198,000.
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. O'Dell was granted a base salary increase of approximately 10%
from $180,000 to $198,000 on March 15, 2000. This increase was granted in
connection with his promotion to Vice President.
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.
The Compensation Committee considers bonus compensation in light of the
accomplishment of specific milestones developed by management in support of the
annual strategic plan.
On March 13, 2001 the Compensation Committee met to review the performance
of senior management for 2000 and to consider bonuses. Notwithstanding the
important accomplishments of the year, due to the financial condition of the
Company, the Compensation Committee elected not to grant bonuses to any member
of senior management at this time.
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 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 2000,
options to acquire 20,000 and 30,000 shares of the Company's Common Stock at a
purchase price of $5.00 per share were granted to Messrs. Truant and Houston
respectively. Options to acquire 30,000 shares at a purchase price of $4.00 per
share of the Company's Common Stock were granted to Mr. DiPasquale. All prices
per share equal 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.
18
COMPENSATION TO CHIEF EXECUTIVE OFFICER IN 2000
Mr. Simon Hodson, the Company's Chief Executive Officer, received base
compensation of $500,000 during 2000.
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 2000
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
Lynn Scarlett
Howard Marsh
19
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, 2000. 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.
[PERFORMANCE GRAPH]
EARTHSHELL S&P 500 DOW JONES
CLOSE INDEX INDEX CTR
--------------------------------------------------------
3/24/98 100 100 100
6/30/98 41 121 90
9/30/98 31 109 62
12/31/98 51 132 80
3/31/99 41 138 76
6/30/99 30 148 88
9/30/99 16 139 73
12/31/99 18 159 76
03/31/00 18 163 64
06/30/00 13 159 56
09/30/00 5 157 48
12/29/00 5 145 49
20
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 2002 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, 2001. Stockholders who intend to present a proposal at
the 2002 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, 2002.
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, 2000, 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 2, 2001
21
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 8, 2001, at 10:00 a.m.
Pacific Daylight Time, at the Radisson Hotel Santa Barbara, 1111 E. Cabrillo
Boulevard, 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:
ESSAM KHASHOGGI LAYLA KHASHOGGI
SIMON K. HODSON LYNN SCARLETT
JOHN DAOUD HOWARD J. MARSH
MICHAEL S. NOLING
(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
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)
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.