<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Fiscal Year Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-15474
AMERALIA, INC.
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(Exact name of Company as specified in its charter)
Utah 87-0403973
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
311 Raleigh Road, Kenilworth, Illinois 60043
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(Address of Principal Executive Offices)
Company's telephone number, including area code: (847) 256-9021
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock - $.01 Par Value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Revenues for the fiscal year ending June 30, 1999: Nil.
Shares of common stock, $.01 par value, outstanding as of June 30, 1999:
7,659,766. Aggregate market value of the voting stock held by non-affiliates of
AmerAlia as of June 30, 1999 was approximately $13,237,000. The estimate is
based on the last sale price per share and an estimated 4,072,800 shares held by
non-affiliates.
Documents incorporated by reference: NONE
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF THE BUSINESS
AmerAlia, Inc. was incorporated as a Utah corporation on June 7, 1983.
AmerAlia was originally incorporated under the name "Computer Learning Software,
Inc." and changed its name to AmerAlia in January 1984.
AmerAlia has been attempting to establish a chemical business for the
mining and manufacture of sodium bicarbonate and related products since 1989
when AmerAlia purchased an interest in a federal sodium lease in Rio Blanco
County, Colorado. AmerAlia acquired this lease in 1992. This lease contains a
naturally occurring, rare deposit of sodium bicarbonate, commonly known as
baking soda. AmerAlia's immediate objectives are to:
o Finalize local, state and federal regulatory approvals to construct a
plant for the recovery and production of sodium bicarbonate from its
sodium lease; and
o Raise sufficient funding to construct the plant and commence
operations.
AmerAlia's primary goal is to initially recover sodium bicarbonate from
the lease for sale to the animal feed market. Animal feed quality sodium
bicarbonate is a lower grade product with a current market price between $200
and $240 per ton delivered. Sodium bicarbonate is used in the preparation of
animal feed mixes where it acts as a rumen buffer to increase dairy cow milk
production. There are numerous other markets for sodium bicarbonate. These other
markets include pharmaceutical and food grade use of sodium bicarbonate. The
production of sodium bicarbonate will also enable the production of soda ash and
caustic soda, chemicals widely used in the manufacture of glass, detergents and
a variety of inorganic and organic chemicals. Potentially, sodium bicarbonate
might be used as an agent for flue gas desulfurization.
We have submitted our mining and development plans to the
Bureau of Land Management and submitted applications for all necessary
associated permits to other regulatory agencies of the federal, state and county
administrations. We are asking the BLM to issue an Environmental Assessment
("E.A.") and to determine a finding of no significant environmental impact
("FONSEI"). When the FONSEI is issued we shall be allowed to commence
construction activities on the Rock School Lease. If the BLM does not reach a
FONSEI, the construction of the plant and the operation of the mine may be
delayed significantly.
AmerAlia has entered into a Design/Build Agreement with U.S. Filter
Wastewater Group, Inc. of Naperville, Illinois. Subject to certain conditions,
US Filter will complete the design and construction of the necessary mine and
processing plant for AmerAlia, guarantee the plant's performance and advance the
costs of construction to AmerAlia. Among the more significant conditions,
however, are the requirements that:
o AmerAlia pay $6.4 million into an escrow. We have paid this amount into
the escrow; and
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o Before US Filter is obliged to incur any expenses outside of the escrow
account, AmerAlia must have sufficient long-term financing. AmerAlia's
ability to draw on this financing to repay the construction funding
provided by US Filter must not be subject to conditions other than the
performance of the plant.
AmerAlia has not been involved in any bankruptcy, receivership, or
similar proceedings.
Forward Looking Statements and Risk Factors
The future conduct of AmerAlia is dependent upon a number of factors
beyond our control. We can offer no assurance we will be able to conduct
AmerAlia's operations as contemplated in this report. Certain statements
contained in this report using the terms "may", "expects to", and other terms
denoting future possibilities, are forward-looking statements. The accuracy of
these statements cannot be guaranteed as they are subject to a variety of risks
beyond AmerAlia's ability to predict or control. These risks may cause actual
results to differ materially from the projections or estimates contained in this
report. These risks include, but are not limited to, the possibility the
described operations, reserves, or exploration or production activities will not
be completed on economic terms, if at all. The exploration, development and
mining of mineral properties, significant construction projects, and the
manufacture and marketing of chemical products are attendant with high risk.
Many of these risks are described in this report and it is important that each
person reviewing this report understands the significant risks accompanying the
establishment of AmerAlia's proposed operations. These risks and factors
include:
o AmerAlia has contributed $6.4 million to an escrow account required
under its Design/Build agreement with US Filter. US Filter is
proceeding with its activities to design and commence construction of
the plant and facilities using the escrow funding However, we do not
expect US Filter will provide the construction funding under the
Design/Build agreement unless AmerAlia can establish adequate long term
financing which is a condition of the Design/Build Agreement.
Consequently, if we cannot obtain this financing we will not be able to
achieve our corporate objectives. AmerAlia will incur significant
penalties if the US Filter construction program does not proceed and it
will have spent millions of dollars of corporate funds on the
preliminary design and construction activities. US Filter holds a
security interest in the Rock School Lease.
o AmerAlia is in the process of negotiating certain compensation
arrangements with its officers. These negotiations have not been
finalized.
o AmerAlia historically has had, and continues to have, operating losses.
Until we can generate revenues from operations we shall be reliant upon
raising further debt and equity capital to fund operating losses.
o AmerAlia's lease is due for renewal on July 1, 2001. The lease requires
sodium be produced in paying quantities for the lease to be renewed.
Our understanding of BLM general practice is that the conduct of our
activities proceeding to an EA will be sufficient to enable a lease
renewal. However, if there is a change in the interpretation of the
lease conditions, then the BLM may depart from past practice and not
renew the lease.
o Although we have obtained a significant amount of information about the
lease and we believe that the mineral resources can be extracted
economically, this belief cannot be tested until operations commence.
Actual operations may differ from our predictions and we may have to
spend more to rectify these differences.
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o Mining activities are subject to intensive federal, state, and local
government regulation and scrutiny in a number of different areas
including worker safety and health and environmental protection.
o We have limited commitments from prospective purchasers of sodium
bicarbonate when we produce it.
(b) BUSINESS OF ISSUER
AmerAlia is currently involved in only one industry segment: seeking to
finance and construct a solution mining facility and processing plant for the
manufacture of sodium bicarbonate.
General Discussion
The Piceance Creek Basin. The Rock School Lease is one of three federal
leases granted within the Piceance Creek Basin in Rio Blanco County, Colorado.
The Piceance Creek Basin covers a unique, major natural resource of nahcolite, a
mineral form of naturally occurring sodium bicarbonate.
AmerAlia has performed surface geological investigation of the 1,320
acre lease and has reviewed data assembled by other investigators in the
Piceance Creek Basin, including a 1974 report published by the United States
Geological Survey entitled "Stratigraphy and Nahcolite Resources of the Saline
Facies of the Green River Formation, Rio Blanco County, Colorado." (John R.
Dyni, USGS Report 74-56). This report analyzed the results of a detailed study
of ten core holes from the saline zone, including a core hole known as Dunn 20-1
which is approximately 800 feet to the east of AmerAlia's proposed plant site on
the Rock School lease.
From this core hole, Mr. Dyni estimated the total nahcolite content of
the saline zone in this area at 315 million tons per square mile. Due to the
apparent lateral continuity of this deposit, we believe it is reasonable to
assume that the concentrations found in the Dunn 20-1 hole also exist beneath
the Rock School Lease.
AmerAlia drilled a core hole on the Rock School lease in 1996 to
determine the extent of mineralization and the strength of the rocks in the
proposed solution mining area. The drill encountered nahcolite in three separate
resource intervals over 510 feet. The concentration within the resource
intervals averaged 26.4% nahcolite. AmerAlia engaged an independent consulting
firm, Agapito & Associates, to supervise the core hole drilling and to conduct
studies on core assays, rock strength and geological evaluation.
Consequently, we believe the nahcolite deposit within the Rock School
Lease is of significant size. However, not all of this resource can be
recovered with existing technology and within existing BLM lease conditions.
The economic viability of recovering the sodium bicarbonate cannot be
established until the resource is brought into production, or until substantial
additional engineering work is completed.
AmerAlia's activities in pursuing its operations are set out more fully
below. (See "Exploration and Development Work To Date.")
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The Sodium Bicarbonate Market.
In 1998, AmerAlia commissioned Harriman Chemsault Ltd, a London based
marketing consultancy specialising in the chlor-alkali sector of the chemical
industry, to provide a study of the global market for sodium bicarbonate with
special emphasis on the United States. The existing and long established market
for sodium bicarbonate is principally for food grade, animal feed and commercial
usage with delivered sale prices in the range of $200-400 per ton, depending on
grade. This market is dominated by a few suppliers producing synthetic sodium
bicarbonate from soda ash (sodium carbonate). They sell their product under
well-established brand names. Based on publicly available information, AmerAlia
believes that the cost of producing synthetic sodium bicarbonate exceeds $150
per ton. The United States and Canadian markets currently absorb about 520,000
tons of sodium bicarbonate annually for the animal feed market, industrial
markets, food-grade sodium bicarbonate, and for pharmaceutical uses.
The animal feed market accounts for approximately 130,000 tons of the
existing annual market for sodium bicarbonate in the United States and Canada.
The animal feed market is the lowest priced market with delivered prices of
approximately $200 per ton. Other markets are at higher prices with
pharmaceutical grade selling for approximately $400 per ton.
Both the animal feed and the pharmaceutical grade markets are mature
and stable, experiencing modest growth. If we are able to commence production of
sodium bicarbonate (itself, subject to a number of risks), we plan initially to
supply the animal feed market. Small amounts in feed rations re-establish normal
rumen balance thereby controlling acidotic stress conditions in a manner similar
to antacids in humans. This increases yields of both milk and butter fat in the
dairy industry.
Marketing Arrangements. AmerAlia has signed non-binding agreements with
two long standing distributors of sodium bicarbonate to the livestock industry.
Neither of these distributors has any obligation to purchase sodium bicarbonate
from AmerAlia. If the distributors choose to take production from AmerAlia when
it is available, they will have exclusive arrangements with AmerAlia to supply
the animal feed market and the opportunity to acquire sodium bicarbonate from
AmerAlia at a wholesale price. The contracts will only become effective only
when the buyers place their first order after AmerAlia commences production.
AmerAlia has no estimate as to when it will have production for sale. AmerAlia
has also received a letter of intent from a third distributor indicating a
capacity to distribute additional tonnage of sodium bicarbonate. These
distributors cover most of the United States and Canada.
Competition. Any production by AmerAlia or any other person from the
Rock School lease will be marketed in the traditional sodium bicarbonate market
in competition with large and well-established companies. The animal feed market
is subject to competition from other suppliers of sodium bicarbonate and
alternative rumen buffers. The resources of those companies far exceed those of
AmerAlia.
Based on preliminary engineering models, we believe that AmerAlia will
have a cost advantage over other producers of sodium bicarbonate. There is a
number of synthetic animal feed supplements which compete with sodium
bicarbonate. Based on our informal surveys, we believe that the animal feed
market will prefer to use naturally occurring sodium bicarbonate over a
synthetic alternative. If our plans prove to be accurate, AmerAlia's production
costs should allow AmerAlia to have a significant cost advantage in the animal
feed market.
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Two unaffiliated companies hold adjacent or nearby sodium leases issued
by the BLM. The adjacent lease is owned by White River Nahcolite Minerals, a
wholly owned subsidiary of IMC Global, Inc. American Soda, L.L.P. (formerly
NaTrona Resources, Inc.) owns the other lease issued January 1, 1992. Although
the sodium resource in the Piceance Creek Basin is believed to be of substantial
size, the AmerAlia, White River and American Soda leases are the only leases
currently issued by the BLM. Competition in the long term is not regarded as
being significant since AmerAlia believes the market can absorb the anticipated
production.
The Rock School Lease
Background Agreements. United States Sodium Lease No. C-0119985, known
as the Rock School Lease, with an area of 1,320 acres in Rio Blanco County,
Colorado, U.S.A. was previously owned by E. E. Kinder Co., an unaffiliated
Colorado general partnership, which had subleased the property to Denison
Resources (USA) Corp., a company acquired by AmerAlia in 1989. Under the
sublease, Denison had to meet certain requirements sufficient to obtain an
extension of the lease. In June, 1991 the Federal Bureau of Land Management
renewed the lease, effective July 1, 1991, for a period of ten years.
On December 10, 1992 AmerAlia purchased the Rock School Lease from
Kinder. Kinder and AmerAlia amended the acquisition terms in January 1996.
AmerAlia has certain remaining obligations to pay to Kinder:
o a minimum annual royalty of $75,000;
o a production royalty equal to $1.50 per ton of production;
o an annual consulting fee of $25,000, and
o if the minimum royalty exceeds the production royalty payable, then a
credit is carried forward and allowed against any future production
royalties.
The BLM approved Kinder's assignment of the Rock School Lease effective January
1, 1996.
Rock School Lease -- Terms. The current term of the Rock School lease
is due for renewal in June 2001. As leaseholder, AmerAlia has a preferential
right to renew the lease, but this right is subject to numerous requirements.
The most significant requires that AmerAlia must be producing sodium bicarbonate
from the lease "in paying quantities." As we have discussed above in Item 1, we
believe BLM general practice is that the conduct of our activities proceeding to
an EA will be sufficient to enable a lease renewal. This lease can be renewed in
perpetuity if we conduct operations on the lease and comply with the terms and
conditions of the lease.
AmerAlia pays rent to the BLM annually in advance at the rate of $1 per
acre. If AmerAlia succeeds in its business plan and produces sodium bicarbonate
from the lease, AmerAlia will have to pay the BLM a 5% production royalty.
Exploration and Development Work To Date. When AmerAlia acquired the
Denison interest in the Rock School Lease in 1989, approximately $493,000 had
already been invested in various geological, engineering and marketing studies
associated with developing the resource. Since then and through June 30, 1999,
AmerAlia has invested a further $1,750,000 in direct expenditures for further
geological and engineering studies including drilling a core hole, legal
expenses, technical consultants, and advances to the BLM to advance the
project's
<PAGE> 7
development. These expenditures, which do not include the acquisition cost of
the lease, have been capitalized in AmerAlia's financial statements. Further
capitalised expenditures include $1,250,000 paid to US Filter to June 30, 1999
to design and build the operating facility. Subsequent to June 30, we have
advanced a further $5,150,000 in advance payments to US Filter.
In addition to these expenditures, there were other direct expenditures
incurred by AmerAlia in negotiating with and meeting prospective joint venture
partners, investors, financiers, customers and construction contractors. These
amounts have been written off in AmerAlia's accounts as incurred.
Although we propose to carry out further exploration work on the Rock
School lease, our principal efforts are directed towards meeting the
requirements of the permitting agencies. Because the Piceance Creek Basin is
known to contain a substantial amount of oil shale, the BLM has prohibited
mining operations adversely affecting oil shale. The federal agency has,
however, accepted the proposed solution mining method and approval for a 50,000
tons per year initial mining operation is now expected. The BLM asked AmerAlia
to drill a core hole on the Rock School Lease and obtain site specific
underground data prior to the commencement of operations.
AmerAlia drilled this core hole in early 1996. The drill encountered
nahcolite in three separate resource intervals over a depth of 510 feet,
averaging 26.4% nahcolite. AmerAlia engaged Agapito & Associates to supervise
the core hole drilling and to conduct studies on core assays, rock strength and
geological evaluation. We have submitted this report to the BLM and to other
regulatory agencies of the federal, state and county administrations. The BLM is
considering the reports, the revised plant design and data from the development
proposal. We have asked the BLM to come to a finding of no significant
environmental impact ("FONSEI"). A FONSEI finding will enable us to proceed with
construction of the operating plant. If the BLM does not reach a FONSEI, the
construction of the plant and the operation of the mine may be significantly
delayed and may not be able to be accomplished in the remaining time under the
lease.
AmerAlia's proposed solution mining process will create underground
leach zones. The BLM's principal concern is the assessment of the effect of
these cavities on the geological environment, as well as on any existing
aquifers located above the proposed leaching caverns. While it is AmerAlia's
belief that the BLM is favorably disposed to the proposed development and that
the reports will conclude the environmental impact will be minimal, there is no
guarantee that a "FONSEI" will be issued. We are proceeding with our planning in
the expectation of approval. Should we wish to expand our production beyond
50,000 tons per year, we will be required to produce an Environmental Impact
Statement. This will be expensive and time consuming and we do not contemplate
undertaking one until operational data is available from the initial 50,000 tons
per year project.
Proposed Development Program. The plan submitted to the BLM for
approval envisages the development of the resource in stages starting with a
plant to produce 50,000 tons per year and then expanding to 500,000 tons per
year. Production will be from a 500 foot thick zone at a depth of 2,000 feet to
2,500 feet. Weak liquor will be injected into the nahcolite bearing rock; the
nahcolite will dissolve and be brought to the surface in solution where it will
be recrystallized and dried prior to despatch. This solution mining technology
has been
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previously tested in the same resource by Shell Oil (1970-1972) and found to be
feasible. Solution mining in other resources is well established. AmerAlia's
cash cost of production is expected to be about $65 per ton, one-half of
estimated existing industry average cash costs.
We anticipate the cost to construct the plant and associated facilities
on the Rock School lease will exceed $35 million for a 50,000 ton per year
plant. We have had numerous discussions with industry partners and investors or
investment representatives who have expressed interest in financing the
development of the property, but we have not reached agreement with any person
for permanent financing.
In May 1999, we entered into an agreement with US Filter for the design
and construction of the plant and related facilities for not more than $33.5
million. US Filter will guarantee the performance of the plant and related
facilities, but will not guarantee that the underground facilities will produce
sodium bicarbonate in solution satisfactory to feed the plant. US Filter also
agreed to finance the design and construction of the plant and related
facilities subject, however, to two principal conditions:
o First, AmerAlia was obliged to place $6.4 million into an escrow account to
fund design and engineering expenses until AmerAlia was able to obtain a
firm commitment for permanent financing (this we have done); and
o Before US Filter will advance any expenses to AmerAlia under the terms of
the agreement, AmerAlia must obtain a permanent financing commitment that
is acceptable to US Filter. US Filter has advised AmerAlia an acceptable
financing commitment must not be subject to conditions other than the
performance of the plant. Under the Design/Build agreement we were required
to provide acceptable financing by August 15, 1999. We have not met this
condition, however, US Filter has not declared a default under the
agreement and we are continuing negotiations with prospective financiers to
establish a facility satisfactory to US Filter.
If AmerAlia is not able to obtain outside financing for the project, or
if it is unable to obtain all necessary permits, it may not be able to complete
the development of the property and commence production.
Access. The Rock School Lease is accessible by a county maintained
gravel road sufficient for the exploration and development work being
accomplished. Access is difficult during the winter and early spring because of
heavy snows in the area. The road will have to be improved to allow all-weather
access when production commences.
Australian Activities
AmerAlia previously owned real estate in Australia. The real estate was
sold in 1989 to an unaffiliated, public Australian real estate investment trust,
known as The Rural Investment Trust. AmerAlia transferred its interest in this
trust to the THG Partnership, an affiliate, as part of its settlement of debt.
AmerAlia gave THG an option to exchange this investment for the issuance of 450
shares of Series E Preferred Stock. THG exercised this option in October 1998.
AmerAlia subsequently liquidated the RIT investment as described in Item 12
"Certain Relationships and Related Party Transactions".
<PAGE> 9
Employees
AmerAlia's day to-day business activities are managed by Mr. Bill H.
Gunn, Chairman and President; Mr John F. Woolard, Executive Vice President and
Mr. Robert van Mourik, Executive Vice President and Chief Financial Officer. See
Item 11. - "Executive Compensation".
ITEM 2. PROPERTIES
AmerAlia is a lessee of United States Sodium Lease No. C-0119985
affecting 1,320 acres in Rio Blanco County, Colorado, USA, and described more
fully in Item 1. - "Business", above.
ITEM 3. LEGAL PROCEEDINGS
AmerAlia v. Marvin Hudson
Mr. Marvin Hudson, formerly a vice president, employee, and greater
than 10% shareholder of AmerAlia has made a claim and, in July 1999, filed an
action in United States District Court for the District of Colorado. He claims
that AmerAlia breached an employment agreement providing for minimum salary
compensation of $75,000 per year, together with equity compensation. AmerAlia
has filed a motion to dismiss this litigation on jurisdictional grounds. As a
result of the Court's ruling remaining the State Court complaint to the Arapahoe
County District Court, Mr. Hudson's attorneys have dismissed the Federal
Complaint and have advised AmerAlia they intend to refile their claims in state
court. Mr. Hudson also named Bill H. Gunn, Robert C.J. van Mourik, and Neil E.
Summerson (directors and officers of AmerAlia) as defendants in this action. To
the knowledge of AmerAlia, Mr. Hudson has not yet served the complaint on these
individual defendants.
AmerAlia filed a complaint against Mr. Hudson in the District Court for
Arapahoe County, Colorado, in July 1999. AmerAlia claimed that Mr. Hudson has
wrongfully retained certain assets of AmerAlia. AmerAlia's complaint also seeks
an accounting from Mr. Hudson and a ruling that two alleged employment
agreements Mr. Hudson presented are void. Mr. Hudson removed this case to the
United States District Court, but the Federal Court, on AmerAlia's motion,
remanded the case to the State Court. Mr. Hudson has not yet responded to the
State Court complaint.
This litigation is only in the earliest stages. AmerAlia believes that
it has meritorious defenses against Mr. Hudson's claims and meritorious claims
against Mr. Hudson and will defend its position aggressively.
Raytheon Engineers & Constructors, Inc.
In 1998, AmerAlia entered into an engineering contract with Raytheon
for the design and construction of the processing plant on its Rock School
lease. AmerAlia has paid Raytheon $231,134 and Raytheon has billed AmerAlia for
an additional $303,800. Raytheon has sent AmerAlia a notice of its intention to
file a mechanics lien against the Rock School lease. AmerAlia believes that
Raytheon is not due the full amount of its invoice because of substandard work
that did not meet the time requirements of the contract. AmerAlia and Raytheon
have
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agreed to engage in mediation to attempt to resolve their differences. Raytheon
has not filed litigation to enforce this claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
AmerAlia held an annual meeting of its shareholders on June 28, 1999.
Messrs. Gunn, Woolard, van Mourik, Summerson, Cameron and Murphy were elected to
the Board of Directors. Votes were cast for the directors as follows:
<TABLE>
<CAPTION>
Votes For Abstain
--------- -------
<S> <C> <C>
Bill H. Gunn 7,267,915 15,175
John F. Woolard 7,280,790 2,300
Robert C. J. van Mourik 7,281,090 2,000
Neil E. Summerson 7,281,090 2,000
Robert A. Cameron 7,281,090 2,000
Geoffrey C. Murphy 7,281,090 2,000
</TABLE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) MARKET INFORMATION.
Since August 1987, AmerAlia's Common Stock has been publicly traded
under the symbol "AALA" on The Nasdaq SmallCap Market which is operated by the
National Association of Securities Dealers, Inc. The Nasdaq SmallCap Market is
one of two distinct market tiers comprising the Nasdaq Stock Market which is a
highly regulated electronic securities market utilizing a sophisticated computer
and telecommunications network. Market participants comprise competing Market
Makers, independent dealers who commit capital to stocks and compete with each
other for orders, and Electronic Communications Networks, trading systems
recently integrated into Nasdaq to bring additional orders into the market. The
market structure provides visibility of orders and allows market participants to
compete for order flow. Trading is supported by a communications network linking
the market participants to quotations dissemination, trade reporting and order
execution systems. This market also provides specialized automation services for
screen-based negotiations of transactions, online comparison of transactions,
and a range of information services tailored to the needs of the securities
industry, investors and issuers.
The average trading prices for AmerAlia's common stock as provided by
Nasdaq's online service for the past two fiscal years are provided in the table
below. These prices do not include allowance for retail markup or markdown,
commissions or other transaction costs.
<PAGE> 11
<TABLE>
<CAPTION>
-------------------------------------------
Average
For the Quarter Ended Sale Price
-------------------------------------------
<S> <C>
September 30, 1997 $1.25
December 31, 1997 $0.75
March 31, 1998 $1.65
June 30, 1998 $1.50
September 30, 1998 $1.45
December 31, 1998 $1.25
March 31, 1999 $1.50
June 30, 1999 $3.00
-------------------------------------------
</TABLE>
(b) HOLDERS.
(b)(1) The number of record holders of AmerAlia's common stock on
June 30, 1999 was approximately 452. (This does not include an
indeterminate number of shareholders whose shares are held by
brokers in street name.)
(b)(2) Not applicable.
(c) DIVIDENDS
AmerAlia has not paid dividends on its common stock and has no plans to
pay cash dividends in the future. AmerAlia's ability to pay dividends to holders
of its common stock is limited as a result of the issue of its outstanding
shares of Series E Preferred Stock.
RECENT SALES OF UNREGISTERED SECURITIES.
On August 12, 1999, AmerAlia issued 250,000 shares of its restricted
common stock for a total investment of $625,000 ($2.50 per share). No
underwriter participated in the offering of these shares. Each of the investors
was an accredited investor. The offering was made under the exemptions from
registration under sections 4(2) and 4(6) of the Securities Act of 1933, and
Rule 506 of Regulation D.
During the fiscal year ended June 30, 1999, dividends aggregating
$283,865 became payable to the holders of the Series E Preferred Stock. AmerAlia
paid, or will pay, these dividends to the holders of the Series E Preferred
Stock through the issuance of 283,865 shares of its restricted common stock.
As previously reported in the December quarter Form 10-Q, the
Jacqueline Badger Mars Trust, an affiliate, subscribed $1,050,000 on December
30, 1998 for 140 units. Each unit included 5,000 shares of common stock and
common stock purchase warrants to acquire 5,000 shares of restricted common
stock for prices commencing at $2.00 per share. The Trust subsequently exercised
the warrants on March 26, 1999 and paid $1.4 million for the issue of 700,000
shares of common stock. On March 31, other accredited investors exercised
warrants for 553,000 shares at $2.00 per share raising $1,106,000 in additional
equity. There were no underwriters to these issues, the investors were
accredited investors only and an exemption from registration is claimed under
sections 4(2) and 4(6) and Rule 506 of Regulation D of the Securities Act of
1933.
<PAGE> 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
LIQUIDITY AND CAPITAL RESOURCES
JUNE 30, 1999 AS COMPARED TO JUNE 30, 1998
AmerAlia does not generate any operating income and, therefore,
continues to rely on raising capital from its existing shareholders and from
private offerings of its securities to finance its operations. During the 1999
fiscal year, AmerAlia raised a total of $4,208,096 through the sale of preferred
stock, common stock and warrants to accredited investors and to investors
outside of the United States. These securities were issued for cash,
cancellation of debt and for the exchange for an investment in the Rural
Investment Trust. This investment was subsequently liquidated raising $418,346.
After the end of the fiscal year, AmerAlia raised an additional $625,000 through
the sale of common stock and borrowed $4.2 million from a commercial bank. This
loan is guaranteed by AmerAlia's principal shareholder as explained at Item
13(a) Certain Relationships and Related Party Transactions under "Guaranty
Agreement".
We have funded further capital expenditures on the Rock School Lease
development ($255,000) and on deposits under the Design/Build agreement with US
Filter ($1,250,000). In addition, we provided $991,305 in additional funding to
the escrow account under the Design/Build agreement. Principally, the balance of
the funds we raised were used to increase cash reserves by $395,000 and to fund
AmerAlia's operating loss. The operating loss includes a contingency for
$303,800, an amount we are disputing with Raytheon. This dispute is subject to
mediation and the outcome will determine the actual amount of our liability.
As a result of the fund raising throughout the year, total assets
increased to $5,836,061 (1998: $3,500,143; 1997: $3,007,489) and stockholders'
equity increased to $4,912,533 (1998: $2,680,688; 1997: $2,354,561).
The outstanding warrants, if exercised in whole or part, would result
in additional capital for AmerAlia. The warrant exercise prices range from $1.50
to $6.00, however, it is not likely that any person will exercise warrants
unless the market price for the shares exceeded the warrant exercise prices on a
sustained basis. Furthermore, AmerAlia will not permit any person to exercise
warrants unless the underlying shares of common stock were included in an
effective registration statement, or unless an exemption from registration was
available.
AmerAlia has historically derived its liquidity from raising new equity
investment or by issuing notes payable. AmerAlia's ability to ensure its
long-term survival continues to be dependent upon AmerAlia obtaining all permits
necessary for the proposed plant and financing for its construction, estimated
to be in excess of $35 million. AmerAlia reached an agreement with US Filter to
provide construction financing, but US Filter's agreement is subject to numerous
conditions and, to date, US Filter has not advanced any funds pursuant to that
agreement. We have complied with our obligation to provide $6.4 million to
initiate the design and construction activities. We are negotiating with
prospective investors and financiers to achieve this financing objective,
although there can be no assurance we will be able to complete this financing.
<PAGE> 13
We do not anticipate any difficulties with our computers and their
systems as the year 2000 approaches as our computers and software are relatively
new systems. The manufacturers and suppliers have represented to us the
equipment is Y2K compliant.
JUNE 30, 1998 AS COMPARED TO JUNE 30, 1997
During the 1998 fiscal year, AmerAlia raised $1.1 million in different
offerings for the sale of its common stock, preferred stock and warrants to
accredited and non-United States investors.
In order to simplify the presentation of AmerAlia's financial
statements, the Board of Directors decided to initiate discussions with holders
of the preferred stockholders to rationalize the various series of preferred
stock. Consequently, as discussed more fully in Item 13(a) later, all of the
outstanding shares of the various series of preferred stock have been exchanged
for common stock or a new Series E Preferred Stock. The rights and preferences
attributable to the Series E Stock are set out in Item 12 later. A total of
356,554 shares of common stock at $1 per share were issued in lieu of dividends
on Series A, B, C, D & E Preferred Stock and a further $36,000 of accrued but
unpaid dividends were included in the exchange of 26,000 shares of Series B
Stock for shares of Series E Stock.
A net increase in AmerAlia's accounts and royalties payable of more
than $100,000 created an additional source of funds. Of these liabilities,
$266,667 is due to one creditor for consulting fees and royalties payable on the
Rock School Lease. The payment of minimum annual royalties generates credits
usable if a plant is built which can achieve production exceeding 50,000 ton per
year. Above this level of output, the credits can be offset against royalties
exceeding the minimum royalty. The total of these credits as at June 30, 1998
was $337,500. A further $223,606 was raised through the issue of notes payable.
Funds were applied to funding the operating loss, $100,183 was used to repay
notes payable, $13,051 was invested in developing the Rock School Lease project
and $45,704 was used to reduce liabilities due to related parties.
As a result of the fund raising throughout the year, total assets
increased to $3,500,143 (1997: $3,007,489; 1996: $3,608,000) and stockholders'
equity increased to $2,680,688 (1997: $2,354,561; 1996: $2,118,000).
RESULTS OF OPERATIONS
JUNE 30, 1999 AS COMPARED TO JUNE 30, 1998:
Since AmerAlia does not receive revenues from operations, any income it
receives is generally derived from interest earned on funds on deposit resulting
from stock subscriptions. Interest income in 1999 was less than $37,000 and less
than $5,000 in 1998.
General and administrative expenditures were significantly higher this
year than for previous years (1999: $1,910,792; 1998: $629,605 and 1997:
$690,982) as expected as a result of the increased activity associated with
obtaining funding for the development of AmerAlia's lease and construction of
production facilities. Interest expense has been reduced further as a result of
lower debt (1999: $18,519; 1998: $38,909 and 1997: $70,383). Consequently, the
1999
<PAGE> 14
net loss of $1,901,601 significantly exceeded those of prior years (1998:
$549,817; and 1997: $769,185). Contributing to this loss was an expenditure of
approximately $600,000 paid to external consultants in connection with
developing the permitting applications and development plans associated with the
development of our resource; approximately $410,000 in management and staff
salaries due to higher staffing levels (1998: $260,000) and increased consulting
fees as a result of increased corporate activities. We have a dispute with
Raytheon concerning additional work it performed which we consider to be outside
the specifications of the work orders. We are disputing this amount and have
agreed with Raytheon to go to mediation and/or arbitration to settle the matter.
Meanwhile we have provided for a contingency of $303,800 in our financial
statements. Under our Design/Build agreement with US Filter we contributed
$6,400,000 to an escrow account to fund the initial design and construction
activities. Our agreement provides that if we cannot secure suitable long term
financing funding US Filter is entitled to substantial liquidated damages. Its
interests are secured by our interests in the Rock School Lease.
Until AmerAlia achieves its objective of establishing a plant for the
recovery and production of sodium bicarbonate, it will not be able to generate
operating revenues. Whilst we are progressing negotiations with various
prospective investors and financiers, we have not reached any definitive
agreements to enable us to build our proposed facilities. We estimate more than
$35 million will be required to fund construction and the associated working
capital requirements until profitable operations are established. There is no
assurance that AmerAlia can obtain this financing and in the meantime we must
fund our operating losses from our own resources as discussed above.
JUNE 30, 1998 AS COMPARED TO JUNE 30, 1997:
As AmerAlia does not receive revenues from operations, any income it
receives is generally derived from interest earned on funds on deposit resulting
from stock subscriptions. Interest income in 1998 was less than $5,000 and less
than $2,000 in 1997. As AmerAlia no longer has Australian operations, management
decided, in consultation with the auditors, to remove the foreign currency
translation adjustment account from AmerAlia's balance sheet. This created a
foreign currency gain of $123,211 brought to account through the income
statement.
General and administrative expenditures were significantly lower this
year than for previous years (1998: $629,605; 1997: $690,982 and 1996:
$668,202). However, this was temporary and as management progresses its plans to
obtain funding for the development of AmerAlia's lease and construction of
production facilities, the level of these expenditures is expected to increase.
Interest expense has been reduced as a result of lower debt (1998: $38,909;
1997: $70,383; and 1996: $124,128). Consequently, the 1998 net loss of $549,817
was significantly less than those of prior years (1997: $769,185 and 1996:
$751,350).
Impact of Inflation
AmerAlia believes that its activities are not materially affected by
inflation.
<PAGE> 15
ITEM 7. FINANCIAL STATEMENTS.
The following information has been derived from AmerAlia's financial
statements. The financial statements attached to this annual report on Form 10-K
were prepared in accordance with Regulation S-B.
================================================================================
SELECTED FINANCIAL DATA
Amounts in Thousands of Dollars
(Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended June 30
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues -- -- -- -- --
Net Loss (1,902) (550) (769) (751) (1,007)
Loss per Share (.31) (.13) (.26) (.28) (.41)
Total Assets 5,836 3,500 3,008 3,608 2,985
Total Current
Assets 1,378 725 12 232 338
Total Current
Liabilities 923 819 650 1,481 1,539
Long Term Debt -- -- 4 9 14
Shareholders'
Equity 4,913 2,681 2,354 2,118 1,432
Weighted Average
No. of Shares 6,230 4,313 3,014 2,653 2,463
</TABLE>
================================================================================
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth the names and ages of all the Directors and
Executive Officers of AmerAlia, positions held by each such person, and when
such person was first elected or appointed. The directors each serve until their
successors are duly elected and qualified; officers are appointed by, and serve
at the pleasure of, the Board of Directors.
<PAGE> 16
<TABLE>
<CAPTION>
================================================================================
First
Elected or
Name & Age Position Appointed
- --------------------------------------------------------------------------------
<S> <C> <C>
Bill H. Gunn Chairman of the Board, 02/84
Age 57 President, & Chief
Executive Officer
Robert van Mourik Director, 09/90
Age 46 Executive Vice President 01/89
(2) Chief Financial Officer,
Secretary & Treasurer
Neil E. Summerson Director 09/90
Age 51
(1,2)
Robert A. Cameron Director 09/90
Age 60
(2)
John F. Woolard Director 10/98
Age 59 Executive Vice President 06/98
Geoffrey C. Murphy Director 06/99
Age 58
Roger Day Vice President of Operations 02/99
Age 49
================================================================================
</TABLE>
(1) Members of the Compensation Committee.
(2) Members of the Audit Committee
There are no family relationships among the officers or directors. No
arrangement exists between any of the above officers and directors pursuant to
which any one of those persons was elected to such office or position. No
director of AmerAlia is a director of a company having securities registered
under Section 12 or subject to Section 15(d) of the Securities Exchange Act of
1934 or a company registered under the Investment Company Act of 1940.
Directors hold office until the next meeting of shareholders and until
a successor is elected and qualified, or until their resignation. Executive
officers are elected at annual meetings of the Board of Directors. Each such
officer holds office for one year or until a successor has been duly elected and
qualified or until death, resignation or removal. No director of AmerAlia is a
director of another company having securities registered under Section 12 of the
Securities Exchange Act of 1934 or a company registered under the Investment
Company Act of 1940.
<PAGE> 17
A brief summary of the business experience of each person who is
currently an officer or director of AmerAlia, and such person's service with
AmerAlia is as follows:
BILL H. GUNN
Mr. Gunn graduated in Commerce from the University of Queensland in
1963, achieving his Accounting Certificate from the University of Queensland in
the same year. Subsequently, he was admitted as a member of the Australian
Society of Certified Practising Accountants and has successfully completed and
passed the examinations for admittance as a Certified Public Accountant (CPA) in
the USA.
Since March, 1977, Mr. Gunn has been a self-employed investor, CPA, and
a Director of several Stock Exchange listed public companies, as well as a
number of majority owned private corporations. These companies have been active
in the field of retailing, hotels, feed mills, mining exploration, automotive
components, securities investment, financing, property development and numerous
related fields.
During his business experience, Mr. Gunn has been exposed to a wide
variety of corporate investments and has been involved in major business
acquisition and development activities. He is particularly knowledgeable on
business activities and investments in the State of Queensland, Australia, which
is widely regarded as the major Australian growth state. His principal activity
is now acting as Chairman and President of AmerAlia.
ROBERT VAN MOURIK
Mr. van Mourik graduated in 1974 with a Bachelor of Applied Science
(Chemistry) and in 1981 with a Masters Degree in Business Administration. His
employment experience includes manufacturing, real estate development and
marketing, investment consulting and corporate reconstruction. He has served as
Executive Vice President, Chief Financial Officer, Treasurer and Secretary of
AmerAlia since 1989 and on September 26, 1990, he was elected a director.
NEIL E. SUMMERSON
Until July 1997, Mr. Summerson was the senior partner, and for five
years prior was managing partner, in the international accounting firm of Ernst
& Young, at its offices in Brisbane, Australia. Prior to 1992, he worked in the
Corporate Recovery and Insolvency Division, which is involved in the
administration of insolvent companies, as well as providing counsel to small
businesses in the area of taxation, audit procedures and management advisory
services. Mr. Summerson received his Bachelor of Commerce degree from the
University of Queensland in 1968. He is a Fellow of the Institute of Chartered
Accountants, an Associate of the Australian Institute of Credit Management, a
Registered Public Accountant in Queensland, a registered Company Liquidator in
Queensland, an Official Liquidator, and an Officer of the Supreme Court of
Queensland. Mr. Summerson is a director of several Australian public and private
companies. During the current fiscal year, Mr. Summerson resigned as Receiver
and Manager of Denison Resources Ltd.
<PAGE> 18
ROBERT A. CAMERON
Mr. Cameron graduated with Honors in Metallurgical and Chemical
Engineering from the University of Adelaide, Australia in April, 1961. Mr.
Cameron has had 16 years experience as Chief Executive Officer and director of a
number of Australian public companies. Mr. Cameron has been responsible for
developing mining operations involving such industrial minerals as rutile,
zircon, ilmenite, bentonite clay, calcium carbonate and silver and gold
properties. From 1983, Mr. Cameron was Chairman of the Board of Directors of
Denison Resources Ltd., an Australian stock exchange listed public company
formed for the specific purpose of exploring and developing underground natural
soda resources in Queensland, Australia. This led to the investigation of
natural soda deposits in the United States and securing the Rock School Lease
interest which was later transferred to the AmerAlia.
JOHN F. WOOLARD
Mr. Woolard graduated from the University of Wisconsin, Madison,
Wisconsin, in June 1961. He received a Bachelor of Science degree with a major
in economics. After graduation he was employed by an advertising agency, working
in all major departments and finally as an account executive handling $5,000,000
annual advertising budgets. He joined an investment banking firm in 1968. In his
30 years in the investment banking business, Mr. Woolard has supervised all
departments in the firm, including retail sales, corporate finance,
underwriting, and accounting. Mr. Woolard has been a registered principal with
the New York Stock Exchange member firm, Stiffel, Nicolas & Co. for more than
the past five years until taking a leave of absence in January 1998. He is also
a director and an investor in a number of privately-held companies. Presently,
Mr. Woolard serves as Executive Vice President and Director of AmerAlia.
GEOFFREY C. MURPHY
Mr. Murphy has, for more than the past five years, been a principal of
Coloney Von Soosten + Associates Inc., a consulting firm located in Kenilworth,
Illinois. Mr Murphy graduated with a Bachelor's degree from Dartmouth College,
and a Master's of Business Administration from the Amos Tuck School of Business
Administration at Dartmouth College.
ROGER DAY
Mr. Day is a graduate from Michigan Technical University with
approximately twenty years experience in researching, developing and managing
operations similar to AmerAlia's undertakings. Mr. Day previously held senior
technical and management positions with two mining operations in Colorado. As
Vice President of Operations, Mr. Day is responsible for supervising the design,
construction and management of the solution mine and processing plant on
AmerAlia's lease.
(b) SIGNIFICANT EMPLOYEES.
AmerAlia does not employ anyone who is not an executive officer who
contributes significantly to its business.
(c) FAMILY RELATIONSHIPS.
There are no family relationships among the officers or directors.
<PAGE> 19
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS:
During the past five years, no director or officer of AmerAlia has:
(d)(1) Filed or has had filed against him a petition under the federal
bankruptcy laws or any state insolvency law, nor has a receiver, fiscal agent or
similar officer been appointed by a court for the business or property of such
person, or any partnership in which he was a general partner, or any corporation
or business association of which he was an executive officer at or within two
years before such filings;
(d)(2) Been convicted in a criminal proceeding or is a named subject of
a pending criminal proceeding (excluding traffic violations and other minor
offenses);
(d)(3) Been the subject of any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining such person from, or
otherwise limiting, the following activities:
(i) Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any of the foregoing, or
as an investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director, or employee of any investment company, bank,
savings and loan association or insurance company, or engaging in or continuing
any conduct or practice in connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal commodities laws;
(d)(4) Been the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting for more than 60 days the right of
such person to engage in any activity described in paragraph (3)(i) above, or to
be associated with persons engaged in any such activity; or
(d)(5) Been found by a court of competent jurisdiction in a civil action
or by the Securities and Exchange Commission (the "Commission") to have violated
any federal or state securities law, and the judgment in such civil action or
finding by the Commission has not been subsequently reversed, suspended, or
vacated; or
(d)(6) Been found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
<PAGE> 20
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires AmerAlia's directors and officers and persons who own more than 10% of
AmerAlia's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Directors,
officers, and greater-than-10% shareholders are required by SEC regulation to
furnish AmerAlia with copies of all Section 16(a) reports filed.
Based solely on its review of the copies of the reports it received from
persons required to file, AmerAlia believes that during the period from July 1,
1997 through June 30, 1999, all filing requirements applicable to officers,
directors, and greater-than-10% shareholders were met in accordance with the
requirements of Section 16(a) except as follows:
o The THG Partnership, of which Ms. Tiscornia, Bill H. Gunn, and Marvin H.
Hudson were partners, exercised an option and acquired 450 shares of
AmerAlia's Series E Preferred Stock in November 1998; Ms. Tiscornia and Mr.
Gunn reported this transaction on a Form 4 in April 1999.
o Mr. Gunn filed a Form 4 in October 1997 reporting transactions which took
place in November 1996.
o Mary L. Tiscornia filed a Form 3 in April 1998 reporting transactions which
occurred in November 1996, and a Form 5 in April 1998 reporting subsequent
transactions through March 31, 1998. Ms. Tiscornia ceased being subject to
the reporting obligations of Section 16(a) in December 1998.
o The Jacqueline Badger Mars Trust filed 32 Forms 4 in December 1997
reporting transactions which took place since May 1994. In August 1998, in
connection with an administrative proceeding brought by the SEC, Ms. Mars,
without admitting or denying the issues identified in the order, consented
to the entry of a cease-and-desist order in which she agreed to cease and
desist from committing or causing any violations of, and committing or
causing any future violations of, Sections 13(d) and 16(a) of the
Securities Exchange Act of 1934 and Rules 13d-1, 13d-2, 16a-2 and 16a-3
promulgated thereunder.
o Mr. Neil Summerson filed a Form 4 in April 1998 reporting a transaction
which occurred in January 1998.
o Although Roger Day was appointed an executive officer of AmerAlia effective
in November 1998, the appointment was not approved by the Board of
Directors until April 1999. Consequently Mr. Day did not file a Form 3
until April 1999. Mr. Day considers this report to have been timely since
his appointment was not effective without Board approval.
o Mr. Marvin Hudson (no longer subject to the reporting obligations of
Section 16(a)) filed Forms 4 in October 1997 reporting transactions which
occurred in November 1996 and July 1997. In addition, AmerAlia is aware
that Mr. Hudson has acquired beneficial ownership in additional securities
through his ownership of an interest in THG which have not been reported as
required. Mr. Hudson may have acquired or disposed of other shares of
AmerAlia common stock or derivative securities without the knowledge of
AmerAlia which have not been reported. Mr. Hudson ceased being subject to
the reporting obligations of Section 16(a) in April 1999, following the
dissolution of The THG Partnership.
<PAGE> 21
AmerAlia is obligated to pay common stock dividends to the holders of its
Series E Preferred Stock as a class. Some of these holders are subject to the
reporting obligations of Section 16(a). It is the position of these reporting
persons that the dividends are exempt from the reporting requirements by virtue
of Rule 16a-9 and, therefore, reports were not required to be filed to report
each issuance of dividends.
AmerAlia is aware that the THG Partnership elected to dissolve and
distribute its assets to its partners in March 1999, and completed the
distribution in April 1999. As a result of this distribution, Mary L. Tiscornia
and Marvin H. Hudson ceased to be subject to the reporting requirements of
Section 16(a). However, as Marvin Hudson has failed to file the reports required
under Section 16(a) of the Securities Exchange Act of 1934, as amended, AmerAlia
does not know whether he may have any short-swing liability.
As a result of acquiring shares in May 1997 and selling shares in August
1997, Ms. Mary Tiscornia generated a short swing profit of $2,340. Upon becoming
aware of this, Ms. Tiscornia brought the matter to the AmerAlia's attention and
voluntarily remitted this amount to AmerAlia in June 1998 in settlement of her
Section 16(b) liability.
ITEM 10. EXECUTIVE COMPENSATION
(a) SUMMARY COMPENSATION TABLE.
The following table sets forth information regarding compensation paid to
the officers of AmerAlia during the three fiscal years ended June 30, 1999. Mr.
Gunn and Mr Woolard were the only executive officers receiving compensation
exceeding $100,000 during fiscal 1999, as shown below. Compensation to Mr. Gunn
is paid to Gunn Development Pty. Ltd., of which Mr. Gunn is a controlling
shareholder.
AmerAlia has no plans for the payment or accrual for payment of any
amounts to any executive officer in connection with his resignation, retirement,
or other termination, or change of control or change in the executive officer's
responsibilities.
AmerAlia has not adopted a qualified medical insurance, life insurance,
or other benefit plan for its employees. AmerAlia has reimbursed Messrs.
Woolard, Gunn, and Day for certain medical expenses and insurance premiums.
AmerAlia currently has no stock ownership or other profit-sharing or pension
plans, but may adopt such plans in the future. AmerAlia has no retirement plans
and, therefore, has made no contributions to any such plan on behalf of the
named officers.
AmerAlia acquired a vehicle during the 1994 year for the use of Mr. Gunn
<PAGE> 22
<TABLE>
<CAPTION>
T=============================================================================================================
Annual Compensation Long Term Compensation
--------------------------------- ------------------------------
Awards Payout
-------------------- ------
Restricted Options LTIP All Other
Name and Position Year Salary Bonus Other Awards & SAR's Payout Compensation
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bill H. Gunn
President and 1999 $125,000 -0- $14,000(a) -0- -0- -0- -0-
Chief Executive 1998 $100,000 -0- $14,000(a) -0- -0- -0- -0-
Officer 1997 $100,000 -0- $ 8,000(a) -0- -0- -0- -0-
=============================================================================================================
John F. Woolard,
Executive Vice 1999 $135,000 -0- $ 9,333(a) -0- -0- -0- -0-
President (b)
=============================================================================================================
</TABLE>
Notes: (a) Directors fees
(b) Mr. Woolard was employed by AmerAlia on June 1, 1998.
OPTIONS/SAR GRANTED DURING YEAR ENDED JUNE 30, 1999
During the fiscal year ended June 30, 1998, AmerAlia granted stock
options to acquire 250,000 shares to John Woolard in connection with his
becoming a consultant to AmerAlia in February 1998. 100,000 of these options are
exercisable at $1.00 per share through March 31, 2001; the remaining 150,000
options are exercisable at $1.50 per share through March 31, 2003. Mr. Woolard
became an executive officer of AmerAlia on June 1, 1998. Subsequent to the end
of the 1998 fiscal year, AmerAlia granted stock options, as described below, to
Roger Day who became an executive officer in April 1999.
AmerAlia has not adopted any other stock option or stock appreciation
rights plan.
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE.
No officer exercised stock options during the fiscal year ended June 30,
1999, or subsequently. The following table sets forth information regarding the
year-end value of options being held by the Chief Executive Officer and the
other named officers such persons on June 30, 1999: No Stock Appreciation Rights
have been granted, or are held by, any such person:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
- -------------------------------------------------------------------------------------------------------------
Value of
# of unexercised in-the-money
options at FY end options at FY end
Shares acquired on (exercisable/ (exercisable/
Name exercise Value realized unexercisable) unexercisable)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bill H. Gunn -0- -0- 140,000 245,000
- -------------------------------------------------------------------------------------------------------------
Robert van Mourik -0- -0- 75,000 131,250
- -------------------------------------------------------------------------------------------------------------
John Woolard -0- -0- 250,000 487,500
- -------------------------------------------------------------------------------------------------------------
Roger Day -0- -0- 20,000 35,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
LONG TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
AmerAlia has no long term incentive compensation plans, defined benefit
plans, or actuarial plans. There are no plans to pay bonuses or deferred
compensation to employees of AmerAlia. AmerAlia has not adopted any medical,
life or other insurance plan for its employees.
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
Not applicable since AmerAlia has not defined benefit or actuarial plans.
COMPENSATION OF DIRECTORS
STANDARD ARRANGEMENTS.
AmerAlia's directors are authorized to receive $14,000 cash compensation
per year for their services as Directors each year. In connection with certain
consulting services rendered by them, AmerAlia paid or accrued liabilities to an
affiliate of Robert A. Cameron $7,007 for services rendered during the fiscal
year ended June 30,1998, and $18,302 for the fiscal year ended June 30, 1999.
In addition, AmerAlia pays Coloney Von Soosten + Associates Inc. a
retainer of $2,500 per month for financial and administrative services. Hours in
excess of 15 per month are paid to Coloney Von Soosten + Associates Inc. at the
rate of $200 per hour. Geoffrey C. Murphy is a principal of Coloney Von Soosten
+ Associates Inc. and has primary responsibility for the services it provides to
AmerAlia. Mr. Murphy became a director in June 1999 following the annual meeting
of shareholders.
In each case, Directors are reimbursed expenses they incurred on behalf
of AmerAlia on a fully accountable basis.
OTHER ARRANGEMENTS.
Except as described herein, no officer or director of AmerAlia has been
or is being paid any cash compensation, or is otherwise subject to any deferred
compensation plan, bonus plan or any other arrangement and understanding whereby
such person would obtain any cash compensation for his services for and on
behalf of AmerAlia.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
AmerAlia has no compensation plan or arrangement with respect to any
executive officer which plan or arrangement results or will result from the
resignation, retirement or any other termination of such individual's employment
with AmerAlia. AmerAlia has no plan or arrangement with respect to any such
persons which will result from a change in control or a change in the
individual's responsibilities following a change in control.
<PAGE> 24
AmerAlia's only employment contract is with its vice president of
operations, Roger Day. In April 1999, effective November 1998, AmerAlia entered
into a five year employment agreement with Roger Day who is employed with the
title of Vice President of Operations. As compensation for services rendered
under the employment agreement, Mr. Day shall receive a salary of $100,000 per
annum, plus bonuses and salary increases as the Board of Directors may determine
in its sole discretion. AmerAlia also granted Mr. Day options to acquire 100,000
shares of Common Stock for an exercise price of $1.50 per share, exercisable
through December 31, 2003. Options to acquire 20,000 shares vested on Board
approval of the employment agreement; the remainder vest annually through
November 2002. In addition, AmerAlia advanced $25,000 to Mr. Day as a loan,
which amount will be forgiven over the period of his employment.
REPORT ON REPRICING OF OPTIONS/SARS.
Not applicable, as no options or SARs were repriced during the fiscal
year ended June 30, 1999.
ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION.
A Compensation Committee comprising the non-executive directors of the
Board was formed early in 1993 and determined the management fees payable to
Messrs. Gunn, van Mourik and Woolard, as set out above. The Compensation
Committee is now Mr. Summerson alone who has not been an officer nor an employee
of AmerAlia or any of its subsidiaries during the fiscal year ended June 30,
1999, or subsequently. Mr. Summerson does not have any other direct or indirect
relationship with AmerAlia requiring disclosure by AmerAlia pursuant to Item 401
of Regulation S-K. Furthermore, no executive officer of AmerAlia served as a
member of the Compensation Committee (or similar committee) of another entity
which dealt with compensation paid to any member of AmerAlia's Compensation
Committee, or with which any other interlocking relationship exists.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A capitalization table is helpful in understanding the security
ownership of certain beneficial owners and management of AmerAlia. The following
table sets forth this capitalization information as of June 30, 1999.
<TABLE>
<CAPTION>
Number of Voting Rights
Description of Class Shares per share
-------------------- --------- ---------------------
<S> <C> <C>
Common Stock 7,659,766 one vote per share
Series E Preferred Stock 2,986 1,000 votes per share
</TABLE>
<PAGE> 25
(a) AND (b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
At June 30, 1999, AmerAlia had two classes of outstanding voting
securities, its common stock (referred to herein as the "Common Stock") and its
Series E Preferred Stock (each share of which is equivalent to the beneficial
ownership of 1,000 shares of Common Stock). The following table sets forth
information as of June 30, 1999 with respect to the ownership of the Common
Stock and Series E Preferred Stock for all directors, individually, all
executive officers named in the compensation table, all executive officers and
directors as a group, and all beneficial owners of more than five percent of the
Common Stock (not including shares held in the name of known depositories, such
as CEDE & Co., for the benefit of the underlying beneficial shareholders). The
following shareholders have sole voting and investment power with respect to the
shares unless indicated otherwise.
<PAGE> 26
<TABLE>
<CAPTION>
==================================================================================
Name & Address Amount & Nature Percent Percent
of of Beneficial of of Voting
Beneficial Owner Ownership Class Securities
==================================================================================
<S> <C> <C> <C>
Neil E. Summerson 75,000(1) 1.0% nil
Bill H. Gunn 337,645(2) 4.3% 1.2%
Robert van Mourik 220,384(3) 2.8% 1.4%
John F. Woolard 274,500(7) 3.5% nil
Geoffrey C. Murphy 40,000 nil nil
Robert A. Cameron 75,000(5) 1.0% nil
OFFICERS & DIRECTORS
AS A GROUP (7 PERSONS) 1,042,529(8) 12.3% 3.2%
Madeline Ahern 478,119(4) 5.9% 4.5%
atf The Bromley Family Trust
8th fl, 87 Wickham Tce,
Brisbane, Qld, Australia
Jacqueline Badger Mars 5,097,460(6) 52.8% 47.9%
atf the Jacqueline
Badger Mars Trust dated
Feb 5, 1975 as amended
6885 Elm St., McLean, VA 22101
Mary L. Tiscornia 467,830(9) 5.8% 4.4%
448 Ignacio Boulevard, Suite 338
Novato, CA 94949
==================================================================================
</TABLE>
(1) Mr. Summerson: Represents options to acquire 75,000 shares of Common
Stock for $1.50 per share expiring on June 28, 2006, held by Glendower
Investments Pty. Ltd. as trustee of a trust of which Mr. Summerson and
his family are beneficiaries.
(2) Mr. Gunn: Includes 18,685 shares of Common Stock owned directly by Mr.
Gunn and 116,960 shares of Common Stock owned by Gunn Development Pty.
Ltd. (of which Mr. Gunn is a controlling shareholder); 62 shares of
Series E Preferred Stock (convertible into common shares at the rate of
1,000:1); and options to acquire 140,000 shares of Common Stock at
$1.50 per share expiring on dates up to June 28, 2006. Does not include
70,000 Stock Appreciation Rights issued at $1.50 per share expiring on
dates up to June 28, 2006.
<PAGE> 27
(3) Mr. van Mourik: Includes 500 shares of Common Stock owned directly by
Mr. van Mourik, 90,759 shares of Common Stock owned by Ahciejay Pty.
Ltd. as Trustee for The R.C.J. Trust, and 54,125 shares of Common Stock
owned by the R.C.J. Superannuation Fund, as to both of which Mr. van
Mourik and his family are beneficiaries. Also includes options to
acquire 75,000 shares of Common Stock at $1.50 per share expiring on
June 28, 2006.
(4) Bromley Family Trust: Includes 102,119 shares of Common Stock, and 376
shares of Series E Preferred Stock. The Bromley Family Trust is a trust
for the benefit of relatives of Robert van Mourik's spouse. Neither Mr.
van Mourik nor his wife has any direct or indirect interest in the
Bromley Family Trust, although Mrs. van Mourik is a contingent, unnamed
beneficiary. Neither Mr. nor Mrs. van Mourik has received any
distributions from the Bromley Family Trust and neither influences nor
controls the decisions of the trustee. See "Certain Relationships and
Related Party Transactions."
(5) Mr. Cameron: Includes no shares, but includes options to acquire 75,000
shares of Common Stock at $1.50 per share expiring on June 28, 2006.
The options are held by Jacinth Pty. Ltd. a company in which Robert
Cameron, a director of AmerAlia, is a controlling shareholder.
(6) Mars Trust: Includes 3,097,460 shares of Common Stock and 2,000 shares
of Series E Preferred Stock. See "Certain Relationships and Related
Party Transactions".
(7) Mr. Woolard: Includes 4,000 shares of Common Stock, 20 shares of Series
E Preferred Stock, options to acquire 100,000 shares of Common stock at
$1.00 per share exercisable through March 31, 2001, and options to
acquire 150,000 shares of Common Stock at $1.50 per share exercisable
through March 31, 2003.
(8) All officers and directors: Includes beneficial ownership of Messrs.
Gunn, Summerson, Woolard, van Mourik, and Cameron as described in notes
1, 2, 3, 5, and 8, above, Mr. Murphy, and options held by Roger Day, an
executive officer who is not a director to acquire 20,000 shares of
Common Stock at $1.50 per share. Does not include options held by Mr.
Day to acquire 80,000 shares of Common Stock at $1.50 per share which
vest over a period of four years commencing November 1999 until
December 31, 2003.
(9) Ms. Tiscornia: Includes 61,830 shares of common stock and 406 shares of
Series E Preferred Stock.
The foregoing table does not include the possible effect of issuance of
up to 582,000 shares pursuant to the exercise of options held by persons who are
neither officers, directors, nor significant shareholders of AmerAlia, which
options are exercisable as follows:
140,000 at $1.50 until June 28, 2006
442,000 at $4.00 until March 31, 2000 and higher prices thereafter
The Series E Stock consists of 2,986 shares issued at $1,000 per share.
The stock is entitled to a dividend preference of 10% per year, payable
quarterly in restricted common stock valued at $1 per share through October 31,
2000. The Series E Stock is convertible into common
<PAGE> 28
stock at the option of the holder until October 31, 2000 on the basis of 1,000
shares per share of Series E Stock. AmerAlia may redeem all or any portion of
the outstanding shares of Series E Stock at any time upon giving six months
notice, but only if the holder fails to exercise its conversion rights.
To the best of our knowledge, there are no arrangements, understandings
or agreements relative to the disposition of any of AmerAlia's securities, the
operation of which would at a subsequent date result in a change in control of
AmerAlia.
CHANGES IN CONTROL.
AmerAlia knows of no arrangement, the operation of which may, at a
subsequent date, result in a change in the control of AmerAlia.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS.
The following sets out information regarding transactions between
officers, directors and significant shareholders of AmerAlia during the most
recent two fiscal years and during the subsequent fiscal year.
Corporate Loans. During the fiscal years ended June 30, 1998 and 1999,
certain related parties advanced loans to AmerAlia as detailed in Note 6 to the
Financial Statements which states that AmerAlia owed $35,354 to directors and
affiliates of AmerAlia at June 30, 1998 and $9,333 at June 30, 1999. This
comprised advances to AmerAlia, as well as accrued but unpaid compensation and
directors fees.
As of June 30, 1997 AmerAlia owed $13,377 to Gunn Development Pty.
Ltd., an affiliate of Mr. Bill H. Gunn, an officer of AmerAlia. By June 30, 1998
and 1999 AmerAlia had repaid the balance due and had advanced further funds to
Gunn Development. The following summarizes these advances during the fiscal year
ended June 30, 1999:
<TABLE>
<S> <C>
Balance due to Gunn Development at June 30, 1997: $ 13,377
Advances to Gunn Development during year: 173,881
Repayments received during year: 142,830
Net interest accrued: Nil
--------
Balance due from Gunn Development at June 30, 1998: $ 17,674
Advances to Gunn Development during year: 60,508
Repayments received during year: 35,174
Net interest accrued: Nil
--------
Balance due to Gunn Development at June 30, 1999: $ 43,008
</TABLE>
These advances bear no interest, are due on demand, and are not
evidenced by promissory notes. However, on January 6, 1999 and on March 3, 1999,
AmerAlia advanced short-term loans of $68,670 and $125,000, respectively to Bill
H. Gunn. These advances were evidenced by written documents and bear interest at
10% per annum. Mr. Gunn repaid these amounts together with interest thereon in
May 1999.
<PAGE> 29
Compensation Arrangements. AmerAlia entered into an employment
agreement with Roger Day, its vice president of operations, in November 1998, as
described above under "Executive Compensation -- Employment Agreements" This
agreement was approved by the Board of Directors in April 1999.
Directors and the other officers of AmerAlia are compensated as
described above under "Executive Compensation --Compensation of Directors."
Purchase of Common Stock and Warrants. On December 30, 1998, Ms.
Jacqueline Badger Mars, in her capacity as trustee for the Jacqueline Badger
Mars Trust (the "Mars Trust"), acquired 700,000 shares of AmerAlia common stock
at $1.50 per share for a total investment of $1,050,000. At the time that the
Mars Trust purchased these shares, the price of AmerAlia common stock as quoted
by the Nasdaq SmallCap Market was less than $1.30 per share. Included with the
purchase were 700,000 common stock purchase warrants, granting the Mars Trust
the right to buy an additional 700,000 shares of common stock at a price of
$2.00 per share through March 31, 1999. On March 26, 1999, the Mars Trust
exercised these warrants for a total of $1,400,000 paid to AmerAlia.
Guaranty Agreement. AmerAlia entered into an agreement with the Mars
Trust on September 13, 1999 for the purpose of establishing a loan with
NationsBank N.A. AmerAlia subsequently borrowed $4.2 million from NationsBank
for one year. The Mars Trust facilitated the loan by guaranteeing its repayment
in a manner satisfactory to the bank. To compensate the Trust, AmerAlia has
agreed to pay an amount equal to 10% of the amount guaranteed payable in shares
of AmerAlia's restricted common stock valued according to a formula based on
future market prices of AmerAlia's common stock.
THG Partnership Transactions. In connection with the settlement of a
pre-existing debt, AmerAlia granted The THG Partnership an option until October
1998 to exchange units of the Rural Investment Trust, an Australian public real
estate investment trust, for an additional 450 shares of Series E Preferred
Stock or (at THG's election) to purchase 450 shares of Series E Preferred Stock
for $450,000 in cash. The partners of The THG Partnership were Miss Mary L.
Tiscornia, a significant shareholder of AmerAlia, Mr. Bill H. Gunn, Chairman and
CEO of AmerAlia, and Mr. Marvin H.
Hudson, a former Vice President.
On October 13, 1998 THG notified AmerAlia it was exercising its option
to put the RIT investment to AmerAlia. As part of its own working capital
requirements, THG had secured a debt facility with the ANZ Bank in Australia
using the RIT investment as collateral. AmerAlia assumed THG's liability to the
ANZ Bank in exchange for payment to AmerAlia of the amount of the outstanding
indebtedness. This debt was approximately A$300,000 ($180,000). Consequently,
effective October 18, 1998, AmerAlia and THG entered into an agreement whereby:
o THG assigned the RIT units to AmerAlia;
o THG paid to AmerAlia the amount of its outstanding debt due to ANZ Bank;
o AmerAlia assumed liability for THG's debt to the ANZ Bank, guaranteed it
would pay principal and interest in accordance with the requirements of the
loan facility, and indemnified THG and its partners against any loss which
it might incur in settling the debt;
o THG delivered to AmerAlia transfer documents and powers of attorney
sufficient to enable AmerAlia to transfer the RIT investment into AmerAlia's
name.
<PAGE> 30
Although the transaction occurred between AmerAlia and THG, then an
affiliate, management believed the substance of the transaction was between
AmerAlia and the ANZ Bank. AmerAlia believed it gained access to this borrowing
on favorable terms without the costs normally associated with secured borrowing
from financial institutions. THG did not receive any consideration for providing
the credit facility to AmerAlia. Subsequently THG dissolved.
The RIT units were liquidated in May 1999 and the debt to the ANZ Bank
repaid. The total consideration received by AmerAlia for the issue of the 450
shares of Series E Preferred Stock upon liquidation of its RIT investment was
$418,346.
Short Swing Liability. As a result of acquiring shares in May 1997 and
selling shares in August 1997, Ms. Mary Tiscornia generated a short swing profit
of $2,340. Upon becoming aware of this, Ms. Tiscornia brought the matter to the
AmerAlia's attention and voluntarily remitted this amount to AmerAlia in June
1998 in settlement of her Section 16(b) liability.
Conversion of Series of Preferred Stock into Common Stock. At the
beginning of the 1998 fiscal year, Ms Jacqueline Badger Mars in her capacity as
trustee of the Jacqueline Badger Mars Trust held shares of Series A, B, and D
Preferred Stock. At a meeting held on June 30, 1998, the shareholders of
AmerAlia approved the following conversions and exchanges:
o 666,666 shares of Series A preferred stock were exchanged by agreement with
AmerAlia for 666,666 shares of common stock;
o 25,000 shares of Series B preferred stock were exchanged for 125,000 shares
of common stock in accordance with the statement of preferences which
established the Series B stock; and
o the 2,000 shares of Series D Preferred stock were exchanged by agreement
with AmerAlia for 2,000 shares of Series E Preferred Stock which hold the
same preferences as those attributable to the Series D stock.
AmerAlia reached an agreement with Miss Madeline Ahern who held the
remaining 26,000 shares of Series B Preferred Stock as trustee for the Bromley
Family Trust, to exchange the outstanding Series B shares held by the Bromley
Family Trust, together with accrued but unpaid dividends due of $36,000, for 296
shares of Series E Preferred Stock. This exchange was accomplished based on the
respective liquidation values of the Series B and Series E Preferred Stock
AmerAlia negotiated with the holders of the outstanding 750 shares of
Series C Preferred Stock an exchange, based upon their respective liquidation
values, for 60 shares of Series E Preferred Stock. One of the holders of the
Series C Preferred Stock was Mr. John Woolard who received 20 shares of Series E
Preferred Stock. Subsequently, AmerAlia appointed Mr. Woolard an executive
officer (in June 1998) and a director (in October 1998) of AmerAlia.
AmerAlia negotiated with THG and the Bromley Family Trust, the
remaining holders of 180 shares of Series D Preferred Stock, an exchange for 180
shares of Series E Preferred Stock and an exchange of an option to acquire 450
shares of Series D Preferred Stock for an option to acquire 450 shares of Series
E Stock.
As a result of these transactions, the shares of Series E Preferred
Stock are the only shares of preferred stock currently outstanding.
<PAGE> 31
No nominee or director of AmerAlia is, or has been, a partner or
executive officer of any investment banking firm that has performed services for
AmerAlia during the last fiscal year or that AmerAlia proposes to have perform
services during the current year. AmerAlia is not aware of any other
relationship between its directors and AmerAlia that are similar in nature and
scope to those relationships listed in paragraphs (b)(1) through (5) of this
Item 13 except as described above.
Dividend Payments. During the fiscal year ended June 30, 1998,
dividends of $356,554 became payable on the Series A, B, C, D and E Preferred
Stock and AmerAlia, upon the agreement with the investors, paid this dividend
through the issuance of a total of 356,554 shares of restricted common stock in
accordance with the statements of preferences. Many of the holders of the Series
E Preferred Stock are affiliated with AmerAlia. . (The Series A, B, C, and D
shares were converted or exchanged for Series E Preferred Stock pursuant to
shareholder approval at the meeting held on June 30, 1998.)
During the fiscal year ended June 30, 1999, dividends aggregating
$283,865 became payable to the holders of the Series E Preferred Stock AmerAlia
paid, or will pay, these dividends to the holders of the Series E Preferred
Stock through the issuance of 283,865 shares of its restricted common stock.
Employment Disputes. Marvin Hudson, formerly a vice president, employee
and greater-than-10% shareholder of AmerAlia, has made certain claims against
AmerAlia and has filed litigation against AmerAlia as described above.
AmerAlia has also filed litigation against Mr. Hudson.
(b)(1)-(4) CERTAIN BUSINESS RELATIONSHIPS
See Item 13(a), above.
(b)(5) No nominee or director of AmerAlia is, or has been, a partner or
executive officer of any investment banking firm that has performed
services for AmerAlia during the last fiscal year or that AmerAlia
proposes to have perform services during the current year.
(b)(6) AmerAlia is not aware of any other relationship between its directors
and AmerAlia that are similar in nature and scope to those
relationships listed in paragraphs (b)(1) through (5) of this Item 13
except as described above.
(c) INDEBTEDNESS OF MANAGEMENT.
No director, executive officer, nominee for election as a director, any
member of the immediate family of any of the foregoing, or any corporation or
organization of which any of the foregoing persons is an executive officer,
partner or beneficial holder of ten percent or more of any class of equity
securities, or any trust or other estate in which any such person has a
substantial beneficial interest or as to which such person serves as a trustee
or in a similar capacity, was indebted to AmerAlia at any time, except as
disclosed in Item 13(a), above.
(d) TRANSACTIONS WITH PROMOTERS: Not applicable.
<PAGE> 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS.
(1) The financial statements included as a part of this report are as
described on page F-2.
(2) No financial statement schedules are included in this report.
(3) The exhibits required by Item 601 of Regulation S-K are as follows.
Certain of the following exhibits are hereby incorporated by reference
pursuant to Rule 12b-23 as promulgated under the Securities and
Exchange Act of 1934, as amended, from the reports noted below:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1 (a) Articles of Incorporation and Amendment.
3.2 (a) Bylaws of AmerAlia, Inc.
3.3 (a) Statement of Preferences for Series A Convertible Preferred Stock.
3.4 (f) Statement of Preferences for Series B Preferred Stock, as amended.
10.1 (b) Agreement with Eagle Star Nominees Ltd. as trustee for The Rural
Investment Trust for sale of property in consideration for
issuance of vendor units in the Rural Investment Trust.
10.6 (e) Form of Distributor agreements for marketing of sodium
bicarbonate.
10.7 (e) General Services Agreement with Raytheon Engineers & Constructors,
Inc.
10.8 (f) First Amendment to Special Warranty Assignment, Royalty
Reservation, and Minimum Royalty Payment between AmerAlia and E.E.
Kinder Co.
10.9 (f) Consulting Agreement between AmerAlia and E.E. Kinder Co.
10.10 (f) U.S. Government Sodium Lease
10.11 (g) Design/Build Contract with U.S. Filter Corp.
10.12 (g) Guaranty Agreement with the Jacqueline Badger Mars Trust
21.1 Subsidiaries of the Registrant: None.
27 (g) Financial Data Schedule
</TABLE>
<PAGE> 33
(a) Incorporated by reference from the Company's Form 10 General
Registration Statement filed with the Commission on March 5, 1987.
(b) Incorporated by reference from the Company's Form 10-K for its year
ended June 30, 1989.
(c) Incorporated by reference from the Company's Form 10-K for its year
ended June 30, 1990.
(d) Incorporated by reference from the Company's Form 10-K for its year
ended June 30, 1992.
(e) Incorporated by reference from the Company's Form 10-K for its year
ended June 30, 1993.
(f) Incorporated by reference from the Company's Form 10-K for its year
ended June 30, 1995.
(g) Included herewith.
(b) REPORTS ON FORM 8-K
During the last quarter of the period covered by this report the
Company filed no current reports on Form 8-K.
(c) EXHIBITS
Required exhibits are attached hereto and are listed in Item 14(a)(3)
of this Report.
(d) FINANCIAL STATEMENT SCHEDULES
Item 14(a) of this Report lists all required financial statement
schedules to be attached hereto.
<PAGE> 34
AMERALIA, INC.
(A Development Stage Company)
Financial Statements
June 30, 1999 and 1998
F-1
<PAGE> 35
C O N T E N T S
<TABLE>
<S> <C>
Independent Auditors' Report................................................ F-3
Balance Sheets.............................................................. F-4
Statements of Operations.................................................... F-6
Statements of Stockholders' Equity.......................................... F-7
Statements of Cash Flows................................................... F-13
Notes to the Financial Statements.......................................... F-15
</TABLE>
F-2
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
AmerAlia, Inc.
(A Development Stage Company)
Kenilworth, Illinois
We have audited the accompanying balance sheets of AmerAlia, Inc. (a
development stage company) as of June 30, 1999 and 1998, and the related
statements of operations, stockholders' equity and cash flows for the years
ended June 30, 1999, 1998 and 1997 and from the beginning of the development
stage on July 1, 1992 through June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AmerAlia, Inc. (a development
stage company) as of June 30, 1999 and 1998, and the results of its operations
and its cash flows for the years ended June 30, 1999, 1998 and 1997 and from
the beginning of the development stage on July 1, 1992 through June 30, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company has suffered recurring losses and has not
established a current source of revenue. Together these factors raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 14.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
October 1, 1999
F-3
<PAGE> 37
AMERALIA, INC.
(A Development Stage Company)
Balance Sheets
ASSETS
<TABLE>
<CAPTION>
June 30,
--------------------------------
1999 1998
----------- -----------
CURRENT ASSETS
<S> <C> <C>
Cash (Note 1) $ 312,104 $ 707,199
Restricted cash (Notes 1 and 3) 991,305 -
Related party receivables (Note 2) 43,008 17,674
Prepaid expenses 30,082 -
Interest receivable 1,167 -
----------- -----------
Total Current Assets 1,377,666 724,873
----------- -----------
FIXED ASSETS, net (Notes 1 and 5) 24,202 6,983
----------- -----------
OTHER ASSETS
Lease acquisition and exploration costs (Notes 3 and 11) 3,023,287 2,768,287
Plant construction - deposit (Note 3) 1,250,000 -
Deferred financing costs (Note 1) 110,000 -
Note receivable - related party (Note 2) 25,000 -
Deposits 25,906 -
----------- -----------
Total Other Assets 4,434,193 2,768,287
----------- -----------
TOTAL ASSETS $ 5,836,061 $ 3,500,143
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 38
AMERALIA, INC.
(A Development Stage Company)
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30,
--------------------------------
1999 1998
----------- -----------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 232,017 $ 160,844
Royalties payable (Note 10) 279,167 204,167
Bank overdraft 5,702 4,586
Accrued expenses (Note 12) 88,219 3,066
Due to related parties (Note 6) 9,333 35,354
Notes payable - current portion (Note 7) 4,000 411,008
Interest payable 1,290 430
----------- -----------
Total Current Liabilities 619,728 819,455
----------- -----------
Total Liabilities 619,728 819,455
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10) 303,800 -
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $0.05 par value; 1,000,000 authorized;
2,986 and 2,536 issued and outstanding, respectively 149 127
Common stock, $0.01 par value; 100,000,000 shares
authorized; 7,659,766 and 5,317,551 issued and
outstanding, respectively 76,598 53,176
Additional paid-in capital 16,545,797 12,151,930
Accumulated deficit (11,710,011) (9,524,545)
----------- -----------
Total Stockholders' Equity 4,912,533 2,680,688
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,836,061 $ 3,500,143
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 39
AMERALIA, INC.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
From the
Beginning
of Development
Stage on
July 1, 1992 to
For the Years Ended June 30, June 30,
----------------------------------------------------- ------------------
1999 1998 1997 1999
--------------- ----------------- --------------- ------------------
<S> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ -
EXPENSES
General and administrative 1,910,792 629,605 690,982 6,066,112
Depreciation and amortization 9,056 8,618 9,389 69,970
--------------- ----------------- --------------- ------------------
Total Expenses 1,919,848 638,223 700,371 6,136,082
--------------- ----------------- --------------- ------------------
LOSS FROM OPERATIONS (1,919,848) (638,223) (700,371) (6,136,082)
--------------- ----------------- --------------- ------------------
OTHER INCOME (EXPENSE)
Other income - 29 - 29
Investment income - - - 89,760
Interest expense (18,519) (38,909) (70,383) (637,048)
Interest income 36,752 4,075 1,569 279,516
Foreign currency gain (loss) 14 123,211 - (63,572)
--------------- ----------------- --------------- ------------------
Total Other Income (Expense) 18,247 88,406 (68,814) (331,315)
--------------- ----------------- --------------- ------------------
NET LOSS BEFORE INCOME TAX
EXPENSE (1,901,601) (549,817) (769,185) (6,467,397)
Income tax expense - - - -
--------------- ----------------- --------------- ------------------
NET LOSS $ (1,901,601) $ (549,817) $ (769,185) $ (6,467,397)
=============== ================= =============== ==================
BASIC NET LOSS PER SHARE $ (0.31) $ (0.13) $ (0.26)
=============== ================= ===============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 6,229,634 4,313,400 3,014,000
=============== ================= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 40
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------------ ---------------------------------
Shares Amount Shares Amount
----------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
Balance at July 1, 1992
(beginning of development stage) -- $ -- 1,803,627 $ 18,036
Shares issued for cash at $2.99
per share -- -- 421,250 4,213
Shares issued for payment
of obligations at $2.05 per share -- -- 7,312 73
Change in cumulative
adjustment account -- -- -- --
Net loss for the year ended
June 30, 1992 -- -- -- --
--------- --------- --------- ---------
Balance at June 30, 1992 -- -- 2,232,189 22,322
Issuance of Series A preferred
stock for cash at $1.50 per share 666,666 33,333 -- --
Issuance of fractional shares
on reverse split -- -- 67 --
Shares issued in acquisition
of Rock School lease at $3.00
per share -- -- 50,000 500
Change in cumulative
adjustment account -- -- -- --
Net loss for the year ended
June 30, 1993 -- -- -- --
--------- --------- --------- ---------
Balance at June 30, 1993 666,666 $ 33,333 2,282,256 $ 22,822
--------- --------- --------- ---------
<CAPTION>
Additional Other
Paid-in Subscription Accumulated Comprehensive
Capital Receivable Deficit Income
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at July 1, 1992
(beginning of development stage) $ 4,449,738 $ -- $(3,797,189) $ 22,211
Shares issued for cash at $2.99
per share 1,255,787 -- -- --
Shares issued for payment
of obligations at $2.05 per share 14,927 -- -- --
Change in cumulative
adjustment account -- -- -- 147,000
Net loss for the year ended
June 30, 1992 -- -- (392,712) --
----------- --------- ----------- -----------
Balance at June 30, 1992 5,720,452 -- (4,189,901) 169,211
Issuance of Series A preferred
stock for cash at $1.50 per share 966,667 -- -- --
Issuance of fractional shares
on reverse split -- -- -- --
Shares issued in acquisition
of Rock School lease at $3.00
per share 149,500 -- -- --
Change in cumulative
adjustment account -- -- -- (3,000)
Net loss for the year ended
June 30, 1993 -- -- (524,482) --
----------- --------- ----------- -----------
Balance at June 30, 1993 $ 6,836,619 $ -- $(4,714,383) $ 166,211
----------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 41
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------------- -------------------------- Paid-in Subscription
Shares Amount Shares Amount Capital Receivable
------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 666,666 $ 33,333 2,282,256 $ 22,822 $ 6,836,619 $ --
Shares issued for payment of
obligations at $2.18 per share -- -- 36,250 363 78,650 --
Shares issued in lieu of
dividends at $1.50 per share -- -- 60,000 600 89,400 --
Issuance of Series B preferred
stock for cash at $10.00 per share 51,000 2,550 -- -- 507,550 --
Subscriptions receivable on
Series B stock -- -- -- -- -- (77,904)
paid -- -- -- -- -- --
Change in cumulative
adjustment account -- -- -- -- -- --
Net loss for the year ended
June 30, 1994 -- -- -- -- -- --
------- ----------- ----------- ----------- ----------- -----------
Balance at June 30,1994 717,666 $ 35,883 2,378,506 $ 23,785 $ 7,512,219 $ (77,904)
======= =========== =========== =========== =========== ========--=
</TABLE>
<TABLE>
<CAPTION>
Other
Accumulated Comprehensive
Deficit Income
------------- ---------------
<S> <C> <C>
Balance at June 30, 1993 $(4,714,383) $ 166,211
Shares issued for payment of
obligations at $2.18 per share -- --
Shares issued in lieu of
dividends at $1.50 per share -- --
Issuance of Series B preferred
stock for cash at $10.00 per share -- --
Subscriptions receivable on
Series B stock -- --
Dividends paid (90,000) --
Change in cumulative
adjustment account -- (43,000)
Net loss for the year ended
June 30, 1994 (568,333) --
--------- -----------
Balance at June 30,1994 $(5,372,716) 123,211
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 42
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------- -------------------------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at June 30,1994 717,666 $ 35,883 2,378,506 $ 23,785
Shares issued for cash and
extinguishment of debt at $1.64 per
share -- -- 160,000 1,600
Shares issued in lieu of dividends
at $1.57 per share -- -- 71,250 713
Issuance of Series C preferred
for cash at $80.00 per share 750 38 -- --
Dividends paid -- -- -- --
Payment received on Series B
stock subscriptions -- -- -- --
Net loss for the year ended
June 30, 1995 -- -- -- --
----------- ----------- ----------- -----------
Balance, June 30, 1995 718,416 35,921 2,609,756 26,098
Shares issued in lieu of dividends
at $1.00 per share -- -- 107,285 1,072
Issuance of series D preferred
stock for cash at $1,000.00 per share 1,435 72 -- --
Dividends paid -- -- -- --
Net loss for the year ended
June 30, 1996 -- -- -- --
----------- ----------- ----------- -----------
Balance, June 30, 1996 719,851 $ 35,993 2,717,041 $ 27,170
----------- ----------- ----------- -----------
<CAPTION>
Additional Other
Paid-in Subscription Accumulated Comprehensive
Capital Receivable Deficit Income
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Balance at June 30,1994 $ 7,512,219 $ (77,904) $(5,372,716) $ 123,211
Shares issued for cash and
extinguishment of debt at $1.64 per
share 261,031 -- -- --
Shares issued in lieu of dividends
at $1.57 per share 111,287 -- -- --
Issuance of Series C preferred
for cash at $80.00 per share 59,963 -- -- --
Dividends paid -- -- (112,000) --
Payment received on Series B
stock subscriptions -- 77,904 -- --
Net loss for the year ended
June 30, 1995 -- -- (1,009,917) --
----------- ----------- ----------- -----------
Balance, June 30, 1995 7,944,500 -- (6,494,633) 123,211
Shares issued in lieu of dividends
at $1.00 per share 106,182 -- -- --
Issuance of series D preferred
stock for cash at $1,000.00 per share 1,434,958 -- -- --
Dividends paid -- -- (333,216) --
Net loss for the year ended
June 30, 1996 -- -- (751,350) --
----------- ----------- ----------- -----------
Balance, June 30, 1996 $ 9,485,640 $ -- $(7,579,199) $ 123,211
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 43
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------------------ -------------------------------- Paid-in
Shares Amount Shares Amount Capital
----------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996 719,851 $ 35,993 2,717,041 $ 27,170 $ 9,485,640
Shares issued for cash and
extinguishment of debt at $1.00
per share -- -- 358,500 3,585 354,915
Shares issued in lieu of dividends
at $1.00 per share -- -- 233,790 2,338 231,452
Issuance of Series D preferred
stock for cash at $1,000.00 per share 405 20 -- -- 404,993
Issuance of Series D preferred
stock for extinguishment of
debt at $1,000.00 per share 100 5 -- -- 99,995
Dividends paid -- -- -- -- --
Additional capital contributed -- -- -- -- 167,418
Net loss for the year ended
June 30, 1997 -- -- -- -- --
----------- ----------- ------------- ------------ -----------
Balance, June 30, 1997 720,356 $ 36,018 3,309,331 $ 33,093 $10,744,413
----------- ----------- ------------- ------------ -----------
<CAPTION>
Other
Subscription Accumulated Comprehensive
Receivable Deficit Income
------------ ----------- -------------
<S> <C> <C> <C>
$ -- $(7,579,199) $ 123,211
Balance, June 30, 1996
Shares issued for cash and
extinguishment of debt at $1.00 -- -- --
per share
Shares issued in lieu of dividends -- -- --
at $1.00 per share
Issuance of Series D preferred -- -- --
stock for cash at $1,000.00 per share
Issuance of Series D preferred
stock for extinguishment of -- -- --
debt at $1,000.00 per share
-- (233,790) --
Dividends paid
-- -- --
Additional capital contributed
Net loss for the year ended (769,185) --
June 30, 1997 ------------ ----------- -------------
$ -- $(8,582,174) $ 123,211
Balance, June 30, 1997 ------------ ----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 44
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------------ ------------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, June 30, 1997 720,356 $ 36,018 3,309,331 $ 33,093
Issuance of Series D preferred
stock for cash at $1,000.00 per share 240 12 -- --
Common stock sold for cash
at $1.00 per share -- -- 865,000 8,650
Offering costs -- -- -- --
Foreign currency translation
adjustment -- -- -- --
Shares issued in lieu of dividends
at $1.00 per share -- -- 356,554 3,566
Conversion of preferred stock (718,060) (35,903) 791,666 7,917
Dividends paid -- -- -- --
Shares canceled -- -- (5,000) (50)
Additional capital contributed -- -- -- --
Net loss for the year ended
June 30, 1998 -- -- -- --
------------ ------------ ------------ ------------
Balance, June 30, 1998 2,536 $ 127 5,317,551 $ 53,176
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Additional Other
Paid-in Subscription Accumulated Comprehensive
Capital Receivable Deficit Income
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, June 30, 1997 $ 10,744,413 $ -- $ (8,582,174) $ 123,211
Issuance of Series D preferred
stock for cash at $1,000.00 per share 239,988 -- -- --
Common stock sold for cash
at $1.00 per share 856,350 -- -- --
Offering costs (240,800) -- -- --
Foreign currency translation
adjustment -- -- -- (123,211)
Shares issued in lieu of dividends
at $1.00 per share 352,988 -- -- --
Conversion of preferred stock 63,987 -- -- --
Dividends paid -- -- (392,554) --
Shares canceled (4,950) -- -- --
Additional capital contributed 139,954 -- -- --
Net loss for the year ended
June 30, 1998 -- -- (549,817) --
------------ ------------ ------------ ------------
Balance, June 30, 1998 $ 12,151,930 $ -- $ (9,524,545) $ --
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 45
AMERALIA, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------------- ------------------------- Paid-in Subscription
Shares Amount Shares Amount Capital Receivable
------ ------ ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 2,536 $ 127 5,317,551 $ 53,176 $ 12,151,930 $ --
Shares issued for cash and
extinguishment of debt at $1.00
per share -- -- 72,500 725 71,775 --
Shares issued for cash and
extinguishment of debt at $1.50
per share -- -- 807,500 8,075 1,203,175 --
Shares issued in lieu of dividends
at $1.00 per share -- -- 209,215 2,092 207,123 --
Shares issued through exercise
of warrants at $2.00 per share -- -- 1,253,000 12,530 2,493,470 --
Issuance of Series E preferred
stock through exercise of option
at $929.66 per share 450 22 -- -- 418,324 --
Dividends declared -- -- -- -- -- --
Net loss for the year ended
June 30, 1999 -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1999 2,986 $ 149 7,659,766 $ 76,598 $ 16,545,797 $ --
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Other
Accumulated Comprehensive
Deficit Income
----------- -------------
<S> <C> <C>
Balance, June 30, 1998 $ (9,524,545) $ --
Shares issued for cash and
extinguishment of debt at $1.00
per share -- --
Shares issued for cash and
extinguishment of debt at $1.50
per share -- --
Shares issued in lieu of dividends
at $1.00 per share -- --
Shares issued through exercise
of warrants at $2.00 per share -- --
Issuance of Series E preferred
stock through exercise of option
at $929.66 per share -- --
Dividends declared (283,865) --
Net loss for the year ended
June 30, 1999 (1,901,601) --
------------ ------------
Balance, June 30, 1999 $(11,710,011) $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 46
AMERALIA, INC.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
From the
Beginning of
Development
Stage on
July 1, 1992
For the Years Ended June 30, Through
------------------------------------------- June 30,
1999 1998 1997 1999
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net loss $(1,901,601) $ (549,817) $ (769,185) $(6,467,397)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Bad debt -- -- -- 624,798
Stock issued for services rendered -- -- 65,000 65,000
Depreciation and amortization 9,056 8,618 9,389 79,548
Exchange (gain) (14) (123,211) (6,810) (168,556)
Change in Operating Assets and Liabilities:
Decrease in prepayments -- -- -- 18,000
Decrease in notes receivable -- -- -- 1,300,497
(Increase) in restricted cash (991,305) -- -- (991,305)
(Increase) decrease in accounts and interest
receivable (1,167) -- 38,086 (502)
(Increase) decrease in related party receivables (25,334) (7,610) 59,466 (43,008)
(Increase) in prepaid expenses (30,082) -- -- (30,082)
(Increase) in deposits (25,906) -- -- (25,906)
(Increase) decrease in other assets (110,000) 224,500 (224,500) (110,000)
Increase in bank overdraft 1,116 4,586 -- 5,702
Increase (decrease) in due to related parties (35,354) (45,704) 1,541 (71,969)
Increase (decrease) in accounts payable and
royalties payable 146,173 106,319 (122,974) 448,580
Increase in accrued expenses 19,836 -- -- 19,836
Increase (decrease) in interest payable 860 (22,096) 229,463 (117,776)
Increase in contingent liabilities 303,800 -- -- 303,800
----------- ----------- ----------- -----------
Net Cash (Used) in Operating Activities (2,639,922) (404,415) (720,524) (5,160,740)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Lease acquisition, exploration and development
expenditures (255,000) (13,051) (20,192) (2,177,890)
Plant construction deposit (1,250,000) -- -- (1,250,000)
Liquidation of RIT investment 418,346 -- -- 418,346
Purchase of property and equipment (26,261) -- -- (91,529)
Cash paid on note receivable related (25,000) -- -- (25,000)
Cash received from notes receivable -- -- -- (144,853)
----------- ----------- ----------- -----------
Net Cash (Used) in Investing Activities $(1,137,915) $ (13,051) $ (20,192) $(3,270,926)
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 47
AMERALIA, INC.
(A Development Stage Company)
Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
From the
Beginning of
Development
Stage on
July 1, 1992
For the Years Ended June 30, Through
----------------------------------------- June 30,
1999 1998 1997 1999
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from issuance of stock $ 3,574,000 $ 859,200 $ 404,013 $ 8,291,596
Cash received from notes 198,217 223,606 320,400 757,222
Payments on note payable (389,475) (100,183) (55,000) (612,658)
Additional capital contributed -- 139,954 51,727 307,372
----------- ----------- ----------- -----------
Net Cash Provided by Financing Activities 3,382,742 1,122,577 721,140 8,743,532
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (395,095) 705,111 (19,576) 311,866
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 707,199 2,088 21,664 238
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 312,104 $ 707,199 $ 2,088 $ 312,104
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Income taxes $ -- $ -- $ -- $ --
Interest $ 17,659 $ 38,479 $ 70,382 $ 279,373
NON-CASH FINANCING ACTIVITIES
Common stock issued for payment of obligations $ 215,750 $ -- $ 393,031 $ 608,781
Common stock issued for services rendered $ -- $ -- $ 65,000 $ 65,000
Payment of preferred stock dividends through
the issuance of additional common and
preferred stock $ 209,215 $ 356,554 $ 233,790 $ 1,144,813
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 48
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. General Development of the Business
AmerAlia, Inc. (AmerAlia) was originally incorporated as Computer
Learning Software, Inc. under the laws of the State of Utah on
June 7, 1983 and renamed AmerAlia, Inc. in January 1984. AmerAlia
acquired various investments in Australia which have since been
sold.
Since 1989, AmerAlia has been primarily engaged in establishing a
chemical business in the manufacture of sodium bicarbonate and
related products. AmerAlia purchased an interest in, and
subsequently acquired, a federal sodium lease in Colorado, USA.
AmerAlia's lease contains a substantial, naturally occurring, rare
deposit of sodium bicarbonate, commonly known as baking soda.
AmerAlia's primary objective is to use solution mining to recover
sodium bicarbonate for sale to the animal feed, industrial,
pharmaceutical and food grade markets. The production of sodium
bicarbonate will also enable the production of soda ash and
caustic soda, chemicals which are widely used in the manufacture
of glass, detergents and a variety of inorganic and organic
chemicals. Potentially, sodium bicarbonate might be used as an
agent for flue gas desulfurization, a market AmerAlia expects will
expand as the requirements of the 1990 amendments to the Clean Air
Act impact more significantly on industry. It proposes to achieve
this objective by:
1. finalizing Bureau of Land Management approval of a
proposal to construct a plant for the recovery and
production of sodium bicarbonate; and
2. raising sufficient capital to construct the plant and
commence operations.
AmerAlia has submitted their mining and development plans to the
Bureau of Land Management and submitted applications for all
necessary associated permits to other regulatory agencies of the
federal, state and county administrations. If the required permits
are not obtained, the construction of the plant and the operation
of the mine may be delayed significantly.
b. Accounting Method
AmerAlia's financial statements are prepared using the accrual
method of accounting. AmerAlia has elected a June 30, year-end.
F-15
<PAGE> 49
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
c. Cash and Restricted Cash
AmerAlia considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
AmerAlia has $991,305 in restricted cash at June 30 1999 that is
being held in an escrow account to be used for the construction of
its sodium bicarbonate plant (see Note 3).
d. Reporting Currency and Remeasurement
AmerAlia's financial statements are reported in its reporting
currency, the United States dollar. Remeasurement of Australian
assets, liabilities and operations into United States dollars
results in foreign currency gains and losses which are reflected
in the statements of operations. During the year ended June 30,
1998, management decided that the foreign currency translation
adjustment was no longer valid because the Australian operations
had ceased. Therefore, the amount was removed from the balance
sheet and recorded through the current year statement of
operations.
e. Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation.
Depreciation is determined using the straight-line method over the
estimated useful lives of the assets ranging from 3 to 7 years.
Expenditures for property additions and betterments are
capitalized at cost. Maintenance and repairs are charged to
expense when incurred.
f. Income Taxes
At June 30, 1999, AmerAlia had net operating loss carryforwards of
approximately $6,400,000 that may be offset against future taxable
income from the year 2000 through 2014. No tax benefit has been
reported in the June 30, 1999 financial statements because
AmerAlia believes that the carryforwards are more likely than not
to expire unused. Accordingly, the potential tax benefit is offset
by a valuation allowance of the same amount.
g. Basic Net Loss Per Share
Basic net loss per share is computed using the weighted average
number of common shares outstanding during the applicable period.
AmerAlia's outstanding stock purchase warrants and options have
been excluded from the basic net loss per share calculation as
they are anti-dilutive.
F-16
<PAGE> 50
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
h. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles require management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
i. Concentrations of Risk
AmerAlia records receivables from advances to related parties and
from uncollected investment revenues.
AmerAlia maintains several accounts with financial institutions.
The accounts are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's balances exceed that
amount. The Company also maintains a cash account with a brokerage
firm. This account is not insured by the Federal Deposit Insurance
Corporation. At June 30, 1999, the amount of uninsured cash in all
accounts was $1,086,479.
Credit losses, if any, have been provided for in the financial
statements and are based on management's expectations. AmerAlia's
accounts receivable are subject to potential concentrations of
credit risk. AmerAlia does not believe that it is subject to any
unusual risks, or significant risks in the normal course of its
business.
j. Deferred Financing Costs
AmerAlia has incurred costs of $110,000 in connection with
establishing a long-term financing package for approximately
$32,000,000 for the construction of a plant for the recovery and
production of the sodium bicarbonate. The amount will be amortized
over the life of the long-term financing agreement once
established.
NOTE 2 - RELATED PARTY RECEIVABLES
AmerAlia occasionally issues advances to related parties who have
supported AmerAlia over the years. The balance due from related
parties at June 30, 1999 and 1998 totals $43,008 and $17,674,
respectively. These advances are non-interest bearing and are due
on demand.
AmerAlia also loaned an officer of the Company $25,000 as part of
his employment agreement. Interest is payable on the loan at 7.0%
per annum, payable quarterly. Accrued interest receivable on June
30, 1999 was $1,167. As part of the agreement, AmerAlia will
cancel $5,000 of the principal amount each year on the anniversary
date of the employment agreement until paid in full. In the event
of termination for any reason, the entire unpaid principal is due
within 30 days of the termination date.
F-17
<PAGE> 51
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1999 and 1998
NOTE 3 - LEASE ACQUISITION AND EXPLORATION COSTS
In December 1992, AmerAlia acquired from an unrelated party
("Kinder"), BLM Sodium Lease C-0119985 known as the Rock School
Lease, including 1,320 acres, in Rio Blanco County, Colorado, USA.
AmerAlia acquired the Rock School Lease for consideration
comprising (I) a cash payment of $600,000; (ii) the issuance of
50,000 shares of common stock; and (iii) commencing July 1, 1994,
the reservation of a production royalty of $2 per ton which was
amended January 1, 1996 to $1.50 per ton for all production, due
and payable on the last day of the month following the month of
production provided that a minimum annual royalty of $100,000
(which was changed to $75,000 on January 1, 1996) be paid monthly
in arrears. A further condition of the lease acquisition agreement
with Kinder is that all minimum royalty payments will be credited
against any future liability which exceeds the minimum royalty
(see Note 10). Kinder assigned all of its rights, title and
interest in the federal lease to AmerAlia. Kinder also agreed to
provide all documentation, files and records in its possession
pertaining to the exploration of and development plans for the
Rock School Lease; warranted that it had not assigned to any third
party or dealt in any way with its interest in the Rock School
Lease and granted AmerAlia an option to acquire its royalty
interest. The assignment of the interest in the Rock School Lease
from Kinder was approved by the BLM on January 1, 1996.
The Rock School Lease was renewed July 1, 1991 for a period of ten
years and is renewable under terms and conditions prescribed by
the Secretary of the Interior. The lease is currently undeveloped,
although the adjoining lease has been brought into production.
AmerAlia has obtained the necessary permits from the appropriate
regulatory authorities to mine its lease. As a part of obtaining
the approval of the Bureau of Land Management to solution mine the
property, AmerAlia drilled its first core hole during 1996. The
completed core hole has provided specific data which prove the
existence and continuity of the nahcolite beds through the Rock
School Lease as described below.
AmerAlia has engaged engineering consultants to form preliminary
estimates of the cost of constructing a 50,000,000 ton per year
plant. AmerAlia estimates that $35,000,000 or more will be
required for construction and annual operating costs will be up to
$5,000,000 for mining operations. AmerAlia has entered into a
preliminary construction agreement dated May 14, 1999 with a
Delaware corporation doing business as U.S. Filter Corporation and
HPD Products (US Filter) to design, manage and construct a sodium
bicarbonate solution mining and production plant on the Rock
School Lease for an amount not to exceed $33,200,000. Pursuant to
the agreement, AmerAlia is to deposit a total of $6,400,000 into
an escrow account at certain times as prescribed in a deposit
schedule. As of June 30, 1999, AmerAlia had paid U.S. Filter
$1,250,000 as a preliminary deposit for the design of the plant.
AmerAlia had also deposited an additional $950,000 into the
required escrow account. This amount is included in the restricted
cash of $991,305 as of June 30, 1999 in the accompanying financial
statements. Therefore, at June 30, 1999, a total of $2,200,000 of
the $6,400,000 had either been paid directly to U.S. Filter or
deposited into the escrow account. The remaining $4,200,000 was
deposited into the escrow account September 15, 1999. U.S. Filter
will submit progress invoices that will be paid out of the escrow
funds.
F-18
<PAGE> 52
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1999 and 1998
NOTE 3 - LEASE ACQUISITION AND EXPLORATION COSTS (Continued)
Subject to certain conditions, U.S. Filter will complete the
design and construction of the necessary mine and processing plant
for AmerAlia, guarantee the plant's performance and advance the
costs of construction to AmerAlia. Among the more significant
conditions, however, are the requirements that i) AmerAlia pay
$6,400,000 into an escrow account as previously mentioned and ii)
before U.S. Filter is obligated to incur any expenses outside the
escrow account, AmerAlia must have sufficient long-term financing.
AmerAlia has entered into preliminary discussions with an
organization to provide the long-term financing once the plant is
completed. This agreement had not been finalized as of the date of
our audit report.
If AmerAlia is unable to obtain the long-term financing, U.S.
Filter has the right to cease any further work on the project and
recover damages from AmerAlia. As a result of an amendment to the
agreement with U.S. Filter, U.S. Filter holds a security interest
in AmerAlia's Rock School Lease.
AmerAlia is currently working on obtaining the required permits
from the BLM and other regulatory authorities to enable the
construction to proceed.
The lease is one of three federal leases which cover a unique,
major natural resource of nahcolite (naturally occurring sodium
bicarbonate). AmerAlia has performed surface geological
investigation of the 1,320 acre lease and has reviewed data
assembled by other investigators in the Piceance Creek Basin,
including a 1974 report published by the United States Geological
Survey entitled "Stratigraphy and Nahcolite Resources of the
Saline Facles of the Green River Formation, Rio Blanco County,
Colorado." (John R. Dyni, USGS Report 74-56). This report analyzed
the results of a detailed study of ten core holes from the saline
zone, including a core hole known as Dunn 209-1 which is
approximately 800 feet to the east of AmerAlia's proposed initial
mine site on the Rock School lease.
From this core hole, the total nahcolite content of the saline
zone in this area was estimated at 315 tons per square mile. Using
this figure translates to a total nahcolite content of the Rock
School Lease of 649 million short tons for the 1,320 acre lease.
Due to lateral persistence of this deposit, which allows
correlation of beds over distances of many miles, it is reasonable
to assume that the concentrations found in the Dunn 20-1 hole also
exist beneath the Rock School Lease.
Based on the foregoing information, AmerAlia believes that the
nahcolite deposit within the Rock School Lease is of significant
size. However, not all of this resource can be recovered with
existing technology. Until the resource is brought into production
or until substantial additional engineering work is accomplished,
the viability of economic recoverability cannot be established.
AmerAlia has capitalized costs associated with the acquisition of
the lease site and certain other costs associated with the
development of the resource. All other costs incurred in
developing the resource are expensed as period costs (Note 11).
F-19
<PAGE> 53
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1999 and 1998
NOTE 4 - INVESTMENT IN THE RURAL INVESTMENT TRUST
On October 18, 1998, pursuant to an option agreement with THG
Partnership (THG), AmerAlia issued 450 shares of Series E preferred
stock in exchange for units in the Rural Investment Trust (RIT). The
RIT was later liquidated during May 1999 and AmerAlia received
$418,346. As part of the transfer of the RIT units, AmerAlia assumed a
$180,000 note payable to an Australian bank. AmerAlia repaid the note
using the $418,346 proceeds.
NOTE 5 - FIXED ASSETS
Fixed assets consist of office furniture and equipment as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------
1999 1998
------------ -----------
<S> <C> <C>
Vehicle $ 31,960 $ 31,960
Equipment 50,369 35,081
Less accumulated depreciation (58,127) (60,058)
------------ ----------
$ 24,202 $ 6,983
============ ==========
</TABLE>
Depreciation expense for the years ended June 30, 1999, 1998 and 1997
was $9,056, $8,618 and $9,389, respectively.
NOTE 6 - DUE TO RELATED PARTIES
AmerAlia owed $9,333 and $35,354 to affiliates of AmerAlia at June 30,
1999 and 1998, respectively. This liability is comprised of advances to
AmerAlia, accrued compensation and unpaid directors fees.
F-20
<PAGE> 54
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1999 and 1998
NOTE 7 - NOTES PAYABLE - LONG TERM
<TABLE>
<CAPTION>
June 30,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Notes payable consist of the following amounts:
Note payable to investors; unsecured, due on
demand; at 10% interest. $ 4,000 $ 4,000
Note payable to investor; unsecured, due on
April 23, 1999; at 12% interest. -- 197,000
Note payable to financial institution; principal
and interest payment of $568 due monthly;
at 9.5% interest; secured by vehicle. -- 5,878
Note payable to an employee; unsecured,
due on demand; interest free. -- 18,533
Note payable Raytheon Engineers & Constructors,
Inc; unsecured, due upon a 90 day demand; at
12% interest. -- 185,597
---------- ----------
4,000 411,008
Less current portion (4,000) (411,008)
---------- ----------
Total Long-Term Notes Payable $ - $ -
========== ==========
</TABLE>
Principal maturities are as follows:
<TABLE>
<CAPTION>
Year Ended
June 30, Amount
---------- ---------
<S> <C>
2000 $ 4,000
2001 --
2002 --
2003 --
2004 --
2005 and thereafter --
---------
$ 4,000
</TABLE>
F-21
<PAGE> 55
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1999 and 1998
NOTE 8 - OFFICER COMPENSATION
AmerAlia paid $125,000 and $100,000 to Gunn Development Pty. Ltd.
and $55,000 and $55,000 to Ahciejay Pty. for management fees
during the years ended June 30, 1999 and 1998, respectively. These
companies are affiliates of Mr. Bill H. Gunn, Chairman and
President of AmerAlia, and Mr. Robert van Mourik, Executive Vice
President, Secretary & Treasurer. On June 1, 1998, AmerAlia
appointed Mr. John Woolard as an Executive Vice President.
Previously, Mr. Woolard had been employed as a consultant under a
consulting agreement. AmerAlia paid $135,000 and $60,000 in total
compensation to Mr. Woolard during the years ended June 30, 1999
and 1998, respectively. Additional fees totaling $18,302 and
$7,007 have been paid to Jacinth Pty. Ltd., an affiliate of Robert
Cameron, a director of AmerAlia for the years ended June 30, 1999
and 1998, respectively. In addition, all directors received
$14,000 for directors fees, except Mr. Woolard who received a
prorata portion ($9,333) from the time he was appointed a director
through June 30, 1999.
In June 1996, AmerAlia agreed to grant 70,000 Stock Appreciation
Rights ("SAR's") to Mr. Bill Gunn. At any time after the share
price has sustained an average bid price of more than $3.50 for a
six month period before June 28, 2006, a holder of SAR's may
require AmerAlia to exchange its SAR's, in whole or in part at the
holder's option, for an issuance of restricted common stock at
$1.50 per share on a one-for-one basis. If a holder of a SAR
ceases to be a director or employee of AmerAlia prior to the
conversion of all its SAR's, then the remaining SAR's are
canceled.
NOTE 9 - OUTSTANDING STOCK OPTIONS AND PURCHASE WARRANTS
The following summarizes the exercise price per share and
expiration date of AmerAlia's outstanding options and warrants to
purchase preferred and common stock at June 30, 1999:
<TABLE>
<CAPTION>
Expiration Date Price Number
-------------------- ------- ---------
<S> <C> <C>
March 31, 1999 $2.00 462,000 *See note (a)
March 31, 2001 $1.00 100,000
March 31, 2003 $1.50 150,000
June 28, 2006 $1.50 505,000
June 28, 2006 (SAR's) $1.50 70,000 (See Note 8)
-------
1,287,000
=========
</TABLE>
Note(a): If unexercised, these options are exercisable at $4.00
until March 31, 2000 and thereafter at $6.00 until
expiring on April 1, 2001.
During the year ended June 30, 1999, 363,333 options and warrants
expired and options for 1,253,000 common shares were exercised.
During the years ended June 30, 1998 and 1997, no options expired.
F-22
<PAGE> 56
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1999 and 1998
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES
AmerAlia is a party to certain claims and lawsuits arising from
its business activities.
In 1993, AmerAlia entered into an engineering contract with
Raytheon Engineering (Raytheon) for the design and construction of
a processing plant for the Rock School Lease. AmerAlia has
rescinded the contract claiming that Raytheon was late in
providing engineering plans and testing and that their work was
substandard. Raytheon has an outstanding invoice due them for
approximately $303,800. AmerAlia is contesting the invoice and
claims that the amount is not owed because of substandard work.
Although management intends to vigorously contest the claim, a
contingent liability of $303,800 has been recorded at June 30,
1999.
Marvin Hudson, a former officer and employee of AmerAlia has
alleged that AmerAlia breached an employment agreement. AmerAlia
claims that the agreement was fraudulent and void and intends on
vigorously contesting the claim. The litigation is only in the
earliest stages and the outcome or potential loss cannot currently
be reasonably predicted. AmerAlia believes that they have a valid
defense and intends on defending their case vigorously.
On December 10, 1992, AmerAlia acquired the Rock School Lease from
Kinder; the acquisition terms were amended by Kinder and AmerAlia
on January 1, 1996. As amended, the acquisition agreement provides
for the following consideration:
1. Commencing January 1, 1996, the reservation of a production
royalty of $1.50 per ton for all production, due and payable
on the last day of the month following the month of
production subject to a minimum annual royalty of $75,000 in
arrears;
2. Starting January 1, 1996, the establishment of a consulting
arrangement between Kinder and AmerAlia providing for an
annual consulting fee of $25,000 payable monthly in arrears.
<TABLE>
<CAPTION>
Minimum amounts due are as follows:
<S> <C>
2000 $ 100,000
2001 100,000
2002 100,000
-----------
Total $ 300,000
===========
</TABLE>
These payments will continue while AmerAlia holds the Rock School
Lease. Royalties payable as of June 30, 1999 and 1998 were
$279,167 and $204,167, respectively.
As discussed in Note 3, the payment of the minimum annual
royalties accrues credits which AmerAlia can offset against
future royalty liabilities if they exceed the minimum annual
royalty due. The total of these credits at June 30, 1999 was
$412,500.
F-23
<PAGE> 57
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1999 and 1998
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
In April 1999 (effective November 1998), AmerAlia entered into an
employment contract with its Vice-President of Operations for a
period of five years. Pursuant to the employment agreement, the
officer will receive a salary of $100,000 per annum, plus bonuses
and salary increases. AmerAlia also granted the officer options
to acquire 100,000 shares of common stock at an exercise price of
$1.50 per share, through December 31, 2003. 20,000 of those
options vested upon signing the agreement and the remaining
options shall vest annually through November 2002.
NOTE 11 - RECOVERABILITY OF LEASE ACQUISITION AND EXPLORATION COSTS
The recoverability of this investment is dependent upon AmerAlia
developing mining operations on the lease so that the
profitability of mining operations, or prospective mining
operations, is sufficient to enable AmerAlia to be able to sell
its investment and recover the lease acquisition and exploration
costs, as well as any subsequent capitalized expenditures.
NOTE 12 - ACCRUED EXPENSES
Accrued expenses consist of the following at June 30, 1999 and
1998, respectively:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Accrued dividends $ 74,650 $ --
Payroll taxes 13,569 3,066
----------- -----------
Total $ 88,219 $ 3,066
=========== ===========
</TABLE>
NOTE 13 - PREFERRED STOCK
The following are terms of the various series of preferred stock:
1. AmerAlia issued 666,666 shares of Series A Convertible
Preferred Stock at $1.50 per share. The shares were
convertible into 666,666 shares of common stock and carried a
9% dividend payable annually in restricted common stock. The
shares were converted into common shares during the year
ended June 30, 1998.
2. There were 51,000 shares of Series B Preferred Stock issued
at $10 per share. Each share was convertible into 5 shares of
common stock and carried a 9% dividend payable annually at
the option of the stockholder in restricted common stock at
$2 per share. The shares were converted to common shares or
Series E Preferred during the year ended June 30, 1998.
F-24
<PAGE> 58
AMERALIA, INC.
Notes to the Financial Statements
(A Development Stage Company)
June 30, 1999 and 1998
NOTE 13 - PREFERRED STOCK (Continued)
3. Series C Convertible Preferred Stock consisted of 750 shares
issued at $80 per share. Each share was convertible into
common stock until April 22, 2005 on the basis of 53 shares
of common stock for each share of Series C and carried a 5%
dividend payable annually in cash. The Series C stock was
converted to Series E Preferred during the year ended June
30, 1998.
4. There are 2,986 shares of Series E preferred stock which
carry a 10% dividend payable quarterly in restricted common
stock at $1.00 per share. Each share of the preferred stock
is convertible into 1,000 shares of common stock until
October 31, 2000.
NOTE 14 - GOING CONCERN
AmerAlia's financial statements are prepared using generally
accepted accounting principles applicable to a going concern
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, AmerAlia
does not have significant cash or other material assets, nor does
it have an established source of revenues sufficient to cover its
operating costs and to allow it to continue as a going concern.
It is the intent of AmerAlia to generate revenue through the
manufacture and sales of its sodium bicarbonate products.
However, AmerAlia cannot begin mining the product until long-term
financing for the construction of the plant is obtained and the
plant completed.
NOTE 15 - SUBSEQUENT EVENTS
Subsequent to June 30, 1999, AmerAlia issued 250,000 shares of
common stock at $2.50 per share for $625,000. AmerAlia also
borrowed a total of $4,200,000 from Nation's Bank under a
one-year agreement in order to deposit the remaining $4,200,000
into their escrow account to be used for the construction of the
sodium bicarbonate plant (see Note 3). The loan is guaranteed by
a significant shareholder under a "Guaranty Agreement."
Management proposes to repay the $4,200,000 note with proceeds
from future equity subscriptions.
F-25
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
October 11, 1999
AMERALIA, INC.
By: /s/ Bill H. Gunn
-------------------------------------
Bill H. Gunn, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of AmerAlia
and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Bill H. Gunn Principal Executive Date: 10/11 /99
- ----------------------------------- Officer and Director ---------
Bill H. Gunn
/s/ Robert van Mourik Secretary, Treasurer Date: 10/11/99
- ----------------------------------- Principal Financial ---------
Robert C. J. van Mourik and Accounting Officer,
and Director
/s/ John F. Woolard Director Date: 10/11/99
- ----------------------------------- ---------
John F. Woolard
/s/ Robert A. Cameron Director Date: 10/11/99
- ----------------------------------- ---------
Robert A. Cameron
/s/ Neil E. Summerson Director Date: 10/11/99
- ----------------------------------- ---------
Neil E. Summerson
/s/ Geoffrey C. Murphy Director Date: 10/11/99
- ----------------------------------- ---------
Geoffrey C. Murphy
</TABLE>
<PAGE> 60
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 (a) Articles of Incorporation and Amendment.
3.2 (a) Bylaws of AmerAlia, Inc.
3.3 (a) Statement of Preferences for Series A Convertible Preferred Stock.
3.4 (f) Statement of Preferences for Series B Preferred Stock, as amended.
10.1 (b) Agreement with Eagle Star Nominees Ltd. as trustee for The Rural
Investment Trust for sale of property in consideration for
issuance of vendor units in the Rural Investment Trust.
10.6 (e) Form of Distributor agreements for marketing of sodium
bicarbonate.
10.7 (e) General Services Agreement with Raytheon Engineers & Constructors,
Inc.
10.8 (f) First Amendment to Special Warranty Assignment, Royalty
Reservation, and Minimum Royalty Payment between AmerAlia and E.E.
Kinder Co.
10.9 (f) Consulting Agreement between AmerAlia and E.E. Kinder Co.
10.10 (f) U.S. Government Sodium Lease
10.11 (g) Design/Build Contract with U.S. Filter Corp.
10.12 (g) Guaranty Agreement with the Jacqueline Badger Mars Trust
21.1 Subsidiaries of the Registrant: None.
27 (g) Financial Data Schedule
</TABLE>
(a) Incorporated by reference from the Company's Form 10 General
Registration Statement filed with the Commission on March 5, 1987.
(b) Incorporated by reference from the Company's Form 10-K for its year
ended June 30, 1989.
(c) Incorporated by reference from the Company's Form 10-K for its year
ended June 30, 1990.
(d) Incorporated by reference from the Company's Form 10-K for its year
ended June 30, 1992.
(e) Incorporated by reference from the Company's Form 10-K for its year
ended June 30, 1993.
(f) Incorporated by reference from the Company's Form 10-K for its year
ended June 30, 1995.
(g) Included herewith.
<PAGE> 1
DESIGN/BUILD AGREEMENT
THIS DESIGN/BUILD AGREEMENT (this "Agreement") is entered into as of
the 14th day of May, 1999 by and between AmerAlia, Inc., a Utah Corporation,
with its principal place of business at 311 Raleigh Road, Kenilworth, Illinois
60043 (hereinafter referred to as "AMERALIA"), and U.S. Filter Wastewater Group,
Inc., a Delaware corporation, d/b/a U.S. Filter Corporation, HPD Products, with
its principal place of business at 55 Shuman Boulevard, Naperville, IL 60563
(hereinafter referred to as "HPD"), the two of which shall hereinafter be
referred to as "Party" or the "Parties". The Parties amended this Agreement in a
first amendment dated August 1999 and in a second amendment dated August 24,
1999. When used herein, the term "the Agreement" includes this Agreement as
amended.
WITNESSETH THAT:
WHEREAS, AMERALIA desires to have HPD provide those design, project
management, supervision, procurement, construction, testing, and startup
assistance services specifically described in this Agreement (the "Work") in
relation to AMERALIA's proposed sodium bicarbonate solution mining and
production plant at AMERALIA's 1320 acre leasehold estate in the Piceance Creek
Basin near Rifle, Colorado (which plant is hereinafter referred to as the "Rock
School Project"); and
WHEREAS, HPD represents that it has an adequate staff of properly
trained and qualified personnel, and proper facilities, tools, equipment, and
financial and other resources, to undertake and complete all of its obligations
and duties described in this Agreement; and
WHEREAS, AMERALIA and HPD wish to enter into this Agreement, under
which HPD shall, for valuable consideration to be paid by AMERALIA, complete the
Rock School Project.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein expressed, the Parties hereto agree as follows:
1. DEFINITIONS
Capitalized terms which are used in this Agreement shall have the
meanings set forth below:
"Agreement" shall have the meaning set forth in the Preamble.
"AMERALIA" shall have the meaning set forth in the Preamble.
"Certificate of Commercial Operation" shall have the meaning set forth
in Section 16.2.4.
<PAGE> 2
"Certificate of Final Completion" shall have the meaning set forth in
Section 16.3.1.
"Certificate of Mechanical Completion" shall have the meaning set forth
in Section 16.1.3.
"Change Expenses" shall mean the Cost of the Work and that portion of
the Engineering Fee which are associated with changes in the Work which cause
the Guaranteed Maximum Price to exceed or remain above $32,000,000.
"Change Order" shall mean and refer to a written instrument signed by
HPD and AMERALIA stating their agreement upon all of the following: a change in
the Work; the amount of the adjustment in the Guaranteed Maximum Price, if any;
the extent of the adjustment in the Scheduled Dates, if any; the extent of the
adjustment in the Performance Guarantees, if any; and the adjustment in the
Milestone Payment Schedule, if any.
"Commercial Operation" shall be deemed to have occurred when (i)
Mechanical Completion has occurred, and (ii) either all Performance Tests have
been conducted and the Performance Guarantees have been achieved, or all
Performance Tests have been conducted, the Production Rate and Product Quality
Performance Guarantees have been achieved, and liquidated damages related to the
Utility Consumption Performance Guarantees have been paid by HPD to AMERALIA.
"Commercial Operation Date" shall mean and refer to the date on which
HPD has successfully achieved Commercial Operation.
"Commitment Date" shall have the meaning set forth in Section 9.4.
"Confidential Information" shall have the meaning set forth in Section
10.
"Contract Sum" shall have the meaning set forth in Section 8.1(a).
"Cost of the Work" shall have the meaning set forth in Section 8.1(b).
"Day" or "day" shall mean and refer to a calendar day.
"Default" shall have the meaning set forth in Section 17.1.
"Depletion Date" shall have the meaning set forth in Section 8.4(a).
"Dispute" shall have the meaning set forth in Section 12.1.
"Effective Date" shall have the meaning set forth in Section 2(a).
<PAGE> 3
"Engineering Fee" shall have the meaning set forth in Section 8.1(c).
"Environmental Law" shall mean and refer to any Law which relates to
environmental quality, health, safety, pollution, contamination, cleanup, or the
protection of human health, ambient air, waters (including ground waters) or
land; including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. Section 9601 et seq.; the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et
seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et
seq.; the Clean Air Act, as amended, 42 U.S.C. Section 7401 et seq.; the Clean
Water Act, as amended, 33 U.S.C. Section 1251 et seq.; and the Occupational
Safety and Health Act, as amended, 29 U.S.C. Section 651 et seq.
"Equity Amount" shall have the meaning set forth in Section 8.2.
"Equity Payment Period" shall have the meaning set forth in Section
8.3(a).
"Escrow Account" shall have the meaning set forth in Section 8.2.
"Escrow Deposits" shall have the meaning set forth in Section 8.2.
"Excusable Event" shall have the meaning set forth in Section 15.
"Existing Hazardous Substance" shall mean and refer to a Hazardous
Substance existing at the Project Site as of the Effective Date or a Hazardous
Substance which is introduced to the Project Site by an individual or entity
other than HPD or one of its subcontractors.
"Final Completion" shall be deemed to have occurred when (i) Mechanical
Completion has occurred, (ii) Commercial Operation has occurred, and (iii) all
items identified on the Punch List have been completed.
"Final Completion Date" shall mean and refer to the date on which HPD
has successfully achieved Final Completion.
"Governmental Authority" shall mean and refer to any national, federal,
state, county, municipal or local government, agency, authority or court, or any
department, board, bureau or instrumentality thereof.
"Guaranteed Maximum Price" shall have the meaning set forth in Section
8.1(a).
"Hazardous Substance" shall mean and refer to (A) any substance which
is listed, defined, designated or classified under any Environmental Law as a
(i) hazardous material, substance, constituent or waste, (ii) toxic material,
substance, constituent or waste, (iii) radioactive material, substance,
constituent or waste, (iv) dangerous material, substance, constituent or waste,
(v) pollutant, (vi) contaminant, or (vii) special waste; (B)
<PAGE> 4
any material, substance, constituent or waste regulated under any Environmental
Laws; or (C) petroleum, petroleum products, polychlorinated biphenyl,
pesticides, asbestos, or asbestos-containing materials.
"HPD" shall have the meaning set forth in the Preamble.
"HPD Loan" shall have the meaning set forth in Section 8.4(b).
"Invoices" shall have the meaning set forth in Section 8.3.
"Law" shall mean and refer to any constitution, charter, statute, act,
law, ordinance, regulation, code, rule, order, decree, permit, judgment,
directive, ruling, decision, guideline, resolution or declaration of any
Governmental Authority, or any interpretation or application thereof by any such
Governmental Authority.
"Mechanical Completion" shall be deemed to have occurred when (i) the
Rock School Project has been designed, engineered and constructed in accordance
with this Agreement (excluding Punch List items), (ii) the Rock School Project
is mechanically and structurally sound and free from detectable and patent
defects and deficiencies, (iii) HPD has successfully completed all
pre-commissioning procedures and tests as set forth in Exhibit C attached
hereto, and (iv) the Rock School Project is ready for commissioning.
"Mechanical Completion Date" shall mean and refer to the date on which
HPD has successfully achieved Mechanical Completion.
"Milestone" shall have the meaning set forth in Section 8.3(a).
"Milestone Payments" shall have the meaning set forth in Section
8.3(a).
"Milestone Payment Schedule" shall have the meaning set forth in
8.3(a).
"Party" or "Parties" shall have the meanings set forth in the Preamble.
"Performance Guarantees" shall mean and refer to those levels of
performance which the Rock School Project should achieve upon its full and
complete operation, which guarantees are identified on Exhibit F attached
hereto.
"Performance Tests" shall mean and refer to those tests specified in
Exhibit G attached hereto which shall be used to determine whether the Rock
School Project has satisfied the Performance Guarantees.
"Project Site" means the 1320 acre parcel of real property in the
Piceance Creek Basin near Rifle, Colorado, which parcel is more specifically
described in Exhibit A attached hereto.
<PAGE> 5
"Punch List" shall mean and refer to a comprehensive list prepared upon
Mechanical Completion of the Rock School Project identifying those insubstantial
details of construction and mechanical adjustment which require repair,
completion, correction or re-execution, the noncompletion of which does not
interfere with AMERALIA's occupancy and use of the Rock School Project.
"Rock School Project" shall have the meaning set forth in the recitals
hereof.
"Savings" shall have the meaning set forth in Section 8.1(d).
"Scheduled Commercial Operation Date" shall mean and refer to the date
which is three hundred fifty (350) days after the Mechanical Completion Date, as
such date may be adjusted pursuant to the terms and provisions of this
Agreement.
"Scheduled Dates" shall mean and refer to the Scheduled Mechanical
Completion Date and the Scheduled Commercial Operation Date.
"Scheduled Mechanical Completion Date" shall mean and refer to August
18, 2000, as such date may be adjusted pursuant to the terms and provisions of
this Agreement.
"Senior Officer" shall have the meaning set forth in Section 12.1.
"subcontractor" shall mean and refer to any person or entity who has a
direct contract or agreement with HPD to perform a portion of the Work.
"Technical Specifications" shall mean and refer to those documents
identified or contained within Exhibit C attached hereto, which documents define
the program requirements and scope of Work for the Rock School Project.
"Unforeseeable Conditions" shall mean and refer to physical conditions
at the Project Site (i) which differ materially from those indicated in this
Agreement, or (ii) which differ materially from those ordinarily found to exist
and generally recognized as inherent in construction activities of the character
provided for in this Agreement.
"Work" shall have the meaning set forth in the recitals hereof.
<PAGE> 6
2. DURATION
(a) This Agreement is effective as of the date first shown above (the
"Effective Date") and shall continue in force until Final Completion of the Rock
School Project, subject to termination of this Agreement as otherwise provided
herein. HPD agrees that it shall achieve Mechanical Completion of the Rock
School Project on or before the Scheduled Mechanical Completion Date, and
Commercial Operation of the Rock School Project on or before the Scheduled
Commercial Operation Date. A detailed description of Rock School Project
Progress Schedule is attached as Exhibit B to this Agreement.
(b) The Parties agree that it would be extremely difficult and
impracticable under the presently known and anticipated facts and circumstances
to ascertain and fix the actual damages AMERALIA would incur should HPD delay in
achieving Mechanical Completion by the Scheduled Mechanical Completion Date, and
accordingly the Parties hereby agree that if HPD fails to so achieve Mechanical
Completion within such time, then AMERALIA's sole and exclusive remedy for such
delay shall be to recover from HPD as liquidated damages, and not as a penalty,
the sum of Five Thousand and No/100 Dollars ($5,000.00) for each day Mechanical
Completion is so delayed by HPD; it being acknowledged and agreed by the Parties
hereto that HPD's maximum liability for such delay liquidated damages shall be
limited to five percent (5%) of the Guaranteed Maximum Price.
(c) Conversely, AMERALIA shall pay HPD an incentive fee of Five
Thousand and No/100 Dollars ($5,000.00) for each day the Mechanical Completion
Date precedes the Scheduled Mechanical Completion Date; provided, however, such
incentive fee shall be limited to an amount equal to five percent (5%) of the
Guaranteed Maximum Price.
(d) The Parties agree that it would be extremely difficult and
impracticable under the presently known and anticipated facts and circumstances
to ascertain and fix the actual damages AMERALIA would incur should HPD fail to
achieve the Utility Consumption Performance Guarantee by the Scheduled
Commercial Operation Date, and accordingly the Parties hereby agree that if HPD
fails to achieve the Utility Consumption Performance Guarantee by the Scheduled
Commercial Operation Date, then AMERALIA's sole and exclusive remedy for such
failure shall be to recover from HPD as liquidated damages, and not as a
penalty, those amounts identified as liquidated damages in Exhibit F attached
hereto; it being acknowledged and agreed by the Parties hereto that the HPD's
maximum liability for such liquidated damages shall be limited to Five percent
(5%) of the Guaranteed Maximum Price. Such liquidated damages shall be
calculated on the basis of the last Performance Test performed before the
Scheduled Commercial Operation Date.
<PAGE> 7
3. REPRESENTATIONS AND WARRANTIES
3.1 AMERALIA's Representations and Warranties: AMERALIA represents and
warrants to HPD that it retains a leasehold interest in and to the Project Site,
that its leasehold interest includes the right to develop, design and construct
the Rock School Project, that such leasehold interest permits HPD to access the
Project Site for the purposes contemplated in this Agreement, and that it has
obtained (or will obtain) all governmental (including environmental) permits,
licenses, variances and authorizations necessary to proceed with the Rock School
Project.
AMERALIA represents and warrants that it has, or will have, the
financial capacity to meet each and every financial obligation imposed by this
Agreement at the time required.
AMERALIA represents and warrants that it has obtained any necessary
permission(s) from its corporate officers and/or board of directors, that it is
legally authorized to enter into this Agreement and to fulfill any and all
obligations imposed hereby, and that this Agreement constitutes the legal, valid
and binding Agreement of AMERALIA; AMERALIA represents and warrants that the
individual signing this Agreement for AMERALIA is fully authorized to enter into
this Agreement in the name of AMERALIA, and that s/he suffers no incapacity or
infirmity which would invalidate the commitments herein undertaken.
3.2 HPD's Representations and Warranties: HPD represents that it has an
understanding of the nature and scope of the project identified herein, that it
is generally familiar with projects of the nature described herein, and that it
is experienced in performing work similar in nature to the Work provided herein.
HPD represents and warrants that it is legally authorized to enter into
this Agreement and to fulfill any and all obligations imposed hereby and that
this Agreement constitutes the legal, valid and binding agreement of HPD; HPD
represents and warrants that the individual signing this Agreement for HPD is
fully authorized to enter into this Agreement in the name of HPD, and that s/he
suffers no incapacity or infirmity which would invalidate the commitments herein
undertaken. HPD acknowledges that AMERALIA is relying on HPD's expertise in
relation to the design, engineering and construction of the Rock School Project.
3.3 Warranty as to the Work. (a) HPD warrants to AMERALIA that the
materials and equipment incorporated into the Work will be free from defects in
workmanship. The preceding warranty shall remain in full force and effect for a
period of one (1) year after the Mechanical Completion Date, at which time, such
warranty shall terminate and be of no further force or effect.
(b) If, at any time prior to the expiration of the preceding one (1)
year warranty period, AMERALIA discovers any breach of HPD's warranty contained
in Section 3.3(a) and notifies HPD in writing of such breach, then HPD shall, at
its sole
<PAGE> 8
option, either repair or replace the defective portion of the Work; provided,
however, AMERALIA shall (prior to HPD performing any corrective work or
services) disconnect the portion of the Work to be corrected by HPD from all
piping, clean such Work, free such Work of all liquids, solids, explosives, and
combustible, toxic and asphyxiate gases, and otherwise make such Work safe for
the corrective work and services to be performed by HPD. The foregoing remedy
shall be AMERALIA's sole and exclusive remedy for breach of warranty by HPD, and
shall be in lieu of all other remedies (whether available at law or in equity).
(c) The warranties provided in this Section 3.3 exclude remedy for (a)
damages, defects, deficiencies or failures due to: negligence, abuse, willful
misconduct or neglect by AMERALIA or a third party; accidents; following the
Mechanical Completion Date, failure to store, operate and maintain in accordance
with HPD's written instructions; modifications, repairs or alterations not
executed by HPD; normal wear and tear under normal usage; corrosion, erosion or
abrasion; abnormal conditions of temperature, moisture or dirt; or deterioration
or wear occasioned by chemicals; and (b) damages, defects, deficiencies or
failures not reported within the one (1) year warranty period.
(d) All limitations in this Agreement as to HPD's liability (including,
without limitation, those limitations set forth in Section 26) shall apply even
if the remedies for breach of warranty are deemed to "fail of their essential
purpose" or are otherwise held to be invalid or unenforceable.
(e) THE WARRANTY SET FORTH IN THIS SECTION 3 IS HPD'S SOLE AND
EXCLUSIVE WARRANTY. HPD MAKES NO OTHER WARRANTIES OF ANY KIND WHATSOEVER,
EXPRESS, IMPLIED, ORAL, WRITTEN OR OTHERWISE, INCLUDING, WITHOUT LIMITATION,
WARRANTIES OF NON-INFRINGEMENT, TITLE, PATENT, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, OR WARRANTIES ARISING BY CUSTOM, TRADE USAGE, PROMISE,
EXAMPLE OR DESCRIPTION, ALL OF WHICH WARRANTIES ARE EXPRESSLY DISCLAIMED BY HPD
AND WAIVED BY AMERALIA.
4. RELATIONSHIP OF THE PARTIES
HPD agrees that it is and shall conduct itself for all purposes as an
independent contractor in its completion of the Rock School Project. HPD further
agrees that none of the employees, agents or subcontractors of HPD shall be
considered for any purpose whatsoever, or hold themselves out to be, or act as,
employees of AMERALIA. HPD agrees that neither HPD nor any of its employees,
agents or subcontractors shall, except as specifically authorized in writing by
AMERALIA, act as an agent for AMERALIA.
<PAGE> 9
5. CHANGE ORDERS
AMERALIA may, at any time during the term of this Agreement, request
changes in the Work within the general scope of this Agreement (consisting of
additions, deletions or other revisions) by written communication to HPD. HPD
shall, within five (5) business days thereafter, provide AMERALIA with a written
acknowledgment of such request. Thereafter, HPD shall with reasonable promptness
provide AMERALIA with a written proposal for incorporating the requested change
into the Rock School Project. HPD's proposal shall include, if appropriate, an
equitable adjustment in the Guaranteed Maximum Price, the Performance
Guarantees, the Milestone Payment Schedule and the Scheduled Dates. Such
proposal shall be the basis for the negotiation of the corresponding Change
Order. If AMERALIA and HPD have previously agreed on unit prices for any aspects
of changed Work, then the unit prices shall be utilized for the pricing of the
applicable portion of the proposed change. If AMERALIA agrees with HPD's
proposal, the Parties shall execute a Change Order reflecting the requested
change in the Work and the proposed adjustments, if any, in the Guaranteed
Maximum Price, the Performance Guarantees, the Milestone Payment Schedule and
the Scheduled Dates. In the event AMERALIA disagrees with HPD's proposal,
AMERALIA may submit such disagreement to the dispute resolution process set
forth in Section 12; provided, however, (i) the Parties agree that any
adjustment in the Guaranteed Maximum Price which is determined pursuant to a
dispute resolution process shall be made on the basis of the associated Cost of
the Work and Engineering Fee calculated in accordance with Sections 8.1(b) and
(c), and (ii) under no circumstances (even pursuant to the dispute resolution
process) shall HPD be obligated to accept any change in the Work proposed by
AMERALIA if HPD believes that such change will impact HPD's ability to achieve
the Performance Guarantees. Under no circumstances shall HPD be obligated to
proceed with a requested change in the Work unless and until the Parties execute
a mutually acceptable Change Order.
Should HPD believe that any instructions, interpretations or
communications of any kind from AMERALIA constitute a change to the Rock School
Project, then HPD shall notify AMERALIA of said belief within five (5) business
days after HPD becomes aware of such instruction, communication or
interpretation. AMERALIA and HPD shall thereafter attempt to arrive at an
agreement on whether a change has occurred, and the impact of such change, if
any, on the Guaranteed Maximum Price, the Performance Guarantees, the Milestone
Payment Schedule and the Scheduled Dates. Should the Parties fail to arrive at
an agreement on the matter, then either Party may, by written notice to the
other, invoke the dispute resolution provisions in Section 12.
6. CONFLICTS
If there is any conflict between any provisions in the body of this
Agreement and any provisions in the attached Exhibits, then the provisions in
the body of this Agreement shall prevail over the provisions in the attached
Exhibits.
<PAGE> 10
7. HPD'S WORK
(a) HPD covenants and agrees that it shall perform and complete the
Work in accordance with this Agreement (including, without limitation, in
accordance with the Technical Specifications). Except as otherwise provided in
this Agreement, HPD shall supply and pay for all services, materials (which,
unless otherwise agreed in writing by AMERALIA, shall be new), and other items
identified in this Agreement as being necessary to perform the Work. The entire
scope of the Work is specifically set forth in this Agreement; and any items or
services not specifically enumerated herein are not included as part of the Work
and are considered to be the responsibility of AMERALIA.
(b) HPD's design, engineering and construction services shall be
performed in accordance with generally accepted design, engineering and
construction standards recognized in the United States for projects similar in
nature to the Rock School Project.
(c) HPD shall not permit the employment of personnel at the Project
Site who are unfit or incompetent or otherwise not skilled in the tasks assigned
to them, and shall supply security for the Project Site as it deems necessary in
its sole discretion.
8. COMPENSATION
8.1 Contract Sum. (a) AMERALIA shall pay HPD for the performance of the
Work the "Contract Sum" consisting of the Cost of the Work, the Engineering Fee,
and the Deposit Relief Fee. HPD covenants and agrees that the sum of the Cost of
the Work, the Engineering Fee and the Deposit Relief Fee shall not exceed Thirty
Three Million Two Hundred Thousand and No/100 Dollars ($33,200,000), subject to
additions to, and deductions from, such amount by Change Order as provided in
this Agreement. Such maximum sum is referred to in this Agreement as the
"Guaranteed Maximum Price". Costs which would cause the Guaranteed Maximum Price
to be exceeded shall be paid by HPD without reimbursement from AMERALIA; it
being acknowledged and agreed by the Parties, however, that interest payable to
HPD by AMERALIA as provided in this Section 8 is not included within the
Guaranteed Maximum Price. HPD acknowledges that AMERALIA has, prior to the
Effective Date, already paid $875,000 of the Contract Sum.
(b) For purposes of this Agreement, "Cost of the Work" shall mean and
refer to any and all costs and expenses incurred by HPD in the performance of
the Work and/or completion of the Rock School Project and paid or payable to
subcontractors, vendors, suppliers or other third parties, and shall include,
without limitation, any of the following costs and expenses payable to third
parties: costs for materials, supplies, machinery, equipment and facilities,
labor costs, amounts paid or owing to subcontractors, rental charges, testing
fees, insurance premiums, and costs related to HPD's field office; provided,
however, Cost of the Work shall not include those items reflected in the
Engineering Fee as expressed in the following Section 8.1(c) or interest payable
to HPD as provided in this Section 8. In calculating the Cost of the Work, HPD
will add a multiplier of 0.30 to any of the preceding costs and expenses paid or
payable to
<PAGE> 11
subcontractors, vendors, suppliers or other third parties. The Parties
understand and agree that the Deposit Relief Fee is not a part of the Cost of
Work.
(c) The "Engineering Fee", except as limited by the Guaranteed Maximum
Price, shall be an amount equal to Two Million Eight Hundred Forty Four Thousand
Five Hundred Five and No/100 Dollars ($2,844,505). The Engineering Fee shall
not, under any circumstances, be reduced. However, should a change in the Work
be implemented by a Change Order, the Engineering Fee shall be increased to
reflect the additional engineering services performed by HPD's personnel in
relation to such change, which increase shall be equivalent to the product of
(i) the "man hours" expended by the personnel specified in Exhibit D attached
hereto in relation to the change, multiplied by (ii) the corresponding rate(s)
provided in such Exhibit. The Engineering Fee is intended to compensate HPD for
the following overhead and personnel costs associated with the Rock School
Project: wages and salaries for HPD's project management, project engineering,
field supervision, field service, research and development, purchasing and
process design personnel; travel and subsistence expenses for the preceding
personnel; and costs and expenses associated with HPD's quality assurance
services; it being agreed by the Parties that no such costs or expenses shall be
charged to AMERALIA as a Cost of the Work.
(d) If, as of the Final Completion Date, (i) the total aggregate sum of
the Cost of the Work plus the Engineering Fee plus the Deposit Relief Fee is
less than (ii) the Guaranteed Maximum Price, then the difference (hereinafter
referred to as "Savings") shall accrue and inure to the benefit of AMERALIA and
HPD as follows: The Savings shall be split 50% to AMERALIA and 50% to HPD;
provided, however, HPD's share of the Savings shall not exceed One Million and
No/100 Dollars ($1,000,000).
8.2 Security. (a) Upon execution of this Agreement, HPD and AMERALIA
shall establish an escrow account (the "Escrow Account") for the mutual benefit
of HPD and AMERALIA at Chicago Title and Trust Company or at a federally insured
commercial bank acceptable to both Parties. AMERALIA shall wire transfer into
the Escrow Account such amounts at such times as provided for in the Deposit
Schedule attached hereto as Exhibit E (the "Escrow Deposits"). The aggregate
amount of the Escrow Deposits shall be $6,400,000, less the $875,000 of the
Contract Sum previously paid by AMERALIA (the "Equity Amount"). HPD shall have
the right to withdraw funds from the Escrow Account in the manner provided in
Section 8.4. AMERALIA shall not be permitted to withdraw any funds from the
Escrow Account without the prior written consent of HPD. All escrow fees and
charges incurred for the establishment and maintenance of the Escrow Account
shall be paid by AMERALIA. All interest earned on monies deposited into the
Escrow Account shall be credited to AMERALIA and shall remain in the Escrow
Amount.
(b) For and in consideration of the additional payment of $1,200,000 by
AMERALIA to HPD (the "Deposit Relief Fee"), HPD and AMERALIA hereby
agree to amend the Deposit Schedule as follows:
(i) An Escrow Deposit of $3,600,000 shall be deposited by
AMERALIA into the Escrow Account on or before September 15,
1999; and
(ii) A final Escrow Deposit of $600,000 shall be deposited by
AMERALIA into the Escrow Account on or before October 1, 1999.
The Deposit Relief Fee shall be deemed earned upon the date of
execution of the Second Amendment (August 25, 1999) and shall be paid
by AMERALIA to HPD within ten (10) days after the Mechanical Completion
Date.
(c) (i) In order to secure the full and prompt payment of any and all
monies which AMERALIA is obligated to pay under Section 8.2(b),
AMERALIA does hereb6y collaterally assign, transfer, and convey, grant
a mortgage and security interest in, and pledge to, HPD all of
AMERALIA's right, title and interest in and to all of AMERALIA's
current and future assets, including, without limitation, all of
AMERALIA's real property, personal property, and AMERALIA's interest in
that certain Sodium Lease Renewal (#C-011905) related to the Project
Site (collectively "AMERALIA's Assets"). AMERALIA covenants and agrees
that upon written notice from HPD, AMERALIA shall promptly execute and
deliver any and all documents which HPD deems necessary (in HPD's sole
and absolute discretion) to fully evidence and perfect the preceding
assignment, transfer, conveyance, mortgage, security interest, and
pledge in and to AMERALIA's Assets, including, without limitation, any
deed of trust, leasehold assignment, security agreement, pledge
agreement, and UCC financing statements.
(ii) AMERALIA represents and warrants to HPD (i) that AMERALIA
has good and merchantable title to the AMERALIA Assets, (ii) that the
AMERALIA Assets are free and clear of any and all liens, claims,
security interests, mortgages, charges or encumbrances. AMERALIA
further covenants and agrees that AMERALIA shall not, until the
Contract Sum is paid in full to HPD, grant, permit, or suffer any lien,
claim, security interest, mortgage, charge or encumbrance upon or
against the AMERALIA Assets except the existing Marvin L. Hudson
("Hudson") and Raytheon Engineers + Constructors, Inc. ("Raytheon")
claims being contested by AMERALIA. The Hudson claim is being brouth in
the U.S. District Court for the District of Colorado, case no.
99-M-1203. The Raytheon claim is in the total amount of $303,800 and
brought pursuant to a General Services Agreement dated October 7, 1993.
8.3 Invoices. During the term of this Agreement, HPD shall submit to
AMERALIA monthly invoices ("Invoices") as follows:
(a) During the period of time from the Effective Date through the
Depletion Date (such period to be referred to as the "Equity Payment Period"),
HPD will be compensated on a milestone payment basis. During the Equity Payment
Period, HPD's Invoices shall be submitted to AMERALIA on the last business day
of each month and shall (i) state AMERALIA's project number, (ii) set forth the
Milestone(s) which HPD
<PAGE> 12
has successfully achieved during such month, and (iii) set forth the Milestone
Payment(s) which correspond to such Milestone(s). In connection therewith,
attached to this Agreement as Exhibit H is a "Milestone Payment Schedule" which
identifies significant "Milestones" to be achieved by HPD during the Equity
Payment Period and that portion of the Contract Sum which is payable to HPD once
HPD successfully achieves the corresponding Milestone (a "Milestone Payment").
HPD shall be paid the Milestone Payments for all Milestones completed during the
month covered by the applicable Invoice. Within five (5) days of its receipt of
an Invoice, AMERALIA must provide written notice to HPD as to any reasonable
objections it may have as to Milestones which HPD claims to have achieved. If
AMERALIA fails to provide written notice of any objections within such five (5)
day period, AMERALIA shall be deemed to have accepted the corresponding Invoice.
If AMERALIA provides a reasonable objection (within the foregoing five (5) day
period) as to HPD's claim of completion as to any Milestone, HPD shall not be
paid for such Milestone until it is in fact achieved; however, the remaining
portion of the Invoice shall be deemed accepted by AMERALIA. On the fifteenth
(15th) day of the following month, HPD may submit an Invoice for Milestones
previously objected to by AMERALIA, but which have since been achieved by HPD;
in which event, the preceding provisions regarding AMERALIA's ability to object
in writing shall apply once again. In the event any Milestone previously
objected to by AMERALIA is not achieved by such fifteenth (15th) day of the
month, HPD may nevertheless include such Milestone in the Invoice immediately
following the date the Milestone is finally achieved.
(b) During the period of time from and after the Depletion Date until
the Final Completion Date, HPD shall submit Invoices to AMERALIA within five (5)
business days after the last day of a month. Each such Invoice shall list as
separate line items the following: AMERALIA's project number; the Cost of the
Work due from AMERALIA, which shall represent the aggregate amount of all bills
and invoices received by HPD from all its subcontractors, vendors, suppliers or
other third parties during the immediately preceding month; a summary of the
composition of the Cost of the Work; that portion of the Engineering Fee which
is due to HPD for the immediately preceding month as provided in Exhibit I
attached hereto; that portion of the Cost of the Work and the Engineering Fee
which are Change Expenses; accrued interest as to the HPD Loan; the Deposit
Relief Fee when such fee is payable; and any other information reasonably
requested by AMERALIA. HPD shall be paid the amounts referenced on any such
Invoice in the manner provided in Sections 8.4(b) and (c). Within five (5) days
of its receipt of an Invoice, AMERALIA must provide written notice to HPD as to
any reasonable objections it may have as to the amounts requested in such
Invoice. If AMERALIA fails to provide written notice of any objections within
such five (5) day period, AMERALIA shall be deemed to have accepted the
corresponding Invoice. If AMERALIA provides a reasonable objection (within the
foregoing five (5) day period) as to any amount(s) identified in an Invoice, HPD
shall not be paid for such amount(s) until the cause for such reasonable
objection is removed; however, the remaining portion of the Invoice shall be
deemed accepted by AMERALIA. Once the cause for any reasonable objection by
AMERALIA is removed, the corresponding amount(s) shall be paid to HPD as
provided in Section 8.4(b).
<PAGE> 13
(c) If AMERALIA objects to any amount(s) expressed in any Invoice,
either Party may refer such objection to the dispute resolution procedures set
forth in Section 12.
8.4 Payment. (a) Until such time as HPD's Invoices aggregate an amount
equivalent to the Equity Amount, AMERALIA shall satisfy its payment obligations
to HPD by permitting HPD to withdraw funds due to HPD from the Escrow Account.
Specifically, on the date AMERALIA has accepted an Invoice (or portion thereof)
as provided in Section 8.3(a), HPD may withdraw funds from the Escrow Account
equal to the amount in the Invoice (or portion thereof) which has been accepted
by AMERALIA; which payment procedure shall continue until the date the monies in
the Escrow Account are depleted (the "Depletion Date").
(b) From and after the Depletion Date until the Final Completion Date,
HPD shall submit Invoices to AMERALIA in the manner provided in Section 8.3(b).
However, amounts due to HPD as expressed in such Invoices (which shall be the
Cost of the Work, the Engineering Fee and the Deposit Relief Fee identified
therein, excluding (if applicable) Change Expenses) shall be paid by AMERALIA as
follows:
(i) AMERALIA may, at its election, pay amounts due to HPD as expressed
in an Invoice by paying all such amounts in cash to HPD; provided,
however, if AMERALIA elects to pay such amounts in cash, it must do so
on or before the fifteenth (15th) day of the month in which it receives
the corresponding Invoice. If AMERALIA makes the foregoing election, it
must pay all amounts expressed in the corresponding Invoice; it being
agreed that no partial payments shall be permitted. Notwithstanding the
foregoing, if AMERALIA reasonably objects to any amount in an Invoice
as provided in Section 8.3(b), it may nevertheless select the option
expressed in this Section 8.4(b) and pay the amounts to which it does
not object as provided in this Section 8.4(b), but the amounts which
were objected to by AMERALIA must be paid in cash within five (5) days
after the cause for AMERALIA's objection is removed.
(ii) If AMERALIA fails to pay in cash all amounts expressed in an
Invoice which have been accepted by AMERALIA as provided in Section
8.3(b) on or before the fifteenth (15th) day of the month in which it
receives such Invoice, the entire amount expressed in such Invoice
shall be loaned by HPD to AMERALIA. All amounts expressed in any such
Invoice shall bear interest at an annual rate of ten percent (10%),
compounded monthly, accruing from the fifteenth (15th) day of the month
in which AMERALIA receives the corresponding Invoice until all such
amounts are paid by AMERALIA to HPD (all such amounts loaned by HPD, as
well as all accrued interest, being hereinafter referred to as the "HPD
Loan"). Notwithstanding the foregoing, amounts which have been objected
to by AMERALIA as provided in Section 8.3(b) shall not bear interest
until the cause for any such objection is removed. Interest which
accrues during the first fifteen (15) days as to an Invoice, or portion
thereof, which is accepted by AMERALIA
<PAGE> 14
as provided in Section 8.3(b) may be paid in cash to HPD, but only if
such accrued interest is paid in cash on the date such fifteen (15) day
period expires; otherwise such interest shall be compounded monthly
along with any interest which accrues after the expiration of such
fifteen (15) day period. If the HPD Loan is not paid in full by the
date which is nine (9) months after the Mechanical Completion Date, the
preceding ten percent (10%) interest rate will change to a variable
rate which is equal to the sum of (i) the prime rate of interest
published from time to time in the Money Rate Section of the Wall
Street Journal, plus (ii) seven percent (7%), which new rate shall
apply retroactively commencing on the Mechanical Completion Date. The
HPD Loan, representing the aforementioned amounts identified in the
Invoices submitted between the Depletion Date and the Final Completion
Date and interest thereon, if not sooner paid, shall be due and payable
by AMERALIA to HPD on the Final Completion Date.
(c) Notwithstanding anything to the contrary contained in this
Agreement, Change Expenses shall not be paid from the Escrow Account or by means
of the HPD Loan. Change Expenses, if any, shall be identified in the Invoice(s)
corresponding to the month in which any such expenses apply, and shall be paid
by AMERALIA to HPD in cash within thirty (30) days after the submittal of the
corresponding Invoice.
8.5 HPD Loan. AMERALIA understands and accepts the terms of the HPD
Loan as set forth in Section 8.4 and AMERALIA covenants and agrees that it will
pay all amounts due under the HPD Loan, including, without limitation, all
accrued interest, no later than the Final Completion Date. Although the interest
which accrues under the HPD Loan is due and payable to HPD as provided in this
Agreement, no such interest shall constitute a part of the Cost of the Work or a
portion of the Engineering Fee or the Deposit Relief Fee or otherwise accrue
against the Guaranteed Maximum Price. AMERALIA further covenants and agrees that
any amounts due to HPD under the HPD Loan shall always be considered amounts due
to HPD as a contractor pursuant to any mechanics', materialmen's or construction
lien laws of the State of Colorado.
8.6 Records. If requested by AMERALIA, HPD will submit to AMERALIA,
within a reasonable period of time, any of the following information or
documentation in relation to any Invoice:
(i) Reasonable back-up documentation sufficient for audit of all Cost
of the Work expenses, costs related to Change Orders, and interest
expenses related to the HPD Loan;
(ii) Lien waivers from subcontractors; and
(iii) Reasonable evidence as to all payrolls, bills for materials and
equipment, invoices and indebtedness related to the Cost of the Work.
The submission of any of the preceding information or documentation shall not be
a condition precedent to the payment of any Invoice. However, if HPD cannot
substantiate
<PAGE> 15
any amount previously invoiced, AMERALIA may thereafter withhold an amount
equivalent to such unsubstantiated amount until HPD is able to substantiate the
same.
8.7 Offset. HPD authorizes AMERALIA to offset from any amount payable
to HPD, all amounts that are rightly payable by HPD to AMERALIA under the terms
of this Agreement. AMERALIA's exercise or failure to exercise such right to
offset shall not affect the validity of the underlying obligation.
8.8 Employment Taxes. HPD accepts exclusive liability for payment of
federal and state payroll taxes for its employees who are assigned to the Rock
School Project, and for the associated contributions for unemployment insurance,
old age pensions, annuities, retirement, and related benefits, imposed under any
provision of any applicable Law. HPD will ensure that each subcontractor who
performs any part of the Rock School Project accepts the same responsibility and
liability with respect to its employees. HPD agrees to indemnify and save
AMERALIA harmless against all claims, taxes, penalties, interest or costs which
may be made or assessed under any applicable Laws with respect to the payment of
federal and state payroll taxes, and contributions for unemployment insurance,
old age pensions, annuities, retirement and related benefits, payable to or on
behalf of the employees of HPD or any of its subcontractor's employees.
8.9 Title and License. (a) Title to each portion of the Work shall pass
to AMERALIA at the time AMERALIA pays cash to HPD for such portion of the Work.
HPD represents that the Work for which HPD has been paid by AMERALIA will be
free and clear of liens, claims and security interests in favor of HPD and its
subcontractors. If such is not the case, HPD shall either (i) cause such lien,
claim or security interest to be discharged, or (ii) provide AMERALIA a bond or
other security in relation to such lien, claim or security interest in the event
HPD wishes to contest the same.
(b) Upon payment in full by AMERALIA of all amounts due to HPD under
this Agreement (including, without limitation, the HPD Loan), HPD shall convey
title to the Work to AMERALIA by bill of sale, deed or other appropriate
instrument, and shall deliver all subcontractor warranties to AMERALIA.
9. AMERALIA'S DUTIES & OBLIGATIONS
9.1 Taxes and Permits. (a) AMERALIA shall pay all sales, consumer, use,
excise and other taxes, levies, duties and tariffs (whether direct or indirect)
relating to or incurred in connection with the performance of the Work and/or
completion of the Rock School Project, including without limitation all duties,
levies, tariffs and taxes (whether foreign or otherwise) related to the import
or export of machinery, equipment, materials, parts and supplies utilized in
performing the Work. AMERALIA shall also secure and pay for any and all permits
and licenses necessary for the performance of the Work and/or completion of the
Rock School Project. AMERALIA shall promptly reimburse HPD in the event HPD is
required to pay any such duty, levy, tariff or tax, or to secure or pay for any
such permit or license.
<PAGE> 16
(b) AMERALIA will, promptly after the Effective Date, provide HPD with
a copy of any applicable state sales tax exemption certificate. The certificate
number will be included by HPD on any purchase orders issued during the course
of the Rock School Project. Should any state sales or use taxes be required to
be paid by HPD on the equipment or other materials incorporated into the Rock
School Project, AMERALIA shall reimburse HPD as provided in the preceding
Section 9.1(a).
9.2 Leasehold Agreement. AMERALIA represents and warrants to HPD that
it retains a leasehold interest in and to the Project Site, that its leasehold
interest includes the right to develop, design and construct the Rock School
Project, and that such leasehold interest permits HPD to access the Project Site
for the purposes contemplated in this Agreement. AMERALIA shall, upon the
request of HPD, provide such documentation and other evidence as HPD may
reasonably request to substantiate the preceding representation and warranty.
9.3 Access. HPD and its subcontractors, and their respective employees,
agents, representatives and designees, shall be granted access to the Project
Site at all times so as to enable HPD to perform its duties and obligations
under this Agreement.
9.4 Long-Term Financing. On or before the date which is the earlier of
(i) the Depletion Date, and (ii) August 15, 1999 (the "Commitment Date"),
AMERALIA shall deliver to HPD a commitment letter from a financial institution
committing to provide long-term financing to AMERALIA for the Rock School
Project, which commitment letter and financial institution must both be
acceptable to HPD in HPD's sole and absolute discretion. At a minimum, the
commitment letter must provide for the guaranteed payment of the HPD Loan in
full on or before the date specified in this Agreement. If for any reason
AMERALIA fails to provide to HPD the aforementioned commitment letter from a
financial institution by the Commitment Date (which commitment letter and
financial institution must both be acceptable to HPD in HPD's sole and absolute
discretion), HPD may terminate this Agreement upon written notice to AMERALIA.
If this Agreement is so terminated, HPD shall be entitled to receive the
following from AMERALIA: payment for the Cost of the Work incurred and the
Engineering Fee earned to the date of termination, the Deposit Relief Fee,
reimbursement for all cancellation charges incurred by HPD in relation to its
subcontractors, and a demobilization fee in an amount equal to $500,000.
9.5 Utilities and Consumables. AMERALIA shall, at all times during the
term of this Agreement and at its sole cost and expense, provide the following
items as required by HPD including, without limitation, during the construction
and commissioning of the Rock School Project and the performance of the
Performance Tests: all electricity, all water and all other utilities, all
chemicals, all lubricants, all feed stock and all consumables.
9.6 AMERALIA's Obligations. AMERALIA must provide the following
services in relation to the Rock School Project:
<PAGE> 17
(i) Provide full access to the Project Site to HPD by August 1, 1999;
(ii) Secure all permits and licenses necessary for performance of the
Work and/or completion of the Rock School Project by September 1,
1999;
(iii) Provide a natural gas "tie-in" to a location within the Project
Site designated by HPD by January 1, 2000;
(iv) Provide construction power (i.e., single phase power) to a
location within the Project Site designated by HPD by October 1,
1999, and permanent power to a location within the Project Site
designated by HPD by April 1, 2000; and
(v) Provide ground water at a location within the Project Site
designated by HPD at a rate of 200 gallons per minute (along with
the legal rights to such water) by November 1, 1999.
9.7 Mutual Cooperation. Whenever AMERALIA's cooperation is required by
HPD in order to carry out HPD's obligations hereunder, AMERALIA agrees that it
shall act in good faith in so cooperating with HPD at the reasonable expense of
AMERALIA. Similarly, whenever HPD's cooperation is required by AMERALIA in order
to carry out AMERALIA'S obligations hereunder, HPD agrees that it shall act in
good faith in so cooperating with AMERALIA at the reasonable expense of HPD.
9.8 Not Exclusive. The foregoing are in addition to the other duties
and obligations of AMERALIA and HPD enumerated elsewhere in this Agreement.
10. CONFIDENTIALITY
In the course of negotiations and performance of this Agreement and the
related interaction between the Parties, it may be necessary for either HPD or
AMERALIA, or both of them, to divulge to the other certain confidential or
proprietary technical, financial, statistical or business information. This
confidentiality provision shall only apply to such information which is clearly
labeled "confidential," "secret," or "proprietary" by the providing Party, or
information which the providing Party advises the other Party in writing is
confidential in nature. The Party providing such information may advise the
other Party in writing as to the confidential nature of such information before
the information is given to the other Party, at the time such information is
given to the other Party, or within one day after such information is given to
the other Party (provided, however, disclosure of any such information within
such one day period shall not be deemed a violation of this Section 10). The
preceding information is hereinafter referred to as "Confidential Information".
The receiving Party hereby agrees to treat all Confidential Information
in the same manner as it would its own confidential information. During the term
of this Agreement,
<PAGE> 18
and for five (5) years thereafter, the recipient shall use the Confidential
Information solely for the purposes of performing the Work or operating and
maintaining the Rock School Project, as the case may be. The recipient may
disclose Confidential Information only to those individuals and entities who are
reasonably required to know the Confidential Information in order to fulfill
their obligations in relation to the Rock School Project.
The obligations imposed by this Section 10 shall not apply to any
Confidential Information that: (1) was already in the possession of the
recipient prior to the Effective Date (unless the recipient received such
information from the other Party pursuant to the development and negotiation of
this Agreement), or (2) is or becomes publicly available through no fault of the
recipient, or (3) is obtained by the recipient from a third party who is under
no obligation of confidence to the Party source, or (4) is disclosed to third
parties without restriction by the Party source, or (5) for which disclosure is
required by any Law, but only after first notifying the Party source of such
required disclosure.
11. INDEMNITY
Each Party, to the maximum extent permitted by law, shall defend,
protect, indemnify and hold harmless the other, its respective officers,
directors, employees and agents against all claims, demands, causes of action,
suits, damages, liabilities, judgments, losses and expenses (including, without
limitation, court costs and reasonable attorneys' fees) which may be incurred by
any indemnified Party on account of any third party bodily injury or property
damage, but only to the extent such injury or damage is caused by the willful
misconduct or negligence of the indemnifying Party. This indemnification,
defense and hold harmless obligation shall survive the termination or expiration
of this Agreement.
This indemnification shall not be effective if the Party seeking
indemnification (1) fails to give the other Party notice of the claim within
thirty (30) days after the Party seeking indemnification becomes aware of the
claim, or (2) fails to provide reasonable cooperation and assistance in the
defense thereof. The indemnifying Party shall have the authority for the
direction of the defense and shall have the sole authority to negotiate and
agree to any compromise or settlement of any indemnified matter hereunder. The
indemnified Party hereby reserves the right to participate in its defense, at
its own cost, with counsel of its own choosing.
<PAGE> 19
12. DISPUTE RESOLUTION
12.1 Senior Officers to Resolve. All claims, disputes or other
controversies arising out of, or relating to, this Agreement (hereinafter
collectively referred to as a "Dispute") shall initially be submitted to a
Senior Officer from each Party for resolution by mutual agreement between said
officers. Any mutual determination by the Senior Officers shall be final and
binding upon the Parties. However, should such Senior Officers fail to arrive at
a mutual decision as to the Dispute within twenty (20) days after notice to both
individuals of the Dispute, the Parties shall then attempt to resolve such
Dispute by mediation in accordance with the terms and provisions set forth in
Section 12.2 hereof. For purposes of this Agreement, the term "Senior Officer"
of HPD shall mean and refer to any vice president of HPD, and "Senior Officer"
of AMERALIA shall mean and refer to either Bill Gunn or John Woolard.
12.2 Mediation. Notice of the demand for mediation for any Dispute
which has not been resolved in accordance with Section 12.1 shall be filed with
the other Party to this Agreement, and shall be made within a reasonable time
after such Party is permitted to mediate the Dispute as provided herein. All
mediation proceedings shall take place in Chicago, Illinois, and shall be
conducted in accordance with rules mutually determined by the Parties. The
mediator shall be an individual mutually selected by AMERALIA and HPD, which
individual shall (i) have at least 10 years experience in the discipline which
is the subject of the Dispute, and (ii) be an attorney whose 10 years of
experience has been in the realm of litigating issues which are the subject of
the Dispute. Any mutual determination by the Parties pursuant to any such
mediation shall be final and binding upon the Parties. However, should the
Parties fail to arrive at a mutual decision as to the Dispute within thirty (30)
days after commencement of the mediation proceedings, the Parties shall then be
entitled to refer such Dispute to arbitration as provided in Section 12.3.
12.3 Additional Proceedings. To the extent that any Dispute continues
to exist after the mediation provided for in Section 12.2, the Parties agree to
resolve the dispute by binding arbitration, unless the remedy sought is
injunctive relief. Respecting any Disputes which ultimately become the subject
of court proceedings wherein the remedy sought is injunctive relief, the Parties
irrevocably agree that (i) the venue and jurisdiction for such proceedings shall
be in any court of competent jurisdiction within the County of Cook, State of
Illinois and (ii) trial by jury is waived by AMERALIA and HPD. Arbitration of
disputes shall be conducted in the County of Cook, State of Illinois, at a
location determined by the arbitrator(s) and shall apply the substantive law
governing this Agreement. The arbitration proceedings will be conducted by a
panel of three arbitrators in accordance with the Rules of Commercial
Arbitration of the American Arbitration Association ("AAA") and under the
professional administration of the AAA, except that the Parties shall have the
rights of discovery as to one another such as are provided by Federal Rules of
Civil Procedure 26 through 37 in effect at the time of the arbitration and
rights of discovery as to third-parties in effect at the time of the arbitration
as are provided by law. The arbitration award shall be binding upon the Parties,
but shall be subject to the Parties' right to appeal an award.
<PAGE> 20
12.4 Costs and Expenses. The prevailing Party in any dispute resolution
proceedings shall be reimbursed by the other Party for all costs, expenses and
charges, including, without limitation, reasonable attorneys' fees, incurred by
said prevailing Party.
13. INSURANCE
13.1 AMERALIA'S Insurance. AMERALIA shall, commencing on the Mechanical
Completion Date, procure and maintain an "All Risk" Property Insurance Policy in
relation to the Rock School Project. Such policy shall (i) be written on a full
replacement cost, "all risk" form, (ii) include a waiver of any coinsurance
penalty, (iii) cover the entire Rock School Project, including all equipment,
materials, machinery, supplies, structures and other items incorporated in the
Rock School Project, (iv) contain no deductibles which exceed $10,000 per
occurrence, and (v) be maintained until the Final Completion Date. The preceding
insurance shall include the interests of AMERALIA, HPD, subcontractors,
sub-subcontractors, vendors and suppliers in the Work, naming each as insureds.
Such insurance shall be placed with an insurer with a rating of "A" "X" or
better by A.M. Best Company, and shall contain an endorsement which requires the
insurer to provide the insureds with at least thirty (30) days' prior written
notice before canceling, terminating or materially altering the terms of such
policy. AMERALIA shall, on the Mechanical Completion Date, furnish HPD with a
certificate of insurance, evidencing the foregoing coverage.
13.2 HPD's Insurance. HPD shall maintain at its sole cost the insurance
coverages set forth below with companies reasonably satisfactory to AMERALIA,
and with policy limits not less than as stated:
(i) Workers' Compensation Insurance as required by laws and
regulations applicable to and covering employees of HPD engaged in the
performance of the Rock School Project;
(ii) Employers' Liability Insurance protecting HPD against
common law liability in the absence of statutory liability, for
employee bodily injury arising out of the master servant relationship
with a limit of not less than $1,000,000 per occurrence;
(iii) Commercial General Liability Insurance, including
products and completed operations, with limits of not less than
$1,000,000 per occurrence and in the aggregate;
(iv) Automobile Liability Insurance, including nonowned and
hired vehicle coverage, with limits of liability of not less than
$1,000,000 per occurrence and in the aggregate;
<PAGE> 21
(v) Excess Liability Insurance over Automobile Liability,
Commercial General Liability, and Employers' Liability coverages
afforded by the primary policies described above with minimum limits of
$4,000,000 per occurrence and in the aggregate;
(vi) Builder's Risk Property Insurance as to the Work, which
insurance shall cover materials in-transit or stored off-site and which
otherwise is substantially similar to the property insurance policy
described in Section 13.1; and
Prior to commencement of the Rock School Project, certificates
evidencing the required coverages shall be delivered to AMERALIA, and shall name
AMERALIA as an additional insured under the Commercial General Liability, Excess
Liability Insurance and Builder's Risk Policies. These certificates shall
provide that any change restricting or reducing coverage or the cancellation of
any policies under which such certificates are issued shall not be valid as
respects AMERALIA until AMERALIA has received thirty (30) days written notice of
such change or cancellation.
14. ASSIGNMENT
(a) Neither Party may assign, convey or transfer this Agreement or any
part thereof, or delegate its duties hereunder, without the prior written
consent of the other Party, which consent shall not be unreasonably withheld or
delayed. This Agreement shall be binding upon, and inure to the benefit of, the
successors and permitted assigns of the Parties hereto. Regardless of the
consent of the other Party, no such assignment, conveyance, transfer or
subcontract shall relieve the Party from any of its responsibilities under this
Agreement.
(b) As soon as practicable after execution of this Agreement, HPD shall
furnish in writing to AMERALIA the names of those subcontractors proposed for
each portion of the Work. AMERALIA shall, within five (5) days thereafter, reply
to HPD in writing stating whether or not AMERALIA, after due investigation, has
reasonable objection to any such proposed subcontractor. Failure of AMERALIA to
reply within said five (5) day period shall constitute notice of no reasonable
objection. If AMERALIA has reasonable objection to a subcontractor proposed by
HPD, HPD shall propose another to whom AMERALIA has no reasonable objection. The
Guaranteed Maximum Price and the Scheduled Dates shall be adjusted in order to
reflect the cost and schedule impact to HPD as a result of the selection of
another subcontractor to whom AMERALIA has no reasonable objection, which
adjustments shall be made by Change Order.
<PAGE> 22
15. EXCUSABLE EVENTS
HPD shall be entitled to an equitable adjustment in the Guaranteed
Maximum Price and in the Scheduled Dates upon the occurrence of an Excusable
Event. For purposes of this Agreement, an "Excusable Event" shall mean and refer
to: (a) delays resulting from the acts or omissions of AMERALIA, or of its
separate contractors, representatives and agents performing work or services at
the Project Site (including, without limitation, any delays caused by AMERALIA's
failure to perform its duties and obligations set forth in Sections 9 or 16, or
any work stoppages which occur pursuant to the terms and provisions of Section
19); (b) acts of God, fires, explosions, casualties, floods, earthquakes,
tornados, severe weather, natural disasters, epidemics, civil disturbances, war,
riots, sabotage, accidents, restraints or injunctions issued by a court or other
Governmental Authority or other governmental acts or omissions, strikes or labor
disputes, or non-delivery of acceptable materials or unusual delays in the
delivery of materials by suppliers; (c) the discovery of any Unforeseeable
Conditions at the Project Site; (d) the discovery of any Existing Hazardous
Substances at the Project Site; (e) the occurrence of an amendment,
modification, adoption, repeal or enactment after the Effective Date of any Law
which is applicable to the performance of the Work; or (f) the occurrence of any
other events or matters which are beyond the control of HPD. Any adjustment in
the Guaranteed Maximum Price and Scheduled Dates shall be reflected in a Change
Order executed by the Parties hereto.
16. MECHANICAL COMPLETION, COMMERCIAL OPERATION AND FINAL COMPLETION
16.1 Mechanical Completion
16.1.1 Training. On or before the date which is thirty (30) days prior
to the date HPD reasonably believes Mechanical Completion of the Rock School
Project will be achieved, HPD shall schedule a training program for AMERALIA's
personnel in relation to the operation and maintenance of the Rock School
Project from and after the Mechanical Completion Date. Such program shall
commence no earlier than ten (10) days prior to HPD's estimated date of
Mechanical Completion, and shall consist of the provision of training manuals
and technical assistance, and the conducting of classroom and hands-on
instruction. HPD shall complete all such training on or before the Mechanical
Completion Date, and shall provide AMERALIA with all operation and maintenance
manuals at such time.
16.1.2 Spare Parts. HPD shall provide AMERALIA with a list of spare
parts necessary to operate and maintain the Rock School Project for a period of
one (1) year after the Mechanical Completion Date. AMERALIA shall procure and
deliver to the Project Site by the Mechanical Completion Date, at its sole cost
and expense, such spare parts as the Parties mutually determine are reasonably
necessary for the performance of the Performance Tests. Such spare parts shall
be made available to HPD for use during the performance of the Performance
Tests; provided, however, if HPD so utilizes any
<PAGE> 23
such spare parts, it shall either replace the same or reimburse AMERALIA in cash
for such parts at AMERALIA's cost plus a 30% mark-up.
16.1.3 Establishing Mechanical Completion. When HPD has completed the
Mechanical Completion procedures outlined in the Technical Specifications and
believes that it has achieved Mechanical Completion, HPD shall so notify
AMERALIA (which notice shall be accompanied by HPD's proposed Punch List).
Thereafter, AMERALIA shall conduct those investigations and inspections as it
deems necessary or appropriate to determine if Mechanical Completion has in fact
been achieved. Within five business (5) days after the receipt of HPD's notice
by AMERALIA, AMERALIA shall either (i) notify HPD that Mechanical Completion has
been achieved, or (ii) notify HPD that Mechanical Completion has not been
achieved and stating the reasons therefor. In the event AMERALIA provides
written notice that Mechanical Completion has been achieved, HPD and AMERALIA
shall, within ten (10) days thereafter, mutually prepare an updated Punch List,
and shall execute a "Certificate of Mechanical Completion" establishing and
identifying the Mechanical Completion Date (which date shall be the date of
HPD's original notice). In the event AMERALIA provides written notice that
Mechanical Completion has not been achieved, HPD shall, at its sole cost and
expense, immediately correct and/or remedy the defects, deficiencies and other
conditions which so prevent Mechanical Completion. Upon completion of such
corrective and/or remedial actions, HPD shall resubmit its notice stating that
it believes Mechanical Completion has been achieved and the foregoing procedures
shall be repeated until Mechanical Completion has in fact been achieved. In the
event AMERALIA fails to provide written notice to HPD within the foregoing five
(5) business day period, then Mechanical Completion shall be deemed to have been
achieved on the date of HPD's original notice.
16.1.4 Possession. Upon the Mechanical Completion Date, AMERALIA shall
take possession of, and shall assume care, custody and control over, the Rock
School Project.
16.2 Performance Testing and Commercial Operation
16.2.1 Commissioning. After the Mechanical Completion Date, AMERALIA's
personnel shall, under HPD's direction and supervision, commence the initial
operation of the Rock School Project (i.e., the commissioning of the Rock School
Project), and shall, under HPD's direction and supervision, continue with such
operation during HPD's performance of the Performance Tests.
16.2.2 AMERALIA's Obligations After Mechanical Completion. After the
Mechanical Completion Date, but prior to the date which is two hundred days
(200) after the Mechanical Completion Date, AMERALIA shall, at its sole cost and
expense, perform the following: provide for the solution mine cavern
development, which shall include, without limitation, the provision of any and
all feed required for the performance of the Performance Tests by HPD, as
described in Exhibit G.
<PAGE> 24
16.2.3 Performance Testing. Once AMERALIA has completed its duties and
responsibilities as set forth in Section 16.2.2 hereof, and at such time as HPD
believes that the Rock School Project will be ready for the performance of the
Performance Tests, HPD shall so notify AMERALIA of the specific date of the
proposed Performance Tests in writing, provided that notice will be given not
less than ten (10) business days prior to the performance of the Performance
Tests. AMERALIA shall conduct the Performance Tests on the date(s) specified in
the preceding notice in order to determine if the Rock School Project meets the
Performance Guarantees. All such tests shall be conducted utilizing AMERALIA's
personnel, who shall act under the supervision and direction of HPD. The Rock
School Project will be operated in its normal mode of operation while
Performance Tests are being conducted, which shall consist of (i) the operation
of the Rock School Project as a whole, (ii) the concurrent operation of Rock
School Project systems, and (iii) the operation of all Rock School Project
systems within the manufacturers' specifications and without over-stressing or
over-pressurizing any such systems. All fuel, all consumables, all water, all
utilities, all operating supplies, all operating personnel and all related
resources necessary to perform the Performance Tests shall be provided by
AMERALIA at AMERALIA's sole cost and expense.
16.2.4 Establishing Commercial Operation. When HPD believes that it has
achieved Commercial Operation, HPD shall so notify AMERALIA (which notice shall
be accompanied by the results of the last Performance Tests and any other
information deemed reasonably necessary by HPD). Thereafter, AMERALIA shall
conduct those investigations and inspections it deems necessary or appropriate
to determine if Commercial Operation has in fact been achieved. Within five (5)
business days after the receipt of HPD's notice by AMERALIA, AMERALIA shall
either (i) notify HPD that Commercial Operation has been achieved, or (ii)
notify HPD that Commercial Operation has not been achieved and stating the
reasons therefor. In the event AMERALIA provides written notice that Commercial
Operation has been achieved, HPD and AMERALIA shall execute a "Certificate of
Commercial Operation" establishing and identifying the Commercial Operation Date
(which date shall be the date of HPD's original notice). In the event AMERALIA
provides written notice that Commercial Operation has not been achieved, HPD
shall, at its sole cost and expense, immediately correct and/or remedy the
defects, deficiencies and other conditions which so prevent Commercial
Operation, and to the extent necessary, it shall re-perform the Performance
Tests in the manner provided in Section 16.2.3 (but HPD need only give AMERALIA
five (5) business days advance written notice for any such subsequent tests).
The foregoing procedures shall be repeated until the earlier of (i) the date
Commercial Operation has in fact been achieved, or (ii) the occurrence of the
Scheduled Commercial Operation Date. In the event AMERALIA fails to provide
written notice to HPD within the foregoing five (5) business day period, then
Commercial Operation shall be deemed to have been achieved on the date of HPD's
original notice.
<PAGE> 25
16.3 Final Completion
16.3.1 Establishing Final Completion. When HPD believes that it has
achieved Final Completion, HPD shall so notify AMERALIA. Immediately thereafter,
AMERALIA shall conduct those investigations and inspections it deems necessary
or appropriate to determine if Final Completion has in fact been achieved.
Within five (5) business days after the receipt of HPD's notice by AMERALIA,
AMERALIA shall either (i) notify HPD that Final Completion has been achieved, or
(ii) notify HPD that Final Completion has not been achieved and stating the
reasons therefor. In the event AMERALIA provides written notice that Final
Completion has been achieved, HPD and AMERALIA shall execute a "Certificate of
Final Completion" establishing and identifying the Final Completion Date (which
date shall be the date of HPD's original notice). In the event AMERALIA provides
written notice that Final Completion has not been achieved, HPD shall, at its
sole cost and expense, immediately correct and/or remedy the defects,
deficiencies and other conditions which so prevent Final Completion. Upon
completion of such corrective and/or remedial actions, HPD shall resubmit its
notice stating that it believes Final Completion has been achieved and the
foregoing procedures shall be repeated until Final Completion has in fact been
achieved. In the event AMERALIA fails to provide written notice to HPD within
the foregoing five (5) business day period, then Final Completion shall be
deemed to have been achieved on the date of HPD's original notice.
<PAGE> 26
17. TERMINATION OF THE AGREEMENT
17.1 Default and Remedies. The occurrence of any one or more of the
following matters shall constitute a default under this Agreement (a "Default"):
(a) failure by either Party to observe and perform any covenant, condition or
agreement on its part to be observed or performed hereunder and the continuation
of the same for seven (7) days after the defaulting Party's receipt of written
notice thereof from the non-defaulting Party; provided, however, if such matter
cannot with due diligence be remedied by the defaulting Party within such seven
(7) day period, and the defaulting Party shall have diligently prosecuted the
remedying of such failure within such seven (7) days, such period shall be
extended by such additional time period as may be reasonably required by the
defaulting Party to cure or correct such matter (it being agreed, however, that
nonpayment of monies by either Party shall not, under any circumstances, give
rise to an extension in the preceding seven (7) day period); (b) the insolvency,
dissolution or liquidation of either Party, or the filing of a petition in
bankruptcy by or against either Party, or the adjudication of either Party as
bankrupt, or any general assignment by either Party for the benefit of its
creditors, or the application for, or consent to, the appointment of any
receiver, trustee, custodian, or similar officer by either Party; or (c) failure
(or admission in writing of inability or unwillingness) by one Party hereunder
to pay amounts due and payable to the other Party hereunder. Should HPD be in
Default, AMERALIA may terminate this Agreement and avail itself of any and all
rights or remedies available at law or in equity. Should AMERALIA be in Default,
HPD may terminate this Agreement and avail itself of any and all rights or
remedies available at law or in equity. Upon the occurrence of a Default by
AMERALIA or HPD, the HPD Loan shall be accelerated and shall be due and payable
to HPD immediately after any such Default.
17.2 Termination for Convenience. AMERALIA may terminate this Agreement
without cause upon not less than thirty (30) days' prior written notice to HPD.
If this Agreement is so terminated, HPD, as its sole and exclusive remedy
hereunder, shall be entitled to receive the following: payment for the Cost of
the Work incurred and the Engineering Fee earned to the date of termination
(which shall include acceleration of the HPD Loan (i.e., all outstanding
principal and accrued interest) and payment of the same in full); reimbursement
for all cancellation charges incurred by HPD in relation to its subcontractors,
the Deposit Relief Fee, and a demobilization fee in an amount equal to $500,000.
17.3 Termination by Reason of Excusable Events. If the cumulative
number of days by which the School Rock Project is delayed by reason of
Excusable Events exceeds 90 days (excluding those "Excusable Event days" which
were caused by HPD's gross negligence or wrongful acts), then HPD shall have the
right to terminate this Agreement upon not less than 30 days' prior written
notice to AMERALIA. If this Agreement is so terminated, HPD, as its sole and
exclusive remedy hereunder, shall be entitled to receive the following: payment
for the Cost of the Work incurred and the Engineering Fee earned to the date of
termination (which shall include acceleration of the HPD Loan (i.e., all
outstanding principal and accrued interest) and the Deposit Relief Fee and
payment of
<PAGE> 27
the same in full); reimbursement for all cancellation charges incurred by HPD in
relation to its subcontractors, and a demobilization fee in an amount equal to
$500,000.
18. SITE CONDITIONS & HAZARDOUS SUBSTANCES
18.1 Unforeseeable Conditions. Notwithstanding anything to the contrary
contained in this Agreement, if HPD encounters conditions at the Project Site
which HPD reasonably believes are Unforeseeable Conditions, then notice by HPD
as to the same shall be given to AMERALIA. If it is thereafter determined that
such condition is in fact an Unforeseeable Condition, then HPD shall be entitled
to an equitable adjustment in the Guaranteed Maximum Price or the Scheduled
Dates, or both, as provided in Section 15. If AMERALIA disagrees with HPD's
assessment that Unforeseeable Conditions exist, it may refer such disagreement
to the dispute resolution procedures set forth in Section 12.
18.2 Hazardous Substances. (a) If, in the course of performance of the
Work, HPD encounters on the Project Site any matter which it reasonably believes
is a Hazardous Substance that may require response, removal, cleanup or other
remedial action under applicable Environmental Laws, then HPD shall immediately
suspend the Work in the area affected and report the condition to AMERALIA by
telephone and in writing. In any such event, the obligations and duties of the
Parties hereto shall be as follows:
(i) If it is determined that such condition involves an
Existing Hazardous Substance, then HPD shall have no obligation with
respect to such condition, and AMERALIA shall, at its sole cost and
expense, perform any response, removal, cleanup or other remedial
action required by applicable Environmental Laws;
(ii) If it is determined that such condition involves a
Hazardous Substance introduced to the Project Site by HPD or its
subcontractors, then any response, removal, cleanup or other remedial
action required by applicable Environmental Laws shall be performed by
HPD at its sole cost and expense; or
(iii) If it is determined that the condition does not involve
a Hazardous Substance that requires response, removal, cleanup or other
remedial action under applicable Environmental Laws, HPD shall resume
the portion of the Work that had been suspended. Such time period
involved in determining that the condition did not involve a Hazardous
Substance that required response, removal, cleanup or other remedial
action shall not constitute an Excusable Event, unless HPD reasonably
believed that such condition was a Hazardous Substance requiring
remediation when it initially notified AMERALIA.
The Parties acknowledge and agree that HPD shall not commence or
continue any construction activities on any portion of the Project Site on, in
or under which remedial actions are to be (or are being) performed until such
remedial actions are to the point where construction activities will not
interfere with such remedial actions, as evidenced
<PAGE> 28
by appropriate certifications from the applicable environmental engineer and/or
remediation contractor and any required approvals of any applicable Governmental
Authorities. If AMERALIA disagrees with HPD's belief that a Hazardous Substance
requiring remediation exists, it may refer such disagreement to the dispute
resolution procedures set forth in Section 12.
(b) AMERALIA shall indemnify, defend and hold harmless HPD from and
against any and all claims, demands, suits, liabilities, causes of action,
losses, costs, expenses, damages, fines and penalties, including, without
limitation, court costs and reasonable attorneys' fees, arising or resulting
from the existence of Existing Hazardous Substances at the Project Site. HPD
shall indemnify, defend and hold harmless AMERALIA from and against any and all
claims, demands, suits, liabilities, causes of action, losses, costs, expenses,
damages, fines and penalties, including, without limitation, court costs and
reasonable attorneys' fees, arising or resulting from any Hazardous Substances
which were introduced to the Project Site by HPD or any of its subcontractors.
The preceding indemnification, defense and hold harmless obligations shall
survive the termination or expiration of this Agreement.
19. WORK STOPPAGE
HPD may stop the Work if any Escrow Deposits are not made when due
pursuant to Section 8.2, or if any Invoices are not paid when due, and may do so
without prejudice to any other rights or remedies that HPD may have under this
Agreement or at law or in equity.
20. NOTICES
All notices necessary to be given under the terms of this Agreement,
except as herein otherwise provided, shall be in writing and shall be
communicated by overnight courier or facsimile transmission addressed to the
other Party at the following addresses:
If to AMERALIA: John F. Woolard
Executive Vice President
311 Raleigh Road
Kenilworth, IL 60043
Fax: 847-251-7916
with a copy to: Roger L. Day
818 Taughenbaugh Blvd.
Rifle, CO 81650
Fax: 970-625-9137
If to HPD: Mark Boone
U.S. Filter Corporation/HPD Products
55 Shuman Blvd.
Naperville, IL 60563
Fax: 630-717-4562
<PAGE> 29
Notices shall be deemed given on the actual date of receipt at the offices of
the receiving Party.
21. COMPLIANCE WITH APPLICABLE LAWS
HPD agrees to keep conspicuously posted all notices required under
workers' compensation Laws and other applicable Laws. HPD shall obtain and
maintain any contractor's or other licenses necessary for the pursuit of its
business and conducting the activities envisioned by this Agreement. HPD agrees
to comply, and shall ensure that its employees, agents and subcontractors
comply, with all Laws applicable to the performance of the Work.
22. ANNOUNCEMENTS AND PRESS RELEASES
HPD agrees that during and after the term of this Agreement, it will
make no announcements, press releases or other publications concerning the Rock
School Project without the prior written consent of AMERALIA, which consent
shall not be unreasonably withheld or delayed.
23. OWNERSHIP OF DATA; TECHNOLOGY
(a) All drawings, specifications, designs and plans related to the Rock
School Project and generated by HPD during the performance of the Rock School
Project, and all intellectual property rights in and to such documents, shall be
and remain the sole property of HPD. AMERALIA is granted a limited,
non-exclusive, nontransferable (except to a purchaser of the Rock School
Project) license to reproduce all such documents for use in the operation,
maintenance, repair and expansion of the Rock School Project; provided, however,
only the civil, structural, building and electrical drawings may be used in
relation to an expansion of the Rock School Project; provided, further however,
AMERALIA may transfer the preceding license only to an entity which purchases
the Rock School Project and only if such purchaser provides legally binding
documentation to HPD stating that it shall adhere to the limitations of such
license which are expressed in this Section 23(a). Such documents are for use
solely with respect to the Rock School Project as provided above, and shall not,
without HPD's prior written consent, be used by AMERALIA, or its employees,
representatives or agents, on any other project, for completion of the Work
hereunder by others, or for any other work or services. Upon Final Completion,
HPD shall deliver to AMERALIA up-to-date copies of the preceding documents in
both hard copy and in electronic format.
(b) The solution mining process technology to be utilized in the Rock
School Project has been required by AMERALIA. Therefore, AMERALIA hereby agrees
that it shall indemnify, defend and hold harmless HPD from and against any and
all losses, damages, costs, expenses and liabilities, including, without
limitation, reasonable attorneys' fees, arising or resulting from any claim or
legal action that the use of such
<PAGE> 30
solution mining process technology in relation to the Rock School Project
constitutes an infringement and/or violation of any patent, trademark,
copyright, trade secret, intellectual property right or other proprietary right.
(c) HPD shall indemnify, defend and hold harmless AMERALIA from and
against any and all losses, damages, costs, expenses and liabilities, including,
without limitation, reasonable attorneys' fees, arising or resulting from any
claim or legal action that the crystallization design provided by HPD under this
Agreement constitutes an infringement and/or violation of any patent, trademark,
copyright, trade secret, intellectual property right or other proprietary right.
24. SAFETY PROGRAM
HPD shall be responsible for initiating, maintaining and supervising
safety precautions and programs in connection with the performance of this
Agreement, including, without limitation, appropriate precautions and programs
for areas in and around the Project Site. HPD shall give notices and comply with
all applicable Laws bearing on the safety of persons or property or their
protection from damage, injury or loss, including, without limitation, the
Federal Occupational Safety and Health Act.
25. APPLICABLE LAW
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Colorado, without regard to conflicts of law
principles.
26. LIMITATION ON LIABILITY
26.1 Waiver of Claims. Notwithstanding anything to the contrary
contained in this Agreement, HPD and AMERALIA waive all claims against each
other (and against each other's parent company, affiliates, contractors,
subcontractors, consultants, agents, suppliers and vendors) for loss or damage
to any of their respective property; which waiver shall apply without regard to
which Party's fault or negligence caused the loss or damage.
26.2 Consequential Damages. Notwithstanding anything to the contrary
contained in this Agreement, HPD and AMERALIA waive all claims against each
other (and against each other's parent company, affiliates, contractors,
subcontractors, consultants, agents, suppliers and vendors) for any
consequential, incidental, indirect, special, exemplary or punitive damages
(including, but not limited to, loss of actual or anticipated profits, revenues
or product; loss by reason of shutdown or non-operation; increased expense of
manufacturing, operation, borrowing or financing; loss of use, productivity or
shop space; or increased cost of capital), and regardless of whether any such
claim arises out of breach of contract, guarantee or warranty, tort, product
liability, indemnity, contribution, strict liability or any other legal theory.
Any consequential, incidental, indirect, special, exemplary or punitive damages
incurred by AMERALIA or HPD in relation to a third party shall, for all purposes
of this Agreement, be deemed
<PAGE> 31
consequential, incidental, indirect, special, exemplary or punitive damages in
relation to any claim brought by AMERALIA or HPD against the other Party to this
Agreement.
26.3 Overall Limitation. (a) Notwithstanding anything to the contrary
contained in this Agreement, in no event shall HPD, and its parent company,
affiliates, contractors, subcontractors, consultants, vendors, suppliers and
agents be liable, alone or in the aggregate, to AMERALIA for any damages,
claims, demands, suits, causes of action, losses, costs, expenses and/or
liabilities in excess of an amount equal to 100% of the Guaranteed Maximum
Price, regardless of whether such liability arises out of breach of contract,
guarantee or warranty, tort, product liability, indemnity, contribution, strict
liability or any other legal theory.
(b) Notwithstanding anything to the contrary contained in this
Agreement, in no event shall AMERALIA, and its parent company, affiliates,
contractors, subcontractors, consultants, vendors, suppliers and agents be
liable, alone or in the aggregate, to HPD for any damages, claims, demands,
suits, causes of action, losses, costs, expenses and/or liabilities in excess of
an amount equal to 100% of the Guaranteed Maximum Price, regardless of whether
such liability arises out of breach of contract, guarantee or warranty, tort,
product liability, indemnity, contribution, strict liability or any other legal
theory.
27. SEVERABILITY
If any part, term or provision of this Agreement is held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, the legality,
validity and enforceability of the remaining parts, terms or provisions shall
not be affected, and the rights and obligations of the Parties shall be
construed and enforced as if this Agreement did not contain the particular part,
term or provision held to be illegal, invalid or unenforceable. As soon as
possible after said court determination, the Parties shall meet to negotiate a
replacement provision, as closely approximating the void provision as possible,
without the same infirmity.
28. WAIVER
The failure of either Party at any time to require performance by the
other Party of any provision of this Agreement shall in no way affect the right
of such Party thereafter to enforce the same, nor shall any waiver of any breach
of any provision hereof by either Party be taken or held to be a waiver by such
Party of any succeeding breach of such provision.
29. SECTION HEADINGS
The section headings appearing in this Agreement have been inserted for
the purpose of convenience and ready reference. They do not purport to, and
shall not be deemed to define, limit or extend the scope or intent of the
sections to which they appertain.
<PAGE> 32
30. EXHIBITS AND DOCUMENTS INCORPORATED BY REFERENCE
The following Exhibits are attached hereto and made a part of this
Agreement:
EXHIBIT A - Project Site
EXHIBIT B - Progress Schedule
EXHIBIT C - Technical Specifications
EXHIBIT D - Engineering Service Rates for Change Orders
EXHIBIT E - Deposit Schedule
EXHIBIT F - Performance Guarantees
EXHIBIT G - Performance Tests
EXHIBIT H - Milestone Payment Schedule
EXHIBIT I - Payment of Engineering Fee
The recitals and the preceding Exhibits are hereby incorporated by this
reference into this Agreement.
31. LATE PAYMENTS
Payments properly due to any Party, but which remain unpaid by the
other Party after the occurrence of a Default, shall bear interest at an annual
rate of twelve percent (12%) or at the maximum rate permitted by law, whichever
is less.
32. ENTIRE AGREEMENT
(a) This Agreement supersedes all prior oral or written proposals,
communications or other agreements related to the subject matter of this
Agreement (including, without limitation, that certain Memorandum of
Understanding between HPD and AMERALIA). This Agreement sets forth the entire
agreement between the Parties with regard to the subject matter of this
Agreement and no amendment shall be binding upon the Parties unless in writing
and signed by both Parties.
(b) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall be deemed to
be one and the same instrument.
(c) This Agreement has been approved by the Board of Directors of
AMERALIA (the "Board") by a statement of consent of the Board dated as of May
14, 1999.
<PAGE> 33
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
signed by their respective authorized representatives, effective as of the date
first set forth above.
AMERALIA, INC. U.S. FILTER WASTEWATER
GROUP, INC., d/b/a U.S. Filter
Corporation, HPD Products
By: By:
--------------------------------- -------------------------------
Name: Bill H. Gunn Name: Ron P. Davis
Title:Chairman & CEO, Title: Executive Vice President,
AmerAlia, Inc. Industrial Equipment Group,
U.S. Filter Corporation,
HPD Products
<PAGE> 1
GUARANTY AGREEMENT
This agreement is made and entered into as of the 13th day of
September, 1999, by and between AmerAlia, Inc., a Utah corporation whose address
is 311 Raleigh Road, Kenilworth, Illinois 60043 ("AmerAlia") and Jacqueline Mars
as trustee for the Jacqueline Badger Mars Trust, whose address is 6885 Elm
Street, McLean, Virginia 22101 (the "Trust").
RECITALS
A. AmerAlia has established an escrow account (the "Escrow") at the
NationsBank N.A. (The "Bank") in accordance with the requirements of a
Design/Build Contract (the "Contract") entered into between AmerAlia
and U.S. Filter Wastewater Group, Inc., a Delaware corporation, d/b/a
U.S. Filter Corporation, HPD Products ("U.S. Filter"); and
B. The Contract requires that AmerAlia make certain deposits into the
Escrow; and
C. AmerAlia is seeking a loan from the Bank to complete the required
funding of the Escrow; and
D. The Trust is willing to facilitate the loan by guaranteeing the
repayment of the loan in a manner satisfactory to the Bank;
E. AmerAlia is willing to compensate the Trust for providing this
guarantee; and
F. AmerAlia is seeking new equity investment of approximately $4,000,000.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration the receipt and
sufficiency whereof is hereby acknowledged, AmerAlia and the Trust agree as
follows:
1. AmerAlia will execute and deliver to the Bank an application for a loan
for a period not to exceed one year, in the approximate amount of
$4,200,000, the proceeds of which will be used to pay the expenses of
obtaining the loan (not to exceed $50,000) and to deposit funds into
the Escrow.
2. The Trust will execute and deliver to the Bank such forms as may be
necessary or appropriate to provide a guaranty for the repayment of
such loan in a form that is satisfactory to the Bank and to the Trust,
and is consistent with this Agreement (the "Guaranty").
3. The Escrow is governed by an Escrow Agreement among the Bank, AmerAlia,
and U.S. Filter. AmerAlia agrees that it will not enter into (a) any
amendment of the Escrow
Guaranty Agreement -- AmerAllia, Inc. Page 1
<PAGE> 2
Agreement, or (b) any amendment of the contract which may materially
affect the rights or interests of the Trust as guarantor, without the
consent of the Trust.
4. AmerAlia will apply the net proceeds, as received, of its proposed new
equity financing to repay the loan from the Bank, and the amount of the
Guaranty will be reduced to the extent of such repayments.
5. AmerAlia will pay the Trust compensation for executing and delivering
the Guaranty to the Bank in an amount equal to 10% of the actual amount
guaranteed, payable in shares of AmerAlia's restricted common stock
valued at the average closing price as reported by The Nasdaq Stock
Market, Inc. SmallCap Market for the 30 days following the announcement
by AmerAlia of a commitment for permanent financing with TIAA-CREF or
other lender. . For example, if the amount guaranteed is $4,200,000 and
the average price is $4.25, AmerAlia will issue 98,824 shares of
restricted common stock to the Trust. The shares will be issued to the
Trust within three business days of this determination.
6. If the Trust makes any payment to the Bank under the Guaranty, AmerAlia
will indemnify and hold the Trust harmless for any such payment, and
for all other costs and expenses, including reasonable attorneys' fees
incurred in connection therewith.
7. The Trust acknowledges that such shares, when issued, will be
restricted as that term is defined in Rule 144 of the Rules and
Regulations promulgated by the Securities and Exchange Commission. The
Trust further acknowledges, represents and warrants to AmerAlia that:
(a) The Trust is an `accredited investor' as that term is defined in
Section 2(a)(15) of the Securities Act of 1933 (the "1933 Act")
and Rule 215 thereunder, and in Rule 501(a) of Regulation D of the
1933 Act.
(b) AmerAlia has given the Trust and its legal, financial, tax, and
investment advisors the opportunity to ask questions of and to
receive answers from persons acting on AmerAlia's behalf
concerning the terms and conditions of this transaction and the
opportunity to obtain any additional information regarding
AmerAlia, its business and financial condition which AmerAlia
possesses or can acquire without unreasonable effort or expense
including (without limitation) all minutes of the meetings of the
Board of Directors of AmerAlia or committees thereof, and other
relevant documents requested by the Trust. In addition, the Trust
has spoken with the independent auditors for AmerAlia and has made
financial or other inquiries as the Trust or its advisors have
deemed necessary or appropriate in the conduct of the Trust's due
diligence investigation.
(c) The Trust acknowledges and understands that, although there is
currently a market for AmerAlia's common stock, the market is
dependent on a number of factors beyond the control of AmerAlia
and may not continue. Furthermore the Trust
Guaranty Agreement -- AmerAllia, Inc. Page 2
<PAGE> 3
acknowledges that although AmerAlia believes that it is in
compliance with all requirements for continued listing of the
Common Stock on the Nasdaq SmallCap Market, continued listing on
the Nasdaq SmallCap Market is subject to a number of objective and
subjective criteria. Although AmerAlia believes it is in material
compliance with all objective criteria, there can be no assurance
that the staff of the Nasdaq SmallCap Market may not reach a
different conclusion or that the Nasdaq staff may not reach a
conclusion that AmerAlia is, for some reason, not in compliance
with subjective criteria which is not specified in the rules
applicable to the Nasdaq SmallCap Market.
(d) The Trust understands that the securities being acquired hereby
are and will continue to be restricted securities within the
meaning of Rule 144, and applicable state statutes. The Trust
consents to the placement of an appropriate restrictive legend or
legends on any certificates evidencing the securities and any
certificates issued in replacement or exchange therefor and
acknowledges that AmerAlia will cause its stock transfer records
to note the restrictions.
o The Trust must bear the economic risks of the investment in
the securities for an indefinite period of time because they
have not been registered under the 1933 Act or any state
securities laws;
o As "restricted securities" (unless registered for resale or
another exemption from registration is available for any
transfer), the securities must be held for a minimum of one
year following the purchase. Thereafter, the securities may
be sold in only limited amounts in a specified manner in
accordance with the terms and conditions of Rule 144 (the
"Rule") if the Rule is applicable (there being no
representation by AmerAlia that it will be applicable). In
case the Rule is not applicable, any sales may be made only
pursuant to an effective registration statement or an
available exemption from registration.
o The securities cannot be sold unless they are registered
under the 1933 Act and any applicable state securities laws
or unless an exemption from the registration requirements is
available. To the extent that AmerAlia files any registration
statement under the 1933 Act (not including a registration
statement on Form S-4, S-8, S-11, or other inappropriate
form), AmerAlia will endeavor to include the Securities in
such registration statement, subject to any requirements that
may be imposed by any underwriter named in the registration
statement (which requirements may include, but are not
limited to, a delay in the ability of the selling security
holder to sell the shares, a requirement that any sales be
made through the underwriter, or a prohibition on any sales
by the selling security holder pursuant to the
Guaranty Agreement -- AmerAllia, Inc. Page 3
<PAGE> 4
registration statement in certain specified circumstances,
in the underwriter's sole discretion).
(e) The Trust has reviewed the terms of this agreement and the
transaction contemplated by this agreement with its legal,
investment, tax, and financial advisors to the extent the Trust
has deemed such consultation appropriate. The Trust has also
consulted with such advisors with regard to the advisability of
this investment to the extent the Trust has deemed such
consultation to be appropriate. The Trust acknowledges that
AmerAlia has advised the Trust that it recommends that the Trust
obtain advice and consultation. The Trust further acknowledges
that it has neither sought nor received any advice from AmerAlia
or any of its agents or affiliates with respect to any aspect of
this Agreement.
(f) The Trust acknowledges that the investment contemplated herein is
one of significant risk, and there can be no assurance that the
securities will ever be valuable. The Trust hereby represents that
the investment in the securities is a suitable investment for it,
taking into consideration the restrictions on transferability and
the other considerations affecting the securities and AmerAlia as
described herein and in AmerAlia's reports filed with the
Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended (the "1934 Act").
(g) The Trust acknowledges that the acquisition of the securities as
contemplated herein will impose certain reporting obligations on
the Trust pursuant to Sections 13(d) and 16(a) of the 1934 Act,
and may impose certain obligations under the Internal Revenue Code
of 1986, as amended. The Trust will make all necessary filings.
8. All notices under this Agreement are to be delivered by (i) depositing
the notice in the mail, using registered mail, return receipt
requested, addressed to the address below or to any other address as
the party may designate by providing notice, (ii) telecopying the
notice by using the telephone number set forth below or any other
telephone number as the party may designate by providing notice, (iii)
overnight delivery service addressed to the address below or to any
other address as the party may designate by providing notice, or (iv)
hand delivery to the individual designated below or to any other
individual as the party may designate by providing notice. The notice
shall be deemed delivered (i) if by registered mail, four (4) days
after the notice is deposited in the mail, (ii) if by telecopy, on the
date the notice is delivered, (iii) if by overnight delivery service,
on the date of delivery, and (iv) if by hand delivery, on the date of
delivery.
If to AmerAlia, to the address set forth in the first paragraph
hereof, with a copy (which does not constitute notice) to:
Guaranty Agreement -- AmerAllia, Inc. Page 4
<PAGE> 5
Norton o Lidstone, P.C.
Suite 850, The Quadrant
5445 DTC Parkway
Englewood, CO 80111
Attn: Herrick K. Lidstone, Jr., Esq.
Telecopy: 303-221-5553
If to the Trust, to the attention of Vito Spitaleri (telecopy
number) 703-519-7075) at the address set forth in the first
paragraph hereof, with a copy (which does not constitute
notice) to:
Hills & Stern
1200 Nineteenth Street, N.W.
Washington, D.C. 20036
Attn: Roderick M. Hills, Esq.
Telecopy: 202-822-1622
9. General Provisions
(a) Complete Agreement. The parties agree that this Agreement is the
complete and exclusive statement of the agreement between the
parties, which supersedes and merges all prior proposals,
understandings and all other agreements, oral or written, between
the parties relating to this Agreement.
(b) Amendment. This Agreement may not be modified, altered or amended
except by written instrument duly executed by both parties.
(c) Waiver. The waiver or failure of either party to exercise in any
respect any right provided for in this Agreement shall not be
deemed a waiver of any further right under this Agreement.
(d) Severability. If any provision of this Agreement is invalid,
illegal or unenforceable under any applicable statute or rule of
law, it is to that extent deemed omitted. The remainder of the
Agreement shall be valid and enforceable to the maximum extent
possible.
(e) Governing Law. This Agreement and performance hereunder shall be
governed by the laws of the State of Colorado.
Guaranty Agreement -- AmerAllia, Inc. Page 5
<PAGE> 6
Each party acknowledges that it has read and understands this Agreement and
agrees to be bound by its terms.
AmerAlia, Inc. The Jacqueline Badger Mars Trust
By: By:
---------------------------------- ---------------------------------
Bill H. Gunn, President Jacqueline Mars, Trustee
Guaranty Agreement -- AmerAllia, Inc. Page 6
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,303,409
<SECURITIES> 0
<RECEIVABLES> 74,257
<ALLOWANCES> 0
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<CURRENT-ASSETS> 1,377,666
<PP&E> 93,317
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<BONDS> 0
0
149
<COMMON> 76,598
<OTHER-SE> 4,835,786
<TOTAL-LIABILITY-AND-EQUITY> 5,836,061
<SALES> 0
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<CGS> 0
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<OTHER-EXPENSES> (1,883,082)
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<INTEREST-EXPENSE> (18,519)
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