SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: February 20, 2003
AMERALIA, INC.
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(Exact name of Registrant as specified in its charter)
Commission file number: 0-15474
Utah 84-0631765
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(State or other jurisdiction (IRS Employer Identification
incorporation or organization) Number)
20971 E. Smoky Hill Rd, Centennial, CO 80015
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(Address of Principal Executive Offices)
(720) 876-2373
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Registrant's telephone number, including area code:
Not applicable
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(Former Address of Principal Executive Offices)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 20, 2003, AmerAlia, Inc., through its indirect,
wholly-owned subsidiary, Natural Soda, Inc. (formerly named "Natural Soda AALA,
Inc."), purchased the assets of White River Nahcolite Minerals Ltd. Liability
Co. ("WRNM") and certain related contracts held by IMC Chemicals Inc. ("IMC
Chemicals") with short-term financing provided by funds associated with The
Sentient Group of Grand Cayman. Natural Soda, Inc. is owned by Natural Soda
Holdings, Inc. (formerly "Natural Soda, Inc."). AmerAlia owns 100% of the
outstanding stock of Natural Soda Holdings, Inc. ("NSHoldings"). WRNM is an
indirect, wholly-owned subsidiary of IMC Global, Inc. ("IMC"). IMC Chemicals is
a subsidiary of IMC.
AmerAlia's primary objective is to become the world's largest and
lowest cost producer of sodium bicarbonate. We expect to use solution mining to
recover sodium bicarbonate primarily for sale to the animal feed, industrial,
food and pharmaceutical grade markets. We believe the acquisition of this
natural sodium bicarbonate business enables us
- to secure a huge resource of naturally occurring sodium
bicarbonate,
- to establish a substantial market share and generate sales
revenues in an industry dominated by Church & Dwight who
manufacture the Arm & Hammer brand products, and
- to be one of the lowest cost producers of sodium bicarbonate
products.
While there are risks associated with this endeavor, as discussed more
fully later in this report, we believe this acquisition has the potential to
benefit the shareholders of AmerAlia. We believe this business will benefit:
- from being our single business activity, and
- from our attention to improved efficiencies through increased
production leading to economies of scale as well as
- our seeking improved efficiencies in distribution costs and in
the market pricing of our products.
As this is a business with high fixed costs, we believe the benefit of
these activities and our efforts to refinance our acquisition finance with lower
cost finance will result in significantly improved profitability and earnings
per share.
While our success in these undertakings cannot be assured, these are
our corporate objectives and our reasons for undertaking this acquisition.
Description of the Transaction
Natural Soda, Inc. ("NSI") acquired all of the assets, subject to all
of the liabilities, of WRNM for a total purchase price of $20.6 million. (See
"Description of the Assets," below.) At the closing of the transaction, WRNM and
IMC assigned all of their interest in the assets (including property, plant,
equipment, water rights, accounts receivables, and four federal sodium leases
issued by the Bureau of Land Management). NSI assumed WRNM's accounts
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payable. All of the employees formerly working for WRNM (22 persons) accepted
employment from NSI. None of the employees are members of a collective
bargaining unit.
Description of the Assets
The principal assets that NSI acquired from WRNM are four federal
sodium leases (Federal Sodium Mineral Leases C-0118326, C-37474, C-0118327 and
C-0119986) and the 26,500 square foot processing plant located on one of the
leases. NSI also acquired federal rights of way, operating permits, water
rights, ownership of an existing water reservoir, rights with respect to an
additional potential reservoir site, approximately 3,900 tons of inventory, and
receivables. In order to transfer the operations of the business at the closing,
NSI and NSHoldings have to post reclamation bonds and other financial security
with federal and state agencies totaling about $924,500. NSI also assumed WRNM's
accounts payables and other liabilities of approximately $1,100,000, as well as
equipment and other leases necessary for the business operations.
The leases and the plant are located about 54 miles north of Rifle,
Colorado, and are accessible all year by paved road.
The Sodium Leases. NSI acquired four sodium leases containing
nahcolite, a naturally occurring mineral form of sodium bicarbonate, commonly
called baking soda. They are located in the Piceance Creek Basin in northwest
Colorado and have been combined into a single operational unit, the "Wolf Ridge
Mining Unit", established by the Bureau of Land Management in 1993. The sodium
leases cover an area of 8,223 acres or nearly 13 square miles. We believe the
leases are the largest and best situated, sodium mineral lease holding in the
basin. When combined with the Rock School Lease which has been described in
AmerAlia's previous reports, the total lease area will be 9,543 acres and will
contain in excess of 5 billion tons of nahcolite, by far the largest holding in
the world. Unique to the WRNM leases is the Boies Bed, an approximately eighty
feet thick bed of almost pure nahcolite located at an approximate depth of 1,900
feet.
Each of the four WRNM sodium leases was renewed effective July 1, 2001
for a ten year term with a preferential right to subsequent renewals provided
that, at the end of the term, sodium is being produced in paying quantities.
Under the unit agreement, production in paying quantities from one lease is
sufficient to extend all four WRNM leases. The leases bear a production royalty
payable to the federal government of 5% of the gross value of the leased
deposits at the point of shipment to the market (the processing plant). Each of
these leases contains covenants to protect the in situ oil shale, water, and
historical resources. AmerAlia does not believe that these covenants, which have
been in place for a significant period of time, will adversely impact NSI's
anticipated operations.
During the last ten years WRNM and its predecessors have been solution
mining nahcolite from the Boies Bed from horizontal cavities. Each horizontal
cavity may be expected to produce approximately 150,000 to 200,000 tons over
time. Horizontal drilling into the Boies Bed has the advantages of being a
proven technology and avoids any disturbance of oil shale resources.
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The Plant. The plant consists of a single building with boilers,
centrifuge, and other equipment capable of producing various grades of sodium
bicarbonate at greater than 100,000 tons per year. There are also several other
buildings associated with the plant which are used for bulk storage (one
building of approximately 50 feet in diameter with a storage capacity of 3,000
tons) and three sheds (lube storage shed, fire pump house shed, and hazardous
materials shed all of which are very small). The plant, the bulk storage
facility, and one of the sheds is of metal construction, and the other two sheds
are of wood construction, each on concrete pads.
Underground cavities constitute a material part of the plant and its
operations. Solution mining requires pumping hot water into the
nahcolite-bearing rock zone at a depth of approximately 1,900 feet. The
nahcolite will dissolve and be pumped to the surface in solution and brought
into the plant. The equipment in the plant recrystallizes and then dries the
sodium bicarbonate. The dried sodium bicarbonate is then stored for bulk sales
or is bagged at the plant in 50 pound or 2000 pound bags. The plant is capable
of producing all commercial grades of sodium bicarbonate, from animal feed grade
to USP-5, the highest commercial grade.
The plant's bagging capacity is ample for the foreseeable future.
Historically, the plant has shipped approximately 55% of its production as bulk
product and the remainder as bagged product.
There is no rail transportation to the plant. All product that is to be
shipped by rail must be transported by truck to a rail loading facility in
Rifle, Colorado that is operated by a third party under a contract assigned to
NSI. Historically, about 25% of the plant's production has been shipped to its
final destination by truck rather than by rail.
Water Rights. WRNM also transferred all of its water rights to NSI,
including the production well used to obtain water for solution mining
operations, well water rights (mostly conditional) associated with 13 wells
located on the land covered by the federal sodium leases, absolute surface water
rights from the White River drainage, a water storage reservoir and rights
relating to future expansion of the reservoir, and rights associated with an
augmentation plan governing substitution and exchange of water withdrawn from
wells located on the sodium leases. AmerAlia believes that these water rights
will provide sufficient water capacity to the plant and its operations for the
indefinite future.
Fee Property. WRNM transferred to NSI real property owned in fee simple
that is used for the existing water storage reservoir of about 35.8 acres, about
25 miles east of the plant.
Other Assets. In addition to the federal sodium leases and the assets
associated with the plant, NSI acquired approximately 3,900 tons of sodium
bicarbonate inventory in storage at the plant site and in a warehouse located in
Rifle, Colorado.
U.S. Filter assigned equipment to NSI that it had fabricated for
AmerAlia under the May 1999 Design/Build Contract. This equipment included a
centrifuge, six silos, a dryer system, baghouse equipment, air compressors,
pumps and pump parts, and is located in storage facilities in Colorado,
Illinois, Kentucky, Maryland, Michigan, Mississippi, New York, Oregon,
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Pennsylvania, Utah, Virginia, and Wisconsin. While AmerAlia originally intended
to use this equipment in the plant it had contemplated constructing for
production from the Rock School lease, AmerAlia believes that this equipment is
easily adaptable to its new NSI plant. NSI plans to move the equipment to a
central storage facility in western Colorado as soon as possible.
Marketing. IMC Chemicals, on behalf of WRNM, had entered into a number
of marketing contracts with various distributors and users of the sodium
bicarbonate products that the plant produces. Of these, the most significant (in
tonnage as well as revenue) is an agreement with Bioproducts Incorporated of
Fairlawn, Ohio. The term of the contract with Bioproducts ends December 31,
2004. Bioproducts is a subsidiary of Mitsui Corporation of Japan and has
distributed sodium bicarbonate to the animal feed market for WRNM for several
years. The Bioproducts contract accounts for approximately 46,000 tons of
product per year (about one-half of the historical tonnage) and about 40% of
WRNM's revenues. Bioproducts had an exclusive arrangement with IMC Chemicals,
and NSI was obligated to assume that exclusive arrangement.
While Bioproducts distributes animal feed grade products for us, the
majority of industrial and USP grade products are distributed by an agent,
Vitusa Products, Inc. of Berkeley Heights, New Jersey. Together, Bioproducts and
Vitusa account for about 75% of production. There is no distribution contract
with Vitusa. There are no other significant marketing relationships.
NSI has put its own marketing arrangements into place and will actively
solicit product orders in all markets where it is permitted to do so.
Other Contractual Arrangements. NSI assumed a number of WRNM's other
contractual arrangements. Among these were the following:
- A Sublease from an IMC affiliate of 55 rail cars leased by
that affiliate from a third party for transporting the bulk
product from Rifle;
- Contract providing for use of six airslide railcars used for
transporting product from Rifle;
- Contracts with third parties to provide trucking services from
the plant to Rifle;
- Contracts with CSXT for the transportation of product by rail;
- Freight shipping contracts for transportation of product from
the plant by truck;
- Lease of a piece of heavy equipment used at the plant;
- Lease covering the warehouse space in Rifle, Colorado used for
product storage;
- Contract for electric service to the plant; and
- Contracts relating to the water rights acquired by NSI.
In addition, NSI has the right to operate temporarily under certain
WRNM and IMC Chemicals contracts that have not yet been assigned to NSI, pending
completion of consents and other arrangements to obtain consent to assignment of
such contracts. These contracts include:
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- Contracts for the supply and delivery of natural gas to the
plant from an unaffiliated third party;
- Contracts with Union Pacific and other railroads for the
transportation of product by rail;
- Lease of two boilers on the plant site which heat the liquor
that is injected into the nahcolite cavities; and
- An additional freight shipping contract for transportation of
product from the plant by truck.
Although each of the contractual relationships described above is
material to the operation of the plant and the WRNM business, NSI believes that
they are all in good standing and that NSI will be able to obtain assignment or
otherwise renegotiate the contracts not yet assigned from WRNM and IMC Chemicals
to NSI and to continue working with the other parties to the contracts assumed
in the ordinary course of business.
Description of the Short-Term and Anticipated Permanent Financing
Short-Term Financing. At the time the asset purchase agreement with IMC
Global was due for completion, AmerAlia and Sentient Global Resource Fund I, LP
and Sentient Global Resource Trust No. 1 of George Town, Grand Cayman, Cayman
Islands (the "Sentient entities") had not yet finalized their own agreements
with respect to the final structure and commercial arrangements between them in
funding and competing this acquisition. Therefore, as an interim measure
AmerAlia and the Sentient funds entered into a "Closing Agreement" which
provided for temporary short-term funding to be replaced by the permanent
funding structure when the final structure and commercial arrangements are
resolved.
Consequently, the Sentient entities loaned $24,000,000 to NSHoldings.
NSHoldings used these funds to pay the purchase price to WRNM (approximately
$20.6 million) and for other working capital purposes, including payment of
deposits to certain vendors to the WRNM business that NSI acquired, a portion of
the fee to U.S. Filter for termination of the May 1999 Design/Build Contract,
transaction costs, and working capital.
The two Sentient entities loaned the funds to NSHoldings pursuant a
short-term basis. In addition, the Sentient entities took a security interest in
100% of the outstanding shares of NSI capital stock. As a result, NSHoldings
must repay the entire amount of the loan on or before March 24, 2003, unless the
parties agree to an extension of the payment date. Neither the Sentient entities
nor NSHoldings expect NSHoldings to repay the promissory note in cash. The
Sentient entities and AmerAlia (through NSHoldings) are completing the
negotiations for the permanent financing for the acquisition as set forth below.
Anticipated Permanent Financing. These negotiations, which are
substantially complete between the Sentient entities and AmerAlia, will require:
- AmerAlia to invest $7,500,000 in NSHoldings as bridge financing;
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- The Sentient entities to invest an additional $2,000,000 in NSHoldings
as bridge financing;
- AmerAlia reaching agreement with certain other creditors for delayed
repayment terms on certain AmerAlia indebtedness; and
- AmerAlia reaching certain agreements with principal shareholders of
AmerAlia.
Description of the Anticipated Debentures. There are certain other
standard closing conditions to the completion of the permanent financing (the
"financial closing"). When and if AmerAlia and the Sentient entities complete
the financial closing, Sentient will cancel the short-term promissory note,
Sentient will invest $2,000,000 of additional cash, AmerAlia will invest
$7,500,000 of additional cash. Based on the discussions which have not been
finalized, NSHoldings expects to issue:
$15,750,000 in secured Series A Debentures, repayable in two years,
plus up to an additional $10,000,000 to be held by the Sentient
entities which will convert to Series B2 Debentures upon repayment of
the remaining Series A Debentures, in each case with interest at 15%
per annum payable quarterly;
$9,700,000 in Series B1 Debentures bearing interest at 15% which will
be convertible into 49% ownership of NSHoldings at the option of the
Sentient entities;
$1,300,000 in Series B2 Debentures bearing interest at 15% (plus an
additional $10,000,000 upon conversion of a portion of the Series A
Debentures, described above).
The Series A Debentures will include the $7,500,000 in bridge financing
to be contributed by AmerAlia. AmerAlia has not yet negotiated the terms of the
bridge financing, but believes that it will be able to obtain the bridge
financing from third-party, accredited investors, on commercially reasonable
terms. AmerAlia anticipates that the accredited investors' investment in
AmerAlia will be in the form of a promissory note and warrants, and that the
repayment of the promissory note will be collateralized by the Series A
Debentures in the same amount.
The Series A Debentures will be collateralized by all of the assets of
NSI and NSHoldings, as well as by all of the common stock of NSI that is held by
NSHoldings. These assets will also collateralize the Series B1 Debentures and
the Series B2 Debentures. One of the Sentient entities will act as agent holding
the collateral for the benefit of all of the secured debenture holders. Should
there be a default, therefore, AmerAlia will risk losing its interest in all of
the assets it held previously as well as all of the assets acquired from WRNM.
The Series B1 Debentures will have a stated interest rate of 15%, but
will bear an additional return so that the total investment by the Sentient
entities will be able to achieve its targeted investment returns. The parties
are considering various financial accounting, tax and business issues in an
effort to achieve a suitable structure to achieve this objective but nothing
definitive has yet been determined.
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In addition to the foregoing rights, the Sentient entities will have
the option to convert the Series B1 Debentures and the Series B2 Debentures into
shares of AmerAlia common stock. This conversion right will generally provide
for the issuance of AmerAlia common stock in exchange for the debentures (or the
underlying NSHoldings common stock if the Sentient entities convert the Series
B1 Debentures) at an exchange price equal to 85% of the market price for the
AmerAlia common stock.
If the financial closing occurs as contemplated above, NSHoldings will
issue additional debentures to AmerAlia to reflect AmerAlia's $17,000,000
(approximately) investment in NSHoldings to date. These additional debentures
are expected to include about $12,000,000 of Series C Debentures paying interest
at 15% per annum, and the balance of AmerAlia's investment will be represented
by junior NSHoldings debentures or NSHoldings preferred stock. AmerAlia will
pledge substantially all of the Series C Debentures to collateralize its
existing obligations to the Jacqueline Badger Mars Trust ("Mars Trust") (which
has guaranteed a loan in the approximate amount of $9.92 million from the Bank
of America) and to an unrelated individual and partnership which have loaned
AmerAlia approximately $1.9 million. To the extent the interest that accrues on
the Series C Debentures exceeds the interest payable on the obligations, both
the Mars Trust and the unrelated individual will accrue a fee. Consequently,
AmerAlia will have no economic advantage from owning and pledging the Series C
Debentures unless AmerAlia is able to repay the Bank of America and/or the other
loans from other capital sources.
NSHoldings's Anticipated Use of Proceeds. Upon the financial closing,
NSHoldings will loan AmerAlia $2.5 million to permit AmerAlia to pay certain
pre-existing obligations and to provide AmerAlia with working capital. Although
the complete terms of this arrangement have not yet been negotiated, AmerAlia
expects that this loan will not require any payments until March 2005.
In addition, NSHoldings will use the funds provided at the financial
closing to pay the remaining portion of the transaction costs and to provide
funds for the operation, maintenance, and improvement of the WRNM assets.
As discussed above, the financial closing and the permanent financing
will be dependent on (among other things) AmerAlia's ability to raise its share
of the bridge financing. Although AmerAlia has had positive discussions for that
financing, there can be no assurance that it will be able to acquire the
necessary investment.
Finder's Fee Obligation. In connection with the financing provided by
the Sentient entities, AmerAlia, through NSHoldings, has agreed to pay McFarland
Dewey Securities Co., New York, New York, a total of $1,000,000 plus
reimbursement of expenses of approximately $11,000. If the financial closing has
not occurred on or before the close of business on Monday, April 10, 2003,
AmerAlia agreed to issue McFarland Dewey 503,979 shares of its restricted common
stock in addition to the payment obligation.
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Refinancing Obligation
As is apparent from the foregoing, NSHoldings will be obligated to
repay or refinance at least the Series A Debentures within two years. In
addition to that financing, NSHoldings may desire to refinance other aspects of
its permanent. Although neither NSHoldings nor AmerAlia have any commitments for
such financing, they will begin their search for this financing after completion
of the financial closing.
Anticipated Management and Operations of NSI and NSHoldings
Management Personnel. Management of NSI and NSHoldings currently
consists of Bill H. Gunn as president and Robert C.J. van Mourik as vice
president, secretary, and treasurer. Until March 5, 2003, they also constituted
the board of directors of NSI and NSHoldings. Mr. Gunn is also president and a
director of AmerAlia, and Mr. van Mourik is Executive vice president, chief
financial officer, and a director of AmerAlia. While the Closing Agreement and
the Securityholders' Agreement (discussed below) anticipate expanding the board
of directors and management, this has not yet been completed.
Closing Agreement Restrictions. The closing agreement contemplates that
all funds to be disbursed will be approved by the Sentient entities until the
financial closing.
Securityholder Agreement. At this time, a proposed securityholder
agreement is in draft form, and negotiations with respect to this agreement are
continuing. The parties anticipate that when the financial closing occurs NSI
and NSHoldings will become subject to a securityholder agreement by which
AmerAlia and the Sentient entities, as the sole security holders of NSHoldings,
have set forth certain parameters by which NSHoldings and NSI will be managed.
The securityholder agreement is expected to provide, among other things:
- Limitations on AmerAlia's and the Sentient entities' right to
transfer NSHoldings common stock or debentures, including
tag-along rights (so that if one party desires to sell to a
third party, the other party has a right to sell to that third
party on the same terms) and bring-along rights (so that if
Sentient desires to sell its interest to a third party, it can
require AmerAlia to do so on the same terms);
- Agreements as to the members of the board of directors of
NSHoldings and NSI, and as to the management of those two
companies;
- Requirements with respect to budget approvals;
- Requirement for a two-thirds director approval of certain
significant corporate actions (such as mergers,
reorganizations, borrowings, significant asset transactions,
and other actions outside of the ordinary course of business);
- AmerAlia's obligation to indemnify NSHoldings for certain of
AmerAlia's pre-existing obligations; and
- The agreement of the Sentient entities to forebear for a
limited time in declaring a default under the debentures it
holds in the event of non-payment unless other holders also
declare a default, together with the Sentient entities'
agreement to
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waive certain payment obligations for the benefit of the other
holders of Series A Debentures.
The securityholder agreement is not yet complete or effective, and
therefore cannot be filed as an exhibit.
Management Agreement. At the financial closing, the Sentient entities
and AmerAlia have agreed that AmerAlia will enter into a management agreement
with NSHoldings and NSI by which AmerAlia will provide supervisory management
services. As with the Securityholder Agreement, this agreement has not yet been
completed. The parties anticipate that NSHoldings will pay AmerAlia a fixed fee
per year for these services while retaining broad offset rights for various
matters, including AmerAlia's indemnification obligation in the Securityholder
Agreement as described above.
Intention to Seek AmerAlia Shareholder Approval
For a number of reasons and although not specifically required by Utah
corporate law, AmerAlia intends to seek shareholder approval of the various
transactions described above and to be accomplished at the financial closing.
AmerAlia expects to hold this meeting not later than February 2004 and to ask
its shareholders to approve:
- pledging as collateral substantially all of the assets of
AmerAlia's subsidiary NSHoldings and its subsidiary, NSI;
- pledging as collateral the Series A Debentures and the Series
C Debentures that AmerAlia will acquire from NSHoldings;
- agreeing to issue AmerAlia common stock in exchange for the
Series B1 Debentures, the Series B2 Debentures, and the
NSHoldings common stock if required to do so under the
securityholder agreement;
- approving the bring-along rights described above under
"Securityholder Agreement"; and
- other aspects of the asset acquisition transaction and the
financing transaction.
It is also a condition of the financial closing that the Sentient
entities be satisfied that AmerAlia's directors and its principal shareholder
have agreed to vote for the transactions when presented for shareholder
approval. Although the agreements have not been concluded yet, AmerAlia expects
to obtain an agreement from the persons who are currently on the AmerAlia board
of directors (who own about 3.4% of the outstanding AmerAlia common stock) that
they will vote for the transaction; AmerAlia also expects to obtain the
agreement from AmerAlia's principal shareholder, the Mars Trust (which owns
about 53% of the outstanding common stock) that it will vote its shares as
directed by the AmerAlia board of directors. Thus, the Sentient entities expect
that more than a majority of the shareholders will have approved the
transactions in advance. If, however, the AmerAlia shareholders do not approve
the transactions when presented, it is likely that this will be an event of
default under the Series B1 and B2 Debentures if they have been issued, thereby
entitling the holders of those Debentures to foreclose on the collateral it will
then hold.
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Related Party Transactions
Satisfaction of Bonding Requirements. AmerAlia was not able to complete
the asset acquisition and will not be able to complete the financial closing
without the assistance of its principal shareholder, the Mars Trust. As reported
in other filings made by AmerAlia, the Mars Trust has provided support for
AmerAlia in the past, including providing a letter of credit to support a
$400,000 reclamation bond required for the maintenance of the Rock School Lease.
In order to complete the transaction, NSI and NSHoldings had to provide
bonds or other financial security covering various federal permits, totaling
approximately $960,000, including the prior bond for the Rock School lease which
was reduced to $35,000 as follows:
BLM Mineral Lease Bonds - WRNM leases $ 542,000
Rock School Lease $ 35,000
Letter of credit re EPA underground injection control permit $ 231,730
Letter of credit re DMG mining permit - $ 150,750
Neither AmerAlia nor NSHoldings had or has the financial capability to
satisfy the bonding requirements imposed by the government agencies. The Mars
Trust, through its banking contacts, agreed to provide bonding support for
NSHoldings and NSI subject to NSHoldings agreement to:
- reimburse the Mars Trust for its expenses in obtaining these
bonds (which totaled approximately $24,000);
- pay the Mars Trust a fee of $75,000 per year to maintain the
bonds in place;
- remove the Mars Trust from liability for the bonds within two
years; and
- pledge a $750,000 Series A Debenture to the Mars Trust to
collateralize any indemnification obligation that might arise
under the bonds.
Inasmuch as AmerAlia could not find any other financial support for the
bonds, the AmerAlia board of directors and the Sentient entities determined that
the terms of the Mars Trust's support agreement were reasonable, and the Mars
Trust did in fact supply the support necessary to obtain the bonds required to
complete the asset transaction.
Continuing Guarantee of Bank of America Indebtedness. The Mars Trust
arranged a loan for AmerAlia from the Bank of America in 1999. The loan has been
renewed on a year-to-year basis and most recently became due on November 30,
2002. Over time, the amount of the loan has increased to more than $9.9 million.
Substantially all of the loan proceeds were used for obligations to U.S. Filter
under the May 1999 Design/Build Agreement, for other activities in connection
with the development of the Rock School Lease, and for other AmerAlia working
capital expenses (including the expenses of negotiating for the acquisition of
the WRNM assets).
Even though the note to the Bank of America is currently due and
payable, the Bank has continued the loan on a month-to-month basis. The Mars
Trust has advanced funds to Natural
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Soda to enable AmerAlia to pay the interest on this loan since October 2002.
AmerAlia does not have, and does not expect to have the funds necessary to repay
the Bank of America in the near future. Consequently, the Mars Trust must either
repay the Bank, assume the loan itself, allow the loan to go into default, or
continue its guarantee. The Mars Trust has agreed to continue its guarantee
provided:
- AmerAlia pledge Series C Debentures to the Mars Trust in the
current amount of the loan (approximately $9.9 million);
- To the extent that interest accrues on the Series C
Debentures, it will first pay interest due to the Bank of
America, and all of the remaining interest (estimated to be
10% per annum) will accrue to the Mars Trust as a fee for the
continuing guarantee;
- To the extent that any principal is paid on the Series C
Debentures, it will be used to pay the principal amount of the
loan to the Bank of America;
- AmerAlia must pay: (i) at least 20% of the interest due to the
Bank of America during calendar year 2003 in cash (an
obligation of approximately $100,000); (ii) at least 35% of
the interest due to the Bank of America during calendar year
2004; (iii) at least 50% of the interest due to the Bank of
America during calendar year 2005; and (iv) 100% of the
interest due to the Bank of America thereafter.
- If AmerAlia is unable to pay interest owed to the Bank of
America the Trust is obligated to pay up to 80% during
calendar year 2003, up to 65% in calendar year 2004 and up to
50% in calendar year 2005. Thereafter, the Trust will have no
obligation to pay interest, although it will still be a
guarantor of this obligation.
In addition, the Mars Trust has agreed to seek the co-operation of the
Bank of America to convert the indebtedness into a longer-term loan with
interest-only due until maturity. These agreements with the Mars Trust have not
yet been finalized.
Repayment of NSHoldings Indebtedness to the Jacqueline Badger Mars
Trust. In May 2002, the Mars Trust loaned NSHoldings $250,000 pursuant to two
promissory notes bearing interest at 8% per annum. NSHoldings used a substantial
portion of these funds to pay expenses in connection with negotiating the asset
transaction with WRNM and the financing transaction with Sentient. In addition,
NSHoldings paid a portion of the proceeds to AmerAlia (which owns 100% of
NSHoldings common stock) which AmerAlia used to pay its some of its obligations.
The Mars Trust also made various short term loans at 8% interest to NSHoldings
to enable AmerAlia to meet its interest obligations to the Bank of America.
NSHoldings and AmerAlia have agreed to repay the Mars Trust the loans and
interest in an amount approximately $586,000 from the funds available at the
financial closing to retire these obligations to the Mars Trust.
Release of Security Interests. To collateralize its obligations under
its guarantee to the Bank of America, the $250,000 advanced in May 2002 and the
subsequent loans, the Mars Trust claimed a security interest in all of the
assets of AmerAlia and NSHoldings. As a condition of the various transactions
which led to the completion of the asset transaction on February 20, 2003, and
to the financial closing expected to occur before March 24, 2003, the Mars Trust
has
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agreed to release its claim to any security interest in the assets of AmerAlia,
NSHoldings, and NSI.
Repayment of Obligations to Management and the Directors of AmerAlia.
Because of AmerAlia's significant working capital shortages that have continued
for several years, management of AmerAlia and its directors have from
time-to-time accrued compensation and expense reimbursements which have remained
unpaid. If the financial closing occurs, AmerAlia expects to be able to bring
obligations to each of these persons current, as follows (which amounts have
accrued without interest):
NAME AND POSITION WITH AMERALIA) AMOUNT TO BE PAID (AS
OF DEC. 31, 2002)
Bill Gunn (President, CEO, Director) $ 146,210
Robert van Mourik (Executive Vice President,
CFO, Director $ 191,085
Neil Summerson, Director $ 61,348
Robert Cameron, Director $ 50,117
Geoffrey Murphy, Director $ 52,525
James Riley, Director $ 18,500
These amounts have included compensation payable to them as well as
reimbursement of expenses incurred by them on behalf of AmerAlia.
Risk Factors
Our future conduct depends on a number of factors beyond our control,
so we cannot offer any assurance we will be able to conduct our operations as we
contemplate in this report. This report contains various statements using the
terms "may", "expects to", and other terms denoting future possibilities. They
are forward-looking statements. We cannot guarantee the accuracy of these
statements as they are subject to a variety of risks beyond our ability to
predict or control. These risks may cause actual results to differ from the
projections or estimates contained in this report. It is important that each
person reviewing this report understands the risks accompanying the
establishment of our proposed operations. There is a number of risk factors
associated with the acquisition of assets from WRNM and the financing obtained
by AmerAlia which may make this an extremely high risk endeavor for AmerAlia and
its shareholders:
NSHoldings and its operations will be extremely highly leveraged.
NSHoldings debt will exceed $34 million, and all of this debt will bear interest
at 15% per annum or higher rates as described above. While we shall seek lower
cost refinancing, NSHoldings cannot offer any assurance that it will be able to
pay its obligations when due.
NSHoldings assets will all be pledged to collateralize the repayment of
its debt obligations. NSHoldings has pledged its entire ownership of NSI to
secure the short-term financing obtained to acquire the WRNM assets. When the
financial closing occurs, NSI and NSHoldings will be required to pledge all of
their assets to secure the additional indebtedness to
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be incurred. As a result, if any default on the indebtedness occurs, NSHoldings
and NSI risk losing all of their assets.
AmerAlia will retain a significant amount of debt obligations, and its
ability to service its debt will depend entirely on the success of NSI's
operations. Even after the financial closing, AmerAlia will itself have more
than $24 million of debt obligations of which approximately $19.3 million is
collateralized by the debentures AmerAlia holds in NSHoldings. These obligations
will include debts to the Bank of America (approximately $9.9 million, which
debt is and will continue to be guaranteed by the Mars Trust), to an
unaffiliated accredited investor and a partnership related to him (approximately
$1.9 million), and to NSHoldings ($2.5 million). There is also the note due to
U.S. Filter ($1.2 million), although there is a provision in this agreement
whereby the obligation can be reduced if we contract with US Filter for
qualifying expenditures which can reduce the amount due. The management
agreement under which AmerAlia will receive fees from NSHoldings and NSI will be
pledged as collateral to U.S. Filter. In addition, to obtain the bridge
financing it is required to provide to NSHoldings as a condition of the
financial closing, AmerAlia will likely have to borrow up to $7.5 million from
accredited investors pursuant to terms being negotiated. In addition, AmerAlia
will have more than $1.1 million in other obligations that it must meet or
resolve.
AmerAlia's ability to service this debt obligation will be entirely
dependent on payments it will receive from the Series A Debentures (which will
be pledged as collateral to the persons providing the bridge capital financing),
the Series C Debentures (which will be pledged as collateral to the Mars Trust
and the unaffiliated individual and his partnership, the balance of its
approximately $17 million investment in NSHoldings which will be in the form of
debentures or preferred stock, and from fees received under the management
agreement. Because of the significant amount of the obligations burdening
AmerAlia, there can be no assurance that AmerAlia will receive sufficient cash
flow to meet its financial obligations, even after the financial closing takes
place. Under the current proposal for the long term financing, any default by
AmerAlia in servicing its obligations will cause a default under the debentures
issued by NSHoldings and the possible loss of all collateral for such
debentures.
AmerAlia has never previously operated a business, and is relying on
the Board of Directors of NSHoldings and NSI for the conduct of this business.
Although the financial projections indicate that Natural Soda's business should
be able to return sufficient cash flow and income to become successful and to
allow NSHoldings and AmerAlia to service their respective debt obligations,
AmerAlia has never previously been engaged in actual business operations.
AmerAlia will be relying on the Board of Directors (including two members
designated by AmerAlia) and management of NSHoldings and NSI to operate the
plant or mine such as that NSI acquired from WRNM. While NSI will continue to
employ the existing production management team and while it is engaging the
services of additional management experienced in the production and sale of
sodium bicarbonate products, there can be no assurance that the operations of
NSHoldings or NSI will successfully return cash flow to the Sentient entities
and to AmerAlia.
NSI's operations will be subject to a significant amount of regulatory
scrutiny and regulation from federal and state authorities. NSI's mining and
processing operations have
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required permits from several state and federal authorities, including the
Environmental Protection Agency, the Bureau of Land Management, and the Colorado
Division of Minerals and Geology. When it was operating the plant, WRNM had
received notices of violation from the Environmental Protection Agency which it
had not resolved at the time that NSI completed its purchase. Should these
notices of violation continue, or should the agencies refuse to transfer
permits, NSI may be obligated to shut its operations down, which would have a
material and adverse effect on NSI, NSHoldings, and AmerAlia.
The transactions may result in the issuance of a significant number of
shares of AmerAlia common stock which would dilute the ownership of the current
AmerAlia shareholders. One exit strategy for the Sentient funds is to exchange
their interests in the Series B2 Debentures or the Series B1 Debentures (which
can be converted into 49% of NSHoldings common stock) for AmerAlia common stock
on the basis of an agreed value for shares of AmerAlia common stock at 85% of
market. While this exchange cannot occur until March 31, 2005, this could result
in the issuance of more than 26 million shares of AmerAlia common stock at their
current prices on the basis of certain assumptions. This could substantially
increase the number of shares of AmerAlia common stock currently outstanding and
could result in a substantial dilution in the interest of the existing AmerAlia
shareholders. Furthermore, the existence of the large number of shares
potentially issuable may make it more difficult for AmerAlia to raise the
financing that it may require in the future unless the performance of NSHoldings
and NSI proves to be remarkable successful
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
The financial statements of the business acquired will be filed by amendment to
this Form 8-K within 60 days as permitted by Instruction (4) to Item 7(a).
(b) Pro forma financial statements.
The pro forma financial statements of the business acquired will be filed by
amendment to this Form 8-K within 60 days as permitted by Instruction (2) to
Item 7(b).
(c) Exhibits.
1. * Asset Purchase Agreement between AmerAlia, Inc., Natural Soda,
Inc. (formerly Natural Soda AALA, Inc.), White River Nahcolite
Minerals Ltd. Liability Co., and IMC Global, Inc. dated
January 9, 2003.
2. * Amendment dated February 10, 2003 to the Asset Purchase
Agreement (exhibit 1)
3. + Closing Agreement dated February 20, 2003, between AmerAlia,
Inc., Natural Soda Holdings, Inc. (formerly Natural Soda,
Inc.), Sentient Global Resource Fund I, LP and Sentient Global
Resource Trust No. 1; Promissory note from Natural
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Soda Holdings, Inc. (formerly Natural Soda, Inc.) to Sentient
Global Resource Fund I, LP and Sentient Global Resource Trust
No. 1; and Pledge agreement from Natural Soda Holdings, Inc.
(formerly Natural Soda, Inc.) to Sentient Global Resource Fund
I, LP and Sentient Global Resource Trust No. 1
* Incorporated by reference from Exhibit #1 to AmerAlia's quarterly
report on Form 10-QSB for the quarter ended December 31, 2002.
+ Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERALIA, INC.
March 7, 2003 By: /s/ Robert van Mourik
----------------------------------
Robert C.J. van Mourik,
Executive Vice President
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INDEX TO EXHIBITS
1. * Asset Purchase Agreement between AmerAlia, Inc., Natural Soda,
Inc. (formerly Natural Soda AALA, Inc.), White River Nahcolite
Minerals Ltd. Liability Co., and IMC Global, Inc. dated
January 9, 2003.
2. * Amendment dated February 10, 2003 to the Asset Purchase
Agreement (exhibit 1)
3. + Closing Agreement dated February 20, 2003, between AmerAlia,
Inc., Natural Soda Holdings, Inc. (formerly Natural Soda,
Inc.), Sentient Global Resource Fund I, LP and Sentient Global
Resource Trust No. 1; Promissory note from Natural Soda
Holdings, Inc. (formerly Natural Soda, Inc.) to Sentient
Global Resource Fund I, LP and Sentient Global Resource Trust
No. 1; and Pledge agreement from Natural Soda Holdings, Inc.
(formerly Natural Soda, Inc.) to Sentient Global Resource Fund
I, LP and Sentient Global Resource Trust No. 1
* Incorporated by reference from Exhibit #1 to AmerAlia's quarterly
report on Form 10-QSB for the quarter ended December 31, 2002.
+ Filed herewith.