Contract
EXHIBIT
10.43
11
September 2006
AmerAlia,
Inc.
The
Xxxxxxxxxx X. Xxxx Trust
Xxxxxx
X. Xxxxxxx & Xxxxxxx X. X’Xxxxxx
Pursuant
to our recent discussion and negotiation regarding the proposed Recapitalization
of Natural Soda Holdings, Inc. (“NSHI”) and its associated companies, Natural
Soda, Inc. and AmerAlia, Inc. (“NSI” and “AmerAlia”), we wish to memorialize the
key points we have agreed to date so as to demonstrate to the Sentient
entities
our level of commitment and intent to finalize the recapitalization of
NSHI and
related companies as set out below.
Preamble
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1)
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Sentient
has agreed to convert all of (i) its Series A debentures and
all accrued
interest thereon, (ii) its Series B1 and B2 debentures and all
accrued
interest thereon, (iii) its entitlement to contingent interest,
and (iv)
the outstanding $1,000,000 working capital loan provided to NSI
and
interest thereon, into an approximate 49% direct equity interest
in
NSI.
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2)
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In
the event of a sale of NSI, to protect Sentient from an unfavorable
sale
price, Sentient will be granted an option to increase its share
of the
sale proceeds at the time of sale. This option will be capped
at the
lesser of (a) 66% of the sale proceeds or (b) a maximum additional
realized value to Sentient of $18,000,000 as a result of the
sale. By way
of illustration, the Sentient option would result in an increase
of
Sentient’s share of proceeds to 66% only if a sale price were negotiated
at or below approximately $105,900,000 since this is the number
at which
Sentient’s 66% has its maximum $18 MM value. Any sale price above
this level caps the value of Sentient’s increased share of proceeds at $18
MM.
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3)
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AmerAlia
is requesting that Sentient redeem the principal amount of the
NSHI Series
A Debenture held by AmerAlia. As an incentive to Sentient to
provide this
additional funding, the $18,000,000 cap described in item 2 above
may be
increased to $22,000,000.
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4)
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To
protect all shareholders of NSI, both NSHI and Sentient will
have drag
along and tag along rights in similar form to those rights defined
in the
Securityholder agreement between the Sentient entities, NSHI
and AmerAlia
and described in AmerAlia’s SEC filings - included here as Exhibit
A.
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5)
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An
integral part of the recapitalization plan is the replacement
of the BLM
land reclamation bonds currently guaranteed by Mars Trust. This
is an
obligation of NSI even though the Mars Trust guaranty is currently
secured
by a Series A Debenture issued by NSHI to NSI.
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6)
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NSHI
will be the sole shareholder of all NSI shares not held by
Sentient.
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7)
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The
value of the NSHI holding in NSI must be determined and also
the resulting
value of equity in NSHI. Sentient has placed a value of approximately
$60,000,000 on its exchange of debt for a 49% interest in NSI
(see item 1
above). This implies an overall value slightly in excess of $120,000,000
for all of NSI. After the exchange of the Sentient obligations
for equity
in NSI, it is expected that there will not be any remaining inter-company
loans between NSHI and NSI. Also, that the net balance of any
remaining
loan accounts between AmerAlia and NSHI will not be materially
significant. Consequently, for purposes of this recapitalization
an
overall value of NSI shall be deemed to be $100,000,000 and NSHI’s share
of this value shall be deemed to be
$51,000,000.
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8)
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NSHI
currently has 420,000 shares of common stock issued and
outstanding.
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General
Statements of Agreement:
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9)
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The
Xxxxxxxxxx X. Xxxx Trust (the “Trust”) has advanced funds to AmerAlia and
guaranteed a loan from the Bank of America as
follows:
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·
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Promissory
Note dated March 1, 2004 for
$469,628;
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·
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A
number of additional promissory notes issued under a guaranty
agreement;
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·
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Advances
for travel and legal fees of approximately
$16,800;
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·
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Loan
from the Bank of America for
$9,921,583;
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·
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The
estimated total amount of these obligations due to the Trust
and the Bank
of America together with accrued interest, collectively known
as “the
Trust Debts”, as at September 30, 2006 will be approximately
$11,930,000.
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·
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The
Trust has agreed to repay the Bank of America loan and convert
the Trust
Debts into a direct common equity interest in NSHI. The replacement
of the
BLM bonding currently guaranteed by the Trust is a pre-condition
to the
conversion of the Trust Debts into NSHI common stock.
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10)
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The
Trust shall retain its common shares representing approximately
46% of
AmerAlia and agree to a waiver of its voting rights on these
shares for
some time mutually agreed by the Trust and AmerAlia.
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11)
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Messrs
Xxxxxxx and X’Xxxxxx hold Series C Debenture Secured Promissory notes and
an additional unsecured promissory note, also issued by AmerAlia,
which
have a total balance owing of principal and accrued interest
estimated to
be approximately $2,739,000 as at September 30, 2006. These obligations
are collectively known as the “W/OK notes”. Xxxxxxx and X’Xxxxxx have
agreed to convert their W/OK notes into NSHI common
stock.
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12)
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AmerAlia
holds NSHI Series A Preferred stock with a liquidation value
estimated to
be $6,355,000 as at September 30, 2006. XxxxXxxx agrees to hold
a meeting
of NSHI stockholders to authorize an amendment to NSHI’s Articles of
Incorporation to enable the conversion of the preferred stock
into common
stock on the same basis as the Trust Debts and the W/OK
notes.
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13)
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NSHI
has issued Series A Debentures for $4,375,000 to AmerAlia and
accrued
interest thereon is estimated to be approximately $751,000 as
at September
30, 2006. AmerAlia has used its NSHI Series A Debenture (“Series A
Debentures”) to secure promissory notes (known as “Series A Notes”) issued
to various investors.
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14)
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Should
Sentient not fund the redemption of the remaining Series A Debentures
due
to AmerAlia in exchange for an increase in the $18 MM as proposed
in item
2. above, AmerAlia will convert the Series A Debenture and its
accrued
interest into NSHI common stock on the same basis as the Trust
Debts and
W/OK notes and raise new capital to fund the repayment of its
Series A
Notes.
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15)
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AmerAlia
will assume all responsibility to fund the repayment of NSHI’s current
creditors for past due amounts still
outstanding.
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16)
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Discrete
share certificates of NSHI’s common stock reflecting each party’s direct
ownership interest will be held by XxxxXxxx, the Trust, and Xxxxxx
X.
Xxxxxxx/Xxxxxxx X. X’Xxxxxx and a definitive shareholder agreement will be
executed by all shareholders. The shareholder agreement shall
determine
the conduct of the parties and the management of NSHI concerning,
amongst
other things:
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·
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The
appointment of a Board of Directors representative of the relative
ownership of the company held by each
shareholder.
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·
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The
distribution of free cash flow to shareholders whether by dividends
or
from funds of any other nature representing profits paid by NSI
to
NSHI.
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·
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The
obligations of shareholders to contribute additional capital
to NSHI to
support NSHI’s share of any additional capital investment in NSI.
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·
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NSHI
shares must be convertible into NSI shares at some future date
upon the
occurrence of specific triggering events. These events are the
bankruptcy
of AmerAlia or the failure of NSI to remit its free cash flow
to its
shareholders according to criteria still to be determined.
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·
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AmerAlia’s
first right of refusal to acquire NSHI shares offered for sale
by other
shareholders.
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17)
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NSI
shall execute a formal management contract with AmerAlia and
AmerAlia
shall be compensated for these services directly by NSI. Such
funds shall
not be flowed through NSHI nor be subject to any claim by NSHI
shareholders.
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18)
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The
resulting equity value of NSHI must be apportioned to the three
shareholder entities consisting of AmerAlia, the Trust, and
Xxxxxxx/X’Xxxxxx by some equitable and justifiable means.
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19)
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NSI
and NSHI may both have to be re-incorporated as LLCs to provide
workable
tax treatment of funds flowing from NSI operations to Sentient
and the
NSHI shareholders. This issue shall be left to the company taxation
advisors for final determination.
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20)
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All
parties to this Memorandum acknowledge that there may be final
fine tuning
of the dollars and percentages contained herein based upon their
determination as of September 30, 2006; and once determined shall
form the
basis for calculating the number of shares of common stock issued
in
satisfaction of those obligations.
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Apportionment
of shares within NSHI:
21)
The
method of apportioning the shares of ownership in NSHI shall be such as
to
retain dollar for dollar the value of the principal amount and accrued
interest.
The allocation of shares to the Trust and Xxxxxxx/X’Xxxxxx shall be based upon
the percentage that their total principal and accrued interest represents
of the
$51,000,000 valuation of the NSHI holdings in NSI.
22)
Subject
to final determination and accruals, the value of the Xxxxxxx/X’Xxxxxx C notes
and accrued interest will be approximately $2,739,000.
23)
Subject
to final determination and accruals, the value of the Trust Debts will
be
approximately $11,930,000.
24)
Subject
to final determination, the liquidation preference of AmerAlia’s preferred stock
will be approximately $6,355,000.
25)
The
Series A Debentures and accrued interest due to AmerAlia will be approximately
$4,375,000 + 751,000 = $5,126,000.
26)
Using
these numbers (once again subject to final adjustment) and the $51 MM valuation,
the resulting post-recapitalization allocation for the determination of
the
ownership of NSHI, assuming all obligations are exchanged for common stock,
will
be:
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Estimated
obligation
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Outcome
if all converted to common stock
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#
Shares
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%
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Series
A Debentures
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$
4,375,000
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73,885
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8.6
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Series
A Interest
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751,000
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12,683
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1.5
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Mars
Trust
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11,930,000
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201,473
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23.4
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Xxxxxxx/X’Xxxxxx
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2,739,000
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46,256
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5.4
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AmerAlia
- preferred stock
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6,355,000
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106,987
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12.4
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AmerAlia
current shareholding
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24,850,000
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420,000
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45.9
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$51,000,000
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861,283
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100.0
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On this basis, AmerAlia’s fully converted shareholding in NSHI (assuming the
entire conversion of the Series A Debentures and interest) will be 613,555
shares equal to 71.2% of the company.
The
Trust’s continuing 46% interest in AmerAlia (its common share holding)
translates to a 32.8% indirect interest in NSHI (46% x 71.2 %). When combined
with its direct interest of 23.4%, its total interest in NSHI (both direct
and
indirect combined) will be 56.2%.
On
this
basis, NSHI will issue a further 441,283 shares of its common stock at
$59.214
per share.
27) However,
if NSI is sold and the sale proceeds are less than the threshold of $105,900,000
identified in item 2 above, the share of sale proceeds attributable to
the Trust
and Xxxxxxx/X‘Xxxxxx on the basis of the percentage ownership shown in the table
in item 26 above will be determined as though no additional share of the
proceeds is payable to Sentient.
The parties identified below hereby acknowledge by signature below their
agreement with the provisions of this Memorandum of Understanding as set
forth
above:
For
AmerAlia, Inc.:
/s/
Xxxx X Xxxx________________
Xxxx
X.
Xxxx
For
the
Xxxxxxxxxx X. Xxxx Trust:
/s/
Xxxxxxxx M Hills____________
Xxxxxxxx
X. Xxxxx
For
Xxxxxx X. Xxxxxxx:
/s/
Xxxxxx X Xxxxxxx_________
Xxxxxx
X.
Xxxxxxx
For
Xxxxxxx X. X’Xxxxxx:
/s/
Xxxxxxx X X’Xxxxxx__________
Xxxxxxx
X. X’Xxxxxx
EXHIBIT
A
Drag
Along & Tag Along Rights
The
drag
along and tag along rights apply to the Sentient Entities and to AmerAlia
if the
Sentient Entities own NSI common stock and the remaining Series B1 Debentures
have been repaid. They are defined in the Securityholder Agreement.
Under
the
drag along rights, if the Sentient Entities wish to sell all (and not less
than
all) of the shares of NSI common stock they own, the Sentient Entities
shall
make a written offer to sell the shares to AmerAlia naming a price and
the terms
of purchase. If AmerAlia does not elect irrevocably and in writing to purchase
the shares within 30 days, the Sentient Entities may complete the sale
of the
shares to a third party at the same price and on the same terms within
90 days
of AmerAlia’s receipt of the written offer. The Sentient Entities may further
require that AmerAlia or NSHI sell all the shares of NSI common stock they
own
to the third party on the same terms. If the AmerAlia shareholders are
required
to approve the sale of the NSI common stock by AmerAlia and fail to do
so, then
there is a mechanism whereby the Sentient Entities can gain a majority
of the
board and a majority of the common stock of NSHI. Thereafter, the Sentient
Entities shall have 90 days to complete the sale of the shares to the third
party. If the Sentient Entities are unable to complete the sale within
that
time, the Sentient Entities will rescind the actions that gave them
control.
Alternatively,
under the tag along rights, if AmerAlia wishes to sell the NSI shares of
common
stock it owns, AmerAlia shall make a written offer to the Sentient Entities
naming a price and terms. If the Sentient Entities do not elect irrevocably
and
in writing to purchase the shares within 30 days, AmerAlia may complete
the sale
of the shares to a third party at the same price and on the same terms
within 90
days of the Sentient Entities receipt of the written offer, provided that
the
Sentient Entities may require the purchaser to purchase its shares at the
same
price and on the same terms. If the purchaser will not buy the shares held
by
the Sentient Entities, AmerAlia may not sell its shares unless AmerAlia
buys the
Sentient Entities shares on the same terms and conditions.
