Design Build Agreement

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. 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). 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)


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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.


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"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.


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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.


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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


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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.


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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. 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


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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 exec ...