-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q76uw/9GHC82qDQziq7Ny9OrTmjmQqfZDjqDSkOj5iNHqLbJyVLtGwbHmoPhgwUm oRIepslbbcP++LHgUbWTWA== 0001019687-08-004513.txt : 20081014 0001019687-08-004513.hdr.sgml : 20081013 20081014122457 ACCESSION NUMBER: 0001019687-08-004513 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20080909 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Unregistered Sales of Equity Securities ITEM INFORMATION: Changes in Control of Registrant ITEM INFORMATION: Other Events FILED AS OF DATE: 20081014 DATE AS OF CHANGE: 20081014 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Alderox, Inc. CENTRAL INDEX KEY: 0001100091 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 840703717 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-29881 FILM NUMBER: 081121072 BUSINESS ADDRESS: STREET 1: 940 CALLE AMANECER SUITE E CITY: SAN CLEMENTE STATE: CA ZIP: 92673 BUSINESS PHONE: 9496090590 MAIL ADDRESS: STREET 1: 940 CALLE AMANECER SUITE E CITY: SAN CLEMENTE STATE: CA ZIP: 92673 FORMER COMPANY: FORMER CONFORMED NAME: RECLAMATION CONSULTING & APPLICATIONS INC DATE OF NAME CHANGE: 20050627 FORMER COMPANY: FORMER CONFORMED NAME: RECLAIMATION CONSULTING & APPLICATIONS INC DATE OF NAME CHANGE: 20020529 FORMER COMPANY: FORMER CONFORMED NAME: RECYCLING CENTERS OF AMERICA INC DATE OF NAME CHANGE: 20000228 8-K 1 alderox_8k-090908.txt CURRENT REPORT ON FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): SEPTEMBER 9, 2008 ALDEROX, INC. (Exact name of registrant as specified in its charter) Colorado 000-26017 58-2222646 - -------------------------------------------------------------------------------- (State or other jurisdiction of (Commission File Number) (IRS Employer incorporation) Identification No.) 940 Calle Amanecer Suite E San Clemente, California 92673 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (949) 542-7440 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Alderox, Inc. ("we", "us" or the "Company") files this report on Form 8-K to report the following: ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT AMENDMENT AND LIMITED WAIVER TO PALA DEBENTURE On October 10, 2008 we entered into an Amendment and Limited Waiver (the "Amendment") with Pala Investments Holdings Limited ("Pala") that amended the terms of the Secured Convertible Debenture (the "Debenture") we entered into on December 12, 2007. The Debenture and certain related agreements had been previously amended by an Omnibus Amendment entered into on March 28, 2008 (the "First Omnibus Amendment") and a second Omnibus Amendment entered into on July 31, 2008 (the "Second Omnibus Amendment".) The Debenture and the Omnibus Amendments were previously disclosed on Current Reports on Form 8-K respectively filed on December 6, 2008, April 2, 2008, and July 6, 2008. As amended by the First and Second Omnibus Amendments, the Debenture provided for us to receive up to $8,500,000 from Pala in five tranches under the following schedule: o a first tranche of $3,000,000, which funded in December 2007, o a second tranche of $2,000,000, which has not been funded as of the date of this Report and which we are entitled to receive if we meet certain performance benchmarks by December 31, 2008, or which may otherwise be provided at Pala's discretion, o a third tranche of $2,500,00, which funded in March 2008. o a fourth tranche of $700,000, which funded on August 5, 2008, and o a fifth tranche of $300,000, subject to Pala's discretion, which has not been funded as of the date of this Report. Pursuant to the Debenture, we have borrowed an aggregate sum of $6,200,000 in principal from Pala. The Debenture carries interest of 12% per annum (or interest at a penalty rate of 16% per annum following an Event of Default), compounding quarterly, matures on December 11, 2010 (the "Maturity Date") and is secured by substantially all of our assets on a first lien basis. In connection with the funding of the first and third tranches, Pala received warrants for the purchase of 6,200,000 shares of common stock. Pala is also entitled to receive warrants for the purchase of 2,000,000 shares if the second tranche funds and 300,000 shares if the fifth tranche funds. The warrants are each exercisable for one share of our common stock at an exercise price of $0.42 per share. 2 DISPUTE WITH PALA On September 9, 2008, during the course of our annual audit, we determined that one of the representations made by us to Pala in the Debenture was inaccurate. This representation stated that the Company had filed all tax returns and reports as required by law. We had not filed federal or state tax returns, although as a corporation we were required to do so even though we have not been profitable and did not believe that any taxes were due and payable. We enlisted a tax preparation firm to prepare and file the necessary tax returns and, with their assistance, we have now successfully filed all tax returns and reports which we were required to file prior to the date hereof. As we have not yet achieved positive net income, our income tax liability was limited to a nominal amount of penalties and interest. Promptly following our discovery of the misrepresentation, we informed Pala of its existence and our intent to cure it. We believed that under the terms of the Debenture, a 14-day cure period was available to us at the time we determined that a misrepresentation had inadvertently been made, and that an Event of Default did not occur under the Debenture as a result of the misrepresentation because all of the required tax returns were filed within the requisite period. Pala disagreed with the Company's interpretation of the Debenture, believing the misrepresentation to be an Event of Default, and on September 29, 2008, sent us written notice alleging Events of Default under the Debenture and accelerating payment of all principal and interest due under the Debenture. Pala believed that because the tax returns had not been filed, an Event of Default existed under the Debenture as of December 12, 2007, the date we entered into the Debenture. Consequently, Pala claimed interest under the Debenture had accrued since December 12, 2007 at the penalty rate of 16% per annum, rather than at 12% per annum (the rate we have been accruing on our books). Based on the 16% penalty rate we would have owed $6,831,637 to Pala under the Debenture as of September 30, 2008, were an Event of Default to have been determined to have occurred. Additionally, in its notice, Pala claimed as a separate Event of Default, that the Company was insolvent and unable to pay its debts as they mature. We currently have sufficient funds to meet our immediate obligations, and are entitled under the Debenture to raise additional capital. We do not, therefore, believe that the Company is insolvent or unable to pay its debts as they mature as of the date of this Report. However, as disclosed below, we will need to receive additional operating capital in order to remain solvent. RESOLUTION OF DISPUTE On October 3, 2008, Pala retracted their notice of default and acceleration to allow the Company and Pala to negotiate a settlement of the dispute. We have now reached a resolution of these differences on the terms set forth by the Amendment. While neither the Company nor Pala agreed with the other's position regarding the Events of Default, our Board believes that in the current economic 3 climate, the uncertainty associated with a prolonged dispute with our largest lender would have put undue financial strain on the Company due to the financial burden of potentially costly and protracted litigation, and, furthermore, would have disrupted the Company in this important period of development. NEW CONVERSION PRICE, CHANGE IN CONTROL Pursuant to the Amendment the conversion price for all principal and interest outstanding under the Debenture was revised from $0.13 per share to $0.057 per share, providing Pala with pro forma beneficial ownership of such additional shares of common stock so as to constitute a change in control of the Company. Because under the new conversion price, we would not have had sufficient authorized shares reserved for all of its outstanding warrants, options, convertible instruments and share rights, Pala agreed that Pala, together with its indirect subsidiary Melior Corp, will not be entitled to receive more than 112,227,673 shares in the aggregate through the conversion of the Debenture or the exercise of warrants until the earlier of March 31, 2009 or such time as the Company increases its authorized shares of stock (the "Share Increase"). Pala consented to the Company implementing the Share Increase and agreed to vote any shares it may acquire as necessary to approve the Share Increase. In the event Pala exercises its conversion rights under the Debenture, and exercises the 6,200,000 warrants to which it is entitled as of October 10, 2008, Pala would be entitled to receive approximately 112,227,673 shares, constituting approximately 63.1% of our outstanding shares of common stock. Additionally, as listed below three junior creditors agreed to waive conversion rights on their debt owed by us until we implement the Share Increase, provided that it is implemented by March 1, 2009: -------------------------- ----------------------------------------------- JUNIOR CREDITOR CONVERTIBLE INSTRUMENT -------------------------- ----------------------------------------------- Canvasback Company Ltd. Convertible Note Purchase Agreement, dated October, 17, 2006, as amended -------------------------- ----------------------------------------------- Norman Gish Convertible Debenture, dated October 23, 2007 -------------------------- ----------------------------------------------- Joan Gish Convertible Debentures between the Company and Joan Gish dated September 10, 2007 and October 1, 2007 -------------------------- ----------------------------------------------- 4 WAIVER OF ALLEGED DEFAULTS In partial consideration for the rights extended to them by the Amendment, Pala has agreed to waive any remedies it may have under the Debenture arising out of the Company's failure to file our tax returns and any insolvency of the Company prior to the Amendment date. Also, Pala has agreed not to assert any remedies it may have relating to an Event of Default resulting from the Company being or becoming insolvent for 30 days, provided that such waiver does not extend to items which may arise as a consequence of the Company becoming insolvent, such as making a general assignment for the benefit of its creditors or if a receiver is appointed. SECURITY FILING EXPENSES We agreed to reimburse Pala for all reasonable expenses necessary to perfect and insure continues perfection of Pala's security interest in our intellectual property under the Debenture FUTURE FINANCING It is the Company's expectation that in the near future it will require additional financing to continue its operations. The Company is currently finalizing projections to determine its exact financing requirements, and has reached an oral agreement in principle with Pala for it to provide the Company with the additional finance it requires, subject to Pala's review of such projections and its further due diligence. We can provide no assurance that any such financing will be forthcoming on acceptable terms or at all. In the event this financing from Pala does not materialize and if financing from other sources is not received on terms acceptable to the Company, we will likely become insolvent in the near future. Given the present financial climate and the other items contained in this report, the Company can offer no assurance that it will receive the funds necessary for it to remain solvent. 5 SALE OF UNREGISTERED SECURITIES The securities receivable by Pala pursuant to the Amendment have been offered and sold to Pala in reliance upon exemptions from registration pursuant to Regulation S and Regulation D promulgated under the Securities Act of 1933, as amended. Pala is a non-U.S. person as defined in Rule 502 of Regulation S and an accredited investor as defined by Rule 501 of Regulation D. ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF- BALANCE SHEET ARRANGEMENT. Our discussion under Item 1.01 of this Current Report is hereby incorporated by this reference. ITEM 3.02 UNREGISTERED SALE OF EQUITY SECURITIES. Our discussion under Item 1.01 of this Current Report is hereby incorporated by this reference. ITEM 5.01 CHANGES IN CONTROL OF REGISTRANT Our discussion under Item 1.01 of this Current Report is hereby incorporated by this reference. ITEM 8.01 OTHER EVENTS Our discussion under Item 1.01 of this Current Report is hereby incorporated by this reference. 6 ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS Exhibit No. Description - ----------- ----------- 4.1 Amendment and Waiver, dated October 10, 2008, between Alderox, Inc. and Pala Investments Holdings Limited. SIGNATURES: Pursuant to the requirement of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Alderox, Inc. By: /s/ Michael Davies ------------------------------- Michael Davies, CEO Dated: October 13, 2008 7 EX-4.1 2 alderox_8k-ex0401.txt AMENDMENT AND WAIVER Exhibit 4.1 AMENDMENT AND LIMITED WAIVER THIS AMENDMENT AND LIMITED WAIVER (this "Amendment"), dated as of October 10, 2008 (the "Amendment Date"), is made BY AND BETWEEN: PALA INVESTMENTS HOLDINGS LIMITED, of 12 Castle Street, St Helier, Jersey, JE2 3RT (the "Lender"); AND: ALDEROX, INC. (formerly known as Reclamation Consulting and Applications, Inc.), a company organized under the laws of the State of Colorado, of 940 Calle Amanecer, Suite E, San Clemente, CA 92673 (the "Borrower"). WHEREAS, the Lender and the Borrower are parties to a Secured Convertible Debenture, dated as of December 12, 2007 (the "Original Debenture"), pursuant to which the Lender loaned the Borrower Three Million Dollars ($3,000,000) and, under the terms and subject to the conditions set forth therein, provided for the potential further loan of Two Million Dollars ($2,000,000); WHEREAS, pursuant to an Omnibus Amendment, dated as of March 28, 2008 (the "First Omnibus Amendment"), the Lender loaned the Borrower an additional Two and One-half Million Dollars ($2,500,000); WHEREAS, pursuant to a Second Omnibus Amendment, dated as of August 1, 2008 (the "Second Omnibus Amendment"), the Lender loaned the Borrower an additional Seven Hundred Thousand Dollars ($700,000) and, under the terms and subject to the conditions set forth therein, provided for the potential further loan of Three Hundred Thousand Dollars ($300,000) (the Original Debenture, as amended by such First Omnibus Amendment and Second Omnibus Amendment, the "Debenture"); WHEREAS, the Borrower has notified the Lender of certain breaches of the Debenture arising out of the Borrower's failure to file federal and state tax returns as required by law and the Borrower's alleged insolvency (which the Borrower disputes) and has requested that the Lender waive any defaults arising therefrom; and WHEREAS, the Lender is willing to waive any such defaults, subject to the terms and conditions set forth in this Amendment. NOW, THEREFORE, THIS AGREEMENT WITNESSES that in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: AMENDMENT AND LIMITED WAIVER October 10, 2008 Page 1 of 10 1. DEFINITIONS Unless a definition is provided for a capitalized term in this Amendment, each such term shall have the meaning provided to it in the Debenture. 2. INTERPRETATION The provisions of Section 2 of the Debenture shall apply to this Amendment as if set forth herein, in each case with references to "this Agreement" being replaced with "this Amendment." 3. THE AMENDMENTS 3.1 AMENDMENTS TO THE DEBENTURE The follow amendment is hereby made to the Debenture: 3.1.1 The term "Conversion Price" is amended in its entirety to provide as follows: ""Conversion Price" means, with respect to the Principal amount of the First Tranche, Second Tranche, Third Tranche, Fourth Tranche and Fifth Tranche, $0.057 per share, provided that if Borrower, at any time while the Principal is outstanding, (i) pays a stock dividend on its common stock, (ii) subdivides outstanding shares of common stock into a larger number of shares, or (iii) combines outstanding shares of common stock into a smaller number of shares, then in each such case the applicable Conversion Price shall be adjusted by multiplying (a) such Conversion Price in effect immediately prior to such event, by (b) a fraction of which the numerator shall be the number of shares of common stock outstanding immediately before such event and of which the denominator shall be the number of shares of common stock outstanding immediately after such event;" 3.2 LIMITED AMENDMENT Any future reference to the Debenture and any document or instrument delivered in connection therewith shall, from and after the date of this Amendment, be deemed to be a reference to the Debenture as modified by this Amendment. Except as expressly modified by this Amendment, the Debenture shall continue to be and remain in full force and effect in accordance with its terms and the Borrower hereby reaffirms its obligations under each of the Debenture Agreements. AMENDMENT AND LIMITED WAIVER October 10, 2008 Page 2 of 10 4. REPRESENTATIONS AND WARRANTIES 4.1 REPRESENTATIONS OF THE BORROWER The Borrower hereby represents and warrants to the Lender that, except as provided on Annex A hereto, each of the representations and warranties set forth in Section 5.1 of the Debenture and in Section 3 of the Patent and Trademark Security Agreement are true and correct as of the Amendment Date, in each case with references to "this Agreement" referring to the Debenture as amended by this Amendment. 5. LIMITED WAIVER The Lender hereby waives any remedies it may have under the Debenture arising out of the Borrower's failure to file its federal and state tax returns as required by law prior to the Amendment Date and any insolvency of the Borrower prior to the Amendment Date. For the avoidance of doubt, any future state of insolvency shall be a grounds for a separate Event of Default, which is not waived hereby; provided, however, that the Lender agrees not to assert any remedies it may have under the Debenture or the other Debenture Agreements relating to an Event of Default resulting from the Borrower's being or becoming insolvent prior to the date 30 days from the date of this Amendment (it being understood that the Lender reserves all of its rights with respect to the other events referred to as Events of Default in Section 7.1.5 of the Debenture during such period). 6. OTHER AGREEMENTS; GENERAL 6.1 COUNTERPART AND FAX EXECUTION This Amendment may be executed in two or more counterparts and by fax transmission, each of which will be deemed to be an original and all of which will constitute one agreement, effective as of the date given above. 6.2 GOVERNING LAW The Debenture shall be governed by the law of the State of California, without regard to applicable principles of conflicts of laws thereof. 6.3 COSTS AND EXPENSES The Borrower agrees to pay all reasonable costs and expenses of the Lender (including legal fees) on demand relating to the amendment or supplement of the Lender's security filings and/or any such additional filings in respect of the Collateral necessary to reflect the Borrower's current legal name and to otherwise perfect and insure the continuous perfection and priority of the Lender's security interest therein granted under the Debenture in a manner AMENDMENT AND LIMITED WAIVER October 10, 2008 Page 3 of 10 reasonably satisfactory to the Lender. For the avoidance of doubt, a breach of the covenants contained in this section shall constitute an Event of Default under the Debenture. 6.4 LIMITATION ON SHARES DELIVERABLE For any conversion of the Loans or exercise of the Warrants prior to the earlier of (i) March 31, 2009 and (ii) the Share Increase Date (as defined below), the number of shares of the Borrower's common stock receivable upon such conversion or exercise shall not exceed 112,227,673 shares in the aggregate. The Borrower agrees to use its best efforts to have its authorized share capital increased (the "Share Increase") such that it is able to fully comply with the covenants set forth in Section 6.1.18 and Section 6.1.19 of the Debenture (without regard to the cap set forth in the first sentence of this Section) as well as satisfy its obligations to third parties holding options, warrants, convertible instruments or other share rights. The date such increase is effected is the "Share Increase Date." Prior to the Share Increase Date, the covenants set forth in Section 6.1.18 and Section 6.1.19 of the Debenture shall be subject to the cap set forth in the first sentence of this Section. If the Borrower fails to use its best efforts to have its authorized share capital increased as provided in this Section or if the Share Increase Date does not occur by April 1, 2009, it shall be an Event of Default under the Debenture. 6.5 CONSENT TO SHARE INCREASE. The Lender consents to Borrower amending its Articles of Incorporation as necessary to implement the Share Increase and agrees to vote any shares of the Borrower's common stock which the Lender may own as necessary to approve the amendment to the Articles of Incorporation implementing the Share Increase. For the avoidance of doubt, the Lender shall not be obligated by this Section 6.5 to vote for any amendment to the Articles including provisions other than the Share Increase. SIGNATURES ON NEXT PAGE AMENDMENT AND LIMITED WAIVER October 10, 2008 Page 4 of 10 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the Amendment Date. LENDER PALA INVESTMENTS HOLDINGS LIMITED /s/ K. Mackenzie - ---------------------------------------- K. Mackenzie Director BORROWER ALDEROX, INC., a Colorado corporation /s/ Michael Davies - --------------------------------------- By: Michael C. Davies Its: Chief Executive Officer AMENDMENT AND LIMITED WAIVER October 10, 2008 Page 5 of 10 ANNEX A SCHEDULE OF EXCEPTIONS 5.1.1 Inventory and equipment of the Borrower is located at the following additional locations: Alderox, Inc. (shop) 1001 Calle Negocio San Clemente, CA 92673 Alderox, Inc. (production facility) 6005 E. Shelby Drive Suite 6 Memphis, TN 38141 5.1.13 There are securities not yet set forth in the Public Record included in the capitalization chart, set forth below under 5.1.14 of this Annex A. 5.1.14 Schedule E included in the Original Debenture does not reflect the current authorized capital stock of the Borrower. The authorized capital stock of the Borrower as of September 30, 2008 is set out below, and there have been not any material changes since September 30, 2008:
CAPITALIZATION AS OF 9/30/08 CONVERSION ------------------------- PRICE $ SHARES NOTES --------- ---------- ------------ ------- Outstanding Shares of Common Stock $ -- 65,690,196 [1] Convertible Notes / Debentures Pala $ 0.057 6,667,099 116,966,645 [2] Canvasback $ 0.050 1,469,074 29,381,481 [3] Gish $ 0.132 538,148 4,073,982 [4] Haywood $ 0.300 553,753 1,845,845 Shares of Common Stock to be Issued $ 0.140 100,000 714,286 [2], [5] Currently Exercisable Stock Options & Warrants -- 17,957,175 [6] Allocated but Unvested Options -- 7,144,444 [7] TOTAL $ 9,328,075 243,774,054
AMENDMENT AND LIMITED WAIVER October 10, 2008 Page 6 of 10 NOTES [1] AS OF 9/30/08 THE COMPANY WAS AUTHORIZED TO ISSUE 200,000,000 SHARES OF COMMON STOCK. [2] PALA (INCLUDING ITS SUBSIDIARIES) HAS AGREED TO THE LIMITATIONS ON ITS EXERCISE OF ITS WARRANTS AND CONVERSION OF ITS LOANS AS SET FORTH IN SECTION 6.4 OF THIS AMENDMENT. [3] CANVASBACK HAS AGREED TO FORBEAR ON EXERCISING ITS CONVERSION RIGHTS PROVIDED BY ITS NOTE PURCHASE AGREEMENT DATED OCTOBER 17, 2006, AS AMENDED, UNTIL SUCH TIME AS THE COMPANY EFFECTS THE SHARE INCREASE, PROVIDED THAT THE COMPANY EFFECTS THE SHARE INCREASE BY NO LATER THAN MARCH 1, 2009. [4] THE GISH CONVERTIBLE DEBENTURES ARE COMPRISED OF THREE SEPARATE DEBENTURES WITH A WEIGHTED AVERAGE CONVERSION PRICE OF APPROXIMATELY $0.132 PER SHARE. THE ACTUAL RATES ARE $0.20 FOR $105,030 OF PRINCIPAL AND $0.12 FOR $300,000 AND $50,000 OF PRINCIPAL. THE GISHES HAVE AGREED TO FORBEAR ON EXERCISING THEIR CONVERSION RIGHTS UNDER THESE DEBENTURES UNTIL SUCH TIME AS THE SHARE INCREASE IS EFFECTED, PROVIDED THAT THE COMPANY EFFECTS THE SHARE INCREASE BY NO LATER THAN MARCH 1, 2009. [5] INCLUDES SHARES OWED TO MELIOR CORP (A PALA SUBSIDIARY) UNDER THE TERMS OF A MANAGEMENT SERVICES AGREEMENT DATED 8/20/08. [6] INCLUDES ALL VESTED STOCK OPTIONS AND WARRANTS ISSUED AS OF 9/30/08. [7] INCLUDES ALL STOCK OPTIONS GRANTED OR PROMISED, BUT UNVESTED AS OF 9/30/08. 5.1.17 The Company needs to obtain a certificate of revival to reinstate its qualification with the California Secretary of State to do business in the State of California. 5.1.19 Schedule J included in the Original Debenture is not a current list of our Intellectual Property. A list of our Intellectual Property as of the Amendment Date is set forth below: AMENDMENT AND LIMITED WAIVER October 10, 2008 Page 7 of 10
OFFICIAL NO. TITLE CASE STATUS COUNTRY PROPERTY TYPE - ------------------------- -------------------------------------- ---------------------- ---------------------------- ---------- 10/25053 ALDEROX KR7 Registered Australia Trademark 003775822 ALDEROX KR7 Registered European Community Trademark 1315205 ALDEROX KR7 Application filed India Trademark 719884 ALDEROX KR7 Registered New Zealand Trademark 3022028 ALDEROX KR7 Registered United States of America Trademark 1025054 ALDEROX TSR Registered Australia Trademark 003778156 ALDEROX TSR Registered European Community Trademark 1315206 ALDEROX TSR Application filed India Trademark 719883 ALDEROX TSR Registered New Zealand Trademark 2905209 ALDEROX Registered United States of America Trademark 2905208 ASA 12 Registered United States of America Trademark 3109303 B20-POWER Registered United States of America Trademark 1525270 Release Agent Formulas And Methods Abandoned by client European Patent Office Patent 2896/DELNP/2004 Release Agent Formulas And Methods Application filed India Patent PA/a/2006/007233 Release Agent Formulas And Methods Application filed Mexico Patent PCT/US04/05953 Release Agent Formulas And Methods Application filed Patent Cooperation Treaty Patent 6902606 Release Agent Formulas And Methods Issued United States of America Patent Awaiting confirmation from Foreign Associate Release Agent Formulas And Methods In Process United States of America Patent Release Agent Formulas and Methods In Process Argentina Patent Release Agent Formulas and Methods In Process Australia Patent Release Agent Formulas and Methods In Process Brazil Patent Release Agent Formulas and Methods In Process Canada Patent 2374-2008 Release Agent Formulas and Methods Pending Chile Patent Awaiting confirmation from Foreign Associate Release Agent Formulas and Methods In Process Europe Patent Release Agent Formulas and Methods In Process India Patent Release Agent Formulas and Methods In Process Japan Patent Release Agent Formulas and Methods In Process Mexico Patent Release Agent Formulas and Methods In Process New Zealand Patent 1415-2008 Release Agent Formulas and Methods Pending Peru Patent
AMENDMENT AND LIMITED WAIVER October 10, 2008 Page 8 of 10 5.1.29 The Collateral is subject to a security interest held by the Lender. 5.1.31 The mandatory internal controls required by the Sarbanes Oxley Act are not in place and the Borrower management has not completed its assessment of its internal controls over financial reporting as of June 30, 2008 as required by SEC rules. On October 9, 2008, the Borrower concluded, after consultation with its independent registered public accounting firm and review of the pertinent facts, that the previously issued financial statements contained in the Borrower's Annual Report on Form 10-KSB for the year ended June 30, 2007 (the "Form 10-KSB") and the Quarterly Report on Form 10-QSB for the quarter ended September 30, 2007 (the "Form 10-QSB") should not be relied upon due to an error in those financial statements related to the accounting for a beneficial conversion feature ("BCF") on its convertible debt recorded during the quarter ended September 30, 2007. During the course of the financial statement audit for the year ended June 30, 2008, the Borrower identified an accounting error involving the beginning balance of a BCF amount recorded for Canvasback Borrower Ltd. against additional paid in capital that was addressed by the Borrower during the quarter ended September 30, 2007 in a manner that is not consistent with the guidance provided under Statement of Financial Accounting Standards ("SFAS") No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3 ("SFAS 154"). Specifically, during the quarter ended September 30, 2007, the Borrower identified that Canvasback's debt balance at June 30, 2007 was understated by approximately $1.7 million with a corresponding equity overstated by approximately $1.4 million with the remainder offset to interest expense. To correct this accounting error, the Borrower, in discussion with its independent registered accounting firm at the time, determined it was appropriate to record the correcting adjustment in the quarter ended September 30, 2007 rather than restating the Form 10-KSB as of and for the year ended June 30, 2007 filed with the Securities and Exchange Commission ("SEC"). After further evaluation of this matter and discussion with the Borrower's present independent registered accounting firm, the Borrower now believes that the adjustment recorded during the quarter ended September 30, 2007 was not consistent with guidance under SFAS 154. The Borrower believes it should have recorded the adjustment in the prior fiscal year as of and ended June 30, 2007 due to the material nature of the adjustment and restated the June 30, 2007 Form 10-KSB filed with the SEC. AMENDMENT AND LIMITED WAIVER October 10, 2008 Page 9 of 10 Therefore, the Borrower will restate the financial statements for the year ended June 30, 2007 to record the adjustment in the proper period. Similarly, the financial statements for the quarter ended September 30, 2007 will be restated to reverse the adjustment recorded in that period. These restated financial statements will be included, respectively, in amendments to the Form 10-KSB and Form 10-QSB in the near future. The Borrower noted that the correction is a non-cash adjustment which was recorded in the wrong reporting period. Financial statements filed with the SEC subsequent to September 30, 2007 are properly stated. The Borrower is in the process of preparing a Form 8-K with the SEC to report this matter under Item 4.02, Non-reliance on Previously Issued Financial Statements. 5.1.32 The assertions made by the Lender relating to the Borrower's compliance and related issues may materially adversely affect the assets, capital, liabilities, affairs, business, prospects, operations or condition of the Borrower or the ability of the Borrower to perform its obligations under the Original Debenture, as amended. AMENDMENT AND LIMITED WAIVER October 10, 2008 Page 10 of 10 -----END PRIVACY-ENHANCED MESSAGE-----