Sionix Corp (SINX)

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READ CLOSELY Sionix Corp. (SINX)FORM 8-K | Current report
Apr 6 2016|About: Sionix Corp. (SINX)View as PDF



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): April 5, 2016 (February 4, 2016)



Sionix Corporation

(Exact name of registrant as specified in its charter)



Nevada 002-95626-D 87-0428526
(State or other jurisdiction of
incorporation)

(Commission File Number) (I.R.S. Employer
Identification No.)




2010 North Loop Freeway W

Suite 110

Houston, Texas

77018
(Address of principal executive offices) (Zip Code)


[phone]

(Registrant’s telephone number, including area code)





(Former name if changed since last report)



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))












Item 1.01 Entry into a Material Definitive Agreement



Sionix Corporation (“Sionix”) has entered into an agreement to fund the design, engineering, construction and start-up of a brine and water treating and reclamation facility located in Culbertson, Montana (the “Culbertson Facility”). The Culbertson Facility is located in an area that is within the Bakken Shale oil and gas formation. The principal purpose of the facility is to provide brine and water treatment services to oil and gas operators working in the Bakken in the states of Montana and North Dakota.



Steelworks Investments Limited (“SIL”), an affiliate of Sionix, provided funding during the period commencing in mid 2015 through February 4, 2016, for a total of $1,365,000. These funds were used to provide start-up expenditures for the Culbertson Facility and other Sionix purposes. Sionix agreed to repay the funds to SIL under the terms of the Amended and Restated 12% Convertible Note in the amount of $1,365,000, dated February 4, 2016 (the “SIL Note”). The form of the SIL Note is included as Exhibit 10.03 to this Report. The SIL Note is convertible into shares of Sionix Series A Convertible Preferred Stock (“Series A Stock”) at any time. The Certificate of Designations, Preferences and Rights of the Series A Stock is included as Exhibit 10.04 to this Report. As of the date of this Report, if the SIL Note was fully converted it would be convertible into 68,250 shares of Series A Stock. Each share of Series A Stock is convertible into 5,000 shares of Sionix Common Stock, or an aggregate of 341,250,000 shares if the entire SIL Note was fully converted into Series A Stock and such Series A Stock was fully converted into Sionix Common Stock.



Sionix does not have the authorized shares of Common Stock to enable the conversion of the Series A Stock into Common Stock, but intends to amend its Articles of Incorporation to do so as soon as is practicable.



Sionix Oilfield Solutions (“SOS”) was formed as a new entity to construct, start-up and operate the Culbertson facility. SOS is owned 51% by Sionix, 39% by SIL and 10% by SOS employees. SOS is the operating entity and its operations are managed by Sionix personnel. Sionix entered into a License and Royalty Agreement with SOS providing for SOS to utilize the Sionix technology (the “Sionix License”) in exchange for the 51% equity interest and other considerations. The full text of the Sionix License has been filed as Exhibit 10.01 to this Report.



The real property and improvements included in the Culbertson Facility (the “Culbertson Property”) were acquired by Steelworks Montana, LLC (“SWM”), an affiliate of SIL. The Culbertson Property has been leased to SOS by SWM under the terms of a Lease dated July 13, 2015 (the “Facility Lease”). The Facility Lease provides for SWM to lease the Culbertson Property for a period of 6 years. No rent is payable for the first year of the Facility Lease. During the second year of the Facility Lease, rent is payable at a rate of $25,000 per month. Rent of $35,000 per month is payable for the remaining 4-year duration of the Facility Lease. The Facility Lease, which is filed as Exhibit 10.02 to this Report, has numerous other terms and conditions, many of which may be material to Sionix.



The terms and conditions of the Facility Lease are more favorable to SOS than were offered in any previous negotiations with various unaffiliated third parties.



The Culbertson Facility is logistically positioned to serve the Bakken fields of Montana and North Dakota. Its physical facilities include heated tank storage, enclosed process and laboratory buildings, on-site water wells, a 24 hour truck park with facilities and convenient highway access at the junction of Montana State Highway 16 and U.S. Highway 2. The plant will supply fresh and treated water to meet customer specifications for well maintenance, drilling and reuse in fracking.




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The operation will use Sionix’s proprietary, patented Dissolved Air Flotation technology in combination with flocculation, pH control, chemistry, filtration and biocide processes to remediate and recycle both flowback brines from fracking and produced water from existing wells. Sionix’s technology has been licensed to SOS under the terms of the Sionix License. The Sionix License details the terms, conditions and considerations of the license. It also requires maintenance by Sionix of a 51% equity interest in SOS. The Sionix License also provides for Sionix to provide technical, operating, financial and marketing oversight and direction to the business.



SIL (Steelworks Investments Limited) currently holds 14,418,220 shares of Sionix Common Stock and also through its Member, Bernard Brogan, serves on the Board of Directors of Sionix. This holding is a beneficial ownership estimated to be less than 3 percent of the Company’s Common Stock. Prior to the current investment, SIL also held various convertible notes and Series A Stock from earlier investments in Sionix. Conversion of all these holdings into Common Stock, in the absence of any other shareholder conversions, would result in SIL beneficial ownership estimated to be approximately 45 percent of the issued and outstanding shares of Sionix Common Stock.



By reason of the issuance of the SIL Note to SIL, under SEC rules, SIL is deemed to have beneficially acquired an additional 341,250,000 shares of Sionix Common Stock. This would result, in the absence of any other shareholder conversions, in total beneficial ownership estimated to be more than 50 percent of the issued and outstanding shares of Sionix Common Stock.



Sionix has been attempting to acquire or otherwise develop or utilize the Culbertson Facility since September of 2013. Sionix has made several attempts to acquire the Culbertson Facility with various unaffiliated third parties, all of which were not successful. SIL was the only entity willing to enter into a transaction with Sionix under acceptable financial terms and conditions.



The Company has started initial operations of the Culbertson facility.



Item 3.02 Unregistered Sale of Equity Securities



The SIL Note is an equity security under SEC Rules by reason of the fact that it is convertible into the Series A Stock which is convertible into Sionix Common Stock. The SIL Note and Series A Stock are further described in Item 1.01 above. The Notes were not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act. Sionix did not engage in any general solicitation or advertising to market the Notes, and the Notes were issued to persons with knowledge and experience in financial and business matters capable of evaluating the merits of an investment in the Company.



Sionix has used the proceeds to fund the start-up of operations at the Culbertson Facility. Sionix also intends to use the Series A Stock to secure funds to proceed with the completion of current and past due SEC reports and filings, as well as for the operations of Sionix and for Sionix to pay vendors, employees, officers and directors.



Item 5.02 Departure of Directors or Principal Officers: Election of Directors; Appointment of Principal Officers.



Kenneth W. Calligar has resigned, effective April 5, 2016, as a director/member of the Board of Directors of Sionix.



9.01 Financial Statements and Exhibits

(d) Exhibits



Exhibit No. Description
10.01 License and Royalty Agreement between Sionix Corporation and Sionix Oilfield Solutions, LLC dated July 2, 2015

10.02 Lease Agreement between Steelworks Montana, LLC and Sionix Oilfield Solutions, LLC dated July 13, 2015

10.03 Amended and Restated 12% Convertible Note of Sionix Corporation in the principal amount of $1,365,000 issued to Steelworks Investments Limited dated February 4, 2016

10.04 Certificate of Designations, Preferences and Rights of Convertible Series A Preferred Stock of Sionix Corporation


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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.



SIONIX CORPORATION

Dated: April 5, 2016 By: /s/ Henry W. Sullivan
Name: Henry W. Sullivan
Chief Executive Officer




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Exhibit 10.1



FINAL DRAFT



LICENSE AND ROYALTY AGREEMENT

7/2/15



This License and Royalty Agreement is made and entered into as of the Effective Date by and between:



Sionix Corporation ("SIONIX"), a public company organized under the laws of the State of Nevada, USA and having its principal executive office at 2010 N Loop Freeway, Houston, TX 77018, hereinafter referred to as "Licensor" which expression shall include its successors in business and permitted assignees; and



Sionix Oilfield Solutions, LLC ("SOS"), a limited liability company organized under the laws of the State of Texas, USA and having its principal executive offices at 2049 US Hwy 2, Culbertson, MT 59218 and hereinafter referred to as "Licensee" which expression shall include its successors in business and permitted assignees.



(Hereinafter Licensor and Licensee collectively shall be termed as "Parties", and individually as "Party").



PREAMBLE



WHEREAS, Licensor is the legal owner of the Licensor's Technology ("LT") listed in Attachment A, and



WHEREAS, Licensor has entered into the Letter of Intent signed July 6, 2015 ("LOT"), (attached as Attachment B) with Licensee, and Licensee (SOS) has been organized to conduct the business of treating and remediating both produced water from existing wells and flow back brines from fracking. The water will be treated to customer specifications for "enhanced heavy water" for drilling and/or treated water suitable for fracking and will be marketed to customers in the SOS service area, and



WHEREAS, Licensee wishes to obtain and Licensor wishes to grant to Licensee an exclusive license, to operate water treating facilities, utilizing the LT, and to treat, remediate and market brines in the Total Bakken Oil System (North Dakota, South Dakota, Montana, Alberta Canada and Saskatchewan Canada), and



WHEREAS, Licensee wishes to obtain and Licensor wishes to grant to Licensee a license to treat, remediate and market brines in the United States, Canada and Mexico, and



WHEREAS, the Licensee wishes to purchase the Dissolved Air Flotation ("DAF") assets of Licensor in Dickinson, North Dakota and Licensor wishes to sell the Licensor's physical assets in Dickinson, North Dakota,



NOW THEREFORE, the Licensor and Licensee intending to be legally bound, agree as follows:



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SECTION 1
DEFINITIONS



Unless the context or otherwise require, the following terms shall have the following meanings throughout this agreement:



A. "Agreement" means this License and Royalty Agreement;



B. "Confidential Information" means any and all information or data disclosed to the other party, its employees or representatives, whether in writing, orally or by observation, including without limitation, all scientific, technical, commercial, financial and business information and know-how, but excluding information or data which is known to the receiving party at the time of disclosure or is required to be disclosed by legal, regulatory, statutory or governmental process or authorities;



C. "Letter of Intent" means that general Letter of Intent attached as Attachment B signed by Licensor and Licensee as of the Effective Date;



E. "Effective Date" shall be as of July 10, 2015;



F. Licensor's Technology means all patents and their supporting data and technology, processes and methodology, whether patents are in force or expired; as well as all applicable "Know-How" and "Site Specific Information". The Licensor's Technology is summarized in Attachment A;



G. "Dissolved Air Flotation ("DAF") Technology means all design and operating data for Sionix's proprietary DAF system as defined in all patents granted to Sionix and incorporated into all DAF units manufactured by or specifically for Licensor;



H. "Know-How" means Licensor's specific information, knowledge and experience in the development, design, manufacture and operation of water treating facilities, including any drawings, specifications or test data of which the Licensor possesses and makes available to the Licensee;



I. Site Specific Information includes all drawings, designs, data, operating instructions, process configuration, maintenance procedures, employee records, purchasing records, community, governmental and regulatory contacts, etc., for the Culbertson, Montana site;



J. "Patent" means following patents listed in Attachment A:



Patents
? 6,921,478
? 7,033,495
? 7,767,080
? 7,981,287
? 8,343,355


K . "Related Party" means any third party, which has common ownership with either the Licensor or the Licensee;



L. "Third Parties" means any party without common ownership or affiliation with either the Licensor or the Licensee.



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SECTION 2

INTERPRETATIONS



In the interpretation or construction of this Agreement, unless something else is clearly intended:



A. Both parties have consulted attorneys of their choice in the drafting of this Agreement. Accordingly, this Agreement shall not be interpreted more harshly against one party than the other;



B. This Agreement and the Attachments contain the entire understanding of the parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly merged into and made a part of this Agreement and the Attachment. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both parties hereto;



C. If any provision of this Agreement is deemed unenforceable, the remainder of the Agreement will not be affected and, if appropriate, the parties will attempt to replace the unenforceable provision with a new provision that, to the extent possible, reflects the parties' original intent. The captions and headings used in this Agreement are for reference only and are not to be construed in any way as terms or used to interpret the provisions of this Agreement.



SECTION 3

GRANT OF LICENSE



A. The Licensor hereby grants to the Licensee, and the Licensee hereby accepts from the Licensor an exclusive license (hereinafter referred to as the "License") to operate water treating facilities, utilizing the LT, and to treat, remediate and market brines in the Total Bakken Oil System (North Dakota, South Dakota, Montana, Alberta Canada and Saskatchewan Canada);



B. The Licensee shall have no right to assign the License or grant any sub-license without prior written approval of the Licensor which shall not be unreasonably withheld;



C. The License shall commence on the Effective Date. The terms of this Agreement shall continue in effect as part of a permanent, paid up License Agreement. Licensor will receive a fifty-one percent equity interest at no cost in the total business of SOS.



SECTION 4

CONSIDERATION FOR THE LICENSE



A. Licensor shall acquire a 51% (fifty-one percent) equity interest in SOS. This equity interest will survive the term of this Agreement and will continue, subject to the same terms and conditions as other equity interests in SOS.



B. Licensee will purchase the DAF assets of Licensor for an amount of $100,000.



C. There will be no ongoing licensing or royalty payments of any kind from SOS to SIONIX.



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SECTION 5
INDEMNITY



A. To the fullest extent permitted by law, the Licensor expressly agrees to Defend (at Licensor's expense and with legal counsel approved by Licensee), Indemnify, and Hold Harmless the Licensee, its parents, affiliates, directors, officers and employees from any claims, suits, causes of action or losses attacking the intellectual property or the right to use that property that is the basis of the License.



B. To the fullest extent permitted by law, Licensee expressly agrees to Defend (at Licensee's expense and with legal counsel approved by Licensor), Indemnify, and Hold Harmless the Licensor, its parents, affiliates, directors, officers and employees from any claims, suits, cause of action or losses emanating from actions of Licensee which are not authorized hereunder.



SECTION 6
ROYALTIES



A. The License is granted with no royalty obligations.



SECTION 7

IMPROVEMENTS AND DEVELOPMENTS



A. All subsequent technical innovations or improvements to the Licensed Technology that is developed by Licensor after the Effective Date of this Agreement shall automatically be incorporated into the Licensed Technology.



B. All improvements and developments based upon the Licensed Technology and any patents based upon the Licensed Technology, which come into existence during the term hereof and which are derived from work done by or for Licensee, with or without any contribution by Licensor, shall be shared with Licensor. All such improvements and developments shall be licensed from Licensee to Licensor, on a worldwide, royalty-free, paid-up basis.



SECTION 8

REPRESENTATION/WARRANTIES



A. Licensor represents and warrants that it is duly organized, validly existing and in good standing under the laws of the State of Nevada, that it has full power and authority to enter into this Agreement and to carry out their provisions, and that there are no outstanding agreements, assignments or encumbrances in existence that are inconsistent with the provisions of this Agreement.



B. Licensee represents and warrants that it is duly organized, validly existing and in good standing under the laws of the State of Texas, that it has full power and authority to enter into this Agreement and to carry out its provisions, and that there are no outstanding agreements, assignments or encumbrances in existence that are inconsistent with the provisions of this Agreement.



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C. LIMITATION OR WARRANTIES: Except for the express Warranties in this Section 8, neither party makes any Warranties express or implied, in fact or by operation of law, statutory or otherwise.



SECTION 9

INFRINGEMENT



A. Each party shall give the other written notice if one of them becomes aware of any infringement by a third party of any Patent. Upon notice of any such infringement, the parties shall promptly consult with one another to determine an agreed course of action to be pursued.



B. Licensee shall have the first right, but not the obligation, to institute and prosecute an action or proceeding to abate such infringement and to resolve such matter by settlement or otherwise.



C. If Licensee elects not to exercise such first right, Licensor shall have the right, at its discretion, to institute and prosecute an action or proceedings to abate such infringement and to resolve such matter by settlement or otherwise. Licensee shall cooperate fully if joining as a party plaintiff in Licensee's own discretion and also if reasonably requested to do so by Licensor.



SECTION 10

GENERAL PROVISIONS



A. Confidentiality


Through the date of termination of this Agreement, both the Parties shall keep strictly secret and confidential and not disclose to any other parties or use for any other purposes, except as expressly permitted by this Agreement, any confidential information, especially business and trade secrets, including the terms of this Agreement, financial circumstances, technical information and information regarding products and price (herein after referred to as "Confidential Information"). The Parties acknowledge, confirm and agree that any right, title and interest in and to such Confidential Information shall be and remain the sole property of the owning Party. The Parties shall take any and all necessary precautions to prevent any disclosure of Confidential Information owned by any Party, by any and all of its employees, officers, directors, representatives or agents.



B. Notice


All notices, requests or other communications required or permitted under this Agreement shall be in writing and shall be deemed given when mailed by registered mail with return receipt or sent by courier or sent by fax to the following address:



Licensor: Licensee:

Sionix Corporation Sionix Oilfield Solutions, LLC
ATTN: Henry W. Sullivan ATTN: Rex E. Crick
2010 North Loop Freeway 2049 US Hwy 2
Suite 110 Culbertson, MT 59218
Houston, TX 77018
Fax No: 713-682-6505


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C. W aiver


No forbearance, indulgence or relaxation by any Party at any time to require performance of any provisions of this agreement shall in any way effect, diminish or prejudice the right of such Party to require performance of that provision and any waiver by any Party of any breach of any provisions of this Agreement shall not be construed as a waiver of any continuing or succeeding breach of such provisions, a waiver or an amendment or the provision itself, or a waiver of any right under or arising out of this Agreement.



D. Force Majeure


None of the Parties hereto shall be responsible for any delay or non-performance of this Agreement if such delay or non-perfournance shall be due to any cause of force majeure such as, without limitation, earthquakes, typhoon, floods, strikes, riots, civil commotion, wars or warlike condition, restriction, guidance or instruction of the Government, not issuing any license or permit, change of laws and regulations and all or any other causes whatsoever beyond the reasonable control of such Party.



The Parties, which claim force majeure, shall, as soon as possible, notify in writing the other Parties of the occurrence of such force majeure and all the Parties hereto shall discuss how to deal with the force majeure.



E. Entire Agreement


(1) This Agreement and the attachment set forth the entire agreement and understanding between the Parties with respect to the subject matter hereof and merges all discussions and negotiations between them and neither of the Parties shall be bound by any conditions, warranties, understanding or representatives with respect to such subject matter other than as expressly provided herein or duly set forth on or subsequent to the date hereof in writing and signed by a proper and duly authorized officer of the Party to be bound thereby.


(2) There are no agreements, understandings, restrictions, promises, warranties, covenants or undertakings express or implied, relating to the subject matter of this agreement other than those expressly set forth herein.


(3) This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one instrument.


(4) The invalidity of any portion of this agreement shall not affect the remaining portions of this agreement or any part thereof and this agreement shall be construed as if such invalid portion or portions had not been inserted herein.


(5) In the event of litigation concerning the terms and conditions of this Agreement, the prevailing party, after all lawful appeals have been completed, shall be entitled to receive from the prevailing party its attorney fees incurred in such litigation.


F. Governing Law


This Agreement shall be governed by, construed and enforced according to the Laws of Texas.



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G. Jurisdiction and Venue


The Parties consent and agree that jurisdiction and venue of any dispute or law suit arising out of or related to this Agreement or the production or sale of any good or service hereunder, shall be bought exclusively in any court of competent jurisdiction sitting in Houston, Texas.



H. Term


This Agreement shall begin as of the Effective Date. Upon completion of all the itemized compensation payments itemized in this Agreement the terms of this Agreement shall continue in effect as part of a permanent, paid up License and Royalty.



I. Authority to Sign the Agreement


Licensor and Licensee each hereby warrants that it has the complete power and authority to execute and deliver this Agreement and to consummate the transaction contemplated by this Agreement. Each signatory to this Agreement represents and warrants that he is duly authorized by the Party for and on whose behalf he is signing this Agreement to execute the same in a manner binding upon said Party and that all corporate approvals and procedures necessary for vesting such authority in him have been duly obtained and complied with.



Signed for and on behalf of Licensor Signed for and on behalf of Licensee

Henry W. Sullivan Henry W. Sullivan
CEO MEMBER

Date: 7/16/15 Date: 7/16/15


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ATTACHMENT A



LICENSOR'S TECHNOLOGY AND INTELLECTUAL PROPERTY



PATENTS



Sionix holds, held or applied for patents covering various elements of Dissolved Air Flotation (DAF) including mechanical design, self-contained unit configuration, white water injection system and bubble separation system:



Patents and Applications
? 6,921,478
? 7,033,495
? 7,767,080
? 7,981,287
? 8,343,355
? US 2012/0251 98
? US 2012/0251 93
? US 2013/0297 83
? US 2014/0159 18


TRADEMARK



SIONIX REGISTERED 3719207

ELIXER REGISTERED 3701985



KNOW-HOW



Our chemical/pH adjustment protocols are proprietary and provide a competitive cost advantage. We believe that attempts to patent specific chemical parameters would require disclosure that would be very difficult to protect. We therefore are maintaining that portion of our technology as "knowhow/trade secrets/proprietary information".



We are reviewing the option to extend our DAF technology combined with chemical and process configuration knowhow into a process patent that would be enforceable.



SITE SPECIFIC



All information about Culbertson site, equipment drawings, procedures, data documentation, personnel and governmental and industry contact is part of the Licensor's Technology and intellectual property.



Attachment B



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ATTACHMENT B



SIONIX - SOS LETTER OF INTENT WHEN SIGNED

































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DRAFT



LETTER OF INTENT BETWEEN SIONIX OILFIELD SOLUTIONS, LLC (“SOS”) AND
STEELWORKS INVESTMENTS LTD AND ITS SUBSIDIARIES AND AFFILIATES (“SWI”)

5/06/15



The Parties, SOS and SWI agree to work together to acquire the Property (as defined in Exhibit A) in Culbertson, Montana and establish the operation of an SOS water treating facility on the Property.



WHEREAS, SWI desires to acquire the Property for the purpose of improving the Property and leasing a portion of the Property to SOS; and



WHEREAS, SOS has technology, experience in oil and gas water treating and has done extensive due diligence on the Culbertson site, has designed the process to be implemented on the site and has established credible relationships with the market, local government, the property owner and the mortgage holder, regional water and tax authorities and potential employees as well as an industry presence through participation in Industry Trade presentations and symposia; and



WHEREAS, SOS desires to occupy a portion of the Property (Exhibit B) and enter a lease agreement with SWI;



The Parties agree to the following:



SWI will :



1. Assume the mortgage obligations of Great Plains Oil & Exploration, LLC (“GPOE”) and acquire the Property by making mortgage payments of $20,000 per month to the mortgage holder as follows:


$240,000 on day 1, no later than May 11, 2015

$240,000 on day 366

$240,000 on day 731

Remainder of $1.1 million plus 10% accrued on unpaid balance on day 1096



It is the intention of SWI to pay off the mortgage obligation more quickly than the base schedule. An early pay-off schedule would be:



Year 1. $1.1 million minus $240,000 equals $860,000 .

Year 2. $1.1 million minus $240,000 first payment minus $240,000 second payment plus $86,000 (10% of Year 1 unpaid balance) equals $706,000 .

Year 3. $706,000 + $70,600 (10% of year 2 unpaid balance) minus $240,000 third payment equals $536,600 .


Total payment for early pay off to Mortgage Holder:



Year 1 Pay Off Year 2 Pay Off Year 3 Pay Off

$1.186 Million $1.2566 Million $1.1 Million


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2. Pay all delinquent taxes on Property such that Roosevelt County agrees in writing that on receipt of specified funds (estimated to be approximately $500,000), there will be no claim or lien on the Property. Payment of all such delinquent taxes shall be made no later than closing.


SOS will :



1. Secure written agreement with GPOE that they will step aside, turn the deed over to SWI and relinquish any rights of redemption in case the mortgage holder proceeds with a foreclosure procedure at any time.


2. Secure written agreement with the mortgage holder that he will abide by the terms described above, including the terms and conditions under which SWI and SOS can operate on and modify the Property prior to completing the acquisition of the Property. This may require a formal Forbearance Agreement to clearly define the above.


3. Secure written agreement with the applicable taxing authority to formally document Item 2. above under “SWI will”.


4. Make lease payment to SWI of $25,000 per month commencing in Month 13; $35,000 per month commencing in Month 25 and thereafter.


5. Consult with and assist SWI in evaluating development and potential commercial applications of the total Property.


NOTE: Detailed project description and plot maps will be an attachment to the final agreement.


The Parties anticipate completing the transactions contemplated by this Letter of Intent by executing formal conveyance documents between the mortgage holder, the land owner and SWI.



The Parties concur that the terms of this Letter of Intent express only the current intentions of the parties, do not create any legally binding relationship between the parties, and do not impose any legal obligations on the parties. No such legal obligations or relationships shall arise unless and until definitive documents are executed by the Parties. This LOI will be superseded by signed formal agreements.



For SOS:

/s/ Henry W. Sullivan
Henry W. Sullivan

For SWI:

/s/ Jeffrey C. Leo
Name: Jeffrey C. Leo






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Exhibit 10.2



Lease



This Lease (the "Lease") is entered into between Steelworks Montana, LLC, a Delaware Limited Liability Company ("Landlord"), and Sionix Oilfield Solutions, LLC, a Texas limited Li ability Company ("Tenant") effective as of July 13, 2015 (the "Effective Date").



1. Premises


A. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the real property, improvements and fixtures located at 2049 Highway 2, Culbertson, Montana 59218, being more particularly described as approximately 49.31 acres, more or less, in S28, T28N, R56E, and comprised of a 16.90 acre tract in the NESW, plus a 27.53 acre tract in the W2SW4, plus a 4.88 acre tract in the N2SW. The land as more particularly described on Exhibit "A" attached hereto ("Land"), all buildings located on the Land (individually, a "Building" and collectively, the "Buildings"), all fixtures installed in or attached to the Buildings (collectively, the "Fixtures"), and all equipment, systems, controls and machinery located in the Buildings or on the Land (collectively, the "Equipment"). The Land, the Buildings, the Fixtures and the Equipment are collectively the "Leased Premises".



2. Term


The term of this Lease ("Term") shall commence on July 13, 2015 ("Commencement Date"), and shall expire July 13, 2021 ("Expiration Date"). The Lease can be extended under the same terms by the mutual agreement of the Landlord and Tenant, such agreement to be concluded 90 days prior to the expiration date.



3. Rent


A. As "Base Rental" for the lease and use of the Leased Premises, Tenant will pay Landlord or Landlord's assigns, at the address of Landlord herein specified or such other address as Landlord may hereafter specify in writing the following sums:



Year 1 0
Year 2 $300,000.00
Year 3 $420,000.00
Year 4 $420,000.00
Year 5 $420,000.00
Year 6 $420,000.00


The Base Rental shall be payable on the first day of each month, commencing on August 1, 2016. The monthly rental shall be $25,000 per month for 12 months and then shall be $35,000 per month for the remainder of the Lease Term.



B. Tenant shall pay to Landlord the Base Rental. Landlord shall not be required to make any payment of any kind whatsoever or be under any other obligation or liability hereunder except as herein otherwise expressly set forth. All other amounts due to Landlord from Tenant shall be Additional Rent.



C. Any bills, charges and other unpaid items in existence at the Effective Date related to the purchase 1 and closing of the Leased Premises by the Landlord shall be paid by Landlord.



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D. Landlord will be responsible for no expenses or investments involved in the Culbertson Plant or any business activities operated on or from the Leased Premises during the term of this Lease.



4.
Title and Use



A. Tenant will use the Leased Premises for the operation of a water treating facility and related activities such as water storage, truck cleaning and services and for no other purposes without the written consent of the Landlord.



B. Landlord warrants that it has good and indefeasible title to the Leased Premises.



C. Tenant shall be responsible for any site maintenance or environmental issues after the Effective Date. Tenant has inspected the Leased Premises and agrees to take the Leased Premises in its "AS IS, WHERE IS, WITH ALL FAULTS" condition.



D. Tenant agrees not to use the Leased Premises for the purpose of generating, manufacturing, producing, refining, transporting, treating, processing or handling "hazardous substances" or "hazardous waste" as such terms are defined in any federal, state or local law or regulation applicable to Tenant, the Leased Premises or Tenant's use or occupancy of the Leased Premises, and not to release, spill, leak, pump, emit, pour, empty or dump any such "hazardous substances" or "hazardous waste" onto the Leased Premises, or any adjacent property, or into the sewer, drainage system or other waste disposal system serving the Leased Premises, or any water course on or near the Leased Premises.



5.
Fire or Other Casualty



If any portion of the Buildings are damaged or destroyed by fire or other casualty, all insurance proceeds shall be made available to Tenant for rebuilding and the Lease shall continue in full force and effect. Tenant will be responsible for repairing or rebuilding the Leased Premises with no expenses from Landlord, if any portion of the Building is damaged or destroyed by fire or other casualty for whatever the reason during the term.



6.
Compliance with Laws and Usage



Tenant, at its own expense, will comply with all federal, state, municipal and other laws, ordinances, rules and regulations applicable to the Leased Premises and the business conducted therein by Tenant. Tenant will not commit any act which is a nuisance; will not engage in any activity except as expressly permitted herein which would cause Landlord's insurance to be canceled or the rate therefor to be increased (or, at Landlord's option, will pay any such increase).



7.
Additions and Fixtures



Construction on the Leased Premises shall be performed in a good and workmanlike manner at Tenant's expense. If any mechanic's or shall be placed on the Leased Premises during the Term caused by or resulting from any work performed, materials furnished or obligation incurred by or at the request of Tenant, Tenant shall cause the same to be discharged of record within thirty (30) days of such filing.



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8.
Assignment and subletting



A. Neither Tenant nor Tenant's legal representatives or successors in interest by operation of law or otherwise shall assign this Lease or sublease the Leased Premises or any part thereof, or mortgage, pledge or hypothecate its leasehold interest or grant any concession or license within the Leased Premises without the prior written permission of Landlord, which consent shall not be unreasonably withheld Any attempt to do any of the foregoing without the prior written permission of Landlord shall be void. In the event Landlord's permission is requested for an assignment, sublease or other transaction, signed copies of all instruments relative thereto (executed by all parties except Landlord) shall be submitted to Landlord prior to or contemporaneously with the request for Landlord's written permission (it being understood that no such instrument shall be effective without the written permission of Landlord).



B. If Landlord gives written permission to a particular assignment, sublease or other transaction, it shall not be deemed as permission to any other or subsequent transaction or a release of Tenant from its covenants, duties and obligations under this Lease. If this Lease is assigned or if the Leased Premises are subleased (whether in whole or in part) or in the event of the mortgage, pledge or hypothecation of the leasehold interest or grant of any concession or license within the Leased Premises without the prior written permission of Landlord (to the extent required hereunder for such action), or if the Leased Premises are occupied in whole or in part by anyone other than Tenant, Landlord may nevertheless collect rent from the occupant and apply the net amount collected to the rent payable hereunder, but no collection of rent by Landlord shall be deemed a waiver of these provisions or a release of Tenant from the further performance of its covenants, duties and obligations hereunder.



9.
Subordination



Tenant accepts this Lease subject to all matters of record which affected the Leased Premises.



10.
Payment of Taxes



A. Tenant shall be responsible for timely payment of Taxes. Tenant will furnish Landlord with copies of evidence of payment and copies of receipt from the taxing authority.



B. Tenant may, if it shall so desire, contest the validity or amount of any Taxes provided, however, nothing herein contained shall be so construed, as to allow such items to remain unpaid for such length of time as shall in any way hamper Landlord's rights hereunder or permit the Leased Premises, or any part thereof, to be sold by governmental, city or municipal authority for the non-payment of the same.



C. The term "Taxes" shall mean and include all taxes, assessments and other governmental charges, general and special, ordinary and extraordinary, of any kind and nature whatsoever, applicable to the Leased Premises during the Term of this Lease from and after the Commencement Date, including, but not limited to assessments for public improvements or benefits which shall, during the Term hereby demised, be laid, assessed, levied, imposed upon or become due and payable and a lien upon the Leased Premises or any part thereof.



D. It is understood that the Premises will be annexed by the City of Culbertson. Any fees associated with an annexation will be paid by Tenant.



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11.
Insurance



(a) Tenant shall provide and maintain (i) a comprehensive policy of general liability insurance with respect to the Leased Premises with a limit of at least $2,000,000 combined single limit with respect to personal injury, death or property damage arising out of any one occurrence, such minimum coverage to be increased from time to time as reasonably required by Landlord, (ii) insurance in respect of and covering Tenant's own furniture, furnishings, equipment and other personal property, and all improvements made by or on behalf of Tenant, all insured for the replacement cost thereof, against all risks and hazards, including but not limited to sprinkler and leakage damage, and theft (collectively, "Personal Property Insurance"), and (iii) workers' compensation insurance with respect to and covering all employees and agents of Tenant. The original insurance policy (or a certificate thereof satisfactory to Landlord) shall be deposited with Landlord prior to the Effective Date. Renewals of such policy (or certificates) shall be deposited with Landlord not less than thirty (30) days prior to the end of the term of such policy. Such insurance shall not be subject to cancellation except after at least thirty (30) days prior written notice to Landlord.



(b) With respect to Tenant's commercial general liability insurance and Personal Property Insurance, (i) no insurance coverage shall contain a deductible in excess of $50,000.00 and $5,000.00, respectively, without the prior written consent of Landlord, (ii) all deductibles shall be paid by Tenant, assumed by Tenant, for the account of Tenant, and at Tenant's sole risk, (iii) Tenant's insurer shall be licensed or authorized to do business in the State of New Jersey and shall have a policyholder rating of at least A- and be assigned a financial size category of at least Class IX as rated in the most recent edition of "Best's Key Rating Guide" for insurance companies or a rating of at least AAA as rated by Standard & Poor's, (iv) such insurance coverage provided shall be endorsed to be primary to any and all insurance carried by Landlord, with Landlord's insurance being excess, secondary and non-contributing, (v) Landlord, Landlord's manager of the Building and all holders of a deed to secure debt or other such security instrument and the landlord under any underlying lease shall be an additional insured on all such policies, and (vi) all policies of liability insurance specified in this Lease shall specifically insure Tenant's contractual liability under this Lease. In each policy procured regarding the Premises or Property or any property located thereon, the insurance company shall waive its subrogation rights against Landlord and Tenant. If such waiver of subrogation shall not be obtainable except at additional charge, Tenant shall pay the insurer's additional charge therefore.



12.
Eminent Domain



A. If a portion of the Leased Premises is taken by eminent domain, this Lease shall continue in full force and effect provided that the Base Rental shall be adjusted proportionately based on the square footage of the Building taken, if any. Tenant shall be entitled to terminate this Lease without any liability to either party only if the entire Leased Premises is taken by eminent domain .



B. All sums awarded or agreed upon between Landlord and the condemning authority for the taking of the interest of Landlord, whether as damages or as compensation, will be the property of Landlord. All sums awarded or agreed upon between Tenant and the condemning authority for the taking of the interest Tenant whether as damages or as compensation, will be the property of Tenant.



13.
Access by Landlord



Landlord and its employees shall have access to and the right to enter upon the Leased Premises at any time during Tenant's regular business hours and upon at least twenty-four (24) hours prior telephonic notice of such entry (except in the case of emergencies) to examine its condition or, during the final year of the Term, or any renewal term to show the Leased Premises to prospective purchasers or tenants.



14.
Sale



Any sale of the leased premises shall be subject to this Lease.



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15. E vents of Default


A. Each of the following acts or omissions of Tenant or occurrence shall constitute an "Event of Default":



(1) Failure or refusal by Tenant to timely pay rent, Taxes, or Insurance, and such failure or refusal continues for a period of ten (10) business days; or



(2) Failure to perform or observe any other covenant or condition of this Lease within thirty (30) days following notice from Landlord of such failure; or



(3) Tenant makes an assignment for the benefit of creditors, or a petition for adjudication of bankruptcy or for reorganization is filed by or against Tenant and is not dismissed within thirty (30) days, or a receiver or trustee is appointed for a substantial part of Tenant's property and such appointment is not vacated within thirty (30) days.



B. Whenever any Event of Default shall occur, Landlord may, at its option, in addition to all other rights and remedies given hereunder or by law or equity, do any one or more of the following:



(1) Terminate this Lease, in which event Tenant shall immediately surrender possession of the Leased Premises to Landlord;



(2) Enter upon and take possession of the Leased Premises, terminating Tenant's right to possession of the Leased Premises, and expel or remove Tenant and any other occupant therefrom, with or without having terminated the Lease;



(3) Compel Tenant to arrange payment within twenty (20) business days for all bills due;



(4) Tenant shall pay to Landlord (i) all Annual Rent and all Additional Rent payable under this Lease by Tenant to the date upon which this Lease shall have expired or to the date of re-entry upon the Premises by Landlord, as the case may be, and (ii) all costs and expenses incurred by Landlord in connection with the Event of Default, the reletting of the Premises and/or the termination of the Lease (including, without limitation, all repossession costs, brokerage commissions, attorneys' fees and disbursements, alteration, repair and renovation costs and other expenses of terminating the Lease and/or preparing the Premises for such reletting);



(5) Tenant also shall pay to Landlord any deficiency ("Deficiency") between the Annual Rent and Additional Rent for the period which otherwise would have constituted the unexpired portion of the Term and the net amount, if any, of rents collected under any reletting for any part of such period (after first deducting from the rents collected under any such reletting all of Landlord's expenses, in connection with the termination of this Lease, Landlord's reentry upon the Premises and such reletting). Landlord shall be entitled to recover from Tenant each monthly Deficiency as the same shall arise, and no suit to collect the amount of the Deficiency for any month shall prejudice Landlord's right to collect the Deficiency for any subsequent month by a similar proceeding. If the Premises, or any part thereof, shall be relet together with other space in the Building, the rents collected or reserved under any such reletting and the expenses of any such reletting shall be equitably. Tenant shall in no event be entitled to any rents collected or payable under any reletting, whether or not such rents exceed the Annual Rent reserved in this Lease;



(6) If Landlord elects to terminate this Lease, Tenant shall pay to Landlord, on demand, in lieu of any further Deficiency as and for liquidated damages, a sum equal to the amount by which the unpaid rent for the period which otherwise would have constituted the unexpired portion of the Term exceeds the then fair and reasonable rental value of the Premises for the same period, both discounted to present worth at three (3%) percent per annum;



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C. Nothing contained in this Section 15 shall be deemed to limit or preclude the recovery by Landlord from Tenant of the maximum amount allowed to be obtained as damages by any statute or rule of law, or of any sums or damages to which Landlord may be entitled in addition to the damages set forth in this Section 15. The remedies available to Landlord herein specified are not intended to be exclusive or to prevent Landlord from exercising any other remedy or means of redress to which Landlord may be lawfully entitled. Landlord may pursue any other remedy now or hereafter available under the laws of the jurisdiction in which the Leased Premises are located concurrently or in such order as Landlord determines.



D. Tenant hereby waives the service of any notice of intention to re-enter or to institute legal proceedings. Tenant, on its own behalf and on behalf of all persons claiming through or under Tenant, including all creditors, waives any and all rights under any present or future law to redeem the Leased Premises, or to re-enter or repossess the Leased Premises, or to restore the operation of this Lease. The words "re-entry", "re-enter" and "re-entered" as used in this Lease shall not be deemed to be restricted to their technical legal meanings.



E. In connection with either party instituting action seeking judicial relief at law or in equity in connection with this Lease, the prevailing party shall be entitled to reasonable attorney's fees and court costs.



16.
Notice



Any notice which may or shall be given under the terms of this Lease shall be in writing and shall be either delivered by hand or sent by United States Certified Mail, postage prepaid, or by Fax if for Landlord, to Steelworks Montana, LLC, 2711 Centerville Rd., Ste 400, Wilmington, DE 19808 with a copy of such notice to Landlord being given to Jeffrey Leo, [e-mail] or if for Tenant, to Sionix Oilfield Solutions, LLC, 2010 North Loop West, Suite 110, Houston, TX 77018 with a copy of such notice to Tenant being given to Sionix Oilfield Solutions, LLC, 2049 US Highway 2, Culbertson, MT 59218. Such addresses may be changed from time to time by either party by giving notice as provided above. Notice shall be deemed given when delivered (if delivered by hand) or three (3) days after postmarked (if sent by mail). Despite the foregoing, notice given by hand will be effectively given wherever the intended recipient is found and will be deemed received upon the date of actual receipt.



17.
Tenant Improvement Obligation



Tenant will repair and maintain the Leased Premises in operating condition at Tenant's expense. If Tenant provides and installs equipment or fixtures not presently part of the Leased Premises, Tenant shall be entitled to remove such equipment and fixtures upon termination of this Lease. In addition, Tenant will not construct a new building or demolish an existing building and reconstruct it without prior written permission of the Landlord, which Landlord may withhold in Landlord's sole discretion.



18.
Miscellaneous



A. Provided Tenant complies with its covenants, duties and obligations hereunder, Tenant shall quietly have, hold and enjoy the Leased Premises subject to the terms and provisions of this Lease.



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B. If any provision of this Lease shall ever be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of the Lease, but such other provisions shall continue in full force and effect.



C. Tenant acknowledges that Landlord has not made any representation with respect to any matter or thing affecting or related to the Leased Premises, other than expressly provided herein.



19.
Entire Agreement and Binding Effect



This Lease and any attached exhibits signed or initialed by the parties constitute the entire agreement between Landlord and Tenant. No prior written or prior or contemporaneous oral promises or representations shall be binding. This Lease shall not be amended, except by written instrument signed by Landlord and Tenant; no agent or employee of Landlord or Tenant has authority to modify this Lease. Paragraph captions are for convenience only, and neither limits nor amplifies the provisions of this Lease. The provisions of this Lease shall be binding upon and inure to the benefit of the heirs, executors, administrators, successors and assigns of the parties, but this provision shall in no way alter the restriction herein in connection with assignment and subletting by Tenant. The submission of this Lease by Landlord for examination does not constitute a reservation of or option for the Leased Premises. This Lease shall become effective only upon execution by all parties and delivery by Landlord to Tenant.



20.
Notice to Purchase



Landlord shall notify Tenant of the proposed terms of sale in the event Landlord intends to sell the Leased Premises. This notice shall not be construed as a Right of First Office, or a Right of First Refusal. In the absence of such notice, Tenant shall have the opportunity to purchase the Leased Premises at any time during the Lease Term, subject to terms to be mutually agreed upon between Landlord and Tenant.



21. Indemnification.


Tenant shall indemnify, defend (with counsel of Landlord's choice) and hold the Landlord and its members, partners, shareholders, directors, officers, employees and agents harmless from and against any and all -claims, judgments, damages (including consequential damages), penalties, fines, liabilities, losses, suits, administrative proceedings, costs and expense of any kind or nature, known or unknown, contingent or otherwise, including reasonable legal fees and the cost of enforcing this indemnity, which arise from: (i) any accident, injury or damage to any person (including Tenant's employees and agents) or property occurring in, on or about the Premises or any part thereof; (ii) any breach of this Lease by Tenant, including without limitation a breach constituting an "Environmental Default" (as defined herein); or (iii) any injury to person or damage to property resulting from any negligence or misconduct of Tenant or any of its employees, agents, licensees, invitees, contractors or anyone else for whom Tenant is legally responsible.



22. Covenant Against Liens.


Tenant"shall not have any right to subject Landlord's interest in the Leased Premises to any mechanic's lien or any other lien whatsoever. If any mechanic's lien or other lien, charge or order for payment of money shall be filed as a result of the act or omission of Tenant, Tenant shall cause such lien, charge or order to be discharged or appropriately bonded within ten (10) business days after Tenant's receipt of written notice from Landlord thereof, and Tenant shall indemnify and save Landlord harmless from all liabilities and costs resulting therefrom. If Tenant fails to discharge the lien, then, in addition to any other right or remedy of Landlord, Landlord may bond or insure over the lien or otherwise discharge the lien. Tenant shall, within ten (10) days after receipt of an invoice from Landlord, reimburse Landlord for any amount paid by Landlord, including reasonable attorneys' fees, to bond or insure over the lien or discharge the lien.



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23. Limitation on liability of landlord.


Landlord shall not be liable for any injury or damage to the person, business, equipment, merchandise or other property of Tenant resulting from (i) fire, steam, electricity, water, gas or rain, (ii) leakage obstruction or other defects of pipes, sprinklers, wires, plumbing, air conditioning, boilers or lighting fixtures; or (iii) any act or omission of Landlord, its agents or employees unless such injury or damage is due solely to the gross negligence or willful misconduct of Landlord's, its agents or employees.



24. Holdover.


Any holding over by Tenant after the expiration of the Term shall be treated as a month-to month tenancy at the greater of (x) Two Hundred Percent (200%) of the fair market value of the Leased Premises (as determined by Landlord) or (y) Two Hundred Percent (200%) of the sum of (i) the Base Rental payable during the last month of the Term, plus (ii) all items of Additional Rent and other charges with respect to the Leased Premises payable by Tenant during the last month of the Term, and shall otherwise be on the terms and conditions set forth in this Lease, as far as applicable. Landlord waives no rights against Tenant by reason of accepting any holding over by Tenant, including, without limitation, the right to terminate such month-to-month tenancy as provided by law at any time after the expiration of the Term and any right to damages in the event that Tenant's holding over causes Landlord to suffer any loss. Nothing herein contained shall be deemed to give Tenant any right to remain in possession of the Leased Premises after the expiration of the Term of this Lease.



SIGNATURES FOLLOW ON NEXT PAGE.




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Executed by the parties effective as of the date set forth above.



Landlord : Tenant :

Steel works montana, LLC Sionix Oilfields Solutions, LLC

By: /s/ Jeffrey Leo By: /s/ Henry W. Sullivan
Name: Jeffrey Leo Name: Henry W. Sullivan
Title: Director Title: Member


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EXHIBIT A – THE LAND











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Exhibit 10.3



NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.



Original Issue Date: FEBUARY 4, 2016 $ 1,365,000.00


SIONIX CORPORATION

AMENDED AND RESTATED

12% CONVERTIBLE NOTE



THIS Note is one of a series of duly authorized and validly issued twelve percent (12.00%) Convertible Notes of Sionix Corporation, a Nevada corporation, (the “ Company ”), having its principal place of business at 2010 North Loop Freeway West, Suite 110, Houston, Texas 77018, designated as its twelve percent (12.00)% Convertible Notes (this “ Note ”, the “ Notes ” and, collectively with the other Notes of such series, the “ Convertible Notes ”).



FOR VALUE RECEIVED, the Company promises to pay to the order of Steelworks Investments Limited or its registered assigns (the “ Holder ”), or shall have paid pursuant to the terms hereunder, the principal sum of One-Million Three-Hundred Sixty-Five Thousand Dollars ($1,365,000.00) on December 4, 2020 (the “ Maturity Date ”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof. This Note is subject to the following additional provisions:



Section 1 . Definitions . For the purposes hereof, in addition to the terms defined elsewhere in this Note, the following terms shall have the following meanings:



“ Alternate Consideration ” shall have the meaning set forth in Section 5(c).



“ Bankruptcy Event ” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02 (w) of Regulation S-X), thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof; (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement; (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment; (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors; (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.



“ Business Day ” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of Texas are authorized or required by law or other governmental action to close.



“ Change of Control Transaction ” means the occurrence after the date hereof of any of (i) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 51% of the voting securities of the Company (other than by means of conversion or exercise of the Note and the Securities issued together with the Note), or (ii) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, or (iii) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, or (iv) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (i) through (iii) above.



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“ Conversion Date ” shall have the meaning set forth in Section 4(a).



“ Conversion Price ” shall have the meaning set forth in Section 4(c).



“ Conversion Shares ” means, collectively, the shares of Series A Convertible Preferred Stock (“ Preferred Stock” ) issued or issuable upon conversion of this Note in accordance with the terms hereof, and included as Attachment B, including without limitation shares of Preferred Stock issued or issuable as interest or in payment of principal hereunder or as damages under this document. Each share of Preferred Stock is convertible to 5,000 shares of common stock of the Company, independent of and without taking into account of and regardless of, the then current market price of a share of the Company’s common stock on the Conversion Date.



“ Note Register ” shall have the meaning set forth in Section 2(c).



“ Event of Default” shall have the meaning set forth in Section 8.



“ Fundamental Transaction ” shall have the meaning set forth in Section 5(b).



“ Mandatory Default Amount ” means the sum of the outstanding principal amount of this Note, plus all accrued and unpaid interest hereon.



“ Notice of Conversion ” shall have the meaning set forth in Section 4(a).



“ Original Issue Date ” means the date of the first issuance of the Note, regardless of any transfers of any Note and regardless of the number of instruments which may be issued to evidence such Note.



“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.



“ Share Delivery Date ” shall have the meaning set forth in Section 4(e).



“ Texas Courts ” shall have the meaning set forth in Section 9(d).



“ Voting Rights ” shall mean that each holder of the Convertible Notes shall have the right to that number of votes equal to the number of shares of Common Stock issuable upon conversion of the Preferred Stock, the Preferred Stock being issuable in accordance with the terms and conditions of the Convertible Notes, and shall vote with the Common Stock.



Section 2 . Interest .



a) Interest Rate . Interest shall be charged daily on the outstanding principal amount of this Note at a rate per annum equal to 12% for years 1 through 3, 15% for year 4 and 20% for year 5.



b) Payment of Interest . Interest shall be payable annually in arrears on December 4th of each year. The Company will have the option to pay interest in cash or, with the approval of the Holder, by the issuance of Preferred Stock. The first Payment of Interest will be December 4, 2016.



c) Interest Calculations . Interest shall be calculated on the basis of a 365-day year and actual days elapsed. Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note (the “ Note Register ”).



Section 3. Registration of Transfers and Exchanges .



a) Investment Representations . This Note has been issued subject to certain investment representations of the original Holder and may be transferred or exchanged only in compliance with applicable federal and state securities laws and regulations.



b) Reliance on Note Register . Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.



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Section 4. Conversion .



a) Voluntary Conversion . At any time from the Original Issue Date, until this Note is no longer outstanding, this Note shall be convertible, in whole or in part, into shares of Series A Preferred Stock at the option of the Holder, at any time. The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Attachment A (a “ Notice of Conversion ”), specifying therein the principal amount of this Note to be converted and the date on which such conversion shall be effected (such date, the “ Conversion Date ”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.



b) Early Redemption . The Holder may elect to redeem this Note for Preferred Stock at any time.



c) Conversion Price . The “ Conversion Price ” shall equal $20.00 per Preferred Share.



d) Conversion Limitation – Holder’s Restriction on Conversion .



As of the date of this Note, the Company does not have sufficient shares of common stock to allow for the issuance of, or have sufficient shares to satisfy the conversion privileges of the Preferred Stock. The Company agrees that as soon as practicable it will cause its Articles of Incorporation to be amended to provide for such shares to satisfy the conversion privileges of the Preferred Stock.



e) Mechanics of Conversion .



i. Delivery of Certificate upon Conversion . Not later than ten Trading Days after each Conversion Date (the “ Share Delivery Date ”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares.



ii. Failure to Deliver Certificates . If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Preferred Stock certificates representing the principal amount of this Note unsuccessfully tendered for conversion to the Company.



iii. Reservation of Shares Issuable Upon Conversion . The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Preferred Stock for the sole purpose of issuance upon conversion of this Note and payment of interest on this Note, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Note), not less than such aggregate number of shares of the Preferred Stock as shall be issuable (taking into account the adjustments of Section 5) upon the conversion of the outstanding principal amount of this Note and payment of interest hereunder. The Company covenants that all shares of Preferred Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued and fully paid.



iv. Fractional Shares . No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.



v. Transfer Taxes . The issuance of certificates for shares of the Preferred Stock on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.



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Section 5 . Certain Adjustments .



a) Distributions . The Company may not, at any time while this Note is outstanding, make a distribution of any kind to any class of holders of any class of the Company’s stock other than the Preferred Stock.



b) Fundamental Transaction . If, at any time while this Note is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Preferred Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Preferred Stock or any compulsory share exchange pursuant to which the Preferred Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “ Fundamental Transaction ”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one (1) share of Preferred Stock (the “ Alternate Consideration ”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Preferred Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Preferred Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new Note consistent with the foregoing provisions and evidencing the Holder’s right to convert such Note into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.



c) Calculations . All calculations under this Section 5 shall be made to four decimal places or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Preferred Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Preferred Stock (excluding any treasury shares of the Company) issued and outstanding.



Section 6 . Prepayment / Early Redemption . The Company can prepay this Note in full or in part at any time for cash, and must give the Holder Notice, of thirty (30) days, in accordance with Section 9(a) of the Note of intent to redeem for any amount.



Section 7 . Negative Covenants . As long as any portion of this Note remains outstanding, unless the Holder has otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:



a) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder, other than to increase the number of shares of common stock authorized;



b) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Preferred Stock or Preferred Stock Equivalents;



c) pay cash dividends or distributions on any equity securities of the Company other than the Preferred Stock; or



d) enter into any agreement with respect to any of the foregoing.



Section 8 . Events of Default .



a) “ Event of Default ” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):



i. any default in the payment of (A) the principal amount of any Note or (B) interest, liquidated damages and other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 3 Trading Days;



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ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Note (other than a breach by the Company of its obligations to deliver shares of Preferred Stock to the Holder upon conversion, which breach is addressed in clause (xi) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the Holder or by any other Holder and (B) 10 Trading Days after the Company has become or should have become aware of such failure;



iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under this document;



iv. any representation or warranty made in this Note which shall be untrue or incorrect in any material respect as of the date of this Note;



v. the Company or any Significant Subsidiary shall be subject to a Bankruptcy Event;



b) Remedies Upon Event of Default . If any Event of Default occurs, the outstanding principal amount of this Note plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. After the occurrence of any Event of Default, the interest rate on this Note shall accrue at an interest rate equal to the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Note to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.



Section 9 . Miscellaneous .



a) Notices . Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email address or mailing address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 9. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by email or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Except as may otherwise be provided herein, any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of receipt, if such notice or communication is delivered via facsimile or by email prior to 5:30 p.m. (Houston, Texas time) (ii) the date of receipt, if sent by U.S. nationally recognized overnight courier service, or (iii) upon actual receipt by the party to whom such notice is required to be given. The address, facsimile and email address for such notices and communications shall be as set forth on the signature pages.



b) Absolute Obligation . Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks pari passu with all other Notes now or hereafter issued under the terms set forth herein.



c) Lost or Mutilated Note . If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.



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d) Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of Texas, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this document (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the County of Harris (the “ Texas Courts ”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Texas Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of this document), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such Texas Courts, or such Texas Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorney’s fees and other costs and expenses reasonably incurred in the investigation, preparation and prosecution of such action or proceeding.



e) Waiver . Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver by the Company or the Holder must be in writing.



f) Severability . If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.



g) Next Business Day . Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.



h) Headings . The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.



i) Assumption . Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the obligations of the Company under this Note and the other documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new Note of such successor entity evidenced by a written instrument substantially similar in form and substance to this Note, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Note and having similar ranking to this Note, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed). The provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Note.



j) Usury . This Note shall be subject to the anti-usury limitations in the state of Texas.





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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.



SIONIX CORPORATION

By: /s/ Henry W. Sullivan
Name: Henry W. Sullivan

Title: President & Chief Executive Officer



STEELWORKS INVESTMENTS, LIMITED

By: /s/ Jeffrey C. Leo
Name: Jeffrey C. Leo
Title: President & Director


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ATTACHMENT A



NOTICE OF CONVERSION



The undersigned hereby elects to convert principal under the 12% Convertible Note due December 4, 2020 of Sionix Corporation, a Nevada corporation (the “ Company ”), into shares of Preferred stock (the “ Preferred Stock ”), of the Company according to the conditions hereof, as of the date written below. If shares of Preferred Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.



By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Preferred Stock does not exceed the amounts specified, as determined in accordance with Section 13(d) of the Exchange Act.



The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Preferred Stock pursuant to any prospectus.



Conversion calculations:
Date to Effect Conversion:

Principal Amount of Note to be Converted:

Number of shares of Preferred Stock to be issued:

Signature:

Name:

Address for Delivery of Preferred Stock Certificates:





Or

DWAC Instructions:

Broker No:

Account No:







Exhibit 10.4




CERTIFICATE OF DESIGNATIONS, PREFERENCES AND

RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK



The undersigned President and Secretary of SIONIX CORPORATION, a Nevada corporation (the “ Company ”), certifies effective as of this 3rd day of September, 2013, that pursuant to authority granted to and vested in the Board of Directors of the Company by the provisions of the Articles of Incorporation and in accordance with the provisions of the Nevada Revised Statutes, its Board of Directors has duly adopted the following resolutions creating the Series A Convertible Preferred Stock:



RESOLVED, that pursuant to the authority vested in the Board of Directors of the Company by Article 4-Capital Stock of the Company’s Articles of Incorporation, as amended, a series of preferred stock of the Company be, and it hereby is, created out of the authorized but unissued shares of the capital stock of the Company, such series to be designated Series A Convertible Preferred Stock (the “SACPS”), to consist of Five Hundred Thousand (500,000) shares of Preferred Stock, $.0001 par value, with a stated value of Twenty dollars ($20.00) per share (the “Stated Value”), of which the preferences and relative and other rights, and the qualifications, limitations or restrictions thereof, shall be (in addition to those set forth in the Company’s Articles of Incorporation) as follows:



1. Dividends and Distributions .



a. Holders of the SACPS shall be entitled to receive cumulative preferential dividends equal to 10% per annum of the Stated Value per share of the SACPS. Dividends shall be payable in arrears when and as declared by the Board of Directors. Dividends shall accrue quarterly on the last day of every March, June, September and December and shall compound on December 31 of each calendar year, in each case whether or not there are profits, surplus or other funds of the Company legally available for the payment of dividends from the date of original issuance of such shares. The shares of SACPS are expected to be issued in exchange for Twenty dollars ($20.00) per share, for a minimum of One Hundred Thousand dollars ($100,000.00) per unit. Dividends may be paid in cash or in kind with Common Stock; at the discretion of the Company’s Board of Directors.



b. All accrued but unpaid dividends shall become immediately due and payable upon an underwritten public offering of Common Stock of the Company registered pursuant to the Securities Act of 1933 (the “ Securities Act ”) and resulting in gross cash proceeds (before discounts and commissions) of at least $25 million to the Company and a post-offering market capitalization of the Company of at least $100 million (a “ Qualified Public Offering ”).



c. So long as any shares of the SACPS are outstanding and unless otherwise approved by the holders of a majority of the outstanding shares of SACPS, no dividends shall be declared or paid or set apart for payment or other distribution declared or made upon any equity securities, including any rights or options exercisable for or convertible into any such securities of the Company, including the Common Stock (collectively the “Junior Securities”), nor shall any Junior Securities be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any Junior Securities) by the Company, directly or indirectly.



2. Voting Rights . In addition to the voting rights of the SACPS required by law, each holder of shares of SACPS shall be entitled to the number of votes equal in the aggregate to the number of votes to which the number of whole shares of Common Stock into which such shares of SACPS held by such holder are convertible would be entitled, at each meeting of the shareholders of the Company (and for purposes of written actions of shareholders in lieu of meetings) with respect to any and all matters presented to the shareholders of the Company for their action or consideration, and shall be entitled to notice of any shareholders’ meeting in accordance with the bylaws of the Company. Except as otherwise provided herein or required by law, holders of shares of SACPS shall vote with the holders of shares of Common Stock and any other class of stock entitled to vote and not as a separate class. Except as otherwise provided herein and required by applicable law, any class vote shall be determined by the holders of a majority of the shares of capital stock of such class voting as of the applicable record date.



3. Certain Transactions . Without the written consent of a majority of the outstanding shares of SACPS or the vote of holders of a majority of the outstanding shares of SACPS at a meeting of the holders of SACPS called for such purpose and subject to any other contractual obligations of the Company, the Company will not (i) merge, consolidate or liquidate, or sell, exchange or convey all or substantially all of the assets, property or business of the Company; (ii) enter into any transaction that results in a deemed liquidation, dissolution or winding up of the Company pursuant to Section 5b ; or (iii) enter into any transaction or agreement with any affiliate of the Company that is not in the ordinary course of the Company’s business or that is on terms different than would be achieved in an arm’s length negotiation of such agreement or transaction.



4. Redemption . The SACPS are not redeemable.



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5. Liquidation Preference .



a. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, before any payment or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of any Junior Securities, the holders of the shares of SACPS shall be entitled to receive (i) first, an amount in cash equal to any accrued and unpaid dividends to the date of distribution and (ii) second, the greater of (1) the Stated Value of each share of SACPS or (2) an amount equal in the aggregate to the payments or distributions to which such holder would be entitled if such holder had converted such shares of SACPS into the number of whole shares of Common Stock into which such shares of SACPS are convertible (as adjusted from time to time pursuant to Section 6 hereof). Unless otherwise agreed to by holders of a majority of the outstanding shares of SACPS, any accrued or unpaid dividends payable upon the liquidation, dissolution or winding up of the Company shall be payable in cash only. Except as provided in the preceding sentence, holders of shares of SACPS shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the affairs of the Company. If, upon any liquidation, dissolution or winding up of the Company, the assets of the Company, or proceeds thereof, distributable among the holders of the shares of SACPS shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any equity security issued by the Company providing for a liquidation preference on parity with the SACPS, then such assets, or the proceeds thereof, shall be distributed among the holders of shares of SACPS and any such equity security ratably in accordance with the respective amounts that would be payable on such shares of SACPS and any such equity security if all amounts payable thereon were paid in full.



b. For the purposes of this Section 5 , each of (i) a merger, consolidation, reorganization, share exchange or similar transaction (other than a merger, consolidation or conversion solely for the purpose of changing the domicile of the Company and in which the holders of equity securities of the surviving entity are comprised solely of the holders of equity securities of the Company immediately prior to such transaction), (ii) the sale, exchange, conveyance, lease or license of all or substantially all of the assets of the Company, or (iii) any transaction or series of transactions that result in a “person” or “group” within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, other than any person or group comprised solely of the original signatories to the Shareholders Agreement, has become the beneficial owner, by way of merger, consolidation or otherwise, of 51% or more of the voting power of all classes of voting securities of the Company, shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary of the Company.



c. Subject to the rights of the holders of any other securities above, after payment shall have been made in full to the holders of the SACPS, as provided in this Section 5 , any other series or class or classes of equity securities shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the SACPS shall not be entitled to share therein.



6. Conversion .



a. Conversion Procedure .



(i) Any holder of shares of SACPS may convert all or any portion of the shares of SACPS (including any fraction of a share) held by such holder into a number of shares of Common Stock for 5,000 shares of Common Stock for each share of SACPS at an initial conversion price per Share of $0.004 (the “Conversion Price”).


(ii) Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced, and if the Company at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased.


(iii) Each conversion of shares of SACPS will be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the shares of SACPS to be converted, together with properly executed conversion instructions or stock powers, have been surrendered for conversion at the principal office of the Company. At such time as such conversion has been effected, the rights of the holder of such shares of SACPS as such holder will cease and the person or persons in whose name or names any certificate or certificates for shares of Common Stock are to be issued upon such conversion will be deemed to have become the holder or holders of record of the shares of Common Stock represented thereby.


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(iv) Subject to Section 10, as soon as possible after a conversion has been effected (but in any event within ten business days in the case of subsections (a) and (b) below), the Company will deliver to the converting holder:


(a) a certificate or certificates representing the number of shares of Common Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified;


(b) a certificate representing any shares of SACPS that were represented by the certificate or certificates delivered to the Company in connection with such conversion but that were not converted; and


(c) cash in payment of accrued unpaid dividends or payment in kind with Common Stock.


(v) The issuance of certificates for shares of Common Stock upon conversion of shares of SACPS will be made without charge to the holders of such shares of SACPS for any issuance tax in respect thereof or other cost incurred by the Company in connection with such conversion and the related issuance of shares of Common Stock. Upon conversion of each share of SACPS, the Company will take all such actions as are necessary in order to insure that the Common Stock issuable with respect to such conversion will be validly issued, fully paid and nonassessable.


(vi) If any fractional interest in a share of Common Stock would, except for the provisions of this subsection (v) , be deliverable upon any conversion of shares of SACPS, the Company, in lieu of delivering the fractional share therefor, will pay an amount to the holder thereof equal to the fair market value of such fractional interest as of the date of conversion, as determined in good faith by the board of directors of the Company.


(vii) All accrued but unpaid dividends on shares of SACPS to be converted shall be payable upon conversion of such shares in cash.


b. Conversion Price .



(i) Each share of SACPS will initially be convertible into 5,000 shares of Common Stock of the Company at a conversion price of $0.004 per share (the “Conversion Price”).


c. Automatic Conversion . All shares of SACPS shall automatically convert, without any action on the part of the holder thereof, into shares of Common Stock immediately following the consummation of a Qualified Public Offering and the payment of accrued but unpaid dividends pursuant to Section 1a and 1b hereof.



d. Company Conversion . The Company can convert all shares of SACPS, without any action on the part of the holder thereof, into shares of Common Stock at any time following; (i) the calendar quarter in which the SACPS has been issued and outstanding for two years or (ii) the calendar quarter after which the Company has generated positive cash flow for two fiscal quarters; and the payment of accrued but unpaid dividends pursuant to Section 1a and 1b hereof.



7. Notices of Record Date . In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous periods) or other distribution, the Company shall mail to each holder of SACPS at least ten (10) days prior to such record date a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.



8. Registration of Transfers . The Company will keep at its principal office a register for the registration of shares of SACPS. Upon the surrender of any certificate representing shares of SACPS at such place, the Company will, at the request of the record holder of such certificate, execute and deliver (at the Company’s expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of SACPS represented by the surrendered certificate. Each such new certificate will be registered in such name and will represent such number of shares of the appropriate series of SACPS as is requested by the holder of the surrendered certificate and will be substantially identical in form to the surrendered certificate, and dividends will accrue on the shares of SACPS represented by such new certificate from the date to which dividends have been fully paid on such shares of SACPS represented by the surrendered certificate.



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9. Replacement . Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of SACPS, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company or, in the case of any mutilation, upon surrender of such certificate the Company will (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of the appropriate series of SACPS represented by such lost, stolen, destroyed or mutilated certificate, and dividends will accrue on the shares of SACPS represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate.



10. Reservation of Shares; Status of Shares . As of the date of this Certificate, the Company does not have sufficient shares of Common Stock to allow for the issuance of, or have sufficient shares to satisfy the conversion privileges of the SACPS. The Company agrees that as soon as practicable it will cause its Articles of Incorporation to be amended to provide for such shares to satisfy the conversion privileges of the SACPS. Subject to the immediately preceding sentence, the Corporation shall, at all times when any of the SACPS shall remain outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the SACPS, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding SACPS. All shares of SACPS which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate on the applicable conversion date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor. Any shares of SACPS so converted shall be retired and canceled and shall not be reissued, and the Corporation may from time to time take such appropriate action as may be necessary to reduce the authorized SACPS accordingly.

11. Certain Taxes . The Company shall pay any issue or transfer taxes payable in connection with the issuance or redemption of the SACP





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