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.
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.
