-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B8eAKfoCDS1gaE0gDPurfwRPqjuEphzT/GHK0ObcPP/X4Lor2/BpNJ33M91BabcZ Xrkz8j0OBLJsIvx+vbV1cA== 0000892569-99-000073.txt : 19990115 0000892569-99-000073.hdr.sgml : 19990115 ACCESSION NUMBER: 0000892569-99-000073 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19990114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIONIX CORP /UT/ CENTRAL INDEX KEY: 0000764667 STANDARD INDUSTRIAL CLASSIFICATION: MACHINE TOOLS, METAL CUTTING TYPES [3541] STATE OF INCORPORATION: UT FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 002-95626-D FILM NUMBER: 99506476 BUSINESS ADDRESS: STREET 1: 26875 JASPER CITY: MISSION VIEJO STATE: CA ZIP: 92691 BUSINESS PHONE: 9493647171 MAIL ADDRESS: STREET 1: 26875 JASPER CITY: MISSION VIEJO STATE: CA ZIP: 92691 FORMER COMPANY: FORMER CONFORMED NAME: AUTOMATIC CONTROL CORP /NV DATE OF NAME CHANGE: 19960422 FORMER COMPANY: FORMER CONFORMED NAME: SIONIX CORP DATE OF NAME CHANGE: 19960214 FORMER COMPANY: FORMER CONFORMED NAME: CORONADO CAPITAL CORP DATE OF NAME CHANGE: 19950111 10KSB40 1 FORM 10KSB FOR THE FISCAL YEAR ENDED 9/30/1998 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30, 1998 Commission File No.2-95626-D SIONIX CORPORATION (Name of small business issuer in its charter) UTAH 87-0428526 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 9272 JERONIMO ROAD, SUITE 108, IRVINE, CA 92618 (Address of principal executive offices) (Zip Code) Issuer's Telephone Number: (949) 454-9283 Securities registered under Section 12(b) of the Exchange Act: NONE Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, PAR VALUE $.001 PER SHARE (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 12 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] The issuer's revenues for the year ended September 30, 1998 were $-0- The aggregate market value of the voting stock held by non-affiliates as of November 30, 1998, computed based on the average of the bid and ask prices reported on the OTC Bulletin Board, was $7,368,328 As of November 30, 1998, there were 29,287,120 shares of Common Stock of the issuer outstanding. Documents Incorporated by Reference: NONE Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] 2 PART I ITEM 1. DESCRIPTION OF BUSINESS. General. Sionix Corporation, formerly Coronado Capital Corporation (the "Company") designs and manufactures equipment for improving the treatment of water for commercial, industrial and public water treatment facilities. To date the Company's principal activities have been in the areas of research, development and testing of its products, but the Company plans to commence commercial production of its products during the 1999 fiscal year. The Company's executive offices and principal operations are located at 9272 Jeronimo Road, Irvine, California 92618, its telephone number is (949) 454-9283, and its website is located at www.sionix.com. Strategy. The Company was formed to develop advanced water treatment technology for public and private potable drinking water systems and wastewater treatment systems, as well as industrial systems. It is estimated that in the United States alone, there are approximately 197,060 public rural water districts, the great majority of which are considered small public water systems, populations less then 10,000. Reports of the U.S. Environmental Protection Agency in the Federal Registry listed over 50,000 communities in the United States that are currently in violation of the Safe Drinking Water Act, and those numbers are expected to increase as more stringent EPA rules for small public water systems become effective. In addition, urbanization in the third world and the spread of agricultural activities have increased the demand for public water systems. The company has targeted (1) small public water districts, with limited financial resources, which provide communities with drinking water or sewage treatment service and (2) water reclamation systems of commercial-industrial clients that create and dispose of contaminated waste water. Products Sionix Modular Solids Separator Filtration System. Dissolved Air Flotation ("DAF") technology is an established method for water treatment. The Company's DAF Particle Separator utilizes and refines this technology for a highly efficient pre-treatment process using ordinary oxygen instead of chemical filter aids. In addition, it helps ordinary filters meet new EPA Safe Drinking Water Act (SDWA) regulations and eliminates potentially cancer-causing disinfection by-product precursors while reducing the risk of bacterial or parasitic contamination, particularly THM's, cryptosporidium and giardia. The Company's patented equipment systems are designed for quick installation, easy access for simple maintenance and to be cost-effective for even the smallest water utilities or commercial applications. A major problem facing the water treatment industry is the difficulty in monitoring and disposing of microscopic parasites such as Cryptosporidium (4-5 microns) and Giardia cysts (7-12 microns), common chlorine-resistant organisms that have infected millions of people in the United States. Sand-anthracite water filtration beds, in use in most of the nation's public water districts, will not filter out these parasites and experience frequent breakthroughs of Cryptosporidium sized particles. 2 3 The Company uses a more efficient method of saturating recirculated post-filter water with excess dissolved air, and applying this excess air in the form of microscopic bubbles in a patented particle separator column. Pressurized water can hold an excess amount of dissolved air and forms microscopic bubbles when injected into water which has a lower pressure. A booster pump recirculates a small amount (10%) of the post-filtered water through the dissolved air-saturation assembly. A compressor forces air under high pressure through small hollow-fiber polyolefin membrane fibers inside the air saturation assembly housing. Oxygen and nitrogen molecules are transferred directly into the recirculated high pressure water without forming air bubbles. This method of transferring air into water is 100% efficient, and reduces the amount of energy required to saturate recirculated water with excess dissolved air. The Sionix DAF separator column provides a denser concentration of white water bubbles within a more restricted space, traveling a shorter distance from the outer high pressure zone to the center low pressure vortex. This process requires less energy than a conventional tank-type DAF system, and only a fraction of the floor space. In general, water districts using sand-anthracite filters cannot meet new EPA Surface Water Treatment Rules without a massive increase in on-site chemical filter-aids and the installation of ozone equipment. Plant operators must continually test raw influent water to adjust chemical filter aid dosage properly. Chemical and metal (alum) filter-aids increase sludge volume and landfill disposal problems. Each basic DAF module has a flow-through of 200 gallons per minute (288,000 gallons per day), an amount necessary to supply all the drinking and potable water requirements for approximately 2,400 people. And because modules can be manifolded to meet any gallon per day requirement, many larger facilities can benefit by this technology. The Company's systems include automatic computer controls to optimize ozone concentration levels and reduce monthly energy costs. Higher ozone contact concentration levels using smaller sized generators are possible if most of the algae is first removed by DAF. Extended contact time in confined double-helix channels increases collision rate of ionized ozone molecules with negatively charged organic suspended particles. The Company combined a corona-discharge ozone generator with its patented double-helix ozone mixing chamber. By utilizing the Sionix DAF particle separator to pre-treat the feedwater, less energy is required to create the appropriate amount of ozone. By creating a turbulent flow of water and gas within the mixing chamber, the Company has achieved a much higher saturation with less ozone (and a minimum of excess ozone) than in other mixing methods. This equipment was designed to match flow-throughs with the Sionix DAF particle separator, can also be manifolded to create more flow-through, is installed, not constructed, and can be used with or without the DAF system, depending on the quality of the feedwater. SIONIX Water Treatment Office Automation Software Program. This software program contains an extensive library of state and federal water and water treatment regulations, an 3 4 operator training and testing program, an automatic health department report compiler, and a step-by-step safety, health and environmental affairs (SHEA) implementation program and resource manual. In addition, this program contains the operating code for a SCADA (Supervisory Control And Data Acquisition) hardware system. This program can be purchased separately and installed on any IBM compatible computer running Microsoft Windows or NT operating systems. SIONIX SCADA Hardware. This specialized hardware provides a treatment facility with on-line, real-time monitoring of its treatment, storage and distribution systems. This hardware, combined with the Sionix SCADA software, automatically monitors wet-chemistry, and includes continuous in-line chemical sensors, an optimum ozone level controller, automatic self-cleaning filtration system controls, and automatic filter-to-waste control programs. Remote computer controller modules can be added at any time without having to modify the software program in order to monitor water quality and operate well pumps, valves and treatment plant equipment. In addition, the monitoring system can be expanded without additional custom programming. Sionix SCADA software incorporates an initial automatic systems integration set-up program, and can be operational within a few days. Mainstream SCADA systems require expensive custom on-site programs for systems integration that sometimes take weeks before the system is operational. Marketing and Customers. In the United States, the Company plans to initially target the established base of 185,000 small to very small water providers, as well as industrial users (such as the dairy industry, meat and poultry producers, food and beverage processors, cooling tower manufacturers and oil and gas producers) with a need for a clean, consistent water supply. In addition to the domestic markets, the Company has been contacted by representatives from local water systems in Europe, Latin America and Asia. The Company's marketing efforts emphasize that its products are easily expandable and upgradable; for example, adding ozone and microfiltration equipment to a DAF unit is similar to adding a new hard drive to a personal computer. Each piece of equipment comes with state-of-the-art telemetry and wet-chemistry monitoring that expands as the system does. The Company plans to provide lease financing for all of its products, not only making it easy for a customer to acquire the equipment, but also guaranteeing that the customer will always have access to any refinements and improvements made to the Company's products. The Company plans to market its products through direct mail, participation in industry groups and trade shows, and through selected advertising in specialized publications. Patents. The Company holds three U.S. patents on technology incorporated into the Sionix Particle Separator Treatment System. One of the patents generally relates to the vortex system in the DAF Particle Separator, and another concerns the ozone mixing system. The third patent 4 5 covers an automatic backflushing system using air pressure to activate the valves. The Company also holds several patents on the inline wet-chemistry water quality monitoring system. In addition, several active patent applications are being processed. The extent to which patents provide a commercial advantage or inhibit the development of competing products varies. To some extent, however, the Company is required to rely upon common law concepts of confidentiality and trade secrets, as well as economic barriers created by the required investments in tooling and technical personnel and the development of customer relationships, to protect its proprietary products. Employees. At November 30, 1998, the Company had 3 full-time employees, none of whom are covered by any collective bargaining agreement. The Company considers its relationship with its employees to be good. Research and Development. The Company invests significantly in the development of products for new applications. Only direct costs associated with tooling for new products are capitalized. All other costs, including salaries and wages of employees included in research and development, are expensed as incurred. Most of the Company's research and development efforts are in connection with development and refinement of the DAF Particle Separator and related components. Raw Materials. Materials and components used by the Company for manufacturing are carefully selected based on stringent specifications for usage and operating conditions. Every effort is made to specify parts from multiple sources for independence from manufacturers and distributors. The Company has avoided using hard-to-get special parts to further minimize dependency from vendors. Simplicity in design and the use of common, widely used and readily available components is emphasized. ITEM 2. DESCRIPTION OF PROPERTY. The Company's office/ manufacturing facility is located in Irvine, California and is leased pursuant to a lease expiring in July of 2001. The facility consists of approximately 3,400 square feet, including office area and adjoining manufacturing/warehouse area. Management believes the Company's facility will provide adequate space for its office, product assembly and warehouse activities, although it may lease additional space for component assembly and warehouse uses, depending on demand. The Company believes that suitable additional space will be available to accommodate planned expansion. ITEM 3. LEGAL PROCEEDINGS. The Company is not a party to any material legal proceedings. 5 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On August 13, 1998, the Company held its Annual Shareholders' Meeting. At the meeting, James J. Houtz, Robert E. McCray and Joan C. Horowitz were elected to the Board of Directors. In addition, the shareholders approved the engagement of Jones, Jensen & Company, LLC as the Company's auditors for the ensuing year. The following is a summary of the results of the voting:
Matter For Against - ------ --- ------- Election of James J. Houtz to the Board of Directors 14,988,847 20,000 Election of Robert E. McCray to the Board of Directors 15,008,847 -0- Election of Joan C. Horowitz to the Board of Directors 14,953,847 55,000
PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is listed and traded on the OTC Bulletin Board under the symbol "SINX". There has been relatively limited trading activity in the Company's stock since inception. The following table represents the high and low bid prices for the Company's common stock for each quarter of the fiscal year ended September 30, 1998.
Fiscal 1998 High Low ----------- ---- --- First Quarter .42 .04 Second Quarter .375 .08 Third Quarter .375 .125 Fourth Quarter 1.18 .18
There were approximately 494 holders of record of the Company's common stock as of September 30, 1998. The Company has never declared or paid any cash dividend on its shares of common stock. During the fiscal year ended September 30, 1998, the Company sold 2,765,000 shares of Common Stock to approximately 30 purchasers, with gross proceeds of $276,500. The Company believes all such sales were exempt from registration under the Securities Act of 1933 by reason of Section 4(2) thereof and Regulation D thereunder. 6 7 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. General. As of September 30, 1998, the Company had an accumulated deficit of $4,595,809. It can be expected that the future operating results will continue to be subject to many of the problems, expenses, delays and risks inherent in the establishment of a new business enterprise, many of which the Company cannot control. The Company has formulated its business plans and strategies based on certain assumptions of the Company's management regarding the size of the market for the products which the Company will be able to offer, the Company's anticipated share of the market, and the estimated prices for and acceptance of the Company's products. The Company continues to believe its business plans and the assumptions upon which they are based are valid. Although these plans and assumptions are based on the best estimates of management, there can be no assurance that these assessments will prove to be correct. No independent marketing studies have been conducted on behalf of or otherwise obtained by the Company, nor are any such studies planned. Any future success that the Company might enjoy will depend upon many factors, including factors which may be beyond the control of the Company or which cannot be predicted at this time. These factors may include product obsolescence, increased levels of competition, including the entry of additional competitors and increased success by existing competitors, changes in general economic conditions, increases in operating costs including cost of supplies, personnel and equipment, reduced margins caused by competitive pressures and other factors, and changes in governmental regulation imposed under federal, state or local laws. The Company's operating results may vary significantly due to a variety of factors including changing customers profiles, the availability and cost of raw materials, the introduction of new products by the Company or its competitors, the timing of the Company's advertising and promotional campaigns, pricing pressures, general economic and industry conditions that affect customer demand, and other factors. Results of Operations (Year Ended September 30, 1998 Compared to Year Ended September 30, 1997). In March of 1998, the Company experienced a change in management, and a new Board of Directors was elected at the Annual Shareholders' Meeting in August 1998. As a result, the focus of the Company's efforts has changed to concentrate on development, manufacturing and distribution of the Company's hardware products. The immediate focus is on the DAF (Dissolved Air Flotation) Tower, Automatic Back-Flush Filtration System, O-Zone Mixing Chamber and other related products, some of which have their own separate markets. The Company suspended work on the Sionix5, SCADA System and SCADA Manager Software program. Since March, the Company has completed engineering and basic tooling for two test DAF (Dissolved Air Flotation) towers. The first phase of testing was completed in November 1998. The second phase of testing should commence in January 1999. The Company expects that it will implement minor engineering adjustments in tooling prior to the execution of contracts for production tooling. For the year ended September 30, 1998, the Company reported a loss of $1,898,376, or $.08 per share. This compares with a loss of $858,916 or $.01 for the year ending September 30, 1997. This increased loss is principally due to the write-down of certain intangible assets and increased interest expense. Liquidity and Capital Resources. On September 30, 1998, the Company had cash on hand of $11,320. The principal source of liquidity has been sales of securities. Management anticipates that additional capital will be required to finance the Company's operations. The Company believes that expected cash flow plus the anticipated proceeds from sales of securities will be 7 8 sufficient to finance the Company's operations at currently anticipated levels for a period of at least twelve months. However, there can be no assurance that the Company will not encounter unforeseen difficulties that may deplete its capital resources more rapidly than anticipated. Year 2000 Issues The "year 2000" issue concerns the potential exposure related to the possible automatic generation of business and financial misinformation resulting from the application of computer programs which have been written using two digits, rather than four, to define the applicable year of business transactions. When the year 2000 begins, programs with such date-related logic will not be able to distinguish between the years 1900 and 2000, potentially causing software and hardware to fail, generating erroneous calculations or presenting information in an unusable format. The Company is dependent on multiple computer servers and the third-party computer programs running on them to provide data in support of its accounting and engineering functions. The Company's plan for year 2000 compliance includes the following phases: (i) conducting a comprehensive inventory of the Company's internal systems, including information technology systems and non-information technology systems and the systems acquired or to be acquired by the Company from third parties, (ii) assessing and prioritizing any required changes, upgrades, or enhancements, (iii) resolving any problems by repairing or, if appropriate, replacing the non-compliant systems, (iv) testing all remediated systems for Year 2000 compliance and (v) developing contingency plans that may be employed in the event that any system used by the Company is unexpectedly affected by a previously unanticipated problem relating to the Year 2000. In recognition of the potential year 2000 problem, the Company has begun a program to replace any of its existing communications, engineering and accounting software that is not year 2000 compliant with new software that is warranted by its vendors as being year 2000 compliant. It is anticipated that the costs of such replacement will not be material. The Company has relationships with various third parties on whom it relies to provide goods and services necessary for the manufacture and distribution of its products. These include suppliers and vendors. As part of its determination of year 2000 readiness, the Company has identified material relationships with third party vendors and is in the process of assessing the status of their compliance through the use of informal inquiries and review of hardware and software documentation. The components to be purchased by the Company in connection with the manufacture of its products are generally available through numerous independent sources. Due to the broad diversification of these sources, the risk associated with potential business interruptions as a result of year 2000 non-compliance by one or more sources is not considered significant. It is anticipated that the steps the Company has taken and is continuing to take to deal with the year 2000 problem will reduce the risk of significant business interruptions, but there is no assurance that this outcome will be achieved. Failure to detect and correct all internal instances of non-compliance or the inability of third parties to achieve timely compliance could result in the interruption of normal business operations which could, depending on its duration, have a material adverse effect on the Company. 8 9 ITEM 7. FINANCIAL STATEMENTS SIONIX CORPORATION (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS SEPTEMBER 30, 1998 9 10 C O N T E N T S Independent Auditors' Report................................................. 11 Balance Sheet................................................................ 12 Statements of Operations..................................................... 14 Statements of Stockholders' Equity (Deficit)................................. 15 Statements of Cash Flows..................................................... 19 Notes to the Financial Statements............................................ 21
10 11 [JONES, JENSEN & COMPANY, LLC LETTERHEAD] INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders Sionix Corporation (A Development Stage Company) San Diego, California We have audited the accompanying balance sheet of Sionix Corporation (a development stage company) as of September 30, 1998, and the related statements of operations, stockholders' equity (deficit) and cash flows for the years ended September 30, 1998 and 1997 and from inception on October 3, 1994 through September 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sionix Corporation (a development stage company) as of September 30, 1998 and the results of its operations and its cash flows for the years ended September 30, 1998 and 1997 and from inception on October 3, 1994 through September 30, 1998 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 10 to the financial statements, the Company is a development stage company with no significant operating results to date and has suffered recurring losses which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 10. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ JONES, JENSEN & COMPANY Jones, Jensen & Company Salt Lake City, Utah December 18, 1998 11 12 SIONIX CORPORATION (A Development Stage Company) Balance Sheet ASSETS
September 30, 1998 ------------- CURRENT ASSETS Cash $ 11,230 -------- Total Current Assets 11,230 -------- PROPERTY AND EQUIPMENT - NET (Notes 2 and 3) 102,855 -------- OTHER ASSETS Deposits 6,831 Intangibles - net (Note 4) 112,744 -------- Total Other Assets 119,575 -------- TOTAL ASSETS $233,660 ========
The accompanying notes are an integral part of these financial statements. 12 13 SIONIX CORPORATION (A Development Stage Company) Balance Sheet (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, 1998 ------------ CURRENT LIABILITIES Accounts payable $ 134,229 Accrued expenses 138,082 Related party payables - current portion (Note 6) 62,304 Convertible debenture (Note 7) 20,000 ----------- Total Current Liabilities 354,615 ----------- LONG-TERM DEBTS Related party payables - less current portion (Note 6) 368,351 ----------- Total Long-Term Debts 368,351 ----------- Total Liabilities 722,966 ----------- COMMITMENTS (Note 12) STOCKHOLDERS' EQUITY (DEFICIT) Common stock $0.001 par value; 100,000,000 shares authorized, 25,221,875 shares issued and outstanding 25,222 Additional paid-in capital 4,081,281 Deficit accumulated during the development stage (4,595,809) ----------- Total Stockholders' Equity (Deficit) (489,306) ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 233,660 ===========
The accompanying notes are an integral part of these financial statements. 13 14 SIONIX CORPORATION (A Development Stage Company) Statements of Operations
From For the Inception on Years Ended October 3, September 30, 1994 Through ----------- ----------- September 30, 1998 1997 1998 ----------- ----------- ------------- REVENUE $ -- $ 15,500 $ 15,500 COST OF SALES -- 6,540 6,540 ----------- ----------- ----------- GROSS PROFIT -- 8,960 8,960 ----------- ----------- ----------- EXPENSES Research and development -- 6,701 850,353 Depreciation and amortization 130,719 93,420 384,095 Administrative and marketing 649,306 673,074 2,129,143 ----------- ----------- ----------- Total Expenses (780,025) 773,195 3,363,591 ----------- ----------- ----------- LOSS FROM OPERATIONS (780,025) (764,235) (3,354,631) ----------- ----------- ----------- OTHER INCOME (EXPENSE) Write down of obsolete intangibles (1,040,865) -- (1,040,865) Write down of obsolete software -- (53,614) (53,614) Settlement costs -- (25,125) (25,125) Interest (77,486) (15,942) (121,574) ----------- ----------- ----------- Total Other Income (Expense) (1,118,351) (94,681) (1,241,178) ----------- ----------- ----------- NET LOSS BEFORE TAXES (1,898,376) (858,916) (4,595,809) PROVISION FOR INCOME TAXES -- -- -- ----------- ----------- ----------- BASIC NET LOSS $(1,898,376) $ (858,916) $(4,595,809) =========== =========== =========== BASIC NET LOSS PER SHARE $ (0.08) $ (0.03) =========== =========== FULLY DILUTED NET LOSS PER SHARE $ (0.07) $ (0.01) =========== ===========
The accompanying notes are an integral part of these financial statements. 14 15 SIONIX CORPORATION (A Development Stage Company) Statements of Stockholders' Equity (Deficit) From Inception on October 3, 1994 through September 30, 1998
Deficit Accumulated Common Stock Additional During the ---------------------------- Paid-in Development Subscription Shares Amount Capital Stage Receivable ----------- ----------- ----------- ------------ ------------ Balance, October 3, 1994 -- $ -- $ -- $ -- $ -- Shares issued to initial stockholders in October 1994 at $0.01 per share 10,000 10 90 -- -- Net loss from October 3, 1994 through December 31, 1994 -- -- -- (1,521) -- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1994 10,000 10 90 (1,521) -- Issuance of common stock for assignment of rights recorded at predecessor cost at $0.00 per share 1,990,000 1,990 (1,990) -- -- Issuance of common stock for services at $0.25 per share 572,473 572 135,046 -- -- Issuance of common stock for debt at $0.25 per share 188,561 188 47,347 -- -- Issuance of common stock for debt at $0.50 per share 595,860 596 297,334 -- -- Issuance of common stock for debt at $2.00 per share 98,194 98 196,290 -- -- Issuance of common stock for debt at $4.00 per share 156,025 156 623,944 -- -- ----------- ----------- ----------- ----------- ----------- Balance forward 3,611,113 $ 3,610 $ 1,298,061 $ (1,521) $ -- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. 15 16 SIONIX CORPORATION (A Development Stage Company) Statements of Stockholders' Equity (Deficit) (Continued) From Inception on October 3, 1994 through September 30, 1998
Deficit Accumulated Common Stock Additional During the ---------------------------- Paid-in Development Subscription Shares Amount Capital Stage Receivable ----------- ----------- ----------- ----------- ------------ Balance forward 3,611,113 $ 3,610 $ 1,298,061 $ (1,521) $ -- Issuance of common stock for cash at $4.00 per share 138,040 138 552,022 -- -- Issuance of common stock for subscription note receivable at $4.00 per share 414,200 414 1,652,658 -- (1,656,800) Issuance of common stock for future production costs at $6.00 per share 112,500 113 674,887 -- (675,000) Issuance of common stock for cash at $6.00 per share 94,517 95 567,005 -- -- Net loss for the year ended December 31, 1995 -- -- -- (914,279) -- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1995 4,370,370 4,370 4,744,633 (915,800) (2,331,800) Issuance of common stock in reorganization 18,632,612 18,633 (58,033) -- -- Issuance of common stock for cash at $1.00 per share 572,407 573 571,834 -- -- Issuance of common stock for services at $1.00 per share 24,307 24 24,283 -- -- Net loss for the nine months ended September 30, 1996 -- -- -- (922,717) -- ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1996 23,599,696 $ 23,600 $ 5,282,717 $(1,838,517) $(2,331,800) ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. 16 17 SIONIX CORPORATION (A Development Stage Company) Statements of Stockholders' Equity (Deficit) (Continued) From Inception on October 3, 1994 through September 30, 1998
Deficit Accumulated Common Stock Additional During the ----------------------------- Paid-in Development Subscription Shares Amount Capital Stage Receivable ----------- ----------- ----------- ------------ ------------ Balance, September 30, 1996 23,599,696 $ 23,600 $ 5,282,717 $(1,838,517) $(2,331,800) Issuance of common stock for cash at $1.00 per share 80,880 81 80,799 -- -- Issuance of common stock for cash at $0.69 per share 14,545 15 9,985 -- -- Issuance of common stock for cash at $0.67 per share 60,000 60 39,940 -- -- Issuance of common stock for cash at $0.56 per share 4,444 4 2,496 -- -- Issuance of common stock for cash at $0.50 per share 368,000 368 183,632 -- -- Issuance of common stock for cash at $0.31 per share 8,064 8 2,492 Issuance of common stock for cash at $0.25 per share 186,800 187 46,513 -- -- Issuance of common stock for services at $0.20 per share 274,299 274 54,586 -- -- Cancellation of shares issued for agreement for future production costs and other shares (542,138) (542) (674,458) -- 675,000 Net loss for the year ended September 30, 1997 -- -- -- (858,916) -- ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1997 24,054,590 $ 24,055 $ 5,028,702 $(2,697,433) $(1,656,800) ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. 17 18 SIONIX CORPORATION (A Development Stage Company) Statements of Stockholders' Equity (Deficit) (Continued) From Inception on October 3, 1994 through September 30, 1998
Deficit Accumulated Common Stock Additional During the ----------------------------- Paid-in Development Subscription Shares Amount Capital Stage Receivable ----------- ----------- ----------- ----------- ------------ Balance, September 30, 1997 24,054,590 $ 24,055 $ 5,028,702 $(2,697,433) $(1,656,800) Common stock issued for cash at $0.10 per share 2,810,000 2,810 278,190 -- -- Common stock issued for services valued at $0.10 per share 895,455 895 88,651 -- -- Option to purchase 2,200,000 shares of common stock at $0.001 per share -- -- 220,000 -- -- Cancellation of common stock and options (2,538,170) (2,538) (1,534,262) -- 1,656,800 Net loss for the year ended September 30, 1998 -- -- -- (1,898,376) -- ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1998 25,221,875 $ 25,222 $ 4,081,281 $(4,595,809) $ -- =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 18 19 SIONIX CORPORATION (A Development Stage Company) Statements of Cash Flows
From For the Inception on Years Ended October 3, September 30, 1994 Through ----------------------------- September 30, 1998 1997 1998 ----------- ----------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(1,898,376) $ (858,916) $(4,595,809) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 130,719 93,420 384,095 Common stock issued for services 429,546 54,860 644,331 Write-down of obsolete assets 1,040,865 -- 1,040,865 Change in assets and liabilities: (Increase) decrease in inventory 6,525 33,808 -- (Increase) decrease in other current assets -- 2,981 -- (Increase) decrease in deposits (6,831) 6,996 (6,831) Increase in accounts payable and accrued expenses 81,495 136,111 290,479 ----------- ----------- ----------- Net Cash Used by Operating Activities (216,057) (530,740) (2,242,870) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of intangibles -- (75,771) (150,188) Purchase of fixed assets (43,984) (6,671) (125,737) ----------- ----------- ----------- Net Cash Used by Investing Activities (43,984) (82,442) (275,925) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of notes payable and contracts payable (10,000) (11,742) (29,907) Proceeds from sale of stock 281,000 366,580 2,198,658 Proceeds from notes payable and convertible debenture -- 222,574 361,274 ----------- ----------- ----------- Net Cash Provided by Financing Activities $ 271,000 $ 577,412 $ 2,530,025 ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. 19 20 SIONIX CORPORATION (A Development Stage Company) Statements of Cash Flows (Continued)
From For the Inception on Years Ended October 3, September 30, 1994 Through -------------------------- September 30, 1998 1997 1998 ---------- ---------- ------------- INCREASE (DECREASE) IN CASH $ 10,959 $ (35,770) $ 11,230 CASH AT BEGINNING OF PERIOD 271 36,041 -- ---------- ---------- ---------- CASH AT END OF PERIOD $ 11,230 $ 271 $ 11,230 ========== ========== ========== SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Addition to debt for acquisition of intangibles $ -- $ -- $1,302,914 Common stock issued for services $ 429,546 $ 54,860 $ 644,331 Equipment acquired under lease payable $ -- $ -- $ 25,533 CASH PAID FOR: Interest $ -- $ -- $ 6,134 Income taxes $ -- $ -- $ --
The accompanying notes are an integral part of these financial statements. 20 21 SIONIX CORPORATION (A Development Stage Company) Notes to the Financial Statements September 30, 1998 NOTE 1 - COMPANY ORGANIZATION AND BUSINESS ACTIVITY Sionix Corporation (the "Company") was incorporated in Nevada on October 3, 1994. The Company was formed to design, develop, and market an automatic water filtration system primarily for small water districts. The Company is in the development stage and its efforts through September 30, 1998 have been principally devoted to research and development, organizational activities, and raising capital. As of September 30, 1998, the Company has had $15,500 of revenues. The ultimate recovery of investments and costs is dependent on future profitable operations, which presently cannot be determined. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Accounting Method The Company's financial statements are prepared using the accrual method of accounting. The Company has elected a September 30 year end. b. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. c. Property and Equipment Property and equipment are recorded at cost. Major additions and improvements are capitalized. Minor replacements, maintenance and repairs that do not increase the useful life of the assets are expensed as incurred. Depreciation of property and equipment is determined using the straight-line method over the expected useful lives of the assets as follows:
Description Useful Lives ---------------------------- ------------ Computers and test equipment 5 years Furniture and fixtures 5 years
d. Research and Development Research and development costs are expensed as incurred. 21 22 SIONIX CORPORATION (A Development Stage Company) Notes to the Financial Statements September 30, 1998 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) e. Basic Net Loss Per Share The computation of basic loss per share of common stock is based on the weighted average number of shares outstanding at the date of the financial statements. Stock warrants and stock options have been included in the fully diluted loss per share. f. Provision for Income Taxes No provision for federal income taxes have been recorded due to net operating losses. The Company accounts for income taxes pursuant to FASB Statement No. 109. The Internal Revenue Code contains provisions which may limit the loss carryforwards available should certain events occur, including significant changes in stockholder ownership interests. Accordingly, the tax benefit of the loss carryovers is offset by a valuation allowance of the same amount. The loss carryforwards of approximately $4,250,000 will expire by the year 2013. g. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment at September 30, 1998 consisted of the following: Computers and test equipment $ 139,316 Furniture and fixtures 40,774 --------- Total 180,090 Less accumulated depreciation (77,235) --------- Property and Equipment - Net $ 102,855 =========
Depreciation expense for the years ended September 30, 1998 and 1997 was $31,565 and $23,602, respectively. 22 23 SIONIX CORPORATION (A Development Stage Company) Notes to the Financial Statements September 30, 1998 NOTE 4 - INTANGIBLE ASSETS Intangible assets at September 30, 1998 consisted of the following: Patents issued and pending $ 135,033 Less accumulated amortization (22,289) --------- Intangible Assets - Net $ 112,744 =========
Amortization expense for the years ended September 30, 1998 and 1997 was $99,154 and $69,818, respectively. NOTE 5 - LOAN PAYABLE Pursuant to an acquisition agreement, the Company assumed various promissory notes originally signed in 1992 and 1993 totaling $50,000. The notes bear interest at 8% and were originally due in 1994. Management of the Company currently cannot locate the holder of the notes and consequently has not been able to settle the liability. The amount is being included as a current liability in the accompanying financial statements until management can locate the note holder and settle the debt. The liability is included in the related party payables. NOTE 6 - RELATED PARTY PAYABLES The Company has received advances in the form of promissory notes from various shareholders and other related parties in order to pay minimal ongoing operating expenses. As of September 30, 1998, $430,655 was due by the Company as a result of these promissory notes of which $62,304 is considered to be current. Some of the notes bear interest at rates of 7% to 13.5%. All notes are due on demand and are unsecured. NOTE 7 - CONVERTIBLE DEBENTURE As of September 30, 1998, the Company has $20,000 in 10% redeemable, convertible debentures outstanding. Interest accrues at a rate of 10% per annum and is payable on a quarterly basis. The principal and unpaid interest are due during October and November 1998. The principal amount is convertible at the option of the holder at any time prior to maturity into shares of the Company's common stock at a rate of $1.00 per common share. NOTE 8 - STOCKHOLDERS' EQUITY During the year ended December 31, 1995, 414,200 shares of common stock were issued in return for notes receivable in the amount of $1,656,800. These notes were secured by the shares issued and were non-recourse. They had a stated interest rate of 6% and had maturity dates ranging from March 1, 1998 to September 7, 1998. During the year ended September 30, 1998, the shares originally issued in conjunction with the receivable were cancelled along with the corresponding subscription receivable. 23 24 SIONIX CORPORATION (A Development Stage Company) Notes to the Financial Statements September 30, 1998 NOTE 9 - COMMON STOCK PURCHASE WARRANTS The Company's Board of Directors has authorized and approved 851,400 common stock purchase warrants as of September 30, 1998 as follows:
Number Exercise Price Expiration of Warrants Per Share Date ------------- -------------- ------------- 851,400 $0.50 June 30, 1999
NOTE 10 - GOING CONCERN The Company's financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other material assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. It is the intent of the Company to generate revenue through the sales of its software and hardware products. In the opinion of management, sales of the Company's products, together with the proceeds of an offering of its common stock, will be sufficient for it to continue as a going concern. NOTE 11 - SUBSEQUENT EVENT Subsequent to September 30, 1998, the Company has received $643,500 from the sale of its common stock at $0.10 per share. NOTE 12 - COMMITMENTS Employment Agreement On January 1, 1998, the Company entered into an employment contract with an officer and director. The employment contract calls for payments of $7,083 per month to the officer through September 30, 2003. As a signing bonus, the officer was given the option to purchase 2,200,000 shares of the Company's common stock at $0.001 per share. Accordingly, compensation expense of $220,000 has been recorded. 24 25 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. See Item 11 for information on beneficial ownership of the Company's securities. The directors and executive officers of the Company are as follows:
Name Age Position ---- --- -------- James J. Houtz 59 President, Chief Operating Officer and a Director Robert E. McCray 62 Chief Financial Officer and a Director Joan C. Horowitz 56 Secretary/Treasurer and a Director
Mr. Houtz has been President and Chief Operating Officer of the Company since March 1998. For more than five years prior to that time he was a self-employed consultant in the areas of engineering and new product development. Mr. McCray has been Chief Financial Officer of the Company since July 1998. Prior to that time he was employed by San Clemente Hospital and Medical Center, as Supervisor-Accounts Payable and Supervisor-Data Processing Ms. Horowitz has been Secretary/Treasurer and Office Manager of the Company since April 1998. Prior to that time she was employed by Coldwell Banker in office management. The term of office of each director is one year or until his successor is elected at the 25 26 Company's annual meeting. Each officer is appointed by the Board of Directors and serves at the pleasure of the Board. In January 1998 the Company entered into a five-year employment agreement with James J. Houtz. The agreement calls for salary to Mr. Houtz of $85,000 per year, which amount is increased by 10% each year. In addition, after the first year of the Employment Agreement, during each calendar quarter for the term of the Agreement Mr. Houtz is to receive options to purchase 255,000 shares of the Company's Common Stock, at an exercise price of $.001 per share. Upon execution of the Employment Agreement, Mr. Houtz received an option to purchase 2,200,000 shares at an exercise price of $.001 per share. The Employment Agreement also provides that Mr. Houtz is to receive options to purchase an additional 1,650,000 shares of Common Stock, also exercisable at $.001 per share, at such time as he negotiates and completes the private placement of Common Stock of the Company with gross proceeds of at least $800,000. Finally, Mr. Houtz may receive options to purchase up to an additional 13,250,000 shares over the next five years based on the gross revenues of the Company. In July 1998 the Company entered into an employment agreement with Robert E. McCray, which expires in September 2001. The agreement calls for salary to Mr. McCray of $50,000 per year, which amount is increased by 8% each year. In addition, during each calendar quarter for the term of the Agreement Mr. McCray is to receive options to purchase 25,000 shares of the Company's Common Stock, at an exercise price of $.001 per share. In April 1998 the Company entered into an employment agreement with Joan C. Horowitz, which expires in September 2001. The agreement calls for salary to Ms. Horowitz of $32,000 per year, which amount is increased by 8% each year. In addition, during each calendar quarter for the term of the Agreement Ms. Horowitz is to receive options to purchase 20,000 shares of the Company's Common Stock, at an exercise price of $.001 per share. ITEM 10. EXECUTIVE COMPENSATION. The aggregate annual remuneration, during the fiscal year ending September 30, 1998, of the three highest paid persons who are officers or directors was as follows:
Aggregate Capacities in which Name remuneration remuneration was received ---- ------------ ------------------------- James J. Houtz $ 49,583 President and Chief Operating Officer Robert E. McCray $ 12,500 Chief Financial Officer Joan C. Horowitz $ 18,667 Secretary
26 27 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth ownership information as of September 30, 1998 with respect to all officers and directors and promoters, and each shareholder who beneficially owns more than 5% of the outstanding shares:
Name and Address No. of Shares Percentage ---------------- ------------- ---------- S. Donna Friedman Trust 9,638,000 38.2% 4120 Porte De Merano #80 San Diego, CA. 92122 James J. Houtz 2,200,000 8.7% Robert E. McCray 44,713 .1% Joan C. Horowitz 25,000 .09% All Directors and Officers as a Group (3 Persons) 2,269,713 8.9%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. See the description of Employment Agreements with members of management described above. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: Exhibit 10.1 Employment Agreement with James J. Houtz, dated January 1, 1998. Exhibit 10.2 Employment Agreement with Robert E. McCray, dated July 1, 1998. Exhibit 10.3 Employment Agreement with Joan C. Horowitz, dated April 1, 1998. Exhibit 10.4 Industrial Lease between the Company and The Irvine Company, dated August 6, 1998. Exhibit 27 Financial Data Schedule (b) A Report on Form 8-K, dated as of August 5, 1998, was filed on August 13, 1998, disclosing a litigation matter and a change in management. 27 28 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Sionix Corporation Date: January 14, 1999 By /s/ James J. Houtz ------------------------------------ James J. Houtz, President 28 29 EXHIBIT INDEX Exhibit 10.1 Employment Agreement with James J. Houtz, dated January 1, 1998. Exhibit 10.2 Employment Agreement with Robert E. McCray, dated July 1, 1998. Exhibit 10.3 Employment Agreement with Joan C. Horowitz, dated April 1, 1998. Exhibit 10.4 Industrial Lease between the Company and The Irvine Company, dated August 6, 1998. Exhibit 27 Financial Data Schedule
EX-10.1 2 EMPLOYMENT AGREEMENT WITH JAMES J. HOUTZ. 1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") made effective as of the 1st day of January, 1998 by and between SIONIX CORPORATION, a Utah corporation, hereinafter referred to as "Employer", and JAMES HOUTZ, hereinafter referred to as "Employee." Employer desires to be assured of the continued association and services of Employee in order to take advantage of his experience, knowledge and abilities in Employer's business and is willing to employ Employee, and Employee desires to be so employed, on the terms and conditions set forth in this Agreement. ACCORDINGLY, in consideration of the foregoing and the mutual covenants set forth below, the parties agree as follows: ARTICLE I TERM OF CONTRACT 1.1 The term of this Agreement shall commence effective on the date of this Agreement, as first above written, and shall continue until September 30, 2003, and monthly thereafter, unless sooner terminated as hereinafter provided. 1.2 This employment may be terminated immediately, without advance notice, if, during the term of employment (a) Employee shall be convicted of a crime involving dishonesty in connection with Employer's business; (b) an uncured material breach of any term of this Agreement, provided that any breach which can be cured is not promptly corrected after reasonable notice thereof; or (c) Employee is convicted of any felony involving moral turpitude. Page 1 of 12 2 ARTICLE II SERVICES TO BE PERFORMED BY EMPLOYEE 2.1 Employee shall serve as President of Employer and shall perform the duties and responsibilities specified for said position in the By-Laws of the Employer, and such other duties and responsibilities as are usually and customarily performed by the President and Chief Executive Officer of a corporation. Employee shall work at the direction of and under the supervision of Employer's Board of Directors. Employee shall perform such duties and acts commensurate with his position, skills and experience as may be reasonably required by Employer's Board of Directors in connection with any aspect of Employer's business. ARTICLE III COMPENSATION 3.1 Employee, during the term of employment pursuant to this Agreement, shall be compensated pursuant to the Schedule attached hereto as Exhibit "A" and by reference made a part hereof. 3.2 Employee shall receive an automobile allowance of $800.00 per month during the term of this Agreement, and any extensions and renewals hereof. Employee's automobile allowance shall be increased ten percent (10%) per year. 3.3 Employee shall be entitled to all fringe benefits offered generally to employees of Employer, including without limitation, participation in any qualified pension, profit-sharing, salary continuation, disability insurance, hospitalization insurance, major medical insurance, medical reimbursement or life insurance plan or any other benefit plan established by Employee subject to the rules and regulations in effect regarding participation in such benefit plans. Page 2 of 12 3 In the event Employer does not, at any time during the term of this employment, maintain full coverage medical insurance for its employees, Employee shall be entitled to obtain, at the expense of Employer, full coverage medical insurance, from a bona fide medical insurance company or health plan, as selected by Employee. 3.4 Employee shall be entitled to such business days of vacation and such business days of sick leave each year without, reduction in compensation, as shall be reasonably determined from time to time by the Employer's Board of Directors; provided, however, that Employee shall be entitled to at least 30 business days of vacation and up to two (2) weeks of sick leave each year. ARTICLE IV OBLIGATIONS OF EMPLOYEE 4.1 Employee agrees to devote so much of his business time, attention, knowledge and skill as necessary to carry out the purposes and intent of this Employment Agreement. Notwithstanding the foregoing, Employee shall not be deemed to be in violation of this Section 4.1, if he engages in passive investment in any corporation, sole proprietorship, partnership or other entity not involved in a competing business with Employer. 4.2 Employee agrees to perform the above described services at Employer's place of business and at such other job locations as may be necessary to satisfactorily perform Employee's duties and obligations hereunder. 4.3 Employee shall not assign this Agreement nor any duties or obligations under this Agreement to any other person or entity. Page 3 of 12 4 4.4 Employee shall maintain, in good and legible condition, all materials, supplies and other property provided to Employee by Employer. These materials shall, however, remain the property of Employer. ARTICLE V OBLIGATIONS OF EMPLOYER 5.1 Employer agrees to make the payments due Employee as hereinabove specified, in a timely fashion, and without offset or deduction (or other than employee withholding). 5.2 Employer agrees to provide Employee with adequate space, administrative support, personnel, and equipment to perform Employee's duties. 5.3 With the exception of injuries, losses, and damages attributed solely to the gross negligence or willful misconduct of Employee, Employer shall fully indemnify, defend (with counsel reasonably acceptable to Employee) and hold harmless Employee, his heirs, successors and assigns from and against all claims, loss, liability, damage or expense (including, without limitation, attorneys fees, court costs, investigative fees and expert witness fees) arising from or relating, either directly or indirectly, to the Employer and/or its business, whether occurring or accruing prior to or after the effective date hereof. Employer's obligation to indemnify, defend and hold Employee harmless shall survive the termination of this Agreement. Employer's obligation to indemnify, defend and hold harmless Employee, includes, without limitation, the indemnification, defense and hold harmless of Employee on all debts and obligations of Employer which may be due, either directly, or indirectly, to the negligent, gross negligent, wrongful act or omission, or willful misconduct of the current and past officers, directors and shareholders of the Employer. Page 4 of 12 5 ARTICLE VI TERMINATION OF AGREEMENT 6.1 After September 30, 2003, the employment provided in this Agreement shall terminate at the will of Employer or Employee, without cause, upon thirty (30) days written notice by the terminating party to the other party. This Agreement may be terminated immediately, upon written or oral notice by the terminating party, for cause, as provided in this Agreement. 6.2 This Agreement shall terminate automatically on the occurrence of any of the following events: A. Mutual agreement of both parties. B. At the election of either party, upon the bankruptcy or insolvency of either party. C. Death of Employee. D. At the election of either party, upon the disability of Employee, which renders Employee, in the opinion of Employee's treating medical practitioner, unable to substantially perform Employee's duties under this Agreement, for a period of six consecutive months. The right to terminate the employment pursuant to this Paragraph 6.2, shall accrue only after Employee has been disabled for such six consecutive months. ARTICLE VII GENERAL CONDITIONS 7.1 Counterparts. This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed an original instrument. Page 5 of 12 6 7.2 Cooperation. Each of the parties hereto agree to execute any and all additional documents, and take all additional actions, deemed reasonably necessary to give full force and effect to the intent of this Agreement. 7.3 Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors, assigns, heirs, executors and administrators. 7.4 Interpretation. This Agreement shall be interpreted under and pursuant to the Laws of the State of California. 7.5 Entire Agreement. This Agreement, and any other documents executed pursuant hereto, contains the entire agreement of the parties hereto, and supersedes all prior agreements, whether written or oral, with respect to the subject matters covered hereby. No oral representation, agreement, statement or promise made by any party hereto or by any employee or agent of any party hereto, which is not contained herein, shall be binding or valid. 7.6 No Continuing Waiver. No waiver of any breach of any of the terms, conditions and covenants of this Agreement shall be construed as a waiver of any succeeding breach of the same or other terms, covenants and conditions hereof. 7.7 Notices. Any notices required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, return receipt requested, addressed to each party at the address appearing with that party's signature at the end of this Agreement. If any such notice is given by personal delivery, said notice shall be deemed given upon receipt. If any such notice is given by certified mail, return receipt requested, said notice shall be deemed given on the third day following the date of mailing, as indicated on the return receipt, regardless of whether the return receipt shows actual delivery, provided, however, that if the return receipt Page 6 of 12 7 of any mailed notice indicates non-delivery, the party serving said notice shall forthwith mail another, exact duplicate copy of said notice, to the recipient by regular first class mail, postage prepaid. Any party may, by written notice to another party, specify a different address for notice purposes. 7.8 Remedies Cumulative. No remedy or election hereunder shall be deemed exclusive but shall, whenever possible, be cumulative with all other remedies provided by agreement, at law, or in equity. 7.9 Invalidity in Part. In the event any provision of this Agreement shall be held to be illegal, unenforceable or inoperative as a matter of law, the remaining provisions shall remain in full force and effect unless such construction shall substantially frustrate the purpose and intent of this Agreement. 7.10 Covenants and Conditions. Each provision of this Agreement performable by a party shall be deemed both a covenant and a condition. 7.11 Time of the Essence. Time is of the essence as to each and every term, covenant and condition of this Agreement in which time is a factor. 7.12 Survival. All covenants, conditions, warranties and representations made by any party in this Agreement shall survive the execution and delivery of this Agreement. 7.13 Gender. The use herein of the neuter gender includes the masculine and the feminine and the singular number includes the plural, whenever the context so requires. 7.14 Captions. Captions in this Agreement are inserted for convenience or reference only and do not define, describe or limit the scope or the intent of this Agreement or any of the terms hereof. Page 7 of 12 8 7.15 Exhibits. All exhibits referred to herein and attached hereto are incorporated as a part hereof. 7.16 Assignment. This Agreement shall not be assigned, either directly or indirectly, by any of the parties without the prior written consent of the other party. Each party agrees to reasonably consent to any request for transfer or assignment by another party to a revocable "estate planning" type trust in which the transferring party is a trustor and a principal beneficiary. 7.17 Disclosure of Representation. The parties hereto acknowledge that Employee is being represented in this transaction by COOKSEY, HOWARD, MARTIN & TOOLEN, who are representing the interest of Employee only and not the interest of Employer. Employer has been advised to seek independent legal counsel to represent Employer's interest in this transaction, and to the extent Employer has chosen not be to be represented by legal counsel, Employer agrees that this Agreement shall be interpreted fully and fairly, without application of the general rule of construction wherein an Agreement is interpreted against the party that prepared it, and this Agreement shall not be avoidable due to Employer's lack of legal representation. 7.18 Attorneys Fees. In the event of litigation concerning this Agreement, the prevailing party shall be entitled to recover reasonable attorneys fees from the losing party. Page 8 of 12 9 Executed at Orange County, California, effective on the date and year first above written. EMPLOYER: SIONIX CORPORATION, A UTAH CORPORATION 9272 JERONIMO ROAD SUITE 108, IRVINE, CALIFORNIA 92618 BY: /s/ ROBERT E. MCCRAY ------------------------------------- Robert E. McCray, Director BY: /s/ JOAN C. HOROWITZ ------------------------------------- Joan C. Horowitz, Director EMPLOYEE: /s/ JAMES HOUTZ - ----------------------------------------- JAMES HOUTZ ADDRESS:________________________________________________________________________ SOCIAL SECURITY NO.:_______________________ DATE:____________________________________ Page 9 of 12 10 * * * * THIS PAGE INTENTIONALLY LEFT BLANK Page 10 of 12 11 EXHIBIT "A" SCHEDULE OF COMPENSATION Employee shall receive compensation, during the term of this Agreement, and during any extensions or renewals of this Agreement, as follows, or as hereafter mutually agreed between the parties, in writing: 1. BASE COMPENSATION. $7,083.33 per month, payable one-half on the 15th and one-half on the last day of each month during the term of employment. Commencing at the start of year two (2), and continuing through year five (5), and further continuing during any extensions or renewals of this Agreement. In addition, for each one quarter (1/4) year of service, Employee shall be, and hereby is granted, from Employer 255,000 shares of Employer's common stock, ($.001) par value, to be exercised at any time during the term of employment, and upon termination of Employee's employment, at any time within three (3) years thereafter. Employee's compensation package (Schedule "A", A) shall be increased ten percent (10%) per year. 2. STOCK OPTION AT SIGNING. As a signing bonus, Employee shall be, and hereby is granted, Two Million Two Hundred Thousand (2,200,000) shares of Employer's common stock valued at One Tenth of a Cent ($.001) per share, to be exercised at any time during the term of employment, and upon termination of Employee's employment, at any time within three (3) years thereafter. 3. STOCK OPTION UPON FUNDING OF ADDITIONAL SHARE ISSUANCE. Upon Employee negotiating and funding the sale of at least $800,000.00 of additional common shares of Employer common stock, Employee shall be, and hereby is, granted One Million Six Hundred Fifty Thousand (1,650,000) shares of Employer's common stock, valued at One Tenth of a Cent ($.001) per share, to be exercised at any time during the term of employment, and upon termination of Employee's employment, at any time within three (3) years thereafter. 4. PERFORMANCE STOCK OPTIONS. Employee shall be, and hereby is granted, common shares of Employer stock contingent for each respective year upon Employer's gross sales achieving the levels indicated below. Page 11 of 12 12
FISCAL YEAR ENDING GROSS SALES OF AT LEAST # OF SHARES - ------------------ ----------------------- ----------- FYE 12/31/99 $ 2,500,000 2,000,000 FYE 12/31/00 $ 5,000,000 2,250,000 FYE 12/31/01 $10,000,000 2,500,000 FYE 12/31/02 $20,000,000 2,750,000 FYE 12/31/03 $40,000,000 3,500,000
The options granted in this Section D, may be exercised by Employee at any time during the term of employment, and, upon termination of employment, at any time within Five (5) years thereafter. 1. TRADEABLE SHARES. Employer agrees to use its best efforts to issue shares to Employee, at the time the option(s) is executed, that are freely tradeable on the Exchange in which Employer's shares are traded. In the event Employer is unable to obtain freely tradeable shares for Employee, at the time the option or options are exercised, Employee shall have the right to obtain restricted shares conditioned upon Employee complying with all applicable securities, regulations and restrictions. The option(s) granted to Employee under this Agreement are non-revocable, and may be exercised by Employee in any amounts, from time to time, as Employee desires. 2. LIFE Insurance. Life insurance on the life of Employee in the amount of $500,000.00. 3. DISABILITY INSURANCE. Disability insurance providing disability benefits to Employee in an amount equal to 50% of Employee's base salary for a period until Employee reaches age 65 years. EMPLOYER:__________________________ EMPLOYEE:__________________________ Page 12 of 12 EX-10.2 3 EMPLOYMENT AGREEMENT WITH ROBERT E. MCCRAY. 1 EXHIBIT 10.2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") made effective as of the 1st day of July, 1998 by and between SIONIX CORPORATION, a Utah corporation, hereinafter referred to as "Employer", and ROBERT E. McCRAY, hereinafter referred to as "Employee." Employer desires to be assured of the continued association and services of Employee in order to take advantage of his experience, knowledge and abilities in Employer's business and is willing to employ Employee, and Employee desires to be so employed, on the terms and conditions set forth in this Agreement. ACCORDINGLY, in consideration of the foregoing and the mutual covenants set forth below, the parties agree as follows: ARTICLE I TERM OF CONTRACT 1.1 The term of this Agreement shall commence effective on the date of this Agreement, as first above written, and shall continue until September 30, 2001, and monthly thereafter, unless sooner terminated as hereinafter provided. 1.2 This employment may be terminated immediately, without advance notice, if, during the term of employment (a) Employee shall be convicted of a crime involving dishonesty in connection with Employer's business; (b) an uncured material breach of any term of this Agreement, provided that any breach which can be cured is not promptly corrected after reasonable notice thereof; or (c) Employee is convicted of any felony involving moral turpitude. Page 1 of 11 2 ARTICLE 11 SERVICES TO BE PERFORMED BY EMPLOYEE 2.1 Employee shall serve as Chief Financial Officer and shall perform the duties and responsibilities specified for said position in the By-Laws of the Employer, and such other duties and responsibilities as are usually and customarily performed by the Chief Financial Officer of a corporation. Employee shall work at the direction of and under the supervision of Employer's President and Chief Operating Officer. Employee shall perform such duties and acts commensurate with his position, skills and experience as may be reasonably required by Employer's Board of Directors in connection with any aspect of Employer's business. ARTICLE III COMPENSATION 3.1 Employee, during the term of employment pursuant to this Agreement, shall be compensated pursuant to the Schedule attached hereto as Exhibit "A" and by reference made a part hereof. 3.2 Employee shall be entitled to all fringe benefits offered generally to employees of Employer, including without limitation, participation in any qualified pension, profit-sharing, salary continuation, disability insurance, hospitalization insurance, major medical insurance, medical reimbursement or life insurance plan or any other benefit plan established by Employer subject to the rules and regulations in effect regarding participation in such benefit plans. 3.3 Employee shall be entitled to such business days of vacation and such business days of sick leave each year without, reduction in compensation, as shall be reasonably determined from time to time by the Employer's Board of Directors; provided, however, that Employee shall Page 2 of 11 3 be entitled to at least ten (10) business days of vacation and up to ten (10) business days of sick leave each year. 3.4 Employee shall be entitled to the following Holidays and any additional days as determined by the Board of Directors. i. New Years Eve and New Years Day. ii. Memorial Day. iii. Fourth of July. iv. Labor Day. v. Thanksgiving Day and Friday after. vi. Christmas Eve and Christmas Day. vii. One Floating Holiday. ARTICLE IV OBLIGATIONS OF EMPLOYEE 4.1 Employee agrees to devote so much of his business time, attention, knowledge and skill as necessary to carry out the purposes and intent of this Employment Agreement. Notwithstanding the foregoing, Employee shall not be deemed to be in violation of this Section 4.1, if he engages in passive investment in any corporation, sole proprietorship, partnership or other entity not involved in a competing business with Employer. 4.2 Employee agrees to perform the above described services at Employer's place of business and at such other job locations as may be necessary to satisfactorily perform Employee's duties and obligations hereunder. 4.3 Employee shall not assign this Agreement nor any duties or obligations under this Agreement to any other person or entity. Page 3 of 11 4 4.4 Employee shall maintain, in good and legible condition, all materials, supplies and other property provided to Employee by Employer. These materials shall, however, remain the property of Employer. ARTICLE V OBLIGATIONS OF EMPLOYER 5.1 Employer agrees to make the payments due Employee as herein above specified, in a timely fashion, and without offset or deduction (other than employee withholding). 5.2 Employer agrees to provide Employee with adequate space, administrative support, personnel, and equipment to perform Employee's duties. 5.3 With the exception of injuries, losses, and damages attributed solely to the gross negligence or willful misconduct of Employee, Employer shall fully indemnify, defend (with counsel reasonably acceptable to Employee) and hold harmless Employee, his heirs, successors and assigns from and against all claims, loss, liability, damage or expense (including, without limitation, attorneys fees, court costs, investigative fees and expert witness fees) arising from or relating, either directly or indirectly, to the Employer and/or its business, whether occurring or accruing prior to or after the effective date hereof. Employer's obligation to indemnify, defend and hold Employee harmless shall survive the termination of this Agreement. Employer's obligation to indemnify, defend and hold harmless Employee, includes, without limitation, the indemnification, defense and hold harmless of Employee on all debts and obligations of Employer which may be due, either directly, or indirectly, to the negligent, gross negligent, wrongful act or omission, or willful misconduct of the current and past officers, directors and shareholders of the Employer. Page 4 of 11 5 ARTICLE VI TERMINATION OF AGREEMENT 6.1 After September 30, 2001, the employment provided in this Agreement shall terminate at the will of Employer or Employee, without cause, upon thirty (30) days written notice by the terminating party to the other party. This Agreement may be terminated immediately, upon written or oral notice by the terminating party, for cause, as provided in this Agreement. 6.2 This Agreement shall terminate automatically on the occurrence of any of the following events: A. Mutual agreement of both parties. B. At the election of either party, upon the bankruptcy or insolvency of either party. C. Death of Employee. D. At the election of either party, upon the disability of Employee, which renders Employee, in the opinion of Employee's treating medical practitioner, unable to substantially perform Employee's duties under this Agreement, for a period of six consecutive months. The right to terminate the employment pursuant to this Paragraph 6.2, shall accrue only after Employee has been disabled for such six consecutive months. ARTICLE VII GENERAL CONDITIONS 7.1 Counterparts. This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed an original instrument. Page 5 of 11 6 7.2 Cooperation. Each of the parties hereto agree to execute any and all additional documents, and take all additional actions, deemed reasonably necessary to give full force and effect to the intent of this Agreement. 7.3 Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors, assigns, heirs, executors and administrators. 7.4 Interpretation. This Agreement shall be interpreted under and pursuant to the Laws of the State of California. 7.5 Entire Agreement. This Agreement, and any other documents executed pursuant hereto, contains the entire agreement of the parties hereto, and supersedes all prior agreements, whether written or oral, with respect to the subject matters covered hereby. No oral representation, agreement, statement or promise made by any party hereto or by any employee or agent of any party hereto, which is not contained herein, shall be binding or valid. 7.6 No Continuing Waiver. No waiver of any breach of any of the terms, conditions and covenants of this Agreement shall be construed as a waiver of any succeeding breach of the same or other terms, covenants and conditions hereof. 7.7 Notices. Any notices required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, return receipt requested, addressed to each party at the address appearing with that party's signature at the end of this Agreement. If any such notice is given by personal delivery, said notice shall be deemed given upon receipt. If any such notice is given by certified mail, return receipt requested, said notice shall be deemed given on the third day following the date of mailing, as indicated on the return receipt, regardless of whether the return receipt shows actual delivery, provided, however, that if the return receipt Page 6 of 11 7 of any mailed notice indicates non-delivery, the party serving said notice shall forthwith mail another, exact duplicate copy of said notice, to the recipient by regular first class mail, postage prepaid. Any party may, by written notice to another party, specify a different address for notice purposes. 7.8 Remedies Cumulative. No remedy or election hereunder shall be deemed exclusive but shall, whenever possible, be cumulative with all other remedies provided by agreement, at law, or in equity. 7.9 Invalidity in Part. In the event any provision of this Agreement shall be held to be illegal, unenforceable or inoperative as a matter of law, the remaining provisions shall remain in full force and effect unless such construction shall substantially frustrate the purpose and intent of this Agreement. 7.10 Covenants and Conditions. Each provision of this Agreement performable by a party shall be deemed both a covenant and a condition. 7.11 Time of the Essence. Time is of the essence as to each and every term, covenant and condition of this Agreement in which time is a factor. 7.12 Survival. All covenants, conditions, warranties and representations made by any party in this Agreement shall survive the execution and delivery of this Agreement. 7.13 Gender. The use herein of the neuter gender includes the masculine and the feminine and the singular number includes the plural, whenever the context so requires. 7.14 Captions. Captions in this Agreement are inserted for convenience or reference only and do not define, describe or limit the scope or the intent of this Agreement or any of the terms hereof. Page 7 of 11 8 7.15 Exhibits. All exhibits referred to herein and attached hereto are incorporated as a part hereof. 7.16 Assignment. This Agreement shall not be assigned, either directly or indirectly, by any of the parties without the prior written consent of the other party. Each party agrees to reasonably consent to any request for transfer or assignment by another party to a revocable "estate planning" type trust in which the transferring party is a trustor and a principal beneficiary. 7.17 Disclosure of Representation. The parties hereto acknowledge that Employee is being represented in this transaction by COOKSEY, HOWARD, MARTIN & TOOLEN, who are representing the interest of Employee only and not the interest of Employer. Employer has been advised to seek independent legal counsel to represent Employer's interest in this transaction, and to the extent Employer has chosen not to be represented by legal counsel, Employer agrees that this Agreement shall be interpreted fully and fairly, without application of the general rule of construction wherein an Agreement is interpreted against the party that prepared it, and this Agreement shall not be avoidable due to Employer's lack of legal representation. 7.18 Attorneys Fees. In the event of litigation concerning this Agreement, the prevailing party shall be entitled to recover reasonable attorneys fees from the losing party. Page 8 of 11 9 Executed at Orange County, California, effective on the date and year first above written. EMPLOYER: SIONIX CORPORATION, A UTAH CORPORATION 9272 JERONIMO ROAD SUITE 108, IRVINE, CALIFORNIA 92618 BY: /s/ JAMES J. HOUTZ ---------------------------------------- James J. Houtz, Director BY: /s/ JOAN C. HOROWITZ ---------------------------------------- Joan C. Horowitz, Director EMPLOYEE: /s/ ROBERT E. MCCRAY - -------------------------------------------- ROBERT E. MCCRAY ADDRESS:________________________________________________________________________ SOCIAL SECURITY NO.:_________________________ DATE:___________________________________ Page 9 of 11 10 * * * * * THIS PAGE INTENTIONALLY LEFT BLANK Page 10 of 11 11 EXHIBIT "A" SCHEDULE OF COMPENSATION Employee shall receive compensation, during the term of this Agreement, and during any extensions or renewals of this Agreement, as follows, or as hereafter mutually agreed between the parties, in writing: 1. BASE COMPENSATION. $4,166.66 per month, payable one-half on the 15th and one-half on the last day of each month during the term of employment. Commencing at the start of year two (2), and continuing through September 30, 2001 and further continuing during any extensions or renewals of this Agreement, Employee's compensation package (Schedule "A") shall be increased eight percent (8%) per year. In addition, for each one quarter (1/4) year of service, Employee shall be, and hereby is granted, from Employer 25,000 shares of Employer's common stock, ($.001) par value, to be exercised at any time during the term of employment, and upon termination of Employee's employment, at any time within three (3) years thereafter. 2. TRADEABLE SHARES. Employer agrees to use its best efforts to issue shares to Employee, at the time the option(s) is executed, that are freely tradeable on the Exchange in which Employer's shares are traded. In the event Employer is unable to obtain freely tradeable shares for Employee, at the time the option or options are exercised, Employee shall have the right to obtain restricted shares conditioned upon Employee complying with all applicable securities, regulations and restrictions. The option(s) granted to Employee under this Agreement are non-revocable, and may be exercised by Employee in any amounts, from time to time, as Employee desires. EMPLOYER:__________________________ EMPLOYEE:__________________________ Page 11 of 11 EX-10.3 4 EMPLOYMENT AGREEMENT WITH JOAN C. HOROWITZ. 1 EXHIBIT 10.3 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") made effective as of the 1st day of April, 1998 by and between SIONIX CORPORATION, a Utah corporation, hereinafter referred to as "Employer", and JOAN C. HOROWITZ, hereinafter referred to as "Employee." Employer desires to be assured of the continued association and services of Employee in order to take advantage of his experience, knowledge and abilities in Employer's business and is willing to employ Employee, and Employee desires to be so employed, on the terms and conditions set forth in this Agreement. ACCORDINGLY, in consideration of the foregoing and the mutual covenants set forth below, the parties agree as follows: ARTICLE I TERM OF CONTRACT 1.1 The term of this Agreement shall commence effective on the date of this Agreement, as first above written, and shall continue until September 30, 2001, and monthly thereafter, unless sooner terminated as hereinafter provided. 1.2 This employment may be terminated immediately, without advance notice, if, during the term of employment (a) Employee shall be convicted of a crime involving dishonesty in connection with Employer's business; (b) an uncured material breach of any term of this Agreement, provided that any breach which can be cured is not promptly corrected after reasonable notice thereof; or (c) Employee is convicted of any felony involving moral turpitude. Page 1 of 11 2 ARTICLE II SERVICES TO BE PERFORMED BY EMPLOYEE 2.1 Employee shall serve as Chief Financial Officer and shall perform the duties and responsibilities specified for said position in the By-Laws of the Employer, and such other duties and responsibilities as are usually and customarily performed by the Chief Financial Officer of a corporation. Employee shall work at the direction of and under the supervision of Employer's President and Chief Operating Officer. Employee shall perform such duties and acts commensurate with his position, skills and experience as may be reasonably required by Employer's Board of Directors in connection with any aspect of Employer's business. ARTICLE III COMPENSATION 3.1 Employee, during the term of employment pursuant to this Agreement, shall be compensated pursuant to the Schedule attached hereto as Exhibit "A" and by reference made a part hereof. 3.2 Employee shall be entitled to all fringe benefits offered generally to employees of Employer, including without limitation, participation in any qualified pension, profit-sharing, salary continuation, disability insurance, hospitalization insurance, major medical insurance, medical reimbursement or life insurance plan or any other benefit plan established by Employer subject to the rules and regulations in effect regarding participation in such benefit plans. 3.3 Employee shall be entitled to such business days of vacation and such business days of sick leave each year without, reduction in compensation, as shall be reasonably determined from time to time by the Employer's Board of Directors; provided, however, that Employee shall Page 2 of 11 3 be entitled to at least ten (10) business days of vacation and up to ten (10) business days of sick leave each year. 3.4 Employee shall be entitled to the following Holidays and any additional days as determined by the Board of Directors. i. New Years Eve and New Years Day. ii. Memorial Day. iii. Fourth of July. iv. Labor Day. v. Thanksgiving Day and Friday after. vi. Christmas Eve and Christmas Day. vii. One Floating Holiday. ARTICLE IV OBLIGATIONS OF EMPLOYEE 4.1 Employee agrees to devote so much of his business time, attention, knowledge and skill as necessary to carry out the purposes and intent of this Employment Agreement. Notwithstanding the foregoing, Employee shall not be deemed to be in violation of this Section 4.1, if he engages in passive investment in any corporation, sole proprietorship, partnership or other entity not involved in a competing business with Employer. 4.2 Employee agrees to perform the above described services at Employer's place of business and at such other job locations as may be necessary to satisfactorily perform Employee's duties and obligations hereunder. 4.3 Employee shall not assign this Agreement nor any duties or obligations under this Agreement to any other person or entity. Page 3 of 11 4 4.4 Employee shall maintain, in good and legible condition, all materials, supplies and other property provided to Employee by Employer. These materials shall, however, remain the property of Employer. ARTICLE V OBLIGATIONS OF EMPLOYER 5.1 Employer agrees to make the payments due Employee as herein above specified, in a timely fashion, and without offset or deduction (other than employee withholding). 5.2 Employer agrees to provide Employee with adequate space, administrative support, personnel, and equipment to perform Employee's duties. 5.3 With the exception of injuries, losses, and damages attributed solely to the gross negligence or willful misconduct of Employee, Employer shall fully indemnify, defend (with counsel reasonably acceptable to Employee) and hold harmless Employee, his heirs, successors and assigns from and against all claims, loss, liability, damage or expense (including, without limitation, attorneys fees, court costs, investigative fees and expert witness fees) arising from or relating, either directly or indirectly, to the Employer and/or its business, whether occurring or accruing prior to or after the effective date hereof Employer's obligation to indemnify, defend and hold Employee harmless shall survive the termination of this Agreement. Employer's obligation to indemnify, defend and hold harmless Employee, includes, without limitation, the indemnification, defense and hold harmless of Employee on all debts and obligations of Employer which may be due, either directly, or indirectly, to the negligent, gross negligent, wrongful act or omission, or willful misconduct of the current and past officers, directors and shareholders of the Employer. Page 4 of 11 5 ARTICLE VI TERMINATION OF AGREEMENT 6.1 After September 30, 2001, the employment provided in this Agreement shall terminate at the will of Employer or Employee, without cause, upon thirty (30) days written notice by the terminating party to the other party. This Agreement may be terminated immediately, upon written or oral notice by the terminating party, for cause, as provided in this Agreement. 6.2 This Agreement shall terminate automatically on the occurrence of any of the following events: A. Mutual agreement of both parties. B. At the election of either party, upon the bankruptcy or insolvency of either party. C. Death of Employee. D. At the election of either party, upon the disability of Employee, which renders Employee, in the opinion of Employee's treating medical practitioner, unable to substantially perform Employee's duties under this Agreement, for a period of six consecutive months. The right to terminate the employment pursuant to this Paragraph 6.2, shall accrue only after Employee has been disabled for such six consecutive months. ARTICLE VII GENERAL CONDITIONS 7.1 Counterparts. This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed an original instrument. Page 5 of 11 6 7.2 Cooperation. Each of the parties hereto agree to execute any and all additional documents, and take all additional actions, deemed reasonably necessary to give full force and effect to the intent of this Agreement. 7.3 Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors, assigns, heirs, executors and administrators. 7.4 Interpretation. This Agreement shall be interpreted under and pursuant to the Laws of the State of California. 7.5 Entire Agreement. This Agreement, and any other documents executed pursuant hereto, contains the entire agreement of the parties hereto, and supersedes all prior agreements, whether written or oral, with respect to the subject matters covered hereby. No oral representation, agreement, statement or promise made by any party hereto or by any employee or agent of any party hereto, which is not contained herein, shall be binding or valid. 7.6 No Continuing Waiver. No waiver of any breach of any of the terms, conditions and covenants of this Agreement shall be construed as a waiver of any succeeding breach of the same or other terms, covenants and conditions hereof. 7.7 Notices. Any notices required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, return receipt requested, addressed to each party at the address appearing with that party's signature at the end of this Agreement. If any such notice is given by personal delivery, said notice shall be deemed given upon receipt. If any such notice is given by certified mail, return receipt requested, said notice shall be deemed given on the third day following the date of mailing, as indicated on the return receipt, regardless of whether the return receipt shows actual delivery, provided, however, that if the return receipt Page 6 of 11 7 of any mailed notice indicates non-delivery, the party serving said notice shall forthwith mail another, exact duplicate copy of said notice, to the recipient by regular first class mail, postage prepaid. Any party may, by written notice to another party, specify a different address for notice purposes. 7.8 Remedies Cumulative. No remedy or election hereunder shall be deemed exclusive but shall, whenever possible, be cumulative with all other remedies provided by agreement, at law, or in equity. 7.9 Invalidity in Part. In the event any provision of this Agreement shall be held to be illegal, unenforceable or inoperative as a matter of law, the remaining provisions shall remain in full force and effect unless such construction shall substantially frustrate the purpose and intent of this Agreement. 7.10 Covenants and Conditions. Each provision of this Agreement performable by a party shall be deemed both a covenant and a condition. 7.11 Time of the Essence. Time is of the essence as to each and every term, covenant and condition of this Agreement in which time is a factor. 7.12 Survival. All covenants, conditions, warranties and representations made by any party in this Agreement shall survive the execution and delivery of this Agreement. 7.13 Gender. The use herein of the neuter gender includes the masculine and the feminine and the singular number includes the plural, whenever the context so requires. 7.14 Captions. Captions in this Agreement are inserted for convenience or reference only and do not define, describe or limit the scope or the intent of this Agreement or any of the terms hereof Page 7 of 11 8 7.15 Exhibits. All exhibits referred to herein and attached hereto are incorporated as a part hereof 7.16 Assignment. This Agreement shall not be assigned, either directly or indirectly, by any of the parties without the prior written consent of the other party. Each party agrees to reasonably consent to any request for transfer or assignment by another party to a revocable "estate planning" type trust in which the transferring party is a trustor and a principal beneficiary. 7.17 Disclosure of Representation. The parties hereto acknowledge that Employee is being represented in this transaction by COOKSEY, HOWARD, MARTIN & TOOLEN, who are representing the interest of Employee only and not the interest of Employer. Employer has been advised to seek independent legal counsel to represent Employer's interest in this transaction, and to the extent Employer has chosen not be to be represented by legal counsel, Employer agrees that this Agreement shall be interpreted fully and fairly, without application of the general rule of construction wherein an Agreement is interpreted against the party that prepared it, and this Agreement shall not be avoidable due to Employer's lack of legal representation. 7.18 Attorneys Fees. In the event of litigation concerning this Agreement, the prevailing party shall be entitled to recover reasonable attorneys fees from the losing party. Page 8 of 11 9 Executed at Orange County, California, effective on the date and year first above written. EMPLOYER: SIONIX CORPORATION, a Utah corporation 9272 Jeronimo Road Suite 108, Irvine, California 92618 BY: /s/ JAMES J. HOUTZ ------------------------------------- James J. Houtz, Director BY: /s/ ROBERT E. MCCRAY ------------------------------------- Robert E. McCray, Director EMPLOYEE: /s/ JOAN C. HOROWITZ - ----------------------------------------- JOAN C. HOROWITZ Address:________________________________________________________________________ Social Security No.:___________________________ Date:__________________________________ Page 9 of 11 10 * * * * * THIS PAGE INTENTIONALLY LEFT BLANK Page 10 of 11 11 EXHIBIT "A" SCHEDULE OF COMPENSATION Employee shall receive compensation, during the term of this Agreement, and during any extensions or renewals of this Agreement, as follows, or as hereafter mutually agreed between the parties, in writing: 1. BASE COMPENSATION. $2,666.66 per month, payable one-half on the 15th and one-half on the last day of each month during the term of employment. Commencing at the start of year two (2), and continuing through September 30, 2001 and further continuing during any extensions or renewals of this Agreement, Employee's compensation package (Schedule "A") shall be increased eight percent (8%) per year. In addition, for each one quarter (1/4) year of service, Employee shall be, and hereby is granted, from Employer 20,000 shares of Employer's common stock, ($.001) par value, to be exercised at any time during the term of employment, and upon termination of Employee's employment, at any time within three (3) years thereafter. 2. TRADEABLE SHARES. Employer agrees to use its best efforts to issue shares to Employee, at the time the option(s) is executed, that are freely tradeable on the Exchange in which Employer's shares are traded. In the event Employer is unable to obtain freely tradeable shares for Employee, at the time the option or options are exercised, Employee shall have the right to obtain restricted shares conditioned upon Employee complying with all applicable securities, regulations and restrictions. The option(s) granted to Employee under this Agreement are non-revocable, and may be exercised by Employee in any amounts, from time to time, as Employee desires. EMPLOYER:__________________________ EMPLOYEE:__________________________ Page 11 of 11 EX-10.4 5 INDUSTRIAL LEASE WITH THE IRVINE COMPANY. 1 EXHIBIT 10.4 INDUSTRIAL LEASE (MULTI-TENANT; NET) "AS-IS" THIS LEASE is made as of the 6th day of August, 1998, by and between THE IRVINE COMPANY, hereafter called "Landlord," and SIONIX CORPORATION, a Utah corporation, which will do business in California as SIONIX SYSTEMS CORPORATION, hereinafter called "Tenant." ARTICLE I. BASIC LEASE PROVISIONS Each reference in this Lease to the "Basic Lease Provisions" shall mean and refer to the following collective terms, the application of which shall be governed by the provisions in the remaining Articles of this Lease. 1. Premises: Suite No. 108 (the Premises are more particularly described in Section 2.1). Address of Building: 9272 Jeronimo Road, Irvine, CA 92618 INITIAL HERE [ ] 2. Project Description (if applicable): Irvine Business Park 3. Use of Premises: General Office and Warehousing. 4. Commencement Date: September 1, 1998 5. Lease Term: The Term of this Lease shall expire at midnight on August 30, 2001. 6. Basic Rent: Two Thousand Eight Hundred Ninety-Nine Dollars ($2,899.00) per month, based on $.85 per rentable square foot. Basic Rent is subject to adjustment as follows: Commencing September 1, 1999, the Basic Rent shall be Three Thousand Two Dollars ($3,002.00) per month, based on $.88 per rentable square foot. Commencing September 1, 2000, the Basic Rent shall be Three Thousand One Hundred Four Dollars ($3,104.00) per month, based on $.91 per rentable square foot. 7. Guarantor(s): None 8. Floor Area of Premises: approximately 3,411 rentable square feet 9. Security Deposit: $6,829.00 10. Broker(s): CB Richard Ellis, Inc. 11. Additional Insureds: Insignia\ESG of California, Inc. 12. Address for Payments and Notices: LANDLORD TENANT INSIGNIA\ESG OF CALIFORNIA, INC. SIONIX CORPORATION 1 Ada, Suite 270 which will do business in California Irvine, CA 92618 as SIONIX SYSTEMS CORPORATION 9272 Jeronimo Road, Suite 108 Irvine, CA 92618 with a copy of notices to: IRVINE INDUSTRIAL COMPANY P.O. Box 6370 Newport Beach, CA 92658-6370 Attn: Vice President, Industrial Operations 13. Tenant's Liability Insurance Requirement: $1,000,000.00 14. Vehicle Parking Spaces: (10) 1 2 ARTICLE II. PREMISES SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant leases from Landlord the premises shown in Exhibit A (the "Premises"), containing approximately the floor area set forth in Item 8 of the Basic Lease Provisions and known by the suite number identified in Item 1 of the Basic Lease Provisions. The Premises are located in the building identified in Item 1 of the Basic Lease Provisions (which together with the underlying real property, is called the "Building"), and is a portion of the project shown in Exhibit Y (the "Project"). Tenant understands that the floor area set forth in Item 8 of the Basic Lease Provisions may include, at Landlord's option, a factor approximating the total square footage of any common lobby or internal common features of the Building times the ratio of the actual square footage of the Premises to the total square footage of the Building. If, at any time and from time to time, Landlord's architect or space planner determines that the rentable square footage of the Premises differs from that set forth in the Basic Lease Provisions, then Landlord shall so notify Tenant and the Basic Rent (as shown in Item 6 of the Basic Lease Provisions) shall be promptly adjusted in proportion to the change in square footage. Within five (5) days following Landlord's request, the parties shall memorialize the adjustments by executing an amendment to this Lease prepared by Landlord, provided that the failure or refusal by either party to execute the amendment shall not affect its validity. SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that neither Landlord nor any representative of Landlord has made any representations or warranty with respect to the Premises or the Building or the suitability or fitness of either for any purpose, including without limitation any representations or warranties regarding zoning or other land use matters, and that neither Landlord nor any representative of Landlord has made any representations or warranties regarding (i) what other tenants or uses may be permitted or intended in the Building and the Project, or (ii) any exclusivity of use by Tenant with respect to its permitted use of the Premises as set forth in Item 3 of the Basic Lease Provisions. It is further understood that Tenant shall take possession of the Premises as of the Commencement Date of the Lease in an "as-is" condition without further obligation on Landlord's part as to improvements whatsoever. SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any name selected by Landlord from time to time for the Building and/or the Project as any part of Tenant's corporate or trade name. Landlord shall have the right to change the name, address, number or designation of the Building or Project without liability to Tenant. ARTICLE III. TERM SECTION 3.1. GENERAL. The Term shall be for the period shown in Item 5 of the Basic Lease Provisions. The Term shall commence ("Commencement Date") on the date set forth in Item 4 of the Basic Lease Provisions and will expire in said item. SECTION 3.2. DELAY IN POSSESSION. If Landlord, for any reason whatsoever, cannot deliver possession of the Premises to Tenant on or before the Commencement Date, this Lease shall not be void or voidable nor shall Landlord be liable to Tenant for any resulting loss or damage. However, Tenant shall not be liable for any rent and the Commencement Date shall not occur until Landlord delivers possession of the Premises and the Premises are in fact available for Tenant's occupancy, except that if Landlord's failure to so deliver possession on the Commencement Date is attributable to any action or inaction by Tenant, then the Commencement Date shall not be advanced to the date on which possession of the Premises is tendered to Tenant, and Landlord shall be entitled to full performance by Tenant (including the payment of rent) from the date Landlord would have been able to deliver the Premises to Tenant but for Tenant's delay(s). ARTICLE IV. RENT AND OPERATING EXPENSES SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant shall pay to Landlord without deduction or offset, Basic Rent for the Premises in the total amount shown (including subsequent adjustments, if any) in Item 6 of the Basic Lease Provisions. Any rental adjustment shown in Item 6 shall be deemed to occur on the specified monthly anniversary of the Commencement Date, whether or not that date occurs at the end of a calendar month. The rent shall be due and payable in advance commencing on the Commencement Date (as prorated for any partial month) and continuing thereafter on the first day of each successive calendar month of the Term. No demand, notice or invoice shall be required for the payment of Basic Rent. An installment of rent in the amount of one (1) full month's Basic Rent at the initial rate specified in Item 6 of the Basic Lease Provisions shall be delivered to Landlord concurrently with Tenant's execution of this Lease and shall be applied against the Basic Rent first due hereunder. SECTION 4.2. OPERATING EXPENSES. (a) Tenant shall pay to Landlord, as additional rent, Tenant's Share of "Operating Expenses", as defined below, incurred by Landlord in the operation of the Building and Project. The term "Tenant's Share" means that portion of an Operating Expense determined by multiplying the cost of such item by a fraction, the numerator of which 2 3 is the floor area of the Premises and the denominator of which is the total square footage of the floor area, as of the date on which the computation is made, to be charged with such Operating Expense. (b) Commencing prior to the start of the first full "Expense Recovery Period" (as defined below) of the Lease, and prior to the start of each full or partial Expense Recovery Period thereafter, Landlord shall give Tenant a written estimate of the amount of Tenant's Share of Operating Expenses for the Expense Recovery Period. Tenant shall pay the estimated amounts to Landlord in equal monthly installments, in advance, with Basic Rent. If Landlord has not furnished its written estimate for any Expense Recovery Period by the time set forth above, Tenant shall continue to pay cost reimbursements at the rates established for the prior Expense Recovery Period, if any; provided that when the new estimate is delivered to Tenant, Tenant shall, at the next monthly payment date, pay any accrued cost reimbursements based upon the new estimate. For purposes hereof, "Expense Recovery Period" shall mean every twelve month period during the Term (or portion thereof for the first and last lease years) commencing July 1 and ending June 30. (c) Within one hundred twenty (120) days after the end of each Expense Recovery Period, Landlord shall furnish to Tenant a statement showing in reasonable detail the actual or prorated Operating Expenses incurred by Landlord during the period, and the parties shall within thirty (30) days thereafter make any payment or allowance necessary to adjust Tenant's estimated payments, if any, to the actual Tenant's Share as shown by the annual statement. Any delay or failure by Landlord in delivering any statement hereunder shall not constitute a waiver of Landlord's right to require Tenant to pay Tenant's Share of Operating Expenses pursuant hereto. Any amount due Tenant shall be credited against installments next coming due under this Section 4.2, and any deficiency shall be paid by Tenant together with the next installment. If Tenant has not made estimated payments during the Expense Recovery Period, any amount owing by Tenant pursuant to subsection (a) above shall be paid to Landlord in accordance with Article VI. Should Tenant fail to object in writing to Landlord's determination of actual Operating Expenses within sixty (60) days following delivery of Landlord's expense statement, Landlord's determination of actual Operating Expenses for the applicable Expense Recovery Period shall be conclusive and binding on the parties and any future claims to the contrary shall be barred. (d) Even though the Lease has terminated and the Tenant has vacated the Premises, when the final determination is made of Tenant's Share of Operating Expenses for the Expense Recovery Period in which the Lease terminates, Tenant shall upon notice pay the entire increase due over the estimated expenses paid. Conversely, any overpayment made in the event expenses decrease shall be rebated by Landlord to Tenant. (e) If, at any time during any Expense Recovery Period, any one or more of the Operating Expenses are increased to a rate(s) or amount(s) in excess of the rate(s) or amount(s) used in calculating the estimated expenses for the year, then the estimate of Tenant's Share of Operating Expenses shall be increased for the month in which such rate(s) or amount(s) becomes effective and for all succeeding months by an amount equal to Tenant's Share of the increase. Landlord shall give Tenant written notice of the amount or estimated amount of the increase, the month in which the increase will become effective, Tenant's Share thereof and the month for which the payments are due. Tenant shall pay the increase to Landlord as a part of Tenant's monthly payments of estimated expenses as provided in paragraph (b) above, commencing with the month in which effective. (f) The term "Operating Expenses" shall mean and include all "Project Costs" (as hereafter defined) and "Property Taxes" (as hereafter defined). (g) The term "Project Costs" shall include all expenses of operation and maintenance of the Building and the Project, together with all appurtenant Common Areas (as defined in Section 6.2), and shall include the following charges by way of illustration but not limitation: water and sewer charges; insurance premiums or reasonable premium equivalents should Landlord elect to self-insure any risk that Landlord is authorized to insure hereunder; license, permit, and inspection fees; heat; light; power; janitorial services to any interior Common Areas; air conditioning; supplies; materials; equipment; tools; the cost of any environmental, insurance, tax or other consultant utilized by Landlord in connection with the Building and/or Project; establishment of reasonable reserves for replacements and/or repair of Common Area improvements, equipment and supplies; costs incurred in connection with compliance of any laws or changes in laws applicable to the Building or the Project; the cost of any capital investments (other than tenant improvements for specific tenants) to the extent of the amortized amount thereof over the useful life of such capital investments calculated at a market cost of funds, all as determined by Landlord, for each such year of useful life during the Term; costs associated with the procurement and maintenance of an air conditioning, heating and ventilation service agreement, and procurement and maintenance of an intrabuilding network cable service agreement for any intrabuilding network cable telecommunications lines within the Project, and any other installation, maintenance, repair and replacement costs associated with such lines; labor; reasonably allocated wages and salaries, fringe benefits, and payroll taxes for administrative and other personnel directly applicable to the Building and/or Project, including both Landlord's personnel and outside personnel; any expense incurred pursuant to Sections 6.1, 6.2, 6.4, 7.2 and 10.2; and a reasonable overhead/management fee for the professional operation of the Project. Notwithstanding anything to the contrary herein, Tenant's Share of any such property management fees shall be determined by multiplying the actual property management fee charged (which from time to time may be with respect to the Building only, a portion of the Project only, the entire Project, or the Project together with other properties owned by Landlord and/or its affiliates) by a fraction, the numerator of which is the floor area of the Premises (as set forth in Item 8 of the Basic Lease Provisions contained in the Lease), and the denominator of which is the total square footage of space charged with such management fee actually leased to tenants (including Tenant). It is understood that Project Costs shall include competitive charges for direct services provided by any subsidiary or division of Landlord. 3 4 (h) The term "Property Taxes" as used herein shall include the following: (i) all real estate taxes or personal property taxes, as such property taxes may be reassessed from time to time; and (ii) other taxes, charges and assessments which are levied with respect to this Lease or to the Building and/or the Project, and any improvements, fixtures and equipment and other property of Landlord located in the Building and/or the Project, except that general net income and franchise taxes imposed against Landlord shall be excluded; and (iii) all assessments and fees for public improvements, services, and facilities and impacts thereon, including without limitation arising out of any Community Facilities Districts, "Mello Roos" districts, similar assessment districts, and any traffic impact mitigation assessments or fees; (iv) any tax, surcharge or assessment which shall be levied in addition to or in lieu of real estate or personal property taxes, other than taxes covered by Article VIII; and (v) costs and expenses incurred in contesting the amount or validity of any Property Tax by appropriate proceedings. SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of this Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9 of the Basic Lease Provisions, to be held by Landlord as security for the full and faithful performance of Tenant's obligations under this Lease (the "Security Deposit"). Subject to the last sentence of this Section, the Security Deposit shall be understood and agreed to be the property of Landlord upon Landlord's receipt thereof, and may be utilized by Landlord in its discretion towards the payment of all prepaid expenses by Landlord for which Tenant would be required to reimburse Landlord under this Lease, including without limitation brokerage commissions. Upon any default by Tenant, including, specifically Tenant's failure to pay rent or to abide by its obligations under Sections 7.1 and 15.3 below, whether or not Landlord is informed of or has knowledge of the default, the Security Deposit shall be deemed to be automatically and immediately applied, without waiver of any rights Landlord may have under this Lease or at law or in equity as a result of the default, as a setoff for full or partial compensation for that default. If any portion of the Security Deposit is applied after a default by Tenant, Tenant shall within five (5) days after written demand by Landlord deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount. Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on the Security Deposit. If Tenant fully performs its obligations under this Lease, the Security Deposit shall be returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest in this Lease) after the expiration of the Term, provided that Landlord may retain the Security Deposit to the extent and until such time as all amounts due from Tenant in accordance with this Lease have been determined and paid in full. ARTICLE V. USES SECTION 5.1. USE. Tenant shall use the Premises only for the purposes stated in Item 3 of the Basic Lease Provisions, all in accordance with applicable laws and restrictions and pursuant to approvals to be obtained by Tenant from all relevant and required governmental agencies and authorities. The parties agree that any contrary use shall be deemed to cause material and irreparable harm to Landlord and shall entitle Landlord to injunctive relief in addition to any other available remedy. Tenant, at its expense, shall procure, maintain and make available for Landlord's inspection throughout the Term, all governmental approvals, licenses and permits required for the proper and lawful conduct of Tenant's permitted use of the Premises. Tenant shall not do or permit anything to be done in or about the Premises which will in any way interfere with the rights of other occupants of the Building or the Project, or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant permit any nuisance or commit any waste in the Premises or the Project. Tenant shall not perform any work or conduct any business whatsoever in the Project other than inside the Premises. Tenant shall not do or permit to be done anything which will invalidate or increase the cost of any insurance policy(ies) covering the Building, the Project and/or the their contents, and shall comply with all applicable insurance underwriters rules and the requirements of the Pacific Fire Rating Bureau or any other organization performing a similar function. Tenant shall comply at its expense with all present and future laws, ordinances, restrictions, regulations, orders, rules and requirements of all governmental authorities that pertain to Tenant or its use of the Premises, including without limitation all federal and state occupational health and safety requirements, whether or not Tenant's compliance will necessitate expenditures or interfere with its use and enjoyment of the Premises. Tenant shall comply at its expense with all present and future covenants, conditions, easements or restrictions now or hereafter affecting or encumbering the Building and/or Project, and any amendments or modifications thereto, including without limitation the payment by Tenant of any periodic or special dues or assessments charged against the Premises or Tenant which may be allocated to the Premises or Tenant in accordance with the provisions thereof. Tenant shall promptly upon demand reimburse Landlord for any additional insurance premium charged by reason of Tenant's failure to comply with the provisions of this Section, and shall indemnify Landlord from any liability and/or expense resulting from Tenant's noncompliance. SECTION 5.2. SIGNS. Except as approved in writing by Landlord, in its sole discretion, Tenant shall have no right to maintain identification signs in any location in, on or about the Premises, the Building or the Project and shall not place or erect any other signs, displays or other advertising materials that are visible from the exterior of the Building. The size, design, graphics, material, style, color and other physical aspects of any permitted sign shall be subject to Landlord's written approval prior to installation (which approval may be withheld in Landlord's discretion), any covenants, conditions or restrictions encumbering the Premises, Landlord's signage program for the Project, as in effect from time to time and approved by the City in which the Premises are located ("Signage Criteria"), and any applicable municipal or other governmental permits and approvals. Tenant acknowledges having received and reviewed a copy of the current Signage Criteria for the Project. Tenant shall be responsible for the cost of any permitted sign, including the fabrication, installation, maintenance and removal thereof. If Tenant fails to maintain its sign, or if Tenant fails to remove same upon termination of this Lease and repair any damage caused by such removal, Landlord may do so at Tenant's expense. 4 5 SECTION 5.3 HAZARDOUS MATERIALS. (a) For purposes of this Lease, the term "Hazardous Materials" includes (i) any "hazardous materials" as defined in Section 25501(n) of the California Health and Safety Code, (ii) any other substance or matter which results in liability to any person or entity from exposure to such substance or matter under any statutory or common law theory, and (iii) any substance or matter which is in excess of permitted levels set forth in any federal, California or local law or regulation pertaining to any hazardous or toxic substance, material or waste. (b) Tenant shall not cause or permit any Hazardous Materials to be brought upon, stored, used, generated, released or disposed of on, under, from or about the Premises (including without limitation the soil and groundwater thereunder) without the prior written consent of Landlord. Notwithstanding the foregoing, Tenant shall have the right, without obtaining prior written consent of Landlord, to utilize within the Premises standard office products that may contain Hazardous Materials (such as photocopy toner, "White Out", and the like), provided however, that (i) Tenant shall maintain such products in their original retail packaging, shall follow all instructions on such packaging with respect to the storage, use and disposal of such products, and shall otherwise comply with all applicable laws with respect to such products, and (ii) all of the other terms and provisions of this Section 5.3 shall apply with respect to Tenant's storage, use and disposal of all such products. Landlord may, in its sole discretion, place such conditions as Landlord deems appropriate with respect to any such Hazardous Materials, and may further require that Tenant demonstrate that any such Hazardous Materials are necessary or useful to Tenant's business and will be generated, stored, used and disposed of in a manner that complies with all applicable laws and regulations pertaining thereto and with good business practices. Tenant understands that Landlord may utilize an environmental consultant to assist in determining conditions of approval in connection with the storage, generation, release, disposal or use of Hazardous Materials by Tenant on or about the Premises, and/or to conduct periodic inspections of the storage, generation, use, release and/or disposal of such Hazardous Materials by Tenant on and from the Premises, and Tenant agrees that any costs incurred by Landlord in connection therewith shall be reimbursed by Tenant to Landlord as additional rent hereunder upon demand. (c) Prior to the execution of this Lease, Tenant shall complete, execute and deliver to Landlord an Environmental Questionnaire and Disclosure Statement (the "Environmental Questionnaire") in the form of Exhibit B attached hereto. The completed Environmental Questionnaire shall be deemed incorporated into this Lease for all purposes, and Landlord shall be entitled to rely fully on the information contained therein. On each anniversary of the Commencement Date until the expiration or sooner termination of this Lease, Tenant shall disclose to Landlord in writing the names and amounts of all Hazardous Materials which were stored, generated, used, released and/or disposed of on, under or about the Premises for the twelve-month period prior thereto, and which Tenant desires to store, generate, use, release and/or dispose of on, under or about the Premises for the succeeding twelve-month period. In addition, to the extent Tenant is permitted to utilize Hazardous Materials upon the Premises, Tenant shall promptly provide Landlord with complete and legible copies of all the following environmental documents relating thereto: reports filed pursuant to any self-reporting requirements; permit applications, permits, monitoring reports, workplace exposure and community exposure warnings or notices and all other reports, disclosures, plans or documents (even those which may be characterized as confidential) relating to water discharges, air pollution, waste generation or disposal, and underground storage tanks for Hazardous Materials; orders, reports, notices, listings and correspondence (even those which may be considered confidential) of or concerning the release, investigation of, compliance, cleanup, remedial and corrective actions, and abatement of Hazardous Materials; and all complaints, pleadings and other legal documents filed by or against Tenant related to Tenant's use, handling, storage, release and/or disposal of Hazardous Materials. (d) Landlord and its agents shall have the right, but not the obligation, to inspect, sample and/or monitor the Premises and/or the soil or groundwater thereunder at any time to determine whether Tenant is complying with the terms of this Section 5.3, and in connection therewith Tenant shall provide Landlord with full access to all relevant facilities, records and personnel. If Tenant is not in compliance with any of the provisions of this Section 5.3, or in the event of a release of any Hazardous Material on, under or about the Premises caused or permitted by Tenant, its agents, employees, contractors, licensees or invitees, Landlord and its agents shall have the right, but not the obligation, without limitation upon any of Landlord's other rights and remedies under this Lease, to immediately enter upon the Premises without notice and to discharge Tenant's obligations under this Section 5.3 at Tenant's expense, including without limitation the taking of emergency or long-term remedial action. Landlord and its agents shall endeavor to minimize interference with Tenant's business in connection therewith, but shall not be liable for any such interference. In addition, Landlord, at Tenant's expense, shall have the right, but not the obligation, to join and participate in any legal proceedings or actions initiated in connection with any claims arising out of the storage, generation, use, release and/or disposal by Tenant or its agents, employees, contractors, licensees or invitees of Hazardous Materials, on, under, from or about the Premises. (e) If the presence of any Hazardous Materials on, under, from or about the Premises or the Project caused or permitted by Tenant or its agents, employees, contractors, licensees or invitees results in (i) injury to any person, (ii) injury to or any contamination of the Premises or the Project, or (iii) injury to or contamination of any real or personal property wherever situated, Tenant, at its expense, shall promptly take all actions necessary to return the Premises and the Project and any other affected real or personal property owned by Landlord to the condition existing prior to the introduction of such Hazardous Materials and to remedy or repair any such injury or contamination, including without limitation, any cleanup, remediation, removal, disposal, neutralization or other treatment of any such Hazardous Materials. Notwithstanding the foregoing, Tenant shall not, without Landlord's prior written consent, take any remedial action in response to the presence of any Hazardous Materials on, under or about the Premises or the Project or any other affected real or personal property owned by Landlord or enter into any similar agreement, consent, decree or other compromise with any governmental agency with respect to any Hazardous Materials claims; provided however, 5 6 Landlord's prior written consent shall not be necessary in the event that the presence of Hazardous Materials on, under or about the Premises or the Project or any other affected real or personal property owned by Landlord (i) imposes an immediate threat to the health, safety or welfare of any individual or (ii) is of such a nature that an immediate remedial response is necessary and it is not possible to obtain Landlord's consent before taking such action. To the fullest extent permitted by law, Tenant shall indemnify, hold harmless, protect and defend (with attorneys acceptable to Landlord) Landlord and any successors to all or any portion of Landlord's interest in the Premises and the Project and any other real or personal property owned by Landlord from and against any and all liabilities, losses, damages, diminution in value, judgments, fines, demands, claims, recoveries, deficiencies, costs and expenses (including without limitation attorneys' fees, court costs and other professional expenses), whether foreseeable or unforeseeable, arising directly or indirectly out of the use, generation, storage, treatment, release, on- or off-site disposal or transportation of Hazardous Materials on, into, from, under or about the Premises, the Building and the Project and any other real or personal property owned by Landlord caused or permitted by Tenant, its agents, employees, contractors, licensees or invitees, specifically including without limitation the cost of any required or necessary repair, restoration, cleanup or dextexification of the Premises, the Building and the Project and any other real or personal property owned by Landlord, and the preparation of any closure or other required plans, whether or not such action is required or necessary during the Term or after the expiration of this Lease. If Landlord at any time discovers that Tenant or its agents, employees, contractors, licensees or invitees may have caused or permitted the release of a Hazardous Material on, under, from or about the Premises or the Project or any other real or personal property owned by Landlord, Tenant shall, at Landlord's request, immediately prepare and submit to Landlord a comprehensive plan, subject to Landlord's approval, specifying the actions to be taken by Tenant to return the Premises or the Project or any other real or personal property owned by Landlord to the condition existing prior to the introduction of such Hazardous Materials. Upon Landlord's approval of such cleanup plan, Tenant shall, at its expense, and without limitation of any rights and remedies of Landlord under this Lease or at law or in equity, immediately implement such plan and proceed to cleanup such Hazardous Materials in accordance with all applicable laws and as required by such plan and this Lease. The provisions of this subsection (e) shall expressly survive the expiration or sooner termination of this Lease. (f) Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, certain facts relating to Hazardous Materials at the Project known by Landlord to exist as of the date of this Lease, as more particularly described in Exhibit C attached hereto. Tenant shall have no liability or responsibility with respect to the Hazardous Materials facts described in Exhibit C, nor with respect to any Hazardous Materials which Tenant proves were not caused or permitted by Tenant, its agents, employees, contractors, licensees or invitees. Notwithstanding the preceding two sentences, Tenant agrees to notify its agents, employees, contractors, licensees, and invitees of any exposure or potential exposure to Hazardous Materials at the Premises that Landlord brings to Tenant's attention. ARTICLE VI. COMMON AREAS; SERVICES SECTION 6.1. UTILITIES AND SERVICES. Tenant shall be responsible for and shall pay promptly, directly to the appropriate supplier, all charges for water, gas, electricity, sewer, heat, light, power, telephone, refuse pickup, janitorial service, interior landscape maintenance and all other utilities, materials and services furnished directly to Tenant or the Premises or used by Tenant in, on or about the Premises during the Term, together with any taxes thereon. If any utilities or services are not separately metered or assessed to Tenant, Landlord shall make a reasonable determination of Tenant's proportionate share of the cost of such utilities and services and Tenant shall pay such amount to Landlord, as an item of additional rent, within ten (10) days after receipt of Landlord's statement or invoice therefor. Alternatively, Landlord may elect to include such cost in the definition of Building Costs in which event Tenant shall pay Tenant's proportionate share of such costs in the manner set forth in Section 4.2. Landlord shall not be liable for damages or otherwise for any failure or interruption of any utility or other service furnished to the Premises, and no such failure or interruption shall be deemed an eviction or entitle Tenant to terminate this Lease or withhold or abate any rent due hereunder. Landlord shall at all reasonable times have free access to all electrical and mechanical installations of Landlord. SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the Term, Landlord shall operate all Common Areas within the Building and the Project. The term "Common Areas" shall mean all areas within the exterior boundaries of the Building and other buildings in the Project which are not held for exclusive use by persons entitled to occupy space, and all other appurtenant areas and improvements provided by Landlord for the common use of Landlord and tenants and their respective employees and invitees, including without limitation parking areas and structures, driveways, sidewalks, landscaped and planted areas, hallways and interior stairwells not located within the premises of any tenant, common electrical rooms and roof access entries, common entrances and lobbies, elevators, and restrooms not located within the premises of any tenant. SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the Premises shall include the use of the Common Areas in common with Landlord and with all others for whose convenience and use the Common Areas may be provided by Landlord, subject, however, to compliance with all rules and regulations as are prescribed from time to time by Landlord. Landlord shall operate and maintain the Common Areas in the manner Landlord may determine to be appropriate. All costs incurred by Landlord for the maintenance and operation of the Common Areas shall be included in Project Costs unless any particular cost incurred can be charged to a specific tenant of the Project. Landlord shall at all times during the Term have exclusive control of the Common Areas, and may restrain any use of occupancy, except as authorized by Landlord's rules and regulations. Tenant shall keep the Common Areas clear of any obstruction or unauthorized use related to Tenant's operations. Nothing in this Lease shall be deemed to impose liability 6 7 upon Landlord for any damage to or loss of the property of, or for any injury to, Tenant, its invitees or employees. Landlord may temporarily close any portion of the Common Areas for repairs, remodeling and/or alterations, to prevent a public dedication or the accrual of prescriptive rights, or for any other reason deemed sufficient by Landlord, without liability to Landlord. SECTION 6.4. PARKING. Tenant shall be entitled to the number of vehicle parking spaces set forth in Item 14 of the Basic Lease Provisions, which spaces shall be unreserved and unassigned, on those portions of the Common Areas designated by Landlord for parking. Tenant shall not use more parking spaces than such number. All parking spaces shall be used only for parking by vehicles no larger than full size passenger automobiles or pickup trucks. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, shippers, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. If Tenant permits or allows any of the prohibited activities described above, then Landlord shall have the right, without notice, in addition to such other rights and remedies that Landlord may have, to remove or tow away the vehicle involved and charge the costs to Tenant. Parking within the Common Areas shall be limited to striped parking stalls, and no parking shall be permitted in any driveways, access ways or in any area which would prohibit or impede the free flow of traffic within the Common Areas. There shall be no overnight parking of any vehicles of any kind unless otherwise authorized by Landlord, and vehicles which have been abandoned or parked in violation of the terms hereof may be towed away at the owner's expense. Nothing contained in this Lease shall be deemed to create liability upon Landlord for any damage to motor vehicles of visitors or employees, for any loss of property from within those motor vehicles, or for any injury to Tenant, its visitors or employees, unless ultimately determined to be caused by the sole active negligence or willful misconduct of Landlord. Landlord shall have the right to establish, and from time to time amend, and to enforce against all users all reasonable rules and regulations (including the designation of areas for employee parking) that Landlord may deem necessary and advisable for the proper and efficient operation and maintenance of parking within the Common Areas. Landlord shall have the right to construct, maintain and operate lighting facilities within the parking areas; to change the area, level, location and arrangement of the parking areas and improvements therein; to restrict parking by tenants, their officers, agents and employees to employee parking areas; to enforce parking charges (by operation of meters or otherwise); and to do and perform such other acts in and to the parking areas and improvements therein as, in the use of good business judgment, Landlord shall determine to be advisable. Any person using the parking area shall observe all directional signs and arrows and any posted speed limits. In no event shall Tenant interfere with the use and enjoyment of the parking area by other tenants of the Building or their employees or invitees. Parking areas shall be used only for parking vehicles. Washing, waxing, cleaning or servicing of vehicles, or the storage of vehicles for 24-hour periods, is prohibited unless otherwise authorized by Landlord. Tenant shall be liable for any damage to the parking areas caused by Tenant or Tenant's employees, suppliers, shippers, customers or invitees, including without limitation damage from excess oil leakage. Tenant shall have no right to install any fixtures, equipment or personal property in the parking areas. SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the right to make alterations or additions to the Building or the Project, or to the attendant fixtures, equipment and Common Areas. Landlord may at any time relocate or remove any of the various buildings, parking areas, and other Common Areas, and may add buildings and areas to the Project from time to time. No change shall entitle Tenant to any abatement of rent or other claim against Landlord, provided that the change does not deprive Tenant of reasonable access to or use of the Premises. ARTICLE VII. MAINTAINING THE PREMISES SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole expense shall comply with all applicable laws and governmental regulations governing the Premises and make all repairs necessary to keep the Premises in the condition as existed on the Commencement Date, excepting ordinary wear and tear, including without limitation all glass, windows, doors, door closures, hardware, fixtures, electrical, plumbing, fire extinguisher equipment and other equipment. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices by Tenant. As part of its maintenance obligations hereunder, Tenant shall, at Landlord's request, provide Landlord with copies of all maintenance schedules, reports and notices prepared by, for or on behalf of Tenant. All repairs shall be at least equal in quality to the original work, shall be made only by a licensed contractor approved in writing in advance by Landlord and shall be made only at the time or times approved by Landlord. Any contractor utilized by Tenant shall be subject to Landlord's standard requirements for contractors, as modified from time to time. Landlord may impose reasonable restrictions and requirements with respect to repairs, as provided in Section 7.3, and the provisions of Section 7.4 shall apply to all repairs. Alternatively, Landlord may elect to make any such repair on behalf of Tenant and at Tenant's expense, and Tenant shall promptly reimburse Landlord for all costs incurred upon submission of an invoice. SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR. Subject to Section 7.1 and Article XI, Landlord shall provide service, maintenance and repair with respect to any air conditioning, ventilating or heating equipment which serves the Premises and shall maintain in good repair the roof, foundations, footings, the exterior surfaces of the exterior walls of the Building, and the structural, electrical and mechanical systems, except that Tenant at its expense shall make all repairs which Landlord deems reasonably necessary as a result of the act or negligence of Tenant, its agents, employees, invitees, subtenants or contractors. Landlord shall have the right to employ or designate any reputable person or firm, including any employee or agent of Landlord or any of Landlord's affiliates or divisions, to perform any service, repair or maintenance function. Landlord need not make any other improvements or repairs 8 except as specifically required under this Lease, and nothing contained in this Section shall limit Landlord's right to reimbursement from Tenant for maintenance, repair costs and replacement costs as provided elsewhere in this Lease. Tenant understands that it shall not make repairs at Landlord's expense or by rental offset. Tenant further understands that Landlord shall not be required to make any repairs to the roof, foundations, footings, structural, electrical or mechanical systems unless and until Tenant has notified Landlord in writing of the need for such repair and Landlord shall have a reasonable period of time thereafter to commence and complete said repair, if warranted. All costs of any maintenance and repairs on the part of Landlord provided hereunder shall be considered part of Project Costs. SECTION 7.3. ALTERATIONS. Tenant shall make no alterations or improvements to the Premises without the prior written consent of Landlord, which consent may be given or withheld in Landlord's sole discretion. Notwithstanding the foregoing, Landlord shall not unreasonably withhold its consent to any alterations, additions or improvements to the Premises which cost less than One Dollar ($1.00) per square foot of the improved portions of the Premises (excluding warehouse square footage) and do not (i) affect the exterior of the Building or outside areas (or be visible from adjoining sites), or (ii) affect or penetrate any of the structural portions of the Building, including but not limited to the roof, or (iii) require any change to the basic floor plan of the Premises, any change to any structural or mechanical systems of the Premises, or any governmental permit as a prerequisite to the construction thereof, or (iv) interfere in any manner with the proper functioning of or Landlord's access to any mechanical, electrical, plumbing or HVAC systems, facilities or equipment located in or serving the Building, or (v) diminish the value of the Premises. Landlord may impose, as a condition to its consent, any requirements that Landlord in its discretion may deem reasonable or desirable, including but not limited to a requirement that all work be covered by a lien and completion bond satisfactory to Landlord and requirements as to the manner, time, and contractor for performance of the work. Tenant shall obtain all required permits for the work and shall perform the work in compliance with all applicable laws, regulations and ordinances, all covenants, conditions and restrictions affecting the Project, and the Rules and Regulations (hereinafter defined). Tenant understands and agrees that Landlord shall be entitled to a supervision fee in the amount of five percent (5%) of the cost of the work. If any governmental entity requires, as a condition to any proposed alterations, additions or improvements to the Premises by Tenant, that improvements be made to the Common Areas, and if Landlord consents to such improvements to the Common Areas, then Tenant shall, at Tenant's sole expense, make such required improvements to the Common Areas in such manner, utilizing such materials, and with such contractors (including, if required by Landlord, Landlord's contractors) as Landlord may require in its sole discretion. Under no circumstances shall Tenant make any improvement which incorporates any Hazardous Materials, including without limitation asbestos-containing construction materials into the Premises. Any request for Landlord's consent shall be made in writing and shall contain architectural plans describing the work in detail reasonably satisfactory to Landlord. Unless Landlord otherwise agrees in writing, all alterations, additions or improvements affixed to the Premises (excluding moveable trade fixtures and furniture) shall become the property of Landlord and shall be surrendered with the Premises at the end of the Term, except that Landlord may, by notice to Tenant, require Tenant to remove by the Expiration Date, or sooner termination of this Lease, all or any alterations, decorations, fixtures, additions, improvements and the like installed either by Tenant or by Landlord at Tenant's request and to repair any damage to the Premises arising from that removal. Except as otherwise provided in this Lease or in any Exhibit to this Lease, should Landlord make any alteration or improvement to the Premises for Tenant, Landlord shall be entitled to prompt reimbursement from Tenant for all costs incurred. SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished, or obligations incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly cause any such lien to be released by posting a bond in accordance with California Civil Code Section 3143 or any successor statute. In the event that Tenant shall not, within thirty (30) days following the imposition of any lien, cause the lien to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other available remedies, the right to cause the lien to be released by any means it deems proper, including payment of or defense against the claim giving rise to the lien. All expenses so incurred by Landlord, including Landlord's attorneys' fees, and any consequential or other damages incurred by Landlord arising out of such lien, shall be reimbursed by Tenant promptly following Landlord's demand, together with interest from the date of payment by Landlord at the maximum rate permitted by law until paid. Tenant shall give Landlord no less than twenty (20) days' prior notice in writing before commencing construction of any kind on the Premises so that Landlord may post and maintain notices of nonresponsibility on the Premises. SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable times, upon written or oral notice (except in emergencies, when no notice shall be required) have the right to enter the Premises to inspect them, to supply services in accordance with this Lease, to protect the interests of Landlord in the Premises, and to submit the Premises to prospective or actual purchasers or encumbrance holders (or, during the last one hundred and eighty (180) days of the Term or when an uncured Tenant default exists, to prospective tenants), all without being deemed to have caused an eviction of Tenant and without abatement of rent except as provided elsewhere in this Lease. Landlord shall have the right, if desired, to retain a key which unlocks all of the doors in the Premises, excluding Tenant's vaults and safes, and Landlord shall have the right to use any and all means which Landlord may deem proper to open the doors in an emergency in order to obtain entry to the Premises, and any entry to the Premises obtained by Landlord shall not under any circumstances be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or any eviction of Tenant from the Premises. SECTION 7.6. SPACE PLANNING AND SUBSTITUTION. Landlord shall have the right, upon providing not less than forty-five (45) days written notice, to move Tenant to other space of comparable size in the Building or in the Project. The new space shall be provided with improvements of comparable quality to those within the Premises. Landlord shall pay the reasonable out-of-pocket costs to relocate and reconnect Tenant's personal property and equipment 8 9 within the new space; provided that Landlord may elect to cause such work to be done by its contractors. Landlord shall also reimburse Tenant for such other reasonable out-of-pocket costs that Tenant may incur in connection with the relocation, including without limitation necessary stationery revisions, provided that a reasonable estimate thereof is given to Landlord within twenty (20) days following Landlord's notice. In no event, however, shall Landlord be obligated to incur or fund total relocation costs, exclusive of tenant improvement expenditures, in an amount in excess of two (2) months of Basic Rent at the rate then payable hereunder. Within ten (10) days following request by Landlord, Tenant shall execute an amendment to this Lease prepared by Landlord to memorialize the relocation. Should Tenant fail timely to execute and deliver the amendment to Landlord for any reason (including without limitation the inability of the parties to reach an agreement on the proposed relocation), or should Tenant thereafter fail to comply with the terms thereof, then Landlord may at its option elect to terminate this Lease upon not less than ninety (90) days prior written notice to Tenant. In the event of such termination, Tenant's obligation to pay Basic Rent during the final two (2) months of the Term shall be waived. Upon the effective date of any termination of this Lease, Tenant shall vacate the Premises in accordance with Section 15.3. ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY Tenant shall be liable for and shall pay, at least ten (10) days before delinquency, all taxes and assessments levied against all personal property of Tenant located in the Premises, against all improvements to the Premises made by Landlord or Tenant which are above Landlord's Project standard in quality and/or quantity for comparable space within the Project ("Above Standard Improvements"), and against any alterations, additions or like improvements made to the Premises by or on behalf of Tenant. When possible Tenant shall cause its personal property, Above Standard Improvements and alterations to be assessed and billed separately from the real property of which the Premises form a part. If any taxes on Tenant's personal property, Above Standard Improvements and/or alterations are levied against Landlord or Landlord's property and if Landlord pays the same, or if the assessed value of Landlord's property is increased by the inclusion of a value placed upon the personal property, Above Standard Improvements and/or alterations of Tenant and if Landlord pays the taxes based upon the increased assessment, Tenant shall pay to Landlord the taxes so levied against Landlord or the proportion of the taxes resulting from the increase in the assessment. In calculating what portion of any tax bill which is assessed against Landlord separately, or Landlord and Tenant jointly, is attributable to Tenant's Above Standard Improvements, alterations and personal property, Landlord's reasonable determination shall be conclusive. ARTICLE IX. ASSIGNMENT AND SUBLETTING SECTION 9.1. RIGHTS OF PARTIES. (a) Notwithstanding any provision of this Lease to the contrary, Tenant will not, either voluntarily or by operation of law, assign, sublet, encumber, or otherwise transfer all or any part of Tenant's interest in this lease, or permit the Premises to be occupied by anyone other than Tenant, without Landlord's prior written consent, which consent shall not unreasonably be withheld in accordance with the provisions of Section 9.1(b). No assignment (whether voluntary, involuntary or by operation of law) and no subletting shall be valid or effective without Landlord's prior written consent and, at Landlord's election, any such assignment or subletting or attempted assignment or subletting shall constitute a material default of this Lease. Landlord shall not be deemed to have given its consent to any assignment or subletting by any other course of action, including its acceptance of any name for listing in the Building directory. To the extent not prohibited by provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"), including Section 365(f)(1), Tenant on behalf of itself and its creditors, administrators and assigns waives the applicability of Section 365(e) of the Bankruptcy Code unless the proposed assignee of the Trustee for the estate of the bankrupt meets Landlord's standard for consent as set forth in Section 9.1(b) of this Lease. If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other considerations to be delivered in connection with the assignment shall be delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to have assumed all of the obligations arising under this Lease on and after the date of the assignment, and shall upon demand execute and deliver to Landlord an instrument confirming that assumption. (b) If Tenant desires to transfer an interest in this Lease, it shall first notify Landlord of its desire and shall submit in writing to Landlord: (i) the name and address of the proposed transferee; (ii) the nature of any proposed subtenant's or assignee's business to be carried on in the Premises; (iii) the terms and provisions of any proposed sublease or assignment, including a copy of the proposed assignment or sublease form; (iv) evidence of insurance of the proposed assignee or subtenant complying with the requirements of Exhibit D hereto; (v) a completed Environmental Questionnaire from the proposed assignee or subtenant; and (vi) any other information requested by Landlord and reasonably related to the transfer. Except as provided in Subsection (c) of this Section, Landlord shall not unreasonably withhold its consent, provided: (1) the use of the Premises will be consistent with the provisions of this Lease and with Landlord's commitment to other tenants of the Building and Project; (2) the proposed assignee or subtenant has not been required by any prior landlord, lender or governmental authority to take remedial action in connection with Hazardous Materials contaminating a property arising out of the proposed assignee's or subtenant's actions or use of the property in question and is not subject to any enforcement order issued by any governmental 9 10 authority in connection with the use, disposal or storage of a Hazardous Material; (3) at Landlord's election, insurance requirements shall be brought into conformity with Landlord's then current leasing practice; (4) any proposed subtenant or assignee demonstrates that it is financially responsible by submission to Landlord of all reasonable information as Landlord may request concerning the proposed subtenant or assignee, including, but not limited to, a balance sheet of the proposed subtenant or assignee as of a date within ninety (90) days of the request for Landlord's consent, statements of income or profit and loss of the proposed subtenant or assignee for the two-year period preceding the request for Landlord's consent, and/or a certification signed by the proposed subtenant or assignee that it has not been evicted or been in arrears in rent at any other leased premises for the 3-year period preceding the request for Landlord's consent; (5) any proposed subtenant or assignee demonstrates to Landlord's reasonable satisfaction a record of successful experience in business; (6) the proposed assignee or subtenant is not an existing tenant of the Building or Project or a prospect with whom Landlord is negotiating to become a tenant at the Building or Project; and (7) the proposed transfer will not impose additional burdens or adverse tax effects on Landlord. If Tenant has any exterior sign rights under this Lease, such rights are personal to Tenant and may not be assigned or transferred to any assignee of this Lease or subtenant of the Premises without Landlord's prior written consent, which may be withheld in Landlord's sole and absolute discretion. If Landlord consents to the proposed transfer, Tenant may within ninety (90) days after the date of the consent effect the transfer upon the terms described in the information furnished to Landlord; provided that any material change in the terms shall be subject to Landlord's consent as set forth in this Section. Landlord shall approve or disapprove any requested transfer within thirty (30) days following receipt of Tenant's written request, the information set forth above, and the fee set forth below. (c) Notwithstanding the provisions of Subsection (b) above, in lieu of consenting to a proposed assignment or subletting, Landlord may elect to (i) sublease the Premises (or the portion proposed to be subleased), or take an assignment of Tenant's interest in this Lease, upon the same terms as offered to the proposed subtenant or assignee (excluding terms relating to the purchase of personal property, the use of Tenant's name or the continuation of Tenant's business), or (ii) terminate this Lease as to the portion of the Premises proposed to be subleased or assigned with a proportionate abatement in the rent payable under this Lease, effective on the date that the proposed sublease or assignment would have become effective. Landlord may thereafter, at its option, assign or re-let any space so recaptured to any third party, including without limitation the proposed transferee of Tenant. (d) Tenant agrees that fifty percent (50%) of any amounts paid by the assignee or subtenant, however described, in excess of (i) the Basic Rent payable by Tenant hereunder, or in the case of a sublease of a portion of the Premises, in excess of the Basic Rent reasonably allocable to such portion, plus (ii) Tenant's direct out-of-pocket costs which Tenant certifies to Landlord have been paid to provide occupancy related services to such assignee or subtenant of a nature commonly provided by landlords of similar space, shall be the property of Landlord and such amounts shall be payable directly to Landlord by the assignee or subtenant or, at Landlord's option, by Tenant. At Landlord's request, a written agreement shall be entered into by and among Tenant, Landlord and the proposed assignee or subtenant confirming the requirements of this subsection. (e) Tenant shall pay to Landlord a fee of Five Hundred Dollars ($500.00) if and when any transfer hereunder is requested by Tenant. Such fee is hereby acknowledged as a reasonable amount to reimburse Landlord for its costs of review and evaluation of a proposed assignee/sublessee, and Landlord shall not be obligated to commence such review and evaluation unless and until such fee is paid. SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with the consent of Landlord, shall relieve Tenant of its obligation to pay rent and to perform all its other obligations under this Lease. Moreover, Tenant shall indemnify and hold Landlord harmless, as provided in Section 10.3, for any act or omission by an assignee or subtenant. Each assignee, other than Landlord, shall be deemed to assume all obligations of Tenant under this Lease and shall be liable jointly and severally with Tenant for the payment of all rent, and for the due performance of all of Tenant's obligations, under this Lease. No transfer shall be binding on Landlord unless any document memorializing the transfer is delivered to Landlord and both the assignee/subtenant and Tenant deliver to Landlord an executed consent to transfer instrument prepared by Landlord and consistent with the requirements of this Article. The acceptance by Landlord of any payment due under this Lease from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any transfer. Consent by Landlord to one or more transfers shall not operate as a waiver or estoppel to the future enforcement by Landlord of its rights under this Lease. SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions shall apply to any subletting by Tenant of all or any part of the Premises and shall be deemed included in each sublease: (a) Each and every provision contained in this Lease (other than with respect to the payment of rent hereunder) is incorporated by reference into and made a part of such sublease, with "Landlord" hereunder meaning the sublandlord therein and "Tenant" hereunder meaning the subtenant therein. (b) Tenant hereby irrevocably assigns to Landlord all of Tenant's interest in all rentals and income arising from any sublease of the Premises, and Landlord may collect such rent and income and apply same toward Tenant's obligations under this Lease; provided, however, that until a default occurs in the performance of Tenant's obligations under this Lease, Tenant shall have the right to receive and collect the sublease rentals. Landlord shall not, by reason of this assignment or the collection of sublease rentals, be deemed liable to the subtenant for the performance of any of Tenant's obligations under the sublease. Tenant hereby irrevocably authorizes and directs any subtenant, upon 10 11 receipt of a written notice from Landlord stating that an uncured default exists in the performance of Tenant's obligations under this Lease, to pay to Landlord all sums then and thereafter due under the sublease. Tenant agrees that the subtenant may rely on that notice without any duty of further inquiry and notwithstanding any notice or claim by Tenant to the contrary. Tenant shall have no right or claims against the subtenant or Landlord for any rentals so paid to Landlord. (c) In the event of the termination of this Lease, Landlord may, at its sole option, take over Tenant's entire interest in any sublease and, upon notice from Landlord, the subtenant shall attorn to Landlord. In no event, however, shall Landlord be liable for any previous act or omission by Tenant under the sublease or for the return of any advance rental payments or deposits under the sublease that have not been actually delivered to Landlord, nor shall Landlord be bound by any sublease modification executed without Landlord's consent or for any advance rental payment by the subtenant in excess of one month's rent. The general provisions of this Lease, including without limitation those pertaining to insurance and indemnification, shall be deemed incorporated by reference into the sublease despite the termination of this Lease. SECTION 9.4. CERTAIN TRANSFERS. The sale of all or substantially all of Tenant's assets (other than bulk sales in the ordinary course of business) or, if Tenant is a corporation, an unincorporated association, or a partnership, the transfer, assignment or hypothecation of any stock or interest in such corporation, association, or partnership in the aggregate of twenty-five percent (25%) (except for publicly traded shares of stock constituting a transfer of twenty-five percent (25%) or more in the aggregate, so long as no change in the controlling interest of Tenant occurs as a result thereof) shall be deemed an assignment within the meaning and provisions of this Article. Notwithstanding the foregoing, Landlord's consent shall not be required for the assignment of this Lease as a result of a merger by Tenant with or into another entity, so long as (i) the net worth of the successor entity after such merger is at least equal to the greater of the net worth of Tenant as of the execution of this Lease by Landlord or the net worth of Tenant immediately prior to the date of such merger, evidence of which, satisfactory to Landlord, shall be presented to Landlord prior to such merger, (ii) Tenant shall provide to Landlord, prior to such merger, written notice of such merger and such assignment documentation and other information as Landlord may request in connection therewith, and (iii) all of the other terms and requirements of this Article shall apply with respect to such assignment. ARTICLE X. INSURANCE AND INDEMNITY SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense, shall provide and maintain in effect the insurance described in Exhibit D. Evidence of that insurance must be delivered to Landlord prior to the Commencement Date. SECTION 10.2. LANDLORD'S INSURANCE. Landlord may, at its election, provide any or all of the following types of insurance, with or without deductible and in amounts and coverages as may be determined by Landlord in its discretion: "all risk" property insurance, subject to standard exclusions, covering the Building or Project, and such other risks as Landlord or its mortgagees may from time to time deem appropriate, including leasehold improvements made by Landlord, and commercial general liability coverage. Landlord shall not be required to carry insurance of any kind on Tenant's property, including leasehold improvements, trade fixtures, furnishings, equipment, plate glass, signs and all other items or personal property, and shall not be obligated to repair or replace that property should damage occur. All proceeds of insurance maintained by Landlord upon the Building and Project shall be the property of Landlord, whether or not Landlord is obligated to or elects to make any repairs. At Landlord's option, Landlord may self-insure all or any portion of the risks for which Landlord elects to provide insurance hereunder. SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by law, Tenant shall defend, indemnify, protect, save and hold harmless Landlord, its agents, and any and all affiliates of Landlord, including, without limitation, any corporations or other entities controlling, controlled by or under common control with Landlord, from and against any and all claims, liabilities, costs or expenses arising either before or after the Commencement Date from Tenant's use or occupancy of the Premises, the Building or the Common Areas, or from the conduct of its business, or from any activity, work, or thing done, permitted or suffered by Tenant or its agents, employees, invitees or licensees in or about the Premises, the Building or the Common Areas, or from any default in the performance of any obligation on Tenant's part to be performed under this Lease, or from any act or negligence of Tenant or its agents, employees, visitors, patrons, guests, invitees or licensees. Landlord may, at its option, require Tenant to assume Landlord's defense in any action covered by this Section through counsel satisfactory to Landlord. The provisions of this Section shall expressly survive the expiration or sooner termination of this Lease. SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable to Tenant, its employees, agents and invitees, and Tenant hereby waives all claims against Landlord for loss of or damage to any property, or loss or interruption of business or income, or any other loss, cost, damage, injury or liability whatsoever (including without limitation any consequential damages and lost profit or opportunity costs) resulting from, but not limited to, Acts of God, acts of civil disobedience or insurrection, acts or omissions of other tenants within the Project or their agents, employees, contractors, guests or invitees, fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak or flow from or into any part of the Premises or from the breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning, electrical works or other fixtures in the Building, whether the damage or injury results from conditions arising in the Premises or in other portions of the Building. It is understand that any such condition may require the temporary evacuation or closure of all or a portion of the Building. Except as provided in Sections 11.1 and 12.1 below, there shall be no abatement of rent and no liability of Landlord by reason of any injury 11 12 to or interference with Tenant's business (including without limitation consequential damages and lost profit or opportunity costs) arising from the making of any repairs, alterations or improvements to any portion of the Building, including repairs to the Premises, nor shall any related activity by Landlord constitute an actual or constructive eviction; provided, however, that in making repairs, alterations or improvements, Landlord shall interfere as little as reasonably practicable with the conduct of Tenant's business in the Premises. Neither Landlord nor its agents shall be liable for interference with light or other similar intangible interests. Tenant shall immediately notify Landlord in case of fire or accident in the Premises, the Building or the Project and of defects in any improvements or equipment. SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waives all rights of recovery against the other and the other's agents on account of loss and damage occasioned to the property of such waiving party to the extent only that such loss or damage is required to be insured against under any "all risk" property insurance policies required by this Article X; provided however, that (i) the foregoing waiver shall not apply to the extent of Tenant's obligations to pay deductibles under any such policies and this Lease, and (ii) if any loss is due to the act, omission or negligence or willful misconduct of Tenant or its agents, employees, contractors, guests or invitees, Tenant's liability insurance shall be primary and shall cover all losses and damages prior to any other insurance hereunder. By this waiver it is the intent of the parties that neither Landlord nor Tenant shall be liable to any insurance company (by way of subrogation or otherwise) insuring the other party for any loss or damage insured against under any "all-risk" property insurance policies required by this Article, even though such loss or damage might be occasioned by the negligence of such party, its agents, employees, contractors, guests or invitees. The provisions of this Section shall not limit the indemnification provisions elsewhere contained in this Lease. ARTICLE XI. DAMAGE OR DESTRUCTION SECTION 11.1. RESTORATION. (a) If the Building of which the Premises are a part is damaged, Landlord shall repair that damage as soon as reasonably possible, at its expense, unless: (i) Landlord reasonably determines that the cost of repair is not covered by Landlord's fire and extended coverage insurance plus such additional amounts Tenant elects, at its option, to contribute, excluding however the deductible (for which Tenant shall be responsible for Tenant's Share); (ii) Landlord reasonably determines that the Premises cannot, with reasonable diligence, be fully repaired by Landlord (or cannot be safely repaired because of the presence of hazardous factors, including without limitation Hazardous Materials, earthquake faults, and other similar dangers) within two hundred seventy (270) days after the date of the damage; (iii) an event of default by Tenant has occurred and is continuing at the time of such damage; or (iv) the damage occurs during the final twelve (12) months of the Term. Should Landlord elect not to repair the damage for one of the preceeding reasons, Landlord shall so notify Tenant in writing within sixty (60) days after the damage occurs and this Lease shall terminate as of the date of that notice. (b) Unless Landlord elects to terminate this Lease in accordance with subsection (a) above, this Lease shall continue in effect for the remainder of the Term; provided that so long as Tenant is not in default under this Lease, if the damage is so extensive that Landlord reasonably determines that the Premises cannot, with reasonable diligence, be repaired by Landlord (or cannot be safely repaired because of the presence of hazardous factors, earthquake faults, and other similar dangers) so as to allow Tenant's substantial use and enjoyment of the Premises within two hundred seventy (270) days after the date of damage, then Tenant may elect to terminate this Lease by written notice to Landlord within the sixty (60) day period stated in subsection (a). (c) Commencing on the date of any damage to the Building, and ending on the sooner of the date the damage is repaired or the date this Lease is terminated, the rental to be paid under this Lease shall be abated in the same proportion that the floor area of the Premises that is rendered unusable by the damage from time to time bears to the total floor area of the Premises, but only to the extent that any business interruption insurance proceeds are received by Landlord therefor from Tenant's insurance described in Exhibit D. (d) Notwithstanding the provisions of subsections (a), (b) and (c) of this Section, and subject to the provisions of Section 10.5 above, the cost of any repairs shall be borne by Tenant, and Tenant shall not be entitled to rental abatement or termination rights, if the damage is due to the fault or neglect of Tenant or its employees, subtenants, invitees or representatives. In addition, the provisions of this Section shall not be deemed to require Landlord to repair any improvements or fixtures that Tenant is obligated to repair or insure pursuant to any other provision of this Lease. (e) Tenant shall fully cooperated with Landlord in removing Tenant's personal property and any debris from the Premises to facilitate all inspections of the Premises and the making of any repairs. Notwithstanding anything to the contrary contained in this Lease, if Landlord in good faith believes there is a risk of injury to persons or damage to property from entry into the Building or Premises following any damage or destruction thereto, Landlord may restrict entry into the Building or the Premises by Tenant, its employees, agents and contractors in a non-discriminatory manner, without being deemed to have violated Tenant's rights of quiet enjoyment to, or made an unlawful detainer of, or evicted Tenant from, the Premises. Upon request, Landlord shall consult with Tenant to determine if there are safe methods of entry into the Building or the Premises solely in order to allow Tenant to retrieve files, data in computers, and necessary inventory, subject however to all indemnities and waivers of liability from Tenant to Landlord contained in this Lease and any additional indemnities and waivers of liability which Landlord may require. 12 13 SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this Lease, including without limitation Section 11.1, shall govern any damage or destruction and shall accordingly supersede any contrary statute or rule of law. ARTICLE XII. EMINENT DOMAIN SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of the Premises is taken by any lawful authority by exercise of the right of eminent domain, or sold to prevent a taking, either Tenant or Landlord may terminate this Lease effective as of the date possession is required to be surrendered to the authority. In the event title to a portion of the Building or Project, other than the Premises, is taken or sold in lieu of taking, and if Landlord elects to restore the Building in such a way as to alter the Premises materially, either party may terminate this Lease, by written notice to the other party, effective on the date of vesting of title. In the event neither party has elected to terminate this Lease as provided above, then Landlord shall promptly, after receipt of a sufficient condemnation award, proceed to restore the Premises to substantially their condition prior to the taking, and a proportionate allowance shall be made to Tenant for the rent corresponding to the time during which, and to the part of the Premises of which, Tenant is deprived on account of the taking and restoration. In the event of a taking, Landlord shall be entitled to the entire amount of the condemnation award without deduction for any estate or interest of Tenant; provided that nothing in this Section shall be deemed to give Landlord any interest in, or prevent Tenant from seeking any award against the taking authority for, the taking of personal property and fixtures belonging to Tenant or for relocation or business interruption expenses recoverable from the taking authority. SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises shall terminate this Lease or give Tenant any right to abatement of rent, and any award specifically attributable to a temporary taking of the Premises shall belong entirely to Tenant. A temporary taking shall be deemed to be a taking of the use or occupancy of the Premises for a period of not to exceed one hundred eighty (180) days. SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a taking of the parking area such that Landlord can no longer provide sufficient parking to comply with this Lease, Landlord may substitute reasonably equivalent parking in a location reasonably close to the Building; provided that if Landlord fails to make that substitution within one hundred eighty (180) days following the taking and if the taking materially impairs Tenant's use and enjoyment of the Premises, Tenant may, at its option, terminate this Lease by written notice to Landlord. If this Lease is not so terminated by Tenant, there shall be no abatement of rent and this Lease shall continue in effect. ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS SECTION 13.1. SUBORDINATION. At the option of Landlord, this Lease shall be either superior or subordinate to all ground or underlying leases, mortgages and deeds of trust, if any, which may hereafter affect the Building, and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, that so long as Tenant is not in default under this Lease, this Lease shall not be terminated or Tenant's quiet enjoyment of the Premises disturbed in the event of termination of any such ground or underlying lease, or the foreclosure of any such mortgage or deed of trust, to which Tenant has subordinated this Lease pursuant to this Section. In the event of a termination or foreclosure, Tenant shall become a tenant of and attorn to the successor-in-interest to Landlord upon the same terms and conditions as are contained in this Lease, and shall execute any instrument reasonably required by Landlord's successor for that purpose. Tenant shall also, upon written request of Landlord, execute and deliver all instruments as may be required from time to time to subordinate the rights of Tenant under this Lease to any ground or underlying lease or to the lien of any mortgage or deed of trust (provided that such instruments include the nondisturbance and attornment provisions set forth above), or, if requested by Landlord, to subordinate, in whole or in part, any ground or underlying lease or the lien of any mortgage or deed of trust to this Lease. SECTION 13.2. ESTOPPEL CERTIFICATE. (a) Tenant shall, at any time upon not less than ten (10) days prior written notice from Landlord, execute, acknowledge and deliver to Landlord, in any form that Landlord may reasonably require, a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of the modification and certifying that this Lease, as modified, is in full force and effect) and the dates to which the rental, additional rent and other charges have been paid in advance, if any, and (ii) acknowledging that, to Tenant's knowledge, there are no uncured defaults on the part of Landlord, or specifying each default if any are claimed, and (iii) setting forth all further information that Landlord may reasonably require. Tenant's statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the Building or Project. (b) Notwithstanding any other rights and remedies of Landlord, Tenant's failure to deliver any estoppel statement within the provided time shall be conclusive upon Tenant that (i) this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) there are no uncured defaults in Landlord's performance, and (iii) not more than one month's rental has been paid in advance. 13 14 SECTION 13.3 FINANCIALS. (a) Tenant shall deliver to Landlord, prior to the execution of this Lease and thereafter at any time upon Landlord's request, Tenant's current tax returns and financial statements, certified true, accurate and complete by the chief financial officer of Tenant, including a balance sheet and profit and loss statement for the most recent prior year (collectively, the "Statements"), which Statements shall accurately and completely reflect the financial condition of Tenant. Landlord agrees that it will keep the Statements confidential, except that Landlord shall have the right to deliver the same to any proposed purchaser of the Building or Project, and to any encumbrancer of all or any portion of the Building or Project. (b) Tenant acknowledges that Landlord is relying on the Statements in its determination to enter into this Lease, and Tenant represents to Landlord, which representation shall be deemed made on the date of this Lease and again on the Commencement Date, that no material change in the financial condition of Tenant, as reflected in the Statements, has occurred since the date Tenant delivered the Statements to Landlord. The Statements are represented and warranted by Tenant to be correct and to accurately and fully reflect Tenant's true financial condition as of the date of submission by any Statements to Landlord. ARTICLE XIV. DEFAULTS AND REMEDIES SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of default set forth in this Lease, the occurrence of any one or more of the following event shall constitute a default by Tenant: (a) The failure by Tenant to make any payment of rent or additional rent required to be made by Tenant, as and when due, where the failure continues for a period of three (3) days after written notice from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 and 1161(a) as amended. For purposes of these default and remedies provisions, the term "additional rent" shall be deemed to include all amounts of any type whatsoever other than Basic Rent to be paid by Tenant pursuant to the terms of this Lease. (b) Assignment, sublease, encumbrance or other transfer of the Lease by Tenant, either voluntarily or by operation of law, whether by judgment, execution, transfer by intestacy or testacy, or other means, without the prior written consent of Landlord. (c) The discovery by Landlord that any financial statement provided by Tenant, or by any affiliate, successor or guarantor of Tenant, was materially false. (d) The failure of Tenant to timely and fully provide any subordination agreement, estoppel certificate or financial statements in accordance with the requirements of Article XIII. (e) The failure or inability by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in any other subsection of this Section, where the failure continues for a period of thirty (30) days after written notice from Landlord to Tenant or such shorter period as is specified in any other provision of this Lease; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 and 1161(a) as amended. However, if the nature of the failure is such that more than thirty (30) days are reasonably required by its cure, then Tenant shall not be deemed to be in default if Tenant commences the cure within thirty (30) days, and thereafter diligently pursues the cure to completion. (f) (i) The making by Tenant of any general assignment for the benefit of creditors; (ii) the filing by or against Tenant of a petition to have Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts discharged or a petition for the reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within thirty (30) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, if possession is not restored to Tenant within thirty (30) days; (iv) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where the seizure is not discharged within thirty (30) days; or (v) Tenant's convening of a meeting of its creditors for the purpose of effecting a moratorium upon or composition of its debts. Landlord shall be deemed to have knowledge of any event described in this subsection unless notification in writing is received by Landlord, nor shall there be any presumption attributable to Landlord of Tenant's insolvency. In the event that any provision of this subsection is contrary to applicable law, the provision shall be of no force or effect. SECTION 14.2. LANDLORD'S REMEDIES. (a) In the event of any default by Tenant, or in the event of the abandonment of the Premises by Tenant, then in addition to any other remedies available to Landlord, Landlord may exercise the following remedies: (i) Landlord may terminate Tenant's rights to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to 14 15 Landlord. Such termination shall not affect any accrued obligations of Tenant under this Lease. Upon termination, Landlord shall have the right to reenter the Premises and remove all persons and property. Landlord shall also be entitled to recover from Tenant: (1) The worth at the time of award of the unpaid rent and additional rent which had been earned at the time of termination; (2) The worth at the time of award of the amount by which the unpaid rent and additional rent which would have been earned after termination until the time of award exceeds the amount of such loss that Tenant proves could have been reasonably avoided; (3) The worth at the time of award of the amount by which the unpaid rent and additional rent for the balance of the Term after the time of award exceeds the amount of such loss that Tenant proves could be reasonably avoided; (4) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result from Tenant's default, including, but not limited to, the cost of recovering possession of the Premises, refurbishment of the Premises, marketing costs, commissions and other expenses of reletting, including necessary repair, the unamortized portion of any brokerage commissions funded by Landlord in connection with this Lease, reasonable attorneys' fees, and any other reasonable costs; and (5) At Landlord s election, all other amounts in addition to or in lieu of the foregoing as may be permitted by law. The term "rent" as used in this Lease shall be deemed to mean the Basic Rent and all other sums required to be paid by Tenant to Landlord pursuant to the terms of this Lease. Any sum, other than Basic Rent, shall be computed on the basis of the average monthly amount accruing during the twenty-four (24) month period immediately prior to default, except that if it becomes necessary to compute such rental before the twenty-four (24) month period has occurred, then the computation shall be on the basis of the average monthly amount during the shorter period. As used in subparagraphs (1) and (2) above, the "worth at the time of award" shall be computed by allowing interest at the rate of ten percent (10%) per annum. As used in subparagraph (3) above, the "worth at the time of award" shall be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). (ii) Landlord may elect not to terminate Tenant's right to possession of the Premises, in which event Landlord may continue to enforce all of its rights and remedies under this Lease, including the right to collect all rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet the Premises, or the appointment of a receiver to protect the Landlord's interests under this Lease, shall not constitute a termination of the Tenant's right to possession of the Premises. In the event that Landlord elects to avail itself of the remedy provided by this subsection (ii), Landlord shall not unreasonably withhold its consent to an assignment or subletting of the Premises subject to the reasonable standards for Landlord's consent as are contained in this Lease. (b) Landlord shall be under no obligation to observe or perform any covenant of this Lease on its part to be observed or performed which accrues after the date of any default by Tenant unless and until the default is cured by Tenant, it being understood and agreed that the performance by Landlord of its obligations under this Lease are expressly conditioned upon Tenant's full and timely performance of its obligations under this Lease. The various rights and remedies reserved to Landlord in this Lease or otherwise shall be cumulative and, except as otherwise provided by California law, Landlord may pursue any or all of its rights and remedies at the same time. (c) No delay or omission of Landlord to exercise any right or remedy shall be construed as a waiver of the right or remedy or of any default by Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any preceding breach or default by Tenant of any provision of this Lease, other than the failure of Tenant to pay the particular rent accepted, regardless of Landlord's knowledge of the preceding breach or default at the time of acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy available to Landlord by virtue of the breach or default. The acceptance of any payment from a debtor in possession, a trustee, a receiver or any other person acting on behalf of Tenant or Tenant's estate shall not waive or cure a default under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser amount than the rent required by this Lease shall be deemed to be other than a partial payment on account of the earliest due stipulated rent, nor shall any endorsement or statement on any check or letter be deemed an accord and satisfaction and Landlord shall accept the check or payment without prejudice to Landlord's right to recover the balance of the rent or pursue any other remedy available to it. No act or thing done by Landlord or Landlord's agents during the Term shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender shall be valid unless in writing and signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys to the Premises prior to the termination of this Lease, and the delivery of the keys to any employee shall not operate as a termination of the Lease or a surrender of the Premises. SECTION 14.3. LATE PAYMENTS. (a) Any rent due under this Lease that is not received by Landlord within five (5) days of the date when due shall bear interest at the maximum rate permitted by law from the date due until fully paid. The payment of interest shall not cure any default by Tenant under this Lease. In addition, Tenant acknowledges that the late payment by Tenant to Landlord of rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of 15 16 which will be extremely difficult and impracticable to ascertain. Those costs may include, but are not limited to, administrative, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any ground lease, mortgage or trust deed covering the Premises. According, if any rent due from Tenant shall not be received by Landlord or Landlord's designee within five (5) days after the date due, then Tenant shall pay to Landlord, in addition to the interest provided above, a late charge in a sum equal to the greater of five percent (5%) of the amount overdue or Two Hundred Fifty Dollars ($250.00) for each delinquent payment. Acceptance of a late charge by Landlord shall not constitute a waiver of Tenant's default with respect to the overdue amount, nor shall it prevent Landlord from exercising any of its other rights and remedies. (c) Following each second consecutive installment of rent that is not paid within five (5) days following notice of nonpayment from Landlord, Landlord shall have the option (i) to require that beginning with the first payment of rent next due, rent shall no loner be paid in monthly installments but shall be payable quarterly three (3) months in advance and/or (ii) to require that Tenant increase the amount, if any, of the Security Deposit by one hundred percent (100%). Should Tenant deliver to Landlord, at any time during the Term, two (2) or more insufficient checks, the Landlord may require that all monies then and thereafter due from Tenant be paid to Landlord by cashier's check. SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to be performed by Tenant under this Lease shall be performed at Tenant's sole cost and expense and without any abatement of rent or right of set-off. If Tenant fails to pay any sum of money, other than rent, or fails to perform any other act on its part to be performed under this Lease, and the failure continues beyond any applicable grace period set forth in Section 14.1, then in addition to any other available remedies, Landlord may, at its election make the payment or perform the other act on Tenant's part. Landlord's election to make the payment or perform the act on Tenant's part shall not give rise to any responsibility of Landlord to continue making the same or similar payments or performing the same or similar acts. Tenant shall, promptly upon demand by Landlord, reimburse Landlord for all sums paid by Landlord and all necessary incidental costs, together with interest at the maximum rate permitted by law from the date of the payment by Landlord. Landlord shall have the same rights and remedies if Tenant fails to pay those amounts as Landlord would have in the event of a default by Tenant in the payment of rent. SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in default in the performance of any obligation under this Lease unless and until it has failed to perform the obligation within thirty (30) days after written notice by Tenant to Landlord specifying in reasonable detail the nature and extent of the failure; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be deemed to be in default if it commences performance within the thirty (30) day period and thereafter diligently pursues the cure to completion. SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred by Landlord in connection with any event of default by Tenant under this Lease or holding over of possession by Tenant after the expiration or earlier termination of this Lease, including without limitation all costs, expenses and actual accountants, appraisers, attorneys and other professional fees, and any collection agency or other collection charges, shall be due and payable by Tenant to Landlord on demand, and shall bear interest at the rate of ten percent (10%) per annum. Should either Landlord or Tenant bring any action in connection with this Lease, the prevailing party shall be entitled to recover as a part of the action its reasonable attorneys' fees, and all other costs. The prevailing party for the purpose of this paragraph shall be determined by the trier of the facts. SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE. SECTION 14.8. SATISFACTION OF JUDGMENT. The obligations of Landlord do not constitute the personal obligations of the individual partners, trustees, directors, officers or shareholders of Landlord or its constituent partners. Should Tenant recover a money judgment against Landlord, such judgment shall be satisfied only out of the proceeds of sale received upon execution of such judgment and levied thereon against the right, title and interest of Landlord in the Project and out of the rent or other income from such property receivable by Landlord or out of consideration received by Landlord from the sale or other disposition of all or any part of Landlord's right, title or interest in the Project and no action for any deficiency may be sought or obtained by Tenant. SECTION 14.9. LIMITATION OF ACTIONS AGAINST LANDLORD. Any claim, demand or right of any kind by Tenant which is based upon or arises in connection with this Lease shall be barred unless Tenant commences an action thereon within six (6) months after the date that the act, omission, event or default upon which the claim, demand or right arises, has occurred. 16 17 ARTICLE XV. END OF TERM SECTION 15.1. HOLDING OVER. This Lease shall terminate without further notice upon the expiration of the Term, and any holding over by Tenant after the expiration shall not constitute a renewal or extension of this Lease, or give Tenant any rights under this Lease, except when in writing signed by both parties. If Tenant holds over for any period after the expiration (or earlier termination) of the Term without the prior written consent of Landlord, such possession shall constitute a tenancy at sufferance only; such holding over with the prior written consent of Landlord shall constitute a month-to-month tenancy commencing on the first (1st) day following the termination of this Lease. In either or such events, possession shall be subject to all of the terms of this Lease, except that the monthly Basic Rent shall be the greater of (a) two hundred percent (200%) of the Basic Rent for the month immediately preceding the date of termination or (b) the then currently scheduled Basic Rent for comparable space in the Building. If Tenant fails to surrender the Premises upon the expiration of this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or liability, including without limitation, any claims made by any succeeding tenant relating to such failure to surrender. Acceptance by Landlord to rent after the termination shall not constitute a consent to a holdover or result in a renewal of this Lease. The foregoing provisions of this Section are in addition to and do not affect Landlord's right of re-entry or any other rights of Landlord under this Lease or at Law. SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender of this Lease by Tenant, or a mutual termination of this Lease, shall terminate any or all existing subleases unless Landlord, at its option, elects in writing to treat the surrender or termination as an assignment to it of any or all subleases affecting the Premises. SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the Expiration Date or upon any earlier termination of this Lease, Tenant shall quit and surrender possession of the Premises to Landlord in as good order, condition and repair as when received or as hereafter may be improved by Landlord or Tenant, reasonable wear and tear and repairs which are Landlord's obligation excepted, and shall, without expense to Landlord, remove or cause to be removed from the Premises all personal property, improvements constructed by Tenant that Landlord require be removed in accordance with the terms of this Lease, and debris, except for any items or improvements that Landlord may by written authorization allow to remain. Tenant shall repair all damage to the Premises resulting from the removal, which repair shall include the patching and filling of holes and repair of structural damage, provided that Landlord may instead elect to repair any structural damage at Tenant's expense. If Tenant shall fail to comply with the provisions of this Section, Landlord may effect the removal and/or make any repairs, and the cost to Landlord shall be additional rent payable by Tenant upon demand. If Tenant fails to remove Tenant's personal property from the Premises upon the expiration of the Term, Landlord may remove, store, dispose of and/or retain such personal property, at Landlord's option, in accordance with then applicable laws, all at the expense of Tenant. If requested by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an instrument in writing releasing and quitclaiming to Landlord all right, title and interest of Tenant in the Premises. ARTICLE XVI. PAYMENTS AND NOTICES All sums payable by Tenant to Landlord shall, be paid, without deduction or offset, in lawful money of the United States to Landlord at its address set froth in Item 12 of the Basic Lease Provisions, or at any other place as Landlord may designate in writing. Unless this Lease expressly provides otherwise, as for example in the payment of rent pursuant to Section 4.1, all payments shall be due and payable within five (5) days after demand. All payments requiring proration shall be prorated on the basis of a thirty (30) day month and a three hundred sixty (360) day year. Any notice, election, demand, consent, approval or other communication to be given or other document to be delivered by either party to the other may be delivered in person or by courier or overnight delivery service to the other party, or may be deposited in the United States mail, duly registered or certified, postage prepaid, return receipt requested, and addressed to the other party at the address set forth in Item 12 of the Basic Lease Provisions, or if to Tenant, at that address or, from and after the Commencement Date, at the Premises (whether or not Tenant has departed from, abandoned or vacated the Premises), or may be delivered by telegram, telex or telecopy, provided that receipt thereof is telephonically confirmed. Either party may, by written notice to the other, served in the manner provided in this Article, designate a different address. If any notice or other document is sent by mail, it shall be deemed served or delivered twenty-four (24) hours after mailing. If more than one person or entity is named as Tenant under this Lease, service of any notice upon any one of them shall be deemed as service upon all of them. ARTICLE XVII. RULES AND REGULATIONS Tenant agrees to observe faithfully and comply strictly with the Rules and Regulations, attached as Exhibit E, and any reasonable and nondiscriminatory amendments, modifications and/or additions as may be adopted and published by written notice to tenants by Landlord for the safety, care, security, good order, or cleanliness of the Premises, Building, Project and Common Areas. Landlord shall not be liable to Tenant for any violation of the Rules and Regulations or the breach of any covenant or condition in any lease by any other tenant or such tenant's agents, employees, contractors, guests or invitees. One or more waivers by Landlord of any breach of the Rules and Regulations by Tenant or by any other tenant(s) shall not be a waiver of any subsequent breach of that rule or any other. Tenant's 17 18 failure to keep and observe the Rules and Regulations shall constitute a default under this Lease. In the case of any conflict between the Rules and Regulations and this Lease, this Lease shall be controlling. ARTICLE XVIII. BROKER'S COMMISSION The parties recognize as the broker(s) who negotiated this Lease the firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease Provisions, and agree that Landlord shall be responsible for the payment of brokerage commissions to those broker(s) unless otherwise provided in this Lease. Tenant warrants that it has had no dealings with any other real estate broker or agent in connection with the negotiation of this Lease, and Tenant agrees to indemnify and hold Landlord harmless from any cost, expense or liability (including reasonable attorneys' fees) for any compensation, commissions or charges claimed by any other real estate broker or agent employed or claiming to represent or to have been employed by Tenant in connection with the negotiation of this Lease. The foregoing agreement shall survive the termination of this Lease. If Tenant fails to take possession of the Premises or if this Lease otherwise terminates prior to the Expiration Date as a result of failure of performance by Tenant, Landlord shall be entitled to recover from Tenant the unamortized portion of any brokerage commission funded by Landlord in addition to any other damages in which Landlord may be entitled. ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST In the event of any transfer of Landlord's interest in the Premises, the transferor shall be automatically relieved of all obligations on the part of Landlord accruing under this Lease from and after the date of the transfer, provided that any funds held by the transferor in which Tenant has an interest shall be turned over, subject to that interest, to the transferee and Tenant is notified of the transfer as required by law. No holder of a mortgage and/or deed of trust to which this Lease is or may be subordinate, and no landlord under a so-called sale-leaseback, shall be responsible in connection with the Security Deposit, unless the mortgagee or holder of the deed of trust or the landlord actually receives the Security Deposit. It is intended that the covenants and obligations contained in this Lease on the part of Landlord shall, subject to the foregoing, be binding on Landlord, its successors and assigns, only during and in respect to their respective successive periods of ownership. ARTICLE XX. INTERPRETATION SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease requires, the words "Landlord" and "Tenant" shall include the plural as well as the singular, and words used in neuter, masculine or feminine genders shall include the others. SECTION 20.2. HEADINGS. The captions and headings of the articles and sections of this Lease are for convenience only, are not a part of this Lease and shall have no effect upon its construction or interpretation. SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or entity is named as Tenant, the obligations imposed upon each shall be joint and several and the act of or notice from, or notice or refund to, or the signature of, any one or more of them shall be binding on all of them with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, termination or modification of this Lease. SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights and liabilities given to or imposed upon Landlord and Tenant shall extend to and bind their respective heirs, executors, administrators, successors and assigns. Nothing contained in this Section is intended, or shall be construed, to grant to any person other than Landlord and Tenant and their successors and assigns any rights or remedies under this Lease. SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to the performance of every provision of this Lease. SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and interpreted in accordance with the laws of the State of California. SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the deletion of which would not adversely affect the receipt of any material benefit by either party or the deletion of which is consented to by the party adversely affected, shall be held invalid or unenforceable to any extent, the remainder of this Lease shall not be affected and each term and provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by Landlord or Tenant of any breach of any term, covenant or condition contained in this Lease shall not be a waiver of any subsequent breach of the same or any other term, covenant or condition. Consent to any act by one of the parties shall not be deemed to render unnecessary the obtaining of that party's consent to any subsequent act. No breach by Tenant of this Lease shall be deemed to have been waived by Landlord unless the waiver is in a writing signed by Landlord. The rights and 18 19 remedies of Landlord under this Lease shall be cumulative and in addition to any and all other rights and remedies which Landlord may have. SECTION 20.9. INABILITY TO PERFORM. In the event that either party shall be delayed or hindered in or prevented from the performance of any work or in performing any act required under this Lease by reason of any cause beyond the reasonable control of that party, then the performance of the work or the doing of the act shall be excused for the period of the delay and the time for performance shall be extended for a period equivalent to the period of the delay. The provisions of this Section shall not operate to excuse Tenant from the prompt payment of rent or from the timely performance of any other obligation under this Lease within Tenant's reasonable control. SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other attachments cover in full each and every agreement of every kind between the parties concerning the Premises, the Building, and the Project, and all preliminary negotiations, oral agreements, understandings and/or practices, except those contained in this Lease, are superseded and of no further effect. Tenant waives its rights to rely on any representations or promises made by Landlord or others which are not contained in this Lease. No verbal agreement or implied covenant shall be held to modify the provisions of this Lease, any statute, law, or custom to the contrary notwithstanding. SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of all the covenants, terms and conditions on Tenant's part to be observed and performed, and subject to the other provisions of this Lease, Tenant shall peaceably and quietly hold and enjoy the Premises for the Term without hindrance or interruption by Landlord or any other person claiming by or through Landlord. SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which reasonably would be intended to survive the expiration or sooner termination of this Lease, including without limitation any warranty or indemnity hereunder, shall so survive and continue to be binding upon and inure to the benefit of the respective parties and their successors and assigns. ARTICLE XXI. EXECUTION AND RECORDING SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more counterparts, each of which shall constitute an original and all of which shall be one and the same agreement. SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a corporation or partnership, each individual executing this Lease on behalf of the corporation or partnership represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of the corporation or partnership, and that this Lease is binding upon the corporation or partnership in accordance with its terms. Tenant shall, at Landlord's request, deliver a certified copy of its board of directors' resolution or partnership agreement or certificate authorizing or evidencing the execution of this Lease. SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of this Lease to Tenant shall be for examination purposes only, and shall not constitute an offer to or option for Tenant to lease the Premises. Execution of this Lease by Tenant and its return to Landlord shall not be binding upon Landlord, notwithstanding any time interval, until Landlord has in fact executed and delivered this Lease to Tenant, it being intended that this Lease shall only become effective upon execution by Landlord and delivery of a fully executed counterpart to Tenant. SECTION 21.4. RECORDING. Tenant shall not record this Lease without the prior written consent of Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a "short form" memorandum of this Lease for recording purposes. SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease shall be effective unless in writing signed by authorized signatories of Tenant and Landlord, or by their respective successors in interest. No actions, policies, oral or informal arrangements, business dealings or other course of conduct by or between the parties shall be deemed to modify this Lease in any respect. SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or similar reproduction of this Lease shall be deemed an original for all purposes. SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and addenda attached to this Lease are hereby incorporated into and made a part of this Lease. ARTICLE XXII. MISCELLANEOUS SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and agrees that the terms of this Lease are confidential and constitute proprietary information of Landlord. Disclosure of the terms could adversely affect the ability of Landlord to negotiate other leases and impair Landlord's relationship with other tenants. 19 20 Accordingly, Tenant agrees that it, and its partners, officers, directors, employees and attorneys, shall not intentionally and voluntarily disclose the terms and conditions of this Lease to any other tenant or apparent prospective tenant of the Building or Project, either directly or indirectly, without the prior written consent of Landlord, provided, however, that Tenant may disclose the terms to prospective subtenants or assignees under this Lease. SECTION 22.2 GUARANTY. As a condition to the execution of this Lease by Landlord, the obligations, covenants and performance of the Tenant as herein provided shall be guaranteed in writing by the Guarantor(s) listed in Item 7 of the Basic Lease Provisions, if any, on a form of guaranty provided by Landlord. SECTION 22.3 CHANGES REQUESTED BY LENDER. If, in connection with obtaining financing for the Project, the lender shall request reasonable modifications in this Lease as a condition to the financing, Tenant will not unreasonably withhold or delay its consent, provided that the modifications do not materially increase the obligations of Tenant or materially and adversely affect the leasehold interest created by this Lease. SECTION 22.4 MORTGAGEE PROTECTION. No act or failure to act on the part of Landlord which would otherwise entitle Tenant to be relieved of its obligations hereunder or to terminate this Lease shall result in such a release or termination unless (a) Tenant has given notice by registered or certified mail to any beneficiary of a deed of trust or mortgage covering the Building whose address has been furnished to Tenant and (b) such beneficiary is afforded a reasonable opportunity to cure the default by Landlord (which in no event shall be less than sixty (60) days), including, if necessary to effect the cure, time to obtain possession of the Building by power of sale or judicial foreclosure provided that such foreclosure remedy is diligently pursued. Tenant agrees that each beneficiary of a deed of trust or mortgage covering the Building is an express third party beneficiary hereof, Tenant shall have no right or claim for the collection of any deposit from such beneficiary or from any purchaser at a foreclosure sale unless such beneficiary or purchaser shall have actually received and not refunded the deposit, and Tenant shall comply with any written directions by any beneficiary to pay rent due hereunder directly to such beneficiary without determining whether an event of default exists under such beneficiary's deed of trust. SECTION 22.5 COVENANTS AND CONDITIONS. All of the provisions of this Lease shall be construed to be conditions as well as covenants as though the words specifically expressing or imparting covenants and conditions were used in each separate provision. SECTION 22.6 SECURITY MEASURES. Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Project. Tenant assumes all responsibility for the protection of Tenant, its agents, invitees and property from acts of third parties. Nothing herein contained shall prevent Landlord, at its sole option, from providing security protection for the Project or any part thereof, in which event the cost thereof shall be included within the definition of Project Costs. LANDLORD: TENANT: THE IRVINE COMPANY SIONIX CORPORATION, a Utah corporation [SEAL] By: /s/ CLARENCE W. BARKER By: /s/ JAMES HOUTZ ---------------------------- ----------------------------- Clarence W. Barker, Name: James Houtz President, Irvine Industrial Company, ------------------------ a division of The Irvine Company Title: President/COO ----------------------- By: /s/ GARY A. VACCARO By: /s/ JOAN HOROWITZ ---------------------------- ----------------------------- Gary A. Vaccaro, Name: Joan Horowitz Senior Vice President, Finance ------------------------ Title: Secretary Treasurer ----------------------- 20 EX-27 6 FINANCIAL DATA SCHEDULE.
5 12-MOS SEP-30-1998 OCT-01-1997 SEP-30-1998 11,320 0 0 0 0 11,230 102,855 77,235 233,660 354,615 0 0 0 255,222 0 233,660 0 0 0 0 780,025 0 0 (1,898,376) 0 (1,898,376) 0 0 0 (1,898,376) (.08) (.09)
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