Exhibit 10.1

 

SETTLEMENT AGREEMENT AND RELEASES

 

This Release and Settlement Agreement (“Settlement Agreement”) is made and
entered into by and between (1) Montecito Offshore, LLC (“Montecito”), (2)
Worthington Energy, Inc. (“Worthington”), formerly known as Paxton Energy, Inc.,
and PaxAcq, Inc. (“PaxAcq” and Worthington are collectively referred to herein
as “Paxton”), and (3) Alva Terry Staples, et al. (“Debenture Holders”), a
complete listing of whom is attached as Exhibit A. The parties to this
Settlement Agreement are sometimes referred to individually as a “Party” and
collectively as “Parties.” Any references to Paxton contained in this Settlement
Agreement shall be deemed to refer to each of Worthington and PaxAcq,
individually, and to both of them jointly.

 

RECITALS

 

WHEREAS, Montecito, Paxton, and the Debenture Holders have each asserted various
claims and defenses in the lawsuit captioned Montecito Offshore, LLC v. Paxton
Energy, Inc. and PaxAcq, Inc., No. 11-12640 (the “Lawsuit”) filed in the Civil
District Court for the Parish of Orleans, State of Louisiana (the “District
Court”);

 

WHEREAS, each Party denies the allegations asserted against it in the Lawsuit;

 

WHEREAS, without admitting the claims and defenses that have been or could be
asserted in the Lawsuit, in arbitration, or in any other legal proceeding, and
being mindful of the hazards of litigation, the Parties have now agreed to
resolve all disputes between them that arise out of or relate to the Lawsuit
and/or that certain oil, gas, and mineral lease issued to Montecito by the
United States Minerals Management Service and bearing serial number OCS-G 33597
(the “Vermilion 179 Lease”).

 

NOW THEREFORE, in consideration of the mutual promises contained herein, the
Parties agree as follows:

 

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1.Montecito Release. Montecito releases and forever discharges Paxton and all of
its predecessors, successors, assigns, affiliates, subsidiaries, current and
former insurers, and its current and former officers, directors, employees,
representatives, members, fiduciaries, and agents from any and all claims,
causes or rights of action (including any right of rescission), demands,
actions, suits, liabilities, claims for costs, interest, expenses, expert fees
and costs, attorneys’ fees, damages, and penalties of any kind or nature,
whether contractual or delictual, direct or consequential, known or unknown,
that at any time were asserted in, arise out of, or relate to the Lawsuit and/or
the Vermilion 179 Lease that Montecito may be entitled to or have against
Paxton. This release specifically includes, but is not limited to, the remission
and extinguishment of the May 6, 2011 Subordinated Promissory Note executed by
Paxton in favor of Montecito. In addition, Montecito releases the Act of
Mortgage, Assignment of Production, Security Agreement and Financing Statement –
dated May 5, 2011 and recorded on May 10, 2011, file number 322446, in the
records of Cameron Parish, Louisiana – that was issued to it in connection with
the sale of an interest in the Vermilion 179 Lease to Paxton. Montecito further
releases and forever discharges each and every one of the Debenture Holders and
all of their respective predecessors, successors, assigns, affiliates,
subsidiaries, current and former insurers, and their respective current and
former officers, directors, employees, representatives, members, fiduciaries,
and agents from any and all claims, causes or rights of action, demands,
actions, suits, liabilities, claims for costs, interest, expenses, expert fees
and costs, attorneys' fees, damages, and penalties of any kind or nature,
whether contractual or delictual, direct or consequential, known or unknown,
that at any time were asserted in, arise out of, or relate to the Lawsuit and/or
the Vermilion 179 Lease that Montecito may be entitled to or have against any
and/or all of the Debenture Holders.    

2.Paxton Release. Paxton releases and forever discharges Montecito and all of
its predecessors, successors, assigns, affiliates, subsidiaries, current and
former insurers, and its current and former officers, directors, employees,
representatives, members, fiduciaries, and agents from any and all claims,
causes or rights of action, demands, actions, suits, liabilities, claims for
costs, interest, expenses, expert fees and costs, attorneys’ fees, damages, and
penalties of any kind or nature, whether contractual or delictual, direct or
consequential, known or unknown, that at any time were asserted in, arise out
of, or relate to the Lawsuit and/or the Vermilion 179 Lease that Paxton may be
entitled to or have against Montecito. Paxton further releases and discharges
each and every one of the Debenture Holders and all of their respective
predecessors, successors, assigns, affiliates, subsidiaries, current and former
insurers, and their respective current and former officers, directors,
employees, representatives, members, fiduciaries, and agents from any and all
claims, causes or rights of action, demands, actions, suits, liabilities, claims
for costs, interest, expenses, expert fees and costs, attorneys’ fees, damages,
and penalties of any kind or nature, whether contractual or delictual, direct or
consequential, known or unknown, that at any time were asserted in, arise out
of, or relate to the Lawsuit and/or the Vermilion 179 Lease and/or the April/May
2011 Secured Convertible Debentures executed by Paxton in favor of the Debenture
Holders and/or the April 15, 2011 Mortgage, Assignment, Security Agreement, and
Financing Statement executed by Paxton that Paxton may be entitled to or have
against any or all of the Debenture Holders.

 

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3.Debenture Holders Release. Each Debenture Holder hereby releases and forever
discharges Paxton and all of their predecessors, successors, assigns,
affiliates, subsidiaries, current and former insurers, and its current and
former officers, directors, employees, representatives, members, fiduciaries,
and agents from any and all claims, causes or rights of action, demands,
actions, suits, liabilities, claims for costs, interest, expenses, expert fees
and costs, attorneys’ fees, damages, and penalties of any kind or nature,
whether contractual or delictual, direct or consequential, known or unknown,
that at any time were asserted in, arise out of, or relate to the Lawsuit and/or
the Vermilion 179 Lease that the Debenture Holders may be entitled to or have
against Paxton. This release specifically includes, but is not limited to, the
remission and extinguishment of all of the April/May 2011 Secured Convertible
Debentures executed by Paxton in favor of the Debenture Holders, and the release
of the April 15, 2011 Mortgage, Assignment, Security Agreement, and Financing
Statement executed by Paxton as security for the debentures and any obligations
thereunder. The Debenture Holders further release and forever discharge
Montecito and all of its predecessors, successors, assigns, affiliates,
subsidiaries, current and former insurers, and its current and former officers,
directors, employees, representatives, members, fiduciaries, and agents from any
and all claims, causes or rights of action, demands, actions, suits,
liabilities, claims for costs, interest, expenses, expert fees and costs,
attorneys’ fees, damages, and penalties of any kind or nature, whether
contractual or delictual, direct or consequential, known or unknown, that at any
time were asserted in, arise out of, or relate to the Lawsuit and/or the
Vermilion 179 Lease that the Debenture Holders may be entitled to or have
against Montecito. This release specifically includes, but is not limited to,
the release of the May 5, 2011 Act of Mortgage, Assignment of Production,
Security Agreement, and Financing Statement executed by Montecito and all claims
arising out of, or connected therewith.

 

4.Dismissal, Tender, and Cancellation. Each Party’s attorney will sign the
motion to dismiss the Lawsuit with prejudice attached hereto as Exhibit 1. Each
releasing Party will also surrender the debt instruments referenced in the above
paragraphs to the released Parties, and will immediately procure the
cancellation of the related mortgages with the appropriate recorder of
mortgages.

 

5.No Admission of Liability. The Parties hereto expressly agree and understand
that the terms of this Settlement Agreement are contractual and not merely
recitals; that the agreements and warranties contained herein are to compromise
and to avoid the additional costs and uncertainties resulting from further
litigation; and that nothing contained herein shall be construed as an admission
of liability by any Party. Further, this Settlement Agreement shall not be
considered as evidence of any violation of or noncompliance with any other
agreement, promise, obligation, warranty, statute, or law by any Party.

 

6.Representations and Warranties. Each Party represents and warrants that it (i)
owns the claims asserted in the Lawsuit and has not alienated or encumbered
them, (ii) does not require consent or approval from any other person, or
already have received such consent or approval, to enter into this Settlement
Agreement, (iii) has full authority to enter into this Settlement Agreement. As
used in this paragraph, the term “it” encompasses individuals, entities,
organizations and associations.

 

7.Competence. Each Party acknowledges that it was represented by counsel in
connection with the negotiation, preparation, and execution of this Settlement
Agreement; is fully competent to execute this Settlement Agreement; understands
the terms and provisions of this Settlement Agreement; and has voluntarily
executed this Settlement Agreement. This Settlement Agreement is a negotiated
agreement prepared jointly and not by one Party to the exclusion of the other,
and it shall not be construed against the drafter. Each Party further
acknowledges that, in executing this Settlement Agreement, it has not relied
upon any warranty, representation, statement, or promise except those expressly
set forth herein.

 

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8.Entire Agreement. Each Party agrees that this Settlement Agreement supersedes
any and all prior or contemporaneous agreements, understandings, prior
discussions, or representations, whether oral or written, with respect to this
Settlement Agreement and the matters set forth herein. This Settlement Agreement
shall not be modified, amended, or terminated unless such modification,
amendment, or termination is executed in writing by each of the Parties hereto.
This Settlement Agreement is binding on and will inure to the benefit of each of
the Parties and all of their respective predecessors, successors, heirs,
assigns, parents, affiliates, related entities, indemnitors, indemnitees,
officers, directors, employees, agents, attorneys, insurers, consultants,
experts, and representatives.

 

9.Counterparts. This Settlement Agreement may be executed in counterparts, all
of which, when taken together, shall constitute one and the same instrument, but
the same shall not be binding on the Parties unless and until all Parties
execute this Settlement Agreement. Signed counterparts transmitted
electronically will be treated as originals for this purpose.

 

10.Enforcement. Construction, interpretation, and enforcement of this Settlement
Agreement shall be done in accordance with the laws of the State of Louisiana,
without regard to any conflict of laws principles, and any action concerning
enforcement of this Settlement Agreement shall be brought only in Orleans
Parish, Louisiana. In any action concerning enforcement of this Settlement
Agreement, the prevailing Party shall be entitled to receive from the losing
Party reasonable attorney’s fees and costs incurred in prosecuting or defending
such action, in addition to any other remedies available under applicable law.

 

11.Confidentiality. The Parties shall keep the terms of this Settlement
Agreement strictly confidential and agree not to disclose to any other person or
entity the terms of this Settlement Agreement, except that the Parties may
disclose the terms of this Settlement Agreement to (a) their attorneys,
accountants, auditors, financial advisors, and/or insurers, who shall be
required to maintain and honor the confidentiality of such information; (b) the
extent required for tax returns and related documents; and (c) to their wholly
owned subsidiaries, title designee(s), and assigns who shall be required to
maintain and honor the confidentiality of such information. The terms of this
Settlement Agreement may be disclosed in any legal proceeding concerning the
enforcement of the Settlement Agreement, provided that the party seeking to
disclose it seeks a protective order requiring that the terms of the Settlement
Agreement be maintained as strictly confidential, the intent being to preserve
the strict confidentiality of this Settlement Agreement to the maximum extent
possible. In the event that a Party, or other person or entity in possession of
this agreement or having knowledge of some or all of its terms, receives a valid
subpoena, or is otherwise ordered by a Court or tribunal, to disclose any of the
terms of this Settlement Agreement, the Party or other person agrees to notify
all Parties in writing at least five (5) days in advance of the disclosure to
afford the other Parties an opportunity to prevent or limit the disclosure or
otherwise seek to maintain the strict confidentiality of the terms of this
Agreement.

 

12.Binding Effect. This Settlement Agreement shall be binding upon and inure to
the benefit of the Parties and their respective successors and assigns; but no
person or entity may become a successor or assign unless they agree to assume
the obligations contained herein.

 

13.Effective Date. This Settlement Agreement is effective as of the date of the
last signature hereto.

 

THUS DONE AND SIGNED on the dates shown below.

 

 

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STATE OF LOUISIANA §     §   PARISH OF ORLEANS §  

 

On this _____ day of _____________ 2014, before me, the undersigned notary, and
the undersigned witnesses, personally appeared Hoyt Smith, who, after being
sworn, did say that he is the manager of Montecito Offshore, LLC with authority
to sign the foregoing instrument and then he signed the foregoing instrument on
behalf of said companies.

 

WITNESSES:   Montecito Offshore, LLC                 Hoyt Smith, Manager      
Printed Name                             Printed name          

 

 

______________________________

NOTARY PUBLIC

No. ____________________

My Commission expires _____________________

 

 

 

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STATE OF CALIFORNIA §     §   COUNTY OF ________ §  

 

On this _____ day of _____________ 2014, before me, the undersigned notary, and
the undersigned witnesses, personally appeared Charles Volk, who being sworn,
did represent that he is the Chairman and CEO of Worthington Energy, Inc. and
PaxAcq, Inc and that he was authorized by the board of directors of both
entities to sign the foregoing instrument on their behalf and then he signed the
foregoing instrument on their behalf.

 

 

WITNESSES:   Worthington Energy, Inc.
PaxAcq, Inc.                 Charles Volk, Chairman and CEO of     Worthington
Energy, Inc. and PacAcq, Inc. Printed Name                             Printed
name          

 

 

______________________________

NOTARY PUBLIC

No. ____________________

My Commission expires _____________________

 

 

 

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STATE OF LOUISIANA §     §   PARISH OF ORLEANS §  

 

On this _____ day of _____________ 2014, before me, the undersigned notary, and
the undersigned witnesses, personally appeared Douglas S. Draper, who, after
being sworn, represented that he is the authorized agent of Alva Terry Staples,
et al. (“Debenture Holders”), a complete listing of whom is attached as Exhibit
A and that he was authorized by said Debenture Holders to sign the foregoing
instrument or their behalf and then he signed the foregoing instrument on behalf
of said Debenture Holders.

 

 

WITNESSES:   Debenture Holders                 Douglas S. Draper, Agent    
Printed Name                             Printed name          

 

 

______________________________

NOTARY PUBLIC

No. ____________________

My Commission expires _____________________

 

 

 

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