EXHIBIT 10.2
 
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
 
This Settlement Agreement and Mutual Release Agreement (“Agreement”) made as of
October 10, 2013 is by and among Produced Water Solutions, Inc., a Colorado
corporation (“PWS”), Frac Water Systems, Inc., a Nevada corporation (“FWSI”),
and Montrose Capital Limited (“Montrose”).
 
R E C I T A L S
 
WHEREAS, PWS and Montrose are parties to a June 13, 2013 Term Sheet (the “Term
Sheet”); and
 
WHEREAS, the Term Sheet contemplated a series of transactions whereby, among
other things, Montrose would arrange $250,000 in bridge financing for PWS; and
 
WHEREAS, on July 1, 2013 the $250,000 bridge financing was completed and PWS
issued $250,000 of 10% Secured Convertible Promissory Notes of PWS dated July 1,
2013 (the “Notes”); and
 
WHEREAS, the Term Sheet further contemplated a reverse triangular merger (the
“Merger”) among PWS, the shareholders of PWS and a publicly traded US
corporation which was subsequently determined to be FWSI, under which Merger PWS
would become a wholly owned operating subsidiary of FWSI; and
 
WHEREAS, the Notes were subject to mandatory conversion at the effective time of
the Merger into units of FWSI; and
 
WHEREAS, PWS is engaged in the business of providing economically and
environmentally sound solutions for the treatment and recycling of wastewater
resulting principally from oil and gas exploration and production activities
(the “Business”); and
 
WHEREAS, PWS, FWSI, and Montrose have determined not to proceed with the Merger
contemplated by the Term Sheet, choosing instead to have FWSI engage directly in
the Business and for PWS, pursuant to a Joint Venture Agreement (the “JV
Agreement”) between PWS and FWSI, to provide consulting services to FWSI related
to the Business and to also provide FWSI with three (3) “shovel ready” Projects
(as defined in Section 2 hereof) which Projects are identified on Schedule A
hereto and are related to the Business (hereinafter referred to as the
“Projects”); and
 
WHEREAS, pursuant to the JV Agreement, FWSI shall have a right of first refusal
with respect to the three (3) Projects at least one (1) of which shall be
accepted by FWSI (the “Guaranteed Project”); and
 
WHEREAS, as partial consideration for the acquisition of the Guaranteed Project,
upon execution of the JV Agreement, FWSI shall cause to be issued to the holders
of the Notes, and shall cause the holders of the Notes to accept as partial
payment thereof, senior convertible notes of FWSI, which shall constitute part
of the senior convertible notes to be offered by FWSI to prospective subscribers
in a $2,000,000 offering, in an aggregate principal amount equal to $100,000
plus accrued interest thereon, and PWS shall be relieved from liability on the
Notes to the extent of the payment made by FWSI through issuance of its senior
convertible notes; and
 
 
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WHEREAS, following the acquisition of the Guaranteed Project, each time FWSI
accepts, an additional Project pursuant to and in accordance with the terms of
the JV Agreement, FWSI shall cause to be issued to the holders of the Notes and
shall cause the holders of the Notes to accept as partial payment thereof,
senior convertible notes of FWSI, identical in all material respects to the
senior convertible notes to be offered by FWSI to prospective subscribers in a
$2,000,000 offering, in an aggregate principal amount equal to $75,000 plus
accrued interest thereon, and PWS shall be relieved from liability on the Notes
to the extent of the payment made by FWSI through issuance of its senior
convertible notes; and
 
WHEREAS, at such time, if ever, that FWSI has accepted all of the Projects
pursuant to and in accordance with the terms of the JV Agreement, the Notes
shall be cancelled in full and the UCC financing statement (the “UCC Financing
Statement”) filed by PWS and its wholly owned subsidiary, PWS Well Services, LLC
in favor of Gottbetter & Partners, LLP, as the Collateral Agent on behalf of the
holders of the Notes, in connection with the Notes, shall be terminated; and
 
WHEREAS, PWS, FWSI and Montrose wish to terminate the Term Sheet, the Mutual
Confidentiality, Non-Disclosure and Non-Circumvention Agreement dated June 12,
2013 between Montrose and PWS (the “NDA”), and all other Agreements among the
parties related to, or arising from, or in contemplation of, the Term Sheet or
the NDA.
 
NOW, THEREFORE, in consideration of the mutual promises herein contained, the
undertakings herein set forth, and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
 
1.          Execution of Agreement and Settlement.   This Agreement and the JV
Agreement shall be executed simultaneously and shall be effective as of October
9, 2013. All persons executing this Agreement in representative capacities
represent and warrant that they have full power and authority to bind their
respective corporations.
 
2.          Projects.  For purposes of this Agreement, “Projects” shall mean the
Projects identified in Schedule A attached hereto. Projects accepted in writing
by FWSI shall be referred to as “Accepted Projects”. Shovel ready shall mean
that such Projects have in place all required, permits, licenses, waivers,
authorizations, consents, assignments and approvals necessary for the
commencement and operation of the Project have been obtained.
 
3.          Release by PWS.  PWS hereby releases Montrose, FWSI, and their
officers, directors, partners, employees, legal counsel, advisors and
shareholders from any and all claims, demands, causes of action, contract
obligations, damages, attorneys' fees or costs whatsoever, at law or in equity
or otherwise, whether direct or indirect, known or unknown, which the releasing
party now owns or holds, or has at any time heretofore owned or held, or may in
the future own or hold, against the persons and entities they are releasing, or
any of them, in any capacity, which are or may be based upon any facts, acts,
omissions, representations, contracts, agreements, events, or matters of any
kind occurring or existing at any time on or before the date of this Agreement,
including those which arise out of, or are related to the Term Sheet and/or the
NDA.
 
 
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4.          Release by Montrose and FWSI.   Montrose and FWSI hereby release PWS
and its officers, directors, partners, employees, legal counsel, advisors, and
shareholders from any and all claims, demands, causes of action, contract
obligations, damages, attorneys' fees or costs whatsoever, at law or in equity
or otherwise, whether direct or indirect, known or unknown, which the releasing
party now owns or holds, or has at any time heretofore owned or held, or may in
the future own or hold, against the persons and entities they are releasing, or
any of them, in any capacity, which are or may be based upon any facts, acts,
omissions, representations, contracts, agreements, events, or matters of any
kind occurring or existing at any time on or before the date of this Agreement,
including those which arise out of, or are related to the Term Sheet and/or the
NDA.
 
5.          Notes.  If less than all of the Projects have been accepted by FWSI
on or prior to January 1, 2014 (the “Maturity Date”), the Notes will remain due
at the Maturity Date, as to their then outstanding principal amount and all
accrued interest due thereon, after application of the payments described herein
and in the JV Agreement to made by FWSI through issuance of its senior
convertible notes. Upon execution of the JV Agreement, FWSI shall make a partial
payment under the Notes through the issuance of senior convertible notes, which
shall constitute part of the senior convertible notes to be offered by FWSI to
prospective subscribers in a $2,000,000 offering, in an aggregate principal
amount equal to $100,000 plus accrued interest thereon, and the amount due and
payable by PWS under the Notes shall be correspondingly reduced (e.g. to a
principal amount of $150,000 plus accrued interest). If, on or prior to the
Maturity Date, FWSI accepts a second Project under the terms of the JV
Agreement, FWSI shall simultaneously issue senior convertible notes in an
aggregate principal amount equal to $75,000 plus accrued interest thereon, and
the amount due and payable by PWS under the Notes shall be correspondingly
reduced (e.g. to a principal amount of $75,000 plus accrued interest). If, on or
prior to the Maturity Date, FWSI accepts a third Project under the terms of the
JV Agreement, FWSI shall simultaneously issue senior convertible notes in an
aggregate principal amount equal to $75,000 plus accrued interest thereon, and
at that time, the Notes shall be deemed to be paid in full. Until the Notes are
converted or paid in full, the UCC Financing Statement shall remain in effect,
 
6.          Unknown Claims; Equal Participation in Drafting.  The parties agree
that each has had the time to consult with their attorneys concerning this
Agreement and that each has had the opportunity to consider whether there may be
future damages, claims, liabilities or obligations that presently are unknown,
unforeseen or not yet in existence and hereby consciously and knowingly accepts
the risk that future damages, claims, liabilities or obligations that presently
are unknown, unforeseen or not yet in existence may occur and consciously and
knowingly intends to release the other party from same. The parties have
participated and had an equal opportunity to participate in the drafting of this
Agreement. No ambiguity shall be construed against any party based upon a claim
that that party drafted the ambiguous language.
 
7.          The Agreement Is A Bar To Any Future Action Against Any Party.  The
parties agree that they have not commenced or prosecuted and will not commence
or prosecute any action or proceeding for recovery of damages or for any form of
equitable relief, declaratory relief or any other form of action or proceeding
or arbitration against the other parties or any of them arising out of any event
or transaction that occurred prior to the date hereof. Except as provided above,
this Agreement shall constitute a judicial bar to the institution of any such
action or proceeding or any assignment thereof.
 
8.          Denial of Liability.  The parties understand and agree that this
Agreement constitutes a compromise and settlement of possible disputed claims of
the parties, which claims are denied and contested by each party.  This
settlement is premised upon the parties’ desire to terminate any potential
dispute and buy their peace. No part of this Agreement shall be deemed or
construed to be an admission by any party of liability, responsibility or fault
of any kind.
 
9.          Attorneys’ Fees and Costs.  The parties each agree to pay their own
costs and attorneys’ fees incurred with regard to any matters between the
parties related to this action.
 
10.       Confidentiality.  The parties shall not disclose any of the terms or
conditions of this Agreement to any person, unless such disclosure is compelled
by reason of a court order, the order of any regulatory authority or if
disclosure is required by reason of public company reporting requirements.
 
 
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11.       Entire Agreement.  This Agreement, the Settlement Agreement and Mutual
Release among PWS, Aton Select Fund Limited and Adrien Ellul, and the JV
Agreement taken together constitute the entire agreement of the parties with
respect to the subject matter of this Agreement. This Agreement may not be
modified, interpreted, amended, waived or revoked orally, but only by a writing
signed by all parties.  No party is entering into this Agreement in reliance
upon any oral or written promises, inducements, representations, understandings,
interpretations or agreements other than those contained in this Agreement.
 
12.       Counterparts.  This Agreement may be executed in counterparts. A party
shall be bound hereby upon the execution of this Agreement.
 
13.       Applicable Law; Jurisdiction.  THIS AGREEMENT IS MADE UNDER, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.  In any action between or among any of
the parties arising out of this Agreement, (i) each of the parties irrevocably
and unconditionally consents and submits to the exclusive jurisdiction and venue
of the state and federal courts having jurisdiction over New York County, New
York; (ii) if any such action is commenced in a state court, then, subject to
applicable law, no party shall object to the removal of such action to any
federal court having jurisdiction over New York County, New York; (iii) each of
the parties irrevocably waives the right to trial by jury; and (iv) each of the
parties irrevocably consents to service of process by first class certified
mail, return receipt requested, postage prepared, to the address at which such
party is to receive notice in accordance with this Agreement.
 
14.       Notices.  Any notices, consents, waivers or other communications
required or permitted to be given under the terms hereof must be in writing and
will be deemed to have been delivered:  (i) upon receipt, when delivered
personally; or (ii) upon receipt, when sent by facsimile (provided confirmation
of transmission is mechanically or electronically generated and kept on file by
the sending party); in each case properly addressed to the party to receive the
same.  The addresses and facsimile numbers for such communications shall be:
 
If to Montrose or FWSI:
c/o Gottbetter & Partners, LLP
 
488 Madison Avenue
 
New York, NY 10016
 
Attention:  Adam S. Gottbetter, Esq.
 
Telephone:  212.400.6900
 
Facsimile:  212.400.6901
   
If to PWS:
Produced Water Solutions, Inc.
 
2425 W. I-25 Frontage Road
 
Erie, CO 80516
 
Attention:  George A. Kast, CEO
 
Telephone:  303.215.9595
 
Facsimile:  303.215.0595
   

[Signatures on following page]
 
 
 
 
 
 
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
 

 
PRODUCED WATER SOLUTIONS, INC.
            By: /s/ George A. Kast     Name: George A. Kast     Title:
Chief Executive Officer
 

 

 
FRAC WATER SYSTEMS, INC.
            By: /s/ Nadine Smith     Name:
Nadine Smith
    Title:
Chief Executive Officer
 

 

 
MONTROSE CAPITAL LIMITED
 
 
        By: /s/ Mark Tompkins     Name:
Mark Tompkins
    Title:
Chief Executive Officer
 

 
 
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