SETTLEMENT AGREEMENT AND MUTUAL RELEASE

 

This Settlement Agreement and Mutual Release (the “Agreement”) is entered into
on May ___, 2014, by Thomas Del Franco (“Del Franco”) and Jason B. Cruz (“Cruz”
and together with Del Franco, the “Del Franco Parties”), on the one hand, and
Steve Saleen (“Mr. Saleen”), Saleen Automotive, Inc., a Nevada corporation (the
“Company”), SMS Signature Cars, a California corporation (“SMS Signature Cars”),
SMS Limited, Inc. a California corporation (“SMS Limited”), SMS Retail – Corona,
a California corporation (“SMS Retail”), Saleen Electric Automotive, Inc., a
Florida corporation (“Saleen Electric”), Saleen Automotive Showcars, Inc., a
Michigan corporation (“Saleen Automotive Showcars”) Saleen Retail Services, a
California corporation (“Saleen Retail”), Saleen Autosport, Inc., a California
corporation (“Saleen Autosport”), and Saleen Sales Corporation, a California
corporation (“Saleen Sales Corporation” and together with Mr. Saleen, the
Company, SMS Signature Cars, SMS Limited, SMS Retail, Saleen Electric, Saleen
Automotive Showcars, Saleen Retail and Saleen Autosport, the “Saleen Parties”).
Each party named herein is a “Party” and is referred to collectively with each
other party hereto as the “Parties”).

RECITALS

 

WHEREAS, Del Franco claims that from 2008 through 2011, he was involved in
working with SMS Limited and/or SMS Signature Cars as a founder, employee and
officer of the company(ies).

 

WHEREAS, Del Franco claims that during the course of his work with SMS Limited
and/or SMS Signature Cars, he provided SMS Limited and/or SMS Signature Cars
with various loans that were to be repaid, and paid for various company-related
expenses that were to be reimbursed, and that such loans and expenses were not
repaid or reimbursed.

 

WHEREAS, Del Franco claims that during the course of his work with SMS Limited
and/or SMS Signature Cars, he transferred money from his 401(k) account to SMS
Limited and/or SMS Signature Cars, and that such monies were not repaid.

 

WHEREAS, Del Franco claims that during the course of his work with SMS Limited
and/or SMS Signature Cars, the company(ies) represented to him that they would
establish a 401(k) plan and make certain contributions to the plan for his
benefit, and that such company(ies) failed to do so.

 

WHEREAS, Del Franco claims that during the course of his work with SMS Limited
and/or SMS Signature Cars, he was supposed to receive stock in the company(ies),
as well as salary from the company(ies), and that such stock and salary were not
issued or paid.

 

WHEREAS, on November 27, 2013, Del Franco filed a Complaint against the Saleen
Parties and others, entitled Del Franco v. Saleen, et al., as Riverside Superior
Court Case No. RIC1313315 (the “Action”) for breach of written contract,
conversion, fraud, breach of fiduciary duty and unjust enrichment, seeking over
$1 million in compensatory and punitive damages.

 

 

 

 

WHEREAS, Cruz represents Del Franco in the Action as legal counsel.

 

WHEREAS, the Del Franco Parties and the Saleen Parties desire to end the
litigation between them without further time and expense, and to provide for the
satisfaction in full of all outstanding obligations of the Saleen Parties to the
Del Franco Parties (the “Outstanding Obligations”) by (i) payment by the Saleen
Parties to Del Franco of an aggregate amount equal to $250,000 (the “Cash
Amount”) and (ii) issuance to Del Franco and Cruz an aggregate amount of
2,500,000 restricted shares of the Company’s common stock (the “Shares”, and
together with the Cash Amount, the “Settlement Amount”).

 

NOW, THEREFORE, in consideration for the promises and the mutual covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged and intending to be
legally bound hereby, the Parties hereby agree as follows:

 

TERMS OF SETTLEMENT

 

1. Full Satisfaction of Outstanding Obligations. The Del Franco Parties hereby
accept the Settlement Amount in payment and satisfaction in full of all
outstanding obligations (including, without limitation, the aggregate
outstanding principal balance and accrued interest, fees, expenses or other
amounts due) owed by the Saleen Parties to the Del Franco Parties in connection
with the Outstanding Obligations or any other term, contract, agreement or
understanding related thereto. Upon the Del Franco Parties’ receipt of the
Settlement Amount all liabilities, obligations and indebtedness owing by the
Saleen Parties to either Del Franco Party in connection with the Outstanding
Obligations shall be deemed to have been satisfied in full. The Del Franco
Parties further agree to do such further acts and things and to execute and
deliver to the Saleen Parties such additional releases, powers, instruments,
documents or agreements, as the Saleen Parties may reasonably require or deem
advisable to carry into effect the foregoing.

 

2. Payment of Funds. Within five business days of the execution of this
Agreement, the Saleen Parties will deliver, or cause to be delivered, to Del
Franco the Cash Amount by wire transfer of immediately available funds to the
following bank account:

 

Jason Cruz

CA IOLTA Account

33481 Lansford Street

Yucaipa, CA 92399

 

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Routing Number: 121000248

Account Number: 6350943517

 

Wells Fargo Bank

220 E. State Street

Redlands, CA 92373

 

3. Issuance of Stock. Within 21 business days of the execution of this
Agreement, the Company will issue and deliver, or cause to be issued and
delivered, to the Del Franco Parties the Shares to the following individuals in
the following amounts:

 

Thomas D. Del Franco

Amount: 2,250,000 shares

SSN: ###-##-####

Address: 7170 Merrybrook

West Bloomfield, Michigan 48332

 

Jason B. Cruz

Amount: 250,000 shares

SSN: ###-##-####

Address: 33481 Lansford St.

Yucaipa, CA 92399

 

4. Stock Restriction. The Shares issued pursuant to this Agreement and any
transfer of such Shares shall be subject to and conditioned upon compliance by
the Company and the Del Franco Parties with all applicable federal and state
laws and regulations, including, but not limited to, restrictions on the sale of
the Shares for a certain time period. The Saleen Parties make no representations
or warranties as to when, or if, the Shares will become freely trading, and each
Del Franco Party acknowledges that he is relying on his own investigation and
independent legal advice as to the restrictions of the Shares.

 

5. Dribble Out. During the period commencing on the expiration of any applicable
restricted periods imposed by applicable federal and state securities laws and
regulations, including, without limitation, under Rule 144 promulgated under the
Securities Act (as defined below), and terminating on the date that is 12 months
thereafter, each Del Franco Party agrees, for themselves and their heirs and
assigns, that they will not offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, more than 200,000 of the Shares in any given calendar
month.

 

 

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6. Representations and Warranties of the Del Franco Parties. Del Franco and Cruz
represents and warrants to the Saleen Parties as follows:

 

a. Knowledge of Investment and its Risks. Such Del Franco Party has sufficient
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of their investment in the Shares. Such Del
Franco Party understands that an investment in the Company represents a high
degree of risk and there is no assurance that the Company’s business or
operations will be successful. Such Del Franco Party has considered carefully
the risks attendant to an investment in the Company, and that, as a consequence
of such risks, such Del Franco Party could lose his entire investment in the
Company. Such Del Franco Party acknowledges and agrees that neither the Company
nor any Saleen Party has made any representations or warranties regarding the
Company or its business, operations or prospects, and each such Del Franco Party
has conducted its own independent due diligence review and investigation of the
Company.

 

b. Investment Intent. The Shares are being acquired for investment for such Del
Franco Party’s own account, and not as a nominee or agent and not with a view to
the resale or distribution of all or any part of the Shares, and such Del Franco
Party does not have any present intention of selling, granting any participation
in, or otherwise distributing any of the Shares within the meaning of and in
violation of the Securities Act of 1933, as amended (the “Securities Act”).
Further, such Del Franco Party does not have any contracts, understandings,
agreements, or arrangements, directly or indirectly, with any person and/or
entity to distribute, sell, transfer, or grant participations to such person
and/or entity with respect to, any of the Shares. Such Del Franco Party is not
acquiring the Shares as a result of any advertisement, article, notice or other
communication regarding the Shares published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.

 

c. Investor Status. Such Del Franco Party is an “accredited investor” as that
term is defined by Rule 501 of Regulation D promulgated under the Securities
Act.

 

d. No Registration. Such Del Franco Party understands that he may be required to
bear the economic risk of his investment in the Company for an indefinite period
of time. Such Del Franco Party further understand that (i) neither the offering
nor the sale of the Shares has been registered under the Securities Act or any
applicable state securities laws (“State Acts”) in reliance upon exemptions from
the registration requirements of such laws, (ii) the Shares must be held by him
indefinitely unless the sale or transfer thereof is subsequently registered
under the Securities Act and any applicable State Acts, or an exemption from
such registration requirements is available, (iii) the Company is under no
obligation to register any of the Share on such Del Franco Party’s behalf or to
assist such Del Franco Party in complying with any exemption from registration,
and (iv) the Company will rely upon the representations and warranties made by
the Del Franco Parties in this Agreement in order to establish such exemptions
from the registration requirements of the Securities Act and any applicable
State Acts.

 

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e. Transfer Restrictions. Such Del Franco Party will not transfer any of the
Shares unless such transfer is registered or exempt from registration under the
Securities Act and applicable State Acts, and, if requested by the Company in
the case of an exempt transaction, such Del Franco Party has furnished an
opinion of counsel reasonably satisfactory to the Company that such transfer is
so exempt. Such Del Franco Party understands and agrees that (i) the Company
shall have no obligation to honor transfers of any of the Shares in violation of
such transfer restrictions, (ii) the Company shall be entitled to instruct any
transfer agent or agents for the securities of the Company to refuse to honor
such transfers and (iii) the certificate and other documents evidencing the
Shares will bear the following legend:

 

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER SUCH ACT AND/OR APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO
THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

“THE SECURITIES EVIDENCED BY THIS CERTIFICATE AND THE TRANSFER THEREOF ARE
SUBJECT TO THE PROVISIONS OF THAT CERTAIN SETTLEMENT AGREEMENT, DATED AS OF MAY
__, 2014, BY AND AMONG THE ISSUER AND THE PARTIES NAMED ON THE SIGNATURE PAGES
THERETO, AS SUCH MAY BE AMENDED AND/OR RESTATED IN ACCORDANCE WITH ITS TERMS,
THE ISSUER WILL FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS
CERTIFICATE UPON REQUEST AND WITHOUT CHARGE.”

 

7. Dismissal of Claims. Within seven days of receipt of payment of the
Settlement Amount, the Del Franco Parties shall cause to be filed with the
Riverside Superior Court a Request for Dismissal dismissing the entire Action
and all parties with Prejudice (the “Request for Dismissal”).

 

8. General Release by the Del Franco Parties. Except for the right to full
performance of this Agreement, the Del Franco Parties now and forever release
and discharge each of the Saleen Parties and each of their respective
affiliates, officers, directors, stockholders, successor and assigns, agents,
employees, representatives, independent contractors, and affiliates
(collectively the “Saleen Released Parties”) from any and all past, present, or
future claims, demands, agreements, obligations, debts, liabilities, actions or
causes of action, whether based on tort, contract, or other theories of
recovery, which such Del Franco Party now has or which may later accrue to or be
acquired by such Del Franco Party against any Saleen Released Party arising from
or relating to (i) the Recitals, (ii) the Action, (iii) the Outstanding
Obligations, or (iv) in any dealings that any Del Franco Party had, in any
manner whatsoever, with any Saleen Released Party.

 

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9. General Release by the Saleen Parties. Except for the right to full
performance of this Agreement, the Saleen Parties now and forever release and
discharge Del Franco and each of his agents, employees, representatives,
independent contractors, and affiliates (collectively the “Del Franco Released
Parties”) from any and all past, present, or future claims, demands, agreements,
obligations, debts, liabilities, actions or causes of action, whether based on
tort, contract, or other theories of recovery, which they now have or which may
later accrue to or be acquired by them against any Del Franco Released Party
arising from or relating to (i) the Recitals, (ii) the Action, (iii) the
Outstanding Obligations, or in any dealings that any Saleen Party had, in any
manner whatsoever, with any Del Franco Released Party.

 

10. Section 1542 Waiver. Each of the Parties certify that they have read the
following provisions of California Civil Code Section 1542:

 

A general release does not extend to claims which the creditor does not know or
suspect to exist in his or her favor at the time of executing the release, which
if known by him or her must have materially affected his or her settlement with
the debtor.

 

Each of the Parties specifically waives the application of California Civil Code
Section 1542. The Parties understand and acknowledge that the significance and
consequence of this waiver of California Civil Code Section 1542 is that even if
they should eventually suffer additional damages arising out of the claims
released herein, they will not be able to make any claim for such damages.
Furthermore, the Parties acknowledge that they consciously intend these
consequences even as to claims that they do not know exist, and that, if known,
would materially affect such Party’s decision to execute this Agreement,
regardless of whether such Party’s lack of knowledge is the result of ignorance,
oversight, error, negligence, or any other cause.

 

11. Integration. This Agreement contains the entire understanding between the
Parties concerning the settlement of this dispute. Any and all prior
negotiations that are not contained in this Agreement are superseded and of no
force and effect.

 

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12. Headings. All section headings contained in this Agreement are for
convenience of reference only, do not form a part of this Agreement, and shall
not in any way affect the meaning or interpretation of this Agreement.

 

13. Authority. The undersigned individuals execute this Agreement on behalf of
the respective parties and represent that they are authorized to enter into and
execute this Agreement on behalf of such Parties.

 

14. Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

 

15. Facsimile or Scanned Signatures. This Agreement may be brought into effect
by a facsimile or scanned (.pdf) signature, and a facsimile or scanned signature
shall be considered as though it were an original.

 

16. Further Assurances. The Parties agree to execute all instruments and
documents of further assurance and will do any and all such acts as may be
reasonably required to carry out their obligations and to consummate the
transactions contemplated by this Agreement.

 

17. Binding Effect. This Agreement is binding upon and shall inure to the
benefit of the Parties and each of the Parties’ respective successors,
predecessors, assigns, heirs, personal representatives, and affiliates, without
time limitation.

 

18. No Implied Waiver. No action or failure to act shall constitute a waiver of
any right or duty afforded under this Agreement, nor shall any action or failure
to act constitute an approval of, or acquiescence in, any breach, except as may
be specifically agreed in writing. Waiver of any one provision herein shall not
be deemed to be a waiver of any other provision herein.

 

19. Governing Law. This Agreement shall be interpreted, enforced, and governed
in accordance with the laws of the State of California. By signing this
Agreement, each Party hereby agrees and submits to the exclusive jurisdiction of
the Orange County Superior Court.

 

20. Interpretation. This Agreement is the product of negotiation by and among
the Parties. Any Party enforcing or interpreting this Agreement shall interpret
it in a neutral manner. There shall be no presumption concerning whether to
interpret this Agreement for or against any Party by reason of that Party having
drafted this Agreement, or any portion thereof, or caused it or any portion
thereof to be drafted.

 

21. Severability. In the event that any provision of this Agreement is deemed
invalid, illegal, or unenforceable all other provisions of the Agreement that
are not affected by such invalidity, illegality or unenforceability shall remain
in full force and effect.

 

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22. Attorneys’ Fees. If any legal action or other proceeding is brought to
enforce the provisions of this Agreement, the prevailing Party shall be entitled
to recover reasonable attorneys’ fees and other costs incurred in the action or
proceeding, in addition to any other relief which the prevailing Party may be
entitled.

 

23. Confidentiality. Other than as required by law, the Parties agree that they
and their counsel will keep confidential, and will not discuss, disclose,
disseminate, release and/or publicize to any person or entity not a party to
this Agreement, the existence of this Agreement or any of the terms of this
Agreement, except: (1) the Request for Dismissal, (2) to the extent necessary to
enforce any rights under this Agreement, (3) in response to an order of a court
of competent jurisdication or a subpoena issued under the authority thereof, or
(4) by the Saleen Parties in filings required to be made with the Securities and
Exchange Commission or otherwise under applicable securities reporting laws.

 

24. No Oral Modification. Neither this Agreement nor any term hereof may be
amended, modified, waived, discharged or terminated other than by an instrument
in writing, signed by the Party against which enforcement of such amendment,
change, waiver, discharge or termination is sought.

 

25. Settlement Discussions. This Agreement is part of a proposed settlement of a
dispute among the Parties. The Parties agree that this Agreement and the
negotiations relating thereto do not constitute an admission or evidence of any
wrongdoing, misconduct or violation of any law whatsoever by any Party. Pursuant
to Federal Rule of Evidence 408 and any applicable state rules of evidence, this
Agreement and all negotiations relating thereto shall not be admissible into
evidence in any proceeding other than a proceeding to enforce the terms of this
Agreement.

 

[SIGNATURES ON THE FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement, as of the
day and year first hereinabove set forth.

 

    Thomas Del Franco         By:       Thomas Del Franco           Jason B.
Cruz         By:     Jason B. Cruz           Steve Saleen     Saleen Automotive,
Inc.     SMS Signature Cars     SMS Limited, Inc.     SMS Retail – Corona    
Saleen Electric Automotive, Inc.     Saleen Automotive Showcars, Inc.     Saleen
Retail Services     Saleen Autosport, Inc.     Saleen Sales Corporation

    

  By:     Steve Saleen, Authorized Agent