**Exhibit 10.5**

 

**MUTUAL RELEASE AND SETTLEMENTAGREEMENT**

 

This MUTUAL RELEASE ANDSETTLEMENT AGREEMENT (“Agreement”), dated and effective August 3, 2005, ismade by and between Nathaniel Energy Corporation, a Delaware corporation (“Nathaniel”)and Merrick & Company, a Colorado corporation (“Merrick”).  The parties to this Agreement arecollectively referred to as the “Parties.”

 

**RECITALS**

 

A.           On or about October 16, 2003, theparties entered into a Client Agreement for Professional Services Short Form Contract(“Contract”) pursuant to which Nathaniel engaged Merrick to perform certainengineering and related services (“Services”), and to provide certaindeliverables on a time-and-material basis (“Deliverables”), in connection withthe project described in the Contract (“Project”);

 

B.             Merrick issued to Nathaniel a number ofinvoices, billing statements, and/or demands for payment arising from orrelating to the Contract, Services, Deliverables, and/or Project (collectively “Invoices”).

 

C.             On or about August 1, 2004, to evidenceInvoices, Nathaniel executed a Promissory Note in favor of Merrick in theprincipal amount of $126,153.30 (“$126,153.30 Note”);

 

D.            On or about September 8, 2004, toevidence Invoices, Nathaniel executed a Promissory Note in favor of Merrick inthe principal amount of $199,626.96 (“$199,626.96 Note”);

 

E.              On or about December 21, 2004, toevidence Invoices, Nathaniel executed a Promissory Note in favor of Merrick inthe principal amount of $461,135.35 (“$461,135.35 Note”);

 

F.              On or about December, 21, 2004, Nathanielexecuted a Promissory Note in favor of Merrick in the principal amount of$325,780.26 (“$325,780.26 Note”), which superceded, replaced, and extinguishedthe $126,153.30 Note and $199,626.96 Note;

 

G.             A number of significant disputes have arisenbetween the Parties; and

 

H.            On the terms set forth in this Agreement,Nathaniel and Merrick hereby desire and intend to settle and resolve alldisputes, issues, and claims between them through the effective date of thisAgreement, including but not limited to all claims arising from or relating tothe Contract, Services, Deliverables, Project, $126,153.30 Note, $199,626.96Note, $461,135.35 Note, and $325,780.26 Note, as well as all claims, known orunknown, that could have been asserted by Nathaniel or Merrick against theother in any judicial, administrative, or like action or proceeding.

 

NOW THEREFORE, for and inconsideration of the foregoing recitals, the mutual promises and covenantsherein, and for other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the Parties hereby agree asfollows:

 

1.             Settlement PaymentTo Merrick.  Nathaniel shall payMerrick the principal sum of SevenHundred Twenty Eight Thousand Six Hundred Thirty Seven and No/100ths Dollars($728,637.00), with interest on the unpaid principal balance from July 15,2005, until paid, at the rate of eight percent (8%) per annum, in accordancewith the Promissory Note attached hereto as

 

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**Exhibit “A”**(“Note”).  Principal and interest shallbe payable at P.O. Box 22026, Denver, Colorado 80222, or such other placeas Merrick may designate in writing, with a one-time payment of Sixty FiveThousand and No/100ths Dollars ($65,000.00) upon execution of this Agreement,the balance payable without demand or offset, abatement, or deduction, intwenty four (24) equal monthly payments of Thirty Thousand Fourteen and50/100ths Dollars ($30,014.50) in accordance with the schedule of paymentsattached to the Note as Exhibit “A-1,” due on the fifteenth day of eachmonth, commencing August 15, 2005. Such payments shall continue until the entire indebtedness evidenced bythe Note is fully paid; provided, however, if not sooner paid, the entireprincipal amount outstanding and accrued interest thereon, shall be due andpayable on July 16, 2007.  Pursuantto the Note, Nathaniel shall have the right to prepay and satisfy allits obligations hereunder by paying Merrick in good funds, before 5:00 p.m.Mountain Time on September 15, 2005, the amount of Five Hundred Thousandand No/100ths Dollars ($500,000.00), which amount shall be in addition toamounts previously paid under the Note.

 

2.             Right To PrepayWithout Penalty/Sole Indebtedness. Nathaniel shall at all times have the right to prepay the amount dueunder the Note without penalty.  It isexpressly understood and agreed that, notwithstanding any other term orprovision in this Agreement, the Note shall constitute the sole and exclusiveindebtedness from Nathaniel to Merrick following the effective date of thisAgreement, and that a breach by Nathaniel of this Agreement shall not give riseto any independent liability, of any kind or nature, from Nathaniel to Merrick.

 

3.             Payment Default(Nathaniel).  If any payment requiredunder the Note is not paid when due, Merrick may at any time thereafter declarea default thereunder.  Such default mustbe declared by written notice, state the payment(s) that were not timely made,and be delivered by hand delivery or nationally recognized overnight carrier asfollows:  (a) to Nathaniel,attention George Cretecos, 8001 S. InterPort Boulevard, Suite 260,Englewood, Colorado 80112; and (b) to Nathaniel’s counsel, Foster, Graham &Calisher, LLP, attention Daniel K. Calisher, 1226 Bannock Street, Denver,Colorado 80204.

 

4.             Right To Cure(Nathaniel).  Nathaniel shall have acure period of 5 business days from the date a notice of default is deliveredto Nathaniel and their counsel as specified above.  Nathaniel may cure any such default, withoutpenalty, within such 5 business day period by paying Merrick the payment(s)specified in the notice.  If Nathanielfails to timely cure such a default, then it shall no longer be curable (“IrrevocableDefault”).  It is expressly understoodand agreed that, notwithstanding any other term or provision in this Agreement,performance of this Agreement shall constitute the sole and exclusive duty fromNathaniel to Merrick following the effective date of this Agreement.

 

5.             IrrevocableDefault/Judgment (Against Nathaniel). If Nathaniel commits an Irrevocable Default, Merrick may, according tothe terms of the Note, accelerate the remaining debt under the Note, causingthe total amount then owed to be immediately due and payable.  In that event, Merrick’s sole remedy shall bespecific performance of this Agreement and the Note including, withoutlimitation, seeking the entry of judgment against Nathaniel, and onlyNathaniel, in an action filed in the District Court for Arapahoe County,Colorado (“Action”).  The Parties herebyconsent to jurisdiction and venue in the Action.  The amount of such a judgment shall becalculated exclusively as follows: the entire principal amount outstanding andaccrued interest on the Note, plus allreasonable costs and expenses of collection and or suit incurred by Merrick inconnection with the Note, including, but not limited to attorney’s and

 

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expert’sfees. Nathaniel hereby waives all defenses and setoffs which wouldotherwise be available to it in the Action, with the following exceptions:  (a) payment to Merrick in accordancewith the Note; and (b) Merrick’s breach of this Agreement (collectively “Defenses”).  In the event there are no Defenses availableto it, Nathaniel shall file an Answer in the Action consenting to the entry ofjudgment on a forthwith basis according to the terms of this Agreement.  Service of process in the action may beeffectuated on Nathaniel or its counsel (identified herein).

 

6.             Satisfaction OfPrior Promissory Notes & Invoices. Upon execution of this Agreement, the Invoices, $126,153.30 Note,$199,626.96 Note, $461,135.35 Note, and $325,780.26 Note, as well as otheramounts owed by Nathaniel to Merrick, except as provided herein, shall bedeemed completely released, satisfied, and discharged.  Upon execution of this Agreement, Merrickshall clearly and indelibly mark the original $126,153.30 Note, $199,626.96Note, $461,135.35 Note, and $325,780.26 Note “Canceled” and “Paid In Full,” andshall deliver the same to Nathaniel.

 

7.             Deliverables ByMerrick.  Upon Nathaniel makingpayments on the Note such that less than Five Hundred Thousand and No/100thsDollars ($500,000.00) is owed thereunder, Merrick shall deliver to Nathaniel,at no charge to Nathaniel, the Deliverables identified on **Exhibit “B”**hereto.  Delivery in accordance with **Exhibit “B”** shall satisfy all of Merrick’s obligationsin connection with the Deliverables, Merrick being under no duty or obligationto perform any additional services or work whatsoever in connection therewith.

 

8.             Default/Right ToCure (Merrick).  If anything requiredunder this Agreement is not performed by Merrick when due, Nathaniel may at anytime thereafter declare a default hereunder. Such default must be declared by written notice, stating in detail thedefault alleged, and be delivered by hand delivery or nationally recognizedovernight carrier as follows:  (a) toMerrick, attention Ralph W. Christie, Jr., 2450 South Peoria St., Aurora,Colorado 80014; and (b) to Merrick’s counsel, Philip A. Rouse, Jr.,303 E. 17th Ave, Suite 800, Denver, Colorado 80203-1299.  Merrick shall have a cure period of 5business days from the date a notice of default is delivered to Merrick and itscounsel as specified above.  Merrick maycure any such default, without penalty, within such 5 business day periodspecified in the notice.  If Merrickfails to timely cure such a default, then it shall no longer be curable (“IrrevocableDefault”).  It is expressly understoodand agreed that, notwithstanding any other term or provision in this Agreement,performance of this Agreement shall constitute the sole and exclusive duty fromMerrick to Nathaniel following the effective date of this Agreement.

 

9.             IrrevocableDefault/Judgment (Against Merrick). If Merrick commits an Irrevocable Default, Nathaniel’s sole remedy shallbe specific performance of this Agreement. In that event, Nathaniel shall be entitled to immediate specificperformance of this Agreement including, without limitation, injunctive relief againstMerrick in an action filed in the District Court for Arapahoe County, Colorado(“Action”).  The Parties hereby consentto jurisdiction and venue in the Action. In addition to an order for specific performance and/or injunctiverelief, Nathaniel shall be awarded allreasonable costs and expenses of obtaining such relief, including but notlimited to attorney’s and expert’s fees. Merrick hereby waives all defenses which would otherwise beavailable to it in the Action, with the following exceptions:  (a) complete and timely turnover toNathaniel of the deliverables identified in **Exhibit “B”**hereto; and (b) Nathaniel’s breach of this Agreement (collectively “MerrickDefenses”).  In the event there are no MerrickDefenses available to it, Merrick shall file an Answer in the Action consentingto the immediate

 

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entry of an order forspecific performance against Merrick including, without limitation, injunctiverelief.  Service of process in the Actionmay be effectuated on Merrick or its counsel (identified herein).

 

10.           Release By Nathaniel.  Nathaniel, on behalf of itself and its predecessors, successors, insurers,affiliates, and assigns, hereby releases Merrick (as well as itsofficers, directors, shareholders, managers, members, partners, principals,affiliates, subsidiaries, related entities, contractors, attorneys,predecessors, successors, assigns, insurers, associates, agents,representatives, employers, and employees) (collectively “Merrick ReleasedParties”) from all actions, claims, damages, obligations, and liabilities (ofany kind or nature, without regard to amount, known or unknown, accrued orunaccrued) through the effective date this Agreement, including but not limitedto all claims arising from or relating to the Contract, Services, Deliverables, Project, $126,153.30 Note,$199,626.96 Note, $461,135.35 Note, and $325,780.26 Note (collectively “MerrickReleased Claims”).

 

11.           Release By Merrick.  Merrick, on behalf of itself and its predecessors, successors, insurers,affiliates, and assigns, hereby releases Nathaniel (as well as itsofficers, directors, shareholders, managers, members, partners, principals,affiliates, subsidiaries, related entities, contractors, attorneys,predecessors, successors, assigns, insurers, associates, agents,representatives, employers, and employees) (collectively “Nathaniel ReleasedParties”) from all actions, claims, damages, obligations, and liabilities (ofany kind or nature, without regard to amount, known or unknown, accrued orunaccrued) through the effective date this Agreement, including but not limitedto all claims arising from or relating to the Contract, Services, Deliverables, Project, $126,153.30 Note,$199,626.96 Note, $461,135.35 Note, and $325,780.26 Note (collectively “NathanielReleased Claims”).

 

12.           Separateness OfReleases.  The releases given aboveeach represents and contains a separate release running from the releasor tothe releasee, as applicable, and from each of the persons and entities for whomthe releasor acts to each of the persons and entities released thereby.  Each party covenants that none of the claims,rights, or interests which it has released or has caused to be released underthis Agreement has been assigned or transferred, in whole or in part, to anyperson or entity, and each party agrees to indemnify, defend, and hold the otherparty harmless from and against any breach of this covenant.

 

13.           Covenants Not To Sue.  Except as otherwise provided herein, eachparty hereby covenants, on its own behalf as well as for those persons andentities whom each acts and represents for purposes of Sections 10 and 11above, not to sue upon, or otherwise assert in any judicial, administrative, orlike action or proceeding, any of the claims released herein, and each partyagrees to indemnify, defend, and to hold the other party harmless from damages,liabilities, or costs, including attorney’s and expert’s fees, arising out ofor in any way connected with its breachof this covenant.

 

14.           No Release ForBreach Of This Agreement.  Nothingcontained herein shall release any party hereto from any claims, rights, orcauses of action arising from or relating to a breach of this Agreement.

 

15.           Releases Valid EvenIf Additional Or Different Facts. The Parties acknowledge they may discover facts which are additional toor different from those which they now know or believe to be true regarding thesubject matter of this Agreement. Nonetheless, except as

 

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otherwise providedherein, it is the parties’ intent to fully and finally compromise and settleall claims which exist or may exist between them through the effective date ofthis Agreement, including but not limited to all claims arising from orrelating to the Contract,Services, Deliverables, Project, $126,153.30 Note, $199,626.96 Note,$461,135.35 Note, $325,780.26 Note, Merrick Released Claims, and NathanielReleased Claims.  To effectuate thatintention, the releases given herein shall remain full and complete releases,notwithstanding the discovery of any additional or different facts by anyparty.

 

16.           No Representations:  The Parties acknowledge that no party, noragent, nor attorney of any party has made any promise or representationwhatsoever, express or implied, concerning the subject matter of thisAgreement, or to induce the execution of this Agreement, which is not expresslyset forth herein.  It is furtheracknowledged that no party to this Agreement has relied upon any representationmade by any other party regarding any aspect of the other’s claims, includingbut not limited to the nature, extent, or duration of any damages or injuriessuffered, nor the legal liability therefor.

 

17.           Contractual Nature.   The Parties hereby agree that the foregoingprovisions of release, indemnity, and the covenants not to sue are contractualand are not mere recitals.

 

18.           Representations And Warranties.  EachParty represents and warrants as follows:

 

(a)           Organization andGood Standing.  It is a corporationduly organized, validly existing and in good standing under the laws of theState of its incorporation.

 

(b)           Authority andBinding Effect. The execution and delivery of this Agreement by it, theconsummation of the transaction, and the performance by the party of itsobligations hereunder are within its power and authority, will not contraveneor constitute a material default under any provision of its organizationaldocuments, and will not result in any material breach of any term, condition orprovision of, or constitute a material default under, any note, mortgage,indenture, contract, agreement, agency agreement, judgment or order and, to it’sknowledge, will not contravene any provision of applicable law orregulation.  All actions required by it’sarticles of incorporation, any applicable agreements, or by laws necessary toauthorize the execution, delivery and performance of this Agreement by it andthe consummation of the transaction have been duly and validly taken on orprior to the effective date hereof.  TheSecretary’s Certificate certifying minutes of the board of directorsauthorizing and directing execution of this Agreement is attached hereto as **Exhibit “C.”**

 

(c)           GoodFaith Intent.  This transaction hasbeen undertaken in good faith, considering the obligations to the other partyhereto, whether or not the right(s) are reduced to judgment, liquidated,unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,legal, equitable, secured, or unsecured, and each party has undertaken thistransaction without any intent to hinder, delay, or defraud any party.

 

(d)           AdequacyOf Consideration and Negotiations. Each of party hereto acknowledges that the consideration it has given orreceived hereunder is fair and adequate consideration for the covenants,undertakings, forbearances, and promises contained herein, and that thisAgreement has been negotiated in good faith and at arm’s length.  Specifically, without limitation, in returnfor the execution of this Agreement, each party hereto is waiving and foregoingone or more legal rights or remedies they have or may have against the other.

 

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19.           Notices.  Except as otherwise specified herein, allnotices, requests, demands, and other communications under this Agreement shallbe in writing and shall be deemed to have been duly given on the date ofservice if served personally on the party to whom notice is to be given, or onthe third day after mailing if mailed to the Party to whom notice is to begiven, by registered or certified, return receipt requested, postage prepaid,and addressed as follows:

 
| **Nathaniel**:     |   | Nathaniel Energy  Corporation                 |
|--------------------|--------|-----------------------------------------------|
|               |   | Attn: George Cretecos, COO                    |
|               |   | 8001 South InterPort  Blvd., Suite 260   |
|               |   | Englewood, Colorado 80112                     |
|               |   | (303) 690-8300                                |
|               |   | (303) 539-0741 Facsimile                      |
|               |   |                                          |
| With a copy to:    |   | Foster, Graham &  Calisher, LLP      |
| (which shall not   |   | Daniel K. Calisher                            |
| constitute notice) |   | 1226 Bannock St.                              |
|               |   | Denver, Colorado 80204                        |
|               |   | (303) 333-9810                                |
|               |   | (303) 333-9786 Facsimile                      |
|               |   |                                          |
| **Merrick**:       |   | Merrick & Company                    |
|               |   | Attn: Ralph W.  Christie, Jr., President |
|               |   | 2450 S. Peoria Street                         |
|               |   | Aurora, Colorado 80014                        |
|               |   | (303) 751-0741                                |
|               |   | (303) 751-7967 Facsimile                      |
|               |   |                                          |
| With a copy to:    |   | Philip A. Rouse, Jr.                     |
| (which shall not   |   | 303 E. 17th Ave.,  Suite 800             |
| constitute notice) |   | Denver, Colorado  80203-1299                  |
|               |   | (303) 813-9333                                |
|               |   | (303)830-6708                                 |

 

Any party may change its address for purposesof this Section by giving the other party written notice of the new addressin the manner set forth above.

 

20.           Severability.   Ifany provision of this Agreement is held or deemed to be invalid orunenforceable to any extent when applied to any person or circumstance, theremaining provisions hereof and the enforcement of such provision to otherpersons or circumstances, or to another extent, shall not be affected therebyand each provision hereof shall be enforced to the fullest extent allowed bylaw. This Agreement shall be construed evenly, and not for or against any Partyin the event of an ambiguity.

 

21.           SupercedingAgreement.  This Agreement supercedesall prior undertakings, negotiations, and agreements between the Partiesincluding, without limitation, the Contract, $126,153.30 Note, $199,626.96 Note, $461,135.35 Note, and $325,780.26Note, and each party hereto stipulates that this Agreement constitutesthe entirety of their mutual and joint understanding with respect to thesubject matters hereof.  No modificationof this Agreement shall be effective unless in writing and signed by allParties.

 

22.           No Third PartyBeneficiaries.  There are no thirdparty beneficiaries to this Agreement including, without limitation, theclients and creditors of a party. Nothing in this Agreement, whether express or implied is intended toconfer any rights or remedies under or by reason of this Agreement on anypersons other than the Parties, their respective predecessors,

 

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successors, and assigns,and the persons and entities for whom releasors and releasees have specificallyacted, nor is anything in this Agreement intended to relieve or discharge theobligation or liability of any third person to any party to this Agreement, norshall any provision give any third persons any right to subrogation or actionagainst any party to this Agreement.

 

23.           GoverningLaw/Successors/Attorney Fees.   ThisAgreement shall be governed by the laws of the State of Colorado, withoutapplication of its choice or conflict of law principles, and shall be bindingupon and shall inure to the benefit of all persons and entities deemed to bereleasors and releasees hereunder, and insurers, and reinsurers of eachparty.  In the event of litigationarising from or relating to this Agreement, the prevailing party in suchlitigation shall be entitled to an award (from the non-prevailing party) of allreasonable attorneys’ fees and costs incurred therein.

 

24.           Pronouns and Terms.  In this Agreement, the singular shall includethe plural, the plural the singular, and the use of any gender shall includeall genders.

 

25.           Headings.  The subject headings herein are included onlyfor the purposes of convenience, and shall not affect the construction orinterpretation of any of its provisions.

 

26.           Acknowledgment andAuthority.   Each of the partiesacknowledges that, through its authorized representative or agent, it has readand understands all of the terms and provisions herein, and has consulted legalcounsel in connection herewith, and each person, by his signature below,warrants and represents that the party for whom he is acting has the authorityto execute this Agreement and to bind itself to the terms and provisionsherein.

 

27.           MultipleCounterparts.   This Agreement may beexecuted in multiple, original or facsimile counterparts, each constituting andserving as an original hereof.

 

28.           Parties To BearTheir Own Fees And Costs.  Except asotherwise and specifically provided herein, the parties shall each beresponsible for and pay all of their own fees and costs arising from orrelating to relating to the Contract,Services, Deliverables, Project, $126,153.30 Note, $199,626.96 Note,$461,135.35 Note, $325,780.26 Note, and this Agreement, including butnot limited to all attorneys’ fees.

 

29.           Denial Of WrongdoingOr Liability.  This Agreement isentered into solely for purpose of effectuating a compromise, settlement, andrelease.  Accordingly, each partyacknowledges that the other has admitted no fault, wrongdoing, liability, orobligation.  In fact, each partyexpressly denies such fault, wrongdoing, liability, or obligation.

 

30.           No Drafting Party:  No party shall be deemed the “drafting party”of this Agreement.  Consequently, thisAgreement shall be construed as a whole, according to its fair meaning andintent, and not strictly for or against any party hereto.

 

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IN WITNESS WHEREOF, the Parties execute this Agreement as of theeffective the date set forth above.

 

 
| **Nathaniel Energy  Corporation, Inc.**  |
|-----------------------------------------------|
|                                          |
|                                          |
| /s/ George A. Cretecos                        |   |
| By: George Cretecos, Chief  Operating Officer |
|                                          |
|                                          |
| **Merrick & Company**                |
|                                          |
|                                          |
| /s/ Ralph W. Christie                         |   |
| By: Ralph W.  Christie, Jr., President   |
|                                          |
| /s/ illegible Sr. VP                          |   |
| /s/ illegible                                 |   |
|                                          |
| **APPROVED AS TO FORM**:                      |
|                                          |
|                                          |
|                                          |   |
| Foster, Graham &  Calisher, LLP      |
| Daniel K. Calisher                            |
| 1226 Bannock St.                              |
| Denver, Colorado 80204                        |
|                                          |
|                                          |
|                                          |   |
| Philip A.  Rouse, Jr., Esq.         |
| 303 E. 17th Ave.,  Suite 800             |
| Denver, Colorado  80203-1299                  |
|                                               |  |  |  |  |

 

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