Document:

fwsi_ex102.htm

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

	 

 

 

5fwsi_ex103.htm

 

EXHIBIT 10.3

EMPLOYMENT SERVICES AGREEMENT

 

This Employment Services Agreement (the “Agreement”) is entered into as of the 10th day of October, 2013, by and between Frac Water Systems, Inc., a Nevada corporation, with a business address of 1266 1st Street, Suite 4, Sarasota, FL  34236 (the “Company”), and Nadine C. Smith, an individual with an address at 1266 1st Street, Suite 4, Sarasota, FL 34236 (“Executive”).

 

INTRODUCTION

 

WHEREAS, the Company desires to employ the Executive under the title and capacity set forth on Schedule A hereto and the Executive desires to be employed by the Company in such capacity, subject to the terms of this Agreement;

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and mutual promises herein below set forth, the parties hereby agree as follows:

 

1.             Employment Period.  The term of the Executive’s employment by the Company pursuant to this Agreement (the “Employment Period”) shall commence upon the date hereof (the “Effective Date”) and shall continue for that period of calendar months from the Effective Date set forth on Schedule A hereto.  Thereafter, the Employment Period may be renewed by mutual agreement of the parties on terms to be negotiated.  In any event, the Employment Period may be terminated as provided herein.

 

2.             Employment; Duties.

 

(a)           General. Subject to the terms and conditions set forth herein, the Company shall employ the Executive to act for the Company during the Employment Period in the capacities set forth on Schedule A hereto, and the Executive hereby accepts such employment. The duties and responsibilities of the Executive shall include such duties and responsibilities appropriate to such offices as the Company’s Board of Directors (the “Board”) may from time to time reasonably assign to the Executive, with such authority and responsibilities, including Company-wide executive, administrative and finance functions as are normally associated with and appropriate for such positions.

 

(b)           Executive recognizes that during the period of Executive's employment hereunder, Executive owes a duty of loyalty to the Company, and Executive will use Executive's good faith efforts to promote and develop the business of the Company and its subsidiaries (the Company’s subsidiaries from time to time, together with any other affiliates of the Company, the “Affiliates”). Executive shall devote such amount of Executive’s business time, attention and skills to the performance of Executive’s services as an executive of the Company as is reasonably required by the duties and responsibilities being assumed hereunder. Recognizing and acknowledging that it is essential for the protection and enhancement of the name and business of the Company and the goodwill pertaining thereto, Executive shall perform the Executive’s duties under this Agreement professionally, in accordance with the applicable laws, rules and regulations and such standards, policies and procedures established by the Company and the industry from time to time. The employment of the Executive hereunder shall not preclude her from continuing to serve as an officer and director of La Cortez Energy, Inc.

 

  

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(c)           However, the parties agree that: (i) Executive may devote a reasonable amount of her time to civic, community, or charitable activities and may serve as a director of other corporations (provided that any such other corporation is not a competitor of the Company, as determined by the Board) and to other types of business or public activities not expressly mentioned in this paragraph and (ii) Executive may participate as a non-employee director and/or investor in other companies and projects as described by Executive to the Board, so long as Executive’s responsibilities with respect thereto do not conflict or interfere with the faithful performance of her duties to the Company.

 

(d)           Place of Employment. The Executive’s services shall be initially performed at the Company’s offices located in Sarasota, Florida, any other locations where the Company now or hereafter has a business facility and at any other location where Executive’s presence is necessary to perform her duties. The parties acknowledge, however, that the Executive may be required to travel in connection with the performance of her duties hereunder.

 

3.            Base Salary.  The Executive shall be entitled to receive a salary from the Company during the Employment Period at the rate per year indicated on Schedule A hereto (the “Base Salary”).  Once the Board has established the Base Salary, such Base Salary may be increased on each anniversary of the Effective Date, at the Board’s sole discretion.  The parties expressly agree that what the Executive receives now or in the future, in addition to the regular Base Salary, whether this be in the form of benefits or regular or occasional aid/assistance, such as recreation, club memberships, meals, education for her family, vehicle, lodging or clothing, occasional bonuses or anything else she receives, during the Employment Period and any renewals thereof, in cash or in kind, shall not be deemed as salary.  However, because the Company is a public company subject to the reporting requirements of, inter alia, the US Securities and Exchange Commission (the “SEC”), both parties acknowledge that the Executive’s annual compensation (as determined by the rules of the SEC or any other regulatory body or exchange having jurisdiction), which may include some or all of the foregoing, will be required to be publicly disclosed.

 

3A.         Equity Purchase.  The Executive shall purchase common stock from the Company in connection with the execution of this Agreement in the amount and on the terms indicated on Schedule A hereto.

 

4.            Bonus.  (a) The Company may pay the Executive an annual bonus in an amount indicated on Schedule A (the “Annual Bonus”), at such time and in such amount as may be determined by the Board in its sole discretion.  The Board may or may not determine that all or any portion of the Annual Bonus shall be earned upon the achievement of operational, financial or other milestones (“Milestones”) established by the Board in consultation with the Executive and that all or any portion of any Annual Bonus shall be paid in cash, unless the Executive and the Company agree to pay such Annual Bonus in securities or other property. Notwithstanding the foregoing, the Annual Bonus shall not exceed the amount of Executive’s Base Salary for the period to which the Bonus relates.

 

(b)          The Executive shall be eligible to participate in any other bonus or incentive program established by the Company for executives of the Company.

 

5.            Other Benefits

 

(a)           Stock Option Grant. The Executive shall be entitled to receive stock options under the Company’s 2013 Equity Incentive Plan at such times and in such amounts as determined by the Company’s Board of Directors.

 

  

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(b)           Insurance and Other Benefits.  During the Employment Period, the Executive and the Executive’s dependents shall be entitled to participate in the Company’s insurance programs (or alternatively, to receive reimbursement for the cost of health insurance programs in which the Executive currently participates) and any ERISA benefit plans, as the same may be adopted and/or amended from time to time (the “Benefits”).  The Executive shall be entitled to paid personal days on a basis consistent with the Company’s other senior executives, as determined by the Board.  The Executive shall be bound by all of the policies and procedures established by the Company from time to time.  However, in case any of those policies conflict with the terms of this Agreement, the terms of this Agreement shall control.

 

(c)           Vacation.  During the Employment Period, the Executive shall be entitled to an annual vacation of at least that number of working days set forth on Schedule A hereto.

 

(d)           Expense Reimbursement.  The Company shall reimburse the Executive for all reasonable business, promotional, travel and entertainment expenses incurred or paid by the Executive during the Employment Period in the performance of Executive’s services under this Agreement, provided that the Executive furnishes to the Company appropriate documentation required by the Internal Revenue Code in a timely fashion in connection with such expenses and shall furnish such other documentation and accounting as the Company may from time to time reasonably request.

 

6.            Termination; Compensation Due. The Executive's employment hereunder may terminate, and the Executive’s right to compensation for periods after the date the Executive’s employment with the Company terminates shall be determined, in accordance with the provisions of paragraphs (a) through (e) below:

 

(a)           Voluntary Resignation; Termination without Cause.

 

(i)         Voluntary Resignation.  The Executive may terminate her employment at any time upon thirty (30) days prior written notice to the Company.  In the event of the Executive’s voluntary termination of her employment other than for Good Reason (as defined below), the Company shall have no obligation to make payments to the Executive in accordance with the provisions of Sections 3 or 4 above, except as otherwise required by this Agreement or by applicable law, or to provide the benefits described in Section 5 above, for periods after the date on which the Executive's employment with the Company terminates due to the Executive 's voluntary termination, except for the payment of the Base Salary accrued through the date of such resignation.

 

(ii)        Termination without Cause. The Company may terminate the Executive’s employment with the Company at any time with or without cause, by delivery to the Executive of a written notice of termination from the Chief Executive Officer of the Company.

(A)           If the Executive’s employment is terminated by the Company without Cause, the Company shall (x) continue to pay the Executive the Base Salary (at the rate in effect on the date the Executive’s employment is terminated) until the end of the Severance Period (as defined in Section 6(e) below), (y) with respect to the Annual Bonus, to the extent the Milestones are achieved, pay the Executive a pro rata portion of the Annual Bonus for the year of the Employment Period on the date such Annual Bonus would have been payable to the Executive had the Executive remained employed by the Company, and (z) pay any other accrued compensation and Benefits. The Executive shall not have any further rights under this Agreement or otherwise to receive any other compensation or benefits after such termination of employment.

 

(B)           If, following a termination of employment without Cause, the Executive breaches the provisions of Sections 7(b), 8 or 9 hereof, the Executive shall not be eligible, as of the date of such breach, for the payments and benefits described in Section 6 (a)(ii), and any and all obligations and agreements of the Company with respect to such payments shall thereupon cease.

 

  

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(b)           Discharge for Cause.  Upon written notice to the Executive, the Company may terminate the Executive’s employment for “Cause” if any of the following events shall occur:

 

(i)         any act or omission that constitutes a material breach by the Executive of any of her obligations under this Agreement;

 

(ii)        the willful and continued failure or refusal of the Executive to satisfactorily perform the duties reasonably required of her as an employee of the Company;

 

(iii)       the Executive’s conviction of, or plea of nolo contendere to, (i) any felony or (ii) a crime involving dishonesty or moral turpitude or which could reflect negatively upon the Company or otherwise impair or impede its operations;

 

(iv)       the Executive’s engaging in any misconduct, negligence, act of dishonesty (including, without limitation, theft or embezzlement), violence, threat of violence or any activity that could result in any violation of federal securities laws, in each case, that is injurious to the Company or any of its Affiliates;

 

(v)        the Executive’s refusal to follow the directions of the Board provided such directions do not require the Executive to violate any federal or state laws or rules;

 

(vi)       any other willful misconduct by the Executive which is materially injurious to the financial condition or business reputation of the Company or any of its Affiliates, or

 

(vii)      the Executive’s breach of her obligations under Section 7, 8 or 9 of this Agreement.

 

In the event the Executive is terminated for Cause, the Company shall have no obligation to make payments to the Executive in accordance with the provisions of Sections 3 or 4 above, or, except as otherwise required by law, to provide the benefits described in Section 5 above, for periods after the Executive's employment with the Company is terminated on account of the Executive's discharge for Cause except for the then applicable Base Salary accrued through the date of such termination.

 

(c)           Disability. The Company shall have the right, but shall not be obligated to terminate the Executive's employment hereunder in the event the Executive becomes disabled such that she is unable to discharge her duties to the Company for a period of ninety (90) consecutive days or one hundred twenty (120) days in any one hundred eighty (180) consecutive day period, provided longer periods are not required under applicable local labor regulations (a "Permanent Disability").  In the event of a termination of employment due to a Permanent Disability, the Company shall be obligated to continue to make payments to the Executive in an amount equal to the then applicable Base Salary for the Severance Period (as defined below) after the Executive’s employment with the Company is terminated due to a Permanent Disability.  A determination of a Permanent Disability shall be made by a physician satisfactory to both the Executive and the Company; provided, however, that if the Executive and the Company do not agree on a physician, the Executive and the Company shall each select a physician and those two physicians together shall select a third physician, whose determination as to a Permanent Disability shall be binding on all parties.

 

(d)           Death. The Executive's employment hereunder shall terminate upon the death of the Executive.  The Company shall have no obligation to make payments to the Executive in accordance with the provisions of Sections 3 or 4 above, or, except as otherwise required by law or the terms of any applicable benefit plan, to provide the benefits described in Section 5 above, for periods after the date of the Executive's death except for then applicable Base Salary earned and accrued through the date of death, payable to the Executive or her successor.

 

  

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(e)           Termination for Good Reason.  The Executive may terminate this Agreement at any time for Good Reason.  In the event of termination under this Section 6(e), the Company shall pay to the Executive severance in an amount equal to the then applicable Base Salary for a period equal to the number of months set forth on Schedule A hereto (the “Severance Period”), subject to the Executive’s continued compliance with Sections 7(b), 8 and 9 of this Agreement for the applicable Severance Period following the Executive’s termination, and subject to the Company’s regular payroll practices and required withholdings.  Such severance shall be reduced by any cash remuneration paid to the Executive because of the Executive’s employment or self-employment during the Severance Period.  The Executive shall continue to receive all Benefits during the Severance Period.  The Executive shall not have any further rights under this Agreement or otherwise to receive any other compensation or benefits after such resignation.  For the purposes of this Agreement, “Good Reason” shall mean any of the following (without Executive’s express written consent):

 

(i)         the assignment to the Executive of duties that are significantly different from, and that result in a substantial diminution of, the duties that she assumed on the Effective Date;

 

(ii)        removal of the Executive from all of her positions as indicated on Schedule A hereto, or the assignment to the Executive of duties that are significantly different from, and that result in a substantial diminution of, the duties that she assumed under this Agreement, within twelve (12) months after a Change of Control (as defined below);

 

(iii)       a reduction by the Company in the then applicable Base Salary or other compensation, unless said reduction is pari passu with other senior executives of the Company;

 

(iv)       the taking of any action by the Company that would, directly or indirectly, materially reduce the Executive’s benefits, unless said reductions are pari passu with other senior executives of the Company; or

 

(v)        a breach by the Company of any material term of this Agreement that is not cured by the Company within 30 days following receipt by the Company of written notice thereof.

 

For purposes of this Agreement, “Change of Control” shall mean the occurrence of any one or more of the following: (i) the accumulation, whether directly, indirectly, beneficially or of record, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of 50% or more of the shares of the outstanding equity securities of the Company, (ii) a merger or consolidation of the Company in which the Company does not survive as an independent company or upon the consummation of which the holders of the Company’s outstanding equity securities prior to such merger or consolidation own less than 50% of the outstanding equity securities of the Company after such merger or consolidation, or (iii) a sale of all or substantially all of the assets of the Company; provided, however, that the following acquisitions shall not constitute a Change of Control for the purposes of this Agreement: (A) any acquisitions of common stock or securities convertible into common stock directly from the Company, or (B) any acquisition of common stock or securities convertible into common stock by any employee benefit plan (or related trust) sponsored by or maintained by the Company.

 

(f)           Notice of Termination. Any termination of employment by the Company or the Executive shall be communicated by a written ‘‘Notice of Termination’’ to the other party hereto given in accordance with Section 15 of this Agreement. In the event of a termination by the Company for Cause, the Notice of Termination shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) specify the date of termination, which date shall be the date of such notice. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

 

(g)           Resignation from Directorships and Officerships. The termination of the Executive’s employment for any reason will constitute the Executive’s resignation from (i) any director, officer or employee position the Executive has with the Company or any of its Affiliates, and (ii) all fiduciary positions (including as a trustee) the Executive holds with respect to any employee benefit plans or trusts established by the Company. The Executive agrees that this Agreement shall serve as written notice of resignation in this circumstance, unless otherwise required by any plan or applicable law.

 

  

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7.            Non-Competition; Non-Solicitation.

 

(a)           For the duration of the Employment Period and, unless the Company terminates the Executive’s employment without Cause, during the Severance Period (the “Non-compete Period”), the Executive shall not, directly or indirectly, except as specifically provided in Section 2(c), engage or invest in, own, manage, operate, finance, control or participate in the ownership, management, operation, financing, or control of, be employed by, associated with, or in any manner connected with, lend any credit to, or render services or advice to, any business, firm, corporation, partnership, association, joint venture or other entity that engages or conducts any business the same as or substantially similar to the Business or any other business engaged in or proposed to be engaged in or conducted by the Company and/or any of its Affiliates during the Employment Period, or then included in the future strategic plan of the Company and/or any of its Affiliates, anywhere within the states or other jurisdictions in which the Company or any of its Affiliates at that time is operating; provided, however, that the Executive may own less than 5% in the aggregate of the outstanding shares of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) including those engaged in the frac water treatment business, other than any such enterprise with which the Company competes or is currently engaged in a joint venture, if such securities are listed on any national or regional securities exchange or have been registered under Section 12(b) or (g) of the Exchange Act.  Notwithstanding the foregoing, if the Executive shall present to the Board any opportunity within the scope of the prohibited activities described above, and the Company shall not elect to pursue such opportunity within a reasonable time, then the Executive shall be permitted to pursue such opportunity, subject to the requirements of Section 2(b).

 

(b)           During the Employment Period and for a period of twelve (12) months following termination of the Executive’s employment with the Company, the Executive shall not:

 

(i)         persuade, solicit or hire, or attempt to recruit, persuade, solicit or hire, any employee, or independent contractor of, or consultant to, the Company, or its Affiliates, to leave the employment (or independent contractor relationship) thereof, whether or not any such employee or independent contractor is party to an employment agreement; or

 

(ii)        attempt in any manner to solicit or accept from any customer or client of the Company or any of its Affiliates, with whom the Company or any of its Affiliates had significant contact during the term of the Agreement, business of the kind or competitive with the business done by the Company or any of its Affiliates with such customer or to persuade or attempt to persuade any such customer to cease to do business or to reduce the amount of business which such customer has customarily done or is reasonably expected to do with the Company or any of its Affiliates or if any such customer elects to move its business to a person other than the Company or any of its Affiliates, provide any services (of the kind or competitive with the Business of the Company or any of its Affiliates) for such customer, or have any discussions regarding any such service with such customer, on behalf of such other person.

 

The Executive recognizes and agrees that because a violation by the Executive of her obligations under this Section 7 will cause irreparable harm to the Company that would be difficult to quantify and for which money damages would be inadequate, the Company shall have the right to injunctive relief to prevent or restrain any such violation, without the necessity of posting a bond. The Non-compete Period will be extended by the duration of any violation by the Executive of any of her obligations under this Section 7.

 

The Executive expressly agrees that the character, duration and scope of the covenant not to compete are reasonable in light of the circumstances as they exist at the date upon which this Agreement has been executed.  However, should a determination nonetheless be made by a court of competent jurisdiction at a later date that the character, duration or geographical scope of the covenant not to compete is unreasonable in light of the circumstances as they then exist, then it is the intention of the Executive, on the one hand, and the Company, on the other, that the covenant not to compete shall be construed by the court in such a manner as to impose only those restrictions on the conduct of the Executive which are reasonable in light of the circumstances as they then exist and necessary to assure the Company of the intended benefit of the covenant not to compete.

 

  

6

  

 

8.            Inventions and Patents. The Executive acknowledges that all inventions, innovations, improvements, know-how, plans, development, methods, designs, analyses, specifications, software, drawings, reports and all similar or related information (whether or not patentable or reduced to practice) which related to any of the Company’s actual or proposed business activities and which are created, designed or conceived, developed or made by the Executive during the Executive’s past or future employment by the Company or any Affiliates, or any predecessor thereof (“Work Product”), belong to the Company, or its Affiliates, as applicable.  Any copyrightable work falling within the definition of Work Product shall be deemed a “work made for hire” and ownership of all right title and interest shall rest in the Company.  The Executive hereby irrevocably assigns, transfers and conveys, to the full extent permitted by law, all right, title and interest in the Work Product, on a worldwide basis, to the Company to the extent ownership of any such rights does not automatically vest in the Company under applicable law.  The Executive will promptly disclose any such Work Product to the Company and perform all actions requested by the Company (whether during or after employment) to establish and confirm ownership of such Work Product by the Company (including without limitation, assignments, consents, powers of attorney and other instruments).

 

9.            Confidentiality Covenants.

 

(a)           The Executive understands that the Company and/or its Affiliates, from time to time, may impart to the Executive confidential information, whether such information is written, oral or graphic.

 

For purposes of this Agreement, “Confidential Information” means information, which is used in the business of the Company or its Affiliates and (i) is proprietary to, about or created by the Company or its Affiliates, (ii) gives the Company or its Affiliates some competitive business advantage or the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of the Company or its Affiliates, (iii) is designated as Confidential Information by the Company or its Affiliates, is known by the Executive to be considered confidential by the Company or its Affiliates, or from all the relevant circumstances should reasonably be assumed by the Executive to be confidential and proprietary to the Company or its Affiliates, or (iv) is not generally known by non-Company personnel.  Such Confidential Information includes, without limitation, the following types of information and other information of a similar nature (whether or not reduced to writing or designated as confidential):

 

(i)            Internal personnel and financial information of the Company or its Affiliates, vendor information (including vendor characteristics, services, prices, lists and agreements), purchasing and internal cost information, internal service and operational manuals, and the manner and methods of conducting the business of the Company or its Affiliates;

 

(ii)           Marketing and development plans, price and cost data, price and fee amounts, pricing and billing policies, bidding, quoting procedures, marketing techniques, forecasts and forecast assumptions and volumes, and future plans and potential strategies (including, without limitation, all information relating to any acquisition prospect and the identity of any key contact within the organization of any acquisition prospect) of the Company or its Affiliates which have been or are being discussed;

 

(iii)          Names of customers and their representatives, contracts (including their contents and parties), customer services, and the type, quantity, specifications and content of products and services purchased, leased, licensed or received by customers of the Company or its Affiliates; and

 

(iv)          Confidential and proprietary information provided to the Company or its Affiliates by any actual or potential customer, government agency or other third party (including businesses, consultants and other entities and individuals).

 

The Executive hereby acknowledges the Company’s exclusive ownership of such Confidential Information.

 

(b)           The Executive agrees as follows: (1) only to use the Confidential Information to provide services to the Company and its Affiliates; (2) only to communicate the Confidential Information to fellow employees, agents and representatives on a need-to-know basis; and (3) not to otherwise disclose or use any Confidential Information, except as may be required by law or otherwise authorized by the Board. Upon demand by the Company or upon termination of the Executive’s employment, the Executive will deliver to the Company all manuals, photographs, recordings and any other instrument or device by which, through which or on which Confidential Information has been recorded and/or preserved, which are in the Executive’s possession, custody or control.

 

  

7

  

 

10.           Representation.  The Executive hereby represents that the Executive’s entry into this Employment Agreement and performance of the services hereunder will not violate the terms or conditions of any other agreement to which the Executive is a party.

 

11.           Arbitration.  In the event of any breach arising from the performance of this Agreement, either party may request arbitration.  In such event, the parties will submit to arbitration by a qualified arbitrator with the definition and laws of the State of New York.  Such arbitration shall be final and binding on both parties.

 

12.           Governing Law/Jurisdiction.  This Agreement and any disputes or controversies arising hereunder shall be construed and enforced in accordance with and governed by the internal laws of the State of New York without regard to the conflicts of laws principles thereof.

 

13.           Public Company Obligations.  Executive acknowledges that the Company is a public company whose Common Stock has been registered under the US Securities Act of 1933, as amended (the “Securities Act”), and registered under the Exchange Act, and that this Agreement may be subject to the public filing requirements of the Exchange Act.  Executive acknowledges and agrees that the applicable insider trading rules, transaction reporting rules, limitations on disclosure of non-public information and other requirements set forth in the Securities Act, the Exchange Act and rules and regulations promulgated by the SEC may apply to this Agreement and Executive’s employment with the Company.  Executive (on behalf of himself, as well as the Executive’s executors, heirs, administrators and assigns), absolutely and unconditionally agrees to indemnify and hold harmless the Company and all of its past, present and future affiliates, executors, heirs, administrators, shareholders, employees, officers, directors, attorneys, accountants, agents, representatives, predecessors, successors and assigns from any and all claims, debts, demands, accounts, judgments, causes of action, equitable relief, damages, costs, charges, complaints, obligations, controversies, actions, suits, proceedings, expenses, responsibilities and liabilities of every kind and character whatsoever (including, but not limited to, reasonable attorneys’ fees and costs) in the event of Executive’s breach of any obligation of Executive under the Securities Act, the Exchange Act, any rules promulgated by the SEC and any other applicable federal, state or foreign laws, rules, regulations or orders.

 

14.           Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and thereof and supersedes and cancels any and all previous agreements, written and oral, regarding the subject matter hereof between the parties hereto.  This Agreement shall not be changed, altered, modified or amended, except by a written agreement signed by both parties hereto.

 

15.           Notices.  All notices, requests, demands and other communications called for or contemplated hereunder shall be in writing and shall be deemed to have been given when delivered to the party to whom addressed or when sent by telecopy (if promptly confirmed by registered or certified mail, return receipt requested, prepaid and addressed) to the parties, their successors in interest, or their assignees at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid:

 

(a)           to the Company at:

Frac Water Systems, Inc.

1266 1st Street, Suite 4

Sarasota, FL  34236

Attn: Nadine Smith

Fax: (941) 365-5426

 

with a copy to:

 

Gottbetter & Partners, LLP

488 Madison Avenue

New York, NY 10022-5718

Attn: Adam S. Gottbetter

Fax: (212) 400-6901

 

(b)           to the Executive at:

 

Address listed on Schedule A attached hereto.

 

  

8

  

 

All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided for in this Section, be deemed given upon facsimile confirmation, (iii) if delivered by mail in the manner described above to the address as provided for in this Section, be deemed given on the earlier of the third business day following mailing or upon receipt and (iv) if delivered by overnight courier to the address as provided in this Section, be deemed given on the earlier of the first business day following the date sent by such overnight courier or upon receipt (in each case regardless of whether such notice, request or other communication is received by any other person to whom a copy of such notice is to be delivered pursuant to this Section).  Either party may, by notice given to the other party in accordance with this Section, designate another address or person for receipt of notices hereunder.

 

16.           Severability.  If any term or provision of this Agreement, or the application thereof to any person or under any circumstance, shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such terms to the persons or under circumstances other than those as to which it is invalid or unenforceable, shall be considered severable and shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law.  The invalid or unenforceable provisions shall, to the extent permitted by law, be deemed amended and given such interpretation as to achieve the economic intent of this Agreement.

 

17.           Waiver.  The failure of any party to insist in any one instance or more upon strict performance of any of the terms and conditions hereof, or to exercise any right or privilege herein conferred, shall not be construed as a waiver of such terms, conditions, rights or privileges, but same shall continue to remain in full force and effect.  Any waiver by any party of any violation of, breach of or default under any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or waiver of any other violation of, breach of or default under any other provision of this Agreement.

 

18.           Successors and Assigns.  This Agreement shall be binding upon the Company and any successors and assigns of the Company.  Neither this Agreement nor any right or obligation hereunder may be assigned by the Executive.

 

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

 

20.           Headings.  Headings in this Agreement are for reference purposes only and shall not be deemed to have any substantive effect.

 

21.           Opportunity to Seek Advice.  The Executive acknowledges and confirms that she has had the opportunity to seek such legal, financial and other advice and representation as she has deemed appropriate in connection with this Agreement, that the Executive is fully aware of its legal effect, and that Executive has entered into it freely based on the Executive’s judgment and not on any representations or promises other than those contained in this Agreement.

 

22.           Withholding and Payroll Practices.  All salary, severance payments, bonuses or benefits payments made by the Company under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law and shall be paid in the ordinary course pursuant to the Company’s then existing payroll practices.

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

[The next page is the signature page]

 

 

 

 

 

  

9

  

 

	  	
EXECUTIVE:

	 
	  	 	  	 
	  	 	/s/ Nadine C. Smith   	 
	  	 	
NADINE C. SMITH

	 
	 	 	 	 
	 	 	FRAC WATER SYSTEMS, INC.	 
	 	 	 	 
	 	 	By:	/s/ Nadine C. Smith	 
	 	 	Name:	Nadine Smith	 
	 	 	Title:	President	 

 

 

10

 

 

Schedule A

 

	
1.

	
Employment Period: 36 calendar months (3 years).

 

	
2.

	
Employment

 

	
a.

	
Title: President, CEO and Chairwoman

 

	
3.

	
Base Salary:  $120,000 per year increasing to

 

	
a.

	
$180,000 per year at such time as the Company deploys equipment to field operations, and further increasing to

 

	
b.

	
$240,000 per year at such time that the Company’s cash flow, in the reasonable judgment of the Company’s Board of Directors, can sustain the salary increase.

 

	
4

	
Bonus Potential:

 

	
a.

	
Equal to 100% of Base Salary, based upon achievement of budget and operational milestones as approved by the Company’s Board of Directors

 

	
5.

	
Initial Stock Purchase:  20,000,000 shares at $0.01 ($200,000)

 

	
6.

	
Vacation:  Six (6) weeks.

 

	
7.

	
Severance Period:  12 months

 

	
8.

	Executive Contact Information:	
1266 1st Street, Suite 4 

Sarasota, FL  34236

Phone:  (941) 330-6404

Fax:  (941) 365-5426

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