SEPARATION AGREEMENT AND GENERAL
RELEASE OF CLAIMS
THIS SEPARATION AGREEMENT AND GENERAL RELEASE OF
CLAIMS (the “ Agreement ”) is made and entered
into by and between Victory Energy Corporation, a Nevada
corporation (“ Company ”), Jon Fullenkamp, an
individual (“ Fullenkamp ”), and Jon Fullenkamp,
as Trustee of the Virgin Family Trust, LLP (“ Trust
”).
RECITALS
A. The
Company and Fullenkamp entered into an Employment Agreement dated
effective as of January 2, 2005 (the “
Employment Agreement ”).
B. Fullenkamp
voluntarily resigned from all positions with the Company, including
his position as its President, Chief Executive Officer, employee
and as a member of its Board of Directors, effective April 28, 2009
(the “ Separation Date ”).
C. Fullenkamp
is owed (i) an aggregate of approximately $1,014,000 as reflected
on the books of the Company as of April 29, 2009 (the “
Original Related Party Debt ”), and (ii) an aggregate
of approximately $10,000 of unreimbursed expenses incurred during
the first quarter of 2009 (the “ Unreimbursed Expenses
”).
D. The
parties have agreed to (i) reduce the amount of the Original
Related Party Debt to a total of $500,000 (including imputed
interest) (the “ Revised Related Party
Debt ”), (ii) repay the Revised Related Party Debt over
time in accordance with the Payment Schedule set forth in
Section 4 below, (iii) pay to Fullenkamp the amount of the
Unreimbursed Expenses, and (iv) issue to Fullenkamp10,000,000
shares of the Company’s common stock that were issuable to
Fullenkamp under the terms of the Employment Agreement (the “
Employment Agreement Shares ”).
E. The
Company desires to obtain the assistance of Fullenkamp in
connection with certain matters relating to the Company’s
ongoing business operations in Texas and Fullenkamp is willing to
provide such assistance, at the Company’s request, in
consideration of the Company’s agreement to accelerate the
payment of a portion of the Revised Related Party Debt in
accordance with the provision contained in Section 5(a)
.
F. On
April 18, 2008, the Company purportedly issued 2,000,000 shares of
the Company’s preferred stock (the “ Preferred
Shares ”) to Fullenkamp in full payment of $200,000 owed
by the Company to Fullenkamp (which amount represented a portion of
the total amount owed by the Company to Fullenkamp at that
time). Recently, the Company has determined that the
Preferred Shares have not been legally created under applicable
provisions of Nevada Law and, as a result, have not been validly
issued by the Company. As a result, the Company desires
to issue to Fullenkamp, and Fullenkamp desires to accept, 1,000,000
shares (the “ Replacement Shares ”) of the
Company’s common stock, $0.001 par value per share (the
“ Common Stock ”) in lieu of the Preferred
Shares that were issued by the Company to Fullenkamp in full
consideration of the repayment of $200,000 of the Company’s
total indebtedness to Fullenkamp that existed at the time of the
issuance of the Preferred Shares.
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G. The
parties desire to terminate the Employment Agreement effective as
of the Separation Date and desire to implement certain restrictions
on the ability of Fullenkamp and the Trust to vote and transfer the
Fullenkamp Shares (as defined below).
NOW, THEREFORE, in consideration of the mutual
promises set forth herein, the sufficiency of which is hereby
acknowledged by each of the parties hereto, the parties hereby
agree as follows:
1.
Effective Date; Term . The effective date
of this Agreement shall be seven days after each of Fullenkamp and
the Trust executes and delivers the Agreement to the Company,
unless Fullenkamp and/or the Trust otherwise revokes this Agreement
in writing before expiration of such seven-day period (“
Effective Date ”). The provisions of this
Agreement shall continue in full force and effect until the fifth
anniversary of the Effective Date.
2.
Payment of All Accrued Wages; Termination of Employment
Agreement . Fullenkamp acknowledges and
represents that the Company has paid Fullenkamp for all wages,
bonuses, business expenses (other than the Unreimbursed Expenses,
the amount of which shall by paid to Fullenkamp in accordance with
Section 7 ) and unused vacation benefits due and owing to
Fullenkamp through the Separation Date, and that, except as
described herein, Fullenkamp is not and shall not be entitled to
any other wages, bonuses, compensation or benefits, whether
pursuant to the Employment Agreement or otherwise, including,
without limitation, salary, bonuses, incentive compensation, stock,
stock options, accrued vacation payments, severance pay, unvested
pension benefits, employer-paid health benefits, fringe benefits,
expense reimbursements, or any other employment
benefits. Fullenkamp and the Company acknowledge and
agree that the Employment Agreement is hereby terminated effective
as of the Separation Date.
3.
Reduction in the Amount of Original Related Party
Debt . In exchange for the Company entering into
this Agreement and agreeing to the terms hereof including the terms
of the Payment Schedule (defined below), Fullenkamp agrees to
reduce the amount of the Original Related Party Debt to the amount
of the Revised Related Party Debt.
4.
Payment Schedule . Subject to the
provisions of Section 5(a) , the Company agrees to pay the
Revised Related Party Debt to Fullenkamp as follows: (i) $10,000 on
the Effective Date, and (ii) 49 monthly installments of $10,000 on
the first day of every calendar month beginning June 1, 2009 (the
“ Payment Schedule ”). The parties
acknowledge and agree that the aggregate $500,000 in payments under
the Payment Schedule includes $34,374 of imputed interest relating
to the 49 monthly payments of $10,000 calculated at a rate of 3.52
% per annum. The parties further acknowledge and agree
that to the extent the Company makes a payment to Fullenkamp
pursuant to the provisions of Section 5(a) , the total
number of monthly installments shall be appropriately reduced to
take into account the dollar amount paid as a result of the
provisions of Section 5(a) .
5.
Cooperation and Assistance .
(a) In
the Company’s sole discretion, the Company may request that
Fullenkamp provide certain services to the Company, including, but
not limited to,
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assisting the
Company with its on-going drilling operations in
Texas. If the Company requests Fullenkamp to provide
such services and if, in the Company’s sole discretion, the
Company determines that Fullenkamp’s services and assistance
have had a significantly favorable impact on the Company, the
Company may, in its sole discretion and solely in consideration of
such services, accelerate up to ten payments (i.e., up to
$100,000), due to Fullenkamp pursuant to the Payment
Schedule. If such acceleration payment is made, the
Company will continue to make monthly payments in accordance with
the Payment Schedule commencing on the first day of the month after
the date of the acceleration payment, with the total number of such
payments appropriately reduced to take into account the
acceleration payment.
(b) Fullenkamp
shall cooperate and provide reasonable assistance to the Company
(including its agents, owners, employees and attorneys), as
requested by the Company, (i) to affect a smooth and orderly
transition and continuation of the business of the Company, (ii) in
the preparation and/or defense and/or pursuit of any litigation
involving the Company, and (iii) in connection with any issues
related to Fullenkamp’s employment with the Company,
Fullenkamp’s performance as an employee of the Company, or
any related matters, except as may be prevented by law.
(c) Fullenkamp
shall not (i) voluntarily aid, assist, cooperate with or encourage
any person in connection with the pursuit of any claim or dispute
against the Company, unless compelled by deposition or other proper
legal process, or (ii) voluntarily involve himself or participate
in any action in which the Company or any of the other Releasees
(as defined below) is a party without first obtaining the
Company’s advance written consent or unless requested to do
so by the Company pursuant to Section 5(b) above.
(d) Fullenkamp
shall provide advance written notice to the Company in the event he
is subpoenaed to testify, or provide documents at deposition or at
trial, relating to (i) any actual, possible, alleged or perceived
violation by the Company or any other Releasee (as defined below)
of any federal, state, local, or administrative law, rule, or
regulation; (ii) the negotiations relating to, and the terms of,
this Agreement; and (iii) any acts or omissions by the Company or
any of the other Releasees (as defined below) occurring prior to
the Effective Date of this Agreement.
(e) Nothing
in Sections 5(c) and (d) is intended to (i) preclude
Fullenkamp from assisting the Company in the manner described
above, (ii) interfere with any protected right to file charges,
testify, assist or participate in any manner in an EEOC
investigation, hearing or proceeding, or (iii) influence the
substance of such aid or involvement which is properly compelled by
legal process.
(f) Fullenkamp
shall be reimbursed for expenses he incurs on behalf of the Company
provided that he shall not be authorized to incur on behalf of the
Company any expenses in excess of $1,500 without the prior consent
of the Company’s Chief Financial Officer, which
consent shall be evidenced in writing for any expenses in excess of
$1,500. As a condition to receipt of reimbursement,
Fullenkamp shall be required to
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submit to the
Company reasonable evidence that the amount involved was expended
and related to services provided under this Agreement.
6.
Issuance of Replacement Shares . On the
Effective Date, the Company will issue to Fullenkamp the
Replacement Shares in lieu of the Preferred Shares and in full
consideration of the repayment of $200,000 of the Company’s
indebtedness to Fullenkamp that existed at the time of the issuance
of the Preferred Shares.
7.
Payment of Unreimbursed Expenses . On the
Effective Date, the Company will pay to Fullenkamp by check the
amount of the Unreimbursed Expenses to the extent Fullenkamp
provides the Company with receipts evidencing the payment of such
amounts by Fullenkamp.
8.
Voting Agreement .
(a) Each
of Fullenkamp and the Trust hereby irrevocably grants to, and
appoints Ronald Zamber, and any other individual who shall
hereafter be designated by Fullenkamp and agreed to by the Company,
as Fullenkamp’s and the Trust’s proxy and
attorney-in-fact (with full power of substitution), for and in the
name, place and stead of Fullenkamp and the Trust, to vote the
Fullenkamp Shares, or grant a consent or approval in respect of the
Fullenkamp Shares, at any meeting of shareholders of the Company or
at any adjournment thereof or in any other circumstances upon which
their vote, consent or other approval is sought in favor of any
matter brought before the Company’s shareholders.
(b) Each
of Fullenkamp and the Trust represents and warrants that any prior
proxies heretofore given in respect of any portion of the
Fullenkamp Shares are not irrevocable, and that any such prior
proxies are hereby revoked.
(c)
Each of Fullenkamp and the Trust hereby affirms that the proxy
set forth in this Section 8 is coupled with an interest and
is irrevocable until such time as this Agreement terminates in
accordance with its terms. Each of
Fullenkamp and the Trust hereby further affirms that the
irrevocable proxy is given in connection with the execution of this
Agreement, and that such irrevocable proxy is given in
consideration of the terms of this Agreement. Each of
Fullenkamp and the Trust hereby ratifies and confirms all that such
irrevocable proxy may lawfully do or cause to be done by virtue
hereof. Such irrevocable proxy is executed and intended
to be irrevocable in accordance with the provisions of Section
78.355(5) of the Nevada Revised Statutes.
(d) During
the term of this Agreement, neither Fullenkamp nor the Trust shall
Transfer any portion of the Fullenkamp Shares unless the person
receiving Transfer of such Fullenkamp Shares executes an Instrument
of Accession in the form attached hereto as Exhibit A
agreeing to be bound by the terms of this Agreement. As
used herein, “ Transfer ” shall mean and include
any sale (other than a sale made in a brokers’ transaction,
as that term is defined in Rule 144(g) under the Securities
Act of 1933, as amended (the “ Securities Act
”)), assignment, encumbrance, hypothecation, pledge,
conveyance in trust, gift, transfer by request, devise or descent,
or other transfer or disposition of any kind, including, but not
limited to, transfers in connection with a
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marital
separation or dissolution, transfers to receivers, levying
creditors, trustees or receivers in bankruptcy proceedings or
general assignees for the benefit of creditors, whether voluntary
or by operation of law, directly or indirectly, of any of the
Fullenkamp Shares.
(e) Each
of Fullenkamp and the Trust will, from time to time, execute and
deliver, or cause to be executed and delivered, such additional or
further transfers, assignments, endorsements, consents and other
instruments as the Company may reasonably request for the purpose
of effectively carrying out the transactions contemplated by this
Agreement and to vest the power to vote the Fullenkamp Shares as
contemplated by this Section 8 .
9.
Lock-up Agreement . In connection with the
issuance of the Employment Agreement Shares to Fullenkamp pursuant
to the terms of this Agreement, Fullenkamp agrees that until the
fifth anniversary of the Effective Date, Fullenkamp will not,
directly or indirectly, through an “affiliate,”
“associate” (as such terms are defined in the rules and
regulations promulgated under the Securities Act), a family member
or otherwise offer, pledge, hypothecate, sell, contract to sell, or
otherwise dispose of, or transfer any of the Employment Agreement
Shares; provided , however , that Fullenkamp may
sell, transfer, pledge, hypothecate or otherwise dispose (provided
such sale, transfer, pledge, hypothecation or disposition is made
in compliance with all applicable state and Federal securities
laws), on a monthly basis, of up to that number of Employment
Agreement Shares which is equal to 15% of the total number of
shares of the Company’s common stock that were traded on the
principal trading market upon which shares of the Company’s
common stock then trades during the preceding month.
10.
Representations and Warranties of Fullenkamp and the
Trust . Each of Fullenkamp and the Trust
represents and warrants to the Company as follows:
(a) Each
of Fullenkamp and the Trust has all requisite power and authority
to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by
Fullenkamp and the Trust. This Agreement has been duly
executed and delivered by Fullenkamp and the Trust and creates
valid and binding obligations enforceable against Fullenkamp and
the Trust in accordance with its terms. Neither the
execution, delivery or performance of this Agreement by Fullenkamp
and the Trust nor the consummation by Fullenkamp and the Trust of
the transactions contemplated hereby will (i) require any filing
with, or permit, authorization, consent or approval of, any
federal, state, local or municipal foreign or other government or
subdivision, branch, department or agency thereof or any
governmental or quasi-governmental authority of any nature,
including any court or other tribunals, (ii) result in a
violation or breach of, or constitute (with or without due notice
or lapse of time or both) a default under, or give rise to any
right of termination, amendment, cancellation or acceleration
under, or result in the creation of any pledge, claim, lien,
option, charge, encumbrance or security interest of any kind or
nature whatsoever (a “ Lien ”) upon any of
Fullenkamp’s or the Trust’s properties or assets under,
any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, l
