SETTLEMENT AGREEMENT AND RELEASE
THIS SETTLEMENT AGREEMENT AND RELEASE (“ Agreement
”) is made this 25 day of March, 2008 (“
Agreement
Date ”), by and among Michael Daly, Chapter 7 Trustee
for Estate of Entrata Communications Corporation (“
Entrata
”), Citel Technologies, Inc. (“ Citel
”), MCK Communications, Inc. (now known as Needham (Nevada)
Corp.) (“ MCK ”)
and Verso Technologies, Inc. (“ Verso
”), all of whom are collectively referred to as the “
Parties
”.
WHEREAS , Entrata is a debtor under Chapter 7 of the United
States Bankruptcy Code, case number 03-34157, in the United States
Bankruptcy Court for the District of Connecticut (the “
Bankruptcy
Court ”);
WHEREAS , Entrata has filed a civil action against Verso and
Citel in the Norfolk County Superior Court, known as Michael Daly,
Chapter 7 Trustee for Estate of Entrata Corporation v. Verso
Technologies, Inc., et al., C.A. No. 08-00394 (the “
Verso
Action ”);
WHEREAS, Verso disputes that it is liable to Entrata the
Parties acknowledge the amount of Entrata’s claim being
settled hereunder is alleged to be Seven Hundred Fifty Thousand
Dollars ($750,000.00) plus 12% interest from February 1, 2002 plus
Seventy Nine Thousand Forty-Nine Dollars and six cents ($79,049.06)
for attorneys’ fees (the “ Verso Claim
”);
WHEREAS , Entrata has filed a civil action against MCK
Communications, Inc., and others in the Norfolk County Superior
Court, known as Entrata Communications Corporation v. Superwire
Corporation, et al., C.A. No. 02-00281 (the “ MCK Action
”);
WHEREAS , the Parties desire to enter into this Agreement to
fully and finally resolve, settle and satisfy their rights with
respect to all claims, contentions and disputes between them, upon
the terms and conditions more fully set forth herein;
NOW, THEREFORE , in consideration of these covenants and the
mutual promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties, intending to be legally bound, hereby
agree as follows:
1.
Bankruptcy
Court Approval . Promptly after the
Agreement Date, the Trustee shall file on behalf of Entrata a
motion with the Bankruptcy Court seeking the Bankruptcy
Court’s order approving the terms of this Agreement on
an expedited basis.
2.
Cash
Payment . Verso shall pay to Entrata the sum
of $100,000 (“ Cash
Payment ”) by certified check, bank check or wire
transfer on or before May 1, 2008.
3.
Stock
Issuance . On the Agreement Date, Verso
shall issue an irrevocable instruction letter to the transfer
agent for Verso’s common stock instructing such transfer
agent to issue on an expedited basis to Entrata a number of
shares of Verso common stock, $0.01 par value per share,
having an aggregate value equal to $250,000 (the “
Settlement
Shares ”), with each such share valued at the
Average Stock Price. For purposes of this
Agreement, " Average
Stock Price " shall mean the average closing price of
the Verso common stock as reported on The Nasdaq Capital
Market for the ten consecutive trading days immediately prior
to the Agreement Date. Notwithstanding anything
herein to the contrary, in order to comply with Marketplace
Rules of The Nasdaq Stock Market LLC, the Parties understand
and agree that in no event shall Verso be obligated to issue
pursuant to this Agreement a number of Settlement Shares which
exceeds 20% of the number of shares of Verso’s common
stock outstanding immediately prior to the Agreement
Date. Verso represents and warrants to Entrata that
the issuance of the Settlement Shares has been duly authorized
by all necessary corporate action and, upon such issuance,
such shares will be validly issued, fully paid and
non-assessable. Verso further represents and
warrants that assuming “Average Stock Price” to be
equal to the closing price of Verso common stock as of the
Agreement Date the number of Settlement Shares will not exceed
20% of the number of shares of Verso’s common stock
outstanding immediately prior to the Agreement
Date.
4. The
Parties agree that the Cash Payment and the $250,000.00
represented by the Settlement Shares are to be applied, at the
option of Entrata, against interest accruing under the
Licensing Agreement and that in such instance none of the Cash
Payment or Settlement Shares shall be applied to reduce the
principal obligation of $750,000. In connection
herewith, the parties acknowledge that as of March 24, 2008
interest accruing on Entrata’s claim is equal to
$552,750 and, as such, exceeds the value of the Cash Payment
and Settlement Shares.
5.
Investment
Representations . In connection with the
issuance of the Settlement Shares to Entrata, Entrata hereby
represents and warrants to Verso as follows:
a.
Entrata understands and acknowledges that the issuance
of the Settlement Shares to Entrata will not be registered
with, or reviewed by, the Securities and Exchange Commission
(the “ SEC
”) because the offer and sale by Verso of the Settlement
Shares to Entrata is intended to be a non-public offering
pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the “ Securities
Act ”).
b.
Entrata understands that no securities
administrator of any state has made any finding or
determination relating to the fairness of the offer or sale of
the Settlement Shares by Verso to Entrata pursuant to this
Agreement, and that no securities administrator of any state
has recommended or endorsed, or will recommend or endorse,
such offer and sale.
c.
The Settlement Shares shall be
held by Entrata for its account, for investment purposes only
and not with a view to any distribution or resale thereof,
except pursuant to the Registration Statement (as hereinafter
defined) or pursuant to any applicable exemption under the
Securities Act.
d.
Entrata understands that the
sale, pledge, hypothecation or transfer of the Settlement
Shares by Entrata is subject to the provisions of the
Securities Act restricting such sales, pledges, hypothecation
or transfers, unless they are registered under the Securities
Act and applicable state laws or are exempt from the
registration requirements thereof. Upon issuance of the
Settlement Shares, a legend in substantially the form set
forth below shall be placed on all certificates representing
such shares.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
OFFERED FOR SALE OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT
REQUIRED .
e.
Verso has made available to Entrata the
opportunity to ask questions of, and receive answers from,
Verso with respect to the activities and operations of Verso
and otherwise to obtain any additional information, to the
extent that Verso possesses the information or could acquire
it without unreasonable effort or expense, which Entrata deems
necessary in order to make its investment
decision.
f.
Entrata acknowledges that no general
solicitation or general advertising (including communications
published in any newspaper, magazine or other broadcast) has
been received by Entrata in connection with the Settlement
Shares and that no public solicitation or advertisement with
respect to the Settlement Shares has been made to
Entrata.
g.
Entrata
has knowledge and experience in business and financial matters
sufficient to enable Entrata to understand and evaluate the
risks of an investment in the Settlement Shares and to make an
investment decision with respect thereto, and, while it is not
anticipated that Entrata will hold the Settlement Shares
indefinitely, Entrata is able to bear the risk of such
investment for an indefinite period and to afford a complete
loss thereof.
6.
Registration
of Settlement Shares . On or prior to the
May 1, 2008, Verso shall prepare and file with the SEC a
registration statement under the Securities Act covering the
resale of the Settlement Shares by Entrata under the
Securities Act and containing a plan of distribution
substantially in the form of Appendix A attached hereto (the
“ Registration
Statement ”). Verso shall use
commercially reasonable efforts to cause the Registration
Statement to be declared effective by the SEC no later than
October 31, 2008. Entrata shall promptly provide to
Verso upon its request therefor the information about Entrata
required to be contained in the Registration
Statement.
7.
Assigned
Claims .
a.
On
the Agreement Date, but subject to approval of this Settlement
Agreement by the Bankruptcy Court, MCK shall, and does hereby,
assign, convey and transfer to Entrata all of the claims that
MCK has asserted against any of Superwire.com, Inc., Jeffers,
Shaff & Falk, LLP and Mark R. Zeibel in the MCK Action
(“ Assigned
Claims ”). Each of MCK and Verso
jointly and severally warrants and represents to Entrata that
neither has assigned to any person any portion of the Assigned
Claims.
b.
Verso
shall use its commercially reasonable efforts to cooperate
with Entrata in its prosecution of the Assigned Claims, and,
in doing so, Verso shall make available to Entrata and its
counsel, at reasonable times and places and upon reasonable
notice, any employees
of Verso (or any of its subsidiaries) whom Entrata reasonably
believes may have direct knowledge of any matter at issue
relating to the Assigned Claims for purposes of giving
testimony with respect thereto. In addition, Verso
shall request such employees to consider, and sign if
accurate, affidavits prepared by Entrata’s counsel
concerning dealings with Superwire.com, Inc., Jeffers, Shaff
& Falk, LLP and Mark R. Zeibel. Entrata shall
reimburse Verso or any such employees for any out-of-pocket
expenses incurred by them in giving any such
testimony.
8.
General
Release by Verso Parties .
a.
Except for the obligations set out in
this Agreement, Verso and MCK, on behalf of themselves and
each of their direct and indirect subsidiaries, and all of
their respective representatives, directors, officers, agents,
employees, attorneys, affiliates, successors and assigns
(collectively, the “ Verso
Parties ”), hereby and unconditionally release,
remise and forever discharge and shall be deemed to have
released remised and forever discharged Entrata, each of its
direct and indirect subsidiaries, and all of their respective
representatives, trustees, directors, officers, agents,
employees, attorneys, affiliates, successors and assigns
(collectively, the “ Entrata
Parties ”), from any and all claims, rights,
liabilities, complaints, debts, dues, sums of money, demands,
actions, causes of action, suits, defenses, counterclaims,
controversies, contest, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, agreements, promises,
variances, trespasses, controversies, damages, rights, whether
statutory, at common law, in equity or of any other kind,
including, without limitations, any possible claim under any
state, federal or local law, statute or regulation, for
commissions, salary, compensation, damages, nuisances, levies,
expenses, fees, debts, contracts, agreements, promises,
obligations or liabilities whatsoever, whatever they are, at
law or in equity, whether known or unknown, suspected or
unsuspected, foreseen or unforeseen, anticipated or
unanticipated, of any kind, including any consequence that the
same may have, had or could have by reason of any matter,
cause or thing whatsoever from the beginning of time to the
effective date of this Agreement, including, but not limited
to, all claims raised in the MCK Action and the Verso
Action.
b.
Except for the
obligations set out in this Agreement, Verso and MCK, on
behalf of themselves and the other Verso Parties, hereby and
unconditionally release, remise and forever discharge and
shall be deemed to have released remised and forever
discharged Citel, each of its direct and indirect parents and
subsidiaries, and all of their respective representatives,
directors, officers, agents, employees, attorneys, affiliates,
successors and assigns (collectively, the “ Citel
Parties ”), from any and all claims, rights,
liabilities, complaints, debts, dues, sums of money, demands,
actions, causes of action, suits, defenses, counterclaims,
controversies, damages and rights, whether statutory, or at
common law, whether at law or in equity, whether known or
unknown, suspected or unsuspected, foreseen or unforeseen,
anticipated or unanticipated, related to all claims raised in
the MCK Action and the Verso Action.
9.
General
Release by Entrata Parties .
a.&
