EXHIBIT 10.42
SETTLEMENT AGREEMENT
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This Settlement Agreement (the "Agreement") is made and entered into as of
February 1, 1998 by and between Vermont Research Products, Inc. ("VRPI") and
ChatCom, Inc. ("ChatCom") in consideration of the mutual promises herein
contained:
RECITALS
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A. VRPI contracted to provide goods and services to ChatCom pursuant to
agreements between the parties.
B. As of the date hereof, ChatCom is indebted to VRPI for such goods and
services in the amount of $1,765,470.
C. As of the date hereof, VRPI has warehoused for the benefit of ChatCom
an additional $273,878 of goods.
IT IS HEREBY AGREED:
1. The $2,039,348 in goods and obligations set forth above shall be paid,
delivered and accepted as set forth below:
2. Cash Payments. Of the total due, $420,470 will be paid in cash.
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2.1 Of that amount, $5,000 will be paid upon execution of this
Agreement.
2.2 From the proceeds, net of expenses, of each financing (other than
commercial bank loan financing or asset lending against United States
accounts receivable and finished or assembled goods inventory) by ChatCom,
twenty percent (20%) will be paid to VRPI.
2.3 In addition, at the time of the first such financing, VRPI shall
be paid the sum of $50,000 plus an amount equal to 25% of the amount of
non-United States
receivables collected from February 1, 1998 to the date of such financing.
At the time of the second such financing, VRPI shall be paid the sum of
$50,000 plus an amount equal to 25% of the amount of such receivables
collected from the date of the next prior financing. At the time of each
subsequent such financing, VRPI shall be paid an amount equal to 25% of the
amount of such receivables collected from the date of the next prior
financing.
2.4 Monthly payments will be made on March 1, 1998 and April 1, 1998
of $5,000 each, and $35,000 will be paid on May 1, 1998 and on the first
day of each succeeding month.
2.5 All payments pursuant to this paragraph will end when full
payment of the $420,470 plus interest has been made.
3. Warehoused Goods. The goods now warehoused by VRPI shall be shipped
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by VRPI to ChatCom customers, COD, payable to VRPI. Payments received by VRPI
from such customers for such goods shall be credited against the $273,878 sum
included in the $2,039,348 total set forth above.
4. Market Convertible Preferred. Nine hundred forty-five thousand
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dollars will be converted to a convertible preferred stock, convertible into
common stock any time from now to January 31, 2003 at market, but not less than
$.35 per share nor more than $.95 per share, and otherwise having rights and
preferences substantially as set forth in Exhibit A hereto.
5. Fixed Rate Preferred. Four hundred thousand dollars will be converted
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into a convertible preferred stock convertible into common stock at any time
from now to January
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31, 2003 at a fixed conversion rate of $.35 per share, and otherwise having
rights and preferences substantially as set forth in Exhibit B hereto.
6. Date of Issuance. The issuance of the shares of convertible preferred
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stock (the "VRPI Preferred Stock") and the warrants (the "Warrants") as
contemplated by paragraphs 4, 5 and 13 of this Agreement by ChatCom to VRPI
shall take place at such time within five business days following the execution
of this Agreement by the parties, as the parties to this Agreement shall
mutually agree. On the date of such issuance, ChatCom shall deliver to VRPI
such certificate(s) representing the shares of the VRPI Preferred Stock and the
Warrants and VRPI shall deliver to ChatCom receipts evidencing the conversion in
to the respective series of the VRPI Preferred Stock of amounts equal to
$945,000 and $400,000, respectively.
7. Representations and Warranties. VRPI hereby represents and warrants
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to Chatcom that as of the date hereof and again as of the date of the issuance
of the VRPI Preferred Stock and the Warrants:
7.1 Investment Intent. The VRPI Preferred Stock and the Warrants and
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the shares of Common Stock issuable upon the conversion of the VRPI
Preferred Stock and upon exercise of the Warrants will be acquired by VRPI
hereunder for VRPI's own account and not with the view to, or for resale in
connection with, any distribution other than resales made in compliance
with the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Securities Act") or the rules
promulgated thereunder. VRPI understands that neither the VRPI Preferred
Stock, the Warrants nor the Common Stock issuable thereunder have been
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registered under the Securities Act by reason of available exemptions from
the registration and prospectus delivery requirements of the Securities
Act, that the securities must be held indefinitely unless such securities
are registered under the Securities Act or unless any transfer is exempt
from registration, and that the reliance of ChatCom upon these exemptions
is predicted in part upon these representations and warranties by VRPI.
7.2 Disclosure. VRPI has reviewed ChatCom's publicly disclosed
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reports and filings, including, without limitation, ChatCom's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1997, the Current
Reports on Form 8-K filed with the Securities and Exchange Commission (the
"Commission") on December 29, 1997 and February 6, 1998, and the
confidential preliminary report of operations of ChatCom for the quarter
ended December 31, 1997 and has made such investigation of ChatCom as it
deems necessary for the purpose of its evaluation of its investment in
ChatCom. Furthermore, VRPI has had a full opportunity to discuss with
ChatCom all material aspects of an investment in the VRPI Preferred Stock
and the Warrants, including the opportunity to ask, and to receive answers
to its full satisfaction, regarding such questions as it has deemed
necessary to evaluate this transaction, ChatCom and its operations and
prospects. VRPI is aware that ChatCom is attempting to procure certain
financing and to convert certain outstanding debt into equity investments
in ChatCom, although no assurance can be given that the foregoing
transactions will be consummated. In addition, VRPI is aware that ChatCom
has received certain inquiries from The Nasdaq Stock Market, Inc. regarding
ChatCom's
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ability to satisfy the continued listing requirements of the Nasdaq Small
Cap Market. VRPI also is aware that the return of certain equipment
previously purchased by a foreign distributor will result in a material
reduction to ChatCom's revenues and accounts receivable and an increase in
its inventories, and that ChatCom is reviewing the appropriate accounting
treatment for such transactions.
7.3 Legend. VRPI acknowledges and agrees that the VRPI Preferred
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Stock, the Warrants and the certificates representing the Common Stock to
be issued thereunder shall bear the following (or substantially equivalent)
legend on the face or reverse side thereof:
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR CONVERSION OR
EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH
REGISTRATION.
Any stock certificate issued at any time in exchange or substitution for
any warrant or certificate bearing such legend shall also bear such (or
substantially equivalent) legend unless, in the opinion of counsel for
ChatCom, the securities represented thereby need no longer be subject to
restrictions pursuant to the Securities Act or applicable state securities
laws. ChatCom shall not be required to transfer on its books any
certificate for securities in violation of the provisions of such legend.
8. Reimbursement of Selling Expenses. ChatCom will pay VRPI's reasonable
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and customary selling expenses, including printing, legal, accounting and other
expenses, in connection with any sale of ChatCom securities acquired pursuant to
this Agreement.
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9. Interest and Dividends. Amounts to be paid in cash, until paid, will
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bear interest at the rate of 9.5% per annum from February 1, 1998. The
preferred stock will bear a cumulative 9.5% dividend.
10. Restrictive Covenant.
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10.1 Except as to Series D and Series E Preferred Stock, and the
conversion of such preferred stock to common stock and stated accrued
dividends, so long as the VRPI Preferred Stock or any portion thereof is
outstanding ChatCom will not pay cash dividends, redeem stock, either
common or preferred, for cash (except to the extent required to avoid loss
of tax net operating loss carryovers pursuant to Section 382 of the
Internal Revenue Code), or make any other cash disbursements related to
stock.
10.2 The VRPI Preferred Stock will be entitled to (after trade
creditors) equal preference with Series D and Series E preferred
shareholders in liquidation or involuntary or voluntary reorganization.
10.3 So long as the VRPI Preferred Stock or any portion thereof is
outstanding, VRPI shall have the right of approval, not to be unreasonably
withheld, of any debt offering except commercial bank lines of credit or
asset lending against United States accounts receivable and finished or
assembled goods inventory, and of any preferred stock offering that would
adversely affect, or rank pari passu, with any of the rights and
preferences of the VRPI Preferred Stock. Such approval shall be deemed to
have been given for any transaction, in each case, if VRPI shall not have
objected within three business days of its receipt of a written request
from ChatCom
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for approval of a specific transaction described in detail in such request.
VRPI hereby consents to reduction of the conversion price of Series D
Preferred Stock to a price not less than $.50 per common share.
11. Security Interest. ChatCom hereby grants to VRPI a security interest
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in all non-United States accounts receivable to secure payment of the $420,470
cash portion as described in paragraph 1.
12. Conversion Back to Debt. Through June 30, 1998, in the event that
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ChatCom engages in a bankruptcy proceeding or reorganization, composition with
creditors or like transaction, VRPI shall have the option to surrender its
rights under this Agreement and be reinstated as an unsecured creditor for the
full amount of debt, less any payments which have been made.
13. Warrants. VRPI will be issued five year warrants substantially in the
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form annexed as Exhibit C hereto to purchase 285,000 shares of ChatCom common
stock at $.35 per share.
14. Registration of Securities. All of the Common Stock underlying the
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VRPI Preferred Stock and the Warrants will be registered pursuant to a
Registration Statement to be filed as soon as possible, and in any event not
later than Xxxxx 00, 0000 (xx Deloitte & Touche provides its consent for the
incorporation by reference of its report covering ChatCom's March 31, 1997
Financial Statements), or May 31, 1998 (if Deloitte & Touche does not provide
the foregoing consent). ChatCom and VRPI shall enter into a Registration Rights
Agreement in substantially the form annexed hereto as Exhibit D pursuant to
which ChatCom shall use its best efforts to cause such Registration Statement to
become effective
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as soon as possible, but in any event not later than May 31, 1998 (extended to
June 30, 1998 in the event that the Commission undertakes a substantive review
of the Registration Statement), if Deloitte & Touche provides the foregoing
consent, or July 31, 1998 (extended to August 31, 1998, in the event that the
Commission undertakes a substantive review of the Registration Statement), if
Deloitte & Touche does not provide the foregoing consent, and the Registration
Statement will be maintained effective for a minimum period of one year. In the
event that ChatCom fails to file the Registration Statement on or before Xxxxx
00, 0000, XXXX shall have the right, which must be exercised by written
notification to ChatCom on or before June 5, 1998, to surrender any or all of
the VRPI Preferred Stock issued to it pursuant to this Agreement and to be
reinstated as a creditor to the extent of the consideration stated above for the
VRPI Preferred Stock..
15. Alienability. All stock and warrants will be freely transferable,
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subject only to securities law limitations.
16. Buyback Rights. For a period of 120 days, ChatCom shall have the
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right to buy back the unconverted portion of the VRPI Market Preferred Stock
described in paragraph 4 at the higher of (i) 115% of the amount of debt
converted to acquire it, or (ii) 115% of the market value of the underlying
common stock, provided that 100% of the amount set forth in paragraph 2 then has
been paid in full.
17. ChatCom Release. ChatCom hereby releases and forever discharges VRPI
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and its successors, assigns, related corporations, officers, directors,
employees, insureds, suretys, attorneys and agents (collectively the "VRPI
Release Parties") from any and all claims,
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causes of actions, demands, contributions and indemnities whatsoever, at law or
in equity, which ChatCom ever had, now has or may hereafter have against any of
the VRPI Release Parties with respect to or arising out of the provision of
goods and services to ChatCom through the date hereof or other aspects of the
subject matter of this Agreement; provided, however, the foregoing release shall
not eliminate or reduce any applicable product warranties by VRPI to ChatCom in
connection with products and services provided or to be provided by VRPI to
ChatCom, and shall not release officers, directors, attorneys and agents prior
to full performance by VRPI hereunder as to matters involving fraud.
18. VRPI Release. Effective upon full performance of this Agreement by
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ChatCom, VRPI hereby releases and forever discharges ChatCom and its successors,
assigns and related corporations (collectively the "ChatCom Release Parties")
from any and all claims, causes of actions, demands, contributions and
indemnities whatsoever, at law or in equity, which VRPI ever had, now has or may
hereafter have against any of the ChatCom Release Parties with respect to or
arising out of the provision of goods and services to ChatCom through the date
hereof or other aspects of the subject matter of this Agreement.
Notwithstanding the foregoing and regardless of the performance by ChatCom of
this Agreement or the related agreements that are attached hereto as exhibits,
except as to matters involving fraud, VRPI hereby releases and forever
discharges ChatCom's officers, directors, employees, insureds, suretys,
attorneys and agents (collectively, the "ChatCom Release Individuals") from any
and all claims, causes of actions, demands, contributions and indemnities
whatsoever, at law or in equity, which VRPI ever had, now has or may hereafter
have against any of the ChatCom Release Individuals with respect to or arising
out of the
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provisions of goods and services to ChatCom through the date hereof or other
aspects of the subject matter of this Agreement.
19. VRPI and ChatCom acknowledge that they are familiar with Section 1542
of the Civil Code of the State of California, which provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release which if known by him must have materially affected his
settlement with the debtor."
The releasing parties respectively waive any relinquish to the fullest
extent possible every right or benefit which they have or may have under
Section 1542 and under any similar or analogous law of any other applicable
jurisdiction with regard to the subject matter of this Agreement. The
parties acknowledge they are aware they may hereafter discover facts in
addition to or different from those which they now know or believe to be
true with respect to the subject matter of this Agreement.
20. No Other Claims. Each Party has released the other as noted in
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paragraphs 17 and 18. Neither party currently knows of any claim, demand, or
cause of action against one or both parties that is not covered by this
Agreement.
21. Survival. The limited Releases contained in this Agreement are not
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intended to release any obligations created by this Agreement.
22. No Third Party Beneficiaries. There are no intended third-party
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beneficiaries of this Agreement, and this Agreement shall not give any third
party any right, claim, benefit or defense.
23. Integration. This Agreement and the Exhibits attached hereto
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constitute the entire agreement and understanding regarding the parties' prior
relationship and present
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obligations, and supersedes any prior agreements, understandings or
representations by or between the parties, written or oral. The person signing
this Agreement on behalf of VRPI represents that he has the authority to execute
this document and thereby bind VRPI. The person signing this Agreement on
behalf of ChatCom represents that he has the authority to execute this document
and thereby bind ChatCom. This Agreement may be amended, modified or
supplemented only by a written agreement executed by the parties hereto.
24. Successors. The parties represent that this Agreement shall be
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binding upon and shall inure to their respective successors, assigns and related
corporations.
25. Governing Law. This Agreement shall be governed by and interpreted
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and construed in accordance with, the laws of the Commonwealth of Massachusetts.
26. Counterparts. This Agreement may be executed in counterparts all of
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which when taken together shall constitute one and the same agreement of the
parties. Copies of
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signed counterparts of this Agreement shall be deemed to be authentic and valid
as an original of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first appearing above.
VERMONT RESEARCH PRODUCTS, INC. CHATCOM, INC.
By: /s/ By: /s/
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duly authorized duly authorized
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