exibit1.htm


     

    
      
        

      


      SETTLEMENT
AGREEMENT AND AMENDMENT TO ENGAGEMENT LETTER DATED MAY 23, 2007

       

      This
Settlement Agreement and Amendment to Engagement Letter Dated May 23, 2007 (the
“Agreement”) is dated May 13, 2009 and between Loeb & Loeb LLP (“Loeb”) and
Z Trim Holdings, Inc. (along with any of its subsidiaries, affiliates and/or
other related entities, “ZTHI”).  Loeb and ZTHI are hereinafter
referred to collectively as the “Parties,” or each individually a
“Party.”

       

      RECITALS

       

      A. ZTHI and
Loeb are parties to that certain engagement letter dated as of May 23, 2007 (the
“Engagement Letter”);

       

      B. Pursuant
to the terms and conditions of the Engagement Letter, Loeb from time to time has
performed legal services and incurred related expenses on behalf of
ZTHI;

       

      C. ZTHI is
in breach of the Engagement Letter for non-payment of certain invoices related
to that certain litigation styled as Z Trim Holdings, Inc. and Fibergel
Technologies, Inc. v. Fiberstar, Inc. pending in the United States
District Court for the Western District of Wisconsin as case number 07-C-0161-C
(the “Patent Litigation Invoices”);

       

      D. The
outstanding amount of the Patent Litigation Invoices currently total
approximately $350,556.00 (the “Patent Litigation Invoice Amount”);

       

      E. Pursuant
to the Engagement Letter, Loeb has performed and also performs other legal
services and incurs other expenses on behalf of ZTHI (the “Current
Matters”);

       

      F. ZTHI has
requested that Loeb temporarily forbear from exercising certain of its rights
under the Engagement Letter;

       

      G. Loeb has
agreed to the temporary forbearance requested by ZTHI subject to the terms,
conditions and requirements set forth herein; and

       

      H. ZTHI
desires to reaffirm its obligations and liabilities to Loeb as set forth
herein.

       

      NOW, THEREFORE, in
consideration of the recitals set forth above, the covenants and agreements
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which bare hereby acknowledged, the parties, intending to be
legally bound, hereby agree as follows:

       

      1. Recitals.  The
recitals set forth above constitute an integral part of this Agreement and are
incorporated herein by this reference with the same force and effect as though
restated herein.

       

      2. Time is
of the Essence.  The Parties acknowledge that time is of the
essence to all matters pertaining to this Agreement.

       

      3. Forbearance.  Loeb
hereby agrees to forbear temporarily from exercising its rights and remedies
under the Engagement Letter from the date hereof to and including December 31,
2009 (the “Forbearance Period”), subject to the full and timely compliance with
the following terms, conditions and requirements (each, a “Forbearance
Condition”):

       

      
        	
                (a)  

              	
                ZTHI
      fully pays Loeb the Patent Litigation Invoice Amount within fourteen (14)
      days of the execution of this Agreement, provided however, ZTHI may elect
      to make a payment-in-kind, on a dollar for dollar basis (e.g., ZTHI may
      issue $100,000 of secured debt to Loeb, which in turn would reduce the
      Patent Litigation Invoice Amount by $100,000), in ZTHI’s current
      convertible debt offering (described in greater detail in that certain
      Private Placement Memorandum dated March 25, 2009 and attached hereto as
      Exhibit A) (the “PPM Option”); and

              


      

       

      
        	
                (b)  

              	
                ZTHI
      pays all amounts for the Current Matters pursuant to the terms of the
      Engagement Letter on a timely
basis.

              


      

       

      If ZTHI
fails to comply with any one of the Forbearance Conditions set forth above, (i)
the Forbearance Period and ZTHI’s agreement to forbear hereunder shall
immediately terminate without further notice to ZTHI and (ii) Loeb may, at its
option, exercise all of its legal and equitable rights and remedies against
ZTHI.

       

      4. Reaffirmation.  ZTHI
hereby (a) consents to this Agreement, (b) ratifies and reaffirms all of its
payment and performance obligations, contingent or otherwise, under the
Engagement Letter; and (c) acknowledges that the Engagement Letter remains in
full force and effect and is hereby ratified and reaffirmed.  The
execution of this Agreement shall not operate as a waiver of any right, power or
remedy of Loeb, constitute a waiver of the Patent Litigation Invoices, Current
Matters or other provision of any of the Engagement Letter or serve to effect a
novation of any obligation from ZTHI to Loeb.

       

      5. Inducement
by ZTHI.  To induce Loeb to enter into this
Agreement:

       

      
        	
                (a)  

              	
                ZTHI
      represents and warrants to Loeb that it has full power and authority to
      enter into this Agreement and to incur and perform the obligations
      provided for under this Agreement, all of which have been duly authorized
      by all proper and necessary action, and that no consent or approval of
      shareholders or creditors or of any public authority or regulatory body is
      required as a condition to the validity or enforceability of this
      Agreement which has not been obtained on or prior to the date
      hereof.

              


      

       

      
        	
                (b)  

              	
                ZTHI
      represents and warrants to Loeb that this Agreement, along with the
      Engagement Letter, constitutes the valid and legally binding obligation of
      ZTHI, fully enforceable against ZTHI in accordance with its
      terms.

              


      

       

      
        	
                (c)  

              	
                ZTHI
      represents and warrants to Loeb that the execution and performance by ZTHI
      of this Agreement will not: (i) violate any provision of law, any order of
      any court or other agency of government, or the operating agreement or
      organizational documents of ZTHI; (ii) violate any indenture, contract,
      agreement or other instrument to which ZTHI is a party, or by which any of
      its property is bound, or be in conflict with, result in a breach of or
      constitute (with due notice and/or lapse of time) a default under, any
      such indenture, contract, agreement or other instrument except for the
      current default related to the PPM Option; or (iii) result in the creation
      or imposition of any lien, charge or encumbrance of any nature whatsoever
      upon any of the property or assets of
ZTHI.

              


      

       

      
        	
                (d)  

              	
                ZTHI
      represents and warrants to Loeb that it has no “claims” (as such term is
      defined in Section 101(5) of Title 11 of the United States Code (the
      “Bankruptcy Code”)) against Loeb.

              


      

       

      6. Conditions
Precedent.  This Agreement shall become effective as of the
date hereof upon the satisfaction of each of the following conditions precedent
by the close of business on the date hereof:

       

      
        	
                (a)  

              	
                Loeb
      shall have received from ZTHI a fully executed original counterpart of
      this Agreement; and

              


      

       

      
        	
                (b)  

              	
                Loeb
      shall have received from ZTHI and other persons and entities such other
      instruments, documents and agreements in connection herewith as Loeb shall
      reasonably request.

              


      

       

      7. Affirmation
of Indebtedness.  ZTHI hereby agrees and acknowledges that: (a)
as of May 4, 2009, the aggregate outstanding balance of the Patent Litigation
Invoice Amount is $350,556.00 and the aggregate outstanding principal balance of
the Current Matters is approximately $4,000 (exclusive of accrued interest, fees
and expenses, including attorneys fees’ and expenses); and (b) Loeb has
performed all obligations and duties owed to ZTHI as of the date hereof, and
ZTHI, jointly or severally, has no defense, offset or counterclaim with respect
to any amounts owed to Loeb or with respect to the performance or observance by
ZTHI of any representation, covenant or other agreement contained in the
Engagement Letter.

       

      8. Acknowledgments
Regarding Negotiation of Agreement.  ZTHI hereby
acknowledges that (a) it has been represented by counsel of its own choosing
throughout the negotiation, preparation and execution of this Agreement, (b) has
exercised independent judgment with respect the negotiation, preparation and
execution of this Agreement, and the consummation of the transactions
contemplated hereby and thereby, (c) has not relied upon Loeb or on counsel for
Loeb for any advice with respect to the negotiation, preparation or execution of
this Agreement and (d) any principle of contract construction which favors or
disfavors the party whose attorneys have drafted a contract or a provision
thereof shall not be applied to this Agreement.

       

      9. Waiver,
Release and Discharge.  ZTHI, on its own behalf and on behalf
of its representatives, partners, agents, employees, servants, officers,
directors, shareholders, subsidiary, affiliated and related companies, heirs,
successors and assigns (collectively, the “ZTHI Group”) hereby releases and
forever discharges Loeb, and its officers, directors, subsidiary, affiliated and
related companies, agents, attorneys, servants, employees, shareholders,
representatives, successors and assigns (collectively, the “Loeb Group”) of and
from all manner of actions, cause and causes of action, suits, debts, sums of
money, accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, obligations, liabilities, costs, expenses,
losses, damages, judgments, executions, claims and demands of whatsoever kind or
nature, in law or in equity, whether known or unknown, concealed or hidden,
foreseen, or unforeseen, contingent or actual, liquidated or unliquidated,
arising out of or relating to the Patent Litigation Invoices, that any of the
ZTHI Group, jointly or severally, have had, now have or hereafter can, shall or
may have against the Loeb Group, directly or indirectly, through the date
hereof.  ZTHI acknowledges and agrees that Loeb is specifically
relying upon the representations, warranties, covenants and agreements contained
herein and that such representations, warranties, covenants and agreements
constitute a material inducement to Loeb entering into this Agreement and the
transactions contemplated herein.  ZTHI, on its own behalf and on
behalf of the ZTHI Group, represents and warrants to Loeb and the Loeb Group
that the ZTHI Group has not assigned, conveyed or otherwise transferred, either
directly or indirectly, in whole or in part, any of the claims against the Loeb
Group to be released herein.  The foregoing release and discharge
shall not apply to any matter arising from occurrences after the date hereof and
any obligations under this Agreement.

       

      If ZTHI is in full compliance of this
Agreement and is not otherwise in breach of the Engagement Letter, effective on
the ninety-second (92) day after the payment described in Section 3(a) above,
Loeb, on its own behalf and on behalf of the Loeb Group, hereby releases and
forever discharges ZTHI and the ZTHI Group of and from all manner of actions,
cause and causes of action, suits, debts, sums of money, accounts, reckonings,
bonds, bills, specialties, covenants, contracts, controversies, agreements,
promises, obligations, liabilities, costs, expenses, losses, damages, judgments,
executions, claims and demands of whatsoever kind or nature, in law or in
equity, whether known or unknown, concealed or hidden, foreseen, or unforeseen,
contingent or actual, liquidated or unliquidated, arising out of or relating to
the Patent Litigation Invoices, that any of the Loeb Group, jointly or
severally, have had, now have or hereafter can, shall or may have against the
ZTHI Group, directly or indirectly, through the date hereof.  Loeb
acknowledges and agrees that ZTHI is specifically relying upon the
representations, warranties, covenants and agreements contained herein and that
such representations, warranties, covenants and agreements constitute a material
inducement to ZTHI entering into this Agreement and the transactions
contemplated herein.  Loeb, on its own behalf and on behalf of the
Loeb Group, represents and warrants to ZTHI and the ZTHI Group that the Loeb
Group has not assigned, conveyed or otherwise transferred, either directly or
indirectly, in whole or in part, any of the claims against the ZTHI Group to be
released herein.  The foregoing release and discharge shall not apply
to any matter arising from occurrences after the date hereof and any obligations
under this Agreement, including but not limited to, the Current
Matters.

       

      


      10. No
Inducement.  The Parties warrant and represent to each other
that no promise or inducement has been offered in connection with this
Agreement, except as herein set forth, and that this Agreement is executed
without reliance upon any statements or representations by any persons or
entity, as set forth herein.

       

      11. Binding
Effect.  Upon the execution and delivery of this Agreement by
the Parties, the terms of this Agreement shall be binding upon and inure to the
benefit of the Parties and their respective legal representatives, agents,
successors or assigns as the case may be.

       

      12. Attorneys’
Fees, Costs and Expenses.  Each Party will bear its own
attorneys’ fees, costs and expenses incurred relative to this
Agreement.  In the event of any dispute between the Parties regarding
the interpretation or enforcement of this Agreement, the prevailing Party shall
be entitled to payment from the non-prevailing Party of the prevailing Party’s
reasonable attorneys’ fees, costs and expenses associated with the
dispute.

       

      13. Entire
Agreement.  This Agreement, along with the Engagement Letter,
contains the entire understanding of the Parties in respect of its subject
matter and supersedes all prior agreements and understandings between the
Parties with respect to such subject matter.

       

      14. Amendment;
Waiver.  This Agreement may not be modified, amended or
supplemented except by written instrument that is (a) titled and identified on
its face as an amendment to, or modification of this Agreement, and
(b) executed by all of the Parties.  No failure to exercise and
no delay in exercising, any right, power or privilege under this Agreement shall
operate as a waiver, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude the exercise of any other right, power or
privilege.  No waiver of any breach of any provision shall be deemed
to be a waiver of any preceding or succeeding breach of the same or any other
provision, nor shall any waiver be implied from any course of dealing between or
among the Parties.  No extension of time for performance of any
obligations or other acts hereunder or under any other agreement shall be deemed
to be an extension of the time for performance of any other obligations or any
other acts.

       

      15. Counterparts.  This
Agreement may be executed in any number of counterparts, each of which shall be
an original but all of which together shall constitute one and the same
instrument.

       

      16. Headings.  The
headings contained in this Agreement are for convenience of reference only and
are not to be given any legal effect and shall not affect the meaning or
interpretation of this Agreement.

       

      17. Governing
Law.  This Agreement shall be construed in accordance with the
laws and public policy of the State of Illinois, without reference to any choice
of law provisions contained therein.

       

      18. Acknowledgement
of the Parties.  The Parties acknowledge and agree that they
have read and fully understand this Agreement, that they have had a full and
fair opportunity to evaluate this Agreement and the transactions and other
matters contemplated by this Agreement, that they have consulted or had the full
and fair opportunity to consult with legal counsel, accountants and other
business advisors and counselors of their choice in connection with the
negotiation, evaluation, execution and delivery of this Agreement.

       

      19. Confidentiality.  The
Parties agree not to disclose, without prior written consent of each other, the
provisions of this Agreement to any person, firm, organization, or entity of any
and every type, public or private, unless required by subpoena, court order, law
or regulation, except that the Parties agree that the Agreement may be used in a
subsequent proceeding in order to enforce the terms of this Agreement in a court
of law, in a court of equity by injunction or otherwise, by way of defense, or
in any other appropriate manner.  However, this provision shall not
limit the right to share information among affiliate or subsidiary entities; the
respective attorneys, accountants, auditors or tax preparers of the parties; or
the lenders to or investors in each party (but only if same are obligated to
keep the terms of this Agreement confidential).

       

      20. Additional
Business.  Notwithstanding anything contained herein in this
Agreement to the contrary, if ZTHI desires to transact any business with Loeb
after the date hereof, ZTHI shall make an additional payment to Loeb on account
of the outstanding Patent Litigation Invoices, as negotiated by the Parties
prior to any additional goods or services being provided to ZTHI by
Loeb.

       

      21. Arbitration.  The
provisions of paragraph 8 of the Engagement Letter remain in full force and
effect, provided however, nothing herein shall limit Loeb’s rights (which such
rights Loeb expressly reserves) should ZTHI cease operations and/or commence a
case (or have an involuntary case commenced against it) under the Bankruptcy
Code.

       

      


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

       

      
        	
                LOEB
      & LOEB LLP

              	 
      	
                Z
      TRIM HOLDINGS, INC.

                 

              
	
                By:

              	 
      	 
      	
                By:

              	 
      
	
                Name:

              	 
      	 
      	
                Name:

              	 
      
	
                Title:

              	 
      	 
      	
                Title:

              	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      


      

      


      
        
           

        

        
           

          
            

          

        

        
           

        

      


      Exhibit
A

      Private Placement Memorandum