MUTUAL RELEASE AND SETTLEMENT AGREEMENT

I.    PARTIES

      This Mutual Release and Settlement Agreement  ("Agreement") is made by and
between PARKER MILLS & PATEL LLP, ("PMP") and VERTICAL  COMPUTER  SYSTEMS,  INC.
"VERTICAL"). The effective date of this Agreement is October 19, 2005

II.   RECITALS

      A. On or about  January 21,  2005,  PMP filed a lawsuit in the Los Angeles
County Superior Court,  entitled Parker Mills & Patel LLP vs. Vertical  Computer
Systems,  Inc. Case No.  BC327609 (the  "Action").  PMP alleged causes of action
for: (1) Breach of Written  Contract;  (2) Account Stated;  (3) Reasonable Value
for Services Rendered; and (4) Breach of Promissory Note.

      B. On April 20, 2005,  VERTICAL  answered  PMP'S  Complaint in the Action,
denying any liability and disputing its obligation to pay the amounts alleged.

      C. It is now the desire of PMP and  VERTICAL to fully and finally  resolve
and settle their differences and disputes pertaining to the Action.

III.  TERMS AND CONDITIONS

      NOW,  THEREFORE,  in consideration of the promises and covenants contained
herein, it is agreed by and between the parties as follows:

      A.  CONSIDERATION.  VERTICAL  agrees  execute  and  deliver to PMP a fully
executed  Promissory  Note ("Note") in the form attached  hereto as Exhibit "A."
Concurrently  with  VERTICAL'S  delivery to PMP of the fully  executed Note, PMP
will deliver to VERTICAL a fully executed Request for Dismissal, with prejudice,
of the Action.

      C. MUTUAL GENERAL RELEASE.

      For  valuable  consideration  stated  herein and above,  the  receipt  and
adequacy of which are hereby acknowledged,  the parties hereto agree to mutually
release  one another  with  respect to the Action,  as set forth  herein  below;
PROVIDED  HOWEVER,  that no  provision  of this Mutual  Release  and  Settlement
Agreement  shall,  or be otherwise  interpreted  to, extend to the terms of this
Agreement and/or of the Note.

            (1) Plaintiff PMP, on behalf itself, its agents, employees, partners
      and attorneys of record in the Action hereby fully and forever,  generally
      and  specifically,  releases and discharges  VERTICAL,  and its respective
      past and present agents, employees, officers, directors,  shareholders and
      attorneys (the  "Vertical  Releasees")  from any and all claims,  demands,
      actions, rights, causes of action, obligations, liens, damages, judgments,
      indemnities, subrogations, duties, controversies or any liability or claim
      of any  nature,  character  or  description,  whether at law or in equity,
      whether or not now known,  suspected or claimed,  that PMP has ever had or
      now have or might in the future have,  against the  Vertical  Releasees by
      reason of any act, failure to act, cause,  matter or event arising out of,
      or in any way  relating  to the  subject  matter of  and/or  the facts and
      transactions  alleged in the Action or any and all other damages or injury
      of any nature whatsoever,  past, present and future, in any way related to
      the Action;


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            (2) The Vertical Releasees,  hereby fully and forever, generally and
      specifically,  release  and  discharge  PMP and its  respective  past  and
      present agents, employees, partners, and attorneys of record in the Action
      (the "PMP Releasees") from any and all claims, demands,  actions,  rights,
      causes of action,  obligations,  liens, damages,  judgments,  indemnities,
      duties,  controversies or any liability or claim of any nature,  character
      or  description,  whether at law or in  equity,  whether or not now known,
      suspected  or  claimed,  that  have  ever  had or now have or might in the
      future have,  against the PMP  Releasees by reason of any act,  failure to
      act, cause,  matter or event arising out of, or in any way relating to the
      subject matter of and/or the facts and transactions  alleged in the Action
      or any and all other  damages  or injury of any nature  whatsoever,  past,
      present and future, in any way related to the Action.

      D.  WAIVER OF  CALIFORNIA  CIVIL  CODE  SECTION  1542.  Each  Party  fully
understands  that he, she or it may have  additional  unknown claims or may have
suffered injuries or damages that are presently unknown to them, which arise out
of or relate to the Action and that unknown  complications  of  presently  known
injuries  may  arise,  develop  or be  discovered  in the  future.  The  Parties
acknowledge,  however,  that this Mutual Release and  Settlement  Agreement is a
full and final release of all unknown and  unanticipated  injuries,  damages and
claims  arising out of or pertaining  to the Action as relates to them,  and the
matters released in this Agreement,  as well as to those now known or disclosed,
and all parties  hereto waive all rights or benefits  which they now have, or in
the future may have,  under the terms of Section  1542 of the  California  Civil
Code, with regard to the Action and the matters released in this Agreement.

      California Civil Code, Section 1542, reads as follows:

             A GENERAL  RELEASE DOES NOT EXTEND TO THE CLAIMS WHICH THE CREDITOR
             DOES NOT KNOW OR  SUSPECT  TO EXIST IN HIS OR HER FAVOR AT THE TIME
             OF EXECUTING  THE  RELEASE,  WHICH IF KNOWN BY HIM OR HER MUST HAVE
             MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.


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      E. WAIVER OF MISTAKE OF FACT OR LAW. In entering into this Agreement,  the
Parties  assume  the  risk of any  mistake.  If any  party  should  subsequently
discover that any fact relied upon in entering  into this  Agreement was untrue,
or that their understanding of the facts or of the law was incorrect, that party
shall not be entitled to any relief in connection therewith,  including, without
limitation,  on the generality of the  foregoing,  any alleged right or claim to
set aside or rescind  this  Agreement.  This  Agreement is intended to be and is
final and binding upon each of the Parties  regardless of any mistake of fact or
law or any other circumstance whatsoever.

      F.  REPRESENTATIONS  AND  WARRANTIES  BY ALL PARTIES  HERETO.  All Parties
represent and warrant that: (1) They are authorized to compromise and settle all
of the claims which are the subject of this  Agreement;  (2) They have not sold,
transferred,  conveyed,  signed,  hypothecated,  or  otherwise  disposed  of any
claims, rights,  demands,  actions and causes of action which are the subject of
the  Action,  or the  Agreement;  and (3) They  agree  to  indemnify  the  other
releasing  parties and hold them harmless  against any future claims  brought by
anyone claiming an interest in the Action, including any lien claimant.

      G. ENTIRE AGREEMENT. This Agreement contains the sole, complete and entire
understanding of the Parties and may not be altered, modified, or changed in any
manner  except  by a writing  duly  executed  by said  parties.  No  statements,
promises or representations  have been made by any settling party to another, or
relied upon, and no consideration has been, or is, offered,  promised,  expected
or held out, other than as stated in this Agreement.  No party is relying on any
representations  other than those expressly set forth herein.  There are no oral
or written collateral  agreements other than the Note. All prior discussions and
negotiations  have been and are, merged and integrated  into, and superseded by,
this Agreement.

      H. FEES AND COSTS. Each party shall bear its own costs and attorneys' fees
related to the Action and any matters released  herein.  If any action at law or
in equity,  including an action for declaratory relief, is brought to enforce or
interpret  the  provisions  of this  Agreement,  the  prevailing  party shall be
entitled to  reasonable  costs and  attorneys'  fees in  bringing,  prosecuting,
and/or defending such action.

      I. SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon and inure
to the  benefit  of the  parties  and their  respective,  successors,  devisees,
executors, affiliates, representatives,  assigns, officers, directors, partners,
agents and employees.

      J.  CALIFORNIA  LAW. This  Agreement is executed and delivered  within the
State of California,  and the rights and obligations of Parties  hereunder shall
be governed by, and construed and enforced in accordance  with,  the laws of the
State of California.

      K.  JURISDICTION/VENUE.  This Agreement and any claim related  directly or
indirectly to this Agreement  shall be governed and construed in accordance with
the laws of the State of California  (without  giving regard to the conflicts of
law  provisions  thereof).  No such  claim  shall be  commenced,  prosecuted  or
continued  in any forum other than the federal and state  courts of the State of
California located in the County of Los Angeles,  and each of the Parties hereby
submits to the  jurisdiction  of such courts.  Each of the Parties hereto hereby
waives any and all rights to argue that this choice of forum provision is or has
become unreasonable in any legal proceeding.


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      L.  JOINT  PRODUCT.  This  Agreement  is  the  product  of  bargained  for
arms-length  negotiations  between the Parties,  by and through their respective
counsel.  This  Agreement  is the joint  product of all of the Parties and their
respective counsel and, therefore, any construction of the intent of the parties
hereto or  language  hereof to be made by a court of law shall not be  construed
individually against any Party hereto.

      M. GOOD FAITH. The Parties agree that this Agreement is being entered into
in good faith and without fraud, coercion, duress, or undue influence.

      N.  NON-ADMISSION  OF  LIABILITY.  The Parties agree that the execution of
this  Agreement  is a  compromise  and  settlement  of  disputed  claims  and/or
potential  disputed claims,  and that the furnishing of consideration  under the
terms of this  Agreement  shall  not be  deemed or  construed  as an  admission,
evidence or indication,  in any degree,  of liability or  responsibility  by the
parties herein at any time for any purpose.  It is further agreed and understood
that this  Agreement  is being  entered  into solely for the purpose of avoiding
further expense and inconvenience  from further litigation of any and all of the
claims in the Action,  or any claims related to such,  whether  asserted or not,
and may not be  referred  to in this or any  other  litigation,  whether  or not
arising  from the same  facts and  transactions  of the  Action,  except for the
purpose of enforcing the terms of this Agreement.

      O. LEGAL CAPACITY.  The  undersigned  represent and warrant that they have
the right,  power,  legal capacity,  and authority to enter into and perform the
obligations  under this Agreement on their own behalf and on behalf of anyone or
any entity they represent and that no further  approval or consent of any person
or  entity is  necessary  for them to enter  into and  perform  the  obligations
contained in this Agreement.

      P. NECESSARY ACTS. The  undersigned  represent and warrant that they shall
do all acts and  execute  and deliver all  documents  necessary,  convenient  or
desirable to effect all provisions of this Agreement.

      Q.  EXECUTION IN  COUNTERPARTS.  This  Agreement may be executed in two or
more  counterparts,  each  counterpart  being  executed  by less than all of the
Parties hereto,  and shall be equally effective as if a single original had been
signed by all Parties; but all such counterparts shall be deemed to constitute a
single Agreement, and this Agreement shall not be or become effective unless and
until each of the  signatory  Parties  below shall have signed at least one such
counterpart  and caused the  counterpart  so executed to be delivered to counsel
for the  adverse  Party.  Facsimile  signatures  are as  effective  as  original
signatures for all purposes.

      R. TIME IS OF THE ESSENCE. The undersigned  understand and agree that time
is of the essence with regard to the provisions of this Agreement.


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      S. ACKNOWLEDGMENT.  The undersigned certify and hereby represent that each
is duly  authorized  to  execute  this  Agreement,  and  that  each  has had the
opportunity  to review or has reviewed and read this  Agreement,  including  the
code  section  referred to herein,  with an attorney of their  choice and hereby
warrants that each of the undersigned fully understands the contents,  terms and
conditions of this  agreement and executes it freely and  voluntarily.  Further,
Vertical  acknowledges  that it has consulted with its own  independent  counsel
regarding the terms and  conditions  of this  Agreement,  and the  provisions of
California Rule of Professional Responsibility Section 3-300.

DATED:  October 19, 2005                PARKER MILLS & PATEL LLP


                                        By   /s/ Danny T. Morin
                                        ----------------------------------------


                                        ----------------------------------------
                                             DANNY T. MORIN, Partner


DATED:  October____, 2005               VERTICAL COMPUTER SYSTEMS, INC.


                                        By:   /s/ Richard Wade
                                        ----------------------------------------


                                        ----------------------------------------
                                              RICHARD WADE, President & CEO


Approved as to form and content:

DATED:   October 19, 2005               DATED:   October 18, 2005

     PARKER MILLS & PATEL LLP                LAW OFFICES OF CHAD BIGGINS


By:   /s/ Danny T. Morin                      /s/ Chad Biggins
   ---------------------------------       ----------------------------------
          DANNY T. MORIN                    CHAD BIGGINS, ESQ.
                                        Attorneys for Vertical Computer
                                        Systems, Inc.


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                                   EXHIBIT "A"
                                   -----------

                                 PROMISSORY NOTE
                                 ---------------

      FOR VALUE RECEIVED,  the undersigned,  VERTICAL COMPUTER SYSTEMS,  INC., a
Delaware corporation (Borrower),  promises to pay to PARKER MILLS & PATEL LLP, a
California  limited  liability  partnership  (Lender),  the sum of  SEVENTY-FIVE
THOUSAND  Dollars  ($75,000),  with  interest  thereon  at the  rate of six (6%)
percent per annum, payable as follows:

      1. Payment of Principal and Interest. Principal and interest shall be paid
as follows:

            a. All principal then outstanding,  and all interest, fees, charges,
and other  amounts  owing  hereunder and then unpaid shall be due and payable on
January 31, 2008,  (the "Maturity  Date").  Vertical shall pay the Note in equal
monthly installments of $ 3,125.00,  beginning February 1, 2006, for a period of
24 months. Any unpaid principal balance, and any accrued interest and penalties,
shall immediately come due and payable to Lender at the Maturity Date.

            b.  Borrower  shall  pay  all  amounts  owing  under  this  Note  in
immediately  available funds to Lender at Lender's  address as set forth herein,
or at such other place as may be specified in writing by Lender.  Each  payment,
when made,  shall be credited first to interest then due, and then at the option
of Lender to principal,  late charges,  and other fees and expenses  outstanding
hereunder in such order as Lender may determine.

            c.  Payments  received  after 1:00 p.m. on any banking day or at any
time on any Saturday,  Sunday,  or holiday shall be deemed  received on the next
banking day.

      2. The unpaid principal and accrued interest,  and penalties,  if any, may
be  prepaid  in whole or in part at any time  without  any  prepayment  penalty.
Borrower  agrees  to pay  all  costs  and  expenses,  including  all  reasonable
attorneys'  fees,  for the  collection of this Note upon  default.  All payments
shall be made to Lender at 865 S. Figueroa  Street,  Suite 3200 Los Angeles,  CA
90017,  or at such other  place as Lender or any holder  hereof may from time to
time designate in writing.

      3. In addition, payments not received by Lender by the tenth (10th) day of
the month are subject to a late charge of five (5%) of said payment.

      4. This Note shall,  at the option of the Lender or any holder hereof,  be
immediately  due and payable upon  failure to make any payment due  hereunder or
for breach of any condition of any security interest, mortgage, pledge agreement
or  guaranty  granted  as  collateral  security  for this  Note or breach of any
condition of any security agreement or mortgage,  if any, having a priority over
any security agreement or mortgage on collateral  granted,  in whole or in part,
as  collateral  security  for this  Note or upon the  filing by  Borrower  of an
assignment  for the benefit of  creditors,  bankruptcy,  or for relief under any
provisions of Title 11 of the United States Code; or by suffering an involuntary
petition in bankruptcy or receivership not vacated within thirty days.


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      5. In the event this Note shall be in default, and placed with an attorney
for  collection,  then Borrower  agrees to pay all reasonable  attorney fees and
costs of collection.

      6. If any action at law or in equity,  including an action for declaratory
relief,  is brought to enforce or interpret  the  provisions  of this Note,  the
prevailing  party shall be entitled to reasonable  costs and attorneys'  fees in
bringing, prosecuting, and/or defending such action.

      7.  This  Note  shall be  binding  upon and  inure to the  benefit  of the
Borrower and Lender alike, including their respective successors and assigns.

      8. This Note and any claim  related  directly or  indirectly  to this Note
shall be governed  and  construed  in  accordance  with the laws of the State of
California  (without giving regard to the conflicts of law provisions  thereof).
No such claim shall be  commenced,  prosecuted  or  continued in any forum other
than the  federal  and state  courts of the State of  California  located in the
County of Los Angeles,  and Borrower hereby submits to the  jurisdiction of such
courts.  Borrower  hereby waives any and all rights to argue that this choice of
forum provision is or has become unreasonable in any legal proceeding.

      9. The Borrower and all other  parties to this Note,  whether as endorsers
or sureties, waives demand,  presentment and protest and all notices thereto and
further  agree to remain bound,  notwithstanding  any  extension,  modification,
waiver,  or other  indulgence by any holder or upon the discharge or relea se of
any obligor  hereunder or to this Note, or upon the exchange,  substitution,  or
release of any collateral granted as security for this Note.

      10. The Borrower and each endorser of this Note waives presentment, notice
and protest, all suretyship defenses and agrees to all extensions,  renewals, or
releases, discharge or exchange of any other party or collateral without notice.

      11. This Note shall not be modified,  amended,  or  terminated,  except by
written agreement duly executed and delivered by both Lender and Borrower.


DATED:  October____, 2005


                                       VERTICAL COMPUTER SERVICES, INC.



                                       By:   /s/ Richard Wade
                                           -------------------------------------
                                             Richard Wade, its President and CEO


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