Vertical Xcelerator IP™ Wins 2007 TMC Labs Innovation Award

CAMBRIDGE, Mass. (March 19, 2008) – Vertical Communications (VRCC.OB) (“Vertical”), a leading provider of next-generation, IP-based phone systems and applications that help businesses better serve their customers, announced today that the Company had entered into a securities purchase agreement (the “SPA”) with certain of its current investors (the “Initial Investors”) including its chief executive officer.  The terms of the SPA includes the issuance and sale of $5.25 million of short-term subordinated convertible promissory notes (the “Notes”) and, in connection the conversion of the Notes, the issuance of certain to-be-established series of the Company’s preferred stock (the “Series F Preferred Stock”).

The Notes are due on demand, bear interest at 15 percent per annum and are convertible into Series F Preferred Stock upon a qualifying investment of $1,000,000 (the “Qualifying Investment”) by one of the Company’s shareholders not included in the Initial Investors.  Upon the occurrence of the Qualifying Investment, the Notes will automatically convert into Series F Preferred Stock with terms substantially similar to the Company’s previously issued Series E Preferred Stock and with warrants to purchase shares of the Company’s common stock (the “Warrants”).  If no Qualifying Investment is made within 60 days of the initial closing date, the Notes will automatically convert into Series F Preferred Stock that also have terms substantially similar to the Series E Preferred Stock but with the following exceptions: a) senior position to all other classes or series of capital stock of the Company’s with respect to the payment of dividends, redemption and other rights; b) preference to all other holders of capital stock of three times the value of the current funding round plus all declared and unpaid dividends associated with such Series F Preferred Stock in connection with either a redemption or liquidation, as defined.

In connection with the SPA, the Initial Investors agreed to enter into subordination agreements (the “Subordination Agreements”) with each of Silicon Valley Bank and NEIPF, L.P. (the “Senior Lenders”) to subordinate payment of the Notes to the prior payment of the indebtedness under the Company’s existing credit facilities with the Senior Lenders.  The Company also entered into agreements with the Senior Lenders to amend each of its existing credit facilities to: a) consent to the SPA; b) waive certain historical events of default, and c) amend certain financial covenants contained in each of the existing credit facilities.

The Company will offer additional Notes to certain investors in certain of the Company’s previous equity financing transactions upon the same terms and conditions as offered to the Initial Investors, subject to certain limitations with a maximum limit for the funding of $7,500,000, including the amounts disclosed above.

“This additional capital will support the Company’s continuing progress in executing a strategic transition to selling a range of powerful, cost-effective next-generation IP business communications solutions – including Wave IP 2500™ and SBX IP 320™ -- to our market,” said Bill Tauscher, chairman and chief executive officer. “With the release of Wave IP 2500 last quarter and the release of SBX IP 320 this quarter, we are more excited than ever about the potential for these recent and strategic new product releases to transform our revenue and margin picture. Our investors, banking partners, and most importantly our customers, continue to provide us validation of the potential of the strategy we began to implement several years ago; we remain committed, confident and focused on executing that strategy.”

For a more detailed description of the terms and conditions of the SPA and the Notes, please see the Company’s Form 8-K.

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