EXHIBIT 10.42
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                          REGISTRATION RIGHTS AGREEMENT
                          -----------------------------

      THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"),  dated as of August
___, 2001, by and among VERTICAL COMPUTER SYSTEMS, INC., a Delaware corporation,
with its principal office located at 6336 Wilshire Blvd.,  Los Angeles,  CA (the
"COMPANY"), and the undersigned investors (each, an "INVESTOR" and collectively,
the "INVESTORS").

      WHEREAS:

      A.   In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "SECURITIES  PURCHASE  AGREEMENT"),
the  Company has agreed,  upon the terms and  subject to the  conditions  of the
Securities  Purchase Agreement,  to issue and sell to the Investors  convertible
debentures (the "CONVERTIBLE  DEBENTURES")  which shall be convertible into that
number of shares of the Company's  common stock, par value $0.00001 (the "COMMON
STOCK"),  pursuant  to the terms of the  Securities  Purchase  Agreement  for an
aggregate  purchase price of Two Hundred and Fifty Thousand Dollars  ($250,000).
Capitalized  terms not defined herein shall have the meaning ascribed to them in
the Securities Purchase Agreement.

      B.   To induce  the  Investors  to  execute  and  deliver  the  Securities
Purchase  Agreement,  the  Company  has agreed to provide  certain  registration
rights  under  the  Securities  Act of  1933,  as  amended,  and the  rules  and
regulations  there under, or any similar successor  statute  (collectively,  the
"1933 ACT"), and applicable state securities laws.

      NOW, THEREFORE,  in consideration of the premises and the mutual covenants
contained  herein and other good and  valuable  consideration,  the  receipt and
sufficiency  of which are hereby  acknowledged,  the Company  and the  Investors
hereby agree as follows:

      1.   DEFINITIONS.

      As used in this Agreement, the following terms shall have the following
meanings:

           (a)  "INVESTOR"  means an  Investor  and any  transferee  or assignee
thereof to whom an Investor  assigns  its rights  under this  Agreement  and who
agrees to become bound by the  provisions of this  Agreement in accordance  with
Section 9.

           (b) "PERSON" means a corporation,  a limited  liability  company,  an
association,  a partnership,  an  organization,  a business,  an  individual,  a
governmental or political subdivision thereof or a governmental agency.

           (c)  "REGISTER,"   "REGISTERED,"  and   "REGISTRATION"   refer  to  a
registration   effected  by  preparing  and  filing  one  or  more  Registration
Statements  (as defined  below) in compliance  with the 1933 Act and pursuant to
Rule 415  under  the 1933  Act or any  successor  rule  providing  for  offering
securities on a continuous or delayed basis ("RULE 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange SEC (the "SEC").


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           (d)  "REGISTRABLE  SECURITIES"  means  the  shares  of  Common  Stock
issuable to Investors upon conversion of the Convertible  Debentures pursuant to
the Securities Purchase Agreement.

           (e) "REGISTRATION STATEMENT" means a registration statement under the
1933 Act which covers the Registrable Securities.

      2.   REGISTRATION.

           (a)  Subject  to the  terms and  conditions  of this  Agreement,  the
Company shall use its  commercially  reasonable  efforts to prepare and file, no
later than forty five (45) days from than date  hereof  (the  "SCHEDULED  FILING
DEADLINE"),  with the SEC a  registration  statement on Form S-1 or SB-2 (or, if
the  Company is then  eligible,  on Form S-3)  under the 1933 Act (the  "INITIAL
REGISTRATION  STATEMENT") for the  registration  for the resale by all Investors
who  purchased  Convertible  Debentures  pursuant  to  the  Securities  Purchase
Agreement  55,803,571 shares of Common Stock to be issued upon conversion of the
Convertible Debentures issued pursuant to the Securities Purchase Agreement. The
Company shall cause the Registration  Statement to remain effective until all of
the  Registrable  Securities  have  been  sold.  Prior  to  the  filing  of  the
Registration  Statement  with the SEC, the Company  shall  furnish a copy of the
Initial Registration  Statement to the Investors,  and Butler Gonzalez,  LLP for
their review and comment  together with a selling  shareholder  questionnaire in
form  prepared by the  Company.  The  Investors  and Butler  Gonzalez  LLP shall
furnish comments on the Initial  Registration  Statement and an executed selling
shareholder  questionnaire  to the Company within  twenty-four (24) hours of the
receipt thereof from the Company.

           (b) Effectiveness of the Initial Registration Statement.  The Company
shall  use  its  commercially   reasonable  efforts  (i)  to  have  the  Initial
Registration  Statement  declared effective by the SEC no later than ninety (90)
days after the date  hereof (the  "SCHEDULED  EFFECTIVE  DEADLINE")  and (ii) to
insure that the Initial Registration  Statement and any subsequent  Registration
Statement  remains in effect until all of the  Registrable  Securities have been
sold,  subject to the terms and conditions of this Agreement  FAILURE TO FILE OR
OBTAIN EFFECTIVENESS OF THE REGISTRATION STATEMENT.

           (c)  In  the  event  that  the  Company  does  not  use  commercially
reasonable  efforts to cooperate with  Kirkpatrick  and Lockhart LLP in order to
prepare and file the Registration  Statement and the  Registration  Statement is
not declared effective by the SEC on or before the Scheduled  Effective Date, or
if after the  Registration  Statement  has been  declared  effective by the SEC,
sales cannot be made pursuant to the Registration  Statement (whether because of
a failure to keep the Registration Statement effective, failure to disclose such
information  as is necessary for sales to be made  pursuant to the  Registration
Statement,  failure to register  sufficient  shares of Common Stock or otherwise
then as partial relief for the damages to any holder of  Registrable  Securities
by  reason  of any  such  delay  in or  reduction  of its  ability  to sell  the
underlying  shares of Common Stock  (which  remedy shall not be exclusive of any
other remedies at law or in equity),  the Company will pay as liquidated damages
(the "LIQUIDATED DAMAGES") to the holder a cash amount within three (3) business
days of the end of the month equal to two percent (2%) of the  liquidated  value
of the Convertible Debentures outstanding as Liquidated Damages.

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           (d)  LIQUIDATED   DAMAGES.   The  Company  and  the  Investor  hereto
acknowledge  and agree that the sums payable under  subsection  2(c) above shall
constitute liquidated damages and not penalties. The parties further acknowledge
that (i) the amount of loss or damages  likely to be incurred is incapable or is
difficult to precisely estimate,  (ii) the amounts specified in such subsections
bear  a   reasonable   relationship   to,   and  are  not   plainly  or  grossly
disproportionate  to the probable loss likely to be incurred in connection  with
any  failure  by the  Company  to  obtain or  maintain  the  effectiveness  of a
Registration  Statement,  (iii)  one of the  reasons  for  the  Company  and the
Investor  reaching an agreement as to such amounts was the  uncertainty and cost
of litigation regarding the question of actual damages, and (iv) the Company and
the Investor are  sophisticated  business  parties and have been  represented by
sophisticated  and able legal  counsel and  negotiated  this  Agreement at arm's
length.

      3.   RELATED OBLIGATIONS.

           (a) The  Company  shall  keep the  Registration  Statement  effective
pursuant  to Rule 415 at all times  until the date on which the  Investor  shall
have sold all the Registrable  Securities covered by such Registration Statement
(the  "REGISTRATION  PERIOD"),   which  Registration  Statement  (including  any
amendments or supplements thereto and prospectuses  contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein,  or necessary to make the statements  therein, in
light of the circumstances in which they were made, not misleading.

           (b) The Company shall  prepare and file with the SEC such  amendments
(including   post-effective   amendments)  and  supplements  to  a  Registration
Statement  and  the  prospectus  used  in  connection  with  such   Registration
Statement,  which  prospectus  is to be filed  pursuant to Rule 424  promulgated
under the 1933 Act,  as may be  necessary  to keep such  Registration  Statement
effective at all times during the Registration  Period, and, during such period,
comply with the  provisions of the 1933 Act with respect to the  disposition  of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such  Registrable  Securities shall have been disposed
of in  accordance  with the  intended  methods of  disposition  by the seller or
sellers  thereof  as set forth in such  Registration  Statement.  In the case of
amendments and supplements to a Registration  Statement which are required to be
filed  pursuant to this Agreement  (including  pursuant to this Section 3(b)) by
reason of the Company's filing a report on Form 10-KSB,  Form 10-QSB or Form 8-K
or any analogous  report under the  Securities  Exchange Act of 1934, as amended
(the "1934 ACT"),  the Company shall  incorporate  such report by reference into
the  Registration  Statement,  if applicable,  or shall file such  amendments or
supplements  with the SEC on the same day on which the 1934 Act  report is filed
which  created  the  requirement  for the  Company  to amend or  supplement  the
Registration Statement.

           (c) The Company  shall  furnish to each  Investor  whose  Registrable
Securities are included in any Registration  Statement,  without charge,  (i) at
least one (1) copy of such Registration  Statement as declared  effective by the
SEC and any amendment(s) thereto,  including financial statements and schedules,
all  documents  incorporated  therein  by  reference,   all  exhibits  and  each
preliminary prospectus, (ii) ten (10) copies of the final prospectus included in
such Registration  Statement and all amendments and supplements thereto (or such


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other number of copies as such Investor may  reasonably  request) and (iii) such
other  documents as such  Investor may  reasonably  request from time to time in
order to facilitate the disposition of the Registrable  Securities owned by such
Investor.

           (d) The  Company  shall  use its best  efforts  to (i)  register  and
qualify the  Registrable  Securities  covered by a Registration  Statement under
such other  securities  or "blue sky" laws of such  jurisdictions  in the United
States as any  Investor  reasonably  requests,  (ii)  prepare  and file in those
jurisdictions,   such  amendments  (including  post-effective   amendments)  and
supplements  to such  registrations  and  qualifications  as may be necessary to
maintain the effectiveness  thereof during the Registration  Period,  (iii) take
such other  actions as may be  necessary  to  maintain  such  registrations  and
qualifications in effect at all times during the Registration  Period,  and (iv)
take all  other  actions  reasonably  necessary  or  advisable  to  qualify  the
Registrable Securities for sale in such jurisdictions;  provided,  however, that
the  Company  shall not be required in  connection  therewith  or as a condition
thereto to (w) make any change to its certificate of  incorporation  or by-laws,
(x) qualify to do business in any  jurisdiction  where it would not otherwise be
required to qualify but for this  Section  3(d),  (y) subject  itself to general
taxation in any such  jurisdiction,  or (z) file a general consent to service of
process  in any such  jurisdiction.  The  Company  shall  promptly  notify  each
Investor who holds  Registrable  Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threat of any proceeding for such purpose.

           (e) As promptly as practicable  after becoming aware of such event or
development,  the Company shall notify each Investor in writing of the happening
of any event as a result  of which the  prospectus  included  in a  Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated  therein or necessary to
make the statements therein, in light of the circumstances under which they were
made,  not  misleading  (provided that in no event shall such notice contain any
material, nonpublic information), and promptly prepare a supplement or amendment
to such Registration Statement to correct such untrue statement or omission, and
deliver ten (10) copies of such  supplement or amendment to each  Investor.  The
Company  shall  also  promptly  notify  each  Investor  in  writing  (i)  when a
prospectus or any  prospectus  supplement or  post-effective  amendment has been
filed,  and when a Registration  Statement or any  post-effective  amendment has
become effective  (notification of such effectiveness shall be delivered to each
Investor  by  facsimile  on the  same  day of such  effectiveness),  (ii) of any
request by the SEC for amendments or supplements to a Registration  Statement or
related prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective  amendment to a Registration Statement would
be appropriate.

           (f) The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable  Securities for
sale in any  jurisdiction  within the United  States of America  and, if such an
order or  suspension  is  issued,  to obtain  the  withdrawal  of such  order or
suspension at the earliest possible moment and to notify each Investor who holds
Registrable  Securities  being  sold  of the  issuance  of  such  order  and the
resolution  thereof or its receipt of actual notice of the  initiation or threat
of any proceeding for such purpose.

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           (g) At the  reasonable  request of any  Investor,  the Company  shall
furnish to such Investor,  on the date of the  effectiveness of the Registration
Statement  and  thereafter  from time to time on such dates as an  Investor  may
reasonably request (i) a letter, dated such date, from the Company's independent
certified  public  accountants in form and substance as is customarily  given by
independent  certified  public  accountants to  underwriters  in an underwritten
public  offering,  and  (ii) an  opinion,  dated  as of such  date,  of  counsel
representing the Company for purposes of such Registration  Statement,  in form,
scope and substance as is customarily given in an underwritten  public offering,
addressed to the Investors.

           (h) The  Company  shall  make  available  for  inspection  by (i) any
Investor and (ii) one (1) firm of  accountants  or other agents  retained by the
Investors  (collectively,  the "INSPECTORS")  all pertinent  financial and other
records,  and  pertinent  corporate  documents  and  properties  of the  Company
(collectively,  the "RECORDS"),  as shall be reasonably deemed necessary by each
Inspector,  and cause the Company's officers,  directors and employees to supply
all information which any Inspector may reasonably request;  provided,  however,
that each Inspector  shall agree,  and each Investor  hereby agrees,  to hold in
strict  confidence and shall not make any disclosure  (except to an Investor) or
use any Record or other information  which the Company  determines in good faith
to be confidential,  and of which  determination the Inspectors are so notified,
unless (a) the  disclosure  of such  Records is  necessary to avoid or correct a
misstatement or omission in any Registration  Statement or is otherwise required
under the 1933 Act,  (b) the  release of such  Records is ordered  pursuant to a
final,  non-appealable  subpoena  or order  from a court or  government  body of
competent  jurisdiction,  or (c) the  information  in such Records has been made
generally  available to the public other than by disclosure in violation of this
or any other  agreement of which the Inspector  and the Investor has  knowledge.
Each  Investor  agrees that it shall,  upon  learning  that  disclosure  of such
Records  is  sought  in  or  by  a  court  or  governmental  body  of  competent
jurisdiction or through other means, give prompt notice to the Company and allow
the  Company,  at its  expense,  to  undertake  appropriate  action  to  prevent
disclosure  of,  or to  obtain  a  protective  order  for,  the  Records  deemed
confidential.

           (i) The Company shall hold in confidence  and not make any disclosure
of  information  concerning  an  Investor  provided  to the  Company  unless (i)
disclosure  of such  information  is  necessary  to comply with federal or state
securities  laws, (ii) the disclosure of such  information is necessary to avoid
or correct a misstatement or omission in any Registration  Statement,  (iii) the
release of such  information  is ordered  pursuant to a subpoena or other final,
non-appealable   order  from  a  court  or   governmental   body  of   competent
jurisdiction,  or (iv) such information has been made generally available to the
public other than by  disclosure  in  violation  of this  Agreement or any other
agreement.  The Company agrees that it shall,  upon learning that  disclosure of
such  information  concerning  an  Investor  is  sought  in  or  by a  court  or
governmental body of competent  jurisdiction or through other means, give prompt
written  notice to such  Investor  and allow such  Investor,  at the  Investor's
expense, to undertake  appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

           (j) The Company  shall use its best  efforts  either to cause all the
Registrable  Securities covered by a Registration  Statement (i) to be listed on
each securities  exchange on which securities of the same class or series issued
by the Company  are then  listed,  if any,  if the  listing of such  Registrable
Securities  is then  permitted  under  the  rules of such  exchange  or (ii) the


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inclusion for quotation on the National Association of Securities Dealers,  Inc.
OTC Bulletin Board for such  Registrable  Securities.  The Company shall pay all
fees and  expenses in  connection  with  satisfying  its  obligation  under this
Section 3(j).

           (k)  The  Company  shall   cooperate  with  the  Investors  who  hold
Registrable  Securities  being  offered  and,  to  the  extent  applicable,   to
facilitate the timely  preparation and delivery of certificates (not bearing any
restrictive  legend)  representing  the  Registrable  Securities  to be  offered
pursuant to a Registration  Statement and enable such certificates to be in such
denominations  or amounts,  as the case may be, as the Investors may  reasonably
request and registered in such names as the Investors may request.

           (l) The Company  shall use its best efforts to cause the  Registrable
Securities  covered by the  applicable  Registration  Statement to be registered
with or approved by such other  governmental  agencies or  authorities as may be
necessary to consummate the disposition of such Registrable Securities.

           (m) The  Company  shall  make  generally  available  to its  security
holders  as soon as  practical,  but not later than  ninety  (90) days after the
close of the period covered  thereby,  an earnings  statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve (12) month
period  beginning not later than the first day of the Company's  fiscal  quarter
next following the effective date of the Registration Statement.

           (n) The Company  shall  otherwise use its best efforts to comply with
all  applicable  rules  and  regulations  of the  SEC  in  connection  with  any
registration hereunder.

           (o)  Within two (2) business days after a  Registration  Statement
which covers Registrable Securities is ordered effective by the SEC, the Company
shall deliver,  and shall cause legal counsel for the Company to deliver, to the
transfer  agent for such  Registrable  Securities  (with copies to the Investors
whose  Registrable  Securities  are  included  in such  Registration  Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as EXHIBIT A.

           (p) Company  shall take all other  reasonable  actions  necessary  to
expedite and facilitate  disposition by the Investors of Registrable  Securities
pursuant to a Registration Statement.

      4.   OBLIGATIONS OF THE INVESTORS.

           Each  Investor  agrees  that,  upon  receipt of any  notice  from the
Company of the  happening of any event of the kind  described in Section 3(f) or
the  first  sentence  of  3(e),  such  Investor  will  immediately   discontinue
disposition of Registrable Securities pursuant to any Registration  Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the  supplemented  or amended  prospectus  contemplated  by  Section  3(e) or
receipt of notice that no supplement  or amendment is required.  Notwithstanding
anything to the contrary,  the Company shall cause its transfer agent to deliver
unlegended  certificates  for  shares  of  Common  Stock to a  transferee  of an
Investor in accordance  with the terms of the Securities  Purchase  Agreement in
connection  with any sale of  Registrable  Securities  with  respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of


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a notice from the Company of the happening of any event of the kind described in
Section  3(f) or the first  sentence of 3(e) and for which the  Investor has not
yet settled.

      5.   EXPENSES OF REGISTRATION.

      All expenses incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers, legal and accounting
fees shall be paid by the Company.

      6.   INDEMNIFICATION.

      With  respect  to   Registrable   Securities   which  are  included  in  a
Registration Statement under this Agreement:

           (a) To the fullest  extent  permitted by law, the Company  will,  and
hereby does, indemnify,  hold harmless and defend each Investor,  the directors,
officers, partners,  employees, agents,  representatives of, and each Person, if
any, who  controls  any Investor  within the meaning of the 1933 Act or the 1934
Act (each,  an  "INDEMNIFIED  PERSON"),  against  any losses,  claims,  damages,
liabilities,  judgments, fines, penalties, charges, costs, reasonable attorneys'
fees,  amounts paid in settlement or expenses,  joint or several  (collectively,
"CLAIMS") incurred in investigating,  preparing or defending any action,  claim,
suit, inquiry,  proceeding,  investigation or appeal taken from the foregoing by
or before any court or governmental,  administrative or other regulatory agency,
body or the SEC,  whether  pending or threatened,  whether or not an indemnified
party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them
may become subject  insofar as such Claims (or actions or  proceedings,  whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any  untrue  statement  or alleged  untrue  statement  of a  material  fact in a
Registration Statement or any post-effective  amendment thereto or in any filing
made in connection with the  qualification  of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered  ("BLUE SKY  FILING"),  or the  omission or alleged  omission to state a
material fact required to be stated  therein or necessary to make the statements
therein not misleading; (ii) any untrue statement or alleged untrue statement of
a material fact contained in any final  prospectus (as amended or  supplemented,
if the Company files any amendment  thereof or supplement  thereto with the SEC)
or the omission or alleged omission to state therein any material fact necessary
to make the statements made therein,  in light of the circumstances  under which
the  statements  therein were made,  not  misleading;  or (iii) any violation or
alleged  violation  by the Company of the 1933 Act, the 1934 Act, any other law,
including,  without  limitation,  any  state  securities  law,  or any  rule  or
regulation  there  under  relating  to the  offer  or  sale  of the  Registrable
Securities  pursuant to a  Registration  Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively,  "VIOLATIONS"). The Company shall
reimburse  the  Investors  and each such  controlling  person  promptly  as such
expenses  are  incurred  and  are  due  and  payable,  for  any  legal  fees  or
disbursements or other reasonable  expenses  incurred by them in connection with
investigating  or  defending  any such  Claim.  Notwithstanding  anything to the
contrary  contained  herein,  the  indemnification  agreement  contained in this
Section 6(a):  (x) shall not apply to a Claim by an  Indemnified  Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information  furnished in writing to the Company by such Indemnified Person
expressly  for  use in  connection  with  the  preparation  of the  Registration


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Statement or any such amendment thereof or supplement thereto;  (y) shall not be
available  to the extent  such Claim is based on a failure  of the  Investor  to
deliver  or to  cause to be  delivered  the  prospectus  made  available  by the
Company, if such prospectus was timely made available by the Company pursuant to
Section 3(d); and (z) shall not apply to amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Such indemnity shall remain in
full force and effect  regardless of any  investigation  made by or on behalf of
the  Indemnified  Person  and shall  survive  the  transfer  of the  Registrable
Securities by the Investors pursuant to Section 9.

           (b) In connection with a Registration Statement, each Investor agrees
to severally and not jointly  indemnify,  hold harmless and defend,  to the same
extent and in the same manner as is set forth in Section 6(a), the Company, each
of its directors, each of its officers,  employees,  representatives,  or agents
and each Person, if any, who controls the Company within the meaning of the 1933
Act or the  1934  Act  (each  an  "INDEMNIFIED  PARTY"),  against  any  Claim or
Indemnified Damages to which any of them may become subject, under the 1933 Act,
the 1934 Act or otherwise,  insofar as such Claim or  Indemnified  Damages arise
out of or is based upon any Violation,  in each case to the extent,  and only to
the extent,  that such Violation  occurs in reliance upon and in conformity with
written information  furnished to the Company by such Investor expressly for use
in connection with such  Registration  Statement;  and, subject to Section 6(d),
such Investor will reimburse any legal or other expenses  reasonably incurred by
them in connection  with  investigating  or defending any such Claim;  provided,
however,  that the  indemnity  agreement  contained in this Section 6(b) and the
agreement with respect to contribution contained in Section 7 shall not apply to
amounts paid in settlement of any Claim if such  settlement is effected  without
the  prior  written  consent  of  such  Investor,  which  consent  shall  not be
unreasonably withheld;  provided,  further,  however, that the Investor shall be
liable under this  Section  6(b) for only that amount of a Claim or  Indemnified
Damages as does not exceed the net proceeds to such  Investor as a result of the
sale of Registrable  Securities  pursuant to such Registration  Statement.  Such
indemnity shall remain in full force and effect  regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the   Registrable   Securities   by  the   Investors   pursuant  to  Section  9.
Notwithstanding  anything to the contrary contained herein, the  indemnification
agreement  contained in this Section 6(b) with respect to any  prospectus  shall
not inure to the benefit of any  Indemnified  Party if the untrue  statement  or
omission of material fact contained in the prospectus was corrected and such new
prospectus  was delivered to each Investor  prior to such  Investor's use of the
prospectus to which the Claim relates.

           (c) Promptly  after receipt by an  Indemnified  Person or Indemnified
Party  under  this  Section  6 of notice of the  commencement  of any  action or
proceeding  (including any governmental action or proceeding) involving a Claim,
such  Indemnified  Person or  Indemnified  Party  shall,  if a Claim in  respect
thereof is to be made  against  any  indemnifying  party  under this  Section 6,
deliver to the indemnifying party a written notice of the commencement  thereof,
and the  indemnifying  party shall have the right to participate in, and, to the
extent the indemnifying  party so desires,  jointly with any other  indemnifying
party similarly  noticed,  to assume control of the defense thereof with counsel
mutually  satisfactory to the indemnifying  party and the Indemnified  Person or
the  Indemnified  Party,  as  the  case  may  be;  provided,  however,  that  an
Indemnified  Person or Indemnified  Party shall have the right to retain its own
counsel  with the fees and  expenses  of not more than one (1)  counsel for such


                                       8
<PAGE>

Indemnified  Person or Indemnified  Party to be paid by the indemnifying  party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation  by such counsel of the Indemnified  Person or Indemnified  Party
and the  indemnifying  party would be  inappropriate  due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party  represented by such counsel in such  proceeding.  In the case of an
Indemnified  Person,  legal  counsel  referred to in the  immediately  preceding
sentence  shall be selected by the  Investors  holding a majority in interest of
the Registrable  Securities included in the Registration  Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such  action  or  claim by the  indemnifying  party  and  shall  furnish  to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified  Person which relates to such action or claim.  The  indemnifying
party shall keep the Indemnified  Party or Indemnified  Person fully apprised at
all times as to the status of the defense or any  settlement  negotiations  with
respect thereto. No indemnifying party shall be liable for any settlement of any
action,  claim  or  proceeding  effected  without  its  prior  written  consent;
provided,  however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent.  No indemnifying party shall,  without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other  compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified  Person of a release from all liability
in respect to such claim or litigation.  Following  indemnification  as provided
for hereunder,  the indemnifying  party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations  relating to the matter for which indemnification has been made.
The  failure  to  deliver  written  notice to the  indemnifying  party  within a
reasonable  time of the  commencement  of any such action shall not relieve such
indemnifying  party of any liability to the  Indemnified  Person or  Indemnified
Party under this Section 6, except to the extent that the indemnifying  party is
prejudiced in its ability to defend such action.

           (d) The  indemnification  required by this Section 6 shall be made by
periodic  payments of the amount thereof during the course of the  investigation
or defense, as and when bills are received or Indemnified Damages are incurred.

           (e) The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the  indemnifying  party or others,  and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

      7.  CONTRIBUTION.

           To  the  extent  any  indemnification  by an  indemnifying  party  is
prohibited or limited by law, the indemnifying  party agrees to make the maximum
contribution  with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable  Securities guilty of fraudulent  misrepresentation
(within  the  meaning of Section  11(f) of the 1933 Act)  shall be  entitled  to
contribution  from any seller of  Registrable  Securities  who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable


                                       9
<PAGE>

Securities shall be limited in amount to the net amount of proceeds  received by
such seller from the sale of such Registrable Securities.

      8.  REPORTS UNDER THE 1934 ACT.

      With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any similar rule or regulation of the SEC that
may at any time permit the Investors to sell securities of the Company to the
public without registration ("RULE 144") the Company agrees to:

           (a) make and keep public  information  available,  as those terms are
understood and defined in Rule 144;

           (b) file  with the SEC in a  timely  manner  all  reports  and  other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company  remains  subject to such  requirements  (it being  understood  that
nothing herein shall limit the Company's  obligations  under Section 4(c) of the
Securities  Purchase  Agreement)  and the  filing  of  such  reports  and  other
documents as are required by the applicable provisions of Rule 144; and

           (c)  furnish  to  each   Investor  so  long  as  such  Investor  owns
Registrable  Securities,  promptly upon request,  (i) a written statement by the
Company that it has complied  with the reporting  requirements  of Rule 144, the
1933 Act and the 1934 Act,  (ii) a copy of the most recent  annual or  quarterly
report of the  Company  and such other  reports  and  documents  so filed by the
Company,  and (iii) such other  information  as may be  reasonably  requested to
permit  the  Investors  to sell such  securities  pursuant  to Rule 144  without
registration.

      9.  ASSIGNMENT OF REGISTRATION RIGHTS.

      The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned;
(iii) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein; and (iv)
such transfer shall have been made in accordance with the applicable
requirements of the Securities Agreement.

      10. AMENDMENT OF REGISTRATION RIGHTS.

      Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and Investors
who then hold at least two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to fewer than all of the holders of the Registrable


                                       10
<PAGE>

Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.

      11. MISCELLANEOUS.

           (a) A Person  is  deemed  to be a holder  of  Registrable  Securities
whenever  such  Person  owns or is  deemed  to own of  record  such  Registrable
Securities.  If  the  Company  receives  conflicting  instructions,  notices  or
elections  from two (2) or more  Persons  with  respect to the same  Registrable
Securities,  the  Company  shall act upon the basis of  instructions,  notice or
election received from the registered owner of such Registrable Securities.

           (b) Any notices,  consents,  waivers or other communications required
or  permitted to be given under the terms of this  Agreement  must be in writing
and will be deemed to have been  delivered:  (i) upon  receipt,  when  delivered
personally;  (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending  party);  or (iii) one (1) business day after  deposit with a nationally
recognized  overnight  delivery service,  in each case properly addressed to the
party to  receive  the  same.  The  addresses  and  facsimile  numbers  for such
communications shall be:

If to the Company, to:      Vertical Computer Systems, Inc.
                            6336 Wilshire Blvd
                            Los Angeles, CA 90048
                            Attention: Richard Wade
                                        President
                            Telephone: (323) 658-4211
                            Facsimile: (323) 658-4223

With a copy to:             Kirkpatrick & Lockhart LLP
                            201 South Biscayne Blvd. - Suite 2000
                            Miami, Fl 33131
                            Attention:  Clayton E. Parker, Esq.
                            Telephone: (305) 539-3300
                            Facsimile: (305) 358-7095

If to an Investor, to its address and facsimile number on the Schedule of
Investors attached hereto, with copies to such Investor's representatives as set
forth on the Schedule of Investors or to such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
 effectiveness  of such  change.  Written confirmation of receipt
(A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender's
facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by a courier or
overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.

                                       11
<PAGE>

           (c)Failure  of any party to exercise  any right or remedy  under this
Agreement or otherwise,  or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

           (d) The  corporate  laws of the State of  Delaware  shall  govern all
issues  concerning  the relative  rights of the Company and the Investors as its
stockholders.  All  other  questions  concerning  the  construction,   validity,
enforcement  and  interpretation  of this  Agreement  shall be  governed  by the
internal laws of the State of New York,  without  giving effect to any choice of
law or conflict of law  provision  or rule  (whether of the State of New York or
any other  jurisdiction)  that would  cause the  application  of the laws of any
jurisdiction  other than the State of New York.  Each party  hereby  irrevocably
submits  to the  non-exclusive  jurisdiction  of the  state and  federal  courts
sitting in the City of New York,  Borough of Manhattan,  for the adjudication of
any  dispute  hereunder  or in  connection  herewith  or  with  any  transaction
contemplated  hereby or discussed herein,  and hereby  irrevocably  waives,  and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or  proceeding  is  brought in an  inconvenient  forum or that the venue of such
suit,  action or proceeding is improper.  Each party hereby  irrevocably  waives
personal  service of process and  consents to process  being  served in any such
suit,  action or  proceeding  by  mailing a copy  thereof  to such  party at the
address for such notices to it under this Agreement and agrees that such service
shall  constitute  good and  sufficient  service of process and notice  thereof.
Nothing  contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Agreement shall
be  invalid  or   unenforceable   in  any   jurisdiction,   such  invalidity  or
unenforceability  shall  not  affect  the  validity  or  enforceability  of  the
remainder  of  this   Agreement  in  that   jurisdiction   or  the  validity  or
enforceability  of any  provision of this  Agreement in any other  jurisdiction.
EACH PARTY HEREBY  IRREVOCABLY  WAIVES ANY RIGHT IT MAY HAVE,  AND AGREES NOT TO
REQUEST,  A JURY  TRIAL FOR THE  ADJUDICATION  OF ANY  DISPUTE  HEREUNDER  OR IN
CONNECTION  HEREWITH  OR  ARISING  OUT OF  THIS  AGREEMENT  OR  ANY  TRANSACTION
CONTEMPLATED HEREBY.

           (e) This Agreement,  the Securities Purchase Agreement and the Escrow
Agreement  executed  with First Union  National  Bank (the  "ESCROW  AGREEMENT")
constitute  the entire  agreement  among the parties  hereto with respect to the
subject  matter  hereof  and  thereof.  There  are  no  restrictions,  promises,
warranties or undertakings, other than those set forth or referred to herein and
therein.  This  Agreement,  the  Securities  Purchase  Agreement  and the Escrow
Agreement  supersede all prior agreements and  understandings  among the parties
hereto with respect to the subject matter hereof and thereof.

           (f) This Agreement  shall inure to the benefit of and be binding upon
the permitted successors and assigns of each of the parties hereto.

           (g) The headings in this  Agreement are for  convenience of reference
only and shall not limit or otherwise affect the meaning hereof.

           (h) This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall  constitute one and the
same agreement.  This Agreement,  once executed by a party,  may be delivered to


                                       12
<PAGE>

the other party hereto by  facsimile  transmission  of a copy of this  Agreement
bearing the signature of the party so delivering this Agreement.

           (i)  Each  party  shall  do and  perform,  or  cause  to be done  and
performed,  all such further acts and things,  and shall execute and deliver all
such other  agreements,  certificates,  instruments and documents,  as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

           (j) All consents and other determinations to be made by the Investors
pursuant to this Agreement  shall be made,  unless  otherwise  specified in this
Agreement, by Investors holding a majority of the Registrable Securities.

           (k) The  language  used in this  Agreement  will be  deemed to be the
language  chosen by the parties to express  their mutual  intent and no rules of
strict construction will be applied against any party.

           (l) This  Agreement is intended for the benefit of the parties hereto
and  their  respective  permitted  successors  and  assigns,  and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.



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                                       13
<PAGE>


      IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.

                                         COMPANY:
                                         VERTICAL COMPUTER SYSYTEMS INC.

                                         By: __________________________________
                                         Name:  Richard Wade
                                         Title: President


                                         INVESTOR:

                                         By: ________________________________
                                         Name:
                                         Title:







                                       14
<PAGE>




                              SCHEDULE OF INVESTORS
                              ---------------------



                  INVESTOR ADDRESS          INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME     AND FACSIMILE NUMBER      AND FACSIMILE NUMBER








                                       15
<PAGE>

                                                                       EXHIBIT A

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT
                            -------------------------



[TRANSFER AGENT]
Attn:
     -------------------

            Re:   VERTICAL COMPUTER SYSYTEMS INC.
                  -------------------------------

Ladies and Gentlemen:

      We are counsel to Vertical Computer Systems,  Inc., a Delaware corporation
(the  "COMPANY"),  and have  represented  the  Company in  connection  with that
certain Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered into by
and among  the  Company  and the  investors  named  therein  (collectively,  the
"INVESTORS") pursuant to which the Company issued to the Investors shares of its
Common Stock, par value $0.00001 per share (the "COMMON STOCK"). Pursuant to the
Purchase  Agreement,  the Company  also has entered into a  Registration  Rights
Agreement with the Investors (the "REGISTRATION  RIGHTS AGREEMENT")  pursuant to
which the Company  agreed,  among other  things,  to  register  the  Registrable
Securities  (as  defined  in  the  Registration   Rights  Agreement)  under  the
Securities  Act of 1933,  as amended (the "1933 ACT").  In  connection  with the
Company's  obligations under the Registration Rights Agreement,  on ____________
____,  the Company filed a  Registration  Statement on Form  ________  (File No.
333-_____________)  (the  "REGISTRATION  STATEMENT")  with  the  Securities  and
Exchange SEC (the "SEC") relating to the Registrable Securities which names each
of the Investors as a selling stockholder there under.

      In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by  telephone  that the SEC has entered an order  declaring
the  Registration  Statement  effective  under  the 1933 Act at  [ENTER  TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,  after
telephonic  inquiry  of a  member  of the  SEC's  staff,  that  any  stop  order
suspending its  effectiveness  has been issued or that any  proceedings for that
purpose  are  pending  before,  or  threatened  by, the SEC and the  Registrable
Securities  are  available  for  resale  under  the  1933  Act  pursuant  to the
Registration Statement.

                                    Very truly yours,

                                    [ISSUER'S COUNSEL]


                                    By:
                                       ---------------------------------

cc:   [LIST NAMES OF INVESTORS]





                                       16
<PAGE>