Document:

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EXHIBIT 10.1

                                 SYNOPSYS, INC.

                             1992 STOCK OPTION PLAN

           (AMENDED JULY 29, 1992, OCTOBER 28, 1992, OCTOBER 27, 1993,
          OCTOBER 27, 1994, NOVEMBER 1, 1995, MAY 1, 1996, MAY 3, 1996,
              OCTOBER 30, 1996, JANUARY 11, 2000 AND MAY 25, 2001)

                                   ARTICLE ONE
                                     GENERAL

I.                PURPOSE OF THE PLAN

                  A. This 1992 Stock Option Plan ("Plan") is intended to promote
the interests of Synopsys, Inc., a Delaware corporation (the "Corporation"), by
providing (i) key employees (including officers and directors) of the
Corporation (or its parent or subsidiary corporations) who are responsible for
the management, growth and financial success of the Corporation (or its parent
or subsidiary corporations) and (ii) consultants and other independent advisors
who provide valuable services to the Corporation (or its parent or subsidiary
corporations) with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation (or its parent or
subsidiary corporations).

                  B. The Plan shall become effective on the first date on which
the shares of the Corporation's common stock are registered under Section 12(g)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Such date
is hereby designated as the Effective Date of the Plan.

                  C. This Plan shall serve as the successor to the Corporation's
1988 Restricted Stock Plan (the "1988 Plan"), and no further option grants shall
be made under the 1988 Plan from and after the Effective Date of this Plan. All
options outstanding under the 1988 Plan on such Effective Date are hereby
incorporated into this Plan and shall accordingly be treated as outstanding
options under this Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the express terms and conditions of the
instrument evidencing such grant, and no provision of this Plan shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of the
Corporation's common stock thereunder. All outstanding unvested share issuances
under the 1988 Plan shall continue to be governed solely by the express terms
and conditions of the instruments evidencing such issuances, and no provision of
this Plan shall be deemed to affect or otherwise modify the rights or
obligations of the holders of such unvested shares.

                  D. For purposes of the Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the
Corporation:

                  Any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation shall be considered to be a
parent of the Corporation, provided each such corporation in the unbroken chain
(other than the Corporation) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

                  Each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation shall be considered to be a
subsidiary of the Corporation, provided each such corporation (other than the
last corporation) in the unbroken chain owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.

II.               ADMINISTRATION OF THE PLAN

                  A. Administrator. The Plan shall be administered by the Board
of Directors or a committee that will satisfy Rule 16b-3 of the Securities and
Exchange Commission and Section 162(m) of the Internal Revenue

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Code, as in effect with respect to the Company from time to time (in either
case, the "Administrator"). In connection with the administration of the Plan,
the Administrator shall have the powers possessed by the Board. The
Administrator may act only by a majority of its members, except that the
Administrator may authorize any one or more of its members or any officer of the
Company to execute and deliver documents on behalf of the Administrator. For so
long as not otherwise required for the Plan to comply with Rule 16b-3, the
Administrator or the Board may delegate to one or more directors of the Company
authority to grant stock options to persons who are not subject to Section 16 of
the Exchange Act, and may delegate administrative duties to such director(s) and
such employees of the Company as it deems proper. The Board at any time may
terminate the authority delegated to any committee of the Board pursuant to this
Section III(a) and revest in the Board the administration of the Plan.

                  B. Authority. The Administrator shall grant options and
authorize stock issuances (in either case an "Award") to selected eligible
employees and consultants. In particular and without limitation, the
Administrator, subject to the terms of the Plan, shall:

                           (i) select the officers, other employees, and
         consultants to whom Awards may be granted;

                           (ii) determine whether and to what extent Awards are
         to be granted under the Plan;

                           (iii) determine the number of shares to be covered by
         each Award granted under the Plan; and

                           (iv) determine the terms and conditions of any Award
         granted under the Plan and any related loans to be made by the Company,
         based upon factors determined by the Administrator;

                           provided, however, that the Administrator shall not
         have the power to approve a program whereby outstanding Awards are
         surrendered in exchange for Awards with a lower exercise price, without
         first obtaining stockholder approval of such program.

III.              ELIGIBILITY

                  A. The persons eligible to receive option grants ("Optionee")
are as follows:

                           (i) officers and other key employees of the
         Corporation (or its parent or subsidiary corporations) who render
         services which contribute to the management, growth and financial
         success of the Corporation (or its parent or subsidiary corporations);

                           (ii) those consultants or other independent advisors
         who provide valuable services to the Corporation (or its parent or
         subsidiary corporations).

                  B. Non-employee members of the Board shall not be eligible to
participate in the Plan or in any other stock option, stock purchase, stock
bonus or other stock plan of the Corporation (or its parent or subsidiary
corporations), other than the 1994 Non-Employee Directors Stock Option Plan.

IV.               STOCK SUBJECT TO THE PLAN

                  A. Shares of the Corporation's common stock (the "Common
Stock") shall be available for issuance under the Plan and shall be drawn from
either the Corporation's authorized but unissued shares of Common Stock or from
reacquired shares of Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed the sum of (i)
17,767,142 shares plus (ii) an additional number of shares equal to 5% of the
number of shares of Common Stock and Common Stock equivalents outstanding on the
first day of each of the 1997, 1998 and 1999 fiscal years. Such authorized share
reserve includes the number of shares which remained available for issuance, as
of the Effective Date, under the 1988 Plan as last approved by the Corporation's
stockholders prior to such Effective Date, including the shares subject to the
outstanding options incorporated into this Plan and any other shares available
for future option grant under the 1988 Plan as last approved by the
stockholders, and such reserve shall be adjusted from time to time in accordance
with the provisions of this Section IV. To the extent one or more

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outstanding options under the 1988 Plan which have been incorporated into this
Plan are subsequently exercised, the number of shares issued with respect to
each such option shall reduce, on a share- for-share basis, the number of shares
available for issuance under this Plan.

                  B. In no event may the maximum number of shares which may be
issued pursuant to Incentive Options granted under the Plan on or after the
first day of the 1995 fiscal year (October 2, 1994) exceed 16,000,000 shares,
subject to adjustment from time to time in accordance with the provisions of
this Section IV. The maximum number of shares which may be issued pursuant to
Incentive Options granted under the Plan prior to the first day of the 1995
fiscal year (October 2, 1994) shall not exceed 11,400,000 shares, subject to
adjustment from time to time in accordance with the provisions of this Section
IV.

                  C. In no event may the aggregate number of shares of Common
Stock for which any one individual participating in the Plan may be granted
stock options and/or separately-exercisable stock appreciation rights during any
fiscal year exceed 750,000 shares, except in the case of an individual's initial
employment with the Company, in which case such individual may be granted stock
options and/or stock appreciation rights for an additional 250,000 shares,
subject to adjustment from time to time in accordance with the provisions of
this Section IV. For purposes of such limitation, no stock options or stock
appreciation rights granted prior to January 1, 1994 shall be taken into
account.

                  D. Should one or more outstanding options under this Plan
(including outstanding options under the 1988 Plan incorporated into this Plan)
expire or terminate for any reason prior to exercise in full (including any
option cancelled in accordance with the cancellation-regrant provisions of
Section IV of Article Two of the Plan), then the shares subject to the portion
of each option not so exercised shall be available for subsequent option grant
under the Plan. Shares subject to any option or portion thereof surrendered or
cancelled in accordance with Section V of Article Two and all shares issuances
under the Plan, whether or not the shares are subsequently repurchased by the
Corporation pursuant to its repurchase rights under the Plan, shall not be
available for subsequent option grant under the Plan. In addition, should the
exercise price of an outstanding option under the Plan be paid with shares of
Common Stock, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised, and not by the net number of shares of Common Stock
actually issued to the holder of such option.

                  E. In the event any change is made to the Common Stock
issuable under the Plan by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration, appropriate adjustments shall be made to (i) the
maximum number and/or class of securities issuable under the Plan, (ii) the
maximum number and/or class of securities which may be issued pursuant to
Incentive Options granted under the Plan, whether before or after the first day
of the 1995 fiscal year, (iii) the total number and/or class of securities for
which stock options and separately-exercisable stock appreciation rights may be
granted to any one participant in the Plan after December 31, 1993, (iv) the
number and/or class of securities and price per share in effect under each
outstanding option under the Plan and (v) the number and/or class of securities
and price per share in effect under each outstanding option incorporated into
this Plan from the 1988 Plan. Such adjustments to the outstanding options are to
be effected in a manner which shall preclude the enlargement or dilution of
rights and benefits under such options.

                  The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.

                  F. Common Stock issuable under the Plan may be subject to such
restrictions on transfer, repurchase rights or other restrictions determined by
the Plan Administrator.

                                   ARTICLE TWO
                                  OPTION GRANTS

I.                TERMS AND CONDITIONS OF OPTIONS

                  Options granted pursuant to the Plan shall be authorized by
action of the Plan Administrator and may, at the Plan Administrator's
discretion, be either Incentive Options or non-statutory options. Individuals
who

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are not Employees of the Corporation or its parent or subsidiary corporations
may only be granted non-statutory options. Each granted option shall be
evidenced by one or more instruments in the form approved by the Plan
Administrator; provided, however, that each such instrument shall comply with
the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.

                  A.  Option Price.

                  (1) The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall it be less than one hundred percent
(100%) of the fair market value per share of Common Stock on the date of the
option grant.

                  (2) The option price shall become immediately due upon
exercise of the option and, subject to the provisions of Article Three, Section
I and the instrument evidencing the grant, shall be payable in one of the
following alternative forms specified below:

                       - full payment in cash or check drawn to the
         Corporation's order;

                       - full payment in shares of Common Stock held for at
         least six (6) months and valued at fair market value on the Exercise
         Date (as such term is defined below);

                       - full payment in a combination of shares of Common Stock
         held for at least six (6) months and valued at fair market value on the
         Exercise Date and cash or check; or

                       - full payment through a broker-dealer sale and
         remittance procedure pursuant to which the Optionee (I) shall provide
         irrevocable written instructions to a Corporation-designated brokerage
         firm to effect the immediate sale of the purchased shares and remit to
         the Corporation, out of the sale proceeds available on the settlement
         date, sufficient funds to cover the aggregate option price payable for
         the purchased shares plus all applicable Federal and State income and
         employment taxes required to be withheld by the Corporation in
         connection with such purchase and (II) shall provide written directives
         to the Corporation to deliver the certificates for the purchased shares
         directly to such brokerage firm in order to complete the sale
         transaction.

                  For purposes of this subparagraph (2), the Exercise Date shall
be the date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure is utilized
in connection with the exercise of the option, payment of the option price for
the purchased shares must accompany such notice.

                  (3) The fair market value per share of Common Stock on any
relevant date under the Plan shall be determined in accordance with the
following provisions:

                       - If the Common Stock is not at the time listed or
         admitted to trading on any national stock exchange but is traded on the
         Nasdaq National Market, the fair market value shall be the closing
         selling price per share of Common Stock on the date in question, as
         such price is reported by the National Association of Securities
         Dealers on the Nasdaq National Market System or any successor system.
         If there is no reported closing selling price for the Common Stock on
         the date in question, then the closing selling price on the last
         preceding date for which such quotation exists shall be determinative
         of fair market value.

                       - If the Common Stock is at the time listed or admitted
         to trading on any national stock exchange, then the fair market value
         shall be the closing selling price per share of Common Stock on the
         date in question on the stock exchange determined by the Plan
         Administrator to be the primary market for the Common Stock, as such
         price is officially quoted in the composite tape of transactions on
         such exchange. If there is no reported sale of Common Stock on such
         exchange on the date in question, then the fair market value shall be
         the closing selling price on the exchange on the last preceding date
         for which such quotation exists.

                  B. Term and Exercise of Options. Each option shall be
exercisable at such time or times and during such period as is determined by the
Plan Administrator and set forth in the stock option agreement

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evidencing the grant; provided that at least 75% of the options granted
hereunder shall become exercisable ratably over a four year period from the date
of grant, with the vesting interval (i.e., monthly, quarterly, etc.) and any
period prior to the commencement of vesting determined in each case by the Plan
Administrator. No such option, however, shall have a maximum term in excess of
ten (10) years from the grant date. During the lifetime of the Optionee, the
option shall be exercisable only by the Optionee and shall not be assignable or
transferable by the Optionee otherwise than by will or by the laws of descent
and distribution following the Optionee's death.

                  C.  Termination of Service.

                  (1) Except to the extent otherwise provided pursuant to
Section VI of this Article Two, the following provisions shall govern the
exercise period applicable to any outstanding options under the Plan which are
held by the Optionee at the time of his or her cessation of Service or death.

                       - Should the Optionee cease Service for any reason
         (including death or permanent disability as defined in Section 22(e)(3)
         of the Internal Revenue Code) while holding one or more outstanding
         options under the Plan, then none of those options shall (except to the
         extent otherwise provided pursuant to Section VI of this Article Two)
         remain exercisable beyond the limited post-Service period designated by
         the Plan Administrator at the time of the option grant and set forth in
         the option agreement.

                       - Any option granted to an Optionee under the Plan and
         exercisable in whole or in part on the date of the Optionee's death may
         be subsequently exercised, by the personal representative of the
         Optionee's estate or by the person or persons to whom the option is
         transferred pursuant to the Optionee's will or in accordance with the
         laws of descent and distribution, provided and only if such exercise
         occurs prior to the earlier of (i) the expiration of the period
         designated by the Plan Administrator at the time of the option grant
         and set forth in the option agreement, which may be any period from one
         month to three years measured from the date of the Optionee's death, or
         (ii) the specified expiration date of the option term. Upon the
         occurrence of the earlier event, the option shall terminate and cease
         to be exercisable.

                       - Under no circumstances, however, shall any such option
         be exercisable after the specified expiration date of the option term.

                       - During the limited post-Service exercise period, the
         option may not be exercised for more than the number of shares for
         which the option is exercisable on the date of the Optionee's cessation
         of Service. Upon the expiration of such limited exercise period or (if
         earlier) upon the expiration of the option term, the option shall
         terminate and cease to be exercisable. However, upon the Optionee's
         cessation of Service, each outstanding option at the time held by the
         Optionee shall immediately terminate and cease to be outstanding with
         respect to any shares for which the option is not otherwise at that
         time exercisable or in which the Optionee is not otherwise vested.

                       - Should (i) the Optionee's Service be terminated for
         misconduct (including, but not limited to, any act of dishonesty,
         willful misconduct, fraud or embezzlement) or (ii) the Optionee make
         any unauthorized use or disclosure of confidential information or trade
         secrets of the Corporation or its parent or subsidiary corporations,
         then in any such event all outstanding options held by the Optionee
         under this Article Two shall terminate immediately and cease to be
         exercisable.

                  (2) The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the Optionee
under this Article Two to be exercised, during the limited period of
exercisability provided under subparagraph (1) above, not only with respect to
the number of shares for which each such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
subsequent installments for which the option would otherwise have become
exercisable had such cessation of Service not occurred.

                  (3) For purposes of the foregoing provisions of this Section
I.C (and for all other purposes under the Plan):

                       - The Optionee shall (except to the extent otherwise
         specifically provided in the applicable option agreement) be deemed to
         remain in the Service of the Corporation for so long as such individual

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         renders services on a periodic basis to the Corporation (or any parent
         or subsidiary corporation) in the capacity of an Employee, a
         non-employee member of the Board or an independent consultant or
         advisor.

                       - The Optionee shall be considered to be an Employee for
         so long as he or she remains in the employ of the Corporation or one or
         more parent or subsidiary corporations, subject to the control and
         direction of the employer entity not only as to the work to be
         performed but also as to the manner and method of performance.

                  D.  Stockholder Rights.

                  An Optionee shall have no stockholder rights with respect to
any shares covered by the option until such individual shall have exercised the
option, paid the option price for the purchased shares and been issued a stock
certificate for such shares.

                  E.  Repurchase Rights.

                  The shares of Common Stock acquired upon the exercise of
options granted under this Article Two may be subject to repurchase by the
Corporation in accordance with the following provisions:

                  (a) The Plan Administrator shall have the discretion to
authorize the issuance of unvested shares of Common Stock under this Article
Two. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase any or all of those unvested
shares at the option price paid per share. The terms and conditions upon which
such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the instrument
evidencing such repurchase right.

                  (b) All of the Corporation's outstanding repurchase rights
shall automatically terminate, and all shares subject to such terminated rights
shall immediately vest in full, upon the occurrence of any Corporate Transaction
under Section III of this Article Two, except to the extent:

                       (i) any such repurchase right is to be assigned to the
         successor corporation (or parent thereof) in connection with the
         Corporate Transaction or (ii) such termination is precluded by other
         limitations imposed by the Plan Administrator at the time the
         repurchase right is issued.

                  (c) The Plan Administrator shall have the discretionary
authority, exercisable either before or after the Optionee's cessation of
Service, to cancel the Corporation's outstanding repurchase rights with respect
to one or more shares purchased or purchasable by the Optionee under this
Article Two and thereby accelerate the vesting of such shares in whole or in
part at any time.

II.               INCENTIVE OPTIONS

                  The terms and conditions specified below shall be applicable
to all Incentive Options granted under the Plan. Incentive Options may only be
granted to individuals who are Employees of the Corporation. Options which are
specifically designated as "non- statutory" options when issued under the Plan
shall not be subject to such terms and conditions.

                  A. Dollar Limitation. The aggregate fair market value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more options granted to any Employee after December 31, 1986 under
this Plan (or any other option plan of the Corporation or its parent or
subsidiary corporations) may for the first time become exercisable as incentive
stock options under the Federal tax laws during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two or more such options which become exercisable for the first
time in the same calendar year, the foregoing limitation on the exercisability
of such options as incentive stock options under the Federal tax laws shall be
applied on the basis of the order in which such options are granted.

                  B. 10% Stockholder. If any individual to whom an Incentive
Option is granted is the owner of stock (as determined under Section 424(d) of
the Internal Revenue Code) possessing 10% or more of the total

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combined voting power of all classes of stock of the Corporation or any one of
its parent or subsidiary corporations, then the option price per share shall not
be less than one hundred and ten percent (110%) of the fair market value per
share of Common Stock on the grant date, and the option term shall not exceed
five (5) years, measured from the grant date.

                  Except as modified by the preceding provisions of this Section
II, the provisions of Articles One, Two and Three of the Plan shall apply to all
Incentive Options granted hereunder.

III.              CORPORATE TRANSACTIONS/CHANGES IN CONTROL

                  A.  In the event of any of the following stockholder-approved
transactions to which the Corporation is a party (a "Corporate Transaction"):

                  (i) a merger or consolidation in which the Corporation is not
the surviving entity, except for a transaction the principal purpose of which is
to change the State of the Corporation's incorporation,

                  (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in liquidation or dissolution
of the Corporation, or

                  (iii) any reverse merger in which the Corporation is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation's outstanding
securities are transferred to holders different from those who held such
securities immediately prior to such merger, then the exercisability of each
option outstanding under the Plan shall automatically accelerate so that each
such option shall, immediately prior to the specified effective date for the
Corporate Transaction, become fully exercisable with respect to the total number
of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares. However, an outstanding option
under this Article Two shall not so accelerate if and to the extent: (i) such
option is, in connection with the Corporate Transaction, to be assumed by the
successor corporation or parent thereof or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation or parent
thereof, (ii) such option is to be replaced by a comparable cash incentive
program of the successor corporation based on the option spread at the time of
the Corporate Transaction, or (iii) the acceleration of such option is subject
to other limitations imposed by the Plan Administrator at the time of the option
grant. The determination of comparability under clause (i) or (ii) above shall
be made by the Plan Administrator, and its determination shall be final, binding
and conclusive.

                  B. Immediately after the consummation of the Corporate
Transaction, all outstanding options under the Plan shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation or its
parent company.

                  C. Each outstanding option under the Plan which is assumed in
connection with the Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
issued to the option holder, in consummation of such Corporate Transaction, had
such person exercised the option immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the option price
payable per share, provided the aggregate option price payable for such
securities shall remain the same. In addition, the maximum number and/or class
of securities available for issuance under the Plan, the maximum number and/or
class of securities which may be issued pursuant to Incentive Options granted
under the Plan, whether before or after the first day of the 1995 fiscal year,
and the total number and/or class of securities for which stock options and
separately-exercisable stock appreciation rights may be granted to any one
participant in the Plan after December 31, 1993 shall be appropriately adjusted
following the consummation of the Corporate Transaction to reflect the effect of
such transaction upon the Corporation's capital structure.

                  D. The grant of options under the Plan shall in no way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.

                  E. The Plan Administrator shall have the discretionary
authority, exercisable at the time the option is granted or at any time while
the option remains outstanding, to provide for the automatic acceleration of

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one or more outstanding options under this Article Two (and the termination of
one or more of the Corporation's outstanding repurchase rights under this
Article Two) upon the occurrence of a Change in Control. Alternatively, the Plan
Administrator shall have full power and authority to condition any such option
acceleration (and the termination of any outstanding repurchase rights) upon the
subsequent termination of the Optionee's Service within a specified period
following the Change in Control.

                  F. For purposes of this Section III, a Change in Control shall
be deemed to occur in the event:

                  (i) any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act)
of securities possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders to accept; or

                  (ii) there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more proxy contests for the
election of Board members, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who were still in
office at the time such election or nomination was approved by the Board.

                  G. Any options accelerated in connection with the Change in
Control shall remain fully exercisable until the expiration or sooner
termination of the option term.

                  H. The exercisability as incentive stock options under the
Federal tax laws of any options accelerated under this Section III in connection
with a Corporate Transaction or Change in Control shall remain subject to the
dollar limitation of Section II of this Article Two.

IV.               [INTENTIONALLY OMITTED.]

V.                STOCK APPRECIATION RIGHTS

                  A. Provided and only if the Plan Administrator determines in
its discretion to implement the stock appreciation right provisions of this
Section V, one or more Optionees may be granted the right, exercisable upon such
terms and conditions as the Plan Administrator may establish, to surrender all
or part of an unexercised option under this Article Two in exchange for a
distribution from the Corporation in an amount equal to the excess of (i) the
fair market value (on the option surrender date) of the number of shares in
which the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (ii) the aggregate option price payable for
such vested shares.

                  B. No surrender of an option shall be effective hereunder
unless it is approved by the Plan Administrator. If the surrender is so
approved, then the distribution to which the Optionee shall accordingly become
entitled under this Section V may be made in shares of Common Stock valued at
fair market value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.

                  C. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.

                  D.  One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights

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in tandem with their outstanding options under the Plan. Upon the occurrence of
a Hostile Take-Over effected at any time when the Corporation's outstanding
Common Stock is registered under Section 12(g) of the 1934 Act, each outstanding
option with such a limited stock appreciation right in effect for at least six
(6) months shall automatically be cancelled, to the extent such option is at the
time exercisable for fully-vested shares of Common Stock. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the vested shares of Common
Stock at the time subject to the cancelled option (or cancelled portion of such
option) over (ii) the aggregate exercise price payable for such shares. The cash
distribution payable upon such cancellation shall be made within five (5) days
following the consummation of the Hostile Take-Over. Neither the approval of the
Plan Administrator nor the consent of the Board shall be required in connection
with such option cancellation and cash distribution. The uncancelled portion of
the option (if any) shall continue to remain outstanding and become exercisable
in accordance with the terms of the agreement evidencing that grant.

                  E. For purposes of Section V.D, the following definitions
shall be in effect:

                  A Hostile Take-Over shall be deemed to occur in the event (i)
any person or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept and (ii) more than fifty percent (50%) of
the securities so acquired in such tender or exchange offer are accepted from
holders other than Corporation officers and directors participating in the Plan.

                  The Take-Over Price per share shall be deemed to be equal to
the greater of (a) the fair market value per share on the date of cancellation,
as determined pursuant to the valuation provisions of Section I.A. (3) of this
Article Two, or (b) the highest reported price per share of Common Stock paid in
effecting such Hostile Take-Over. However, if the cancelled option is an
Incentive Option, the Take-Over Price shall not exceed the clause (a) price per
share.

                  F. The shares of Common Stock subject to any option
surrendered or cancelled for an appreciation distribution pursuant to this
Section V shall not be available for subsequent option grant under the Plan.

VI.               EXTENSION OF EXERCISE PERIOD

                  The Plan Administrator shall have full power and authority to
extend the period of time for which any option granted under this Article Two is
to remain exercisable following the Optionee's cessation of Service or death
from the limited period in effect under Section I.C.(1) of this Article Two to
such greater period of time as the Plan Administrator shall deem appropriate;
provided, however, that in no event shall such option be exercisable after the
specified expiration date of the option term.

                                  ARTICLE THREE
                                  MISCELLANEOUS

I.                [INTENTIONALLY OMITTED.]

II.               AMENDMENT OF THE PLAN AND AWARDS

                  A. The Board has complete and exclusive power and authority to
amend or modify the Plan in any or all respects whatsoever. However, no such
amendment or modification may adversely affect the rights and obligations of an
Optionee with respect to options at the time outstanding under the Plan, unless
the Optionee consents to such amendment. In addition, the Board may not, without
the approval of the Corporation's stockholders, amend the Plan to (i) materially
increase the maximum number of shares issuable under the Plan, the maximum
number of shares issuable pursuant to Incentive Options granted under the Plan
on or after the first day of the 1995 fiscal year or the number of shares for
which any one individual participating in the Plan may be granted

                                       9
<PAGE>   10
stock options and separately-exercisable stock appreciation rights in the
aggregate after December 31, 1993 (except for permissible adjustments under
Article One, Section IV) or (ii) materially modify the eligibility requirements
for participation in the Plan or the benefits accruing to Optionees under the
Plan.

                  B. Options to purchase shares of Common Stock may be granted
in excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued are held in escrow until stockholder
approval is obtained for a sufficient increase in the number of shares available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess option grants are made,
then (I) any unexercised excess options shall terminate and cease to be
exercisable and (II) the Corporation shall promptly refund the purchase price
paid for any excess shares actually issued under the Plan and held in escrow,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow.

III.              EFFECTIVE DATE AND TERM OF PLAN

         A. The Plan was initially adopted by the Board effective February 24,
1992. The Plan was amended by the Board on July 29, 1992, October 28, 1992,
October 27, 1993, October 27, 1994, November 1, 1995, May 1, 1996, May 3, 1996,
October 30, 1996, January 11, 2000, and May 25, 2001.

                  B. Each option issued and outstanding under the 1988 Plan
immediately prior to the Effective Date of this Plan shall be incorporated into
this Plan and treated as an outstanding option under this Plan, but each such
option shall continue to be governed solely by the terms and conditions of the
instrument evidencing such grant, and nothing in this Plan shall be deemed to
affect or otherwise modify the rights or obligations of the holders of such
options with respect to their acquisition of shares of Common Stock thereunder.
Each unvested share of Common Stock outstanding under the 1988 Plan on the
Effective Date of this Plan shall continue to be governed solely by the terms
and conditions of the instrument evidencing such share issuance, and nothing in
this Plan shall be deemed to affect or otherwise modify the rights or
obligations of the holder of such unvested shares.

                  C. The sale and remittance procedure authorized for the
exercise of outstanding options under this Plan shall be available for all
options granted under this Plan on or after the Effective Date and for all
non-statutory options outstanding under the 1988 Plan and incorporated into this
Plan. The Plan Administrator may also allow such procedure to be utilized in
connection with one or more disqualifying dispositions of Incentive Option
shares effected after the Effective Date, whether such Incentive Options were
granted under this Plan or the 1988 Plan.

                  D. The option/vesting acceleration provisions of Section III
of Article Two relating to Corporate Transactions and Changes in Control may, in
the Plan Administrator's discretion, be extended to one or more stock options
which are outstanding under the 1988 Plan on the Effective Date of this Plan but
which do not otherwise provide for such acceleration.

                  E. The Plan shall terminate upon the earlier of (i) January
13, 2002 or (ii) the date on which all shares available for issuance under the
Plan shall have been issued or cancelled pursuant to the exercise, surrender or
cash-out of the outstanding options under the Plan. If the date of termination
is determined under clause (i) above, then all option grants outstanding on such
date shall thereafter continue to have force and effect in accordance with the
provisions of the instruments evidencing such grants.

IV.               USE OF PROCEEDS

                  Any cash proceeds received by the Company from the sale of
shares under the Plan shall be used for general corporate purposes.

V.                REGULATORY APPROVALS

                                       10
<PAGE>   11
                  A. The implementation of the Plan, the granting of any option
under the Plan and the issuance of Common Stock upon the exercise or surrender
of the option grants made hereunder shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options granted under it, and the Common
Stock issued pursuant to it.

                  B. No shares of Common Stock or other assets shall be issued
or delivered under this Plan unless and until there shall have been compliance
with all applicable requirements of Federal and State securities laws, including
the filing and effectiveness of the Form S-8 registration statement for the
shares of Common Stock issuable under the Plan, and all applicable listing
requirements of any securities exchange on which stock of the same class is then
listed.

VI.               NO EMPLOYMENT/SERVICE RIGHTS

                  Neither the action of the Company in establishing the Plan,
nor any action taken by the Plan Administrator hereunder, nor any provision of
the Plan shall be construed so as to grant any individual the right to remain in
the employ or service of the Corporation (or any parent or subsidiary
corporation) for any period of specific duration, and the Corporation (or any
parent or subsidiary corporation retaining the services of such individual) may
terminate such individual's employment or service at any time and for any
reason, with or without cause.

VII.              MISCELLANEOUS PROVISIONS

                  A. The right to acquire Common Stock or other assets under the
Plan may not be assigned, encumbered or otherwise transferred by any Optionee.

                  B. The provisions of the Plan shall be governed by the laws of
the State of California, as such laws are applied to contracts entered into and
performed in such State.

                  C. The provisions of the Plan shall inure to the benefit of,
and be binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Optionees, the legal representatives
of their respective estates, their respective heirs or legatees and their
permitted assignees.

                                       11
<PAGE>   12

Schedule A

                           Companies Participating in
                      International Employee Stock Purchase
                                      Plan

<TABLE>
<CAPTION>
Name                                                           Jurisdiction of Incorporation
----                                                           -----------------------------
<S>                                                            <C>
Nihon Synopsys KK                                                                      Japan
Synopsys Consulting SARL                                                              France
Synopsys Finland OY                                                                  Finland
Synopsys GmbH                                                                        Germany
Synopsys (India) Private Limited.                                                      India
Synopsys International, Inc.                                                        Barbados
Synopsys International Limited                                                       Ireland
Synopsys Ireland Limited                                                             Ireland
Synopsys Ireland Resources                                                           Ireland
Synopsys Italia, S.r.l.                                                                Italy
Synopsys Korea, Inc. (Yuhan Hoesa Synopsys Korea)                                      Korea
Synopsys (Northern Europe) Limited                                            United Kingdom
Synopsys SARL                                                                         France
Synopsys Scandinavia AB                                                               Sweden
Synopsys Services SARL                                                                France
Synopsys (Singapore) Pte. Limited.                                                 Singapore
Synopsys Israel Limited                                                               Israel
Synopsys (India) EDA Software Private Limited                                          India
Synopsys Denmark ApS                                                                 Denmark
Synopsys Leda SARL                                                                    France
Synopsys Taiwan Limited                                                               Taiwan
</TABLE>

                                       1<PAGE>

                                                                     EXHIBIT 4.1

                           NOTE AND WARRANT PURCHASE

                                   AGREEMENT

                          Dated as of August 31, 2001

                                     among

                               VERTEL CORPORATION

                                      and

                       THE PURCHASER LISTED ON EXHIBIT A
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                     Page
                                                                                                     ----
<S>                                                                                                <C>
ARTICLE I       Purchase and Sale of Note and Warrant..............................................     1

     Section 1.1   Purchase and Sale of Note and Warrant...........................................     1
     Section 1.2   Purchase Price and Closing......................................................     1
     Section 1.3   Warrant.........................................................................     2
     Section 1.4   Conversion Shares / Warrant Shares..............................................     2

ARTICLE II      Representations and Warranties.....................................................     2

     Section 2.1   Representations and Warranties of the Company...................................     2
     Section 2.2   Representations and Warranties of the Purchaser.................................    12

ARTICLE III     Covenants..........................................................................    14

     Section 3.1   Securities Compliance...........................................................    15
     Section 3.2   Registration and Listing........................................................    15
     Section 3.3   Inspection Rights...............................................................    15
     Section 3.4   Compliance with Laws............................................................    15
     Section 3.5   Keeping of Records and Books of Account.........................................    15
     Section 3.6   Reporting Requirements..........................................................    15
     Section 3.7   Amendments......................................................................    16
     Section 3.8   Other Agreements................................................................    16
     Section 3.9   Distributions...................................................................    16
     Section 3.10  Subsequent Financings; Right of First Refusal...................................    16
     Section 3.11  Reservation of Shares...........................................................    17
     Section 3.12  Transfer Agent Instructions.....................................................    17
     Section 3.13  Disposition of Assets...........................................................    18
     Section 3.14  Repayment of Other Indebtedness.................................................    18
     Section 3.15  Insiders Lock-Up................................................................    18
     Section 3.16  Non-Public Information..........................................................    18
     Section 3.17  Form S-3 Eligibility............................................................    19
     Section 3.18  Stockholder Approval............................................................    19

ARTICLE IV      Conditions.........................................................................    19

     Section 4.1   Conditions Precedent to the Obligation of the Company to Close and to
                   Sell the Note and Warrant.......................................................    19
     Section 4.2   Conditions Precedent to the Obligation of the Purchaser to Close and to
                   Purchase the Note and Warrant...................................................    20

ARTICLE V       Certificate Legend.................................................................    22

     Section 5.1   Legend..........................................................................    22
</TABLE>

                                      -i-
<PAGE>

                               Table of Contents
                               -----------------
                                  (continued)

<TABLE>
<CAPTION>
                                                                               Page
                                                                               ----
<S>                                                                           <C>
ARTICLE VI      Termination.................................................     23

     Section 6.1   Termination by Mutual Consent............................     23
     Section 6.2   Effect of Termination....................................     23

ARTICLE VII     Indemnification.............................................     23

     Section 7.1   General Indemnity........................................     23
     Section 7.2   Indemnification Procedure................................     23

ARTICLE VIII    Miscellaneous...............................................     24

     Section 8.1   Fees and Expenses........................................     24
     Section 8.2   Specific Enforcement; Consent to Jurisdiction............     25
     Section 8.3   Entire Agreement; Amendment..............................     25
     Section 8.4   Notices..................................................     25
     Section 8.5   Waivers..................................................     26
     Section 8.6   Headings.................................................     26
     Section 8.7   Successors and Assigns...................................     27
     Section 8.8   No Third Party Beneficiaries.............................     27
     Section 8.9   Governing Law............................................     27
     Section 8.10  Survival.................................................     27
     Section 8.11  Counterparts.............................................     27
     Section 8.12  Publicity................................................     27
     Section 8.13  Severability.............................................     27
     Section 8.14  Further Assurances.......................................     27
</TABLE>

                                     -ii-
<PAGE>

                      NOTE AND WARRANT PURCHASE AGREEMENT

     This NOTE AND WARRANT PURCHASE AGREEMENT is dated as of August 31, 2001
(this "Agreement") by and between Vertel Corporation, a California corporation
       ---------
(the "Company"), and the entity listed on Exhibit A hereto (the "Purchaser").
      -------                                                    ---------

     The parties hereto agree as follows:

                                   ARTICLE I

                     Purchase and Sale of Note and Warrant

          Section 1.1  Purchase and Sale of Note and Warrant.  Upon the
                       -------------------------------------
following terms and conditions, the Company shall issue and sell to the
Purchaser, and the Purchaser shall purchase from the Company, a convertible
promissory note in the aggregate principal amount of Three Million Five Hundred
Thousand Dollars ($3,500,000.00) bearing interest at the rate of six percent
(6%) per annum, due ______ __, 2004, convertible into shares of the Company's
common stock, par value $.01 per share (the "Common Stock"), in substantially
                                             ------------
the form attached hereto as Exhibit B (the "Note") and a warrant to purchase
                                            ----
shares of Common Stock, in substantially the form attached hereto as Exhibit C
                                                                     -------
(the "Warrant"). The Company and the Purchaser are executing and delivering this
      -------
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded by Section 4(2) of the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
                                                                    ----------
Act"), including Regulation D ("Regulation D"), and/or upon such other exemption
---                             ------------
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments to be made hereunder.

          Section 1.2  Purchase Price and Closing.  The Company agrees to issue
                       --------------------------
and sell to the Purchaser and, in consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase the Note and Warrant for an
aggregate purchase price of Three Million Five Hundred Thousand Dollars
($3,500,000.00) (the "Purchase Price"), which shall be payable as soon as
                      ---------------
practicable but in no event later than five (5) business days after the
Securities and Exchange Commission (the "Commission") declares the Registration
                                         ----------
Statement (as defined in the Registration Rights Agreement) effective (the
"Effectiveness Date"), subject to the satisfaction (or waiver) of the applicable
 ------------------
conditions set forth in Article IV hereof with respect to the purchase of the
Note and Warrant. The closing of the execution and delivery of this Agreement
shall occur upon delivery by facsimile of executed signature pages of this
Agreement and all other documents, instruments and writings required to be
delivered pursuant to this Agreement to the offices of Jenkens & Gilchrist
Parker Chapin LLP, The Chrysler Building, 405 Lexington Avenue, New York, New
York 10174 (the "Closing"), at 10:00 a.m., New York time (i) on the date on
                 -------
which the last to be fulfilled or waived of the conditions set forth in Article
IV hereof and applicable to such Closing shall be fulfilled or waived in
accordance herewith or (ii) at such other time and place or on such date as the
Purchaser and the Company may agree upon (the "Closing Date"). Notwithstanding
                                               -------------
<PAGE>

anything to the contrary contained herein, the aggregate principal amount of the
Note to be sold by the Company and purchased by the Purchaser hereunder shall
not exceed Three Million Five Hundred Thousand Dollars ($3,500,000.00). Funding
shall take place by wire transfer of immediately available funds on the
Effectiveness Date to Jenkens & Gilchrist Parker Chapin LLP, as escrow agent
(the "Escrow Agent") so long as the conditions set forth in Article IV hereof
      ------------
shall be fulfilled or waived in accordance herewith (the "Funding Date"). The
                                                          ------------
Escrow Agent shall deliver the funds to the Company within five (5) business
days thereafter.

          Section 1.3  Escrow.  The parties agree to enter into a mutually
                       ------
acceptable escrow agreement (the "Escrow Agreement") with the Escrow Agent, in
                                  ----------------
the form of Exhibit D attached hereto, which shall provide for the deposit of
the Warrant on the Closing Date and the deposit of the Purchase Price and the
Note on the Funding Date.

          Section 1.4  Warrant.  At the Closing, the Company shall have issued
                       -------
to the Purchaser a Warrant to purchase 800,000 shares of Common Stock. The
Warrant shall be exercisable for five (5) years from the date of issuance and
shall have an exercise price equal to the Warrant Price (as defined in the
Warrant).

          Section 1.5  Conversion Shares / Warrant Shares.  The Company has
                       ----------------------------------
authorized and has reserved and covenants to continue to reserve, free of
preemptive rights and other similar contractual rights of stockholders, a
sufficient number of its authorized but unissued shares of its Common Stock to
effect the conversion of the Note and any interest accrued and outstanding
thereon and exercise of the Warrant. Any shares of Common Stock issuable upon
conversion of the Note and any interest accrued and outstanding thereon and
exercise of the Warrant (and such shares when issued) are herein referred to as
the "Conversion Shares" and the "Warrant Shares," respectively.  The Note, the
     ----------------            --------------
Conversion Shares and the Warrant Shares are sometimes collectively referred to
herein as the "Securities".
               ----------

                                  ARTICLE II

                        Representations and Warranties

          Section 2.1  Representations and Warranties of the Company.  In order
                       ---------------------------------------------
to induce the Purchaser to enter into this Agreement and to purchase the Note,
the Company hereby makes the following representations and warranties to the
Purchaser:

          (a)  Organization, Good Standing and Power.  The Company is a
               -------------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any Subsidiaries (as defined in
Section 2.1(g)) or own securities of any kind in any other entity except as set
forth in the Commission Documents (as defined in Section 2.1(f)) or on Schedule
                                                                       --------
2.1(g) hereto. The Company and each such Subsidiary is duly qualified as a
------
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified will not have a Material
Adverse Effect. For the purposes of this Agreement, "Material Adverse Effect"
                                                     -----------------------
means any adverse effect on the

                                      -2-
<PAGE>

business, operations, properties, prospects or financial condition of the
Company or its Subsidiaries and which is material to such entity or other
entities controlling or controlled by such entity or which is likely to
materially hinder the performance by the Company of its obligations hereunder
and under the other Transaction Documents (as defined in Section 2.1(b) hereof).

          (b)  Authorization; Enforcement.  The Company has the requisite
               --------------------------
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Lock-Up Agreement, the
Note, the Warrant and the Irrevocable Transfer Agent Instructions (as defined in
Section 3.12) (collectively, the "Transaction Documents") and to issue and sell
                                  ---------------------
the Securities in accordance with the terms hereof and the Note and the Warrant,
as applicable. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly and validly authorized by all necessary
corporate action, and no further consent or authorization of the Company or its
Board of Directors or stockholders is required. This Agreement has been duly
executed and delivered by the Company. The other Transaction Document will have
been duly executed and delivered by the Company at the Closing. Each of the
Transaction Documents constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor's rights and remedies or by
other equitable principles of general application.

          (c)  Capitalization.  The authorized capital stock of the Company and
               --------------
the shares thereof currently issued and outstanding as of August 24, 2001 are
set forth on Schedule 2.1(c) hereto. All of the outstanding shares of the
             ---------------
Company's Common Stock and any other security of the Company have been duly and
validly authorized. Except as set forth in this Agreement and as set forth in
the Commission Documents or on Schedule 2.1(c) hereto, no shares of Common Stock
                               ---------------
or any other security of the Company are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and as set forth on
in the Commission Documents or on Schedule 2.1(c) hereto, there are no
                                  ---------------
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of capital
stock of the Company. Except for customary transfer restrictions contained in
agreements entered into by the Company in order to sell restricted securities or
as provided in the Commission Documents or on Schedule 2.1(c) hereto, the
                                              ---------------
Company is not a party to or bound by any agreement or understanding granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. Except as set forth on Schedule 2.1(c), the Company
                                                  ---------------
is not a party to, and it has no knowledge of, any agreement or understanding
restricting the voting or transfer of any shares of the capital stock of the
Company. Except as set forth on Schedule 2.1(c) hereto, the offer and sale of
                                ---------------
all capital stock, convertible securities, rights, warrants, or options of the
Company issued prior to the Closing complied with all applicable federal and
state securities laws, and no holder of such securities has a right of
rescission or claim for damages with respect thereto which could

                                      -3-
<PAGE>

have a Material Adverse Effect. The Company has furnished or made available to
the Purchaser true and correct copies of the Company's Articles of Incorporation
as in effect on the date hereof (the "Articles"), and the Company's Bylaws as in
                                      --------
effect on the date hereof (the "Bylaws").
                                ------

          (d)  Issuance of Securities.  The Note and the Warrant to be issued at
               ----------------------
the Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Note shall be
validly issued and outstanding, free and clear of all liens, encumbrances and
rights of refusal of any kind. When the Conversion Shares and Warrant Shares are
issued and paid for in accordance with the terms of this Agreement and as set
forth in the Note and Warrant, such shares will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of refusal
of any kind and the holders shall be entitled to all rights accorded to a holder
of Common Stock.

          (e)  No Conflicts.  The execution, delivery and performance of the
               ------------
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) violate any
provision of the Company's Articles or Bylaws or any Subsidiary's comparable
charter documents, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, (iii) create or impose
a lien, mortgage, security interest, charge or encumbrance of any nature on any
property or asset of the Company or any of its Subsidiaries under any agreement
or any commitment to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound or by which any of
their respective properties or assets are bound, or (iv) result in a violation
of any federal, state, local or foreign statute, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries are bound or affected, except,
in all cases other than violations pursuant to clauses (i) or (iv) above, for
such conflicts, defaults, terminations, amendments, acceleration, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in the
aggregate do not and will not have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is required under federal, state, foreign or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under the
Transaction Documents or issue and sell the Note, the Conversion Shares and the
Warrant Shares in accordance with the terms hereof or thereof (other than any
filings which may be required to be made by the Company with the Commission, the
Nasdaq National Market ("Nasdaq") prior to or subsequent to the Closing, or
                         ------
state securities administrators subsequent to the Closing, or any registration
statement which may be filed pursuant hereto).

                                      -4-
<PAGE>

          (f)  Commission Documents, Financial Statements.  The Common Stock of
               ------------------------------------------
the Company is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, except as
                                       ------------
disclosed on Schedule 2.1(f) hereto, the Company has timely filed all reports,
             ---------------
schedules, forms, statements and other documents required to be filed by it with
the Commission pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the "Commission Documents").  The Company has delivered
                           ---------------------
or made available to the Purchaser true and complete copies of the Commission
Documents filed with the Commission since June 30, 2001. The Company has not
provided to the Purchaser any material non-public information or other
information which, according to applicable law, rule or regulation, should have
been disclosed publicly by the Company but which has not been so disclosed,
other than with respect to the transactions contemplated by this Agreement. At
the time of its filing, the Form 10-Q for the fiscal quarter ended June 30, 2001
(the "Form 10-Q") complied in all material respects with the requirements of the
      ---------
Exchange Act and the rules and regulations of the Commission promulgated
thereunder and other federal, state and local laws, rules and regulations
applicable to such documents, and Form 10-Q did not contain any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the financial statements of the Company included in the Commission
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except (i)
  ----
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly present
in all material respects the financial position of the Company and its
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).

          (g)  Subsidiaries.  The Commission Documents or Schedule 2.1(g) hereto
               ------------                               ---------------
set forth each Subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person's
ownership of the outstanding stock or other interests of such Subsidiary. For
the purposes of this Agreement, "Subsidiary" shall mean any corporation or other
                                 ----------
entity of which at least a majority of the securities or other ownership
interest having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by the Company and/or any of its other
Subsidiaries. All of the outstanding shares of capital stock of each Subsidiary
have been duly authorized and validly issued, and are fully paid and
nonassessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or acquisition of any shares of capital stock of any
Subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence

                                      -5-
<PAGE>

except as set forth on Schedule 2.1(g) hereto. Neither the Company nor any
                       ---------------
Subsidiary is party to, nor has any knowledge of, any agreement restricting the
voting or transfer of any shares of the capital stock of any Subsidiary.

          (h)  No Material Adverse Change.  Since June 30, 2001, the Company has
               --------------------------
not experienced or suffered any Material Adverse Effect, except as disclosed in
the Commission Documents or on Schedule 2.1(h) hereto.
                               ---------------

          (i)  No Undisclosed Liabilities.  Except as disclosed in the
               --------------------------
Commission Documents or on Schedule 2.1(i) hereto, neither the Company nor any
                           ---------------
of its Subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those incurred in the ordinary course of the Company's
or its Subsidiaries respective businesses since June 30, 2001 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its Subsidiaries.

          (j)  No Undisclosed Events or Circumstances.  Since June 30, 2001,
               --------------------------------------
except as disclosed on Schedule 2.1(j) hereto, no event or circumstance has
                       ---------------
occurred or exists with respect to the Company or its Subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.

          (k)  Indebtedness.  The Commission Documents or Schedule 2.1(k) hereto
               ------------                               ---------------
set forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement, "Indebtedness"
                                                                 ------------
shall mean (a) any liabilities for borrowed money or amounts owed in excess of
$100,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $100,000 due under leases required to
be capitalized in accordance with GAAP. Except as disclosed on Schedule 2.1(k),
neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.

          (l)  Title to Assets.  Each of the Company and the Subsidiaries has
               ---------------
good and marketable title to all of its real and personal property, free and
clear of any mortgages, pledges, charges, liens, security interests or other
encumbrances of any nature whatsoever, except for those indicated in the
Commission Documents or on Schedule 2.1(l) hereto or such that, individually or
                           ---------------
in the aggregate, do not have a Material Adverse Effect. All said leases of the
Company and each of its Subsidiaries are valid and subsisting and in full force
and effect.

          (m)  Actions Pending.  There is no action, suit, claim, investigation,
               ---------------
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated

                                      -6-
<PAGE>

hereby or thereby or any action taken or to be taken pursuant hereto or thereto.
Except as set forth in the Commission Documents or on Schedule 2.1(m) hereto,
                                                      ---------------
there is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or other proceeding pending or, to the knowledge of the
Company, threatened, against or involving the Company, any Subsidiary or any of
their respective properties or assets, which individually or in the aggregate,
would have a Material Adverse Effect. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any Subsidiary or any
officers or directors of the Company or Subsidiary in their capacities as such,
which individually or in the aggregate, would have a Material Adverse Effect.

          (n)  Compliance with Law.  The business of the Company and the
               -------------------
Subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Commission Documents or on Schedule
                                                                  --------
2.1(n) hereto or such that, individually or in the aggregate, the noncompliance
------
therewith would not have a Material Adverse Effect. The Company and each of its
Subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.

          (o)  Taxes.  Except as set forth on Schedule 2.1(o) hereto, the
               -----                          ---------------
Company and each of the Subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company and the Subsidiaries for all current
taxes and other charges to which the Company or any Subsidiary is subject and
which are not currently due and payable. Except as disclosed on Schedule 2.1(o)
                                                                ---------------
hereto, none of the federal income tax returns of the Company or any Subsidiary
have been audited by the Internal Revenue Service. The Company has no knowledge
of any additional assessments, adjustments or contingent tax liability (whether
federal or state) of any nature whatsoever, whether pending or threatened
against the Company or any Subsidiary for any period, nor of any basis for any
such assessment, adjustment or contingency.

          (p)  Certain Fees.  Except as set forth on Schedule 2.1(p) hereto, the
               ------------                          ---------------
Company has not employed any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' structuring fees,
financial advisory fees or other similar fees in connection with the Transaction
Documents.

          (q)  Disclosure.  To the best of the Company's knowledge, neither this
               ----------
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.

                                      -7-
<PAGE>

          (r)  Operation of Business.  To the best of the Company's knowledge,
               ---------------------
the Company and each of the Subsidiaries owns or possesses all patents,
trademarks, domain names (whether or not registered) and any patentable
improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations, including, but not limited to, those
listed in the Commission Documents or on Schedule 2.1(r) hereto, and all rights
                                         ---------------
with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others.

          (s)  Environmental Compliance.  Except as disclosed on Schedule 2.1(s)
               ------------------------                          ---------------
hereto, the Company and each of its Subsidiaries have obtained all material
approvals, authorization, certificates, consents, licenses, orders and permits
or other similar authorizations of all governmental authorities, or from any
other person, that are required under any Environmental Laws. Schedule 2.1(s)
                                                              ---------------
hereto sets forth all material permits, licenses and other authorizations issued
under any Environmental Laws to the Company or its Subsidiaries. "Environmental
                                                                  -------------
Laws" shall mean all applicable laws relating to the protection of the
----
environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except as set
forth on Schedule 2.1(s) hereto, the Company has all necessary governmental
         ---------------
approvals required under all Environmental Laws and used in its business or in
the business of any of its Subsidiaries. The Company and each of its
Subsidiaries are also in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws. Except for such instances as would not
individually or in the aggregate have a Material Adverse Effect, there are no
past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or may violate any Environmental Law after the Closing or that may
give rise to any environmental liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including, without
limitation, underground storage tanks), disposal, transport or handling, or the
emission, discharge, release or threatened release of any hazardous substance.
"Environmental Liabilities" means all liabilities of a person (whether such
 -------------------------
liabilities are owed by such person to governmental authorities, third parties
or otherwise) whether currently in existence or arising hereafter which arise
under or relate to any Environmental Law.

          (t)  Books and Records; Internal Accounting Controls.  The records and
               -----------------------------------------------
documents of the Company and its Subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
Subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. The Company and each of its Subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed

                                      -8-
<PAGE>

in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions are taken with respect to any
differences.

          (u)  Material Agreements.  Except for the Transaction Documents and as
               -------------------
set forth in the Commission Documents or on Schedule 2.1(u) hereto, neither the
                                            ---------------
Company nor any Subsidiary is a party to any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy of
which would be required to be filed with the Commission (collectively, "Material
                                                                        --------
Agreements") if the Company or any Subsidiary were registering securities under
----------
the Securities Act. The Company and each of its Subsidiaries has in all material
respects performed all the obligations required to be performed by them to date
under the foregoing agreements, have received no notice of default and, to the
best of the Company's knowledge are not in default under any Material Agreement
now in effect, the result of which could cause a Material Adverse Effect. No
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement of the Company or of any Subsidiary limits or shall limit the
payment of interest on the Note, or dividends on its Common Stock.

          (v)  Transactions with Affiliates.  Except as set forth in the
               ----------------------------
Commission Documents or on Schedule 2.1(v) hereto, there are no loans, leases,
                           ---------------
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company, any Subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the other
hand, any officer, employee, consultant or director of the Company, or any of
its Subsidiaries, or any person owning any capital stock of the Company or any
Subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.

          (w)  Securities Act of 1933.  The Company has complied and will
               ----------------------
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Note, the Warrant, the Conversion Shares and
the Warrant Shares hereunder. Neither the Company nor anyone acting on its
behalf, directly or indirectly, has or will sell, offer to sell or solicit
offers to buy any of the Securities, or similar securities to, or solicit offers
with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person, or has taken or will take any
action so as to bring the issuance and sale of any of the Securities under the
registration provisions of the Securities Act and applicable state securities
laws. Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of any of the Securities.

          (x)  Governmental Approvals.  Except as set forth in the Commission
               ----------------------
Documents or on Schedule 2.1(x) hereto, and except for the filing of any notice
                ---------------
prior or subsequent to the Closing that may be required under applicable state
and/or federal securities

                                      -9-
<PAGE>

laws (which if required, shall be filed on a timely basis), no authorization,
consent, approval, license, exemption of, filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Note and the Warrant, or for
the performance by the Company of its obligations under the Transaction
Documents.

          (y)  Employees.  Neither the Company nor any Subsidiary has any
               ---------
collective bargaining arrangements or agreements covering any of its employees.
Except as set forth in the Commission Documents or on Schedule 2.1(y) hereto,
                                                      ---------------
neither the Company nor any Subsidiary has any employment contract, agreement
regarding proprietary information, non-competition agreement, non-solicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, employee or
consultant to be employed or engaged by the Company or such Subsidiary. Since
March 31, 2001, no officer, consultant or key employee of the Company or any
Subsidiary whose termination, either individually or in the aggregate, could
have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any Subsidiary.

          (z)  Absence of Certain Developments.  Except as set forth in the
               -------------------------------
Commission Documents or on Schedule 2.1(z) hereto, since June 30, 2001, neither
                           ---------------
the Company nor any Subsidiary has:

               (i)   issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto;

               (ii)  borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such Subsidiary's business;

               (iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business;

               (iv)  declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;

               (v)   sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;

               (vi)  sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except in the ordinary course of business or to the
Purchaser or its representatives;

                                      -10-
<PAGE>

               (vii)  suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;

               (viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;

               (ix)   made capital expenditures or commitments therefor that
aggregate in excess of $100,000;

               (x)    entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;

               (xi)   made charitable contributions or pledges in excess of
$25,000;

               (xii)  suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;

               (xiii) experienced any material problems with labor or management
in connection with the terms and conditions of their employment;

               (xiv)  effected any two or more events of the foregoing kind
which in the aggregate would cause a Material Adverse Effect; or

               (xv)   entered into an agreement, written or otherwise, to take
any of the foregoing actions.

          (aa) Use of Proceeds.  The proceeds from the sale of the Note and the
               ---------------
Warrant Shares will be used by the Company for working capital purposes.

          (bb) Public Utility Holding Company Act and Investment Company Act
               -------------------------------------------------------------
Status. The Company is not a "holding company" or a "public utility company" as
------
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.

          (cc) ERISA.  No liability to the Pension Benefit Guaranty Corporation
               -----
has been incurred with respect to any Plan by the Company or any of its
Subsidiaries which is or would cause a Material Adverse Effect. The execution
and delivery of this Agreement and the issue and sale of the Note, the
Conversion Shares and the Warrant Shares will not involve any transaction which
is subject to the prohibitions of Section 406 of ERISA or in connection with
which a tax could be imposed pursuant to Section 4975 of the Internal Revenue
Code of 1986, as amended, provided that, if any Purchaser, or any person or
entity that owns a beneficial interest in any Purchaser, is an "employee pension
benefit plan" (within the meaning of Section 3(2) of ERISA) with respect to
which the Company is a "party in interest" (within the meaning of

                                      -11-
<PAGE>

Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of
ERISA, if applicable, are met. As used in this Section 2.1(cc), the term "Plan"
shall mean an "employee pension benefit plan" (as defined in Section 3 of ERISA)
which is or has been established or maintained, or to which contributions are or
have been made, by the Company or any Subsidiary or by any trade or business,
whether or not incorporated, which, together with the Company or any Subsidiary,
is under common control, as described in Section 414(b) or (c) of the Code.

          (dd) Dilutive Effect. The Company understands and acknowledges that
               ---------------
the number of Conversion Shares issuable upon conversion of the Note and the
Warrant Shares issuable upon exercise of the Warrant will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Note in accordance with this Agreement
and its obligations to issue the Warrant Shares upon the exercise of the Warrant
in accordance with this Agreement and the Warrant, is, in each case, absolute
and unconditional regardless of the dilutive effect that such issuance may have
on the ownership interest of other stockholders of the Company.

          Section 2.2  Representations and Warranties of the Purchaser.  The
                       -----------------------------------------------
Purchaser hereby makes the following representations and warranties to the
Company:

          (a)  Organization and Standing of the Purchaser.  If the Purchaser is
               ------------------------------------------
an entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.

          (b)  Authorization and Power.  The Purchaser has the requisite power
               -----------------------
and authority to enter into and perform the Transaction Documents and to
purchase the Note and Warrant being sold to it hereunder. The execution,
delivery and performance of the Transaction Documents by the Purchaser and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate or partnership action, and no further
consent or authorization of the Purchaser or its Board of Directors,
stockholders, or partners, as the case may be, is required. This Agreement has
been duly authorized, executed and delivered by the Purchaser. The other
Transaction Documents constitute, or shall constitute when executed and
delivered, a valid and binding obligations of the Purchaser enforceable against
the Purchaser in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor's rights and remedies or by
other equitable principles of general application.

          (c)  No Conflicts.  The execution, delivery and performance of the
               ------------
Transaction Documents by the Purchaser and the consummation by the Purchaser of
the transactions contemplated hereby and thereby do not and will not (i) violate
any provision of the Purchaser's Articles or Bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Purchaser is a party or by which the Purchaser's properties or
assets are bound, (iii) create or impose a lien, mortgage, security interest,
charge or encumbrance of any nature on any property or asset of the Purchaser

                                      -12-
<PAGE>

under any agreement or any commitment to which the Purchaser is a party or by
which the Purchaser is bound or by which any of its properties or assets are
bound, or (iv) result in a violation of any federal, state, local or foreign
statute, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Purchaser or by which
any property or asset of the Purchaser are bound or affected, except, in all
cases other than violations pursuant to clauses (i) or (iv) above, for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Purchaser is not being conducted in
violation of any laws, ordinances or regulations of any governmental entity,
except for possible violations which singularly or in the aggregate do not and
will not have a Material Adverse Effect. The Purchaser is not required under
federal, state, foreign or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under the Transaction Documents or to purchase the Note, the
Conversion Shares and the Warrant Shares in accordance with the terms hereof or
thereof.

          (d)  Acquisition for Investment.  The Purchaser is purchasing the Note
               --------------------------
and acquiring the Warrant solely for its own account for the purpose of
investment and not with a view to or for sale in connection with distribution.
The Purchaser does not have a present intention to sell any of the Securities,
nor a present arrangement (whether or not legally binding) or intention to
effect any distribution of any of the Securities to or through any person or
entity; provided, however, that by making the representations herein and subject
        --------  -------
to Section 2.2(f) below, the Purchaser does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of any of the Securities at any time in accordance with federal and
state securities laws applicable to such disposition. The Purchaser acknowledges
that it (i) has such knowledge and experience in financial and business matters
such that Purchaser is capable of evaluating the merits and risks of Purchaser's
investment in the Company and is (ii) able to bear the financial risks
associated with an investment in the Securities and (iii) that it has been given
full access to such records of the Company and the Subsidiaries and to the
officers of the Company and the Subsidiaries as it has deemed necessary or
appropriate to conduct its due diligence investigation.

          (e)  Rule 144.  The Purchaser understands that the Securities must be
               --------
held indefinitely unless such Securities are registered under the Securities Act
or an exemption from registration is available. The Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
                                                                     --------
and that the Purchaser has been advised that Rule 144 permits resales only under
certain circumstances. The Purchaser understands that to the extent that Rule
144 is not available, the Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.

          (f)  General.  The Purchaser understands that the Securities are being
               -------
offered and sold in reliance on a transactional exemption from the registration
requirements of federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the applicability of such exemptions and the suitability of

                                      -13-
<PAGE>

the Purchaser to acquire the Securities. Purchaser understands that no United
States federal or state agency or any government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.

          (g)  Opportunities for Additional Information.  The Purchaser
               ----------------------------------------
acknowledges that the Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
Company, and to the extent deemed necessary in light of the Purchaser's personal
knowledge of the Company's affairs, the Purchaser has asked such questions and
received answers to the full satisfaction of the Purchaser, and the Purchaser
desires to invest in the Company.

          (h)  No General Solicitation.  The Purchaser acknowledges that the
               -----------------------
Securities were not offered to the Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which the Purchaser was invited by any of the foregoing means of communications.

          (i)  Accredited Investor.  The Purchaser is an accredited investor (as
               -------------------
defined in Rule 501 of Regulation D), and the Purchaser has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Securities. The Purchaser acknowledges that an
investment in the Securities is speculative and involves a high degree of risk.

          (j)  Limitations on Short Sales.  The Purchaser agrees that it will
               --------------------------
not enter into any Short Sales (as hereinafter defined) from the period
commencing on the Closing Date and ending on the date which all of the Note has
been converted and all of the Warrant has been exercised and such Conversion
Shares and Warrant Shares are covered by the Registration Statement (as defined
in the Registration Rights Agreement). For purposes of this Section 2.2(j), a
"Short Sale" by a Purchaser shall mean a sale of Common Stock by the Purchaser
 ----------
that is marked as a short sale and that is made at a time when there is no
equivalent offsetting long position in Common Stock held by the Purchaser. For
purposes of determining whether there is an equivalent offsetting long position
in Common Stock held by the Purchaser, Conversion Shares that have not yet been
converted pursuant to the Note and Warrant Shares that have not yet been issued
upon exercise of the Warrant shall be deemed to be held long by the Purchaser,
and the amount of shares of Common Stock held in a long position shall be the
number of Conversion Shares issuable pursuant to the Note assuming such holder
converted all the outstanding principal amount of the Note on such date and (ii)
with respect to Warrant Shares, the number of Warrant Shares issuable pursuant
to the Warrant.

                                  ARTICLE III

                                   Covenants

     The Company covenants with the Purchaser as follows, which covenants are
for the benefit of the Purchaser and its respective permitted assignees.

                                      -14-
<PAGE>

          Section 3.1  Securities Compliance.  The Company shall notify the
                       ---------------------
Commission in accordance with their rules and regulations, of the transactions
contemplated by any of the Transaction Documents and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Purchaser, or its respective subsequent holders.

          Section 3.2  Registration and Listing.  The Company will cause its
                       ------------------------
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the
Exchange Act or Securities Act, except as permitted herein. The Company shall
use its reasonable best efforts to take all action necessary to continue the
listing or trading of its Common Stock on Nasdaq or any successor market. The
Company will promptly file the "Listing Application" for, or in connection with,
the issuance and delivery of the Conversion Shares and the Warrant Shares.

          Section 3.3  Inspection Rights.  Subject in each instance to the
                       -----------------
execution of the Company's standard non-disclosure agreement, the Company shall
permit, during normal business hours and upon reasonable request and reasonable
notice, the Purchaser or any employees, agents or representatives thereof, so
long as the Purchaser shall be obligated hereunder to purchase the Note or shall
beneficially own the Note, or shall own Conversion Shares, Warrant Shares or the
Warrant to purchase Warrant Shares which, in the aggregate, represent more than
two percent (2%) of the total combined voting power of all voting securities
then outstanding, to examine and make reasonable copies of and extracts from the
records and books of account of, and visit and inspect, during the term of the
Note, the properties, assets, operations and business of the Company and any
Subsidiary, and to discuss the affairs, finances and accounts of the Company and
any Subsidiary with any of its officers, consultants, directors, and key
employees.

          Section 3.4  Compliance with Laws.  The Company shall comply, and
                       --------------------
cause each Subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could have a Material Adverse Effect.

          Section 3.5  Keeping of Records and Books of Account.  The Company
                       ---------------------------------------
shall keep and cause each Subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.

          Section 3.6  Reporting Requirements.  The Company shall furnish three
                       ----------------------
(3) copies of the following to the Purchaser in a timely manner so long as the
Purchaser shall be obligated hereunder to purchase the Note or shall
beneficially own the Note or Warrant, or shall own Conversion Shares or Warrant
Shares which, in the aggregate, represent more than one percent (1%) of the
total combined voting power of all voting securities then outstanding:

                                      -15-
<PAGE>

          (a)  Quarterly Reports filed with the Commission on Form 10-Q as soon
as available, and in any event within forty-five (45) days after the end of each
of the first three (3) fiscal quarters of the Company;

          (b)  Annual Reports filed with the Commission on Form 10-K as soon as
available, and in any event within one hundred six (106) days after the end of
each fiscal year of the Company; and

          (c)  Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.

          Section 3.7  Amendments.  The Company shall not amend or waive any
                       ----------
provision of the Articles or Bylaws of the Company in any way that would
adversely affect the exercise rights, voting rights, prepayment rights or
redemption rights of the holder of the Note or the Warrant.

          Section 3.8  Other Agreements.  The Company shall not enter into any
                       ----------------
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.

          Section 3.9  Distributions.  So long as any Securities remain
                       -------------
outstanding, the Company agrees that it shall not, without the prior written
consent of the Purchaser pursuant to Section 8.3, which consent may be granted
or denied in the sole discretion of the Purchaser (i) declare or pay any
dividends (other than a stock dividend or stock split) or make any distributions
to any holder(s) of Common Stock or (ii) purchase or otherwise acquire for
value, directly or indirectly, any Common Stock or other equity security of the
Company.

          Section 3.10 Subsequent Financings; Right of First Refusal.  (a)
                       ---------------------------------------------
During the period commencing on the Closing Date and ending on the one hundred
twentieth (120th) day after the Effectiveness Date, the Company covenants and
agrees that it will not, without the prior written consent of the Purchaser,
enter into any subsequent offer or sale to, or exchange with (or other type of
distribution to), any third party (a "Subsequent Financing"), of Common Stock or
                                      --------------------
any securities convertible, exercisable or exchangeable into Common Stock,
including convertible and non-convertible debt securities (collectively, the
"Financing Securities") at a price per share less than $.9080 other than a
 --------------------
Permitted Financing (as defined hereinafter). For purposes of this Agreement,
"Permitted Financing" shall mean any transaction involving the Company's (i)
 -------------------
issuance of any Financing Securities (other than for cash) in connection with a
Strategic Merger (as defined below), (ii) Common Stock issued or issuable to
employees, consultants or directors of the Company directly or pursuant to stock
option plan(s) or restricted stock plan(s) approved by the Board of Directors of
the Company prior to the date hereof; (iii) the issuance of securities pursuant
to the conversion or exercise of convertible or exercisable securities issued or
outstanding prior to the date hereof; or (iv) Common Stock, issued, or issuable
upon exercise of warrants, issued to vendors, financial institutions or lessors
in connection with commercial credit arrangements, equipment financings or
similar arrangements provided that such issuances are for other than equity
financing purposes and are approved by

                                      -16-
<PAGE>

the Board of Directors of the Company. "Strategic Merger" means (a) a merger,
                                        ----------------
acquisition or consolidation of the Company with or into another entity or any
other corporate reorganization, so long as fifty percent (50%) or more of the
combined voting power of the continuing or surviving entity's securities
outstanding immediately after such merger, consolidation or other reorganization
is owned by persons who were shareholders of the Company immediately prior to
such merger, consolidation or reorganization, or (b) a transaction where the
sole purpose is to change the state of the Company's incorporation; provided,
                                                                    --------
that in either case, the surviving entity shall be a reporting company pursuant
to the Exchange Act and the securities to be issued to the shareholders of the
Company are registered pursuant to an effective registration statement filed
with the Commission.

          (b)  So long as the Note remains outstanding and commencing ninety
(90) days after the date hereof, the Company covenants and agrees to promptly
notify (in no event later than five (5) days after making or receiving an
applicable offer) in writing (a "Rights Notice") the Purchaser of the terms and
                                 -------------
conditions of any proposed Subsequent Financing. The Rights Notice shall
describe, in reasonable detail, the proposed Subsequent Financing, the proposed
closing date of the Subsequent Financing, which shall be within thirty (30)
calendar days from the date of the Rights Notice, including, without limitation,
all of the terms and conditions thereof. The Rights Notice shall provide the
Purchaser an option (the "Rights Option") during the thirty (30) calendar day
                          -------------
period following delivery of the Rights Notice (the "Option Period") to purchase
                                                     -------------
such amount as the Company and the Purchaser may agree to up to such Purchaser's
pro rata portion of the Purchase Price, of the securities being offered in such
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing (the "First Refusal Rights"). Delivery of any
                                   --------------------
Rights Notice constitutes a representation and warranty by the Company that
there are no other material terms and conditions, arrangements, agreements or
otherwise except for those disclosed in the Rights Notice, to provide additional
compensation to any party participating in any proposed Subsequent Financing,
including, but not limited to, additional compensation based on changes in the
Purchase Price or any type of reset or adjustment of a purchase or conversion
price or to issue additional securities at any time after the closing date of a
Subsequent Financing. If the Company does not receive notice of exercise of the
Rights Option from the Purchaser within the Option Period, the Company shall
have the right to close the Subsequent Financing on the scheduled closing date
with a third party; provided that all of the terms and conditions of the closing
                    --------
are the same as those provided to the Purchaser in the Rights Notice. If the
closing of the proposed Subsequent Financing does not occur on that date, any
closing of the contemplated Subsequent Financing or any other Subsequent
Financing shall be subject to all of the provisions of this Section 3.10,
including, without limitation, the delivery of a new Rights Notice.

          Section 3.11  Reservation of Shares.  So long as the Note or Warrant
                        ---------------------
remains outstanding, the Company shall take all action necessary to at all times
have authorized, and reserved for the purpose of issuance, 200% of the maximum
number of shares of Common Stock to effect the conversion of the Note and any
interest accrued and outstanding thereon and exercise of the Warrant.

          Section 3.12  Transfer Agent Instructions.  The Company shall issue
                        ---------------------------
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of the Purchaser or its
respective nominee(s), for the Conversion Shares

                                      -17-
<PAGE>

and the Warrant Shares in such amounts as specified from time to time by the
Purchaser to the Company upon conversion of the Note or exercise of the Warrant,
in the form of Exhibit E attached hereto (the "Irrevocable Transfer Agent
                                               --------------------------
Instructions"). Prior to registration of the Conversion Shares and the Warrant
------------
Shares under the Securities Act, all such certificates shall bear the
restrictive legend specified in Section 5.1 of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 3.12 will be given by the Company to
its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement. Nothing in this Section 3.12 shall affect in any way
the Purchaser's obligations and agreements set forth in Section 5.1 to comply
with all applicable prospectus delivery requirements, if any, upon the resale of
the Conversion Shares and the Warrant Shares. If a Purchaser provides the
Company with an opinion of counsel, in a generally acceptable form, substance
and scope, to the effect that a public sale, assignment or transfer of the
Securities may be made without registration under the Securities Act or the
Purchaser provides the Company with reasonable assurances that the Securities
can be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold,
the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by the
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations under this Section 3.12 will cause irreparable
harm to the Purchaser by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.12 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 3.12, that the Purchaser shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.

          Section 3.13  Disposition of Assets.  So long as the Note remains
                        ---------------------
outstanding, neither the Company nor any Subsidiary shall sell, transfer or
otherwise dispose of any of its properties, assets and rights including, without
limitation, its software and intellectual property, in an amount exceeding
$25,000 individually or $100,000 in the aggregate, to any person except for
sales to customers in the ordinary course of business or with the prior written
consent of the Purchaser, such consent not to be unreasonably withheld or
delayed. Notwithstanding the foregoing, the Company may dispose of its holdings
of shares of common stock of Nortel Networks, Anda and Airtel ATN as more
specifically set forth on Schedule 3.13 hereto, from time to time in its sole
                          -------------
discretion and without the prior written consent of the Purchaser.

          Section 3.14  Repayment of Other Indebtedness.  So long as the Note
                        -------------------------------
remains outstanding, the Company shall not repay any indebtedness for borrowed
money owed by the Company to any officer, director, affiliate or insider of the
Company.

          Section 3.15  Insiders Lock-Up.  The Company shall cause the persons
                        ----------------
listed on Schedule 3.15 hereto to covenant to the Purchaser that none of such
          -------------
persons will sell, transfer or dispose of its shares of the Company's Common
Stock during the one year period following the Closing Date. If the Company's
Common Stock is no longer listed on The Nasdaq National

                                      -18-
<PAGE>

Market or the Company has received a delisting notification from the NASD Market
Watch, then the persons listed on Schedule 3.15 hereto will not sell, transfer
                                  -------------
or dispose of their shares of Company Common Stock for a three year period after
the Closing Date.

          Section 3.16  Non-public Information.  Neither the Company nor any of
                        ----------------------
its officers or agents shall disclose any material non-public information about
the Company to the Purchaser and neither the Purchaser nor any of its
affiliates, officers or agents will solicit any material non-public information
from the Company.

          Section 3.17  Form S-3 Eligibility. The Company meets the requirements
                        --------------------
for the use of Form S-3 under the Securities Act to register for re-sale the
shares of Common Stock pursuant to the Registration Rights Agreement.

          Section 3.18  Stockholder Approval.  If the Purchaser is unable to
                        --------------------
exercise its conversion rights or exercise rights due to the limitations set
forth in Section 3.4(c) of the Note or Section 7(c) of the Warrant, the Board of
Directors of the Company shall use its best efforts to present and recommend to
the stockholders of the Company within sixty (60) days of such date upon which
the Purchaser is not able to exercise its conversion rights or exercise rights
due to the limitations set forth in Section 3.4(c) of the Note or Section 7(c)
of the Warrant, a proposal to approve such holder acquiring in excess of 19.99%
of the issued and outstanding shares of Common Stock upon conversion of the Note
and/or exercise of the Warrant.

                                  ARTICLE IV

                                  Conditions

          Section 4.1  Conditions Precedent to the Obligation of the Company to
                       --------------------------------------------------------
Close and to Sell the Note and Warrant.  The obligation hereunder of the Company
--------------------------------------
to close and issue and sell the Note and the Warrant to the Purchaser at the
Closing and/or Funding Date is subject to the satisfaction or waiver, at or
before the Closing of the conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.

          (a)  Accuracy of the Purchaser's Representations and Warranties.  The
               ----------------------------------------------------------
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time, except for representations and warranties that are expressly
made as of a particular date, which shall be true and correct in all material
respects as of such date.

          (b)  Performance by the Purchaser.  The Purchaser shall have
               ----------------------------
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchaser at or prior to the Closing Date.

          (c)  No Injunction.  No statute, rule, regulation, executive order,
               -------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or

                                      -19-
<PAGE>

governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.

          (d)  Delivery of Purchase Price.  The Purchase Price for the Note has
               --------------------------
been delivered to the Escrow Agent at the Funding Date.

          (e)  Delivery of Transaction Documents.  The Transaction Documents
               ---------------------------------
have been duly executed and delivered by the Purchaser to the Company at the
Closing Date or the Funding Date, as applicable.

          Section 4.2  Conditions Precedent to the Obligation of the Purchaser
                       -------------------------------------------------------
to Close and to Purchase the Note and Warrant.  The obligation hereunder of the
---------------------------------------------
Purchaser to consummate the transactions contemplated by this Agreement is
subject to the satisfaction or waiver, at or before the Closing Date and/or the
Funding Date, of each of the conditions set forth below. These conditions are
for the Purchaser's sole benefit and may be waived by the Purchaser at any time
in their sole discretion.

          (a)  Accuracy of the Company's Representations and Warranties.  Each
               --------------------------------------------------------
of the representations and warranties of the Company shall be true and correct
in all material respects as of the Closing Date and the Funding Date, except for
representations and warranties that speak as of a particular date, which shall
be true and correct in all material respects as of such date.

          (b)  Performance by the Company.  The Company shall have performed,
               --------------------------
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date and the Funding Date.

          (c)  No Suspension, Etc.  From the date hereof to the Funding Date,
               -------------------
trading in the Company's Common Stock shall not have been suspended by the
Commission (except for any suspension of trading of limited duration agreed to
by the Company, which suspension shall be terminated prior to the Closing), and,
at any time prior to such Funding Date, trading in securities generally as
reported by Bloomberg Financial Markets ("Bloomberg") shall not have been
                                          ---------
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by Bloomberg, or on the New York Stock
Exchange, nor shall a banking moratorium have been declared either by the United
States or New York State authorities, nor shall the Company have suffered a
Material Adverse Effect.

          (d)  No Injunction.  No statute, rule, regulation, executive order,
               -------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

          (e)  No Proceedings or Litigation.  No action, suit or proceeding
               ----------------------------
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers, directors or
affiliates of the Company or any Subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.

                                      -20-
<PAGE>

          (f) Opinion of Counsel, Etc. At the Closing, the Purchaser shall have
              -----------------------
received an opinion of counsel to the Company, dated the date of such Closing,
in the form of Exhibit F hereto and such other certificates and documents as the
Purchaser or its counsel shall reasonably require incident to such Closing.

          (g)  Warrant and Note. At the Closing, the Company shall have
               ----------------
delivered to The Escrow Agent the originally executed Warrant (in such
denominations as the Purchaser may request) being acquired by the Purchaser and
at the Funding Date, the Company shall have delivered to the Escrow Agent the
originally executed Note (in such denominations as the Purchaser may request).

          (h)  Resolutions. Prior to the Closing Date, the Board of Directors of
               ------------
the Company shall have adopted resolutions consistent with Section 2.1(b) hereof
in a form reasonably acceptable to the Purchaser (the "Resolutions").

          (i)  Reservation of Shares. As of the Closing Date, the Company shall
               ---------------------
have reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Note and the exercise of the Warrant,
a number of shares of Common Stock equal to at least 200% of the aggregate
number of Conversion Shares issuable upon conversion of the Note outstanding on
the Closing Date and the number of Warrant Shares issuable upon exercise of the
Warrant assuming the Warrant was granted on the Closing Date (after giving
effect to the Note and the Warrant to be issued on the Closing Date and assuming
the Note and Warrant were fully convertible or exercisable on such date
regardless of any limitation on the timing or amount of such conversions or
exercises).

          (j)  Transfer Agent Instructions. The Irrevocable Transfer Agent
               ---------------------------
Instructions, in the form of Exhibit E attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.

          (k)  Secretary's Certificate. The Company shall have delivered to the
               -----------------------
Purchaser a secretary's certificate, dated as of the Closing Date, as to (i) the
Resolutions, (ii) the Articles, (iii) the Bylaws, each as in effect at the
Closing, and (iv) the authority and incumbency of the officers of the Company
executing the Transaction Documents and any other documents required to be
executed or delivered in connection therewith.

          (l)  Officer's Certificate. On the Funding Date, the Company shall
               ----------------------
have delivered to the Purchaser a certificate of an executive officer of the
Company, dated as of the Funding Date, confirming the accuracy of the Company's
representations, warranties and covenants as of the Funding Date and confirming
the compliance by the Company with the conditions precedent set forth in this
Section 4.2 as of the Funding Date.

          (m)  Lock-Up Agreement. As of the Closing Date, each of the persons
               -----------------
listed on Schedule 3.15 hereto shall have delivered to the Purchaser a fully
executed lock-up agreement in the form of Exhibit G attached hereto.

          (n)  Escrow Agreement. The parties shall have entered into the Escrow
               ----------------
Agreement in the Form of Exhibit D attached hereto.

                                      -21-
<PAGE>

          (o)  Fees and Expenses. All fees and expenses required to be paid by
               -----------------
the Company shall have been or authorized to be paid by the Company as of the
Funding Date.

                                   ARTICLE V

                               Certificate Legend

          Section 5.1 Legend. Each certificate representing the Note, the
                      ------
Conversion Shares, the Warrant and the Warrant Shares shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT
     BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
     "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
     TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES
     ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR VERTEL CORPORATION SHALL
     HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH
     SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE
     STATE SECURITIES LAWS IS NOT REQUIRED.

     The Company agrees to reissue certificates representing any of the
Securities, without the legend set forth above if at such time, prior to making
any transfer of any such Securities, such holder thereof shall give written
notice to the Company describing the manner and terms of such transfer and
removal as the Company may reasonably request.  Such proposed transfer will not
be effected until: (a) the Company has notified such holder that either (i) in
the opinion of Company counsel, the registration of the Note, Conversion Shares,
Warrant or Warrant Shares under the Securities Act is not required in connection
with such proposed transfer; or (ii) a registration statement under the
Securities Act covering such proposed disposition has been filed by the Company
with the Commission and has become effective under the Securities Act; and (b)
the Company has notified such holder that either: (i) in the opinion of Company
counsel, the registration or qualification under the securities or "blue sky"
laws of any state is not required in connection with such proposed disposition,
or (ii) compliance with applicable state securities or "blue sky" laws has been
effected.  The Company will use its best efforts to respond to any such notice
from a holder within five (5) days.  In the case of any proposed transfer under
this Section 5, the Company will use reasonable efforts to comply with any such
applicable state securities or "blue sky" laws, but shall in no event be
required, in connection therewith, to qualify to do business in any state where
it is not then qualified or to take any action that would subject it to tax or
to the general service of process in any state where it is not then subject.
The restrictions on transfer contained in Section 5.1 shall be in addition to,
and not by way of limitation of, any other restrictions on transfer contained in
any other section of this Agreement.

                                      -22-
<PAGE>

                                  ARTICLE VI

                                  Termination

          Section 6.1 Termination by Mutual Consent. This Agreement may be
                      ------------------------------
terminated at any time prior to the Closing Date by the mutual written consent
of the Company and the Purchaser.

          Section 6.2 Effect of Termination. In the event of termination by the
                      ---------------------
Company or the Purchaser, written notice thereof shall forthwith be given to the
other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 6.1 herein, this Agreement shall become void
and of no further force and effect, except for Sections 8.1 and 8.2, and Article
VII herein. Nothing in this Section 6.2 shall be deemed to release the Company
or any Purchaser from any liability for any breach under this Agreement, or to
impair the rights of the Company and the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.

                                  ARTICLE VII

                                Indemnification

          Section 7.1 General Indemnity. The Company agrees to indemnify and
                      -----------------
hold harmless the Purchaser (and its respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchaser as a result of any inaccuracy in or breach of the representations,
warranties or covenants made by the Company herein. The Purchaser agrees to
indemnify and hold harmless the Company and its directors, officers, affiliates,
agents, successors and assigns from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys' fees, charges and disbursements) incurred by the Company
as result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Purchaser herein.

          Section 7.2  Indemnification Procedure. Any party entitled to
                       -------------------------
indemnification under this Article VII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect to such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for

                                      -23-
<PAGE>

indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the indemnified party's costs
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party 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 which relates to such
action or claim. The indemnifying party shall keep the indemnified party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VII to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim. The indemnification required by this Article VII shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the indemnified party irrevocably agrees to refund such
moneys if it is ultimately determined by a court of competent jurisdiction that
such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the
law.

                                 ARTICLE VIII

                                 Miscellaneous

          Section 8.1 Fees and Expenses. Each party shall pay the fees and
                      -----------------
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, provided,
                                                                    --------
however, that the Company shall pay such fees and expenses set forth on Schedule
-------                                                                 --------
2.1(p) hereto, including a documentation and due diligence fee of $12,000 and
------
all reasonable attorneys' fees and expenses (exclusive of disbursements and out-
of-pocket expenses) incurred by the Purchaser in connection with the
preparation, negotiation, execution and delivery of this Agreement and the other
Transaction Documents and the transactions contemplated thereunder up to
$50,000. In addition, the Company shall pay all reasonable fees and expenses
incurred by the Purchaser in connection with any amendments, modifications or
waivers of this Agreement or any of the other Transaction Documents or incurred
in connection with the

                                      -24-
<PAGE>

enforcement of this Agreement and any of the other Transaction Documents,
including, without limitation, all reasonable attorneys' fees, disbursements and
expenses.

          Section 8.2  Specific Enforcement; Consent to Jurisdiction.
                       ---------------------------------------------

          (a)  The Company and the Purchaser acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the other Transaction
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.

          (b)  Each of the Company and the Purchaser (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court
sitting in the Southern District of New York and the courts of the State of New
York located in New York county for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement or any of the other
Transaction Documents or the transactions contemplated hereby or thereby and
(ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Each of
the Company and the Purchaser consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing in
this Section 8.3 shall affect or limit any right to serve process in any other
manner permitted by law.

          Section 8.3  Entire Agreement; Amendment. This Agreement and the
                       ---------------------------
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
the Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least a majority of the
principal amount of the Notes then outstanding, and no provision hereof may be
waived other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought. No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the Notes then outstanding. 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 the Transaction Documents unless the same consideration is also offered to
all of the parties to the Transaction Documents or holders of Notes, as the case
may be.

          Section 8.4  Notices.  Any notice, demand, request, waiver or other
                       -------
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be

                                      -25-
<PAGE>

received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:

     If to the Company:       Vertel Corporation
                              21300 Victory Boulevard
                              Suite 700
                              Woodland Hills, California 91367
                              Attention:  Cyrus Irani, President and Chief
                                          Executive Officer
                              Telecopier: (818) 598-0104
                              Telephone:  (818) 227-1400

with copies (which copies
shall not constitute notice
to the Company) to:           Perkins Coie LLP
                              1620 26th Street, Sixth Floor
                              Santa Monica, CA 90404
                              Attention:  David J. Katz, Esq.
                              Telephone No.: (310) 788-3268
                              Facsimile No: (310) 843-1254

If to any Purchaser:          At the address of such Purchaser set forth on
                              Exhibit A to this Agreement

with copies to:               Christopher S. Auguste, Esq.
                              Jenkens & Gilchrist Parker Chapin LLP
                              The Chrysler Building
                              405 Lexington Ave.
                              New York, New York  10174
                              Telephone Number: (212) 704-6000
                              Fax: (212) 704-6288

     Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.

          Section 8.5  Waivers. No waiver by either party of any default with
                       -------
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.

          Section 8.6  Headings.  The article, section and subsection headings
                       --------
in this Agreement are for convenience only and shall not constitute a part of
this Agreement for any other purpose and shall not be deemed to limit or affect
any of the provisions hereof.

                                      -26-
<PAGE>

          Section 8.7  Successors and Assigns.  This Agreement shall be binding
                       ----------------------
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
The Purchaser may assign the Note, the Warrant and its rights under this
Agreement and the other Transaction Document and any other rights hereto and
thereto without the consent of the Company.

          Section 8.8  No Third Party Beneficiaries. 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.

          Section 8.9  Governing Law.  This Agreement shall be governed by and
                       -------------
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions. This Agreement shall not be
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.

          Section 8.10  Survival.  The representations and warranties of the
                        --------
Company and the Purchaser contained in Sections 2.1(o) and 2.1(s) should survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and 2.1(s), shall survive the execution and delivery hereof and the
Closing until the date two (2) years from the Closing Date, and the agreements
and covenants set forth in Articles I, III, V, VII and VIII of this Agreement
shall survive the execution and delivery hereof and the Closing hereunder.

          Section 8.11  Counterparts.  This Agreement may be executed in any
                        ------------
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart.

          Section 8.12  Publicity.  The Company agrees that it will not
                        ---------
disclose, and will not include in any public announcement, the names of the
Purchaser without the consent of the Purchaser in accordance with Section 8.3,
which consent shall not be unreasonably withheld or delayed, or unless and until
such disclosure is required by law, rule or applicable regulation, and then only
to the extent of such requirement.

          Section 8.13  Severability.  The provisions of this Agreement are
                        ------------
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.

          Section 8.14  Further Assurances. From and after the date of this
                        ------------------
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instrument, documents and other
writings as may be reasonably

                                      -27-
<PAGE>

necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement, the Note and the Warrant.

                 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -28-
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.

                                        VERTEL CORPORATION

                                        By: /s/ Craig Scott
                                            -------------------------------
                                        Name:  Craig Scott
                                        Title: Vice President Finance &
                                               Administration

                                        SDS MERCHANT FUND, L.P.

                                        By:_______________________________
                                        Name:  Steve Derby
                                        Title: Managing Member

                                      -29-
<PAGE>

                                EXHIBIT A to the

                      NOTE AND WARRANT PURCHASE AGREEMENT

                             FOR VERTEL CORPORATION

Names and Addresses of Purchaser
----------------------------------------

SDS Merchant Fund, L.P.
c/o SDS Capital Partners
One Sound Shore Drive
Greenwich, CT 06830
Attention: Steve Derby
Fax no.: (203) 629-0345

                                      -30-
<PAGE>

                                   EXHIBIT B
                                  FORM OF NOTE
<PAGE>

                                   EXHIBIT C
                                FORM OF WARRANT
<PAGE>

                                   EXHIBIT D
                            FORM OF ESCROW AGREEMENT
<PAGE>

                                   EXHIBIT E
                FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

                               VERTEL CORPORATION

                                                 as of August 31, 2001

[Name and Address of Company's transfer agent]

Ladies and Gentlemen:

     Reference is made to that certain Note and Warrant Purchase Agreement,
dated as of August 31, 2001, by and among Vertel Corporation, a California
corporation (the "Company"), and the purchaser named therein (the "Purchaser")
pursuant to which the Company is issuing to the Purchaser a convertible
promissory note, (the "Note") and a warrant (the "Warrant") to purchase shares
of the Company's common stock, par value $.01 per share (the "Common Stock").
This letter shall serve as our irrevocable authorization and direction to you
(provided that you are the transfer agent of the Company at such time) to issue
shares of Common Stock upon conversion of the Note (the "Conversion Shares") and
exercise of the Warrant (the "Warrant Shares") to or upon the order of a
Purchaser from time to time upon (i) surrender to you of a properly completed
and duly executed Conversion Notice or Exercise Notice, as the case may be, in
the form attached hereto as Exhibit I and Exhibit II, respectively, (ii) in the
case of the conversion of the Note, a copy of the Note (with the originals
delivered to the Company) or, in the case of Warrant being exercised, a copy of
the Warrant (with the original Warrant delivered to the Company) being exercised
(or, in each case, an indemnification undertaking with respect to such Note or
the Warrant in the case of their loss, theft or destruction), and (iii) delivery
of a treasury order or other appropriate order duly executed by a duly
authorized officer of the Company.  So long as you have previously received (x)
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares or Warrant Shares, as applicable, has
been declared effective by the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 Act"), and no subsequent
notice by the Company or its counsel of the suspension or termination of its
effectiveness and (y) a copy of such registration statement, and if the
Purchaser represents in writing that the Conversion Shares or the Warrant
Shares, as the case may be, were sold pursuant to the Registration Statement,
then certificates representing the Conversion Shares and the Warrant Shares, as
the case may be, shall not bear any legend restricting transfer of the
Conversion Shares and the Warrant Shares, as the case may be, thereby and should
not be subject to any stop-transfer restriction.  Provided, however, that if you
have not previously received (i) written confirmation from counsel to the
Company that a registration statement covering resales of the Conversion Shares
or Warrant Shares, as applicable, has been declared effective by the SEC under
the 1933 Act, and (ii) a copy of such registration statement, then the
certificates for the Conversion Shares and the Warrant Shares shall bear the
following legend:

              "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES
         ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR
         OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT OR
         APPLICABLE STATE SECURITIES LAWS, OR VERTEL CORPORATION SHALL HAVE
         RECEIVED AN
<PAGE>

         OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE
         SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES
         LAWS IS NOT REQUIRED."

and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.

     A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares and the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit III.

     Please be advised that the Purchaser is relying upon this letter as an
inducement to enter into the Purchase Agreement and, accordingly, the Purchaser
is a third party beneficiary to these instructions.

     Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions.  Should you have any
questions concerning this matter, please contact me at ___________.

                                             Very truly yours,

                                             VERTEL CORPORATION

                                             By:_________________________
                                             Name:_______________________
                                             Title:______________________

ACKNOWLEDGED AND AGREED:

[TRANSFER AGENT]

By:_________________________
Name:_______________________
Title:______________________
Date:_______________________
<PAGE>

                                   EXHIBIT I
                                   ---------

                              VERTEL CORPORATION
                               CONVERSION NOTICE

     (To be Executed by the Registered Holder in order to Convert the Note)

The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of VERTEL
CORPORATION (the "Maker") according to the conditions hereof, as of the date
written below.

Date of Conversion ___________________________________________________________

Applicable Conversion Price __________________________________________________

Signature_____________________________________________________________________

     [Name]

Address:____________________________________________________________________

     _______________________________________________________________________
<PAGE>

                                  EXHIBIT II
                                  ----------

                            FORM OF EXERCISE NOTICE

                                 EXERCISE FORM

                              VERTEL CORPORATION

The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Vertel
Corporation covered by the within Warrant.

Dated: _________________      Signature  ___________________________

                              Address  _____________________________
                                       _____________________________

                                  ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.

Dated: _________________      Signature  ___________________________

                              Address  _____________________________
                                       _____________________________

                              PARTIAL ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.

Dated: _________________      Signature  ___________________________

                              Address  _____________________
                                       _____________________

                          FOR USE BY THE ISSUER ONLY:

This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
<PAGE>

                                  EXHIBIT III
                                  -----------

                        FORM OF NOTICE OF EFFECTIVENESS
                           OF REGISTRATION STATEMENT

[Name and address of Company's transfer agent]

          Re:  Vertel Corporation
               ------------------

Ladies and Gentlemen:

     We are counsel to Vertel Corporation, a California corporation (the
"Company"), and have represented the Company in connection with that certain
Note and Warrant Purchase Agreement (the "Purchase Agreement"), dated as of
August 31, 2001, by and among the Company and the purchaser named therein
(collectively, the "Purchaser") pursuant to which the Company issued to the
Purchaser a convertible promissory note (the "Note") and a warrant (the
"Warrant") to purchase shares of the Company's common stock, par value $.01 per
share (the "Common Stock").  Pursuant to the Purchase Agreement, the Company has
also entered into a Registration Rights Agreement with the Purchaser (the
"Registration Rights Agreement"), dated as of August 31, 2001, pursuant to which
the Company agreed, among other things, to register the Registrable Securities
(as defined in the Registration Rights Agreement), including the shares of
Common Stock issuable upon conversion of the Note and exercise of the Warrant,
under the Securities Act of 1933, as amended (the "1933 Act").  In connection
with the Company's obligations under the Registration Rights Agreement, on
________________, 2001, the Company filed a Registration Statement on Form S-3
(File No. 333-________) (the "Registration Statement") with the Securities and
Exchange Commission (the "SEC") relating to the resale of the Registrable
Securities which names the Purchaser as a selling stockholder thereunder.

     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 accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.

                                         Very truly yours,

                                         [COMPANY COUNSEL]

                                         By:______________________

                         cc:  [LIST NAME OF PURCHASER]
<PAGE>

                                   EXHIBIT F
                                FORM OF OPINION

     1.  The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of California and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted.  The Company is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the failure to so qualify would have a Material Adverse
Effect.

     2.  The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Transaction Documents and to issue
the Note, the Conversion Shares, the Warrant and the Warrant Shares.  The
execution, delivery and performance of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated thereby have
been duly and validly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Note and the Warrant have been duly executed, issued and
delivered by the Company and each of the Transaction Documents constitutes a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its respective terms.  The Conversion Shares and the
Warrant Shares are not subject to any preemptive rights under the Articles of
Incorporation or the Bylaws.

     3.  The Note has been duly authorized and, when delivered against payment
in full as provided in the Purchase Agreement, will be validly issued, fully
paid and nonassessable.  The Warrant Shares, have been duly authorized and
reserved for issuance, and, when delivered upon exercise or against payment in
full as provided in the Warrant, will be validly issued, fully paid and
nonassessable.  The Conversion Shares, have been duly authorized and reserved
for issuance, and, when delivered upon exercise or against payment in full as
provided in the Note, will be validly issued, fully paid and nonassessable.

     4.  The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the issuance of the Note, the Conversion
Shares, the Warrant and the Warrant Shares do not (a) violate any provision of
the Articles of Incorporation or Bylaws, (b) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party and which is known to us, (c) create or impose a
lien, charge or encumbrance on any property of the Company under any agreement
or any commitment known to us to which the Company is a party or by which the
Company is bound or by which any of its respective properties or assets are
bound, or (d) result in a violation of any Federal, state, local or foreign
statute, rule, regulation, order, judgment, injunction or decree (including
Federal and state securities laws and regulations) applicable to the Company or
by which any property or asset of the Company is bound or affected, except, in
all cases other than violations pursuant to clauses (a) and (d) above, for such
conflicts, default, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.
<PAGE>

     5.  No consent, approval or authorization of or designation, declaration or
filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
valid execution, delivery and performance of the Transaction Documents, or the
offer, sale or issuance of the Note, the Conversion Shares, the Warrant or the
Warrant Shares other than filings as may be required by applicable Federal and
state securities laws and regulations and the Nasdaq rules and regulations.

     6.  To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Agreement or the transactions contemplated thereby or any action
taken or to be taken pursuant thereto.  There is no action, suit, claim,
investigation or proceeding pending, or to our knowledge, threatened, against or
involving the Company or any of its properties or assets and which, if adversely
determined, is reasonably likely to result in a Material Adverse Effect.  There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.

     7.  The offer, issuance and sale of the Note and the Warrant and the offer,
issuance and sale of the Conversion Shares and the Warrant Shares pursuant to
the Agreement, the Note and the Warrant, as applicable, are exempt from the
registration requirements of the Securities Act of 1933, as amended.

     8.   The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
<PAGE>

                                   EXHIBIT G
                           FORM OF LOCK-UP AGREEMENT
<PAGE>

                                Schedule 2.1(p)
                                ---------------

The Company shall pay a management fee in an amount equal to $105,000 on the
Funding Date to Chalfont Hill Capital, LLC.

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