424B2, 1999-09-03
Previous: AAMES FINANCIAL CORP/DE, S-3/A, 1999-09-03


                                                Filed Pursuant to Rule 424(b)(2)
                                                Registration No. 333-69685

                             [LOGO OF VERTEL(TM)]

                              VERTEL CORPORATION

                       2,000,000 Shares of Common Stock

     The 2,000,000 shares of Vertel common stock covered by this prospectus are
all being sold by the shareholders listed on page 8.  We will not receive any
proceeds from these sales.

     The price to public, underwriting discounts and commissions and net
proceeds to the selling shareholders from the sale of the shares will depend on
the nature and timing of the sales and therefore will not be known until the
sales are actually made.

     Vertel common stock trades on the Nasdaq Stock Market under the symbol
"VRTL." On August 30, 1999, the last closing price of Vertel common stock on the
Nasdaq Stock Market was $2.21875 per share.


     You should see the section entitled "Risk Factors," beginning on page 2,
for information to consider before purchasing shares.

  Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus.  Any representation to the contrary is
a criminal offense.


                               TABLE OF CONTENTS

<S>                                                                         <C>
Vertel Overview............................................................   1

Risk Factors...............................................................   2

Sale of Common Stock to Selling Shareholders...............................   7

Use of Proceeds............................................................   7

Determination of Offering Price; Plan of Distribution......................   7

Selling Shareholders.......................................................   8

Interests of Named Experts and Counsel.....................................   9

Where You Can Find More Information........................................   9

     No person is authorized in connection with any offering of the shares to
give any information or to make any representation not contained in this
prospectus, and you should not rely on any such information or representation as
having been authorized by Vertel or any selling shareholder.  Neither the
delivery of this prospectus, nor any sale using this prospectus, shall imply
that the information contained in this prospectus is correct as of any time
subsequent to the date of this prospectus.

                                VERTEL OVERVIEW

     We develop and market software for the management and operation of
telecommunications equipment and networks. Our software and solutions include:

     . software that manages telecommunications equipment and networks;

     . applications that process data from telecommunications equipment and

     . platforms that allow third-parties to develop applications for
       telecommunications equipment and networks; and

     . programming and design services for telecommunications networks.

     Our solutions are based upon the International Telecommunications Union's
telecommunications management network or TMN standard. The TMN standard is a set
of guidelines for how telecommunications equipment and networks should be
designed so that different types of equipment can communicate with one another.
We have used this standard in our software in order to permit telecommunications
equipment manufactured by different companies to operate together effectively.
Our customers include telecommunications service providers, such as long
distance and local phone companies, and telecommunications equipment

     In addition to our telecommunications equipment management software, we
have developed applications that provide value added services such as:

     . detecting and responding to faults in a telecommunications network;

     . improving the configuration of a network from a central site;

     . automating accounting and billing functions; and

     . optimizing network traffic and security.

     We have also developed software platforms that allow other companies to
develop applications to provide these kinds of value added services.

     Finally, we also provide professional services that enable
telecommunications service providers to deploy and maintain a complete TMN
solution.  As a part of our professional services, among other things, we:

     . design and analyze telecommunications systems;

     . modify computer programs so that they can be used on different operating
       systems and platforms and with different communications standards;

     . develop custom applications;

     . test networks to certify their compliance with standards; and

     . provide technical support.

     We were incorporated in California in 1985 and our principal offices are
located at 21300 Victory Boulevard, Suite 1200, Woodland Hills, California
91367.  Our telephone number is (818) 227-1400.


                                 RISK FACTORS

     All of our software is based on the TMN standard. If the TMN standard is
not widely adopted our products will be unmarketable and our results of
operations will be adversely affected.

     Our software and services are all based on the TMN standard. If a different
protocol for managing and connecting telecommunications equipment becomes the
standard in the telecommunications industry, telecommunications service
providers are unlikely to purchase our products. In recent years standards that
compete with TMN, such as the simple network management protocol and the common
management information protocol, have emerged. In addition, telecommunications
service providers have historically depended on proprietary systems, which do
not rely on any standards. While we invest substantial efforts in encouraging
service providers to adopt the TMN standard, we do not have direct control over
this process and we cannot provide any assurance that the TMN standard will be
adopted. Telecommunications service providers could adopt a competing standard
or no standard at all. Similarly, they could adopt the TMN standard, but not do
so within the timeframe that we expect them to. If telecommunications service
providers adopt a standard other than TMN, adopt the TMN standard but not in a
timely way or fail to adopt any standard at all, our business, operating
results, financial condition and strategic position would be materially
adversely affected.

     We expect that new and enhanced products will account for a large fraction
or our future revenues. If we are unable to develop new products, our sales may
be adversely affected.

     We expect that new products and related services will account for a
substantial portion of our revenues in the foreseeable future. Since we expect
to rely less on existing products for revenue, factors adversely affecting the
pricing of or demand for our newer TMN-related software and services, such as
competition for new products or lack of customer acceptance, could have a
disproportionately adverse effect on our business, operating results and
financial condition. We have, from time to time, experienced delays in
developing new products and enhancements, and while these have not had a
material adverse effect on our business, if in the future, we are unable to
develop and introduce new products or product enhancements in a timely manner,
this could have a material adverse effect on our business, financial condition
and results of operations. In addition, if the products we develop are not
widely accepted by customers, we are not able to identify, develop, manufacture,
market or support new products successfully or we are unable to respond
effectively to technological changes, revisions in industry standards or product
announcements by competitors, our business, operating results and financial
condition would be adversely affected.

     We expect to announce new products and features regularly. These
announcements may cause customers to defer purchases of our current products and
reduce current product sales.

     From time to time we announce new products, capabilities or technologies
that have the potential to replace our existing product offerings. These
announcements can cause customers to defer purchasing or licensing our existing
products, which would adversely affect our business, operating results and
financial condition.

     Because our products must meet local regulations in order to be sold in
those jurisdictions, changes in governmental regulations could make our
products less marketable.

     The telecommunications industry is subject to regulation in the United
States and other countries, and therefore our products and the businesses of our
current and potential customers are required to receive regulatory approvals
from multiple organizations using different standards. If federal, state or
international governments enact new laws or regulations or change the way that
they interpret existing regulations our products and business and the businesses
of our current and potential customers could be adversely affect.

     Because our products are targeted at undeveloped markets, if those markets
do not mature, we would not have the growth opportunities we would hope for,
causing our operating results to be adversely affected.

     As part of our corporate strategy, we have targeted product markets which
are in the early stage of their development, including the TMN market. If these
markets do not mature as we expect them to, we will not have the growth
opportunities we currently hope for. We believe that the TMN applications market
will take years to develop and that development of this market will require: (1)
a sufficient number of high quality, commercially successful communications
applications based on the TMN standard, and (2) the availability of software
tools that


allow telecommunications equipment manufacturers and service providers to
implement TMN in their products. There can be no assurance that these conditions
will be met in a timely way, if at all. We cannot predict the size of the market
or the rate at which the market will grow. If our markets fail to grow, grow
more slowly than anticipated, or become saturated with competitors, our
business, financial condition and results of operations would be materially
adversely affected.

     Since our quarterly results are based on a small number of large orders,
the loss or delay of a single order could have a disproportionate impact on our
financial results which could adversely affect our stock price.

     A substantial portion of our software revenues have been, and will continue
to be, derived from a small number of large orders placed during the last days
of the quarter by large organizations after extended evaluation. The timing of
orders and their fulfillment has caused and will continue to cause material
fluctuations in our operating results, particularly on a quarterly basis. In
addition, our quarterly operating results have in the past and will in the
future vary significantly depending upon factors such as:

     . capital spending patterns of our customers;

     . changes in pricing policies by ourselves and our competitors; increased

     . the cancellation of service or maintenance agreements; changes in
       operating expenses, personnel changes, demand for our products;

     . the number, timing and significance of new product and product
       enhancement announcements by either ourselves or our competitors;

     . our ability to develop, introduce and market new and enhanced versions of
       our products on a timely basis;

     . the mix between U.S. and international sales;

     . seasonality; and

     . the mix of direct and indirect sales and general economic factors.

     Based upon all of these factors, we believe that quarterly revenues and
operating results are likely to vary significantly in the future and that
period-to-period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
There can be no assurance that our revenue will increase or be sustained in
future periods or that we will be profitable in any future period. Further, it
is likely that in some future quarter our revenue or operating results will be
below the expectations of public market analysts and investors. In such event,
the price of our common stock is likely to be materially adversely affected.

    Many of our costs are fixed in the short term, therefore shortfalls in
revenue would have a disproportionate effect on net income.

    We currently intend to increase funding of research and product development,
increase sales and market development activities and expand our distribution
channels which will increase our expense rates. Because only a small portion of
our expenses varies with revenue in the short term, net income may be
disproportionately affected by a reduction in revenue, particularly since
reductions in revenue may not be apparent until the last days of a quarter.
Similarly, to the extent additional expenses are not subsequently followed by
increased revenues, our business, operating results and financial condition
could be materially and adversely affected. If revenue levels are below
expectations, operating results are likely to be materially adversely

    Our sales process is complex, making delays that would adversely affect our
financial results and stock price possible.

    Our sales cycle is subject to a number of significant delays over which we
have little control. Therefore, significant delays in implementation, or delays
in purchases by customers, whether or not such delays are within our control,
could materially adversely affect our business, operating results and financial
condition. Our products are complex and generally involve significant investment
decisions after extended evaluations by prospective


customers. Accordingly, we must engage in a lengthy sales cycle to provide a
significant level of education regarding the use and benefits of our products to
potential customers. Our customers often must secure executive level approval to
license our products and our license agreements often involve lengthy
negotiation. In addition, the implementation of our software products involves a
significant commitment by customers over an extended period of time.

     Because we enter into fixed price arrangements for professional services,
unexpected costs, delays or difficulties in these projects could result in

     From time to time we enter into fixed price arrangements for professional
services. Fixed price arrangements could in the future result in losses due to
delays in the implementation process or other complexities associated with
completion of the project underlying these arrangements, such as unknown
characteristics of the customer software for which we are providing

     Our planned increases to sales and marketing expenditures may not result in
proportional increases to revenues which would adversely affect our results of

     During 1999, we plan to increase our number of direct sales and marketing
personnel to support the further development of TMN market opportunities. As we
hire new sales and marketing personnel we anticipate that there will be a delay
before they become effective. There can be no assurance that we will be
successful in attracting or retaining qualified sales and marketing personnel,
that this expansion will result in sales of our products, that the costs of this
expansion will not exceed the revenues generated, or that our sales and
marketing organization will successfully compete against the larger and better
funded sales and marketing organizations of our competitors.

     Because many of our competitors are larger than we are, we may not be able
to spend as much as they do or compete effectively against them.

     We experience significant competition in telecommunications network
management from TCSI Corporation, Objective Systems Integrators, Inc., IBM, Sun
Microsystems, Inc., DSET Corporation and major telecommunication vendors such as
AT&T, all of whom have longer operating histories and have greater financial,
technical, sales, marketing and other resources than we do. There can be no
assurance that we will be able to identify, develop, manufacture, market or
support products successfully or that we will be able to respond effectively to
technological changes or product announcements by our competitors. Moreover, our
current and potential competitors may respond more quickly than we do to new or
emerging technologies or changes in customer requirements. In addition, as the
market develops, a number of companies with significantly greater resources than
us could attempt to increase their presence in the market by acquiring or
forming strategic alliances with our competitors resulting in increased
competition. There can be no assurance that we will be able to compete
successfully with these competitors.

     Our software is complex and therefore is prone to bugs, which could
adversely affect our reputation or sales.

     The development, enhancement and implementation of our products entail
risks of product defects or failures. In the past we have discovered software
bugs in certain of our products and software solutions. Although to date we have
not experienced material adverse effects resulting from any bugs, there can be
no assurance that errors will not be found in existing or new products or
releases after commencement of commercial licensing, which may result in delay
or loss of revenue, loss of market share, failure to achieve market acceptance,
or may otherwise adversely impact our business, operating results and financial
condition. Moreover, the complexities involved in implementing and customizing
our software solutions entail additional risks of performance failures.


     If the third-party software that our software operates with is not Year
2000 compliant our sales may suffer and our results of operations may be
adversely affected.

     New releases of our software have been designed to address processing for
the Year 2000 to the extent it has been required. We have completed a review of
all of our developed products and believe that all of our products will be Year
2000 compliant by March 1999. However, to the extent that others, such as system
integrators, make use of our software in developing solutions for third parties,
we may have no knowledge as to the Year 2000 readiness of those third party
products. In addition it is possible that third parties could assert claims
against us or our customers concerning Year 2000 issues and regardless of their
merits, any claims could be material.

     If our internal systems are not Year 2000 compliant, our operations may be
suspended, which would adversely affect our financial results.

     As with other organizations, our internal computer systems and programs
were originally designed to recognize calendar years by their last two digits.
Calculations performed using these truncated fields would not work properly with
dates from the Year 2000 and beyond. We have completed an evaluation of Year
2000 issues associated with our internal computer systems. Most of our computer
systems are already Year 2000 compliant. Other internal computer and other
systems that have been identified as non-compliant and will be upgraded to be
Year 2000 compliant by September 1999, however if we are unsuccessful in
completing these upgrades in a timely way, our business could be materially
adversely affected.

     If our suppliers' systems are not Year 2000 complaint, we may be unable to
continue to sell our products.

     We have also completed an evaluation of the possible effects on our
operations of the Year 2000 readiness of our key suppliers. We rely on third
party manufacturers for the proper functioning of our information systems,
software and products. The failure of those manufacturers to address Year 2000
issues could have a material impact on our operations and financial results;
however, the potential impact and related costs are not known at this time.

     Our stock may be delisted, which would reduce its marketability and

     The Nasdaq Stock Market has announced a policy of delisting securities that
trade below the price of $1.00 per share for more than 10 business days. While
our stock price has closed below $1.00 on only one occasion in the past, it has
frequently approached $1.00 in recent periods. If the price of our common stock
falls below $1.00 and our common stock is subsequently delisted our shares would
become highly illiquid. In addition, we could spend material financial and
management resources in an attempt to avoid delisting.

     Because a large fraction of our sales are to international customers,
our results of operations can be adversely affected by many factors other
businesses do not face.

     Sales to customers outside of the United States accounted for a
substantial fraction of our net revenues for 1996, 1997 and 1998 and we expect
that international sales will continue to be a significant portion of our
business. International sales and operations are subject to many factors outside
of our control, such as:

     .   the imposition of governmental controls;
     .   export license requirements;
     .   restrictions on the export of critical technology;
     .   political instability;
     .   trade restrictions; and
     .   tariffs.


     Furthermore, because we have to maintain sales offices in different
countries in order to make these sales, our management must address differences
in regulatory environments and cultures. If we are unable to address these
differences successfully our business, financial condition and results of
operations would be adversely affected.

     We incorporate third-party technology in our products. If it becomes
unavailable to us, our products will not have the functionality the market
requires, which would adversely affect our sales.

     We license certain technology included in our products including, for
example, license key software and database software from Versant Corporation.
While we do not believe that any of this technology could not be replaced, it
might require substantial time and effort to do so. If we become unable to
utilize this technology our operations could be adversely affected.

     Losing a limited number of key employees could adversely affect our ability
to make sales or develop new products.

     Our success depends to a significant degree upon the continued
contributions of key management, sales, marketing, engineering and research and
development personnel, many of whom would be difficult to replace. Competition
for these types of personnel is intense and there can be no assurance that we
will be successful in attracting and retaining the necessary personnel. If
certain of these employees were to leave, we would be adversely affected.

     It is difficult to protect intellectual property for software. If third-
parties gain access to our intellectual property, our ability to compete
effectively and thus our results of operations, will be adversely affected.

     We regard our products as proprietary and rely primarily on a combination
of statutory and common law copyright, trademark and trade secret laws, customer
licensing agreements, employee and third-party nondisclosure agreements and
other methods to protect our proprietary rights. We also generally enter into
confidentiality and invention assignment agreements with our employees and
consultants. Additionally, we enter into confidentiality agreements with certain
of our customers and potential customers and limit access to, and distribution
of, our source code and other proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our technologies without authorization, or to develop similar
technologies independently. Furthermore, the laws of certain countries in which
we do business, such as China and Korea do not protect our software and
intellectual property rights to the same extent as do the laws of the United
States. We do not include in our software any mechanisms to prevent or inhibit
unauthorized use, but generally either require the execution of an agreement
that restricts copying and use of our products or provides for the same in a
break-the-seal license agreement. If unauthorized copying or misuse of our
products were to occur to any substantial degree, our business, financial
condition and results of operations could be materially adversely affected. We
cannot provide any assurance that our means of protecting our proprietary rights
will be adequate or that our competitors will not independently develop similar

     If our products infringe the intellectual property of third-parties, we may
be subject to costly litigation or be forced to stop selling our products.

     While we have not received claims alleging infringement of the proprietary
rights of third parties which we believe would have a material adverse effect on
our business, financial condition or results of operations, nor are we aware of
any similar threatened claims, we cannot provide any assurance that third
parities will not claim that our current or future products infringe the
proprietary rights of others. Any claim, with or without merit, could result in
costly litigation or might require us to enter into royalty or licensing
agreements. Royalty or licensing agreements, if required, may not be available
on reasonable terms, or at all.

     This Prospectus contains statements regarding the future including, among
other things, our expectations, beliefs, intentions and strategies. All of these
statements are based on information available to us as of the date of this
Prospectus, and we are not obligating ourselves to update the public with
respect to


these statements in the event of future developments. Our actual results could
differ materially from our expectations as a result of, among other things, the
risk factors described below and in the documents incorporated by reference from
our filings with the SEC. You should carefully consider the following risk
factors in addition to the risk factors set forth in our filings with the SEC
before making a decision to purchase any shares.


     On September 29, 1998 we sold the shares being registered in this
prospectus to the selling shareholders at a price per share of $1.50, which was
equal to the average closing price of our common stock on the Nasdaq Stock
Market for the five (5) trading days immediately preceding the closing. Under
the terms of that agreement we agreed to file the registration statement that
includes this prospectus to maintain the effectiveness of that registration
statement until all of the shares were sold.  We also agreed to bear the
registration expenses incurred in connection with the registration and sale of
the shares.  We also agreed with the selling shareholders that we would
indemnify one another for any misstatements in the information we provided to
one another for inclusion in the registration statement.

                                USE OF PROCEEDS

     All of the shares of common stock offered hereby are being sold by the
shareholders listed on page 8. We will not receive any proceeds from the


     The shares are being registered for sale on a continuous basis under Rule
415 of the Securities Act of 1933.  The selling shareholders will pay selling
commissions or brokerage fees, if any, with respect to the sale of the shares.
The selling shareholders will also pay all applicable transfer taxes and all
fees and disbursements of counsel for the selling shareholders incurred in
connection with the sale of the shares.

     The selling shareholders, and any other persons who participate in the sale
of the shares, may be deemed to be "Underwriters" as defined in the Securities
Act of 1933.  Any commissions paid or any discounts or concessions allowed to
them, and any profits received on resale of the shares, may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933.

     The selling shareholders may distribute, donate or transfer the shares held
by them to third-parties, including family members and limited partners, who may
sell the shares received by them using this prospectus.  Following any transfer,
but prior to any sale by a transferee, we will amend this prospectus, as
required by the SEC, to reflect that distribution, donation or transfer.


                              SELLING SHAREHOLDERS

     The following table sets forth certain information as of August 1, 1999
with respect to the selling shareholders. There were 25,446,358 shares
outstanding as of August 1, 1999. Except as indicated, none of the selling
shareholders has held any position or office or had a material relationship with
Vertel or any of its affiliates within the past three years other than as a
result of the ownership of our common stock. We may amend or supplement this
prospectus from time to time to update the disclosure, including as a result of
any transfers or distributions of the shares by the selling shareholders.

                                                  Shares Beneficially Owned       Shares        Shares Beneficially Owned
Name of Selling Shareholder                         Prior to the Offering        Offered          After the Offering
- ---------------------------                        Number         Percent        Hereby          Number         Percent
                                                  --------       ---------      --------        -------        ---------
<S>                                              <C>              <C>           <C>            <C>              <C>
Jeffrey M. Drazan (1).........................     4,503,100          17.7      1,000,000        3,503,100          13.7
 Sierra Ventures
 3000 Sand Hill Road
 Building 4, Suite 210
 Menlo Park, CA  94025

Pequot Private Equity Fund, L.P (2)...........     1,000,000           3.9      1,000,000               --         *
 c/o Dawson-Samberg Capital
 Management, Inc.
 354 Pequot Avenue.
 Southport, CT  06490
 Attention:  Amiel Peretz

*   Less than one percent (1%)
(1) Includes 4,457,627 shares held by Sierra Ventures V, L.P.  Mr. Drazan, a
    director of Vertel is a general partner of Sierra Ventures V, L.P. but
    specifically disclaims beneficial ownership of such shares except to the
    extent of his pecuniary interest therein.  Also includes options to
    purchase, 45,473 shares of Vertel's common stock which are exercisable
    within sixty (60) days of the date of this table.
(2) Includes 112,382 shares held by Pequot Offshore Private Equity Fund,



     Venture Law Group, A Professional Corporation, 2800 Sand Hill Road, Menlo
Park, California 94025 will be providing Vertel with an opinion that the shares
being offered by this prospectus are legally and validly issued, fully paid and
nonassessable.  Craig W. Johnson a director of Venture Law Group, was formerly a
director of Vertel and as such received periodic grants under Vertel's
Directors' Stock Option Plan. As of the date of this prospectus, Mr. Johnson
no longer holds any shares, or options to purchase any shares, of Vertel common


     This prospectus is part of a Registration Statement on Form S-3 filed by us
with the SEC under the Securities Act of 1933.  This prospectus does not contain
all of the information in the registration statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC.  For further
information about Vertel and the shares offered under this prospectus, you
should review the registration statement.  Statements in this prospectus
concerning the provisions of any document are not necessarily complete and we
recommend that you review the complete copy of such document filed with the SEC.

     The registration statement, including exhibits, may be inspected without
charge and can be copied at the public reference facilities maintained by the
SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
regional offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New
York, New York 10048.  In addition, we are an electronic filer and copies of
these materials may be retrieved from the web site maintained by the SEC

     We are also subject to the informational requirements of the Securities
Exchange Act of 1934 and therefore file proxy statements, reports and other
information with the SEC.  Reports, proxy and information statements, and other
information filed by us with the SEC may be inspected as described above or at
the Nasdaq Stock Market, 1735 K Street, N.W., Washington, DC  20006-1506.

     The following documents filed by us with the SEC are incorporated by
reference in this prospectus:

     1.   Our Annual Report on Form 10-K for the year ended December 31,

     2.   Our Current Report on Form 8-K dated January 15, 1999.

     3.   Our Quarterly Report on Form 10-Q for the quarter ended March 31,

     4.   Our Quarterly Report on Form 10-Q for the quarter ended June 30,

     5.   The description of Vertel common stock which is contained in Items 1
          and 2 of our Registration Statement on Form 8-A filed under Section 12
          of the Exchange Act on November 11, 1991.

     6.   The description of  Vertel Preferred Share Purchase Rights which is
          contained in Items 1 and 2 of our Registration Statement on Form 8-A
          filed under Section 12 of the Exchange Act on April 30, 1997.

     7.   All documents filed by us under Sections 13(a), 13(c), 14 or 15(d) of
          the Exchange Act after the date of this prospectus and prior to the
          termination of this offering.

     All information in this prospectus is current as of the date of this
prospectus. Any future documents that we incorporate by reference are meant to
update the information in this prospectus.

     We will furnish to each person, including any beneficial owner, to whom
this prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents incorporated by reference, other


than exhibits, without charge. Requests should be directed to Vertel
Corporation, 21300 Victory Blvd., Suite 1200, Woodland Hills, California 91367,
telephone: (818) 227-1400, Attn: Investor Relations.


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