<PAGE>

                                                                     EXHIBIT 4.2


THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE REASONABLY
ACCEPTABLE TO THE MAKER) IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO THE MAKER THAT THIS NOTE MAY BE SOLD, TRANSFERRED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH STATE SECURITIES LAWS.

                               VERTEL CORPORATION

                   Senior Secured Convertible Promissory Note
                             due _________ __, 2005

No. CN-02-1                                                        $3,100,000.00
Dated:  _________ __, 2002


     For value received, VERTEL CORPORATION, a California corporation (the
"Maker"), hereby promises to pay to the order of SDS MERCHANT FUND, L.P.
(together with its successors, representatives, and permitted assigns, the
"Holder"), in accordance with the terms hereinafter provided, the principal
amount of Three Million One Hundred Thousand Dollars ($3,100,000.00), together
with interest thereon.

     All payments under or pursuant to this Note shall be made in United States
Dollars in immediately available funds to the Holder at the address of the
Holder first set forth above or at such other place as the Holder may designate
from time to time in writing to the Maker or by wire transfer of funds to the
Holder's account, instructions for which are attached hereto as Exhibit A. The
outstanding principal balance of this Note shall be due and payable on _______
__ , 2005 (the "Maturity Date") or at such earlier time as provided herein.

                                    ARTICLE I

     Section 1.1  Purchase Agreement. This Note has been executed and delivered
pursuant to the Note and Warrant Purchase Agreement, dated as of July 2, 2002
(the "Purchase Agreement"), by and between the Maker and the purchaser listed
therein. Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement.

                                      -1-

<PAGE>

     Section 1.2  Interest. Beginning on the date hereof, the outstanding
principal balance of this Note shall bear interest, in arrears, at a rate per
annum equal to eight percent (8%), payable semi-annually or upon conversion
unless earlier converted or prepaid as provided herein. Interest shall be
computed on the basis of a 360-day year of twelve (12) 30-day months and shall
accrue commencing on the issuance date of this Note (the "Issuance Date"). The
interest shall be payable in shares of the Maker's common stock, par value $.01
per share (the "Common Stock"); provided, that the Maker shall issue to the
Holder registered and freely tradable shares of Common Stock. The number of
shares of Common Stock to be issued as payment of accrued and unpaid interest
shall be determined by dividing (a) the total amount of accrued and unpaid
interest to be converted into Common Stock by (b) the Conversion Price (as
defined in Section 3.2(a) hereof. Furthermore, upon the occurrence of an Event
of Default (as defined in Section 2.1 hereof), then to the extent permitted by
law, the Maker will pay interest to the Holder, payable on demand, on the
outstanding principal balance of the Note from the date of the Event of Default
until such Event of Default is cured at the rate of the lesser of fifteen
percent (15%) and the maximum applicable legal rate per annum.

     Section 1.3  Payment on Non-Business Days. Whenever any payment to be made
shall be due on a Saturday, Sunday or a public holiday under the laws of the
State of New York, such payment may be due on the next succeeding business day
and such next succeeding day shall be included in the calculation of the amount
of accrued interest payable on such date.

     Section 1.4  Security Agreement. The obligations of the Maker hereunder
shall be secured by, and the Holder shall be entitled to the rights and security
granted by the Maker pursuant to, the Security Agreement dated as of the date
hereof by the Maker for the benefit of the Holder (the "Security Agreement").

     Section 1.5  Senior Note. This Note shall be senior to all other
Indebtedness of the Maker.

     Section 1.6  Transfer. This Note may be transferred or sold, subject to the
provisions of Section 4.8 of this Note, or pledged, hypothecated or otherwise
granted as security by the Holder.

     Section 1.7  Replacement. Upon receipt of a duly executed, notarized and
unsecured written statement from the Holder with respect to the loss, theft or
destruction of this Note (or any replacement hereof), and without requiring an
indemnity bond or other security, or, in the case of a mutilation of this Note,
upon surrender and cancellation of such Note, the Maker shall issue a new Note,
of like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated
Note.

                                   ARTICLE II

                           EVENTS OF DEFAULT; REMEDIES

     Section 2.1  Events of Default. The occurrence of any of the following
events shall be an "Event of Default" under this Note:

                                      -2-

<PAGE>

     (a)  the Maker shall fail to make the payment of any amount of principal
outstanding on the date such payment is due hereunder; or

     (b)  the Maker shall fail to make any payment of interest in Common Stock
for a period of five (5) days after the date such interest is due; or

     (c)  Intentionally Omitted.

     (d)  the suspension from listing or the failure of the Common Stock to be
listed on The Nasdaq SmallCap Market for a period of five (5) consecutive
Trading Days; or

     (e)  the Maker's notice to the Holder, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.8(a) hereof) or its intention not to comply with
proper requests for conversion of this Note into shares of Common Stock; or

     (f)  the Maker shall fail to (i) timely deliver the shares of Common Stock
upon conversion of the Note or any interest accrued and unpaid and (ii) make the
payment of any fees and/or liquidated damages under this Note, the Purchase
Agreement or the Registration Rights Agreement, which failure in the case of
items (i) and (ii) of this Section 2.1(f) is not remedied within seven (7)
business days after the incurrence thereof; or

     (g)  while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of ten (10)
consecutive Trading Days, provided that the cause of such lapse or
unavailability is not due to factors primarily within the control of Holder; or

     (h)  default shall be made in the performance or observance of (i) any
material covenant, condition or agreement contained in this Note (other than as
set forth in clause (f) of this Section 2.1) and such default is not fully cured
within five (5) business days after the occurrence thereof or (ii) any material
covenant, condition or agreement contained in the Purchase Agreement, Security
Agreement, Escrow Agreement, Lock-Up Agreement or the Registration Rights
Agreement which is not covered by any other provisions of this Section 2.1 and
such default is not fully cured within seven (7) business days after the
occurrence thereof; or

     (i)  any material representation or warranty made by the Maker herein or in
the Purchase Agreement, the Security Agreement or the Registration Rights
Agreement shall prove to have been false or incorrect or breached in a material
respect on the date as of which made; or

     (j)  the Maker shall issue any debt securities which are not subordinate to
this Note on such terms as are acceptable to the Holders of a majority of the
outstanding principal amount of this Note and the other Notes purchased under
the Purchase Agreement; or

                                      -3-

<PAGE>

     (k)  if required by applicable law, rule or regulation, the stockholders of
the Maker shall fail to approve the proposal presented and recommended by the
Board of Directors of the Maker to approve the Holder acquiring in excess of
19.99% of the issued and outstanding shares of Common Stock upon conversion of
this Note and/or exercise of the Warrant.

     (l)  the Maker shall (i) default in any payment of any amount or amounts of
principal of or interest on any Indebtedness (other than the Indebtedness
hereunder) the aggregate principal amount of which Indebtedness is in excess of
$75,000 or (ii) default in the observance or performance of any other agreement
or condition relating to any Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders or beneficiary or
beneficiaries of such Indebtedness to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity; or

     (m)  the Maker shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property or assets, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary case
under the United States Bankruptcy Code (as now or hereafter in effect) or under
the comparable laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors'
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
or (vi) take any action under the laws of any jurisdiction (foreign or domestic)
analogous to any of the foregoing; or

     (n)  a proceeding or case shall be commenced in respect of the Maker,
without its application or consent, in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, moratorium, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets in connection with the liquidation or dissolution
of the Maker or (iii) similar relief in respect of it under any law providing
for the relief of debtors, and such proceeding or case described in clause (i),
(ii) or (iii) shall continue undismissed, or unstayed and in effect, for a
period of sixty (60) days or any order for relief shall be entered in an
involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic)
against the Maker or action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing shall be taken with respect to the
Maker and shall continue undismissed, or unstayed and in effect for a period of
sixty (60) days.

     (o)  a breach of Section 3.23 of the Purchase Agreement.

     Section 2.2  Remedies Upon An Event of Default. If an Event of Default
shall have occurred and shall be continuing, the Holder of this Note may at any
time at its option (a) declare the entire unpaid principal balance of this Note,
together with all interest accrued hereon, due and payable, and thereupon, the
same shall be accelerated and so due and payable, without presentment, demand,
protest, or notice, all of which are hereby expressly unconditionally and
irrevocably waived by the Maker; provided, however, that upon the occurrence of
an Event of Default described in (i) Sections 2.1 (l), (m) or (n), the
outstanding principal balance and accrued

                                      -4-

<PAGE>

interest hereunder shall be automatically due and payable and (ii) Sections 2.1
(d)-(k), demand the prepayment of this Note pursuant to Section 3.7 hereof, (b)
demand that the principal amount of this Note then outstanding and all accrued
and unpaid interest thereon shall be converted into shares of Common Stock at a
Conversion Price per share calculated pursuant to Section 3.1 hereof assuming
that the date that the Event of Default occurs is the Conversion Date (as
defined in Section 3.2(a) hereof), or (c) exercise or otherwise enforce any one
or more of the Holder's rights, powers, privileges, remedies and interests under
this Note, the Purchase Agreement, the Security Agreement, the Registration
Rights Agreement or applicable law. No course of delay on the part of the Holder
shall operate as a waiver thereof or otherwise prejudice the right of the
Holder. No remedy conferred hereby shall be exclusive of any other remedy
referred to herein or now or hereafter available at law, in equity, by statute
or otherwise.

                                   ARTICLE III

                      CONVERSION; ANTIDILUTION; PREPAYMENT

     Section 3.1  Conversion Option. At any time on or after the Issuance Date,
this Note shall be convertible (in whole or in part), at the option of the
Holder (the "Conversion Option"), into such number of fully paid and
non-assessable shares of Common Stock (the "Conversion Rate") as is determined
by dividing (x) that portion of the outstanding principal balance under the Note
as of such date that the Holder elects to convert by (y) the Conversion Price
(as hereinafter defined) then in effect on the date on which the Holder faxes a
notice of conversion (the "Conversion Notice"), duly executed, to the Maker
(facsimile number (818) 598-0104, Attn.: Chief Financial Officer) (the
"Conversion Date"), provided, however, that the Conversion Price shall be
subject to adjustment as described in Section 3.6 below. The Holder shall
deliver this Note to the Maker at the address designated in the Purchase
Agreement at such time that this Note is fully converted. With respect to
partial conversions of this Note, the Maker shall keep written records of the
amount of this Note converted as of each Conversion Date.

     Section 3.2  Conversion Price.

            (a)   Subject to the provisions of subsection (b) below, the term
"Conversion Price" shall mean an amount equal to the Discount Percentage of the
average of the Per Share Market Value for the three (3) Trading Days having the
lowest Per Share Market Value during the twenty-two (22) Trading Days
immediately prior to the Conversion Date, except that if during any period (a
"Black-out Period"), a Holder is unable to trade any Common Stock issued or
issuable upon conversion of the Notes immediately due to the postponement of
filing or delay or suspension of effectiveness of a registration statement or
because the Maker has otherwise informed such Holder that an existing prospectus
cannot be used at that time in the sale or transfer of such Common Stock, such
Holder shall have the option but not the obligation on any Conversion Date
within ten (10) Trading Days following the expiration of the Black-out Period of
using the Conversion Price applicable on such Conversion Date or any Conversion
Price selected by such Holder that would have been applicable had such
Conversion Date been at any earlier time during the Black-out Period or within
the ten (10) Trading Days thereafter.

                                      -5-

<PAGE>

            (b)   The Conversion Price shall be subject to a minimum floor (the
"Floor Price") of an amount equal to seventy-five percent (75%) of the average
of the Per Share Market Value for the three (3) Trading Days having the lowest
Per Share Market Value during the twenty-two (22) Trading Days immediately prior
to the Closing Date (the "Closing Price"). If the Per Share Market Value is less
than the Closing Price for a period of twenty (20) consecutive Trading Days, the
Floor Price shall no longer be applicable. In no event shall the Conversion
Price exceed $1.25.

            (c)   The term "Discount Percentage" shall initially mean
ninety-three percent (93%). The Discount Percentage shall be adjusted based upon
the Maker's Revenue Target. "Revenue Target" shall mean the Maker's quarterly
revenues annualized as disclosed in its most recent public filing. The Discount
Percentage shall be ninety-three percent (93%) if the Revenue Target is more
than $15,000,000; eighty-eight percent (88%) if the Revenue Target is more than
$12,000,000 but not more than $15,000,000; eighty-five percent (85%) if the
Revenue Target is more than $10,000,000 but not more than $12,000,000;
eighty-two percent (82%) if the Revenue Target is more than $8,000,000 but not
more than $10,000,000; and seventy-nine (79%) if the Revenue Target is more than
$6,000,000 but not more than $8,000,000. In no event shall the Discount
Percentage exceed ninety-three percent (93%). Notwithstanding the foregoing, the
Discount Percentage shall be seventy-six percent (76%) if the Maker's cash
collections do not exceed $1,350,000 on a quarterly basis. Furthermore, in the
event that the Maker is delisted from The Nasdaq SmallCap Market and as a result
is trading on the OTC Bulletin Board, the Discount Percentage shall mean sixty
percent (60%).

            (d)   The term "Per Share Market Value" means on any particular date
(a) the closing bid price of the Common Stock on such date on The Nasdaq
SmallCap Market, The Nasdaq National Market or other registered national stock
exchange on which the Common Stock is then listed or if there is no such price
on such date, then the closing bid price on such exchange or quotation system on
the date nearest preceding such date, or (b) if the Common Stock is not listed
then on The Nasdaq SmallCap Market, The Nasdaq National Market or any registered
national stock exchange, then the lowest intra-day price for a share of Common
Stock, as reported by Bloomberg L.P. or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (c) if the intra-day price for a share of Common Stock is not then
reported, then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the Holder, or (d) if the
Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Independent Appraiser (as defined in Section
4.13 hereof) selected in good faith by the Holders of a majority in interest of
the Notes; provided, however, that the Maker, after receipt of the determination
by such Independent Appraiser, shall have the right to select an additional
Independent Appraiser, in which case, the fair market value shall be equal to
the average of the determinations by each such Independent Appraiser; and
provided, further that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other similar
transactions during such period. The determination of fair market value by an
Independent Appraiser shall be based upon the fair market value of the Issuer
determined on a going concern basis as between a willing buyer and a willing
seller and taking into account all relevant factors determinative of value, and
shall be final and binding on all parties. In determining the fair market value
of any shares of Common Stock, no consideration shall be

                                      -6-

<PAGE>

given to any restrictions on transfer of the Common Stock imposed by agreement
or by federal or state securities laws, or to the existence or absence of, or
any limitations on, voting rights.

     Section 3.3  Mechanics of Conversion.

     (a)  Not later than three (3) Trading Days after any Conversion Date, the
Maker or its designated transfer agent, as applicable, shall issue and deliver
to the Depository Trust Company ("DTC") account on the Holder's behalf via the
Deposit Withdrawal Agent Commission System ("DWAC") as specified in the
Conversion Notice, registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder shall be entitled. In the
alternative, not later than three (3) Trading Days after any Conversion Date,
the Maker shall deliver to the applicable Holder by express courier a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 5.1 of the Purchase
Agreement) representing the number of shares of Common Stock being acquired upon
the conversion of this Note. If in the case of any Conversion Notice such
certificate or certificates are not delivered to or as directed by the
applicable Holder by the third Trading Day after the Conversion Date (the
"Delivery Date"), the Holder shall be entitled by written notice to the Maker at
any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Maker shall
immediately return this Note tendered for conversion, whereupon the Maker and
the Holder shall each be restored to their respective positions immediately
prior to the delivery of such notice of revocation, except that any amounts
described in Sections 3.3(b) and (c) shall be payable through the date notice of
rescission is given to the Maker.

     (b)  The Maker understands that a delay in the delivery of the shares of
Common Stock upon conversion of the Notes and failure to deliver certificates
representing the unconverted shares of the Notes beyond the Delivery Date could
result in economic loss to the Holder. If the Maker fails to deliver to the
Holder such certificate or certificates pursuant to this Section hereunder by
the Delivery Date, the Maker shall pay to such Holder, in cash, an amount per
Trading Day for each Trading Day until such certificates are delivered, together
with interest on such amount at a rate of 10% per annum, accruing until such
amount and any accrued interest thereon is paid in full, equal to (i) 1% of the
aggregate principal amount of the Notes requested to be converted for the first
five (5) Trading Days after the Delivery Date and (ii) 2% of the aggregate
principal amount of the Notes requested to be converted for each Trading Day
thereafter (which amounts shall be paid as liquidated damages and not as a
penalty). Nothing herein shall limit a Holder's right to pursue actual damages
for the Maker's failure to deliver certificates representing shares of Common
Stock upon conversion within the period specified herein (including, without
limitation, damages relating to any purchase of shares of Common Stock by such
Holder to make delivery on a sale effected in anticipation of receiving
certificates representing shares of Common Stock upon conversion, such damages
to be in an amount equal to (A) the aggregate amount paid by such Holder for the
shares of Common Stock so purchased minus (B) the aggregate amount of net
proceeds, if any, received by such Holder from the sale of the shares of Common
Stock issued by the Maker pursuant to such conversion), and such Holder shall
have the right to pursue all remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief). Notwithstanding anything to the contrary contained herein,
the Holder shall be entitled to withdraw a Conversion Notice, and upon such
withdrawal the Maker shall only be obligated to pay the liquidated damages

                                      -7-

<PAGE>

accrued in accordance with this Section 3.3(b) through the date the Conversion
Notice is withdrawn.

     (c)  In addition to any other rights available to the Holder, if the Maker
fails to deliver to the Holder such certificate or certificates pursuant to
Section 3.3(a) by the Delivery Date and if after the Delivery Date the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Holder of the Conversion Shares which
the Holder anticipated receiving upon such conversion (a "Buy-In"), then the
Maker shall pay in cash to the Holder (in addition to any remedies available to
or elected by the Holder) the amount by which (A) the Holder's total purchase
price (including brokerage commissions, if any) for the shares of Common Stock
so purchased exceeds (B) the aggregate principal amount of the Notes for which
such conversion was not timely honored, together with interest thereon at a rate
of the lesser of 15% and the maximum applicable legal rate per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Holder purchases shares of Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted conversion of $10,000 aggregate
principal amount of the Notes, the Maker shall be required to pay the Holder
$1,000, plus interest. The Holder shall provide the Maker written notice
indicating the amounts payable to the Holder in respect of the Buy-In.

     Section 3.4  Ownership Cap and Certain Conversion Restrictions.

     (a)  Notwithstanding anything to the contrary set forth in Section 3 of
this Note, at no time may a holder of this Note convert this Note if the number
of shares of Common Stock to be issued pursuant to such conversion would exceed,
when aggregated with all other shares of Common Stock owned by such holder at
such time, the number of shares of Common Stock which would result in such
holder owning more than 4.999% of all of the Common Stock outstanding at such
time; provided, however, that upon a holder of this Note providing the Maker
with sixty-one (61) days notice (pursuant to Section 4.1 hereof) (the "Waiver
Notice") that such holder would like to waive this Section 3.4 with regard to
any or all shares of Common Stock issuable upon conversion of this Note, this
Section 3.4 will be of no force or effect with regard to all or a portion of the
Note referenced in the Waiver Notice; provided, further, that this provision
shall be of no further force or effect during the sixty-one (61) days
immediately preceding the Maturity Date.

     (b)  The Holder may not convert any Note hereunder to the extent such
conversion would result in the Holder beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 9.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of the Note held by the Holder after
application of this Section.

     (c)  Notwithstanding anything to the contrary set forth herein, the Maker
shall not be obligated to issue in excess of an aggregate of 6,810,734 shares
of Common Stock upon conversion of the Notes and any shares of Common Stock
issuable in connection with the Purchase Agreement, which number of shares shall
be subject to adjustment pursuant to Section 3.6, and such number of shares, the
"Issuable Maximum". The Issuable Maximum equals 19.999% of the number of shares
of Common Stock outstanding immediately prior to the

                                      -8-

<PAGE>

Closing. Shares of Common Stock issued in respect of penalties and liquidated
damages hereunder shall not count towards the 6,810,734 share limit set forth
in this paragraph and shall be paid in cash as provided herein unless otherwise
agreed to by the Holders. If on any Conversion Date (A) the Common Stock is
listed for trading on Nasdaq, (B) the Conversion Price then in effect is such
that the aggregate number of shares of Common Stock previously issued at a
discount upon conversion of Notes or otherwise issued in connection with the
Purchase Agreement, would equal or exceed the Issuable Maximum, and (C) the
Maker shall not have previously obtained the vote of shareholders (the
"Shareholder Approval"), if any, as may be required by the applicable rules and
regulations of the Nasdaq Stock Market, Inc. (or any successor entity)
applicable to approve the issuance of share of Common Stock in excess of the
Issuable Maximum pursuant to the terms hereof, then the Maker shall issue to the
Holder so requesting such number of shares of Common Stock equal to the Issuable
Maximum and, with respect to the remainder of shares of Common Stock which would
result in an issuance of shares of Common Stock in excess of the Issuable
Maximum (the "Excess Shares"), the Maker shall have the option to either (1) use
its reasonable efforts to obtain the Shareholder Approval applicable to such
issuance as soon as is possible, but in any event not later than the 90th day
after such request, or (2) deliver to such holder cash in an amount equal to the
product of (x) the Per Share Market Value on the applicable Conversion Date, and
(y) the number of shares of Common Stock in excess of such Holder's pro rata
portion of the Issuable Maximum that would have otherwise been issuable to the
Holder but for the provisions of this Section (such amount of cash being
hereinafter referred to as the "Discount Equivalent"). If the Maker fails to pay
the Discount Equivalent in full pursuant to this Section within fifteen (15)
days after the Maker fails to obtain Shareholder Approval pursuant to (1) above
or the date payable pursuant to (2) above, the Maker will pay interest on the
Discount Equivalent at a rate of 10% per annum to the Holder, accruing daily
from the applicable Conversion until such amount, plus all such interest
thereon, is paid in full. The Maker and the Holder understand and agree that
shares of Common Stock issued to and then held by the Holder as a result of
conversion of the Notes or as a result of exercise of the Warrants shall not be
entitled to cast votes on any resolution to obtain Shareholder Approval.

     Section 3.5  Intentionally Omitted.

     Section 3.6  Adjustment of Conversion Price.

     (a)  The Conversion Price shall be subject to adjustment from time to time
as follows:

          (i)  Adjustments for Stock Splits and Combinations. If the Maker shall
at any time or from time to time after the Issuance Date, effect a stock split
of the outstanding Common Stock, the applicable Conversion Price in effect
immediately prior to the stock split shall be proportionately decreased. If the
Maker shall at any time or from time to time after the Issuance Date, combine
the outstanding shares of Common Stock, the applicable Conversion Price in
effect immediately prior to the combination shall be proportionately increased.
Any adjustments under this Section 3.6(a)(i) shall be effective at the close of
business on the date the stock split or combination occurs.

          (ii) Adjustments for Certain Dividends and Distributions. If the Maker
shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the

                                      -9-

<PAGE>

determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in shares of Common Stock, then, and in each event, the
applicable Conversion Price in effect immediately prior to such event shall be
decreased as of the time of such issuance or, in the event such record date
shall have been fixed, as of the close of business on such record date, by
multiplying, as applicable, the applicable Conversion Price then in effect by a
fraction:

                 (1)  the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and

                 (2)  the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution.

          (iii)  Adjustment for Other Dividends and Distributions. If the Maker
shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in other than shares of Common
Stock, then, and in each event, an appropriate revision to the applicable
Conversion Price shall be made and provision shall be made (by adjustments of
the Conversion Price or otherwise) so that the holders of the Notes shall
receive upon conversions thereof, in addition to the number of shares of Common
Stock receivable thereon, the number of securities of the Maker which they would
have received had their Notes been converted into Common Stock on the date of
such event and had thereafter, during the period from the date of such event to
and including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 3.6(a)(iii) with
respect to the rights of the holders of the Notes.

          (iv)   Adjustments for Reclassification, Exchange or Substitution. If
the Common Stock issuable upon conversion of the Notes at any time or from time
to time after the Issuance Date shall be changed to the same or different number
of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 3.6(a)(i),
(ii) and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 3.6(a)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall be made and provisions shall be made (by
adjustments of the Conversion Price or otherwise) so that the holder of each of
the Notes shall have the right thereafter to convert such Note into the kind and
amount of shares of stock and other securities receivable upon reclassification,
exchange, substitution or other change, by holders of the number of shares of
Common Stock into which such Note might have been converted immediately prior to
such reclassification, exchange, substitution or other change, all subject to
further adjustment as provided herein.

          (v)    Adjustments for Reorganization, Merger, Consolidation or Sales
of Assets. If at any time or from time to time after the Issuance Date there
shall be a capital reorganization of the Maker (other than by way of a stock
split or combination of shares or stock dividends or distributions provided for
in Section 3.6(a)(i), (ii) and (iii), or a reclassification,

                                      -10-

<PAGE>

exchange or substitution of shares provided for in Section 3.6(a)(iv)), or a
merger or consolidation of the Maker with or into another corporation, or the
sale of all or substantially all of the Maker's properties or assets to any
other person (an "Organic Change"), then as a part of such Organic Change an
appropriate revision to the Conversion Price shall be made and provision shall
be made (by adjustments of the Conversion Price or otherwise) so that the holder
of each Note shall have the right thereafter to convert such Note into the kind
and amount of shares of stock and other securities or property of the Maker or
any successor corporation resulting from Organic Change. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3.6(a)(v) with respect to the rights of the holders of the Notes
after the Organic Change to the end that the provisions of this Section
3.6(a)(v) (including any adjustment in the applicable Conversion Price then in
effect and the number of shares of stock or other securities deliverable upon
conversion of the Notes) shall be applied after that event in as nearly an
equivalent manner as may be practicable.

          (vi)   Adjustments for Issuance of Additional Shares of Common Stock.

                 (1)  In the event the Maker, shall, at any time, from time to
time, issue or sell any shares of Additional Shares of Common Stock (including
Treasury Shares) to a third party other than the Holder for a consideration per
share less than the Conversion Price then in effect for the Note immediately
prior to the time of such issue or sale, then, forthwith upon such issue or
sale, the Conversion Price then in effect for the Notes shall be reduced to a
price equal to the consideration per share paid for such Common Stock and the
number of shares of Common Stock for which this Note is convertible shall be
increased by the product of the number of shares of Common Stock for which this
Note is convertible immediately prior to such issuance or sale multiplied by the
Dilution Percentage. "Dilution Percentage" shall mean the percentage by which
the Conversion Price then in effect is reduced pursuant to this Section
3.6(a)(vi). Additional Shares of Common Stock shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 3.6(a)) by
the Maker after the date hereof other than:

                      (A)  Common Stock issued pursuant to a transaction
described in this Section 3.6;

                      (B)  Common Stock issued or issuable to employees,
consultants or directors of the Maker directly or pursuant to stock option
plan(s) or restricted stock plan(s) approved by the Board of Directors of the
Maker prior to the date hereof;

                      (C)  the issuance of securities pursuant to the conversion
or exercise of convertible or exercisable securities; or

                      (D)  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 primarily other than equity
financing purposes and are approved by the Board of Directors of the Maker.

                 (2)  If at any time the Maker shall at any time issue or sell
any Additional Shares of Common Stock to a third party other than the Holder in
exchange for

                                      -11-

<PAGE>

consideration in an amount per Additional Share of Common Stock less than the
Per Share Market Value at the time the Additional Shares of Common Stock are
issued or sold, then, forthwith upon such issue or sale, the Conversion Price
then in effect for the Notes shall be reduced by the product of the Conversion
Price then in effect multiplied by the Market Dilution Percentage and the number
of shares of Common Stock for which this Note is convertible shall be increased
by the product of the number of shares of Common Stock for which this Note is
convertible immediately prior to such issuance or sale multiplied by the Market
Dilution Percentage. "Market Dilution Percentage" shall mean the percentage by
which such issuance or sale is below the lesser of the Per Share Market Value or
the per share market value of the Common Stock as calculated pursuant to the
terms of any other financings of the Maker.

                 (3)  If at any time the Maker shall issue or sell any
Additional Shares of Common Stock to a third party other than the Holder in
exchange for consideration in an amount per Additional Share of Common Stock
which is less than the Conversion Price or the Per Share Market Value at the
time the Additional Shares of Common Stock are issued or sold, the adjustment
required under this Section 3.6(a)(vi) shall be made in accordance with the
formula in paragraph (1) or (2) above which results in the lower Conversion
Price following such adjustment. The provisions of paragraphs (1) and (2) of
this Section 3.6(a)(vi) shall not apply to any issuance of Additional Shares of
Common Stock for which an adjustment is provided under Sections 3.6(a)(ii) or
3.6(a)(iii) hereof. No adjustment of the number of shares of Common Stock for
which this Note shall be convertible shall be made under paragraph (1) or (2) of
this Section 3.6(a)(vi) upon the issuance of any Additional Shares of Common
Stock which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights or pursuant to the exercise of any conversion or
exchange rights in any Convertible Securities, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights or
upon the issuance of such Convertible Securities (or upon the issuance of any
warrant or other rights therefor) pursuant to Section 3.6(a)(vii) hereof.

                 (4)  If the Maker, at any time after the Issuance Date, shall
issue any Additional Shares of Common Stock to the Holder, at a price per share
less than the applicable Conversion Price then in effect or without
consideration, then the applicable Conversion Price upon each such issuance
shall be adjusted to that price (rounded to the nearest cent) determined by
multiplying the applicable Conversion Price then in effect by a fraction:

                      (A)  the numerator of which shall be equal to the sum of
(x) the number of shares of Common Stock outstanding immediately prior to the
issuance of such Additional Shares of Common Stock plus (y) the number of shares
of Common Stock (rounded to the nearest whole share) which the aggregate
consideration for the total number of such Additional Shares of Common Stock so
issued would purchase at a price per share equal to the applicable Conversion
Price then in effect, and

                      (B)  the denominator of which shall be equal to the number
of shares of Common Stock outstanding immediately after the issuance of such
Additional Shares of Common Stock.

                 The provisions under paragraph (4) of this subsection
3.6(a)(vi) shall not apply under any of the circumstances for which an
adjustment is provided in subsections (i), (ii),

                                      -12-

<PAGE>

(iii), (iv) or (v) of this Section 3.6(a). No adjustment of the applicable
Conversion Price shall be made under this subsection (a)(vi) upon the issuance
of any Additional Shares of Common Stock which are issued pursuant to any Common
Stock Equivalent (as defined below) if upon the issuance of such Common Stock
Equivalent (x) any adjustment shall have been made pursuant to subsection (vii)
of this Section 3.6(a) or (y) no adjustment was required pursuant to subsection
(vii) of this Section 3.6(a). No adjustment of the applicable Conversion Price
shall be made under this subsection (vi) in an amount less than $.01 per share,
but any such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment, if any, which together
with any adjustments so carried forward shall amount to $.01 per share or more;
provided that upon any adjustment of the applicable Conversion Price as a result
of any dividend or distribution payable in Common Stock or Convertible
Securities (as defined below) or the reclassification, subdivision or
combination of Common Stock into a greater or smaller number of shares, the
foregoing figure of $.01 per share (or such figure as last adjusted) shall be
adjusted (to the nearest one-half cent) in proportion to the adjustment in the
applicable Conversion Price.

          (vii)  Issuance of Common Stock Equivalents. If the Maker, at any time
after the Issuance Date, shall issue any securities convertible into or
exchangeable for, directly or indirectly, Common Stock ("Convertible
Securities"), other than this Note, or any rights or warrants or options to
purchase any such Common Stock or Convertible Securities, shall be issued or
sold (collectively, the "Common Stock Equivalents") and the price per share for
which Additional Shares of Common Stock may be issuable thereafter pursuant to
such Common Stock Equivalent shall be less than the applicable Conversion Price
then in effect, or if, after any such issuance of Common Stock Equivalents, the
price per share for which Additional Shares of Common Stock may be issuable
thereafter is amended or adjusted, and such price as so amended shall be less
than the applicable Conversion Price in effect at the time of such amendment,
then the applicable Conversion Price upon each such issuance or amendment shall
be adjusted as provided in the first sentence of subsection (vi) of this Section
3.6(a) on the basis that (1) the maximum number of Additional Shares of Common
Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to
have been issued (whether or not such Common Stock Equivalents are actually then
exercisable, convertible or exchangeable in whole or in part) as of the earlier
of (A) the date on which the Maker shall enter into a firm contract for the
issuance of such Common Stock Equivalent, or (B) the date of actual issuance of
such Common Stock Equivalent, and (2) the aggregate consideration for such
maximum number of Additional Shares of Common Stock shall be deemed to be the
minimum consideration received or receivable by the Maker for the issuance of
such Additional Shares of Common Stock pursuant to such Common Stock Equivalent.
No adjustment of the applicable Conversion Price shall be made under this
subsection (vii) upon the issuance of any Convertible Security which is issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, if any adjustment shall previously have been made to the
exercise price of such warrants then in effect upon the issuance of such
warrants or other rights pursuant to this subsection (vii). If no adjustment is
required under this subsection (vii) upon issuance of any Common Stock
Equivalent or once an adjustment is made under this subsection (vii) based upon
the Per Share Market Value in effect on the date of such adjustment, no further
adjustment shall be made under this subsection (vii) based solely upon a change
in the Per Share Market Value after such date.

                                      -13-

<PAGE>

          (viii) Consideration for Stock. In case any shares of Common Stock or
any Common Stock Equivalents shall be issued or sold:

                 (1)  in connection with any merger or consolidation in which
the Maker is the surviving corporation (other than any consolidation or merger
in which the previously outstanding shares of Common Stock of the Maker shall be
changed to or exchanged for the stock or other securities of another
corporation), the amount of consideration therefore shall be, deemed to be the
fair value, as determined reasonably and in good faith by the Board of Directors
of the Maker, of such portion of the assets and business of the nonsurviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, Convertible Securities, rights or warrants or options, as the case
may be; or

                 (2)  in the event of any consolidation or merger of the Maker
in which the Maker is not the surviving corporation or in which the previously
outstanding shares of Common Stock of the Maker shall be changed into or
exchanged for the stock or other securities of another corporation, or in the
event of any sale of all or substantially all of the assets of the Maker for
stock or other securities of any corporation, the Maker shall be deemed to have
issued a number of shares of its Common Stock for stock or securities or other
property of the other corporation computed on the basis of the actual exchange
ratio on which the transaction was predicated, and for a consideration equal to
the fair market value on the date of such transaction of all such stock or
securities or other property of the other corporation. If any such calculation
results in adjustment of the applicable Conversion Price, or the number of
shares of Common Stock issuable upon conversion of the Notes, the determination
of the applicable Conversion Price or the number of shares of Common Stock
issuable upon conversion of the Notes immediately prior to such merger,
consolidation or sale, shall be made after giving effect to such adjustment of
the number of shares of Common Stock issuable upon conversion of the Notes.

          (b)    Record Date. In case the Maker shall take record of the holders
of its Common Stock for the purpose of entitling them to subscribe for or
purchase Common Stock or Convertible Securities, then the date of the issue or
sale of the shares of Common Stock shall be deemed to be such record date.

          (c)    Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Maker shall not be required to make any adjustment of the
number of shares of Common Stock issuable upon conversion of the Notes upon the
grant after the Issuance Date of, or the exercise after the Issuance Date of,
options or warrants or rights to purchase stock under the Maker's existing stock
option plan.

          (d)    No Impairment. The Maker shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Maker, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 3.6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holder against
impairment. In the event a Holder shall elect to convert any Notes as provided
herein, the Maker cannot refuse conversion based on any claim that such Holder
or any one associated or affiliated with such Holder has been engaged in any

                                      -14-

<PAGE>

violation of law, violation of an agreement to which such Holder is a party or
for any reason whatsoever, unless, an injunction from a court, or notice,
restraining and or adjoining conversion of all or of said Notes shall have
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to 130% of the amount of the Notes the Holder has elected to
convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.

          (e)  Certificates as to Adjustments. Upon occurrence of each
adjustment or readjustment of the Conversion Price or number of shares of Common
Stock issuable upon conversion of this Note pursuant to this Section 3.6, the
Maker at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a certificate setting
forth such adjustment and readjustment, showing in detail the facts upon which
such adjustment or readjustment is based. The Maker shall, upon written request
of the Holder, at any time, furnish or cause to be furnished to such holder a
like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon the conversion of this Note. Notwithstanding the
foregoing, the Maker shall not be obligated to deliver a certificate unless such
certificate would reflect an increase or decrease of at least one percent (1%)
of such adjusted amount.

          (f)  Issue Taxes. The Maker shall pay any and all issue and other
taxes, excluding federal, state or local income taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of this
Note pursuant thereto; provided, however, that the Maker shall not be obligated
to pay any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.

          (g)  Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of this Note. In lieu of any fractional shares to which
the Holder would otherwise be entitled, the Maker shall pay cash equal to the
product of such fraction multiplied by the average of the Per Share Market
Values of the Common Stock for the five (5) consecutive Trading Days immediately
preceding the Conversion Date.

          (h)  Reservation of Common Stock. The Maker shall at all times when
this Note shall be outstanding, reserve and keep available out of its authorized
but unissued Common Stock, 34,000,000 shares of Common Stock to effect the
conversion of this Note and all interest accrued thereon and exercise of the
Warrant; provided, however, that within one business day of the Company filing
the Charter Amendment with the Secretary of State of the State of California
increasing its authorized shares of Common Stock, the aggregate number of shares
of Common Stock so reserved shall at no time be less than 200% of the number of
shares of Common Stock for which this Note and all interest accrued thereon are
at any time convertible. The Maker shall, from time to time in accordance with
the California General Corporation Law, as amended, increase the authorized
number of shares of Common Stock if at any time the unissued number of
authorized shares shall not be sufficient to satisfy the Maker's obligations
under this Section 3.6(h).

          (i)  Regulatory Compliance. If any shares of Common Stock to be
reserved for the purpose of conversion of this Note or any interest accrued
thereon require registration or listing with or approval of any governmental
authority, stock exchange or other regulatory body under any federal or state
law or regulation or otherwise before such shares may be validly

                                      -15-

<PAGE>

issued or delivered upon conversion, the Maker shall, at its sole cost and
expense, in good faith and as expeditiously as possible, endeavor to secure such
registration, listing or approval, as the case may be.

     Section 3.7  Prepayment.

            (a)   Prepayment Upon an Event of Default. Notwithstanding anything
to the contrary contained herein, upon the occurrence of an Event of Default
described in Sections 2.1(d)-(k) hereof, the Holder shall have the right, at
such Holder's option, to require the Maker to prepay all or a portion of this
Note at a price equal to Prepayment Price (as defined in Section 3.7(c) below)
applicable at the time of such request. Nothing in this Section 3.7(a) shall
limit the Holder's rights under Section 2.2 hereof.

            (b)   Prepayment Option Upon Major Transaction. In addition to all
other rights of the holders of the Notes contained herein, simultaneous with the
occurrence of a Major Transaction (as defined below), each holder of the Notes
shall have the right, at such holder's option, to require the Maker to prepay
all or a portion of such holder's Notes at a price equal to the greater of (i)
115% of the aggregate principal amount of the Notes and (ii) the product of (A)
the Conversion Rate and (B) the Per Share Market Value of the Common Stock on
the Trading Day immediately preceding such Major Transaction ("Major Transaction
Prepayment Price").

            (c)   Prepayment Option Upon Triggering Event. In addition to all
other rights of the holders of the Notes contained herein, after a Triggering
Event (as defined below), each holder of the Notes shall have the right, at such
holder's option, to require the Maker to prepay all or a portion of such
holder's Notes at a price equal to the greater of (i) 115% of the aggregate
principal amount of the Notes and (ii) the product of (A) the Conversion Rate at
such time and (B) the Per Share Market Value of the Common Stock calculated as
of the date immediately preceding such Triggering Event on which the exchange or
market on which the Common Stock is traded is open ("Triggering Event Prepayment
Price").

            (d)   Prepayment Option Upon Escrow Period Triggering Event. In
addition to all other rights of the holders of the Notes contained herein, after
an Escrow Period Triggering Event (as defined below), each holder of the Notes
shall have the right, at such holder's option, to require the Maker to prepay
all or a portion of such holder's Notes at a price equal to the aggregate
principal amount of the Notes ("Escrow Period Prepayment Price" and,
collectively with Major Transaction Prepayment Price and Triggering Event
Prepayment Price, the "Prepayment Price").

            (e)   "Major Transaction." A "Major Transaction" shall mean (i) a
merger, acquisition or consolidation of the Maker with or into another entity or
any other corporate reorganization, other than a transaction where 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 Maker
immediately prior to such merger, consolidation or reorganization, or (ii) a
transaction where the sole purpose is to change the state of the Maker's
incorporation; provided, that in either case, the surviving entity shall be a
reporting company pursuant to the Securities Exchange

                                      -16-

<PAGE>

Act of 1934, as amended, and the securities to be issued to the shareholders of
the Maker are registered pursuant to an effective registration statement filed
with the SEC.

          (f)  "Triggering Event." A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:

               (i)    Intentionally Omitted.

               (ii)   while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights Agreement,
the effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the holder of the Notes for sale of the Registrable Securities (as defined in
the Registration Rights Agreement) in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for a
period of ten (10) consecutive Trading Days, provided that the cause of such
lapse or unavailability is due to factors within the control of the Maker and
not due to factors solely within the control of such holder of the Notes;

               (iii)  the suspension from trading or the failure of the Common
Stock to be traded on The Nasdaq National Market or The Nasdaq SmallCap Market
for a period of five (5) consecutive days, provided, that such suspension from
listing or failure to be listed is due to factors within the control of the
Maker, including, but not limited to, failure to timely file all reports
required to be filed with the SEC or to meet the net tangible assets
requirements for listing, if any;

               (iv)   the Maker's notice to any holder of the Notes, including
by way of public announcement, at any time, of its inability to comply
(including for any of the reasons described in Section 3.8) or its intention not
to comply with proper requests for conversion of any of the Notes into shares of
Common Stock;

               (v)    the Maker's failure to comply with a Conversion Notice
tendered within ten (10) business days after the receipt by the Maker of the
Conversion Notice and the certificates representing the Notes; or

          (g)  "Escrow Period Triggering Event."  An "Escrow Period Triggering
Event" shall mean any of the following events which have occurred commencing on
the Effectiveness Date and ending on the Funding Date:

               (i)    a Material Adverse Effect has occurred;

               (ii)   the suspension from trading or the failure of the Common
Stock to be traded on The Nasdaq National Market or The Nasdaq SmallCap Market
for a period of five (5) consecutive days, provided, that such suspension from
listing or failure to be listed is due to factors within the control of the
Maker, including, but not limited to, failure to timely file all reports
required to be filed with the SEC or to meet the net tangible assets
requirements for listing, if any; and

               (iii)  the Maker breaches any material representation, warranty,
covenant or other term or condition of the Purchase Agreement, the Security
Agreement, the

                                      -17-

<PAGE>

Registration Rights Agreement or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated
thereby or hereby.

          (h)  Mechanics of Prepayment at Option of Holder Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten (10) days prior
to the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Maker shall deliver written notice
thereof via facsimile and overnight courier ("Notice of Major Transaction") to
each holder of the Notes. At any time after receipt of a Notice of Major
Transaction (or, in the event a Notice of Major Transaction is not delivered at
least ten (10) days prior to a Major Transaction, at any time within ten (10)
days prior to a Major Transaction), any holder of the Notes then outstanding may
require the Maker to prepay, effective immediately prior to the consummation of
such Major Transaction, all of the holder's Notes then outstanding by delivering
written notice thereof via facsimile and overnight courier ("Notice of
Prepayment at Option of Holder Upon Major Transaction") to the Maker, which
Notice of Prepayment at Option of Holder Upon Major Transaction shall indicate
(i) the number of Notes that such holder is electing to prepay and (ii) the
applicable Major Transaction Prepayment Price, as calculated pursuant to Section
3.7(b) above.

          (i)  Mechanics of Prepayment at Option of Holder Upon Triggering
Event. Within one (1) day after the occurrence of a Triggering Event, the Maker
shall deliver written notice thereof via facsimile and overnight courier
("Notice of Triggering Event") to each holder of the Notes. At any time after
the earlier of a holder's receipt of a Notice of Triggering Event and such
holder becoming aware of a Triggering Event, any holder of the Notes then
outstanding may require the Maker to prepay all of the Notes by delivering
written notice thereof via facsimile and overnight courier ("Notice of
Prepayment at Option of Holder Upon Triggering Event") to the Maker, which
Notice of Prepayment at Option of Holder Upon Triggering Event shall indicate
(i) the number of Notes that such holder is electing to prepay and (ii) the
applicable Triggering Event Prepayment Price, as calculated pursuant to Section
3.7(c) above.

          (j)  Mechanics of Prepayment at Option of Holder Upon Escrow Period
Triggering Event. Within one (1) day after the occurrence of a Escrow Period
Triggering Event, the Maker shall deliver written notice thereof via facsimile
and overnight courier ("Notice of Escrow Period Triggering Event") to each
holder of the Notes. At any time after the earlier of a holder's receipt of a
Notice of Escrow Period Triggering Event and such holder becoming aware of an
Escrow Period Triggering Event, any holder of the Notes then outstanding may
require the Maker to prepay all of the Notes by delivering written notice
thereof via facsimile and overnight courier ("Notice of Prepayment at Option of
Holder Upon Escrow Period Triggering Event") to the Maker, which Notice of
Prepayment at Option of Holder Upon Escrow Period Triggering Event shall
indicate (i) the number of Notes that such holder is electing to prepay and (ii)
the applicable Escrow Period Triggering Event Prepayment Price, as calculated
pursuant to Section 3.7(d) above.

          (k)  Payment of Prepayment Price. Upon the Maker's receipt of a
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or a Notice(s)
of Prepayment at Option of Holder Upon Major Transaction or a Notice(s) of
Prepayment at Option of Holder Upon Escrow Period Triggering Event from any
holder of the Notes, the Maker shall immediately notify each holder of the Notes
by facsimile of the Maker's receipt of such Notice(s) of

                                      -18-

<PAGE>

Prepayment at Option of Holder Upon Triggering Event or Notice(s) of Prepayment
at Option of Holder Upon Major Transaction or Notice(s) of Prepayment at Option
of Holder upon Escrow Period Triggering Event and each holder which has sent
such a notice shall promptly submit to the Maker such holder's certificates
representing the Notes which such holder has elected to have prepaid. The Maker
shall deliver the applicable Triggering Event Prepayment Price, in the case of a
prepayment pursuant to Section 3.7(i), to such holder within five (5) business
days after the Maker's receipt of a Notice of Prepayment at Option of Holder
Upon Triggering Event and, in the case of a prepayment pursuant to Section
3.7(k), the Maker shall deliver the applicable Major Transaction Prepayment
Price immediately prior to the consummation of the Major Transaction and, in the
case of a prepayment pursuant to Section 3.7(j), to such holder within one (1)
business day after the Maker's receipt of a Notice of Prepayment at Option of
Holder Upon Escrow Period Triggering Event; provided that a holder's
certificates representing the Notes shall have been so delivered to the Maker;
provided further that if the Maker is unable to prepay all of the Notes to be
prepaid, the Maker shall prepay an amount from each holder of the Notes being
prepaid equal to such holder's pro-rata amount (based on the number of Notes
held by such holder relative to the number of Notes outstanding) of all Notes
being prepaid. If the Maker shall fail to prepay all of the Notes submitted for
prepayment (other than pursuant to a dispute as to the arithmetic calculation of
the Prepayment Price), in addition to any remedy such holder of the Notes may
have under this Note, the Purchase Agreement and the Security Agreement, the
applicable Prepayment Price payable in respect of such Notes not prepaid shall
bear interest at the rate of 2.0% per month (prorated for partial months) until
paid in full. Until the Maker pays such unpaid applicable Prepayment Price in
full to a holder of the Notes submitted for prepayment, such holder shall have
the option (the "Void Optional Prepayment Option") to, in lieu of prepayment,
require the Maker to promptly return to such holder(s) all of the Notes that
were submitted for prepayment by such holder(s) under this Section 3.7 and for
which the applicable Prepayment Price has not been paid, by sending written
notice thereof to the Maker via facsimile (the "Void Optional Prepayment
Notice"). Upon the Maker's receipt of such Void Optional Prepayment Notice(s)
and prior to payment of the full applicable Prepayment Price to such holder, (i)
the Notice(s) of Prepayment at Option of Holder Upon Triggering Event, the
Notice(s) of Prepayment at Option of Holder Upon Major Transaction or the
Notice(s) of Prepayment at Option of Holder Upon Escrow Period Triggering Event,
as the case may be, shall be null and void with respect to those Notes submitted
for prepayment and for which the applicable Prepayment Price has not been paid,
(ii) the Maker shall immediately return any Notes submitted to the Maker by each
holder for prepayment under this Section 3.7(h) and for which the applicable
Prepayment Price has not been paid and (iii) the Conversion Price of such
returned Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Void Optional Prepayment Notice(s) is delivered
to the Maker and (B) the lowest Per Share Market Value during the period
beginning on the date on which the Notice(s) of Prepayment of Option of Holder
Upon Major Transaction, the Notice(s) of Prepayment at Option of Holder Upon
Triggering Event or the Notice(s) of Prepayment at Option of Holder Upon Escrow
Period Triggering Event, as the case may be, is delivered to the Maker and
ending on the date on which the Void Optional Prepayment Notice(s) is delivered
to the Maker; provided that no adjustment shall be made if such adjustment would
result in an increase of the Conversion Price then in effect. A holder's
delivery of a Void Optional Prepayment Notice and exercise of its rights
following such notice shall not effect the Maker's obligations to make any
payments

                                      -19-

<PAGE>

which have accrued prior to the date of such notice. Payments provided for in
this Section 3.7 shall have priority to payments to other stockholders in
connection with a Major Transaction.

          (l)  Holder Prepayment Option. At the sole option of the Holder, the
Holder may grant the Maker the option to prepay all or any portion of the
outstanding principal amount of this Note together with all accrued and unpaid
interest thereon within ten (10) days of the Holder granting the option to the
Maker. If the Maker elects to exercise the prepayment option, the Maker shall
upon five (5) days prior written notice to the Holder (the "Maker's Prepayment
Notice") prepay all or a portion of the outstanding Notes equal to 115% of the
aggregate principal amount of the Notes plus any accrued but unpaid interest
(the "Maker's Prepayment Price"); provided, however, that if a holder has
delivered a Conversion Notice to the Maker or delivers a Conversion Notice after
receipt of the Maker's Prepayment Notice, the Notes designated to be converted
may not be prepaid by the Maker; provided further that if during the period
between delivery of the Maker's Prepayment Notice and the Maker's Prepayment
Date (as defined below), a holder shall become entitled to deliver a Notice of
Prepayment at Option of Holder Upon Major Transaction or Notice of Prepayment at
Option of Holder upon Triggering Event, then the such rights of the holders
shall take precedence over the previously delivered Maker Prepayment Notice. The
Maker's Prepayment Notice shall state the date of prepayment which date shall be
the sixth (6th) day after the Maker has delivered the Maker's Prepayment Notice
(the "Maker's Prepayment Date"), the Maker's Prepayment Price and the amount of
Notes to be prepaid by the Maker. The Maker shall deliver the Maker's Prepayment
Price to the Holder within five (5) business days after the Maker has delivered
the Maker's Prepayment Notice, provided, that if the holder(s) delivers a
Conversion Notice before the Maker's Prepayment Date, then the portion of the
Maker's Prepayment Price which would be paid to prepay the Notes covered by such
Conversion Notice shall be returned to the Maker upon delivery of the Common
Stock issuable in connection with such Conversion Notice to the holder(s). On
the Maker's Prepayment Date, the Maker shall pay the Maker's Prepayment Price,
subject to any adjustment pursuant to the immediately preceding sentence, to the
holder(s) on a pro rata basis, provided, however, that upon receipt by Maker of
the certificates representing the Notes to be prepaid pursuant to this Section
3.7(l), the Maker shall, on the next business day following the date of receipt
by the Maker of such certificates representing the Notes, pay the Maker's
Prepayment Price to the holder(s) on a pro rata basis. If the Maker fails to pay
the Maker's Prepayment Price by the sixth (6th) business day after the Maker has
delivered the Maker's Prepayment Notice, the prepayment will be declared null
and void and the Maker shall lose its right to serve a Maker`s Prepayment
Notice pursuant to this Section 3.7(l) in the future.

          (m)  Maker Prepayment Option. The Maker may prepay all or a portion of
this Note after the Effectiveness Date at a price equal to 115% of the aggregate
principal amount of the Notes plus all accrued and unpaid interest by providing
ninety (90) days written notice (the "Maker Prepayment Option Notice") to the
Holder. Nothing contained in this Section 3.7(m) shall preclude the Holder from
converting its Note within such ninety (90) day period; provided, however, that
subject to the terms and provisions of Section 3.2 hereof, the Conversion Price
for purposes of this Section 3.7(m) shall be an amount equal to the Discount
Percentage of the average of the Per Share Market Value for the five (5) Trading
Days having the lowest Per Share Market Value during the fifteen (15) Trading
Days immediately prior to the date of delivery of the Maker Prepayment Option
Notice.

                                      -20-

<PAGE>

     Section 3.8  Inability to Fully Convert.

            (a)   Holder's Option if Maker Cannot Fully Convert. If, upon the
Maker's receipt of a Conversion Notice, the Maker cannot issue shares of Common
Stock registered for resale under the Registration Statement for any reason,
including, without limitation, because the Maker (w) does not have a sufficient
number of shares of Common Stock authorized and available, (x) is otherwise
prohibited by applicable law or by the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Maker or any of its securities from issuing all of
the Common Stock which is to be issued to the Holder pursuant to a Conversion
Notice or (y) fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then the Maker shall
issue as many shares of Common Stock as it is able to issue in accordance with
the Holder's Conversion Notice and, with respect to the unconverted portion of
the Note, the Holder, solely at Holder's option, can elect to:

                  (i)    require the Maker to prepay that portion of the Note
for which the Maker is unable to issue Common Stock in accordance with the
Holder's Conversion Notice (the "Mandatory Prepayment") at a price per share
equal to the Prepayment Price as of such Conversion Date (the "Mandatory
Prepayment Price");

                  (ii)   if the Maker's inability to fully convert is pursuant
to Section 3.8(a)(y) above, require the Maker to issue restricted shares of
Common Stock equal to one hundred twenty percent (120%) of the number of shares
of Common Stock the Maker is unable to deliver in accordance with such holder's
Conversion Notice;

                  (iii)  void its Conversion Notice and retain or have returned,
as the case may be, the Note that was to be converted pursuant to the Conversion
Notice (provided that the Holder's voiding its Conversion Notice shall not
effect the Maker's obligations to make any payments which have accrued prior to
the date of such notice).

            (b)   Mechanics of Fulfilling Holder's Election. The Maker shall
immediately send via facsimile to the Holder, upon receipt of a facsimile copy
of a Conversion Notice from the Holder which cannot be fully satisfied as
described in Section 3.8(a) above, a notice of the Maker's inability to fully
satisfy the Conversion Notice (the "Inability to Fully Convert Notice"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Maker is
unable to fully satisfy such holder's Conversion Notice, (ii) the amount of the
Note which cannot be converted and (iii) the applicable Mandatory Prepayment
Price. The Holder shall notify the Maker of its election pursuant to Section
3.8(a) above by delivering written notice via facsimile to the Maker ("Notice in
Response to Inability to Convert").

            (c)   Payment of Prepayment Price. If the Holder shall elect to have
its shares prepaid pursuant to Section 3.8(a)(i) above, the Maker shall pay the
Mandatory Prepayment Price in cash to the Holder within five (5) days of the
Maker's receipt of the Holder's Notice in Response to Inability to Convert,
provided that prior to the Maker's receipt of the Holder's Notice in Response to
Inability to Convert the Maker has not delivered a notice to the Holder stating,
to the satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the

                                      -21-

<PAGE>

Holder in accordance with the terms of this Note. If the Maker shall fail to pay
the applicable Mandatory Prepayment Price to the Holder on a timely basis as
described in this Section 3.8(c) (other than pursuant to a dispute as to the
determination of the arithmetic calculation of the Prepayment Price), in
addition to any remedy the Holder may have under this Note, the Purchase
Agreement and the Security Agreement, such unpaid amount shall bear interest at
the rate of 2.0% per month (prorated for partial months) until paid in full.
Until the full Mandatory Prepayment Price is paid in full to the Holder, the
Holder may (i) void the Mandatory Prepayment with respect to that portion of the
Note for which the full Mandatory Prepayment Price has not been paid, (ii)
receive back such Note, and (iii) require that the Conversion Price of such
returned Note be adjusted to the lesser of (A) the Conversion Price as in effect
on the date on which the Holder voided the Mandatory Prepayment and (B) the
lowest Per Share Market Value during the period beginning on the Conversion Date
and ending on the date the Holder voided the Mandatory Prepayment.

     Section 3.9  No Rights as Shareholder. Nothing contained in this Note shall
be construed as conferring upon the Holder, prior to the conversion of this
Note, the right to vote or to receive dividends or to consent or to receive
notice as a shareholder in respect of any meeting of shareholders for the
election of directors of the Maker or of any other matter, or any other rights
as a shareholder of the Maker.

                                   ARTICLE IV

                                  MISCELLANEOUS

     Section 4.1  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 telex (with correct answer back
received), telecopy or facsimile at the address or number designated in the
Purchase Agreement (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 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 Maker will give written notice to the Holder at least ten (10) days prior to
the date on which the Maker closes its books or takes a record (x) with respect
to any dividend or distribution upon the Common Stock, (y) with respect to any
pro rata subscription offer to holders of Common Stock or (z) for determining
rights to vote with respect to any Organic Change, dissolution, liquidation or
winding-up and in no event shall such notice be provided to such holder prior to
such information being made known to the public. The Maker will also give
written notice to the Holder at least ten (10) days prior to the date on which
any Organic Change, dissolution, liquidation or winding-up will take place and
in no event shall such notice be provided to the Holder prior to such
information being made known to the public.

     Section 4.2  Governing Law. This Note 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 Note shall not be interpreted or
construed with any presumption against the party causing this Note to be
drafted.

                                      -22-

<PAGE>

     Section 4.3  Headings. Article and section headings in this Note are
included herein for purposes of convenience of reference only and shall not
constitute a part of this Note for any other purpose.

     Section 4.4  Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note, at law or in equity
(including, without limitation, a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Maker to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the holder thereof and shall
not, except as expressly provided herein, be subject to any other obligation of
the Maker (or the performance thereof). The Maker acknowledges that a breach by
it of its obligations hereunder will cause irreparable and material harm to the
Holder and that the remedy at law for any such breach may be inadequate.
Therefore the Maker agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available rights
and remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.

     Section 4.5  Enforcement Expenses. The Maker agrees to pay all costs and
expenses of enforcement of this Note, including, without limitation, reasonable
attorneys' fees and expenses.

     Section 4.6  Binding Effect. The obligations of the Maker and the Holder
set forth herein shall be binding upon the successors and assigns of each such
party, whether or not such successors or assigns are permitted by the terms
hereof.

     Section 4.7  Amendments. This Note may not be modified or amended in any
manner except in writing executed by the Maker and the Holder.

     Section 4.8  Compliance with Securities Laws. The Holder of this Note
acknowledges that this Note is being acquired solely for the Holder's own
account and not as a nominee for any other party, and for investment, and that
the Holder shall not offer, sell or otherwise dispose of this Note. This Note
and any Note issued in substitution or replacement therefore shall be stamped or
imprinted with a legend in substantially the following form:

     " THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
     1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS,
     AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
     ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN OPINION
     OF COUNSEL (WHICH COUNSEL SHALL BE REASONABLY ACCEPTABLE TO THE
     MAKER) IN THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO
     THE MAKER THAT THIS NOTE MAY BE SOLD, TRANSFERRED,

                                      -23-

<PAGE>

     HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM
     REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS."

     Section 4.9  Consent to Jurisdiction. Each of the Maker and the Holder (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 Note 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 Maker and the
Holder 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 the Purchase Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section 4.9 shall affect or limit any right to serve process in any other manner
permitted by law.

     Section 4.10 Parties in Interest. This Note shall be binding upon, inure to
the benefit of and be enforceable by the Maker, the Holder and their respective
successors and permitted assigns.

     Section 4.11 Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.

     Section 4.12 Maker Waivers. Except as otherwise specifically provided
herein, the Maker and all others that may become liable for all or any part of
the obligations evidenced by this Note, hereby waive presentment, demand, notice
of nonpayment, protest and all other demands' and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, and do hereby
consent to any number of renewals of extensions of the time or payment hereof
and agree that any such renewals or extensions may be made without notice to any
such persons and without affecting their liability herein and do further consent
to the release of any person liable hereon, all without affecting the liability
of the other persons, firms or Maker liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY.

     (a)  No delay or omission on the part of the Holder in exercising its
rights under this Note, or course of conduct relating hereto, shall operate as a
waiver of such rights or any other right of the Holder, nor shall any waiver by
the Holder of any such right or rights on any one occasion be deemed a waiver of
the same right or rights on any future occasion.

     (b)  THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A
PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW,
HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT
REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.

                                      -24-

<PAGE>

     Section 4.13  Definitions. For the purposes hereof, the following terms
shall have the following meanings:

     "Independent Appraiser" means a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Issuer) that is regularly engaged in the business of
appraising the Capital Stock or assets of corporations or other entities as
going concerns, and which is not affiliated with either the Issuer or the Holder
of any Warrant.

     "Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.

     "Trading Day" " means (a) a day on which the Common Stock is traded on The
Nasdaq SmallCap Market, The Nasdaq National Market or other registered national
stock exchange on which the Common Stock has been listed, or (b) if the Common
Stock is not listed on The Nasdaq SmallCap Market, the Nasdaq National Market or
any registered national stock exchange, a day or which the Common Stock is
traded in the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.

                                    VERTEL CORPORATION



                                    By:  ______________________________
                                         Name:
                                         Title:

                                      -25-

<PAGE>

                                    EXHIBIT A

                               WIRE INSTRUCTIONS.



Payee: _________________________________________________________

Bank:  _________________________________________________________

Address: _______________________________________________________

         _______________________________________________________

Bank No.: ______________________________________________________

Account No.:  __________________________________________________

Account Name: __________________________________________________

                                      -26-

<PAGE>

                                     FORM OF

                              NOTICE OF CONVERSION

     (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:________________________________________________________________________

     ___________________________________________________________________________

                                      -27-