Document:

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                                                                     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.

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     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:

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     (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

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     (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

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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.

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            (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

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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

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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

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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

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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-<PAGE>

                                                                     EXHIBIT 4.3

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

                               WARRANT TO PURCHASE

                             SHARES OF COMMON STOCK

                                       OF

                               VERTEL CORPORATION

                              Expires July 2, 2007

No.: W-02-1                                          Number of Shares: 2,625,000
Date of Issuance: July 2, 2002

     FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the
undersigned, Vertel Corporation, a California corporation (together with its
successors and assigns, the "Issuer"), hereby certifies that SDS MERCHANT FUND,
L.P. or its registered assigns ("Holder") is entitled to subscribe for and
purchase, during the period specified in this Warrant, up to Two Million Six
Hundred Twenty-Five Thousand (2,625,000) shares (subject to adjustment as
hereinafter provided) of the duly authorized, validly issued, fully paid and
non-assessable Common Stock of the Issuer, at an exercise price per share equal
to the Warrant Price then in effect, subject, however, to the provisions and
upon the terms and conditions hereinafter set forth. Capitalized terms used in
this Warrant and not otherwise defined herein shall have the respective meanings
specified in Section 9 hereof.

     1.   Term. The right to subscribe for and purchase shares of Warrant Stock
represented hereby shall commence on the date of issuance of this Warrant and
shall expire at 5:00 p.m., eastern time, on July 2, 2007 (such period being the
"Term").

     2.   Method of Exercise Payment; Issuance of New Warrant; Transfer and
Exchange.

     (a)  Time of Exercise. The purchase rights represented by this Warrant may
be exercised in whole or in part at any time and from time to time during the
Term.

                                      -1-

<PAGE>

     (b)  Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at such Holder's election (i) by certified or official bank
check or by wire transfer to an account designated by the Issuer, (ii) by
"cashless exercise" by surrender to the Issuer for cancellation of a portion of
this Warrant representing that number of unissued shares of Warrant Stock which
is equal to the quotient obtained by dividing (A) the product obtained by
multiplying the Warrant Price by the number of shares of Warrant Stock being
purchased upon such exercise by (B) the Per Share Market Value as of the date of
such exercise, or (iii) by a combination of the foregoing methods of payment
selected by the Holder of this Warrant. In any case where the consideration
payable upon such exercise is being paid in whole or in part pursuant to the
provisions of clause (ii) of this subsection (b), such exercise shall be
accompanied by written notice from the Holder of this Warrant specifying the
manner of payment thereof and containing a calculation showing the number of
shares of Warrant Stock with respect to which rights are being surrendered
thereunder and the net number of shares to be issued after giving effect to such
surrender.

     (c)  Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three (3) Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.

     (d)  Transferability of Warrant. Subject to Section 2(e), this Warrant may
be transferred by a Holder without the consent of the Issuer. If transferred
pursuant to this paragraph and subject to the provisions of subsection (e) of
this Section 2, this Warrant may be transferred on the books of the Issuer by
the Holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant at the principal office of the Issuer, properly endorsed (by the
Holder executing an assignment in the form attached hereto) and upon payment of
any necessary transfer tax or other governmental charge imposed upon such
transfer. This Warrant is exchangeable at the principal office of the Issuer for
Warrants for the purchase of the same aggregate number of shares of Warrant
Stock, each new Warrant to represent the right to purchase such number of shares
of Warrant Stock as the Holder hereof shall designate at the time of such
exchange. All Warrants issued on transfers or exchanges shall be dated the
Original Issue Date and shall be identical with this Warrant except as to the
number of shares of Warrant Stock issuable pursuant hereto.

                                      -2-

<PAGE>

     (e)  Compliance with Securities Laws.

          (i)   The Holder of this Warrant, by acceptance hereof, acknowledges
     that this Warrant or the shares of Warrant Stock to be issued upon exercise
     hereof are 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 will
     not offer, sell or otherwise dispose of this Warrant or any shares of
     Warrant Stock to be issued upon exercise hereof except pursuant to an
     effective registration statement, or an exemption from registration, under
     the Securities Act and any applicable state securities laws.

          (ii)  Except as provided in paragraph (iii) below, this Warrant and
     all certificates representing shares of Warrant Stock issued upon exercise
     hereof shall be stamped or imprinted with a legend in substantially the
     following form:

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

          (iii) The restrictions imposed by this subsection (e) upon the
     transfer of this Warrant or the shares of Warrant Stock to be purchased
     upon exercise hereof shall terminate (A) when such securities shall have
     been resold pursuant to an effective registration statement under the
     Securities Act, (B) upon the Issuer's receipt of an opinion of counsel, in
     form and substance reasonably satisfactory to the Issuer, addressed to the
     Issuer to the effect that such restrictions are no longer required to
     ensure compliance with the Securities Act and state securities laws or (C)
     upon the Issuer's receipt of other evidence reasonably satisfactory to the
     Issuer that such registration and qualification under the Securities Act
     and state securities laws are not required. Whenever such restrictions
     shall cease and terminate as to any such securities, the Holder thereof
     shall be entitled to receive from the Issuer (or its transfer agent and
     registrar), without expense (other than applicable transfer taxes, if any),
     new Warrants (or, in the case of shares of Warrant Stock, new stock
     certificates) of like tenor not bearing the applicable legend required by
     paragraph (ii) above relating to the Securities Act and state securities
     laws.

     (f)  Continuing Rights of Holder. The Issuer will, at the time of or at any
time after each exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing the extent, if any, of its continuing obligation to
afford to such Holder all rights to which such

                                      -3-

<PAGE>

Holder shall continue to be entitled after such exercise in accordance with the
terms of this Warrant, provided that if any such Holder shall fail to make any
such request, the failure shall not affect the continuing obligation of the
Issuer to afford such rights to such Holder.

     3.   Stock Fully Paid; Reservation and Listing of Shares; Covenants.

     (a)  Stock Fully Paid. The Issuer represents, warrants, covenants and
agrees that all shares of Warrant Stock which may be issued upon the exercise of
this Warrant or otherwise hereunder will, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges created by or through Issuer. The Issuer further covenants and agrees
that during the period within which this Warrant may be exercised, the Issuer
will at all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant and upon conversion of the Note an aggregate of
34,000,000 shares of Common Stock to provide for the exercise of this Warrant
and conversion of the Note; provided, however, that within one business day of
the Issuer filing the Charter Amendment (as defined in the Purchase Agreement)
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 Warrant is at any time exercisable.

     (b)  Reservation. If any shares of Common Stock required to be reserved for
issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon, maintain and increase when necessary such listing, of,
all shares of Warrant Stock from time to time issued upon exercise of this
Warrant or as otherwise provided hereunder, and, to the extent permissible under
the applicable securities exchange rules, all unissued shares of Warrant Stock
which are at any time issuable hereunder, so long as any shares of Common Stock
shall be so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder
of this Warrant shall be entitled to receive upon the exercise of this Warrant
if at the time any securities of the same class shall be listed on such
securities exchange or market by the Issuer.

     (c)  Covenants. The Issuer shall not by any action including, without
limitation, amending the Articles of Incorporation or the by-laws of the Issuer,
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to protect
the rights of the Holder hereof against dilution (to the extent specifically
provided herein) or impairment. Without limiting the generality of the
foregoing, the Issuer will (i) not permit the par value, if any, of its Common
Stock to exceed the then effective Warrant Price, (ii) not amend or modify any
provision of the Articles of Incorporation or by-laws of the Issuer in any
manner that would adversely affect in any way the powers, preferences or
relative participating, optional or other special rights of the Common Stock or
which would adversely affect the rights of the Holders of the Warrants, (iii)
take all such action as may be reasonably necessary in order that the Issuer may
validly and legally issue fully paid and nonassessable shares of Common Stock,
free and clear of any liens, claims, encumbrances and restrictions (other than
as provided herein) upon the exercise of this Warrant, and (iv) use its best
efforts to obtain all such authorizations, exemptions

                                      -4-

<PAGE>

or consents from any public regulatory body having jurisdiction thereof as may
be reasonably necessary to enable the Issuer to perform its obligations under
this Warrant.

     (d)  Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.

     4.   Adjustment of Warrant Price and Warrant Share Number. The number of
shares of Common Stock for which this Warrant is exercisable, and the price at
which such shares may be purchased upon exercise of this Warrant, shall be
subject to adjustment from time to time as set forth in this Section 4. The
Issuer shall give the Holder notice of any event described below which requires
an adjustment pursuant to this Section 4 in accordance with Section 5.

     (a)  Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale.

          (i) In case the Issuer after the Original Issue Date shall do any of
     the following (each, a "Triggering Event"): (a) consolidate with or merge
     into any other Person and the Issuer shall not be the continuing or
     surviving corporation of such consolidation or merger, or (b) permit any
     other Person to consolidate with or merge into the Issuer and the Issuer
     shall be the continuing or surviving Person but, in connection with such
     consolidation or merger, any Capital Stock of the Issuer shall be changed
     into or exchanged for Securities of any other Person or cash or any other
     property, or (c) transfer all or substantially all of its properties or
     assets to any other Person, or (d) effect a capital reorganization or
     reclassification of its Capital Stock, then, and in the case of each such
     Triggering Event, proper provision shall be made so that, upon the basis
     and the terms and in the manner provided in this Warrant, the Holder of
     this Warrant shall be entitled (x) upon the exercise hereof at any time
     after the consummation of such Triggering Event, to the extent this Warrant
     is not exercised prior to such Triggering Event, to receive at the Warrant
     Price in effect at the time immediately prior to the consummation of such
     Triggering Event in lieu of the Common Stock issuable upon such exercise of
     this Warrant prior to such Triggering Event, the Securities, cash and
     property to which such Holder would have been entitled upon the
     consummation of such Triggering Event if such Holder had exercised the
     rights represented by this Warrant immediately prior thereto, subject to
     adjustments (subsequent to such corporate action) as nearly equivalent as
     possible to the adjustments provided for elsewhere in this Section 4 or (y)
     to sell this Warrant (or, at such Holder's election, a portion hereof)
     concurrently with the Triggering Event to the Person continuing after or
     surviving such Triggering Event, or to the Issuer (if Issuer is the
     continuing or surviving Person) at a sales price equal to the amount of
     cash, property and/or Securities to which a holder of the number of shares
     of Common Stock which would otherwise have been delivered upon the exercise
     of this Warrant would have been entitled upon the effective date or closing
     of any such Triggering Event (the "Event Consideration"), less the amount
     or portion of such Event Consideration

                                      -5-

<PAGE>

     having a fair value equal to the aggregate Warrant Price applicable to this
     Warrant or the portion hereof so sold.

          (ii)   Notwithstanding anything contained in this Warrant to the
     contrary, the Issuer will not effect any Triggering Event unless, prior to
     the consummation thereof, each Person (other than the Issuer) which may be
     required to deliver any Securities, cash or property upon the exercise of
     this Warrant as provided herein shall assume, by written instrument
     delivered to, and reasonably satisfactory to, the Holder of this Warrant,
     (A) the obligations of the Issuer under this Warrant (and if the Issuer
     shall survive the consummation of such Triggering Event, such assumption
     shall be in addition to, and shall not release the Issuer from, any
     continuing obligations of the Issuer under this Warrant) and (B) the
     obligation to deliver to such Holder such shares of Securities, cash or
     property as, in accordance with the foregoing provisions of this subsection
     (a), such Holder shall be entitled to receive, and such Person shall have
     similarly delivered to such Holder an opinion of counsel for such Person,
     which counsel shall be reasonably satisfactory to such Holder, stating that
     this Warrant shall thereafter continue in full force and effect and the
     terms hereof (including, without limitation, all of the provisions of this
     subsection (a)) shall be applicable to the Securities, cash or property
     which such Person may be required to deliver upon any exercise of this
     Warrant or the exercise of any rights pursuant hereto.

          (iii)  If with respect to any Triggering Event, the Holder of this
     Warrant has exercised its right as provided in clause (y) of subparagraph
     (i) of this subsection (a) to sell this Warrant or a portion thereof, the
     Issuer agrees that as a condition to the consummation of any such
     Triggering Event the Issuer shall secure such right of Holder to sell this
     Warrant to the Person continuing after or surviving such Triggering Event
     and the Issuer shall not effect any such Triggering Event unless upon or
     prior to the consummation thereof the amounts of cash, property and/or
     Securities required under such clause (y) are delivered to the Holder of
     this Warrant. The obligation of the Issuer to secure such right of the
     Holder to sell this Warrant shall be subject to such Holder's cooperation
     with the Issuer, including, without limitation, the giving of customary
     representations and warranties to the purchaser in connection with any such
     sale. Prior notice of any Triggering Event shall be given to the Holder of
     this Warrant in accordance with Section 13 hereof.

     (b)  Stock Dividends, Subdivisions and Combinations. If at any time the
     Issuer shall:

                 (i)   take a record of the holders of its Common Stock for the
     purpose of entitling them to receive a dividend payable in, or other
     distribution of, Additional Shares of Common Stock,

                 (ii)  subdivide its outstanding shares of Common Stock into a
     larger number of shares of Common Stock, or

                 (iii) combine its outstanding shares of Common Stock into a
     smaller number of shares of Common Stock,

                                       -6-

<PAGE>

then (1) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (2) the Warrant Price then in
effect shall be adjusted to equal (A) the Warrant Price then in effect
multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately after
such adjustment.

     (c)  Certain Other Distributions. If at any time the Issuer shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of:

               (i)   cash (other than a cash dividend payable out of earnings or
     earned surplus legally available for the payment of dividends under the
     laws of the jurisdiction of incorporation of the Issuer),

               (ii)  any evidences of its indebtedness, any shares of stock of
     any class or any other securities or property of any nature whatsoever
     (other than cash, Common Stock Equivalents or Additional Shares of Common
     Stock), or

               (iii) any warrants or other rights to subscribe for or purchase
     any evidences of its indebtedness, any shares of stock of any class or any
     other securities or property of any nature whatsoever (other than cash,
     Common Stock Equivalents or Additional Shares of Common Stock),

then (1) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
adjustment multiplied by a fraction (A) the numerator of which shall be the Per
Share Market Value of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Per Share Market Value minus the amount
allocable to one share of Common Stock of any such cash so distributable and of
the fair value (as determined in good faith by the Board of Directors of the
Issuer and supported by an opinion from an investment banking firm of recognized
national standing acceptable to the Holder) of any and all such evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights so distributable, and (2) the Warrant Price then
in effect shall be adjusted to equal (A) the Warrant Price then in effect
multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately after
such adjustment. A reclassification of the Common Stock (other than a change in
par value, or from par value to no par value or from no par value to par value)
into shares of Common Stock and shares of any other class of stock shall be
deemed a distribution by the Issuer to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this Section 4(c) and,
if the outstanding shares of Common Stock

                                       -7-

<PAGE>

shall be changed into a larger or smaller number of shares of Common Stock as a
part of such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 4(b).

     (d)  Issuance of Additional Shares of Common Stock.

          (i)   In the event the Issuer, shall, at any time, from time to time,
issue or sell any shares of Common Stock (including Treasury Shares) to a third
party other than the Holder of this Warrant for a consideration per share less
than the Warrant Price then in effect for the Warrant immediately prior to the
time of such issue or sale, then, forthwith upon such issue or sale, the Warrant
Price then in effect for the Warrants 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 Warrant is exercisable shall be increased by the
product of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such issuance or sale multiplied by the
Dilution Percentage. "Dilution Percentage" shall mean the percentage by which
the Warrant Price then in effect is reduced pursuant to this Section 4(d).

          (ii)  If at any time the Issuer shall at any time issue or sell any
Additional Shares of Common Stock to a third party other than the Holder of this
Warrant in exchange for 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 Warrant Price then in effect for the Warrants shall be reduced by the
product of the Warrant Price then in effect multiplied by the Market Dilution
Percentage and the number of shares of Common Stock for which this Warrant is
exercisable shall be increased by the product of the number of shares of Common
Stock for which this Warrant is exercisable 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
Company.

          (iii) If at any time the Issuer shall issue or sell any Additional
Shares of Common Stock to a third party other than the Holder of this Warrant in
exchange for consideration in an amount per Additional Share of Common Stock
which is less than the Warrant Price or the Per Share Market Value at the time
the Additional Shares of Common Stock are issued or sold, the adjustment
required under Section 4(d) shall be made in accordance with the formula in
paragraph (i) or (ii) above which results in the lower Warrant Price following
such adjustment. The provisions of paragraphs (i) and (ii) of Section 4(d) shall
not apply to any issuance of Additional Shares of Common Stock for which an
adjustment is provided under Section 4(b) or 4(c). No adjustment of the number
of shares of Common Stock for which this Warrant shall be exercisable shall be
made under paragraph (i) or (ii) of Section 4(d) 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 Common Stock Equivalents,
if any such adjustment shall previously have been made upon the issuance of such
warrants or other rights or upon the issuance of such Common Stock Equivalents
(or upon the issuance of any warrant or other rights

                                       -8-

<PAGE>

therefor) pursuant to Section 4(e) or Section 4(f).

          (iv)  If the Issuer, at any time while this Warrant is outstanding,
shall issue any Additional Shares of Common Stock to the Holder of this Warrant
(otherwise than as provided in the foregoing subsections (a) through (c) of this
Section 4), at a price per share less than the Warrant Price then in effect or
without consideration, then the Warrant Price upon each such issuance shall be
adjusted to that price determined by multiplying the Warrant 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 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 greater of the Per Share
          Market Value then in effect and the Warrant 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.

          (v)   The provisions of paragraph (iv) of Section 4(d) shall not apply
to any issuance of Additional Shares of Common Stock for which an adjustment is
provided under Section 4(a) through 4(c). No adjustment of the number of shares
of Common Stock for which this Warrant shall be exercisable shall be made under
paragraph (iv) of Section 4(d) upon the issuance of any Additional Shares of
Common Stock which are issued pursuant to the exercise of any Common Stock
Equivalents, if any such adjustment shall previously have been made upon the
issuance of such Common Stock Equivalents (or upon the issuance of any warrant
or other rights therefor) pursuant to Section 4(e) or Section 4(f).

     (e)  Issuance of Warrants or Other Rights. If at any time the Issuer shall
take a record of the Holders of its Common Stock for the purpose of entitling
them to receive a distribution of, or shall in any manner (whether directly or
by assumption in a merger in which the Issuer is the surviving corporation)
issue or sell, any Common Stock Equivalents (or issue any warrant or other
rights therefor), whether or not the rights to exchange or convert thereunder
are immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Common Stock Equivalents (or any warrant or
other rights therefor) shall be less than the Warrant Price in effect
immediately prior to the time of such issue or sale, then the number of shares
for which this Warrant is exercisable and the Warrant Price then in effect shall
be adjusted as provided in Section 4(d) on the basis that the maximum number of
Additional Shares of Common Stock issuable pursuant to all such Common Stock
Equivalents (or upon the issuance of any warrant or other rights therefor) shall
be deemed to have been issued and outstanding and the Issuer shall have received
all of the consideration payable therefor, if any, as of the date of the actual
issuance of such warrants or other rights. No adjustments of the Warrant Price
then in effect or the number of Warrant Shares for which this Warrant is
exercisable shall be made upon the actual issue of such Common Stock or of such
Common Stock Equivalents upon exercise of such warrants or other rights or upon
the actual issue of such Common Stock

                                       -9-

<PAGE>

upon such conversion or exchange of such Common Stock Equivalents.

     (f)  Issuance of Common Stock Equivalents. If at any time the Issuer shall
take a record of the Holders of its Common Stock for the purpose of entitling
them to receive a distribution of, or shall in any manner (whether directly or
by assumption in a merger in which the Issuer is the surviving corporation)
issue or sell, any Common Stock Equivalents, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or exchange shall
be less than the Warrant Price in effect immediately prior to the time of such
issue or sale, then the number of shares of Common Stock for which this Warrant
is exercisable and the Warrant Price then in effect shall be adjusted as
provided in Section 4(d) on the basis that the maximum number of Additional
Shares of Common Stock necessary to effect the conversion or exchange of all
such Common Stock Equivalents shall be deemed to have been issued and
outstanding and the Issuer shall have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such Common Stock
Equivalents. No further adjustment of the number of shares of Common Stock for
which this Warrant is exercisable and the Warrant Price then in effect shall be
made under this Section 4(f) upon the issuance of any Common Stock Equivalents
which are issued pursuant to the exercise of any warrants or other subscription
or purchase rights therefor, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights pursuant to Section
4(e). No further adjustments of the number of shares of Common Stock for which
this Warrant is exercisable and the Warrant Price then in effect shall be made
upon the actual issue of such Common Stock upon conversion or exchange of such
Common Stock Equivalents.

     (g)  Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price then in effect shall have been made pursuant to Section 4(e) or
Section 4(f) as the result of any issuance of warrants, other rights or Common
Stock Equivalents, and (i) such warrants or other rights, or the right of
conversion or exchange in such other Common Stock Equivalents, shall expire, and
all or a portion of such warrants or other rights, or the right of conversion or
exchange with respect to all or a portion of such other Common Stock
Equivalents, as the case may be shall not have been exercised, or (ii) the
consideration per share for which shares of Common Stock are issuable pursuant
to such Common Stock Equivalents, shall be increased solely by virtue of
provisions therein contained for an automatic increase in such consideration per
share upon the occurrence of a specified date or event, then for each
outstanding Warrant such previous adjustment shall be rescinded and annulled and
the Additional Shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Upon the occurrence of an event set forth in this Section 4(g)
above, there shall be a recomputation made of the effect of such Common Stock
Equivalents on the basis of: (i) treating the number of Additional Shares of
Common Stock or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or other rights or any
such right of conversion or exchange, as having been issued on the date or dates
of any such exercise and for the consideration actually received and receivable
therefor, and (ii) treating any such Common Stock Equivalents which then remain
outstanding as having been granted or issued immediately after the time of such
increase of the consideration per share

                                      -10-

<PAGE>

for which shares of Common Stock or other property are issuable under such
Common Stock Equivalents; whereupon a new adjustment of the number of shares of
Common Stock for which this Warrant is exercisable and the Warrant Price then in
effect shall be made, which new adjustment shall supersede the previous
adjustment so rescinded and annulled.

     (h)  Purchase of Common Stock by the Issuer. If the Issuer at any time
while this Warrant is outstanding shall, directly or indirectly through a
Subsidiary or otherwise, purchase, redeem or otherwise acquire any shares of
Common Stock at a price per share greater than the Per Share Market Value, then
the Warrant Price upon each such purchase, redemption or acquisition shall be
adjusted to that price determined by multiplying such Warrant Price by a
fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such purchase, redemption or acquisition
minus the number of shares of Common Stock which the aggregate consideration for
the total number of such shares of Common Stock so purchased, redeemed or
acquired would purchase at the Per Share Market Value; and (ii) the denominator
of which shall be the number of shares of Common Stock outstanding immediately
after such purchase, redemption or acquisition. For the purposes of this
subsection (h), the date as of which the Per Share Market Price shall be
computed shall be the earlier of (x) the date on which the Issuer shall enter
into a firm contract for the purchase, redemption or acquisition of such Common
Stock, or (y) the date of actual purchase, redemption or acquisition of such
Common Stock. For the purposes of this subsection (h), a purchase, redemption or
acquisition of a Common Stock Equivalent shall be deemed to be a purchase of the
underlying Common Stock, and the computation herein required shall be made on
the basis of the full exercise, conversion or exchange of such Common Stock
Equivalent on the date as of which such computation is required hereby to be
made, whether or not such Common Stock Equivalent is actually exercisable,
convertible or exchangeable on such date.

     (i)  Registration Adjustment. Every twelve (12) months following the
effective date of the registration statement registering the Warrant Stock, the
Warrant Price shall be adjusted to an amount equal to 120% of the average of the
Per Share Market Value for the five (5) Trading Days having the lowest Per Share
Market Value during the twenty-two (22) Trading Days immediately prior to such
adjustment dates, provided that such adjusted price is lower than the Warrant
Price.

     (j)  Other Provisions applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price then in effect provided for in this Section 4:

          (i)  Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Common Stock Equivalents (or any warrants or other
rights therefor) shall be issued for cash consideration, the consideration
received by the Issuer therefor shall be the amount of the cash received by the
Issuer therefor, or, if such Additional Shares of Common Stock or Common Stock
Equivalents are offered by the Issuer for subscription, the subscription price,
or, if such Additional Shares of Common Stock or Common Stock Equivalents are
sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price (in any such case subtracting any
amounts paid or receivable for accrued interest

                                      -11-

<PAGE>

or accrued dividends and without taking into account any compensation, discounts
or expenses paid or incurred by the Issuer for and in the underwriting of, or
otherwise in connection with, the issuance thereof). To the extent that such
issuance shall be for a consideration other than cash, then, except as herein
otherwise expressly provided, the amount of such consideration shall be deemed
to be the fair value of such consideration at the time of such issuance as
determined in good faith by the Board of Directors of the Issuer. In case any
Additional Shares of Common Stock or any Common Stock Equivalents (or any
warrants or other rights therefor) shall be issued in connection with any merger
in which the Issuer issues any securities, the amount of consideration therefor
shall be deemed to be the fair value, as determined in good faith by the Board
of Directors of the Issuer, of such portion of the assets and business of the
nonsurviving corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Common Stock, Common Stock
Equivalents, or any warrants or other rights therefor, as the case may be. The
consideration for any Additional Shares of Common Stock issuable pursuant to any
warrants or other rights to subscribe for or purchase the same shall be the
consideration received by the Issuer for issuing such warrants or other rights
plus the additional consideration payable to the Issuer upon exercise of such
warrants or other rights. The consideration for any Additional Shares of Common
Stock issuable pursuant to the terms of any Common Stock Equivalents shall be
the consideration received by the Issuer for issuing warrants or other rights to
subscribe for or purchase such Common Stock Equivalents, plus the consideration
paid or payable to the Issuer in respect of the subscription for or purchase of
such Common Stock Equivalents, plus the additional consideration, if any,
payable to the Issuer upon the exercise of the right of conversion or exchange
in such Common Stock Equivalents. In case of the issuance at any time of any
Additional Shares of Common Stock or Common Stock Equivalents in payment or
satisfaction of any dividends upon any class of stock other than Common Stock,
the Issuer shall be deemed to have received for such Additional Shares of Common
Stock or Common Stock Equivalents a consideration equal to the amount of such
dividend so paid or satisfied.

          (ii)  When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock for which this Warrant is exercisable that would otherwise be
required may be postponed (except in the case of a subdivision or combination of
shares of the Common Stock, as provided for in Section 4(b)) up to, but not
beyond the date of exercise if such adjustment either by itself or with other
adjustments not previously made adds or subtracts less than one percent (1%) of
the shares of Common Stock for which this Warrant is exercisable immediately
prior to the making of such adjustment. Any adjustment representing a change of
less than such minimum amount (except as aforesaid) which is postponed shall be
carried forward and made as soon as such adjustment, together with other
adjustments required by this Section 4 and not previously made, would result in
a minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.

          (iii) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest one one-hundredth (1/100/th/) of a share.

                                      -12-

<PAGE>

          (iv)  When Adjustment Not Required.  If the Issuer shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled. In addition, no adjustment shall be required under
Section 4(d)(i) hereof in the event the Issuer issues or sells Additional Shares
in a transaction whose primary purpose is to establish a relationship with the
recipient thereof for strategic reasons and not to raise capital.

     (k)  Form of Warrant after Adjustments. The form of this Warrant need not
be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.

     (l)  Escrow of Warrant Stock. If after any property becomes distributable
pursuant to this Section 4 by reason of the taking of any record of the holders
of Common Stock, but prior to the occurrence of the event for which such record
is taken, and the Holder exercises this Warrant, any shares of Common Stock
issuable upon exercise by reason of such adjustment shall be deemed the last
shares of Common Stock for which this Warrant is exercised (notwithstanding any
other provision to the contrary herein) and such shares or other property shall
be held in escrow for the Holder by the Issuer to be issued to the Holder upon
and to the extent that the event actually takes place, upon payment of the
current Warrant Price. Notwithstanding any other provision to the contrary
herein, if the event for which such record was taken fails to occur or is
rescinded, then such escrowed shares shall be cancelled by the Issuer and
escrowed property returned.

     5.   Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder), and the Warrant
Price and Warrant Share Number after giving effect to such adjustment, and shall
cause copies of such certificate to be delivered to the Holder of this Warrant
promptly after each adjustment. Any dispute between the Issuer and the Holder of
this Warrant with respect to the matters set forth in such certificate may at
the option of the Holder of this Warrant be submitted to one of the national
accounting firms currently known as the "big five" selected by the Holder,
provided that the Issuer shall have ten (10) days after receipt of notice from
such Holder of its selection of such firm to object thereto, in which case such
Holder shall select another such firm and the Issuer shall have no such right of
objection. The firm selected by the Holder of this Warrant as provided in the
preceding sentence shall be instructed to deliver a written opinion as to such
matters to the Issuer and such Holder within thirty (30) days after submission
to it of such dispute. Such opinion shall be final and binding on the parties
hereto. The fees and expenses of such accounting firm shall be paid by the
Issuer.

                                      -13-

<PAGE>

     6.   Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with and exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Per Share Market Value then
in effect.

     7.   Ownership Cap and Certain Exercise Restrictions.

     (a)  Notwithstanding anything to the contrary set forth in this Warrant, at
no time may a holder of this Warrant exercise this Warrant if the number of
shares of Common Stock to be issued pursuant to such exercise 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 Warrant providing the Issuer with
sixty-one (61) days notice (pursuant to Section 13 hereof) (the "Waiver
Notice"), that such holder would like to waive this Section 7(a) with regard to
any or all shares of Common Stock issuable upon exercise of this Warrant, this
Section 7(a) will be of no force or effect with regard to all or a portion of
the Warrant 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 expiration of the Term.

     (b)  The Holder may not exercise the Warrant hereunder to the extent such
exercise 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 exercise of the Warrant held by the Holder after
application of this Section.

     (c) Notwithstanding anything to the contrary set forth herein, the Issuer
shall not be obligated to issue in excess of an aggregate of 6,810,734 shares of
Common Stock upon exercise of the Warrant 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 4, 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 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 Warrant exercise date (A) the Common Stock is listed for trading on Nasdaq,
(B) the Warrant Price then in effect is such that the aggregate number of shares
of Common Stock previously issued at a discount upon exercise of Warrants or
otherwise issued in connection with the Purchase Agreement, would equal or
exceed the Issuable Maximum, and (C) the Issuer 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 Issuer 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 Issuer shall

                                      -14-

<PAGE>

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 Warrant exercise 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 Issuer fails to pay the Discount Equivalent in full
pursuant to this Section within fifteen (15) days after the Issuer fails to
obtain Shareholder Approval pursuant to (1) above or the date payable pursuant
to (2) above, the Issuer will pay interest thereon at a rate of 10% per annum to
the holder, accruing daily from the applicable exercise until such amount, plus
all such interest thereon, is paid in full. The Issuer and the Holder understand
and agree that shares of Common Stock issued to and then held by the Holder as a
result of exercise of the Warrant or as a result of conversion of the Notes
shall not be entitled to cast votes on any resolution to obtain Shareholder
Approval.

     8.   Intentionally Omitted.

     9.   Definitions. For the purposes of this Warrant, the following terms
have the following meanings:

          "Additional Shares of Common Stock" means all shares of Common Stock
     issued by the Issuer after the Original Issue Date, and all shares of Other
     Common, if any, issued by the Issuer after the Original Issue Date, except
     the Warrant Stock and shares of Common Stock issuable upon conversion of
     the Notes and except for:

               (A) Common Stock issued prior to the Original Issue Date to
     employees, consultants or directors of this corporation directly or
     pursuant to stock option plan(s) or restricted stock plan(s) approved by
     the Board of Directors of the Issuer;

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

               (C) Common Stock, issued, or issuable upon exercise of warrants,
     issued to customers, 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 Issuer.

          "Articles of Incorporation" means the Articles of Incorporation of the
     Issuer as in effect on the Original Issue Date, and as hereafter from time
     to time amended, modified, supplemented or restated in accordance with the
     terms hereof and thereof and pursuant to applicable law.

          "Board" shall mean the Board of Directors of the Issuer.

                                      -15-

<PAGE>

          "Capital Stock" means and includes (i) any and all shares, interests,
     participations or other equivalents of or interests in (however designated)
     corporate stock, including, without limitation, shares of preferred or
     preference stock, (ii) all partnership interests (whether general or
     limited) in any Person which is a partnership, (iii) all membership
     interests or limited liability company interests in any limited liability
     company, and (iv) all equity or ownership interests in any Person of any
     other type.

          "Common Stock" means the Common Stock, par value $.01 per share, of
     the Issuer and any other Capital Stock into which such stock may hereafter
     be changed.

          "Common Stock Equivalent" means any Convertible Security or warrant,
     option or other right to subscribe for or purchase any Additional Shares of
     Common Stock or any Convertible Security.

          "Convertible Securities" means evidences of Indebtedness, shares of
     Capital Stock or other Securities which are or may be at any time
     convertible into or exchangeable for Additional Shares of Common Stock. The
     term "Convertible Security" means one of the Convertible Securities.

          "Governmental Authority" means any governmental, regulatory or
     self-regulatory entity, department, body, official, authority, commission,
     board, agency or instrumentality, whether federal, state or local, and
     whether domestic or foreign.

          "Holders" mean the Persons who shall from time to time own any
     Warrant. The term "Holder" means one of the Holders.

          "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.

          "Issuer" means Vertel Corporation, a California corporation, and its
     successors.

          "Majority Holders" means at any time the Holders of Warrants
     exercisable for a majority of the shares of Warrant Stock issuable under
     the Warrants at the time outstanding.

          "Nasdaq" means The Nasdaq SmallCap Market or The Nasdaq National
     Market.

          "Note" means the senior secured convertible promissory notes issued
     in connection with the Purchase Agreement.

          "Original Issue Date" means July 2, 2002.

                                      -16-

<PAGE>

          "OTC Bulletin Board" means the over-the-counter electronic bulletin
     board.

          "Other Common" means any other Capital Stock of the Issuer of any
     class which shall be authorized at any time after the date of this Warrant
     (other than Common Stock) and which shall have the right to participate in
     the distribution of earnings and assets of the Issuer without limitation as
     to amount.

          "Person" means an individual, corporation, limited liability company,
     partnership, joint stock company, trust, unincorporated organization, joint
     venture, Governmental Authority or other entity of whatever nature.

          "Per Share Market Value" means on any particular date (a) the closing
     bid price per share of the Common Stock on such date on Nasdaq or another
     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 Nasdaq or any
     registered national stock exchange, the closing bid price for a share of
     Common Stock in the over-the-counter market, as reported by the OTC
     Bulletin Board or in the National Quotation Bureau Incorporated or similar
     organization or agency succeeding to its functions of reporting prices) at
     the close of business on such date, or (c) if the Common Stock is not then
     reported by the OTC Bulletin Board or the National Quotation Bureau
     Incorporated (or similar organization or agency succeeding to its functions
     of reporting prices), 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
     selected in good faith by the Majority Holders; provided, however, that the
     Issuer, 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 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.

          "Purchase Agreement" means the Note and Warrant Purchase Agreement
     dated as of July 2, 2002 among the Issuer and the investors a party
     thereto.

          "Securities" means any debt or equity securities of the Issuer,
     whether now or hereafter authorized, any instrument convertible into or
     exchangeable for Securities or a

                                      -17-

<PAGE>

     Security, and any option, warrant or other right to purchase or acquire any
     Security. "Security" means one of the Securities.

          "Securities Act" means the Securities Act of 1933, as amended, or any
     similar federal statute then in effect.

          "Subsidiary" means any corporation at least 50% of whose outstanding
     Voting Stock shall at the time be owned directly or indirectly by the
     Issuer or by one or more of its Subsidiaries, or by the Issuer and one or
     more of its Subsidiaries.

          "Term" has the meaning specified in Section 1 hereof.

          "Trading Day" means (a) a day on which the Common Stock is traded on
     Nasdaq, or (b) if the Common Stock is not listed on Nasdaq, a day on which
     the Common Stock is traded on any other registered national stock exchange,
     or (c) if the Common Stock is not traded on any other registered national
     stock exchange, a day on which the Common Stock is traded on the OTC
     Bulletin Board, or (d) if the Common Stock is not traded 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.

          "Voting Stock" means, as applied to the Capital Stock of any
     corporation, Capital Stock of any class or classes (however designated)
     having ordinary voting power for the election of a majority of the members
     of the Board of Directors (or other governing body) of such corporation,
     other than Capital Stock having such power only by reason of the happening
     of a contingency.

          "Warrants" means the Warrants issued and sold pursuant to the Purchase
     Agreement, including, without limitation, this Warrant, and any other
     warrants of like tenor issued in substitution or exchange for any thereof
     pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof or of any
     of such other Warrants.

          "Warrant Price" means U.S. $.20, as such price may be adjusted from
     time to time as shall result from the adjustments specified in this
     Warrant, including Section 4 hereto.

          "Warrant Share Number" means at any time the aggregate number of
     shares of Warrant Stock which may at such time be purchased upon exercise
     of this Warrant, after giving effect to all prior adjustments and increases
     to such number made or required to be made under the terms hereof.

                                      -18-

<PAGE>

          "Warrant Stock" means Common Stock issuable upon exercise of any
     Warrant or Warrants or otherwise issuable pursuant to any Warrant or
     Warrants.

     10.  Other Notices.  In case at any time:

                          (A)     the Issuer shall make any distributions to
                                  the holders of Common Stock; or

                          (B)     the Issuer shall authorize the granting to all
                                  holders of its Common Stock of rights to
                                  subscribe for or purchase any shares of
                                  Capital Stock of any class or of any Common
                                  Stock Equivalents or other rights; or

                          (C)     there shall be any reclassification of the
                                  Capital Stock of the Issuer; or

                          (D)     there shall be any capital reorganization by
                                  the Issuer; or

                          (E)     there shall be any (i) consolidation or merger
                                  involving the Issuer or (ii) sale, transfer or
                                  other disposition of all or substantially all
                                  of the Issuer's property, assets or business
                                  (except a merger or other reorganization in
                                  which the Issuer shall be the surviving
                                  corporation and its shares of Capital Stock
                                  shall continue to be outstanding and unchanged
                                  and except a consolidation, merger, sale,
                                  transfer or other disposition involving a
                                  wholly-owned Subsidiary); or

                          (F)     there shall be a voluntary or involuntary
                                  dissolution, liquidation or winding-up of the
                                  Issuer or any partial liquidation of the
                                  Issuer or distribution to holders of Common
                                  Stock;

then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be. Such notice shall be given at least ten (10)
days prior to the action in question and not less than ten (10) days prior to
the record date or the date on which the Issuer's transfer books are closed in
respect thereto. The Issuer shall give to the Holder notice of all meetings and
actions by written consent of its stockholders, at the same time in the same
manner as notice of any meetings of stockholders is required to be given to
stockholders who do not waive such notice (or, if such requires no notice, then
two (2) Trading Days written notice

                                      -19-

<PAGE>

thereof describing the matters upon which action is to be taken). The Holder
shall have the right to send two (2) representatives selected by it to each
meeting, who shall be permitted to attend, but not vote at, such meeting and any
adjournments thereof. This Warrant entitles the Holder to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Common Stock.

     11.  Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and the Majority Holders; provided, however, that no such amendment or
waiver shall reduce the Warrant Share Number, increase the Warrant Price,
shorten the period during which this Warrant may be exercised or modify any
provision of this Section 11 without the consent of the Holder of this Warrant.

     12.  Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.

     13.  Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., eastern time, on a
Trading Day, (ii) the Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile telephone number
specified for notice later than 5:00 p.m., eastern time, on any date and earlier
than 11:59 p.m., eastern time, on such date, (iii) the Trading Day following the
date of mailing, if sent by nationally recognized overnight courier service or
(iv) actual receipt by the party to whom such notice is required to be given.
The addresses for such communications shall be with respect to the Holder of
this Warrant or of Warrant Stock issued pursuant hereto, addressed to such
Holder at its last known address or facsimile number appearing on the books of
the Issuer maintained for such purposes, or with respect to the Issuer,
addressed to:

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

with copies (which copies shall not constitute notice to the Company) to:

                       Perkins Coie LLP
                       1620 26th Street, Sixth Floor
                       Santa Monica, CA 90404
                       Attention: David J. Katz, Esq.

                                      -20-

<PAGE>

                          Telephone No.: (310) 788-3268
                           Facsimile No: (310) 843-1254

Copies of notices to the Holder shall be sent to Jenkens & Gilchrist Parker
Chapin LLP, The Chrysler Building, 405 Lexington Avenue, New York, New York
10174, Attention: Christopher S. Auguste, Esq., facsimile no.: (212) 704-6288.
Any party hereto may from time to time change its address for notices by giving
at least ten (10) days written notice of such changed address to the other party
hereto.

     14.  Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in New York, New York for the
purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.

     15.  Remedies. The Issuer stipulates that the remedies at law of the Holder
of this Warrant in the event of any default or threatened default by the Issuer
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate and that, to the fullest extent permitted by law,
such terms may be specifically enforced by a decree for the specific performance
of any agreement contained herein or by an injunction against a violation of any
of the terms hereof or otherwise.

     16.  Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Issuer, the Holder hereof and (to the extent provided herein) the Holders of
Warrant Stock issued pursuant hereto, and shall be enforceable by any such
Holder or Holder of Warrant Stock.

     17.  Modification and Severability. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.

     18.  Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.

                                      -21-

<PAGE>

     IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and
year first above written.

                                             VERTEL CORPORATION

                                             By: _______________________________
                                                 Name:
                                                 Title:

                                      -22-

<PAGE>

                                  EXERCISE FORM

                               VERTEL CORPORATION

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

Dated: _________________              Signature ___________________________

                                      Address   _____________________
                                                _____________________

                                   ASSIGNMENT

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

Dated: _________________              Signature ___________________________

                                      Address   _____________________
                                                _____________________

                               PARTIAL ASSIGNMENT

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

Dated: _________________              Signature ___________________________

                                      Address   _____________________
                                                _____________________

FOR USE BY THE ISSUER ONLY:

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

                                      -23-

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