**Exhibit10.92**

 

**NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESESECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES ANDEXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THESECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATIONSTATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THESECURITIES ACT.**

 

**2004 SERIES A SENIOR SECUREDCONVERTIBLE NOTE DUE APRIL 1, 2009**

 

**OF**

 

**VCAMPUS CORPORATION**

 
| **Note No.:       ** |   | **Original Principal Amount: $[118,500 per each whole Unit]** |
|----------------------------------------------------|--------|---------------------------------------------------------------|
| **Issuance Date:   March 23, 2004**      |   |                                                          |

 

This note (“Note”) is oneof a duly authorized issue of Notes of VCampus Corporation, a corporation dulyorganized and existing under the laws of the State of Delaware (the “Company”),designated as the Company’s 2004 Series A Senior Secured Convertible Notes DueApril 1, 2009 (“Maturity Date”) in an aggregate principal amount (whentaken together with the original principal amounts of all other Notes) of$2,399,625 (together, the “Notes”).

 

FOR VALUERECEIVED, the Company hereby promises to pay to the order of                                        ****orits registered assigns or successors-in-interest (“Holder”) the principal sumof $[118,500 per each whole unit], together with all accrued but unpaidinterest thereon, if any, on the Maturity Date, to the extent such principal amountand interest has not been repaid or converted into the Company’s Common Stock,$0.01 par value per share (the “Common Stock”), in accordance with the termshereof.  Interest on the unpaid andunconverted principal balance hereof shall accrue at the rate of eight percent(8%) per annum from the date of original issuance hereof (the “IssuanceDate”).  Payments on the Note shall bemade in accordance with Section 1 hereof.   Interest on this Note shall accrue daily commencing on theIssuance Date and shall be computed on the basis of a 360-day year, 30-daymonths and actual days elapsed and shall be payable in accordance withSection 1 hereof.  Notwithstandinganything contained herein, this Note shall bear interest on the due and unpaidPrincipal Amount from and after the occurrence and during the continuance of anEvent of Default at the rate (the “Default Rate”) equal to the lower ofthirteen percent (13%) per annum or the highest rate permitted by law.  Unless otherwise agreed or required byapplicable law, payments will be applied first to any unpaid collection costs,then to unpaid interest and fees and any remaining amount to principal.

 

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Except asotherwise provided herein, all payments of principal and interest on this Noteshall be made in lawful money of the United States of America by wire transferof immediately available funds to such account as the Holder may from time totime designate by written notice in accordance with the provisions of this Noteor by Company check.    Whenever anyamount expressed to be due by the terms of this Note is due on any day which isnot a Business Day (as defined below), the same shall instead be due on thenext succeeding day which is a Business Day.

 

Capitalized termsused herein and not otherwise defined shall have the meanings set forth in thePurchase Agreement dated on or about the Issuance Date pursuant to which theNotes were originally issued (the “Purchase Agreement”).  For purposes hereof the following terms shallhave the meanings ascribed to them below:

 

“Approved StockPlan” shall mean any employee benefit plan, stock incentive plan or othersimilar plan or arrangement which has been approved by the Board of Directorsof the Company or any authorized committee thereof, pursuant to which theCompany’s securities may be issued to any employee, officer, consultant ordirector for services provided to the Company.

 

“BankruptcyEvent” means any of the following events: (a) the Company commences a caseor other proceeding under any bankruptcy, reorganization, arrangement,adjustment of debt, relief of debtors, dissolution, insolvency or liquidationor similar law of any jurisdiction relating to the Company; (b) there iscommenced against the Company any such case or proceeding that is not dismissedwithin 60 days after commencement; (c) the Company is adjudicated insolvent orbankrupt or any order of relief or other order approving any such case orproceeding is entered; (d) the Company suffers any appointment of any custodianor the like for it or any substantial part of its property that is notdischarged or stayed within 60 days; (e) the Company makes a general assignmentfor the benefit of creditors; (f) the Company fails to pay, or states that itis unable to pay or is unable to pay, its debts generally as they become due;(g) the Company calls a meeting of its creditors with a view to arranging acomposition, adjustment or restructuring of its debts; or (h) the Company, byany act or failure to act, expressly indicates its consent to, approval of or acquiescencein any of the foregoing or takes any corporate or other action for the purposeof effecting any of the foregoing.

 

“Business Day”shall mean any day other than a Saturday, Sunday or a day on which commercialbanks in the City of New York are authorized or required by law or executiveorder to remain closed.

 

“Change inControl Transaction” will be deemed to exist if (i) there occurs anyconsolidation, merger or other business combination of the Company with or intoany other corporation or other entity or person (whether or not the Company isthe surviving corporation), or any other corporate reorganization ortransaction or series of related transactions in which in any of such eventsthe voting stockholders of the Company prior to such event cease to own fiftypercent (50%) or more of the voting power, or corresponding voting equityinterests, of the surviving corporation after such event (including withoutlimitation any “going private” transaction under Rule 13e-3 promulgatedpursuant to the Exchange Act or tender offer by the Company under Rule 13e-4promulgated pursuant to the Exchange Act for twenty percent (20%) or more ofthe Company’s Common Stock), (ii) any person (as defined in Section 13(d)of the

 

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Exchange Act), together with its affiliates and associates (as suchterms are defined in Rule 405 under the Act), beneficially owns or is deemed tobeneficially own (as described in Rule 13d-3 under the Exchange Act withoutregard to the 60-day exercise period) in excess of fifty percent (50%) of theCompany’s voting power, (iii) there is a replacement of more than one-half ofthe members of the Company’s Board of Directors which is not approved by thoseindividuals who are members of the Company’s Board of Directors on the datethereof, (iv) in one or a series of related transactions, there is a sale ortransfer of all or substantially all of the assets of the Company, determinedon a consolidated basis, or (v) the Company enters into any agreement providingfor an event set forth in (i), (ii), (iii) or (iv) above.

 

“ConversionPrice” shall equal $1.63 (which Conversion Price shall be subject toadjustment as set forth herein).

 

“ConvertibleSecurities” means any convertible securities, warrants, options or otherrights to subscribe for or to purchase or exchange for, shares of Common Stock.

 

“Effective Date”means the date on which a Registration Statement covering all the UnderlyingShares and other Registrable Securities (as defined in the Registration RightsAgreement) is declared effective by the SEC.

 

“EffectiveRegistration”****shall mean (i) the resale of all Registrable Securities (asdefined in the Registration Rights Agreement) is covered by an effectiveregistration statement in accordance with the terms of the Registration RightsAgreement which registration statement is not subject to any suspension or stoporder; (ii) the resale of such Registrable Securities may be effected pursuantto a current and deliverable prospectus that is not subject at the time to anyblackout or similar circumstance; and (iii) the requisite number of shares ofCommon Stock shall have been duly authorized and reserved for issuance asrequired by the terms of the Purchase Agreement and this Note.

 

“Excluded Issuances”shall mean shares of Common Stock (a) deemed to have been issued by the Companyin connection with an Approved Stock Plan (regardless of the applicableexercise or conversion price); (b) deemed to have been issued upon issuance ofthe Notes or the Warrants, issued upon conversion of the Notes or exercise ofthe Warrants or otherwise issued in connection with the transactionscontemplated in the Purchase Agreement (including any securities of the Companyissued or issuable to the Collateral Agent or any of its affiliates inconnection with consulting services to be provided to the Company);(c) issued upon exercise of Options or Convertible Securities which areoutstanding on the date immediately preceding the Issuance Date, provided thatsuch issuance of shares of Common Stock upon exercise of such Options orConvertible Securities is made pursuant to the terms of such Options orConvertible Securities in effect on the date immediately preceding the IssuanceDate, such Options or Convertible Securities are not amended after the dateimmediately preceding the Issuance Date other than with respect to Optionsoriginally issued pursuant to an Approved Stock Plan and the purchase orexercise price provided for in any such Options, the additional consideration,if any, payable upon the issue, conversion, exchange or exercise of any suchConvertible Securities, or the rate at which any Convertible Securities areconvertible into or exchangeable or exercisable for Common Stock does notchange at any time after the Issuance Date; (d) issued to the public pursuantto an underwritten offering registered pursuant to the Securities Act (but inall events

 

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excluding offerings pursuant to “equity lines” or similar products);(e) issued pursuant to a Strategic Financing; or (f) issued or deemed to beissued by the Company with the prior approval of the Required Holders.

 

“Exchange Act”shall mean the Securities Exchange Act of 1934, as amended.

 

“Issuance Date”shall mean the date of this Note.

 

 “Options” shall mean any rights,warrants or options to subscribe for or purchase common stock or ConvertibleSecurities of the Company.

 

“Payment Date”shall mean the first Trading Day of each January, April, July and October.  The first Payment Date under this Note shallbe the first Trading Day of July 2004.

 

“Principal Amount”shall refer to (i) the original principal amount of this Note, plus (ii) allaccrued but unpaid interest hereunder and any default payments owing under theAgreements but not previously paid or added to the Principal Amount, less (iii)all amounts of principal previously repaid or converted.

 

“PrincipalMarket” shall mean a principal market or exchange on which the Common Stockis then listed for trading.

 

“RegistrationStatement” shall have the meaning set forth in the Registration RightsAgreement.

 

“Required Holders”means the Holders of not less than 50% in aggregate principal amount of theNotes then outstanding exclusive of any Notes then owned by either the Companyor any of its Affiliates.

 

“Securities Act”shall mean the Securities Act of 1933, as amended.

 

“ShareholderApproval” means the approval of the stockholders of the Company at a dulyconvened meeting of stockholders of the Company, for the issuance of allSecurities as defined in the Purchase Agreement, including the issuance of theNotes.

 

“StrategicFinancing” shall mean the issuance of Common Stock or Options orConvertible Securities of the Company in connection with any acquisition by theCompany, by whatever means, of any business, assets or technologies, or to anystrategic investor, vendor, customer, lease or similar arrangement, the primarypurpose of which is not to raise equity capital.

 

“Trading Day”shall mean a day on which there is trading on the Principal Market.

 

The followingterms and conditions shall apply to this Note:

 

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Section 1.                                            Paymentsof Principal and Interest.

 

(a)                                  Interest Only Payments.  On each Payment Date beginning inJuly 2004 and continuing through and including April 2005, theCompany shall pay to the Holder all interest accrued but unpaid as of suchPayment Date on the entire Principal Amount of this Note (“Interest Amount”), in accordance withthis Section 1.

 

(b)                                 Quarterly Payments.** **On each Payment Date beginning inJuly 2005, the Company shall repay one-sixteenth (1/16) of the originalPrincipal Amount, together with interest accrued but unpaid on that PaymentDate (collectively, “Quarterly Amount”),in accordance with this Section 1.

 

(c)                                  Cash or Common Stock.  Subject to the terms hereof, the Companyshall have the right to satisfy payment of the Interest Amount in full on eachof the Payment Dates commencing July 2004 and through and including April 2005either in cash or in shares of Common Stock (but not both).  If the Company pays any Interest Amount incash on a Payment Date, then on such Payment Date the Company shall pay to theHolder an amount equal to such Interest Amount in satisfaction of suchobligation.  If the Company elects topay any Interest Amount in shares of Common Stock, the number of such shares tobe issued for such Payment Date shall be the number determined by dividing (x)the Interest Amount by (y) the Conversion Price as of such Payment Date.  Such shares shall be issued and deliveredwithin ten (10) Trading Days following such Payment Date and shall be dulyauthorized, validly issued, fully paid, non-assessable and free and clear of allencumbrances.  If any Holder does not receivethe requisite number of shares of Common Stock in the form required abovewithin such five Trading Day period, the Holder shall have the option of either(a) requiring the Company to issue and deliver all or a portion of such sharesof Common Stock, or (b) canceling such election to pay such Interest Amount inCommon Stock (in whole or in part), in which case the Company shall immediatelypay in cash the full such Interest Amount due hereunder or such portion as theHolder specifies is to be paid in cash instead of Common Stock.  Except as otherwise provided in thisSection 1, all holders of Notes must be treated the same with respect tosuch payment of the Interest Amount in shares of Common Stock.

 

(d)                                 No Payment in Stock.  Notwithstanding anything to the contraryherein, the Company shall be prohibited from paying the Interest Amount inshares of Common Stock (and must deliver cash in respect thereof) on theapplicable Payment Date if (i) at any time on or after October 1, 2004there fails to exist, on the applicable Payment Date, an EffectiveRegistration, or (ii) the Company at any time is subject to any BankruptcyEvent, unless otherwise waived in writing by the Holder in whole or in part atthe Holder’s option.

 

(e)                                  Ownership/Issuance Limitations*. *Notwithstanding anything to thecontrary herein, the Company shall be prohibited from paying the InterestAmount in shares of Common Stock (and must deliver cash in respect thereof) onthe applicable Payment Date to the extent, and only to the extent, that suchpayment in shares of Common Stock would result in the Holder hereof exceedingthe limitations contained in Section 10 below.  In such event, then the Company on the Payment Date shall paysuch portion of the Interest Amount in shares of Common Stock as may beeffected without exceeding such limitations, and at the option of the Holdereither the Payment Date for the balance of the Interest Amount shall beextended until such time as such stock payment can be made without violatingSection 10, or such balance shall be paid in cash.

 

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(f)                                    Certain Additional Payments by the Company.  Anypayment by the Company to the Holder hereunder, whether for principal, interestor otherwise, shall not be subject to any deduction, withholding or offset forany reason whatsoever except to the extent required by law, and the Companyrepresents that to its best knowledge no deduction, withholding or offset is sorequired for any tax or any other reason.

 

(g)                                 Redemption.                             (i)  In the event of a Change in ControlTransaction, the Company may redeem all or any part of the Note for aredemption price equal to the amount of the Principal Amount being so redeemed,*plus* accrued and unpaid interestthereon to the applicable redemption date. The Company shall give the Holder written notice of such redemptionunder this Section 1(g)(i) not less than ten (10) days prior to the datefixed for such redemption, in each case specifying such redemption date, thePrincipal Amount of the Notes (and accrued and unpaid interest thereon) to beredeemed and terms of such Change in Control Transaction in detail.   Upon receipt of such redemption notice, theHolder may convert, in lieu of such redemption, at any time prior to the datefixed for such redemption, all or any part of Principal Amount and accrued andunpaid interest designated by the Company for redemption.

 

(ii)  At any time after the first anniversary dateof the Closing Date, the Company may redeem, from time to time thereafter, allor any part of the Note for a redemption price equal to 120% of the amount ofthe Principal Amount being so redeemed, *plus*accrued and unpaid interest thereon to the applicable redemption date.  The Company shall give the Holder writtennotice of such redemption under this Section 1(g)(ii) not less than ten(10) days prior to the date fixed for such redemption, in each case specifyingsuch redemption date and the Principal Amount of the Note (and accrued andunpaid interest thereon) to be redeemed. Upon receipt of such redemption notice, the Holder may convert, in lieuof such redemption, at any time prior to the date fixed for such redemption,all or any part of Principal Amount and accrued and unpaid interest designatedby the Company for redemption.

 

Section 2.                                            SeniorPosition/Subsequent Debt.  The Notes are and shall be senior to allother indebtedness of the Company.  Solong as any Principal Amount of Notes is outstanding, the Company shall notdirectly or indirectly, without the consent of the Required Holders, incur orpermit to exist any indebtedness which is senior to the Notes, or incur, assumeor permit to exist any lien, mortgage, security interest or encumbrance (otherthan statutory liens imposed by law incurred in the ordinary course of businessfor sums not yet delinquent or being contested in good faith, if such reserveor other appropriate provision, if any, as shall be required by GAAP shall havebeen made in respect thereof) on any of its assets, except for capital leases,financing for equipment and purchase money security interests.

 

Section 3.                                            Conversion.

 

(a)  Conversion Right.  Subject to the terms hereof and restrictionsand limitations contained herein, the Holder shall have the right, at suchHolder’s option, at any time, commencing immediately following ShareholderApproval, to convert the outstanding Principal Amount  under this Note in whole or in part (provided that in no eventshall a conversion pursuant to this Section 3(a) be for less than thelower of (i) the remaining Principal Amount and

 

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all accrued and unpaidinterest, or (ii) $50,000.00) at the then applicable Conversion Price bydelivering to the Company a fully executed notice of conversion in the form ofconversion notice attached hereto as Exhibit A (the “ConversionNotice”), which may be initially transmitted by facsimile (provided theoriginal Conversion Notice and this Note is delivered to the Company within 3Trading Days following such facsimile transmission).  Notwithstanding anything to the contrary herein, this Note and theoutstanding Principal Amount and all accrued but unpaid interest hereundershall not be convertible into Common Stock to the extent that such conversionwould result in the Holder hereof exceeding the limitations contained in, orotherwise violating the provisions of, Section 10 below.  For clarification purposes, any partialconversions of the outstanding Principal Amount under this Note pursuant tothis Section 3(a) shall not affect the Company’s obligation to repay theQuarterly Amount as it relates to the remaining Principal Amount as provided inSection 1 above.

 

(b)  Mandatory Conversion.   Immediately following Shareholder Approval,$[18,500 per each whole unit] of the Principal Amount of this Note shallautomatically convert into Common Stock at the then applicable Conversion Pricewithout the necessity or requirement to execute or deliver a Conversion Notice(the “Mandatory Conversion”).  In theevent such Shareholder Approval occurs prior to September 30, 2004 and theMilestone is not achieved on or before September 30, 2004, the number ofshares issuable upon such Mandatory Conversion shall be adjusted prospectivelyas of September 30, 2004 to reflect a Conversion Price of $1.38 (subjectto any adjustments required as of the Mandatory Conversion Date pursuant toSection 4 hereof) and such Additional Shares shall be issued and deliveredto the Holder on or before October 10, 2004.  The conversion limitations set forth in Section 10 of thisNote shall under no circumstances limit or prevent the full MandatoryConversion in accordance with this Section 3(b).

 

(c)   Common Stock Issuance upon Conversion.

 

(i)             Conversion Date Procedures.  Upon conversion of this Note pursuant toSection 3(a) above, the outstanding Principal Amount hereunder shall beconverted into such number of fully paid, validly issued and non-assessableshares of Common Stock, free of any liens, claims and encumbrances  as is determined by dividing the outstandingPrincipal Amount being converted by the Conversion Price.  The date of any Conversion Notice hereundershall be referred to herein as the “Conversion Date”.  If a conversion under this Note cannot be effected in full inaccordance with the terms hereof, or if the Holder is converting less than allof the outstanding Principal Amount hereunder pursuant to a Conversion Notice,the Company shall promptly deliver to the Holder (but no later than ten TradingDays after the Conversion Date) a Note (containing the same terms as the Noteherein) for such outstanding Principal Amount as has not been converted if thisNote has been surrendered to the Company for partial conversion.  The Holder shall surrender this Note to theCompany within 3 Trading Days of any conversion, in whole or in part.  The Company shall return a Note of lesserprincipal amount, having taken the conversion amount out of the face amount ofthe surrender Note, if any.

 

(ii)          Stock Certificates or DWAC. Providing that an Effective Registration Statement is effective, orproviding the Conversion Notice is dated more than two (2) years after theIssuance Date (provided the Holder is not then deemed an affiliate of theCompany in the case of reliance on the 2-year holding period), the Company willdeliver to the Holder not later

 

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than five (5) TradingDays after the Conversion Date, a certificate or certificates which shall befree of restrictive legends and trading restrictions, representing the number ofshares of Common Stock being acquired upon the conversion of this Note.  In lieu of delivering physical certificatesrepresenting the shares of Common Stock issuable upon conversion of this Note,provided the Company’s transfer agent is participating in the Depository TrustCompany (“DTC”) Fast Automated Securities Transfer (“FAST”) program, uponrequest of the Holder, the Company shall use commercially reasonable efforts tocause its transfer agent to electronically transmit such shares issuable upon conversionto the Holder (or its designee), by crediting the account of the Holder’s (orsuch designee’s) prime broker with DTC through its Deposit Withdrawal AgentCommission system (provided that the same time periods herein as for stockcertificates shall apply).  If in thecase of any conversion hereunder, such certificate or certificates are notdelivered to or as directed by the Holder by the fifth Trading Day after theConversion Date, the Holder shall be entitled by written notice to the Companyat any time on or before its receipt of such certificate or certificatesthereafter, to rescind such conversion, in which event the Company shallimmediately return this Note tendered for conversion.  If the Company fails to deliver to the Holder such certificate orcertificates (or shares through DTC) pursuant to this Section 3(c) (freeof any restrictions on transfer or legends, if such shares have been registeredor if the Note has been held beyond two years from the Issuance Date) inaccordance herewith, prior to the sixth Trading Day after the Conversion Date(other than by reason of any failure, breach or omission on the part of Holderor its agent), the Company shall pay to the Holder, in cash, an amount equal to..25% of the Principal Amount subject to such conversion for each trading daythereafter until such certificate(s) or shares through DTC are delivered to theHolder or until the conversation is rescinded by the Holder, whichever shallfirst occur.

 

Section 4.                                            ConversionPrice Adjustments.

 

(a)                                  Stock Dividends, Splits and Combinations.  If the Company, at any time while the Notesare outstanding (A) shall pay a stock dividend or otherwise make a distributionor distributions on any equity securities (including instruments or securitiesconvertible into or exchangeable for such equity securities) in shares ofCommon Stock, (B) subdivide outstanding Common Stock into a larger number ofshares, or (C) combine outstanding Common Stock into a smaller number ofshares, then the Conversion Price in effect immediately prior to such eventshall be adjusted to a number equal to such Conversation Price multiplied by afraction, the numerator of which shall be the number of shares of Common Stockoutstanding before such event and the denominator of which shall be the numberof shares of Common Stock outstanding after such event.  Any adjustment made pursuant to thissection shall become effective immediately after the record date for thedetermination of stockholders entitled to receive such dividend or distributionand shall become effective immediately after the effective date in the case ofa subdivision or combination.

 

(b)                                 Distributions.  If the Company, at any time while the Notesare outstanding, shall distribute to all holders of Common Stock evidences ofits indebtedness or assets or cash or rights or warrants to subscribe for orpurchase any security of the Company, then concurrently with such distributionsto holders of Common Stock, the Company shall distribute to holders of theNotes the amount of such indebtedness, assets, cash or rights or warrants whichthe holders of Notes would have received had all their Notes been convertedinto

 

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Common Stock at theConversion Price immediately prior to the record date for such distribution.

 

(c)                                  AntidilutionAdjustment of Conversion Price upon Issuance of Common Stock.* *Ifand whenever in the period commencing after the Issuance Date and ending 24months thereafter (the “Antidilution Period”), the Company issues or sells, orin accordance with this Section 4 is deemed to have issued or sold, anyshares of Common Stock, with the exception of Excluded Issuances, for aconsideration per share (the “New Securities Issuance Price”) less than theConversion Price in effect immediately prior to such time (each such sale orissuance, a “Dilutive Issuance”), then concurrent with such Dilutive Issuance,the Conversion Price then in effect shall be reduced to an amount equal to theNew Securities Issuance Price.  If theCompany, in the period following the Antidilution Period and ending upon fullpayment of the Note, intends to issue or sell shares for a New SecuritiesIssuance Price which would result in a Dilutive Issuance (other than ExcludedIssuances), it shall first give notice to the Holder of such intended saleand/or issuance and the terms thereof, and the Holder shall have the right bygiving notice to the Company within ten (10) days thereafter, to purchase aportion of such securities under the same terms, which portion shall be basedupon the Holder’s proportionate shareholding of the Company, as if each Holderhad converted the Principal Amount of the then outstanding Notes immediatelyprior to such sale or issuance.

 

For purposes ofdetermining the adjusted Conversion Price under this Section 4 during theAntidilution Period, the following shall be applicable:

 

(i)                                     Issuanceof Options.  If the Company in anymanner grants or sells any Options (other than Excluded Issuances) and thelowest price per share for which one share of Common Stock is issuable upon theexercise of any such Option or upon conversion, exchange or exercise of anyConvertible Securities issuable upon exercise of such Option is less than theConversion Price in effect immediately prior to such Dilutive Issuance, thensuch share of Common Stock shall be deemed to be outstanding and to have beenissued and sold by the Company at the time of the granting or sale of suchOption for such price per share.  Forpurposes of this Section 4(c)(i), the “lowest price per share for whichone share of Common Stock is issuable upon the exercise of any such Option orupon conversion, exchange or exercise of any Convertible Securities issuableupon exercise of such Option” shall be equal to the sum of the lowest amountsof consideration (if any) received or receivable by the Company with respect toany one share of Common Stock upon granting or sale of the Option, uponexercise of the Option and upon conversion, exchange or exercise of anyConvertible Security issuable upon exercise of such Option.  No further adjustment of the ConversionPrice shall be made upon the actual issuance of such Common Stock or of suchConvertible Securities upon the exercise of such Options or upon the actualissuance of such Common Stock upon conversion, exchange or exercise of suchConvertible Securities.

 

(ii)                                  Issuanceof Convertible Securities.  If theCompany in any manner issues or sells any Convertible Securities (other thanExcluded Issuances) and the lowest price per share for which one share ofCommon Stock is issuable upon such conversion, exchange or exercise thereof isless than the Conversion Price in effect immediately prior to such DilutiveIssuance, then such share of Common Stock shall be deemed to be outstanding andto have been issued and sold by the Company at the time of the issuance of saleof such Convertible Securities

 

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for such price pershare.  For the purposes of thisSection 4(c)(ii), the “lowest price per share for which one share ofCommon Stock is issuable upon such conversion, exchange or exercise” shall beequal to the sum of the lowest amounts of consideration (if any) received orreceivable by the Company with respect to any one share of Common Stock upon theissuance or sale of the Convertible Security and upon the conversion, exchangeor exercise of such Convertible Security. No further adjustment of the Conversion Price shall be made upon theactual issuance of such Common Stock upon conversion, exchange or exercise ofsuch Convertible Securities, and if any such issue or sale of such ConvertibleSecurities is made upon exercise of any Options for which adjustment of theConversion Price had been or is to be made pursuant to other provisions of thisSection 6(a), no further adjustment of the Conversion Price shall be madeby reason of such issue or sale.

 

(iii)                               Changein Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, theadditional consideration, if any, payable upon the issue, conversion, exchangeor exercise of any Convertible Securities, or the rate at which any ConvertibleSecurities are convertible into or exchangeable or exercisable for Common Stockchanges at any time (other than Excluded Issuances, in each case), theConversion Price in effect at the time of such change shall be adjusted to theConversion Price which would have been in effect at such time had such Optionsor Convertible Securities provided for such changed purchase price, additionalconsideration or changed conversion rate, as the case may be, at the timeinitially granted, issued or sold.  Forpurposes of this Section 4(c)(iii), if the terms of any Option orConvertible Security that was outstanding as of the Issuance Date are changedin the manner described in the immediately preceding sentence, then such Optionor Convertible Security and the Common Stock deemed issuable upon exercise,conversion or exchange thereof shall be deemed to have been issued as of thedate of such change.  On the expirationof any Option or Convertible Security not exercised, the applicable ConversionPrice then in effect shall forthwith be increased to the Conversion Price thatwould have been in effect at the time of such expiration had such Stock PurchaseRights or Convertible Securities never been issued.  No adjustment shall be made if such adjustment would increase theapplicable Conversion Price by an amount in excess of the adjustment originallymade to the Conversion Price in respect of the issue, sale or grant of theapplicable Option or Convertible Security. Notwithstanding anything to the contrary herein, in no event shall anadjustment to the Conversion Price be made retroactively with respect to anyportion of the Note converted to Common Stock or repaid in Common Stock priorto the actual date of the dilutive issuance or change.  In addition, to clarify for purposes of thisSection 4, if an Option or Convertible Security has a price reset orsimilar provision that would cause the price to adjust based on a future eventor contingency, then the “lowest price per share for which one share of CommonStock is issuable upon the exercise of any such Option or upon conversion,exchange or exercise of any Convertible Securities issuable upon exercise ofsuch Option” shall not become such adjusted price unless and until thehappening of such event or contingency that actually gives effect to theadjustment.

 

(iv)                              Calculationof Consideration Received.  In caseany Option is issued in connection with the issue or sale of other securitiesof the Company, together comprising one integrated transaction in which nospecific consideration is allocated to such Options by the parties thereto,then solely for purposes of this Section 4, the Options will be deemed tohave been issued for a consideration equal to the exercise price of suchOption.  If any Common Stock, Options orConvertible Securities are issued or sold or deemed to have been

 

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issued or sold for cash,the consideration received therefor will be deemed to be the gross amountreceived by the Company therefor.  Ifany Common Stock, Options or Convertible Securities are issued or sold for aconsideration other than cash, the amount of the consideration other than cashreceived by the Company will be the fair value of such consideration, exceptwhere such consideration consists of marketable securities, in which case theamount of consideration received by the Company will be the arithmetic averageof the Closing Sale Prices of such securities during the ten (10) consecutivetrading days ending on the date of receipt of such securities.  The fair value of any consideration otherthan cash or securities will be determined jointly by the Company and RequiredHolders in good faith.  If such partiesare unable to reach agreement within ten (10) days after the occurrence of anevent requiring valuation (the “Valuation Event”), the fair value of suchconsideration will be determined within five Business Days after the tenth(10th) day following the Valuation Event by an independent, reputable appraiserselected by the Company and the Required Holders.  The determination of such appraiser shall be deemed binding uponall parties absent manifest error and the fees and expenses of such appraisershall be borne equally by the Company and the Required Holders.

 

(d)                                 Rounding of Adjustments.** **Allcalculations under this Section 4 or Section 1 shall be made to thenearest cent or the nearest 1/100th of a share, as the case may be.

 

(e)                                  Notice of Adjustments.** **Wheneverany Conversion Price is adjusted as provided herein, the Company shall promptlydeliver to each holder of the Notes, a notice setting forth the ConversionPrice after such adjustment and setting forth a brief statement of the factsrequiring such adjustment, provided that any failure to so provide such noticeshall not affect the automatic adjustment hereunder.

 

(f)                                    Change in Control Transactions. In case of any Change in Control Transaction, the Holder shall have theright thereafter to  convert this Note(unless and until the Note has already been redeemed pursuant to the terms ofthis Note), in whole or in part, at the then applicable Conversion Price intothe shares of stock and other securities, cash and/or property receivable uponor deemed to be held by holders of Common Stock following such Change inControl Transaction, and the Holder shall be entitled upon such event toreceive such amount of securities, cash or property as the shares of the CommonStock of the Company into which this Note could have been converted immediatelyprior to such Change in Control Transaction would have been entitled if suchconversion were permitted, subject to such further applicable adjustments setforth in this Section 4.  The termsof any such Change in Control Transaction shall include such terms so as tocontinue to give to the Holders the right to receive the amount of securities,cash and/or property upon any conversion or redemption following such Change inControl Transaction to which a holder of the number of shares of Common Stockdeliverable upon such conversion would have been entitled in such Change inControl Transaction, and interest payable hereunder shall be in cash or suchnew securities and/or property, at the Holder’s option.  This provision shall similarly apply tosuccessive reclassifications, consolidations, mergers, sales, transfers orshare exchanges.

 

(g)  Notice of Certain Events.  If:

 

A.                                   theCompany shall declare a dividend (or any other distribution) on its CommonStock; or

 

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B.                                     theCompany shall declare a special nonrecurring cash dividend on or a redemptionof its Common Stock; or

 

C.                                     theCompany shall authorize the granting to all holders of the Common Stock rightsor warrants to subscribe for or purchase any shares of capital stock of anyclass or of any rights; or

 

D.                                    theapproval of any stockholders of the Company shall be required in connectionwith any reclassification of the Common Stock of the Company, any consolidationor merger to which the Company is a party, any sale or transfer of all orsubstantially all of the assets of the Company, of any compulsory share ofexchange whereby the Common Stock is converted into other securities, cash orproperty; or

 

E.                                      theCompany shall authorize the voluntary or involuntary dissolution, liquidationor winding up of the affairs of the Company,

 

F.                                      theCompany shall issue securities constituting a Dilutive Issuance,

 

then the Company shallcause to be filed at each office or agency maintained for the purpose ofconversion of this Note, and shall cause to be mailed to the Holder at its lastaddress as it shall appear upon the books of the Company, on or prior to thedate notice to the Company’s stockholders generally is given, a notice stating(x) the date on which a record is to be taken for the purpose of such dividend,distribution, redemption, rights or warrants, or if a record is not to betaken, the date as of which the holders of Common Stock of record to beentitled to such dividend, distributions, redemption, rights or warrants are tobe determined or (y) the date on which such reclassification, securitiesissuance, consolidation, merger, sale, transfer or share exchange is expectedto become effective or close, and the date as of which it is expected thatholders of Common Stock of record shall be entitled to exchange their shares ofCommon Stock for securities, cash or other property deliverable upon suchreclassification, consolidation, merger, sale, transfer or share exchange.

 

Section 5.                                            Reservationand Issuance of Underlying Securities. The Company covenants that it will at all times reserve and keepavailable out of its authorized and unissued Common Stock solely for thepurpose of issuance upon conversion of this Note (including repayments instock), free from preemptive rights or any other actual contingent purchaserights of persons other than the holders of the Notes, not less than suchnumber of shares of Common Stock as shall (subject to any additionalrequirements of the Company as to reservation of such shares set forth in thePurchase Agreement) be issuable (taking into account the adjustments under thisSection 4 but without regard to any ownership limitations contained herein)upon the conversion of this Note hereunder in Common Stock (includingrepayments in stock).  The Companycovenants that all shares of Common Stock that shall be so issuable shall, uponissue, be duly authorized, validly issued, fully paid and nonassessable.

 

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Section 6.                                            NoFractions.  Upon a conversionhereunder the Company shall not be required to issue stock certificatesrepresenting fractions of shares of Common Stock, but may if otherwisepermitted, make a cash payment in respect of any final fraction of a sharebased on the closing price of a share of Common Stock at such time.  If the Company elects not, or is unable, tomake such a cash payment, the Holder shall be entitled to receive, in lieu ofthe final fraction of a share, one whole share of Common Stock.

 

Section 7.                                            Charges,Taxes and Expenses.  Issuance ofcertificates for shares of Common Stock upon the conversion of this Note(including repayment in stock) shall be made without charge to the holderhereof for any issue or transfer tax or other incidental expense in respect ofthe issuance of such certificate, all of which taxes and expenses shall be paidby the Company, and such certificates shall be issued in the name of the Holderor in such name or names as may be directed by the Holder; provided, however,that in the event certificates for shares of Common Stock are to be issued in aname other than the name of the Holder, this Note when surrendered forconversion shall be accompanied by an assignment form; and providedfurther,that the Company shall not be required to pay any tax or taxes which may bepayable in respect of any such transfer.

 

Section 8.                                            Cancellation.  After all of the Principal Amount (includingaccrued but unpaid interest and default payments at any time owed on this Note)have been paid in full or converted into Common Stock, this Note shallautomatically be deemed canceled and the Holder shall promptly surrender theNote to the Company at the Company’s principal executive offices.

 

Section 9.                                            NoticesProcedures.  Any and all notices orother communications or deliveries to be provided by the Holder hereunder,including, without limitation, any Conversion Notice, shall be in writing anddelivered personally, by confirmed facsimile, or by a nationally recognizedovernight courier service to the Company at the facsimile telephone number oraddress of the principal place of business of the Company as set forth in thePurchase Agreement.  Any and all noticesor other communications or deliveries to be provided by the Company hereundershall be in writing and delivered personally, by facsimile, or by a nationallyrecognized overnight courier service addressed to the Holder at the facsimiletelephone number or address of the Holder appearing on the books of theCompany, or if no such facsimile telephone number or address appears, at theprincipal place of business of the Holder. Any notice or other communication or deliveries hereunder shall bedeemed delivered (i) upon receipt, when delivered personally, (ii) when sent byfacsimile, upon receipt if received on a Business Day prior to 5:00 p.m.(Eastern Time), or on the first Business Day following such receipt if receivedon a Business Day after 5:00 p.m. (Eastern Time) or (iii) upon receipt, whendeposited with a nationally recognized overnight courier service.

 

Section 10.                                      ConversionLimitations.

 

9.9%Limitation.  Notwithstandinganything to the contrary contained herein, the number of shares of Common Stockthat may be acquired by the Holder upon any conversion pursuant to the termshereof, other than the Mandatory Conversion (which shall be given effectregardless of the limits otherwise imposed by this Section 10, unlesswaived in writing by the Company) shall not exceed a number that, when added tothe total number of shares of Common Stock deemed beneficially owned by suchHolder (other than by virtue of the ownership of

 

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securities or rights toacquire securities (including the Notes and Warrants) that have limitations onthe Holder’s right to convert, exercise or purchase similar to the limitationset forth herein), together with all shares of Common Stock deemed beneficiallyowned at such time (other than by virtue of the ownership of securities orrights to acquire securities that have limitations on the right to convert,exercise or purchase similar to the limitation set forth herein) by theholder’s “affiliates” at such time (as defined in Rule 144 of the Act) (“Aggregation Parties”) that would beaggregated for purposes of determining whether a group under Section 13(d)of the Securities Exchange Act of 1934 as amended, exists, would exceed 9.9% ofthe total issued and outstanding shares of the Common Stock (the “Restricted Ownership Percentage”),unless, at the time such additional shares of Common Stock may be acquired bythe Holder upon any conversion pursuant to the terms hereof, Holder has alreadyexceeded the Restricted Ownership Percentage. Each holder shall have the right (w) at any time and from time to timeto reduce its Restricted Ownership Percentage immediately upon notice to theCompany and (x) (subject to waiver) at any time and from time to time, toincrease its Restricted Ownership Percentage immediately in the event of theannouncement as pending or planned, of a Change in Control Transaction.

 

Section 11.                                      Defaultsand Remedies.

 

(a)                                  Eventsof Default.                                                An“Event of Default” is:  (i) a default in payment of any amount duehereunder which default continues uncured for more than 5 Trading Days afterthe due date thereof; (ii) a default in the timely issuance of UnderlyingShares upon and in accordance with terms hereof, within ten Trading Daysfollowing a Conversion Date; (iii) failure by the Company for ten Trading Daysafter written notice has been received by the Company to comply with anymaterial provision of any of the Notes, the Purchase Agreement, theRegistration Rights Agreement, the Security Agreement, any other SecurityDocument or the Warrants (including without limitation the failure to issue therequisite number of shares of Common Stock upon conversion hereof and thefailure to redeem Notes upon the Holder’s request following a Change in ControlTransaction); (iv) a material breach by the Company of its covenants,representations or warranties in the Purchase Agreement, Registration RightsAgreement, the Security Agreement, any other Security Document or Warrants thatremains uncured 10 Trading Days following receipt by the Company of written noticeof such breach; (v) if the Company is subject to any Bankruptcy Event; (vi) aviolation of section 2 hereof; or (vii) in the event Shareholder Approvalshall not have occurred on or before June 1, 2004, provided in the eventthe SEC shall have elected to review the Company’s submission regarding suchShareholder Approval, the foregoing date shall be August 1, 2004.

 

(b)                                 Remedies.                                          Ifan Event of Default occurs and is continuing with respect to any of the Notes,the Required Holders may declare all of the then outstanding Principal Amountof this Note and all other Notes held by the Holders, including any interestdue thereon, to be due and payable immediately (“Event of Acceleration”).  The Company shall pay interest on suchamount in cash at the Default Rate to the Holder if such amount is not paidwithin 7 Trading Days thereafter.  Theremedies under this Note shall be cumulative.

 

Section 12.                                      General.

 

(a)                                  Paymentof Expenses.  The Company agrees topay all reasonable, documented charges and expenses, including attorneys’ feesand expenses, which may be

 

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incurred by the Holder insuccessfully enforcing this Note and/or collecting any amount due under thisNote.

 

(b)                                 SavingsClause.  In case any provision ofthis Note is held by a court of competent jurisdiction to be excessive in scopeor otherwise invalid or unenforceable, such provision shall be adjusted ratherthan voided, if possible, so that it is enforceable to the maximum extentpossible, and the validity and enforceability of the remaining provisions ofthis Note will not in any way be affected or impaired thereby.  In no event shall the amount of interestpaid hereunder exceed the maximum rate of interest on the unpaid principalbalance hereof allowable by applicable law. If any sum is collected in excess of the applicable maximum rate, theexcess collected shall be applied to reduce the principal debt.  If the interest actually collected hereunderis still in excess of the applicable maximum rate, the interest rate shall bereduced so as not to exceed the maximum allowable under law.

 

(c)                                  Amendment.  Neither this Note nor any term hereof may beamended, waived, discharged or terminated other than by a written instrumentsigned by the Company and the Holder, provided, this Note and all theother Notes issued pursuant to the Purchase Agreement (but not less than allsuch Notes outstanding) may be amended from time to time upon the writtenconsent of the Company and the Required Holders.

 

(d)                                 Assignment,etc.  The Holder may assign ortransfer this Note to any transferee (other than to competitors or vendors ofthe Company).  The Holder shall notifythe Company of any such assignment or transfer promptly.  This Note shall be binding upon the Companyand its successors and shall inure to the benefit of the Holder and itssuccessors and  assigns.

 

(e)                                  NoWaiver.  No failure on the part ofthe Holder to exercise, and no delay in exercising any right, remedy or powerhereunder shall operate as a waiver thereof, nor shall any single or partialexercise by the Holder of any right, remedy or power hereunder preclude anyother or future exercise of any other right, remedy or power.  Each and every right, remedy or power herebygranted to the Holder or allowed it by law or other agreement shall becumulative and not exclusive of any other, and may be exercised by the Holderfrom time to time.

 

(f)                                    GoverningLaw; Jurisdiction.

 

(i)                                     Governing Law.* *Thisnote will be governed by and construed in accordance with the laws of the Stateof New York without regard to any conflicts of laws provisions thereof thatwould otherwise require the application of the law of any other jurisdiction.

 

(ii)                                  No Jury Trial. The Company hereto knowingly and voluntarily waives any and all rightsit may have to a trial by jury with respect to any litigation based on, orarising out of, under, or in connection with, this Note.

 

(g)                                 ReplacementNotes.  This Note may be exchangedby Holder at any time and from time to time for a Note or Notes with differentdenominations representing an equal aggregate outstanding Principal Amount, asreasonably requested by Holder, upon surrendering the same.  No service charge will be made for the firstsuch registration or exchange; thereafter, the Holder shall reimburse theCompany for its reasonable document fees and expenses (including transfer agentand legal fees and expenses).  In theevent that Holder notifies the Company that this Note has been lost, stolen or destroyed,a replacement Note identical in all respects to the original Note (except forregistration number and Principal Amount, if different than that shown on theoriginal Note), shall be issued to the Holder, provided that the Holderexecutes and delivers to the Company an agreement reasonably satisfactory tothe Company to indemnify the Company from any loss incurred by it in connectionwith the Note.

 

*[Signature Page Follows]*

 

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**IN WITNESS WHEREOF**,the Company has caused this Note to be duly executed on the day and in the yearfirst above written.

 
|        | VCampus Corporation |
|-------------|---------------------|
|        |                |
|        |                |
|        | By:                 |   |
|        | Name:               |
|        | Title:              |
|        |                |
|        |                |
| *Attest*:   |                |
|        |                |
|        |                |
| Sign:       |                |   |   |
| Print Name: |                |
|             |                     |  |  |  |

 

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**EXHIBITA**

 

**FORMOF CONVERSION NOTICE**

 

(To be executed by theHolder

in order to convert aNote)

 

Re:                               Note(this “Note”) issued by VCampus Corporation to                                    on or about  March       ,2004 in the original principal amount of $[118,500 per each whole unit].

 

The undersigned herebyelects to convert the aggregate outstanding Principal Amount (as defined in theNote) indicated below of this Note into shares of Common Stock, $0.01 par valueper share (the “Common Stock”), of VCampus Corporation (the “Company”)according to the conditions hereof, as of the date written below.  If shares are to be issued in the name of aperson other than undersigned, the undersigned will pay all transfer taxespayable with respect thereto and is delivering herewith such certificates andopinions as reasonably requested by the Company in accordance therewith.  No fee will be charged to the holder for anyconversion, except for such transfer taxes, if any.

 
| Conversion information: |                                                     |
|-------------------------|----------------------------------------------------------|
|                    | Date to Effect  Conversion                               |
|                    |                                                     |
|                    |                                                     |
|                    | Aggregate Principal  Amount of Note Being Converted      |
|                    |                                                     |
|                    |                                                     |
|                    | Number of Shares of  Common Stock to be Issued |
|                    |                                                     |
|                    |                                                     |
|                    | Applicable Conversion  Price                             |
|                    |                                                     |
|                    |                                                     |
|                    | Signature                                                |
|                    |                                                     |
|                    |                                                     |
|                    | Name                                                     |
|                    |                                                     |
|                    |                                                     |
|                    | Address                                                  |

 

 

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**EXHIBIT B**

 

**FORM OF REPAYMENT ELECTION NOTICE**

 

 
| To:    | **[Holder at Holder’s Address]** |
|--------|---------------------------------------|
|   |                                  |
| Date:  |                                  |   |

 

 

Pursuant toSection 1 of Note No.          of VCampus Corporation  issued to you(or your assignor or predecessor-in-interest) on March 23, 2004, we herebynotify you that we are irrevocably electing to repay the outstanding InterestAmount (as defined in the Note) due on the Payment Date (as defined in theNote) which occurs on                        ,200    (*check one*):

 
|   | o      | In full in cash on such  Payment Date.                                |
|--------|--------|-----------------------------------------------------------------------|
|   |   |                                                                  |
|   | o      | In full in shares of  the Company’s Common Stock within ten (10) |
|   |   | Trading Days following  such Payment Date.                            |

 

 
|   | VCampus Corporation |
|--------|---------------------|
|   |                |
|   | By:                 |   |
|   | Name:               |
|   | Title:              |

 

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