**Exhibit10.96**

 

**SECURITY AGREEMENT**

 

SECURITY AGREEMENT dated asof March 23, 2004 by and between VCAMPUS CORPORATION, a Delaware corporation(the “**Company**”), and SHERLEIGH ASSOCIATES, LLC, in its capacity as the collateral agent forthe Secured Parties referred to below (together with its successors in suchcapacity, the “**Collateral Agent**”).

 

**RECITALS****:**

 

A.            Pursuant to thePurchase Agreement dated as of the date hereof (including all annexes, exhibitsand schedules thereto, as from time to time amended, restated, supplemented orotherwise modified, the “**PurchaseAgreement**”) among the Company, the purchasers referred totherein (the “**Purchasers**”)and the Collateral Agent, the Company has agreed to issue, and subject to theterms thereof, the Purchasers have agreed to purchase (a) $2,399,625 aggregateprincipal amount of the Company’s 2004 Series A Senior Secured ConvertibleNotes due April 1, 2009 (the “**Series A Notes**”),and (b) up to $1,250,000 aggregate principal amount of the Company’s 2004Series B Senior Secured Convertible Notes due April 1, 2009 (the “**Series BNotes**”, and together with the Series A Notes, the “**Notes**”);

 

B.            As a condition tothe Purchasers’ obligation to purchase the Notes, the Purchasers have requiredand the Company has agreed to execute and deliver this Security Agreement toprovide collateral security for the obligation of the Company under the Notes,the Purchase Agreement, this Security Agreement, the Technology CollateralEscrow Agreement and any other agreements entered into, now or in the future bythe Company in connection with this Security Agreement or the PurchaseAgreement (the “**Note Documents**”).

 

NOW, THEREFORE, in consideration of the premises and mutual covenantsherein contained and for other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the parties hereto agree asfollows:

 

Section 1*. *DefinedTerms*. *Terms defined in the PurchaseAgreement and not otherwise defined in this Security Agreement (including AnnexA hereto) are used herein as therein defined. All other terms contained in this Security Agreement, unless the contextindicates otherwise, have the meanings provided for by the Code to the extentthe same are used or defined therein.

 

Section 2*. *GrantOf Lien*. *(a)**To secure the prompt andcomplete payment, performance and observance when due (whether at statedmaturity, by acceleration or otherwise) of all of its Secured Obligations, theCompany hereby grants, assigns, conveys, mortgages, pledges, hypothecates andtransfers to the Collateral Agent, for itself and the benefit of all otherSecured Parties, a security interest in all of its right, title and interestin, to and under all personal property and other assets, whether now owned byor owing to, or hereafter acquired by or arising in favor of the Company(including under any trade names, styles or derivations thereof), and whetherowned or consigned by or to, or leased from or to, the Company, and regardlessof where located (all of which being hereinafter collectively referred to asthe “**Collateral**”),including:

 

----

 

(i)            all Pledged Stock(other than for Subsidiaries that have ceased operations and have no materialassets);

 

(ii)           all Accounts;

 

(iii)          all Chattel Paper;

 

(iv)          all Documents;

 

(v)           all General Intangibles(including payment intangibles and Software);

 

(vi)          all Goods (includingInventory and Equipment);

 

(vii)         all Instruments;

 

(viii)        all InvestmentProperty;

 

(ix)           all DepositAccounts of the Company, including all deposits therein;

 

(x)            all IntellectualProperty;

 

(xi)           all money, cash orcash equivalents of the Company;

 

(xii)          all SupportingSecured Obligations and Letter-of-Credit Rights of the Company;

 

(xiii)         all books andrecords pertaining to the Collateral;

 

(xiv)        the Commercial TortClaims; and

 

(xv)         to the extent nototherwise included, all Proceeds, tort claims, insurance claims and otherrights to payments not otherwise included in the foregoing and products of theforegoing and all accessions to, substitutions and replacements for, and rentsand profits of, each of the foregoing.

 

Notwithstandingthe foregoing, the security interest granted herein does not extend to, and theterm “Collateral” does not include, any license or contract rights tothe extent (i) the granting of a security interest therein would be contrary toapplicable law, or (ii) that such rights are non-assignable by their terms (butonly to the extent such prohibition is enforceable under applicable law withoutthe consent of the licensor or other party).

 

(b)        In addition, to secure the prompt and complete payment,performance and observance of the Secured Obligations and in order to inducethe Collateral Agent and Purchasers as aforesaid, the Company hereby grants tothe Collateral Agent, for itself and the benefit of the Purchasers, a right ofsetoff against the property of the Company held by the Collateral Agent or anyPurchaser, consisting of property described above in Section 2(a) now orhereafter in the possession or custody of or in transit to the Collateral Agentor any Purchaser, for any purpose, including safekeeping, collection or pledge,for the account of the Company, or as to which the Company may have any rightor power.

 

2

----

 

Section 3. Collateral Agent’s And Purchasers’ Rights: Limitations On TheCollateral Agent’s And Purchasers’ Obligations.  

 

(a)        It is expressly agreed by the Company that, anything hereinto the contrary notwithstanding, the Company shall remain liable under each ofits Contracts and each of its Licenses to observe and perform all theconditions and obligations to be observed and performed by it thereunder.  Neither the Collateral Agent nor any otherSecured Party shall have any obligation or liability under any Contract orLicense by reason of or arising out of this Security Agreement or the grantingherein of a Lien thereon or the receipt by the Collateral Agent or any otherSecured Party of any payment relating to any Contract or License pursuanthereto.  Neither the Collateral Agentnor any other Secured Party shall be required or obligated in any manner toperform or fulfill any of the obligations of the Company under or pursuant toany Contract or License, or to make any payment, or to make any inquiry as tothe nature or the sufficiency of any payment received by it or the sufficiencyof any performance by any party under any Contract or License, or to present orfile any claims, or to take any action to collect or enforce any performance orthe payment of any amounts which may have been assigned to it or to which itmay be entitled at any time or times.

 

(b)        The Collateral Agent may at any time after an Event ofDefault (as such term is defined in the Notes) has occurred and be continuing,without prior notice to the Company, notify Account Debtors and other Personsobligated on the Collateral that the Collateral Agent has a security interesttherein, and that payments shall be made directly to the Collateral Agent.  At any time after an Event of Default hasoccurred and be continuing, upon the request of the Collateral Agent, theCompany shall so notify Account Debtors and other Persons obligated onCollateral.  Once any such notice hasbeen given to any Account Debtor or other Person obligated on the Collateral,the Company shall not give any contrary instructions to such Account Debtor orother Person without the Collateral Agent’s prior written consent.

 

(c)        The Collateral Agent may at any time in the CollateralAgent’s own name, in the name of a nominee of the Collateral Agent or in the nameof the Company communicate with Account Debtors, parties to Contracts andobligors in respect of Instruments to verify with such Persons, to theCollateral Agent’s satisfaction, the existence, amount and terms of, and anyother matter relating to, Accounts, payment intangibles, Instruments or ChattelPaper.

 

Section 4*. *RepresentationsAnd Warranties*. *The Companyrepresents and warrants that:

 

(a)        The Company has rights in and the power to transfer, and isthe sole beneficial owner of, each item of the Collateral upon which itpurports to grant a Lien hereunder free and clear of any and all Liens (otherthan Permitted Liens or as set forth on the attached Schedule 4(a)).

 

(b)        No effective security agreement, financing statement,equivalent security or Lien instrument or continuation statement covering allor any part of the Collateral is on file or of record in any public office,except such as may have been filed by the Company in favor of the CollateralAgent pursuant to this Security Agreement or the other Note Documents or as setforth on the attached Schedule 4(b).

 

(c)        This Security Agreement is effective to create a valid andcontinuing Lien on and, upon the filing of appropriate financing statementswith the governmental offices listed on

 

3

----

 

Schedule I hereto, a perfected Lien in favor of theCollateral Agent, for itself and the benefit of Purchasers, on the Collateralwith respect to which a Lien may be perfected by filing pursuant to Article 9of the Code.  As of the Closing, suchLien will be prior to all other Liens that would be prior to the Liens in favorof the Collateral Agent as a matter of law (other than Permitted Liens), and isenforceable as such as against any and all creditors of and purchasers from theCompany (other than purchasers and lessees of Inventory in the ordinary courseof business and non-exclusive licensees of General Intangibles in the ordinarycourse of business or as set forth on the attached Schedule 4(c)).

 

(d)        Schedule II hereto lists all Instruments, Letter ofCredit Rights and Chattel Paper of the Company (other than evidence ofindebtedness, if any, of the Company’s Chief Executive Officer to the Companyin the principal amount of approximately $78,000, which instrument is notlisted on Schedule II and with respect to which Collateral Agent is not beinggiven physical possession).  All actionby the Company necessary or desirable to protect and perfect the Lien of theCollateral Agent on each item set forth on Schedule II (including thedelivery of all originals thereof to the Collateral Agent and the legending ofall Chattel Paper as required by Section 5(b) hereof) has been dulytaken or will be duly taken promptly after Closing.  The Lien of the Collateral Agent, for the benefit of theCollateral Agent and Purchasers, on the Collateral listed on Schedule IIhereto is prior to all other Liens that would be prior to the Liens in favor ofthe Collateral Agent as a matter of law, and is enforceable as such against anyand all creditors of and purchasers from the Company.

 

(e)        The Company’s name as it appears in official filings in thestate of its incorporation or other organization, the type of entity of theCompany (including corporation, partnership, limited partnership or limitedliability company), organizational identification number issued by theCompany’s state of incorporation or organization or a statement that no suchnumber has been issued, federal employer identification number of the Company,the Company’s state of organization or incorporation, the location of theCompany’ chief executive office, principal place of business, offices, allwarehouses and premises where Collateral is stored or located, and thelocations of its books and records concerning the Collateral are set forth on ScheduleIII hereto.  The Company has onlyone state of incorporation or organization. The Company has not, during the five years prior to the date of thisSecurity Agreement, been known by or used any other corporate or fictitiousname or been party to any merger or consolidation, or acquired all orsubstantially all of the assets of any Person, or acquired any of its propertyor assets out of the ordinary course of business, except as set forth on ScheduleIII hereto.  The Company has not(i) within the period of four months prior to the date hereof, changed itslocation (as defined in Section 9-307 of the Code), (ii) except asspecified on Schedule III hereto, heretofore changed its name, or(iii) except as specified on Schedule III hereto, heretofore becomea “new debtor” (as defined in Section 9-102(a)(56) of the Code with respect toa currently effective security agreement previously entered into by any otherPerson.

 

(f)         With respect to the Accounts, (i) they represent bona fidesales of Inventory or rendering of services to Account Debtors in the ordinarycourse of the Company’ business and are not evidenced by a judgment, Instrumentor Chattel Paper; (ii) there are no setoffs, claims or disputes existing orasserted with respect thereto and the Company has not made any agreement withany Account Debtor for any extension of time for the payment thereof, anycompromise or settlement for less than the full amount thereof, any release ofany Account Debtor from liability

 

4

----

 

therefor, or any deduction therefrom except adiscount or allowance allowed by the Company in the ordinary course of itsbusiness for prompt payment; (iii) to the Company’s knowledge, there are nofacts, events or occurrences which in any way impair the validity orenforceability thereof or could reasonably be expected to reduce the amountpayable thereunder as shown on the Company’s books and records and any invoicesand statements delivered to the Collateral Agent and Purchasers with respectthereto; (iv) the Company has not received any notice of proceedings or actionswhich are threatened or pending against any Account Debtor which might resultin any adverse change in such Account Debtor’s financial condition; and (v) theCompany has no knowledge that any Account Debtor is unable generally to pay itsdebts as they become due.  Further withrespect to the Accounts (x) the amounts shown on all invoices and statementswhich may be delivered to the Collateral Agent with respect thereto areactually and absolutely owing to the Company as indicated thereon and are notin any way contingent; and (y) to the Company’s knowledge, all Account Debtorshave the capacity to contract.

 

(g)        TheCompany does not have any interest in, or title to, any Patent, Trademark orCopyright except as set forth in Schedule IV hereto.  Except pursuant to License Agreementsentered into by the Company in the ordinary course of business, the Companyowns and possesses the right to use, and has done nothing to authorize orenable any other Person to use, any Copyright, Patent or Trademark listed on ScheduleIV, and all registrations listed on Schedule IV are valid and infull force and effect; except as may be set forth in Schedule IV, theCompany owns and possesses the right to use all Copyrights, Patents andTrademarks, to the Company’s knowledge there is no violation by others of anyright of the Company with respect to any Copyright, Patent or Trademark and theCompany is not infringing in any respect upon any Copyright, Patent orTrademark of any other Person; and no proceedings have been instituted or arepending against the Company or, to the Company’s knowledge, threatened and noclaim against the Company has been received by the Company, alleging any suchviolation, except as may be set forth on Schedule IV.  This Security Agreement is effective tocreate a valid and continuing Lien on and, upon filing of appropriate financingstatements with the governmental offices listed on Schedule I hereto andan applicable Intellectual Property Security Agreement with the United StatesCopyright Office or the United States Patent and Trademark Office, as the casemay be, perfected Liens in favor of the Collateral Agent on the Company’sPatents, Trademarks and Copyrights and such perfected Liens are enforceable assuch as against any and all creditors of and purchasers from the Company.

 

(h)        Schedule V hereto lists a complete andaccurate list of the Company’s direct and indirect Subsidiaries, showing thejurisdiction of their organization. Each of the Company’s Subsidiaries has ceased operations and do not ownany material assets.

 

(i)         All Deposit Accounts of the Company which contained anaverage of $50,000 over any 30-day period in the 12-month period precedingClosing are listed on Schedule VI, including, with respect to eachdepository, (i) the name and address of such depository and (ii) theaccount numbers of the accounts maintained with such depository.

 

(j)         Schedule VII hereto lists all material Software owned,developed, invented and/or created by or on behalf of the Company.

 

(k)        The Company does not have any goods, documents of title orother Collateral in the custody, control or possession of a third party as ofthe date hereof, except for goods located in the United States in transit to alocation of the Company permitted herein in the ordinary course of business ofthe Company in the possession of the carrier transporting such goods.  In the event that any goods, documents oftitle or other Collateral are at any time after the date hereof in the

 

5

----

 

custody, control or possession of any otherPerson or such carriers, the Company shall promptly notify the Collateral Agentthereof in writing.  Promptly upon theCollateral Agent’s request, the Company shall deliver to the Collateral Agent acollateral access agreement, in form and substance satisfactory to theCollateral Agent, duly authorized, executed and delivered by such person andthe Company.

 

Section 5*. *Covenants*. *The Company covenants and agreeswith the Collateral Agent, for the benefit of the Secured Parties, that fromand after the date of this Security Agreement and until the Termination Date:

 

(a)        Further Assurances: Pledge of Instruments; Chattel Paper.

 

(i)            At any time andfrom time to time (including upon any written request of the Collateral Agent),at the sole expense of the Company, the Company shall promptly and duly executeand deliver any and all such further instruments and documents and take suchfurther actions reasonably requested by the Collateral Agent as may benecessary to obtain the full benefits of this Security Agreement and of therights and powers herein granted, including (A) using all reasonableefforts to secure all consents and approvals necessary or appropriate for theassignment to or for the benefit of the Collateral Agent of any License orContract held by the Company; (B) using all reasonable efforts to secure allconsents and approvals necessary or appropriate to enforce the securityinterests granted hereunder; and (C) filing any financing or continuationstatements under the Code with respect to the Liens granted hereunder or underany other Security Document as to those jurisdictions that are not UniformCommercial Code jurisdictions.

 

(ii)           TheCompany hereby irrevocably and unconditionally authorizes the Collateral Agentat any time and from time to time to file in any filing office in any UniformCommercial Code jurisdiction any initial financing statements and amendmentsthereto that (a) indicate the Collateral (i) as all assets of the Company orwords of similar effect, regardless of whether any particular asset comprisedin the Collateral falls within the scope of Article 9 of the Code or such jurisdiction,or (ii) as being of an equal or lesser scope or with greater detail, and (b)contain any other information required by part 5 of Article 9 of the Code forthe sufficiency or filing office acceptance of any financing statement oramendment, including (i) whether the Company is an organization, the type oforganization and any organization identification number issued to the Company,and (ii) in the case of a financing statement filed as a fixture filing orindicating Collateral as as-extracted collateral or timber to be cut, asufficient description of real property to which the Collateral relates.  The Company agrees to furnish any suchinformation to the Collateral Agent promptly upon request.  The Company also ratifies its authorizationfor the Collateral Agent to have filed in any Uniform Commercial Codejurisdiction any initial financing statements or amendments thereto if filedprior to the date hereof and ratifies and confirms the authorization of theCollateral Agent to file such financing statements (and amendments, ifany).  The Company hereby authorizes theCollateral Agent to adopt on behalf of the Company any symbol required forauthenticating any electronic filing. In the event that the description of the collateral in any financing statementnaming the Collateral Agent or its designee as the secured party and theCompany as debtor includes assets and properties of the Company that do not atany time

 

6

----

 

constituteCollateral, whether hereunder, under any of the other Note Documents orotherwise, the filing of such financing statement shall nonetheless be deemedauthorized by the Company to the extent of the Collateral included in suchdescription and it shall not render the financing statement ineffective as toany of the Collateral or otherwise affect the financing statement as it appliesto any of the Collateral.  In no eventshall the Company at any time file, or permit or cause to be filed, any correctionstatement or termination statement with respect to any financing statement (oramendment or continuation with respect thereto) naming the Collateral Agent orits designee as secured party and the Company as debtor.

 

(iii)          TheCompany shall, upon the occurrence and during the continuance of any Event ofDefault, upon request of the Collateral Agent, promptly notify (and the Companyhereby authorizes the Collateral Agent so to notify) each Account Debtor inrespect of any Accounts, Chattel Paper, Instruments of General Intangibles ofthe Company that such Collateral has been assigned to the Collateral Agenthereunder, and that any payments due or to become due in respect thereof are tobe made directly to the Collateral Agent.

 

(b)        Maintenance of Records.  The Company shall keep and maintain, at its own cost and expense,satisfactory and complete records of the Collateral, including a record of anyand all payments received and any and all credits granted with respect to theCollateral in the same manner such records are presently kept and maintained.  If the Company retains possession of anyChattel Paper or Instruments with the Collateral Agent’s consent, such ChattelPaper and Instruments shall be marked with a legend the form, scope andsubstance of which is acceptable to the Collateral Agent.

 

(c)        Covenants Regarding Patent, Trademark and CopyrightCollateral.

 

(i)            The Company shall notify the Collateral Agentimmediately if it knows or has reason to know that any application orregistration relating to any Patent, Trademark or Copyright (now or hereafterexisting) may become abandoned or dedicated, or of any adverse determination ordevelopment (including the institution of, or any such determination ordevelopment in, any proceeding in the United States Patent and TrademarkOffice, the United States Copyright Office or any court) regarding theCompany’s ownership of any Patent, Trademark or Copyright, its right toregister the same, or to keep and maintain the same.

 

(ii)           In no event shall the Company, either itself or through any agent, employee,licensee or designee, file an application for the registration of any Patent,Trademark or Copyright with the United States Patent and Trademark Office, theUnited States Copyright Office or any similar office or agency without givingthe Collateral Agent prior written notice thereof, and, upon request of theCollateral Agent, the Company shall execute and deliver any and all applicableIntellectual Property Security Agreements as the Collateral Agent mayreasonably request to evidence the Collateral Agent’s Lien on such Patent,Trademark or Copyright, and the General Intangibles of the Company relatingthereto or represented thereby.

 

(iii)          The Company shall take all actions necessary or requested by theCollateral Agent to maintain and pursue each application, to obtain therelevant registration and

 

7

----

 

to maintain the registration of each of thePatents, Trademarks and Copyrights (now or hereafter existing), including thefiling of applications for renewal, affidavits of use, affidavits ofnoncontestability and opposition and interference and cancellation proceedings.

 

(d)        Indemnification. In any suit, proceeding or action brought by the Collateral Agent or anyPurchaser relating to any Collateral for any sum owing with respect thereto orto enforce any rights or claims with respect thereto, the Company will save,indemnify and keep the Collateral Agent and Purchasers harmless from andagainst all expense (including reasonable attorneys’ fees and expenses), lossor damage suffered by reason of any defense, setoff, counterclaim, recoupmentor reduction of liability whatsoever of the Account Debtor or other Personobligated on the Collateral, arising out of a breach by the Company of anyobligation thereunder or arising out of any other agreement, indebtedness orliability at any time owing to, or in favor of, such obligor or its successorsfrom the Company, except in the case of the Collateral Agent or any Purchaser,to the extent such expense, loss, or damage is attributable solely to the grossnegligence or willful misconduct of by the Collateral Agent or such Purchaseras finally determined by a court of competent jurisdiction. All suchobligations of the Company shall be and remain enforceable against and onlyagainst the Company and shall not be enforceable against the Collateral Agentor any Purchaser.

 

(e)        Compliance with Terms of Accounts, etc.  Inall material respects, the Company will perform and comply with all obligationsin respect of the Collateral and all other agreements to which it is a party orby which it is bound relating to the Collateral.

 

(f)         Limitation on Liens on Collateral. Except for Permitted Liens, the Company will not create, permit orsuffer to exist, and the Company will defend the Collateral against, and takesuch other action as is necessary to remove, any Lien on the Collateral, andwill defend the right, title and interest of the Collateral Agent andPurchasers in and to any of the Company’s rights under the Collateral againstthe claims and demands of all Persons whomsoever.

 

(g)        Limitations on Disposition.  Except for actions consistentwith past practice or otherwise taken in the ordinary course of business, theCompany will not sell, license, lease, transfer or otherwise dispose of any ofthe Collateral, or attempt or contract to do so, without the prior consent ofthe Required Holders.

 

(h)         Further Identification of Collateral.  The Company will, if sorequested by the Collateral Agent, furnish to the Collateral Agent, as often asthe Collateral Agent reasonably requests, statements and schedules furtheridentifying and describing the Collateral and such other reports in connectionwith the Collateral as the Collateral Agent may reasonably request, all in suchdetail as the Collateral Agent may reasonably specify.

 

(i)         Notices.  The Company will advise theCollateral Agent promptly, in reasonable detail, (i) of any Lien (other thanPermitted Liens) or written claim made or asserted against any of theCollateral, and (ii) of the occurrence of any other event which could have amaterial adverse effect on the aggregate value of the Collateral or on theLiens created hereunder or under any other Security Document.

 

8

----

 

(j)         No Reincorporation; No Name Change.  TheCompany shall not reincorporate or reorganize itself under the laws of anyjurisdiction other than the jurisdiction in which it is incorporated ororganized as of the date hereof without the prior written consent of theCollateral Agent, which consent shall not be unreasonably withheld.  The Company shall not change its legal namewithout first giving 30 days prior written notice of its intent to do so to theCollateral Agent.

 

(k)        Terminations; Amendments Not Authorized.  The Company acknowledges that it is notauthorized to file any financing statement or amendment or terminationstatement with respect to any financing statement without the prior writtenconsent of the Collateral Agent and agrees that it will not do so without theprior written consent of the Collateral Agent, subject to the Company’s rightsunder Section 9-509(d)(2) of the Code.

 

(l)         Maintenance of Insurance.  The Company shall maintain in force one ormore policies of insurance on all Collateral against risks of fire (withcustomary extended coverage), sprinkler leakage, theft, loss or damage andother risks as the Collateral Agent may reasonably require and in any event,whether or not Collateral Agent shall so require, against such other risks customarilyinsured against by companies engaged in businesses similar to that of theCompany in such amounts containing such terms, in such form, for such periods,covering such hazards and written by such financially sound companies selectedby the Company and as may be reasonably satisfactory to the Collateral Agent(it being understood that the Collateral Agent shall not by such approval ordisapproval be liable to the Company or any other person in connection with thefinancial condition of such insurer), such insurance to be payable to theCollateral Agent as its interest may appear in the event of loss; if requestedby the Collateral Agent the policies for the same shall be deposited with theCollateral Agent; no loss shall be adjusted thereunder without the CollateralAgent’s approval which approval will not be unreasonably withheld; and promptlyfollowing the Closing the Company shall cause all such policies to provide thatthey may not be modified or canceled without first giving at least thirty (30) dayswritten notice of such modification or cancellation to the CollateralAgent.  In the event that the Companyfails to provide evidence of the maintenance of such insurance satisfactory tothe Collateral Agent, the Collateral Agent may, at its option, secure suchinsurance and charge the cost thereof to the Company (as a Secured Obligation).The Company shall also maintain casualty insurance coverage and other insurancecoverage on its properties and business including the Collateral naming theCollateral Agent as loss payee with an endorsement reasonably satisfactory tothe Collateral Agent, which endorsement shall be issued promptly following theClosing, in amounts and types and with provisions as are usually carried byothers engaged in similar businesses and in all events as may be reasonablysatisfactory to the Collateral Agent as to amounts, coverage and insurancecarriers.

 

(m)          Technology Collateral Escrow Agreement.  The Company shall enter into the TechnologyCollateral Escrow Agreement and shall deliver, upon execution thereof, allsource code, documents, and other material and property required thereunder andshall make such further deliveries and otherwise fully comply with the termsand conditions of such agreement.

 

(n)           Collateral Access Agreement.  Within 45 days hereof, the Company shallundertake best efforts to cause Exodus or its authorized agents to deliver tothe Collateral Agent a collateral access agreement, upon terms reasonablyacceptable to the Collateral Agent,

 

9

----

 

permittingthe Collateral Agent access to the Company’s assets located at Exodus upon anEvent of Default.

 

Section6*.*  CollateralAgent’s Appointment As Attorney-in-Fact*. *On the Closing Date, the Company shallexecute and deliver to the Collateral Agent a power of attorney (the “**Power ofAttorney**”) substantially in the form attached hereto as ExhibitA.  The power of attorney grantedpursuant to the Power of Attorney is a power coupled with an interest and shallbe irrevocable until the Termination Date. The powers conferred on the Collateral Agent, for the benefit of theCollateral Agent and the Purchasers, under the Power of Attorney are solely toprotect the Collateral Agent’s interests (for the benefit of the CollateralAgent and the Purchasers) in the Collateral and shall not impose any duty uponthe Collateral Agent or any Purchaser to exercise any such powers.  The Collateral Agent agrees that (a) exceptfor the powers granted in clause (h) of the Power of Attorney, it shall notexercise any power or authority granted under the Power of Attorney unless anEvent of Default has occurred and is continuing, and (b) the Collateral Agentshall promptly account for, and notify the Company of, any moneys received bythe Collateral Agent in respect of any foreclosure on or disposition ofCollateral pursuant to the Power of Attorney provided that none of theCollateral Agent or any Purchaser shall have any duty as to any Collateral, andthe Collateral Agent and the Purchasers shall be accountable only for amountsthat they actually receive as a result of the exercise of such powers.  NONE OF THE COLLATERAL AGENT, THE PURCHASERSOR THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS ORREPRESENTATIVES SHALL BE RESPONSIBLE TO THE COMPANY FOR ANY ACT OR FAILURE TOACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGESATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ASFINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION.

 

Section 7.  Remedies:  Rights Upon Default*. *(a)**In addition to all other rights andremedies granted to it under this Security Agreement, the Notes, the PurchaseAgreement and under any other instrument or agreement securing, evidencing orrelating to any of the Secured Obligations, if any Event of Default shall haveoccurred and be continuing, the Collateral Agent may (or, if so directed by theRequired Holders, shall) exercise all rights and remedies of a secured partyunder the Code.  Without limiting thegenerality of the foregoing, the Company expressly agrees that in any suchevent the Collateral Agent, without demand of performance or other demand,advertisement or notice of any kind (except the notice specified below of timeand place of public or private sale) to or upon the Company or any other Person(all and each of which demands, advertisements and notices are hereby expresslywaived to the maximum extent permitted by the Code and other applicable law),may forthwith enter upon the premises of the Company where any Collateral islocated through self-help, without judicial process, without first obtaining afinal judgment or giving the Company or any other Person notice and opportunityfor a hearing on the Collateral Agent’s claim or action and may collect,receive, assemble, process, appropriate and realize upon the Collateral, or anypart thereof, and may forthwith sell, lease, license, assign, give an option oroptions to purchase, or sell or otherwise dispose of and deliver saidCollateral (or contract to do so), or any part thereof, in one or more parcelsat a public or private sale or sales, at any exchange at such prices as it maydeem acceptable, for cash or on credit or for future delivery withoutassumption of any credit risk.  TheCollateral Agent or any Purchaser shall have the right upon any such publicsale or sales and, to

 

10

----

 

the extent permitted by law, upon any such private sale or sales, topurchase for the benefit of the Collateral Agent and the Purchasers, the wholeor any part of said Collateral so sold, free of any right or equity ofredemption, which equity of redemption the Company hereby releases.  Such sales may be adjourned and continuedfrom time to time with or without notice. The Collateral Agent shall have the right to conduct such sales on theCompany’s premises or elsewhere and shall have the right to use the Company’spremises without charge for such time or times as the Collateral Agent deemsnecessary or advisable.

 

If any Event of Defaultshall have occurred and be continuing, the Company further agrees, at theCollateral Agent’s request, to assemble the Collateral and make it available tothe Collateral Agent at a place or places designated by the Collateral Agent whichare reasonably convenient to the Collateral Agent and the Company, whether atthe Company’s premises or elsewhere. Until the Collateral Agent is able to effect a sale, lease, or otherdisposition of Collateral, the Collateral Agent shall have the right to hold oruse Collateral, or any part thereof, to the extent that it deems appropriatefor the purpose of preserving Collateral or its value or for any other purposedeemed appropriate by the Collateral Agent. The Collateral Agent shall have no obligation to the Company to maintainor preserve the rights of the Company as against third parties with respect toCollateral while Collateral is in the possession of the Collateral Agent.  The Collateral Agent may, if it so elects,seek the appointment of a receiver or keeper to take possession of Collateraland to enforce any of the Collateral Agent’s remedies (for the benefit of theCollateral Agent and the Purchasers), with respect to such appointment withoutprior notice or hearing as to such appointment.  The Collateral Agent shall apply the net proceeds of any suchcollection, recovery, receipt, appropriation, realization or sale to theSecured Obligations as provided in the Note Documents, and only after so payingover such net proceeds, and after the payment by the Collateral Agent of anyother amount required by any provision of law, need the Collateral Agentaccount for the surplus, if any, to the Company.  To the maximum extent permitted by applicable law, the Companywaives all claims, damages, and demands against the Collateral Agent or anyPurchaser arising out of the repossession, retention or sale of the Collateralexcept such as arise solely out of the gross negligence or willful misconductof the Collateral Agent or such Purchaser as finally determined by a court ofcompetent jurisdiction.  The Companyagrees that ten (10) days prior notice by the Collateral Agent of the time andplace of any public sale or of the time after which a private sale may take placeis reasonable notification of such matters. The Company shall remain liable for any deficiency if the proceeds ofany sale or disposition of the Collateral are insufficient to pay all SecuredObligations, including any attorneys’ fees and other expenses incurred by theCollateral Agent or any Purchaser to collect such deficiency.

 

(b)        Except as otherwise specifically provided herein, the Companyhereby waives presentment, demand, protest or any notice (to the maximum extentpermitted by applicable law) of any kind in connection with this SecurityAgreement or any Collateral.

 

(c)        To the extent that applicable law imposes duties on the CollateralAgent to exercise remedies in a commercially reasonable manner, the Companyacknowledges and agrees that it is not commercially unreasonable for theCollateral Agent (i) to fail to incur expenses reasonably deemed significant bythe Collateral Agent to prepare Collateral for disposition or otherwise tocomplete raw material or work in process into finished goods or other finishedproducts for disposition, (ii) to fail to obtain third party consents foraccess to Collateral to be disposed of, or

 

11

----

 

to obtain or, if not required by other law,to fail to obtain governmental or third party consents for the collection ordisposition of Collateral to be collected or disposed of, (iii) to fail toexercise collection remedies against Account Debtors or other Persons obligatedon Collateral or to remove Liens on or any adverse claims against Collateral,(iv) to exercise collection remedies against Account Debtors and other Personsobligated on Collateral directly or through the use of collection agencies andother collection specialists, (v) to advertise dispositions of Collateralthrough publications or media of general circulation, whether or not theCollateral is of a specialized nature, (vi) to contact other Persons, whetheror not in the same business as the Company, for expressions of interest inacquiring all or any portion of such Collateral, (vii) to hire one or moreprofessional auctioneers to assist in the disposition of Collateral, whether ornot the Collateral is of a specialized nature, (viii) to dispose of Collateralby utilizing internet sites that provide for the auction of assets of the typesincluded in the Collateral or that have the reasonable capacity of doing so, orthat match buyers and sellers of assets, (ix) to dispose of assets in wholesalerather than retail markets, (x) to disclaim disposition warranties, such astitle, possession or quiet enjoyment, (xi) to purchase insurance or creditenhancements to insure the Collateral Agent against risks of loss, collectionor disposition of Collateral or to provide to the Collateral Agent a guaranteedreturn from the collection or disposition of Collateral, or (xii) to the extentdeemed appropriate by the Collateral Agent, to obtain the services of otherbrokers, investment bankers, consultants and other professionals to assist theCollateral Agent in the collection or disposition of any of the Collateral.  The Company acknowledges that the purpose ofthis Section 7(c) is to provide non-exhaustive indications of what actions oromissions by the Collateral Agent would not be commercially unreasonable in theCollateral Agent’s exercise of remedies against the Collateral and that otheractions or omissions by the Collateral Agent shall not be deemed commerciallyunreasonable solely on account of not being indicated in this Section7(c).  Without limitation upon theforegoing, nothing contained in this Section 7(c) shall be construed to grantany rights to the Company or to impose any duties on the Collateral Agent thatwould not have been granted or imposed by this Security Agreement or byapplicable law in the absence of this Section 7(c).

 

(d)        Neither the Collateral Agent nor the Purchasers shall be required tomake any demand upon, or pursue or exhaust any of their rights or remediesagainst, the Company, any other obligor, guarantor, pledgor or any other Personwith respect to the payment of the Secured Obligations or to pursue or exhaustany of their rights or remedies with respect to any Collateral therefor or anydirect or indirect guarantee thereof. Neither the Collateral Agent nor the Purchasers shall be required tomarshal the Collateral or any guarantee of the Secured Obligations or to resortto the Collateral or any such guarantee in any particular order, and all of itsand their rights hereunder or under any other Note Document shall becumulative.  To the extent it maylawfully do so, the Company absolutely and irrevocably waives and relinquishesthe benefit and advantage of, and covenants not to assert against theCollateral Agent or any Purchaser, any valuation, stay, appraisement,extension, redemption or similar laws and any and all rights or defenses it mayhave as a surety now or hereafter existing which, but for this provision, mightbe applicable to the sale of any Collateral made under the judgment, order ordecree of any court, or privately under the power of sale conferred by this SecurityAgreement, or otherwise.

 

(e)        Without limiting the foregoing, upon the occurrence and during thecontinuance of an Event of Default and upon written notice thereof to theCompany, all rights of the Company

 

12

----

 

to exercise any voting or consensual powerswith respect to any Equity Interests in which the Company has an interest andto receive and retain the distributions which it would otherwise be entitled toreceive and retain shall terminate and all such powers and rights to receiveand retain such distributions shall immediately without further action becomevested in the Collateral Agent.

 

Section 8.  Grant Of License To UseIntellectual Property Collateral*. *Forthe purpose of enabling the Collateral Agent to exercise rights and remediesunder Section 7 hereof (including, without limiting the terms of Section7 hereof, in order to take possession of, hold, preserve, process,assemble, prepare for sale, market for sale, sell or otherwise dispose of Collateral)at such time as the Collateral Agent shall be lawfully entitled to exercisesuch rights and remedies, the Company hereby grants to the Collateral Agent,for the benefit of the Collateral Agent and the Purchasers, an irrevocable,nonexclusive license (exercisable without payment of royalty or othercompensation to the Company) to use, license or sublicense any IntellectualProperty now owned or hereafter acquired by the Company, and wherever the samemay be located, and including in such license access to all media in which anyof the licensed items may be recorded or stored and to all computer softwareand programs used for the compilation or printout thereof.

 

Section 9*.* Indemnity; Expenses; Limitation On CollateralAgent’s And Purchasers’ Duty In Respect Of Collateral*. *(a)**Assuming the transactions contemplatedhereby are consummated, the Company shall indemnify and hold the CollateralAgent, the Purchasers, their respective Affiliates, and each of theirdirectors, officers, agents and employees (collectively, the “**Indemnified Persons**”) harmless from andagainst any and all liabilities, obligations, losses, damages, penalties,claims, demands, actions, judgments, suits, costs, charges, expenses anddisbursements (including reasonable attorneys’ fees and expenses) of any kindor nature whatsoever which may at any time (including at any time followingrepayment of the Notes and the termination, resignation or replacement of theCollateral Agent or any assignment by any Purchaser) be imposed on, incurred byor asserted against any such Indemnified Person in any way relating to orarising out of or in connection with the execution, delivery, enforcement,performance or administration of this Security Agreement, the Notes, the NotePurchase Agreement, the other Note Documents or any other agreement, letter orinstrument delivered in connection with the transactions contemplated hereby orthe consummation of the transactions contemplated hereby or any actual orprospective claim, litigation, investigation or proceeding relating to any ofthe foregoing, whether based on contract, tort or any other theory (includingany investigation of, preparation for, or defense of any pending or threatenedclaim, investigation, litigation or proceeding) and regardless of whether anyIndemnified Person is a party thereto (all the foregoing, collectively, the “**Indemnified Liabilities**”), in allcases, whether or not caused by or arising, in whole or in part, out of thenegligence of any Indemnified Person; provided that such indemnity shall not,as to any Indemnified Person, be available to the extent that such IndemnifiedLiabilities are determined by a court of competent jurisdiction by final andnonappealable judgment to have resulted from the gross negligence or willful misconductof such Indemnified Person.    In thecase of an investigation, litigation or other proceeding to which the indemnityin this Section 9 applies, such indemnity shall be effective whether or notsuch investigation, litigation or proceeding is brought by the Company, itsdirectors, shareholders or creditors or an Indemnified Party or any otherPerson, whether or not an Indemnified Person is otherwise a party thereto andwhether or not any of the transactions

 

13

----

 

contemplated hereunder or under any of the other Note Documents areconsummated.  All amounts due under thisSection 9 shall be payable within five Business Days after demand therefor.  The agreements in this Section 9 shallsurvive the resignation of the Collateral Agent, the assignment by anyPurchaser and the repayment, satisfaction or discharge of all the other SecuredObligations.  In the event that anyinvestigation, litigation or proceeding is asserted or threatened in writing orinstituted against any Indemnified Person, or any remedial, removal or responseaction which is requested of it or any other Indemnified Person, for which suchIndemnified Person may desire indemnity or defense hereunder, such IndemnifiedPerson shall notify the Company in writing of such event; provided that failureto so notify the Company shall not affect the right of any Indemnified Personto seek indemnification under this Section 9.

 

(b)           TheCompany will pay to the Collateral Agent within five Business Days after demandthe amount of any and all reasonable, documented expenses, including, withoutlimitation, the fees and expenses of its counsel and of any experts and agents,that the Collateral Agent may incur in connection with (i) the administrationof this Security Agreement, (ii) the custody, preservation, use or operationof, or the sale of, collection from or other realization upon, any of theCollateral of the Company, (iii) the exercise or enforcement of any of therights of the Collateral Agent or the Purchasers hereunder, or (iv) the failureby the Company to perform or observe any of the provisions hereof.

 

(c)           TheCollateral Agent and each Purchaser shall use reasonable care with respect tothe Collateral in its possession or under its control.  Neither the Collateral Agent nor anyPurchaser shall have any other duty as to any Collateral in its possession orcontrol or in the possession or control of any agent or nominee of theCollateral Agent or such Purchaser, or any income thereon or as to the preservationof rights against prior parties or any other rights pertaining thereto.

 

Section 10.  Reinstatement*. *This SecurityAgreement shall remain in full force and effect and continue to be effectiveshould any petition be filed by or against the Company for liquidation orreorganization, should the Company become insolvent or make an assignment forthe benefit of any creditor or creditors or should a receiver or trustee beappointed for all or any significant part of the Company’s assets, and shall continueto be effective or be reinstated, as the case may be, if at any time paymentand performance of the Secured Obligations, or any part thereof, is, pursuantto applicable law, rescinded or reduced in amount, or must otherwise berestored or returned by any obligee of the Secured Obligations, whether as a“voidable preference,” “fraudulent conveyance,” or otherwise, all as thoughsuch payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded,reduced, restored or returned, the Secured Obligations shall be reinstated anddeemed reduced only by such amount paid and not so rescinded, reduced, restoredor returned.

 

Section 11.  Notices*.*  Exceptas otherwise provided herein, whenever it is provided herein that any notice,demand, request, consent, approval, declaration or other communication shall ormay be given to or served upon any of the parties by any other party, orwhenever any of the parties desires to give and serve upon any other party anycommunication with respect to this Security Agreement, each such notice,demand, request, consent, approval, declaration or other communication shall bein writing and shall in the case of the Company, be given in the manner, anddeemed received, as provided for in the Note Purchase Agreement.

 

14

----

 

Section 12.  Severability*. *Wheneverpossible, each provision of this Security Agreement shall be interpreted in amanner as to be effective and valid under applicable law, but if any provisionof this Security Agreement shall be prohibited by or invalid under applicablelaw, such provision shall be ineffective to the extent of such prohibition orinvalidity without invalidating the remainder of such provision or the remainingprovisions of this Security Agreement. This Security Agreement is to be read, construed and applied togetherwith the Note Purchase Agreement and the other Note Documents which, takentogether, set forth the complete understanding and agreement of the CollateralAgent, the Purchasers and the Company with respect to the matters referred toherein and therein.

 

Section 13*.*  No Waiver; Cumulative Remedies*. *Neither the Collateral Agent nor anyPurchaser shall by any act, delay, omission or otherwise be deemed to havewaived any of its rights or remedies hereunder, and no waiver shall be validunless in writing, signed by the Collateral Agent and then only to the extenttherein set forth.  A waiver by theCollateral Agent of any right or remedy hereunder on any one occasion shall notbe construed as a bar to any right or remedy which the Collateral Agent wouldotherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of theCollateral Agent or any Purchaser, any right, power or privilege hereunder,shall operate as a waiver thereof, nor shall any single or partial exercise ofany right, power or privilege hereunder preclude any other or future exercisethereof or the exercise of any other right, power or privilege.  The rights and remedies hereunder providedare cumulative and may be exercised singly or concurrently, and are notexclusive of any rights and remedies provided by law.  None of the terms or provisions of this Security Agreement may bewaived, altered, modified or amended except by an instrument in writing, dulyexecuted by the Collateral Agent and the Company.

 

Section 14*.*  Limitation By Law*. *All rights, remedies and powers provided in this Security Agreement maybe exercised only to the extent that the exercise thereof does not violate anyapplicable provision of law, and all the provisions of this Security Agreementare intended to be subject to all applicable mandatory provisions of law thatmay be controlling and to be limited to the extent necessary so that they shallnot render this Security Agreement invalid, or unenforceable, in whole or inpart, or not entitled to be recorded, registered or filed under the provisionsof any applicable law.

 

Section 15. Termination Of This Security Agreement*. *Subject to Section 10 hereof, this Security Agreement shallterminate upon the Termination Date.

 

Section 16.  Successors And Assigns*. *This SecurityAgreement and all obligations of the Company hereunder shall be binding uponthe successors and assigns of the Company (including any debtor-in-possessionon behalf of the Company) and shall, together with the rights and remedies ofthe Collateral Agent, for the benefit of the Collateral Agent and thePurchasers, hereunder, inure to the benefit of the Collateral Agent and thePurchasers, all future holders of any instrument evidencing any of the SecuredObligations and their respective successors and assigns.  No sales of participations, other sales,assignments, transfers or other dispositions of any agreement governing orinstrument evidencing the Secured Obligations or any portion thereof orinterest therein shall in any manner impair the Lien granted to the CollateralAgent, for the benefit of the Collateral Agent and the Purchasers, hereunder.  the Company may not assign,

 

15

----

 

sell, hypothecate or otherwise transfer any interest in or obligationunder this Security Agreement.

 

Section 17.  Counterparts*. *This SecurityAgreement may be authenticated in any number of separate counterparts, each ofwhich shall collectively and separately constitute one agreement.  This Security Agreement may be authenticatedby manual signature, facsimile or, if approved in writing by the CollateralAgent, electronic means, all of which shall be equally valid.

 

Section 18*.*  Governing Law*.*  INALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE,THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNEDBY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEWYORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND ANYAPPLICABLE LAWS OF THE UNITED STATES OF AMERICA.  THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERALCOURTS LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK, STATE OF NEW YORK, SHALLHAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTESBETWEEN THE COMPANY, THE COLLATERAL AGENT AND THE PURCHASERS PERTAINING TO THISSECURITY AGREEMENT OR ANY OF THE OTHER NOTE DOCUMENTS OR TO ANY MATTER ARISINGOUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER NOTEDOCUMENTS, PROVIDED, NOTHING IN THIS SECURITY AGREEMENT SHALL BE DEEMEDOR OPERATE TO PRECLUDE THE COLLATERAL AGENT FROM BRINGING SUIT OR TAKING OTHERLEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANYOTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURTORDER IN FAVOR OF THE COLLATERAL AGENT. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO THE JURISDICTIONOF THE STATE OR FEDERAL COURTS LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK,STATE OF NEW YORK IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THECOMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OFPERSONAL JURISDICTION, IMPROPER VENUE OR FORUMNONCONVENIENSAND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS ISDEEMED APPROPRIATE BY SUCH COURT.  THECOMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHERPROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCHSUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIEDMAIL ADDRESSED TO THE COMPANY AT THE ADDRESS PROVIDED THEREFOR IN THE NOTEPURCHASE AGREEMENT, AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THEEARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.MAILS, PROPER POSTAGE PREPAID.

 

Section 19.  Waiver Of Jury Trial*. *BECAUSEDISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLYAND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON

 

16

----

 

AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY, THEPARTIES DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVEDBY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THEJUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIALBY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG THE COLLATERAL AGENT,THE PURCHASERS, AND THE COMPANY ARISING OUT OF, CONNECTED WITH, RELATED TO, ORINCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENTOR ANY OF THE OTHER NOTE DOCUMENTS OR THE TRANSACTIONS RELATED HERETO ORTHERETO.

 

Section 20.* *Expenses*.*  TheCompany agrees to reimburse each of the Collateral Agent and the Purchasers forall reasonable, documented costs and expenses incurred by them (including,without limitation, the reasonable, documented fees and expenses of one legalcounsel) in connection with (i) any Event of Default and any enforcementor collection proceeding resulting therefrom, including, without limitation,all manner of participation in or other involvement with (w) performance by theCollateral Agent of any obligations of the Company in respect of the Collateralthat the Company has failed or refused to perform, (x) bankruptcy, insolvency,receivership, foreclosure, winding up or liquidation proceedings, or any actualor attempted sale, or any exchange, enforcement, collection, compromise orsettlement in respect of any of the Collateral, and for the care of theCollateral and defending or asserting rights and claims of the Collateral Agentin respect thereof, by litigation or otherwise, including expenses ofinsurance, (y) judicial or regulatory proceedings and (z) workout,restructuring or other negotiations or proceedings (whether or not the workout,restructuring or transaction contemplated thereby is consummated) and (ii) theenforcement of this Section 20, and all such costs and expenses shall beSecured Obligations entitled to the benefits of the collateral securityprovided pursuant to Section 2.

 

Section 21*.*  Section Titles*.*  TheSection titles contained in this Security Agreement are and shall be withoutsubstantive meaning or content of any kind whatsoever and are not a part of theagreement among the parties hereto.

 

Section 22*.*  No Strict Construction.  Theparties hereto have participated jointly in the negotiation and drafting ofthis Security Agreement.  In the eventan ambiguity or question of intent or interpretation arises, this SecurityAgreement shall be construed as if drafted jointly by the parties hereto and nopresumption or burden of proof shall arise favoring or disfavoring any party byvirtue of the authorship of any provisions of this Security Agreement.

 

Section 23*.*  Advice Of Counsel*.*  Each of the parties represents to each otherparty hereto that it has discussed this Security Agreement and, specifically,the provisions of Section 18 and Section 19, with its counsel.

 

Section 24*.*  Benefit Of Purchasers*.*  All Liens granted or contemplated herebyshall be for the benefit of the Collateral Agent, individually, and thePurchasers, and all proceeds

 

17

----

 

or payments realized from Collateral in accordance herewith shall beapplied to the Secured Obligations in the manner determined by the CollateralAgent in its sole discretion.

 

[*Signature Page Follows*]

 

18

----

 

IN WITNESSWHEREOF, each of the parties hereto has caused this Security Agreement to beexecuted and delivered by its duly authorized officer as of the date first setforth above.

 
|   | **VCampus Corporation**                            |
|--------|----------------------------------------------------|
|   |                                               |
|   |                                               |
|   |                                               |
|   | By:                                                |   | /s/ Nat Kannan |   |
|   | Name:  Nat  Kannan                            |
|   | Title:  CEO                                   |
|   |                                               |
|   | **Sherleigh Associates LLC**,  as Collateral Agent |
|   |                                               |
|   |                                               |
|   |                                               |
|   | By:                                                |   | /s/ Jack Silver |   |
|   | Name: Jack Silver                                  |
|   | Title:                                             |
|        |                                                    |  |  |  |  |  |

 

----

 

**ANNEX A****to****SECURITY AGREEMENT**

 

**DEFINITIONS**

 

Capitalizedterms used in the Security Agreement shall have the following respectivemeanings, and all references to Sections, Exhibits, Schedules or Annexes in thefollowing definitions shall refer to Sections, Exhibits, Schedules or Annexesof or to the Security Agreement:

 

“AccountDebtor” means any Person who may become obligated to the Company under,with respect to, or on account of, an Account, Chattel Paper or GeneralIntangibles (including a payment intangible).

 

“Accounts”means all “accounts,” as such term is defined in the Code, now owned orhereafter acquired by the Company, including (as the context may reasonablypermit) (a) all accounts receivable, other receivables, book debts andother forms of obligations (other than forms of obligations evidenced byChattel Paper, or Instruments), (including any such obligations that may becharacterized as an account or contract right under the Code), (b) all ofthe Company’s rights in, to and under all purchase orders or receipts for goodsor services, (c) all of the Company’s rights to any goods represented byany of the foregoing (including unpaid sellers’ rights of rescission, replevin,reclamation and stoppage in transit and rights to returned, reclaimed orrepossessed goods), (d) all rights to payment due to the Company forproperty sold, leased, licensed, assigned or otherwise disposed of, for apolicy of insurance issued or to be issued, for a secondary obligation incurredor to be incurred, for energy provided or to be provided, for the use or hireof a vessel under a charter or other contract, arising out of the use of acredit card or charge card, or for services rendered or to be rendered by theCompany or in connection with any other transaction (whether or not yet earnedby performance on the part of the Company), (e) all health care insurancereceivables and (f) all collateral security of any kind, given by anyAccount Debtor or any other Person with respect to any of the foregoing.

 

“BankruptcyCode” means the provisions of Title 11 of the United States Code, 11U.S.C. §§ 101 etseq.

 

“BusinessDay” means any day that is not a Saturday, a Sunday or a day on which banksare required or permitted to be closed in the City of New York.

 

“Charges”means all federal, state, county, city, municipal, local, foreign or othergovernmental taxes, levies, assessments, charges, liens, claims or encumbrancesupon or relating to (a) the Collateral, (b) the Secured Obligations,(c) the employees, payroll, income or gross receipts of the Company,(d) the Company’s ownership or use of any properties or other assets, or(e) any other aspect of the Company’s business.

 

“ChattelPaper” means any “chattel paper,” as such term is defined in the Code,including electronic chattel paper, now owned or hereafter acquired by theCompany.

 

----

 

“Code”means the Uniform Commercial Code as the same may, from time to time, beenacted and in effect in the State of New York; provided, that to theextent that the Code is used to define any term herein and such term is defineddifferently in different Articles of the Code, the definition of such termcontained in Article 9 of the Code shall govern; providedfurther,that in the event that, by reason of mandatory provisions of law, any or all ofthe attachment, perfection or priority of, or remedies with respect to, theLien on any Collateral under the Security Agreement is governed by the UniformCommercial Code as enacted and in effect in a jurisdiction other than the Stateof New York, the term “Code” shall mean the Uniform Commercial Code asenacted and in effect in such other jurisdiction solely for purposes of theprovisions thereof relating to such attachment, perfection, priority orremedies and for purposes of definitions related to such provisions.

 

“Collateral”has the meaning ascribed to it in Section 2(a).

 

“CommercialTort Claims” means all “commercial tort claims” as such term is defined inthe Code.

 

“Contracts”means all “contracts,” as such term is defined in the Code, now owned orhereafter acquired by the Company, in any event, including all contracts,undertakings, or agreements (other than rights evidenced by Chattel Paper,Documents or Instruments) in or under which the Company may now or hereafterhave any right, title or interest.

 

“CopyrightLicense” means any and all rights now owned or hereafter acquired by theCompany under any written agreement granting any right to use any Copyright orCopyright registration.

 

“Copyrights”means all of the following now owned or hereafter adopted or acquired by theCompany:  (a) all copyrights, allGeneral Intangibles of like nature (whether registered or unregistered), allregistrations and recordings thereof, and all applications in connectiontherewith, including all registrations, recordings and applications in theUnited States Copyright Office or in any similar office or agency of the UnitedStates, any state or territory thereof, or any other country or any politicalsubdivision thereof, (b) all reissues, extensions or renewals thereof, (c)the right to recover for all past, present and future infringements thereof and(d) all other rights of any kind whatsoever accruing thereunder as pertainingthereto.

 

 “Deposit Accounts”  means all “deposit accounts” as such term isdefined in the Code, now or hereafter held in the name of the Company.

 

“Documents”means all “documents,” as such term is defined in the Code, now owned orhereafter acquired by the Company, wherever located.

 

“Dollars”or “$”  means lawful currency ofthe United States of America.

 

“Equipment”means all “equipment,” as such term is defined in the Code, now owned orhereafter acquired by the Company, wherever located and, in any event,including all of the Company’s machinery and equipment, including processingequipment, conveyors, machine tools, data processing and computer equipment,including embedded software and peripheral equipment and all engineering,processing and manufacturing equipment, office machinery,

 

----

 

furniture, materials handling equipment, tools, attachments, accessories,automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motorvehicles, rolling stock and other equipment of every kind and nature, tradefixtures and fixtures not forming a part of real property, together with alladditions and accessions thereto, replacements therefor, all parts therefor,all substitutes for any of the foregoing, fuel therefor, and all manuals,drawings, instructions, warranties and rights with respect thereto, and allproducts and proceeds thereof and condemnation awards and insurance proceedswith respect thereto.

 

“EquityInterest” means the interest of (a) a shareholder in a corporation; (b) apartner (whether general or limited) in a partnership (whether general, limitedor limited liability); (c) a member in a limited liability company; or (d) anyother Person having any other form of equity security or ownership interest.

 

 “General Intangibles” means all“general intangibles,” as such term is defined in the Code, now owned orhereafter acquired by the Company, including (as the context may reasonablypermit) all right, title and interest that the Company may now or hereafterhave in or under any Contract, all payment intangibles, customer lists,Licenses, Copyrights, Trademarks, Patents, and all applications therefor andreissues, extensions or renewals thereof, rights in Intellectual Property,interests in partnerships, joint ventures and other business associations,licenses, permits, copyrights, trade secrets, proprietary or confidentialinformation, inventions (whether or not patented or patentable), technicalinformation, procedures, designs, knowledge, know-how, software, data bases,data, skill, expertise, experience, processes, models, drawings, materials andrecords, goodwill (including the goodwill associated with any Trademark orTrademark License), all rights and claims in or under insurance policies(including insurance for fire, damage, loss and casualty, whether coveringpersonal property, real property, tangible rights or intangible rights, allliability, life, key man and business interruption insurance, and all unearnedpremiums), choses in action, rights to receive tax refunds and other payments,rights to receive dividends, distributions, cash, Instruments and otherproperty in respect of or in exchange for any pledged Investment Property,rights of indemnification, all books and records, correspondence, credit files,invoices and other papers, including without limitation all tapes, cards,computer runs and other papers and documents in the possession or under thecontrol of the Company or any computer bureau or service company from time totime acting for the Company.

 

“Goods”means all “goods” as defined in the Code, now owned or hereafter acquired bythe Company, wherever located, including embedded software to the extentincluded in “goods” as defined in the Code.

 

“Instruments”means all “instruments,” as such term is defined in the Code, now owned orhereafter acquired by the Company, wherever located, and, in any event,including all certificates of deposit, and all promissory notes and otherevidences of indebtedness, other than instruments that constitute, or are apart of a group of writings that constitute, Chattel Paper.

 

“IntellectualProperty” means collectively, all Copyrights, all Patents and allTrademarks, together with (a) all inventions, processes, production methods,proprietary information, know-how and trade secrets; (b) all CopyrightLicenses, Patent Licenses and Trademark Licenses; (c) all information,customer lists, identification of suppliers, data, plans, blueprints,

 

----

 

specifications, designs, drawings, recorded knowledge, surveys,engineering reports, test reports, manuals, materials standards, processingstandards, performance standards, catalogs, computer and automatic machinerysoftware and programs; (d) all field repair data, sales data and otherinformation relating to sales or service of products now or hereaftermanufactured; (e) all accounting information and all media in which or on whichany information or knowledge or data or records may be recorded or stored andall computer programs used for the compilation or printout of such information,knowledge, records or data; (f) all licenses, consents, permits, variances,certifications and approvals of governmental agencies now or hereafter held bythe Company; and (g) all causes of action, claims, and warranties now orhereafter owned or acquired by the Company in respect of any of the itemslisted above.

 

“IntellectualProperty Security Agreement” means, with respect to Patents and Trademarks,the Notice of Security Interest in Patents and Trademarks substantially in theform of Exhibit I-A attached hereto and shall include any amendments,restatements, supplements, or other modifications thereto, and with respect toCopyrights, the Notice of Security Interest in Copyrights substantially in theform of Exhibit I-B attached hereto and shall include any amendments,restatements, supplements, or other modifications thereto.

 

“Inventory”means all “inventory,” as such term is defined in the Code, now owned orhereafter acquired by the Company, wherever located, and in any event including(as the context may reasonably permit) inventory, merchandise, goods and otherpersonal property that are held by or on behalf of the Company for sale orlease or are furnished or are to be furnished under a contract of service, orthat constitute raw materials, work in process, finished goods, returned goods,or materials or supplies of any kind, nature or description used or consumed orto be used or consumed in the Company’s business or in the processing,production, packaging, promotion, delivery or shipping of the same, includingall supplies and embedded software.

 

“InvestmentProperty” means all “investment property” as such term is defined in theCode now owned or hereafter acquired by the Company, wherever located,including (as the context may reasonably permit) (i) all securities,whether certificated or uncertificated, including stocks, bonds, interests inlimited liability companies, partnership interests, treasuries, certificates ofdeposit, and mutual fund shares; (ii) all securities entitlements of theCompany, including the rights of the Company to any securities account and thefinancial assets held by a securities intermediary in such securities accountand any free credit balance or other money owing by any securities intermediarywith respect to that account; (iii) all securities accounts of theCompany; (iv) all commodity contracts of the Company; and (v) allcommodity accounts held by the Company.

 

 “Letter-of-Credit Rights” means“letter-of-credit rights” as such term is defined in the Code, now owned orhereafter acquired by the Company, including (as the context may reasonablypermit) rights to payment or performance under a letter of credit, whether ornot the Company, as beneficiary, has demanded or is entitled to demand paymentor performance.

 

“License”means any Copyright License, Patent License, Trademark License or other licenseof rights or interests now held or hereafter acquired by the Company.

 

----

 

“Lien”means any mortgage or deed of trust, pledge, hypothecation, assignment, depositarrangement, lien, charge, claim, security interest, easement or encumbrance,or preference, priority or other security agreement or preferential arrangementof any kind or nature whatsoever (including any lease or title retentionagreement, any financing lease having substantially the same economic effect asany of the foregoing, and the filing of, or agreement to give, any financingstatement perfecting a security interest under the Code or comparable law ofany jurisdiction).

 

“PatentLicense” means rights under any written agreement now owned or hereafteracquired by the Company granting any right with respect to any invention onwhich a Patent is in existence.

 

“Patents”means all of the following in which the Company now holds or hereafter acquiresany interest:  (a) all letterspatent of the United States or of any other country, all registrations andrecordings thereof, and all applications for letters patent of the UnitedStates or of any other country, including registrations, recordings andapplications in the United States Patent and Trademark Office or in any similaroffice or agency of the United States, any State, or any other country,(b) all reissues, continuations, continuations-in-part orextensions thereof, (c) all income, royalties, damages and payments now orhereafter due and/or payable under and with respect thereto, including, withoutlimitation, damages and payments for past or future infringements thereof, (d)the right to sue for past, present and future infringements thereof, and(e) all rights corresponding thereto throughout the world.

 

“PermittedLiens” means the following:

 

1.             Any liens arising under thisSecurity Agreement or any other Note Documents or as set forth on Schedule4(a);

 

2.             Liens for taxes or othergovernmental charges not at the time delinquent or thereafter payable withoutpenalty or being contested in good faith, provided provision is made to thereasonable satisfaction of Collateral Agent for the eventual payment thereof ifsubsequently found payable;

 

3.             Liens (i) on equipment acquired orheld by the Company incurred in connection with the financing of the equipment,or (ii) existing on equipment when acquired, ifthe lien is confined tothe property and improvements and the proceeds of the equipment;

 

4.             Leases or subleases and licenses orsublicenses granted in the ordinary course of the Company’s business notinterfering in any material respect with the business of the Company;

 

5.             Materialmen’s, mechanics’,warehousemen’s, carriers’, repairmen’s, artisans’ landlords’ or other similarliens arising in the ordinary course of business or by operation of law;

 

6.             Liens incurred in the extension,renewal or refinancing of the indebtedness secured by liens described inclauses (1) through (5) above, but any extension, renewal or

 

----

 

replacement lien must be limited to the property encumbered by theexisting lien and the principal amount of the indebtedness may not increase;

 

7.             Easements, reservations,rights-of-law, restrictions, minor defects or irregularities in title and othersimilar charges or encumbrances affecting real property not having a materialadverse effect on the Company’s business or assets;

 

8.             Liens arising from judgments,decrees or attachments in circumstances not constituting an Event of Default;

 

9.             Liens to secure payment of worker’scompensation, unemployment insurance, old age pensions or other social securityobligations of the Company in the ordinary course of business; and

 

10.           Liens in favor of other financialinstitutions arising in connection with the Company’s Deposit Accounts held atsuch institutions, provided that the Purchasers have a perfected securityinterest in the amounts held in such Deposit Accounts.

 

“PledgedStock” means, with respect to each direct and indirect Subsidiary of theCompany, all of the authorized outstanding shares of each class of capitalstock or other Equity Interests of such Subsidiary owned by the Company.  Pledged Stock shall include all shares,securities, moneys or property representing a dividend on any of the aforesaidcapital stock and Equity Interests, or representing a distribution or return ofcapital upon or in respect thereof, or resulting from a split-up, revision,reclassification or other like change thereof or otherwise received in exchangetherefor, and any subscription, warrants, rights or options issued to theholders of, otherwise in respect of, the aforesaid capital stock and EquityInterests and without affecting the obligations of the Company under anyprovision prohibiting such action hereunder or under the Note Documents, in theevent of any consolidation or merger in which an issuer of the aforesaid capitalstock and Equity Interests is not the surviving corporation, all shares of eachclass of the capital stock of the successor corporation (unless such successorcorporation is the Company itself) formed by or resulting from suchconsolidation or merger.

 

“Proceeds”means “proceeds,” as such term is defined in the Code, including (as thecontext may reasonably permit) (a) any and all proceeds of any insurance,indemnity, warranty or guaranty payable to the Company from time to time withrespect to any of the Collateral, (b) any and all payments (in any formwhatsoever) made or due and payable to the Company from time to time inconnection with any requisition, confiscation, condemnation, seizure orforfeiture of all or any part of the Collateral by any Governmental Authority(or any Person acting under color of Governmental Authority), (c) anyclaim of the Company against third parties (i) for past, present or futureinfringement of any Patent or Patent License, or (ii) for past, present orfuture infringement or dilution of any Copyright, Copyright License, Trademarkor Trademark License, or for injury to the goodwill associated with anyTrademark or Trademark License, (d) any recoveries by the Company againstthird parties with respect to any litigation or dispute concerning any of theCollateral including claims arising out of the loss or nonconformity of,interference with the use of, defects in, or infringement of rights in, ordamage to, Collateral, (e) all amounts collected on, or distributed onaccount of, other Collateral,

 

----

 

including dividends, interest, distributions and Instruments withrespect to Investment Property, and (f) any and all other amounts, rightsto payment or other property acquired upon the sale, lease, license, exchangeor other disposition of Collateral and all rights arising out of Collateral.

 

 “Secured Obligations”means all principal of all Notes outstanding from time to time, all interest(including all interest that accrues after the commencement of any case orproceeding in bankruptcy, insolvency or similar proceeding, whether or notallowed or allowable in such case or proceeding) on such Notes and all otheramounts now or hereafter payable by the Company pursuant to any of the NoteDocuments provided, however, that “Secured Obligations” shall notinclude any obligations of the Company to any respective Purchaser as equityholder of any of the Company’s capital stock.

 

“Secured Parties”means the holders from time to time of the Secured Obligations.

 

“Security Agreement” or “Agreement” means this SecurityAgreement, as the same may be amended, supplemented, restated or otherwisemodified from time to time.

 

“Software”means all “software” as such term is defined in the Code, now owned orhereafter acquired by the Company, other than software embedded in any categoryof Goods, including all computer programs and all supporting informationprovided in connection with a transaction related to any program.

 

 “Supporting Secured Obligations” meansall “supporting obligations” as such term is defined in the Code, includingletters of credit and guaranties issued in support of Accounts, Chattel Paper,Documents, General Intangibles, Instruments, or Investment Property.

 

“TechnologyCollateral Escrow Agent” means DSI Technology Escrow Services, Inc.

 

“TechnologyCollateral Escrow Agreement” means the escrow agreement dated as of thedate hereof by and between the Company, the Technology Collateral Escrow Agentand the Collateral Agent.

 

“TerminationDate” means the date on which all obligations of the Company to thePurchasers or their assigns under the Notes, the Purchase Agreement, thisSecurity Agreement and each other Note Document have been indefeasiblysatisfied.

 

“TrademarkLicense” means rights under any written agreement now owned or hereafteracquired by the Company granting any right to use any Trademark.

 

“Trademarks”means all of the following now owned or hereafter existing or adopted oracquired by the Company:  (a) alltrademarks, trade names, corporate names, business names, trade styles, servicemarks, logos, other source or business identifiers, prints and labels on whichany of the foregoing have appeared or appear, designs and General Intangiblesof like nature (whether registered or unregistered), all registrations andrecordings thereof, and all applications in connection therewith, includingregistrations, recordings and applications in the United States Patent andTrademark Office or in any similar office or agency of the United States, anystate or territory thereof, or any other country or any political subdivisionthereof, (b) all reissues, extensions or renewals thereof, (c) allrights corresponding thereto throughout the world (d) the

 

----

 

right to recover for all past, present and future infringements thereofand (e) all other rights of any kind whatsoever accruing thereunder orpertaining thereto, together, in each case, with the product lines and goodwillof the business connected with the use of, and symbolized by, any of theforegoing.

 

The words“herein,” “hereof” and “hereunder” and other words of similar import refer tothe Security Agreement as a whole, including all Annexes, Exhibits andSchedules, as the same may from time to time be amended, restated, modified orsupplemented, and not to any particular section, subsection or clause containedin the Security Agreement or any such Annex, Exhibit or Schedule.

 

Wherever fromthe context it appears appropriate, each term stated in either the singular orplural shall include the singular and the plural, and pronouns stated in themasculine, feminine or neuter gender shall include the masculine, feminine andneuter genders.  The words “including”,“includes” and “include” shall be deemed to be followed by the words “withoutlimitation”; the word “or” is not exclusive; references to Persons includetheir respective successors and assigns or, in the case of governmentalPersons, Persons succeeding to the relevant functions of such Persons; and allreferences to statutes and related regulations shall include any amendments ofthe same and any successor statutes and regulations.  Whenever any provision in this Security Agreement refers to theknowledge (or an analogous phrase) of the Company, such words are intended tosignify that the Company has actual knowledge or awareness of a particular factor circumstance or that the Company, if it had exercised reasonable diligence,would have known or been aware of such fact or circumstance.

 

----

 

**EXHIBIT A**

 

**FORM OF**

 

**POWER OF ATTORNEY**

 

ThisPower of Attorney is executed and delivered by VCampus Corporation, a Delawarecorporation (the “**Grantor**”)to Sherleigh Associates LLC(hereinafter referred to as the “**Attorney**”),as the Collateral Agent for the benefit of the Collateral Agent and thePurchasers, under a Purchase Agreement and a Security Agreement, each dated asof March __, 2004 and other related documents collectively (the “**Note Documents**”).  No person to whom this Power of Attorney ispresented, as authority for the Attorney to take any action or actionscontemplated hereby, shall be required to inquire into or seek confirmationfrom the Grantor as to the authority of the Attorney to take any actiondescribed below, or as to the existence of or fulfillment of any condition tothis Power of Attorney, which is intended to grant to the Attorneyunconditionally the authority to take and perform the actions contemplatedherein.  The power of attorney grantedhereby is coupled with an interest, and may not be revoked or canceled by theGrantor without the Attorney’ s written consent.

 

The Grantor herebyirrevocably constitutes and appoints the Attorney (and all officers, employeesor agents designated by the Attorney), with full power of substitution, as theGrantor’s true and lawful attorney-in-fact with full irrevocable power andauthority in the place and stead of the Grantor and in the name of the Grantoror in its own name, from time to time in the Attorney’s discretion, withoutnotice to or assent by the Grantor, and at any time in the case of clause (h)below and at any time an Event of Default (as defined in the Note PurchaseAgreement) has occurred and is continuing in the case of (a), (b), (c), (d),(e), (f), (g), (i) and (j) below, to do the following: (a) change the mailingaddress of the Grantor, open a post office box on behalf of the Grantor, openmail for the Grantor, and ask, demand, collect, give acquittances and receiptsfor, take possession of, endorse any invoices, freight or express bills, billsof lading, storage or warehouse receipts, drafts against debtors, assignments,verifications, and notices in connection with any property of the Grantorconstituting Collateral; (b) effect any repairs to any asset of the Grantor, orcontinue or obtain any insurance and pay all or any part of the premiumstherefor and costs thereof, and make, settle and adjust all claims under suchpolicies of insurance, and make all determinations and decisions with respectto such policies; (c) pay or discharge any taxes, liens, security interests, orother encumbrances levied or placed on or threatened against the Grantor or itsproperty constituting Collateral; (d) defend any suit, action or proceedingbrought against the Grantor if the Grantor does not defend such suit, action orproceeding or if the Attorney believes that the Grantor is not pursuing suchdefense in a manner that will maximize the recovery to the Attorney, andsettle, compromise or adjust any suit, action, or proceeding described aboveand, in connection therewith, give such discharges or releases as the Attorneymay deem appropriate; (e) file or prosecute any claim, litigation, suit orproceeding in any court of competent jurisdiction or before any arbitrator, ortake any other action otherwise deemed appropriate by the Attorney for thepurpose of collecting any and all such moneys due to the Grantor wheneverpayable and to enforce any other right in respect of the Grantor’s propertyconstituting Collateral; (f) cause the certified public accountants thenengaged by the Grantor to prepare and deliver to the Attorney at any time andfrom time to time, promptly upon the Attorney’s request, the following reports:(1) a reconciliation of all accounts, (2) an aging of all

 

----

 

accounts, (3) trialbalances, (4) test verifications of such accounts as the Attorney may request,and (5) the results of each physical verification of inventory; (g) communicatein its own name with any party to any contract with regard to the assignment ofthe right, title and interest of such Grantor in and under the contracts andother matters relating thereto; (h) file such financing statements with respectto the aforesaid Security Agreement, with or without Grantor’s signature, or tofile a photocopy of such Security Agreement in substitution for a financingstatement, as the Collateral Agent may deem appropriate and to execute in theGrantor’s name such financing statements and amendments thereto andcontinuation statements which may require the Grantor’s signature; (i) execute,in connection with any sale provided for in any Note Document, any endorsements,assignments or other instruments of conveyance or transfer with respect to theCollateral and to otherwise direct such sale or resale, all as though theAttorney were the absolute owner of the property of the Grantor for allpurposes, and (j) at the Attorney’s option and the Grantor’s expense, at anytime or from time to time, all acts and other things that the Attorneyreasonably deems necessary to perfect, preserve, or realize upon the Grantor’sproperty or assets and the Collateral Agent’s Liens thereon, all as fully andeffectively as the Grantor might do. The Grantor hereby ratifies, to the extent permitted by law, all thatsaid Attorney shall lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF, thisPower of Attorney is executed by the Grantor, and the Grantor has caused itsseal to be affixed pursuant to the authority of its board of directors this          day of                                     ,2004.

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

 

NOTARYPUBLIC CERTIFICATE

 

On this           day of                       ,200  ,                                       [name] who is personally known to me appeared before me in his/her capacity asthe                                 [title]of VCampus Corporation (“Grantor”) and executed on behalf of the Grantor thePower of Attorney in favor of Sherleigh Associates LLC [Attorney] to which this Certificate isattached.

 

 
|   |          |
|--------|---------------|
|   | Notary Public |

 

----

 

**EXHIBITI -A**

** **

**FORM OF**

**NOTICEOF SECURITY INTEREST**

**IN**

**PATENTSAND TRADEMARKS**

 

NOTICEIS HEREBY GIVEN that VCampus Corporation, a Delaware corporation (the “**Grantor**”) with an office located at                                         and Sherleigh Associates LLC(the “**Collateral Agent**”),with an office located at660 Madison Avenue, 15th Floor, New York,New York 10021, on behalf of itself and certain other creditors of the Grantor(collectively, the “**Secured Parties**”),have entered into a Security Agreement dated as of March __, 2004 (the “**Security Agreement**”; terms defined inthe Security Agreement and not otherwise defined herein are used herein astherein defined).

 

Pursuantto the Security Agreement, the Grantor has conveyed, pledged, assigned andtransferred to the Collateral Agent, for the equal and ratable benefit of theSecured Parties, and has granted to the Collateral Agent, for the equal andratable benefit of the Secured Parties, a security interest  the Trademarks and Trademark Licenses listedin Schedule B hereto, together with the goodwill of the businesssymbolized thereby, in each case to secure the prompt payment, performance andobservance of the Secured Obligations of such Grantor.

 

 
| Dated: |                   |   |   |
|--------|------------------------|--------|--------|
|   |                   |
|   | VCampus Corporation    |
|   |                   |
|   | a Delaware corporation |
|   |                   |
|   | By:                    |   |   |
|   |                   |
|   | Name:                  |   |   |
|   |                   |
|   | Title:                 |   |   |

 

----

 

**EXHIBIT I -B**

 

**FORM OF**

 

**NOTICE OF SECURITY INTEREST**

 

**IN**

 

**COPYRIGHTS**

 

NOTICEIS HEREBY GIVEN that VCampus Corporation, a Delaware Corporation (the “**Grantor**”) with an office located at                                     andSherleigh Associates LLC,as Collateral Agent (the “**Collateral Agent**”),with an office located at 660 Madison Avenue, 15th Floor, New York,New York 10021, on behalf of itself and certain other creditors of the Grantors(collectively, the “**Secured Parties**”),have entered into a Security Agreement dated as of March       , 2004 (the “**Security Agreement**”; terms defined inthe Security Agreement and not otherwise defined herein are used herein astherein defined).

 

Pursuant to the SecurityAgreement, the Grantor has conveyed, pledged, assigned and transferred to theCollateral Agent, for the equal and ratable benefit of the Secured Parties, andhas granted to the Collateral Agent, for the equal and ratable benefit of theSecured Parties, a security interest in, the Copyrights and Copyright Licenseslisted on Schedule A hereto to secure the prompt payment, performanceand observance of the Secured Obligations of the Grantor.

 

 
| Dated: |                   |   |   |
|--------|------------------------|--------|--------|
|   |                   |
|   | VCampus Corporation    |
|   |                   |
|   | a Delaware corporation |
|   |                   |
|   | By:                    |   |   |
|   |                   |   |   |
|   | Name:                  |   |   |
|   |                   |   |   |
|   | Title:                 |   |   |

 

----