Exhibit 10.106


 


CERTIFICATE OF DESIGNATIONS,


 


PREFERENCES AND RIGHTS OF


 


SERIES A-1 CONVERTIBLE PREFERRED
STOCK


 


OF


 


VCAMPUS CORPORATION


 


I.              Creation of Series A-1
Convertible Preferred Stock.


 


The
undersigned officer of VCampus Corporation, a Delaware corporation (the “Corporation”),
pursuant to the provisions of Section 151 of the General Corporation Law
of the State of Delaware, does hereby make this Certificate of Designations,
Preferences and Rights (the “Series A-1 Certificate of Designations”) and
does hereby state and certify that pursuant to the authority expressly vested
in the Board of Directors of the Corporation by the Certificate of
Incorporation, as amended, the Board of Directors duly adopted the following
resolutions:


 


RESOLVED,
that, pursuant to the Amended and Restated Certificate of Incorporation of the
Corporation (the “Amended Certificate of Incorporation”), which authorizes
171,586 shares of undesignated preferred stock, par value $0.01 per share, of
which prior to the date hereof no shares were outstanding and all 171,586
shares remained undesignated, the Board of Directors is authorized, within the
limitations and restrictions stated in the Amended Certificate of
Incorporation, to fix by resolution or resolutions the designation of each
series of preferred stock and the powers, preferences and relative
participating, optional, or other special rights, and qualifications,
limitations, and restrictions thereof; and


 


RESOLVED,
that the Corporation hereby fixes the designations and preferences and
relative, participating, optional, and other special rights, and
qualifications, limitations, and restrictions of the preferred stock consisting
of 5,000 shares to be designated Series A-1 Convertible Preferred Stock,
par value $0.01 per share (the “Series A-1 Preferred Stock”); and


 


RESOLVED,
that the Series A-1 Preferred Stock is hereby authorized on the terms and
with the provisions herein set forth:


 


II.            Provisions Relating to the
Preferred Stock.


 


1.             Rank.  Subject to the rights of additional series of
Preferred Stock that may be designated by the Board of Directors from time to
time, the Series A-1 Preferred Stock shall, with respect to dividend
rights and with respect to rights upon liquidation, winding up or dissolution,
rank senior and prior in right to (a) each class of common stock of the
Corporation, (b) any series of preferred stock hereafter created (except
for any parri passu preferred stock and except as may otherwise be consented to
by holders of a majority of the Series A-1 Preferred


 





















 


Stock) and (c) any other equity interests (including, without
limitation, warrants, stock appreciation rights, phantom stock rights, or other
rights with equity features, calls or options exercisable for or convertible
into such capital stock or equity interests) in the Corporation that by its
terms rank junior to the Series A-1 Preferred Stock (all of such classes
or series of capital stock and other equity interests, including, without
limitation, all classes of common stock of the Corporation, are collectively
referred to as “Junior Securities”).


 


2.             Dividends.  (a) Subject to the rights of additional
series of Preferred Stock that may be designated by the board from time to time
and in preference to all holders of common stock, the holders of Series A-1
Preferred Stock shall be entitled to receive quarterly dividends (the “Series A-1
Dividends”), at an annual rate of ten percent (10%) of the Series A-1
purchase price per share (as such dollar amount shall be appropriately adjusted
for stock dividends, stock combinations, recapitalizations or the like), plus
all accrued and unpaid dividends accrued thereon pursuant to this section (the
“Series A-1 Quarterly Dividend Amount”), on each March 31, June 30,
September 30 and December 31 (each, a “Quarterly Dividend Date”)
after the date on which such shares of Series A-1 Preferred Stock were
issued (the “Series A-1 Original Issue Date” for such share), provided,
however, the amount of dividends on the first Quarterly Dividend Date after the
Series A-1 Original Issue Date shall equal the Series A-1 Quarterly
Dividend Amount multiplied by a fraction (A) the numerator of which shall
equal the number of days from and including the Series A-1 Original Issue
Date for such share to and including such first Quarterly Dividend Date, and (B) the
denominator of which is ninety (90).  The
Series A-1 Dividend shall be paid in cash within 45 days after each
Quarterly Dividend Date.  The Corporation
shall be obligated to declare and pay each quarterly dividend as set forth above
; provided, however, that the Corporation is, and may continue to be, subject
to:  (i) applicable Delaware law
governing payment of cash dividends in the event of insolvency; and (ii) restrictions
on the payment of cash dividends in the event of default under the Corporation’s
2004 Series A and Series B Senior Secured Convertible Notes due April 1,
2009, as issued in the Corporation’s March 2004 financing.


 


(b)           So long as any shares of Series A-1
Preferred Stock are outstanding, the Corporation will not declare, pay or set
apart for payment any dividends (except dividends payable in common stock of
the Corporation) or make any other distribution on or redeem, purchase or
otherwise acquire any Junior Securities and will not permit any Subsidiary or
other Affiliate (using funds of the Corporation or any Subsidiary) to redeem,
purchase or otherwise acquire for value, any Junior Securities.  Notwithstanding the foregoing provisions of
this Section 2(b), the Corporation or any Subsidiary may (i) make
payments in respect of fractional shares of Junior Securities and (ii) repurchase,
redeem or otherwise acquire for value any Junior Securities from any employee
or former employee of the Corporation or any Subsidiary in connection with the
termination of employment by the Corporation or any Subsidiary or by such
employee or former employee, whether by reason of death, disability, retirement
or otherwise.


 


3.             Liquidation.  Subject to the rights of additional series of
Preferred Stock that may be designated by the Board from time to time, upon a
change in control pursuant to which the stockholders of the Corporation
immediately prior to such change in control possess less than forty percent
(40%) of the voting power of the acquiring entity immediately following such change
in control, liquidation, dissolution or winding up of the affairs of the
Corporation,


 


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whether voluntary or involuntary (a “Liquidation Event”), the holders
of the Series A-1 Preferred Stock shall be entitled, before any assets of
the Corporation shall be distributed among or paid over to the holders of
Junior Securities, to receive from the assets of the Corporation available for
distribution to stockholders, an amount per share equal to the purchase price
per share paid for the Series A-1 Preferred Stock, as adjusted to reflect
any and all subdivisions (by stock split, stock dividend or otherwise) or
combinations or consolidations (by reclassification or otherwise) of the Series A-1
Preferred Stock occurring after the Issue Date, plus all declared but unpaid
dividends (the “Series A-1 Liquidation Preference”).  If the assets of the Corporation legally
available for distribution shall be insufficient to permit the payment in full
to the holders of the Series A-1 Preferred Stock of their Liquidation
Preferences, then the entire assets of the Corporation legally available for
distribution shall be distributed ratably in accordance with the Series A-1
Liquidation Preferences among such holders. 
For purposes of this Section 3, a Liquidation Event shall be deemed
to be occasioned by, and to include, (i) the Corporation’s sale of all or
substantially all of its assets or capital stock or (ii) any transaction
or series or related transactions (including, without limitation, any
reorganization, merger or consolidation, but excluding the Series A-1
financing) that will result in the holders of the outstanding voting equity
securities of the Corporation immediately prior to such transaction or series
of related transactions holding securities representing less than forty percent
(40%) of the voting power of the surviving entity immediately following such
transaction or series of related transactions.


 


4.             Voting.  (a) Except as otherwise provided by law,
the rules of the Nasdaq Stock Market or by subsection 4(b), the
holders of the Series A-1 Preferred Stock shall be entitled to vote on all
matters submitted to the common stockholders for a vote together with the
holders of the common stock voting together as a single class, with each holder
of common stock entitled to one vote for each share of common stock held by
such holder and each holder of Series A-1 Preferred Stock entitled to a
number of votes equal to the number of shares into which such holder’s Series A-1
Preferred Stock is convertible (based on the then applicable conversion price
and as ratably adjusted for stock splits, combinations, recapitalizations,
reorganizations, reclassifications, stock distributions, stock dividends or
other similar events with respect to the common stock occurring after the Series A-1
Original Issue Date).


 


(b)           The holders of the Series A-1
Preferred Stock shall vote as a separate class on the creation of any new
series of preferred stock or the issuance of additional shares of capital stock
of the Corporation that, in either case, ranks senior to the Series A-1
Preferred Stock.


 


(c)           Any reverse split of the Corporation’s
common stock shall require the prior written consent of all holders, if any, of
more than $500,000 (based on original purchase price still outstanding) of Series A-1
Preferred Stock (as determined on the date of shareholder approval of any such
reverse stock split).


 


5.             Conversion of Series A-1
Preferred Stock into Common Stock.


 


(a)           Conversion Procedure.


 


(i)            At any time, any holder of Series A-1
Preferred Stock may convert all or any portion of the Series A-1 Preferred
Stock held by such holder into a number of shares of Conversion Stock (as
defined in Section 7) computed by multiplying the number of shares to


 


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be converted by the purchase price thereof and dividing the result by
the Conversion Price (as defined in subsection 5(b)) then in effect.


 


(ii)           Each voluntary conversion of Series A-1
Preferred Stock shall be deemed to have been effected as of the close of
business on the date on which notice of election of such conversion is
delivered (which can be by facsimile) to the Corporation by such holder.  Until the certificates representing the
shares of Series A-1 Preferred Stock which are being converted have been
surrendered and new certificates representing shares of the Conversion Stock
shall have been issued by the Corporation, such certificate(s) evidencing the
shares of Series A-1 Preferred Stock being converted shall be evidence of
the issuance of such shares of Conversion Stock.  At such time as such conversion has been
effected, the rights of the holder of such Series A-1 Preferred Stock as
such holder shall cease and the Person or Persons in whose name or names any
certificate or certificates for shares of Conversion Stock are to be issued
upon such conversion shall be deemed to have become the holder or holders of
record of the shares of Conversion Stock represented thereby.


 


(iii)          Notwithstanding any other provision
hereof, if a conversion of shares is to be made in connection with a Public
Offering (as defined in Section 7), the conversion of such shares may, at
the election of the holder thereof, be conditioned upon the consummation of the
Public Offering, in which case such conversion shall not be deemed to be
effective until the consummation of the Public Offering.


 


(iv)          As soon as practicable, but in any
event within five (5) business days, after a conversion has been effected
in accordance with clause (i) above, the Corporation shall deliver to the
converting holder:  (A) a
certificate or certificates representing, in the aggregate, the number of
shares of Conversion Stock issuable by reason of such conversion, in the name
or names and in such denomination or denominations as the converting holder has
specified; and (B) a certificate representing any shares which were
represented by the certificate or certificates delivered to the Corporation in
connection with such conversion but which were not converted.


 


(v)           The issuance of certificates for
shares of Conversion Stock upon conversion of Series A-1 Preferred Stock
shall be made without charge to the holders of such Series A-1 Preferred
Stock for any issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and the related issuance of
shares of Conversion Stock, except for any transfer or similar tax payable as a
result of issuance of a certificate to other than the registered holder of the
shares being converted.  Upon conversion
of any shares of Series A-1 Preferred Stock, the Corporation shall use its
best efforts to take all such actions as are necessary in order to insure that
the Conversion Stock issuable with respect to such conversion shall be validly
issued, fully paid and nonassessable.


 


(vi)          The Corporation shall not close its
books against the transfer of Series A-1 Preferred Stock or of Conversion
Stock issued or issuable upon conversion of Series A-1 Preferred Stock in
any manner which interferes with the timely conversion of Series A-1
Preferred Stock. The Corporation shall assist and cooperate with any holder of
shares of Series A-1 Preferred Stock required to make any governmental
filings or obtain any governmental


 


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approval prior to or in connection with any conversion of shares
hereunder (including, without limitation, making any filings reasonably
required to be made by the Corporation).


 


(vii)         No fractional shares of Conversion
Stock or scrip representing fractional shares shall be issued upon conversion
of shares of Series A-1 Preferred Stock. 
If more than one share of Series A-1 Preferred Stock shall be
surrendered for conversion at one time by the same record holder, the number of
full shares of Conversion Stock issuable upon the conversion thereof shall be
computed on the basis of the aggregate number of shares of Series A-1
Preferred Stock so surrendered by such record holder.  Instead of any fractional share of Conversion
Stock otherwise issuable upon conversion of any shares of the Series A-1
Preferred Stock, the Corporation shall pay a cash adjustment in respect of such
fraction in an amount equal to the same fraction of current per share fair
market value of the Conversion Stock as determined in good faith by the Board
of Directors on such basis as it considers appropriate.


 


(viii)        The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of
Conversion Stock, solely for the purpose of issuance upon the conversion of the
Series A-1 Preferred Stock, such number of shares of Conversion Stock as
are issuable upon the conversion of all outstanding Series A-1 Preferred
Stock.  All shares of Conversion Stock
which are so issuable shall, when issued, be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens and charges, other than
those created or agreed to by the holder. 
The Corporation shall use its best efforts to take all such actions as
may be necessary (including soliciting shareholder approval at its next annual
meeting) to assure that all such shares of Conversion Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of
Conversion Stock may be listed (except for official notice of issuance which
shall be promptly delivered by the Corporation upon each such issuance).


 


(b)           Conversion Price.


 


(i)            “Conversion Price” for the Series A-1
Preferred Stock shall initially mean the Initial Conversion Price described in
this Section 5, as the same may be subsequently adjusted from time to time
in accordance with this Section 5.


 


(ii)           The “Initial Conversion Price” shall
be one-six hundredth (1/600th) of the per share purchase price for
the Series A-1 Preferred Stock (or approximately $1.67 in the case of the Series A-1
Preferred Stock issued on or about the filing date of this certificate).


 


(c)           Conversion Price Resets.  If before March 31, 2006 the common
stock does not trade at or above $6.00 per share (as adjusted for any stock
splits, stock dividends or similar events) for at least ten (10) consecutive
trading days after the Conversion Stock and the related shares of common stock
issuable upon exercise of warrants held by the Series A-1 investors have
been registered for resale under a registration statement declared effective by
the SEC (and remains effective throughout those ten (10) consecutive
trading days), then the Conversion Price shall reset on March 31, 2006 to
equal the average of the closing sale price of the common stock for the five (5) trading
days prior to the Series A-1 Original Issue Date, as reported on the
Principal Market (the “Reset Price”).


 


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(d)           Subdivision or Combination of
Common Stock.  If the Corporation at
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of common stock into a
greater number of shares, or if the Corporation at any time combines (by
reverse stock split or otherwise) one or more classes of its outstanding shares
of common stock into a smaller number of shares, the applicable Conversion
Price in effect immediately prior to such subdivision or combination shall be
proportionately adjusted.


 


(e)           Antidilution Adjustment of
Conversion Price.  If and whenever in the period
commencing after the Series A-1 Original Issue Date and ending on the
earlier of:  (A) the date there are
no longer any shares of Series A-1 Preferred Stock outstanding; or (B) the
date (following effectiveness of the registration statement covering the resale
of all the Conversion Stock) on which the shares of common stock have traded
for at least sixty (60) consecutive trading days at or above a price per share
equal to 150% of the then applicable Conversion Price with an average daily
trading volume during that period of 100,000 shares or more (as such share
price and volume number may be adjusted for any stock splits, stock dividends
or similar events)(the “Antidilution Period”), the Corporation issues or sells,
or in accordance with this Section 5(e) is deemed to have issued or
sold, any shares of common stock, with the exception of Excluded Issuances, for
a consideration per share (the “New Securities Issuance Price”) less than the
Conversion Price in effect immediately prior to such time (each such sale or
issuance, a “Dilutive Issuance”, then concurrent with such Dilutive Issuance,
the Conversion Price then in effect shall be reduced to an amount equal to the
New Securities Issuance Price.  The
Corporation may not effect any Dilutive Issuance until the earlier of:  (X) the date on which the Corporation obtains
shareholder approval for the issuance in full of all shares of common stock
issuable to the holders of Series A-1 Preferred Stock, including the
shares issuable upon exercise of the related warrants and any and all shares
issuable pursuant to the antidilution rights set forth herein and in the
Warrants (the “Full Issuance”); or (Y) the date on which the Corporation
obtains the written irrevocable proxies approving the Full Issuance from
holders of not less than 35% of the Corporation’s outstanding shares of common
stock eligible to vote on the Full Issuance.


 


For purposes of determining the adjusted Conversion
Price under this Section 5(e) during the Antidilution Period, the
following shall be applicable:


 


(i)            Issuance of
Options.  If the Corporation in any
manner grants or sells any options (other than Excluded Issuances) and the
lowest price per share for which one share of common stock is issuable upon the
exercise of any such option or upon conversion, exchange or exercise of any
Convertible Securities issuable upon exercise of such option is less than the
Conversion Price in effect immediately prior to such Dilutive Issuance, then
such share of common stock shall be deemed to be outstanding and to have been
issued and sold by the Corporation at the time of the granting or sale of such
option for such price per share.  For
purposes of this Section 5(e)(i), the “lowest price per share for which
one share of common stock is issuable upon the exercise of any such option or
upon conversion, exchange or exercise of any Convertible Securities issuable
upon exercise of such option” shall be equal to the sum of the lowest amounts
of consideration (if any) received or receivable by the Corporation with
respect to any one share of common stock upon granting or sale of the option,
upon exercise of the option and upon conversion, exchange or exercise of any
Convertible Security issuable upon


 


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exercise of such option.  No further adjustment of the Conversion Price
shall be made upon the actual issuance of such common stock or of such Convertible
Securities upon the exercise of such options or upon the actual issuance of
such common stock upon conversion, exchange or exercise of such Convertible
Securities.


 


(ii)           Issuance of
Convertible Securities.  If the
Corporation in any manner issues or sells any Convertible Securities (other
than Excluded Issuances) and the lowest price per share for which one share of
common stock is issuable upon such conversion, exchange or exercise thereof is
less than the Conversion Price in effect immediately prior to such Dilutive
Issuance, then such share of common stock shall be deemed to be outstanding and
to have been issued and sold by the Corporation at the time of the issuance of
sale of such Convertible Securities for such price per share.  For the purposes of this Section 5(e)(ii),
the “lowest price per share for which one share of common stock is issuable
upon such conversion, exchange or exercise” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the
Corporation with respect to any one share of common stock upon the issuance or
sale of the Convertible Security and upon the conversion, exchange or exercise
of such Convertible Security.  No further
adjustment of the Conversion Price shall be made upon the actual issuance of
such common stock upon conversion, exchange or exercise of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is
made upon exercise of any options for which adjustment of the Conversion Price
had been or is to be made pursuant to other provisions of this Section 5,
no further adjustment of the Conversion Price shall be made by reason of such
issue or sale.


 


(iii)          Change in Option
Price or Rate of Conversion.  If the
purchase or exercise price provided for in any options, the additional
consideration, if any, payable upon the issue, conversion, exchange or exercise
of any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exchangeable or exercisable for common stock changes at
any time (other than Excluded Issuances, in each case), the Conversion Price in
effect at the time of such change shall be adjusted to the Conversion Price
which would have been in effect at such time had such options or Convertible Securities
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold.  For purposes of this Section 5(e)(iii),
if the terms of any option or Convertible Security that was outstanding as of
the Series A-1 Original Issue Date are changed in the manner described in
the immediately preceding sentence, then such option or Convertible Security
and the common stock deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the date of such change.  On the expiration of any option or
Convertible Security not exercised, the applicable Conversion Price then in
effect shall forthwith be increased to the Conversion Price that would have
been in effect at the time of such expiration had such Convertible Securities
never been issued.  No adjustment shall
be made if such adjustment would increase the applicable Conversion Price by an
amount in excess of the adjustment originally made to the Conversion Price in
respect of the issue, sale or grant of the applicable option or Convertible
Security.  Notwithstanding anything to
the contrary herein, in no event shall an adjustment to the Conversion Price be
made retroactively with respect to any shares of Series A-1 Preferred
Stock converted to common stock prior to the actual date of the dilutive
issuance or change.  In addition, to
clarify for purposes of this Section 5, if an option or Convertible
Security has a price reset or similar provision that would cause the price to
adjust based on a future event or contingency, then the “lowest price per share
for which


 


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one share of Common Stock is issuable upon the
exercise of any such option or upon conversion, exchange or exercise of any
Convertible Securities issuable upon exercise of such option” shall not become
such adjusted price unless and until the happening, during the Antidilution
Period, of such event or contingency that actually gives effect to the
adjustment.


 


(iv)          Calculation of
Consideration Received.  In case any
option is issued in connection with the issue or sale of other securities of
the Corporation, together comprising one integrated transaction in which no
specific consideration is allocated to such options by the parties thereto,
then solely for purposes of this Section 5, the options will be deemed to
have been issued for a consideration equal to the exercise price of such
option.  If any common stock, options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the gross
amount received by the Corporation therefor. 
If any common stock, options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of the consideration other
than cash received by the Corporation will be the fair value of such
consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the
Corporation will be the arithmetic average of the Closing Sale Prices of such
securities during the ten (10) consecutive trading days ending on the date
of receipt of such securities.  The fair
value of any consideration other than cash or securities will be determined
jointly by the Corporation and holders of a majority of the then outstanding
shares of Series A-1 Preferred Stock (the “Required Holders”) in good
faith.  If such parties are unable to
reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within five business days after the tenth
(10th) day following the Valuation Event by an independent, reputable appraiser
selected by the Corporation and the Required Holders.  The determination of such appraiser shall be
deemed binding upon all parties absent manifest error and the fees and expenses
of such appraiser shall be borne equally by the Corporation and the Required
Holders.


 


(v)           “Approved Stock
Plan” shall mean any employee benefit plan, stock incentive plan or other
similar plan or arrangement which has been approved by the Board of Directors
of the Corporation or any authorized committee thereof, pursuant to which the
Corporation’s securities may be issued to any employee, officer, consultant or
director for services provided to the Corporation.


 


(vi)          “Convertible
Securities” means any convertible securities, warrants, options or other
rights to subscribe for or to purchase or exchange for, shares of common stock.


 


(vii)         “Excluded
Issuances” shall mean shares of common stock (a) deemed to have been
issued by the Corporation in connection with an Approved Stock Plan (regardless
of the applicable exercise or conversion price); (b) deemed to have been
issued upon issuance of the Series A-1 Preferred Stock or the related
warrants, issued upon conversion of the Series A-1 Preferred Stock or
exercise of such warrants or otherwise issued in connection with the
transactions contemplated in the Series A-1 Purchase Agreement dated as of
the date of the filing of this certificate or other Series A-1 closing
(including any securities of the Corporation issued or issuable to any finder
or placement agent); (c) issued upon exercise of options or Convertible
Securities which are outstanding on the date immediately preceding the Series A-1


 


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Original Issue Date, provided that such issuance of
shares of common stock upon exercise of such options or Convertible Securities
is made pursuant to the terms of such options or Convertible Securities in
effect on the date immediately preceding the Series A-1 Original Issue
Date, such options or Convertible Securities are not amended after the date
immediately preceding the Series A-1 Original Issue Date other than with
respect to options originally issued pursuant to an Approved Stock Plan and the
purchase or exercise price provided for in any such options, the additional consideration,
if any, payable upon the issue, conversion, exchange or exercise of any such
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable or exercisable for common stock does not
change at any time after the Series A-1 Original Issue Date; (d) issued
pursuant to a Strategic Financing; or (e) issued or deemed to be issued by
the Corporation with the prior approval of 
holders of 75% or more of the then outstanding shares of Series A-1
Preferred Stock.


 


(viii)        “Strategic
Financing” shall mean securities
issued pursuant to acquisitions or strategic transactions approved by a
majority of the disinterested directors, provided any such issuance shall only
be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Corporation and in
which the Corporation receives benefits in addition to the investment of funds,
but shall not include a transaction in which the Corporation is issuing
securities primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities.


 


(f)            Consolidation, Merger or Sale for
Assets.  Any consolidation, merger,
sale of all or substantially all of the Corporation’s assets to another Person
or other transaction which is effected in such a manner that holders of common
stock are entitled to receive (either directly or upon subsequent liquidation)
assets other than Conversion Stock (“Assets”) with respect to or in exchange
for common stock is referred to herein as a “Fundamental Change.” Prior to the
consummation of any Fundamental Change, the Corporation shall make appropriate
provisions to insure that each of the holders of Series A-1 Preferred
Stock shall thereafter have the right to acquire and receive, in lieu of or in
addition to (as the case may be) the shares of Conversion Stock immediately
theretofore acquirable and receivable upon the conversion of such holder’s Series A-1
Preferred Stock, such Assets as such holder would have received in connection
with such Fundamental Change if such holder had converted its Series A-1
Preferred Stock into Conversion Stock immediately prior to such Fundamental
Change.  The Corporation shall not effect
any Fundamental Change, consolidation, merger or sale unless prior to the
consummation thereof, the successor corporation (if other than the Corporation)
resulting from consolidation or merger or the corporation purchasing such
assets assumes the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.


 


(g)           Notices.


 


(i)            Promptly upon any adjustment of the
applicable Conversion Price, the Corporation shall give written notice thereof
to all holders of Series A-1 Preferred Stock, setting forth in reasonable
detail and certifying the calculation of such adjustment.


 


(ii)           The Corporation shall give written
notice to all holders of Series A-1 Preferred Stock at least 10 days prior
to the date on which the Corporation closes its books


 


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or takes a record (A) with respect to any dividend or distribution
upon common stock, (B) with respect to any pro rata subscription offer to
holders of common stock, or (C) for determining rights to vote with
respect to any Fundamental Change, dissolution or liquidation.


 


(iii)          The Corporation shall give written
notice to the holders of Series A-1 Preferred Stock at least ten (10) days
prior to the date on which any Fundamental Change shall take place, which
notice may be one and the same as that required by (ii) above.


 


(h)           Automatic Conversion.


 


(i)            Each share of Series A-1
Preferred Stock shall automatically be converted into shares of common stock at
the then applicable Conversion Price (or upon such other terms as the
Corporation and holders of 75% or more of the then outstanding shares of Series A-1
Preferred Stock may agree) upon the written consent of the holders of 75% or
more of the then outstanding shares of Series A-1 Preferred Stock.


 


(ii)           Following completion of an automatic
conversion pursuant to this Section 5(h), each former holder of Series A-1
Preferred Stock shall promptly surrender to the Corporation for cancellation
such holder’s Series A-1 Preferred Stock certificate(s), or lost
instrument declarations and indemnifications reasonably satisfactory to the
Corporation, duly endorsed. The Corporation shall have no obligation to issue
certificates representing the common stock issued upon conversion until such
documents are delivered to the Corporation.


 


(i)            Investor 4.99% Cap.


 


Anything
in Section 5 to the contrary notwithstanding, in no event shall any holder
be entitled to convert Series A-1 Preferred Stock in excess of that number
of shares of Series A-1 Preferred Stock that, upon giving effect to such
conversion, would cause the aggregate number of shares of common stock
beneficially owned by the holder and its “affiliates” (as defined in Rule 405
under the Securities Act of 1933, as amended (the “Securities Act”)) to exceed
4.99% of the outstanding shares of the common stock following such
conversion.  For purposes of this
subsection, the aggregate number of shares of common stock beneficially owned
by the holder and its affiliates shall include the number of shares of common
stock issuable upon conversion of the Series A-1 Preferred Stock with
respect to which the determination is being made, but shall exclude the number
of shares of common stock that would be issuable upon (i) conversion of
the remaining, nonconverted Series A-1 Preferred Stock beneficially owned
by the holder and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Corporation
(including, without limitation, any warrants or convertible preferred stock)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the holder and its affiliates.  Except as set forth in the preceding
sentence, for purposes of this subsection, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”).  For purposes of this subsection, in
determining the number of outstanding shares of common stock a holder may rely
on the number of outstanding shares of Common Stock as reflected in (1) the
Corporation’s most recent


 


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Form 10-Q or Form 10-K, as the case may be, (2) a more
recent public announcement by the Corporation or (3) any other notice by
the Corporation or its transfer agent setting forth the number of shares of
common stock outstanding.  In any case,
the number of outstanding shares of common stock shall be determined after giving
effect to conversions of Series A-1 Preferred Stock by such holder since
the date as of which such number of outstanding shares of Common Stock was
reported. To the extent that the limitation contained in this subsection applies,
the determination of whether shares of Series B Preferred Stock are
convertible (in relation to other securities owned by a holder) and of which
shares of Series A-1 Preferred Stock are convertible shall be in the sole
discretion of such holder, and the submission of shares of Series A-1
Preferred Stock for conversion shall be deemed to be such holder’s
determination that such shares of Series A-1 Preferred Stock are
convertible, in each case subject to such aggregate percentage limitation, and
the Corporation shall have no obligation or right to verify or confirm the
accuracy of such determination.  Nothing
contained herein shall be deemed to restrict the right of a holder to convert
such shares of Series A-1 Preferred Stock at such time as such conversion
will not violate the provisions of this subsection. A holder of Series A-1
Preferred Stock may waive the provisions of this subsection as to itself
(and solely as to itself) upon not less than 75 days’ prior notice to the
Corporation, and the provisions of this subsection shall continue to apply
until such 75th day (or such later date as may be specified in such
notice of waiver).


 


6.             Corporation Redemption Rights.  At the option of the Corporation, upon at
least 30 days’ written notice to the holders of Series A-1 Preferred Stock,
the Corporation may, but only after a registration statement covering the
resale of the Conversation Stock has been declared effective, redeem some or
all of the Series A-1 Preferred Stock, at a redemption price equal
to 120% of the original Series A-1 purchase price plus all accrued
but unpaid dividends.  Holders of Series A-1
Preferred Stock shall be entitled to convert their shares of Series A-1
Preferred Stock into common stock during the 30-day notice period of this Section 6.  Prior to the date fixed for any redemption of
shares, a notice specifying the time and place of the redemption and the number
of shares to be redeemed shall be given by overnight courier or by certified
mail return receipt requested, to the holders of record of the shares of Series A-1
Preferred Stock to be redeemed at their respective addresses as the same shall
appear on the books of the Corporation, calling upon each holder of record to
surrender to the Corporation on the redemption date at the place designated in
the notice such holder’s certificate or certificates representing the number of
shares specified in the notice of redemption; provided, however, the
Corporation cannot provide notice of redemption unless and until the
Corporation has available cash to effect the redemption and the registration
statement covering the resale of the Conversion Stock has been declared
effective and, to the extent required by the Registration Rights Agreement
dated as of the Closing Date, remains effective.  Neither failure to mail such notice, nor any
defect therein or in the mailing thereof, to any particular holder shall affect
the sufficiency of the notice or the validity of the proceedings for redemption
with respect to the other holders. Any notice mailed in the manner herein provided
shall be conclusively presumed to have been duly given whether or not the
holder receives the notice.  On or after
the redemption date, each holder of shares of Series A-1 Preferred Stock
to be redeemed shall present and surrender such holder’s certificate or
certificates for such shares to the Corporation at the place designated in the
redemption notice and thereupon the redemption price of the shares, and any
accumulated and unpaid dividends thereon to the redemption date, shall be paid
to or on the order of the person whose name appears on such certificate or
certificates as the owner


 


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thereof, and each surrendered certificate shall be canceled.  In case fewer than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.


 


7.             Definitions.  The following terms have the meanings
specified below:


 


(a)           Affiliate.  The term “Affiliate” shall mean (i) any
Person directly or indirectly controlling, controlled by or under direct or
indirect common control with the Corporation (or other specified Person), (ii) any
Person who is a beneficial owner of at least 10% of the then outstanding voting
capital stock (or options, warrants or other securities which, after giving
effect to the exercise thereof, would entitle the holder thereof to hold at
least 10% of the then outstanding voting capital stock) of the Corporation (or
other Specified Person), (iii) any director or executive officer of the
Corporation (or other Specified Person) or Person of which the Corporation (or
other Specified Person) shall, directly or indirectly, either beneficially or
of record, own at least 10% of the then outstanding equity securities of such
Person, and (iv) in the case of Persons specified above who are
individuals, Family Members of such Person; provided, however, that no holder
of Preferred Stock nor any of their designated members of the Board of
Directors shall be an Affiliate of the Corporation for purposes hereof.


 


(b)           Board of Directors.  The term “Board of Directors” shall mean the
Board of Directors of the Corporation.


 


(c)           Conversion Stock.  The term “Conversion Stock” shall mean the
shares of common stock issuable upon conversion of shares of Series A-1
Preferred Stock; provided that if there is a change such that the securities
issuable upon conversion of the Series A-1 Preferred Stock are issued by
an entity other than the Corporation or there is a change in the class of
securities so issuable, then the term “Conversion Stock” shall mean shares of
the security issuable upon conversion of the Series A-1 Preferred Stock if
such security is issuable in shares, or shall mean the smallest unit in which
such security is issuable if such security is not issuable in shares.


 


(d)           Family Members.  The term “Family Members” shall mean, as
applied to any individual, any spouse, child, grandchild, parent, brother or
sister thereof or any spouse of any of the foregoing, and each trust created
for the benefit of one or more of such Persons (other than any trust
administered by an independent trustee) and each custodian of property of one
or more such Persons.


 


(e)           Person.  The term “Person” shall mean an individual,
corporation, partnership, limited liability company, association, trust, joint
venture or unincorporated organization or any government, governmental
department or any agency or political subdivision thereof.


 


(f)            “Principal Market” means the
American Stock Exchange, the New York Stock Exchange, the Nasdaq National
Market, the Nasdaq Capital Market, or the Nasdaq OTC Bulletin Board, whichever
is at the applicable time the principal trading exchange or market for the
common stock, based upon share volume.


 


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(g)           Public Offering.  The term “Public Offering” shall mean any
offering by the Corporation of its equity securities to the public pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations
of the Securities and Exchange Commission promulgated thereunder, all as the
same shall be in effect from time to time, or any comparable statement under
any similar federal statute then in force, other than an offering in connection
with an employee benefit plan.


 


(h)           Subsidiary.  The term “Subsidiary” shall mean any Person
of which the Corporation shall at the time own, directly or indirectly through
another Subsidiary, 50% or more of the outstanding voting capital stock (or
other shares of beneficial interest with voting rights), or which the
Corporation shall otherwise control.


 


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IN WITNESS WHEREOF,
VCampus Corporation has caused this certificate to be signed by its duly
authorized officer as of the 2nd day of December 2005.


 


	
   

  	
  VCAMPUS
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Christopher L. Nelson

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Christopher L.
  Nelson

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Chief Financial
  Officer

  
					



 


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