Document:

Exhibit
10.92

 

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

 

2004 SERIES A SENIOR SECURED
CONVERTIBLE NOTE DUE APRIL 1, 2009

 

OF

 

VCAMPUS CORPORATION

 

	
  Note No.:       

  	
   

  	
  Original Principal Amount: $[118,500 per each whole Unit]

  
	
  Issuance Date: 
  March 23, 2004

  	
   

  	
   

  

 

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

 

FOR VALUE
RECEIVED, the Company hereby promises to pay to the order of
                                          or
its registered assigns or successors-in-interest (“Holder”) the principal sum
of $[118,500 per each whole unit], together with all accrued but unpaid
interest thereon, if any, on the Maturity Date, to the extent such principal amount
and interest has not been repaid or converted into the Company’s Common Stock,
$0.01 par value per share (the “Common Stock”), in accordance with the terms
hereof.  Interest on the unpaid and
unconverted principal balance hereof shall accrue at the rate of eight percent
(8%) per annum from the date of original issuance hereof (the “Issuance
Date”).  Payments on the Note shall be
made in accordance with Section 1 hereof.   Interest on this Note shall accrue daily commencing on the
Issuance Date and shall be computed on the basis of a 360-day year, 30-day
months and actual days elapsed and shall be payable in accordance with
Section 1 hereof.  Notwithstanding
anything contained herein, this Note shall bear interest on the due and unpaid
Principal Amount from and after the occurrence and during the continuance of an
Event of Default at the rate (the “Default Rate”) equal to the lower of
thirteen percent (13%) per annum or the highest rate permitted by law.  Unless otherwise agreed or required by
applicable law, payments will be applied first to any unpaid collection costs,
then to unpaid interest and fees and any remaining amount to principal.

 

 

Except as
otherwise provided herein, all payments of principal and interest on this Note
shall be made in lawful money of the United States of America by wire transfer
of immediately available funds to such account as the Holder may from time to
time designate by written notice in accordance with the provisions of this Note
or by Company check.    Whenever any
amount expressed to be due by the terms of this Note is due on any day which is
not a Business Day (as defined below), the same shall instead be due on the
next succeeding day which is a Business Day.

 

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

 

“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 Company or any authorized committee thereof, pursuant to which the
Company’s securities may be issued to any employee, officer, consultant or
director for services provided to the Company.

 

“Bankruptcy
Event” means any of the following events: (a) the Company commences a case
or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or similar law of any jurisdiction relating to the Company; (b) there is
commenced against the Company any such case or proceeding that is not dismissed
within 60 days after commencement; (c) the Company is adjudicated insolvent or
bankrupt or any order of relief or other order approving any such case or
proceeding is entered; (d) the Company suffers any appointment of any custodian
or the like for it or any substantial part of its property that is not
discharged or stayed within 60 days; (e) the Company makes a general assignment
for the benefit of creditors; (f) the Company fails to pay, or states that it
is unable to pay or is unable to pay, its debts generally as they become due;
(g) the Company calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (h) the Company, by
any act or failure to act, expressly indicates its consent to, approval of or acquiescence
in any of the foregoing or takes any corporate or other action for the purpose
of effecting any of the foregoing.

 

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

 

“Change in
Control Transaction” will be deemed to exist if (i) there occurs any
consolidation, merger or other business combination of the Company with or into
any other corporation or other entity or person (whether or not the Company is
the surviving corporation), or any other corporate reorganization or
transaction or series of related transactions in which in any of such events
the voting stockholders of the Company prior to such event cease to own fifty
percent (50%) or more of the voting power, or corresponding voting equity
interests, of the surviving corporation after such event (including without
limitation any “going private” transaction under Rule 13e-3 promulgated
pursuant to the Exchange Act or tender offer by the Company under Rule 13e-4
promulgated pursuant to the Exchange Act for twenty percent (20%) or more of
the Company’s Common Stock), (ii) any person (as defined in Section 13(d)
of the

 

2

 

Exchange Act), together with its affiliates and associates (as such
terms are defined in Rule 405 under the Act), beneficially owns or is deemed to
beneficially own (as described in Rule 13d-3 under the Exchange Act without
regard to the 60-day exercise period) in excess of fifty percent (50%) of the
Company’s voting power, (iii) there is a replacement of more than one-half of
the members of the Company’s Board of Directors which is not approved by those
individuals who are members of the Company’s Board of Directors on the date
thereof, (iv) in one or a series of related transactions, there is a sale or
transfer of all or substantially all of the assets of the Company, determined
on a consolidated basis, or (v) the Company enters into any agreement providing
for an event set forth in (i), (ii), (iii) or (iv) above.

 

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

 

“Convertible
Securities” means any convertible securities, warrants, options or other
rights to subscribe for or to purchase or exchange for, shares of Common Stock.

 

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

 

“Effective
Registration”  shall mean (i) the resale of all Registrable Securities (as
defined in the Registration Rights Agreement) is covered by an effective
registration statement in accordance with the terms of the Registration Rights
Agreement which registration statement is not subject to any suspension or stop
order; (ii) the resale of such Registrable Securities may be effected pursuant
to a current and deliverable prospectus that is not subject at the time to any
blackout or similar circumstance; and (iii) the requisite number of shares of
Common Stock shall have been duly authorized and reserved for issuance as
required by the terms of the Purchase Agreement and this Note.

 

“Excluded Issuances”
shall mean shares of Common Stock (a) deemed to have been issued by the Company
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 Notes or the Warrants, issued upon conversion of the Notes or exercise of
the Warrants or otherwise issued in connection with the transactions
contemplated in the Purchase Agreement (including any securities of the Company
issued or issuable to the Collateral Agent or any of its affiliates in
connection with consulting services to be provided to the Company);
(c) issued upon exercise of Options or Convertible Securities which are
outstanding on the date immediately preceding the Issuance 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 Issuance
Date, such Options or Convertible Securities are not amended after the date
immediately preceding the Issuance 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 Issuance Date; (d) issued to the public pursuant
to an underwritten offering registered pursuant to the Securities Act (but in
all events

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

“Principal
Market” shall mean a principal market or exchange on which the Common Stock
is then listed for trading.

 

“Registration
Statement” shall have the meaning set forth in the Registration Rights
Agreement.

 

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

 

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

 

“Shareholder
Approval” means the approval of the stockholders of the Company at a duly
convened meeting of stockholders of the Company, for the issuance of all
Securities as defined in the Purchase Agreement, including the issuance of the
Notes.

 

“Strategic
Financing” shall mean the issuance of Common Stock or Options or
Convertible Securities of the Company in connection with any acquisition by the
Company, by whatever means, of any business, assets or technologies, or to any
strategic investor, vendor, customer, lease or similar arrangement, the primary
purpose of which is not to raise equity capital.

 

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

 

The following
terms and conditions shall apply to this Note:

 

4

 

Section 1.                                            Payments
of Principal and Interest.

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

Section 2.                                            Senior
Position/Subsequent Debt.  The Notes are and shall be senior to all
other indebtedness of the Company.  So
long as any Principal Amount of Notes is outstanding, the Company shall not
directly or indirectly, without the consent of the Required Holders, incur or
permit to exist any indebtedness which is senior to the Notes, or incur, assume
or permit to exist any lien, mortgage, security interest or encumbrance (other
than statutory liens imposed by law incurred in the ordinary course of business
for sums not yet delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP shall have
been made in respect thereof) on any of its assets, except for capital leases,
financing for equipment and purchase money security interests.

 

Section 3.                                            Conversion.

 

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

 

6

 

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

 

(b)  Mandatory Conversion.   Immediately following Shareholder Approval,
$[18,500 per each whole unit] of the Principal Amount of this Note shall
automatically convert into Common Stock at the then applicable Conversion Price
without the necessity or requirement to execute or deliver a Conversion Notice
(the “Mandatory Conversion”).  In the
event such Shareholder Approval occurs prior to September 30, 2004 and the
Milestone is not achieved on or before September 30, 2004, the number of
shares issuable upon such Mandatory Conversion shall be adjusted prospectively
as of September 30, 2004 to reflect a Conversion Price of $1.38 (subject
to any adjustments required as of the Mandatory Conversion Date pursuant to
Section 4 hereof) and such Additional Shares shall be issued and delivered
to the Holder on or before October 10, 2004.  The conversion limitations set forth in Section 10 of this
Note shall under no circumstances limit or prevent the full Mandatory
Conversion in accordance with this Section 3(b).

 

(c)   Common Stock Issuance upon Conversion.

 

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

 

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

 

7

 

than five (5) Trading
Days after the Conversion Date, a certificate or certificates which shall be
free of restrictive legends and trading restrictions, representing the number of
shares of Common Stock being acquired upon the conversion of this Note.  In lieu of delivering physical certificates
representing the shares of Common Stock issuable upon conversion of this Note,
provided the Company’s transfer agent is participating in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon
request of the Holder, the Company shall use commercially reasonable efforts to
cause its transfer agent to electronically transmit such shares issuable upon conversion
to the Holder (or its designee), by crediting the account of the Holder’s (or
such designee’s) prime broker with DTC through its Deposit Withdrawal Agent
Commission system (provided that the same time periods herein as for stock
certificates shall apply).  If in the
case of any conversion hereunder, such certificate or certificates are not
delivered to or as directed by the Holder by the fifth Trading Day after the
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return this Note tendered for conversion.  If the Company fails to deliver to the Holder such certificate or
certificates (or shares through DTC) pursuant to this Section 3(c) (free
of any restrictions on transfer or legends, if such shares have been registered
or if the Note has been held beyond two years from the Issuance Date) in
accordance herewith, prior to the sixth Trading Day after the Conversion Date
(other than by reason of any failure, breach or omission on the part of Holder
or its agent), the Company shall pay to the Holder, in cash, an amount equal to
..25% of the Principal Amount subject to such conversion for each trading day
thereafter until such certificate(s) or shares through DTC are delivered to the
Holder or until the conversation is rescinded by the Holder, whichever shall
first occur.

 

Section 4.                                            Conversion
Price Adjustments.

 

(a)                                  Stock Dividends, Splits and Combinations.  If the Company, at any time while the Notes
are outstanding (A) shall pay a stock dividend or otherwise make a distribution
or distributions on any equity securities (including instruments or securities
convertible into or exchangeable for such equity securities) in shares of
Common Stock, (B) subdivide outstanding Common Stock into a larger number of
shares, or (C) combine outstanding Common Stock into a smaller number of
shares, then the Conversion Price in effect immediately prior to such event
shall be adjusted to a number equal to such Conversation Price multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding before such event and the denominator of which shall be the number
of shares of Common Stock outstanding after such event.  Any adjustment made pursuant to this
section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of
a subdivision or combination.

 

(b)                                 Distributions.  If the Company, at any time while the Notes
are outstanding, shall distribute to all holders of Common Stock evidences of
its indebtedness or assets or cash or rights or warrants to subscribe for or
purchase any security of the Company, then concurrently with such distributions
to holders of Common Stock, the Company shall distribute to holders of the
Notes the amount of such indebtedness, assets, cash or rights or warrants which
the holders of Notes would have received had all their Notes been converted
into

 

8

 

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

 

(c)                                  Antidilution
Adjustment of Conversion Price upon Issuance of Common Stock.  If
and whenever in the period commencing after the Issuance Date and ending 24
months thereafter (the “Antidilution Period”), the Company issues or sells, or
in accordance with this Section 4 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.  If the
Company, in the period following the Antidilution Period and ending upon full
payment of the Note, intends to issue or sell shares for a New Securities
Issuance Price which would result in a Dilutive Issuance (other than Excluded
Issuances), it shall first give notice to the Holder of such intended sale
and/or issuance and the terms thereof, and the Holder shall have the right by
giving notice to the Company within ten (10) days thereafter, to purchase a
portion of such securities under the same terms, which portion shall be based
upon the Holder’s proportionate shareholding of the Company, as if each Holder
had converted the Principal Amount of the then outstanding Notes immediately
prior to such sale or issuance.

 

For purposes of
determining the adjusted Conversion Price under this Section 4 during the
Antidilution Period, the following shall be applicable:

 

(i)                                     Issuance
of Options.  If the Company 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 Company at the time of the granting or sale of such
Option for such price per share.  For
purposes of this Section 4(c)(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 Company 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 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
Company 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 Company at the time of the issuance of sale
of such Convertible Securities

 

9

 

for such price per
share.  For the purposes of this
Section 4(c)(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 Company 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 6(a), 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 4(c)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the Issuance 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 Stock Purchase
Rights or 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
portion of the Note converted to Common Stock or repaid in Common Stock prior
to the actual date of the dilutive issuance or change.  In addition, to clarify for purposes of this
Section 4, 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 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 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 Company, 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 4, 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

 

10

 

issued or sold for cash,
the consideration received therefor will be deemed to be the gross amount
received by the Company 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 Company 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 Company 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 Company and 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 Company 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 Company and the Required Holders.

 

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

 

(e)                                  Notice of Adjustments.  Whenever
any Conversion Price is adjusted as provided herein, the Company shall promptly
deliver to each holder of the Notes, a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment, provided that any failure to so provide such notice
shall not affect the automatic adjustment hereunder.

 

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

 

(g)  Notice of Certain Events.  If:

 

A.                                   the
Company shall declare a dividend (or any other distribution) on its Common
Stock; or

 

11

 

B.                                     the
Company shall declare a special nonrecurring cash dividend on or a redemption
of its Common Stock; or

 

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

 

D.                                    the
approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock of the Company, any consolidation
or merger to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory share of
exchange whereby the Common Stock is converted into other securities, cash or
property; or

 

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

 

F.                                      the
Company shall issue securities constituting a Dilutive Issuance,

 

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

 

Section 5.                                            Reservation
and Issuance of Underlying Securities. 
The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the
purpose of issuance upon conversion of this Note (including repayments in
stock), free from preemptive rights or any other actual contingent purchase
rights of persons other than the holders of the Notes, not less than such
number of shares of Common Stock as shall (subject to any additional
requirements of the Company as to reservation of such shares set forth in the
Purchase Agreement) be issuable (taking into account the adjustments under this
Section 4 but without regard to any ownership limitations contained herein)
upon the conversion of this Note hereunder in Common Stock (including
repayments in stock).  The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly authorized, validly issued, fully paid and nonassessable.

 

12

 

Section 6.                                            No
Fractions.  Upon a conversion
hereunder the Company shall not be required to issue stock certificates
representing fractions of shares of Common Stock, but may if otherwise
permitted, make a cash payment in respect of any final fraction of a share
based on the closing price of a share of Common Stock at such time.  If the Company elects not, or is unable, to
make such a cash payment, the Holder shall be entitled to receive, in lieu of
the final fraction of a share, one whole share of Common Stock.

 

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

 

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

 

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

 

Section 10.                                      Conversion
Limitations.

 

9.9%
Limitation.  Notwithstanding
anything to the contrary contained herein, the number of shares of Common Stock
that may be acquired by the Holder upon any conversion pursuant to the terms
hereof, other than the Mandatory Conversion (which shall be given effect
regardless of the limits otherwise imposed by this Section 10, unless
waived in writing by the Company) shall not exceed a number that, when added to
the total number of shares of Common Stock deemed beneficially owned by such
Holder (other than by virtue of the ownership of

 

13

 

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

 

Section 11.                                      Defaults
and Remedies.

 

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

 

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

 

Section 12.                                      General.

 

(a)                                  Payment
of Expenses.  The Company agrees to
pay all reasonable, documented charges and expenses, including attorneys’ fees
and expenses, which may be

 

14

 

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

 

(b)                                 Savings
Clause.  In case any provision of
this Note is held by a court of competent jurisdiction to be excessive in scope
or otherwise invalid or unenforceable, such provision shall be adjusted rather
than voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions of
this Note will not in any way be affected or impaired thereby.  In no event shall the amount of interest
paid hereunder exceed the maximum rate of interest on the unpaid principal
balance hereof allowable by applicable law. 
If any sum is collected in excess of the applicable maximum rate, the
excess collected shall be applied to reduce the principal debt.  If the interest actually collected hereunder
is still in excess of the applicable maximum rate, the interest rate shall be
reduced so as not to exceed the maximum allowable under law.

 

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

 

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

 

(e)                                  No
Waiver.  No failure on the part of
the Holder to exercise, and no delay in exercising any right, remedy or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise by the Holder of any right, remedy or power hereunder preclude any
other or future exercise of any other right, remedy or power.  Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.

 

(f)                                    Governing
Law; Jurisdiction.

 

(i)                                     Governing Law.  This
note will be governed by and construed in accordance with the laws of the State
of New York without regard to any conflicts of laws provisions thereof that
would otherwise require the application of the law of any other jurisdiction.

 

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

 

(g)                                 Replacement
Notes.  This Note may be exchanged
by Holder at any time and from time to time for a Note or Notes with different
denominations representing an equal aggregate outstanding Principal Amount, as
reasonably requested by Holder, upon surrendering the same.  No service charge will be made for the first
such registration or exchange; thereafter, the Holder shall reimburse the
Company for its reasonable document fees and expenses (including transfer agent
and legal fees and expenses).  In the
event that Holder notifies the Company that this Note has been lost, stolen or destroyed,
a replacement Note identical in all respects to the original Note (except for
registration number and Principal Amount, if different than that shown on the
original Note), shall be issued to the Holder, provided that the Holder
executes and delivers to the Company an agreement reasonably satisfactory to
the Company to indemnify the Company from any loss incurred by it in connection
with the Note.

 

[Signature Page Follows]

 

15

 

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

 

	
   

  	
  VCampus Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Attest:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Sign:

  	
   

  	
   

  	
   

  
	
  Print Name:

  	
   

  
					

 

16

 

EXHIBIT
A

 

FORM
OF CONVERSION NOTICE

 

(To be executed by the
Holder

in order to convert a
Note)

 

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

 

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

 

	
  Conversion information:

  	
   

  
	
   

  	
  Date to Effect
  Conversion

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Aggregate Principal
  Amount of Note Being Converted

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of Shares of
  Common Stock to be Issued

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Applicable Conversion
  Price

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address

  

 

 

 

EXHIBIT B

 

FORM OF REPAYMENT ELECTION NOTICE

 

 

	
  To:

  	
  [Holder at Holder’s Address]

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  

 

 

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

 

	
   

  	
  o

  	
  In full in cash on such
  Payment Date.

  
	
   

  	
   

  	
   

  
	
   

  	
  o

  	
  In full in shares of
  the Company’s Common Stock within ten (10)

  
	
   

  	
   

  	
  Trading Days following
  such Payment Date.

  

 

 

	
   

  	
  VCampus Corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:Exhibit
10.93

 

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

 

2004 SERIES B SENIOR SECURED
CONVERTIBLE NOTE DUE APRIL 1, 2009

 

OF

 

VCAMPUS CORPORATION

 

	
  Note
  No.:           

  	
   

  	
  Original Principal Amount:
  $[              ]

  
	
  Issuance Date: 
  March 23, 2004

  	
   

  	
   

  

 

 

This note (“Note”) is one of a duly authorized
issue of Notes of VCampus Corporation, a corporation duly organized and
existing under the laws of the State of Delaware (the “Company”), designated as
the Company’s 2004 Series B Senior Secured Convertible Notes Due April 1,
2009 (“Maturity Date”) in an aggregate principal amount (when taken together
with the original principal amounts of all other Notes) of up to $1,250,000
(together, the “Notes”).

 

FOR VALUE
RECEIVED, the Company hereby promises to pay to the order of
                                          or
its registered assigns or successors-in-interest (“Holder”) the principal sum
of $[            ],
together with all accrued but unpaid interest thereon, if any, on the Maturity
Date, to the extent such principal amount and interest has not been repaid or
converted into the Company’s Common Stock, $0.01 par value per share (the
“Common Stock”), in accordance with the terms hereof.  Interest on the unpaid and unconverted principal balance hereof
shall accrue at the rate of eight percent (8%) per annum from the date of
original issuance hereof (the “Issuance Date”).  Payments on the Note shall be made in accordance with
Section 1 hereof.   Interest on this
Note shall accrue daily commencing on the Issuance Date and shall be computed
on the basis of a 360-day year, 30-day months and actual days elapsed and shall
be payable in accordance with Section 1 hereof.  Notwithstanding anything contained herein, this Note shall bear
interest on the due and unpaid Principal Amount from and after the occurrence
and during the continuance of an Event of Default at the rate (the “Default
Rate”) equal to the lower of thirteen percent (13%) per annum or the highest
rate permitted by law.  Unless otherwise
agreed or required by applicable law, payments will be applied first to any
unpaid collection costs, then to unpaid interest and fees and any remaining
amount to principal.

 

Except as
otherwise provided herein, all payments of principal and interest on this Note
shall be made in lawful money of the United States of America by wire transfer
of immediately

 

 

available funds to such account as the Holder may from time to time
designate by written notice in accordance with the provisions of this Note or
by Company check.    Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day (as defined below), the same shall instead be due on the next
succeeding day which is a Business Day.

 

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

 

“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 Company or any authorized committee thereof, pursuant to which the
Company’s securities may be issued to any employee, officer, consultant or
director for services provided to the Company.

 

“Bankruptcy
Event” means any of the following events: (a) the Company commences a case
or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or similar law of any jurisdiction relating to the Company; (b) there is
commenced against the Company any such case or proceeding that is not dismissed
within 60 days after commencement; (c) the Company is adjudicated insolvent or
bankrupt or any order of relief or other order approving any such case or
proceeding is entered; (d) the Company suffers any appointment of any custodian
or the like for it or any substantial part of its property that is not
discharged or stayed within 60 days; (e) the Company makes a general assignment
for the benefit of creditors; (f) the Company fails to pay, or states that it
is unable to pay or is unable to pay, its debts generally as they become due;
(g) the Company calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (h) the Company, by
any act or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action for
the purpose of effecting any of the foregoing.

 

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

 

“Change in
Control Transaction” will be deemed to exist if (i) there occurs any
consolidation, merger or other business combination of the Company with or into
any other corporation or other entity or person (whether or not the Company is
the surviving corporation), or any other corporate reorganization or
transaction or series of related transactions in which in any of such events
the voting stockholders of the Company prior to such event cease to own fifty percent
(50%) or more of the voting power, or corresponding voting equity interests, of
the surviving corporation after such event (including without limitation any
“going private” transaction under Rule 13e-3 promulgated pursuant to the
Exchange Act or tender offer by the Company under Rule 13e-4 promulgated
pursuant to the Exchange Act for twenty percent (20%) or more of the Company’s
Common Stock), (ii) any person (as defined in Section 13(d) of the
Exchange Act), together with its affiliates and associates (as such terms are
defined in Rule 405 under the Act), beneficially owns or is deemed to
beneficially own (as described in Rule 13d-3

 

2

 

under the Exchange Act without regard to the 60-day exercise period) in
excess of fifty percent (50%) of the Company’s voting power, (iii) there is a
replacement of more than one-half of the members of the Company’s Board of
Directors which is not approved by those individuals who are members of the
Company’s Board of Directors on the date thereof, (iv) in one or a series of
related transactions, there is a sale or transfer of all or substantially all
of the assets of the Company, determined on a consolidated basis, or (v) the
Company enters into any agreement providing for an event set forth in (i),
(ii), (iii) or (iv) above.

 

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

 

“Convertible
Securities” means any convertible securities, warrants, options or other
rights to subscribe for or to purchase or exchange for, shares of Common Stock.

 

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

 

“Effective
Registration”  shall mean (i) the resale of all Registrable Securities (as
defined in the Registration Rights Agreement) is covered by an effective
registration statement in accordance with the terms of the Registration Rights
Agreement which registration statement is not subject to any suspension or stop
order; (ii) the resale of such Registrable Securities may be effected pursuant
to a current and deliverable prospectus that is not subject at the time to any
blackout or similar circumstance; and (iii) the requisite number of shares of
Common Stock shall have been duly authorized and reserved for issuance as
required by the terms of the Purchase Agreement and this Note.

 

“Excluded
Issuances” shall mean shares of Common Stock (a) deemed to have been issued
by the Company 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 Notes or the Warrants, issued upon conversion of the Notes or
exercise of the Warrants or otherwise issued in connection with the
transactions contemplated in the Purchase Agreement (including any securities
of the Company issued or issuable to the Colalteral Agent or any of its affiliates
in connection with consulting services to be provided to the Company);
(c) issued upon exercise of Options or Convertible Securities which are
outstanding on the date immediately preceding the Issuance 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 Issuance
Date, such Options or Convertible Securities are not amended after the date
immediately preceding the Issuance 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 Issuance Date; (d) issued to the public pursuant
to an underwritten offering registered pursuant to the Securities Act (but in
all events excluding offerings pursuant to “equity lines” or similar products);
(e) issued pursuant to a

 

3

 

Strategic Financing; or (f) issued or deemed to be issued by the
Company with the prior approval of the Required Holders.

 

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

 

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

 

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

 

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

 

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

 

“Principal
Market” shall mean a principal market or exchange on which the Common Stock
is then listed for trading.

 

“Registration
Statement” shall have the meaning set forth in the Registration Rights
Agreement.

 

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

 

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

 

“Shareholder
Approval” means the approval of the stockholders of the Company at a duly
convened meeting of stockholders of the Company, for the issuance of all
Securities as defined in the Purchase Agreement, including the issuance of the
Notes.

 

“Strategic
Financing” shall mean the issuance of Common Stock or Options or
Convertible Securities of the Company in connection with any acquisition by the
Company, by whatever means, of any business, assets or technologies, or to any
strategic investor, vendor, customer, lease or similar arrangement, the primary
purpose of which is not to raise equity capital.

 

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

 

The following
terms and conditions shall apply to this Note:

 

4

 

Section 1.                                            Payments
of Principal and Interest.

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

Section 2.               Senior Position/Subsequent
Debt.  The Notes are and shall be senior to all
other indebtedness of the Company.  So
long as any Principal Amount of Notes is outstanding, the Company shall not
directly or indirectly, without the consent of the Required Holders, incur or
permit to exist any indebtedness which is senior to the Notes, or incur, assume
or permit to exist any lien, mortgage, security interest or encumbrance (other
than statutory liens imposed by law incurred in the ordinary course of business
for sums not yet delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP shall have
been made in respect thereof) on any of its assets, except for capital leases,
financing for equipment and purchase money security interests.

 

Section 3.                                            Conversion.

 

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

 

6

 

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

 

(b)  Mandatory
Conversion.  Immediately following
Shareholder Approval, 50% of the original Principal Amount of this Note shall
automatically convert into Common Stock at the then applicable Conversion Price
without the necessity or requirement to execute or deliver a Conversion Notice
(the “Mandatory Conversion”).  In the
event such Shareholder Approval occurs prior to September 30, 2004 and the
Milestone is not achieved on or before September 30, 2004, the number of
shares issuable upon such Mandatory Conversion shall be adjusted prospectively
as of September 30, 2004 to reflect a Conversion Price of $1.38 (subject
to any adjustments required as of the Mandatory Conversion Date pursuant to
Section 4 hereof) and such Additional Shares shall be issued and delivered
to the Holder on or before October 10, 2004.  The conversion limitations set forth in Section 10 of this
Note shall under no circumstances limit or prevent the full Mandatory
Conversion in accordance with this Section 3(b).

 

(c)  Common
Stock Issuance upon Conversion.

 

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

 

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

 

7

 

than five (5) Trading
Days after the Conversion Date, a certificate or certificates which shall be
free of restrictive legends and trading restrictions, representing the number
of shares of Common Stock being acquired upon the conversion of this Note.  In lieu of delivering physical certificates
representing the shares of Common Stock issuable upon conversion of this Note,
provided the Company’s transfer agent is participating in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon
request of the Holder, the Company shall use commercially reasonable efforts to
cause its transfer agent to electronically transmit such shares issuable upon
conversion to the Holder (or its designee), by crediting the account of the
Holder’s (or such designee’s) prime broker with DTC through its Deposit
Withdrawal Agent Commission system (provided that the same time periods herein
as for stock certificates shall apply). 
If in the case of any conversion hereunder, such certificate or
certificates are not delivered to or as directed by the Holder by the fifth
Trading Day after the Conversion Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return this Note tendered for conversion.  If the Company fails to deliver to the Holder
such certificate or certificates (or shares through DTC) pursuant to this
Section 3(c) (free of any restrictions on transfer or legends, if such
shares have been registered or if the Note has been held beyond two years from
the Issuance Date) in accordance herewith, prior to the sixth Trading Day after
the Conversion Date (other than by reason of any failure, breach or omission on
the part of Holder or its agent), the Company shall pay to the Holder, in cash,
an amount equal to .25% of the Principal Amount subject to such conversion for
each trading day thereafter until such certificate(s) or shares through DTC are
delivered to the Holder or until the conversation is rescinded by the Holder,
whichever shall first occur.

 

Section 4.                                            Conversion
Price Adjustments.

 

(a)                                  Stock Dividends, Splits and Combinations.  If the Company, at any time while the Notes
are outstanding (A) shall pay a stock dividend or otherwise make a distribution
or distributions on any equity securities (including instruments or securities
convertible into or exchangeable for such equity securities) in shares of
Common Stock, (B) subdivide outstanding Common Stock into a larger number of
shares, or (C) combine outstanding Common Stock into a smaller number of
shares, then the Conversion Price in effect immediately prior to such event
shall be adjusted to a number equal to such Conversation Price multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding before such event and the denominator of which shall be the number
of shares of Common Stock outstanding after such event.  Any adjustment made pursuant to this
section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of
a subdivision or combination.

 

(b)                                 Distributions.  If the Company, at any time while the Notes
are outstanding, shall distribute to all holders of Common Stock evidences of
its indebtedness or assets or cash or rights or warrants to subscribe for or
purchase any security of the Company, then concurrently with such distributions
to holders of Common Stock, the Company shall distribute to holders of the
Notes the amount of such indebtedness, assets, cash or rights or warrants which
the holders of Notes would have received had all their Notes been converted
into

 

8

 

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

 

(c)               Antidilution
Adjustment of Conversion Price upon Issuance of Common Stock.  If
and whenever in the period commencing after the Issuance Date and ending 24
months thereafter (the “Antidilution Period”), the Company issues or sells, or
in accordance with this Section 4 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.  If the
Company, in the period following the Antidilution Period and ending upon full
payment of the Note, intends to issue or sell shares for a New Securities
Issuance Price which would result in a Dilutive Issuance (other than Excluded
Issuances), it shall first give notice to the Holder of such intended sale
and/or issuance and the terms thereof, and the Holder shall have the right by
giving notice to the Company within ten (10) days thereafter, to purchase a
portion of such securities under the same terms, which portion shall be based
upon the Holder’s proportionate shareholding of the Company, as if each Holder
had converted the Principal Amount of the then outstanding Notes immediately
prior to such sale or issuance.

 

For purposes of
determining the adjusted Conversion Price under this Section 4 during the
Antidilution Period, the following shall be applicable:

 

(i)                  Issuance of
Options.  If the Company 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 Company at the time of the granting or sale of such
Option for such price per share.  For
purposes of this Section 4(c)(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 Company 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 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
Company 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 Company at the time of the issuance of sale
of such Convertible Securities

 

9

 

for such price per
share.  For the purposes of this
Section 4(c)(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 Company 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 6(a), 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 4(c)(iii), if the terms of any Option or Convertible Security that
was outstanding as of the Issuance 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 Stock Purchase Rights or
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
portion of the Note converted to Common Stock or repaid in Common Stock prior
to the actual date of the dilutive issuance or change.  In addition, to clarify for purposes of this
Section 4, 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 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 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 Company, 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 4, the Options will be

 

10

 

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 Company 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 Company 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 Company 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 Company and 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 Company 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 Company and the Required Holders.

 

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

 

(e)                                  Notice of Adjustments.  Whenever
any Conversion Price is adjusted as provided herein, the Company shall promptly
deliver to each holder of the Notes, a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts requiring
such adjustment, provided that any failure to so provide such notice shall not
affect the automatic adjustment hereunder.

 

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

 

11

 

(g)  Notice of Certain Events.  If:

 

A.                                   the
Company shall declare a dividend (or any other distribution) on its Common
Stock; or

 

B.                                     the
Company shall declare a special nonrecurring cash dividend on or a redemption
of its Common Stock; or

 

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

 

D.                                    the
approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock of the Company, any consolidation
or merger to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory share of
exchange whereby the Common Stock is converted into other securities, cash or
property; or

 

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

 

F.                                      the
Company shall issue securities constituting a Dilutive Issuance,

 

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

 

Section 5.                                            Reservation
and Issuance of Underlying Securities. 
The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the
purpose of issuance upon conversion of this Note (including repayments in
stock), free from preemptive rights or any other actual contingent purchase
rights of persons other than the holders of the Notes, not less than such
number of shares of Common Stock as shall (subject to any additional requirements
of the Company as to reservation of such shares set forth in the Purchase
Agreement) be issuable (taking into account the adjustments under this
Section 4 but without regard to any ownership limitations contained
herein) upon the conversion of this Note hereunder in Common Stock (including
repayments in stock).  The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly authorized, validly

 

12

 

issued, fully paid and
nonassessable.

 

Section 6.                                            No
Fractions.  Upon a conversion
hereunder the Company shall not be required to issue stock certificates
representing fractions of shares of Common Stock, but may if otherwise
permitted, make a cash payment in respect of any final fraction of a share
based on the closing price of a share of Common Stock at such time.  If the Company elects not, or is unable, to
make such a cash payment, the Holder shall be entitled to receive, in lieu of
the final fraction of a share, one whole share of Common Stock.

 

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

 

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

 

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

 

Section 10.                                      Conversion
Limitations.

 

9.9%
Limitation.  Notwithstanding
anything to the contrary contained herein, the number of shares of Common Stock
that may be acquired by the Holder upon any conversion pursuant to the terms
hereof, other than the Mandatory Conversion (which shall be given effect
regardless of the limits otherwise imposed by this Section 10, unless
waived in writing by the Company) shall not exceed a number that, when added to
the total number of shares of Common Stock deemed beneficially owned by such
Holder (other than by virtue of the ownership of

 

13

 

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

 

Section 11.                                      Defaults
and Remedies.

 

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

 

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

 

Section 12.                                      General.

 

(a)                                  Payment
of Expenses.  The Company agrees to
pay all reasonable, documented charges and expenses, including attorneys’ fees and
expenses, which may be incurred by the Holder in successfully enforcing this
Note and/or collecting any amount due under this Note.

 

14

 

 

(b)                                 Savings
Clause.  In case any provision of
this Note is held by a court of competent jurisdiction to be excessive in scope
or otherwise invalid or unenforceable, such provision shall be adjusted rather
than voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions of
this Note will not in any way be affected or impaired thereby.  In no event shall the amount of interest
paid hereunder exceed the maximum rate of interest on the unpaid principal balance
hereof allowable by applicable law.  If
any sum is collected in excess of the applicable maximum rate, the excess
collected shall be applied to reduce the principal debt.  If the interest actually collected hereunder
is still in excess of the applicable maximum rate, the interest rate shall be
reduced so as not to exceed the maximum allowable under law.

 

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

 

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

 

(e)                                  No
Waiver.  No failure on the part of
the Holder to exercise, and no delay in exercising any right, remedy or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise by the Holder of any right, remedy or power hereunder preclude any
other or future exercise of any other right, remedy or power.  Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.

 

(f)                                    Governing
Law; Jurisdiction.

 

(i)                                     Governing Law.  This
note will be governed by and construed in accordance with the laws of the State
of New York without regard to any conflicts of laws provisions thereof that
would otherwise require the application of the law of any other jurisdiction.

 

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

 

(g)                                 Replacement
Notes.  This Note may be exchanged
by Holder at any time and from time to time for a Note or Notes with different
denominations representing an equal aggregate outstanding Principal Amount, as
reasonably requested by Holder, upon surrendering the same.  No service charge will be made for the first
such registration or exchange; thereafter, the Holder shall reimburse the Company
for its reasonable document fees and expenses (including transfer agent and
legal fees and expenses).  In the event
that Holder notifies the Company that this Note has been lost, stolen or
destroyed, a replacement Note identical in all respects to the original Note
(except for registration number and Principal Amount, if different than that
shown on the original Note), shall be issued to the Holder, provided that the
Holder executes and delivers to the Company an agreement reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with the Note.

 

[Signature
Page Follows]

 

15

 

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

 

 

	
   

  	
  VCampus Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
  Attest:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Sign:

  	
   

  	
   

  	
   

  
	
  Print Name:

  	
   

  
					

 

16

 

EXHIBIT A

 

FORM
OF CONVERSION NOTICE

 

(To be executed by the
Holder

in order to convert a
Note)

 

Re:                               Note
(this “Note”) issued by VCampus Corporation to                                
on or about  March      ,
2004 in the original principal amount of $                   .

 

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

 

	
  Conversion information:

  	
   

  
	
   

  	
  Date to Effect
  Conversion

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Aggregate Principal
  Amount of Note Being Converted

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of Shares of
  Common Stock to be Issued

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Applicable Conversion
  Price

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address

  

 

 

EXHIBIT B

 

FORM OF REPAYMENT ELECTION NOTICE

 

	
  To:

  	
  [Holder at Holder’s Address]

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  

 

 

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

 

	
               

  	
  o

  	
  In full in cash on such Payment Date.

  
	
   

  	
   

  
	
               

  	
  o

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

  

 

 

	
   

  	
  VCampus Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

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