-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SU4z0PalI/GvpF3iO+daymVKJVq8iPBwVIwY7BzvdywHmUnUBKC7hETDD108WCHm knenKtFFCCZQRHNFxZGC7g== 0000950132-00-000018.txt : 20000202 0000950132-00-000018.hdr.sgml : 20000202 ACCESSION NUMBER: 0000950132-00-000018 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000121 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: VCAMPUS CORP CENTRAL INDEX KEY: 0000943742 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SERVICES, NEC [8900] IRS NUMBER: 541290319 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-48491 FILM NUMBER: 511007 BUSINESS ADDRESS: STREET 1: 8251 GREENSBORO DRIVE STREET 2: SIUTE 500 CITY: MCLEAN STATE: VA ZIP: 22102 BUSINESS PHONE: 7038937800 MAIL ADDRESS: STREET 1: 8251 GREENSBORO DRIVE STREET 2: SUITE 500 CITY: MCLEAN STATE: VA ZIP: 22102 FORMER COMPANY: FORMER CONFORMED NAME: UOL PUBLISHING INC DATE OF NAME CHANGE: 19960917 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSITY ONLINE INC DATE OF NAME CHANGE: 19960903 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MASTECH CORP CENTRAL INDEX KEY: 0001024732 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 251802235 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 1004 MCKEE RD CITY: OAKDALE STATE: PA ZIP: 15071 BUSINESS PHONE: 4127872100 MAIL ADDRESS: STREET 1: 1004 MCKEE RD CITY: OAKDALE STATE: PA ZIP: 15071 SC 13D 1 SCHEDULE 13D FOR MASTECH CORPORATION SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment __)* VCAMPUS CORPORATION (Name of Issuer) Common Stock (Title of Class of Securities) 92240C 10 0 (CUSIP Number) Jeffrey C. McCandless Vice President, Finance and Chief Financial Officer Mastech Corporation 1004 McKee Road Oakdale, PA 15071 (412)-787-2100 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) January 11, 2000 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [_]. _________________________ * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D - ----------------------- --------------------- CUSIP: 92240C10 0 PAGE OF PAGES - ----------------------- --------------------- - ------------------------------------------------------------------------------ NAMES OF REPORTING PERSONS 1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS; Mastech Corporation I.R.S. IDENTIFICATION NO: 25-1802235 - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP 2 (a) [_] (b) [_] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 WC - ------------------------------------------------------------------------------ CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED TO ITEMS 2(d) OR 2(e) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Pennsylvania - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 1,586,253* SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 N/A OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 1,586,253* PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 N/A - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 1,586,253 shares* - ------------------------------------------------------------------------------ CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 27.9% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* (SEE INSTRUCTIONS) 14 CO - ------------------------------------------------------------------------------ ________________ * Includes 450,000 shares of Common Stock subject to a Warrant held by Mastech Corporation. The Warrant vests in one-third (1/3) increments on the 2nd, 4th and 6th month anniversaries of January 11, 2000. 1 CUSIP: 92240C 10 0 Item 1. Security and Issuer (a) Name of Principal Executive Offices of the Issuer VCampus Corporation 8251 Greensboro Drive, Suite 500 McClean, Virginia 22102 Item 2. Identity And Background (a) Name of Person Filing: Mastech Corporation (b) Address of Principal Business Office: 1004 McKee Road Oakdale, PA 15071 (c) Principal Business: Information technology services including e-business solutions, enterprise solutions implementation, network services, customer relationship and supply chain management solutions and applications design, development and maintenance. (d) Criminal Proceedings During the last five years, neither the Reporting Person nor any executive officer or director of the Reporting Person has been convicted in any criminal proceeding. (e) Civil Proceedings During the last five years, neither the Reporting Person nor any executive officer or director of the Reporting Person has been party to any civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to any judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or State securities laws or finding any violation with respect to such laws. (f) Place of Organization Pennsylvania Attached hereto as Appendix A is information required by this Item 2 with respect to the executive officers and directors of the Reporting Person. All such individuals are U.S. citizens, except as otherwise indicated on Appendix A. Item 3. Source And Amount Of Funds Or Other Consideration (a) Source of Funds 2 Funds for the purchase of the Shares (as defined in Item 4) were derived from the Reporting Person's working capital. (b) Amount of Funds The Reporting Person paid Four Million One Hundred Thirteen Thousand Two Hundred Thirty Five Dollars and Eighty Six Cents ($4,113,235.86) to acquire the Shares (as defined in Item 4). Item 4. Purpose Of Transaction Pursuant to a Stock Purchase Agreement dated January 11, 2000, between the Reporting Person and the Issuer, the Reporting Person agreed to purchase from the Issuer 1,136,253 shares of Common Stock and a Warrant to purchase an additional 450,000 shares of Common Stock for the aggregate consideration of $4,113,235.86. This purchase price was determined by taking a fifteen (15) day average of the Issuer's stock price for the period ending January 3, 2000 and adding a 20% premium to arrive at a per share price of $3.62. The Reporting Person will hold the Shares as an investment. Depending on the Reporting Person's evaluation of market conditions, market price, alternative investment opportunities, liquidity needs and other factors, the Reporting Person will from time to time explore opportunities for liquidating all or a portion of the Shares, through one or more sales pursuant to public or private offerings or otherwise. In such event, the Reporting Person may determine to retain some portion of the Shares as an investment. For so long as the Reporting Person holds at least 5% of the Issuer's issued and outstanding Common Stock, the Issuer will cause its Board of Directors to nominate a representative selected by the Reporting Person for election by the shareholders of the Issuer to serve on its Board of Directors. Except as described above, the Reporting Person does not have any current plans or proposals which relate to or would result in any of the actions set forth in Item 4 of Schedule 13D. Item 5. Interest In Securities Of The Issuer The information contained in Item 4 is incorporated herein by this reference. (a) Number of Shares Beneficially Owned: 1,586,253/*/ Right to Acquire 450,000/*/ Percent of Class 27.9% (based on 5,684,110 shares of Common Stock outstanding, determined from the representations and warranties made by the Issuer to the ________________________ * Includes 450 shares of Common Stock subject to a Warrant held by Mastech Corporation. The warrant vest in one-third (1/3) increments on the 2nd, 4th, and 6th month anniversaries of January 11, 2000. 3 CUSIP: 92240C 10 0 Reporting in the Purchase Agreement). (b) Sole Power to Vote, Direct 1,586,253/*/ the Vote of, or Dispose of Shares: (c) Recent Transactions See Item 4. (d) Rights with Respect to Dividends N/A or Sales Proceeds: (e) Date of Cessation of Five Percent N/A Beneficial Ownership: Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer Under the Registration Rights Agreement by and between the Issuer and the Reporting Person, dated January 11, 2000, the Reporting Person has the right to have all of its shares of the Issuer's Common Stock (including any shares acquired pursuant to the terms of the Warrant), included in any registration statement that the Issuer proposes to file (excluding registration statements on Forms S-4 or S-8 or any successor or similar form). In the event that any registration shall be, in whole or in part, an underwritten public offering of Common Stock, the number of the Reporting Person's shares of Common Stock that may be included in such an underwriting may be reduced to the extent that the managing underwriter is of the opinion that such inclusion would materially adversely affect the marketing of the securities to be sold by the Issuer under such registration statement. Also under the Registration Rights Agreement, the Reporting Person has the right to demand that the Issuer register the Reporting Person's shares of the Issuer's Common Stock. The Issuer is obligated to use its best efforts to effect such registration as expeditiously as possible. Such demand may be made once per year and no more than five times during the term of the Registration Rights Agreement. During the first two years of the Registration Rights Agreement, the Issuer can satisfy its obligations under these demand registration rights by registering the offer and sale of the Reporting Person's Common Stock of the Issuer on Form S-3 in the manner contemplated by Rule 415 of the Securities Act (a "Shelf Registration"). After the two year period, the Reporting Person can require the Issuer to register the Common Stock held by the Reporting Person on any applicable form including Form S-1. The registration rights of the Reporting Person are set forth more fully in the Registration Rights Agreement attached hereto as an Exhibit. Under the Stock Purchase Agreement by and between the Issuer and the Reporting Person, dated January 11, 2000, the Reporting Person cannot take certain actions without the consent of the Issuer including acquiring more than 5% of the Issuer's Common Stock in a twelve month period, initiating a proxy solicitation regarding the election of directors, or initiating an Acquisition Proposal as that term is defined in the Stock Purchase Agreement (the "Reporting ________________________ * Includes 450 shares of Common Stock subject to a Warrant held by Mastech Corporation. The warrant vest in one-third (1/3) increments on the 2nd, 4th, and 6th month anniversaries of January 11, 2000. 4 Person's Covenants"). The Reporting Person's Covenants terminate upon the earlier of January 11, 2007 or upon the occurrence of certain other events described more fully in the Stock Purchase Agreement attached hereto as an Exhibit. Also under the Stock Purchase Agreement by and between the Issuer and the Reporting Person, dated January 11, 2000, the Reporting Person is obligated to provide notice to the Issuer of any intent to transfer or privately sell more than 10% of the Issuer's then outstanding Common Stock in any three month period to any party who is not an Affiliate of the Reporting Person. The Issuer will upon receipt of such notice have the right to purchase all but not part of the Common Stock specified in the notice provided by the Reporting Person. If the Issuer exercises this "right of first refusal," then the Reporting Person and the Issuer will be obligated under the terms of the Stock Purchase Agreement to consummate the purchase contemplated thereby. If the Issuer does not exercise its "right of first refusal," then the Reporting Person is free, during the period of ninety days following the expiration of the Issuer's time to exercise such right, to sell the Common Stock that was specified in the Reporting Person's Notice to the Issuer. This right of first refusal is more fully explained in the Stock Purchase Agreement attached hereto as an Exhibit. In addition, under the Stock Purchase Agreement by and between the Issuer and the Reporting Person, dated January 11, 2000, the Reporting Person cannot make any sale or exchange of the Issuer's Common Stock in response to a tender offer initiated by a third party without first providing the Issuer with a right of first refusal. This right to acquire such shares is more fully explained in the Stock Purchase Agreement attached hereto as an Exhibit. Item 7. Material To Be Filed As Exhibits 1. Stock Purchase Agreement, dated January 11, 2000, by and between VCampus Corporation and Mastech Corporation. 2. Registration Rights Agreement, dated January 11, 2000, by and between VCampus Corporation and Mastech Corporation. 3. Warrant dated January 11, 2000, issued by VCampus Corporation to Mastech Corporation. 5 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: January 21, 2000 /s/ Ajmal Noorani ----------------- Ajmal Noorani Vice President, E Business Solutions Division 6 CUSIP: 92240C 10 0 ANNEX A ------- INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF MASTECH CORPORATION The following table sets forth the name, business address and principal occupation or employment at the present time for each director and executive officer of Mastech Corporation. Unless otherwise noted, each person is a citizen of the United States. In addition, unless otherwise noted, each person's business address is Mastech Corporation, 1004 McKee Road, Oakdale PA 15071. DIRECTORS OF MASTECH CORPORATION Sunil Wadwhani Co-Chairman and Chief Executive Officer of Mastech Corporation. Ashok Trivedi Co-Chairman and President of Mastech Corporation. Ed Yourdon Information Technology Consultant. His business address is: P.O. Box 840, Arroy Seco, NM 87514, Michel Berty Consultant. His business address is: MBY Consultants, Inc., 40 Sayres Path, P.O. Box 466, Wainscott, NY 11975 J. Gordon Garrett President & CEO of Ricoh - Canada, Inc. His business address is: 4100 Younge Street, Suite 600, North York, Ontario M2P 2B5. EXECUTIVE OFFICERS OF MASTECH CORPORATION (WHO ARE NOT ALSO DIRECTORS) Murali Balasubamanyam Co-Managing Director of Scott Systems, a wholly owned subsidiary of Mastech Corporation Jeffrey McCandless Vice President, Finance and Chief Financial Officer Ajmal Noorani Vice President, E Business Solutions Sushma Rajagopalan Vice President, Global Resourcing and Recruiting Steven Shangold Senior Vice President, U.S. Client Services Michael Zugay Vice President, Corporate Development 1 EX-99.1 2 STOCK PURCHASE AGREEMENT EXHIBIT 99.1 ----------------------------------------------------------------------- STOCK PURCHASE AGREEMENT dated as of January 11, 2000 by and between VCAMPUS CORPORATION and MASTECH CORPORATION ----------------------------------------------------------------------- TABLE OF CONTENTS STOCK PURCHASE AGREEMENT
Section Page - ------- ---- 1. DEFINITIONS.................................................................................. 1 2. ISSUANCE, SALE AND PURCHASE OF SECURITIES.................................................... 7 2.1 Issuance and Sale....................................................................... 7 2.2 Closing................................................................................. 7 2.3 Indemnity............................................................................... 8 3. PURCHASER'S REPRESENTATIONS AND WARRANTIES................................................... 8 3.1 Investment Intention.................................................................... 8 3.2 Accredited Investor..................................................................... 9 3.3 Corporate Existence..................................................................... 9 3.4 Corporate Power; Authorization; Enforceable Obligations................................. 9 4. COMPANY'S REPRESENTATIONS AND WARRANTIES..................................................... 9 4.1 Authorized and Outstanding Shares of Capital Stock...................................... 9 4.2 Authorization and Issuance of Common Stock, Warrant and Warrant Shares.................. 10 4.3 Securities Laws......................................................................... 10 4.4 Corporate Existence; Compliance with Law................................................ 10 4.5 Subsidiaries............................................................................ 11 4.6 Corporate Power; Authorization; Enforceable Obligations................................. 11 4.7 Financial Statements.................................................................... 12 4.8 Ownership of Property................................................................... 12 4.9 Material Contracts...................................................................... 13 4.10 Environmental Protection................................................................ 13 4.11 Labor Matters........................................................................... 14 4.12 Other Ventures.......................................................................... 14 4.13 Taxes................................................................................... 14 4.14 No Litigation........................................................................... 15 4.15 Brokers................................................................................. 15 4.16 Patents, Trademarks, Copyrights and Licenses............................................ 15 4.17 No Material Adverse Effect.............................................................. 16 4.18 ERISA................................................................................... 16 4.19 SEC Documents........................................................................... 18 4.20 Ordinary Course of Business............................................................. 18 4.21 Insurance............................................................................... 18 4.22 Minute Books............................................................................ 18 4.23 Year 2000 Compliance.................................................................... 19 4.24 Full Disclosure......................................................................... 19 4.25 Certain Agreements...................................................................... 19 4.26 Anti-Takeover Provisions Inapplicable................................................... 19
-i- 5. COVENANTS OF THE COMPANY..................................................................... 20 5.1 Affirmative Covenants................................................................... 20 5.2 Negative Covenants...................................................................... 22 6. CONDITIONS TO CLOSING........................................................................ 22 6.1 Conditions to the Purchaser's Obligation to Purchase.................................... 22 6.2 Conditions to Company's Obligation to Sell.............................................. 23 7. COVENANTS OF THE PURCHASER................................................................... 24 7.1 Limitation on Ownership of Voting Stock................................................. 24 7.2 Voting Trust, etc....................................................................... 24 7.3 Solicitation of Proxies................................................................. 24 7.4 Acquisition Proposal.................................................................... 24 7.5 Confidential Information................................................................ 24 7.6 Limitation on Covenants of Purchaser.................................................... 25 8. COMPANY RIGHT OF FIRST REFUSAL............................................................... 25 8.1 Right of First Refusal.................................................................. 26 8.2 Tender Offer Sale....................................................................... 26 8.3 Assignment of Rights.................................................................... 27 8.4 Acquisition Proposal.................................................................... 27 9. MISCELLANEOUS................................................................................ 27 9.1 Complete Agreement; Modification of Agreement........................................... 27 9.2 Fees and Expenses....................................................................... 28 9.3 No Waiver by Purchaser.................................................................. 28 9.4 Remedies................................................................................ 29 9.5 Waiver of Jury Trial.................................................................... 29 9.6 Severability............................................................................ 29 9.7 Binding Effect; Benefits................................................................ 29 9.8 Conflict of Terms....................................................................... 29 9.9 Governing Law........................................................................... 29 9.10 Notices................................................................................. 30 9.11 Survival................................................................................ 31 9.12 Section and Other Headings.............................................................. 31 9.13 Counterparts............................................................................ 31 9.14 Publicity............................................................................... 31
-ii- Schedules - --------- Schedule 2.1 - Number of Shares of Common Stock Schedule 4.1 - Stocks and Warrants Schedule 4.5 - Subsidiaries Schedule 4.7 - Financial Statements; Other Obligations Schedule 4.9 - Material Contracts and Indebtedness Schedule 4.10 - Environmental Matters Schedule 4.12 - Other Ventures Schedule 4.13 - Taxes Schedule 4.14 - Litigation Schedule 4.15 - Brokers Schedule 4.18 - ERISA Schedule 4.26 - Employment Agreements Schedule 5.2(a) Affiliate Transactions Exhibits - -------- Exhibit A Registration Rights Agreement Exhibit B Warrant Exhibit C Opinion of Company Counsel -iii- STOCK PURCHASE AGREEMENT ------------------------ STOCK PURCHASE AGREEMENT, dated as of January 11, 2000, by and between VCampus Corporation, a Delaware corporation ("Company"), and Mastech Corporation, a Pennsylvania corporation, through its Mastech eVentures business unit ("Purchaser"). W I T N E S S E T H: ------------------- WHEREAS, Company has agreed to issue and sell to Purchaser, and Purchaser has agreed to purchase from Company through its Mastech eVentures business unit, upon the terms and conditions hereinafter provided, the number of shares of Common Stock (as defined herein) of Company set forth on Schedule 2.1 ------------ and the Warrant (as defined herein) pursuant to the terms hereof; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and intending to be legally bound hereby, it is agreed as follows: 1. DEFINITIONS. ----------- "Acquisition Proposal" shall mean the initiation or occurrence of any of the following without the consent or affirmative support of the Company's Board of Directors: (i) a tender or exchange offer, merger, consolidation or similar transaction involving a Change in Control of the Company; (ii) the sale, lease or other disposition directly or indirectly by merger, consolidation, or share exchange of assets of the Company representing substantially all of the consolidated assets of the Company; and, (iii) a transaction in which any Person other than Mastech Corporation or any Subsidiary of Mastech Corporation shall acquire beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act), or the right to acquire beneficial ownership or any "group" (as such term is defined under the Exchange Act) shall have been formed which beneficially owns or has the right to acquire beneficial ownership of 30% or more of the outstanding Common Stock of the Company. "Affiliate" shall mean, with respect to any Person, (i) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, 5% or more of the Stock having ordinary voting power in the election of directors of such Person, (ii) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person, (iii) each of such Person's officers, directors, joint venturers and partners, (iv) any trust or beneficiary of a trust of which such Person is the sole trustee or (v) any lineal descendants, ancestors, spouse or former spouses (as part of a marital dissolution) of such Person (or any trust for the benefit of such Person). For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. "Agreement" shall mean this Stock Purchase Agreement including all amendments, modifications and supplements hereto and any appendices, exhibits and schedules hereto or thereto, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative. "Balance Sheet" shall have the meaning set forth in Section 4.7(a) hereof. "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the Commonwealth of Pennsylvania. "Charges" shall mean all federal, state, county, city, municipal, local, foreign or other governmental (including, without limitation, PBGC) taxes at the time due and payable, levies, assessments, charges, liens, claims or encumbrances upon or relating to (i) Company's or any of its Subsidiaries' employees, payroll, income or gross receipts, (ii) Company's or any of its Subsidiaries' ownership or use of any of its assets, or (iii) any other aspect of Company's or any of the Subsidiaries' business. "Closing" shall have the meaning set forth in Section 2.2 hereof. "Closing Date" shall have the meaning set forth in Section 2.2 hereof. "Closing Price" shall mean, in respect of any share of Common Stock on any date herein specified which is a Business Day, (i) the last sale price on such day on the NASDAQ SmallCap Market System ("NASDAQ/SCS") or (ii) if no sale takes place on such day on NASDAQ/SCS, the average of the last reported closing bid and asked prices on such day as officially quoted on NASDAQ/SCS. "COBRA" shall have the meaning set forth in Section 4.18(m) hereof. "Common Stock" shall mean the common stock, $.01 par value per share, of Company. "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the average of the daily market prices for the previous fifteen (15) consecutive Business Days. The daily market price for each such Business Day shall be (i) the last sale price on such day on NASDAQ/SCS, (ii) if no sale takes place on such day on NASDAQ/SCS, the average of the last reported closing bid and asked prices on such day as officially quoted on NASDAQ/SCS. "DOJ" shall mean the Antitrust Division of the Department of Justice of the United States. "Environmental Laws" shall mean all federal, state and local laws, statutes, ordinances and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any judicial or administrative interpretation thereof, including, without limitation, any applicable judicial or administrative order, consent decree or judgment, relative to the applicable Real Estate, relating to the regulation and protection of human health, safety, the environment and natural resources (including, without limitation, ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include but are not limited to the -2- Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S) 9601 et seq.) ("CERCLA"); the Hazardous Material -- --- Transportation Act, as amended (49 U.S.C. (S) 1801 et seq.); the Federal -- --- Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. (S) 136 et -- seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. (S) - --- 6901 et seq.) ("RCRA"); the Toxic Substance Control Act, as amended (15 U.S.C. -- --- (S) 2601 et seq.); the Clean Air Act, as amended (42 U.S.C. (S) 740 et seq.); -- --- -- --- the Federal Water Pollution Control Act, as amended (33 U.S.C. (S) 1251 et -- seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. (S) 651 et - --- -- seq.) ("OSHA"); and the Safe Drinking Water Act, as amended (42 U.S.C. (S) 300f - --- et seq.), and any and all regulations promulgated thereunder, and all analogous - -- --- state and local counterparts or equivalents and any transfer of ownership notification or approval statutes. "Environmental Liabilities and Costs" shall mean all liabilities, obligations, responsibilities, remedial actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including, without limitation, all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim, suit, action or demand by any person or entity, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law (including, without limitation, any thereof arising under any Environmental Law, permit, order or agreement with any Governmental Authority) and which relate to any health or safety condition regulated under any Environmental Law or in connection with any other environmental matter or Spill or the presence of a Hazardous Substance or threatened Spill of any Hazardous Substance. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time and any regulations promulgated thereunder. "ERISA Affiliate" shall mean, with respect to Company, any trade or business (whether or not incorporated) under common control with Company and which, together with Company, are treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the IRC, excluding Purchaser and each other person which would not be an ERISA Affiliate if Purchaser did not own any issued and outstanding shares of Stock of Company. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and all rules and regulations promulgated thereunder. "Financials" shall mean the financial statements referred to in Section 4.7(a) hereof. "Fiscal Quarter" shall mean each three month period of Company ending on March 31, June 30, September 30, and December 31. Subsequent changes of the fiscal year of Company shall not change the term "Fiscal Quarter," unless the Purchaser shall consent in writing to such changes which consent shall not be withheld unreasonably. "Fiscal Year" shall mean the twelve month period ending December 31. Subsequent changes of the fiscal year of Company shall not change the term "Fiscal Year," -3- unless the Purchaser shall consent in writing to such changes which consent shall not be withheld unreasonably. "FTC" shall mean the Federal Trade Commission of the United States. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time, except that for purposes of the covenants contained in Section 5.1(b) hereof, GAAP shall be as in effect on the date of the most recent Financials and shall be applied in a manner consistent therewith. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hazardous Substance" shall have the meaning set forth in Section 4.10 hereof. "IRC" shall mean the Internal Revenue Code of 1986, as amended, and any successor thereto. "IRS" shall mean the Internal Revenue Service, or any successor thereto. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, preemptive right, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest as to assets owned by the relevant Person under the Uniform Commercial Code or comparable law of any jurisdiction). "Mastech Corporation" shall mean Mastech Corporation, a Pennsylvania corporation, or any successor corporation thereto. "Material Adverse Effect" shall mean a material adverse effect on the business, assets, operations, or financial condition or results of operations of Company and its Subsidiaries, if any, taken as a whole. "Material Contracts" means (i) all of Company's and its Subsidiaries' material contracts that would be required to be filed with the SEC pursuant to item 601(b)(10) of Regulation S-K of the Securities Act, (ii) all agreements, leases or other instruments to which Company or any of its Subsidiaries is a party or by which Company, its Subsidiaries or its properties are bound, which involve payments by or to Company or its Subsidiaries of more than $5,000,000, (iii) all of Company's and its Subsidiaries' loan agreements, bank lines of credit agreements, indentures, mortgages, deeds of trust, pledge and security agreements, factoring agreements, conditional sales contracts, letters of credit, guarantees or other debt instruments involving commitments of more than $5,000,000, (iv) all non-competition and similar agreements to which Company is a party which restrict Company's ability to engage in certain -4- businesses, (v) all contracts for the employment of any executive officer of Company or its Subsidiaries, and (vi) all collective bargaining, union and similar labor contracts of Company or its Subsidiaries. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, and to which Company, any of its Subsidiaries or any ERISA Affiliate is making, is obligated to make, has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them. "Obligations" shall mean all amounts owing by Company to Purchaser and any of its assignees pursuant hereto, including, without limitation, all fees, expenses, attorneys' fees and any other sum chargeable to Company under any of the Transaction Documents. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" shall have the meaning set forth in Section 4.18(a) hereof. "Person" shall mean any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, any instrumentality, division, agency, body or department thereof). "Plan" shall have the meaning set forth in Section 4.18(a) hereof. "Prohibited Transaction" shall mean any prohibited transaction as defined in Section 4975 of the IRC or Section 406 of ERISA for which neither an individual nor a class exemption has been issued by the United States Department of Labor. "Purchaser" shall have the meaning set forth in the first paragraph of this Agreement. "Registration Rights Agreement" shall mean the Registration Rights Agreement by and between Company and Purchaser, substantially in the form attached hereto as Exhibit A, as such agreement may be amended, supplemented or --------- otherwise modified from time to time in accordance with the terms thereof. "Reportable Event" shall mean a reportable event described in Section 4043 of ERISA and regulations thereunder with respect to a Plan or Multiemployer Plan. "SEC" shall mean the U.S. Securities and Exchange Commission, or any successor thereto. "Securities Act" shall mean the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder. "Spill" shall have the meaning set forth in Section 4.10 hereof. -5- "Stock" shall mean all shares, options, warrants, general or limited partnership interests, limited liability company membership interest, participations or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including, without limitation, common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act). "Subsidiary" shall mean, with respect to any Person, (a) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, and (b) any partnership or other entity in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than 50%. "Tender Date" shall have the meaning set forth in Section 8.2(a) hereof. "Tender Notice" shall have the meaning set forth in Section 8.2(a) hereof. "Transaction Documents" shall mean this Agreement, the Warrant and the Registration Rights Agreement. "Transfer Notice" shall have the meaning set forth in Section 8.1(a) hereof. "Transfer Price" shall have the meaning set forth in Section 8.1(a) hereof. "Voting Stock" means the Common Stock, Preferred Stock and any other securities issued by the Company having the ordinary power to vote in the election of directors of the Company (other than securities having such power only upon the happening of a contingency). "Warrant" shall mean the Warrant exercisable for shares of Common Stock in the form attached as Exhibit B hereto. --------- "Warrant Shares" shall mean those shares of Common Stock issued upon exercise of the Warrant. "Welfare Plan" shall mean any welfare plan, as defined in Section 3(1) of ERISA, which is maintained or contributed to by Company, any of its Subsidiaries or any ERISA Affiliate. "Withdrawal Liability" means, at any time, the aggregate amount of the liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in contributions pursuant to Section 4243 of ERISA with respect to all Multiemployer Plans. "Year 2000 Compliant" shall have the meaning set forth in Section 4.24 hereof. -6- Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP consistently applied. That certain terms or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules hereto, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. The words "includes" or "including" and other words of similar import shall mean "including, without limitation," unless the context expressly otherwise requires. 2. ISSUANCE, SALE AND PURCHASE OF SECURITIES. ----------------------------------------- 2.1 Issuance and Sale. ----------------- Subject to the terms and conditions and in reliance upon the representations and warranties set forth in this Agreement, Company agrees to issue and sell to Purchaser and Purchaser agrees to purchase from Company on the Closing Date, the number of shares of Common Stock set forth on Schedule 2.1 and ------------ the Warrant for the aggregate consideration of $4,113,235.86 (the "Purchase Price"), such Purchase Price being the sum of the Current Market Price of the Common Stock set forth on Schedule 2.1 as of January 3, 2000, plus a number ------------ equal to twenty percent (20%) of such sum. 2.2 Closing. ------- The closing of the transfer and delivery of the Common Stock and Warrant, and the receipt of the Purchase Price by the Company (the "Closing"), will take place on the date hereof (the "Closing Date") at 10:00 a.m. at the offices of Buchanan Ingersoll Professional Corporation, One Oxford Centre, 301 Grant Street, 20th Floor, Pittsburgh, PA 15219-1410 or at such other time or place, or on such other date not later than January 31, 2000, as the parties may mutually agree upon. On the Closing Date, Company shall transfer and deliver to Purchaser the Common Stock and Warrant against delivery by Purchaser of the Purchase Price therefor by wire transfer of funds to the account of Company. The certificate or certificates for the Common Stock and Warrant shall be subject to a legend restricting transfer under the Securities Act and referring to restrictions on transfer and rights of first refusal herein, such legend to be substantially as follows: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS -7- AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AS TO THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER, INCLUDING ANY SALE, PLEDGE OR OTHER HYPOTHECATION, AND RIGHTS OF FIRST REFUSAL IN THE EVENT THAT THE SHARES ARE BEING SOLD AS PART OF A BLOCK OF SHARES OR A SERIES OF SALES OF SHARES INVOLVING MORE THAN 10% OF THE COMPANY'S OUTSTANDING COMMON STOCK IN ANY 3 MONTH PERIOD, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND MASTECH CORPORATION, A COPY OF WHICH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES. 2.3 Indemnity. --------- Company shall indemnify and hold Purchaser and each of its officers, directors and Affiliates harmless from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including reasonable attorneys' fees and disbursements, including those incurred upon any appeal) which may be instituted or asserted against or incurred by Purchaser or such other indemnified person as the result of Purchaser having entered into this Agreement or any of the other Transaction Documents relating to or arising out of any untrue representation, breach of warranty or failure to perform any covenants or agreement by Company contained herein or in any Transaction Document, including arising out of any Environmental Law applicable to Company or its Subsidiaries or otherwise relating to or arising out of the transactions contemplated hereby; provided, however, that Company shall not be liable for -------- ------- such indemnification to such indemnified Person to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense results from such indemnified Person's gross negligence or willful misconduct. 3. PURCHASER'S REPRESENTATIONS AND WARRANTIES. ------------------------------------------ Purchaser makes the following representations and warranties to Company, each and all of which shall survive the execution and delivery of this Agreement and the Closing hereunder: 3.1 Investment Intention. -------------------- Purchaser is purchasing the Common Stock and Warrant for its own account, for investment purposes and not with a view to the distribution thereof. Purchaser will not, directly -8- or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of the Common Stock, Warrant or Warrant Shares (or solicit any offers to buy, purchase, or otherwise acquire any of the Common Stock, Warrant or Warrant Shares), except in compliance with the Securities Act. 3.2 Accredited Investor. ------------------- Purchaser is an "accredited investor" (as that term is defined in Rule 501 of Regulation D under the Securities Act) and by reason of its business and financial experience, it has such knowledge, sophistication and experience in business and financial matters as to be capable of evaluating the merits and risks of the prospective investment, is able to bear the economic risk of such investment and is able to afford a complete loss of such investment. 3.3 Corporate Existence. ------------------- Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania. 3.4 Corporate Power; Authorization; Enforceable Obligations. ------------------------------------------------------- The execution, delivery and performance by Purchaser of this Agreement and the other Transaction Documents to be executed by it: (i) are within Purchaser's corporate power; (ii) have been duly authorized by all necessary corporate action; (iii) are not in contravention of any provision of Purchaser's certificate of incorporation or by-laws; and (iv) will not violate any law or regulation, or any order or decree of any court or governmental instrumentality binding on Purchaser. This Agreement and the other Transaction Documents to which Purchaser is a party have each been duly executed and delivered by Purchaser and constitute the legal, valid and binding obligations of Purchaser, enforceable against it in accordance with their respective terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). 4. COMPANY'S REPRESENTATIONS AND WARRANTIES. ---------------------------------------- Except as set forth in the Schedule of Exceptions delivered herewith (the "Schedule"), Company makes the following representations and warranties to Purchaser, each and all of which shall survive the execution and delivery of this Agreement and the Closing hereunder: 4.1 Authorized and Outstanding Shares of Capital Stock. -------------------------------------------------- As of December 31, 1999, the authorized capital stock of Company consisted of: (i) 36,000,000 shares of Common Stock, $.01 par value per share, of which 5,684,110 shares were issued and outstanding, (ii) 3,000,000 shares of Series E Convertible Preferred stock, $0.01 par value per share, 214,396 of which are issued and outstanding; (iii) 1,200,000 shares of Series D Convertible Preferred Stock, $0.01 par value per share, 1,073,370 of which are issued and -9- outstanding; (iv) 1,000,000 shares of Series C Convertible Preferred Stock, $0.01 par value per share, 623,339 shares of which are issued and outstanding; and (v) 4,800,000 shares of undesignated Preferred Stock, $0.01 par value per share, none of which are issued and outstanding. All of such issued and outstanding shares are validly issued, fully paid and non-assessable. There is no existing option, warrant, call, commitment or other agreement to which Company is a party requiring, and there are no convertible securities of Company outstanding which upon conversion would require, the issuance of any additional shares of Stock of Company or other securities convertible into shares of equity securities of Company, and (ii) there are no agreements to which Company is a party with respect to the voting or transfer of the Stock of Company. There are no stockholders' preemptive rights or rights of first refusal or other similar rights with respect to the issuance of Stock by Company. True and correct copies of the certificate of incorporation and by-laws of Company have been delivered to Purchaser. 4.2 Authorization and Issuance of Common Stock, Warrant and Warrant --------------------------------------------------------------- Shares. - ------ The issuance of the Common Stock and Warrant have been duly authorized by all necessary corporate action on the part of Company and, upon delivery to Purchaser of the Common Stock against payment in accordance with the terms hereof, the Common Stock will have been validly issued, fully paid and non- assessable, and free and clear of all pledges, liens, encumbrances and preemptive rights. The issuance of shares of Common Stock upon exercise of the Warrant has been duly authorized by all necessary corporate action on the part of Company and, when issued upon exercise of the Warrant against payment in accordance with the terms thereof, such Common Stock will have been validly issued and fully paid and non-assessable. Company has duly reserved 450,000 shares of Common Stock for issuance pursuant to the terms of the Warrant. 4.3 Securities Laws. --------------- Assuming the accuracy of the investment representations contained in Sections 3.1 and 3.2, the offer, issuance, sale and delivery of the Common Stock, Warrant and Warrant Shares, as provided in this Agreement, are exempt from the registration requirements of the Securities Act and all applicable state securities laws, and are otherwise in compliance with such laws. Neither Company nor any Person acting on its behalf has taken or will take any action (including any offering of any securities of Company under circumstances which would require the integration of such offering with the offering of the Common Stock, Warrant and Warrant Shares under the Securities Act and the rules and regulations of the SEC thereunder) which might subject the offering, issuance or sale of the Common Stock, Warrant and Warrant Shares, to the registration requirements of Section 5 of the Securities Act. 4.4 Corporate Existence; Compliance with Law. ---------------------------------------- Company and each of its Subsidiaries, if any, (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware in the case of Company and as set forth on Schedule 4.5 in the ------------ case of its Subsidiaries; (ii) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification (except for jurisdictions in which such failure to so qualify or to be in good standing would not have a -10- Material Adverse Effect); (iii) has the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now being conducted; (iv) has, or has applied for, all material licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all material notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct, except where the failure to obtain such approval or authorization would not result in a Material Adverse Effect; (v) is in compliance with its certificate or articles of incorporation and by-laws; and (vi) is in compliance with all applicable provisions of law, except for such non-compliance which would not have a Material Adverse Effect. 4.5 Subsidiaries. ------------ There currently exist no Subsidiaries of Company other than as set forth on Schedule 4.5 hereto, which sets forth such Subsidiaries, together with ------------ their respective jurisdictions of organization. All of the outstanding capital Stock of each such Subsidiary is owned by Company. There are no options, warrants, rights to purchase or similar rights covering capital Stock for any such Subsidiary. 4.6 Corporate Power; Authorization; Enforceable Obligations. ------------------------------------------------------- The execution, delivery and performance by Company of this Agreement, the other Transaction Documents to which it is a party and all instruments and documents to be delivered by Company, the issuance and sale of the Common Stock, Warrant and Warrant Shares and the consummation of the other transactions contemplated by any of the foregoing: (i) are within Company's corporate power and authority; (ii) have been duly authorized by all necessary or proper corporate action; (iii) are not in contravention of any provision of Company's certificate of incorporation or by-laws; (iv) will not violate any law or regulation, or any order or decree of any court or governmental instrumentality to which the Company or its business is subject to; (v) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Company or any of its Subsidiaries is a party or by which Company, any of its Subsidiaries or any of their property is bound; (vi) will not result in the creation or imposition of any Lien upon any of the property of Company or any of its Subsidiaries; and (vii) do not require the consent or approval of, or any filing with, any Governmental Authority or any other Person (except (A) for those filings required by the Registration Rights Agreement and (B) to the extent previously obtained or made). At or prior to the Closing Date, each of this Agreement and the other Transaction Documents shall have been duly executed and delivered by Company and each shall then constitute a legal, valid and binding obligation of Company, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). -11- 4.7 Financial Statements. -------------------- (a) The audited consolidated balance sheet of Company as at December 31, 1998, and the related consolidated statements of income and cash flows for the year then ended, with the opinion thereon of Ernst & Young LLP, and the unaudited consolidated balance sheet of Company as at September 30, 1999 (the "Balance Sheet") and the related unaudited consolidated statements of income, and cash flows for the nine months then ended, copies of which have previously been delivered to Purchaser, have been, except as noted therein, prepared in conformity with GAAP consistently applied throughout the periods involved and present fairly in all material respects the consolidated financial position of Company as at the dates thereof, and the consolidated results of its operations and cash flows for the periods then ended, subject, in the case of the interim financial statements, to normal year-end audit adjustments and any other adjustments described therein. (b) Except as set forth on Schedule 4.7, neither Company nor any of ------------ its Subsidiaries has any material obligations, contingent or otherwise, including liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the Balance Sheet, other than those incurred since December 31, 1998, in the ordinary course of business. (c) Except as set forth on Schedule 4.7, no dividends or other ------------ distributions have been declared, paid or made upon any shares of capital Stock of Company, nor have any shares of capital Stock of Company been redeemed, retired, purchased or otherwise acquired for value by Company since December 31, 1998. 4.8 Ownership of Property. --------------------- Neither the Company nor any of its Subsidiaries owns any real property. Each of Company and its Subsidiaries has valid and marketable leasehold interests in each of its leases, good and marketable title to, or valid leasehold interests in, all of its other properties and assets. Each of such leases is valid and enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity)) and is in full force and effect except to the extent that such lack of validity or enforceability would not have a Material Adverse Effect. None of Company, any of its Subsidiaries nor, to its knowledge, any other party to any such lease is in default of its obligations thereunder or has delivered or received any notice of default under any such lease, nor has any event occurred which, with the giving of notice, the passage of time or both, would constitute a default under any such lease except to the extent that such default would not reasonably be expected to have a Material Adverse Effect. Neither Company nor any of its Subsidiaries is obligated under or a party to, any option, right of first refusal, or any other contractual right to purchase, acquire, sell, assign or dispose of any material real property owned or leased by Company or such Subsidiary. -12- 4.9 Material Contracts. ------------------ Schedule 4.9 contains a true, correct and complete list and ------------ description of all Material Contracts (other than those Material Contracts which have been filed as an exhibit to the Company SEC Documents). Each Material Contract is a valid and binding agreement of Company or its Subsidiaries (as the case may be) enforceable against Company or such Subsidiary in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity)), and neither Company nor any of its Subsidiaries has any knowledge that any Material Contract is not a valid and binding agreement against the other parties thereto. Company and each of its Subsidiaries has fulfilled all material obligations required pursuant to the Material Contract to have been performed by Company or such Subsidiary on its part. Except as set forth in Schedule 4.9, neither Company nor any of its Subsidiaries is in default or - ------------ breach, nor to Company's or such Subsidiary's knowledge is any third party in default or breach, under or with respect to any Material Contract. 4.10 Environmental Protection. ------------------------ (a) Except as set forth on Schedule 4.10, to Company's and its ------------- Subsidiaries' knowledge, all real property owned, leased or otherwise operated by Company and its Subsidiaries (each, a "Facility") is free of contamination from any substance, waste or material (i) currently identified to be toxic or hazardous pursuant to, or which may result in liability under, any Environmental Law or (ii) within the definition of a substance which is toxic or hazardous under any Environmental Law, including any asbestos, pcb, radioactive substance, methane, volatile hydrocarbons, industrial solvents, oil or petroleum or chemical liquids or solids, liquid or gaseous products, or any other material or substance which has in the past or could at any time in the future cause or constitute a health, safety, or environmental hazard to any Person or property or result in any Environmental Liabilities and Costs ("Hazardous Substance") of more than $100,000 or which, in either case, could have a Material Adverse Effect. Except as set forth on Schedule 4.10, neither Company nor any of its ------------- Subsidiaries has caused or suffered to occur any release, spill, migration, leakage, discharge, spillage, uncontrolled loss, seepage, or filtration of Hazard Substances at or from the Facility (a "Spill") which could result in Environmental Liabilities and Costs in excess of $100,000. (b) Company and each Subsidiary has generated, treated, stored and disposed of any Hazardous Substances in full compliance with applicable Environmental Laws, except for such non-compliances which would not reasonably be expected to have a Material Adverse Effect. (c) Company and each Subsidiary has obtained, or has applied for, and is in full compliance with and in good standing under all permits required under Environmental Laws (except for such failures which would not reasonably be expected to have a Material Adverse Effect) and neither Company nor any of its Subsidiaries has any knowledge of any proceedings to substantially modify or to revoke any such permit. -13- (d) Except as set forth on Schedule 4.10, there are no ------------- investigations, proceedings or litigation pending or, to Company's or its Subsidiaries' knowledge, threatened affecting or against Company, any of its Subsidiaries or the Facilities relating to Environmental Laws or Hazardous Substances. (e) Except for communications in connection with the matters listed on Schedule 4.10, neither Company nor any of its Subsidiaries has received any ------------- communication or notice (including requests for information) indicating the potential of Environmental Liabilities and Costs against Company or its Subsidiaries. 4.11 Labor Matters. ------------- (a) There are no strikes or other labor disputes against Company or any of its Subsidiaries pending or, to Company's or its Subsidiaries' knowledge, threatened. To the Company's knowledge, hours worked by and payment made to employees of Company and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters. All payments due from Company and each of its Subsidiaries on account of employee health and welfare insurance have been paid or accrued as a liability on the books of Company or such Subsidiary. There is no organizing activity involving Company or any of its Subsidiaries pending or, to Company's or its Subsidiaries' knowledge, threatened by any labor union or group of employees. There are no representation proceedings pending or, to Company's or its Subsidiaries' knowledge, threatened with the National Labor Relations Board, and no labor organization or group of employees of Company or its Subsidiaries has made a pending demand for recognition. There are no complaints or charges against Company or any of its Subsidiaries pending or, to Company's or its Subsidiaries' knowledge, threatened to be filed with any federal, state, local or foreign court, governmental agency or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by Company or any of its Subsidiaries of any individual. (b) Neither Company nor any of its Subsidiaries is, or during the five years preceding the date hereof was, a party to any labor or collective bargaining agreement and there are no labor or collective bargaining agreements which pertain to employees of Company or its Subsidiaries. 4.12 Other Ventures. -------------- Except as set forth on Schedule 4.12 or as disclosed in the Company's ------------- SEC Documents, neither Company nor any of its Subsidiaries is engaged in any joint venture or partnership with any other Person. 4.13 Taxes. ----- Except as set forth on Schedule 4.13, all federal, state, local and ------------- foreign tax returns, reports and statements required to be filed by Company and its Subsidiaries have been timely filed with the appropriate Governmental Authority and all such returns, reports and statements are true, correct and complete in all material respects. All Charges and other impositions due and payable for the periods covered by such returns, reports and statements have been paid prior to the date on which any fine, penalty, interest or late charge may be added -14- thereto for nonpayment thereof, or any such fine, penalty, interest, late charge or loss has been paid. Proper and accurate amounts have been withheld by Company and its Subsidiaries from its employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective governmental agencies. Neither Company nor any of its Subsidiaries has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. No tax audits or other administrative or judicial proceedings are pending or threatened with regard to any Charges for which Company or any Subsidiary may be liable and no assessment of Charges is proposed against the Company or any Subsidiary. Neither Company nor any of its Subsidiaries has filed a consent pursuant to IRC Section 341(f) or agreed to have IRC Section 341(f)(2) apply to any dispositions of subsection (f) assets (as such term is defined in IRC Section 341(f)(4)). None of the property owned by Company or any of its Subsidiaries is property which such company is required to treat as being owned by any other Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, and in effect immediately prior to the enactment of the Tax Reform Act of 1986 or is "tax-exempt use property" within the meaning of IRC Section 168(h). Neither Company nor any of its Subsidiaries has agreed or has been requested to make any adjustment under IRC Section 481(a) by reason of a change in accounting method or otherwise. Neither Company nor any of its Subsidiaries has any obligation under any written tax sharing agreement. 4.14 No Litigation. ------------- Except as disclosed on Schedule 4.14, no action, claim or proceeding ------------- is now pending or, to the knowledge of Company or its Subsidiaries, threatened against Company or any of its Subsidiaries, at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of any federal, state, or local government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators which would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 4.15 Brokers. ------- Except as set forth on Schedule 4.15, no broker or finder acting on ------------- behalf of Company or any of its Subsidiaries brought about the consummation of the transactions contemplated pursuant to this Agreement and neither Company nor any of its Subsidiaries has any obligation to any Person in respect of any finder's or brokerage fees (or any similar obligation) in connection with the transactions contemplated by this Agreement. Company is solely responsible for the payment of all such finder's or brokerage fees. 4.16 Patents, Trademarks, Copyrights and Licenses. -------------------------------------------- Company and each of its Subsidiaries owns all licenses, patents, patent applications, copyrights, service marks, trademarks and registrations and applications for registration thereof, and trade names necessary to continue to conduct its business as heretofore conducted by it and now being conducted by it. To Company's knowledge, Company and each of its Subsidiaries conducts its businesses without infringement or claim of infringement of any -15- license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of others except where the same would not reasonably be expected to have a Material Adverse Effect. To Company's knowledge, there is no infringement by others of any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of Company or any of its Subsidiaries, except where the same would not reasonably be expected to have a Material Adverse Effect. 4.17 No Material Adverse Effect. -------------------------- Except as disclosed in the Company SEC Documents, no event has occurred since September 30, 1999, which has had or could be reasonably expected to have a Material Adverse Effect, other than events or circumstances which relate exclusively to (i) changes in trends in the online courseware industry and (ii) general economic conditions in the United States as a whole. 4.18 ERISA. ----- (a) Schedule 4.18 sets forth: (i) all "employee benefit plans", as ------------- defined in Section 3(3) of ERISA, and describes any other material employee benefit arrangements (the "Plans") maintained by Company and any of its Subsidiaries or to which Company or any its Subsidiaries contributed or is obligated to contribute thereunder, and (ii) all "employee pension plans", as defined in Section 3(2) of ERISA (the "Pension Plans"), maintained by Company, any of its Subsidiaries or any of its ERISA Affiliates to which Company, any of its Subsidiaries or any of its ERISA Affiliates contributed or is obligated to contribute thereunder. (b) Purchaser will not have (i) any obligation to make any contribution to any Multiemployer Plan or (ii) any withdrawal liability from any such Multiemployer Plan under Section 4201 of ERISA which it would not have had if it had not purchased the Note from Company at the Closing in accordance with the terms of this Agreement. (c) The Pension Plans intended to be qualified under Section 401 of the IRC are so qualified and the trusts maintained pursuant thereto are exempt from federal income taxation under Section 501 of the IRC, and nothing has occurred with respect to the operation of the Pension Plans which could cause the loss of such qualification or exemption or the imposition of any liability, penalty, or tax under ERISA or the IRC. (d) All contributions required by law or pursuant to the terms of the Plans (without regard to any waivers granted under Section 412 of the IRC) to any funds or trusts established thereunder or in connection therewith have been made by the due date thereof (including any valid extension) and no accumulated funding deficiencies exist in any of the Pension Plans. (e) There is no "amount of unfunded benefit liabilities" as defined in Section 4001(a)(18) of ERISA in any of the respective Pension Plans. Each of the respective Pension Plans are fully funded in accordance with the actuarial assumptions used by the PBGC to determine the level of funding required in the event of the termination of the Pension Plan and all benefit liabilities do not exceed the assets of such Pension Plans. -16- (f) There has been no "reportable event" as that term is defined in Section 4043 of ERISA and the regulations thereunder with respect to the Pension Plans which would require the giving of notice, or any event requiring disclosure under Sections 4041(c)(3)(C), 4063(a) or 4068(f) of ERISA. (g) There is no material violation of ERISA with respect to the filing of applicable reports, documents, and notices regarding the Plans with the Secretary of Labor and the Secretary of the Treasury or the furnishing of such documents to the participants or beneficiaries of the Plans. (h) True, correct and complete copies of the following documents, with respect to each of the Plans, have been made available or delivered to Purchaser by Company: (A) any plans and related trust documents, and amendments thereto, (B) the most recent Forms 5500 (including any schedules thereto) and the most recent actuarial valuation report, if any, (C) the last IRS determination letter, and (D) summary plan descriptions. (i) There are no pending actions, claims or lawsuits which have been asserted or instituted against the Plans, the assets of any of the trusts under such Plans or the Plan sponsor or the Plan administrator, or against any fiduciary of the Plans with respect to the operation of such Plans (other than routine benefit claims), nor does Company or any of its Subsidiaries have knowledge of facts which could form the basis for any such claim or lawsuit. (j) All amendments and actions required to bring the Plans into conformity in all material respects with all of the applicable provisions of ERISA and other applicable laws have been made or taken except to the extent that such amendments or actions are not required by law to be made or taken until a date after the Closing Date. (k) The Plans have been maintained, in all material respects, in accordance with their terms and with all provisions of ERISA (including rules and regulations thereunder) and other applicable Federal and state law, and neither Company nor any of its Subsidiaries or "party in interest" or "disqualified person" with respect to the Plans has engaged in a "prohibited transaction" within the meaning of Section 4975 of the IRC or Section 406 of ERISA. (l) None of Company, any of its Subsidiaries or any ERISA Affiliate has terminated any Pension Plan, or incurred any outstanding liability under Section 4062 of ERISA to the PBGC, or to a trustee appointed under Section 4042 of ERISA. (m) None of Company, any of its Subsidiaries or any ERISA Affiliate maintains retired life and retired health insurance plans which are Welfare Plans and which provide for continuing benefits or coverage for any participant or any beneficiary of a participant except as may be required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and at the expense of the participant or the participant's beneficiary. Company, all of its Subsidiaries and all ERISA Affiliates which maintain a Welfare Plan have complied with the notice and continuation requirements of COBRA and the regulations thereunder. (n) None of Company, any of its Subsidiaries or any ERISA Affiliate has contributed or been obligated to contribute to a Multiemployer Plan as of the Closing. -17- (o) None of Company, any of its Subsidiaries or any ERISA Affiliate has withdrawn in a complete or partial withdrawal from any Multiemployer Plan prior to the Closing Date, nor has any of them incurred any liability due to the termination or reorganization of a Multiemployer Plan. (p) None of Company, any of its Subsidiaries, any ERISA Affiliate or any organization to which Company is a successor or parent corporation, within the meaning of Section 4069(b) of ERISA, has engaged in any transaction, within the meaning of Section 4069 of ERISA. 4.19 SEC Documents. ------------- Company has made available to Purchaser a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed by Company with the SEC since January 1, 1999 and prior to the date of this Agreement (the "Company SEC Documents"), which are all the documents (other than preliminary material) that Company was required to file with the SEC since such date. As of their respective dates, the Company SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Company SEC Documents, and on their respective filing dates none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.20 Ordinary Course of Business. --------------------------- Except as set forth on Schedule 4.7 or in response to the events ------------ described therein, since January 1, 1998, Company and each of its Subsidiaries has conducted its operations only in the ordinary course of business consistent with past practice. 4.21 Insurance. --------- There are in full force and effect for the benefit of Company and its Subsidiaries insurance policies and bonds providing adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the assets and risks of Company and its Subsidiaries in accordance with prudent business practice in the industry of Company and Subsidiaries. No notice has been given or claim made and to the knowledge of Company, no grounds exist, to cancel or void any such policies or bonds or to reduce the coverage provided thereby. 4.22 Minute Books. ------------ The minute books of Company for the period commencing January 1, 1998 through December 31, 1999, as previously made available to Purchaser, accurately reflect, in all material respects, all formal corporate action of the stockholders and Board of Directors of Company during such period. -18- 4.23 Year 2000 Compliance. -------------------- Each system comprised of software, hardware, databases or embedded control systems (microprocessor controlled or controlled by any robotic or other device) (collectively, a "System") that constitutes any material part of, or is used in connection with the use, operation or enjoyment of, any material tangible or intangible asset or real property of Company or any of its Subsidiaries has not been materially adversely affected by the advent of the year 2000, the advent of the twenty-first century or the transition from the twentieth century through the year 2000 and into the twenty-first century ("Year 2000 Compliant") in a manner that could reasonably be expected to have a Material Adverse Effect. Company has no reason to believe that it or any of its Subsidiaries may incur material expenses arising from or relating to the failure of any of their Systems as a result of the advent of the year 2000, the advent of the twenty-first century or the transition from the twentieth century through the year 2000 and into the twenty-first century. Each material system of Company and its Subsidiaries is able to accurately process date data, including, but not limited to, calculating, comparing and sequencing from, into and between the twentieth century (through year 1999), the year 2000 and the twenty-first century, including leap year calculations. 4.24 Full Disclosure. --------------- No information contained in this Agreement or any other Transaction Document contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which made. 4.25 Certain Agreements. ------------------ Except as set forth in Schedule 4.26, neither the Company nor any ------------- Subsidiary is a party to any oral or written employment agreement or plan, including any employment agreement, severance agreement, stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan, any of the benefits of which shall be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the other Transaction Documents or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement or the Transaction Documents. No holder of any option to purchase shares of Company Common Stock, or shares of Company Common Stock granted in connection with the performance of services for the Company or any Subsidiary, is or will be entitled to receive cash from the Company or any subsidiary in lieu of or in exchange for such option or shares as a result of the transactions contemplated by this Agreement or the other Transaction Documents. 4.26 Anti-Takeover Provisions Inapplicable. ------------------------------------- The execution and consummation of the transactions contemplated by the Transaction Documents will not trigger any anti-takeover, poison pill or similar provisions contained within the certificate or articles of incorporation or bylaws of Company or any of its Subsidiaries, nor any applicable provision under the Delaware General Corporate Law relating to transactions with interested stockholders or a sale or merger of the Company. -19- 5. COVENANTS OF THE COMPANY. ------------------------ 5.1 Affirmative Covenants. --------------------- Company covenants and agrees that from and after the date hereof (except as otherwise provided herein, or unless the Purchaser has given its prior written consent) so long as Purchaser (and/or any Affiliate) shall hold in the aggregate more than 5% of the outstanding Common Stock: (a) Preservation of Existence, Etc. Company and each of its ------------------------------- Subsidiaries shall maintain its corporate existence and its license or qualification and its good standing in the state of its incorporation and in each other jurisdiction in which its ownership or lease of property or the nature of its businesses makes such license or qualification necessary (except for such other jurisdictions in which such failure to be so licensed or qualified individually and in the aggregate would not result in a Material Adverse Effect). (b) Accounting System; Reporting Requirements. Company on a ----------------------------------------- consolidated basis will maintain a system of accounting established and administered in accordance with GAAP. Further, Company will: (i) promptly deliver to Purchaser, but in no event later than twenty (20) days after the mailing or filing thereof, copies of (A) all reports, notices and proxy statements sent by Company to its shareholders, and (B) all regular and periodic reports and definitive proxy materials (including Forms 10-K, 10-Q and 8-K) filed by Company with any securities exchange or the Federal Securities and Exchange Commission; and (ii) promptly deliver to Purchaser, but in no event later than twenty (20) days after Company receives the same, copies of any management letters addressed to Company by its independent certified public accountant. (c) Maintenance of Insurance. Company shall insure, and shall cause ------------------------ its Subsidiaries to insure, their respective properties and assets against loss or damage in such amounts as similar properties and assets are insured by prudent companies in similar circumstances carrying on similar businesses, and with reputable and financially sound insurers, including self-insurance to the extent customary, except where the failure to have such coverage would not, individually or in the aggregate, have a Materially Adverse Effect. (d) Maintenance of Properties and Leases. Company and its ------------------------------------ Subsidiaries shall maintain in good repair, working order and condition (ordinary wear and tear excepted) in accordance with the general practice of other businesses of similar character and size, all of those properties useful or necessary to their respective businesses, and from time to time, Company will make or cause to be made all appropriate repairs, renewals or replacements thereof. (e) Maintenance of Permits and Franchises. Company and its ------------------------------------- Subsidiaries shall maintain in full force and effect all franchises, permits and other authorizations necessary for the ownership and operation of their respective properties and business if the failure so to maintain the same, individually or in the aggregate, would constitute a Material Adverse Effect. -20- (f) Keeping of Records and Books of Account. Company and its --------------------------------------- Subsidiaries, shall maintain and keep proper books of record and account which enable Company to issue financial statements in accordance with GAAP and as otherwise required by applicable laws of any Governmental Authority having jurisdiction over Company and its Subsidiaries, and in which full, true and correct entries shall be made in all material respects of all their respective dealings and business and financial affairs. (g) Plans. Company shall, and shall cause each ERISA Affiliate to, ----- comply with ERISA, the IRC and other applicable Laws applicable to Plans except where such failure, alone or in conjunction with any other failure, would not result in a Material Adverse Effect. Without limiting the generality of the foregoing, Company shall cause all of its Plans and all Plans maintained by any ERISA Affiliate to be funded in accordance with the minimum funding requirements of ERISA and shall make, and cause each ERISA Affiliate to make, in a timely manner, all contributions due to Plans and Multiemployer Plans. (h) Compliance with Laws. Company and its Subsidiaries shall comply -------------------- with all applicable laws (including Environmental laws) in all material respects, and shall obtain and comply in all material respects with and maintain any and all licenses, approvals, registrations or permits required by Environmental Laws, provided that they shall not be deemed to be a violation of this section if any failure to comply with any law would not result in fines, penalties, other similar liabilities or injunctive relief which in the aggregate would reasonably be expected to have a Material Adverse Effect. Company and its Subsidiaries shall conduct and complete in all respects all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all respects with all lawful orders and directives of all Governmental Authorities respecting Environmental Laws, except to the extent that the same are being contested in good faith by appropriate and lawful proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, required by GAAP shall have been made, and except to the extent that the same would not reasonably be expected to have a Material Adverse Effect. (i) Use of Proceeds. Company will use the proceeds of the Purchase --------------- Price for the Common Stock and Warrant (and the exercise price for the Warrant Shares) for Working Capital and general corporate purposes, which shall always be for lawful purposes only and such uses shall not contravene any applicable law or any other provision hereof. (j) Maintenance of Exchange Listing. The Company shall undertake ------------------------------- best efforts to maintain its listing on the NASDAQ SmallCap Market System. Promptly after the issuance of the shares of Common Stock and Warrant Shares, Company shall secure the designation, listing and quotation of such Common Stock on the NASDAQ SmallCap Market System, and shall undertake best efforts to maintain such designation, listing and quotation. (k) Board of Directors. The Board of Directors (or the Nominating ------------------ Committee thereof) of the Company shall nominate a representative selected by Purchaser (or an Affiliate) for election by the shareholders of the Company to the Board of Directors; provided, however, that such representative has such experience and knowledge to be acceptable to the Board of Directors (or the Nominating Committee thereof). It is expressly agreed that any executive -21- officer of Mastech Corporation shall be presumed to have such knowledge and experience to serve on the Board of Directors of the Company. 5.2 Negative Covenants. ------------------ Company covenants and agrees that from and after the date hereof (except as otherwise provided herein, or unless the Purchaser has given its prior written consent) so long as the Purchaser (and/or an Affiliate) shall hold at least 5% of the outstanding Common Stock: (a) Affiliate Transactions. Except as set forth on Schedule 5.2(a), ---------------------- --------------- neither Company nor any Subsidiary of Company shall enter into or carry out any material transaction (including purchasing property or services or selling property or services) with an Affiliate which is not a Subsidiary unless such transaction is not otherwise prohibited by this Agreement, is entered into upon fair and reasonable arm's length terms and conditions in accordance with all applicable law. (b) Change in Organizational Documents. Company shall not, and shall ---------------------------------- not permit any of its Subsidiaries to, amend in any material respect its certificate or articles of incorporation without providing at least ten (10) calendar days' prior written notice to Purchaser and, in the event such change would cause the Common Stock to have rights which are different from the rights of other publicly traded common stock of Company, without obtaining the prior written consent of Purchaser. (c) Sales of Securities to Competitors. Until the earlier to occur ---------------------------------- of (i) Purchaser (and/or any Affiliate thereof) owns in the aggregate less than 15% of the outstanding Common Stock of the Company or (ii) the seventh anniversary of the Closing Date, the Company shall not, and shall not permit any of its Subsidiaries to, knowingly issue or sell any securities of the Company or any of its Subsidiaries to a Person who is a direct "Competitor" (as defined below) of Mastech Corporation or any of its Subsidiaries (except in connection with an underwritten public offering; provided, however, such Competitor shall not acquire more than 5% of the outstanding securities of the Company). For purposes of this Agreement, a Competitor shall have the meaning ascribed to it in that certain letter agreement by and between the Company and Purchaser dated as of the date of this Agreement. 6. CONDITIONS TO CLOSING. --------------------- 6.1 Conditions to the Purchaser's Obligation to Purchase. ---------------------------------------------------- The obligation of the Purchaser to purchase the Common Stock hereunder is subject to the fulfillment by the Company to the Purchaser's satisfaction, on the Closing Date, of each of the following conditions, any of which may be waived in whole or in part by the Purchaser in writing: (a) Favorable opinions of Wyrick Robbins Yates & Ponton LLP, counsel to Company, substantially in the form attached hereto as Exhibit C, shall be --------- delivered to the Purchaser. -22- (b) Resolutions of the board of directors of Company, certified by the Secretary or Assistant Secretary of Company, as of the Closing Date, duly adopted and in full force and effect on such date, authorizing (i) the consummation of each of the transactions contemplated by this Agreement and (ii) specific officers to execute and deliver this Agreement and each other Transaction Document to which it is a party, shall be delivered to the Purchaser. (c) Governmental certificates, dated the most recent practicable date prior to the Closing Date, with telephonic updates where available, showing that Company is organized and in good standing in the State of Delaware, shall be delivered to the Purchaser. (d) A copy of the certificate of incorporation and all amendments thereto of Company, certified as of a recent date by the Secretary of State of the State of Delaware, and copies of Company's by-laws, certified by the Secretary or Assistant Secretary of Company as true and correct as of the Closing Date, shall be delivered to the Purchaser. (e) The Registration Rights Agreement shall be duly executed by the parties thereto. (f) The Company shall issue and deliver the Warrant to the Purchaser. (g) Certificates of the Secretary or an Assistant Secretary of Company, dated the Closing Date, as to the incumbency and signatures of the officers of Company executing this Agreement, each other Transaction Document to which it is a party and any other certificate or other document to be delivered pursuant hereto or thereto, together with evidence of the incumbency of such Secretary or Assistant Secretary, shall be delivered to the Purchaser. (h) A Certificate of the President, Senior Vice President or CEO of Company, dated the Closing Date, stating that all of the representations and warranties of Company contained herein or in the other Transaction Documents are true and correct on and as of the Closing Date and that no breach of any covenant contained in Article V has occurred or would result from the Closing hereunder shall be delivered to the Purchaser. (i) The Company shall make a wire transfer of all reasonable fees and expenses of Mastech Corporation's outside counsel, Buchanan Ingersoll Professional Corporation. 6.2 Conditions to Company's Obligation to Sell. ------------------------------------------ The obligation of the Company to issue and sell hereunder is subject to the fulfillment by the Purchaser to the Company's satisfaction, on the Closing Date, of each of the following conditions, any of which may be waived in whole or in part by the Company in writing: (a) The Registration Rights Agreement shall be duly executed by the parties thereto; and (b) A Certificate of the President or CEO of Purchaser, dated the Closing Date, stating that all representations and warranties of Purchaser contained herein or in the other -23- Transaction Documents are true and correct on and as of the Closing Date and that no breach of any covenant contained in Article VII has occurred or would result from the Closing hereunder shall be delivered to the Company. 7. COVENANTS OF THE PURCHASER. -------------------------- Purchaser covenants and agrees that from and after the date hereof (except as otherwise provided herein, or unless the Company has given its prior written consent) so long as Purchaser (and/or any Affiliate) shall hold in the aggregate 5% or more of the outstanding Common Stock: 7.1 Limitation on Ownership of Voting Stock. --------------------------------------- The Purchaser shall not (and shall not permit any Affiliate to directly or indirectly) acquire beneficial ownership of any Voting Stock, any securities convertible into or exchangeable for Voting Stock, or any other rights to acquire Voting Stock (except, in any case, by way of the Warrant, a negotiated transaction between the Purchaser and the Company, or stock dividends or other distributions or offerings made available to holders of any Voting Stock generally) or authorize or make a tender, exchange or other offer, without the written consent of the Company, if the effect of such acquisition would be to increase the Voting Power of all Voting Stock then owned by the Purchaser or which it has a right to acquire to more than an additional 5% of the outstanding Common Stock of the Company within any 12-month period. 7.2 Voting Trust, etc. ----------------- The Purchaser shall not deposit any shares of Voting Stock in a voting trust or, except as otherwise provided herein, subject any Voting Stock to any arrangement or agreement with respect to the voting of such Voting Stock unless such voting trust, arrangement or agreement involves solely Mastech Corporation and/or any of its Affiliates. 7.3 Solicitation of Proxies. ----------------------- Without the Company's prior written consent, the Purchaser shall not solicit proxies with respect to any Voting Stock, and shall not become a "participant" in any "election contest" (as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act relating to the election of directors of the Company). 7.4 Acquisition Proposal. -------------------- The Purchaser (and its Affiliates) agrees not to individually or together with any third Person initiate an Acquisition Proposal. 7.5 Confidential Information. ------------------------ The Company from time to time may disclose to the Purchaser pursuant to this Agreement certain confidential technical and nontechnical business information ("Confidential Information"). Notwithstanding any other provision of this Agreement, including provisions -24- regarding the termination of this Agreement or particular terms of this Agreement, the Purchaser shall not disclose such Confidential Information to third parties until the earliest of (i) the date upon which such information ceases to be Confidential Information through no fault of the Purchaser, (ii) the date such information is required to be disclosed by law or a court of competent jurisdiction, or (iii) the fifth anniversary of the date of disclosure by the Company to the Purchaser. In the event that the Purchaser or any of its representatives is requested or required to disclose any of the Confidential Information referred to above, the Purchaser will provide the Company with prompt notice of such request or requirement so that the Company (if it so desires) may seek a protective order. The Purchaser further acknowledges and understands that any information so obtained which may be considered "inside" non-public information will not be utilized by the Purchaser in connection with purchases and/or sales of the Company's securities except in compliance with applicable state and federal securities laws. Confidential Information shall not include information that (A) was previously known to the receiving party prior to disclosure thereof by the other party, (B) is independently developed without the use of such Confidential Information, (C) at the time of disclosure to the receiving party is, or thereafter becomes, generally available to the public other than as a result of a disclosure by the receiving party or its representatives in violation of this Section 7.5, or (D) becomes available to the receiving party on a non-confidential basis from a third party provided that such third party is not bound by an obligation of confidentiality to the Company. 7.6 Limitation on Covenants of Purchaser. ------------------------------------ Notwithstanding anything to the contrary contained within this Article 7 or this Agreement, Sections 7.1, 7.2, 7.3 and 7.4 shall be of no further force and effect in the event of the earlier of: (a) an Acquisition Proposal (but only for so long as the Acquisition Proposal is being pursued and is ultimately consummated; if the Acquisition Proposal is terminated or abandoned for any reason, Sections 7.1, 7.2, 7.3 and 7.4 shall be reinstated in full force and effect; provided that the Company: (i) reimburses the Purchaser and any of its Affiliates for the actual costs incurred by such party with respect to any actions taken by such party in making a competing Acquisition Proposal; and (ii) if requested by Purchaser, purchases from the Purchaser or any of its Affiliates any shares of Common Stock purchased by such Person in excess of the limit imposed by Section 7.1 that were purchased while the initial Acquisition Proposal was pending. The per share purchase price for shares purchased pursuant to 7.6(a)(ii) shall be equal to the per share purchase price paid by the Purchaser or its Affiliates for such shares of Company Common Stock); (b) a breach of Section 5.2(c); or (c) the seventh anniversary of the Closing Date. 8. COMPANY RIGHT OF FIRST REFUSAL. ------------------------------ From the date hereof and for a three-year period thereafter: -25- 8.1 Right of First Refusal. ---------------------- Prior to making any private sale or transfer of more than 10% of the outstanding Common Stock of the Company in any three-month period to a party who is not an Affiliate of Mastech Corporation, the Purchaser shall give the Company the opportunity to purchase such Common Stock in the following manner: (a) The Purchaser shall give notice (the "Transfer Notice") to the Company in writing of such intention specifying the approximate number of the proposed purchasers or transferees, the amount of Common Stock proposed to be sold or transferred, the proposed price per share therefor (the "Transfer Price") and the other material terms upon which such disposition is proposed to be made. (b) The Company shall have the right, exercisable by written notice given by the Company to the Purchaser within three (3) Business Days after receipt of such Transfer Notice, to purchase all but not part of the Common Stock specified in such Transfer Notice for cash per share equal to the Transfer Price. (c) If the Company exercises its right of first refusal hereunder, the closing of the purchase of the Common Stock with respect to which such right has been exercised shall take place within thirty (30) calendar days after the Company receives notice, which period of time shall be extended if necessary in order to comply with applicable securities laws and regulations. Upon exercise of its right of first refusal, the Company and the Purchaser shall be legally obligated to consummate the purchase contemplated thereby and shall use their best efforts to secure any approvals required in connection therewith. (d) If the Company does not exercise its right of first refusal hereunder within the time specified for such exercise, the Purchaser shall be free, during the period of ninety (90) calendar days following the expiration of such time for exercise, to sell the Common Stock specified in such Transfer Notice. The Purchaser's transferee shall acquire such Common Stock free from any of the provisions of this Agreement; however, such Common Stock shall be subject to any restrictions imposed under applicable securities laws. 8.2 Tender Offer Sale. ----------------- Prior to making any sale or exchange of Common Stock in response to a tender or exchange offer, the Purchaser shall give the Company the opportunity to purchase all, but not less than all, of the Purchaser's Common Stock in the following manner: (a) The Purchaser shall give notice (the "Tender Notice") to the Company in writing of such intention no later than ten (10) calendar days prior to the latest time by which Common Stock must be tendered in order to be accepted pursuant to such offer or to qualify for any proration applicable to such offer (the "Tender Date"). For purposes hereof, a tender offer to purchase Common Stock shall be deemed to be an offer at the price specified therein, without regard to any provisions thereof with respect to proration or conditions to the offeror's obligation to purchase (assuming such conditions are not impossible of performance when the offer is made, without giving effect to the Company's right of first refusal). -26- (b) If the Tender Notice is given, the Company shall have the right, exercisable by giving notice to the Purchaser at least two (2) Business Days prior to the Tender Date, to purchase all, but not less than all, of the Common Stock owned by the Purchaser for cash. If the Company exercises such right by giving such notice, the closing of the purchase of such Voting Stock shall take place not later than one Business Day prior to the Tender Date; provided, --------- however, that if the purchase price specified in the tender offer includes any - ------- property other than cash, the value of any property included in the purchase price shall be jointly determined by a nationally recognized investment banking firm selected by each party or, in the event such firms are unable to agree, a third nationally recognized investment banking firm to be selected by such two firms. For this purpose: (i) If the Company does not exercise such right by giving such notice or fails to complete the purchase, then the Purchaser shall be free to accept the tender offer with respect to which the Tender Notice was given, to which Section 8.1 shall have no application, force or effect. (ii) If the Company does not purchase the shares, the Company will provide such assurance as the tender offeror shall reasonably request to provide the tender offeror with certificates for the Purchaser's shares without legends referring to this Agreement. 8.3 Assignment of Rights. -------------------- In the event that the Company elects to exercise a right of first refusal under this Section 8, the Company may specify, prior to closing such purchase and upon not less than three Business Days prior notice to the Purchaser, another person as its designee to purchase the Common Stock to which such notice relates. 8.4 Acquisition Proposal. -------------------- Notwithstanding anything to the contrary contained in this Article 8 of this Agreement, Section 8.1 shall be suspended during the occurrence of an Acquisition Proposal and shall have no further force or effect following consummation of the transaction giving rise to the Acquisition Proposal. 9. MISCELLANEOUS. ------------- 9.1 Complete Agreement; Modification of Agreement. --------------------------------------------- (a) The Transaction Documents constitute the complete agreement between the parties with respect to the subject matter hereof and may not be modified, altered or amended except as provided therein. (b) No amendment or waiver of any provision of this Agreement or any other Transaction Document, nor consent to any departure by Company therefrom, shall in any event be effective unless the same shall be in writing and signed by the Purchaser, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. -27- 9.2 Fees and Expenses. ----------------- Company shall pay all reasonable out-of-pocket expenses of Purchaser in connection with the preparation of the Transaction Documents and the transactions contemplated thereby, including all reasonable legal expenses. If, at any time or times Purchaser shall employ counsel or other advisors for advice or other representation or shall incur reasonable legal or other costs and expenses in connection with: (i) any amendment, modification or waiver, or consent with respect to, any of the Transaction Documents; (ii) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Purchaser, Company, any Subsidiary of Company or any other Person) relating to any of the Transaction Documents or any other agreements to be executed or delivered in connection herewith (except for such actions in which the Company is the prevailing party); or (iii) any attempt to enforce any rights of Purchaser against Company, any Subsidiary of Company or any other Person, that may be obligated to Purchaser by virtue of any of the Transaction Documents; then, and in any such event, the reasonable attorneys' and other parties' fees arising from such services, including those of any appellate proceedings, and all expenses, costs, charges and other fees incurred by such counsel and others in any way or respect arising in connection with or relating to any of the events or actions described in this Section shall be payable, on demand, by Company to Purchaser and shall be additional Obligations under this Agreement and the other Transaction Documents. Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include: paralegal fees, costs and expenses; accountants' and investment bankers' fees, costs and expenses; court costs and expenses; photocopying and duplicating expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal services. 9.3 No Waiver by Purchaser. ---------------------- Purchaser's failure, at any time or times, to require strict performance by Company of any provision of this Agreement and any of the other Transaction Documents shall not waive, affect or diminish any right of Purchaser thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Purchaser shall not suspend, waive or affect any other breach by Company under this Agreement and any of the other Transaction Documents whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of Company contained in this Agreement or any of the other Transaction Documents and no breach by Company under this Agreement and no breach by Company under any of the other Transaction Documents shall be deemed to have been suspended or waived by Purchaser, unless such suspension or waiver is by an instrument in writing signed by an officer of Purchaser and directed to Company specifying such suspension or waiver. -28- 9.4 Remedies. -------- Purchaser's rights and remedies under this Agreement shall be cumulative and nonexclusive of any other rights and remedies which Purchaser may have under any other agreement, including the other Transaction Documents, by operation of law or otherwise. 9.5 Waiver of Jury Trial. -------------------- The parties hereto waive all right to trial by jury in any action or proceeding to enforce or defend any rights under the Transaction Documents. 9.6 Severability. ------------ Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 9.7 Binding Effect; Benefits. ------------------------ This Agreement and the other Transaction Documents shall be binding upon, and inure to the benefit of, the successors of Company and Purchaser and the assigns, transferees and endorsees of Purchaser, including all provisions with respect to Change of Control of Company. 9.8 Conflict of Terms. ----------------- Except as otherwise provided in this Agreement or any of the other Transaction Documents by specific reference to the applicable provisions of this Agreement, if any provision contained in this Agreement is in conflict with, or inconsistent with, any provision in any of the other Transaction Documents, the provision contained in this Agreement shall govern and control. 9.9 Governing Law. ------------- This Agreement and the Obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, and any applicable laws of the United States of America. Purchaser and Company agree to submit to personal jurisdiction and to waive any objection as to venue in the federal or Pennsylvania State courts located in the County of Allegheny, Commonwealth of Pennsylvania. Service of process on Purchaser or Company in any action arising out of or relating to any of the Transaction Documents shall be effective if mailed to such party at the address listed in Section 9.10 hereof. Nothing herein shall preclude Purchaser or Company from bringing suit or taking other legal action in any other jurisdiction. -29- 9.10 Notices. ------- Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by another, or whenever any of the parties desires to give or serve upon another any such communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and either shall be delivered in person with receipt acknowledged or by registered or certified mail, return receipt requested, postage prepaid, or by telecopy and confirmed by telecopy answerback addressed as follows: If to Company: VCampus Corporation 8251 Greensboro Drive, Suite 500 McLean, VA 22101 Attn: Nat Kannan, CEO Telecopy Number: (703) 893-1905 with a copy to: Wyrick Robbins Yates & Ponton LLP Suite 300 4101 Lake Boone Trail Raleigh, NC 27607 Attn: Larry E. Robbins If to Purchaser: Mastech Corporation 1004 McKee Road Oakdale, Pennsylvania 15071 Attn: Ajmal Noorani Telecopy Number: (412) 787-9225 with a copy to: Buchanan Ingersoll One Oxford Centre 301 Grant Street, 20/th/ Floor Pittsburgh, Pennsylvania 15219 Attn: Carl Cohen, Esq. and James Barnes, Esq. Telecopy Number: (412) 562-1041 or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly given or served on the date on which personally -30- delivered, with receipt acknowledged, telecopied and confirmed by telecopy answerback, or three (3) Business Days after the same shall have been deposited with the United States mail. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the Persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 9.11 Survival. -------- The representations, warranties and covenants of Company in this Agreement shall survive the execution, delivery and acceptance hereof by the parties hereto and the closing of the transactions described herein or related hereto. 9.12 Section and Other Headings. -------------------------- The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 9.13 Counterparts. ------------ This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 9.14 Publicity. --------- Neither Purchaser nor Company shall issue any press release or make any public disclosure regarding the transactions contemplated hereby unless such press release or public disclosure is approved by the other party in advance. Notwithstanding the foregoing, each of the parties hereto may, in documents required to be filed by it with the SEC or other regulatory bodies, make such statements with respect to the transactions contemplated hereby as each may be advised by counsel is legally necessary or advisable, and may make such disclosure as it is advised by its counsel is required by law, subject to advance consultation with Purchaser. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -31- IN WITNESS WHEREOF, Company and Purchaser have executed this Stock Purchase Agreement as of the day and year first above written. VCAMPUS CORPORATION By: /s/ Narasimhan P. Kannan -------------------------------- Name: Narasimhan P. Kannan Title: Chief Executive Officer Purchaser: --------- MASTECH CORPORATION By: /s/ Ajmal Noorani -------------------------------- Name: Ajmal Noorani Title: Vice President, E Business Solutions Division -32- EX-99.2 3 REGISTRATION RIGHT AGREEMENT EXHIBIT 99.2 REGISTRATION RIGHTS AGREEMENT Registration Rights Agreement, dated as of January 11, 2000, by and between VCampus Corporation, a Delaware corporation ("Company"), and Mastech Corporation, a Pennsylvania corporation, through its Mastech eVentures business unit ("Purchaser"). W I T N E S S E T H: ------------------- WHEREAS, Company and Purchaser have entered into that certain Stock Purchase Agreement, dated as of January 10, 2000 (the "Purchase Agreement"), pursuant to which Company has agreed to issue and sell to Purchaser, and Purchaser has agreed to purchase from Company, through its Mastech eVentures business unit, shares of Common Stock of the Company and a Warrant exercisable for Common Stock of the Company; and WHEREAS, in order to induce Purchaser to enter into the Purchase Agreement and to purchase, through its Mastech eVentures business unit, the shares of Common Stock of the Company and the Warrant exercisable for Common Stock of the Company, Company has agreed to provide registration rights with respect thereto; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, it is agreed as follows: 1. Definitions. Unless otherwise defined herein, terms used herein shall ----------- have the meaning ascribed to them in the Purchase Agreement, and the following shall have the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined): "Agreement" shall mean this Registration Rights Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative. "Warrant Shares" shall mean shares of Common Stock issued upon exercise of the Warrant. "Holder" shall mean (i) the Purchaser, and (ii) any other Person holding Registrable Securities to whom the registration rights conferred by this Agreement have been transferred in compliance with this Agreement. "Incidental Registration" shall have the meaning ascribed to it in Section 3. "Majority Holders" shall mean the Holders of a majority of the Registrable Securities. "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "Registrable Securities" shall mean the shares of Common Stock issued pursuant to the Purchase Agreement, the Warrant Shares, shares of Common Stock hereafter acquired by Purchaser, and shares of Common Stock which Purchaser hereafter obtains the right to acquire pursuant to any dividend, distribution, stock split or similar transaction or rights to the extent that all of the holders of the Common Stock received shares of Common Stock; provided, however, that the shares of Common Stock or Warrant Shares shall only be treated as Registrable Securities if and for so long as they have not been sold to or through a broker or underwriter in a public distribution, or only until the date on which all of the Registrable Securities can be disposed of in any three month period pursuant to Rule 144 (or any similar or analogous rule under the Securities Act of 1933). "Registration Statement" shall mean a registration statement filed by the Company with the U.S. Securities and Exchange Commission for a public offering and sale of securities of the Company (other than a Registration Statement on Form S-4 or S-8 or any successor form for securities to be offered in a transaction of the type referred to in Rule 145 under the Securities Act or to employees of Company pursuant to any employee benefit plan, respectively). 2. Required Registration. Subject to the terms of this Section 2 and --------------------- Section 5, after receipt of a written request from the holders of Registrable Securities requesting that Company effect a registration under the Securities Act covering at least 30% of the Registrable Securities then outstanding, and specifying the intended method or method of disposition thereof, Company shall promptly notify all Holders in writing of the receipt of such request and each such Holder, in lieu of exercising its rights under Section 3 may elect (by written notice sent to Company within ten (10) Business Days from the date of such Holder's receipt of the aforementioned Company's notice) to have Registrable Securities included in such registration thereof pursuant this Section 2. Thereupon Company shall, as expeditiously as possible, use its best efforts to effect the registration under the Securities Act of all shares of Registrable Securities which Company has been so requested to register by such Holders for sale, all to the extent required to permit the disposition (in accordance with the intended method or methods thereof, as aforesaid) of the Registrable Securities so registered; provided, however, that Company shall not be required to effect more than one (1) registration per year of Registrable Securities pursuant to this Section 2 and a total of five (5) registrations of Registrable Securities pursuant to this Section 2 during the term of this Agreement (excluding a Registration Statement on Form S-3 (or other comparable or successor short form) registering the offer and sale of Registrable Securities in one distribution or from time to time in the manner contemplated by Rule 415 of the Securities Act (a "Shelf Registration Statement")). During the two-year period following the date of this Agreement, the Company will be permitted to satisfy its obligations under this Section 2 by filing a Shelf Registration Statement. Following the second anniversary of the date of this Agreement or in the event that the Company does not qualify to use Form S-3 for the 2 offer and sale of Registrable Securities during the two year period following the date of this Agreement, the Holders may require the Company to register Registrable Securities on any applicable form including Form S-1 (or its successor form). The Company shall not be required to file a Registration Statement at a time when a Shelf Registration Statement covering Registrable Securities is then in effect. 3. Incidental Registration. If Company at any time proposes to file on ----------------------- its behalf a registration statement under the Securities Act on any form (other than a Registration Statement on Form S-4 or S-8 or any successor form for securities to be offered in a transaction of the type referred to in Rule 145 under the Securities Act or to employees of Company pursuant to any employee benefit plan, respectively) for the general registration of securities (an "Incidental Registration Statement"), it will give written notice to all Holders at least 15 days before the initial filing with the SEC of such Incidental Registration Statement, which notice shall set forth the intended method of disposition of the securities proposed to be registered by Company. The notice shall offer to include in such filing the aggregate number of shares of Registrable Securities as such Holders may request. Each Holder desiring to have Registrable Securities registered under this Section 3 shall advise Company in writing within 10 Business Days after the date of receipt of such offer from Company, setting forth the amount of such Registrable Securities for which registration is requested. Company shall thereupon include in such filing the number of shares of Registrable Securities for which registration is so requested, subject to the next sentence, and shall use its best efforts to effect registration under the Securities Act of such shares. In connection with any registration subject to this Section 3, which is to be effected in a firm commitment underwriting, Company will not be required to include Registrable Securities in such underwriting unless the Holder of such Registrable Securities accepts the terms and conditions of the underwriting agreement which is agreed upon between Company and the managing underwriter selected by Company, so long as such underwriting agreement conforms to industry standards and practices and the obligations and liabilities imposed on the Holders under such agreement are customary for the stockholders selling securities in an underwritten offering. If the managing underwriter of a proposed public offering shall advise Company in writing that, in its opinion, the distribution of the Registrable Securities requested to be included in the registration concurrently with the securities being registered by Company would materially and adversely affect the distribution of such securities by Company, then all selling security holders with incidental registration rights shall reduce the amount of securities each intended to distribute through such offering on a pro rata basis. Except as otherwise provided in Section 5, all expenses of such registration shall be borne by Company. The Company shall have the right to terminate or withdraw any Registration Statement initiated under this Section 3 prior to the effectiveness of such Registration Statement whether or not the Holders have elected to include Registrable Securities in such Registration Statement. 3 4. Registration Procedures. If the Company is required by the provisions ----------------------- of Section 2 or 3 to use its best efforts to effect the registration of any of its securities under the Securities Act, Company will, as expeditiously as possible: (a) prepare and file with the SEC a Registration Statement with respect to such securities and use its best efforts to cause such Registration Statement to become and remain effective for a period of time required for the disposition of such securities by the holders thereof, but not to exceed 120 days (or, with respect to any underwritten offering, such shorter period as the underwriters need to complete the distribution of the registered offering or, with respect to a shelf Registration Statement on a form under the Securities Act relating to the offer and sale of Registrable Securities from time to time in accordance with Rule 415, such longer period as may be required to dispose of the Registrable Securities covered by such Registration Statement); (b) prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such Registration Statement until, in the case of an Incidental Registration Statement filed pursuant to Section 3, the earlier of such time as all of such securities have been disposed of in a public offering or the expiration of 120 days, or in the case of a Registration Statement filed pursuant to Section 2, such time as is set forth in Section 4(a); (c) furnish, to such selling security holders such number of copies of a summary prospectus or other prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents, as such selling security holders may reasonably request; (d) use its best efforts to register or qualify the securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions within the United States and Puerto Rico as each holder of such securities shall request (provided, however, that Company shall not be -------- ------- obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified or to file any general consent to service or process), and do such other reasonable acts and things as may be required of it to enable such holder to consummate the disposition in such jurisdiction of the securities covered by such Registration Statement; (e) furnish, at the request of any Holder requesting registration of Registrable Securities, on the date that such shares of Registrable Securities are delivered to the underwriters for sale pursuant to such registration or, if such Registrable Securities are not being sold through underwriters, on the date that the Registration Statement with respect to such shares of Registrable Securities becomes effective, (1) an opinion, dated such date, of the independent counsel representing Company for the purposes of such registration, addressed to the underwriters, if any, and if such Registrable Securities are 4 not being sold through underwriters, then to the Holders making such request, in customary form and covering matters of the type customarily covered in such legal opinions; and (2) a comfort letter dated such date, from the independent certified public accountants of Company, addressed to the underwriters, if any, and if such Registrable Securities are not being sold through underwriters, then to the Holder making such request and, if such accountants refuse to deliver such letter to such Holder, then to Company, in a customary form and covering matters of the type customarily covered by such comfort letters and as the underwriters or such Holder shall reasonably request. Such opinion of counsel shall additionally cover such other legal matters with respect to the registration in respect of which such opinion is being given as the Holders of a majority of the Registrable Securities being registered may reasonably request. Such letter from the independent certified public accountants shall additionally cover such other financial matters (including information as to the period ending not more than five Business Days prior to the date of such letter) with respect to the registration in respect of which such letter is being given as the Holders of a majority of the Registrable Securities being so registered may reasonably request; (f) enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities; (g) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, but not later than 18 months after the effective date of the Registration Statement, an earnings statement covering the period of at least 12 months beginning with the first full month after the effective date of such Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; (h) give written notice to Holders: (i) when such Registration Statement or any amendment thereto has been filed with the SEC and when such Registration Statement or any posteffecive amendment thereto has become effective; (ii) of any request by the SEC for amendments or supplements to such Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by Company or its legal counsel of any notification with respect to the suspension of the qualification of the Common 5 Stock for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires Company to make changes in such Registration Statement or the prospectus in order to make the statements therein not misleading (which notice shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made); (i) use its best efforts to prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of such Registration Statement at the earliest possible time; (j) furnish to each Holder, without charge, at least one copy of such Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits (including those, if any, incorporated by reference); (k) cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing the Registrable Securities to be sold free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Registrable Securities; (l) upon the occurrence of any event contemplated by Section 4(h)(v) above, promptly prepare a post-effective amendment to such Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to Holders, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with Section 4(h)(v) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Holders shall suspend use of such prospectus, and the period of effectiveness of such Registration Statement provided for above shall each be extended by the number of days from and including the date of the giving of such notice to Holders shall have received such amended or supplemented prospectus pursuant to this Section 4(l); (m) (i) make reasonably available for inspection by the Holders, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other agent retained by the Holders or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors and employees to supply all relevant information reasonably requested by the Holders or any such underwriter, attorney, accountant or agent in connection with the registration; provided that the foregoing inspection and -------- information gathering shall be coordinated on behalf of the 6 Purchaser by Purchaser and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 4; and (n) in connection with any underwritten offering, make appropriate officers of Company reasonably available to the selling security holders for meetings with prospective purchasers of the Registrable Securities and prepare and present to potential investors customary "road show" material in a manner consistent with other new issuances of securities similar to the Registrable Securities, in connection with any proposed sale of the Registrable Securities in an aggregate offering of at least $10 million. It shall be a condition precedent to the obligation of Company to take any action pursuant to this Agreement in respect of the securities which are to be registered at the request of any Holder that such Holder shall furnish to Company such information regarding the securities held by such Holder and the intended method of disposition thereof as Company shall reasonably request and as shall be required in connection with the action taken by Company. 5. Expenses. All expenses incurred in complying with this Agreement, -------- including, without limitation, all registration and filing fees (including all expenses incident to filing with the NASD), printing expenses, fees and disbursements of counsel for Company, the reasonable fees and expenses of one counsel for the selling security holders (selected by those holding a majority of the shares being registered), expenses of any special audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdiction pursuant to Section 4(d), shall be paid by Company, except that: (a) All such expenses (including costs associated with including shares of Company Common Stock held by other parties, other than employees or directors of the Company, who have registration rights of the type described in Section 3 hereof) in connection with a Registration Statement filed prior to the first anniversary of the date of this Agreement pursuant to Section 2 shall be paid by the selling Holders; provided that the Holders shall not be required to pay aggregate expenses in excess of $50,000; and (b) all such expenses in connection with any amendment or supplement to a Registration Statement or prospectus required to be filed pursuant to Section 3 which is filed more than 180 days after the effective date of such Registration Statement because any Holder has not effected the disposition of the securities requested to be registered shall be paid by such Holder; and (c) Company shall not be liable for any fees, discounts or commissions to any underwriter or any fees or disbursements of counsel for any underwriter in respect of the securities sold by such Holder. 7 6. Indemnification and Contribution. -------------------------------- (a) In the event of any registration of any Registrable Securities under the Securities Act pursuant to this Agreement, Company shall indemnify and hold harmless the holder of such Registrable Securities, such holder's directors and officers, and each other person (including each underwriter) who participated in the offering of such Registrable Securities and each other person, if any, who controls such holder or such participating person within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such holder or any such director or officer or participating person or controlling person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any alleged untrue statement of any material fact contained, on the effective date thereof, in any Registration Statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse such holder or such director, officer or participating person or controlling person for any legal or any other expenses reasonably incurred by such holder or such director, officer or participating person or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that Company shall not be -------- ------- liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any actual or alleged untrue statement or actual or alleged omission made in such Registration Statement, preliminary prospectus, prospectus or amendment or supplement in reliance upon and in conformity with written information furnished to Company by such holder specifically for use therein or (in the case of any underwritten offering) so furnished for such purposes by any underwriter. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such holder or such director, officer or participating person or controlling person, and shall survive the transfer of such securities by such holder. (b) Each Holder, by acceptance hereof, agrees to indemnify and hold harmless Company, its directors and officers and each other person, if any, who controls Company within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which Company or any such director or officer or any such person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon information in writing provided to Company by such Holder specifically for use in the following documents and contained, on the effective date thereof, in any Registration Statement under which securities were registered under the Securities Act at the request of such holder, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto. Notwithstanding the provisions of this paragraph (b) or paragraph (c) below, no Holder shall be required to indemnify any person pursuant to this Section 6 or to contribute pursuant to paragraph (c) 8 below in an amount in excess of the amount of the aggregate net proceeds received by such Holder in connection with any such registration under the Securities Act. (c) If the indemnification provided for in this Section 6 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(c) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 7. Certain Limitations on Registration Rights. Notwithstanding the other ------------------------------------------ provisions of this Agreement: (a) Company shall have the right to delay the filing or effectiveness of, or by written notice require the Holders to cease sales of Registrable Securities pursuant to, a Registration Statement required pursuant to Section 2 hereof during one or more periods aggregating not more than 60 days in any twelve-month period (such period or periods, the "Suspension Period") in the event that (i) Company would, in accordance with the advice of its counsel, be required to disclose in the prospectus information not otherwise then required by law to be publicly disclosed, (ii) in the judgment of Company's Board of Directors, there is a reasonable likelihood that such disclosure, or any other action to be taken in connection with the prospectus, would materially and adversely affect any existing or prospective material business situation, transaction or negotiation or otherwise materially and adversely affect Company, or (iii) the Registration Statement can no longer be used under the Securities Act; provided that the 9 period of effectiveness of the Registration Statement pursuant to Section 2 shall be extended by the length of any such Suspension Period; (b) Notwithstanding Section 7(b) hereof, Company agrees that it shall not impose a Suspension Period during the 30-day period following the date on which the Registration Statement is first declared effective by the SEC (the "30-day Period") as a result of any activity initiated by Company, or in response to any proposal, unless Company's Board of Directors determines in good faith that it is required to impose a Suspension Period by law during such 30-day Period. To the extent Company imposes a Suspension Period during such 30-day Period as a result of such determination by Company's Board of Directors, Company shall not, for such additional number of consecutive days following the termination of such Suspension Period, impose an additional Suspension Period, so as to provide the Holders with a total of 30 days without a Suspension Period; and (c) If Company suspends the Registration Statement or requires the Holders to cease sales of the Common Stock pursuant to paragraph (a) above, Company shall, as promptly as practicable following the termination of the circumstances which entitled Company to do so, take such action as may be necessary to reinstate the effectiveness of the Registration Statement and/or give written notice to all Holders authorizing them to resume sales pursuant to the Registration Statement. If, as a result thereof, the prospectus included in the Registration Statement has been amended to comply with the requirements of the Securities Act, Company shall enclose such revised prospectus with a notice to Holders given pursuant to this paragraph (c), and the Shareholders shall make no offers or sales of shares pursuant to such Registration Statement other than by means of such revised prospectus. 8. Selection of Managing Underwriters. The managing underwriter or ---------------------------------- underwriters for any offering of Registrable Securities to be registered pursuant to Section 2 in an underwritten public offering shall be of recognized national standing selected by the holders of a majority of the shares being so registered, and shall be reasonably acceptable to Company. 9. Restrictions on Sale After Public Offering. Except for transfers made ------------------------------------------ in transactions exempt from the registration requirements under the Securities Act (other than Rule 144 thereunder), Company and each Holder hereby agree not to offer, sell, contract to sell or otherwise dispose of any of their Registrable Securities within 120 days after the date of any final prospectus relating to the public offering of Common Stock, if underwritten, whether by Company or by any Holders, except pursuant to such prospectus or with the written consent of the managing underwriter or underwriters for such offering. 10. Miscellaneous. ------------- (a) No Inconsistent Agreements. From and after the date of this -------------------------- Agreement, the Company shall not, without the prior written consent of the Majority 10 Holders, enter into any agreement with any holder or prospective holder of any securities of the Company which would grant such holder or prospective holder of any securities of the Company the right to require the Company to initiate any registration of any securities of the Company (i) that is inconsistent with or superior to the rights of the Holders of Registrable Shares provided in this Agreement or (ii) that would require the exclusion of Registrable Shares held by the Holders from such a registration beyond any such exclusion contemplated by this Agreement. This Paragraph 10(a) shall not limit the right of the Company to enter into any agreements with any holder or prospective holder of any securities of the Company giving such holder or prospective holder the right to require the Company, upon any registration of any of its securities, to include, among the securities which the Company is then registering, securities owned by such holder if such rights are subordinate to the rights of a Holder of Registrable Shares. (b) Remedies. Each Holder, in addition to being entitled to exercise -------- all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. In any action or proceeding brought to enforce any provision of this Agreement or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. (c) Amendments and Waivers. Except as otherwise provided herein, the ---------------------- provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departure from the provisions hereof may not be given without the written consent of the Majority Holders and the Company. (d) Notice Generally. Any notice, demand, request, consent, ---------------- approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Agreement shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, or by telecopy and confirmed by telecopy answerback, addressed as follows: (i) If to any Holder, at its last known address appearing on the books of Company maintained for such purpose. 11 (ii) If to Company, at VCampus Corporation Suite 500 8251 Greensboro Drive McLean, Virginia 22102 Attention: Nat Kannan, CEO Telecopy Number: (703) 893-1905 with a copy to Wyrick Robbins Yates & Ponton LLP Suite 300 4101 Lake Boone Trail Raleigh, NC 27607 Attn: Larry E. Robbins or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, telecopied and confirmed by telecopy answerback or three Business Days after the same shall have been deposited in the United States mail. (e) Successors and Assigns. This Agreement shall inure to the benefit ---------------------- of and be binding upon the successors and assigns of each of the parties hereto including any person to whom Registrable Securities are transferred. (f) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law; Jurisdiction. This Agreement shall be governed by, --------------------------- construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to the conflict of laws provisions thereof. Each of the parties hereby submits to personal jurisdiction and waives any objection as to venue in the County of Allegheny, Commonwealth of Pennsylvania . Service of process on the parties in any action arising out of or relating to this Agreement shall be effective if mailed to the parties in accordance with Section 10(d) hereof. The parties hereto waive all right to trial by jury in any action or proceeding to enforce or defend any rights hereunder. (h) Severability. Wherever possible, each provision of this Agreement ------------ shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, 12 such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. (i) Entire Agreement. This Agreement, together with the Purchase ---------------- Agreement and Warrant, represents the complete agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 13 IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first above written. VCAMPUS CORPORATION By: /s/ Narasimhan P. Kannan --------------------------------- Name: Narasimhan P. Kannan Title: Chief Executive Officer MASTECH CORPORATION By: /s/ Ajmal Noorani --------------------------------- Name: Ajmal Noorani Title: Vice President, E Business Solutions Division 14 SCHEDULE I ---------- 1. The Company has entered into agreements granting registration rights to all of the parties under its currently effective Registration Statement on Form S-1. 2. The Company granted incidental registration rights to each of BH Capital Investments, L.P. and Excalibur Limited Partnership with respect to a total of 55,000 shares of Common Stock issuable upon exercise of warrants. 15 EX-99.3 4 WARRANT EXHIBIT 99.3 WARRANT ------- NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT THEREFOR OR AN APPLICABLE EXEMPTION FROM REGISTRATION THEREFROM UNDER SAID ACT AND SUCH LAWS. VCampus Corporation Warrant for the Purchase of Shares of Common Stock FOR VALUE RECEIVED and subject to the terms and conditions contained herein, VCampus Corporation, a Delaware corporation (the "Company"), hereby certifies that for value received Mastech Corporation, a Pennsylvania corporation, through its business unit Mastech eVentures, or its permitted assigns, is entitled to purchase from the Company at any time or from time to time during the Exercise Period (as defined below) any or all of the Warrant Shares (as defined below) for the Exercise Price (as defined below). The Exercise Price shall not be subject to adjustment, except as set forth in paragraph 3 hereof. 1. Definitions. ----------- As used in this Warrant, the following terms have the respective meanings set forth below: "Business Day" means any day that is not a Saturday, a Sunday or a legal holiday in Pittsburgh, Pennsylvania. "Capital Stock" means any and all shares, interests, participations, or other equivalents (however designated) of capital stock, or any and all equivalent ownership interests. "Common Stock" means the common stock of the Company, $.01 par value per share, and any Capital Stock into which such common stock may be changed on or after the Issue Date and any class or series of Capital Stock of the Company (regardless of how denominated), that has the right (subject to any prior rights of any other class or series of stock) to participate in any distribution of the assets or earnings of the Company without effective or practical limit as to per share amount and shall also include shares of common stock of any successor or acquiring corporation referred to in paragraph 3 (c) received by or distributed to the holders of such Capital Stock in the circumstances contemplated by paragraph 3(c). "Current Market Price," as of any date with respect to any security, means the daily market price of such security for the previous Business Day. The daily market price for each such Business Day shall be (i) the last sale price on such day on the principal stock exchange or NASDAQ SmallCap Market System ("NASDAQ/SCS") on which such Common Stock is then listed or admitted to trading, (ii) if no sale takes place on such day on any exchange or NASDAQ/SCS, the average of the last reported closing bid and asked prices on such day as officially quoted on any such exchange or NASDAQ/SCS, (iii) if the Common Stock is not then listed or admitted to trading on any stock exchange or on the NASDAQ-SCS, the average of the last reported closing bid and asked prices on such day in the over-the-counter market, as furnished by the National Association of Securities Dealers Automatic Quotation System or the National Quotation Bureau, Inc., (iv) if neither such corporation at the time is engaged in the business of reporting such prices, as furnished by any similar firm then engaged in such business, or (v) if there is no such firm, as furnished by any member of the National Association of Securities Dealers ("NASD") selected mutually by the Purchaser and Company or, if they cannot agree upon such selection, as selected by two such members of the NASD, one of which shall be selected by the Purchaser and one of which shall be selected by the Company. "Exercise Date" means the date on which the Holder exercises this Warrant, in whole or in part. "Exercise Period" means the period commencing on the Issue Date and ending at 5:00 p.m., Eastern standard time, on the Termination Date. "Exercise Price" means the Current Market Price for each Warrant Share plus 20% of such Current Market Price; provided further, however, and notwithstanding the foregoing: (i) the Exercise Price shall never exceed $6.125 per Warrant Share; and (ii) the Exercise Price shall never be less than $4.344 per Share ($4.344 determined based upon an approximately 44% premium to the average closing price of the Common Stock for the 15 trading days ended January 3, 2000). "Holder" means Mastech Corporation or any permitted transferee of this Warrant. "Issue Date" means the date upon which this Warrant is originally issued. "Merger Triggering Event" has the meaning assigned to that term in paragraph 3(c). "Person" means any individual, sole proprietorship, partnership, corporation, limited liability company, joint venture, trust, association, institution, public benefit corporation, governmental agency or other entity and the heirs, executors, administrators, legal representatives, successors and assigns of such Person, as the context may require. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of January 11, 2000, between the Company and Mastech Corporation -2- "Securities Act" means the Securities Act of 1933, as amended from time to time, and the regulations promulgated thereunder. "Stock Purchase Agreement" means the Stock Purchase Agreement, dated as of January 11, 2000, between the Company and Mastech Corporation. "Termination Date" means the first anniversary of the Issue Date; provided, however, that if, on such date, the Company is then required, pursuant - -------- to an effective request therefor by the Holder, to effect, or is in the process of effecting, a registration under the Securities Act for an underwritten public offering in which Warrant Shares are, pursuant to the Registration Rights Agreement, entitled to be included, or if the Company is in default of any obligations created by this Warrant, the Stock Purchase Agreement or by the Registration Rights Agreement, the Termination Date shall be deemed to be, and the right to exercise this Warrant and purchase Warrant Shares shall expire at 5:00 p.m., Eastern standard time, on, the 30th day following the date on which such registration shall have become effective (but in no event later than 180 days beyond the date this Warrant otherwise would have expired) or on the 30th day following the date all of such defaults have been cured, as the case may be; and provided, further, that if an approval or waiver is required to be obtained from a governmental authority (or a filing with a governmental authority and/or expiration of a period of time following such filing) in order for an exercise of this Warrant, in whole or in part, or the issuance of any or all of the Warrant Shares upon such exercise, to comply with applicable law (including, without limitation, the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended) and the Holder delivers to the Company on or prior to the last date with respect to which this Warrant can be exercised with respect to such Warrant Shares a written notification of the Holder's intent to exercise this Warrant and evidence reasonably satisfactory to the Company that the Holder has made all filings required to be made by the Holder to obtain such approval or waiver or to satisfy any other filing requirements, and a request that the Company make all filings required to be made by the Company to obtain such approval or waiver or to satisfy any other filing requirements, and the Holder thereafter diligently continues to attempt to obtain such approval or waiver and/or expiration of waiting period, then the Termination Date shall be deemed to be, and the last date on which this Warrant can be exercised with respect to such Warrant Shares shall be extended through, the date five Business Days after the date on which a final ruling is made with respect to the filing(s) requesting such approval or waiver or the expiration of such waiting period, as the case may be. The Company agrees to provide reasonable assistance to, and cooperate with, the Holder in making such filings required to be made by the Holder, and the Company shall make all filings required to be made by the Company, for obtaining such approvals or waivers or to satisfy any other filing requirements, as are necessary for the exercise of this Warrant by the Holder not to constitute a violation of any other law or regulation. "Transaction Consideration" has the meaning assigned in paragraph 3(c). "Warrant Consideration Amount" has the meaning specified in Section 2(b) hereof. -3- "Warrant Shares" means any of the shares of Common Stock issuable upon exercise of this Warrant. The number of Warrant Shares shall initially be 450,000 shares of Common Stock, subject to adjustment on or after the Issue Date pursuant only to the provisions of paragraph 3 of this Warrant. 2. Exercise of Warrant. ------------------- (a) This Warrant may be exercised during the Exercise Period in accordance with the vesting schedule set forth on Schedule A attached ---------- hereto, by the Holder by the surrender of this Warrant (with the subscription duly executed) at the address set forth in paragraph 11(a) hereof, together with proper payment of the Exercise Price. Notwithstanding the foregoing, this Warrant shall become fully vested and immediately exercisable in the event of: (i) a Merger Triggering Event; or (ii) upon the breach of any covenant or obligation in this Warrant, the Stock Purchase Agreement or the Registration Rights Agreement if such breach is not cured within 30 days of notice of such breach delivered to the Company. Payment for the Warrant Shares to be purchased shall be made by wire transfer or certified or official bank check payable to the order of the Company. If this Warrant is exercised in part, this Warrant must be exercised for a whole number of shares of Common Stock, and the Holder is entitled to receive a new Warrant covering the number of Warrant Shares in respect of which this Warrant has not been exercised. Upon such surrender of this Warrant, the Company will issue a certificate or certificates in the name of the Holder for the number of shares of Common Stock to which the Holder shall be entitled. The Company shall not be required to issue a fractional share of Common Stock upon any exercise of this Warrant, but the Company shall pay an amount in cash equal to the Current Market Price for one Warrant Share on the date the Warrant is exercised, multiplied by the fraction of a Warrant Share that would be issuable on the exercise of this Warrant. (b) In the event any Holder elects upon exercise to surrender this Warrant for payment of the applicable Exercise Price for the shares being purchased, this Warrant shall be surrendered and canceled. To the extent any Holder elects to pay all or part of the Exercise Price by surrendering this Warrant to the Company, the number of purchasable shares under this Warrant required to be surrendered as payment for the Exercise Price (the "Warrant Consideration Amount") shall be equal to that number ---------------------------- obtained by dividing (i) that amount of the aggregate Exercise Price that any Holder elects by written notice to the Company to pay by the application of this Warrant (such notice setting forth, in addition, the required reduction in the number of shares purchasable by this Warrant as calculated and shown in sufficient detail in accordance with the immediately succeeding clause), by (ii) the Exercise Price per share on the date of exercise. (c) In the event of any exercise of the rights represented by this Warrant, (i) certificates for the shares of Warrant Shares so purchased shall be dated the date of such exercise and delivered to the Holder hereof within a reasonable time, not exceeding five Business Days after such exercise, and the Holder hereof shall be deemed for all -4- purposes to be the Holder of the shares of Warrant Shares so purchased as of the date of such exercise, and (ii) unless this Warrant has expired, a new Warrant representing the number of shares equal to (A) the number of shares purchasable under this Warrant less (B) the sum of (1) the number of shares of Warrant Shares purchased upon exercise and (2) the Warrant Consideration Amount, if any, shall be issued to the Holder hereof within such time. 3. Certain Adjustments. The Exercise Price and the kind and number of ------------------- shares of Common Stock issuable upon exercise of this Warrant shall be subject to adjustment as set forth below in this paragraph 3. The Company shall give the registered Holder notice of any event described below which requires an adjustment pursuant to this paragraph 3 in accordance with the provisions of paragraph 4. (a) Stock Dividends, Subdivisions and Combinations. If at any time ---------------------------------------------- the Company shall: (i) fix a record date for the purpose of determining the holders of its Common Stock entitled to receive a dividend payable in, or other distribution of, additional shares of Common Stock; (ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock; (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock; or (iv) issue any shares of its capital stock or other securities by reclassification of the Common Stock (other than pursuant to paragraph 3(c) below); then the Exercise Price shall be proportionately decreased in the case of such a dividend or distribution of additional shares of Common Stock or such a subdivision, or proportionately increased in the case of such a combination, or the kind of capital stock or other securities of the Company which may be purchased shall be adjusted in the case of such a reclassification of the Common Stock, each on the record date for such dividend or distribution or effective date of such subdivision, combination or reclassification, as the case may be, such that the Holder shall be entitled to receive, upon exercise of this Warrant, the aggregate number and kind of shares of Common Stock which, if this Warrant had been fully exercised immediately prior to such date, it would have owned upon such exercise and been entitled to receive by virtue of such dividend, distribution, subdivision, combination or reclassification. (b) Certain Other Dividends and Distributions. If at any time the ----------------------------------------- Company shall fix a record date for the purpose of determining the holders of its Common Stock entitled to receive any dividend or other distribution (including any such distribution made in connection with a consolidation or merger, but excluding any distribution referred to in subparagraph (a) above) of: -5- (i) any evidences of indebtedness, any shares of its capital stock (including Convertible Securities but excluding Common Stock) or any other securities or property of any nature whatsoever (including cash but excluding normal cash dividends or cash distributions permitted under applicable law so long as in each case such cash is payable solely out of earnings or earned surplus of the Company); or (ii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its capital stock (including Convertible Securities) or any other of its securities or its property of any nature whatsoever; then the Exercise Price shall be adjusted to equal the Exercise Price in effect prior to such distribution or dividend multiplied by a fraction, (A) the numerator of which shall be (1) the Current Market Price per share of the Common Stock on such record date minus (2) the amount allocable to one share of Common Stock of the fair value of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable (as determined in good faith by the Board of Directors of the Company and, unless waived by the Holder, supported by an opinion from an investment banking firm of nationally recognized standing approved by the Holder, which approval shall not be unreasonably withheld), and (B) the denominator of which shall be such Current Market Price per share of Common Stock on such record date. Such adjustments shall be made whenever such a record date is fixed. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this subparagraph (b) and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of subparagraph (a). The Company shall give to the Holder of this Warrant not less than twenty (20) days' prior notice of any record date referred to in this subparagraph (b) in accordance with the provisions of paragraph 4. (c) Adjustments for Consolidation, Merger, Sale of Assets, ------------------------------------------------------ Reorganization, etc. -------------------- (i) In case the Company after the date hereof (A) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation of such consolidation or merger, or (B) shall permit any other Person to consolidate with or merge into the Company and the Company shall be the continuing or surviving Person but, in connection with such consolidation or -6- merger, the Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (C) shall transfer all or substantially all of its properties or assets to any other Person or (D) shall effect a capital reorganization or reclassification of the Common Stock (other than a capital reorganization or reclassification for which adjustment in the Exercise Price is provided in subparagraph 3(a) or subparagraph 3(b)), then, and in the case of each such transaction, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant shall be entitled (x) upon the exercise hereof at any time after the consummation of such transaction, to the extent this Warrant is not exercised prior to such transaction, or is redeemed in connection with such transaction, to receive at the Exercise Price in effect at the time immediately prior to the consummation of such transaction in lieu of the Common Stock issuable upon such exercise of this Warrant prior to such transaction the stock and other securities, cash and property to which such Holder would have been entitled upon the consummation of such transaction if such Holder had exercised the rights represented by this Warrant immediately prior thereto, subject to adjustments (subsequent to such corporate action) as nearly equivalent as possible to the adjustments provided for in this paragraph 3 or (y) to sell this Warrant (or, at such Holder's election, a portion thereof) to the Person continuing after or surviving such event specified in clauses (A) through (D) above, or to the Company (if the Company is the continuing or surviving Person) at a sales price equal to the amount of cash, property and/or the number of shares of Common Stock or other securities to which a holder of the number of shares of Common Stock which would otherwise have been delivered upon the exercise of this Warrant or the portion hereof redeemed would have been entitled upon the effective date or closing of any such event specified in clauses (A) through (D) above (the "Event Consideration"), less the amount or ------------------- portion of such Event Consideration having a fair value equal to the aggregate Exercise Price applicable to this Warrant or the portion hereof so sold. (ii) Notwithstanding anything contained in this Warrant to the contrary, the Company will not effect any of the transactions described in clauses (A) through (D) of the above subparagraph (i) unless, prior to the consummation thereof, the surviving Person (if other than the Company) in any merger or consolidation described in such clauses, each Person which is to acquire the Company's assets in any transaction described in clause (c) above, and each Person (other than the Company) which may be required to deliver any stock, securities, cash or property upon the exercise of this Warrant as provided herein, shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of this Warrant, (A) the obligations of the Company under this Warrant (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and, if requested by the Holder, shall not release the Company from, any continuing obligations of the Company under this Warrant) and (B) the obligation to deliver to such Holder such shares of stock, securities, cash or, property as, in accordance with the foregoing provisions of this paragraph (c), such -7- Holder shall be entitled to receive, and such Person shall have similarly delivered to such Holder an opinion of counsel for such Person, which counsel shall be reasonably satisfactory to such Holder, stating that this Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this paragraph 3) shall be applicable to the stock, securities, cash or property which such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto. (iii) In case any of the transactions described in clauses (A) through (D) of subparagraph (i) shall be proposed to be effected (any such transaction a "Merger Triggering Event"), the Holder of this ----------------------- Warrant may, and the Company agrees that as a condition to the consummation of any such Merger Triggering Event, the Company shall secure the right of such Holder to, sell this Warrant (or, at such Holder's election, a portion thereof) to the Person continuing after or surviving such Merger Triggering Event, or the Company (if the Company is the continuing or surviving Person), simultaneously with, the effective date or closing of such Merger Triggering Event, at a sale price equal to the amount of cash, property and/or the number of shares of Common Stock or other securities to which a holder of the number of shares of Common Stock which would otherwise have been deliverable upon the exercise of this Warrant or the portion hereof redeemed would have been entitled upon the effective date or closing of such Merger Triggering Event (the "Transaction Consideration"), ------------------------- less the amount or portion of such Transaction Consideration having a fair value equal to the aggregate Exercise Price applicable to this Warrant or the portion hereof so sold. In the event that the Holder of this Warrant exercises its rights under this subparagraph (iii) to sell this Warrant (or a portion thereof) simultaneously with the effective date or closing of any such Merger Triggering Event, the Company shall not effect any such Merger Triggering Event unless upon or prior to the consummation thereof such amounts of cash, property, Common Stock, or other securities are delivered to the Holder of this Warrant. Not less than twenty (20) days' prior notice of any Merger Triggering Event shall be given to the Holder of this Warrant in accordance with paragraph 4. (d) Adjustment of Number of Warrant Shares. Upon each adjustment of -------------------------------------- the Exercise Price, as the case may be, pursuant to subparagraph (a) or (b) of this paragraph 3, this Warrant shall be deemed to evidence the right to purchase, at the adjusted Exercise Price, that number of shares of Common Stock obtained by multiplying the number of shares of Common Stock covered by this Warrant immediately prior to such adjustment by the Exercise Price in effect prior to such adjustment and dividing the product so obtained by the Exercise Price in effect after such adjustment. If the Company shall be in default under any provision of this Warrant so that shares issued at the Exercise Price adjusted in accordance with the terms of this Warrant would not be validly issued, the adjustment of number of shares provided for in the foregoing sentence shall nonetheless be made, and the Holder of this Warrant shall be entitled to purchase such greater number of shares at the lowest price at which such shares may then be validly issued under -8- applicable law. Such exercise shall not constitute a waiver of any claim arising against the Company by reason of its default under this Warrant. (e) When Adjustments to Be Made. No adjustment in the Exercise Price --------------------------- shall be required by this paragraph 3 if such adjustment either by itself or with other adjustments not previously made would require an increase or decrease of less than 1% in such price. Any adjustment representing a change of less than such minimum amount which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this paragraph 3 and not previously made, would result in a minimum adjustment. Notwithstanding the foregoing, any adjustment carried forward shall be made no later than ten Business Days prior to the Termination Date. All calculations under this subparagraph (e) shall be made to the nearest cent. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (f) Fractional Interests. In computing adjustments under this -------------------- paragraph 3, fractional interests in Common Stock shall be taken into account to the nearest whole share. (g) When Adjustments Not Required. If the Company shall fix a record ----------------------------- date for the purpose of determining the holders of its Common Stock entitled to receive a dividend or distribution and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (h) Certain Limitations. Subject to the provisions of paragraph 6, ------------------- there shall be no adjustment of the Exercise Price hereunder to the extent that such adjustment would cause the Exercise Price to be less than the par value per share of the Common Stock, which par value shall not at any time while this Warrant is outstanding exceed $.01. (i) Other Action Affecting Common Stock. In case after the date ----------------------------------- hereof the Company shall take any action affecting its Common Stock, other than an action described in any of the foregoing subparagraphs (a) through (h) of this paragraph 3, inclusive, and the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principle of this paragraph 3, then the Exercise Price and/or the number of Warrant Shares shall be adjusted in such manner and at such time as the Board of Directors of the Company may in good faith determine to be equitable in the circumstances. 4. Notices. ------- (a) Notices of Adjustments. Whenever the Exercise Price or the number ---------------------- of Warrant Shares shall be adjusted pursuant to paragraph 3, the Company shall forthwith deliver to the Holder a certificate prepared by the Company, setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was -9- calculated (including a description of the basis on which the Board of Directors of the Company determined the fair value of any evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights), specifying the number of Warrant Shares then issuable hereunder, the Exercise Price after giving effect to such adjustment and (to the extent applicable) describing the number and kind of any other shares of stock for which the Warrant is exercisable. In the event that the Holder shall disagree with any such adjustment or with the terms of any new agreement to be entered into pursuant to paragraph 3(c), it shall notify the Company thereof and any disagreement shall be resolved by an investment banking firm of nationally recognized standing mutually agreeable to the Company and the Holder, or if the Company and the Holder are unable to agree upon an investment banking firm, an investment banking firm selected by an investment banking firm chosen by the Company and an investment banking firm chosen by the Holder. (b) Notices of Corporate Action. In the event of any of the --------------------------- following: (i) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, which dividend, distribution or other right affects the rights of the Holder, or (ii) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger involving the Company and any other party or any transfer of all or substantially all the assets of the Company to any other party, or (iii) any voluntary or involuntary dissolution, liquidation or winding-up of the Company; The Company will mail to the Holder a notice specifying (A) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right and the amount and character of any such dividend, distribution or right and (B) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place and the time, if any such time is to be fixed, as of which the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least twenty (20) days prior to the date herein specified, in the case of any date referred to in the foregoing subdivision (A), and at least twenty (20) days prior to the date therein specified, in the case of the date referred to in the foregoing subdivision (B). 5. Reservation of Warrant Shares. The Company agrees that, upon ----------------------------- commencement of the Exercise Period and at all times prior to the Termination Date, the Company will at all -10- times have authorized and in reserve, and will keep available, solely for issuance or delivery upon the exercise of this Warrant, the shares of the Common Stock and other securities and properties as from time to time shall be receivable upon the exercise of this Warrant, free and clear of all restrictions on sale or transfer and free and clear of all preemptive rights. The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holders hereof against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock, free and clear of any liens, claims, encumbrances and restrictions (other than as provided herein) upon the exercise of this Warrant, and (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. 6. Fully Paid Stock; Taxes. The shares of Common Stock represented ----------------------- by each and every certificate for Warrant Shares delivered on the exercise of this Warrant and the payment of the Exercise Price set forth herein shall, at the time of such delivery, be validly issued and outstanding, fully paid and nonassessable, and not subject to preemptive rights, and the Company will take all such actions as may be necessary to assure that the par value or stated value, if any, per share of the Common Stock is at all times equal to or less than the then Exercise Price. If the Exercise Price is at any time less than the par value of the Warrant Shares or if the Warrant at any time is exercisable by its delivery alone and without payment of any additional consideration, the Company also covenants and agrees to cause to be taken such action (whether by decreasing the par value of the Warrant Shares, the conversion of the Warrant Shares from par value to no par value, or otherwise) as will permit the exercise of this Warrant without any additional payment by the Holder hereof (other than payment of the Exercise Price, if any, and applicable transfer taxes, if any) and the issuance of the Warrant Shares, which Warrant Shares, upon such issuance, will be fully paid and non-assessable. The Company further covenants and agrees that it will pay, when due and payable, any and all federal and state stamp, original issue or similar taxes which may be payable in respect of the issuance of any Warrant Shares or certificate therefor and that the Warrant Shares will be otherwise free from all taxes, liens and charges with respect to issuance. 7. Transferability. Upon execution and delivery of an assignment --------------- instrument substantially in the form attached hereto, an assignee shall be a party to this Agreement and shall have the rights and obligations of the Holder, to the extent of such assignment, and the Holder shall be released from its obligations hereunder to a corresponding extent. Upon the consummation of any assignment permitted pursuant to this paragraph, the Holder and the Company shall make appropriate arrangements, so that, if required, new Warrants shall be issued -11- to the Holder and the assignee. The Holder shall give the Company prior written notice of the date that any such assignment shall become effective, which date shall be no less than ten days after the date such notice is given. 8. Loss, etc., of Warrant. Upon receipt of evidence satisfactory to ---------------------- the Company of the loss, theft, destruction or mutilation of this Warrant, and of indemnity or bond reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of the like date, tenor and denomination. 9. Holder Not Shareholder. This Warrant does not confer upon the ---------------------- Holder any right to vote or to consent to or receive notice as a shareholder of the Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof. 10. Surrender. The Holder may at any time surrender all or a portion --------- of this Warrant for cancellation by transmitting same to the Company at its address set forth herein accompanied by a written notice setting forth the Holder's intention to surrender this Warrant (or such portion) for cancellation and upon such transmittal by the Holder, this Warrant (or such portion) shall become null and void and of no further force and effect. 11. Notices. Any notice, demand, request, consent, approval, ------- declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) in the case of the Company, to: VCampus Corporation 8251 Greensboro Drive, Suite 500 McLean, Virginia 22101 Attention: Nat Kannan with a copy to: Wyrick Robbins Yates & Ponton LLP Suite 300 4101 Lake Boone Trail Raleigh, North Carolina 27607 Attention: Larry E. Robbins (b) in the case of the Holder, to: Mastech Corporation 1004 McKee Road -12- Oakdale, Pennsylvania 15071 Attention: Ajmal Noorani with a copy to: Buchanan Ingersoll Professional Corporation One Oxford Centre 301 Grant Street, 20th Floor Pittsburgh, Pennsylvania 15219-1410 Attention: Carl A. Cohen, Esq. and James J. Barnes, Esq. or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three Business Days after the same shall have been deposited in the United States mail. Failure or delay in delivering copies of any notice, demand, request, approval, declaration, delivery or other communication to the person designated above to receive a copy shall in no way adversely affect the effectiveness of such notice, demand, request, approval, declaration, delivery or other communication. 12. Miscellaneous. ------------- (a) Remedies. The Company agrees that monetary damages would not -------- be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. Accordingly, it is agreed that the Holder shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof. Such remedies shall be cumulative and nonexclusive and shall be in addition to any other rights and remedies the parties may have under this Agreement. (b) No Inconsistent Agreements. The Company will not on or after the -------------------------- date of this Warrant enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holder in this Warrant, otherwise conflicts with the provisions hereof or would be violated by the performance of the Company's obligations hereunder. The Company represents and warrants that, except as set forth on Schedule B, the rights granted to the Holder hereunder do not ---------- in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any such agreements. -13- (c) Successors and Assigns. Subject to the provisions of ---------------------- paragraph 7 hereof, this Warrant shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. (d) Severability. In the event that any one or more of the ------------ provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (e) Amendments and Waivers. The provisions of this Warrant, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the consent of both the Company and the Holder. (f) Headings. The headings of this Warrant have been inserted as -------- a matter of convenience and shall not affect the construction hereof. (g) Applicable Law. This Warrant shall be governed by and -------------- construed in accordance with the laws of the Commonwealth of Pennsylvania. Each party hereto agrees to submit to the nonexclusive jurisdiction of the courts in the City of Pittsburgh in the Commonwealth of Pennsylvania in any action or proceeding arising out of or relating to this Agreement. (h) Registration Provisions. Except as provided in the ----------------------- Registration Rights Agreement, the Company is not required under the terms hereof to register any securities issued pursuant hereto, and the subsequent transfer of any shares issued pursuant hereto may require registration under the Securities Act as well as under applicable state laws. In the event the shares issued upon the exercise of this Warrant are not registered, the Holder acknowledges that any stock certificate evidencing shares acquired on exercise of this Warrant shall contain a legend restricting transferability substantially as follows: THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED OR SOLD UNLESS REGISTERED AND/OR QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE. THEREFORE, NO SALE OR TRANSFER OF THIS SECURITY SHALL BE VALID, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE ANY EFFECT TO ANY SUCH TRANSACTION, UNLESS (A) SUCH TRANSACTION SHALL HAVE BEEN REGISTERED UNDER THE ACT AND QUALIFIED OR APPROVED UNDER APPROPRIATE STATE SECURITIES LAWS, OR (B) THE ISSUER SHALL HAVE FIRST RECEIVED AN OPINION OF COUNSEL -14- REASONABLY SATISFACTORY TO IT THAT SUCH REGISTRATION, QUALIFICATION OR APPROVAL IS NOT REQUIRED. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -15- IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name by its Chief Executive Officer thereunto duly authorized. Dated: January 11, 2000 VCAMPUS CORPORATION By: /s/ Narasimhan P. Kannan ------------------------------------ Name: Narasimhan P. Kannan Title: Chief Executive Officer -16- SUBSCRIPTION The undersigned, __________________, pursuant to the provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase _______ shares of the Common Stock of VCampus Corporation, covered by said Warrant, and makes payment therefor in full at the price per share provided by said Warrant. Dated: _________________________________________ (Signature) _________________________________________ (Address) ASSIGNMENT FOR VALUE RECEIVED, __________________, hereby sells, assigns and transfers unto ____________________ the foregoing Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _______________________, attorney, to transfer said Warrant on the books of VCampus Corporation. Dated: _________________________________________ (Signature) _________________________________________ (Address) PARTIAL ASSIGNMENT FOR VALUE RECEIVED, ____________________ hereby assigns and transfers unto _______________________ the right to purchase [ ] shares of the Common Stock of VCampus Corporation by the foregoing Warrant and the rights evidenced thereby, and does irrevocably constitute and appoint _______________________, attorney, to transfer said Warrant on the books of VCampus Corporation. Dated:____________________ _________________________________________ (Signature) _________________________________________ (Address) SCHEDULE A The Warrant shall vest in accordance with the following schedule: (a) 150,000 shares of Common Stock shall vest upon the two (2) month anniversary date of this Warrant; (b) 150,000 shares of Common Stock shall vest upon the four (4) month anniversary date of this Warrant; (c) 150,000 shares of Common Stock shall vest upon the six (6) month anniversary date of this Warrant. -----END PRIVACY-ENHANCED MESSAGE-----