Document:

Exhibit 4.2

 

THIS
WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”).  NO TRANSFER OF THIS WARRANT
SHALL BE VALID OR EFFECTIVE UNLESS SUCH TRANSFER IS MADE (A) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (B) AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE.

 

	
  Warrant No. -

  	
   

  	
  Issue Date: August 3, 2005

  

 

WARRANT TO PURCHASE COMMON STOCK

OF

WORLDGATE COMMMUNICATIONS, INC.

 

This
certifies that, for value received, receipt and sufficiency of which are hereby
acknowledged,                      
(the “Holder”), is entitled, subject to the
terms and conditions set forth below, to purchase from WorldGate Communications, Inc.,
a Delaware corporation (the “Company”),                             
validly issued, fully paid and nonassessable shares (the “Warrant
Shares”) of Common Stock of the Company, par value $0.01 per share
(the “Common Stock”), subject to adjustment
as provided herein, at a purchase price equal to $4.12 per
share (the “Exercise Price”), subject to
adjustment as provided herein.

 

The
term “Warrant” as used herein shall mean this
Warrant, and any warrants delivered in substitution or exchange therefor as
provided herein.

 

1.                                       Term of Warrant. 
Subject to the terms and conditions set forth herein, this Warrant shall
be exercisable, in whole or in part, at any time and from time to time from and
after the date hereof and through 5:00 P.M. (United States Eastern
Time) on the sixtieth Trading Day (as
defined in the Securities Purchase Agreement, dated as of August 3, 2005,
among WorldGate Communications, Inc. and the investors identified on the
signature pages thereto (the “Securities  Purchase Agreement”)) following the Effective Date (as
defined in the Purchase Agreement) (the “Exercise Period”).

 

2.                                       Exercise
of Warrant.

 

(a)                                  This
Warrant may be exercised by the Holder, in whole or in part, by (i) the
surrender of this Warrant to the Company, with the Notice of Exercise annexed
hereto duly completed and executed on behalf of the Holder and delivered to the
Company during the Exercise Period and (ii) the delivery of payment to the
Company of the Exercise Price for the number of Warrant Shares specified in the
Notice of Exercise.  The Exercise Price
shall be payable in cash or its equivalent, payable by wire transfer of
immediately available funds to a bank account specified by the Company or by
certified or bank cashiers’ check in lawful money of the United States of
America.

 

 

(b)                                 The
Company agrees that such Warrant Shares shall be deemed to be issued to the
Holder as the record holder of such Warrant Shares as of the close of business
on the date on which this Warrant shall have been surrendered and payment made
for the Warrant Shares as provided herein. 
A stock certificate or certificates for the Warrant Shares specified in
the Notice of Exercise shall be delivered to the Holder as promptly as
practicable, and in any event within five days thereafter.  If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Holder a new Warrant evidencing the
rights to purchase the remaining Warrant Shares, which new Warrant shall in all
other respects be identical with this Warrant. 
Notwithstanding the foregoing, if the Company’s transfer agent is
participating in the Depository Trust Company (“DTC”)
Fast Automated Securities Transfer program, and so long as the certificates
therefore do not bear a legend (pursuant to the terms of the Securities
Purchase Agreement) and the Holder is not then required to return such
certificate for the placement of a legend thereon (pursuant to the terms of the
Securities Purchase Agreement), the Company shall cause its transfer agent to
promptly electronically transmit the Warrant Shares issuable upon conversion to
the Holder by crediting the account of the Holder or its nominee with DTC
through its Deposit Withdrawal Agent Commission system (“DTC Transfer”).  If the aforementioned conditions to a DTC
Transfer are not satisfied, the Company shall deliver as provided above to the
Holder physical certificates representing the Warrant Shares issuable upon
conversion.  Further, the Holder may
instruct the Company to deliver to the Holder physical certificates
representing the Warrant Shares issuable upon conversion in lieu of delivering
such shares by way of DTC Transfer.

 

(c)                                  Notwithstanding
anything to the contrary contained herein, the number of Warrant Shares that
may be acquired by the Holder upon any exercise of this Warrant (or otherwise
in respect hereof) shall be limited to the extent necessary to insure that,
following such exercise (or other issuance), the total number of shares of
Common Stock then beneficially owned by such Holder and its Affiliates and any
other Persons whose beneficial ownership of Common Stock would be aggregated
with the Holder’s for purposes of Section 13(d) of the Exchange Act,
does not exceed 4.99% of the total number of issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock issuable
upon such exercise). For such purposes, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder. Each delivery of a
Notice of Exercise hereunder will constitute a representation by the Holder
that it has evaluated the limitation set forth in this paragraph and determined
that issuance of the full number of Warrant Shares requested in such Notice of
Exercise is permitted under this paragraph. By written notice to the Company,
the Holder may waive the provisions of this Section but any such waiver
will not be effective until the 61st
day after such notice is delivered to the Company.

 

3.                                       No
Fractional Shares or Scrip.  No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.  In lieu of
any fractional share to which the Holder would otherwise be entitled, the
Company shall make a cash payment equal to the fair market value multiplied by
such fraction or, at the Company’s option, round such fractional share to the
nearest whole share.  The fair market
value shall be determined by the Company’s Board of Directors.

 

 

4.                                       Replacement
of Warrant.  On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, on
delivery of an indemnity agreement reasonably satisfactory in form and
substance to the Company or, in the case of mutilation, on surrender and
cancellation of this Warrant, the Company at its expense shall execute and
deliver, in lieu of this Warrant, a new warrant of like tenor and amount.

 

5.                                       Rights
of Stockholders.  Subject to the
provisions of Sections 6 and 8 hereof, the Holder shall not be entitled to vote
or receive dividends or be deemed the holder of Common Stock or any other
securities of the Company that may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to confer
upon the Holder, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value, or change of stock to no par
value, consolidation, merger, conveyance or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised as provided herein.

 

6.                                       Adjustments.

 

(a)                                  Adjustment
for Stock Splits and Combinations. 
If the Company shall effect a subdivision of the outstanding shares of
the Company’s Common Stock, then the Exercise Price then in effect immediately
before that subdivision shall be proportionately decreased and the number of
shares of Common Stock issuable upon any exercise of such warrant shall be
proportionally increased, and conversely, if the Company combines the
outstanding shares of the Company’s Common Stock into a smaller number of
shares, the Exercise Price then in effect immediately before the combination
shall be proportionately increased and the number of shares of Common Stock
issuable upon any exercise of such warrant shall be proportionally decreased.

 

(b)                                 Adjustment
for Certain Dividends and Distributions. 
If the Company makes or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, then and in each such event (i) the
Exercise Price then in effect shall be decreased as of the time of such
issuance or, in the event such record date is fixed, as of the close of
business on such record date, by multiplying the Exercise Price then in effect
by a fraction (1) the numerator of which is the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and (2) the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in

 

 

payment of such
dividend or distribution, and (ii) the number of shares of Common Stock
issuable upon exercise of this Warrant at such time shall be increased as of
the time of such issuance, or in the event such record date is fixed, as of the
close of business on such record date, by multiplying the number of shares
issuable upon any exercise of this Warrant by a fraction (1) the numerator
of which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution, and (2) the denominator of
which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Exercise Price and the number of shares of
Common Stock issuable upon any exercise of this Warrant shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Exercise Price shall be adjusted pursuant to this section as of the time
of actual payment of such dividends or distributions.

 

(c)                                  Adjustments
for Other Dividends and Distributions. 
In the event the Company at any time prior to exercise of this Warrant
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Company (other than Common Stock for which an adjustment is
made pursuant to Section 6(a), Section 6(b) or Section 6(d) hereof)
or in cash or other property, then and in each such event provision shall be
made so that the Holder shall receive upon exercise hereof, in addition to the
number of shares of Common Stock issuable hereunder, the kind and amount of
securities of the Company and/or cash and other property which the Holder would
have been entitled to receive had this Warrant been exercised into Common Stock
on the date of such event and had the Holder thereafter, during the period from
the date of such event to and including the Exercise Date, retained any such
securities receivable, giving application to all adjustments called for during
such period under this Section 6 with respect to the rights of the Holder.

 

(d)                                 Reorganizations,
Mergers, Consolidations or Transfers of Assets.  If at any time or from time to time there is
a capital reorganization of the Common Stock or other securities that will be
issuable upon exercise of this Warrant, or a merger, consolidation or binding
share exchange of the Company with or into another entity, or the transfer of
all or substantially all of the Company’s properties and assets to any other
entity, then, as a part of such capital reorganization, merger, consolidation,
exchange or transfer, provision shall be made so that Holder shall thereafter
be entitled to receive upon exercise of this Warrant the number of shares of
stock or other securities, cash or property to which a holder of the number of
shares of Common Stock or other securities otherwise deliverable upon exercise
of this Warrant would have been entitled on such capital reorganization,
merger, consolidation, exchange or transfer in respect of such Common Stock or
other securities.  In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 6 to the end that the provisions of this Section 6
(including adjustment of the then in effect Exercise Price and the number of
shares purchasable upon exercise of this Warrant) shall be applicable after
that event and be as nearly equivalent as may be practicable.  Upon the consummation of such capital
reorganization, merger, consolidation, exchange or transfer, the successor (if
other than the Company) resulting from such transaction or the entity acquiring
such assets or other appropriate entity shall assume, by written instrument,
the obligation to deliver to Holder such securities, cash or other property as,
in accordance with the foregoing provisions, Holder may be entitled to purchase
pursuant to this Warrant.

 

(e)                                  Certificate
of Adjustment.  Upon the occurrence
of each adjustment or readjustment pursuant to this Section 6 of the
Exercise Price, the number of Warrant Shares or other securities issuable upon
exercise of this Warrant, the Company shall promptly compute

 

 

such adjustment or
readjustment in accordance with the terms hereof and furnish to the Holder a
certificate setting forth such adjustment or readjustment (including the kind
and amount of securities, cash or other property for which this Warrant shall
be exercisable and the Exercise Price) and showing in detail the facts upon
which such adjustment or readjustment is based. 
The Company shall, upon the written request at any time of the Holder,
furnish or cause to be furnished to the Holder a certificate setting forth (i) the
Exercise Price then in effect and (ii) the number of Warrant Shares and
the amount, if any, of other securities, cash or property which then would be
received upon the exercise of this Warrant.

 

(f)                                    In
case:

 

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

 

(ii)                                  the
Company or any of its subsidiaries shall make a tender offer for the Common
Stock;

 

(iii)                               the
Company shall authorize the granting to holders of its Common Stock of rights,
options or warrants to subscribe for or purchase any shares of capital stock of
any class;

 

(iv)                              of
any reclassification of the Common Stock (other than a subdivision or
combination of its outstanding shares of Common Stock), or of any
consolidation, merger or share exchange to which the Company is a party and for
which approval of any stockholders of the Company is required, or of the sale
or transfer of all or substantially all of the assets of the Company; or

 

(v)                                 of
the voluntary of involuntary dissolution, liquidation or winding up of the
Company;

 

then the Company
shall cause to be mailed to the Holder of this Warrant, at least ten days prior
written notice stating (A) the date on which a record has been taken for
the purpose of such dividend, distribution or grant of rights, options or
warrants, or, if record is not to be taken, the date as of which the identity
of the holders of Common Stock of record entitled to such dividend,
distribution, rights, options or warrants is to be determined, (B) the
date on which a record shall be taken for determining rights to vote, if any,
in respect of the matters referred to in clauses (i) through (v), and (C) the
date on which such reclassification, consolidation, merger, share exchange,
sale, transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding up.

 

7.                                       Transfers.

 

(a)                                  The
Warrant Shares shall not be sold or transferred unless either (i) they
first shall have been registered under the Act and any other applicable securities
laws, or (ii) the Company first shall have been furnished with an opinion
of legal counsel, reasonably satisfactory

 

 

to the Company, to
the effect that such sale or transfer is exempt from the registration
requirements of the Act and any other applicable securities laws.  Notwithstanding the foregoing, no opinion of
counsel shall be required for a transfer by a holder of Warrant Shares (1) which
is a corporation to an affiliate of such corporation, (2) which is a
partnership to a partner of such partnership or a retired partner of such
partnership or to the estate of any such partner or retired partner, or (3) which
is a limited liability company to a member of such limited liability company or
a retired member or to the estate of any such member or retired member;
provided that in each case the transferee in each case executes the Assignment Form attached
hereto.

 

(b)                                 In
addition, the Holder shall not assign, pledge, hypothecate, sell or otherwise
transfer this Warrant (other than to an affiliate of the Holder) without the
prior written consent of the Company, which consent will not be unreasonably
withheld, delayed or conditioned.

 

8.                                       Covenants
of the Company.  The Company hereby
covenants and agrees that:

 

(a)                                  during
the term of this Warrant, the Company will reserve a sufficient number of
shares of authorized and unissued Common Stock to provide for the issuance of
Common Stock, which shares shall be duly authorized, fully paid and
non-assessable, upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Certificate of Incorporation to provide
sufficient reserves of shares of Common Stock issuable upon exercise of the
Warrant;

 

(b)                                 the
Company will not, by amendment of its Certificate of Incorporation or through
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.

 

(c)                                  all
shares that may be issued upon the exercise of this Warrant, upon exercise of
this Warrant and payment of the Exercise Price, all as set forth herein, will
be free from all taxes, liens and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously or
otherwise specified herein); and

 

(d)                                 issuance
of this Warrant by the Company shall constitute full authority to its officers
who are charged with the duty of executing stock certificates to execute and
issue the necessary certificates for shares of Common Stock upon the exercise
of this Warrant

 

9.                                       Notices.  Any notice or other communication to the
Company or to Holder regarding the Warrant shall be in writing and shall be
deemed duly given or made when hand delivered, when delivered by overnight
courier or three business days after mailed by registered or certified mail,
return receipt requested, postage prepaid and, if to the Company, to the Company’s
office at 3190 Tremont Avenue, Trevose, PA 19053, or such other address as the
Company may designate by notice to Holder and, if to Holder, to:                                                   , or such other address as Holder may
designate by prior written notice to the Company.

 

10.                                 Amendments.  Neither this Warrant nor any term hereof may
be amended, waived, discharged or terminated other than by a written instrument
signed by the Company and the Holder.

 

 

11.                                 Governing
Law.  This Warrant shall be governed
in all respects by the internal laws of the State of Delaware as applied to
contracts entered into solely between residents of, and to be performed
entirely within, such state, and without reference to principles of conflicts
of laws or choice of laws.

 

12.                                 Successors
and Assigns.  This Warrant shall be
binding upon the Company’s successors and assigns and shall inure to the
benefit of the Holder’s successors, legal representatives and assigns.

 

 

IN
WITNESS WHEREOF, WORLDGATE COMMUNICATIONS, INC. has caused this Warrant to be
executed by its authorized officer.

 

 

	
   

  	
  WORLDGATE COMMMUNICATIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

 

NOTICE OF
EXERCISE

 

To:  WORLDGATE
COMMMUNICATIONS, INC.

 

(1)                                  The
undersigned hereby elects to purchase                       
shares of Common Stock of WorldGate Communications, Inc., pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price for such shares in full.

 

(2)                                  Please
issue a certificate or certificates representing said shares of Common Stock in
the name of the undersigned or in such other name as is specified below:

 

 

	
   

  	
   

  	
   

  
	
   

  	
  (Name)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Name)

  	
   

  

 

 

(3)                                  Please
issue a new Warrant for the unexercised portion of the attached Warrant in the
name of the undersigned or in such other name as is specified below:

 

 

	
   

  	
   

  	
   

  
	
   

  	
  (Name)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Date)

  	
   

  	
  (Signature)

  	
   

  

 

 

ASSIGNMENT FORM

 

FOR
VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells,
assigns and transfers unto the Assignee named below all of the rights of the
undersigned under the within Warrant, with respect to the number of shares of
Common Stock set forth below:

 

	
   

  	
   

  	
   

  	
   

  	
  No of

  
	
  Name of Assignee

  	
   

  	
  Address

  	
   

  	
  Shares

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

and does hereby
irrevocably constitute and appoint as Attorney                               to
make such transfer on the books of WORLDGATE COMMUNICATIONS, INC., maintained
for the purpose, with full power of substitution in the premises.

 

 

	
   

  	
  Dated:

  	
   

  	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature of Holder

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature of AssigneeExhibit 4.3

 

REGISTRATION RIGHTS AGREEMENT

 

This
Registration Rights Agreement (this “Agreement”) is made and entered into as of
August 3, 2005, by and among WorldGate Communications, Inc., a
Delaware corporation (the “Company”), and the investors signatory hereto (each
an “Investor” and collectively, the “Investors”).

 

This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of
the date hereof among the Company and the Investors (the “Purchase Agreement”).

 

The
Company and the Investors, intending to be legally bound, hereby agree as
follows:

 

1.                                       Definitions.  Capitalized terms used and not otherwise
defined herein that are defined in the Purchase Agreement will have the
meanings given such terms in the Purchase Agreement.  As used in this Agreement, the following
terms have the respective meanings set forth in this Section 1:

 

“Advice”
has the meaning set forth in Section 6(d).

 

“Effective
Date” means the date that the Registration Statement filed pursuant to Section 2(a) or
2(b) is first declared effective by the Commission.

 

“Effectiveness
Date” means (a) with respect to the initial Registration Statement
required to be filed under Section 2(a), the earlier of:  (a)(i) the 120th calendar day following
the Closing Date, and (ii) the fifth Trading Day following the date on
which the Company is notified by the Commission that the initial Registration
Statement will not be reviewed or is no longer subject to further review and
comments, and (b) with respect to any additional Registration Statements
that may be required pursuant to Section 2(b), the earlier of (i) the
120th calendar day following (x) if such Registration Statement is required
because the Commission shall have notified the Company that certain Registrable
Securities were not eligible for inclusion on a previously filed Registration
Statement, the date or time on which the Commission shall indicate as being the
first date or time that such Registrable Securities may then be included in a
Registration Statement, or (y) if such Registration Statement is required for a
reason other than as described in (x) above, the date on which the Company
first knows, or reasonably should have known, that such additional Registration
Statement(s) is required, and (ii) the fifth Trading Day following the
date on which the Company is notified by the Commission that such additional
Registration Statement will not be reviewed or is no longer subject to further
review and comments.

 

“Effectiveness
Period” has the meaning set forth in Section 2(a).

 

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

 

1

 

“Filing
Date” means (a) with respect to the initial Registration Statement
required to be filed under Section 2(a), the 30th calendar day following
the Closing Date, and (b) with respect to any additional Registration
Statements that may be required pursuant to Section 2(b), the 60th
calendar day following (x) if such Registration Statement is required because
the Commission shall have notified the Company that certain Registrable
Securities were not eligible for inclusion on a previously filed Registration
Statement, the date or time on which the Commission shall indicate as being the
first date or time that such Registrable Securities may then be included in a
Registration Statement, or (y) if such Registration Statement is required for a
reason other than as described in (x) above, the date on which the Company
first knows, or reasonably should have known, that such additional Registration
Statement(s) is required.

 

“Holder”
or “Holders” means the holder or holders, as the case may be, from time to time
of Registrable Securities.

 

“Indemnified
Party” has the meaning set forth in Section 5(c).

 

“Indemnifying
Party” has the meaning set forth in Section 5(c).

 

“Losses”
has the meaning set forth in Section 5(a).

 

“New
York Courts” means the state and federal courts sitting in the City of New
York, New York.

 

“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.

 

“Prospectus”
means the prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the offering
of any portion of the Registrable Securities covered by a Registration
Statement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.

 

“Registrable
Securities” means:  (i) the Shares, (ii) the
Underlying Shares and (iii) any securities issued or issuable upon any
stock split, dividend or other distribution, recapitalization or similar event,
or any adjustment with respect to any of the Shares or the Underlying Shares.

 

“Registration
Statement” means the initial registration statement required to be filed in
accordance with Section 2(a) and any additional registration
statement(s) required to be filed under Section 2(b), including (in each
case) the Prospectus, amendments and supplements to such registration
statements or Prospectus, including pre- and post-effective amendments, all

 

 

exhibits thereto, and all
material incorporated by reference or deemed to be incorporated by reference
therein.

 

“Rule 144”
means Rule 144 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
effect as such Rule.

 

“Rule 415”
means Rule 415 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
effect as such Rule.

 

“Rule 424”
means Rule 424 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
effect as such Rule.

 

“Securities
Act” means the Securities Act of 1933, as amended.

 

“Shares”
means the shares of Common Stock issued to the Investors pursuant to the
Purchase Agreement.

 

“Underlying
Shares” means the shares of Common Stock issuable to the Investors upon
exercise of the Additional Investment Rights and the Warrants (as each such
term is defined in the Purchase Agreement.

 

2.                                       Registration.

 

(a)                                  On
or prior to each Filing Date, the Company shall prepare and file with the
Commission a Registration Statement covering the resale of all Registrable
Securities not already covered by an existing and effective Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415,
on Form S-1 or Form SB-2 (or on such other form appropriate for such
purpose).  Such Registration Statement
shall contain (except if otherwise required pursuant to written comments
received from the Commission upon a review of such Registration Statement) the “Plan
of Distribution” attached hereto as Annex A. 
The Company shall cause such Registration Statement to be declared
effective under the Securities Act as soon as possible but, in any event, no
later than its Effectiveness Date, and shall use its reasonable best efforts to
keep the Registration Statement continuously effective under the Securities Act
until the date which is the earlier of (i) two years after its Effective
Date, (ii) such time as all of the Registrable Securities covered by such
Registration Statement have been publicly sold by the Holders, or (iii) such
time as all of the Registrable Securities covered by such Registration
Statement may be sold by the Holders pursuant to Rule 144(k) (the “Effectiveness
Period”).

 

(b)                                 If
for any reason the Commission does not permit all of the Registrable Securities
to be included in the Registration Statement filed pursuant to Section 2(a),
or for any other reason any outstanding Registrable Securities are not then
covered by an effective Registration Statement, then the Company shall prepare
and file by the Filing Date for such

 

 

Registration Statement,
an additional Registration Statement covering the resale of all Registrable
Securities not already covered by an existing and effective Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415,
on Form S-1 or Form SB-2 (or on such other form appropriate for such
purpose).  Each such Registration
Statement shall contain (except if otherwise required pursuant to comments
received from the Commission upon a review of such Registration Statement) the “Plan
of Distribution” attached hereto as Annex A. 
The Company shall cause each such Registration Statement to be declared
effective under the Securities Act as soon as possible but, in any event, by
its Effectiveness Date, and shall use commercially reasonable efforts to keep
such Registration Statement continuously effective under the Securities Act
during the entire Effectiveness Period.

 

(c)                                  Promptly
following any date on which the Company becomes eligible to use a registration
statement on Form S-3 to register the Registrable Securities for resale
(but in no event later than 30 days), the Company shall file a registration
statement on Form S-3 covering the Registrable Securities (or a post-effective
amendment on Form S-3 to the then effective Registration Statement) and
shall cause such Registration Statement to be declared effective as soon as
possible thereafter, but in any event prior to the Effectiveness Date
therefor.  Such Registration Statement
shall contain (except if otherwise required pursuant to comments received from
the Commission upon a review of such Registration Statement) the “Plan of
Distribution” attached hereto as Annex A. 
The Company shall cause such Registration Statement to be declared
effective under the Securities Act as soon as possible but, in any event, by
its Effectiveness Date, and shall use its reasonable best efforts to keep such
Registration Statement continuously effective under the Securities Act during
the entire Effectiveness Period.

 

(d)                                 If:  (i) a Registration Statement is not
filed on or prior to its Filing Date, or (ii) a Registration Statement is
not declared effective by the Commission on or prior to its required
Effectiveness Date, or (iii) after its Effective Date, without regard for
the reason thereunder or efforts therefore, such Registration Statement ceases
for any reason to be effective as to all Registrable Securities to which it is
required to cover at any time prior to the expiration of its Effectiveness
Period for more than an aggregate of 20 Trading Days (which need not be
consecutive) (any such failure or breach being referred to as an “Event,” and
for purposes of clauses (i) or (ii) the date on which such Event
occurs, or for purposes of clause (iii) the date which such 20 Trading
Day-period is exceeded, being referred to as “Event Date”), then in addition to
any other rights the Holders may have hereunder or under applicable law:  on each such Event Date, and on each monthly
anniversary of each such Event Date (pro rated for partial months) until the
applicable Event is cured, the Company shall pay to each Holder an amount in
cash, as partial liquidated damages and not as a penalty, equal to 1.5% of the
aggregate Investment Amount paid by such Holder for Shares pursuant to the
Purchase Agreement.

 

(e)                                  Each
Holder agrees to furnish to the Company a completed Questionnaire in the form
attached to this Agreement as Annex B (a “Selling Holder Questionnaire”) within
five Trading Days after a request therefor. 
The Company shall not be required to include the Registrable Securities
of a Holder in a Registration Statement and shall not be required to pay any
liquidated or other damages under Section 2(d) to any Holder who
fails to timely furnish to the Company a fully completed Selling Holder
Questionnaire.

 

 

3.                                       Registration
Procedures.

 

In
connection with the Company’s registration obligations hereunder, the Company
shall:

 

(a)                                  Not
less than four Trading Days prior to the filing of a Registration Statement or
any related Prospectus or any amendment or supplement thereto, the Company
shall furnish to each Holder copies of the “Selling Stockholders” section of
such document, the “Plan of Distribution” and any risk factor contained in such
document that addresses specifically this transaction or the Selling
Stockholders, as proposed to be filed which documents will be subject to the
review of such Holder.  The Company shall
not file a Registration Statement, any Prospectus or any amendments or
supplements thereto in which the “Selling Stockholder” section thereof
differs in any material respect from the disclosure received from a Holder in
its Selling Holder Questionnaire (as amended or supplemented).

 

(b)                                 (i) Prepare
and file with the Commission such amendments, including post-effective
amendments, to each Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration Statement
continuously effective as to the applicable Registrable Securities for its Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act all of the
Registrable Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424; (iii) respond as promptly
as reasonably possible to any comments received from the Commission with
respect to each Registration Statement or any amendment thereto and, as
promptly as reasonably possible provide the Holders true and complete copies of
all correspondence from and to the Commission relating to such Registration
Statement that would not result in the disclosure to the Holders of material and
non-public information concerning the Company; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange
Act with respect to the Registration Statements and the disposition of all
Registrable Securities covered by each Registration Statement.

 

(c)                                  Notify
the Holders as promptly as reasonably possible (and, in the case of (i)(A) below,
not less than three Trading Days prior to such filing) and (if requested by any
such Person) confirm such notice in writing no later than one Trading Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to a Registration Statement is proposed to be filed; (B) when
the Commission notifies the Company whether there will be a “review” of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders that pertain
to the Holders as a Selling Stockholder or to the Plan of Distribution, but not
information which the Company believes would constitute material and non-public
information); and (C) with respect to each Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to a Registration Statement or Prospectus or for
additional

 

 

information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness
of a Registration Statement covering any or all of the Registrable Securities
or the initiation of any Proceedings for that purpose, and of the resolution of
any such stop order; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event that makes the financial
statements included in a Registration Statement ineligible for inclusion
therein or any statement made in such Registration Statement or Prospectus or
any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to such
Registration Statement, Prospectus or other documents so that, in the case of
such Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any 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.

 

(d)                                 Use
its reasonable best efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of a Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.

 

(e)                                  Furnish
to each Holder, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto and all exhibits to the
extent requested by such Person (including those previously furnished) promptly
after the filing of such documents with the Commission.

 

(f)                                    Promptly
deliver to each Holder, without charge, as many copies of each Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request.  The Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.

 

(g)                                 Prior
to any public offering of Registrable Securities, to register or qualify or
cooperate with the selling Holders in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as the selling Holders shall
reasonably request, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and to do any
and all other acts or things necessary or advisable to enable the disposition
in such jurisdictions of the Registrable Securities covered by the Registration
Statements.

 

(h)                                 Cooperate
with the Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to a
transferee pursuant to the Registration Statements, which certificates shall be
free, to the extent permitted by the

 

 

Purchase Agreement, of
all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any such Holders may
request.

 

(i)                                     Upon
the occurrence of any event contemplated by Section 3(c)(v), as promptly
as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the affected Registration Statements or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, no Registration Statement nor any Prospectus
will contain an untrue statement of a material fact or omit 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.                                       Registration
Expenses.  All fees and expenses
incident to the performance of or compliance with this Agreement by the Company
shall be borne by the Company whether or not any Registrable Securities are
sold pursuant to a Registration Statement. 
The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to
filings required to be made with any Trading Market on which the Common Stock
is then listed for trading, and (B) in compliance with applicable state
securities or Blue Sky laws), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing prospectuses if the printing of prospectuses is reasonably requested
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses,
(iv) fees and disbursements of counsel for the Company, (v) Securities
Act liability insurance, if the Company so desires such insurance, and (vi) fees
and expenses of all other Persons retained by the Company in connection with
the consummation of the transactions contemplated by this Agreement.  In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation
of the transactions contemplated by this Agreement (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.

 

5.                                       Indemnification.

 

(a)                                  Indemnification
by the Company.  The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, investment advisors, partners,
members and employees of each of them, each Person who controls any such Holder
(within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) and the officers, directors, agents and employees of each
such controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, reasonable costs of preparation and reasonable
attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission

 

 

or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any Prospectus or form of prospectus or supplement
thereto, in light of the circumstances under which they were made) not
misleading, except to the extent, but only to the extent, that (1) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished to the Company by such Holder for use therein, or to the
extent that such information relates to such Holder or such Holder’s proposed
method of distribution of Registrable Securities and was reviewed and approved
by such Holder for use in the Registration Statement, such Prospectus or such
form of Prospectus or in any amendment or supplement thereto (it being
understood that the Holder has approved Annex A hereto for this purpose) or (2) in
the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(v),
the use by such Holder of an outdated or defective Prospectus after the Company
has notified such Holder in writing that the Prospectus is outdated or
defective and prior to the receipt by such Holder of an Advice or an amended or
supplemented Prospectus.  The Company
shall notify the Holders promptly of the institution, threat or assertion of
any Proceeding of which the Company is aware in connection with the transactions
contemplated by this Agreement.

 

(b)                                 Indemnification
by Holders.  Each Holder shall,
severally and not jointly, indemnify and hold harmless the Company, its
directors, officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from
and against all Losses, as incurred, arising solely out of or based solely
upon:  (x) such Holder’s failure to
comply with the prospectus delivery requirements of the Securities Act or (y)
any untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading to the extent, but only to the extent that, (1) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished to the Company by such Holder for use therein, or to the
extent that such information relates to such Holder or such Holder’s proposed
method of distribution of Registrable Securities and was reviewed and approved
by such Holder for use in the Registration Statement (it being understood that
the Holder has approved Annex A hereto for this purpose), such Prospectus or
such form of Prospectus or in any amendment or supplement thereto or (2) in
the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(v),
the use by such Holder of an outdated or defective Prospectus after the Company
has notified such Holder in writing that the Prospectus is outdated or
defective and prior to the receipt by such Holder of an Advice or an amended or
supplemented Prospectus.  In no event
shall the liability of any selling Holder hereunder be greater in amount than
the dollar amount of the net proceeds received by such Holder upon the sale of
the Registrable Securities giving rise to such indemnification obligation.

 

(c)                                  Conduct
of Indemnification Proceedings.  If
any Proceeding shall be brought or asserted against any Person entitled to
indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall
promptly notify the Person from whom indemnity is sought (the “Indemnifying
Party”) in writing, and the Indemnifying Party shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Party and the

 

 

payment of all fees and
expenses incurred in connection with defense thereof; provided, that the
failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this
Agreement, except (and only) to the extent that it shall be finally determined
by a court of competent jurisdiction (which determination is not subject to
appeal or further review) that such failure shall have proximately and
materially adversely prejudiced the Indemnifying Party.

 

An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (1) the Indemnifying Party
has agreed in writing to pay such fees and expenses; (2) the Indemnifying
Party shall have failed promptly to assume the defense of such Proceeding and
to employ counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised in writing by counsel
that a conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party
from all liability on claims that are the subject matter of such Proceeding.

 

All
fees and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or preparing
to defend such Proceeding in a manner not inconsistent with this Section) shall
be paid to the Indemnified Party, as incurred, within ten Trading Days of
written notice thereof to the Indemnifying Party (regardless of whether it is
ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).

 

(d)                                 Contribution.  If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each 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, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of
such Indemnifying Party and Indemnified Party 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 of a
material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission.  The
amount paid or payable by a party as a result of any Losses shall be deemed to
include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided for
in this Section was available to such party in accordance with its terms.

 

The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation
or by any other method of allocation that does not take into account the
equitable considerations referred to in the immediately preceding
paragraph.  Notwithstanding the
provisions of this Section 5(d), no Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.

 

The
indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

 

6.                                       Miscellaneous.

 

(a)                                  Remedies.  In the event of a breach by the Company or by
a Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this
Agreement.  The Company and each Holder
agree that monetary damages would not provide adequate compensation for any
losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

 

(b)                                 No
Piggyback on Registrations.  Except
as and to the extent specified in Schedule 3.1(u) to the Purchase
Agreement, neither the Company nor any of its security holders (other than the
Holders in such capacity pursuant hereto) may include securities of the Company
in a Registration Statement other than the Registrable Securities without the
written consent of the Holders, and the Company shall not during the
Registration Period enter into any agreement providing any such right to any of
its security holders.

 

(c)                                  Compliance.  Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.

 

 

(d)                                 Discontinued
Disposition.  Each Holder agrees by
its acquisition of such Registrable Securities that, upon receipt of a written
notice from the Company of the occurrence of any event of the kind described in
Section 3(c), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder’s
receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement or until it is advised in writing (the “Advice”) by the
Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus
or Registration Statement.  The Company
may provide appropriate stop orders to enforce the provisions of this
paragraph.

 

(e)                                  Piggy-Back
Registrations.  If at any time during
the Effectiveness Period there is not an effective Registration Statement
covering all of the Registrable Securities and the Company shall determine to
prepare and file with the Commission a registration statement relating to an
offering for its own account under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated
under the Securities Act) or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans, then the Company shall send to each Holder
written notice of such determination and, if within fifteen calendar days after
receipt of such notice, any such Holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such holder requests to be registered, subject to
customary underwriter cutbacks applicable to all holders of registration
rights.

 

(f)                                    Amendments
and Waivers.  The provisions of this
Agreement, including the provisions of this Section 6(f), may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless the same shall be in writing and
signed by the Company and the Holders of no less than a majority in interest of
the then outstanding Registrable Securities. 
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of certain Holders and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of at least a majority of the
Registrable Securities to which such waiver or consent relates.

 

(g)                                 Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (a) the
date of transmission, if such notice or communication is delivered via
facsimile (provided the sender receives a machine-generated confirmation of
successful transmission) at the facsimile number specified in this Section prior
to 6:30 p.m.  (New York City time)
on a Trading Day, (b) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m.  (New York City
time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given.  The address for such notices and
communications shall be as follows:

 

 

If to the Company:

 

WorldGate
Communications, Inc.

3190
Tremont Avenue

Trevose,
Pennsylvania 19053

Attn:                    Randall J.
Gort, Esq.

Tel:                            (215)
354-5100

Fax:                           (215)
354-1049

 

If to a Investor:              To the address set forth under such
Investor’s name on the signature pages hereto.

 

If to any other Person who is then the registered
Holder:  To the address of such Holder as
it appears in the stock transfer books of the Company

 

or such other
address as may be designated in writing hereafter, in the same manner, by such
Person.

 

(h)                                 Successors
and Assigns.  This Agreement shall
inure to the benefit of and be binding upon the successors and permitted
assigns of each of the parties and shall inure to the benefit of each
Holder.  The Company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder.  Each Holder may assign their
respective rights hereunder in the manner and to the Persons as permitted under
the Purchase Agreement.

 

(i)                                     Execution
and Counterparts.  This Agreement may
be executed in any number of counterparts, each of which when so executed shall
be deemed to be an original and, all of which taken together shall constitute
one and the same Agreement.  In the event
that any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

 

(j)                                     Governing
Law.  All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflicts of law
thereof.  Each party agrees that all
Proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement (whether brought against a party
hereto or its respective Affiliates, employees or agents) will be commenced in
the New York Courts.  Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum.  Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of

 

 

delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law.  Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any Proceeding arising out of or relating
to this Agreement or the transactions contemplated hereby.  If either party shall commence a Proceeding
to enforce any provisions of this Agreement, then the prevailing party in such
Proceeding shall be reimbursed by the other party for its attorney’s fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such Proceeding.

 

(k)                                  Cumulative
Remedies.  The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.

 

(l)                                     Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction.  It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.

 

(m)                               Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 

(n)                                 Independent
Nature of Investors’ Obligations and Rights.  The obligations of each Investor under this
Agreement are several and not joint with the obligations of each other
Investor, and no Investor shall be responsible in any way for the performance
of the obligations of any other Investor under this Agreement.  Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by this Agreement or any other
Transaction Document.  Each Investor
acknowledges that no other Investor will be acting as agent of such Investor in
enforcing its rights under this Agreement. 
Each Investor shall be entitled to independently protect and enforce its
rights, including without limitation the rights arising out of this Agreement,
and it shall not be necessary for any other Investor to be joined as an
additional party in any Proceeding for such purpose.  The Company acknowledges that each of the
Investors has been provided with the same Registration Rights Agreement for the
purpose of closing a transaction with multiple Investors and not because it was
required or requested to do so by any Investor.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES TO FOLLOW]

 

 

IN WITNESS
WHEREOF, the parties have executed this Registration Rights Agreement as of the
date first written above.

 

	
   

  	
  WORLDGATE
  COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/

  	
  Joel Boyarski

  	
   

  
	
   

  	
   

  	
  Name: Joel
  Boyarski

  
	
   

  	
   

  	
  Title: CFO

  

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES OF
INVESTORS TO FOLLOW]

 

 

	
  NAME OF
  INVESTING ENTITY:

  
	
   

  
	
  Satellite
  Strategic Finance Associates, LLC

  
	
   

  
	
  ADDRESS FOR
  NOTICE

  
	
   

  
	
  c/o:

  	
    Satellite
  Asset Management, L.P.

  	
   

  
	
   

  
	
  Street:

  	
    623
  Fifth Ave., 19th Floor

  	
   

  
	
   

  
	
  City/State/Zip:

  	
    New
  York, NY 10022

  	
   

  
	
   

  
	
  Attention:

  	
    Charles
  Gassenheimer

  	
   

  
	
   

  
	
  Tel:

  	
    212-209-2087

  	
   

  
	
   

  
	
  Fax:

  	
    212-209-2020

  	
   

  
	
   

  
	
  Email:

  	
    charles.gassenheimer@satellite-ny.com

  	
   

  
						

 

 

	
  NAME OF
  INVESTING ENTITY:

  
	
   

  
	
  Satellite
  Strategic Finance Partners, Ltd.

  
	
   

  
	
   

  
	
  ADDRESS FOR
  NOTICE

  
	
   

  
	
  c/o:

  	
    Satellite
  Asset Management, L.P.

  	
   

  
	
   

  
	
  Street:

  	
    623
  Fifth Ave., 19th Floor

  	
   

  
	
   

  
	
  City/State/Zip:

  	
    New
  York, NY 10022

  	
   

  
	
   

  
	
  Attention:

  	
    Charles
  Gassenheimer

  	
   

  
	
   

  
	
  Tel:

  	
    212-209-2087

  	
   

  
	
   

  
	
  Fax:

  	
    212-209-2020

  	
   

  
	
   

  
	
  Email:

  	
    charles.gassenheimer@satellite-ny.com

  	
   

  
						

 

 

	
  NAME OF
  INVESTING ENTITY:

  
	
   

  
	
  Bonanza Master
  Fund Ltd.

  
	
   

  
	
  ADDRESS FOR
  NOTICE

  
	
   

  
	
  c/o:

  	
    Brian
  Ladin/Bonanza Capital

  	
   

  
	
   

  
	
  Street:

  	
    300
  Crescent Court, Suite 1740

  	
   

  
	
   

  
	
  City/State/Zip:

  	
    Dallas,
  TX 75201

  	
   

  
	
   

  
	
  Attention:

  	
         Brian
  Ladin

  	
   

  
	
   

  
	
  Tel:

  	
    214-615-7090

  	
   

  
	
   

  
	
  Fax:

  	
    214-987-4342

  	
   

  
	
   

  
	
  Email:

  	
    bladin@bonanzacapital.com

  	
   

  
						

 

 

	
  NAME OF
  INVESTING ENTITY:

  
	
   

  
	
  Cranshire
  Capital, L.P.

  
	
   

  
	
     By:

  	
    /s/
  Mitchell Kopin

  	
   

  
	
   

  	
  President –
  Downsview Capital

  
	
   

  	
  The General
  Partner

  
	
   

  
	
  ADDRESS FOR
  NOTICE

  
	
   

  
	
  c/o:

  	
    Mitchell
  Kopin

  	
   

  
	
   

  
	
  Street:

  	
    666
  Dundee Rd., Suite 1901

  	
   

  
	
   

  
	
  City/State/Zip:

  	
    Northbrook,
  IL 60062

  	
   

  
	
   

  
	
  Attention:

  	
   

  	
   

  
	
   

  
	
  Tel:

  	
    847-562-9030

  	
   

  
	
   

  
	
  Fax:

  	
    847-562-9031

  	
   

  
	
   

  
	
  Email:

  	
    mkopin@cranshirecapital.com

  	
   

  
								

 

 

	
  NAME OF
  INVESTING ENTITY:

  
	
   

  
	
  Iroquois Master
  Fund Ltd.

  
	
   

  
	
  ADDRESS FOR
  NOTICE

  
	
   

  
	
  c/o:

  	
   

  	
   

  
	
   

  
	
  Street:

  	
    641
  Lexington Ave., 20th Floor

  	
   

  
	
   

  
	
  City/State/Zip:

  	
    NY,
  NY 10022

  	
   

  
	
   

  
	
  Attention:

  	
    Joshua
  Silverman

  	
   

  
	
   

  
	
  Tel:

  	
    212-974-3070

  	
   

  
	
   

  
	
  Fax:

  	
    212-207-3452

  	
   

  
	
   

  
	
  Email:

  	
    jsilverman@icfund.com

  	
   

  
						

 

 

	
  NAME OF
  INVESTING ENTITY:

  
	
   

  
	
  Capital Ventures
  International

  
	
   

  
	
    By:

  	
  Heights Capital
  Management, Inc., its authorized agent

  
	
   

  
	
   

  	
  By:

  	
  /s/ Martin
  Kobinger

  	
   

  
	
   

  	
   

  	
  Martin Kobinger,
  Investment Manager

  
	
   

  
	
  ADDRESS FOR
  NOTICE

  
	
   

  
	
  c/o:

  	
      Heights
  Capital Management, Inc.

  	
   

  
	
   

  
	
  Street:

  	
     101
  California Street, Suite 3200

  	
   

  
	
   

  
	
  City/State/Zip:

  	
     San
  Francisco, CA 94111

  	
   

  
	
   

  
	
  Attention:

  	
         Martin
  Kobinger

  	
   

  
	
   

  
	
  Tel:

  	
      415-403-6500

  	
   

  
	
   

  
	
  Fax:

  	
      415-403-6525

  	
   

  
	
   

  
	
  Email:

  	
    kobinger@srg.com

  	
   

  
								

 

 

	
  NAME OF
  INVESTING ENTITY:

  
	
   

  
	
  Portside Growth
  and Opportunity Fund

  
	
   

  
	
  ADDRESS FOR
  NOTICE

  
	
   

  
	
  c/o:

  	
  Ramius Capital Group, LLC

  	
   

  
	
   

  
	
  Street:

  	
    666
  Third Avenue, 26th Floor

  	
   

  
	
   

  
	
  City/State/Zip:

  	
    New
  York, NY 10017

  	
   

  
	
   

  
	
  Attention:

  	
        Jeffrey
  Smith

  	
   

  
	
   

  
	
  Tel:

  	
    212-845-7955

  	
   

  
	
   

  
	
  Fax:

  	
    212-845-7999

  	
   

  
	
   

  
	
  Email:

  	
    jsmith@ramius.com

  	
   

  
						

 

 

Annex A

 

Plan of Distribution

 

The
Selling Stockholders and any of their pledgees, donees, transferees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of Common Stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions.  These sales may be at fixed or negotiated
prices.  The Selling Stockholders may use
any one or more of the following methods when selling shares:

 

•                                          ordinary
brokerage transactions and transactions in which the broker-dealer solicits
Investors;

 

•                                          block
trades in which the broker-dealer will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction;

 

•                                          purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;

 

•                                          an
exchange distribution in accordance with the rules of the applicable
exchange;

 

•                                          privately
negotiated transactions;

 

•                                          to
cover short sales made after the date that this Registration Statement is
declared effective by the Commission;

 

•                                          broker-dealers
may agree with the Selling Stockholders to sell a specified number of such
shares at a stipulated price per share;

 

•                                          a
combination of any such methods of sale; and

 

•                                          any
other method permitted pursuant to applicable law.

 

The
Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.

 

Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to participate
in sales.  Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated.  The Selling
Stockholders do not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.

 

The
Selling Stockholders may from time to time pledge or grant a security interest
in some or all of the Shares owned by them and, if they default in the
performance of their secured

 

 

obligations, the pledgees
or secured parties may offer and sell shares of Common Stock from time to time
under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list of
selling stockholders to include the pledgee, transferee or other successors in
interest as selling stockholders under this prospectus.  Upon the Company being notified in writing by
a Selling Stockholder that any material arrangement has been entered into with
a broker-dealer for the sale of Common Stock through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a
broker or dealer, a supplement to this prospectus will be filed, if required,
pursuant to Rule 424(b) under the Securities Act, disclosing (i) the
name of each such Selling Stockholder and of the participating
broker-dealer(s), (ii) the number of shares involved, (iii) the price
at which such the shares of Common Stock were sold, (iv)the commissions paid or
discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that
such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, and (vi) other
facts material to the transaction.  In
addition, upon the Company being notified in writing by a Selling Stockholder
that a donee or pledgee intends to sell more than 500 shares of Common Stock, a
supplement to this prospectus will be filed if then required in accordance with
applicable securities law.

 

The
Selling Stockholders also may transfer the shares of Common Stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.

 

The
Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. 
In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the shares purchased by them may be deemed to
be underwriting commissions or discounts under the Securities Act.  Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the sale of
Securities will be paid by the Selling Stockholder and/or the purchasers.  Each Selling Stockholder has represented and
warranted to the Company that it acquired the securities subject to this
registration statement in the ordinary course of such Selling Stockholder’s
business and, at the time of its purchase of such securities such Selling
Stockholder had no agreements or understandings, directly or indirectly, with
any person to distribute any such securities.

 

The
Company has advised each Selling Stockholder that it may not use shares
registered on this Registration Statement to cover short sales of Common Stock
made prior to the date on which this Registration Statement shall have been
declared effective by the Commission.  If
a Selling Stockholder uses this prospectus for any sale of the Common Stock, it
will be subject to the prospectus delivery requirements of the Securities
Act.  The Selling Stockholders will be
responsible to comply with the applicable provisions of the Securities Act and
Exchange Act, and the rules and regulations thereunder promulgated,
including, without limitation, Regulation M, as applicable to such Selling
Stockholders in connection with resales of their respective shares under this
Registration Statement.

 

 

The
Company is required to pay all fees and expenses incident to the registration
of the shares, but the Company will not receive any proceeds from the sale of
the Common Stock.  The Company has agreed
to indemnify the Selling Stockholders against certain losses, claims, damages
and liabilities, including liabilities under the Securities Act.

 

 

Annex B

 

WORLDGATE COMMUNICATIONS, INC.

 

Selling
Securityholder Notice and Questionnaire

 

The undersigned
beneficial owner of common stock (the “Common Stock”), of WorldGate
Communications, Inc. (the “Company”) understands that the Company has
filed or intends to file with the Securities and Exchange Commission (the “Commission”)
a Registration Statement for the registration and resale of the Registrable
Securities, in accordance with the terms of the Registration Rights Agreement,
dated as of August 3, 2005 (the “Registration Rights Agreement”), among
the Company and the Investors named therein. 
A copy of the Registration Rights Agreement is available from the
Company upon request at the address set forth below.  All capitalized terms used and not otherwise
defined herein shall have the meanings ascribed thereto in the Registration
Rights Agreement.

 

The undersigned
hereby provides the following information to the Company and represents and
warrants that such information is accurate:

 

QUESTIONNAIRE

 

1.  Name.

 

(a) 
Full Legal Name of Selling Securityholder

 

 

 

(b) 
Full Legal Name of Registered Holder (if not the same as (a) above)
through which Registrable Securities Listed in Item 3 below are held:

 

 

 

(c) 
Full Legal Name of Natural Control Person (which means a natural person who
directly or indirectly alone or with others has power to vote or dispose of the
securities covered by the questionnaire):

 

 

 

2.  Address for Notices to Selling
Securityholder:

 

 

 

 

 

 

Telephone:

 

Fax:

 

Contact
Person:

 

3.  Beneficial Ownership of Registrable
Securities:

 

Type and Principal
Amount of Registrable Securities beneficially owned:

 

 

4.  Broker-Dealer Status:

 

(a)  Are you a broker-dealer?                                                                                        Yes                            o                                    No                                o

 

Note:  If yes, the Commission’s staff has indicated
that you should be identified as an underwriter in the Registration Statement.

 

(b)  Are you an affiliate of a broker-dealer?               Yes                            o                                    No                                o

 

(c) 
If you are an affiliate of a broker-dealer, do you certify that you bought the
Registrable Securities in the ordinary course of business, and at the time of
the purchase of the Registrable Securities to be resold, you had no agreements
or understandings, directly or indirectly, with any person to distribute the
Registrable Securities?                     Yes                            o                                    No                                o

 

Note:  If no, the Commission’s staff has indicated
that you should be identified as an underwriter in the Registration Statement.

 

5.  Beneficial Ownership of Other Securities of
the Company Owned by the Selling Securityholder.

 

Except as set
forth below in this Item 5, the undersigned is not the beneficial or registered
owner of any securities of the Company other than the Registrable Securities
listed above in Item 3. Type and Amount of Other Securities beneficially owned
by the Selling Securityholder:

 

 

6.  Relationships with the Company:

 

Except as set
forth below, neither the undersigned nor any of its affiliates, officers,
directors or principal equity holders (owners of 5% of more of the equity
securities of the undersigned) has held any position or office or has had any
other material relationship with the Company (or its predecessors or
affiliates) during the past three years. 
State any exceptions here:

 

 

 

 

The undersigned
agrees to promptly notify the Company of any inaccuracies or changes in the
information provided herein that may occur subsequent to the date hereof and
prior to the Effective Date for the Registration Statement.

 

By signing below,
the undersigned consents to the disclosure of the information contained herein
in its answers to Items 1 through 6 and the inclusion of such information in
the Registration Statement and the related prospectus.  The undersigned understands that such
information will be relied upon by the Company in connection with the
preparation or amendment of the Registration Statement and the related
prospectus.

 

IN WITNESS WHEREOF
the undersigned, by authority duly given, has caused this Notice and
Questionnaire to be executed and delivered either in person or by its duly
authorized agent.

 

	
  Dated:

  	
   

  	
  , 2005

  	
  Beneficial
  Owner:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
								

 

PLEASE FAX A COPY
OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL
BY OVERNIGHT MAIL, TO:

[            ]

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