Document:

Exhibit 4.3

 

EXHIBIT
D

 

THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD OR
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER. SUBJECT TO
COMPLIANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY BE PLEDGED OR HYPOTHECATED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY THIS WARRANT OR ANY OF THE SECURITIES ISSUABLE
UPON EXERCISE OF THIS WARRANT.

 

SERIES C WARRANT

 

TO PURCHASE COMMON STOCK

 

OF

 

WORLDGATE COMMUNICATIONS, INC.

 

	
  Issue Date:  June 24, 2004

  	
  Warrant No.    

  

 

THIS CERTIFIES
that
                                                     
or any subsequent holder hereof (the “Holder”), has the right to
purchase from WORLDGATE COMMUNICATIONS, INC., a Delaware corporation (the “Company”),
up to
                       
fully paid and nonassessable shares of the Company’s common stock, par value
$0.01 per share (the “Common Stock”), subject to adjustment as provided
herein, at a price per share equal to the Exercise Price (as defined below), at
any time and from time to time beginning on the six (6) month anniversary of
the date on which this Warrant is originally issued (the “Issue Date”)
and ending at 6:00 p.m., eastern time, on the date that is the later of (i) the
eight (8) month anniversary of the Issue Date and (ii) the date that is sixty
(60) days following the Effective Date (or, if such later date is not a
Business Day, on the Business Day immediately following such later date) (the “Expiration
Date”).  This Warrant is issued
pursuant to a Securities Purchase Agreement, dated as of June 24, 2004 (the “Securities
Purchase Agreement”).  

 

 

Capitalized terms used herein
and not otherwise defined shall have the respective meanings set forth in the
Securities Purchase Agreement.

1.                                       Exercise.

 

(a)                                  Right
to Exercise; Exercise Price.  The
Holder shall have the right to exercise this Warrant at any time and from time
to time during the period beginning on the six (6) month anniversary of the
Issue Date and ending on the Expiration Date as to all or any part of the
shares of Common Stock covered hereby (the “Warrant Shares”).  The “Exercise Price” for each Warrant
Share purchased by the Holder upon the exercise of this Warrant shall be equal
to $3.14, subject to adjustment for the events specified in Section 5 below.

 

(b)                                 Exercise
Notice.  In order to exercise this
Warrant, the Holder shall send by facsimile transmission, at any time prior to
6:00 p.m., eastern time, on the Business Day on which the Holder wishes to
effect such exercise (the “Exercise Date”), to the Company an executed
copy of the notice of exercise in the form attached hereto as Exhibit A (the “Exercise
Notice”), and a copy of the original Warrant, and shall pay the Exercise
Price to the Company in immediately available funds.  The Exercise
Notice shall also state the name or names (with address) in which the shares of
Common Stock that are issuable on such exercise shall be issued.  In the case of a
dispute as to the calculation of the Exercise Price or the number of Warrant
Shares issuable hereunder (including, without limitation, the calculation of
any adjustment pursuant to Section 5 below), the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and shall
submit the disputed calculations to a certified public accounting firm of
national recognition (other than the Company’s independent accountants) within
two (2) Business Days following the date on which the Exercise Notice is
delivered to the Company. The Company shall cause such accountant to calculate
the Exercise Price and/or the number of Warrant Shares issuable hereunder and
to notify the Company and the Holder of the results in writing no later than
three (3) Business Days following the day on which such accountant received the
disputed calculations (the “Dispute Procedure”). Such accountant’s
calculation shall be deemed conclusive absent manifest error.  The fees of any such accountant shall be
borne by the party whose calculations were most at variance with those of such
accountant.

 

(c)                                Holder
of Record.  The Holder shall, for
all purposes, be deemed to have become the holder of record of the Warrant
Shares specified in an Exercise Notice on the Exercise Date specified therein,
irrespective of the date of delivery of such Warrant Shares.  Except as specifically provided herein,
nothing in this Warrant shall be construed as conferring upon the Holder hereof
any rights as a stockholder of the Company prior to the Exercise Date.

 

(d)                                 Cancellation
of Warrant.  This Warrant shall be
canceled upon its exercise and, if this Warrant is exercised in part, the
Company shall, at the time that it delivers Warrant Shares to the Holder
pursuant to such exercise as provided herein, issue a new warrant, and deliver
to the Holder a certificate representing such new warrant, with terms identical
in all respects to this Warrant (except that such new warrant shall be
exercisable into the number of shares of Common Stock with respect to which
this Warrant shall remain unexercised); provided, however, that
the Holder shall be

 

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entitled to exercise all or any portion of such new warrant at any time
following the time at which this Warrant is exercised, regardless of whether
the Company has actually issued such new warrant or delivered to the Holder a
certificate therefor.

 

2.                                       Delivery
of Warrant Shares Upon Exercise. 
Upon receipt of an Exercise Notice pursuant to Section 1 above, the
Company shall, no later than the close of business on the later to occur of (i)
the third (3rd) Business Day following the Exercise Date set forth in such
Exercise Notice and (ii) such later date on which the Company shall have
received payment of the Exercise Price in immediately available funds, and (B)
with respect to Warrant Shares that are the subject of a Dispute Procedure, the
close of business on the third (3rd) Business Day following the determination
made pursuant to Section 1(b) (each of the dates specified in (A) or (B) being
referred to as a “Delivery Date”), issue and deliver or caused to be
delivered to the Holder the number of Warrant Shares as shall be determined as
provided herein. The Company shall effect delivery of Warrant Shares to the
Holder by, as long as the Transfer Agent participates in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer program (“FAST”),
crediting the account of the Holder or its nominee at DTC (as specified in the
applicable Exercise Notice) with the number of Warrant Shares required to be
delivered, no later than the close of business on such Delivery Date.  In the event that the Transfer Agent is not
a participant in FAST, or if the Warrant Shares are not otherwise eligible for
delivery through FAST, or if the Holder so specifies in an Exercise Notice or
otherwise in writing on or before the Exercise Date, the Company shall effect
delivery of Warrant Shares by delivering to the Holder or its nominee physical
certificates representing such Warrant Shares, no later than the close of
business on such Delivery Date.

 

3.                                       Failure
to Deliver Warrant Shares.

 

(a)                                  In
the event that the Company fails for any reason to deliver to the Holder the
number of Warrant Shares specified in the applicable Exercise Notice on or
before the Delivery Date therefor (an “Exercise Default”), the Company
shall pay to the Holder payments (“Exercise Default Payments”) in the
amount of (i) (N/365) multiplied by (ii) the aggregate Exercise Price of
the Warrant Shares which are the subject of such Exercise Default multiplied
by (iii) the lower of ten percent (10%) and the maximum rate permitted by
applicable law (the “Default Interest Rate”), where “N” equals the
number of days elapsed between the original Delivery Date of such Warrant
Shares and the date on which all of such Warrant Shares are issued and
delivered to the Holder.  Cash amounts
payable hereunder shall be paid on or before the fifth (5th) Business Day of
each calendar month following the calendar month in which such amount has
accrued.

 

(b)                                 In
the event of an Exercise Default, the Holder may, upon written notice to the
Company (an “Exercise Default Notice”), regain on the date of such
notice the rights of the Holder under the exercised portion of this Warrant
that is the subject of such Exercise Default, in which case the Exercise Price
upon any subsequent exercise of such portion of this Warrant will be equal to
the lesser of (x) the lowest Exercise Price occurring during the period
beginning on related Delivery Date and ending on the date on which the Exercise
Default Notice is delivered to the Company and (y) the Exercise Price in effect
on the applicable Exercise Date (it being understood that the Holder may

 

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deliver an Exercise Notice at
any time following delivery of an Exercise Default Notice to the Company).  In such event, the Holder shall retain all
of the Holder’s rights and remedies with respect to the Company’s failure to
deliver such Warrant Shares (including without limitation the right to receive
the cash payments specified in Section 3(a) above).

 

(c)                                  The
Holder’s rights and remedies hereunder are cumulative, and no right or remedy
is exclusive of any other.  In addition
to the amounts specified herein, the Holder shall have the right to pursue all
other remedies available to it at law or in equity (including, without
limitation, a decree of specific performance and/or injunctive relief). Nothing
herein shall limit the Holder’s right to pursue actual damages for the
Company’s failure to issue and deliver Warrant Shares on the applicable Delivery
Date (including, without limitation, damages relating to any purchase of Common
Stock by the Holder to make delivery on a sale effected in anticipation of
receiving Warrant Shares upon exercise, such damages to be in an amount equal
to (A) the aggregate amount paid by the Holder for the Common Stock so
purchased minus (B) the aggregate amount of net proceeds, if any,
received by the Holder from the sale of the Warrant Shares issued by the
Company pursuant to such exercise).

 

4.                                       Exercise
Limitations.  In no event shall a
Holder be permitted to exercise this Warrant, or part hereof, if, upon such
exercise, either:

 

(a)                                  the
number of shares of Common Stock beneficially owned by the Holder (other than
shares which would otherwise be deemed beneficially owned except for being
subject to a limitation on conversion or exercise analogous to the limitation
contained in this Section 4), would exceed 4.99% of the number of shares
of Common Stock then issued and outstanding. As used herein, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and the rules thereunder. To the extent that the
limitation contained in this Section 4 applies, the submission of an Exercise
Notice by the Holder shall be deemed to be the Holder’s representation that
this Warrant is exercisable pursuant to the terms hereof and the Company shall
be entitled to rely on such representation without making any further inquiry
as to whether this Section 4 applies. Nothing contained herein shall be deemed
to restrict the right of a Holder to exercise this Warrant, or part thereof, at
such time as such exercise will not violate the provisions of this Section
4(a).  This Section 4 may not be amended
unless such amendment is approved by the holders of a majority of the Common
Stock then outstanding; The limitation contained in this Section 4(a) shall
cease to apply (x) upon sixty (60) days’ prior written notice from the Holder
to the Company, and (y) immediately upon written notice from the Holder to the
Company at any time after the public announcement or other disclosure of a
Major Transaction (as defined below); or

 

(b)                                 unless
Stockholder Approval has been obtained or the Holder has delivered to the
Company a legal opinion reasonably acceptable to the Company that such approval
is no longer required under the applicable listing requirements of the Nasdaq
Stock Market, the number of Warrant Shares that such Holder would receive upon
such exercise, when added to the number of Warrant Shares previously received
by such Holder pursuant to this Warrant, would exceed the product of (A)

 

4

 

the Cap Amount (as defined in the Certificate) multiplied by (B)
a fraction, the numerator of which is the number of Warrant Shares originally
issuable under this Warrant and the denominator of which is the aggregate
number of Warrant Shares originally issuable under this Warrant and the other
Warrants (such product, the “Allocation Amount”).  In the event that any Investor to which this
Warrant was originally issued shall sell or otherwise transfer any part of this
Warrant, the remaining Warrant Shares constituting such transferring Investor’s
Allocation Amount shall be allocated between the transferring Investor and the
transferee in proportion to amount of this Warrant being transferred.  In the event that, at any time, the
aggregate number of Warrant Shares issuable under this Warrant and the other
Warrants (without regard to any restrictions on such issuance) exceeds eighty
percent (80%) of the Cap Amount, the Company shall, upon the written request of
the Holder, hold a special meeting of its stockholders for the purpose of
obtaining, and use its best efforts to obtain, Stockholder Approval. In the event
that the stockholders do not approve such transactions at such meeting, the
Company shall continue to use its best efforts to seek such approval as soon as
practicable after such meeting, but no less frequently than annually
thereafter.

 

5.                                       Anti-Dilution
Adjustments; Distributions; Other Events. The Exercise Price and the number
of Warrant Shares issuable hereunder shall be subject to adjustment from time
to time as provided in this Section 5. 
In the event that any adjustment of the Exercise Price required herein
results in a fraction of a cent, the Exercise Price shall be rounded up or down
to the nearest one hundredth of a cent.

 

(a)                                  Subdivision
or Combination of Common Stock.  If
the Company, at any time after the Issue Date, subdivides (by any stock split,
stock dividend, recapitalization, reorganization, reclassification or
otherwise) the outstanding shares of Common Stock into a greater number of
shares, then after the date of record for effecting such subdivision, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced.  If the
Company, at any time after the Issue Date, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) the
outstanding shares of Common Stock into a smaller number of shares, then, after
the date of record for effecting such combination, the Exercise Price in effect
immediately prior to such combination will be proportionally increased.

 

(b)                                 Distributions.  If the Company shall declare or make any
distribution of cash or any other assets (or rights to acquire such assets) to
holders of Common Stock, as a partial liquidating dividend or otherwise,
including without limitation any dividend or distribution to the Company’s
stockholders in shares (or rights to acquire shares) of capital stock of a
subsidiary) (a “Distribution”),
the Company shall deliver written notice of such Distribution (a “Distribution Notice”) to the
Holder at least thirty (30) days prior to the earlier to occur of (i) the
record date for determining stockholders entitled to such Distribution (the “Record
Date”) and (ii) the date on which such Distribution is made (the “Distribution
Date”).  In the Distribution Notice
to a Holder, the Company must indicate whether the Company has elected (A) to
deliver to such Holder the

 

5

 

same amount and type of assets
being distributed in such Distribution as though the Holder were a holder on
the Determination Date therefor of a number of shares of Common Stock into
which the this Warrant is exercisable as of such Determination Date (such
number of shares to be determined at the Exercise Price then in effect and
without giving effect to any limitations on such exercise) or (B) to reduce the
Exercise Price as of the Determination Date therefor by an amount equal to the
fair market value of the assets to be distributed divided by the number
of shares of Common Stock as to which such Distribution is to be made, such
fair market value to be reasonably determined in good faith by the independent
members of the Company’s Board of Directors. 
If the Company does not notify the Holders of its election pursuant to
the preceding sentence on or prior to the Determination Date, the Company shall
be deemed to have elected clause (A) of the preceding sentence.

 

(c)                                  Dilutive
Issuances.

 

(i)                                     Adjustment
Upon Dilutive Issuance.  If, at any
time after the Issue Date, the Company issues or sells, or in accordance with
subparagraph (iii) of this paragraph (c), is deemed to have issued or sold, any
shares of Common Stock for per share consideration less than the Exercise Price
on the date of such issuance or sale (a “Dilutive Issuance”), then the Exercise Price shall be adjusted
so as to equal an amount determined by multiplying such Exercise Price by the
following fraction:

 

	
   

  	
  N0 + N1

  	
   

  
	
   

  	
  N0 + N2

  	
   

  

 

where:

 

N0    =   the number of shares of Common Stock
outstanding immediately prior to the issuance, sale or deemed issuance or sale
of such additional shares of Common Stock in such Dilutive Issuance (without
taking into account any shares of Common Stock issuable upon conversion,
exchange or exercise of any securities or other instruments which are
convertible into or exercisable or exchangeable for Common Stock (“Convertible
Securities”) or options, warrants or other rights to purchase or subscribe
for Common Stock or Convertible Securities (“Purchase Rights”)), other
than shares of Common Stock issuable under the Preferred Shares and the
Warrants, which shall be taken into account in determining such number;

 

N1    = 
the number of shares of Common Stock which the aggregate consideration,
if any, received or receivable by the Company for the total number of such
additional shares of Common Stock so issued, sold or deemed issued or sold in
such Dilutive Issuance (which, in the

 

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case of a deemed issuance or sale, shall be calculated
in accordance with subparagraph (iii) below) would purchase at the Exercise
Price in effect immediately prior to such Dilutive Issuance; and

 

N2    =   the number of such additional shares of
Common Stock so issued, sold or deemed issued or sold in such Dilutive
Issuance.

 

Notwithstanding the foregoing, no adjustment
shall be made pursuant hereto if such adjustment would result in an increase in
the Exercise Price. In the event that any adjustment made pursuant to this
Section 5(c)(i) would reduce the Exercise Price to a price that is less than
the Floor Price (as defined in the Certificate), the Exercise Price shall be
deemed equal to the Floor Price for purposes of such adjustment.

 

(ii)                                  Adjustment
Upon Below Market Issuance.  If, at
any time after the Issue Date, the Company issues or sells, or in accordance
with subparagraph (iii) of this paragraph (c), is deemed to have issued or
sold, any shares of Common Stock for per share consideration less than the
Market Price on the date of such issuance or sale (or deemed issuance or sale)
(a “Below Market Issuance”),
then the Exercise Price shall be adjusted so as to equal an amount determined
by multiplying such Exercise Price by the following fraction:

 

	
   

  	
  N0 + N1

  	
   

  
	
   

  	
  N0 + N2

  	
   

  

 

where:

 

N0    =    the number of shares of Common Stock outstanding immediately
prior to the issuance, sale or deemed issuance or sale of such additional
shares of Common Stock in such Below Market Issuance (without taking into
account any shares of Common Stock issuable upon conversion, exchange or
exercise of any Convertible Securities or Purchase Rights, other than shares of
Common Stock issuable under the Preferred Shares and the Warrants, which shall
be taken into account in determining such number);

 

N1    =    the number of
shares of Common Stock which the aggregate consideration, if any, received or
receivable by the Company for the total number of such additional shares of
Common Stock so issued, sold or deemed issued or sold in such Below Market
Issuance (which, in the case of a deemed issuance or sale, shall be calculated
in accordance with subparagraph (iii) below) would purchase at the Market Price
in effect on the date of such Below Market Issuance; and

 

N2    =   
the number of such additional shares of Common Stock so issued, sold

 

7

 

or deemed issued
or sold in such Below Market Issuance.

 

Notwithstanding the foregoing, no adjustment
shall be made pursuant to this paragraph (c)(ii) if such adjustment would
result in an increase in the Exercise Price. 
In the event that the Company effects an issuance that is both a
Dilutive Issuance and a Below Market Issuance, the Exercise Price will be
adjusted to the lower of the prices calculated pursuant to subparagraphs (i)
and (ii) of this paragraph (c).

 

(iii)                               Effect
On Exercise Price Of Certain Events. 
For purposes of determining the adjusted Exercise Price under
subparagraph (i) or (ii) of this paragraph (c), the following will be
applicable:

 

(A)                              Issuance
Of Purchase Rights.  If the Company
issues or sells any Purchase Rights, whether or not immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Purchase Rights (and the price of any conversion of Convertible
Securities, if applicable) is less than the Market Price in effect on the date
of issuance or sale of such Purchase Rights, then the maximum total number of
shares of Common Stock issuable upon the exercise of all such Purchase Rights
(assuming full conversion, exercise or exchange of Convertible Securities, if
applicable) shall, as of the date of the issuance or sale of such Purchase
Rights, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share.  For
purposes of the preceding sentence, the “price per share for which Common Stock
is issuable upon the exercise of such Purchase Rights” shall be determined by
dividing (x) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Purchase Rights, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Purchase Rights, plus, in the case
of Convertible Securities issuable upon the exercise of such Purchase Rights,
the minimum aggregate amount of additional consideration payable upon the
conversion, exercise or exchange thereof (determined in accordance with the
calculation method set forth in subparagraph (iii)(B) below) at the time such
Convertible Securities first become convertible, exercisable or exchangeable,
by (y) the maximum total number of shares of Common Stock issuable upon the
exercise of all such Purchase Rights (assuming full conversion, exercise or
exchange of Convertible Securities, if applicable).  No further adjustment to the Exercise Price shall be made upon
the actual issuance of such Common Stock upon the exercise of such Purchase
Rights or upon the conversion, exercise or exchange of Convertible Securities
issuable upon exercise of such Purchase Rights.  No further adjustment to the Exercise Price shall be made upon
the actual issuance of such Common Stock upon the exercise of such Purchase
Rights or upon the conversion, exercise or exchange of Convertible Securities
issuable upon exercise of such Purchase Rights.  To the extent that shares of Common Stock or Convertible
Securities are not delivered pursuant to such Purchase Rights, upon the
expiration or termination of such Purchase Rights, the Exercise Price shall be
readjusted to the Exercise Price that would then be in effect had the
adjustments made upon the issuance of such Purchase Rights been made on the
basis of delivery of only the number of shares of Common Stock actually
delivered.

 

8

 

(B)                                Issuance
Of Convertible Securities.  If the
Company issues or sells any Convertible Securities, whether or not immediately
convertible, exercisable or exchangeable, and the price per share for which
Common Stock is issuable upon such conversion, exercise or exchange is less
than the Market Price in effect on the date of issuance or sale of such
Convertible Securities, then the maximum total number of shares of Common Stock
issuable upon the conversion, exercise or exchange of all such Convertible
Securities shall, as of the date of the issuance or sale of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share.  If
the Convertible Securities so issued or sold do not have a fluctuating
conversion or exercise price or exchange ratio, then for the purposes of the
immediately preceding sentence, the “price per share for which Common Stock is
issuable upon such conversion, exercise or exchange” shall be determined by
dividing (x) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable to
the Company upon the conversion, exercise or exchange thereof (determined in
accordance with the calculation method set forth in this subparagraph
(iii)(B)), by (y) the maximum total number of shares of Common Stock issuable
upon the exercise, conversion or exchange of all such Convertible
Securities.  If the Convertible
Securities so issued or sold have a fluctuating conversion or exercise price or
exchange ratio (a “Variable Rate
Convertible Security”) (provided, however, that if the conversion or
exercise price or exchange ratio of a Convertible Security may fluctuate solely
as a result of provisions designed to protect against dilution, such Convertible
Security shall not be deemed to be a Variable Rate Convertible Security), then
for purposes of the first sentence of this subparagraph (B), the “price per
share for which Common Stock is issuable upon such conversion, exercise or
exchange” shall be deemed to be the lowest price per share which would be
applicable (assuming all holding period and other conditions to any discounts
contained in such Variable Rate Convertible Security have been satisfied) if
the conversion price of such Variable Rate Convertible Security on the date of
issuance or sale thereof were seventy-five percent (75%) of the actual
conversion price on such date (the “Assumed
Variable Market Price”), and, further, if the conversion price of
such Variable Rate Convertible Security at any time or times thereafter is less
than or equal to the Assumed Variable Market Price last used for making any
adjustment under this paragraph (c) with respect to any Variable Rate
Convertible Security, the Exercise Price in effect at such time shall be
readjusted to equal the Exercise Price which would have resulted if the Assumed
Variable Market Price at the time of issuance of the Variable Rate Convertible
Security had been seventy-five percent (75%) of the actual conversion price of
such Variable Rate Convertible Security existing at the time of the adjustment
required by this sentence.  No further
adjustment to the Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion, exercise or exchange of such Convertible Securities.  To the extent that shares of Common Stock
are not delivered pursuant to conversion of such Convertible Securities into
Common Stock, the Conversion Price shall be readjusted to the Conversion Price
that would then be in effect had the adjustments made upon the issuance of

 

9

 

such
Convertible Securities been made on the basis of delivery of only the number of
shares of Common Stock actually delivered.

 

(C)                                Change
In Option Price Or Conversion Rate. 
If, following an adjustment to the Exercise Price upon the issuance of
Purchase Rights or Convertible Securities pursuant to a Below Market Issuance,
there is a change at any time in (x) the amount of additional consideration
payable to the Company upon the exercise of any Purchase Rights; (y) the amount
of additional consideration, if any, payable to the Company upon the
conversion, exercise or exchange of any Convertible Securities; or (z) the rate
at which any Convertible Securities are convertible into or exercisable or
exchangeable for Common Stock (in each such case, other than under or by reason
of provisions designed to protect against dilution), then in any such case, the
Exercise Price in effect at the time of such change shall be readjusted to the
Exercise Price which would have been in effect at such time had such Purchase
Rights or Convertible Securities still outstanding provided for such changed
additional consideration or changed conversion, exercise or exchange rate, as
the case may be, at the time initially issued or sold.

 

(D)                               Calculation
Of Consideration Received.  If any
Common Stock, Purchase Rights or Convertible Securities are issued or sold for
cash, the consideration received therefor will be the amount received by the
Company therefore.  In case any Common
Stock, Purchase Rights or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, including in the
case of a strategic or similar arrangement in which the other entity will provide
services to the Company, purchase services from the Company or otherwise
provide intangible consideration to the Company, the amount of the
consideration other than cash received by the Company (including the net
present value of the consideration other than cash expected by the Company for
the provided or purchased services) shall be the fair market value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the average of
the last sale prices thereof on the principal market for such securities during
the period of ten Trading Days immediately preceding the date of receipt. In
case any Common Stock, Purchase Rights or Convertible Securities are issued in connection
with any merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be the fair
market value of such portion of the net assets and business of the
non-surviving corporation as is attributable to such Common Stock, Purchase
Rights or Convertible Securities, as the case may be.  Notwithstanding anything else herein to the contrary, if Common
Stock Purchase Rights or Convertible Securities are issued or sold in
conjunction with each other as part of a single transaction or in a series of
related transactions, the Holder may elect to determine the amount of
consideration deemed to be received by the Company therefor by deducting the
fair value of any type of securities (the “Disregarded Securities”)
issued or sold in such transaction or series of transactions.  If the Holder makes an election pursuant to
the immediately preceding sentence, no adjustment to the Exercise Price shall
be made pursuant to this paragraph (c) for the issuance of the

 

10

 

Disregarded
Securities or upon any conversion, exercise or exchange thereof.  The independent members of the Company’s
Board of Directors shall calculate reasonably and in good faith, using standard
commercial valuation methods appropriate for valuing such assets, the fair
market value of any consideration other than cash or securities.

 

(E)                                 Issuances
Without Consideration Pursuant to Existing Securities.  If the Company issues (or becomes obligated
to issue) shares of Common Stock pursuant to any anti-dilution or similar
adjustments (other than as a result of stock splits, stock dividends and the
like) contained in any Convertible Securities or Purchase Rights outstanding as
of the date hereof but not included in the Disclosure Schedule to the
Securities Purchase Agreement, then all shares of Common Stock so issued shall
be deemed to have been issued for no consideration.  If the Company issues (or becomes obligated to issue) shares of
Common Stock pursuant to any anti-dilution or similar adjustments contained in
any Convertible Securities or Purchase Rights disclosed in a schedule to the
Securities Purchase Agreement as a result of the issuance of the Warrants and
the number of shares that the Company issues (or is obligated to issue) as a
result of such initial issuance exceeds the amount specified in such schedule,
such excess shares shall be deemed to have been issued for no consideration.

 

(iv)                              Exceptions
To Adjustment Of Exercise Price.  Notwithstanding
the foregoing, no adjustment to the Exercise Price shall be made pursuant to
this paragraph (c) upon the issuance of any Excluded Securities.  For purposes hereof, “Excluded Securities”
means (I) securities purchased under the Securities Purchase Agreement; (II)
securities issued upon conversion of the Preferred Shares or exercise of the
Warrants; (III) shares of Common Stock issuable or issued to (x) employees or
directors from time to time either directly or upon the exercise of options, in
such case granted or to be granted in the discretion of the Board of Directors,
as approved by the independent members of the Board, pursuant to one or more
stock option plans or restricted stock plans or stock purchase plans in effect
as of the Closing Date or approved by the independent members of the Board of
Directors or by the Company’s shareholders, or (y) consultants, either directly
or pursuant to warrants to purchase Common Stock that are outstanding on the
date hereof or issued hereafter, provided such issuances are approved by the
independent members of the Board of Directors or by the Company’s shareholders;
(IV) shares of Common Stock issued in
connection with any Convertible Securities or Purchase Rights outstanding on
the date hereof; and (V) shares of Common Stock issued to Persons in connection
with a joint venture, strategic alliance or other commercial relationship with
such Person relating to the operation of the Company’s business and not for the
primary purpose of raising equity capital.

 

(v)                                 Notice
Of Adjustments.  Upon the occurrence
of one or more adjustments or readjustments of the Exercise Price pursuant to
this paragraph (c) resulting in a change in the Exercise Price by more than one
percent (1%) in the aggregate, or any change in the number or type of stock,
securities and/or other property issuable upon exercise of this Warrant, the
Company, at its expense, shall promptly compute such adjustment or readjustment
or change and prepare and furnish to the Holder a notice (an “Adjustment
Notice”) setting forth such adjustment or readjustment or change and
showing in detail the facts upon which such adjustment or readjustment

 

11

 

or change is based.  The failure of the Company to deliver an
Adjustment Notice shall not affect the validity of any such adjustment.

 

(d)                                 Major
Transactions.  In the event of a
merger, consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a
result of which shares of Common Stock shall be changed into the same or a
different number of shares of the same or another class or classes of stock or
securities or other assets of the Company or another entity or the Company
shall sell all or substantially all of its assets (each of the foregoing being
a “Major Transaction”), the Company will give the Holder at least twenty
(20) days written notice prior to the closing of such Major Transaction, and:
(i) the Holder shall be permitted to exercise this Warrant in whole or in part
at any time prior to the record date for the receipt of such consideration and
shall be entitled to receive, for each share of Common Stock issuable to Holder
for such exercise, the same per share consideration payable to the other
holders of Common Stock in connection with such Major Transaction, and (ii) if
and to the extent that the Holder retains any portion of this Warrant following
such record date, the Company will cause the surviving or, in the event of a sale
of assets, purchasing entity, as a condition precedent to such Major
Transaction, to assume the obligations of the Company under this Warrant, with
such adjustments to the Exercise Price and the securities covered hereby as may
be necessary in order to preserve the economic benefits of this Warrant to the
Holder.

 

(e)                                  Adjustments;
Additional Shares, Securities or Assets. 
In the event that at any time, as a result of an adjustment made
pursuant to this Section 5, the Holder of this Warrant shall, upon exercise of
this Warrant, become entitled to receive securities or assets (other than
Common Stock) then, wherever appropriate, all references herein to shares of
Common Stock shall be deemed to refer to and include such shares and/or other
securities or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions of
this Section 5.  Any adjustment made
herein that results in a decrease in the Exercise Price shall also effect a
proportional increase in the number of shares of Common Stock into which this
Warrant is exercisable.

 

6.                                       Fractional
Interests.

 

No fractional shares or scrip representing fractional shares shall be
issuable upon the exercise of this Warrant, but on exercise of this Warrant,
the Holder hereof may purchase only a whole number of shares of Common
Stock.  If, on exercise of this Warrant,
the Holder hereof would be entitled to a fractional share of Common Stock or a
right to acquire a fractional share of Common Stock, the Company shall, in lieu
of issuing any such fractional share, pay to the Holder an amount in cash equal
to the product resulting from multiplying such fraction by the Market Price as
of the Exercise Date.

 

12

 

7.                                       Transfer
of this Warrant.

 

The Holder may sell, transfer, assign, pledge or otherwise dispose of
this Warrant, in whole or in part, as long as such sale or other disposition is
made pursuant to an effective registration statement or an exemption from the
registration requirements of the Securities Act.  Upon such transfer or other disposition, the Holder shall deliver
this Warrant to the Company together with a written notice to the Company,
substantially in the form of the Transfer Notice attached hereto as Exhibit B
(the “Transfer Notice”), indicating the person or persons to whom this
Warrant shall be transferred and, if less than all of this Warrant is
transferred, the number of Warrant Shares to be covered by the part of this
Warrant to be transferred to each such person. Within three (3) Business Days
of receiving a Transfer Notice and the original of this Warrant, the Company
shall deliver to the each transferee designated by the Holder a Warrant or
Warrants of like tenor and terms for the appropriate number of Warrant Shares
and, if less than all this Warrant is transferred, shall deliver to the Holder
a Warrant for the remaining number of Warrant Shares.

 

8.                                       Benefits
of this Warrant.

 

This Warrant shall be for the sole and exclusive benefit of the Holder
of this Warrant and nothing in this Warrant shall be construed to confer upon
any person other than the Holder of this Warrant any legal or equitable right,
remedy or claim hereunder.

 

9.                                       Loss,
theft, destruction or mutilation of Warrant.

 

Upon receipt by the Company of evidence of the loss, theft, destruction
or mutilation of this Warrant, and (in the case of loss, theft or destruction)
of indemnity reasonably satisfactory to the Company, and upon surrender of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date.

 

10.                                 Notice
or Demands.

 

Any notice, demand or request required or permitted to be given by the
Company or the Holder pursuant to the terms of this Warrant shall be in writing
and shall be deemed delivered (i) when delivered personally or by verifiable
facsimile transmission, unless such delivery is made on a day that is not a
Business Day, in which case such delivery will be deemed to be made on the next
succeeding Business Day, (ii) on the next Business Day after timely delivery to
an overnight courier and (iii) on the Business Day actually received if
deposited in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed as follows:

 

If to the Company:

 

WorldGate Communications, Inc.

3190 Tremont Avenue

Trevose, Pennsylvania 19053

 

13

 

Attn:  Randy Gort

Tel:                          (215)
354-5100

Fax:                           (215)
354-1049

 

with a copy to:

 

Drinker Biddle & Reath LLP

1000 Westlakes Drive, Suite 300

Berwyn, Pennsylvania 19312

Attn:                    Walter
J. Mostek, Jr.

Tel:                            (610)
993-2200

Fax:                           (610)
993-8585

 

and if to the Holder, to such address as shall be designated by the
Holder in writing to the Company.

 

11.                                 Applicable
Law.

 

This Warrant is issued under
and shall for all purposes be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within the State of New York.

 

12.                                 Amendments.

 

No amendment, modification or
other change to, or waiver of any provision of, this Warrant may be made unless
such amendment, modification or change is (A) set forth in writing and is
signed by the Company and the Holder and (B) agreed to in writing by the
holders of at least two-thirds (2/3) of the number of shares into which the
Warrants are exercisable (without regard to any limitation contained herein on
such exercise), it being understood that upon the satisfaction of the
conditions described in (A) and (B) above, each Warrant (including any Warrant
held by the Holder who did not execute the agreement specified in (B) above)
shall be deemed to incorporate any amendment, modification, change or waiver effected
thereby as of the effective date thereof.

 

14

 

13.                                 Entire
Agreement.

 

This Warrant, the Securities
Purchase Agreement, the Certificate of Designation, the Registration Rights Agreement,
and the other Transaction Documents constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof.  There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
and therein.  This Warrant, the
Securities Purchase Agreement, the Certificate of
Designation, the
Registration Rights Agreement, and the other Transaction Documents supersede
all prior agreements and understandings among the parties hereto with respect
to the subject matter hereof and thereof.

 

14.                                 Headings.

 

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

 

[Signature Page to Follow]

 

15

 

IN WITNESS WHEREOF, the Company
has duly executed and delivered this Warrant as of the Issue Date.

 

	
   

  	
  WORLDGATE COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

16

 

EXHIBIT A to WARRANT

 

EXERCISE NOTICE

 

The undersigned Holder hereby irrevocably exercises the right to
purchase
                       
of the shares of Common Stock (“Warrant Shares”) of Worldgate
Communications, Inc. evidenced by the attached Warrant (the “Warrant”).  Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

 

1The Holder agrees to pay the Exercise Price in the amount of
$                               
to the Company in accordance with the terms of the Warrant.

 

 

	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Registered Holder

  	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
						

 

17

 

EXHIBIT B to WARRANT

 

TRANSFER NOTICE

 

FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant
hereby sells, assigns and transfers unto the person or persons named below the
right to purchase
                   
shares of the Common Stock of Worldgate Communications, Inc. evidenced by the
attached Warrant.

 

 

	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Registered Holder

  	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
						

 

 

	
  Transferee Name and Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

18Exhibit
4.4

 

Execution
Copy

 

EXHIBIT E

 

REGISTRATION RIGHTS AGREEMENT

 

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as
of June 24, 2004, is by and between WORLDGATE COMMUNICATIONS, INC., a
Delaware corporation (the “Company”), and each of the entities whose
names appear on the signature pages hereof. 
Such entities are each referred to herein as an “Investor” and,
collectively, as the “Investors”.

 

The Company has agreed, on the terms and subject to the conditions set
forth in the Securities Purchase Agreement, dated as of June 24, 2004 (the
“Securities Purchase Agreement”), to issue and sell to each Investor
named therein Series A Convertible Preferred Stock (the “Preferred Stock”)
and Warrants (the “Warrants”).

 

The shares of Preferred Stock are convertible into shares (the “Conversion
Shares”) of the Company’s common stock, par value $0.01 per share (the “Common
Stock”). The Warrants are exercisable into shares of Common Stock (the “Warrant
Shares”) in accordance with their terms.

 

In order to induce each Investor to enter into the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended (the “Securities Act”), and under
applicable state securities laws. 
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Securities Purchase Agreement.

 

In
consideration of each Investor entering into the Securities Purchase Agreement,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:

 

1.                                       DEFINITIONS.

 

For purposes of this Agreement, the following terms shall have the
meanings specified:

 

“Effective Date” means the date on
which the Registration Statement is declared effective by the Securities and
Exchange Commission (the “Commission”).

 

“Filing Deadline” means the thirtieth
(30th) calendar day following the Closing Date.

 

“Holder” means any person owning or
having the right to acquire, through conversion of the Preferred Stock or
exercise of the Warrants or otherwise, Registrable Securities, including
initially each Investor and thereafter any permitted assignee thereof.

 

 

“Registrable Securities” means the
Conversion Shares and the Warrant Shares and any other shares of Common Stock
issuable pursuant to the terms of the Preferred Stock or the Warrants, and any
shares of capital stock issued or issuable from time to time (with any
adjustments) in replacement of, in exchange for or otherwise in respect of the
Conversion Shares or the Warrant Shares.

 

“Registration Deadline” means the one
hundred twentieth (120th) calendar day following the Closing Date.

 

“Registration Period” has the meaning
set forth in paragraph 2(b) below.

 

“Registration Statement” means a
registration statement or statements prepared in compliance with the Securities
Act and pursuant to Rule 415 under the Securities Act (“Rule 415”) or
any successor rule providing for the offering of securities on a continuous or
delayed basis.

 

Capitalized terms used herein and not otherwise defined shall have the
respective meanings specified in the Securities Purchase Agreement or the
Certificate of Designation, as applicable.

 

2.                                       REGISTRATION.

 

(a)                                  Registration
Statement.  On or before the Filing
Deadline, the Company shall prepare and file with the Commission a Registration
Statement on Form SB-2 as a “shelf” registration statement under Rule 415
covering the resale of a number of shares of Registrable Securities equal to
one hundred and fifty percent (150%) of the number of shares of Common Stock
issuable on the Closing Date pursuant to the conversion of the Preferred Stock
and the exercise of the Warrants (such number to be determined using the
Conversion Price or Exercise Price, as applicable, in effect on such date and
without regard to any restriction on the ability of any Holder to convert such
Holder’s Preferred Stock or exercise such Holder’s Warrant as of such
date).  The Registration Statement shall
state, to the extent permitted by Rule 416 under the Securities Act, that it
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon the conversion of the Preferred Stock and exercise of
the Warrants in order to prevent dilution resulting from stock splits, stock
dividends or similar events. The Company shall re-file such Registration
Statement, or file a new Registration Statement covering at least the number of
shares then registered on the existing Registration Statement (and not previously
sold pursuant to the existing Registration Statement or pursuant to Rule 144),
on Form S-3 as promptly as practicable (but in no event later than thirty (30)
days) after the Company meets the eligibility requirements to use Form S-3 for
the resale of Registrable Securities by each Investor.

 

(b)                                 Effectiveness.  The Company shall use its best efforts to
cause the Registration Statement to become effective as soon as practicable
following the filing thereof, but in no event later than the Registration Deadline.
The Company shall respond promptly to any and all comments made by the staff of
the Commission on the Registration Statement, and shall submit to the
Commission, within two (2) Business Days after the Company learns that no
review of the Registration Statement will be made by the staff of the
Commission or that the staff of the Commission has no further comments on the
Registration Statement, as the case may be, a request

 

2

 

for acceleration of the effectiveness of the Registration Statement to
a time and date not later than two (2) Business Days after the submission of
such request.  The Company will maintain
the effectiveness of the Registration Statement until the earlier to occur of
(i) the date on which all of the Registrable Securities eligible for resale
thereunder have been publicly sold pursuant to either the Registration
Statement or Rule 144 and (ii) the date on which all of the Registrable
Securities remaining to be sold under the Registration Statement (in the
reasonable opinion of counsel to the Company) may be immediately sold to the
public under Rule 144(k) or any successor provision (the period beginning on
the Closing Date and ending on the earlier to occur of (i) or (ii) above being
referred to herein as the “Registration Period”).

 

(c)                                  Registration
Default.  If (i) the Registration
Statement is not filed on or before the Filing Deadline or declared effective
by the Commission on or before the Registration Deadline, (ii) after the Registration
Statement has been declared effective by the Commission, sales of Registrable
Securities cannot be made by a Holder under the Registration Statement for any
reason not within the exclusive control of such Holder (other than such
Registrable Securities as are then freely saleable pursuant to Rule 144(k)), or
(iii) an amendment or supplement to the Registration Statement, or a new
registration statement, required to be filed pursuant to the terms of
Section 4(k) below is not filed on or before the date required by such
paragraph (each of the foregoing clauses (i), (ii) and (iii) being referred to
herein as a “Registration Default”), the Company shall make cash
payments to each Holder equal to one percent (1.0%) of the Liquidation
Preference of the Preferred Stock then held by such Holder for each thirty (30)
day period in which a Registration Default exists (prorated for any period of
less than thirty days).  Each such
payment shall be made within five (5) Business Days following the last day of
each calendar month in which a Registration Default existed. Any such payment
shall be in addition to any other remedies available to each Holder at law or
in equity, whether pursuant to the terms hereof, the Securities Purchase
Agreement, the Certificate of Designation, or otherwise.

 

(d)                                 Allocation
of Conversion Shares and Warrant Shares. The initial number of Conversion
Shares and Warrant Shares included in any Registration Statement and each
increase in the number thereof included therein shall be allocated pro rata
among the Holders based on the aggregate number of Registrable Securities
issuable to each Holder at the time the Registration Statement covering such
initial number of Registrable Securities or increase thereof is declared
effective by the Commission (such number to be determined using the Conversion
Price or Exercise Price, as applicable, in effect at such time and without
regard to any restriction on the ability of a Holder to convert such Holder’s
Preferred Stock or exercise such Holder’s Warrant as of such date).  In the event that a Holder sells or
otherwise transfers any of such Holder’s Registrable Securities, each
transferee shall be allocated the portion of the then remaining number of
Registrable Securities included in such Registration Statement allocable to the
transferor.

 

(e)                                  Registration
of Other Securities.  During the
period beginning on the date hereof and ending on the Effective Date, the
Company shall, except as described in Schedule 3.12 to the Securities
Purchase Agreement, refrain from filing any registration statement (other than
(i) a Registration Statement filed hereunder, (ii) a registration statement on
Form S-8 with respect to stock option plans and agreements and stock plans
currently in effect and disclosed pursuant to the terms of the Securities
Purchase Agreement, or (iii) amendments or supplements to any currently
effective registration statement that is described in the disclosure schedules
to the Securities

 

3

 

Purchase Agreement).  In no
event shall the Company include any securities other than the Registrable
Securities on any Registration Statement filed by the Company on behalf of the
Holders pursuant to the terms hereof.

 

3.                                       PIGGYBACK
REGISTRATION.

 

If at any time prior to the expiration of the Registration Period, (i)
the Company proposes to register shares of Common Stock under the Securities
Act in connection with the public offering of such shares for cash (a “Proposed
Registration”) other than a registration statement on Form S-8 or Form S-4
or any successor or other forms promulgated for similar purposes and (ii) a
Registration Statement covering the sale of all of the Registrable Securities
is not then effective and available for sales thereof by the Holders, the
Company shall, at such time, promptly give each Holder written notice of such
Proposed Registration.  Each Holder
shall have ten (10) Business Days from its receipt of such notice to deliver to
the Company a written request specifying the amount of Registrable Securities
that such Holder intends to sell and such Holder’s intended method of
distribution.  Upon receipt of such
request, the Company shall use its best efforts to cause all Registrable
Securities which the Company has been requested to register to be registered
under the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified
in the request of such Holder; provided, however, that the
Company shall have the right to postpone or withdraw any registration effected
pursuant to this Section 3 without obligation to the Holders.  If, in connection with any underwritten
public offering for the account of the Company or for stockholders of the
Company that have contractual rights to require the Company to register shares
of Common Stock, the managing underwriter(s) thereof shall impose a limitation
on the number of shares of Common Stock which may be included in a registration
statement because, in the judgment of such underwriter(s), marketing or other
factors dictate such limitation is necessary to facilitate such offering, then
the Company shall be obligated to include in the registration statement only
such limited portion of the Registrable Securities with respect to which each
Holder has requested inclusion hereunder as such underwriter(s) shall
permit.  Any exclusion of Registrable
Securities shall be made pro rata
among the Holders seeking to include Registrable Securities in a registration
statement, in proportion to the number of Registrable Securities sought to be
included by such Holders; provided, however, that the Company shall not exclude
any Registrable Securities unless the Company has first excluded all
outstanding securities, the holders of which are not entitled to inclusion of
such securities in the registration statement or are not entitled to pro rata inclusion with the Registrable
Securities; and provided, further, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the registration statement.

 

4.                                       OBLIGATIONS
OF THE COMPANY.

 

In addition to performing its obligations hereunder, including without
limitation those pursuant to Section 2 above, the Company shall, with
respect to the Registration Statement:

 

(a)                                  prepare
and file with the Commission such amendments and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to comply with the provisions of the
Securities Act or to maintain the effectiveness of the Registration Statement
during the Registration Period, or as may be reasonably

 

4

 

requested by a Holder in order to incorporate information concerning
such Holder or such Holder’s intended method of distribution;

 

(b)                                 promptly
following the Closing, secure the listing of all Registrable Securities on the
Nasdaq SmallCap Market, and provide each Holder with reasonable evidence
thereof;

 

(c)                                  furnish
to each Holder such number of copies of the prospectus included in the
Registration Statement, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as such Holder
may reasonably request in order to facilitate the disposition of such Holder’s
Registrable Securities;

 

(d)                                 use
all commercially reasonable efforts to register or qualify the Registrable
Securities under the securities or “blue sky” laws of such jurisdictions within
the United States as shall be reasonably requested from time to time by a
Holder, and do any and all other acts or things which may be necessary or
advisable to enable such Holder to consummate the public sale or other
disposition of the Registrable Securities in such jurisdictions; provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction;

 

(e)                                  in
the event of an underwritten public offering of the Registrable Securities,
enter into (together with all Holders proposing to distribute Registrable
Securities through such underwriting) and perform its obligations under an
underwriting agreement, in usual and customary form reasonably acceptable to
the Company, with the managing underwriter of such offering;

 

(f)                                    notify
each Holder immediately after becoming aware of the occurrence of any event
(but shall not, without the prior written consent of such Holder, disclose to
such Holder any facts or circumstances constituting material non-public
information) as a result of which the prospectus included in the Registration
Statement, as then in effect, contains an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and as promptly as practicable prepare and file with the Commission
and furnish to each Holder a reasonable number of copies of a supplement or an
amendment to such prospectus as may be necessary so that such prospectus does
not contain an untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;

 

(g)                                 use
all commercially reasonable efforts to prevent the issuance of any stop order
or other order suspending the effectiveness of the Registration Statement and,
if such an order is issued, to obtain the withdrawal thereof at the earliest
possible time and to notify each Holder of the issuance of such order and the
resolution thereof;

 

(h)                                 furnish
to each Holder, on the date that the Registration Statement, or any successor
registration statement, becomes effective, (x) a letter, dated such date, of
outside counsel representing the Company (and reasonably acceptable to such
Holder) addressed to such Holder, confirming such effectiveness and, to the
knowledge of such counsel, the absence of any stop order, and (y) in the case
of an underwriting, (A) a copy of an opinion, dated such date, of such outside

 

5

 

counsel, in such form and substance as is required to be given to the
underwriters, and (B) a letter addressed to such Holder, dated such date, from
the Company’s independent certified public accountants, in such form and
substance as is required to be given by the Company’s independent certified
public accountants to such underwriters;

 

(i)                                     provide
to each Holder and its representatives the reasonable opportunity to conduct a
reasonable inquiry of the Company’s financial and other records during normal
business hours and make available its officers, directors and employees for
questions regarding information which such Holder may reasonably request in
order to fulfill any due diligence obligation on its part;

 

(j)                                     permit
counsel for each Holder, upon the request of such Holder, to review the
Registration Statement and all amendments and supplements thereto, and any
comments made by the staff of the Commission concerning such Holder and/or the
transactions contemplated by the Transaction Documents and the Company’s
responses thereto, within a reasonable period of time prior to the filing
thereof with the Commission (or, in the case of comments made by the staff of
the Commission, within a reasonable period of time following the receipt
thereof by the Company); and

 

(k)                                  in
the event that, at any time, the number of shares available under the
Registration Statement is insufficient to cover one hundred twenty five percent
125% of the Registrable Securities issuable under the related Preferred Stock
and Warrants (such number to be determined using the Conversion Price or
Exercise Price, as applicable, in effect at such time and without regard to any
restriction on the ability of any Holder to convert such Holder’s Preferred
Stock or exercise such Holder’s Warrant) the Company shall promptly amend the
Registration Statement or file a new registration statement, in any event as
soon as practicable, but not later than the thirtieth (30th) day
following notice from a Holder of the occurrence of such event, so that the
Registration Statement or such new registration statement, or both, covers no
less than one hundred fifty percent (150%) of the Registrable Securities
eligible for resale thereunder and issuable under the related Preferred Stock
and Warrants (such number to be determined using the Conversion Price or
Exercise Price, as applicable, in effect at the time of such amendment or
filing and without regard to any restriction on the ability of any Holder to
convert such Holder’s Preferred Stock or exercise such Holder’s Warrant).  The Company shall use its best efforts to
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof. Any Registration Statement
filed pursuant to this paragraph 4(k) shall state that, to the extent permitted
by Rule 416 under the Securities Act, such Registration Statement also covers
such indeterminate number of additional shares of Common Stock as may become
issuable upon conversion of the Preferred Stock and exercise of the Warrants in
order to prevent dilution resulting from stock splits, stock dividends or
similar events. Unless and until such amendment or new Registration Statement
becomes effective, each Holder shall have the rights described in
Section 2(c) above.

 

5.                                       OBLIGATIONS
OF EACH HOLDER.

 

In connection with the registration of Registrable Securities pursuant
to a Registration Statement, each Holder shall:

 

6

 

(a)  timely furnish to the
Company in writing such information regarding itself and the intended method of
disposition of such Registrable Securities as the Company shall reasonably
request in order to effect the registration thereof;

 

(b)  upon receipt of any notice
from the Company of the happening of any event of the kind described in
paragraphs 4(f) or 4(g), immediately discontinue any sale or other disposition
of such Registrable Securities pursuant to such Registration Statement until
the filing of an amendment or supplement as described in paragraph 4(f) or
withdrawal of the stop order referred to in paragraph 4(g), and use
commercially reasonable efforts to maintain the confidentiality of such notice
and its contents;

 

(c)  in the event of an
underwritten offering of such Registrable Securities in which such Holder
participates, enter into a customary and reasonable underwriting agreement and
execute such other documents as the Company and the managing underwriter for
such offering may reasonably request;

 

(d)  to the extent required by
applicable law, deliver a prospectus to the purchaser of such Registrable
Securities;

 

(e)  notify the Company when it
has sold all of the Registrable Securities held by it and, upon the Company’s
request (which may occur no more frequently than four (4) times during any
twelve month period), notify the Company as to the number of Registrable
Securities held by such Holder as of a recent date; and

 

(f)  notify the Company in the
event that any information supplied by such Holder in writing for inclusion in
such Registration Statement or related prospectus is untrue or omits to state a
material fact required to be stated therein or necessary to make such
information not misleading in light of the circumstances then existing;
immediately discontinue any sale or other disposition of such Registrable
Securities pursuant to such Registration Statement until the filing of an
amendment or supplement to such prospectus as may be necessary so that such
prospectus does not contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
and use commercially reasonable efforts to assist the Company as may be
appropriate to make such amendment or supplement effective for such purpose.

 

6.                                       INDEMNIFICATION.

 

In the event that any Registrable Securities are included in a
Registration Statement under this Agreement:

 

(a)                                  To
the extent permitted by law, the Company shall indemnify and hold harmless each
Holder, the officers, directors, employees, agents and representatives of such
Holder, and each person, if any, who controls such Holder within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), against any losses, claims, damages, liabilities or reasonable
out-of-pocket expenses (whether joint or several) (collectively, including
legal or other expenses reasonably incurred in connection with investigating or
defending same, “Losses”), insofar as any such Losses arise out of or
are based upon (i) any untrue statement

 

7

 

or alleged untrue statement of a material fact contained in such
Registration Statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or (ii)
the omission or alleged omission to state therein 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.  Subject to the provisions of paragraph 6(c)
below, the Company will reimburse such Holder, and each such officer, director,
employee, agent, representative or controlling person, for any legal or other
out-of-pocket expenses as reasonably incurred by any such entity or person in
connection with investigating or defending any Loss; provided, however, that
the foregoing indemnity shall not apply to amounts paid in settlement of any
Loss if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be obligated
to indemnify any person for any Loss to the extent that such Loss is (i) based
upon and is in conformity with written information furnished by such person
expressly for use in such Registration Statement or (ii) based on a failure of
such person to deliver or cause to be delivered the final prospectus contained
in the Registration Statement and made available by the Company, if such
delivery is required by applicable law.

 

(b)                                 To
the extent permitted by law, each Holder who is named in such Registration
Statement as a selling stockholder, acting severally and not jointly, shall
indemnify and hold harmless the Company, the officers, directors, employees,
agents and representatives of the Company, and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act, against any Losses to the extent (and only to the extent) that any such
Losses are based upon and in conformity with written information furnished by
such Holder expressly for use in such Registration Statement. Subject to the
provisions of paragraph 6(c) below, such Holder will reimburse any legal or
other expenses as reasonably incurred by the Company and any such officer,
director, employee, agent, representative, or controlling person, in connection
with investigating or defending any such Loss; provided, however, that the
foregoing indemnity shall not apply to amounts paid in settlement of any such
Loss if such settlement is effected without the consent of such Holder (which
consent shall not be unreasonably withheld); and provided, further, that, in no
event shall any indemnity under this subsection 6(b) exceed the net
proceeds resulting from the sale of the Registrable Securities sold by such
Holder under such Registration Statement.

 

(c)                                  Promptly
after receipt by an indemnified party under this Section 6 of notice of
the commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in and to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of one such counsel for all indemnified parties to
be paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate under
applicable standards of professional conduct due to actual or potential
conflicting interests between such indemnified party and any other party
represented by such counsel in such proceeding.  The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, to the extent
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 6 with respect to such action, but the omission so to deliver
written notice to the indemnifying party will

 

8

 

not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 6 or with respect to any other
action unless the indemnifying party is materially prejudiced as a result of
not receiving such notice.

 

(d)                                 In
the event that the indemnity provided in paragraph (a) or (b) of this
Section 6 is unavailable or insufficient to hold harmless an indemnified
party for any reason, the Company and each Holder agree, severally and not
jointly, to contribute to the aggregate Losses to which the Company or such
Holder may be subject in such proportion as is appropriate to reflect the
relative fault of the Company and such Holder in connection with the statements
or omissions which resulted in such Losses; provided, however, that in no case
shall such Holder be responsible for any amount in excess of the net proceeds
resulting from the sale of the Registrable Securities sold by it under the
Registration Statement.  Relative fault
shall be determined by reference to whether any alleged untrue statement or
omission relates to information provided by the Company or by such Holder.  The Company and each Holder agree that it
would not be just and equitable if contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above.  Notwithstanding the
provisions of this paragraph (d), 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 is not guilty of such fraudulent
misrepresentation.  For purposes of this
Section 6, each person who controls a Holder within the meaning of either
the Securities Act or the Exchange Act and each officer, director, employee,
agent or representative of such Holder shall have the same rights to
contribution as such Holder, and each person who controls the Company within
the meaning of either the Securities Act or the Exchange Act and each officer,
director, employee, agent or representative of the Company shall have the same
rights to contribution as the Company, subject in each case to the applicable
terms and conditions of this paragraph (d).

 

(e)                                  The
obligations of the Company and each Holder under this Section 6 shall
survive the conversion of the Preferred Stock and exercise of the Warrants in
full, the completion of any offering or sale of Registrable Securities pursuant
to a Registration Statement under this Agreement, or otherwise.

 

7.                                       REPORTS.

 

With a view to making available to each Holder the benefits of Rule 144
under the Securities Act (“Rule 144”) and any other similar rule or
regulation of the Commission that may at any time permit such Holder to sell
securities of the Company to the public without registration, the Company
agrees to:

 

(a)                                  make
and keep public information available, as those terms are understood and
defined in Rule 144;

 

(b)                                 file
with the Commission in a timely manner all reports and other documents required
of the Company under the Securities Act and the Exchange Act; and

 

(c)                                  furnish
to such Holder, so long as such Holder owns any Registrable Securities,
promptly upon written request (i) a written statement by the Company, if true,
that it has

 

9

 

complied with the reporting requirements of Rule 144, the Securities
Act and the Exchange Act, (ii) to the extent not publicly available through the
Commission’s EDGAR database, a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested by
such Holder in connection with such Holder’s compliance with any rule or regulation
of the Commission which permits the selling of any such securities without
registration.

 

8.                                       MISCELLANEOUS.

 

(a)                                  Expenses
of Registration.  Except as
otherwise provided in the Securities Purchase Agreement, all reasonable
expenses, other than underwriting discounts and commissions and fees and
expenses of counsel and other advisors to each Holder, incurred in connection
with the registrations, filings or qualifications described herein, including
(without limitation) all registration, filing and qualification fees, printers’
and accounting fees, the fees and disbursements of counsel for the Company, and
the fees and disbursements incurred in connection with the opinion and letter
described in paragraph 4(h) hereof, shall be borne by the Company.

 

(b)                                 Amendment;
Waiver.  Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended or
waived except pursuant to a written instrument executed by the Company and the
Holders of at least two-thirds (2/3) of the Registrable Securities into which
all of the Preferred Stock and Warrants then outstanding are convertible or
exercisable (without regard to any limitation on such conversion or exercise).
Any amendment or waiver effected in accordance with this paragraph shall be binding
upon each Holder, each future Holder and the Company.  The failure of any party to exercise any right or remedy under
this Agreement or otherwise, or the delay by any party in exercising such right
or remedy, shall not operate as a waiver thereof.

 

(c)                                  Notices.  Any notice, demand or request required or
permitted to be given by the Company or a Holder pursuant to the terms of this
Agreement shall be in writing and shall be deemed delivered (i) when delivered
personally or by verifiable facsimile transmission, unless such delivery is
made on a day that is not a Business Day, in which case such delivery will be
deemed to be made on the next succeeding Business Day, (ii) on the next
Business Day after timely delivery to an overnight courier and (iii) on the
Business Day actually received if deposited in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed as
follows:

 

If to the Company:

 

WorldGate Communications, Inc.

3190 Tremont Avenue

Trevose, Pennsylvania 19053

Attn:     Randy Gort

Tel:       (215) 354-5100

Fax:      (215) 354-1049

 

10

 

with a copy to:

 

Drinker Biddle & Reath LLP

1000 Westlakes Drive, Suite 300

Berwyn, Pennsylvania 19312

Attn:     Walter J. Mostek, Jr.

Tel:       (610) 993-2200

Fax:      (610) 993-8585

 

and if to a Holder, to such
address as shall be designated by such Holder in writing to the Company.

 

(d)                                 Assignment.  Upon the transfer of any Preferred Stock,
Warrants or Registrable Securities by a Holder, the rights of such Holder
hereunder with respect to such securities so transferred shall be assigned
automatically to the transferee thereof, and such transferee shall thereupon be
deemed to be a “Holder” for purposes of this Agreement, as long as: (i) the
Company is, within a reasonable period of time following such transfer,
furnished with written notice of the name and address of such transferee, (ii)
the transferee agrees in writing with the Company to be bound by all of the
provisions hereof, and (iii) such transfer is made in accordance with the
applicable requirements of the Securities Purchase Agreement; provided, however,
that this Agreement shall not be transferred to any person or entity that
receives any Preferred Stock, Warrants or Registrable Securities in a public
transaction pursuant to an effective registration statement under the
Securities Act or pursuant to Rule 144.

 

(e)                                  Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed one and the same instrument.  This Agreement, once executed by a party, may be delivered to any
other party hereto by facsimile transmission.

 

(f)                                    Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely within the State of
New York.

 

(g)                                 Holder
of Record.  A person is deemed to be
a Holder whenever such person owns or is deemed to own of record such
Registrable Securities.  If the Company
receives conflicting instructions, notices or elections from two or more
persons with respect to the same Registrable Securities, the Company shall act
upon the basis of instructions, notice or election received from the record
owner of such Registrable Securities.

 

(h)                                 Entire
Agreement. This Agreement, the Securities Purchase Agreement, the
Certificate of Designation, the Warrants, and the other Transaction Documents
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. 
There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein.  This Agreement, the Securities Purchase
Agreement, the Certificate of Designation, the Warrants, and the other
Transaction Documents supersede all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof and thereof.

 

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

 

11

 

(j)                                     Third
Party Beneficiaries.  This Agreement
is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.

 

[Signature Pages to Follow]

 

12

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.

 

WORLDGATE COMMUNICATIONS, INC.

 

 

	
  By:

  	
  /s/ Joel Boyarski

  	
   

  
	
   

  	
  Name:

  	
  Joel Boyarski

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
				

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR PURCHASERS FOLLOW]

 

 

SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC

 

	
  By:

  	
  Satellite Asset Management, L.P., its Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian S. Kriftcher

  	
   

  
	
   

  	
   

  	
  Brian S. Kriftcher

  
	
   

  	
   

  	
  Chief Operating Officer and Principal

  

 

 

CAPITAL VENTURES INTERNATIONAL

 

	
  By:

  	
  Heights Capital Management, Inc., its authorized agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Martin Kobinger

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Martin Kobinger

  
	
   

  	
   

  	
  Title:

  	
  Investment Manager

  
						

 

 

CASTLE CREEK TECHNOLOGY PARTNERS LLC

 

	
  By:

  	
  Castle Creek Partners, LLC, its Investment Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas A. Frei

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Thomas A. Frei

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  
						

 

 

CRANSHIRE CAPITAL, L.P.

 

 

	
   

  	
  By:

  	
  /s/ Mitchell P. Kopin

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Mitchell P. Kopin

  
	
   

  	
   

  	
  Title:

  	
  President – Downsview Capital, the General Partner

  
					

 

 

IROQUOIS CAPITAL LP

 

	
  By:

  	
  Iroquois Capital Partners LLC, its Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joshua Silverman

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Joshua Silverman

  
	
   

  	
   

  	
  Title:

  	
  Partner

  
						

 

 

OMICRON MASTER TRUST

 

	
  By:

  	
  Omicron Capital L.P., as advisor

  
	
  By:

  	
  Omicron Capital Inc., its general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Bruce Bernstein

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Bruce Bernstein

  
	
   

  	
   

  	
  Title:

  	
  Managing Partner

  
						

 

 

SMITHFIELD FIDUCIARY LLC

 

 

	
  By:

  	
  /s/ Adam J. Chill

  	
   

  
	
   

  	
  Name:

  	
  Adam J. Chill

  
	
   

  	
  Title:

  	
  Authorized Signatory

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