Document:

Exhibit 4.3

Dated:  August 11, 2006

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

No. WGAT-1-1                                                                                                                                                                   $6,000,000

WORLDGATE COMMUNICATIONS, INC.

Secured Convertible Debenture

Due: August 11, 2009

This Secured Convertible
Debenture (the “Debenture”) is issued by WORLDGATE
COMMUNICATIONS, INC., a
Delaware corporation (the “Company”), to CORNELL
CAPITAL PARTNERS, LP (the “Holder”), pursuant to that certain
Securities Purchase Agreement (the “Securities Purchase Agreement”)
dated August 11, 2006.

FOR
VALUE RECEIVED, the Company hereby promises to pay to the
Holder or its successors and assigns the principal sum of Six Million Dollars
($6,000,000) together with accrued but unpaid interest on or before August 11,
2009 (the “Maturity Date”) in accordance with the following terms:

Section 1.              General Terms

(a)           Interest.  Interest shall accrue on the outstanding
principal balance hereof at an annual rate equal to six percent (6%).  Interest shall be calculated on the basis of
a 365-day year and the actual number of days elapsed, to the extent permitted
by applicable law.  Interest hereunder
shall be paid on the Maturity Date (or sooner as provided herein) to the Holder
or its assignee in whose name this Debenture is registered on the records of
the Company regarding registration and transfers of Debentures in cash or in
Common Stock (valued at the Volume Weighted Average Price on the Trading Day
immediately prior to the date paid) at the option of the Company.

(b)             Security.  This Debenture is secured by a Security
Agreement (the “Security Agreement”) dated August 11, 2006 between the
Company, each wholly owned subsidiary of the Company, and the Holder.

 

 

Section 2.              Events of Default.

(a)           An “Event of Default”, wherever
used herein, means any one of the following events (whatever the reason and
whether it shall be voluntary or involuntary or effected by operation of law or
pursuant to any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):

(i)            Any
default in the payment of the principal of, interest on or other charges in
respect of this Debenture, free of any claim of subordination, as and when the
same shall become due and payable whether upon an Optional Redemption (as
defined in Section 3(a)), or the Maturity Date or
by acceleration or otherwise;

(ii)           The
Company or any subsidiary of the Company shall commence, or there shall be
commenced against the Company or any subsidiary of the Company under any applicable
bankruptcy or insolvency laws as now or hereafter in effect or any successor
thereto, or the Company or any subsidiary of the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or any
subsidiary of the Company or there is commenced against the Company or any
subsidiary of the Company any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 61 days; or the Company or any
subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or the
Company or any subsidiary of the Company suffers any appointment of any
custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of sixty one (61) days; or the Company or any subsidiary of the Company
makes a general assignment for the benefit of creditors; or the Company or any
subsidiary of the Company shall fail to pay, or shall state that it is unable
to pay, or shall be unable to pay, its debts generally as they become due; or
the Company or any subsidiary of the Company shall call a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring
of its debts; or the Company or any subsidiary of the Company shall by any act
or failure to act expressly indicate its consent to, approval of or
acquiescence in any of the foregoing; or any corporate or other action is taken
by the Company or any subsidiary of the Company for the purpose of effecting
any of the foregoing;

(iii)          The
Company or any subsidiary of the Company shall default in any of its
obligations under any other debenture or any mortgage, credit agreement or
other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced
any indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company or any subsidiary of the Company in an
amount exceeding $500,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable;

(iv)          The
Common Stock shall cease to be quoted for trading or listing for trading on any
of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq
National Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin
Board

 2
 

 

 (“OTCBB”)  (each, a “Primary Market”) and shall
not again be quoted or listed for trading on any Primary Market within five (5)
Trading Days of such delisting;

(v)           The
Company shall (a) fail to file the Underlying Shares Registration Statement (as
defined in Section 6) with the
Commission (as defined in Section 6),
or (b) the Underlying Shares Registration Statement shall not have been
declared effective by the Commission, in each case within thirty (30) days of
the periods set forth in the Investor Registration Rights Agreement (“Registration
Rights Agreement”) dated August 11, 2006 between the Company and the
Holder, or, (c) while the Underlying Shares Registration Statement is required
to be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Underlying Shares Registration Statement
lapses for any reason or (d) the Holder shall not be permitted to resell the
shares of Common Stock underlying this Debenture under the Underlying Shares
Registration Statement, in either case, for more than ten (10) consecutive
Trading Days (other than days during an Allowable Grace Period (as defined in
the Registration Rights Agreement) or for more than an aggregate of twenty (20)
days in any 365-day period (which need not be consecutive) (other than days
during an Allowable Grace Period (as defined in the Registration Rights
Agreement)); provided that the events identified in clauses (c), and (d) above
shall not cause an Event of Default to occur or be continuing during the
pendency of a review of the Underlying Shares Registration Statement (including
any review of a post-effective amendment thereto) by the Commission, provided
that the Company diligently responds to all comments of the Commission
regarding the Underlying Shares Registration Statement and otherwise uses
commercially reasonably efforts to cause the Commission to declare the
Underlying Shares Registration Statement (or a post-effective amendment
thereto, as the case may be) effective; and provided further that upon the
occurrence of an event identified in clause (b) above, an Event of Default
shall not be deemed to occur provided that (i) the failure to have the
Underlying Shares Registration Statement declared effective in a timely fashion
is due solely to comments by the Commission relating to the structure of the
transaction contemplated by the Securities Purchase Agreement, (ii) the Company
has diligently responded to all comments of the Commission regarding the
Underlying Shares Registration Statement and otherwise used commercially
reasonably efforts to cause the Commission to declare the Underlying Shares
Registration Statement effective, and (iii) the Company acknowledges that any
and all fees previously paid to the Holder and any Warrants issued to the
Holder have been fully earned and are non-refundable and repays (subject to the
next sentence) all outstanding principal and interest under the Debenture
without incurring any Redemption Premium. 
The Holder at its sole option may waive the repayment requirement of
clause (iii) above in which case the Company shall not be permitted to repay
the Debenture (unless otherwise permitted hereunder) and the Debenture shall
remain outstanding, and provided that the other conditions are satisfied, no
Event of Default shall be deemed to have occurred.

(vi)          A
Change of Control Transaction (as defined in Section
6) with respect to the Company shall have been consummated;

(vii)         The
Company shall fail for any reason to deliver Common Stock certificates to a
Holder on or prior to the fifth (5th) Trading Day after a Conversion Date,
and such failure shall not be cured within ten (10) days after a Conversion
Date (provided that such Holder shall provide the Company with notice prior to
the tenth (10th) day after the Conversion

 3
 

 

Date that it has not received such certificates), or
the Company shall provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to comply with requests for
conversions in accordance with the terms hereof;

(viii)        The
Company shall fail for any reason to deliver the payment in cash pursuant to a
Buy-In (as defined herein) within three (3) days after notice is delivered
hereunder, and such failure shall continue for a period of ten (10) days;

(ix)           The
Company shall fail to observe or perform any other covenant, agreement or
warranty contained in, or otherwise commit any breach or default of any
provision of this Debenture (except as may be covered by Section 2(a)(i) through 2(a)(ix) hereof)
or any Transaction Document (as defined in Section
6) which is not cured within 10 days after notice is given by the
Holder to the Company, or an Event of Default under any other debenture issued
to the Holder in connection with the Securities Purchase Agreement shall occur
and be continuing;

 (b)          During
the time that any portion of this Debenture is outstanding, if any Event of
Default has occurred and be continuing, the full principal amount of this
Debenture, together with interest and other amounts owing in respect thereof,
to the date of acceleration shall become at the Holder’s election, immediately
due and payable in cash, provided however,
the Holder may request (but shall have no obligation to request) payment of
such amounts in Common Stock of the Company. 
Furthermore, in addition to any other remedies, the Holder shall have
the right (but not the obligation) to convert this Debenture at any time during
the continuation of an Event of Default at the Conversion Price then
in-effect.  The Holder need not provide
and the Company hereby waives any presentment, demand, protest or other notice
of any kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder. No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon. 
Except as set forth in Section 4(b)(i), (iii), and (iv), upon the
occurrence and during the continuation of an Event of Default, the Holder shall
have no obligation to comply with or adhere to any limitations, if any, on the
conversion of this Debenture or the sale of the Underlying Shares.  

Section 3.              Redemptions.

(a)           Company’s Optional
Cash Redemption. 
The Company at its option shall have the right to redeem (“Optional
Redemption”) a portion or all amounts outstanding under this Debenture
prior to the Maturity Date provided that
as of the date of the Holder’s receipt of a Redemption Notice (as defined
herein) (i) the Volume Weighted Average Price of the of the Common Stock, as
reported by Bloomberg, LP, is less than the Conversion Price and (ii) no Event
of Default shall have occurred and be continuing.  The Company shall pay an amount equal to the
principal amount being redeemed plus a redemption premium (“Redemption
Premium”) equal to ten percent (10%) of the principal amount being
redeemed, and accrued interest, (collectively referred to as the “Redemption Amount”).  In order to make a redemption, the Company
shall first provide written notice to the Holder of its intention to make a
redemption (the “Redemption Notice”) setting forth the amount of
principal it desires to redeem.  After
receipt of the Redemption Notice the Holder shall have three (3) business days
to elect to convert

 4
 

 

all or any portion of this Debenture, subject to the
limitations set forth in Section 4(b).  On the fourth (4th) business day after the Redemption
Notice, the Company shall deliver to the Holder the Redemption Amount with
respect to the principal amount redeemed after giving effect to conversions
effected during the three (3) business day period.

Section 4.              Conversion.

(a)           Conversion at Option of Holder.

(i)            This
Debenture shall be convertible into shares of Common Stock at the option of the
Holder, in whole or in part at any time and from time to time, after the
Original Issue Date (as defined in Section 6)
(subject to the limitations on conversion set forth in Section 4(b) hereof). The number of shares
of Common Stock issuable upon a conversion hereunder equals the quotient
obtained by dividing (x) the outstanding amount of this Debenture to be
converted by (y) the Conversion Price (as defined in Section 4(c)(i)).  The
Company shall deliver Common Stock certificates to the Holder on or prior to
the Fifth (5th)
Trading Day after a Conversion Date.

(ii)           Notwithstanding anything to the contrary
contained herein, if on any Conversion Date: (1) the number of shares of Common
Stock at the time authorized and unissued, or held as treasury stock, is
insufficient to satisfy the Holder’s request for conversion on such Conversion
Date or if issued would violate the Share Limitation; or (2) the Common Stock
is not listed or quoted for trading on the OTCBB or on a Primary Market; then,
at the option of the Holder, the Company, in lieu of delivering shares of
Common Stock pursuant to Section 4(a)(i),
shall deliver, within five (5) Trading Days of each applicable Conversion Date,
an amount in cash equal to the product of the outstanding principal
amount to be converted divided by the applicable Conversion Price, and
multiplied by the average Volume Weighted Average Price for the five (5)
Trading Days immediately preceding the date such cash payment is made.

Further, if the Company shall not have delivered any
cash due in respect of conversion of this Debenture by the fifth (5th) Trading Day after the
Conversion Date, the Holder may, by notice to the Company, require the Company
to issue shares of Common Stock pursuant to Section
4(c), except that for such purpose the Conversion Price applicable
thereto shall be the lesser of the Conversion Price on the Conversion Date and
the Conversion Price on the date of such Holder demand. Any such shares will be
subject to the provisions of this Section.

(iii)          The
Holder shall effect conversions by delivering to the Company a completed notice
in the form attached hereto as Exhibit A (a “Conversion Notice”).  The date on which a Conversion Notice is
delivered is the “Conversion Date.” Unless the Holder is converting the
entire principal amount outstanding under this Debenture, the Holder is not
required to physically surrender this Debenture to the Company in order to
effect conversions.  Conversions
hereunder shall have the effect of lowering the outstanding principal amount of
this Debenture plus all accrued and unpaid interest thereon in an amount equal
to the applicable conversion. The Holder and the Company shall maintain records
showing the principal amount converted and the date of such conversions. In the
event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error.

 5
 

 

(b)           Certain Conversion Restrictions.

(i)            The
Company shall not effect any conversions of this Debenture and the Holder shall
not have the right to convert any portion of this Debenture or receive shares
of Common Stock as payment of interest hereunder to the extent that after
giving effect to such such conversion or receipt of such interest payment, the
Holder, together with any affiliate thereof, would beneficially own (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
promulgated thereunder) in excess of 9.99% of the number of shares of Common
Stock outstanding immediately after giving effect to such conversion or receipt
of shares as payment of interest.   
Since the Holder will not be obligated to report to the Company the
number of shares of Common Stock it may hold at the time of a conversion hereunder,
unless the conversion at issue would result in the issuance of shares of Common
Stock in excess of 9.99% of the then outstanding shares of Common Stock without
regard to any other shares which may be beneficially owned by the Holder or an
affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any
particular conversion hereunder and to the extent that the Holder determines
that the limitation contained in this Section applies, the determination of
which portion of the principal amount of this Debenture is convertible shall be
the responsibility and obligation of the Holder.  If the Holder has delivered a Conversion
Notice for a principal amount of this Debenture that, without regard to any
other shares that the Holder or its affiliates may beneficially own, would
result in the issuance in excess of the permitted amount hereunder, the Company
shall notify the Holder of this fact and shall honor the conversion for the
maximum principal amount permitted to be converted on such Conversion Date in
accordance with the periods described in Section
4(a)(i) and, any principal amount tendered for conversion in excess
of the permitted amount hereunder shall remain outstanding under this
Debenture. The provisions of this Section may be waived by a Holder (but only
as to itself and not to any other Holder) upon not less than 65 days prior
notice to the Company. Other Holders shall be unaffected by any such waiver.

(ii)           The
Holder shall be subject to the following conversion restrictions:  (a) the Holder shall not make any conversion
of this Debenture using the Market Conversion Price until the earlier of the
effective date of the Underlying Share Registration Statement or January 1,
2007 (the “Restricted Period”); (b) after the expiration of the
Restricted Period, all of the Holder’s conversions of this Debenture (combined
with conversions on all other debentures issued pursuant to the Securities
Purchase Agreement) using the Market Conversion Price in any thirty (30) day
period (y) shall not exceed $500,000 of principal amount of this Debenture (the
“Cash Conversion Limit”) and (z) shall not result in the issuance of in
excess of 840,000 shares of Common Stock of the Company (the “Share
Conversion Limit”) provided that the Company promptly pays the Holder the
balance of the principal amount up to the Cash Conversion Limit which remains
unconverted as a result of the Share Conversion Limit.  Notwithstanding the foregoing, the Cash Conversion
Limit and the Share Conversion Limit shall not apply upon the occurrence and
during the continuation of an Event of Default, and neither of such
restrictions shall apply if waived in writing by the Company.  Nothing contained in this Section 4(b)(ii)
hereof shall limit the Holder’s right to make conversions at the Fixed
Conversion Price.

(iii)          The Company shall not issue any shares
of Common Stock pursuant to this Debenture, and the Holder of this Debenture
shall not have the right to receive any shares of Common Stock pursuant to this
Debenture, if the issuance of any such shares of Common Stock 

 6
 

 

would cause the total
shares of Common Stock issued under the transactions contemplated by the
Securities Purchase Agreement, including, (a) this Debenture or any other
debenture issued pursuant to the Securities Purchase Agreement, (b) the Warrant
Shares (as defined in the Securities Purchase Agreement), (c) the Commitment
Shares (as defined in the Securities Purchase Agreement), and (d) any shares of
Common Stock issued as Liquidated Damages (as defined in the Registration
Rights Agreement) to be greater than 19.99% of the outstanding shares of Common
Stock as of the date of the Securities Purchase Agreement (the number of shares
that may be issued without violating such rules and regulations, the “Share
Limitation”), until the Company’s shareholders approve (without the vote of
any shares acquired in the transactions set forth in the Securities purchase
Agreement) the issuance of all the shares issuable under the transactions
contemplated by the Securities Purchase Agreement.

(iv)          The Company shall not issue any shares
of Common Stock pursuant to this Debenture, and the Holder of this Debenture
shall not have the right to receive any shares of Common Stock pursuant to this
Debenture, if the issuance of any such shares of Common Stock would cause the
total shares of Common Stock issued under the transactions contemplated by the
Securities Purchase Agreement, including, (a) this Debenture or any other debenture
issued pursuant to the Securities Purchase Agreement, (b) the Warrant Shares
(as defined in the Securities Purchase Agreement), (c) the Commitment Shares
(as defined in the Securities Purchase Agreement), and (d) any shares of Common
Stock issued as Liquidated Damages (as defined in the Registration Rights
Agreement), to be greater than 61,111,111 shares of Common Stock.

 (c)          Conversion
Price and Adjustments to Conversion Price.

(i)            The
conversion price in effect on any Conversion Date shall be equal to the lesser
of (a) $1.75 (the “Fixed
Conversion Price”) or (b) ninety percent (90%) of the average
of the five (5) lowest daily Volume Weighted Average Prices during the fifteen
(15) Trading Days immediately preceding the Conversion Date (the “Market Conversion Price”).  The Fixed Conversion Price and the Market
Conversion Price are collectively referred to as the “Conversion Price.” 
The Conversion Price may be adjusted pursuant to the other terms of this
Debenture.

(ii)           If
the Company, at any time while this Debenture is outstanding, shall
(a) pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock, (b) subdivide outstanding shares
of Common Stock into a larger number of shares, (c) combine (including by way
of reverse stock split) outstanding shares of Common Stock into a smaller
number of shares, or (d) issue by reclassification of shares of the Common
Stock any shares of capital stock of the Company, then the Conversion Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of
a subdivision, combination or re-classification.

 7
 

 

(iii)          If
the Company, at any time while this Debenture is outstanding, shall issue
rights, options or warrants to all holders of Common Stock (and not to the
Holder) entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Conversion Price, then the Conversion Price shall
be multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants (plus the number of additional
shares of Common Stock offered for subscription or purchase), and of which the
numerator shall be the number of shares of the Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or warrants,
plus the number of shares which the aggregate offering price of the total
number of shares so offered would purchase at the Conversion Price. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants. However,
upon the expiration of any such right, option or warrant to purchase shares of
the Common Stock the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this Section, if any such right, option or warrant
shall expire and shall not have been exercised, the Conversion Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Conversion Price made pursuant to the
provisions of this Section after the issuance of such rights or warrants) had
the adjustment of the Conversion Price made upon the issuance of such rights,
options or warrants been made on the basis of offering for subscription or
purchase only that number of shares of the Common Stock actually purchased upon
the exercise of such rights, options or warrants actually exercised.

(iv)          If
the Company or any subsidiary thereof, as applicable, at any time while this Debenture
is outstanding, shall issue shares of Common Stock or rights, warrants, options
or other securities or debt that are convertible into or exchangeable for
shares of Common Stock (“Common Stock Equivalents”) entitling any Person
to acquire shares of Common Stock, at a price per share less than the
Conversion Price (if the holder of the Common Stock or Common Stock Equivalent
so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights per share which is issued
in connection with such issuance, be entitled to receive shares of Common Stock
at a price per share which is less than the Conversion Price, such issuance shall
be deemed to have occurred for less than the Conversion Price) (a “Dilutive
Issuance”), then, effective immediately upon the Dilutive Issuance, the
Fixed Conversion Price shall be adjusted so as to equal an amount determined by
multiplying such Fixed Conversion Price by the following fraction:

	
  

  	
  N0 + N1

  
	
   

  	
  N0 + N2

  

where:

N0 =                       the
number of shares of Common Stock outstanding immediately prior to the issuance,
or deemed issuance, of such Common Stock or Common Stock Equivalents in such
Dilutive Issuance (without taking into account any shares of Common Stock
issuable upon

 8
 

 

                                                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, other than shares of Common Stock
issuable upon conversion of this Debenture and any other debentures issued
pursuant to the Securities Purchase Agreement or upon exercise of the Warrants
(as defined in the Securities Purchase Agreement), 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 shares of Common Stock or Common Stock
Equivalents so issued, or deemed issued, in such Dilutive Issuance would
purchase at the Fixed Conversion Price in effect immediately prior to such
Dilutive Issuance; and

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

Such adjustment shall be
made whenever such Common Stock or Common Stock Equivalents are issued. The
Company shall notify the Holder in writing, no later than one (1) business day
following the issuance of any Common Stock or Common Stock Equivalent subject
to this Section, indicating therein the applicable issuance price, or of
applicable reset price, exchange price, conversion price and other pricing
terms.  No adjustment under this Section
shall be made as a result of issuances of Excluded Securities.

(v)           If
the Company, at any time while this Debenture is outstanding, shall distribute
to all holders of Common Stock (and not to the Holder) evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security, then in each such case the Conversion Price at which this Debenture
shall thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Volume Weighted Average Price
determined as of the record date mentioned above, and of which the numerator
shall be such Volume Weighted Average Price on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of the
Common Stock as determined by the Board of Directors in good faith. In either
case the adjustments shall be described in a statement provided to the Holder
of the portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.

(vi)          In
case of any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities,
cash or 

 9
 

 

property, the Holder shall have the right thereafter
to, at its option,  (A) convert the then outstanding
principal amount, together with all accrued but unpaid interest and any other
amounts then owing hereunder in respect of this Debenture into the shares of
stock and other securities, cash and property receivable upon or deemed to be
held by holders of the Common Stock following such reclassification or share
exchange, and the Holder of this Debenture shall be entitled upon such event to
receive such amount of securities, cash or property as the shares of the Common
Stock of the Company into which the then outstanding principal amount, together
with all accrued but unpaid interest and any other amounts then owing hereunder
in respect of this Debenture could have been converted immediately prior to
such reclassification or share exchange would have been entitled, or (B)
require the Company to prepay the outstanding principal amount of this
Debenture, plus all interest and other amounts due and payable thereon. The
entire prepayment price shall be paid in cash. 
This provision shall similarly apply to successive reclassifications or
share exchanges.

(vii)         Whenever
the Conversion Price is adjusted pursuant to Section
4 hereof, the Company shall promptly mail to the Holder a notice
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.

(viii)        If
(A) the Company shall declare a dividend (or any other distribution) on the
Common Stock; (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C) the Company shall
authorize the granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class or of any
rights; (D) the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock, any consolidation
or merger to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or
property; or (E) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company; then, in
each case, the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Debenture, and shall cause to
be mailed to the Holder at its last address as it shall appear upon the stock
books of the Company, at least twenty (20) calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date
on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.  The Holder is entitled
to convert this Debenture during the 20-day calendar period commencing the date
of such notice to the effective date of the event triggering such notice.

(ix)           In
case of any (1) merger or consolidation of the Company or any subsidiary of the
Company with or into another Person, or (2) sale by the Company or any

 

 10

 

subsidiary of the Company of more than one-half of the
assets of the Company in one or a series of related transactions, a Holder
shall have the right to (A) exercise any rights under Section 2(b), (B) convert the aggregate
amount of this Debenture then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders
of Common Stock following such merger, consolidation or sale, and such Holder
shall be entitled upon such event or series of related events to receive such
amount of securities, cash and property as the shares of Common Stock into
which such aggregate principal amount of this Debenture could have been
converted immediately prior to such merger, consolidation or sales would have
been entitled, or (C) in the case of a merger or consolidation, require the
surviving entity to issue to the Holder a convertible Debenture with a
principal amount equal to the aggregate principal amount of this Debenture then
held by such Holder, plus all accrued and unpaid interest and other amounts
owing thereon, which such newly issued convertible Debenture shall have terms
identical (including with respect to conversion) to the terms of this
Debenture, and shall be entitled to all of the rights and privileges of the
Holder of this Debenture set forth herein and the agreements pursuant to which
this Debentures were issued. In the case of clause (C), the conversion price
applicable for the newly issued shares of convertible preferred stock or
convertible Debentures shall be based upon the amount of securities, cash and
property that each share of Common Stock would receive in such transaction and
the Conversion Price in effect immediately prior to the effectiveness or
closing date for such transaction. The terms of any such merger, sale or
consolidation shall include such terms so as to continue to give the Holder the
right to receive the securities, cash and property set forth in this Section
upon any conversion or redemption following such event. This provision shall
similarly apply to successive such events.

(d)           Other Provisions.

(i)            The
Company shall have the right to force the Holder to convert this Debenture into
shares of Common Stock in accordance with this Section 4
hereof, in amounts not to exceed $500,000 in any thirty (30) day period (less
any amounts converted by the Holder during such period), after the Original
Issue Date, subject to the limitations on conversions set forth in Section 4(b) hereof and provided that the following
conditions are satisfied:  (a) the Volume
Weighted Average Price of the Common Stock is greater than 110% of the Fixed
Conversion Price on each of the five Trading Days immediately preceding the
Conversion Date, (b) the average daily trading volume for the Common Stock on a
Primary Market over the five Trading Days prior to the Conversion Date shall
have been greater than 200,000 shares, (c) the Underlying Shares Registration
Statement shall be effective and the Holder shall be permitted to resell the
shares of Common Stock underlying this Debenture under the Underlying
Registration Statement, and (d) no Event of Default shall have occurred and be
continuing.

(ii)           The Company will have the right to force the Holder
to convert this Debenture into shares of Common Stock in accordance with this Section 4 hereof if
(a) the Volume Weighted Average Price of the Common Stock is greater than or
equal to a price per share equal to 200% of the Fixed Conversion Price for at
least thirty (30) consecutive Trading Days preceding the Conversion Date, (b)
the average daily trading volume for the Common Stock on a Primary Market over
the five Trading Days prior to the Conversion Date shall have been greater than
250,000 shares, (c) the Underlying Shares Registration Statement shall be
effective and the Holder shall be permitted to resell the shares of Common
Stock underlying this 

 11
 

 

Debenture under the Underlying Registration Statement,
and (d) no Event of Default shall have occurred and be continuing.

(iii)          The
Company shall at all times reserve and keep available out of its authorized
Common Stock the full number of shares of Common Stock issuable upon conversion
of all outstanding amounts under this Debenture; and within three (3) Business
Days following the receipt by the Company of a Holder’s notice that such
minimum number of Underlying Shares is not so reserved, the Company shall
promptly reserve a sufficient number of shares of Common Stock to comply with
such requirement.

(iv)          All
calculations under this Section 4
shall be rounded to the nearest $0.0001 or whole share.

(v)           The
Company covenants that it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of this Debenture and payment of interest on this
Debenture, each as herein provided, free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holder, not less
than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares set
forth in this Debenture or in the Transaction Documents) be issuable (taking
into account the adjustments and restrictions set forth herein) upon the
conversion of the outstanding principal amount of this Debenture and payment of
interest hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid, nonassessable and, if the Underlying Shares Registration
Statement has been declared effective under the Securities Act, registered for
public sale in accordance with such Underlying Shares Registration Statement.

(vi)          Upon
a conversion hereunder the Company shall not be required to issue stock
certificates representing fractions of shares of the Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the Volume Weighted Average Price at such time. If the Company
elects not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one whole share
of Common Stock.

(vii)         The
issuance of certificates for shares of the Common Stock on conversion of this
Debenture shall be made without charge to the Holder thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debenture so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.

(viii)        Nothing
herein shall limit a Holder’s right to pursue actual damages or declare an
Event of Default pursuant to Section 2
herein for the Company ‘s failure to deliver certificates representing shares
of Common Stock upon conversion within the period specified 

 12
 

 

herein and such Holder shall have the right to pursue
all remedies available to it at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief, in each case without
the need to post a bond or provide other security. The exercise of any such
rights shall not prohibit the Holder from seeking to enforce damages pursuant
to any other Section hereof or under applicable law.

(ix)           In
addition to any other rights available to the Holder, if the Company fails to
deliver to the Holder such certificate or certificates pursuant to Section 4(a)(i) by the fifth (5th) Trading Day after the
Conversion Date, and if after such fifth (5th) Trading Day the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the Underlying Shares which the Holder anticipated receiving
upon such conversion (a “Buy-In”), then the Company shall (A) pay in
cash to the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder’s total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y)
the product of (1) the aggregate number of shares of Common Stock that such
Holder anticipated receiving from the conversion at issue multiplied by (2) the
market price of the Common Stock at the time of the sale giving rise to such
purchase obligation and (B) at the option of the Holder, either reissue a
Debenture in the principal amount equal to the principal amount of the
attempted conversion or deliver to the Holder the number of shares of Common
Stock that would have been issued had the Company timely complied with its
delivery requirements under Section 4(a)(i).
For example, if the Holder purchases Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to an attempted conversion of
Debentures with respect to which the market price of the Underlying Shares on
the date of conversion was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Company shall be required to pay the Holder
$1,000.  The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in respect
of the Buy-In.

Section
5.              Notices.
                Any notices, consents, waivers or other communications required or permitted
to be given under the terms hereof must be in writing and will be deemed to
have been delivered:  (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Trading Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. 
The addresses and facsimile numbers for such communications shall be:

 

	
  If to the Company, to:

  	
  WorldGate Communications, Inc.

  
	
   

  	
  3190 Tremont Avenue

  
	
   

  	
  Trevose, PA 19053

  
	
   

  	
  Attention:  

  	
  Joel Boyarski

  
	
   

  	
  Telephone:

  	
  (215) 354-5312

  
	
   

  	
  Facsimile: 

  	
  (215) 354-1049

  
	
   

  	
   

  
	
  With a copy to:

  	
  Drinker Biddle & Reath LLP

  

 

 13
 

 

 

	
  

  	
  1000 Westlakes Drive, Suite 300

  
	
   

  	
  Berwyn, PA 19312-2409

  
	
   

  	
  Attention:

  	
  Walter Mostek

  
	
   

  	
  Telephone:

  	
  (610) 993-2233

  
	
   

  	
  Facsimile:

  	
  (610) 993-8585

  
	
   

  	
   

  
	
  If to the
  Holder:

  	
  Cornell Capital Partners, LP

  
	
   

  	
  101 Hudson Street, Suite 3700

  
	
   

  	
  Jersey City, NJ 07303

  
	
   

  	
  Attention:

  	
  Mark Angelo

  
	
   

  	
  Telephone:

  	
  (201) 985-8300

  
	
   

  	
   

  
	
  With a copy to:

  	
  David Gonzalez, Esq

  
	
   

  	
  101 Hudson Street — Suite 3700

  
	
   

  	
  Jersey City, NJ 07302

  
	
   

  	
  Telephone:

  	
  (201) 985-8300

  
	
   

  	
  Facsimile:

  	
  (201) 985-8266

  
	
   

  	
   

  

 

or at such other address and/or facsimile number
and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party three (3) business days
prior to the effectiveness of such change. 
Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.

Section 6.              Definitions.  For the purposes hereof, the following terms
shall have the following meanings:

“Approved
Stock Plan” means any stock or option or other incentive plan that has been
duly adopted by a majority of the non-employee members of the Board of
Directors of the Company, or a majority of the members of a committee of
non-employee directors established for such purpose, pursuant to which the
Company’s securities may be issued or deemed to be issued to consultants,
employees, officers or directors of the Company.

 “Business Day” means any day except
Saturday, Sunday and any day which shall be a federal legal holiday in the
United States or a day on which banking institutions are authorized or required
by law or other government action to close.

“Change
of Control Transaction” means the occurrence of (a) an acquisition after
the date hereof by an individual or legal entity or “group” (as described in
Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of fifty percent (50%) of the voting
securities of the Company (except that the acquisition of voting securities by
the Holder 

 14
 

 

shall not constitute a Change of Control Transaction
for purposes hereof), (b) a replacement at one time or over time of more than
one-half of the members of the board of directors of the Company which is not
approved by a majority of those individuals who are members of the board of
directors on the date hereof and remain on the board of directors as of the
date of such approval (or by those individuals who are serving as members of
the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof and remain on the board of directors as of the date
of such approval), or (c) the merger, consolidation or sale of fifty percent
(50%) or more of the assets of the Company or any subsidiary of the Company in
one or a series of related transactions with or into another entity.

“Commission”
means the Securities and Exchange Commission.

“Common
Stock” means the common stock, par value $.01, of the Company and stock of
any other class into which such shares may hereafter be changed or
reclassified.

“Conversion Date” shall mean the
date upon which the Holder gives the Company notice of their intention to
effectuate a conversion of this Debenture into shares of the Company’s Common
Stock as outlined herein.

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

“Excluded
Securities” means (a) shares of Common Stock issued or deemed to have been
issued pursuant to an Approved Stock Plan; (b) shares of Common Stock issued or
deemed to be issued by the Company upon the conversion, exchange or exercise of
any right, option, obligation or security outstanding on the date of the
Securities Purchase Agreement; provided that (1) the terms of such right,
option, obligation or security are not amended or otherwise modified on or
after the date of the Securities Purchase Agreement, and (2) the conversion
price, exchange price, exercise price or other purchase price is not reduced,
adjusted or otherwise modified (except by operation of, or in accordance with,
the relevant governing documents) and the number of shares of Common Stock
issued or issuable is not increased (except by operation of, or in accordance
with, the relevant governing documents) on or after the date of the Securities
Purchase Agreement, and provided further that, notwithstanding anything to the
contrary set forth herein, the term “Excluded Securities” shall include,
subject to the consent of the Holder which shall not be unreasonably withheld,
shares of Common Stock issued or deemed to be issued by the Company upon the
exercise of additional investment rights issued or issuable by the Company in
satisfaction of claims against the Company by the investors party to the
private placement of the Company’s securities on August 3, 2005; and
(c) the shares of Common Stock issued or deemed to be issued by the
Company upon conversion of this Debenture and any other debentures issued
pursuant to the Securities Purchase Agreement or upon exercise of the Warrants;
and (d) shares of Common Stock issued or deemed to have been issued pursuant to
any strategic transaction with a third party Person in connection with the
business of the Company, which transaction is not primarily for the purpose of
raising capital for the Company.

“Original
Issue Date” shall mean the date of the first issuance of this Debenture
regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.

 15
 

 

“Person”
means a corporation, an association, a partnership, organization, a business,
an individual, a government or political subdivision thereof or a governmental
agency.

 “Securities Act” means the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Trading
Day” means a day on which the shares of Common Stock are quoted on the
OTCBB or quoted or traded on such Primary Market on which the shares of Common
Stock are then quoted or listed; provided, that in the event that the shares of
Common Stock are not listed or quoted, then Trading Day shall mean a Business
Day.

“Transaction
Documents” means the Securities Purchase Agreement or any other agreement
delivered in connection with the Securities Purchase Agreement, including,
without limitation, the Security Agreement, the Irrevocable Transfer Agent
Instructions, and the Registration Rights Agreement.

“Underlying
Shares” means the shares of Common Stock issuable upon conversion of this
Debenture or as payment of interest in accordance with the terms hereof.

“Underlying
Shares Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among
other things the resale of the Underlying Shares and naming the Holder as a “selling
stockholder” thereunder.

“Volume
Weighted Average Price” means, with respect to a Trading Day, the volume
weighted average price of the Common Stock for such Trading Day as quoted by
Bloomberg, LP.

Section 7.              Except as expressly provided
herein, no provision of this Debenture shall alter or impair the obligations of
the Company, which are absolute and unconditional, to pay the principal of,
interest and other charges (if any) on, this Debenture at the time, place, and
rate, and in the coin or currency, herein prescribed.  This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as this Debenture is
outstanding, the Company shall not and shall cause their subsidiaries not to,
without the consent of the Holder, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock or other equity securities other than as to
the Underlying Shares to the extent permitted or required under the Transaction
Documents; or (iii) enter into any agreement with respect to any of the
foregoing.

Section 8.              This Debenture shall not entitle
the Holder to any of the rights of a stockholder of the Company, including
without limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings of the Company, unless and to the extent
converted into shares of Common Stock in accordance with the terms hereof.

Section 9.              If this Debenture is mutilated,
lost, stolen or destroyed, the Company shall execute and deliver, in exchange
and substitution for and upon cancellation of the mutilated 

 16
 

 

Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount
of this Debenture so mutilated, lost, stolen or destroyed but only upon receipt
of evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Company.

Section 10.            No indebtedness of the Company is
senior to this Debenture in right of payment, whether with respect to interest,
damages or upon liquidation or dissolution or otherwise.  Without the Holder’s consent, the Company
will not and will not permit any of their subsidiaries to, directly or
indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness of any kind, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
there from that is senior in any respect to the obligations of the Company
under this Debenture.

Section 11.            This Debenture shall be governed by
and construed in accordance with the laws of the State of New Jersey, without
giving effect to conflicts of laws thereof. 
Each of the parties consents to the jurisdiction of the Superior Courts
of the State of New Jersey sitting in Hudson County, New Jersey and the
U.S. District Court for the District of New Jersey  sitting in Newark, New Jersey in connection
with any dispute arising under this Debenture and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non  conveniens to the bringing of any such proceeding in such
jurisdictions.

Section 12.            If the Company fails to strictly
comply with the terms of this Debenture, then the Company shall reimburse the
Holder promptly for all fees, costs and expenses, including, without
limitation, attorneys’ fees and expenses incurred by the Holder in any action
in connection with this Debenture, including, without limitation, those
incurred: (i) during any workout, attempted workout, and/or in connection with
the rendering of legal advice as to the Holder’s rights, remedies and
obligations, (ii) collecting any sums which become due to the Holder, (iii)
defending or prosecuting any proceeding or any counterclaim to any proceeding
or appeal; or (iv) the protection, preservation or enforcement of any rights or
remedies of the Holder.

Section 13.            Any waiver by the Holder of a breach
of any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this Debenture. Any
waiver must be in writing.

Section 14.            If any provision of this Debenture
is invalid, illegal or unenforceable, the balance of this Debenture shall
remain in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other persons and
circumstances. If it shall be found that any interest or other amount deemed
interest due hereunder shall violate applicable laws governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum permitted rate of interest. The Company covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law or other law which would prohibit or forgive
the Company from paying 

 17
 

 

all or any portion of the principal of or interest on
this Debenture as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the performance of
this indenture, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that
it will not, by resort to any such law, hinder, delay or impeded the execution
of any power herein granted to the Holder, but will suffer and permit the
execution of every such as though no such law has been enacted.

Section 15.            Whenever any payment or other
obligation hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day.

Section 16.            This Debenture is exchangeable for
an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration of transfer or exchange.

Section 17.            THE PARTIES HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR
IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PARTY.  THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.

[REMAINDER OF PAGE INTENTIONLLY
LEFT BLANK]

 18
 

 

IN
WITNESS WHEREOF, the Company has caused this Secured
Convertible Debenture to be duly executed by a duly authorized officer as of
the date set forth above.

 

	
  

  	
  COMPANY:

  
	
   

  	
  WORLDGATE COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Joel Boyarski

  
	
   

  	
  Name:

  	
  Joel Boyarski

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  

 

 19
 

 

 

EXHIBIT A

CONVERSION NOTICE

(To be executed by the
Holder in order to Convert the Debenture)

 

	
  TO: 

  

 

The undersigned hereby irrevocably elects to convert $                                                                              
of the principal amount of Debenture No. WGAT-1-1 into Shares of Common Stock
of WORLDGATE COMMUNICATIONS, INC.,
according to the conditions stated therein, as of the Conversion Date written
below.

	
  Conversion Date:

  	
   

  
	
  Amount to be converted:

  	
  $

  
	
  Conversion Price:

  	
  $

  
	
  Number of shares of Common Stock to be issued:

  	
   

  
	
  Amount of Debenture Unconverted:

  	
  $

  
	
   

  	
   

  
	
   

  	
   

  
	
  Please issue the shares of Common Stock in the
  following name and to the following address:

  
	
  Issue to:

  	
  Cornell Capital Partners, LP 101 Hudson Street,
  Suite 3700 

  Jersey City, NJ 07083

  Tel: (201) 985-8300 

  Fax: (201) 985-8266

  	
   

  
	
   

  	
   

  
	
  Authorized Signature:

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
	
  Broker DTC Participant Code:

  	
   

  
	
  Account Number:

  	
   

  

 

 

 20Exhibit 10.1

SEPRACOR INC.

2000 STOCK
INCENTIVE PLAN

1.                 Purpose

The
purpose of this 2000 Stock Incentive Plan (the “Plan”) of Sepracor Inc., a
Delaware corporation (the “Company”), is to
advance the interests of the Company’s stockholders by enhancing the Company’s
ability to attract, retain and motivate persons who make (or are expected to
make) important contributions to the Company by providing such persons with
equity ownership opportunities and performance-based incentives and thereby
better aligning the interests of such persons with those of the Company’s
stockholders. Except where the context otherwise requires, the term “Company”
shall include any of the Company’s present or future subsidiary corporations as
defined in Section 424(f) of the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder (the “Code”) and any other
business venture (including, without limitation, joint venture or limited
liability company) in which the Company has a significant interest, as determined
by the Board of Directors of the Company (the “Board”).

2.                 Eligibility

All of
the Company’s employees, officers, directors, consultants and advisors (and any
individuals who have accepted an offer for employment) are eligible to be
granted options, restricted stock awards, or other stock-based awards (each, an
“Award”) under the Plan. Each person who has been granted an Award under the
Plan shall be deemed a “Participant”.

3.                 Administration, Delegation

(a)   Administration by Board of Directors.   The
Plan will be administered by the Board. The Board shall have authority to grant
Awards and to adopt, amend and repeal such administrative rules, guidelines and
practices relating to the Plan as it shall deem advisable. The Board may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any Award in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency. All decisions by the Board shall be made in the Board’s sole
discretion and shall be final and binding on all persons having or claiming any
interest in the Plan or in any Award. No director or person acting pursuant to
the authority delegated by the Board shall be liable for any action or
determination relating to or under the Plan made in good faith.

(b)   Appointment of Committees.   To
the extent permitted by applicable law, the Board may delegate any or all of
its powers under the Plan to one or more committees or subcommittees of the Board
(a “Committee”). All references in the Plan to the “Board” shall mean the
Board or a Committee of the Board referred to in Section 3(b) to the
extent that the Board’s powers or authority under the Plan have been delegated
to such Committee.

4.                 Stock Available for Awards

(a)   Number of Shares.   Subject
to adjustment under Section 8, Awards may be made under the Plan for up to
2,500,000 shares of common stock, $.10 par value per share, of the Company (the
“Common Stock”). If any Award expires or is terminated, surrendered or canceled
without having been fully exercised or is forfeited in whole or in part or
results in any Common Stock not being issued, the unused Common Stock covered
by such Award shall again be available for the grant of Awards under the Plan,
subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitation required under the Code. Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.

 1
 

(b)   Per-Participant Limit.   Subject
to adjustment under Section 8, for Awards granted after the Common Stock
is registered under the Securities Exchange Act of 1934 (the “Exchange Act”),
the maximum number of shares of Common Stock with respect to which Awards may
be granted to any Participant under the Plan shall be 500,000
per calendar year. The per-Participant limit described in this Section 4(b) shall
be construed and applied consistently with Section 162(m) of the Code
(“Section 162(m)”).

5.                 Stock Options

(a)   General.   The Board may
grant options to purchase Common Stock (each, an “Option”) and determine the
number of shares of Common Stock to be covered by each Option, the exercise
price of each Option and the conditions and limitations applicable to the
exercise of each Option, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable. An Option which
is not intended to be an Incentive Stock Option (as hereinafter defined) shall
be designated a “Nonstatutory Stock Option”.

(b)   Incentive Stock Options.   An
Option that the Board intends to be an “incentive stock option” as defined in Section 422
of the Code (an “Incentive Stock Option”) shall only be granted to employees of
the Company and shall be subject to and shall be construed consistently with
the requirements of Section 422 of the Code. The Company shall have no
liability to a Participant, or any other party, if an Option (or any part
thereof) which is intended to be an Incentive Stock Option is not an Incentive
Stock Option.

(c)   Exercise Price.   The Board
shall establish the exercise price at the time each Option is granted and
specify it in the applicable option agreement, provided, however, that the
exercise price shall not be less than 100% of the fair market value of the
Common Stock, as determined by the Board, at the time the Option is granted.

(d)   Duration of Options.   Each
Option shall be exercisable at such times and subject to such terms and
conditions as the Board may specify in the applicable option agreement,
provided however, that no Option will be granted for a term in excess of ten
years.

(e)   Exercise of Option.   Options
may be exercised by delivery to the Company of a written notice of exercise
signed by the proper person or by any other form of notice (including
electronic notice) approved by the Board together with payment in full as
specified in Section 5(f) for the number of shares for which the
Option is exercised.

(f)    Payment Upon Exercise.   Common
Stock purchased upon the exercise of an Option granted under the Plan shall be
paid for as follows:

(1)   in cash or by check, payable to the order of the Company;

(2)   except as the Board may, in its sole discretion, otherwise provide
in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (ii) delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company cash
or a check sufficient to pay the exercise price;

(3)   when the Common Stock is registered under the Exchange Act, by
delivery of shares of Common Stock owned by the Participant valued at their
fair market value as determined by (or in a manner approved by) the Board in
good faith (“Fair Market Value”), provided (i) such method of payment is
then permitted under applicable law and (ii) such Common Stock was owned
by the Participant at least six months prior to such delivery;

(4)   to the extent permitted by the Board, in its sole discretion by (i) delivery
of a promissory note of the Participant to the Company on terms determined by
the Board, or (ii) payment of such other lawful consideration as the Board
may determine; or

 2
 

(5)   by any combination of the above permitted forms of payment.

(g)   Substitute Options.   In
connection with a merger or consolidation of an entity with the Company or the
acquisition by the Company of property or stock of an entity, the Board may
grant Options in substitution for any options or other stock or stock-based
awards granted by such entity or an affiliate thereof. Substitute Options may
be granted on such terms as the Board deems appropriate in the circumstances,
notwithstanding any limitations on Options contained in the other sections of
this Section 5.

6.                 Restricted Stock

(a)   Grants.   The Board may grant
Awards entitling recipients to acquire shares of Common Stock, subject to the
right of the Company to repurchase all or part of such shares at their issue
price or other stated or formula price (or to require forfeiture of such shares
if issued at no cost) from the recipient in the event that conditions specified
by the Board in the applicable Award are not satisfied prior to the end of the
applicable restriction period or periods established by the Board for such
Award (each, a “Restricted Stock Award”).

(b)   Terms and Conditions.   The
Board shall determine the terms and conditions of any such Restricted Stock
Award, including the conditions for repurchase (or forfeiture) and the issue
price, if any. Any stock certificates issued in respect of a Restricted Stock
Award shall be registered in the name of the Participant and, unless otherwise
determined by the Board, deposited by the Participant, together with a stock
power endorsed in blank, with the Company (or its designee). At the expiration
of the applicable restriction periods, the Company (or such designee) shall
deliver the certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary designated, in a
manner determined by the Board, by a Participant to receive amounts due or
exercise rights of the Participant in the event of the Participant’s death (the
“Designated Beneficiary”). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant’s estate.

7.                 Other Stock-Based Awards

The
Board shall have the right to grant other Awards based upon the Common Stock
having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.

8.                 Adjustments for Changes in Common Stock and Certain Other Events

(a)   Changes in Capitalization.   In
the event of any stock split, reverse stock split, stock dividend,
recapitalization, combination of shares, reclassification of shares, spin-off
or other similar change in capitalization or event, or any distribution to
holders of Common Stock other than a normal cash dividend, (i) the number
and class of securities available under this Plan, (ii) the per-Participant
limit set forth in Section 4(b), (iii) the number and class of
securities and exercise price per share subject to each outstanding Option, (iv) the
repurchase price per share subject to each outstanding Restricted Stock Award,
and (v) the terms of each other outstanding Award shall be appropriately
adjusted by the Company (or substituted Awards may be made, if applicable) to
the extent the Board shall determine, in good faith, that such an adjustment
(or substitution) is necessary and appropriate. If this Section 8(a) applies
and Section 8(c) also applies to any event, Section 8(c) shall
be applicable to such event, and this Section 8(a) shall not be
applicable.

(b)   Liquidation or Dissolution.   In
the event of a proposed liquidation or dissolution of the Company, the Board
shall upon written notice to the Participants provide that all then unexercised
Options will (i) become exercisable in full as of a specified time at
least 10 business days prior to the effective date of such liquidation or
dissolution and (ii) terminate effective upon such liquidation or
dissolution, except to the extent exercised before such effective date. The
Board may specify the effect of a 

 3
 

liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.

(c)   Acquisition and Change in Control Events

(1)          Definitions

(a)           An
“Acquisition Event” shall mean:

(i)            any
merger or consolidation of the Company with or into another entity as a result
of which the Common Stock is converted into or exchanged for the right to
receive cash, securities or other property; or

(ii)        any
exchange of shares of the Company for cash, securities or other property
pursuant to a statutory share exchange transaction.

(b)          A
“Change in Control Event” shall mean:

(i)            the
acquisition by an individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership of
any capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) 30% or more of either (x) the then-outstanding
shares of common stock of the Company (the “Outstanding Company Common Stock”)
or (y) the combined voting power of the then-outstanding securities of the
Company entitled to vote generally in the election of directors (the
“Outstanding Company Voting Securities”); provided, however,
that for purposes of this subsection (i), the following acquisitions shall not
constitute a Change in Control Event: (A) any acquisition directly from
the Company (excluding an acquisition pursuant to the exercise, conversion or
exchange of any security exercisable for, convertible into or exchangeable for
common stock or voting securities of the Company, unless the Person exercising,
converting or exchanging such security acquired such security directly from the
Company or an underwriter or agent of the Company), (B) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (C) any
acquisition by any corporation pursuant to a Business Combination (as defined
below) which complies with clauses (x) and (y)  of subsection
(iii) of this definition; or

(ii)        such time as the
Continuing Directors (as defined below) do not constitute a majority of the
Board (or, if applicable, the Board of Directors of a successor corporation to
the Company), where the term “Continuing Director” means at any date a member
of the  Board (x) who was a member
of the Board on the date of the initial adoption of this Plan by the Board or
(y) who was nominated or elected subsequent to such date by at least a
majority of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Board was recommended or
endorsed by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election; provided, however, that there shall be excluded from this clause
(y) any individual whose initial assumption of office occurred as a result
of an actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies or
consents, by or on behalf of a person other than the Board; or

 4

(iii)    the consummation of a merger,
consolidation, reorganization, recapitalization or statutory share exchange
involving the Company or a sale or other disposition of all or substantially
all of the assets of the Company (a “Business Combination”), unless,
immediately following such Business Combination, each of the following two
conditions is satisfied: (x) all or substantially all of the individuals
and entities who were the beneficial owners of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of
the then-outstanding shares of common stock and the combined voting power of
the then-outstanding securities entitled to vote generally in the election of
directors, respectively, of the resulting or acquiring corporation in such
Business Combination (which shall include, without limitation, a corporation
which as a result of such transaction owns the Company or substantially all of the
Company’s assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the “Acquiring
Corporation”) in substantially the same proportions as their ownership of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
respectively, immediately prior to such Business Combination and (y) no
Person (excluding the Acquiring Corporation or any employee benefit plan (or
related trust) maintained or sponsored by the Company or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 30% or more of the
then-outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding securities of such corporation entitled
to vote generally in the election of directors (except to the extent that such
ownership existed prior to the Business Combination).

(2)          Effect on
Options

(a)           Acquisition
Event.   Upon the occurrence of an Acquisition Event (regardless
of whether such event also constitutes a Change in Control Event), or the
execution by the Company of any agreement with respect to an Acquisition Event
(regardless of whether such event will result in a Change in Control Event),
the Board shall provide that all outstanding Options shall be assumed, or
equivalent options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof); provided  that if such Acquisition Event also constitutes a Change in
Control Event, except to the extent specifically provided to the contrary in
the instrument evidencing any Option or any other agreement between a
Participant and the Company, such assumed or substituted options shall be immediately
exercisable in full upon the occurrence of such Acquisition Event. For purposes
hereof, an Option shall be considered to be assumed if, following consummation
of the Acquisition Event, the Option confers the right to purchase, for each
share of Common Stock subject to the Option immediately prior to the
consummation of the Acquisition Event, the consideration (whether cash,
securities or other property) received as a result of the Acquisition Event by
holders of Common Stock for each share of Common Stock held immediately prior
to the consummation of the Acquisition Event (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares of Common Stock); provided, however, that if
the consideration received as a result of the Acquisition Event is not solely
common stock of the acquiring or succeeding corporation (or an affiliate
thereof), the Company may, with the consent of the acquiring or succeeding
corporation, provide for the consideration to be received upon the exercise of
Options to consist solely of common stock of the acquiring or succeeding 

 5
 

corporation (or an
affiliate thereof) equivalent in fair market value to the per share
consideration received by holders of outstanding shares of Common Stock as a
result of the Acquisition Event.

Notwithstanding the foregoing, if the acquiring or
succeeding corporation (or an affiliate thereof) does not agree to assume, or
substitute for, such Options, then the Board shall, upon written notice to the
Participants, provide that all then unexercised Options will become exercisable
in full as of a specified time prior to the Acquisition Event and will
terminate immediately prior to the consummation of such Acquisition Event,
except to the extent exercised by the Participants before the consummation of
such Acquisition Event; provided, however, in the event of an Acquisition Event
under the terms of which holders of Common Stock will receive upon consummation
thereof a cash payment for each share of Common Stock surrendered pursuant to
such Acquisition Event (the “Acquisition Price”), then the Board may instead
provide that all outstanding Options shall terminate upon consummation of such
Acquisition Event and that each Participant shall receive, in exchange
therefor, a cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of Common Stock subject to
such outstanding Options (whether or not then exercisable), exceeds (B) the
aggregate exercise price of such Options.

(b)          Change in
Control Event that is not an Acquisition Event.   Upon the
occurrence of a Change in Control Event that does not also constitute an
Acquisition Event, except to the extent specifically provided to the contrary
in the instrument evidencing any Option or any other agreement between a
Participant and the Company, all Options then-outstanding shall automatically
become immediately exercisable in full.

(3)          Effect on
Restricted Stock Awards

(a)           Acquisition
Event that is not a Change in Control Event.   Upon the
occurrence of an Acquisition Event that is not a Change in Control Event, the
repurchase and other rights of the Company under each outstanding Restricted
Stock Award shall inure to the benefit of the Company’s successor and shall
apply to the cash, securities or other property which the Common Stock was
converted into or exchanged for pursuant to such Acquisition Event in the same
manner and to the same extent as they applied to the Common Stock subject to
such Restricted Stock Award.

(b)          Change in
Control Event.   Upon the occurrence of a Change in Control
Event (regardless of whether such event also constitutes an Acquisition Event),
except to the extent specifically provided to the contrary in the instrument
evidencing any Restricted Stock Award or any other agreement between a
Participant and the Company, all restrictions and conditions on all Restricted
Stock Awards then-outstanding shall automatically be deemed terminated or
satisfied.

(4)          Effect on
Other Awards

(a)           Acquisition
Event that is not a Change in Control Event.   The Board shall
specify the effect of an Acquisition Event that is not a Change in Control
Event on any other Award granted under the Plan at the time of the grant of
such Award.

(b)          Change in
Control Event.   Upon the occurrence of a Change in Control Event
(regardless of whether such event also constitutes an Acquisition Event),
except to the extent specifically provided to the contrary in the instrument
evidencing any other Award or any other agreement between a Participant and the
Company, all other 

 6
 

Awards shall become
exercisable, realizable or vested in full, or shall be free of all conditions
or restrictions, as applicable to each such Award.

(5)          Limitations.   Notwithstanding the foregoing provisions
of this Section 8(c), if the Change in Control Event is intended to be
accounted for as a “pooling of interests” for financial accounting purposes,
and if the acceleration to be effected by the foregoing provisions of this Section 8(c) would
preclude accounting for the Change in Control Event as a “pooling of interests”
for financial accounting purposes, then no such acceleration shall occur upon
the Change in Control Event.

9.                 General Provisions Applicable to Awards

(a)   Transferability of Awards.   Except as the Board may
otherwise determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.

(b)   Documentation.   Each Award shall be evidenced by a
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.

(c)   Board Discretion.   Except as otherwise provided by the
Plan, each Award may be made alone or in addition or in relation to any other
Award. The terms of each Award need not be identical, and the Board need not
treat Participants uniformly.

(d)   Termination of Status.   The Board shall determine the
effect on an Award of the disability, death, retirement, authorized leave of
absence or other change in the employment or other status of a Participant and
the extent to which, and the period during which, the Participant, the
Participant’s legal representative, conservator, guardian or Designated
Beneficiary may exercise rights under the Award.

(e)   Withholding.   Each Participant shall pay to the
Company, or make provision satisfactory to the Board for payment of, any taxes
required by law to be withheld in connection with Awards to such Participant no
later than the date of the event creating the tax liability. Except as the
Board may otherwise provide in an Award, when the Common Stock is registered
under the Exchange Act, Participants may, to the extent then permitted under
applicable law, satisfy such tax obligations in whole or in part by delivery of
shares of Common Stock, including shares retained from the Award creating the
tax obligation, valued at their Fair Market Value. The Company may, to the
extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to a Participant.

(f)    Amendment of Award.   The Board may amend, modify or
terminate any outstanding Award, including but not limited to, substituting
therefor another Award of the same or a different type, changing the date of
exercise or realization, and converting an Incentive Stock Option to a
Nonstatutory Stock Option, provided that the Participant’s consent to such
action shall be required unless the Board determines that the action, taking
into account any related action, would not materially and adversely affect the
Participant.

(g)   Conditions on Delivery of Stock.   The Company will not
be obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company’s counsel, all other legal
matters in connection with the issuance and delivery of such shares have been
satisfied, including any applicable securities laws and any applicable stock
exchange or stock market rules and regulations, and (iii) the
Participant has executed and delivered 

 7
 

to the Company such
representations or agreements as the Company may consider appropriate to
satisfy the requirements of any applicable laws, rules or regulations.

(h)   Acceleration.   The Board may
at any time provide that any Options shall become immediately exercisable in
full or in part, that any Restricted Stock Awards shall be free of restrictions
in full or in part or that any other Awards may become exercisable in full or
in part or free of some or all restrictions or conditions, or otherwise
realizable in full or in part, as the case may be.

10.          Miscellaneous

(a)   No Right To Employment or Other Status.   No person
shall have any claim or right to be granted an Award, and the grant of an Award
shall not be construed as giving a Participant the right to continued
employment or any other relationship with the Company. The Company expressly
reserves the right at any time to dismiss or otherwise terminate its
relationship with a Participant free from any liability or claim under the
Plan, except as expressly provided in the applicable Award.

(b)   No Rights As Stockholder.   Subject to the provisions of
the applicable Award, no Participant or Designated Beneficiary shall have any
rights as a stockholder with respect to any shares of Common Stock to be
distributed with respect to an Award until becoming the record holder of such
shares. Notwithstanding the foregoing, in the event the Company effects a split
of the Common Stock by means of a stock dividend and the exercise price of and
the number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such shares
were not outstanding as of the close of business on the record date for such
stock dividend.

(c)   Effective Date and Term of Plan.   The Plan shall become
effective on the date on which it is adopted by the Board, but no Award granted
to a Participant that is intended to comply with Section 162(m) shall
become exercisable, vested or realizable, as applicable to such Award, unless
and until the Plan has been approved by the Company’s stockholders to the
extent stockholder approval is required by Section 162(m) in the
manner required under Section 162(m) (including the vote required
under Section 162(m)). No Awards shall be granted under the Plan after the
completion of ten years from the earlier of (i) the date on which the Plan
was adopted by the Board or (ii) the date the Plan was approved by the
Company’s stockholders, but Awards previously granted may extend beyond that
date.

(d)   Amendment of Plan.   The Board may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that to the extent
required by Section 162(m), no Award granted to a Participant that is
intended to comply with Section 162(m) after the date of such
amendment shall become exercisable, realizable or vested, as applicable to such
Award, unless and until such amendment shall have been approved by the Company’s
stockholders as required by Section 162(m) (including the vote
required under Section 162(m)).

(e)   Governing Law.   The
provisions of the Plan and all Awards made hereunder shall be governed by and
interpreted in accordance with the laws of the State of Delaware, without
regard to any applicable conflicts of law.

	
  

  	
  Adopted by the Board of Directors on
  February 24, 2000

  
	
   

  	
  Adopted by the
  Stockholders on May 24, 2000

  

 

 8

AMENDMENT NO 1. TO

2000 STOCK INCENTIVE PLAN

OF

SEPRACOR INC.

The 2000 Stock
Incentive Plan (the “Plan”) of Sepracor Inc. be, and hereby is, amended as
follows:

1.     Section 4,
paragraph (a) is deleted in its entirety and the following is substituted
in its place:

“(a)   Number of Shares.   Subject
to adjustment under Section 8, Awards may be made under the Plan for up to
4,000,000 shares of common stock, $.10 par value per share, of the Company (the
“Common Stock”). If any Award expires or is terminated, surrendered or cancelled
without having been fully exercised or is forfeited in whole or in part or
results in any Common Stock not being issued, the unused Common Stock covered
by such Award shall again be available for the grant of Awards under the Plan,
subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitation required under the Code. Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.”

	
  

  	
  Adopted by the Board of Directors on
  February 21, 2002

  
	
   

  	
  Adopted by the
  Stockholders on May 22, 2002

  

 

 9

AMENDMENT NO 2. TO

2000 STOCK INCENTIVE PLAN

OF

SEPRACOR INC.

The 2000 Stock
Incentive Plan (the “Plan”) of Sepracor Inc. be, and hereby is, amended as
follows:

1.     Section 4,
paragraph (a) is deleted in its entirety and the following is substituted
in its place:

“(a)   Number of Shares.   Subject
to adjustment under Section 8, Awards may be made under the Plan for up to
5,5000,000 shares of common stock, $.10 par value per share, of the Company
(the “Common Stock”). If any Award expires or is terminated, surrendered or cancelled
without having been fully exercised or is forfeited in whole or in part or
results in any Common Stock not being issued, the unused Common Stock covered
by such Award shall again be available for the grant of Awards under the Plan,
subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitation required under the Code. Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.”

	
  

  	
  Adopted by the Board of Directors on
  February 20, 2003

  
	
   

  	
  Adopted by the
  Stockholders on May 22, 2003

  

 

 10

AMENDMENT NO 3. TO

2000 STOCK INCENTIVE PLAN

OF

SEPRACOR INC.

The 2000 Stock
Incentive Plan (the “Plan”), as amended, of Sepracor Inc. be, and hereby is,
further amended as follows:

1.     Section 4,
paragraph (a) is deleted in its entirety and the following is substituted
in its place:

“(a)   Number of Shares.   Subject to adjustment under Section 8,
Awards may be made under the Plan for up to 8,000,000 shares of common stock,
$.10 par value per share, of the Company (the “Common Stock”). If any Award
expires or is terminated, surrendered or cancelled without having been fully
exercised or is forfeited in whole or in part or results in any Common Stock
not being issued, the unused Common Stock covered by such Award shall again be
available for the grant of Awards under the Plan, subject, however, in the case
of Incentive Stock Options (as hereinafter defined), to any limitation required
under the Code. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.”

	
  

  	
  Adopted by the Board of Directors on
  February 11, 2004.

  
	
   

  	
  Adopted by the
  Stockholders on May 19, 2004.

  

 

 11

AMENDMENT NO. 4 TO

2000 STOCK INCENTIVE PLAN

OF

SEPRACOR INC.

The 2000 Stock
Incentive Plan (the “Plan”), as amended, of Sepracor Inc. be, and hereby is,
further amended as follows:

1.     Section 4,
paragraph (a) is deleted in its entirety and the following is substituted
in its place:

“(a)   Number of Shares.   Subject to adjustment under Section 8,
Awards may be made under the Plan for up to 9,500,000 shares of common stock,
$.10 par value per share, of the Company (the “Common Stock”). If any Award
expires or is terminated, surrendered or cancelled without having been fully
exercised or is forfeited in whole or in part or results in any Common Stock
not being issued, the unused Common Stock covered by such Award shall again be
available for the grant of Awards under the Plan, subject, however, in the case
of Incentive Stock Options (as hereinafter defined), to any limitation required
under the Code. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.”

	
  

  	
  Adopted by the Board of Directors on
  April 1, 2005.

  
	
   

  	
  Adopted by the
  Stockholders on May 19, 2005.

  

 

 12

AMENDMENT NO. 5 TO 

2000 STOCK INCENTIVE PLAN

OF

SEPRACOR INC.

The 2000 Stock
Incentive Plan (the “Plan”) of Sepracor Inc. be and hereby is, amended as
follows:

1.     The following Section 5(h) is hereby added:

(h)   Limitation on Repricing.   Unless
such action is approved by the Company’s stockholders: (i) no outstanding
Option granted under the Plan may be amended to provide an exercise price per
share that is lower than the then-current exercise price per share of such
outstanding Option (other than adjustments pursuant to Section 8), and (ii) the
Board may not cancel any outstanding option (whether or not granted under the
Plan) and grant in substitution therefor new Awards under the Plan covering the
same or a different number of shares of Common Stock and having an exercise
price per share lower than the then-current exercise price per share of the
cancelled Option.

2.     Section 9(f) is
hereby deleted in its entirety and replaced with the following:

(f)   Amendment of Plan.   Except as prohibited by Section 5(h),
the Board may amend, modify or terminate any outstanding Award, including but
not limited to, substituting therefore another Award of the same or a different
type, changing the date of exercise or realization, and converting an Incentive
Stock Option to a Non-Statutory Stock Option, provided that the Participant’s
consent to such action shall be required unless the Board determines that the
action, taking into account any related action, would not materially and
adversely affect the Participant.

	
  

  	
  Adopted by the
  Board of Directors on May 13, 2005

  

 

 13

AMENDMENT NO. 6 TO 

2000 STOCK INCENTIVE PLAN

OF

SEPRACOR INC.

The 2000 Stock
Incentive Plan (the “Plan”) of Sepracor Inc. be and hereby is, amended as
follows:

1.     Section 4,
paragraph (a) is deleted in its entirety and the following is substituted
in its place:

“(a)   Number of Shares.   Subject
to adjustment under Section 8, Awards may be made under the Plan for up to
11,500,000 shares of common stock, $.10 par value per share, of the Company
(the “Common Stock”). If any Award expires or is terminated, surrendered or cancelled
without having been fully exercised or is forfeited in whole or in part or
results in any Common Stock not being issued, the unused Common Stock covered
by such Award shall again be available for the grant of Awards under the Plan,
subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitation required under the Code. Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.”

	
   

  	
  Adopted by the Board of Directors on
  April 5, 2006.

  
	
   

  	
  Adopted by the
  Stockholders on May 18, 2006.

  

 

 14

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