Document:

Exhibit 4.1

 

EXHIBIT
B

 

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

 

SERIES A WARRANT

 

TO PURCHASE COMMON STOCK

 

OF

 

WORLDGATE COMMUNICATIONS, INC.

 

	
  Issue Date:  June 24, 2004

  	
   

  	
  Warrant No. 
        

  

 

THIS CERTIFIES
that
                                         
or any subsequent holder hereof (the “Holder”), has the right to
purchase from WORLDGATE COMMUNICATIONS, INC., a Delaware corporation (the “Company”),
up to
                         
fully paid and nonassessable shares of the Company’s common stock, par value
$0.01 per share (the “Common Stock”), subject to adjustment as provided
herein, at a price per share equal to the Exercise Price (as defined below), at
any time and from time to time beginning on the six (6) month anniversary of
the date on which this Warrant is originally issued (the “Issue Date”)
and ending at 6:00 p.m., eastern time, on the date that is the fifth (5th)
anniversary of the Issue Date (or, if such anniversary is not a Business Day,
on the Business Day immediately following such anniversary) (the “Expiration
Date”).  This Warrant is issued
pursuant to a Securities Purchase Agreement, dated as of June 24, 2004 (the “Securities

 

 

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

 

1.                                       Exercise.

 

(a)                                  Right
to Exercise; Exercise Price.  The
Holder shall have the right to exercise this Warrant at any time and from time
to time during the period beginning on the six (6) month anniversary of the
Issue Date and ending on the Expiration Date as to all or any part of the
shares of Common Stock covered hereby (the “Warrant Shares”).  The “Exercise Price” for each Warrant
Share purchased by the Holder upon the exercise of this Warrant shall be equal
to $2.69, subject to adjustment for the events specified in Section 6 below. 

 

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

 

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

 

(d)                                 Cancellation
of Warrant.  This Warrant shall be
canceled upon its exercise and, if this Warrant is exercised in part, the
Company shall, at the time that it delivers Warrant Shares to the Holder
pursuant to such exercise as provided herein, issue a new warrant, and deliver
to the Holder

 

2

 

a certificate representing such new warrant, with terms identical in
all respects to this Warrant (except that such new warrant shall be exercisable
into the number of shares of Common Stock with respect to which this Warrant
shall remain unexercised); provided, however, that the Holder
shall be entitled to exercise all or any portion of such new warrant at any
time following the time at which this Warrant is exercised, regardless of
whether the Company has actually issued such new warrant or delivered to the
Holder a certificate therefor.

 

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

 

3.                                       Failure
to Deliver Warrant Shares. 

 

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

 

3

 

(b)                                 In
the event of an Exercise Default, the Holder may, upon written notice to the
Company (an “Exercise Default Notice”), regain on the date of such
notice the rights of the Holder under the exercised portion of this Warrant
that is the subject of such Exercise Default, in which case the Exercise Price
upon any subsequent exercise of such portion of this Warrant will be equal to
the lesser of (x) the lowest Exercise Price occurring during the period
beginning on related Delivery Date and ending on the date on which the Exercise
Default Notice is delivered to the Company and (y) the Exercise Price in effect
on the applicable Exercise Date (it being understood that the Holder may
deliver an Exercise Notice at any time following delivery of an Exercise
Default Notice to the Company).  In such
event, the Holder shall retain all of the Holder’s rights and remedies with
respect to the Company’s failure to deliver such Warrant Shares (including
without limitation the right to receive the cash payments specified in Section
3(a) above).

 

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

 

 

 

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

 

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

 

4

 

the Company at any time after the public announcement or other
disclosure of a Major Transaction (as defined below); or

 

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

 

5.                                       Payment
of the Exercise Price; Cashless Exercise. 
The Holder may pay the Exercise Price in either of the following forms
or, at the election of Holder, a combination thereof:

 

(a)                                  through
a cash exercise (a “Cash Exercise”) by delivering immediately available
funds, or

 

(b)                                 if
an effective Registration Statement is not available for the resale of all of
the Warrant Shares issuable hereunder at the time an Exercise Notice is
delivered to the Company, through a cashless exercise (a “Cashless Exercise”).  The Holder may effect a Cashless Exercise by
surrendering this Warrant to the Company and noting on the Exercise Notice that
the Holder wishes to effect a Cashless Exercise, upon which the Company shall
issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y x (A-B)/A

 

where:                                                                                                             X
= the number of Warrant Shares to be issued to the Holder;

 

Y = the number of Warrant Shares with respect
to which this Warrant is being exercised;

 

5

 

A = the Market Price (as defined in the
Certificate) as of the Exercise Date; and

 

B = the Exercise Price.

 

For purposes of Rule 144, it is intended and
acknowledged that the Warrant Shares issued in a Cashless Exercise transaction
shall be deemed to have been acquired by the Holder, and the holding period for
the Warrant Shares required by Rule 144 shall be deemed to have been commenced,
on the Issue Date. 

 

6.                                       Anti-Dilution
Adjustments; Distributions; Other Events. The Exercise Price and the number
of Warrant Shares issuable hereunder shall be subject to adjustment from time
to time as provided in this Section 6. 
In the event that any adjustment of the Exercise Price required herein
results in a fraction of a cent, the Exercise Price shall be rounded up or down
to the nearest one hundredth of a cent.

 

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

 

(b)                                 Distributions.  If the Company shall declare or make any
distribution of cash or any other assets (or rights to acquire such assets) to
holders of Common Stock, as a partial liquidating dividend or otherwise,
including without limitation any dividend or distribution to the Company’s
stockholders in shares (or rights to acquire shares) of capital stock of a
subsidiary) (a “Distribution”),
the Company shall deliver written notice of such Distribution (a “Distribution Notice”) to the
Holder at least thirty (30) days prior to the earlier to occur of (i) the
record date for determining stockholders entitled to such Distribution (the “Record
Date”) and (ii) the date on which such Distribution is made (the “Distribution
Date”).  In the Distribution Notice
to a Holder, the Company must indicate whether the Company has elected (A) to
deliver to such Holder the same amount and type of assets being distributed in
such Distribution as though the Holder were a holder on the Determination Date
therefor of a number of shares of Common Stock into which the this Warrant is
exercisable as of such Determination Date (such number of shares to be
determined at the Exercise Price then in effect and without giving effect to
any limitations on such exercise) or (B) to reduce the Exercise Price as of the
Determination Date therefor by an amount equal to the fair market value of the
assets to be distributed divided by the number of shares of Common Stock
as to which such Distribution is to be made, such fair market value to be
reasonably determined in good

 

6

 

faith by the independent members of the Company’s Board of
Directors.  If the Company does not
notify the Holders of its election pursuant to the preceding sentence on or
prior to the Determination Date, the Company shall be deemed to have elected
clause (A) of the preceding sentence.

 

(c)                                  Dilutive
Issuances.  

 

(i)                                     Adjustment
Upon Dilutive Issuance.  If, at any
time after the Issue Date, the Company issues or sells, or in accordance with
subparagraph (iii) of this paragraph (c), is deemed to have issued or sold, any
shares of Common Stock for per share consideration less than the Exercise Price
on the date of such issuance or sale (a “Dilutive Issuance”), then the Exercise Price shall be adjusted
as follows (provided, however, that if any adjustment made pursuant to this
Section 6(c)(i) would reduce the Exercise Price to a price that is less than
the Floor Price (as defined in the Certificate), the Exercise Price shall be
deemed equal to the Floor Price for purposes of such adjustment):

 

(A)                              If
such Dilutive Issuance occurs prior to the Effective Date (as defined in the
Registration Rights Agreement), then effective immediately upon the Dilutive
Issuance, the Exercise Price shall be adjusted so as to equal the consideration
received or receivable by the Company (on a per share basis) for the additional
shares of Common Stock so issued, sold or deemed issued or sold in such
Dilutive Issuance (which, in the case of a deemed issuance or sale, shall be
calculated in accordance with subparagraph (ii) below).

 

(B)                                If
such Dilutive Issuance occurs on or after the Effective Date, then effective
immediately upon the Dilutive Issuance, the Exercise Price shall be adjusted so
as to equal an amount determined by multiplying such Exercise Price by the
following fraction:

 

	
   

  	
  N0
  + N1

  	
   

  
	
   

  	
  N0 + N2

  

 

	
  where:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  N0 =

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

  

 

7

 

	
   

  	
  N1 = 

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

  
	
   

  	
   

  	
   

  
	
   

  	
  N2 =

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

  

 

Notwithstanding the foregoing, no adjustment
shall be made pursuant hereto if such adjustment would result in an increase in
the Exercise Price.

 

(ii)                                  Adjustment
Upon Below Market Issuance.  If, at
any time after the Issue Date, the Company issues or sells, or in accordance
with subparagraph (iii) of this paragraph (c), is deemed to have issued or
sold, any shares of Common Stock for per share consideration less than the
Market Price on the date of such issuance or sale (or deemed issuance or sale)
(a “Below Market Issuance”),
then the Exercise Price shall be adjusted as follows (without regard to whether
the resulting Exercise Price is less than the Floor Price):

 

 (A)                           If such Below Market
Issuance occurs prior to the Effective Date (as defined in the Registration
Rights Agreement), then effective immediately upon such issuance, the Exercise
Price shall be adjusted so as to equal the value of the consideration received
or receivable by the Company (on a per share basis) for the additional shares
of Common Stock so issued, sold or deemed issued or sold in such Below Market
Issuance (which, in the case of a deemed issuance or sale, shall be calculated
in accordance with subparagraph (ii) below).

 

(B)                                If
such Below Market Issuance occurs on or after the Effective Date, then
effective immediately upon the Dilutive Issuance, the Exercise Price shall be
adjusted so as to equal an amount determined by multiplying such Exercise Price
by the following fraction:

 

	
   

  	
  N0
  + N1

  	
   

  
	
   

  	
  N0 + N2

  

 

where:

 

	
   

  	
   

  	
   

  
	
   

  	
  N0 =

  	
  the number of shares of Common Stock outstanding
  immediately prior to the issuance, sale or deemed issuance or sale of such
  additional shares of Common Stock in such Below Market Issuance (without
  taking into account any shares of Common Stock issuable upon conversion,
  exchange or exercise of any Convertible Securities or 

  

 

8

 

	
   

  	
   

  	
  Purchase Rights, other than shares of Common Stock
  issuable under the Preferred Shares and the Warrants, which shall be taken
  into account in determining such number);

  
	
   

  	
   

  	
   

  
	
   

  	
  N1 = 

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

  
	
   

  	
   

  	
   

  
	
   

  	
  N2 =

  	
  the number of such additional shares of Common Stock
  so issued, sold or deemed issued or sold in such Below Market Issuance.

  

 

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

 

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

 

(A)                              Issuance
Of Purchase Rights.  If the Company
issues or sells any Purchase Rights, whether or not immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Purchase Rights (and the price of any conversion of Convertible
Securities, if applicable) is less than the Market Price in effect on the date
of issuance or sale of such Purchase Rights, then the maximum total number of
shares of Common Stock issuable upon the exercise of all such Purchase Rights
(assuming full conversion, exercise or exchange of Convertible Securities, if
applicable) shall, as of the date of the issuance or sale of such Purchase
Rights, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share.  For
purposes of the preceding sentence, the “price per share for which Common Stock
is issuable upon the exercise of such Purchase Rights” shall be determined by
dividing (x) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Purchase Rights, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Purchase Rights, plus, in the case
of Convertible Securities issuable upon the exercise of such Purchase Rights,
the minimum aggregate amount of additional consideration payable upon the
conversion, exercise or exchange thereof (determined in accordance with the
calculation method set forth in subparagraph (iii)(B) below) at the time such
Convertible Securities first become convertible, exercisable or exchangeable,
by (y) the maximum total number of shares of

 

9

 

Common Stock
issuable upon the exercise of all such Purchase Rights (assuming full
conversion, exercise or exchange of Convertible Securities, if
applicable).  No further adjustment to
the Exercise Price shall be made upon the actual issuance of such Common Stock
upon the exercise of such Purchase Rights or upon the conversion, exercise or
exchange of Convertible Securities issuable upon exercise of such Purchase
Rights.  No further adjustment to the
Exercise Price shall be made upon the actual issuance of such Common Stock upon
the exercise of such Purchase Rights or upon the conversion, exercise or
exchange of Convertible Securities issuable upon exercise of such Purchase
Rights.  To the extent that shares of
Common Stock or Convertible Securities are not delivered pursuant to such
Purchase Rights, upon the expiration or termination of such Purchase Rights,
the Exercise Price shall be readjusted to the Exercise Price that would then be
in effect had the adjustments made upon the issuance of such Purchase Rights
been made on the basis of delivery of only the number of shares of Common Stock
actually delivered.

 

(B)                                Issuance
Of Convertible Securities.  If the
Company issues or sells any Convertible Securities, whether or not immediately
convertible, exercisable or exchangeable, and the price per share for which
Common Stock is issuable upon such conversion, exercise or exchange is less
than the Market Price in effect on the date of issuance or sale of such
Convertible Securities, then the maximum total number of shares of Common Stock
issuable upon the conversion, exercise or exchange of all such Convertible
Securities shall, as of the date of the issuance or sale of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share.  If
the Convertible Securities so issued or sold do not have a fluctuating
conversion or exercise price or exchange ratio, then for the purposes of the
immediately preceding sentence, the “price per share for which Common Stock is
issuable upon such conversion, exercise or exchange” shall be determined by
dividing (x) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable to
the Company upon the conversion, exercise or exchange thereof (determined in
accordance with the calculation method set forth in this subparagraph
(iii)(B)), by (y) the maximum total number of shares of Common Stock issuable
upon the exercise, conversion or exchange of all such Convertible
Securities.  If the Convertible
Securities so issued or sold have a fluctuating conversion or exercise price or
exchange ratio (a “Variable Rate
Convertible Security”) (provided, however, that if the conversion or
exercise price or exchange ratio of a Convertible Security may fluctuate solely
as a result of provisions designed to protect against dilution, such
Convertible Security shall not be deemed to be a Variable Rate Convertible
Security), then for purposes of the first sentence of this subparagraph (B),
the “price per share for which Common Stock is issuable upon such conversion,
exercise or exchange” shall be deemed to be the lowest price per share which
would be applicable (assuming all holding period and other conditions to any
discounts contained in such Variable Rate Convertible Security have been
satisfied) if the conversion price of such Variable Rate Convertible Security
on the date of issuance or sale thereof were seventy-five percent (75%) of the
actual conversion price on such date (the 

 

10

 

“Assumed Variable Market Price”),
and, further, if the conversion price of such Variable Rate Convertible
Security at any time or times thereafter is less than or equal to the Assumed
Variable Market Price last used for making any adjustment under this paragraph
(c) with respect to any Variable Rate Convertible Security, the Exercise Price
in effect at such time shall be readjusted to equal the Exercise Price which
would have resulted if the Assumed Variable Market Price at the time of
issuance of the Variable Rate Convertible Security had been seventy-five
percent (75%) of the actual conversion price of such Variable Rate Convertible
Security existing at the time of the adjustment required by this sentence.  No further adjustment to the Exercise Price
shall be made upon the actual issuance of such Common Stock upon conversion,
exercise or exchange of such Convertible Securities.  To the extent that shares of Common Stock are not delivered
pursuant to conversion of such Convertible Securities into Common Stock, the
Conversion Price shall be readjusted to the Conversion Price that would then be
in effect had the adjustments made upon the issuance of such Convertible
Securities been made on the basis of delivery of only the number of shares of
Common Stock actually delivered.

 

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

 

(D)                               Calculation
Of Consideration Received.  If any
Common Stock, Purchase Rights or Convertible Securities are issued or sold for
cash, the consideration received therefor will be the amount received by the
Company therefore.  In case any Common
Stock, Purchase Rights or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, including in the
case of a strategic or similar arrangement in which the other entity will
provide services to the Company, purchase services from the Company or
otherwise provide intangible consideration to the Company, the amount of the
consideration other than cash received by the Company (including the net
present value of the consideration other than cash expected by the Company for
the provided or purchased services) shall be the fair market value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the average of
the last sale prices thereof on the principal market for such securities during
the period of ten Trading Days

 

11

 

immediately
preceding the date of receipt. In case any Common Stock, Purchase Rights or
Convertible Securities are issued in connection with any merger or
consolidation in which the Company is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair market value of such portion
of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Purchase Rights or Convertible Securities,
as the case may be.  Notwithstanding
anything else herein to the contrary, if Common Stock Purchase Rights or
Convertible Securities are issued or sold in conjunction with each other as
part of a single transaction or in a series of related transactions, the Holder
may elect to determine the amount of consideration deemed to be received by the
Company therefor by deducting the fair value of any type of securities (the “Disregarded
Securities”) issued or sold in such transaction or series of
transactions.  If the Holder makes an
election pursuant to the immediately preceding sentence, no adjustment to the
Exercise Price shall be made pursuant to this paragraph (c) for the issuance of
the Disregarded Securities or upon any conversion, exercise or exchange
thereof.  The independent members of the
Company’s Board of Directors shall calculate reasonably and in good faith,
using standard commercial valuation methods appropriate for valuing such
assets, the fair market value of any consideration other than cash or
securities.

 

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

 

(iv)                              Exceptions
To Adjustment Of Exercise Price. 
Notwithstanding the foregoing, no adjustment to the Exercise Price shall
be made pursuant to this paragraph (c) upon the issuance of any Excluded
Securities.  For purposes hereof, “Excluded
Securities” means (I) securities purchased under the Securities Purchase
Agreement; (II) securities issued upon conversion of the Preferred Shares or
exercise of the Warrants; (III) shares of Common Stock issuable or issued to
(x) employees or directors from time to time either directly or upon the exercise
of options, in such case granted or to be granted in the discretion of the
Board of Directors, as approved by the independent members of the Board,
pursuant to one or more stock option plans or restricted stock plans or stock
purchase plans in effect as of the Closing Date or approved by the independent
members of the Board of Directors or by the Company’s shareholders, or (y)
consultants, either directly or pursuant to warrants to purchase Common Stock
that are outstanding

 

12

 

on the date hereof or issued hereafter, provided such issuances are
approved by the independent members of the Board of Directors or by the
Company’s shareholders; (IV) shares of Common Stock issued in connection with
any Convertible Securities or Purchase Rights outstanding on the date hereof;
and (V) shares of Common Stock issued to Persons in connection with a joint
venture, strategic alliance or other commercial relationship with such Person
relating to the operation of the Company’s business and not for the primary
purpose of raising equity capital.

 

(v)                                 Notice
Of Adjustments.  Upon the occurrence
of one or more adjustments or readjustments of the Exercise Price pursuant to
this paragraph (c) resulting in a change in the Exercise Price by more than one
percent (1%) in the aggregate, or any change in the number or type of stock,
securities and/or other property issuable upon exercise of this Warrant, the
Company, at its expense, shall promptly compute such adjustment or readjustment
or change and prepare and furnish to the Holder a notice (an “Adjustment
Notice”) setting forth such adjustment or readjustment or change and
showing in detail the facts upon which such adjustment or readjustment or
change is based.  The failure of the Company
to deliver an Adjustment Notice shall not affect the validity of any such
adjustment.

 

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

 

(e)                                  Adjustments;
Additional Shares, Securities or Assets. 
In the event that at any time, as a result of an adjustment made
pursuant to this Section 6, the Holder of this Warrant shall, upon exercise of
this Warrant, become entitled to receive securities or assets (other than
Common Stock) then, wherever appropriate, all references herein to shares of
Common Stock shall be deemed to refer to and include such shares and/or other securities
or assets; and thereafter the number of such shares and/or other securities or
assets shall be subject to adjustment from time to time in a manner and upon
terms as nearly equivalent as practicable to the provisions of this Section 6.  Any adjustment made herein that results in a
decrease in the Exercise Price shall also effect a

 

13

 

proportional increase in the number of shares of Common Stock into
which this Warrant is exercisable.

 

7.                                       Fractional
Interests.

 

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

 

8.                                       Transfer
of this Warrant.  

 

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

 

9.                                       Benefits
of this Warrant.

 

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

 

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

 

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

 

14

 

11.                                 Notice
or Demands.

 

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

 

If to the Company:

 

WorldGate Communications, Inc.

3190 Tremont Avenue

Trevose, Pennsylvania 19053

Attn:  Randy Gort

Tel:                          (215)
354-5100

Fax:                           (215)
354-1049                     

 

with a copy to:

 

Drinker Biddle & Reath LLP

1000 Westlakes Drive, Suite 300

Berwyn, Pennsylvania 19312

Attn:                    Walter
J. Mostek, Jr.

Tel:                            (610)
993-2200

Fax:                           (610)
993-8585

 

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

 

12.                                 Applicable
Law.

 

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

 

13.                                 Amendments.

 

No amendment, modification or
other change to, or waiver of any provision of, this Warrant may be made unless
such amendment, modification or change is (A) set forth in writing and is
signed by the Company and the Holder and (B) agreed to in writing by the
holders of at least two-thirds (2/3) of the number of shares into which the
Warrants are exercisable (without regard to any limitation contained herein on
such exercise), it being understood that upon the satisfaction of the
conditions described in (A) and (B) above, each Warrant (including any Warrant
held by the

 

15

 

Holder who did not execute the
agreement specified in (B) above) shall be deemed to incorporate any amendment,
modification, change or waiver effected thereby as of the effective date
thereof.

 

14.                                 Entire Agreement.

 

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

 

15.                                 Headings.

 

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

 

[Signature Page to Follow]

 

16

 

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

 

	
   

  	
  WORLDGATE COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

17

 

EXHIBIT A to WARRANT

 

EXERCISE NOTICE

 

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

 

1.                                       Form
of Exercise Price.  The Holder intends
that payment of the Exercise Price shall be made as:

 

a Cash Exercise with respect to
                                 
Warrant Shares; and/or 

 

a Cashless Exercise with respect to
                                 
Warrant Shares, as permitted by Section 5(b) of the attached Warrant.

 

2.                                     Payment
of Exercise Price.  In the event that
the Holder has elected a Cash Exercise with respect to some or all of the
Warrant Shares to be issued pursuant hereto, the Holder shall pay the sum of
$                               
to the Company in accordance with the terms of the Warrant.

 

	
  Date: 

  	
   

  	
   

  
	
   

  
	
   

  	
   

  
	
  Name of Registered Holder

  	
   

  
				

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

18

 

EXHIBIT B to WARRANT

 

TRANSFER NOTICE

 

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

 

	
  Date: 

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Registered Holder

  	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

Transferee Name and Address:

 

 

 

19Exhibit 4.2

 

EXHIBIT
C

 

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

 

SERIES B WARRANT

 

TO PURCHASE COMMON STOCK

 

OF

 

WORLDGATE COMMUNICATIONS, INC.

 

	
  Issue Date: June 24, 2004

  	
  Warrant No.    

  

 

THIS CERTIFIES
that
                                                    
or any subsequent holder hereof (the “Holder”), has the right to
purchase from WORLDGATE COMMUNICATIONS, INC., a Delaware corporation (the “Company”),
up to
                 
fully paid and nonassessable shares of the Company’s common stock, par value
$0.01 per share (the “Common Stock”), subject to adjustment as provided
herein, at a price per share equal to the Exercise Price (as defined below), at
any time and from time to time beginning on the six (6) month anniversary of
the date on which this Warrant is originally issued (the “Issue Date”)
and ending at 6:00 p.m., eastern time, on the date that is the fifth (5th)
anniversary of the Issue Date (or, if such anniversary is not a Business Day,
on the Business Day immediately following such anniversary) (the “Expiration
Date”).  This Warrant is issued
pursuant to a Securities Purchase Agreement, dated as of June 24, 2004 (the “Securities

 

 

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

 

1.             Exercise.

 

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

 

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

 

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

 

(d)           Cancellation
of Warrant.  This Warrant shall be
canceled upon its exercise and, if this Warrant is exercised in part, the
Company shall, at the time that it delivers Warrant Shares to the Holder
pursuant to such exercise as provided herein, issue a new warrant, and deliver
to the Holder

 

2

 

a certificate representing such
new warrant, with terms identical in all respects to this Warrant (except that
such new warrant shall be exercisable into the number of shares of Common Stock
with respect to which this Warrant shall remain unexercised); provided, however,
that the Holder shall be entitled to exercise all or any portion of such new
warrant at any time following the time at which this Warrant is exercised,
regardless of whether the Company has actually issued such new warrant or
delivered to the Holder a certificate therefor.

 

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

 

3.             Failure
to Deliver Warrant Shares.

 

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

 

3

 

(b)           In the event of an
Exercise Default, the Holder may, upon written notice to the Company (an “Exercise
Default Notice”), regain on the date of such notice the rights of the
Holder under the exercised portion of this Warrant that is the subject of such
Exercise Default, in which case the Exercise Price upon any subsequent exercise
of such portion of this Warrant will be equal to the lesser of (x) the lowest
Exercise Price occurring during the period beginning on related Delivery Date
and ending on the date on which the Exercise Default Notice is delivered to the
Company and (y) the Exercise Price in effect on the applicable Exercise Date
(it being understood that the Holder may deliver an Exercise Notice at any time
following delivery of an Exercise Default Notice to the Company).  In such event, the Holder shall retain all
of the Holder’s rights and remedies with respect to the Company’s failure to
deliver such Warrant Shares (including without limitation the right to receive
the cash payments specified in Section 3(a) above).

 

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

 

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

 

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

 

4

 

the Company, and (y)
immediately upon written notice from the Holder to the Company at any time
after the public announcement or other disclosure of a Major Transaction (as
defined below); or

 

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

 

5.             Payment
of the Exercise Price; Cashless Exercise. 
The Holder may pay the Exercise Price in either of the following forms
or, at the election of Holder, a combination thereof:

 

(a)           through
a cash exercise (a “Cash Exercise”) by delivering immediately available
funds, or

 

(b)           if an effective
Registration Statement is not available for the resale of all of the Warrant
Shares issuable hereunder at the time an Exercise Notice is delivered to the
Company, through a cashless exercise (a “Cashless Exercise”).  The Holder may effect a Cashless Exercise by
surrendering this Warrant to the Company and noting on the Exercise Notice that
the Holder wishes to effect a Cashless Exercise, upon which the Company shall
issue to the Holder the number of Warrant Shares determined as follows:

 

	
   

  	
   

  	
  X = Y x (A-B)/A

  
	
   

  	
   

  	
   

  
	
  where:

  	
   

  	
  X = the number of Warrant Shares to be issued to the Holder;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Y = the number of Warrant Shares with respect to which this Warrant
  is being exercised;

  

 

5

 

	
   

  	
   

  	
  A = the Market Price (as defined in the Certificate) as of the
  Exercise Date; and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  B = the Exercise Price.

  

 

For purposes of Rule 144, it is intended and
acknowledged that the Warrant Shares issued in a Cashless Exercise transaction
shall be deemed to have been acquired by the Holder, and the holding period for
the Warrant Shares required by Rule 144 shall be deemed to have been commenced,
on the Issue Date.

 

6.             Anti-Dilution
Adjustments; Distributions; Other Events. The Exercise Price and the number
of Warrant Shares issuable hereunder shall be subject to adjustment from time
to time as provided in this Section 6. 
In the event that any adjustment of the Exercise Price required herein
results in a fraction of a cent, the Exercise Price shall be rounded up or down
to the nearest one hundredth of a cent.

 

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

 

(b)           Distributions.  If the Company shall declare or make any
distribution of cash or any other assets (or rights to acquire such assets) to
holders of Common Stock, as a partial liquidating dividend or otherwise,
including without limitation any dividend or distribution to the Company’s
stockholders in shares (or rights to acquire shares) of capital stock of a
subsidiary) (a “Distribution”),
the Company shall deliver written notice of such Distribution (a “Distribution Notice”) to the
Holder at least thirty (30) days prior to the earlier to occur of (i) the
record date for determining stockholders entitled to such Distribution (the “Record
Date”) and (ii) the date on which such Distribution is made (the “Distribution
Date”).  In the Distribution Notice
to a Holder, the Company must indicate whether the Company has elected (A) to
deliver to such Holder the same amount and type of assets being distributed in
such Distribution as though the Holder were a holder on the Determination Date
therefor of a number of shares of Common Stock into which the this Warrant is
exercisable as of such Determination Date (such number of shares to be
determined at the Exercise Price then in effect and without giving effect to
any limitations on such exercise) or (B) to reduce the Exercise Price as of the
Determination Date therefor by an amount equal to the fair market value of the
assets to be distributed divided by the number of shares of Common Stock
as to which such Distribution is to be made, such fair market value to be
reasonably determined in good

 

6

 

faith by the independent
members of the Company’s Board of Directors. 
If the Company does not notify the Holders of its election pursuant to
the preceding sentence on or prior to the Determination Date, the Company shall
be deemed to have elected clause (A) of the preceding sentence.

 

(c)           Dilutive
Issuances.

 

(i)            Adjustment Upon
Dilutive Issuance.  If, at any time
after the Issue Date, the Company issues or sells, or in accordance with
subparagraph (iii) of this paragraph (c), is deemed to have issued or sold, any
shares of Common Stock for per share consideration less than the Exercise Price
on the date of such issuance or sale (a “Dilutive Issuance”), then the Exercise Price shall be adjusted
as follows (provided, however, that if any adjustment made pursuant to this
Section 6(c)(i) would reduce the Exercise Price to a price that is less than
the Floor Price (as defined in the Certificate), the Exercise Price shall be
deemed equal to the Floor Price for purposes of such adjustment):

 

(A)          If such Dilutive
Issuance occurs prior to the Effective Date (as defined in the Registration
Rights Agreement), then effective immediately upon the Dilutive Issuance, the
Exercise Price shall be adjusted so as to equal the consideration received or
receivable by the Company (on a per share basis) for the additional shares of
Common Stock so issued, sold or deemed issued or sold in such Dilutive Issuance
(which, in the case of a deemed issuance or sale, shall be calculated in
accordance with subparagraph (ii) below).

 

(B)           If
such Dilutive Issuance occurs on or after the Effective Date, then effective
immediately upon the Dilutive Issuance, the Exercise Price shall be adjusted so
as to equal an amount determined by multiplying such Exercise Price by the
following fraction:

 

	
  N0
  + N1

  
	
  N0
  + N2

  

 

where:

 

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

 

7

 

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

 

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

 

Notwithstanding the foregoing, no adjustment
shall be made pursuant hereto if such adjustment would result in an increase in
the Exercise Price.

 

(ii)           Adjustment Upon
Below Market Issuance.  If, at any
time after the Issue Date, the Company issues or sells, or in accordance with
subparagraph (iii) of this paragraph (c), is deemed to have issued or sold, any
shares of Common Stock for per share consideration less than the Market Price
on the date of such issuance or sale (or deemed issuance or sale) (a “Below Market Issuance”), then the
Exercise Price shall be adjusted as follows (without regard to whether the
resulting Exercise Price is less than the Floor Price):

 

(A)          If such Below Market
Issuance occurs prior to the Effective Date (as defined in the Registration
Rights Agreement), then effective immediately upon such issuance, the Exercise
Price shall be adjusted so as to equal the value of the consideration received
or receivable by the Company (on a per share basis) for the additional shares
of Common Stock so issued, sold or deemed issued or sold in such Below Market
Issuance (which, in the case of a deemed issuance or sale, shall be calculated
in accordance with subparagraph (ii) below).

 

(B)           If
such Below Market Issuance occurs on or after the Effective Date, then
effective immediately upon the Dilutive Issuance, the Exercise Price shall be
adjusted so as to equal an amount determined by multiplying such Exercise Price
by the following fraction:

 

	
  N0
  + N1

  
	
  N0
  + N2

  

 

where:

 

N0 =  the number of shares of Common Stock
outstanding immediately prior to the issuance, sale or deemed issuance or sale
of such additional shares of Common Stock in such Below Market Issuance
(without taking into account any shares of Common Stock issuable upon
conversion, exchange or exercise of any Convertible Securities or

 

8

 

Purchase Rights, other than shares of Common Stock
issuable under the Preferred Shares and the Warrants, which shall be taken into
account in determining such number);

 

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

 

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

 

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

 

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

 

(A)          Issuance
Of Purchase Rights.  If the Company
issues or sells any Purchase Rights, whether or not immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Purchase Rights (and the price of any conversion of Convertible
Securities, if applicable) is less than the Market Price in effect on the date
of issuance or sale of such Purchase Rights, then the maximum total number of
shares of Common Stock issuable upon the exercise of all such Purchase Rights
(assuming full conversion, exercise or exchange of Convertible Securities, if
applicable) shall, as of the date of the issuance or sale of such Purchase
Rights, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share.  For
purposes of the preceding sentence, the “price per share for which Common Stock
is issuable upon the exercise of such Purchase Rights” shall be determined by
dividing (x) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Purchase Rights, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Purchase Rights, plus, in the case
of Convertible Securities issuable upon the exercise of such Purchase Rights,
the minimum aggregate amount of additional consideration payable upon the
conversion, exercise or exchange thereof (determined in accordance with the
calculation method set forth in subparagraph (iii)(B) below) at the time such
Convertible Securities first become convertible, exercisable or exchangeable,
by (y) the maximum total number of shares of

 

9

 

Common Stock
issuable upon the exercise of all such Purchase Rights (assuming full
conversion, exercise or exchange of Convertible Securities, if
applicable).  No further adjustment to
the Exercise Price shall be made upon the actual issuance of such Common Stock
upon the exercise of such Purchase Rights or upon the conversion, exercise or
exchange of Convertible Securities issuable upon exercise of such Purchase
Rights.  No further adjustment to the
Exercise Price shall be made upon the actual issuance of such Common Stock upon
the exercise of such Purchase Rights or upon the conversion, exercise or
exchange of Convertible Securities issuable upon exercise of such Purchase
Rights.  To the extent that shares of
Common Stock or Convertible Securities are not delivered pursuant to such
Purchase Rights, upon the expiration or termination of such Purchase Rights,
the Exercise Price shall be readjusted to the Exercise Price that would then be
in effect had the adjustments made upon the issuance of such Purchase Rights
been made on the basis of delivery of only the number of shares of Common Stock
actually delivered.

 

(B)           Issuance
Of Convertible Securities.  If the
Company issues or sells any Convertible Securities, whether or not immediately
convertible, exercisable or exchangeable, and the price per share for which
Common Stock is issuable upon such conversion, exercise or exchange is less
than the Market Price in effect on the date of issuance or sale of such
Convertible Securities, then the maximum total number of shares of Common Stock
issuable upon the conversion, exercise or exchange of all such Convertible
Securities shall, as of the date of the issuance or sale of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share.  If
the Convertible Securities so issued or sold do not have a fluctuating
conversion or exercise price or exchange ratio, then for the purposes of the immediately
preceding sentence, the “price per share for which Common Stock is issuable
upon such conversion, exercise or exchange” shall be determined by dividing (x)
the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable to
the Company upon the conversion, exercise or exchange thereof (determined in
accordance with the calculation method set forth in this subparagraph
(iii)(B)), by (y) the maximum total number of shares of Common Stock issuable
upon the exercise, conversion or exchange of all such Convertible
Securities.  If the Convertible
Securities so issued or sold have a fluctuating conversion or exercise price or
exchange ratio (a “Variable Rate
Convertible Security”) (provided, however, that if the conversion or
exercise price or exchange ratio of a Convertible Security may fluctuate solely
as a result of provisions designed to protect against dilution, such
Convertible Security shall not be deemed to be a Variable Rate Convertible
Security), then for purposes of the first sentence of this subparagraph (B),
the “price per share for which Common Stock is issuable upon such conversion,
exercise or exchange” shall be deemed to be the lowest price per share which
would be applicable (assuming all holding period and other conditions to any
discounts contained in such Variable Rate Convertible Security have been
satisfied) if the conversion price of such Variable Rate Convertible Security
on the date of issuance or sale thereof were seventy-five percent (75%) of the
actual conversion price on such date (the

 

10

 

“Assumed Variable Market Price”),
and, further, if the conversion price of such Variable Rate Convertible
Security at any time or times thereafter is less than or equal to the Assumed
Variable Market Price last used for making any adjustment under this paragraph
(c) with respect to any Variable Rate Convertible Security, the Exercise Price
in effect at such time shall be readjusted to equal the Exercise Price which
would have resulted if the Assumed Variable Market Price at the time of
issuance of the Variable Rate Convertible Security had been seventy-five
percent (75%) of the actual conversion price of such Variable Rate Convertible
Security existing at the time of the adjustment required by this sentence.  No further adjustment to the Exercise Price
shall be made upon the actual issuance of such Common Stock upon conversion,
exercise or exchange of such Convertible Securities.  To the extent that shares of Common Stock are not delivered
pursuant to conversion of such Convertible Securities into Common Stock, the
Conversion Price shall be readjusted to the Conversion Price that would then be
in effect had the adjustments made upon the issuance of such Convertible
Securities been made on the basis of delivery of only the number of shares of
Common Stock actually delivered.

 

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

 

(D)          Calculation
Of Consideration Received.  If any
Common Stock, Purchase Rights or Convertible Securities are issued or sold for
cash, the consideration received therefor will be the amount received by the
Company therefore.  In case any Common
Stock, Purchase Rights or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, including in the
case of a strategic or similar arrangement in which the other entity will
provide services to the Company, purchase services from the Company or
otherwise provide intangible consideration to the Company, the amount of the
consideration other than cash received by the Company (including the net
present value of the consideration other than cash expected by the Company for
the provided or purchased services) shall be the fair market value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the average of
the last sale prices thereof on the principal market for such securities during
the period of ten Trading Days

 

11

 

immediately
preceding the date of receipt. In case any Common Stock, Purchase Rights or Convertible
Securities are issued in connection with any merger or consolidation in which
the Company is the surviving corporation, the amount of consideration therefor
will be deemed to be the fair market value of such portion of the net assets
and business of the non-surviving corporation as is attributable to such Common
Stock, Purchase Rights or Convertible Securities, as the case may be.  Notwithstanding anything else herein to the
contrary, if Common Stock Purchase Rights or Convertible Securities are issued
or sold in conjunction with each other as part of a single transaction or in a
series of related transactions, the Holder may elect to determine the amount of
consideration deemed to be received by the Company therefor by deducting the
fair value of any type of securities (the “Disregarded Securities”)
issued or sold in such transaction or series of transactions.  If the Holder makes an election pursuant to
the immediately preceding sentence, no adjustment to the Exercise Price shall
be made pursuant to this paragraph (c) for the issuance of the Disregarded
Securities or upon any conversion, exercise or exchange thereof.  The independent members of the Company’s
Board of Directors shall calculate reasonably and in good faith, using standard
commercial valuation methods appropriate for valuing such assets, the fair
market value of any consideration other than cash or securities.

 

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

 

(iv)          Exceptions To
Adjustment Of Exercise Price. 
Notwithstanding the foregoing, no adjustment to the Exercise Price shall
be made pursuant to this paragraph (c) upon the issuance of any Excluded
Securities.  For purposes hereof, “Excluded
Securities” means (I) securities purchased under the Securities Purchase
Agreement; (II) securities issued upon conversion of the Preferred Shares or
exercise of the Warrants; (III) shares of Common Stock issuable or issued to
(x) employees or directors from time to time either directly or upon the
exercise of options, in such case granted or to be granted in the discretion of
the Board of Directors, as approved by the independent members of the Board,
pursuant to one or more stock option plans or restricted stock plans or stock
purchase plans in effect as of the Closing Date or approved by the independent
members of the Board of Directors or by the Company’s shareholders, or (y)
consultants, either directly or pursuant to warrants to purchase Common Stock
that are outstanding

 

12

 

on the date hereof or issued
hereafter, provided such issuances are approved by the independent members of
the Board of Directors or by the Company’s shareholders; (IV) shares of Common
Stock issued in connection with any Convertible Securities or Purchase Rights outstanding
on the date hereof; and (V) shares of Common Stock issued to Persons in
connection with a joint venture, strategic alliance or other commercial
relationship with such Person relating to the operation of the Company’s
business and not for the primary purpose of raising equity capital.

 

(v)           Notice Of
Adjustments.  Upon the occurrence of
one or more adjustments or readjustments of the Exercise Price pursuant to this
paragraph (c) resulting in a change in the Exercise Price by more than one
percent (1%) in the aggregate, or any change in the number or type of stock,
securities and/or other property issuable upon exercise of this Warrant, the
Company, at its expense, shall promptly compute such adjustment or readjustment
or change and prepare and furnish to the Holder a notice (an “Adjustment
Notice”) setting forth such adjustment or readjustment or change and
showing in detail the facts upon which such adjustment or readjustment or
change is based.  The failure of the
Company to deliver an Adjustment Notice shall not affect the validity of any
such adjustment.

 

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

 

(e)           Adjustments;
Additional Shares, Securities or Assets. 
In the event that at any time, as a result of an adjustment made
pursuant to this Section 6, the Holder of this Warrant shall, upon exercise of
this Warrant, become entitled to receive securities or assets (other than
Common Stock) then, wherever appropriate, all references herein to shares of
Common Stock shall be deemed to refer to and include such shares and/or other
securities or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions of
this Section 6.  Any adjustment made
herein that results in a decrease in the Exercise Price shall also effect a

 

13

 

proportional increase in the
number of shares of Common Stock into which this Warrant is exercisable.

 

7.             Fractional
Interests.

 

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

 

8.             Transfer
of this Warrant.

 

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

 

9.             Benefits
of this Warrant.

 

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

 

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

 

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

 

14

 

11.           Notice
or Demands.

 

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

 

If to the Company:

 

WorldGate Communications, Inc.

3190 Tremont Avenue

Trevose, Pennsylvania 19053

Attn: Randy Gort

Tel:      (215) 354-5100

Fax:      (215) 354-1049

 

with a copy to:

 

Drinker Biddle & Reath LLP

1000 Westlakes Drive, Suite 300

Berwyn, Pennsylvania 19312

Attn:   Walter J. Mostek, Jr.

Tel:      (610) 993-2200

Fax:      (610) 993-8585

 

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

 

12.           Applicable
Law.

 

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

 

13.           Amendments.

 

No amendment, modification or
other change to, or waiver of any provision of, this Warrant may be made unless
such amendment, modification or change is (A) set forth in writing and is
signed by the Company and the Holder and (B) agreed to in writing by the
holders of at least two-thirds (2/3) of the number of shares into which the
Warrants are exercisable (without regard to any limitation contained herein on
such exercise), it being understood that upon the satisfaction of the
conditions described in (A) and (B) above, each Warrant (including any Warrant
held by the

 

15

 

Holder who did not execute the agreement specified in (B) above) shall
be deemed to incorporate any amendment, modification, change or waiver effected
thereby as of the effective date thereof.

 

14.           Entire Agreement.

 

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

 

15.           Headings.

 

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

 

[Signature Page to Follow]

 

16

 

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

 

	
   

  	
  WORLDGATE
  COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

17

 

EXHIBIT A to WARRANT

 

EXERCISE NOTICE

 

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

 

1.             Form
of Exercise Price.  The Holder intends
that payment of the Exercise Price shall be made as:

 

               
a Cash Exercise with respect to
                                      
Warrant Shares; and/or

 

               
a Cashless Exercise with respect to
                                      
Warrant Shares, as permitted by Section 5(b) of the attached Warrant.

 

2.             Payment
of Exercise Price.  In the event that
the Holder has elected a Cash Exercise with respect to some or all of the
Warrant Shares to be issued pursuant hereto, the Holder shall pay the sum of
$                                 
to the Company in accordance with the terms of the Warrant.

 

 

	
  Date:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Name of Registered Holder

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
						

 

18

 

EXHIBIT B to WARRANT

 

TRANSFER NOTICE

 

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

 

 

	
  Date:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Name of Registered Holder

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
						

 

 

	
  Transferee Name and Address:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

19

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00068-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00068-of-00352.parquet"}]]