<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1999
REGISTRATION NO. 333-71997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WORLDGATE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4841 23-2866697
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
3220 TILLMAN DRIVE, SUITE 300
BENSALEM, PENNSYLVANIA 19020
(215) 633-5100
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
RANDALL J. GORT, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
WORLDGATE COMMUNICATIONS, INC.
3220 TILLMAN DRIVE, SUITE 300
BENSALEM, PENNSYLVANIA 19020
(215) 633-5100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
WALTER J. MOSTEK, JR., ESQ. JEFFREY A. STEIN, ESQ.
DRINKER BIDDLE & REATH LLP HALE AND DORR LLP
1000 WESTLAKES DRIVE, SUITE 300 60 STATE STREET
BERWYN, PENNSYLVANIA 19312-2409 BOSTON, MASSACHUSETTS 02109
(610) 993-2200 (617) 526-6000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ______________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under The Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PRICE PER UNIT(2) PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
common stock, par value $.01 per share 5,175,000 $14.00 $72,450,000 $2,238
</TABLE>
(1) Includes 675,000 shares which the underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(g) under the Securities Act of 1933.
(3) Represents the incremental registration fee over the registration fee of
$17,904 paid by the registrant with its filing on February 9, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 23, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
4,500,000 SHARES
[LOGO]
WORLDGATE COMMUNICATIONS, INC.
COMMON STOCK
------------------
This is an initial public offering of shares of common stock of WorldGate
Communications, Inc. No public market currently exists for our common stock. We
estimate that the initial public offering price will be between $12 and $14 per
share.
PROPOSED TRADING SYMBOL:
NASDAQ NATIONAL MARKET SYMBOL--WGAT
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ---------
<S> <C> <C>
Public Offering Price.................................................... $ $
Underwriting Discounts and Commissions................................... $ $
Proceeds to WorldGate.................................................... $ $
</TABLE>
We have granted to the underwriters an option to purchase up to 675,000
additional shares to cover over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
GERARD KLAUER MATTISON & CO., INC.
JEFFERIES & COMPANY, INC.
JANNEY MONTGOMERY SCOTT INC.
Prospectus dated , 1999
<PAGE>
[figure]
Mass Market Internet Access on the TV Over Cable
Providing fast, easy and low-cost Internet access, including
World Wide Web browsing and e-mail, as well as detailed
Information about weather, news, sports and your town
[Centered at top of page, there is a picture of WorldGate's main screen. The
main screen has eight buttons on top of the screen, the buttons from left to
right are labeled as follows: a picture of the WorldGate logo, "zoom," "save,"
"go," "back," "home," "help" and "k." On the left of the main screen are six
buttons, from top to bottom, the buttons are labeled as follows: the WorldGate
logo, "Home," "The Web," "E-mail," "TV Listings," and "Back to TV." The Home
button is highlighted and on the right, the screen shows various options for
the "Local Weather," "Citibank Direct Access," "Bookmarks," "My Town," with
buttons for "Index," "Restaurants" and "Community" and the Zip2 logo and "Search
the Web!" with the Excite logo, "CNNiN," "QVC" and "ESPN." On the left of the
WorldGate main screen, from top to bottom, there is text entitled "SETUP" with
subtext of "Password and Parental Control" with a line connecting to the left
WorldGate logo button, "WEB" with subtext of "Web directory, Bookmarks and
Search Engines" with a line connecting to the "The Web" button, "E-MAIL"
with subtext of "E-mail to anyone, plus an address book" with a line connecting
to the "E-mail" button, "TV LISTINGS" with subtext of "Television Program
Listings" with a line connecting to the "TV Listings" button and "BACK TO TV"
with subtext of "The channel you were watching prior to connecting to
WorldGate" with a line connecting to the "Back to TV" button. On the right
of the WorldGate main screen, from top to bottom, there is text entitled
"CUSTOMER SUPPORT" with a line connecting to the top "help" button, "WEATHER"
with subtext "Weather Forecasts" with a line connecting to the "Local
Weather" option, and "MY TOWN" with subtext "Local Area Sites" with a line
connecting to the "My Town" option. On the bottom of the WorldGate main
screen, from left to right, there is text entitled "NEWS" with subtext of
"Today's News" with a line connecting to the "CNNiN" button and "SPORTS" with
subtext of "Sports News" with a line connecting to the "ESPN" button. ]
[figure]
WorldGate's
Channel HyperLinking-SM- Technology
[At bottom left, there is a box titled "Television viewer goes interactive" and
labeled 1. This box shows man holding a remote control which is pointed toward
a cable box and television tuned to the Weather Channel. Text for box 1 states
that "The WorldGate subscriber can use Channel HyperLinking on any TV channel
at any time to link to related content with the press of a single button."
Next to box 1 on the right is a box titled "WorldGate connects to the Internet
in less than 5 seconds" and labeled 2. This box shows a man holding remote
control which is pointed toward a cable box and television tuned to
WorldGate's Channel HyperLinking Web page. Text for box 2 states that
"WorldGate's Channel HyperLinking will enable the consumers to interact
<PAGE>
with their favorite TV programs and advertising without having to enter a Web
address." Next to box 2 on the right is a box titled "Interactive Web
content is delivered to the TV screen" and labeled 3. This box shows man
holding remote control which is pointed toward a cable box and television
tuned to a Web page from a television programmer. Text for box 3 states that
"Interactive content from every TV network and in the future from advertisers
make Channel HyperLinking a powerful extension of television."]
<PAGE>
[figure entitled "WorldGate's Mass Market Internet TV Service Over Exiting
Cable TV Infrastructure - Network Architecture". The figure contain five
images with accompanying legends, which are interconnected by arrows. The
first image includes a man and a woman holding a remote control and watching
a television. The television has a cable box on top of it and both the
television and the cable box are labeled "TELEVISION" and "CABLE BOX",
respectively. The television is displaying WorldGate's main screen. The
first image contains a legend adjacent to the people including the following
text: "1 ONE CLICK- With one click consumers request Internet connection and
Web pages." The first image also contains a legend adjacent to the
television including the following text: "2 USER REQUESTS- Requests travel
back to the cable headend using WorldGate's unique communications
technology." The second image includes four web pages displayed in a
cascaded manner, respectively illustrating extracts from the web sites of
various television programmers. The second image contains a legend adjacent
the web pages, including the following text: "3 PAGE DELIVERY- Web pages are
delivered to user via cable TV network." The third image includes an
equipment rack, which is labeled "CABLE TV HEADEND," with various electronic
components mounted in the rack. The third image contains a legend adjacent
the equipment rack, including the following text: "4 INTERNET TV SERVICE-
WorldGate's Internet TV allows communication between the Internet and the
consumer's TV including Web browsing, e-mail, and performing Channel
HyperLinking." The fourth image includes four web pages displayed in a
cascaded manner, which are labeled "WEB PAGES," and illustrating a series of
letters and numbers representing HTML code sequences that would be the source
for web pages. The fifth image includes three computer consoles which are
labeled "WEB SERVERS" and which are displayed below a cloud containing the
label "INTERNET".]
<PAGE>
This prospectus includes statistical data regarding our company, the
Internet and the industries in which we compete. This data is based on our
records or is taken or derived from information published or prepared by various
sources, including International Data Corporation, Paul Kagan Associates, Inc.,
Cahners Business Information--publishers of Cablevision Blue Book and Jupiter
Communications, providers of market and strategic information for the
information technology industry. Paul Kagan is a stockholder of WorldGate.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
WHICH IS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS MAY BE USED ONLY WHERE IT
IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY ONLY
BE ACCURATE ON THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY
OF THIS PROSPECTUS OR OF ANY SALE OF COMMON STOCK.
DEALER PROSPECTUS DELIVERY OBLIGATION
Until , 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING AND OUR FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS
ASSUMES:
- THE UNDERWRITERS DO NOT EXERCISE THEIR OVER-ALLOTMENT OPTION,
- AN OFFERING PRICE OF $13.00 PER SHARE, THE MID-POINT OF THE ASSUMED PRICE
RANGE,
- THE CONVERSION OF ALL OUTSTANDING SHARES OF SERIES A, SERIES B AND SERIES
C PREFERRED STOCK AND ALL OUTSTANDING SHARES OF CLASS B COMMON STOCK INTO
COMMON STOCK,
- THE ISSUANCE OF 274,592 SHARES OF COMMON STOCK TO HOLDERS OF SERIES C
PREFERRED STOCK PURSUANT TO ANTI-DILUTION PROVISIONS, AND
- A 2-FOR-3 STOCK SPLIT TO BE EFFECTED IMMEDIATELY BEFORE THE OFFERING.
THE COMPANY
We provide a new television-based Internet service, the WORLDGATE(SM)
Service, that enables cable television subscribers to access the Internet
through their televisions. The WORLDGATE Service provides:
- full featured, high speed, easy to use, always connected, low cost
consumer Internet access,
- a thin-client network architecture that allows for easy deployment and
set-up, central system management and centrally administered upgrades, and
- a television-based portal enabling viewers to dynamically link from
television programming and advertising to related Web sites.
We believe this low cost combination of television and the Internet will
help transform advertising, electronic commerce and information delivery for the
consumer mass market. Our service uses a standard cable television box that has
been WORLDGATE enabled and does not require a personal computer or additional
set-top appliance.
The WORLDGATE Service is designed to operate with cable systems using
advanced analog or current and future generation digital cable television
set-top boxes. We believe that we are the only company that can currently
provide an Internet television service through either an advanced analog or
digital cable box. We believe this is particularly important to the many cable
operators who are deploying, or will deploy, both types of cable boxes.
General Instrument Corporation and Scientific-Atlanta, Inc., the two largest
manufacturers of cable boxes, have advised us that by the end of 1999, 8.3
million advanced analog and digital cable boxes will have been shipped. All of
these cable boxes can be WORLDGATE enabled through a centrally administered
software download.
We have entered into multi-year agreements with U.S. and international cable
operators that together with their affiliates serve approximately 2.7 million
subscribers. The largest of these cable operators is Charter Communications,
Inc., a subsidiary of Vulcan Ventures Incorporated. These cable operators are
offering or planning to offer our service. Our service is in various stages of
deployment and/or testing by cable operators whose cable systems serve
approximately 34.7 million subscribers.
Our CHANNEL HYPERLINKING(SM) technology integrates the dynamics of the
Internet with television's proven advertiser-sponsored entertainment model. This
technology will enable a viewer watching a television program or advertisement
to link within seconds to a related interactive Web site. We are working with
over 70 television programmers, advertisers,
3
<PAGE>
advertising agencies and e-commerce merchants to develop a centralized database
that provides viewers with CHANNEL HYPERLINKING capability.
We anticipate that substantially all of our near term revenues will be
derived from cable operators. Cable operators purchase our systems and pay a
monthly license fee for each of their subscribers using the WORLDGATE Service.
As the number of WORLDGATE Service subscribers grows, we believe that a
significant portion of our revenues may also be derived from Internet
advertisers and from Internet merchants selling products and services via the
WORLDGATE Service.
Hal M. Krisbergh, our chief executive officer, and other former senior
managers of General Instrument founded WorldGate. Our equity investors include
General Instrument, Scientific-Atlanta, Charter, the founder and former chairman
of Cablevision Industries Corporation, Showtime, Citicorp and Motorola, Inc.
We were incorporated in Delaware in 1996 to succeed to the business of our
predecessor, WorldGate Communications, L.L.C. which commenced operations in
March 1995. Our executive offices are located at 3220 Tillman Drive, Suite 300,
Bensalem, Pennsylvania 19020. Our telephone number is (215) 633-5100. Our World
Wide Web site is www.wgate.com. The information in our Web site is not
incorporated into this prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......... 4,500,000 shares
Common stock to be
outstanding immediately
after this offering........ 20,433,282 shares
Use of proceeds.............. We will use the net proceeds of this offering to repay
outstanding debt, for capital expenditures and for general
corporate purposes, including working capital and research
and development
Proposed Nasdaq National
Market symbol for our
common stock............... WGAT
</TABLE>
The number of shares of our common stock offered and common stock
outstanding immediately after this offering is based on shares of our common
stock outstanding as of March 16, 1999, excluding 1,646,309 shares of our common
stock subject to outstanding options and warrants and 19,581 shares of our
common stock available for future grants under our stock option plan. If the
underwriters exercise in full the over-allotment option, there will be
21,108,282 shares outstanding.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(In thousands, except share and per share data)
The following table summarizes our financial data. The data presented in
this table is derived from the "Selected Financial Information" and the
financial statements and notes which are included elsewhere in this prospectus.
You should read those sections for a further explanation of the financial data
summarized here. The pro forma balance sheet data gives effect to the sale of
the series C preferred stock in January and February 1999 for aggregate gross
proceeds of approximately $7.6 million. In addition, the pro forma balance sheet
gives effect to the issuance of notes payable in March 1999 in the face amount
of $6 million which are recorded net of original issue discount of $530,000 and
an additional discount of $1,030,000, representing the value of detachable
warrants issued in connection with this debt. The pro forma as adjusted balance
sheet data also gives effect to this offering and the application of the
estimated net proceeds of approximately $53.6 million. The pro forma net loss
per common share data gives effect to the conversion of all preferred stock
outstanding as of December 31, 1998 into common stock.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------ ------------ -------------
STATEMENT OF OPERATIONS DATA:
Revenues.............................................................. $ 141 $ 1,022
Costs and expenses:
Cost of revenues.................................................. 1,530 9,919
Engineering and development....................................... $ 1,408 6,981 9,684
Sales and marketing............................................... 428 3,623 5,157
General and administrative........................................ 1,093 2,432 3,486
Depreciation and amortization..................................... 22 119
------------ ------------ -------------
Total costs and expenses...................................... 2,929 14,588 28,365
Loss from operations.................................................. (2,929) (14,447) (27,343)
Other income, net..................................................... 8 423 423
Interest expense...................................................... (2) (17) (101)
------------ ------------ -------------
Net loss.............................................................. (2,923) (14,041) (27,021)
Accretion on preferred stock.......................................... (75) (2,436) (6,145)
------------ ------------ -------------
Net loss available to common shareholders............................. $ (2,998) $ (16,477) $ (33,166)
------------ ------------ -------------
------------ ------------ -------------
Historical net loss per common share.................................. $ (0.33) $ (1.81) $ (3.64)
Historical weighted average common shares outstanding................. 9,100,801 9,100,801 9,100,801
Pro forma net loss per common share................................... $ (2.24)
-------------
-------------
Pro forma weighted average common shares outstanding.................. 14,785,714
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------- --------------
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 368 $ 13,438 $ 61,043
Total assets........................................................ 5,621 18,691 66,296
Total indebtedness.................................................. 1,127 5,567 1,127
Total mandatory redeemable preferred stock.......................... 49,276
Total stockholders' equity (deficit)................................ (52,240) 6,546 58,591(1)
OTHER DATA:
Common shares outstanding........................................... 9,100,801 15,658,690 20,433,282
</TABLE>
- ------------------------
(1) Adjusted to reflect an estimated extraordinary loss of approximately
$1,560,000 on the early extinguishment of notes payable. This loss will be
recognized upon the repayment of the notes payable with a portion of the net
proceeds from this offering. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION
IN THIS PROSPECTUS, BEFORE INVESTING IN OUR COMMON STOCK. UNDER THE RULES OF THE
SECURITIES AND EXCHANGE COMMISSION, WE HAVE NOT INCLUDED RISKS WHICH COULD APPLY
TO ANY ISSUER OR OFFERING IN OUR INDUSTRY, EVEN THOUGH SUCH RISKS, IF THEY WERE
TO OCCUR, COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, OPERATING
RESULTS OR FINANCIAL CONDITION.
WE MAY EXPERIENCE DIFFICULTIES SUFFERED BY COMPANIES IN EARLY STAGES OF
DEVELOPMENT
We began operations in March 1995 and our service was first made
commercially available in the third quarter of 1998. As a result, our prospects
are subject to the risks, uncertainties, expenses and other difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets, such as Internet
access and e-commerce. If we are not successful in implementing our marketing
and business plans on a timely basis or otherwise effectively managing our
development, our business, operating results and financial condition will be
materially and adversely affected.
IF WE CONTINUE TO INCUR LOSSES, WE MAY NOT BE ABLE TO FINANCE THE COMMERCIAL
DEPLOYMENT OF THE WORLDGATE SERVICE
We have experienced losses and had negative cash flow in each quarter and
year since inception, and we expect to continue to operate at a loss for the
foreseeable future. For us to make a profit, we need to increase our revenues
and gross profit margin. If we are not able to do so, our losses may extend
beyond the foreseeable future and we may not be able to finance the commercial
deployment, development and enhancement of the WORLDGATE Service.
Our aggregate revenues from inception to December 31, 1998 were
approximately $1.2 million, and our aggregate accumulated deficit at December
31, 1998 was approximately $51.9 million. In addition, we currently intend to
increase our operating expenses and capital expenditures in order to continue
the commercial deployment of the WORLDGATE service. As a result, we expect to
experience substantial additional operating losses and negative cash flow for
the foreseeable future.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE
To date, we have funded operations primarily through private sales of equity
securities. If we are unable to obtain additional financing on terms acceptable
to us as needed, our business, operating results and financial condition would
be materially and adversely affected. Our capital requirements in the future
will depend on numerous factors, including:
- the rate of acceptance of the WORLDGATE Service by cable operators, cable
subscribers, advertisers, television programmers, e-commerce companies and
Internet content providers,
- our ability to maintain and expand the number of subscribers, and
- the rate of commercialization of the WORLDGATEService.
We cannot accurately predict the timing and amount of our capital
requirements. Any additional equity financing, if available, may be dilutive to
our stockholders, and debt financing, if available, may involve significant
restrictions on our financing and operating activities.
BECAUSE TELEVISION-BASED INTERNET ACCESS IS NEW, WE CANNOT BE CERTAIN THAT A
MARKET FOR OR SUSTAINABLE DEMAND FOR THE WORLDGATE SERVICE WILL DEVELOP
The market for television-based Internet access is new and evolving, and no
single technology or approach to providing this access has yet been broadly
adopted by consumers or cable operators. As a result, we cannot guarantee that a
market for television-based Internet access in general, or for the WORLDGATE
Service in particular, will develop or that demand for the WORLDGATE Service
will be sustainable. If the market does not develop, develops more slowly than
expected or becomes saturated with competitors, our business,
7
<PAGE>
operating results, and financial condition will be materially and adversely
affected.
THE COMPETITIVE MARKET FOR INTERNET ACCESS MAY LIMIT DEMAND OR PRICING FOR THE
WORLDGATE SERVICE
We experience intense competition. Many companies provide Internet access
and other services which provide functionality similar to those comprising the
WorldGate Service. As a result of this competition, demand for the WORLDGATE
Service may suffer, or we may be restricted in the pricing we can charge for the
WORLDGATE Service. Competitors provide their services through a variety of
technologies, which are in various stages of implementation and adoption. Many
of our competitors have significantly greater financial, technical, marketing,
distribution, customer support, other resources, name recognition, compelling
content and access to consumers, and more established relationships with cable
operators, advertisers and content and application providers than we have. As a
result, we cannot assure you that we will be able to compete successfully
against current or future competitors or that competitive pressures faced by us
will not have a material adverse effect on our business, financial condition and
results of operations. See "Business--Competition."
WE MAY NOT SUCCEED IF CABLE OPERATORS DO NOT OFFER THE WORLDGATESERVICE TO THEIR
SUBSCRIBERS
Because we use a cable operator's system to offer the WORLDGATEService to
that cable operator's subscribers, our growth and future success depends
substantially upon our ability to convince cable operators to offer the
WORLDGATE Service to their subscribers. As of the date of this prospectus, we
have only entered into a limited number of agreements with cable operators
providing for the commercial launch of the WORLDGATEService. No cable operator
is obligated to exclusively provide the WORLDGATE Service to their subscribers.
If cable operators determine that our service is not viable as a business
proposition or if they determine that the service does not meet their business
or operational expectations or strategies, the WORLDGATE Service will not be
offered to their subscribers. Furthermore, because there are a limited number of
cable operators and because we expect that cable operators implementing the
WORLDGATEService will seek references from other cable operators, we may have a
difficult time selling the WORLDGATE Service if our early trials are not
successful.
OUR REVENUES WILL DEPEND ON THE MANNER IN WHICH CABLE OPERATORS MARKET AND PRICE
THE WORLDGATE SERVICE
As a result of our dependence on cable operators to provide the WORLDGATE
Service to their subscribers, we have limited or no control over a number of
important factors, including:
- the cable operators' advertising or marketing strategy, if any, regarding
their offering of the WORLDGATE Service to their subscribers,
- the monthly fees cable operators may charge to their subscribers for the
WORLDGATE Service, and
- the extent to which cable operators purchase additional WorldGate
equipment to avoid performance degradation as subscriber demand grows.
Accordingly, our revenues may not meet our expectations if the cable
operators' marketing, pricing and operating strategies are not consistent with
our business model.
THE COMMERCIAL DEPLOYMENT OF THE WORLDGATE SERVICE MAY BE ADVERSELY AFFECTED IF
CABLE OPERATORS DO NOT CONTINUE TO UPGRADE THEIR SYSTEM INFRASTRUCTURES
The adoption of the WORLDGATE Service is dependent upon continued investment
by cable operators to upgrade their infrastructures to support two-way data
transmissions. It is uncertain whether cable operators will upgrade their
infrastructures and the failure of cable operators to complete these upgrades in
a timely and satisfactory manner would adversely affect the market for the
WORLDGATE Service. Cable plants, which are the network used to distribute
8
<PAGE>
cable programming to subscribers, encompass three general levels of performance:
- "one-way plant" that is only capable of transmitting programming to
subscribers,
- "standard two-way plant" that is also capable of transmitting information
from the subscriber to the cable operator, such as those that allow
pay-per-view programming, and
- "cable modem ready two-way plant" that is capable of transmitting
information from the subscriber to the cable operator with only a minimal
level of background noise.
Although the WORLDGATE Service can operate over one-way cable plant, it can
do so only in conjunction with a telephone connection. As such, it is less
convenient and efficient for a subscriber to use the WORLDGATE Service over
one-way cable plant and to date, all of the cable operators who have agreed to
deploy the WORLDGATE Service have done so only over two-way cable plants.
Accordingly, although we believe that many cable operators have begun upgrading
their cable infrastructures to two-way cable plant, many cable operators have in
the past delayed their planned upgrades, and we cannot assure you that cable
operators will continue to upgrade their cable plant to two-way plant. In the
event that they do not do so, our business, financial condition and results of
operations could be materially adversely affected.
CABLE OPERATORS MAY BE CONTRACTUALLY LIMITED IN THEIR ABILITY TO OFFER THE
WORLDGATE SERVICE
We are aware that some cable operators, such as Cablevision, Comcast
Corporation, Cox Enterprises, Inc. and Tele-Communications, Inc., whose cable
systems serve more than 26 million U.S. homes, have entered into a distribution
agreement with At Home Corporation. The distribution agreement with At Home
contains exclusivity provisions that purport to prohibit these cable operators
from conducting or participating in any business in the United States that
involves the provision of some residential Internet services over their cable
plants at data transmission speeds greater than 128 Kbps. This distribution
agreement could be interpreted to preclude or hinder these cable operators from
offering the WORLDGATE Service to their subscribers at speeds in excess of 128
Kbps. Although we believe that there are factors that limit the effect of these
contractual provision on us, if cable operators are unwilling or unable to offer
the WORLDGATE Service to subscribers in these cable systems, our business,
financial condition and results of operations would be materially adversely
affected.
CABLE OPERATORS/CABLE BOX MANUFACTURERS MAY NOT OFFER THE WORLDGATE SERVICE
BECAUSE THEY MAY HAVE POTENTIAL CONFLICTS OF INTEREST
Some cable operators and cable box manufacturers are stockholders of other
companies that provide Internet services. To the extent that these cable
operators elect not to offer the WORLDGATE Service because of these
affiliations, our business, financial condition and results of operations could
be materially adversely affected. For example, TCI, Comcast, Cox and Cablevision
are stockholders of At Home, and MediaOne Group, Inc. and Time Warner, the
second largest cable company in the United States, have established their own
cable-based Internet service, called Road Runner, with proprietary content
featuring various Time Warner publications and services. Time Warner markets the
Road Runner service to its subscribers as well as to other cable operators.
Also, some companies that provide Internet services are stockholders of cable
operators or cable box manufacturers. For example, in 1997 Microsoft
Corporation, which also owns WebTV Networks, Inc., invested $1 billion in
Comcast. We cannot assure you that other companies will not invest in cable
operators and/or cable box manufacturers. As a result, these cable operators may
be reluctant to provide any service, including the WORLDGATEService, that
provides other Internet services in competition with their affiliates.
WE CANNOT OFFER THE WORLDGATE SERVICE IF CABLE BOX MANUFACTURERS DO NOT
INCORPORATE OUR TECHNOLOGY INTO THEIR CABLE BOXES
In order to access the WORLDGATE Service, a consumer needs a WORLDGATE
enabled digital or advanced analog cable box. We have worked
9
<PAGE>
closely with General Instrument and Scientific-Atlanta, the two leading
manufacturers of these set top boxes, in developing the technology that will
enable the WORLDGATE Service to operate on their digital or advanced analog
cable boxes. Although we believe that we have developed strong relationships
with General Instrument and Scientific-Atlanta, neither company is required to
install our WorldGate technology in its cable boxes and neither company is
prohibited from establishing relationships with any of our competitors and
incorporating our competitors' technologies in their cable boxes. In addition,
our technology must be certified by General Instrument and Scientific-Atlanta
for each model of cable box before cable operators are willing to deploy them to
their subscribers, and, although we have certification for some models, we
cannot assure you that our technology will be certified for other models on a
timely basis, if at all.
Additionally, because General Instrument and Scientific-Atlanta are the two
largest suppliers of cable boxes, their decision not to install our WORLDGATE
technology in their cable boxes or to develop similar technology with our
competitors would have a material adverse effect on our future success. Both
General Instrument and Scientific-Atlanta have joined us in promoting the
WORLDGATE Service in the press, at trade shows and conferences and through joint
sales and marketing presentations worldwide, which we believe is particularly
important in gaining market acceptance for the WORLDGATE Service outside the
United States. If either company severed this relationship with us, we would
lose a valuable sales and marketing resource.
WE ARE SUBJECT TO CAPACITY CONSTRAINTS AND SYSTEM FAILURES
Due to the limited deployment of the WORLDGATE Service, the ability of our
service to accommodate a substantial number of users is not yet known. Although
the WORLDGATE Service has been designed to be easily expandable, we cannot
assure you that we will be able to provide high quality performance and high
transaction speeds as the number of subscribers grows or their usage increases.
In addition, as subscriber penetration grows it may be necessary for cable
operators to purchase additional equipment, and we cannot assure you that they
will do so.
The performance of the WORLDGATE Service is also subject to degradation and
interruption from human errors, telecommunication failures, computer viruses and
similar events. Any of these problems in our systems or those of cable operators
could result in reduced subscriber demand. We have experienced service
degradations and interruptions in the past and we expect that these problems
will continue. Our failure to provide uninterrupted service at a level of
performance acceptable to subscribers would have a material adverse effect on
our business, financial condition and results of operations.
PENDING INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND RESULT IN THE
LOSS OF SIGNIFICANT RIGHTS
We are subject to patent litigation which claims that we are infringing
other parties' intellectual property rights.
- On May 11, 1998, Interactive Channel Technologies, Inc. and SMI Holdings,
Inc., subsidiaries of Source Media, Inc., filed a complaint against us in
the U.S. District Court for the District of Delaware, alleging that we
infringed patents issued to Source Media. The complaint seeks injunctive
relief, as well as monetary damages and attorneys' fees.
- On October 6, 1998, Advanced Interactive, Inc. ("AII") filed a complaint
in the U.S. District Court for the Northern District of Illinois, Eastern
Division, against us and several other defendants, alleging that the
defendants infringed a patent assigned to AII. The complaint seeks
monetary damages and attorneys' fees.
If the plaintiffs win either lawsuit, we could be precluded from offering the
WORLDGATE Service. Irrespective of the validity or the successful assertion of
these claims, they could result in significant costs and diversion of management
time and resources. This would have a material adverse effect on our business,
financial condition and results of operations. We cannot
10
<PAGE>
assure you that licenses to any of the technologies owned by the plaintiffs in
these lawsuits would be available to us on commercially reasonable terms, if at
all.
THE ADOPTION OF OUR CHANNEL HYPERLINKING TECHNOLOGY WILL BE ADVERSELY AFFECTED
IF ADVERTISERS AND TELEVISION PROGRAMMERS DO NOT PROVIDE US WITH NECESSARY
CONTENT
Our future growth and long-term success depends substantially on our ability
to convince advertisers and television programmers to use our CHANNEL
HYPERLINKING technology with their advertisements and television programs.
Although we have tested our CHANNEL HYPERLINKINGtechnology with programmers such
as The Weather Channel, no advertiser or programmer had, as of March 15, 1999,
paid us to use our CHANNEL HYPERLINKING technology, or is obligated to use our
CHANNEL HYPERLINKING technology in their advertisements or programs. If
advertisers and programmers determine that our service does not meet their
business or operational expectations or strategies, our CHANNEL HYPERLINKING
technology will not be incorporated into their advertisements or programs. We
believe that the number of subscribers to the WORLDGATE Service will be a factor
in a programmer's or advertiser's decision to implement our CHANNEL HYPERLINKING
technology. We cannot assure you that we will achieve a significant number of
WORLDGATE Service subscribers or that advertisers and programmers will otherwise
embrace our CHANNEL HYPERLINKING technology. If we fail to incorporate our
CHANNEL HYPERLINKING technology in a substantial number of advertisements and
programs, our business, operating results and financial condition could be
materially adversely affected.
OUR REVENUES AND FUTURE PROSPECTS ARE DEPENDENT ON A LIMITED NUMBER OF CUSTOMERS
We have in the past derived, and expect in the future to derive, a
significant portion of our revenues from a limited number of customers. In the
event that any of these customers cease to offer the WORLDGATE Service, or if
any of these customers do not give a positive reference on the WORLDGATEService
to other prospective customers, our business, operating results and financial
condition could be materially adversely affected. In 1997, three cable operators
accounted for approximately 100% of our revenues and in 1998, ten cable
operators accounted for approximately 98% of our revenues. Moreover, in 1998,
Charter and Click!Network accounted for 44% and 10%, respectively, of our
revenues. We cannot assure you that any of these customers will continue to
offer the WORLDGATE Service to their cable subscribers.
WE MAY HAVE LIABILITY FOR INFORMATION RETRIEVED AND REPLICATED ON THE INTERNET
Claims for negligence, copyright or trademark infringement or other legal
theories could be made against us because information can be downloaded and
redistributed by users of the WORLDGATE Service. Copyright and trademark laws
are evolving both domestically and internationally and we are uncertain as to
their applicability to the WORLDGATE Service. The imposition of liability for
information carried by us would have a material adverse effect on our business,
operating results and financial condition.
WE MAY HAVE LIABILITY FOR E-COMMERCE TRANSACTIONS
As part of our business, we are seeking to enter into agreements with
content providers, advertisers and e-commerce merchants under which we will
receive a share of revenue from the purchase of goods and services by users of
the WORLDGATE Service. These arrangements may expose us to additional legal
risks and uncertainties, including potential liabilities to consumers of these
products and services. Our insurance may not cover potential claims of this type
or may not be adequate to indemnify us for all liability that may be imposed.
GOVERNMENT REGULATION REMAINS UNCERTAIN WITH RESPECT TO INTERNET ACCESS OVER
CABLE TELEVISION SYSTEMS
We are subject to varying degrees of federal, state, local and foreign
regulations as well as laws enacted by the U.S. Congress and other governments.
Although the Federal
11
<PAGE>
Communications Commission has established regulations that among things, set
licensure, installation and equipment standards for communications systems, it
remains uncertain how these regulations may be applied to Internet services
offered over cable television systems.
It is also anticipated that due to the increasing popularity and use of the
Internet, it will be subject to increased attention and regulation. These laws
and regulations may regulate issues such as user privacy, defamation, network
access, pricing, taxation, content, quality of products and services and
intellectual property ownership and infringement. These laws and regulations
could expose us to liability, materially increase our cost of providing our
service, and decrease the growth and acceptance of the Internet in general and
access to the Internet over cable systems.
OUR BUSINESS WOULD SUFFER IF WE WERE TO LOSE THE SERVICES OF MR. KRISBERGH OR
OTHER KEY PERSONNEL
Our success depends in significant part upon the continued service of our
key technical, sales and senior management personnel, particularly Mr.
Krisbergh, who has significant relevant experience in the cable television
industry. No officer or employee of WorldGate is bound by an employment
agreement, and accordingly could terminate his or her relationship with us at
any time. Our future success will also depend on our ability to attract, train,
retain and motivate highly qualified senior management, technical, marketing and
sales personnel. Because competition for these personnel is intense, we cannot
assure you that we will be able to do so.
OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER CAN EXERCISE SIGNIFICANT INFLUENCE OVER
WORLDGATE
After the completion of this offering, Hal M. Krisbergh will beneficially
own approximately 31.9% of the outstanding common stock. Mr. Krisbergh will have
the voting power to exercise substantial control over the election of our entire
board of directors and all votes on matters requiring stockholder approval. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of WorldGate.
YEAR 2000 RISKS MAY ADVERSELY AFFECT WORLDGATE AND THE DEMAND FOR THE WORLDGATE
SERVICE
Year 2000 problems experienced by us or any third parties could materially
adversely affect our business. Additionally, demand for the WORLDGATEService
would suffer if the Internet experiences serious disruptions arising from the
Year 2000 problem. We are evaluating our internal information technology and
non-information technology systems to determine our exposure to Year 2000
problems. In addition, we have begun to contact our information technology
suppliers to ascertain their Year 2000 status. However, we cannot guarantee you
that our own systems will be Year 2000 compliant in a timely manner, that any of
our participating sellers, such as cable operators, or other Web site vendors
will be Year 2000 compliant in a timely manner, or that there will not be
problems with technology systems working together. We also cannot guarantee that
the Internet generally, and the WORLDGATEService specifically, will continue
without serious disruptions arising from the Year 2000 problem. Given the
pervasive nature of the Year 2000 problem, we cannot guarantee that disruptions
in other industries and market segments will not adversely affect our business.
Moreover, the costs related to Year 2000 compliance could be significant.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS COULD DISCOURAGE UNWANTED
TAKEOVER ATTEMPTS AND COULD REDUCE THE OPPORTUNITY FOR STOCKHOLDERS TO GET A
PREMIUM FOR THEIR SHARES
We are subject to Delaware laws and to provisions of our certificate of
incorporation and by-laws that could have the effect of delaying, deterring or
preventing a change in control of WorldGate. As a result, our management could
attempt to utilize these laws and provisions to discourage or reject unsolicited
bids to acquire us, including bids that would have paid stockholders a premium
over the then current market price of their shares. One of these laws prohibits
us from engaging in a business
12
<PAGE>
combination with any interested stockholder for a period of three years from the
date the person became an interested stockholder, unless some conditions are
met. In addition, provisions of our certificate of incorporation and by-laws,
and the significant amount of common stock held by our executive officers,
directors and affiliates, could have the effect of discouraging potential
takeover attempts or making it more difficult for stockholders to change
management. One provision is the ability of the board of directors to authorize
the issuance of preferred stock without stockholder approval. The rights of the
holders of our common stock will be subject to, and would be adversely affected
by, the rights of the holders of any preferred stock that may be issued in the
future.
SUBSTANTIAL SALES OF OUR COMMON STOCK MAY AFFECT OUR STOCK PRICE
Following the expiration of or earlier release from the 180-day lockup
agreements entered into in connection with this offering, approximately 20.0
million shares of our common stock will become eligible for sale, subject to
compliance with Rule 144 and to contractual restrictions in our stock option
plan. The remaining approximately 395,000 shares held by existing stockholders
will become eligible for sale in accordance with Rule 144. The market price for
our common stock could drop as a result of sales of a large number of these
shares after this offering, or the perception that these sales could occur.
These factors also could make it more difficult for us to raise funds through
future offerings of our common stock. We have agreed to file a shelf
registration statement for 420,738 shares of common stock, assuming a public
offering price of $13.00 per share, on the first business day after the 150(th)
day immediately following the closing of this offering and to use our best
efforts to cause the registration statement to be declared effective as promptly
as possible. In addition, we intend to register on Form S-8 a total of 19,581
shares of our common stock reserved for issuance and 913,752 shares subject to
outstanding options granted under our stock option plan. The holders of
approximately 15.9 million shares of our common stock, assuming the exercise of
all outstanding warrants, will also be entitled to rights with respect to the
registration of their shares of our common stock for offer or sale to the
public.
OUR RESULTS CAN MATERIALLY DIFFER FROM THOSE FORECASTED OR EXPRESSED IN THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS
This prospectus contains forward-looking statements that are not historical
facts, but rather are based on our current expectations, estimates and
projections about WorldGate's industry and our beliefs and assumptions. Words
such as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance and are
subject to some risks, uncertainties and other factors, many of which are beyond
our control, are difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements.
These risks and uncertainties are described in "Risk Factors" and elsewhere in
this prospectus. We caution you not to place undue reliance on these
forward-looking statements, which reflect our management's view only as of the
date of this prospectus. We are not obligated to update these statements or
publicly release the result of any revisions to them to reflect events or
circumstances after the date of this prospectus or to reflect the occurrence of
unanticipated events.
13
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $53.6
million, approximately $61.7 million if the underwriters fully exercise their
over-allotment option, from the sale of our common stock offered by us in this
offering based on an assumed offering price of $13.00 per share. This estimate
is after deducting underwriting discounts and commissions and other fees and
expenses payable by us.
We intend to use approximately $6.0 million of the net proceeds from this
offering to repay the outstanding balance of our notes payable that were issued
to two institutional investors in March 1999. These discounted notes, which bear
a stated interest rate of 12.48%, are due in September 1999 and December 1999
but become due and payable on the closing of this offering. We intend to use
approximately $2.0 million of the net proceeds from this offering for capital
expenditures over the next 18 months and to use the remaining net proceeds from
this offering for working capital and general corporate purposes. We may use a
portion of the net proceeds to acquire or invest in complementary businesses or
products or to obtain the right to use complementary technologies although we
have no current plans to do so. The amounts and the timing of any such use may
vary significantly depending upon a number of factors, including our revenue
growth, asset growth, cash flow and acquisition activities. Pending such uses,
the net proceeds of this offering will be invested in short-term,
investment-grade, interest-bearing securities. We currently anticipate that the
net proceeds received by us from this offering, together with cash generated
from operations and existing cash balances will be sufficient to satisfy our
operating cash needs for at least 18 months from receipt of the proceeds. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
We have never paid nor declared any cash dividends. We currently intend to
retain future earnings, if any, for use in our business, and, therefore, we do
not anticipate paying or declaring any cash dividends in the foreseeable future.
The payment of future dividends, if any, will depend among other things, on our
results of operations, cash flows and financial condition and on such other
factors as the Board of Directors may, in its discretion, consider relevant.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998:
- on a historical basis,
- on a pro forma basis to reflect the sale of 697,437 additional shares of
series C preferred stock in January and February 1999 for aggregate gross
proceeds of approximately $7.6 million, and the issuance of notes payable
in March 1999 in the face amount of $6,000,000 which are recorded net of
original issue discount of $530,000 and an additional discount of
$1,030,000, representing the value of detachable warrants issued in
connection with this debt, and
- on a pro forma as adjusted basis to give effect to these sales and
issuance of notes payable and this offering, and the application of the
estimated net proceeds of approximately $53.6 million therefrom. The pro
forma as adjusted basis also reflects an estimated extraordinary loss of
approximately $1,560,000 on the early extinguishment of the notes payable.
See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
This table excludes 641,343 shares of common stock issuable upon exercise of
all stock options outstanding as of December 31, 1998, at exercise prices
between $.75 per share and $4.50 per share, and 311,819 shares of common stock
issuable upon exercise of all outstanding warrants as of December 31, 1998, and
an additional 420,738 shares of common stock issuable upon the exercise of
warrants issued with the notes payable in March 1999. The table does not include
options granted after December 31, 1998. You should read the following
information in conjunction with our financial statements and the related notes
thereto and the other financial information included elsewhere in this
prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Notes payable................................................................ $ 1,111 $ 5,551 $ 1,111
Capital leases............................................................... 16 16 16
Series A Convertible Mandatory Redeemable Preferred Stock, 2,752,111 shares
authorized, issued and outstanding; no shares outstanding pro forma and pro
forma as adjusted.......................................................... 16,578
Series B Convertible Mandatory Redeemable Preferred Stock, 3,270,760 shares
authorized, 2,803,031 shares outstanding; no shares outstanding pro forma
and pro forma as adjusted.................................................. 23,569
Series C Convertible Mandatory Redeemable Preferred Stock, 3,181,819 shares
authorized, 832,277 shares outstanding; no shares outstanding pro forma and
pro forma as adjusted...................................................... 9,129
Warrant for Series B Convertible Mandatory Redeemable Preferred Stock........ 881
Stockholders' equity (deficit):
Preferred Stock, $.01 par value, no shares authorized, issued or
outstanding; 13,500,000 authorized, no shares outstanding pro forma and
pro forma as adjusted
Class A Common Stock, $.01 par value, 50,000,000 shares authorized, no
shares issued and outstanding; 15,658,690 shares outstanding pro forma;
20,433,282 shares outstanding pro forma as adjusted...................... 157 204
Class B Common Stock, $.01 par value, 27,608,000 authorized, 9,100,801
shares outstanding; no shares outstanding pro forma and pro forma as
adjusted................................................................. 91
Additional paid in capital................................................. 56,809 110,367
Warrant for common stock................................................... 1,911 1,911
Accumulated deficit........................................................ (51,876) (51,876) (53,436)
Deferred compensation...................................................... (455) (455) (455)
--------- ----------- -----------
Total stockholders' equity (deficit)..................................... (52,240) 6,546 58,591
--------- ----------- -----------
Total capitalization......................................................... $ (956) $ 12,113 $ 59,718
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
15
<PAGE>
DILUTION
The pro forma net tangible book value of WorldGate's class A common stock as
of December 31, 1998 was approximately $6,546,000, or $.42 per share. "Pro forma
net tangible book value per share" represents the amount of pro forma total
tangible assets of WorldGate less pro forma total liabilities divided by the
number of shares of common stock outstanding after giving effect to the
conversion of series A, series B and series C preferred stock and the class B
common stock, the sales of the series C preferred stock in January and February
1999, the issuance of notes payable in March 1999 and the stock split. After
giving effect to the sale by WorldGate of 4,500,000 shares of common stock in
this offering, and after deducting the underwriting discount and estimated
offering expenses payable by WorldGate, the pro forma net tangible book value of
WorldGate as of December 31, 1998 would have been approximately $58,591,000 or
$2.87 per share to new investors purchasing our common stock in this offering.
"Dilution per share" represents the difference between the initial public
offering price per share of our common stock, at an assumed initial public
offering price of $13.00 per share, and the pro forma as adjusted net tangible
book value per share of WorldGate as of December 31, 1998 after giving effect to
this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share...................................... $ 13.00
Pro forma net tangible book value per share as of December 31, 1998........ $ .42
Increase per share attributable to new investors........................... 2.45
---------
Pro forma as adjusted net tangible book value per share after this
offering................................................................... 2.87
---------
Dilution per share to new investors.......................................... $ 10.13
---------
---------
</TABLE>
The following table summarizes, as of December 31, 1998, on the pro forma
basis described above, the difference between the total consideration paid and
the average price per share paid by our existing stockholders and the new
investors purchasing shares of common stock in this offering (before deducting
underwriting discounts and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders....................... 15,933,282 78.0% $ 48,752,075 45.5% $ 3.06
New Stockholders............................ 4,500,000 22.0% 58,500,000 54.5% $ 13.00
------------ ----- -------------- -----
Total................................... 20,433,282 100.0% $ 107,252,075 100.0%
------------ ----- -------------- -----
------------ ----- -------------- -----
</TABLE>
The foregoing tables exclude all outstanding options and warrants. As of
December 31, 1998, there were outstanding warrants to purchase an aggregate of
311,819 shares of common stock and options to purchase an aggregate of 641,343
shares of common stock (108,750 of which were exercisable at December 31, 1998)
at a weighted average exercise price of $3.00 per share, and WorldGate had an
additional 291,990 shares of common stock available for future grants and other
issuances under its stock option plan. In March 1999, WorldGate issued notes
payable in the face amount of $6 million which are recorded net of original
issue discount of $530,000 and an additional discount of $1,030,000,
representing the value of detachable warrants issued in connection with this
debt. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and notes 7 and 10 of the notes to financial statements
appearing elsewhere in this prospectus. The exercise of outstanding options and
warrants having an exercise price less than the offering price would increase
the dilutive effect to new investors.
16
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial information as of December 31, 1997 and
1998 and for each of the three years in the period ended December 31, 1998 are
derived from our financial statements included in this prospectus, which have
been audited by PricewaterhouseCoopers LLP, independent accountants. You should
read the following information in conjunction with our financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus. The data as of
December 31, 1995 and 1996 and for the period ended December 31, 1995 are
derived from financial data not included in this prospectus. The pro forma
balance sheet data gives effect to the sale of the series C preferred stock in
January and February 1999 for aggregate gross proceeds of approximately $7.6
million and the issuance of notes payable in March 1999 in the face amount of $6
million which are recorded net of original issue discount of $530,000 and an
additional discount of $1,030,000, representing the value of detachable warrants
issued in connection with his debt. The pro forma as adjusted balance sheet data
also gives effect to this offering and the application of the estimated net
proceeds of approximately $53.6 million. The pro forma net loss per common share
data gives effect to the conversion of all preferred stock outstanding as of
December 31, 1998 into common stock.
<TABLE>
<CAPTION>
MARCH 21,
1995
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------
1995 1996 1997 1998
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ 141 $ 1,022
Costs and expenses:
Cost of revenues...................................... 1,530 9,919
Engineering and development........................... $ 149 $ 1,408 6,981 9,684
Sales and marketing................................... 428 3,623 5,157
General and administrative............................ 1,093 2,432 3,486
Depreciation and amortization......................... 22 119
------ ------------ ------------ -------------
Total costs and expenses.......................... 149 2,929 14,588 28,365
Loss from operations.................................... (149) (2,929) (14,447) (27,343)
Other income, net....................................... 8 423 423
Interest expense........................................ (2) (17) (101)
------ ------------ ------------ -------------
Net loss................................................ (149) (2,923) (14,041) (27,021)
Accretion on preferred stock............................ (75) (2,436) (6,145)
------ ------------ ------------ -------------
Net loss available to common shareholders............... $ (149) $ (2,998) $ (16,477) $ (33,166)
------ ------------ ------------ -------------
------ ------------ ------------ -------------
Historical net loss per common share.................... $ (0.33) $ (1.81) $ (3.64)
Historical weighted average common shares outstanding... 9,100,801 9,100,801 9,100,801
Pro forma net loss per common share..................... $ (2.24)
-------------
-------------
Pro forma weighted average common shares outstanding.... 14,785,714
-------------
-------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, PRO FORMA DECEMBER
--------------------------------------------------- DECEMBER 31, 1998, AS
1995 1996 1997 1998 31, 1998 ADJUSTED
--------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents and short term
investments............................ $ 32 $ 7,574 $ 17,318 $ 368 $ 13,438 $ 61,043
Total assets............................. 32 7,583 18,412 5,621 18,691 66,296
Total indebtedness....................... 591 1,127 5,567 1,127
Total mandatory redeemable preferred
stock.................................. 8,571 34,366 49,276 -- --
Total stockholders' equity (deficit)..... 32 (1,451) (19,177) (52,240) 6,546 58,591(1)
OTHER DATA:
Common shares outstanding................ -- 9,100,801 9,100,801 9,100,801 15,658,690 20,433,282
</TABLE>
- ------------------------
(1) Adjusted to reflect an estimated extraordinary loss of approximately
$1,560,000 on the early extinguishment of notes payable. This loss will be
recognized upon the repayment of the notes payable with a portion of the net
proceeds from this offering. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
We commenced operations on March 21, 1995. Since inception, all of our
activities have involved developing the WORLDGATE Service and conducting tests
and trials of our service with cable operators throughout the world. We are
engaged in joint engineering and sales and marketing activities with General
Instrument and Scientific-Atlanta. These relationships began in 1996 with
product development for some hardware components of our WORLDGATE platform.
We first announced the WORLDGATE Service in May 1996 and first demonstrated
an operational system in December 1996. Tests at corporate locations of major
cable operators began in the third quarter of 1997 and consumer field trials
began in September 1997. We have entered into multi-year agreements with cable
operators that collectively have approximately 2.7 million system subscribers
including:
- Cable Bahamas, Ltd.
- Charter,
- Click!Network,
- Massillon Cable,
- Prestige Cable, and
- TVCable.
Generally, these agreements provide that these cable operators will offer
the WORLDGATE Service in their major cities of operation. These cable operators
are in various stages of planning for and commercially offering our service.
Only Charter and Click!Network have begun to offer the WORLDGATE Service to
their subscribers. The WORLDGATE Service is also in various stages of testing by
cable operators whose cable systems serve approximately 32 million subscribers.
See "Business--WORLDGATE Trials," and "Risk Factors--We depend on cable box
manufacturers to incorporate our technology into their cable boxes."
We have minimal revenues to date and have incurred operating losses, net
losses and negative operating cash flow each month since our inception. At
December 31, 1998, we had an accumulated deficit of approximately $51.9 million.
We have funded our operations since inception through private placements of
preferred stock, capital contributions from stockholders and a line of credit.
See "--Liquidity and Capital Resources." We currently intend to increase our
operating expenses and capital expenditures in order to continue the development
and enhancement of the WORLDGATE Service and to expand the commercial deployment
of the WORLDGATE Service.
In March 1999, we received gross proceeds of approximately $912,000 and
$4,558,000 through the issuance of $1,000,000 and $5,000,000 of discounted notes
payable with a stated interest rate of 12.48% due in September 1999 and December
1999 respectively. However, these notes become due and payable on the closing of
this offering. In connection with the issuance of these notes payable, the
holders of the notes received warrants to purchase the number of shares of
common stock equal to $5,469,600 divided by the lower of $16.50 and the initial
public offering price at an exercise price equal to the lower of the initial
public offering price and $16.50. Assuming an initial public offering price of
$13.00 per share, these holders may purchase up to 420,738 shares of common
stock. The fair value of the warrants will be accounted for as an additional
discount on the notes. We intend to use approximately $6.0 million of the net
proceeds of this offering to repay the outstanding balance of these notes. We
expect to record an extraordinary loss on the early extinguishment of these
notes payable not to exceed approximately $1,560,000, representing the write-off
of the unamortized discount.
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REVENUES
SYSTEM SALES. In the near term we anticipate that a majority of our
revenues will be derived from cable operators who purchase our headend
computers. We derive revenues from the sale to cable operators of cable headend
equipment, including computer systems, data encoders and demodulators and other
equipment manufactured by third parties. The price of the cable headend systems,
including installation and training, is expected to depend on the number of
subscribers supported. We also sell to cable operators wireless keyboards,
designed specifically for the WORLDGATE Service, for consumers who want the
convenience of a keyboard for e-mail and other applications. As of March 16,
1999, we had sold 14,690 keyboards to cable operators. When we provide cable
headend and other equipment to cable operators that are testing the WORLDGATE
Service, we recognize revenue when the products are shipped and accepted by the
customer. Acceptance takes place after commitments are received from the
customer.
SUBSCRIPTION AND OTHER SERVICES. We earn monthly fees from cable operators
based upon the number of WORLDGATE Service subscribers. We offer the WORLDGATE
Service to cable operators for monthly subscriber fees payable to us based upon
a metered standard, which includes a flat monthly fee and additional access
charges for use after a threshold, E.G. two hours, of service time, or an
unlimited standard, which provides for a fixed charge not dependent on usage
time. We cannot accurately predict the level of the subscription fees that we
will actually receive from cable operators that offer the WORLDGATE Service
because contracts with only a limited number of cable operators are currently in
place.
OTHER REVENUES. In the future, as the number of WORLDGATE subscribers
grows, we also expect to generate other revenues that we will share on a basis
which we will negotiate with cable operators. These may include revenues from:
- advertisers who:
- purchase banner or sponsorship advertisements,
- pay a fee based on the number of clicks on the advertisements or
- pay a fee based on viewers' use of our CHANNEL HYPERLINKING feature, and
- merchants who share a portion of their revenues derived from customers
who:
- use our CHANNEL HYPERLINKING feature or
- click through from the WORLDGATE Service.
COST OF REVENUES
Cost of revenues includes the cost of
- system hardware, wireless keyboards and the other components of the
WORLDGATE Service which are manufactured by third parties,
- assembly, installation and testing of the WorldGate components,
- training of cable operator personnel and
- documentation, customer support and other production costs. We expect that
cost of revenues will also include the costs of operating our CHANNEL
HYPERLINKING technology.
In 1997 and in 1998, we incurred product costs for systems being installed
as trial systems. We expect to continue to incur costs for trial systems
throughout the remainder of 1999. We recognize revenue from the sale of headend
and other equipment used in trial systems when the products are
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shipped and accepted by the customer. The materials portion of cost of equipment
is held in inventory until revenue is realized from the sale thereof.
We currently bear the manufacturing responsibility for, and the cost of,
feature expansion modules installed within some of General Instrument's and
Scientific-Atlanta's current advanced analog cable boxes. Once installed, these
modules enable the WORLDGATE Service on such cable boxes. The incremental cost
per cable box of this module is currently approximately $60, but we expect this
cost to decrease with further cost reduction activities and volume production.
We expect to bear the manufacturing responsibility for and the cost of
incorporating our WORLDGATE technology into these cable boxes. Once the
incremental cost to cable box manufacturers for incorporating our WORLDGATE
technology into their cable boxes becomes nominal, however, we believe that
General Instrument and Scientific-Atlanta may assume the manufacturing
responsibility and cost. See "Risk Factors--We cannot offer the WORLDGATE
Service if cable box manufacturers do not incorporate our technology in their
cable boxes."
The WORLDGATE Service can also operate on current models of General
Instrument's and Scientific-Atlanta's digital cable boxes and some models of
Scientific-Atlanta's advanced analog cable boxes that can be activated through a
centrally-administered software download; therefore, we do not expect to incur
any manufacturing cost for these boxes.
ENGINEERING AND DEVELOPMENT EXPENSES
Engineering and development expenses consist of personnel costs, including
salaries, benefits and bonuses, travel and other personnel-related expenses of
employees and consultants engaged in ongoing development projects, and,
additionally, prototype expenses related to the design, development, testing and
enhancement of the WORLDGATE Service. We believe that continued investment in
engineering and development is critical to attaining our strategic product
initiatives and cost reduction objectives. As a result, we expect that these
expenses will increase significantly in the future.
SALES AND MARKETING EXPENSES
Our sales and marketing expenses consist principally of the costs of
marketing the WORLDGATE Service, including our CHANNEL HYPERLINKING technology,
to cable operators, television programmers and advertisers. These include
employee salaries, bonuses and benefits, travel expenses, trade show fees,
consulting fees and costs to promote the WORLDGATE Service to them. These
expenses may also include the costs of materials for direct mailings, brochures,
targeted advertising and promotional campaigns. We expect that the actual costs
of delivering these marketing materials and advertisements to consumers will be
paid by the cable operators. We expect that sales and marketing expenses will
continue to increase as commercial deployment of the WORLDGATE Service expands.
GENERAL AND ADMINISTRATIVE EXPENSES
Our general and administrative expenses consist primarily of personnel costs
including salaries, benefits, bonuses and related costs for management, finance
and accounting, legal and other professional services. We expect general and
administrative expenses to increase as we add personnel and incur additional
costs related to the growth of our business and operations and to reflect the
costs of operating as a public company.
RESULTS OF OPERATIONS
Since inception, we have engaged principally in the development of the
WORLDGATE Service. Accordingly, our historical results of operations are not
indicative of and should not be relied upon as an indicator of our future
performance.
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1998 VERSUS 1997
Our revenues increased to $1.0 million in 1998, as compared to $141,000 in
1997. The increase in our revenues reflects an increase in the number of system
sales and wireless keyboard sales in connection with the initial commercial
deployment of the WORLDGATE Service. The WORLDGATE Service was first made
available to cable subscribers in 1998. As of December 31, 1998, there were
approximately 1,200 WORLDGATE Service subscribers as compared to none as of
December 31, 1997.
Our cost of revenues for 1998 were $9.9 million as compared to $1.5 million
1997. This increase of $8.4 million is due to the increased number of trials and
deployment systems installed in 1998. These costs reflect direct costs and the
additional hardware, software and installation costs incurred for customer
trials and field system deployments.
Our engineering and development expenses increased to $9.7 million in 1998,
as compared to $7.0 million in 1997. Due to the initial commercial deployment of
the WORLDGATE Service, the increase in the number of trials and the on-going
product development, testing and enhancement of the WORLDGATE Service, we
increased the number of engineering and development personnel in 1998. In 1998,
personnel costs increased by $900,000, and engineering equipment, licenses,
certifications and support costs increased by $1.8 million. Engineering
equipment costs in 1998 include $2.0 million of development expenditures paid to
two non-controlling stockholders under existing contracts.
Our sales and marketing expenses increased to $5.2 million in 1998, as
compared to $3.6 million in 1997. These expenses represent the cost of
introducing the WORLDGATE Service to the cable television industry, and for the
marketing expenditures incurred as a result of the expansion of our initial
commercial deployment and the increased number of initial trials with cable
operators. These expenses include expenditures for advertising, trade shows,
promotional materials, consultants and general sales and marketing overhead.
Personnel costs increased by $600,000, and marketing expenditures increased by
$1.0 million in 1998.
Our general and administrative expenses increased to $3.5 million in 1998,
as compared to $2.4 million in 1997. The increase is attributable primarily to
additional personnel and related overhead costs to support our growth, including
the initial commercial deployment and the increased number of trials. In 1998,
personnel costs increased by $450,000 and other related overhead expenditures
increased by $650,000.
We have not provided for or paid any federal or state income taxes. As of
December 31, 1998, we had net operating loss carryforwards of approximately
$38.3 million available to offset future income subject to income taxes. The
Company believes that its ability to utilize its net operating loss
carryforwards will be subject to annual limitations as a result of this public
offering.
1997 VERSUS 1996
Our revenues for 1997 were $141,000 which consisted entirely of the sale of
headend systems shipped during the year. We had no revenues in 1996.
Our cost of revenues for 1997 was $1.5 million. There were no product costs
for 1996. These costs reflect direct costs as well as the additional hardware,
software and installation costs incurred for customer trials and field system
deployments.
Our engineering and development expenses increased to $7.0 million in 1997,
as compared to $1.4 million in 1996. The increase in these costs is primarily
due to the hiring of additional engineering and development personnel in
connection with our ongoing development and enhancement of the WORLDGATE
Service. Our 1997 personnel costs increased by $3.9 million, and engineering
equipment and support expenditures increased by $1.7 million.
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Our sales and marketing expenses increased to $3.6 million in 1997, as
compared to $428,000 in 1996. The primary items contributing to the increase in
sales and marketing expense were the hiring of additional personnel and
promotional expenditures and trade show expenses related to the introduction of
the WORLDGATE Service to the cable television industry. In 1997, personnel costs
increased by $1.3 million and other expenses, including promotional and trade
show costs, increased by $1.9 million.
Our general and administrative expenses increased to $2.4 million in 1997,
as compared to $1.1 million in 1996, primarily as a result of the hiring of
additional personnel and increased facilities costs, legal expenses and other
consulting costs necessary to support our engineering and development and sales
and marketing efforts. In 1997, personnel costs increased by $930,000, and
facility, legal, consulting and other support costs increased by $420,000.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have derived substantially all of our operating capital
from private placements of preferred stock, a $1.1 million capital contribution
from our chief executive officer, a $2.0 million line of credit and the issuance
of our $6.0 million face-amount of our discounted notes in March 1999. At
December 31, 1998, the amount of our accumulated deficit was $51.9 million and
cash and cash equivalents were $368,000. At December 31, 1997 and 1996, we had
an accumulated deficit of $19.2 million and $3.1 million respectively, and cash
and cash equivalents of $17.3 million and $7.6 million, respectively.
Our operating activities utilized cash in the amount of approximately $25.7
million, $12.6 million and $1.7 million for the years ended December 31, 1998,
1997 and 1996, respectively. The net cash used for operations during these
periods was primarily for funding engineering and development. Under existing
engineering development contracts with two non-controlling stockholders, it is
anticipated that these expenditures will be approximately $2.8 million in 1999.
Capital expenditures for the acquisition of office equipment, computer systems
and equipment for engineering and manufacturing operations were $533,000,
$249,000 and $0, for the years ended December 31, 1998, 1997 and 1996,
respectively.
Net cash provided by financing activities was approximately $9.3 million,
$22.6 million and $9.2 million for the years ended December 31, 1998, 1997 and
1996, respectively, which related primarily to the issuance of preferred stock
of $9.3 million, $23.4 million and $8.5 million in 1998, 1997 and 1996,
respectively. Additionally, we established a $1.0 million line of credit in
1997, which was increased to $2.0 million in June 1998. As of December 31, 1998,
approximately $1.6 million of this line had been utilized, $500,000 had been
repaid and an additional $400,000 was available for borrowing. At December 31,
1998, the weighted average interest rate of the borrowings was 8.89% per annum.
These borrowings mature on various dates through 2001.
In January and February 1999, we raised approximately $7.6 million from the
sale of 697,437 additional shares of series C preferred stock.
We plan to continue to invest in sales and marketing and engineering and
development for the WORLDGATE Service as well as to support our infrastructure.
Additionally, we expect to use a portion of our cash for capital expenditures
and other general corporate purposes. In March 1999, we raised approximately
$5.5 million from the sale of $6.0 million face-amount of our discounted notes.
In connection with this sale, we also issued warrants to purchase the number of
shares of common stock equal to $5,469,600 divided by the lower of $16.50 and
the initial public offering price at an exercise price equal to the lower of
$16.50 and the initial public offering price per share. Assuming an initial
public offering price of $13.00 per share, these holders may purchase up to
420,738 shares of common stock. We believe the net proceeds from this offering,
together with our existing capital resources, including the remaining proceeds
from the series C preferred stock financing and the sale of discounted
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notes payable, and anticipated funds from operations, will satisfy our projected
product development, working capital and capital expenditure requirements for at
least the next 18 months.
LIMITED NUMBER OF CUSTOMERS
We have in the past derived, and will in the future derive, a significant
portion of our revenues from a limited number of customers. In 1997, three cable
operators accounted for approximately 100% of our revenues and in 1998, ten
cable operators accounted for approximately 98% of our revenues. Moreover, in
1998, Charter and Click!Network accounted for 44% and 10%, respectively, of our
revenues. We cannot assure you that any of these customers will continue to
offer the WORLDGATE Service to their cable subscribers or that they will
continue to be a significant source of revenues, if at all, for us. The loss of
any of these cable operators as customers would have a material adverse effect
on us and our financial results.
YEAR 2000 RISK MAY ADVERSELY AFFECT US
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We utilize software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year 2000
phenomenon. We are also dependent on cable operators to maintain network
reliability.
We are currently assessing the year 2000 readiness of our third-party
supplied software, computer technology and other services. Based upon the
results of this assessment, we will develop and implement, if necessary, a
remediation plan with respect to any third-party software, computer technology
and services which may fail to be year 2000 compliant. We have assessed our
proprietary software and internal systems and believe them to be year 2000
compliant. We anticipate that our systems, including components thereof provided
by third-party vendors, will be year 2000 compliant by the end of 1999. At this
time, the expenses associated with this assessment and potential remediation
plan cannot be determined. The failure of our software and computing systems and
our third-party vendors to be year 2000 compliant could have a material adverse
effect on us.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, we have adopted the provisions of Statement of
Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income, requiring its components to be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The adoption of SFAS No. 130 had no impact on our results
of operations, financial condition or cash flows.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides, among other things, guidance for determining whether computer software
is for internal use and when the cost related to such software should be
expensed as incurred or capitalized and amortized. SOP 98-1 is required to be
applied prospectively. We adopted SOP 98-1 on January 1, 1999 and do not expect
the adoption of SOP 98-1 to have a material effect on our results of operations
and financial condition.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 generally requires costs of start-up activities
to be expensed instead of being capitalized and amortized. We adopted SOP 98-5
on January 1, 1999 and do not expect the adoption of SOP 98-5 to have a material
effect on its results of operations and financial condition.
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BUSINESS
OVERVIEW
WorldGate provides a new television-based Internet service, the WORLDGATE
Service, that delivers the Internet through cable television systems. The
WORLDGATE Service provides:
- high speed, easy to use Internet access without the use of a personal
computer or additional set-top appliance,
- low cost for the subscriber, currently being offered by cable operators to
existing subscribers at rates typically ranging from $4-$12 per month for
unlimited service,
- full featured Internet functionality and content that can be accessed
within seconds,
- thin-client network architecture that allows for easy deployment and
setup, central system management and centrally administered upgrades, and
- a television-based portal for enabling viewers to dynamically link from
television programming and advertising to related Web sites.
We believe this combination of television and the Internet will help transform
advertising, e-commerce and information delivery for the consumer mass market.
WORLDGATE MARKET OPPORTUNITY
The Internet is growing rapidly and is emerging as a significant interactive
medium used by millions of people for entertainment, communications, research,
education and e-commerce. IDC estimates that the number of Internet users
worldwide exceeded 97 million in 1998 and will grow to over 319 million by the
end of 2002. A 1998 report by Jupiter Communications predicted that online
shopping in the United States alone will grow from approximately $5 billion in
1998 to over $29 billion by 2002.
Although Internet access has historically required a personal computer, IDC
surveys indicate that U.S. consumers, by a two-to-one margin, would prefer to
receive emerging electronic information and entertainment services through their
television sets, rather than their personal computers. When surveyed by IDC
about their reasons for not purchasing a personal computer, many respondents
indicated that they do not have a need for a personal computer, that they cannot
afford a personal computer and that personal computers are too difficult or
complicated to use. According to an IDC survey of consumers, personal computer
users spend 30% of their usage time on maintenance and other problem fixing
activities.
WorldGate believes that a television-based approach to Internet services is
a superior alternative for many consumers. In 1998, according to IDC, only 45%
of U.S. households owned a personal computer, whereas, according to Cablevision
Blue Book, 98% had televisions. WorldGate believes that a television-based
approach offers the following advantages:
- televisions are widely accepted and used by consumers,
- televisions are well suited for sharing information and entertainment,
- the advertiser-sponsored television entertainment model is well accepted,
and
- television programming provides a unique portal opportunity.
IDC forecasts that the cumulative shipments in the United States of Internet
television access devices, including dedicated Internet access set-top boxes and
cable television set-top boxes, will grow from 1 million at the end of 1998 to
almost 24 million by the end of 2002, representing 22% of U.S. homes in 2002.
The IDC report indicates that based upon the expense, complexity and
obsolescence
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issues associated with a personal computer, there is an opportunity for
television-based devices to supplement and potentially replace personal
computers as the preferred devices for accessing the Internet.
Set-top appliances, such as those provided by WebTV, have been introduced to
provide Internet access through telephone lines to a television without
requiring a personal computer. Although these access solutions do not require a
personal computer or personal computer expertise, WorldGate believes that this
mode of Internet access may be limited by:
- the need to purchase a dedicated or "single-purpose" set-top appliance
which typically costs approximately $100-$240 and exposes the consumer to
risks of equipment obsolescence,
- monthly subscription fees that may be up to $25 per month in addition to
any telephone access charges,
- the telephone bandwidth and usage constraints of using dial-up modems with
peak data transmission speeds of 56 Kbps that may result in significant
dial-up connection times, busy signals and delays, and
- functional limitations such as the inability to support CD-quality audio
and Java-based applications, including instant messaging and chat rooms.
As a result of the shortcomings of telephone-based access, there is an
opportunity to provide Internet television access through a set-top box
connected to a cable television service. WorldGate believes that the cable
infrastructure provides a superior medium for Internet access that eliminates
the major obstacles of telephone access. WorldGate believes that the benefits of
cable-based Internet access include:
- lower cost than telephone-based methods,
- high transmission speed, with a maximum data transmission speed downstream
from the cable operator's central facility to the subscriber of 27 Mbps,
which is almost 500 times faster than a standard 56.6 Kbps dial up modem,
and
- "always-on" availability providing access within seconds.
A 1997 Kagan report predicted that there would be approximately 230 million
worldwide cable subscribers in 1998 and approximately 285 million worldwide
cable subscribers by the year 2001. In the United States, cable is widely
available, with approximately 96% of homes passed by cable infrastructure in
1998 and approximately 69% of these homes being cable subscribers, according to
Cablevision Blue Book. IDC forecasts that, of all the Internet television access
devices considered by it, cable television set-top boxes are expected to achieve
the highest growth rate through at least 2002.
WorldGate believes that to successfully take advantage of the demand for
cable television-based Internet services in the mass consumer market, the
service should:
- be a relatively low-cost solution for cable operators that can be offered
to consumers over existing cable systems regardless of whether they have
been upgraded to allow bi-directional communications between the cable
operator's central facility and the subscriber's cable box, and whether
they are deploying current or future generation digital and advanced
analog cable boxes, with minimal or no use of dedicated video channel
capacity,
- provide low-cost, easy to use, high speed Internet access to consumers,
- require no additional investment in equipment or hardware by the consumer,
and
- be flexible enough to efficiently accommodate ongoing advances in Internet
capabilities, such as CD-quality audio and Java-based applications,
including instant messaging and chat rooms.
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WorldGate believes that current Internet access offerings have not addressed
the mass market opportunity due to a failure to satisfy one or more of these
criteria.
WORLDGATE SOLUTION
WorldGate believes that the WORLDGATE Service addresses this mass consumer
market opportunity because it is a low cost, high speed, easy to use Internet
service. This service is currently being offered by cable operators to existing
subscribers. The WORLDGATE Service utilizes a thin-client network architecture
to allow for easy deployment and setup, central system management and centrally
administered upgrades. In the subscriber home, the WORLDGATE Service employs
only a television, a remote control or WorldGate wireless keyboard, and a
WORLDGATE capable digital or advanced analog cable box - both of which are
currently being deployed by cable operators for business reasons largely
unrelated to Internet access. The WORLDGATE Service enables users, among other
activities, to browse the Web, send and receive e-mail, participate in chat
sessions and shop online. With features such as WorldGate's CHANNEL HYPERLINKING
technology, the WORLDGATE Service can integrate the interactivity of the
Internet with the television viewing experience. By enabling low cost Internet
access, integrated Internet/television advertising and e-commerce, WorldGate
believes it is pioneering a new mass market.
WORLDGATE BUSINESS MODEL
WorldGate expects to derive revenues from cable operators, e-commerce
merchants and advertisers. WorldGate expects to enhance these revenue
opportunities by implementing the strategies described below.
REVENUE DERIVED FROM CABLE OPERATORS. WorldGate sells its headend server
equipment and wireless keyboards to cable operators and licenses the software
for the WORLDGATE Service to cable operators for a monthly subscriber fee based
upon either a metered standard, which includes a flat monthly rate plus
additional access charges for use after a threshold (e.g. two hours) of service
time, or an unlimited standard, which provides service for a fixed charge not
dependent on usage time. WorldGate believes that cable operators will either
offer the WORLDGATE Service to their subscribers as a premium service, requiring
subscribers to pay a separate monthly fee for the service, or as a part of a
package of services in which the subscriber pays a monthly fee for the entire
package. In either case, WorldGate expects to receive monthly fees from the
cable operators based on the total number of subscribers to the WORLDGATE
Service.
REVENUE DERIVED FROM E-COMMERCE MERCHANTS. WorldGate is in the process of
negotiating with companies in the business of selling products and services
online. WorldGate believes that these companies may pay for the opportunity to
promote their businesses through portals by sharing a portion of the revenues
they are paid or by paying a fixed fee per transaction. We intend to make access
to online shopping opportunities both simple and convenient for our subscribers
so that we can participate in the rapid growth forecasted for e-commerce. We
expect to share the revenues derived from e-commerce merchants with cable
operators.
REVENUE DERIVED FROM ADVERTISERS. A 1998 report by Jupiter Communications
predicted that Web advertising in the United States alone will increase from
approximately $1.7 billion in 1998 to over $7.7 billion in 2002. WorldGate has
space on its various menu pages that is available for banner advertising and
other promotions. When subscribers click on these banners, they can be linked
quickly to another Web page that gives more detailed information about the
subject of the banner ad. Advertisers typically pay portals based on the number
of times that their ad is displayed on a page viewed by a subscriber, so as the
number of WorldGate subscribers grows, we expect our opportunities to derive
advertising revenues will also grow. We intend to rely at least in part on third
party firms such as DoubleClick Inc. that are in the business of providing
advertisements to portals. In some cases, we may ourselves directly contract
with advertisers to display their ads, either on a per view basis or based
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on a fixed fee to cover the right to display their ad for a period of time.
Information derived from the cable system will permit us to know the general
geographic area in which each of our subscribers lives, and in many cases we
will know zip codes and perhaps more extensive demographic information regarding
our subscribers if they wish to share that information with us. Having location
and other data regarding our subscribers is expected to be valuable because
advertisers typically are willing to pay higher advertising fees if they can
target their ads based on such information. We expect to share the revenues
derived from Web advertising with cable operators.
Our CHANNEL HYPERLINKING technology will provide one button linking from
television and advertising content to a related fully interactive Web site. This
sort of advertising is "self-targeted" because subscribers themselves decide
whether they want to get more information. This is in sharp contrast to
traditional television advertising that typically includes sending messages to
large numbers of viewers on an unsolicited basis. In addition to the value
achieved by self-targeting, the value of our CHANNEL HYPERLINKING technology is
enhanced by both the availability of demographic information and interactivity.
By delivering an interactive experience, we are able to give the subscribers the
opportunity to follow a variety of paths to gain extensive information about the
subject of interest. Perhaps most importantly, the interactivity also allows the
subscribers in many cases to purchase a product or service online. With the
average cable household being exposed to tens of thousands of television
advertisements annually, we believe there is the potential to have many
opportunities for use of our CHANNEL HYPERLINKING technology.
Our CHANNEL HYPERLINKING technology business model is based on a revenue
split with our cable operator partners. Revenues to WorldGate are expected to
come from advertisers seeking to engage the WORLDGATE Service subscribers in
some form of interactivity while using our CHANNEL HYPERLINKING technology. The
business model assumes that interactions will be on a pay-for-performance basis
such that advertisers and others will pay us based on the number of "clicks"
that occur. Consumers in an early deployment of the WORLDGATE Service have
averaged fifteen clicks per month related to television networks. This result
was achieved without providing any special promotion of our CHANNEL HYPERLINKING
capabilities. Clicks related to television advertisements are expected to begin
in the second half of 1999 when CHANNEL HYPERLINKING technology for
advertisements is deployed although no meaningful revenue is expected to be
derived from this service in 1999.
BUSINESS STRATEGY
WorldGate's objective is to transform advertising, commerce and information
delivery for the consumer mass market through its combination of television with
the Internet. The principal elements of WorldGate's business strategy are the
following:
PROVIDE COMPELLING VALUE FOR END-USERS. While many companies are focused
primarily on increasing the speed of Internet access, WORLDGATE is focused on
significantly expanding the availability of the Internet to a broader set of
consumers and providing these consumers with an enriched Internet experience, in
addition to offering high speed access. WorldGate designed the WORLDGATE Service
to operate on the widely available existing cable television systems, to be an
inexpensive alternative to other forms of Internet television access and to be
easy for the consumers to use. In contrast to other television-based services,
such as those offered by WebTV, which currently requires the purchase of a
dedicated set-top appliance, the WORLDGATE Service does not require consumers to
purchase or install any in-home equipment. To use the WORLDGATE Service, a
consumer needs only her existing television, a WORLDGATE enabled digital or
advanced analog cable box and a wireless remote or keyboard, with all but the
television typically being supplied by her cable operator. In addition,
WorldGate's CHANNEL HYPERLINKING technology has been designed to offer consumers
easy, fast and interactive access to content which is associated with a
television program or advertisement they are viewing.
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PROVIDE COMPELLING VALUE FOR CABLE OPERATORS. WorldGate believes that cable
operators assess the viability of an investment in a new service by considering
the cost of initial investment in equipment, service reliability, overall
operating and maintenance expenses and the incremental revenue that can be
generated by such service. The WORLDGATE Service can be offered to cable
subscribers through the cable operators' existing one-way or two-way
infrastructure. Furthermore, the WORLDGATE Service has been designed to be
deployed with relatively low capital costs of $45,000 to $75,000 for a system
covering up to 1,400 WorldGate subscribers. These systems are also designed to
be efficiently upgraded as the operator's infrastructure is improved through the
deployment of new generation cable boxes or the deployment of cable modem ready
plant, i.e. a cable plant that has been upgraded to improve the original
transmission quality to permit the use of cable modems, and easily expanded as
the number of subscribers grows. There is, however, no need for any costly
upgrades to cable modem ready plant. Accordingly, the WORLDGATE Service can
provide cable operators with the opportunity for immediate incremental revenue
streams from subscriber fees and sharing of advertising and online transaction
fees. Additionally, the WORLDGATE Service for the advanced analog cable box
typically does not require the use of channel bandwidth. As a result of the
advantages offered by its solution, WorldGate believes that it will be able to
successfully market the WORLDGATE Service to cable operators.
PROVIDE COMPELLING VALUE FOR PROGRAMMERS, ADVERTISERS, ADVERTISING AGENCIES
AND E-COMMERCE MERCHANTS. Through our CHANNEL HYPERLINKING technology,
programmers and advertisers may enhance their television content with related
Internet materials by providing their viewers with the ability to interact in
real-time with their television programming or advertising. For example, a
television viewer watching a commercial could link immediately to that
advertiser's Web site to find more information about the product or to place an
order. By giving viewers this ability, WorldGate believes that the value of the
program or advertisement to the television programmers or advertisers is
increased, and that as a result, programmers and advertisers will be able to
increase their revenues.
WorldGate has established relationships with many providers of content for
the WORLDGATE Service including programmers such as CNN, C-SPAN, The Weather
Channel, Showtime, E! Entertainment Network, Lifetime, Arts & Entertainment,
HGTV and CourtTV. Similarly, WorldGate has established relationships with
Internet and other information content or service providers such as Citicorp,
DoubleClick, Excite and Zip2. The WORLDGATE Service provides them with an
opportunity to broaden their offerings by taking advantage of the dynamic
capabilities of the Internet linked with cable television's broad subscriber
base. The television-based nature of the WORLDGATE Service provides a natural
portal for interaction between the consumer and programming and other content
providers.
WorldGate is also working with advertisers and advertising agencies such as
General Motors, Poppe Tyson, Ogilvy & Mather, Grey Advertising Inc. and True
North Communications Inc. WorldGate is working with these advertisers and
advertising agencies to allow for interactive links by television consumers with
the products and/or services being advertised on the television. WorldGate has
also established a committee (the North American CHANNEL HYPERLINKING
Organization or "NACHO") which includes representatives from many of these
content providers, advertisers and advertising agencies as well as advertising
service providers such as Nielsen Media Research Inc. and MatchLogic, Inc., an
operating unit of Excite. The NACHO advisory board is developing standards and
policies for WorldGate's CHANNEL HYPERLINKING technology as well as assisting in
its promotion. WorldGate believes that its CHANNEL HYPERLINKING technology,
along with the participation of its CHANNEL HYPERLINKING providers and the NACHO
advisory board, will facilitate an enriched interactive experience for users of
the WORLDGATE Service. Initial field tests of the CHANNEL HYPERLINKING
technology in advertisements is currently scheduled for the second half of 1999.
WorldGate also intends to provide additional value added services to
advertisers, programmers and cable operators by collecting consumer activity
data. This activity data will be collected and tabulated to statistically
reflect consumer responses to interactive advertisements and programming,
television viewing habits and Internet "surfing" habits.
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WorldGate intends to ensure a WORLDGATE Service subscriber's privacy by not
providing personally identifiable data unless authorized by the subscriber.
AGGRESSIVELY PENETRATE GLOBAL MARKETS. WorldGate believes that the market
for the WORLDGATE Service is global and is seeking to deploy its systems with
additional cable operators in the United States, Canada, China, Europe, Latin
America and Southeast Asia. The WORLDGATE Service is currently being tested by
cable operators on four continents. WorldGate is working with third parties to
provide local content directories and user interfaces in multiple languages for
the WORLDGATE Service as the demand arises.
CREATE BRAND EQUITY. WorldGate intends to create an identity for its
INTERNET TV OVER CABLE-SM- service under the "WORLDGATE" brand. In this regard
WORLDGATE is already a registered service mark in the United States and
applications have been filed in many other countries. WorldGate believes that
the creation of a brand identity among cable subscribers is important to its
strategy to become the preferred provider of cable Internet television services
to the cable television industry, advertisers, programmers and e-commerce
companies. By creating consumer awareness of the WORLDGATE Service, WorldGate
believes it will drive penetration in its geographic markets worldwide and
increase the pace at which cable operators, advertisers, programmers and
e-commerce companies recognize the economic and service benefits of the
WORLDGATE Service.
MAINTAIN AND LEVERAGE TECHNOLOGY POSITION. WorldGate believes that it has
established a competitive advantage through its technology position. Development
of the WORLDGATE Service has required in excess of three years of intensive
engineering and development efforts and the combination of significant expertise
in two historically separate industries, cable and the Internet. WorldGate's
engineering personnel, who came from established industry participants such as
General Instrument and Hitachi, Ltd., have been able to solve challenges
involved in delivering real-time Internet access over existing cable
infrastructure. WORLDGATE believes that it is currently the only company to have
developed, and commercially deployed, the capability to offer bi-directional
transmissions and real-time communications between the cable box and the cable
operator's central facility without requiring the use of cable channel capacity.
WorldGate intends to maintain its technology leadership by continuing to enhance
the performance and functionality of the WORLDGATE Service, and by aggressively
seeking to protect its intellectual property.
LEVERAGE EXISTING RELATIONSHIPS WITH GENERAL INSTRUMENT AND
SCIENTIFIC-ATLANTA. WorldGate has strategic relationships with General
Instrument and Scientific-Atlanta, the world's two largest suppliers of cable
boxes. Both companies have participated in the joint development, including
testing and implementation, of WorldGate's technology. WorldGate's technology
has been incorporated into versions of their advanced analog cable boxes and is
being tested on their digital cable boxes. In addition, both General Instrument
and Scientific-Atlanta are stockholders of WorldGate and have joined WorldGate
in promoting the WORLDGATE Service in the press, at trade shows and conferences
and through joint sales and marketing presentations worldwide.
As of March 15, 1999:
- General Instrument had invested an aggregate of approximately $5.5 million
and owned 454,716 shares of common stock of WorldGate or approximately
2.9% of the total outstanding shares, and
- Scientific-Atlanta had invested an aggregate of approximately $3.5 million
and owned 333,505 shares of common stock of WorldGate or approximately
2.1% of the outstanding shares.
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THE WORLDGATE SERVICE
OVERVIEW OF THE WORLDGATE SERVICE. WorldGate is the developer of the
WORLDGATE Service, an Internet television service that enables:
- cable operators to offer subscribers low cost, easy to use, high speed
Internet access, and
- television programmers and advertisers to link their programs and
advertisements with a fully interactive Web site.
Upon accessing the WORLDGATE Service, the user is provided with a main menu
screen offering several options, including Web browsing and e-mail. The main
menu screen also provides options for viewing informative content such as an
electronic television program guide, news, weather, sports and community
activities. Depending on the option selected, the consumer is connected to the
desired content or a secondary menu screen providing additional options.
WORLDGATE has designed both its navigational menu screens and e-mail service to
be simple and user-friendly.
The WORLDGATE Service uses a standard cable television box that has been
WORLDGATE enabled and does not require a personal computer or additional set-top
appliance. Furthermore, the WORLDGATE Service can co-exist with alternative
methods of Internet access, which may share the same cable operator network and
application infrastructure it employs.
The advanced e-mail service option provides additional features, such as
e-mail address list management, folders for archiving received and sent e-mail,
support for attachments of which ones that can be displayed are identified and
presented in such a fashion that the user can view them, support for forwarding
and carbon copying additional mail recipients, and allowing a subscriber to
establish and manage multiple mail box addresses for each member of the
subscriber's household. The "My Town" icon on WorldGate's main menu screen
provides local directories and community guides. This feature offers users a
directory of local school activities, restaurants, government resources and
related community information. Zip2 currently provides this information on
behalf of WorldGate. Also, from the WORLDGATE home page subscribers receive the
current local weather that is updated every hour. The Weather Channel currently
provides this weather information. With a few key strokes the subscriber can
receive a five day forecast, or check the weather for any other location in the
United States.
From the Web section, subscribers can access our "Web Directories" that
provide subscribers with national references to advertisers and links that are
organized by category such as travel, sports, finance and shopping. WorldGate
can update this information to reflect the changing dynamics of the Web.
"Networks on the Web" allows subscribers to view our CHANNEL HYPERLINKING
technology partners and any currently available information that is provided by
television programmers. "Bookmarks" allows subscribers to save their favorite
sites for easier access. Subscribers can also review and edit their list of
favorite sites.
Subscribers can easily go to any site or search the Web by simply entering a
phrase or Web address into the WORLDGATE Service. The WORLDGATE technology
determines if the user has entered a valid Web address or a search phrase and
then links to the appropriate Web site. The search engine is provided by Excite.
The WORLDGATE Service allows subscribers to administer their household
accounts online. The household administrator can add new accounts, change the
parental control (content filtering), change passwords and change the first and
last names of the individual users on the service. Up to six users are allowed
for each household. The WORLDGATE Service provides the ability to filter the
sites being viewed by the subscriber on a subscriber and household basis.
WorldGate currently uses Spyglass, Inc.'s SurfWatch filtering technology to
offer subscribers the ability to restrict viewing of Web content in categories
ranging from sexually explicit, violent and gambling to drugs and alcohol. In
addition we
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offer a filtering system that uses a special list in order to ensure more
restrictive content filtering suitable for children using the service.
CHANNEL HYPERLINKING TECHNOLOGY. WorldGate's innovative CHANNEL
HYPERLINKING technology is designed to allow a user to dynamically link directly
from a television program or advertisement being viewed to related Internet
sites with the push of a button on a standard remote control or optional
wireless keyboard. The WORLDGATE subscriber does not have to enter or even know
the associated Internet address. For example, while watching The Weather
Channel, a subscriber can directly access a Web page providing local weather
forecasts. Advertising, promotion, transaction and information services are
examples of the types of related programming links that may be enabled through
the CHANNEL HYPERLINKING technology. Our CHANNEL HYPERLINKING technology is
designed to enable applications such as simulcast information on the sports
program being viewed.
There have been several instances where programmers have referred television
viewers to related Internet sites. For example, Showtime, ESPN and NBC, among
others, have encouraged viewers to use their personal computers to access Web
sites related to the content of their sporting event programs, including the
Olympics. WorldGate believes that easier and quicker access to the Internet
through the capabilities provided by CHANNEL HYPERLINKING technology will
promote a new category of cross-programming opportunities.
WorldGate's CHANNEL HYPERLINKING technology can also be used to enhance the
functionality of information sources such as electronic program guides. Although
program guides currently offer limited television program and advertising
information, such information and their utility can be significantly improved
through the use of Web-based content and the ability to perform transactions
online. Because such guides are considered by many to be essential when hundreds
of channels are available, such as is the case with digital platforms, and
because the guides will likely be accessed many times each day, WorldGate
believes that CHANNEL HYPERLINKING enhancements to program guides may represent
a significant source of revenue.
To realize the economic benefits of CHANNEL HYPERLINKING, WorldGate,
programmers, advertisers and advertising agencies have begun to coordinate
implementation of the WORLDGATE Service. In addition, cable operators will need
to achieve significant penetration rates of the WORLDGATE Service to provide an
attractive target audience for programmers and advertisers to focus on
developing the CHANNEL HYPERLINKING service. WorldGate believes that CHANNEL
HYPERLINKING may enhance the value of television programming and advertising,
increase related on-line transactions and potentially lead to related revenue
generating opportunities associated with advertising and on-line transactions
revenue generating opportunities.
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WORLDGATE COMMERCIAL LAUNCHES
WorldGate has entered into multi-year agreements with six operators of cable
television systems: Cable Bahamas, Charter, Click!Network, Massillon Cable,
Prestige Cable and TVCable, which collectively with their affiliates have
approximately 2.7 million subscribers. Charter, which has been managing and has
publicly announced that it will be combined with Marcus Cable Company L.P.
during 1999 as the result of the purchase of both companies by Paul Allen's
Vulcan Ventures, together with Marcus Cable constitutes the seventh largest U.S.
cable operator, with over 2.4 million subscribers in the United States. Set
forth below is a table summarizing the current status of these commercial
launches. The total number of subscribers served by the cable operator and its
affiliates across all of their systems are based on estimates by Cable
Television Developments (Fall 1998/Winter 1999 Cablevision Blue Book), except
for TVCable, which is based on a WorldGate estimate.
<TABLE>
<CAPTION>
COMMERCIALLY TERMINATION
TOTAL SYSTEM LAUNCHED DATE OF
CABLE OPERATOR SUBSCRIBERS LOCATIONS PLANNED LAUNCH LOCATIONS AGREEMENT
- ------------------ ------------- ------------------ ------------------------------------- ------------------
<S> <C> <C> <C> <C>
Cable Bahamas 46,000 Bahamas September 2003
Charter 2,414,800 St. Louis, MO; Lanett, AL; Alhambra, CA; Burbank, November 2002
Newtown, CT; CA; Glendale, CA; Long Beach, CA;
Maryville, IL; Riverside, CA; San Luis Obispo, CA;
Logan, UT LaGrange, GA; Newnan, GA; Hickory,
NC; Ft. Worth, TX
Click!Network 3,000 Tacoma, WA November 2005
Massillon Cable 43,800 Massillon, OH November 2003
Prestige Cable 152,500 Cartersville, GA; Westminster, MD; November 2005
Mooresville, NC; Fredericksburg, VA
TVCable 100,000 Quito, Ecuador September 2005
</TABLE>
Cable Bahamas is currently operational; however, they are awaiting licensure
from the government of Bahamas to provide the WORLDGATE Service and there can be
no assurance that the license will be obtained. In the event that Cable Bahamas
is unable to obtain the necessary license, it may no longer be able to offer the
WORLDGATE Service.
WORLDGATE TRIALS
The WORLDGATE Service is in various stages of trials on four continents with
a number of cable operators including Comcast, Time Warner and MediaOne, which
are three of the four largest U.S. cable operators. Trials typically start with
cable boxes connected to a headend server system installed at a cable operator's
corporate office location for technical evaluation. Trials are of varying
duration and complexity.
The total subscriber base of cable operators currently in trials with
WorldGate is approximately 32 million. There can be no assurance that the
current or planned trials will be successful or will lead to commercial
deployment of the WORLDGATE Service by these cable operators. Set forth below is
a table summarizing the current trials and planned trials of the WORLDGATE
Service as of March 15, 1999.
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The total number of subscribers served by the cable operator across all of
its systems is based on estimates by Cable Television Developments (Fall
1998/Winter 1999 Cablevision Blue Book) for U.S. operators other than SNET and
on WorldGate's estimates for SNET and international operators.
<TABLE>
<CAPTION>
NUMBER OF
TOTAL SYSTEM TRIAL WORLDGATE SYSTEM
CABLE OPERATOR SUBSCRIBERS LOCATION BOXES TYPE
- --------------------------------------------------------- ------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
UNITED STATES TRIALS:
Ameritech Corporation.................................. 150,000 Chicago, IL(1) Planned Analog
Cable TV of the Kennebunks............................. 8,500 Kennebunk, ME Planned Digital
Comcast (including Jones Intercable)................... 5,387,659 Lower 63 Analog
Merion, PA
Philadelphia,
PA
Torresdale, 4 Digital
PA(1)
MediaOne............................................... 5,107,800 Boulder, CO(1) 4 Analog
SNET Personal Vision, Inc.............................. 22,000 Hartford, CT 37 Analog
Time Warner............................................ 11,995,400 Orlando, FL 50 Analog
INTERNATIONAL TRIALS:
Cablevision/TCI........................................ 825,000 Buenos Aires, Planned Analog
Argentina
Cablevision S.A. de C.V................................ 300,000 Mexico City, Planned Analog
Mexico
Image TV............................................... 24,000 Brazil Planned Analog
Saturn................................................. 70,000 Wellington, New Planned Analog
Zealand
Shaw................................................... 1,500,000 Calgary, 1 Digital
Canada(1)
Singapore CableVision.................................. 800,000 Singapore(1) 5 Analog
Skycable............................................... 225,000 Philippines 25 Analog
SuperCable............................................. 52,000 Caracas, 12 Analog
Venezuela(1)
Telefonica Multimedia S.A.C............................ 210,000 Lima, Peru Planned Analog
United International Holdings.......................... 5,253,070 Vienna, 10 Analog
Austria(1),
Santiago, 66 Analog
Chile(1)
Riyadh, Saudi Planned Digital
Arabia(2)
</TABLE>
- ------------------------
(1) Corporate office trial.
(2) May be limited to Saudi Arabia domestic content.
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TECHNOLOGY
The WORLDGATE platform is based on a "thin client architecture," which
allows substantially all client-related processing to be performed at the cable
headend. The WORLDGATE platform is comprised of three components:
- servers located at the cable headend,
- a WORLDGATE enabled digital or advanced analog cable box, and
- a remote control and/or optional wireless infrared keyboard.
CABLE HEADEND; CHANNEL HYPERLINKING. There are two servers located at the cable
headend. One server manages all information traveling to and from this server to
the Internet. This server also manages individual Internet sessions, processes
data for presentation on the television screen and manages the Web browsing
client. The second server manages real-time communications from the cable
headend to a subscriber's cable box. This server acts as a bi-directional router
for data on a cable network. These servers:
- are based on a multi-processor architecture,
- can be accessed remotely by WorldGate for performance monitoring and
software upgrades, and
- are configured so that typical full screen refresh time on:
- an analog platform is five seconds or less and
- a digital platform is as low as 1/30(th) of a second.
General Web surfing is provided by our browser technology using high
performance server headend systems. The WORLDGATE Service browser currently
supports HTML Version 3.2, HTTP Version 1.0 and 1.1, HTML Frames, Image formats
such as GIF Animations, JPEG and XBM formats. To WorldGate's knowledge,
WorldGate is the only company that supports a full Java implementation offering
on a set-top platform. Java is used for such applications as chat and instant
messaging. The WORLDGATE platform supports JavaScript that is compatible with
Microsoft and Netscape browsers.
One feature of the WORLDGATE Service is our CHANNEL HYPERLINKING technology.
When a cable television subscriber makes a CHANNEL HYPERLINKING request, the
subscriber's cable box sends a signal to the cable headend indicating the
channel and program information of the program the subscriber is viewing. This
information is then matched with the corresponding Web address for the program
which has been stored at a cable headend database. Afterwards, the subscriber is
linked to the corresponding Web site for full Internet interactivity. This
entire process occurs within seconds.
WORLDGATE'S CHANNEL HYPERLINKING TECHNOLOGY
WorldGate's Channel HyperLinking provides a flexible and instantaneous
solution for interactive television and advertising. WorldGate's Channel
HyperLinking Center is the brain of the system, managing data flow to the
WorldGate affiliate cable systems and gathering usage data to create a valuable
reporting infrastructure for advertisers, product marketers, television
networks, and cable operators.
[figure depicting five horizontal boxes. The first box is labeled
"Advertisers and Ad Agencies" and contains two smaller boxes including the
following text: "Advertising ID codes are added to master video tapes before
distribution," and "The matching Web address is associated with the Advertising
ID in WorldGate's software and sent to the CHANNEL HYPERLINKING Center." The
first box has a one-way arrow to the second box that is labeled "Broadcast and
Cable TV Network Uplink Centers." The second box contains two smaller boxes
including the following text: "Advertising ID codes travel with the broadcast
advertising signals over satellites" and "Television schedules are sent to the
CHANNEL
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HYPERLINKING Center by networks in advance of broadcast." The third box is
labeled WorldGate's CHANNEL HYPERLINKING Center and has a smaller box with
"Advertising ID codes are collected from all networks and sent to local cable TV
Headends" and a cylinder with "Master Database for all Channel HyperLinking"
included. The fourth box is labeled "Cable TV Headend" and has a smaller box
with "Local cable affiliates receive data from CHANNEL HYPERLINKING Center and a
cylinder with "Local Database for National and Local Channel HyperLinks"
included. The fourth box is linked with a one-way arrow and text reading "cable
to the home" and "cable from the home" to the fifth box. The fifth box is
labeled "Analog or Digital Cable Subscriber's Home" and contains two smaller
boxes with the following text: "An on-screen prompt can be displayed for
advertising ID codes or programs that have interactive content" and "When the
consumers click remote controls to go interactive, the headend computer system
retrieves the appropriate Web pages to be displayed." The second box is
connected to the third box and the third box is connected to the fourth box by
pictures of satellite dishes and satellites.]
CABLE BOX. We believe that we are the only company providing a
television-based Internet service for both advanced analog and digital cable
boxes. This is particularly important for cable operators deploying both types
of cable boxes. WorldGate has developed technology that allows WORLDGATE enabled
advanced analog cable boxes to display the graphics and to provide real-time
communications necessary for the WORLDGATE Service. The WORLDGATE technology is
currently incorporated in an additional feature expansion module that must be
installed within General Instrument's and some models of Scientific-Atlanta's
existing advanced analog cable boxes. The WORLDGATE Service currently operates
on modified versions of the General Instrument CFT 2200 and the
Scientific-Atlanta 8600 advanced analog cable boxes. Existing models of General
Instrument's and Scientific-Atlanta's digital cable boxes, as well as
Scientific-Atlanta's 8600X advanced analog cable box, can be used to provide the
WORLDGATE Service with a software download. The software download can be done
remotely.
The advanced analog WORLDGATE platform makes use of the vertical blanking
interval to transmit its data in conjunction with regular television signals.
The vertical blanking interval is part of a television signal that is not used
for the television program. By using the vertical blanking interval, WorldGate
does not interfere with the television signal and does not require additional
bandwidth to provide the WORLDGATE Service. To provide the WORLDGATE Service,
WorldGate uses as few as five of the typically 20 to 50 television channels with
vertical blanking intervals that are available. More capacity for the WORLDGATE
Service can be provided by use of the vertical blanking interval in these
additional channels.
With the advanced analog platform, WorldGate supports data transmission
rates of up to 128 Kbps downstream from the cable operator's central facility to
the subscriber's cable box and 14 Kbps or 20 Kbps upstream from the cable box to
the cable operator's central facility. Because only keystrokes are being sent
upstream, WorldGate believes that the upstream data transmission rate is
adequate to transmit such data. The WORLDGATE advanced analog platform supports:
- up to 65,000 colors on modified versions of General Instrument's CFT 2200
and Scientific-Atlanta's 8610 advanced analog boxes and
- 16 colors on the Scientific-Atlanta 8600X advanced analog cable boxes.
WorldGate believes that there are currently over 2.3 million advanced analog
cable boxes already shipped which can be WorldGate enabled with a software
download and an additional 1 million of such boxes which can also be WorldGate
enabled with a software download and installation of additional memory in the
boxes.
The WORLDGATE digital platform uses MPEG2 technology to provide transmission
speeds of up to 27 Mbps downstream from the cable operator's central facility to
the cable box and 256 Kbps upstream from the cable box to the cable operator's
central facility. As with the advanced analog cable box, WorldGate believes that
the relatively slower upstream speed does not decrease performance of the
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<PAGE>
WORLDGATE Service. Unlike high bandwidth requirements for the downstream path
for large data transfers such as Web pages, the upstream path generally is used
for small data transfers, such as keystrokes, and does not require large
bandwidth capacity. WorldGate's digital platform provides up to 16 million
colors and will operate on the following models of digital boxes: GI DCT1000,
1200 and 2000 and WorldGate expects to operate on the GI DCT5000 and
Scientific-Atlanta's Explorer 2000. The WORLDGATE Service over the digital
platform is currently being tested by WorldGate and certain cable operators.
According to Cablevision Blue Book, over two million current generation digital
boxes have been shipped through December 31, 1998. All of these boxes can
potentially be upgraded to support the WORLDGATE Service through a
centrally-administered software download.
Due to its thin client/server architecture, WorldGate believes that the
WORLDGATE Service can be deployed on future generation digital boxes with
minimal development by WorldGate and minimal transition cost to cable operators
offering the WORLDGATE Service on the current-generation digital platform.
In addition to operating on two-way cable systems that allow bi-directional
transmissions and communications between the cable box and the cable operator's
central facility, the WORLDGATE platform is capable of operating over a one-way
cable system that allows transmissions and communications only from the cable
operator's central facility to the cable box, by using telephone return for
communications from the cable box to the cable operator's central facility. It
is estimated that at least 55% of U.S. cable homes are currently connected to
one-way cable systems. On a one-way cable system, it is possible to transmit
data from the cable headend to the subscriber using the one-way cable system but
there is no available return path. For these one-way systems, WorldGate can use
the telephone system for the return path. The response time of the WORLDGATE
Service over two-way and one-way cable plant would be similar for most functions
except for slower responses over one-way cable plant, during login and use of
our CHANNEL HYPERLINKING technology. WorldGate also believes that the slower
speed for the telephone system return path is not a problem for subscribers
because of the generally low bandwidth requirements for the return path.
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WIRELESS CABLE REMOTE CONTROL AND OPTIONAL KEYBOARD. To access and input
data on the WORLDGATE Service, cable television subscribers can use either a
standard remote control provided with their advanced analog or digital cable
boxes, or optionally, an infrared wireless keyboard that may be provided as part
of the WORLDGATE Service. WorldGate has designed this optional keyboard to
provide a full size keypad, pointing device and function keys customized for our
WORLDGATE Service, such as a CHANNEL HYPERLINKING key. WorldGate expects cable
operators to buy keyboards from WorldGate directly and make them available to
subscribers as part of the WORLDGATE Service package. Cable operators may
provide the optional keyboard to subscribers at no or minimal monthly cost, or
allow subscribers to purchase the keyboard.
[figure captioned WorldGate Server Hardware & Software depicting four linked
columns of boxes labelled "System Server," "Application Servers," "Multi-User
Client" and "Communications Manager." To the left of the first column is a
depiction of an Internet Web page connected by a line labelled "High Speed
DataLine" to the first column. The boxes in each of the columns are labelled:
"Billing," "Subscriber Data Base" and "Network Management--Network Monitoring of
Headend Equipment;" "Cluster Management," "E-Mail," "Web-based TV Listings" and
"Channel Hyperlinking Database;" "Session Manager--Manager Simultaneous Customer
Sessions," "Browser" and "Display Manager-- Formats and Encodes Browser Display
and "Data Inserter Sends Web Pages to Cable Customer" and "Data Demodulator
Receives Keystrokes from Cable Customer." To the right of the last column is a
depiction of a home television screen connected by a line labelled "Cable
Network" to the last column.]
SECURITY
The WORLDGATE Service uses a standard encryption protocol known as Secured
Sockets Layer, to encrypt data. When a WorldGate session is initiated, the
WORLDGATE enabled cable box will send a log-in request to the WorldGate headend
server. The server then creates a unique master key. The master key will be
comprised of two keys: one key is known as the public key, which is used only
for encryption, and the second key is known as the private key, which is used
only for decryption. Only the public key will be transmitted back to the cable
box. The cable box then chooses two random 128 bit numbers, the session keys,
and encrypts them with the public portion of the master key before sending the
encrypted session keys back to the server. The server receives the encrypted
session keys and decrypts them with the private portion of its master key. As a
result, both the server and the cable box have available a pair of unique
session keys which may be used to encrypt and decrypt messages and thereby
communicate securely for that particular session.
ENGINEERING AND DEVELOPMENT
To date, engineering and development have been a significant focus of
WorldGate. Development of the WORLDGATE Service has required combining technical
experience and knowledge from two historically separate industries, the Internet
and cable, as well as three years of intensive efforts. The principal elements
of WorldGate's engineering and development activities are as follows:
CHANNEL HYPERLINKING. WorldGate has been developing and will continue to
develop the systems and hardware necessary to establish a centralized CHANNEL
HYPERLINKING control facility to enable advertisers to provide data necessary to
implement CHANNEL HYPERLINKING on a large scale.
FEATURE ENHANCEMENTS. WorldGate intends to continue to expand features of
the system to integrate newly developed Web features, accessories and tools.
WorldGate also intends to support picture-in-picture capability to allow Web
pages and television programs to be viewed at the same time. WorldGate also
intends to develop system enhancements that will enable consumers to listen to
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CD-quality audio while browsing the Web. WorldGate is currently working to allow
attachment of a printer to the WORLDGATE Service.
To implement its engineering and development strategy, WorldGate has
assembled an engineering team from established industry players, such as General
Instrument and Hitachi, with strong backgrounds in real-time data communications
hardware and software, digital video, client-server software, Unix operating
systems, computer networking, circuit design and cable headend design.
SALES AND MARKETING
SALES. WorldGate utilizes its direct sales force and senior management,
including its Chief Executive Officer, to market the WORLDGATE Service. These
individuals work closely with the General Instrument and Scientific-Atlanta
sales forces to promote the WORLDGATE Service in the press, at trade shows and
conferences and through joint sales and marketing presentations worldwide.
Because WorldGate expects that the roll-out of WorldGate's service will in many
cases be tied to the introduction of new cable box deployments, it will remain
important and advantageous to WorldGate to have an integrated sales effort with
the major cable box manufacturers. WorldGate believes that its relationship with
these large industry sales forces will continue to provide efficient leads for
high volume sales. Currently, nine employees are dedicated to the sales efforts,
including its Vice President and General Manager, and the Vice President,
Affiliate Sales and Marketing.
MARKETING. WorldGate's marketing strategy is directed at four primary
constituencies: consumers, cable operators, programming content providers and
advertisers. To reach consumers, WorldGate intends to provide cable operators
with promotional content for the WORLDGATE Service including local cable
television commercial spots and insertions for monthly cable billings, in
addition to utilizing the cable operators' extensive sales networks. Because
WorldGate expects to market itself as a family service, WorldGate intends to
develop a series of television commercials aimed at various demographic market
segments, which will be customized for specific cable companies. In addition,
WorldGate plans to develop a training tape for customer service representatives
to teach them how to sell the WORLDGATE Service and how to answer commonly asked
questions. WorldGate also plans to create longer form commercials to sell the
WORLDGATE Service over cable television and ten-minute tutorial tapes to teach
consumers how to use the WORLDGATE Service. Standard print media for consumers
may include user guides, point-of-purchase displays, low-cost bill stuffers and
a monthly WorldGate news magazine tailored to the subscriber base. To enhance
the potential penetration of the WORLDGATE Service, WorldGate plans to establish
WorldGate as a known trade and consumer brand.
To reach cable operators, WorldGate has focused its marketing efforts mainly
on trade advertising and promotions, which includes demonstrations at industry
conferences and print advertising in major weekly industry news publications
such as MultiChannel News and Cable World. WorldGate has made substantial
investments in trade show booths for cable shows such as the National Cable
Television Association Cable Show, and also plans to continue to share booths
with General Instrument and Scientific-Atlanta at various upcoming trade shows.
To reach programming content providers, WorldGate has developed an
aggressive program to establish distribution arrangements with various content
providers to develop content particularly suited to the WORLDGATE Service.
Through WorldGate's distribution of such content packages as part of the
WORLDGATE Service, these providers are offered access to a pervasive medium in
which television programming can be enriched by Internet materials, and in which
consumers can experience real-time, interaction with the programming. The
television-based nature of the WORLDGATE Service provides a natural portal for
interaction between the consumer and the programming offered by these content
providers.
WorldGate has established a team to market the WORLDGATE Service, including
the opportunities created by a television-based portal to the Internet, to
television programmers, advertisers and other
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content providers. WorldGate's marketing efforts to television networks have
focused primarily on cable television networks and secondarily on the broadcast
networks. We believe that national cable television networks may have some
advantages over broadcast networks in providing CHANNEL HYPERLINKING for their
programming because they do not have to contend with programming provided by
numerous affiliated local stations. Rather, just a few network feeds cover the
entire nation. We believe that our CHANNEL HYPERLINKING technology can turn the
cable television network of national programming into targeted, personalized
interactive content with very little effort on the part of television networks.
WorldGate sees value in partnering with television networks because WorldGate
believes that consumers will see value in interacting with their favorite
television programming.
WorldGate has developed a strategy to establish partnerships with television
programming content partners through distribution agreements. These distribution
agreements generally provide that our partner will provide link information and
Internet-based content particularly suited to the WORLDGATE Service and our
CHANNEL HYPERLINKING technology.
WorldGate believes that Internet and other information or service content
providers such as Citicorp, Excite and Zip2 can broaden their customer base by
taking advantage of our television-based WORLDGATE Service. The television-based
nature of the WORLDGATE Service provides a natural portal for interaction
between the consumer and the programming and other content offered by these
content providers.
WorldGate's marketing team also works with advertisers and advertising
agencies. We believe that interactive television advertising will grow
significantly in the future. WorldGate promotes the WORLDGATE Service for
television advertising directly to advertisers and top national and global
advertising agencies. In addition, WorldGate promotes the WORLDGATE Service
through the American Association of Advertising Agencies, whose members are
composed of the leading advertising agencies in the United States, and the
Association of National Advertisers, whose members are composed of advertisers.
WorldGate expects to provide value to advertisers and advertising agencies by
providing interactivity between broadcast television advertising and related
Internet content. Our CHANNEL HYPERLINKING technology is expected to combine
broad viewership of broadcast advertising with the immediacy and targeted nature
of direct marketing. During 1999, WorldGate expects to work with Nielsen Media,
MatchLogic, cable operators, television networks, advertisers and their
advertising agencies to complete a marketing study which will measure the
effectiveness and value of our CHANNEL HYPERLINKING technology for both
interactive programming and interactive advertising.
CUSTOMER SERVICE AND SUPPORT
WorldGate has developed and maintains a sales support and customer service
network infrastructure to enable it to respond to cable operator and consumer
issues. WorldGate believes that most sales support and customer service requests
can be handled by WorldGate personnel via the telephone or the Internet.
Accordingly, WorldGate has set up a 24-hour and toll free telephone help-line to
assist cable operators having technical problems with WorldGate's software or
hardware. WorldGate also plans to monitor each cable headend system utilizing
the WORLDGATE Service in an effort to detect system problems before they become
apparent to consumers, and to remotely download software updates as needed from
its principal offices in Bensalem, Pennsylvania. To assist domestic consumers
subscribing to the WORLDGATE Service, electronic on-line help is available 24
hours a day from any of the WORLDGATE Service screens. Additionally, WorldGate
intends to provide consumers with access to a telephonic help-line offering
pre-recorded answers to frequently asked questions for a nominal charge.
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SYSTEM INTEGRATION
WorldGate utilizes contract manufacturing for substantially all of the major
hardware components and licenses technology necessary to provide the WORLDGATE
Service, thereby allowing WorldGate to focus resources on sales and marketing
and engineering and development related to the WORLDGATE Service. WorldGate does
not manufacture, nor does it have the capability to manufacture, any of the
components of the equipment used in providing the WORLDGATE Service. Rather,
WorldGate's internal manufacturing operations consist primarily of assembly of
prototypes, test engineering, materials purchasing, integration of equipment
components and inspection and quality control, all of which are performed at its
facilities in Bensalem, Pennsylvania. Although WorldGate has not experienced any
material difficulties in obtaining supplies or manufactured products, any
termination of the license of the technology used on the WORLDGATE platform or
any reduction or interruption in supply or manufacturing from these third-party
contractors would adversely affect its ability to deliver its products.
INTELLECTUAL PROPERTY
We regard our technology as proprietary, and we rely on a combination of
patents, copyrights, trademarks, trade secret laws, contractual restrictions,
restrictions on disclosure and other methods to establish and protect our
technology and proprietary rights and information. We have filed patent
applications in the United States and internationally covering aspects of our
real-time, two-way interactive systems, including our thin-client architecture,
centralized data processing, communications schemes and our CHANNEL HYPERLINKING
technology. We cannot assure you that any patent will issue from these
applications or that, if issued, any claims allowed will be sufficiently broad
to protect our technology. In addition, we cannot assure you that any patents
that may be issued will not be challenged, invalidated or circumvented, or that
any rights granted to us would provide us with proprietary protection. The
failure of any patents to protect our technology may make it easier for our
competitors to offer technology equivalent or superior to our technology. We
also generally enter into confidentiality agreements with our employees and
consultants, and when possible, customers, partners and others to control access
to and distribution of our documentation and other proprietary information.
Despite these precautions, a third party may copy or otherwise obtain and use
our products, services or technology without authorization, or develop similar
technology independently. In addition, effective patent, copyright, trademark
and trade secret protection depends on the various forms of liability for
infringement. Legislators both domestically and internationally are grappling
with these issues, and the case law in this area is not fully developed.
Moreover, protection may be unavailable or limited particularly in some foreign
countries, and the global nature of the Internet makes it virtually impossible
to control the ultimate destination of our content offerings. Policing
unauthorized use of our content offerings is difficult. There can be no
assurance that the steps taken by us will prevent misappropriation or
infringement of our technology. In addition, litigation may be necessary in the
future to enforce our intellectual property rights, to protect our trade secrets
or to determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, financial condition and
results of operations. See "--Legal Proceedings." We are subject to litigation
brought by others claiming that we infringe their intellectual property. See
"--Litigation."
COMPETITION
The market for consumer Internet services is extremely competitive, and
WorldGate expects that competition will intensify in the future. Access to the
Internet is currently available through several methods including:
- telephone access through a personal computer,
- telephone access through a television,
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- cable access through a personal computer, and
- cable access through a television.
While these various methods of Internet access and types of services offered may
be construed as competitive, they may also be complementary. Household members
may prefer to use different methods of Internet service/access based on
availability and their intended business or leisure use. WorldGate is working
with some of the companies described below to find ways to combine their product
and service offerings with those of WorldGate.
TELEPHONE ACCESS THROUGH A PERSONAL COMPUTER. Currently, the majority of
Internet users utilize a personal computer and a modem to access the Internet
over a telephone line through a connection to an Internet service provider
("ISP") such as America Online, Earthlink or MindSpring. WorldGate believes that
this mode of Internet access may be limited by:
- the complexity, maintenance and obsolescence issues usually associated
with a personal computer,
- bandwidth constraints of using dial-up modems with peak data transmission
speeds of 56 Kbps that may result in significant dial-up connection times
and delays,
- expenses including:
- investment that may be required for a personal computer and a modem,
- ISP's monthly fees, which WorldGate believes range from $10-22 per month,
- possible telephone access charges, and
- the total number of users that may be simultaneously connected to an ISP.
Recent advancements within telephone systems may mitigate some of the above
factors. Integrated Services Digital Network ("ISDN") technology enables a peak
data transmission speed of 128 Kbps between the user and the ISP over specially
conditioned telephone lines. Although ISDN technology has been available for
several years, WorldGate believes that it has not been widely deployed due
primarily to its relatively high costs. Asymmetric Digital Subscriber Line
("ADSL") technology is currently the most common implementation of Digital
Subscriber Line ("xDSL") technology. ADSL enables peak data transmission speeds
of 8.4 Mbps downstream from the ISP to the user and 640 Kbps upstream from the
user to the ISP. WorldGate believes that these new technologies are expected to
have associated monthly fees in the range of $90-170.
In addition to telephone based access, satellite based access may be an
alternative. Satellite-delivered approaches such as direct broadcast satellite
("DBS") currently provide a peak data transmission speed of approximately 400
Kbps downstream and rely on dial-up modems and the telephone network for
upstream transmission ("telephone return"). In addition to the telephone
limitations discussed above, these approaches have limitations on the ability to
expand their services due to the necessity of dividing a finite amount of
satellite bandwidth among subscribers in a broad geographic area. Other wireless
offerings rely on ground-based radios instead of satellites. These offerings
include multichannel multipoint distribution service ("MMDS") and local
multipoint distribution service ("LMDS"), which are one-way and two-way
high-bandwidth wireless digital broadcasting systems, respectively. MMDS and
LMDS are not yet widely available, require unobstructed "line-of-sight"
transmission paths and may require additional radio frequency spectrum
allocations, an entirely new distribution infrastructure and new equipment,
including specialized radio modems.
TELEPHONE ACCESS THROUGH A TELEVISION. Set-top appliances, such as those
provided by WebTV, have been introduced to provide Internet access through
telephone lines to a television without requiring a personal computer.
Additional offerings for this type of service have recently been announced by
Net Channel, the assets of which have been acquired by America Online, as well
as other set-top appliance
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manufacturers such as American Interactive Media, The Thomson Corporation,
Teknema and Mitsubishi Electronics America, Inc. Although such access solutions
do not require a personal computer or personal computer expertise, WorldGate
believes that this mode of Internet access may be limited by:
- the need to purchase a dedicated or "single-purpose" set-top appliance
which typically costs approximately $100-$240 and exposes the consumer to
risks of equipment obsolescence,
- the telephone bandwidth constraints discussed above,
- monthly subscription fees that may be up to $25 per month in addition to
any telephone access charges, and
- functional limitations such as the inability to support CD-quality audio
and Java-based applications, including instant messaging and chat rooms.
CABLE ACCESS THROUGH A PERSONAL COMPUTER. In order to leverage the
broadband infrastructure of cable television systems, several services have
recently been launched to provide high-speed Internet access and content to
cable subscribers with personal computers. Companies in this segment include At
Home and Road Runner. WorldGate believes that subscribers to these services
require a separate high-speed cable modem with an installation cost of
approximately $40-$100 and that additional costs are also incurred for monthly
subscription fees and cable access charges in the range of $30-$40. These
high-speed cable modems, while generally providing higher speed Internet access
than dial-up access, typically require extensive and costly cable network
upgrades.
CABLE ACCESS THROUGH A TELEVISION. Various companies are attempting to
provide Internet access to cable television consumers through a set-top
appliance connected to a television. In some instances this appliance may be a
dedicated unit, such as is currently utilized by ICTV and the Interactive
Channel, or an advanced analog or digital cable box, such as that utilized by
the WORLDGATE Service. Generally, these solutions are cable-based and do not use
the telephone infrastructure. Accordingly, these solutions generally overcome
the bandwidth constraints typically associated with the telephone
infrastructure. The use, however, of a dedicated unit adds incremental costs
which are not present when the service is offered directly over a cable box.
Furthermore, analog-based services such as that currently offered by ICTV
require the use of one dedicated full video channel for the downstream path for
each user, which is less attractive to cable operators since such channel(s) can
no longer be used for television programming or other revenue generating
services. The WORLDGATE Service's analog platform, however, does not require a
dedicated video channel as a result of the use of the vertical blanking interval
for the downstream path. See "--Technology." Cable operators offering the
WORLDGATE Service on a digital platform will need to provide a dedicated video
channel, but it will alone support the expected usage of hundreds of WORLDGATE
Service subscribers.
Companies such as Wink and Intel broadcast supplementary text and/or
graphics information which is displayed on televisions to enhance the television
viewing experience. Typically, these systems are one-way unless a telephone and
modem is available for the return path. It is also possible for these systems to
use the pay per view polling mechanism to retrieve limited data from the
subscriber.
WorldGate believes that there are many factors which can affect success
within this market. Key factors include:
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- - transmission speed,
- - ease-of-use,
- - price,
- - reliability of service,
- - ease of access,
- - obsolescence,
- - content quality,
- - quality of presentation,
- - timeliness of content,
- - customer support,
- - brand recognition,
- - operating experience,
- - revenue sharing, and
- - with respect to advertisers, the number of users, duration and frequency of
visits and user demographics.
LEGAL PROCEEDINGS
On May 11, 1998, Interactive Channel Technologies, Inc. and SMI Holdings,
Inc., subsidiaries of Source Media, Inc. ("Source"), filed a complaint against
us in the United States District Court for the District of Delaware, alleging
that the WORLDGATE Service infringes patents issued to Source. The complaint
seeks injunctive relief, as well as monetary damages and attorney fees. In our
answer filed on June 22, 1998, we have denied these allegations and further
asserted that the patents in suit were invalid. In addition we have filed
multiple counterclaims against Source asserting that Source misappropriated our
confidential information and trade secrets, and intentionally and tortiously
interfered with our existing and prospective business relationships, which
counterclaims Source has subsequently moved to dismiss. Discovery and further
action with respect to the alleged infringement has been stayed pending oral
argument on the merits of our counterclaims, which has not yet been scheduled.
On October 6, 1998, Advanced Interactive, Inc. ("AII") filed a complaint in
the United States District Court for the Northern District of Illinois, Eastern
Division, against Matsushita Electric Corporation, Matsushita Electric
Industrial Co. Ltd., Sharp Electronics, Corp., Sharp Corp., Interactive Channel
Technologies, Thomson Consumer Electronics, Toshiba Consumer Products, Inc.,
Toshiba America, Inc., Toshiba Corporation, General Instrument Corporation,
Scientific-Atlanta, Inc., ATI Technologies, Inc., ADS Technologies Inc., Gateway
2000, Inc., STB Systems, Inc., Hauppauge Computer Works, Inc., WebTV Networks,
Inc. and us, alleging that each of the above companies infringed a patent issued
to AII. The complaint seeks monetary damages and attorney fees. In our answer
filed on December 2, 1998, we have denied these allegations and further asserted
that the patent in suit was invalid.
If the plaintiffs win either of the above lawsuits, we could be precluded
from offering the WORLDGATE Service. We intend to vigorously defend these
matters, but, as with any patent litigation, there can be no assurance that the
plaintiffs will not prevail and obtain damages and, in the event that the
plaintiffs would not accept an ongoing royalty, an injunction in which case we
could be precluded from offering the WORLDGATE service. From time to time,
others may assert infringement claims against us in the future.
Except as stated above, we are not currently involved in any material legal
proceedings.
EMPLOYEES
As of March 12, 1999, we employed 132 full-time employees and had 5
independent contractors. All of our employees and independent contractors are
located in Bensalem, Pennsylvania, except for an aggregate of four sales people
located in Colorado, Florida and Georgia. None of our employees is represented
by a labor union, and we have no collective bargaining agreement. We believe
that our relations with our employees are good.
FACILITIES
Our corporate headquarters is currently located in Bensalem, Pennsylvania
with facilities consisting of approximately 30,000 square feet. In the third
quarter of 1999, we intend to relocate our headquarters to Trevose, Pennsylvania
in a leased facility with approximately 72,000 square feet. The lease for this
space will expire in June 2009, with an option to extend for an additional 10
years.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Hal M. Krisbergh(1).................................. 51 Chairman and Chief Executive Officer
Joseph E. Augenbraun................................. 34 Vice President, Engineering
Scott B. Campbell.................................... 52 Vice President, Business Development
David A. Dill........................................ 47 Chief Financial Officer
Randall J. Gort...................................... 49 Vice President, General Counsel and Secretary
Gerard K. Kunkel..................................... 41 Vice President, Strategic Programs
Jae Hea Edward Lee................................... 35 Vice President, Operations
Peter C. Mondics..................................... 45 Vice President, Affiliate Sales and Marketing
Kenneth P. Nimmer.................................... 59 Vice President, Consumer Marketing
David E. Wachob(2)................................... 44 Director, Vice President and General Manager
Thomas G. Baxter..................................... 52 Director
Alan Gerry(1)........................................ 70 Director
Marcia J. Hooper(1).................................. 44 Director
Graham Pattison(2)................................... 48 Director
Ronald A. Walter(2).................................. 56 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
HAL M. KRISBERGH has been with WorldGate since its inception in March 1995.
From September 1981 to September 1994, Mr. Krisbergh was an executive officer of
General Instrument. Mr. Krisbergh served as President of General Instrument's
Communications Division and, for the past 15 years, has been a well-known figure
in the cable industry. He is a recognized leader in the development of
addressable cable boxes, impulse pay-per-view, optoelectronics and digital audio
technologies. Mr. Krisbergh is also a director of Ortel Corporation, a provider
of linear fiberoptic technology. In 1991, Mr. Krisbergh received cable
television's prestigious Vanguard award. Prior to joining General Instrument,
Mr. Krisbergh was employed by W. R. Grace & Co., Deloitte & Touche and Raytheon
Company.
JOSEPH E. AUGENBRAUN joined WorldGate in August 1995. Mr. Augenbraun is
responsible for the management of the hardware and software teams developing the
WORLDGATE platform. From August 1992 to August 1995, Mr. Augenbraun was a
researcher for Hitachi's HDTV Advanced Television and Systems Laboratory. From
November 1987 to August 1992, Mr. Augenbraun was on the engineering staff at
Commodore-Amiga Inc, where he served in various capacities including Project
Manager on the Amiga 1500 Computer System and lead designer in ASIC development.
SCOTT B. CAMPBELL joined WorldGate in February 1997. Mr. Campbell was
President of Genesis International Group, a consulting firm to the cable
industry, from November 1993 to February 1997. Before that he was at Home
Shopping Network, where he served in various management and sales positions,
including: from March 1992 to February 1993 as Executive Vice
President/Diversified Marketing and Media Services, from July 1989 to March 1992
as Senior Vice President/Affiliate Relations, and from July 1986 to July 1989 as
Senior Vice President/Marketing and Sales.
DAVID A. DILL joined WorldGate in April 1996. From July 1994 to October
1995, Mr. Dill was the Vice President, Finance of General Instrument's
Communications Division. From August 1991 through March 1994, Mr. Dill held
executive positions with International Business Machines Corporation, including
Financial Analysis Director (IBM U.S. Company), Controller (Personal Systems
Business),
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and Assistant General Manager, Finance and Planning (RISC System/6000 Division).
Prior to joining IBM, Mr. Dill was Vice President and Controller for the Rolm
Company. From February 1975 to August 1989, Mr. Dill held several other
executive positions with IBM, culminating in his role as Director of Finance,
Communications Systems Group.
RANDALL J. GORT joined WorldGate in August 1997. From July 1995 to August
1997, Mr. Gort was General Counsel, Secretary, and Director of Legal and
Corporate Affairs for Integrated Circuit Systems, Inc. Mr. Gort was in private
practice from August 1994 through June 1995. Prior to that time, he was an
Associate General Counsel for Commodore International Ltd. from May 1987 through
July 1994. Mr. Gort was with Schlumberger Ltd. from October 1982 through early
1987, originally as Senior Attorney and then as General Counsel, FACTRON
Division. From April 1979 through October 1982, Mr. Gort was Counsel for various
divisions of the 3M Company, including Medical and Surgical Products Divisions,
Orthopedic Products Division, Electro-Mechanical Resources Division and 3M's
four Tape divisions.
GERARD K. KUNKEL joined WorldGate in February 1997. Mr. Kunkel is
responsible for the development and deployment of WorldGate's CHANNEL
HYPERLINKING business and technology. From May 1995 to February 1997, Mr. Kunkel
was President of Broadband Applications Development Company. From March 1993 to
April 1995, he served as Vice President, Product Development of StarNet, Inc.
From June 1991 to March 1993, Mr. Kunkel was President of The Kunkel Group. From
May 1984 to June 1991, Mr. Kunkel was Director of Design and Electronic
Publishing for PC MAGAZINE. For the period 1977 through 1984, Mr. Kunkel was an
award winning art director for various New York City based magazines.
JAE HEA EDWARD LEE has been with WorldGate since its inception in March
1995. Mr. Lee is responsible for all manufacturing, quality assurance, field
operations and information technology. From October 1991 through January 1995,
Mr. Lee was General Manager and then President of RGB Industries, Inc., a
manufacturing and import/export business. From September 1987 to October 1991,
Mr. Lee was a Design Engineer for General Instrument's Jerrold Division, where
his responsibilities included the development of application specific integrated
circuits and management of the division's engineering local area network.
PETER C. MONDICS has been with WorldGate since March 1996. From January 1994
through February 1996, Mr. Mondics was a principal with New Ventures Business
Planning, a corporation formed to conceptualize, model, create and distribute
new business models for clients seeking entry into the cable operator, phone and
wireless distributed service businesses. From February 1991 to December 1993,
Mr. Mondics was President of NuStar, Inc. and Executive Vice-President of
StarNet, NuStar's parent entity. From February 1987 to January 1991, Mr. Mondics
was Vice-President of NuStar's Network Sales. Mr. Mondics was Eastern Regional
Vice-President of Financial News Network from June 1984 to January 1987 and
Marketing Manager for Home Box Office from May 1981 to May 1984.
KENNETH P. NIMMER has served WorldGate as a consultant since its inception
in March 1995, and became an employee of WorldGate in March 1999. Mr. Nimmer is
responsible for Consumer Marketing and Customer Support. From January 1985 to
March 1997, Mr. Nimmer was an executive at General Instrument where he
co-developed programming enterprises such as Cable Video Store, Cable Catalog
Store, Cine Canal and Movie Choice. Prior to General Instrument, from February
1983 to January 1985, Mr. Nimmer was a co-founder and Senior Vice President and
General Manager of the Nostalgia Network, now known as Good Life Television.
Prior to joining the Nostalgia Network, Mr. Nimmer worked in higher education
for 12 years.
DAVID E. WACHOB has been with WorldGate since its inception in March 1995.
Between 1991 and 1995, Mr. Wachob was President of Network Resources
Incorporated, an independent consulting company for the cable, cellular,
telecommunications and consumer electronics industries. From
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June 1988 to September 1991, Mr. Wachob was Director of Advanced Technologies
for General Instrument where he managed strategic planning, market research,
technical assessment and business development of advanced technologies for the
cable television industry. Mr. Wachob's other positions with General Instrument
included, from July 1986 to June 1988, Manager of Product Support Engineering,
and from November 1984 to July 1986, Radio Frequency Systems Engineer.
THOMAS G. BAXTER has been a member of WorldGate's board of directors since
July 1998. Mr. Baxter has been an operating partner in the investment banking
firm of Evercore Partners since June 1998. Mr. Baxter is also a director of
C-SPAN and Dycom Industries, Inc. Prior to his current position Mr. Baxter
served as President of Comcast's cable subsidiary, Comcast Cable Communications,
Inc., the nation's fifth largest cable television operation at that time, from
January 1990 to January 1998. Mr. Baxter was also responsible for the operations
of Comcast's telephone and cable systems in the United Kingdom. Prior to joining
Comcast Mr. Baxter held executive positions with Cablevision Systems Corporation
and Time Warner Entertainment Company, Inc.
ALAN GERRY has been a member of WorldGate's board of directors since April
1997. Mr. Gerry founded Granite Associates, L.P., a private investment company,
and presently serves as its Chairman and Chief Executive Officer. Mr. Gerry was
the founder, and for at least the last 3 years prior to 1996, he was the
Chairman and Chief Executive Officer of Cablevision Industries Corporation, the
eighth largest multiple system operator in the United States, with over 1.3
million subscribers at the time of its merger with Time Warner Inc. in 1996. Mr.
Gerry has been the recipient of numerous awards and citations including the
cable television industry's prestigious Vanguard Award for Distinguished
Leadership, which he received in 1995. Mr. Gerry is a veteran of the U.S. Marine
Corps.
MARCIA J. HOOPER has been a member of WorldGate's board of directors since
April 1997. Ms. Hooper has been a partner with the Information Technology Group
of Advent International Corporation since May 1996. Ms. Hooper is also a
director of Interleaf, Inc., Signal Internet Technologies, Inc., LionBridge
Technology, Inc., PolyMedica Industries, Inc. and Wang Laboratories, Inc. In
July 1994 Ms. Hooper co-founded Viking Capital Group, Inc., a venture firm
focused on early stage investments. From May 1979 to July 1994, Ms. Hooper was
employed as a general partner with Paine Webber/Ampersand Ventures.
GRAHAM PATTISON has been a member of WorldGate's board of directors since
August 1998. Mr. Pattison has held executive positions with Motorola for over
ten years and is currently the Vice President and General Manager of new
business ventures in the Internet and Networking Group of Motorola, which
position he has held since August 1998. In his current capacity Mr. Pattison is
responsible for overseeing new market and product development, acquisitions and
alliances across ING's networking businesses. Mr. Pattison previously held the
position of Vice President and General Manager of the Networking Systems
Division of Motorola, which position he held from April 1996. Mr. Pattison has
also served as General Manager for the Europe, Middle East and Africa region of
Motorola's Information Systems Group.
RONALD A. WALTER has been a member of WorldGate's board of directors since
April 1998. Mr. Walter has been a Vice President of Citicorp and Citibank, N.A.
since May 1979. He serves as Director of Investments for Citicorp's proprietary
long-term equity investment program and manages the investment program for the
assets supporting Citigroup's employee benefit programs. He is also a partner
with Citicorp's internal Mergers and Acquisition team and its Corporate
Technology Office. His previous experience with Citicorp includes serving as
Secretary of Citicorp's Finance Committee, Head of Strategic Analysis and Chief
Financial Officer for the company's equipment finance and leasing business. Mr.
Walter was a member of the Urban Planning faculty at MIT and was part of the
management team responsible for ending the financial crisis in the City of New
York.
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<PAGE>
BOARD OF DIRECTORS AND COMMITTEES
Each director is elected to hold office until the next annual meeting of
stockholders and until his or her respective successor is elected and qualified.
The board of directors has a compensation and stock option committee (the
"Compensation Committee") which makes recommendations to the board concerning
the compensation and benefits programs for its directors, officers and
employees, including all stock options granted under WorldGate's 1996 stock
option plan. Currently, the Compensation Committee is composed of Messrs.
Krisbergh and Gerry and Ms. Hooper. The board also has an audit committee which
is composed of Mr. Wachob and two outside directors, Mr. Walter and Ms. Hooper.
COMPENSATION OF DIRECTORS
Mr. Baxter and Ms. Hooper are reimbursed for travel and other expenses
related to their service on the board of directors. In addition, WorldGate pays
to Mr. Baxter a stipend of $1,000 for each board meeting he attends in person
and WorldGate has granted to him an option to purchase 10,000 shares of common
stock at an average exercise price of $8.50 per share. These options will vest
in four equal annual installments on the anniversary of the grant date. Other
than Mr. Baxter and Ms. Hooper, no other board member is reimbursed for his or
her travel and other expenses or compensated for his or her service on the
board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
With the exception of Mr. Krisbergh, no member of the Compensation Committee
is an officer or employee of WorldGate. Mr. Krisbergh does not, however,
participate in the determination of his own compensation. No executive officer
of WorldGate serves as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving on the
Compensation Committee.
EMPLOYMENT AGREEMENTS
No employee of WorldGate has entered into an employment agreement with
WorldGate.
BONUS PLAN
WorldGate has established a bonus plan which provides for the payment of
bonuses to executive officers and other employees based upon the performance of
WorldGate, the performance of the business division of which the officer or
employee is a member and the performance of the officer or employee. Under this
plan, WorldGate generally assesses the prior year's performance and makes bonus
payments during the first calendar quarter of each year.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid in
fiscal year 1998 with respect to WorldGate's chief executive officer and its
four other most highly compensated executive officers. As of March 16, 1999, the
bonuses listed below had been accrued and reflected in the 1998 results but no
bonus had been paid.
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<PAGE>
SUMMARY COMPENSATION TABLE
FISCAL YEAR 1998
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-----------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- --------------------------------------------------------- ---------- ---------- ----------------- -------------
<S> <C> <C> <C> <C>
Hal M. Krisbergh......................................... $ 320,250(1) $ 144,113 -- $ --
Chairman and Chief Executive Officer
David A. Dill............................................ 193,218 67,626 -- --
Chief Financial Officer
Scott B. Campbell........................................ 160,000 48,000 -- --
Vice President, Business Development
Peter C. Mondics......................................... 159,375 47,813 -- --
Vice President, Affiliate Sales and Marketing
David E. Wachob.......................................... 149,450 44,835 -- --
Director, Vice President and General Manager
</TABLE>
- ------------------------
(1) As of March 15, 1999, $66,250 of Mr. Krisbergh's salary had been accrued and
reflected in the 1998 results but had not been paid.
No options were granted to any executive officer named in the Summary
Compensation Table in 1998. Since December 31, 1998, Messrs. Dill, Campbell,
Mondics and Wachob have each been granted options to purchase 13,333 shares of
common stock at an exercise price of $16.50 per share.
The following table sets forth information concerning options exercised
during 1998 and the number and the hypothetical value of unexercised options of
WorldGate held by the executive officers named in the Summary Compensation Table
as of December 31, 1998. This table is presented solely for purposes of
complying with the Commission rules and does not necessarily reflect the amounts
the optionees will actually receive upon any sale of the shares acquired upon
exercise of the options. There was no public market for the common stock as of
December 31, 1998. Accordingly as permitted by the rules of the Securities and
Exchange Commission, the values of the unexercised in-the-money options at
December 31, 1998 have been calculated using a price of $13.00 per share, the
mid-point of the range of the expected initial public offering price, less the
aggregate exercise price.
AGGREGATE OPTION EXERCISES AND
LAST FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-
OPTIONS AT DECEMBER 31, MONEY OPTIONS AT
SHARES 1998 DECEMBER 31, 1998
ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott B. Campbell................. -- -- 15,000 45,000 $ 161,250 $ 483,750
Peter C. Mondics.................. -- -- 16,666 50,000 186,972 560,938
</TABLE>
KEY MAN INSURANCE
WorldGate maintains key man insurance policies in the amounts of $3.0
million on Hal Krisbergh and $1.0 million on David Wachob.
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<PAGE>
STOCK OPTION PLAN
WorldGate has one stock option plan, the 1996 stock option plan, as amended,
under which, as of March 16, 1999, options for 913,752 shares of common stock
were outstanding and options for an additional 19,581 shares were available for
future grants. Outstanding options are exercisable at prices ranging from $.75
to $16.50 per share. The maximum number of shares of common stock reserved for
the grant or settlement of awards under the stock option plan is 933,333 subject
to adjustment as provided in the plan in the event of changes to WorldGate's
capital structure, such as stock dividends, stock splits or other
recapitalizations. Generally, outstanding options vest in equal installments
over a four-year period, but in no event may an option be exercised more than 10
years following the date of its grant, subject to acceleration in the event of
some changes of control of WorldGate.
The stock option plan is intended to promote the long term financial
interests and growth of WorldGate by providing employees, officers, directors
and consultants of WorldGate with appropriate incentives and rewards to enter
into and continue in the employ of, or their relationship with, WorldGate. The
stock option plan gives recipients the opportunity to acquire a proprietary
interest in the long-term success of WorldGate and rewards the performance of
individual officers, other employees, consultants and directors in fulfilling
their responsibilities for long-range achievements.
The stock option plan provides for the granting of awards to such officers,
other employees, consultants and directors of WorldGate and its affiliates as
the Compensation Committee may select from time to time. If any shares subject
to an award are forfeited, canceled, exchanged or surrendered or if an award
otherwise terminates or expires without a distribution of shares to the holder
of such award, the shares of common stock with respect to such award will, to
the extent of any such forfeiture, cancellation, exchange, surrender,
termination or expiration, again be available for awards under the stock option
plan.
The Compensation Committee has the authority to administer the stock option
plan and to exercise all the powers and authorities either specifically granted
to it under, or necessary or advisable in the administration of, the stock
option plan, including, without limitation, the authority to grant awards; to
determine the persons to whom and the time or times at which awards shall be
granted; to determine the type and number of awards to be granted, the number of
shares of common stock to which an award may relate and the terms, conditions,
restrictions and performance goals relating to any award; to determine whether,
to what extent, and under what circumstances an award may be settled, canceled,
forfeited, exchanged, or surrendered; to make adjustments in the performance
goals in recognition of unusual or non-recurring events affecting WorldGate or
the financial statements of WorldGate (to the extent not inconsistent with
Section 162(m) of the Code, if applicable), or in response to changes in
applicable laws, regulations, or accounting principles; to construe and
interpret the stock option plan and any award; to prescribe, amend and rescind
rules and regulations relating to the stock option plan; to determine the terms
and provisions of agreements evidencing awards; and to make all other
determinations deemed necessary or advisable for the administration of the stock
option plan.
The purchase price per share payable upon the exercise of an option (the
"option exercise price") will be established by the Compensation Committee,
provided, however, that Incentive Stock Options may not have an option exercise
price less than the fair market value of a share of common stock on the date of
grant. The option exercise price is payable by any one of the following methods
or a combination thereof, to the extent permitted by the Compensation Committee:
- in cash or by check or wire transfer,
- subject to the approval of the Compensation Committee, in common stock
owned by the participant for at least six months prior to the date of
exercise and valued at their fair market value on the effective date of
such exercise, or
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<PAGE>
- subject to the approval of the Compensation Committee, by such other
provision as the Compensation Committee may from time to time authorize.
The board of directors or the Compensation Committee may suspend, revise,
terminate or amend the stock option plan at any time, provided, however, that:
- stockholder approval will be obtained if and to the extent required under
Rule 16b-3 promulgated under the Exchange Act or if and to the extent the
board determines that such approval is required for purposes of satisfying
Section 162(m) or Section 422 of the Code and
- no such suspension, revision, termination or amendment may, without the
consent of a participant, reduce the participant's rights under any
outstanding award.
Section 162(m) of the Code limits the extent to which remuneration paid to a
chief executive officer or the four other highest compensated executive officers
is deductible by a publicly held corporation when the remuneration for any of
these executive officers exceeds $1,000,000 in a taxable year. When a named
executive officer exercises an option which is not an incentive stock option, or
makes a disqualifying disposition of stock acquired by exercising an incentive
stock option, the executive officer generally recognizes income. WorldGate's
deduction with respect to that income will not be limited to $1,000,000 if the
requirements of Section 162(m) of the Code are met.
CERTAIN TRANSACTIONS
RESTRUCTURING. We were organized in March 1995 as a Pennsylvania limited
liability company (the "LLC"). In December 1996, the LLC was merged with and
into WorldGate as a result of which all assets and liabilities of the LLC were
transferred to us. Pursuant to the merger, the members of the LLC (collectively,
the "Management Stockholders") received an aggregate of 9,100,801 shares of our
common stock in exchange for the cancellation of their membership interests in
the LLC, including the shares of common stock received by the following
management employees: Hal M. Krisbergh-- 6,776,780 shares, David E.
Wachob--608,312 shares, David A. Dill--369,989 shares, Joseph E.
Augenbraun--333,850 shares, Jae Hea E. Lee--333,850 shares, and Randall J.
Gort--259,750 shares. Of the total shares allocated to the Management
Stockholders, 808,733 shares of our common stock were issued subject to vesting
over a defined period as described further in the "Management Shareholders'
Agreement" discussed below.
MANAGEMENT SHAREHOLDERS AGREEMENT. Each of the Management Stockholders who
received shares of our common stock in the merger entered into a Management
Shareholders' Agreement with us (the "Management Agreement") providing for some
voting agreements, restrictions on transfer of our common stock, rights of first
refusal and vesting arrangements.
Pursuant to the Management Agreement, each Management Stockholder and his
transferees are obligated to vote for Mr. Krisbergh's designees to the Board. No
Management Stockholder may transfer his shares, except for:
- transfers to family members and
- transfers of up to five percent of his total shares,
PROVIDED that such transferees agree to be bound by the Management Agreement.
Any Management Stockholder who wishes to sell more than five percent of his
shares must first offer to sell such shares to the other Management Stockholders
on a pro rata basis. The Management Agreement also sets forth the vesting
arrangements for some of the Management Stockholder's shares, and provides that
any shares that remain unvested at the time of termination of a Management
Stockholder's employment (other than by reason of death) shall be distributed
pro rata to the remaining Management Stockholders and will fully vest upon such
distribution. Unvested shares will be transferred to a Management Stockholder's
estate or heirs in the event of his death.
51
<PAGE>
The Management Agreement automatically terminates upon the consummation of
this offering.
PREFERRED STOCK FINANCINGS. We have financed substantially all of our
operations to date from private placements of preferred stock, a capital
contribution from stockholders, a $2.0 million line of credit and the issuance
of our $6.0 million face-amount of our discounted notes. Each share of our
series A preferred stock was initially convertible into two shares of our common
stock, each share of our series B preferred stock was initially convertible into
one share of our common stock and each share of our series C preferred stock was
initially convertible to one share of our common stock, subject to some
anti-dilution protections. As a result of the stock split, each share of our
series A preferred stock will convert into one and one-third shares of our
common stock, each share of our series B preferred stock will convert into
two-thirds of a share of our common stock and each share of our series C
preferred stock will convert into two-thirds of a share of our common stock.
Each of these series of stock will automatically convert into common stock upon
the closing of this offering.
From December 1996 through July 1997, we sold an aggregate of 2,752,111
shares of our series A preferred stock at a purchase price of $4.395 per share
to various investors, including Citicorp, AMP Incorporated, Alan Gerry,
Motorola, funds affiliated with Advent International Corporation, Needham &
Company, Paul Kagan, Scientific-Atlanta and General Instrument (collectively,
the "series A investors").
From November 1997 through January 1998, we sold an aggregate of 2,803,031
shares of our series B preferred stock at a purchase price of $7.10 per share to
various investors, including Citicorp, Needham & Company, H.F. Lenfest, Charter
and Paul Kagan (collectively, the "series B investors").
From September 1998 through February 1999, we sold an aggregate of 1,529,714
shares of our series C preferred stock at a purchase price of $11.00 per share
to various investors, including Citicorp, Needham & Company, General Instrument,
Scientific-Atlanta, Charter, Showtime and XL Capital L.L.C. (collectively, the
"series C investors").
In March 1999, we received proceeds of approximately $912,000 and $4,558,000
through the issuance of $1,000,000 and $5,000,000 of notes payable with a stated
interest rate of 12.48% due September 1999 and December 1999, respectively. In
connection with the issuance of these notes payable, the holders of these notes
received warrants to purchase the number of shares of common stock equal to
$5,469,600 divided by the lower of $16.50 and the initial public offering price
at an exercise price equal to the lower of the initial offering price and
$16.50. Assuming an initial public offering price of $13.00 per share, these
holders may purchase up to 420,738 shares of common stock. These notes become
immediately due upon the completion of WorldGate's initial public offering.
STOCKHOLDERS' AGREEMENT. The series A investors, the series B investors,
series C investors, Messrs. Krisbergh and Wachob, some other management
personnel of WorldGate, WorldGate and other stockholders are parties to a
stockholders' agreement. Pursuant to the stockholders' agreement:
- Hal M. Krisbergh designated David E. Wachob, Alan Gerry and Thomas G.
Baxter,
- Motorola designated Graham Pattison,
- the series A investors, other than Motorola, designated Marcia J. Hooper,
and
- the series B investors designated Ronald A. Walter
to our board of directors. The material provisions of the stockholders'
agreement will terminate upon the consummation of this offering, except for the
registration rights provided in the stockholder's agreement. See "Shares
Eligible for Future Sale--Registration Rights."
OFFICER LOANS. During the fall of 1996, we borrowed approximately $350,000
from Hal M. Krisbergh in exchange for a seven percent demand note which was
repaid in full out of the proceeds of the initial series A preferred stock
financing.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of March 15, 1999 regarding
beneficial ownership of the common stock by the following persons as adjusted to
reflect the sale of the shares offered hereby:
- each person who is known to us to own beneficially more than 5% of the
outstanding shares of common stock,
- each director of WorldGate,
- each officer of WorldGate named in the executive compensation table above,
- all directors and executive officers of WorldGate as a group.
Unless otherwise indicated below, to our knowledge, all persons listed below
have sole voting and investment power with respect to their shares of common
stock, except to the extent authority is shared by spouses under applicable law.
Beneficial ownership is determined in accordance with the rules of the SEC,
based on factors including voting and investment power with respect to shares,
subject to applicable community property laws. Shares of common stock subject to
options or warrants exercisable within 60 days of March 15, 1999 are deemed
outstanding for the purpose of computing the percentage ownership of the person
holding such options or warrants, but are not deemed outstanding for computing
the percentage ownership of any other person. See "Certain
Transactions--Preferred Stock Financings."
Unless otherwise indicated, the mailing address of such beneficial owners is
3220 Tillman Drive, Suite 300, Bensalem, Pennsylvania 19020.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
------------------------- -------------------------
<S> <C> <C> <C> <C>
NUMBER OF NUMBER OF
NAME AND ADDRESS(2) SHARES PERCENTAGE SHARES PERCENTAGE
- -------------------------------------------- ---------- ------------- ---------- -------------
Citicorp.................................... 1,124,442 7.2 1,157,076 5.7%
153 East 53(rd) Street
New York, NY 10043
Hal M. Krisbergh(1)......................... 6,515,686 41.6 6,515,686 31.9
Scott B. Campbell........................... 15,000 * 15,000 *
David A. Dill(2)............................ 369,988 2.4 369,988 1.8
Peter C. Mondics(3)......................... 35,858 * 35,858 *
David E. Wachob............................. 557,897 3.6 557,897 2.7
Alan Gerry.................................. 606,666 3.9 606,666 3.0
Marcia J. Hooper(4)......................... -- * -- *
Ronald A. Walter(5)......................... -- * -- *
Thomas G. Baxter............................ 1,666 * 1,666 *
Graham Pattison(6).......................... -- * -- *
All current directors and executive
officers as a group (15 persons)(7)....... 9,003,969 57.3 9,003,969 43.9
</TABLE>
- ------------------------
* Less than 1% of the outstanding Common Stock.
(1) Includes (a) 15,237 shares of common stock held by Mr. Krisbergh as
custodian for his minor child and (b) 15,237 shares of common stock held by
Mr. Krisbergh's wife as custodian for their minor child. Mr. Krisbergh
disclaims beneficial ownership of the shares owned by his minor child.
(2) Includes 26,666 shares of common stock held by Mr. Dill as custodian for his
two minor children. Mr. Dill disclaims beneficial ownership of the shares
owned by his minor children.
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<PAGE>
(3) Includes 2,666 shares of common stock held by Mr. Mondics' minor child,
6,666 shares of common stock held jointly with his wife and options to
purchase 25,000 shares of common stock.
(4) Does not include 379,218 shares of common stock held by funds that are
affiliated with Advent International Corporation as follows: Adtec Limited
Partnership (60,674 shares), Advent Crown Fund, C.V. (60,068 shares),
Digital Media & Communications, L.P. (240,880 shares), and Advent Partners
Limited Partnership (17,596 shares). Ms. Hooper is a partner and an officer
of Advent International Corporation and an officer of several of the Advent
funds, and was originally elected to the Company's Board of Directors as a
representative of the holders of the Series A Preferred Stock. Ms. Hooper
disclaims beneficial ownership of the shares held of record by the Advent
funds.
(5) Does not include 1,124,442 shares of common stock held by Citicorp. Mr.
Walter is a vice president of Citicorp and Citibank, NA.
(6) Does not include 454,666 shares of common stock held by Motorola, Inc. Mr.
Pattison is a vice president of Motorola, Inc.
(7) Includes (a) options to purchase 56,666 shares of common stock and (b)
87,034 shares of common stock owned by family members or affiliates of some
members of the group.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
WorldGate's authorized capital stock consists of 50,000,000 shares of common
stock, par value $.01 per share, and 13,500,000 shares of preferred stock, par
value $.01 per share. The following summary is qualified in its entirety by
reference to our Amended and Restated Certificate of Incorporation, as amended,
a form of which is filed as an exhibit to this registration statement of which
this prospectus is a part.
COMMON STOCK
As of March 16, 1999, there were 15,658,690 shares of common stock
outstanding. After giving effect to the issuance of 4,500,000 shares of common
stock offered by WorldGate at an assumed offering price of $13.00 per share,
there will be 20,433,282 shares of common stock outstanding. The outstanding
shares of common stock are, and the shares offered by WorldGate in this offering
will be, when issued and paid for, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of holders of shares of any series of
preferred stock which WorldGate may designate and issue in the future. See "--
Preferred Stock."
Holders of common stock are entitled to one vote per share on all matters
submitted to a vote of holders of common stock. The holders of common stock do
not have cumulative voting rights. The election of directors is determined by a
plurality of votes cast, and, except as otherwise required by law, WorldGate's
certificate of incorporation or by-laws, all other matters are determined by a
majority of the votes cast. See "Risk Factors--Our chairman and chief executive
officer can exercise significant influence over WorldGate." The common stock has
no preemptive rights and is not convertible, redeemable or assessable. The
holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared by the board out of legally available funds, subject to any
preferential dividend rights of outstanding preferred stock. Upon any
liquidation, dissolution or winding up of WorldGate, after payment of all debts
and liabilities of WorldGate and after payment of any liquidation preferences of
then outstanding preferred stock, the holders of common stock will be entitled
to receive a portion of all remaining assets that are legally available for
distribution.
PREFERRED STOCK
WorldGate, by resolution of the board of directors and without any further
vote or action by the stockholders, has the authority, subject to certain
limitations prescribed by law, to issue from time to time up to an aggregate of
13,500,000 shares of preferred stock in one or more classes or series and to
determine the designation and the number of shares of any class or series as
well as the voting rights, preferences, limitations and special rights, if any,
of the shares of any class or series, including dividend rights, dividend rates,
conversion rights and terms, redemption rights and terms, and liquidation
preferences. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change of control of WorldGate. Upon the closing of
this offering, there will be no shares of preferred stock outstanding, and
WorldGate currently has no plans to issue any shares of preferred stock.
LIMITATION ON LIABILITY
WorldGate's certificate of incorporation limits or eliminates the liability
of WorldGate's directors or officers to WorldGate or its stockholders for
monetary damages to the fullest extent permitted by the Delaware General
Corporation Law, as amended (the "DGCL"). The DGCL provides that a director of
WorldGate shall not be personally liable to WorldGate or its stockholders for
monetary damages for a breach of fiduciary duty as a director, except for
liability:
- for any breach of such person's duty of loyalty,
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<PAGE>
- for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law,
- for the payment of unlawful dividends and some other actions prohibited by
Delaware corporate law, and
- for any transaction resulting in receipt by such person of an improper
personal benefit.
The certificate of incorporation also provides that the directors shall be
entitled to the benefits of all limitations on the liability of directors
generally that now or hereafter become available under the DGCL. The certificate
of incorporation also contains provisions indemnifying WorldGate's directors,
officers and employees to the fullest extent permitted by the DGCL.
WorldGate maintains directors' and officers' liability insurance to provide
its directors and officers with insurance coverage for losses arising from
claims based on breaches of duty, negligence, error and other wrongful acts. See
"Business--Legal Proceedings" for a discussion of pending litigation.
CERTAIN ANTI-TAKEOVER PROVISIONS
The ability of WorldGate's board under WorldGate's certificate of
incorporation to establish the rights of, and to cause WorldGate to issue,
substantial amounts of preferred stock without the need for stockholder
approval, upon such terms and conditions, and having such rights, privileges and
preferences, as WorldGate's board may determine from time to time in the
exercise of its business judgment, may, among other things, be used to create
voting impediments with respect to changes in control of WorldGate or to dilute
the stock ownership of holders of common stock seeking to obtain control of
WorldGate. The rights of the holders of common stock will be subject to, and may
be adversely affected by, any preferred stock that may be issued in the future.
The issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions, financings and other corporate
transactions, may have the effect of discouraging, delaying or preventing a
change in control of WorldGate. WorldGate has no present plans to issue any
shares of preferred stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the DGCL prohibits some "business combinations" between a
Delaware corporation and an "interested stockholder," which is defined as a
person who, together with any affiliates or associates of such person,
beneficially owns, directly or indirectly, 15% or more of the outstanding voting
shares of a Delaware corporation. For purposes of Section 203, business
combinations are defined broadly to include mergers, consolidations, sales or
other dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation and some transactions that would increase
the interested stockholder's proportionate share ownership in the corporation.
Section 203 prohibits any such business combination for a period of three years
commencing on the date the interested stockholder becomes an interested
stockholder, unless
- the business combination is approved by the corporation's board of
directors prior to the date the interested stockholder becomes an
interested stockholder,
- the interested stockholder acquired at least 85% of the voting stock of
the corporation (other than stock held by directors who are also officers
or by some employee stock plans) in the transaction in which it becomes an
interested stockholder or
- the business combination is approved by a majority of the board of
directors and by the affirmative vote of two-thirds of the outstanding
voting stock that is not owned by the interested stockholder.
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<PAGE>
See "Risk Factors--Anti-takeover provisions in our charter documents could
discourage unwanted takeover attempts and could reduce the opportunity for
stockholders to get a premium for their shares."
The DGCL contains provisions enabling a corporation to avoid Section 203's
restrictions if stockholders holding a majority of the corporation's voting
stock approve an amendment to the corporation's certificate of incorporation or
by-laws to avoid the restrictions. WorldGate has not and does not currently
intend to "elect out" of the application of Section 203 of the DGCL.
BYLAWS
Our bylaws contain provisions that require advance notice to be delivered to
us of any business to be brought by a stockholder before an annual or special
meeting of stockholders and that specify procedures to be followed by
stockholders in nominating persons for election to our board. Generally, the
advance notice provisions require that the stockholder must give written notice
to the Secretary of WorldGate:
- in the case of an annual meeting, not less than 90 days nor more than 120
days before the first anniversary of the preceding year's annual meeting
of stockholders, and
- in the case of a special meeting, not less than 90 days, or, if later, 10
days after the first public announcement of the date of the special
meeting, nor more than 120 days prior to the scheduled date of such
special meeting.
In each case, the notice must set forth specific information regarding the
stockholder and each director nominee or other business proposed by the
stockholder, as applicable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for WorldGate's common stock is American
Stock Transfer & Trust, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for our common stock will
develop or be sustained after this offering. Future sales of substantial amounts
of our common stock (including shares issued upon exercise of outstanding
options and warrants) in the public market after this offering could adversely
affect market
prices prevailing from time to time and could impair our ability to raise
capital through the sale of our equity securities.
Upon completion of this offering, 20,433,282 shares of our common stock will
be outstanding based on shares outstanding on March 16, 1999, and assuming no
exercise of options or warrants. Of these shares, the 4,500,000 shares
registered and sold in this offering will be freely tradable without
restriction, except that shares purchased by our "affiliates," as that term is
defined in Rule 144 under the Securities Act, may generally be sold only in
compliance with the limitations of Rule 144. The remaining approximately 15.9
million shares of our common stock (the "Restricted Shares") were issued and
sold by us in private transactions in reliance upon exemptions from the
registration requirements of the Securities Act and are therefore deemed
"restricted securities" as defined in Rule 144 and may not be sold in the
absence of registration under the Securities Act unless an exemption is
available, including an exemption afforded by Rule 144 or Rule 701. See "Risk
Factors-- Substantial sales of our common stock may affect our stock price."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted shares" (as
defined in Rule 144) for at least one
57
<PAGE>
year (including the holding period of any prior owner, except an affiliate) is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of
- one percent of the number of shares of common stock then outstanding or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the required
filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to some manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been an affiliate at
any time during the three-month period preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the
manner of sale, public information, volume and other limitation or notice
provisions of Rule 144.
Rule 144A under the Securities Act provides a non-exclusive safe harbor
exemption from the registration requirements of the Securities Act for specified
resales of restricted securities to some institutional investors. In general,
Rule 144A allows unregistered resales of restricted securities to a "qualified
institutional buyer," which generally includes an entity, acting for its own
account or for the account of other qualified institutional buyers, that in the
aggregate owns or invests on a discretionary basis at least $100 million in
securities of issuers that are not affiliated with the entity, as long as these
securities when issued were not of the same class as securities listed on a
national securities exchange or quoted on Nasdaq. The shares of our common stock
outstanding as of the date of this prospectus would be eligible for resale under
Rule 144A because such shares, when issued, were not of the same class as any
listed or quoted securities.
STOCK OPTIONS AND WARRANTS
As of December 31, 1998, there were outstanding options to purchase an
aggregate of 641,343 shares of our common stock, 108,750 of which were
exercisable at December 31, 1998, at a weighted average exercise price of $3.00
per share, and we had an additional 291,990 shares of our common stock available
for future grant under the stock option plan. The holders of options which are
presently exercisable to purchase a total of 108,750 shares are subject to
lock-up agreements, which restrict the holders' ability to sell or otherwise
dispose of our common stock acquired upon the exercise of such options. See
"Management--Stock Option Plan."
Following closing of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering shares of our common
stock subject to outstanding options under the stock option plan and 291,990
shares of our common stock reserved for issuance under the stock option plan.
Based on the number of shares subject to outstanding options at December 31,
1998 and currently reserved for issuance under such plan, such registration
statement would cover approximately 933,333 shares issuable on exercise of the
options of which 108,750 options have vested as of such date.
As of December 31, 1998, there were outstanding warrants to purchase an
aggregate of 311,819 shares of our common stock, all of which are currently
exercisable, at an exercise price of $10.65 per share. The holders of all of
these warrants are subject to lock-up agreements that restrict the holders'
ability to sell or otherwise dispose of our common stock acquired upon the
exercise of such warrants for 180 days from the date of this prospectus.
LOCK-UP AGREEMENTS
Holders of approximately 14.3 million shares of our common stock, including
all of our directors and executive officers, have entered into lock-up
agreements under which, without the prior written consent of Gerard Klauer
Mattison & Co., Inc. on behalf of the underwriters and some other permitted
transfers, they have agreed not to offer, sell or otherwise dispose of any such
shares of our
58
<PAGE>
common stock, any options or warrants to acquire shares of our common stock or
any securities convertible into shares of our common stock, or any shares of our
common stock issuable upon exercise or conversion of such securities, owned by
them for a period of 180 days after the date of this prospectus.
Beginning 180 days after the date of this prospectus, approximately 15.6
million shares will be eligible for sale in the public market, subject to some
timing, manner of sale and volume limitations pursuant to Rule 144. Gerard
Klauer Mattison & Co., Inc. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to such lock-up
agreements. Gerard Klauer Mattison & Co., Inc. currently has no plans to release
any portion of the securities subject to such lock-up agreements. WorldGate has
agreed that it will not, directly or indirectly, without the prior written
consent of Gerard Klauer Mattison & Co., Inc., contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option right or warrant to purchase, or otherwise transfer or dispose of any
shares of common stock, or any securities convertible into or exchangeable for
common stock, for a period of 180 days from the date of this prospectus, except
that WorldGate may grant additional options under the stock option plan or issue
shares of common stock under outstanding options, warrants and convertible
securities.
REGISTRATION RIGHTS
Some holders of shares of common stock outstanding prior to the closing of
our initial public offering, including Messrs. Krisbergh, Wachob, Dill,
Augenbraun, Lee, Gort, Mondics, and Gerry and Citicorp, as well as some holders
of warrants, are parties to registration rights agreements with us. These
registration rights agreements, which relate to approximately 13.8 million
shares of common stock, assuming the exercise of all warrants and conversion of
all preferred stock, provide for "piggyback" and demand registration rights.
Generally, a "piggyback" registration right allows holders to include their
shares of common stock in registration statements initiated by WorldGate or
other stockholders and a "demand" registration right allows holders to require
WorldGate to file a registration statement to register their shares of common
stock. Some holders of common stock are entitled to unlimited piggyback
registration rights in most registrations by WorldGate of its securities,
provided that the number of shares of common stock being registered may be cut
back by WorldGate's underwriters in such offerings. These holders have waived
their piggyback registration rights with respect to this offering. Additionally,
holders of at least 30% of the common stock entitled to registration rights may
request, on not more that two occasions, that WorldGate use its best efforts to
file a registration statement covering at least 20% of the common stock,
provided that no demand right may be exercised during any period beginning on
the date WorldGate files a registration statement and ending on the earlier of
120 days after the registration statement is declared effective or 180 days
after the filing date of the registration statement. WorldGate will have the
right to delay demand registrations under some circumstances for up to 120 days.
Finally, subject to some limitations, some holders of common stock have two
demand registration rights on Form S-3 at any time WorldGate is eligible to use
Form S-3. These piggyback and demand registration rights may be assigned to any
transferee who acquires at least 20% of the common stock of some holders. By
exercising these registration rights, these holders could cause a significant
number of shares to be registered and sold in the public market. These sales may
have an adverse effect on the market price for the common stock and could impair
WorldGate's ability to raise capital through an offering of its equity
securities.
In addition to the above registration rights, WorldGate has agreed to file a
shelf registration statement under the Securities Act for all of the shares of
common stock issuable upon exercise of warrants held by holders of WorldGate's
face-value $6.0 million discounted notes issued in March 1999. Assuming an
initial public offering price of $13.00, the holders of these warrants may
purchase up to 420,738 shares of common stock. WorldGate has agreed to file this
registration statement on the first business day after the 150(th) day
immediately following the closing of this offering and to use its best efforts
to cause the registration statement to be declared effective as promptly as
possible. The holders of the piggyback registration rights described above will
have the right to request that their shares be included in that shelf
registration statement.
59
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Gerard Klauer Mattison & Co., Inc., Jefferies & Company, Inc. and Janney
Montgomery Scott Inc. are acting as representatives, have severally, but not
jointly, agreed to purchase from us the following respective number of shares of
common stock:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Gerard Klauer Mattison & Co., Inc..........................................
Jefferies & Company, Inc...................................................
Janney Montgomery Scott Inc................................................
-----------------
4,500,000
-----------------
-----------------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to some conditions precedent, and that the underwriters will be
obligated to purchase all of the shares of common stock offered in this
prospectus (other than those shares covered by the over-allotment option
described below) if any are taken. The underwriting agreement provides that in
the event of a default by an underwriter, in some circumstances the purchase
commitments of non-defaulting underwriters may be increased.
The underwriters propose to offer the shares of common stock to the public
initially at the public offering price set forth on the cover page of this
prospectus and to some dealers at a price that represents a concession not in
excess of $ per share. After the initial offering of the shares of common
stock, the offering price and concession and discount to dealers may be changed
by the representatives of the underwriters.
WorldGate has granted to the underwriters an option exercisable by the
representatives of the underwriters, expiring at the close of business on the
30(th) day after the date of this prospectus, to purchase up to 675,000
additional shares of common stock at the offering price, less underwriting
discounts, all as set forth on the cover page of this prospectus. This option
may be exercised only to cover over-allotments in the sale of the shares of
common stock. To the extent that the option is exercised, each underwriter will
become obligated, subject to some conditions, to purchase a number of additional
shares of the common stock proportionate to each underwriter's initial amount
reflected in the foregoing table.
The underwriters have informed WorldGate that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
At the request of WorldGate, the underwriters have reserved up to 300,000
shares of common stock offered hereby for sale at the initial public offering
price to employees, officers and directors of WorldGate and to other persons
designated by WorldGate. The number of shares available for sale to the general
public will be reduced to the extent that these persons purchase the reserved
shares. The
60
<PAGE>
underwriters will offer any reserved share not so purchased to the general
public on the same basis as the other shares of common stock offered hereby.
The following table summarizes the compensation to be paid to the
underwriters by WorldGate and the expenses payable by WorldGate.
<TABLE>
<CAPTION>
TOTAL
------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts paid by WorldGate...............................
Expenses payable by WorldGate..........................................
</TABLE>
Each of WorldGate and some of its directors, officers and stockholders have
agreed that they will not offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly, any
shares of common stock or securities convertible into or exchangeable or
exercisable for any shares of common stock, without the prior written consent of
the representatives of the underwriters and other permitted transfers for a
period of 180 days after the date of this prospectus.
The representatives of the underwriters on behalf of the underwriters may
engage in over-allotment, stabilizing transactions, syndicate covering
transactions, penalty bids and "passive" market making in accordance with
Regulation M under the Securities Exchange Act of 1934. Over-allotment involves
syndicate sales in excess of the offering size, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the shares of common stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the representatives of the
underwriters to reclaim a selling concession from a syndicate member when the
shares of common stock originally sold by these syndicate members are purchased
in a syndicate covering transaction to cover syndicate short positions. In
"passive" market making, market makers in the securities offered hereby who are
underwriters or prospective underwriters may, subject to some limitations, make
bids for or purchases of such securities until the time, if any, at which a
stabilizing bid is made. These stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the common stock to be
higher than it would otherwise be in the absence of these transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
WorldGate has agreed to indemnify the underwriters against some liabilities,
including civil liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between WorldGate and the representatives of the underwriters. Among the factors
to be considered in determining the initial public offering price will be the
future prospects of WorldGate and its industry in general, sales, losses and
some other financial and operating information of WorldGate in recent periods,
and the price-sales ratios, market prices of securities and some financial and
operating information of companies engaged in activities similar to those of
WorldGate. The estimated initial public offering price set forth on the cover
page of this prospectus is subject to change as a result of market conditions
and other factors.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
will be passed upon for WorldGate by Drinker Biddle & Reath LLP, Philadelphia,
Pennsylvania. Certain legal matters in
61
<PAGE>
connection with this offering are being passed upon for the underwriters by Hale
and Dorr LLP, Boston, Massachusetts.
EXPERTS
The balance sheets as of December 31, 1997 and 1998 and the statements of
operations, stockholders' deficit and redeemable preferred stock and cash flows
for each of the years ended December 31, 1996, 1997 and 1998 included in this
prospectus and the registration statement of which this prospectus is part, have
been included herein in reliance upon the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
WorldGate has filed with the SEC a Registration Statement on Form S-1 under
the Securities Act with respect to the shares of common stock offered hereby. As
permitted by the rules and regulations of the SEC, this prospectus, which is a
part of the registration statement, omits some information contained in the
registration statement. For further information with respect to WorldGate and
the common stock offered hereby, please reference the registration statement,
including its exhibits and schedules. Statements contained in this prospectus
regarding the contents of any agreement or other document filed with the SEC as
an exhibit to the registration statement are not necessarily complete, and in
each instance reference is made to the copy of such agreement filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference. A copy of the registration statement, including
the exhibits and schedules thereto, may be inspected without charge at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, DC 20549, and copies of all or any part thereof may be obtained from
such office upon payment of the prescribed fees. In addition, the Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy
statements, information statements and other information regarding WorldGate.
62
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Report of Independent Accountants..................................................................... F-2
Balance Sheets as of December 31, 1997 and 1998....................................................... F-3
Statements of Operations for the years ended December 31, 1996, 1997 and 1998......................... F-4
Statements of Stockholders' Deficit and Redeemable Preferred Stock for the years ended December 31,
1996, 1997 and 1998................................................................................. F-5
Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998......................... F-6
Notes to Financial Statements......................................................................... F-7-F-20
</TABLE>
F-1
<PAGE>
[THIS IS THE REPORT WHICH WILL BE ISSUED UPON THE EFFECTIVENESS OF THE STOCK
SPLIT AS DESCRIBED IN NOTE 10.]
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of
WorldGate Communications, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' deficit and redeemable preferred stock and of cash
flows present fairly, in all material respects, the financial position of
WorldGate Communications, Inc. at December 31, 1997 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 8, 1999, except as to the
information in Note 10, for which the date
is , 1999
F-2
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
PRO FORMA
1997 1998 1998
---------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents................................................... $4,879,560 $ 127,587 $ 127,587
Restricted cash............................................................. 240,000 240,000
Short-term investments...................................................... 12,438,365
Accounts receivable, trade.................................................. 105,865 572,120 572,120
Inventory................................................................... 619,905 2,736,512 2,736,512
Prepaid and other assets.................................................... 75,968 171,624 171,624
---------- ----------- -----------
Total current assets.................................................... 18,119,663 3,847,843 3,847,843
---------- ----------- -----------
Property and equipment, at cost............................................... 270,862 780,257 780,257
Less: accumulated depreciation and amortization............................. (22,296) (136,866) (136,866)
---------- ----------- -----------
Property and equipment, net............................................. 248,566 643,391 643,391
Deposits and other............................................................ 43,862 1,129,461 1,129,461
---------- ----------- -----------
Total assets............................................................ $18,412,091 $ 5,620,695 $ 5,620,695
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion, notes payable.............................................. $ 182,445 $ 515,798 $ 515,798
Current portion, capital lease.............................................. 3,788 4,210 4,210
Accounts payable............................................................ 647,795 5,166,141 5,166,141
Accrued expenses............................................................ 459,484 128,466 128,466
Accrued compensation and benefits........................................... 644,216 1,282,456 1,282,456
---------- ----------- -----------
Total current liabilities............................................... 1,937,728 7,097,071 7,097,071
Notes payable............................................................... 387,806 595,559 595,559
Capital leases.............................................................. 16,526 11,735 11,735
---------- ----------- -----------
Total liabilities....................................................... 2,342,060 7,704,365 7,704,365
---------- ----------- -----------
Commitments and contingent liabilities
Series A Convertible Mandatory Redeemable Preferred Stock, $.01 par value,
2,752,111 shares authorized and outstanding................................. 14,315,448 16,578,165
Series B Convertible Mandatory Redeemable Preferred Stock, $.01 par value,
4,041,641 and 3,270,760 shares authorized, 2,783,031 and 2,803,031
outstanding at December 31, 1997 and 1998................................... 20,050,950 23,568,947
Series C Convertible Mandatory Redeemable Preferred Stock, $.01 par value,
3,181,819 shares authorized, 832,277 outstanding at December 31, 1998....... 9,128,995
Warrant for Series B Convertible Mandatory Redeemable Preferred Stock......... 880,582 880,582
Stockholders' equity (deficit):
Class A common stock, $0.01 par value; 50,000,000 shares authorized, no
shares issued at December 31 1997 and 1998. (15,193,855 shares issued Pro
Forma at December 31, 1998)............................................... 151,939
Class B common stock, $0.01 par value; 27,608,000 shares authorized,
9,100,801 shares issued and outstanding at December 31, 1997 and 1998 (no
shares issued Pro Forma at December 31, 1998)............................. 91,008 91,008
Additional paid-in capital.................................................. 49,215,176
Warrant for Class A Common Stock............................................ 880,582
Accumulated deficit......................................................... (19,165,931) (51,876,639) (51,876,639)
Unearned stock-based compensation........................................... (102,026) (454,728) (454,728)
---------- ----------- -----------
Total stockholders' equity (deficit).................................... (19,176,949) (52,240,359) (2,083,670)
---------- ----------- -----------
Total liabilities and stockholders' equity (deficit).................... $18,412,091 $ 5,620,695 $ 5,620,695
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------- -------------- --------------
Revenues.......................................................... $ 140,865 $ 1,022,162
------------- -------------- --------------
Costs and expenses:
Cost of revenues................................................ -- 1,529,917 9,918,917
Engineering and development..................................... $ 1,408,441 6,980,680 9,684,448
Sales and marketing............................................. 427,631 3,622,590 5,156,717
General and administrative...................................... 1,092,502 2,432,363 3,485,442
Depreciation and amortization................................... -- 22,296 119,144
------------- -------------- --------------
Total costs and expenses.................................... 2,928,574 14,587,846 28,364,668
------------- -------------- --------------
Loss from operations.............................................. (2,928,574) (14,446,981) (27,342,506)
Interest and other income, net.................................... 8,154 422,743 422,807
Interest expense.................................................. (2,081) (17,110) (100,562)
------------- -------------- --------------
Net loss.................................................... (2,922,501) (14,041,348) (27,020,261)
Accretion on preferred stock...................................... (75,880) (2,435,470) (6,145,105)
------------- -------------- --------------
Net loss available to common stockholders................... $ (2,998,381) $ (16,476,818) $ (33,165,366)
------------- -------------- --------------
------------- -------------- --------------
Pro forma net loss per common share............................... $ (2.24)
--------------
--------------
Pro forma weighted average common shares outstanding.............. 14,785,714
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT AND REDEEMABLE PREFERRED STOCK
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED STOCK
--------------------------------------------------------------------------
SERIES A SERIES B SERIES C
------------------------ ------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995.......................
Cash capital contributions.........................
Capital contributed for services...................
Merger of WorldGate Communications, Inc............
Sale of Preferred Stock, net of expenses........... 1,933,000 $ 8,495,535
Accretion on Preferred Stock....................... 75,880
Net loss for the year..............................
---------- ------------ ---------- ------------ --------- -----------
BALANCE AT DECEMBER 31, 1996....................... 1,933,000 8,571,415
Warrants issued for services provided..............
Deferred compensation..............................
Amortization of deferred compensation..............
Non-employee stock option compensation expense.....
Sale of Preferred Stock, net of expenses........... 819,111 3,599,993 2,783,031 $ 19,759,520
Accretion on Preferred Stock....................... 2,144,040 291,430
Net loss for the year..............................
---------- ------------ ---------- ------------ --------- -----------
BALANCE AT DECEMBER 31, 1997....................... 2,752,111 14,315,448 2,783,031 20,050,950
Deferred compensation..............................
Amortization of deferred compensation..............
Sale of Preferred Stock, net of expenses........... 20,000 142,000 832,277 $ 8,622,604
Accretion on Preferred Stock....................... 2,262,717 3,375,997 506,391
Net loss for the year..............................
---------- ------------ ---------- ------------ --------- -----------
BALANCE AT DECEMBER 31, 1998....................... 2,752,111 $ 16,578,165 2,803,031 $ 23,568,947 832,277 $ 9,128,995
---------- ------------ ---------- ------------ --------- -----------
---------- ------------ ---------- ------------ --------- -----------
<CAPTION>
STOCKHOLDERS' DEFICIT
-----------------------------------------------------------------
WARRANT CLASS B COMMON STOCK
FOR ------------------------------------
REDEEMABLE WORLDGATE, ADDITIONAL
PREFERRED LLC CAPITAL PAID-IN ACCUMULATED
STOCK CONTRIBUTED SHARES AMOUNT CAPITAL DEFICIT
----------- ------------ ----------- --------- ------------ -------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1995....................... $ 180,950 $ (149,325)
Cash capital contributions......................... 873,498
Capital contributed for services................... 816,230
Merger of WorldGate Communications, Inc............ (1,870,678) 9,100,801 $ 91,008 $ 1,779,670
Sale of Preferred Stock, net of expenses........... (174,169)
Accretion on Preferred Stock....................... (75,880)
Net loss for the year.............................. (2,922,501)
----------- ------------ ----------- --------- ------------ -------------
BALANCE AT DECEMBER 31, 1996....................... 9,100,801 91,008 1,529,621 (3,071,826)
Warrants issued for services provided.............. $ 880,582
Deferred compensation.............................. 108,875
Amortization of deferred compensation..............
Non-employee stock option compensation expense..... 63,000
Sale of Preferred Stock, net of expenses........... (1,318,783)
Accretion on Preferred Stock....................... (382,713) (2,052,757)
Net loss for the year.............................. (14,041,348)
----------- ------------ ----------- --------- ------------ -------------
BALANCE AT DECEMBER 31, 1997....................... 880,582 9,100,801 91,008 (19,165,931)
Deferred compensation.............................. 454,658
Amortization of deferred compensation..............
Sale of Preferred Stock, net of expenses...........
Accretion on Preferred Stock....................... (454,658) (5,690,447)
Net loss for the year.............................. (27,020,261)
----------- ------------ ----------- --------- ------------ -------------
BALANCE AT DECEMBER 31, 1998....................... $ 880,582 9,100,801 $ 91,008 $ (51,876,639)
----------- ------------ ----------- --------- ------------ -------------
----------- ------------ ----------- --------- ------------ -------------
<CAPTION>
UNEARNED TOTAL
STOCK-BASED STOCKHOLDERS
COMPENSATION DEFICIT
------------- -------------
BALANCE AT DECEMBER 31, 1995....................... $ 31,625
Cash capital contributions......................... 873,498
Capital contributed for services................... 816,230
Merger of WorldGate Communications, Inc............
Sale of Preferred Stock, net of expenses........... (174,169)
Accretion on Preferred Stock....................... (75,880)
Net loss for the year.............................. (2,922,501)
------------- -------------
BALANCE AT DECEMBER 31, 1996....................... (1,451,197)
Warrants issued for services provided..............
Deferred compensation.............................. $ (108,875)
Amortization of deferred compensation.............. 6,849 6,849
Non-employee stock option compensation expense..... 63,000
Sale of Preferred Stock, net of expenses........... (1,318,783)
Accretion on Preferred Stock....................... (2,435,470)
Net loss for the year.............................. (14,041,348)
------------- -------------
BALANCE AT DECEMBER 31, 1997....................... (102,026) (19,176,949)
Deferred compensation.............................. (454,658)
Amortization of deferred compensation.............. 101,956 101,956
Sale of Preferred Stock, net of expenses...........
Accretion on Preferred Stock....................... (6,145,105)
Net loss for the year.............................. (27,020,261)
------------- -------------
BALANCE AT DECEMBER 31, 1998....................... $ (454,728) $ (52,240,359)
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................ $ (2,922,501) $ (14,041,348) $ (27,020,261)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization............................... -- 22,296 119,144
Amortization of deferred compensation....................... -- 6,849 101,956
Non-employee stock option compensation expense.............. -- 63,000 --
Stock and warrants issued for services provided............. 816,230 880,582 --
Loss on sale of equipment................................... -- -- 15,425
Changes in operating assets and liabilities:
Accounts receivable....................................... -- (105,865) (466,255)
Inventories............................................... -- (619,905) (2,116,607)
Prepaid and other assets.................................. (9,496) (110,334) (1,181,255)
Accounts payable.......................................... 333,112 314,683 4,518,346
Accrued expenses.......................................... 129,805 329,679 (331,018)
Accrued compensation and benefits......................... -- 644,216 638,240
------------- -------------- --------------
Net cash used in operating activities................... (1,652,850) (12,616,147) (25,722,285)
------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................ -- (248,817) (533,394)
Purchases of short-term investments............................. (5,881,025) (16,443,761) (1,947,716)
Proceeds from maturities of short-term investments.............. -- 9,900,000 14,386,081
Proceeds from sale of equipment................................. -- -- 4,000
Restricted cash................................................. -- -- (240,000)
------------- -------------- --------------
Net cash (used in) provided by investing activities..... (5,881,025) (6,792,578) 11,668,971
------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock....................... 8,495,535 23,359,513 9,297,027
Stock issuance costs............................................ (174,169) (1,318,783) (532,423)
Capital contributions........................................... 873,498 -- --
Proceeds from notes payable--shareholder........................ 350,000 -- --
Repayment of notes payable--shareholder......................... (350,000) -- --
Proceeds from notes payable..................................... -- 621,161 937,790
Repayments of capital leases and notes payable.................. -- (66,220) (401,053)
------------- -------------- --------------
Net cash provided by financing activities............... 9,194,864 22,595,671 9,301,341
------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents.... 1,660,989 3,186,946 (4,751,973)
Cash and cash equivalents, beginning of period.................... 31,625 1,692,614 4,879,560
------------- -------------- --------------
Cash and cash equivalents, end of period.......................... $ 1,692,614 $ 4,879,560 $ 127,587
------------- -------------- --------------
------------- -------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................................... $ 2,081 $ 16,351 $ 96,062
------------- -------------- --------------
------------- -------------- --------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Accretion on preferred stock.................................... $ 75,880 $ 2,435,470 $ 6,145,105
Issuance of warrant for services provided....................... -- 880,582 --
Issuance of stock for services provided......................... 816,230 -- --
Acquisition of property under capital lease..................... -- 22,045 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
WorldGate Communications, Inc. ("WorldGate" or the "Company") provides a new
television based Internet service that delivers the Internet through cable
television systems. The Company was originally organized as a Limited Liability
Company (the "LLC") on March 21, 1995. On December 6, 1996, pursuant to a plan
of merger between WorldGate and the LLC, all assets and liabilities of the LLC
were transferred to the Company at book value. As part of the merger, the
Company allocated 9,100,801 shares of common stock to the members of the LLC and
certain key employees who had been granted profit interests. As a result of the
conversion of such profit interests to equity, the Company recognized $816,230
in compensation expense. From inception through July 1, 1998, the Company was a
development stage enterprise as defined in Statement of Financial Accounting
Standards No. 7, "Accounting and Reporting by Development Stage Enterprises."
The Company operates in a single segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company prepares its financial statements on the accrual basis of
accounting. The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. As shown in the financial statements during the year ended December
31, 1998, the Company incurred a loss of $27,020,261 and has an accumulated
deficit of $51,876,639 and cash balance of $367,587. The Company has raised
approximately $7.6 million in preferred stock and approximately $5,470,000 in
notes payable with detachable warrants since December 31, 1998 (See Note 10), is
actively pursuing additional debt or equity financing and has received
non-binding commitments from current and new investors and its chairman to
provide additional funding if and when necessary. If appropriate financing is
not obtained, either privately or through this public offering, the Company has
a plan to modify its operations to continue its existence through 1999.
UNAUDITED PRO FORMA BALANCE SHEET
The board of directors has authorized the Company to file a Registration
Statement with the Securities and Exchange Commission permitting the Company to
sell shares of Common Stock in an initial public offering ("IPO"). If the IPO is
consummated as presently anticipated, all shares of the Series C Preferred and
Series B Convertible Preferred will automatically convert into an equal number
of Class A Common Stock and Class B Common Shares, respectively, and all shares
of Series A Convertible Preferred Stock will automatically convert into two
shares of Class B Common Stock. All of the outstanding Class B Common Stock will
then convert into Class A Common Stock. The unaudited pro forma balance sheet
reflects the subsequent conversion of Series A, Series B and Series C Preferred
shares into Class A Common Stock as if such conversion had occurred as of
December 31, 1998. The unaudited pro forma balance sheet does not include the
sale of 697,437 shares of Series C Preferred Stock ("Series C Preferred")
(464,958 shares of Class A Common Stock post-split) in January and February 1999
for approximately $7.6 million and the proceeds from the issuance of notes
payable of approximately $5,470,000 with detachable warrants in March 1999 (see
Note 10).
F-7
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
The Company pledged $240,000 as collateral for its corporate credit card
obligations. The amount has been classified as restricted cash on the balance
sheet as of December 31, 1998.
SHORT-TERM INVESTMENTS
The Company considers all investments to be short-term in nature and intends
to hold such investments until maturity. Investments are stated at cost, which
approximates fair market value.
INVENTORIES
Inventories are stated at the lower of cost or market on an average cost
basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is recorded on the
straight-line method over the estimated useful lives of the related assets. The
Company depreciates furniture and fixtures over seven years; office equipment
over five years; and computer equipment over three years. Leasehold improvements
are capitalized and amortized on the straight-line basis over the shorter of
their useful life or the term of the lease. Maintenance and repairs are expensed
as incurred. When the property or equipment is retired or otherwise disposed of,
related costs and accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in operations.
The Company reviews assets for impairment whenever events or changes in
circumstances indicate the carrying value of the asset may not be recoverable. A
determination of impairment (if any) is made based on estimates of undiscounted
future cash flows. For the years ended December 31, 1997 and 1998, there have
been no asset impairments.
REVENUE RECOGNITION
The Company derives its revenue principally from the sale of headend units
and other equipment to cable operators. Revenue is recognized by the Company
when products are shipped and accepted by the customer.
COST OF REVENUES
Cost of revenues include costs related to the production of hardware,
installation and training as well as costs incurred for the assembly,
installation and testing of trial systems.
ENGINEERING AND DEVELOPMENT COSTS
Engineering and development costs are expensed as incurred.
F-8
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Advertising costs, included in sales and marketing expense, are expensed in
the period incurred. Advertising expenses were $0, $274,040 and $392,513 for the
years ended December 31, 1996, 1997 and 1998, respectively.
INCOME TAXES
From inception through December 5, 1996, the Company was an LLC under the
Internal Revenue Code, whereby taxes were the responsibility of the individual
members. Accordingly, there was no provision for income taxes in the Company's
statement of operations. Accumulated losses through December 5, 1996 totaled
approximately $2,180,000. The Company began operations as a C Corporation on
December 6, 1996. The Company has incurred losses from operations in the period
from December 6, 1996 through December 31, 1996 and for the years ended December
31, 1997 and 1998; therefore, there is no provision for income taxes in the
Company's statement of operations.
Provision for income taxes is determined based on the asset and liability
method. The asset and liability method provides that deferred tax balances are
recorded based on the difference between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes. Deferred tax
liabilities or assets at the end of each period are determined using the tax
rate enacted under the current tax law. The measurement of net deferred tax
assets is reduced by the amount of any tax benefits that, based on available
evidence, are not expected to be realized, and a corresponding valuation
allowance is established.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of cash and cash equivalents
and short-term investments. The Company has its cash and cash equivalents placed
with high quality, creditworthy financial institutions. The balances at such
institutions at December 31, 1998 and periodically throughout the year are in
excess of federally insured limits. As part of its cash management process, the
Company performs periodic evaluation of the relative credit standing of these
institutions. At December 31, 1997, short-term investments were composed of
mortgage-backed securities issued by U.S. government agencies.
Accounts receivable, trade consists of receivables from cable operators. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral.
F-9
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts receivable from major customers as a percentage of total accounts
receivable were as follows:
<TABLE>
<CAPTION>
CUSTOMER 1997 1998
- ------------------------------------------------------------------------------- ----- -----
<S> <C> <C>
A.......................................................................... -- 31%
B.......................................................................... -- 17%
C.......................................................................... -- 12%
D.......................................................................... 10% 10%
E.......................................................................... -- 10%
F.......................................................................... -- 10%
G.......................................................................... 47% --
H.......................................................................... 43% 8%
--
---
100% 98%
--
--
---
---
</TABLE>
Sales to major customers, as a percentage of revenues, were as follows for
each of the years ended December 31:
<TABLE>
<CAPTION>
CUSTOMER 1996 1997 1998
- ---------------------------------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
A................................................................. -- 32% 44%
B................................................................. -- -- 10%
C................................................................. -- 34% --
D................................................................. -- 34% --
-- --
---
100% 54%
-- --
-- --
---
---
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, short-term investments, accounts receivable, accounts payable,
debt, capital lease obligations and preferred stock. The book value of cash and
cash equivalents, accounts receivable, and accounts payable is considered to be
representative of their fair value because of their short maturities. The
carrying value of short-term investments approximates their fair value.
Management believes that determining a fair value for the Company's convertible
mandatory redeemable preferred stock is impractical due to the closely-held
nature of these instruments.
VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Company's growth and future success is substantially dependent upon its
ability to convince cable operators to offer the WORLDGATE Service to their
subscribers. Although a number of large cable operators have begun testing the
WORLDGATE Service, only a limited number have entered into written agreements
with the Company obligating them to offer the service to their subscribers.
The Company is highly reliant on two suppliers of cable boxes. At present
the agreements with these manufacturers do not require them to install the
WORLDGATE technology in their current or next generation cable boxes or prohibit
them from establishing relationships with the Company's
F-10
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
competitors. The Company is working with both manufacturers to develop an
integrated product. These manufacturers have agreed to cooperate with the
Company to certify and market such products.
The Company continues to seek additional capital resources to further the
development of its service, to expand and improve its product line and to fund
its operations.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
Stock-based compensation is recognized using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations. Accordingly, compensation
expense for stock options is measured as the excess, if any, of the fair value
of the Company's stock at the date of grant over the amount an individual must
pay to acquire the stock and amortized over the vesting period. All
transactions, with other than employees, in which goods and services are the
consideration received for the issuance of equity instruments, such as stock
options, are expensed based on the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reliably
measured. The Company has adopted the disclosure only provisions of Statement of
Accounting Standards No. 123, "Accounting for Stock-Based Compensations" (SFAS
123) (see Note 7).
PRO FORMA NET LOSS PER COMMON SHARE
Pro forma net loss per common share for the year ended December 31, 1998 is
computed using the weighted average number of shares of Class B Common Stock
outstanding during the period and gives effect to the subsequent conversion of
Series A, Series B, and Series C Preferred shares into common stock upon
effectiveness of the IPO as if such conversion occurred on January 1, 1998 or at
the date of original issuance, if later. The resulting pro forma adjustment
includes an increase in the weighted average shares of 5,684,913 used to compute
basic and diluted net loss per common share for the year ended December 31,
1998. The calculation of diluted net loss per common share excludes potential
common shares as the effect would be antidilutive. Potential common shares are
composed of shares of common stock issuable upon the exercise of stock options
and warrants.
HISTORICAL NET LOSS PER SHARE
The Company computes net loss per common share in accordance with SFAS No.
128, "Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic and diluted net loss per
common share is computed by dividing the net loss available to common
stockholders for the period by the weighted average number of shares of common
stock outstanding during the period. The calculation of diluted net loss per
common share excludes potential common shares if the effect is antidilutive.
Potential common shares are composed of shares of common stock issuable upon the
exercise of stock options and warrants and upon conversion of
F-11
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Series A, Series B, and Series C Preferred Stock. Net loss per common share on a
historical basis is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------- -------------- --------------
Net loss available to common stockholders..... $ (2,998,381) $ (16,476,818) $ (33,165,366)
Basic and diluted net loss per common share... $ (0.33) $ (1.81) $ (3.64)
------------- -------------- --------------
------------- -------------- --------------
Weighted average shares outstanding-- basic
and diluted................................. 9,100,801 9,100,801 9,100,801
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position No. 98-5 (SOP 98-5), "Reporting on the
Costs of Start-Up Activities." SOP 98-5 generally requires costs of start-up
activities to be expensed instead of being capitalized and amortized and is
required to be adopted no later than Janaury 1, 1999. The Company does not
expect the adoption of SOP 98-5 to have a material effect on its results of
operations and financial condition.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 provides,
among other things, guidance for determining whether computer software is for
internal use and when the cost related to such software should be expensed as
incurred or capitalized and amortized. SOP 98-1 is required to be applied
prospectively and adopted no later than January 1, 1999. The Company does not
expect the adoption of SOP 98-1 to have a material effect on its results of
operations, financial position or cash flows.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" (SFAS 130), which is effective for years
beginning after December 15, 1997. This statement establishes standards for the
reporting and display of comprehensive income and its components. Comprehensive
income is defined to include all changes in equity during a period except those
resulting from investments by owners and distributions to owners. The Company
adopted SFAS 130 in 1998; however, as of December 31, 1998, there were no
components of comprehensive income for disclosure.
RECLASSIFICATIONS
Certain amounts have been reclassified from previous years to conform with
the 1998 presentation.
F-12
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES
Inventories as of December 31, 1997 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Raw material........................................................ $ 148,629 $ 991,670
Work-in-progress.................................................... 179,205 16,461
Finished goods...................................................... 292,071 1,728,381
---------- ------------
$ 619,905 $ 2,736,512
---------- ------------
---------- ------------
</TABLE>
Customers held $292,071 and $1,264,051 of the Company's finished goods
inventories at December 31, 1997 and 1998, respectively, for use in system
trials.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Computer equipment.................................................... $ 50,893 $ 184,502
Office equipment...................................................... 11,299 203,646
Furniture and fixtures................................................ 165,315 323,095
Leasehold improvements................................................ 21,310 46,969
Capital leases:
Equipment........................................................... 22,045 22,045
---------- ----------
270,862 780,257
Less accumulated depreciation and amortization:
Property and equipment.............................................. (18,626) (128,787)
Capital leases...................................................... (3,670) (8,079)
---------- ----------
Property and equipment, net........................................... $ 248,566 $ 643,391
---------- ----------
---------- ----------
</TABLE>
5. FINANCING AGREEMENT
During 1997, the Company entered into a $1,000,000 equipment facility of
which $429,749 remained available at December 31, 1997. During 1998, the amount
of the equipment facility was increased to $2,000,000, of which $419,044
remained available at December 31, 1998. The weighted average interest rate on
the outstanding notes payable borrowings at December 31, 1997 and 1998 was
8.89%.
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Notes payable....................................................... $ 570,251 $ 1,111,357
Less: current maturities............................................ 182,445 515,798
---------- ------------
Total long-term debt............................................ $ 387,806 $ 595,559
---------- ------------
---------- ------------
</TABLE>
F-13
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FINANCING AGREEMENT (CONTINUED)
At December 31, 1998, the installments of the notes payable maturing in each
of the following years were: 1999--$515,798, 2000--$490,521 and 2001--$105,038.
The notes payable are collateralized by certain equipment, furniture and
fixtures.
6. INCOME TAXES
The significant components of deferred tax assets at December 31, 1997 and
1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
------------ -------------
<S> <C> <C>
Federal tax loss carryforward.................................... $ 4,136,503 $ 12,678,426
State tax loss carryforward...................................... 999,000 999,000
Property and equipment........................................... 838,625 1,107,971
Research and experimentation credit.............................. 99,327 173,174
Section 263(A) adjustment........................................ -- 33,819
Officers' compensation........................................... -- 26,891
Compensation on non-qualified stock options...................... -- 58,689
Warrant issuance................................................. 357,428 --
------------ -------------
6,430,883 15,077,970
Less: valuation allowance........................................ (6,430,883) (15,077,970)
------------ -------------
$ -- $ --
------------ -------------
------------ -------------
</TABLE>
A valuation allowance was established against the Company's net deferred tax
asset due to the Company's lack of earnings history and, accordingly, the
uncertainty as to the realizability of the asset.
At December 31, 1998, the Company had a net operating loss carryforward of
approximately $38,288,000 for federal tax purposes, with $735,000 expiring in
2011, $12,008,000 expiring in 2012 and $25,545,000 expiring in 2018 if not
utilized. The net operating loss carryforward for state tax purposes is
approximately $10,000,000, which will expire in 2009. These carryforwards may be
applied as a reduction to future taxable income of the Company, if any. The
state net operating loss carryforwards are limited by state tax law to a maximum
utilization of $1,000,000 per year. The Company also has research and
experimentation credit carryforwards of approximately $173,000, with $11,500
expiring in 2011, $87,500 expiring in 2012 and $74,000 expiring in 2013. The
Company's ability to utilize its net operating loss carryforwards and credit
carryforwards may be subject to annual limitations as a result of prior or
future changes in ownership and state tax law. The IPO as presently contemplated
will cause such a change.
7. STOCKHOLDERS' DEFICIT
COMMON STOCK
On December 6, 1996, the date of the merger of WorldGate and the LLC, the
Company allocated 9,100,801 shares of common stock to the shareholders in the
LLC and certain key employees, who had been granted profit interests. As a
result of the conversion of such profit interests to equity, the Company
recognized $816,230 in compensation expense.
F-14
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' DEFICIT (CONTINUED)
On April 27, 1998, the board of directors authorized an amendment to the
Company's Articles of Incorporation creating Class A and Class B Common Stock,
each having 27,608,000 shares authorized. Each outstanding share of common stock
was reclassified as one share of Class B Common Stock. Class A and B Common
Stock have one and five votes per share, respectively.
On July 13, 1998, the board of directors further amended the Articles of
Incorporation to increase the number of authorized shares of Class A Common
Stock to 50,000,000 shares and the number of authorized shares of preferred
stock to 13,500,000 shares.
CONVERTIBLE MANDATORY REDEEMABLE PREFERRED STOCK
The Company has authorized 13,500,000 shares of $0.01 par value preferred
stock of which 2,752,111, 3,270,760 and 3,181,819 shares have been designated as
Series A Convertible Preferred Stock ("Series A Preferred"), Series B
Convertible Preferred Stock ("Series B Preferred") and Series C Convertible
Preferred Stock ("Series C Preferred"), respectively (collectively the
"Preferred Stocks").
In December 1996 the Company sold 1,933,000 shares of Series A Preferred
(2,577,333 shares of Class B Common Stock, post-split) for $4.395 per share for
$8,321,366, net of $174,169 of offering expenses. In 1997, the Company completed
its Series A Preferred sale in which it issued an additional 819,111 shares
(1,092,148 shares of Class B Common Stock, post-split) for $3,400,733, net of
$199,260 of offering expenses.
In December 1997, the Company sold 2,783,031 shares of Series B Preferred
(1,855,354 shares of Class B Common Stock, post-split) at $7.10 per share for
$18,640,017, net of $1,119,503 of offering expenses.
In September through December 1998, the Company sold 832,277 shares of
Series C Preferred (554,851 shares of Class A Common Stock, post-split) for
$11.00 per share for $8,622,604, net of $532,423 of offering expenses. The
Series B and C Preferred provides certain anti-dilutive provisions that may be
triggered by an initial public offering.
All holders of outstanding shares of the Preferred Stocks have the right to
convert their shares into common stock at any time. Each share of Series A
Preferred is initially convertible into two shares of Class B Common Stock and
each share of Series B Preferred and Series C Preferred is initially convertible
into one share of Class B Common Stock and Class A Common Stock, respectively.
Each share of the Preferred Stocks will be automatically converted into shares
of common stock at the then applicable conversion rate and price, upon the
earlier of (1) completion by the Company of a qualified (as defined)
underwritten public offering of common stock or (2) the conversion date selected
by the holders of a majority of the outstanding shares of each Series A, Series
B and Series C Preferred Stock.
The redemption price of the shares corresponds to the original purchase
price of each share plus any declared and unpaid dividends, or if the Company
fails to meet certain financial performance goals, the original purchase price
of each share plus interest at 15% per annum. The Preferred shareholders are
permitted to redeem their shares commencing December 2000 provided that the
Company shall not be required to redeem more than 50% of each of the Preferred
Stocks during the twelve-month period commencing December 2000. The Company is
accreting the mandatory redemption amount, at the rate of 15% compounded per
annum, such that the carrying value of the preferred stock will equate to the
F-15
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' DEFICIT (CONTINUED)
redemption amount at the time of redemption. The difference between the
redemption amount and the fair value of the preferred stock at the date of issue
is being amortized from the date of issuance assuming the preferred stockholders
redeem 50% of their shares in December 2000 and the balance in December 2001.
For the year ended December 31, 2000, the Company may be required to redeem up
to 1,376,056 Series A Preferred shares for $11,618,988, up to 1,401,516 Series B
Preferred shares for $16,757,459 and up to 416,139 Series C Preferred shares for
$7,662,786. At December 31, 2001, the Company may be required to redeem all the
Series A, Series B and Series C Preferred shares for $23,237,976, $33,514,917
and $15,325,572, respectively.
The holders of the Preferred Stocks have voting rights on a converted basis
equivalent to those of common stockholders on most matters. However, the
approval of a majority of the Series A, Series B and Series C Preferred
stockholders is required for certain transactions. The Series A, Series B and
Series C Preferred stockholders fully participate in any dividends declared by
the board of directors of the Company at the rate of $0.35, $0.57 and $0.88,
respectively, per share per annum. These dividends are non-cumulative. No
dividends have been declared through December 31, 1998.
Upon any liquidation, dissolution, or winding up of the Company, liquidation
proceeds will be distributed: (1) first, on a PARI PASSU basis, to the holders
of Series C Preferred at $11.00 per share plus any unpaid dividends, Series B
Preferred at $7.10 per share plus any unpaid dividends and to the holders of
Series A Preferred at $4.395 per share plus any unpaid dividends, (2) second to
the holders of common stock in an amount equal to $2 million and (3) equally
thereafter. The liquidation value of each of the Preferred Stocks at December
31, 1997 and 1998 is equal to the respective carrying amounts on the balance
sheet.
The agreements with the holders of the Preferred Stocks contain certain
provisions which, among other things, restrict borrowings and changes in capital
structure and ownership. Events of noncompliance under these provisions entitle
the holders of these shares to the right of an immediate voluntary redemption.
In January and February 1999, the Series A, Series B and Series C Preferred
stockholders agreed to waive certain rights under their respective stock
agreements.
WARRANTS
In November 1997, the Company issued a warrant to purchase 394,880 shares of
Series B Preferred (263,253 shares of Class B Common Stock, post-split) at $7.10
per share which expires June 30, 2002 to a strategic investor under the terms of
a master affiliation agreement. As a result of the issuance of the warrant, the
Company recorded approximately $881,000 as marketing expense which was the
estimated fair market value of the warrant at that time.
Also, in connection with the Series B Preferred private placement, the
underwriter received warrants to purchase 60,474 and 12,375 shares of Series B
Preferred (40,316 and 8,250 shares of Class B Common Stock, post-split) at $7.10
per share which expire in November and December 2002, respectively.
STOCK OPTION PLAN
In December 1996, the Company adopted the 1996 Stock Option Plan ("1996
Plan"), as amended. This plan provides for the granting of stock options to
officers, directors, employees and consultants. Grants under this plan may
consist of options intended to qualify as incentive stock options ("ISOs"),
F-16
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' DEFICIT (CONTINUED)
or nonqualified stock options that are not intended to so qualify ("NQSOs"). The
option price of any ISO will not be less than the fair market value on the date
the option is granted (110% of fair value in certain instances). The option
price of a NQSO may be greater than, equal to, or less than the fair market
value on the date the option is granted. The 1996 Plan authorizes a maximum of
933,333 shares of common stock.
The Plan is administered by a committee of the board of directors. The
committee determines the term of each option, provided, however, that the
exercise period may not exceed ten years from the date of grant, and for ISOs,
in certain instances, may not exceed five years. The options granted under this
plan vest ratably over a four-year period from the date of grant.
Compensation expense of approximately $109,000 and $455,000 is being
recognized, over the four-year vesting period for certain options which were
granted to employees in 1997 and 1998, respectively, at below the estimated fair
market value at the time of grant, to acquire 87,667 and 213,343 shares of
common stock, respectively. Compensation expense of approximately $7,000 and
$102,000 was recognized in 1997 and 1998, respectively. Also, compensation
expense of approximately $63,000 was recognized in 1997 for stock options
granted to non-employees in connection with consulting services provided.
If compensation expense had been determined based on the fair value of the
options at the grant dates for those options for which no compensation expense
has been recognized, consistent with the method of SFAS 123, the Company's net
loss and loss per share would have been:
<TABLE>
<CAPTION>
1997 1998
-------------- --------------
<S> <C> <C> <C>
Net loss available to
common stockholders: As reported................... $ (16,476,818) $ (33,165,366)
Pro forma..................... $ (16,493,691) $ (33,241,555)
Net loss per common share:
basic and diluted: As reported................... $ (1.81) $ (3.64)
Pro forma..................... $ (1.81) $ (3.65)
</TABLE>
Such pro forma disclosures may not be representative of future compensation
expense because options vest over several years and additional grants are made
each year.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes minimum value option valuation model. The following
weighted-average assumptions were used for grants in 1997 and 1998,
respectively: expected volatility of 0% and 0%; risk-free interest rates of 6.2%
and 5.4%; dividend yield of 0% and 0%; and expected lives of 5 and 5.91 years.
The weighted-average fair value of the options granted during the year was
$0.615 and $3.36 per option at December 31, 1997 and 1998, respectively.
F-17
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' DEFICIT (CONTINUED)
A summary of the Company's stock plan is presented below:
<TABLE>
<CAPTION>
STOCK WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- -----------------
<S> <C> <C>
Outstanding, December 31, 1996................................... -- --
Granted.......................................................... 435,000 $ 2.26
Exercised........................................................ -- --
Cancelled/forfeited.............................................. -- --
---------
Outstanding, December 31, 1997................................... 435,000 2.26
Granted.......................................................... 219,643 4.50
Exercised........................................................ -- --
Cancelled/forfeited.............................................. (13,300) 3.54
---------
Outstanding, December 31, 1998................................... 641,343 $ 3.00
---------
---------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
STOCK OPTIONS
STOCK OPTIONS OUTSTANDING
--------------------------------------- EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
- ------------------------------------------------------ --------- --------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$0.75--$1.50.......................................... 87,333 7.5 $ 1.245 21,833 $ 1.245
$1.51--$2.25.......................................... 297,000 7.8 2.22 75,667 2.22
$2.26--$4.50.......................................... 257,010 8.9 4.50 11,250 4.50
--------- ----------- ---------- -----------
641,343 8.1 $ 3.00 108,750 $ 2.25
--------- ----------
--------- ----------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In November 1997, the Company approved and adopted an Employee Stock
Purchase Plan (the "ESPP") to provide employees, directors, officers,
consultants or advisors of the Company the ability to purchase Series B
Preferred at $7.10 per share. During 1998, 20,000 shares of Series B Preferred
(13,333 shares of Class B Common Stock, post-split) were sold for $142,000.
8. COMMITMENTS AND CONTINGENCIES
SIGNIFICANT AGREEMENTS
The Company has entered into various agreements in which the Company has
obtained the right to use and distribute licensed software and certain
proprietary technology as incorporated into the WORLDGATE Service until
September 2002 for total minimum subscription fees of $550,000. For the years
ended December 31, 1997 and 1998, approximately $110,000 and $208,000 has been
expensed, respectively. In addition, in one of the agreements, the Company will
be required to pay an annual maintenance service fee of $0.02 per subscriber
over two million subscribers.
F-18
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEGAL
The Company is a party to various pending legal actions. The Company does
not expect that the ultimate resolution of pending legal matters in future
periods will have a material effect on its financial position or cash flows, but
it could have a material effect on its results of operations.
LEASES
The Company has entered into operating leases for its office facilities and
certain equipment.
The future minimum rental commitments under capital leases and operating
leases for each fiscal year ended December 31 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
1999............................................................... $ 5,699 $ 757,000
2000............................................................... 5,699 1,046,000
2001............................................................... 5,699 921,000
2002............................................................... 2,354 891,000
2003............................................................... -- 909,000
Thereafter......................................................... -- 5,301,000
--------- ------------
Total minimum lease payments....................................... 19,451 $ 9,825,000
------------
------------
Less amounts representing interest................................. (3,506)
---------
Present value of net minimum lease payments (including $4,210
currently payable)............................................... $ 15,945
---------
---------
</TABLE>
Total rent expense for operating leases for the years ended December 31,
1997 and 1998 amounted to approximately $299,497 and $554,510, respectively.
9. RELATED PARTY TRANSACTIONS
In 1997, the Company entered into an agreement with a cable operator who is
an investor. Revenues recognized from this investor were approximately $0,
$46,000 and $451,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. Accounts receivable amounted to approximately $11,000 and $176,000
at December 31, 1997 and 1998, respectively.
In 1997 and 1998, the Company entered into agreements with four stockholders
to provide the Company with engineering and development support. As a result of
these agreements, the Company has expensed approximately $1,125,000 and
$2,951,000 for the years ended December 31, 1997 and 1998, respectively. An
additional $2,800,000 of work remains to be funded and performed under these
contracts. Accounts payable amounted to approximately $93,000 and $41,000 as of
December 31, 1997 and 1998, respectively. These stockholders are suppliers of
technology and components for the Company's products and services. The
agreements the Company has with these stockholders provide for licensing of
technology, as well as contracted services, including hardware and software
development, product testing and certification, and the creation and development
of tools and systems to facilitate the Company's engineering efforts. These
agreements do not provide for ongoing royalties, purchase provisions, nor for
any requirement to provide additional funding to the Company. Revenues
F-19
<PAGE>
WORLDGATE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
recognized from stockholders for the year ended December 31, 1998 amounted to
approximately $551,000.
In 1998, the Company entered into a leasing arrangement for a building,
which will be occupied in 1999, with an entity formed by non-employee investors.
Included in Deposits and other is $1,000,000 related to this lease.
During 1996, the Company borrowed approximately $350,000 from its Chairman.
The note bore interest at 7% and was repaid in December 1996.
10. SUBSEQUENT EVENTS
In January and February 1999, the Company sold 697,437 shares of Series C
Preferred (464,958 shares of Class A Common Stock, post-split) for $11.00 per
share for approximately $7,600,000. Upon completion of the IPO as presently
anticipated, these shares will convert into shares of Class A Common Stock.
In January 1999, the board of directors approved a 2-for-3 reverse stock
split effective immediately prior the IPO. All common stock share data have been
retroactively adjusted to reflect this change.
In March 1999, the Company received proceeds of $911,600 and $4,558,000
through the issuance of $1,000,000 and $5,000,000 of notes payable with a stated
interest rate of 12.48% due September 1999 and December 1999, respectively. In
connection with the issuance of these notes payable, the holders of the notes
received warrants to purchase the number of shares of common stock equal to
$5,469,600 divided by the lower of $16.50 and the initial public offering price
at an exercise price equal to the lower of $16.50 and the initial public
offering price per share. Assuming an initial public offering price of $13.00
per share, these holders may purchase up to 420,738 shares of common stock. The
fair value of the warrants will be accounted for as an additional discount of
the notes payable which will be amortized as additional interest expense over
the term of the notes. These notes payable become immediately due upon the
completion of the Company's initial public offering.
F-20
<PAGE>
----------------------
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.......................... 3
Risk Factors................................ 7
Use of Proceeds............................. 14
Dividend Policy............................. 14
Capitalization.............................. 15
Dilution.................................... 16
Selected Financial Information.............. 17
Management's Discussion and Analysis
of Financial Condition and
Results of Operations..................... 19
Business.................................... 25
Management.................................. 45
Certain Transactions........................ 51
Principal Stockholders...................... 53
Description of Capital Stock................ 55
Shares Eligible for Future Sale............. 57
Underwriting................................ 60
Legal Matters............................... 61
Experts..................................... 62
Additional Information...................... 62
Index to Financial Statements............... F-1
</TABLE>
4,500,000 SHARES
[LOGO]
COMMON STOCK
---------------
PROSPECTUS
---------------
GERARD KLAUER MATTISON & CO., INC.
JEFFERIES & COMPANY, INC.
JANNEY MONTGOMERY SCOTT INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by WorldGate in connection
with the issuance and distribution of the securities being offered hereby (other
than underwriting discounts and commissions and underwriters' non-accountable
expense allowance):
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 20,142
NASD filing fee................................................... 7,745
Nasdaq filing fee................................................. 95,000
Printing and engraving expenses................................... 175,000
Legal fees and expenses........................................... 250,000
Accounting fees and expenses...................................... 150,000
Blue Sky fees and expenses (including legal fees)................. 10,000
Transfer agent and registrar fees and expenses.................... 4,000
Miscellaneous..................................................... 88,113
---------
Total............................................................. $ 800,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant's certificate of incorporation, as amended, currently states
that a director of the registrant shall have no personal liability to the
registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director except to the extent that Section 102(b)(7) (or any successor
provision) of the Delaware General Corporation Law, as amended from time to
time, expressly provides that the liability of a director may not be eliminated
or limited. No amendment or repeal of this provision shall apply to or have any
effect on the liability or alleged liability of any director of the registrant
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
The registrant's bylaws require the registrant to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director or
officer of the registrant, or is or was serving while a director or officer of
the registrant at its request as a director, officer, employee, agent, fiduciary
or other representative of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines, excise taxes and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding to the full extent permissible under Delaware law. Any person
claiming indemnification as provided in the bylaws shall be entitled to advances
from the registrant for payment of the expenses of defending actions against
such person in the manner and to the full extent permissible under Delaware law.
On the request of any person requesting indemnification under such provisions,
the board of directors of the registrant or a committee thereof shall determine
whether such indemnification is permissible or such determination shall be made
by independent legal counsel if the board or committee so directs or if the
board or committee is not empowered by statute to make such determination. The
indemnification and advancement of expenses provided by the bylaws shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any insurance or other agreement,
vote of shareholders or disinterested directors or otherwise,
II-1
<PAGE>
both as to actions in their official capacity and as to actions in another
capacity while holding an office, and shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such person. The registrant shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the registrant or is or was serving at
its request as a director, officer, employee, agent, fiduciary or other
representative of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the registrant would have the power to indemnify
him against such liability under the provisions of the bylaws. The duties of the
registrant to indemnify and to advance expenses to a director or officer
provided in the bylaws shall be in the nature of a contract between the
registrant and each such director or officer, and no amendment or repeal of any
such provision of the bylaws shall alter, to the detriment of such director or
officer, the right of such person to the advancement of expenses or
indemnification related to a claim based on an act or failure to act which took
place prior to such amendment, repeal or termination. Delaware law also permits
indemnification in connection with a proceeding brought by or in the right of
the registrant to procure a judgment in its favor. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in that Securities Act and is therefore unenforceable. The
registrant has directors and officers liability insurance.
The underwriting agreement provides that the underwriters are obligated,
under some circumstances, to indemnify directors, officers and controlling
persons of the registrant against some liabilities, including liabilities under
the Act. Reference is made to Section 8 of the form of underwriting agreement
which will be filed by amendment as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its inception, WorldGate has made the following sales of unregistered
securities to employees and various institutional and other accredited
investors:
- On December 4, 1996, WorldGate issued an aggregate of 9,100,801 shares of
class B common stock to various management employees in exchange for the
cancellation of their membership interests in the LLC. This transaction
was exempt from registration pursuant to Section 4(2) of the Securities
Act.
- From December 11, 1996 through July 2, 1997, WorldGate sold an aggregate
of 2,752,111 shares of series A preferred stock at a purchase price of
$4.395 per share to various accredited investors. These sales were exempt
from registration pursuant to Section 4(2) of the Securities Act and Rule
506 of Regulation D thereunder.
- From November 24, 1997 through December 31, 1997, WorldGate sold an
aggregate of 2,783,031 shares of series B preferred stock at a purchase
price of $7.10 per share to various accredited investors. On November 7,
1997, November 24, 1997, December 5, 1997 and December 31, 1997, WorldGate
also issued warrants to purchase an aggregate of 467,729 shares of series
B preferred stock at an exercise price of $7.10 a share to various
institutional accredited investors. These sales were exempt from
registration pursuant to Section 4(2) of the Securities Act and Rule 506
of Regulation D thereunder.
- WorldGate also sold an aggregate of 20,000 shares of series B preferred
stock at a purchase price of $7.10 a share to various employees of
WorldGate pursuant to an Employee Stock Purchase Plan and Agreement dated
January 23, 1998. These sales were exempt from registration pursuant to
Section 4(2) of the Securities Act and Rule 701 thereunder.
II-2
<PAGE>
- From September 2, 1998 through February 8, 1999, WorldGate sold an
aggregate of 1,529,714 shares of series C preferred stock at a purchase
price of $11.00 per share to various accredited investors. These sales
were exempt from registration pursuant to Section 4(2) of the Securities
Act and Rule 506 of Regulation D thereunder.
- On March 2, 1999 WorldGate issued its senior secured promissory notes in
the aggregate principal amount of $6 million and issued warrants to
purchase the number of shares of common stock equal to $5,469,600 divided
by the lower of $16.50 and the initial public offering price at an
exercise price equal to the lower of the initial public offering price and
$16.50, to two institutional accredited investors. Assuming an initial
public offering price of $13.00 per share, these holders may purchase up
to 420,738 shares of common stock. These sales were exempt from
registration pursuant to Section 4(2) of the Securities Act.
Pursuant to WorldGate's stock option plan, as amended, as of March 16, 1999
WorldGate has granted options to purchase a total of 913,752 shares of class B
common stock to its employees and some other persons during the past three
fiscal years at exercise prices ranging from $0.75 to $16.50 per share. For a
more detailed description of WorldGate's stock option plan, see
"Management--Stock Option Plan" in this registration statement. In granting the
options and selling the underlying securities upon exercise of the options,
WorldGate is relying upon exemptions from registration set forth in Rule 701 and
Section 4(2) of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.##
3.1 Form of Amended and Restated Certificate of Incorporation of the Company.##
3.2 Form of Amended and Restated By-laws of the Company.##
5.1 Opinion of Drinker Biddle & Reath LLP.##
10.1 Lease Agreement dated October 7, 1998 between WorldGate and Balanced Capital LLC, as amended by
First Amendment to Lease Agreement dated December 7, 1998 between WorldGate and Balanced Capital
LLC, as further amended by Second Amendment to Lease Agreement dated December 17, 1998 between
WorldGate and Balanced Capital LLC.*
10.2 Agreement of Lease dated January 14, 1997 between Glenview Corporate Center and WorldGate, as
amended by First Amendment to Agreement of Lease dated October 24, 1997 between Glenview
Corporate Center and WorldGate.*
10.3 Agreement of Lease dated November 26, 1997 between Glenview Corporate Center and WorldGate.*
10.4 Development Agreement dated October 15, 1998 between WorldGate and Scientific-Atlanta, Inc.#+
10.5 Memorandum of Understanding dated September 2, 1998 between WorldGate and General Instrument
Corporation.#+
10.6 Senior Loan and Security Agreement No. 0098 dated July 15, 1997 between Phoenix Leasing
Incorporated and WorldGate, as amended by Amendment No. 1 to Senior Loan and Security Agreement
No. 0098 dated June 18, 1998 between Phoenix Leasing Incorporated and WorldGate.*
10.7 Master Agreement dated November 7, 1997 between Charter Communications, Inc. ("Charter") and
WorldGate.#+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ----------------- -------------------------------------------------------------------------------------------------
<C> <S>
10.8 Warrant Agreement dated November 7, 1997 between Charter and WorldGate.*
10.9 Affiliation Agreement dated November 7, 1997 between Charter and WorldGate.#+
10.10 Affiliation Agreement dated December 8, 1998 between WorldGate and Prestige Cable, Inc.#+
10.11 Affiliation Agreement dated October 19, 1998 between WorldGate and Massillon CableTV, Inc.#+
10.12 Affiliation Agreement dated September 25, 1998 between WorldGate and TVCable, S.A.#+
10.13 Affiliation Agreement dated December 14, 1998 between WorldGate and City of Tacoma, Tacoma Public
Utilities, d/b/a Click!Network.#+
10.14 Amended and Restated 1996 Stock Option Plan, as further amended by First Amendment to 1996 Stock
Option Plan dated June 12, 1998.*
10.15 Agreement dated June 15, 1998 between WorldGate and Thomas R. Baxter.*
10.16 First Amended and Restated Stockholders' Agreement dated September 2, 1998 among WorldGate and
the stockholders identified therein.*
10.17 Security Agreement dated March 2, 1999 between WorldGate, Strong River Investment, Inc. ("Strong
River") and Ampal American-Israel Corporation ("Ampal").#
10.18 Intellectual Property Security Agreement dated March 2, 1999 between WorldGate, Strong River and
Ampal.#
10.19 Warrant dated March 2, 1999 issued to Ampal by WorldGate.#
10.20 Warrant dated March 2, 1999 issued to Strong River by WorldGate.#
10.21 Senior Secured Promissory Note dated March 2, 1999 in the principal amount of $500,000 issued by
WorldGate in favor of Ampal.#
10.22 Senior Secured Promissory Note dated March 2, 1999 in the principal amount of $2,500,000 issued
by WorldGate in favor of Ampal.#
10.23 Senior Secured Promissory Note dated March 2, 1999 in the principal amount of $500,000 issued by
WorldGate in favor of Strong River.#
10.24 Senior Secured Promissory Note dated March 2, 1999 in the principal amount of $2,500,000 issued
by WorldGate in favor of Strong River.#
10.25 Letter Agreement dated November 14, 1997 between WorldGate and Next Level Systems, Inc.#
10.26 Affiliation Agreement dated September 30, 1998 between WorldGate and Cable Bahamas, LTD.#+
21.1 Subsidiaries of WorldGate.#
23.1 Consent of PricewaterhouseCoopers LLP.#
23.2 Consent of Drinker Biddle & Reath LLP (to be included in Exhibit 5.1).##
24.1 Power of Attorney (included on signature page).*
27.1 Financial Data Schedule.*
</TABLE>
- ------------------------
* Filed previously.
# Filed herewith.
## To be filed by amendment.
+ Confidential Treatment Requested. Portions of these exhibits have been
omitted pursuant to a request for confidential treatment.
II-4
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
All information for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission is either included in the
financial statements or is not required under the related instructions or is
inapplicable, and therefore has been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) It will provide to the underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment no. 1 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Bensalem,
Pennsylvania on March 18, 1999.
WORLDGATE COMMUNICATIONS, INC.
BY: /S/ HAL M. KRISBERGH
-----------------------------------------
Hal M. Krisbergh
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURES TITLES DATE
- ------------------------------ --------------------------- -------------------
Chairman and Chief
/s/ HAL M. KRISBERGH Executive Officer,
- ------------------------------ Director (Principal March 18, 1999
Hal M. Krisbergh Executive Officer)
/s/ DAVID A. DILL Chief Financial Officer
- ------------------------------ (Principal Financial and March 18, 1999
David A. Dill Accounting Officer)
* Vice President and General
- ------------------------------ Manager, Director March 18, 1999
David E. Wachob
* Director
- ------------------------------ March 18, 1999
Alan Gerry
* Director
- ------------------------------ March 18, 1999
Marcia J. Hooper
* Director
- ------------------------------ March 18, 1999
Ronald A. Walter
* Director
- ------------------------------ March 18, 1999
Thomas G. Baxter
* Director
- ------------------------------ March 18, 1999
Graham Pattison
<TABLE>
<S> <C> <C>
*By: /s/ DAVID A DILL
--------------------------------------
David A Dill
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NO.
- ----------------- --------------------------------------------------------------------------------------- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement.##
3.1 Form of Amended and Restated Certificate of Incorporation of the Company.##
3.2 Form of Amended and Restated By-laws of the Company.##
5.1 Opinion of Drinker Biddle & Reath LLP.##
10.1 Lease Agreement dated October 7, 1998 between WorldGate and Balanced Capital LLC, as
amended by First Amendment to Lease Agreement dated December 7, 1998 between WorldGate
and Balanced Capital LLC, as further amended by Second Amendment to Lease Agreement
dated December 17, 1998 between WorldGate and Balanced Capital LLC.*
10.2 Agreement of Lease dated January 14, 1997 between Glenview Corporate Center and
WorldGate, as amended by First Amendment to Agreement of Lease dated October 24, 1997
between Glenview Corporate Center and WorldGate.*
10.3 Agreement of Lease dated November 26, 1997 between Glenview Corporate Center and
WorldGate*
10.4 Development Agreement dated October 15, 1998 between WorldGate and Scientific-Atlanta,
Inc.#+
10.5 Memorandum of Understanding dated September 2, 1998 between WorldGate and General
Instrument Corporation.#+
10.6 Senior Loan and Security Agreement No. 0098 dated July 15, 1997 between Phoenix Leasing
Incorporated and WorldGate, as amended by Amendment No. 1 to Senior Loan and Security
Agreement No. 0098 dated June 18, 1998 between Phoenix Leasing Incorporated and
WorldGate.*
10.7 Master Agreement dated November 7, 1997 between Charter Communications, Inc.
("Charter") and WorldGate.#+
10.8 Warrant Agreement dated November 7, 1997 between Charter and WorldGate.*
10.9 Affiliation Agreement dated November 7, 1997 between Charter and WorldGate.#+
10.10 Affiliation Agreement dated December 8, 1998 between WorldGate and Prestige Cable,
Inc.#+
10.11 Affiliation Agreement dated October 19, 1998 between WorldGate and Massillon CableTV,
Inc.#+
10.12 Affiliation Agreement dated September 25, 1998 between WorldGate and TVCable, S.A.#+
10.13 Affiliation Agreement dated December 14, 1998 between WorldGate and City of Tacoma,
Tacoma Public Utilities, d/b/a Click!Network.#+
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NO.
- ----------------- --------------------------------------------------------------------------------------- -----------
<C> <S> <C>
10.14 Amended and Restated 1996 Stock Option Plan, as further amended by First Amendment to
1996 Stock Option Plan dated June 12, 1998.*
10.15 Agreement dated June 15, 1998 between WorldGate and Thomas R. Baxter.*
10.16 First Amended and Restated Stockholders' Agreement dated September 2, 1998 among
WorldGate and the stockholders identified therein.*
10.17 Security Agreement dated March 2, 1999 between WorldGate, Strong River Investment, Inc.
("Strong River") and Ampal American-Israel Corporation ("Ampal").#
10.18 Intellectual Property Security Agreement dated March 2, 1999 between WorldGate, Strong
River and Ampal.#
10.19 Warrant dated March 2, 1999 issued to Ampal by WorldGate.#
10.20 Warrant dated March 2, 1999 issued to Strong River by WorldGate.#
10.21 Senior Secured Promissory Note dated March 2, 1999 in the principal amount of $500,000
issued by WorldGate in favor of Ampal.#
10.22 Senior Secured Promissory Note dated March 2, 1999 in the principal amount of
$2,500,000 issued by WorldGate in favor of Ampal.#
10.23 Senior Secured Promissory Note dated March 2, 1999 in the principal amount of $500,000
issued by WorldGate in favor of Strong River.#
10.24 Senior Secured Promissory Note dated March 2, 1999 in the principal amount of
$2,500,000 issued by WorldGate in favor of Strong River.#
10.25 Letter Agreement dated November 14, 1997 between WorldGate and Next Level Systems,
Inc.#
10.26 Affiliation Agreement dated September 30, 1998 between WorldGate and Cable Bahamas,
LTD.#+
21.1 Subsidiaries of WorldGate.#
23.1 Consent of PricewaterhouseCoopers LLP.#
23.2 Consent of Drinker Biddle & Reath LLP (to be included in Exhibit 5.1).##
24.1 Power of Attorney (included on signature page).*
27.1 Financial Data Schedule.*
</TABLE>
- ------------------------
* Filed previously.
# Filed herewith.
## To be filed by amendment.
+ Confidential Treatment Requested. Portions of these exhibits have been
omitted pursuant to a request for confidential treatment.
II-8
<PAGE>
Exhibit 10.4
DEVELOPMENT AGREEMENT
BETWEEN
SCIENTIFIC-ATLANTA, INC. AND WORLDGATE COMMUNICATIONS, INC.
This development agreement, including all attachments hereto, (hereinafter the
"Agreement") is made as of the last date hereof (the "Effective Date") by and
between WorldGate Communications, Inc., a Delaware corporation, having offices
at 3220 Tillman Drive, Bensalem, PA 19020 (hereinafter "WorldGate"), and
Scientific-Atlanta, Inc., a Georgia corporation, having offices at One
Technology Parkway South, Norcross, GA 30092-2967 (hereinafter "S-A").
The parties desire to assist each other in the development of various technical
projects with the initial project being the development of an add-on board for
various S-A set top converters as further identified herein, which add-on board
affords real-time interactive Internet access through such set top converters,
with such projects to be used and licensed by the parties as further described
by the terms and conditions of this Agreement.
In consideration of the promises, mutual covenants, agreements, and obligations
of the parties and of other good and valuable considerations, the receipt and
adequacy of which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
1.1 "ASIC" means an application specific integrated circuit.
1.2 "Customer Premises Equipment" ("CPE") means a device, for example
such as the Model 8610 set top terminal, manufactured by or for S-A
which receives audio, video and data signals, including television
signals, from a service provider's network via any combination of
fiber or metallic cables; over the air broadcast, or broadcast
directly from a satellite and which the parties agree in writing are
to be used with the WorldGate Technology.
1.3 "Inventions" means all discoveries, improvements, designs, mask
works, software, ideas (whether or not patentable or copyrightable),
that are developed or discovered during the performance of
activities that are directly related to development activities
performed pursuant to a Statement of Work performed under this
Agreement.
1.4 "Licensed Technology" means the WorldGate Technology, when licensed
by WorldGate to S-A as set forth in this Agreement, and the S-A
Technology, when licensed by S-A to WorldGate as set forth in this
Agreement.
1.5 "Manufacturing Files" means complete files which will contain all
information reasonably necessary to enable a skilled manufacturer to
make the applicable apparatus or device, including interface
specifications and test procedures for such apparatus or device.
<PAGE>
1.6 "Prototype" means a working but non-final release of the apparatus
or device described by a Statement of Work hereunder which conforms
with the provisions of this Agreement and the applicable Statement
of Work.
1.7 "S-A Interoperability Information" means the WorldGate information
as is further identified and described in Attachment C hereto, which
the parties agree by virtue of the same being so listed in
Attachment C is (i) necessary for the WorldGate Board and the
WorldGate Software to interface with and function on a CPE and
related headend equipment, and (ii) is to be developed by WorldGate
as part of a Statement of Work hereunder, but solely to the extent
the same is based upon and derived from S-A proprietary information
provided to WorldGate hereunder.
1.8 "S-A Technology" means:
a. S-A's Inventions related to a WorldGate or S-A deliverable
under any Statement of Work;
b. the CPE;
c. head-end devices, software and systems for providing data and
other information to the CPE; and
d. such improvements, modifications, enhancements, upgrades, and
error corrections to the immediately preceding items (a)
through (c) which S-A agrees to develop and make available to
WorldGate pursuant to the relevant Statement of Work.
1.9 "Statement(s) of Work" means that specification or specifications
which are agreed in writing by the parties to be included as part of
this Agreement and accordingly attached as set forth in the numbered
Attachment A1 et seq. that describe the general functions,
requirements and performance goals of WorldGate and S-A related to
the development activities as set forth in each Statement of Work.
To the extent that a Statement of Work has been executed by duly
authorized representatives of both parties, any additional
provisions in the Statement of Work or provisions in the Statement
of Work that are inconsistent with those of this Agreement shall
govern, but only with respect to that Statement of Work. Each
Statement of Work shall include:
a. Brief description of the development activity
b. Designation of Technical and Executive Committee members and
Support Interfaces
c. Written Specifications of the Development Activities
d. Schedule and List of Deliverables
e. Testing Procedures
2
<PAGE>
f. Acceptance Testing Criteria
g. Payments, if any
h. Licensing and Royalty Terms, if any
i. Other terms specific to Developmental Activities, including
without limitation any required variations to the terms and
conditions of this Agreement with respect to the ownership of
Inventions and other intellectual property.
1.10 "WorldGate ASIC" means an ASIC which incorporates the proprietary
technology or design of WorldGate.
1.11 "WorldGate Board" means a circuit board (i) designed for
installation in the CPE to provide for real-time, interactive access
to the Internet through the CPE, including the display of Internet
graphics on television sets or monitors connected to the CPE; (ii)
designed in conformance to the specifications set forth in a
Statement of Work. Unless otherwise set forth herein, the WorldGate
Board includes the WorldGate ASIC as installed on the WorldGate
Board and any WorldGate Software resident on the WorldGate Board or
in the WorldGate ASIC.
1.12 "WorldGate Interoperability Information" means the S-A information
as is further identified and described in Attachment D hereto, which
the parties agree by virtue of the same being so listed in
Attachment D is (i) necessary for the WorldGate Board and the
WorldGate Software to interface with an function on a CPE and
related headend equipment, and (ii) is to be developed by S-A as
part of a Statement of Work hereunder, but solely to the extent that
the same is based upon and derived from WorldGate proprietary
information provided to S-A hereunder.
1.13 "WorldGate Software" means that software used for the operation of a
WorldGate ASIC or the WorldGate Board in object or executable code
format together with any associated WorldGate test suites that are
not available commercially from third party suppliers.
1.14 "WorldGate Technology" means:
a. WorldGate's Inventions related to a WorldGate or S-A
deliverable under any Statement of Work;
b. WorldGate Board;
c. Server device, systems, and software which interface with S-A
CPE's and headend equipment; and
d. such improvements, modifications, enhancements, upgrades, and
error corrections to the immediately preceding items (a)
through (c) which
3
<PAGE>
WorldGate agrees to develop and make available to S-A pursuant
to the relevant Statement of Work.
2. STRUCTURE
This Agreement is intended to provide the overall terms and conditions for
multiple projects for the joint development by WorldGate and S-A's Analog Video
Systems business unit. The parties may, from time to time, amend this Agreement
to add subsequent Statements of Work related to new development activities
between S-A and WorldGate.
3. WORLDGATE'S PROJECT RESPONSIBILITIES
3.1 WorldGate shall perform all research, development and design work
necessary to complete all WorldGate obligations stated in this
Agreement and in each Statement of Work. WorldGate further
understands that the availability and use of the technology to be
developed in each Statement of Work specified in this Agreement is a
significant part of S-A's future business strategy. THE TIME OF
COMPLETION OF ALL OF WORLDGATE'S OBLIGATIONS UNDER THIS AGREEMENT IS
OF THE ESSENCE.
3.2 As soon as is reasonably practicable after the commencement of the
development work contemplated hereunder, WorldGate shall furnish S-A
with the WorldGate deliverables as set forth in each Statement of
Work as are available at agreed upon time schedules(s). During the
term of this Agreement, WorldGate shall have a continuing obligation
to furnish S-A with supplemental information (i) sufficient to show
the status of a particular task to ensure that its deliverables
under each Statement of Work are current at all times during the
term of such Statement of Work or as otherwise agreed to by the
parties, and (ii) related to any changes in the WorldGate Technology
materially relevant to the development efforts hereunder.
3.3 WorldGate shall provide S-A with the material, information and data
listed in each Statement of Work. All materials, information and
data delivered by WorldGate shall only be used by S-A for these
joint development efforts as set forth in this Agreement or in any
Statement of Work.
3.4 Throughout the term of this Agreement, WorldGate shall assign and
dedicate such personnel and facilities resources as are commercially
reasonable and necessary to accomplish the development activities
according to the schedule stated in each Statement of Work.
WorldGate agrees to notify S-A if it makes a change in key personnel
involved with and identified in a particular portion of any
Statement of Work.
3.5 WorldGate may, at its election, perform site visits at any S-A
facility in which development work pursuant to this Agreement is
being performed; provided, WorldGate gives S-A at least ten days
prior notice before any such visits. Such visits may occur as
frequently as WorldGate, in its sole
4
<PAGE>
discretion, deems necessary to review the progress of the
development activities, and such visits may be in addition to any
visits which are planned according to any other provisions of this
Agreement.
3.6 At S-A's request from time to time during the term of this
Agreement, WorldGate shall provide S-A with information relating to
the progress of each Statement of Work.
3.7 WorldGate's development efforts may require that S-A loan WorldGate
equipment or software for such development. For such materials,
WorldGate agrees to the terms of the loan of product agreement given
in Attachment B, Loan of Product Agreement.
4. S-A'S PROJECT RESPONSIBILITIES
4.1 S-A shall perform all research, development and design work
necessary to complete all S-A obligations stated in this Agreement
and in each Statement of Work. S-A further understands that the
availability and use of the technology to be developed in each
Statement of Work specified in this Agreement is a significant part
of WorldGate's future business strategy. THE TIME OF COMPLETION OF
ALL OF S-A'S OBLIGATIONS UNDER THIS AGREEMENT IS OF THE ESSENCE.
4.2 As soon as is reasonably practicable after the commencement of the
development work contemplated hereunder, S-A shall furnish WorldGate
with the S-A deliverables set forth in each Statement of Work, as
are available at agreed upon time schedule(s). During the term of
this Agreement, S-A shall have a continuing obligation to furnish
WorldGate with supplemental information (i) sufficient to show the
status of a particular task to ensure that its deliverables under
each Statement of Work are current at all times during the term of
such Statement of Work or as otherwise agreed to by the parties, and
(ii) related to any changes in the S-A Technology materially
relevant to the development efforts hereunder.
4.3 S-A shall provide WorldGate with the materials, information and data
listed in each Statement of Work. All materials, information and
data delivered by S-A shall only be used by WorldGate for these
joint development efforts as set forth in this Agreement or in any
Statement of Work.
4.4 Throughout the term of this Agreement, S-A shall assign and dedicate
such personnel and facilities resources as are commercially
reasonable and necessary to accomplish the development activities
according to the schedule stated in each Statement of Work. S-A
agrees to notify WorldGate if it makes a change in key personnel
involved with and identified in a particular portion of any
Statement of Work.
4.5 S-A may, at its election, perform site visits at any WorldGate
facility in which development work pursuant to this Agreement is
being performed; provided, S-A gives WorldGate at least ten days
prior notice before any such
5
<PAGE>
visits. Such visits may occur as frequently as S-A, in its sole
discretion, deems necessary to review the progress of the
development activities, and such visits may be in addition to any
visits which are planned according to any other provisions of this
Agreement.
4.6 At WorldGate's request from time to time during the term of this
Agreement, S-A shall provide WorldGate with information relating to
the progress of each Statement of Work.
4.7 S-A's development efforts may require that WorldGate loan S-A
equipment or software for such development. For such materials, S-A
agrees to the terms of the loan of product agreement given in
Attachment B, Loan of Product Agreement.
5. PROGRAM MANAGEMENT
5.1 For each Statement of Work entered into by the parties, the parties
shall establish and maintain a Technical Committee which will
oversee the development activities and all other aspects of the
mutual relationship contemplated by each such Statement of Work.
Each party shall appoint one Technical Committee representative who
shall have technical expertise in the development activities and who
is responsible for the technical management of such activities. Each
representative may appoint one additional person to serve on the
Technical Committee and may also designate a surrogate for himself
or herself. On a bi-weekly basis, each Technical Committee shall be
responsible for reviewing and approving the development activities
and the major milestones and budgets contained therein. In addition,
each Technical Committee shall provide a mechanism for the exchange
of information and review of activities, and, if mutually desirable
to the Technical Committee Representatives and subject to the
approval of the corresponding Executive Committee, shall add, delete
or modify the development activities specified in its Statement of
Work. In addition, each Technical Committee shall review and resolve
engineering design disputes as well as intellectual property
ownership disagreements related to its Statement of Work. Each
Technical Committee shall assume any other responsibilities that are
mutually agreed to by WorldGate and S-A.
5.2 For each Statement of Work entered into by the parties, the parties
shall establish and maintain an Executive Committee. Each party
shall appoint, as its representatives to each Executive Committee,
two members of senior level management, who are not directly
involved in the development activities. Each Executive Committee
member may designate a surrogate. On a quarterly basis at mutually
agreed to locations, each Executive Committee shall be responsible
for reviewing work of its respective Technical Committee and shall
provide a mechanism for the exchange of information and review of
sales and marketing activities. Members of the respective Technical
Committee
6
<PAGE>
may be invited by any member of the Executive Committee to attend an
Executive Committee meeting. Without limitation, some of the other
specific activities of each Executive Committee shall be: (1) to
review the overall progress of the Statement of Work; and (2) to
review and resolve disagreements or disputes including engineering
design disputes and intellectual property ownership disagreements
that are not resolved by the respective Technical Committee. In the
event that the Executive Committee is unable to resolve a dispute,
such dispute shall be handled under the dispute resolution
provisions of this Agreement. Each Executive Committee shall assume
any other responsibilities that are mutually agreed to by the
parties.
6. CHANGES/MODIFICATIONS
6.1 Both parties recognize that the development effort under any
Statement of Work may necessitate changes. However, any such
change(s) that will materially impact costs, functionality or
schedules shall be made only upon the mutual agreement of the
parties in writing.
6.2 Costs for changes or modifications which are caused by changes to
the development activities set out in a given Statement of Work
resulting from a request by either S-A, WorldGate, or a third party
will be negotiated and agreed upon by the parties, and in writing
prior to implementation.
6.3 Costs for changes or modifications resulting from a party's
inability to meet its requirements hereunder will be the
responsibility of such party to the extent the particular inability
is not the result of the other party's actions or omissions or an
event of force majeure as set forth in section 22.5 of this
Agreement. In such event the parties agree to work together in good
faith to determine an equitable allocation of such costs.
7. COMPENSATION
7.1 S-A acknowledges that WorldGate will incur unreimbursed nonrecurring
engineering expenses for the development activities set out in a
given Statement of Work.
7.2 WorldGate acknowledges that S-A will incur unreimbursed nonrecurring
engineering expenses for the development activities set out in a
given Statement of Work.
7.3 Unless otherwise agreed to in a given Statement of Work, WorldGate
and S-A agree that each party shall be individually responsible for
nonrecurring engineering expenses incurred by that party related to
its development activities under a given Statement of Work and will
not seek reimbursement for such nonrecurring engineering expenses
from the other party.
7
<PAGE>
7.4 If a Statement of Work that is duly executed by both parties
requires the payment of one party's nonrecurring engineering
expenses by the other party, payment of the nonrecurring engineering
expenses shall become immediately due in full and shall be promptly
paid in full by the other party so obligated to pay, regardless of
the status of work under the Statement of Work, if either of the
following occurs:
a. the other party so obligated to pay terminates this Agreement
for convenience; or
b. the other party so obligated to pay materially breaches this
Agreement.
8. OWNERSHIP OF INVENTIONS/LICENSES
8.1 WorldGate and S-A agree that any Inventions jointly made or created
by the parties (such terms as jointly made and created having the
meaning with which they are commonly associated under prevailing
laws relating to the determination of inventorship for joint
inventions) shall belong jointly the parties. The parties shall
agree among themselves who will prepare patent applications in an
agreed upon list of countries. The costs of preparation and
prosecution of jointly owned patent applications shall be shared
equally between the parties. The parties agree, at their own
expense, to make their respective employees involved in such patent
applications available to assist in the preparation and prosecution
of any patent applications filed on such joint Inventions including
the execution of any and all documents reasonably necessary to
protect and enforce such rights. Each party shall promptly and fully
disclose and describe to the other any joint Inventions which come
to their attention. The parties' rights with respect to joint
Inventions shall be governed by any applicable Statement of Work
that has been dated and executed by duly authorized representatives
of both parties.
8.2 Inventions, including "derivative works" (as that term is defined in
U.S. Code, Title 17, Copyright), made solely by the employees of one
party shall belong to that party.
8.3 Should WorldGate wish to contribute its own independent proprietary
technology for use in any deliverable of WorldGate as set forth in a
given Statement of Work, WorldGate shall first inform S-A of its
intention and the licensing terms, if any, for such technology. The
written approval by both parties, each acting in its sole
discretion, is necessary before such contributed proprietary
technology shall be used for or incorporated in such deliverable.
Proprietary technology contributed by WorldGate must be identified
as such within two (2) months of undertaking any Statement of Work
which incorporates such proprietary technology.
8
<PAGE>
8.4 Should S-A wish to contribute its own independent proprietary
technology for use in any deliverable of S-A as set forth in a given
Statement of Work, S-A shall first inform WorldGate of its intention
and the licensing terms, if any, for such technology. The written
approval by both parties, each acting in its sole discretion, is
necessary before such contributed proprietary technology shall be
used for or incorporated in such deliverable. Proprietary technology
contributed by S-A must be identified as such within two (2) months
of undertaking any Statement of Work which incorporates such
proprietary technology.
8.5 Unless otherwise specifically agreed to by the parties in a given
Statement of Work and with respect to each Statement of Work,
WorldGate hereby grants to S-A the following rights and licenses to
the WorldGate Technology:
a. S-A shall have a royalty-free, nonexclusive, worldwide license
to make, have made and use the WorldGate Board, as incorporated
in any CPE designed and manufactured by or for S-A, provided
that no license is granted hereunder to make the WorldGate ASIC
or to have the WorldGate ASIC made by any third party, or to
use the WorldGate Board for any other purpose than to
facilitate the provision of the WorldGate Internet access
service;
b. S-A shall have a royalty-free, nonexclusive, worldwide license
to distribute the WorldGate Board as incorporated into or as
replacement or repaired part for any WorldGate Board
incorporated into S-A's CPE, solely to customers which are
licensed by WorldGate to distribute the WorldGate Internet
access service and exclusively for purposes of affording
customer access to the WorldGate Internet access service; and
c. S-A shall have a royalty-free, nonexclusive, worldwide license
to make, have made, use and distribute the S-A Interoperability
Information for any purpose.
8.6 WorldGate and S-A agree that within six (6) months of the Effective
Date, the parties shall have agreed upon the conditions precedent to
which S-A shall be granted a royalty-free, nonexclusive, worldwide
license to and under the WorldGate Technology and Manufacturing
Files to make, use and distribute the WorldGate ASIC and the
WorldGate Software.
8.7 Unless otherwise specifically agreed to by the parties in a given
Statement of Work and with respect to each Statement of Work, S-A
hereby grants to WorldGate the following rights and licenses to the
S-A Technology:
a. WorldGate shall have a royalty-free, nonexclusive, worldwide
license to make, have made and use the WorldGate Board and to
distribute
9
<PAGE>
the WorldGate Board as a replacement part for any WorldGate
Board incorporated into S-A's CPE, and to authorize WorldGate
customers to access the WorldGate Internet access service
through the use of such WorldGate Board as incorporated in the
S-A CPE; and
b. WorldGate shall, in the event that S-A terminates this
Agreement for convenience under Section 19.3 and is no longer
distributing the WorldGate Board as incorporated into a CPE or
otherwise in a manner reasonably sufficient to satisfy the
demand, have a royalty-free, nonexclusive, worldwide license to
make, have made, use, and distribute the WorldGate Board as a
part to be incorporated into S-A's CPE, and to authorize
WorldGate customers to access the WorldGate Internet access
service through the use of such WorldGate Board as incorporated
in the S-A CPE. This license under this Section 8.7(b) does not
become effective until the date that both of the following
events have occurred: (a) the contract has been terminated by
S-A for convenience; and (b) S-A is no longer distributing the
WorldGate Board in a manner reasonably sufficient to satisfy
the demand for such WorldGate Board.
c. WorldGate shall have a royalty-free, nonexclusive, worldwide
license to make, have made, use, and distribute the WorldGate
Interoperability Information for any purpose.
8.8 Each of the licenses granted herein shall include the right to use
any foreign language versions of the applicable technology to which
a license is granted hereunder, to the extent such foreign language
versions exist, and such foreign language versions shall be made
available to the other party if, when and as they become available.
8.9 Subject to any royalty obligations or other limitations as set forth
herein and/or in any applicable Statement of Work, each party shall
have the right to use, promote, copy, and distribute the other
party's derivative works of the WorldGate Technology or S-A
Technology as applicable under the terms of this Agreement, provided
that any portion of a party's contribution to the underlying
material included in a derivative work shall remain subject to that
party's copyrights and other intellectual property rights.
8.10 WorldGate shall retain title to the WorldGate Technology, including
any derivative works made, developed or acquired. S-A shall retain
title to the S-A Technology, including any derivative works made,
developed or acquired. Unless otherwise agreed to by the parties, no
right, license or title to or ownership of the underlying software
or ASIC process technology of one party on which a deliverable of
the other party is based, as it currently exists or as it may be
modified from time to time, is transferred to the other party by
this Agreement.
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8.11 To the extent necessary to give effect to this Agreement, the
licenses herein granted shall include rights under any applicable
patents, trade secrets, trademarks, maskwork rights or copyrights of
the granting party relating to the Licensed Technology of the
granting party. Except as expressly provided in this Section 8 or an
attached Statement of Work, nothing contained in this Agreement
shall be construed as one party granting to or conferring upon the
other party any right or license, expressly or impliedly, to any
other patent or other invention rights or other intellectual
property rights (including trade secret, copyright and trademark) or
any part of the design or implementation of any present or future
products or any product of a party in which the Licensed Technology
of the granting party or portions thereof may be integrated.
8.12 Nothing in these license grants shall affect any rights either party
has under relevant patent, copyright or maskwork rights laws.
8.13 Neither party shall itself, nor shall it authorize, instruct or
assist any third party to, decompile or otherwise reverse engineer
the other party's software as may be provided to such party
hereunder. Nothing in this section 8.13 shall prevent a party from
independently developing a Similar Product as set forth in Section
12, so long as such independent development does not use the other
party's Licensed Technology.
9. ACCEPTANCE TESTING
Acceptance testing shall be as specified in the Acceptance Test Plan for
any given Statement of Work.
10. REVISIONS AND SUPPORT
10.1 The parties agree that, for any new version of a CPE or associated
WorldGate Board developed under a Statement of Work, they will
consult with each other regarding the features to be included in
such subsequent new versions.
10.2 In the event that, and in connection with any such new version of a
WorldGate Board and related WorldGate Server software, S-A
determines that it would like additional features added, all parties
shall negotiate and agree upon which party will bear the costs and
responsibilities for completing such additional feature prior to
incurring any expense or undertaking to add such additional
features.
10.3 Any new version of a WorldGate Board to be developed under a
Statement of Work shall be subject to acceptance by S-A in
accordance with the provisions of Section 9, Acceptance Testing, as
amended and mutually agreed to by the parties. Any such new version
shall be made available to S-A for evaluation and acceptance testing
either sixty (6o) days prior to WorldGate's scheduled release date
or as mutually agreed.
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10.4 Each party shall be responsible for supporting its own technology
and shall cooperate with each other as is reasonably required to
facilitate customer support for the released commercial product
resulting from the completion of the development efforts hereunder.
Each party hereunder warrants that its tendered contributions to the
deliverables hereunder as delivered to the other are free from
defects in materials and manufacture and materially conform to the
generally published specifications for the same which are issued by
the party tendering the same. In the event that a party tendering
deliverables hereunder receives notice from the other party of a
defect covered by this warranty, the tendering party shall, at its
expense, promptly take remedial action including, without
limitation, investigating the cause of and correcting such defect as
soon as is reasonably possible thereafter.
10.5 During the term of this Agreement and for a period of one (1) year
following the release to a party hereunder of the deliverable under
an applicable Statement of Work hereunder and unless otherwise
provided in such Statement of Work, each party, at its expense,
shall correct any error in its Licensed Technology as follows which
materially and detrimentally affects the operation of the WorldGate
Board in accordance with the applicable Statement of Work. If either
party notifies the other of an error in the other's Technology, or
if the other learns of such an error independently, the party with
such error shall furnish a plan of corrective action within three
(3) business days, and shall remedy or provide a functionally
equivalent procedure to work around the error within twenty (20)
business days of such notice if such remedy may be effectuated in
such a manner or, if not then, within a time period agreed to by the
parties.
10.6 During normal business hours, and without charge, each party
hereunder shall provide the other with reasonable access to its
technical personnel to answer usage-oriented questions about their
respective Technology. Each party shall designate one such technical
person to respond to telephone inquiries by the other party. Until
S-A ships less than an average of one thousand CPE's containing the
WorldGate Board per calendar quarter for three consecutive calendar
quarters, WorldGate shall also provide to S-A, within two (2) weeks
of publication and at no charge, WorldGate's published trouble
reports related to the WorldGate Board. WorldGate and S-A will
provide each other an escalation procedure for correcting a service
issue 24 hours a day, seven (7) days a week. Contact names for each
of the parties will be identified for each escalation level.
10.7 For each Statement of Work, each party agrees to designate a support
issues interface person and alternate through which that party will
exclusively direct its requests for support to the other party. Each
party agrees that, before requesting support from the other, it will
attempt to recreate and solve the problem.
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10.8 Either party's failure to correct errors within the time periods
specified herein or to support and maintain its respective
Technology as set forth herein shall be sufficient cause for
termination of this Agreement by the other party.
11. WARRANTIES & DISCLAIMERS
11.1 WorldGate warrants that it has the right to grant the licenses made
to S-A under this Agreement and to provide its deliverables under a
given Statement of Work.
11.2 WorldGate warrants that no impediment exists to its entering into
this Agreement, and that no other agreement has been or shall be
made with any third party which will interfere with its performance
under this Agreement.
11.3 WorldGate warrants that its deliverables under a given Statement of
Work will be tested by WorldGate and shall perform all functions
successfully in their intended environment to the extent practicable
in accordance with the specifications and requirements found in its
respective Statement of Work, unless otherwise mutually agreed to in
writing.
11.4 EXCEPT AS PROVIDED IN THIS SECTION, WORLDGATE MAKES NO WARRANTIES
EITHER EXPRESS OR IMPLIED WITH RESPECT TO THE MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OF ITS DELIVERABLES UNDER ANY
STATEMENT OF WORK OR ANY WORLDGATE TECHNOLOGY.
11.5 S-A warrants that it has the right to grant the licenses made to
WorldGate under this Agreement and to provide its deliverables under
a given Statement of Work.
11.6 S-A warrants that no impediment exists to its entering into this
Agreement, and that no other agreement has been or shall be made
with any third party which will interfere with its performance under
this Agreement.
11.7 S-A warrants that its deliverables under a given Statement of Work
will be tested by S-A and shall perform all functions successfully
in their intended environment to the extent practicable in
accordance with the specifications and requirements found in its
respective Statement of Work unless otherwise mutually agreed to in
writing.
11.8 EXCEPT AS PROVIDED IN THIS SECTION, S-A MAKES NO WARRANTIES EITHER
EXPRESS OR IMPLIED WITH RESPECT TO THE MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OF ITS DELIVERABLES UNDER ANY STATEMENT OF
WORK OR ANY S-A TECHNOLOGY.
11.9 NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT,
SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, OR
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EXEMPLARY DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY STATEMENT OF WORK THEREUNDER OR ANY ACTS OR
OMISSIONS ASSOCIATED THEREWITH OR RELATING TO THE USE OF ANY ITEMS
OR SERVICES FURNISHED REGARDLESS OF THE LEGAL THEORY ON WHICH A
CLAIM IS BASED, THE CAUSE OF SUCH LOSS OR DAMAGES, OR WHETHER ANY
OTHER REMEDY PROVIDED HEREIN FAILS.
12. SIMILAR PRODUCTS
12.1 It is understood that, as a result of the development efforts
hereunder, the parties and their respective personnel may become
familiar with each other's products, technologies and techniques. It
is also understood that each party has active, ongoing research,
development and engineering activities which may overlap the other's
products, technologies and techniques including, without limitation,
those related to the development efforts hereunder. It is also
understood that each of the parties may be working with the other's
competitors and may be marketing products and services which are
competitive to those offered or which may be offered in the future
by the other. Neither party shall have any obligation to limit or
restrict the assignment of their employees as a result of such
employees having access to the Licensed Technology of the other
party hereunder.
12.2 This Agreement is not intended, nor shall it be construed, as
prohibiting or restricting such activities as are set forth in the
preceding paragraph provided that such activities are conducted
independently of the development efforts hereunder and in a manner
which does not otherwise violate the confidentiality and
intellectual property provisions of this Agreement. Except as
expressly set forth within a license grant of this Agreement, the
other party is not intended, by implication or otherwise, to receive
any rights hereunder, in or to any products, technologies or
techniques developed by a party independent of the development
efforts hereunder and without breach of the confidentiality and
intellectual property provisions of this Agreement.
12.3 The parties acknowledge and agree that individuals exposed to the
other's Licensed Technology hereunder may unintentionally retain
portions of such Licensed Technology in their minds as a residual of
such exposure and that such retained information may be
inadvertently used by such individuals. If a party hereunder has
exercised all reasonable precautions to prevent any violation of
this Agreement and is not otherwise in violation of this Agreement,
then such inadvertent use of the residual information by such party
shall not be deemed to be a violation hereunder, providing there is
no intent to violate this Agreement and such party does not have any
reasonable awareness that such actions are or would otherwise be a
violation of this Agreement.
13. INTELLECTUAL PROPERTY INDEMNIFICATION
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13.1 If notified promptly of any action brought against S-A based on a
claim that the WorldGate Technology which is licensed hereunder or
any WorldGate deliverable including the WorldGate Board
(collectively "WorldGate Supplied Technology") when used unmodified
and and in its intended manner infringes or misappropriates any
intellectual property right of a third party and which claim relates
to WorldGate's contributions to such WorldGate Supplied Technology,
WorldGate will defend such action at its expense and will pay the
cost and damages awarded in any such action.
13.2 In the event that a final injunction is obtained against S-A's use
of any WorldGate supplied Technology by reason of infringement or
misappropriation of any intellectual property rights of a third
party based on the WorldGate Supplied Technology, or, if in
WorldGate's reasonable opinion, any WorldGate Supplied Technology is
likely to become the subject of such a claim, WorldGate will, at its
expense and at its option, either (1) procure for S-A the right to
continue to use the WorldGate Supplied Technology, or (2) replace or
modify it so that it becomes non-infringing, or free of any third
party trade secrets, but remains functionally equivalent. This
indemnification section shall not apply to any such claim for
infringement or misappropriation to the extent that it relates to
(1) a combination of the WorldGate Supplied Technology with another
device, technology or content not supplied by WorldGate; (2)
WorldGate's compliance with S-A's designs or contributions to the
WorldGate Supplied Technology or any specific and direct written
instructions from S-A, provided such designs and instructions of S-A
are not the result of a WorldGate request; (3) release of the
WorldGate Supplied Technology which is not the most current release;
(4) any unauthorized use of the WorldGate Supplied Technology after
any termination of this Agreement or the applicable Statement of
Work; or (5) the use of the WorldGate Supplied Technology in an
unauthorized or unintended manner.
13.3 If notified promptly of any action brought against WorldGate based
on a claim that the S-A Technology which is licensed hereunder or
S-A deliverable (collectively "S-A Supplied Technology") when used
unmodified and and in its intended manner infringes or
misappropriates any intellectual property right of a third party and
which claim relates to S-A's contributions to such S-A Supplied
Technology, S-A will defend such action at its expense and will pay
the cost and damages awarded in any such action.
13.4 In the event that a final injunction is obtained against WorldGate's
use of any S-A Supplied Technology by reason of infringement or
misappropriation of any intellectual property rights of a third
party based on the S-A Supplied Technology, or, if in S-A's
reasonable opinion, any S-A Supplied Technology is likely to become
the subject of such a claim, S-A will, at its expense and at its
option, either (1) procure for WorldGate the right to continue to
use the S-A Supplied Technology, or (2) replace or modify it so that
it becomes non-infringing, or free of any third party trade secrets,
but remains functionally equivalent. This indemnification section
shall not apply to any such claim
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for infringement or misappropriation to the extent that it relates
to (1) a combination of the S-A Supplied Technology with another
device, technology or content not supplied by S-A; (2) S-A's
compliance with WorldGate's designs or contributions to the S-A
Supplied Technology or any specific and direct written instructions
from WorldGate, provided such designs and instructions of WorldGate
are not the result of an S-A request; (3) releases of the S-A
Supplied Technology which are not the most current release; (4) any
unauthorized use of the S-A Supplied Technology after any
termination of this Agreement or the applicable Statement of Work;
or (5) the use of the S-A Supplied Technology in an unauthorized or
unintended manner.
13.5 Notwithstanding anything in this Agreement to the contrary, a
party's indemnity obligation under this Section 13 shall not exceed:
(1) the amount paid under this Agreement to S-A by WorldGate for the
S-A Supplied Technology, in the event that an action is brought
against WorldGate based on a claim that the S-A Supplied Technology
infringes third party intellectual property rights; or (2) the
amount paid under this Agreement to WorldGate by S-A for the
WorldGate Supplied Technology, in the event that an action is
brought against S-A based on a claim that the WorldGate Supplied
Technology infringes third party intellectual property rights; or
(3) three million dollars ($3 million), in the event that the amount
under (1) or (2) above cannot be determined to the satisfaction of
both parties.
14. PROPRIETARY INFORMATION
14.1 In furtherance of the work to be performed under this Agreement, S-A
and WorldGate may from time to time transmit and exchange technical
and business information, all of which is proprietary to its owners
("Proprietary Information"). The parties agree to keep such
proprietary information in confidence during the term of this
Agreement and for a period of three (3) years after termination of
this Agreement or completion of the Statement of Work to which the
proprietary information relates, whichever occurs earlier.
14.2 The obligations of confidentiality shall not apply to Proprietary
Information which:
a. is or has been generally available to the public by any means,
through no fault of the recipient, its employees or
consultants, and without breach of this Agreement; or
b. is already rightfully in the possession of the recipient
without restriction and prior to any disclosure hereunder, as
appropriately evidenced; or
c. is or has been lawfully received by the recipient from a third
party without an obligation of confidentiality upon the
recipient; or
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d. is developed independently by employees or contractors of the
recipient without use of Proprietary Information disclosed to
the recipient; or
e. is required to be disclosed by an order of a court or
governmental agency (provided however that recipient shall
first have given notice to the discloser and allow the
discloser to make a reasonable effort to obtain a protective
order or other confidential treatment for the Proprietary
Information).
15. FORECASTS AND MANUFACTURING
15.1 S-A will provide WorldGate with requirements forecasts as follows:
30 days - firm; 30-60 days - within +/- 1-50%; greater than 60 days
- nonbinding, and will maintain such forecasts on a rolling basis
thereafter for WorldGate Boards to be manufactured by WorldGate.
15.2 The lead time for WorldGate Boards to be manufactured by WorldGate
from time of receipt of order will be thirty (30) days or less.
15.3 The WorldGate Boards will be subject to incoming inspection to test
the parameters outlined in the applicable Statement of Work.
15.4 WorldGate will manufacture the WorldGate Boards for the shorter of
either a period of five years or a period of one year after an S-A
product using such WorldGate Board is discontinued, provided
however, that in the event S-A is not distributing an average of one
thousand CPE's per quarter for three (3) consecutive quarters,
WorldGate may elect to cease manufacture of the WorldGate Boards
upon at least ninety days prior written notice to S-A and, during
such period, provide to S-A the opportunity to make a last time buy
of its future requirements for the WorldGate Board. Subject to
Section 6.2 of this Agreement, new or modified versions of the
WorldGate Boards will be backwards compatible with all prior
versions of the WorldGate Boards.
15.5 Subject to Section 6.2 of this Agreement WorldGate Board prices will
be fixed for an initial two (2) year period from the Effective Date
and can be renegotiated prior to the beginning of each successive
two (2) year period. Prior to the start of each successive two year
period, WorldGate will use commercially reasonable efforts to supply
S-A an outline on how it plans to reduce prices to S-A by 10-20%
during that two year period, provided however that nothing herein
shall be construed as a representation or guarantee of any price
reduction.
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16. MARKETING
16.1 S-A agrees to use reasonable commercial efforts to promote and sell
WorldGate's Internet Access service as an enhanced feature set
consistent with other enhanced feature sets. Both parties agree that
industry trade shows will be utilized as a platform to jointly
promote and sell WorldGate compatible set-tops.
16.2 WorldGate, if brought into an S-A account, agrees to use reasonable
commercial efforts to promote and sell S-A's WorldGate enabled
solution.
16.3 WorldGate agrees to provide Multiple System Operator ("MSO")
documentation, consumer user guides, and other appropriate material
for its Internet Access service.
16.4 WorldGate will negotiate terms and conditions directly with the
customer for its Internet Access service.
16.5 S-A and WorldGate may undertake marketing tests, surveys, rating
polls, or other research in connection with the services offered.
16.6 Any press releases related to this Agreement or any marketing
activities require the written approval of both parties prior to
issuance.
17. TERM
This Agreement shall become effective upon the Effective Date of the
Agreement and shall remain in effect for an initial period of five (5)
years, unless sooner terminated by either party as provided by this
Agreement.
18. TERMINATION BY S-A
18.1 S-A may terminate this Agreement or any Statement of Work for cause
if WorldGate has not remedied the following failures(s) within
thirty (30) days of its receipt of a written Notice to Cure from
S-A:
a. WorldGate fails to meet any of its material obligations; or
b. WorldGate becomes insolvent or makes an assignment for the
benefit of creditors, or a receiver or similar officer is
appointed to take charge of all or part of WorldGate's assets;
or
c. WorldGate does not meet the agreed upon milestones specified in
any Statement of Work; provided such failure is not due to a
failure on the part of S-A to meet a prior deliverable date
that is necessary for WorldGate to meet a given milestone; or
d. WorldGate fails to comply with the Proprietary Information
Provisions of this Agreement.
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18.2 If S-A terminates this Agreement for cause, each party will return
all Proprietary Information given to it by the other party except,
for S-A, the S-A Interoperability Information, or shall verify, in a
manner acceptable to the other party, that it was destroyed. Each
party shall also return all equipment loaned to it by the other
party.
18.3 Subject to the fulfillment of any accrued obligations, including the
payment of any moneys there due and owing, S-A may (a) terminate
this Agreement and the rights and obligations of the parties under
it, except as set forth in Section 20 of this Agreement, at any time
for its convenience by giving WorldGate one hundred eighty (180)
days advance written notice; or (b) a particular Statement of Work
under this Agreement and the rights and obligations of the parties
under it at any time for its convenience by giving WorldGate sixty
(60) days advance written notice.
18.4 In the event that S-A determines, in its sole judgment, that it is
unable to complete the development of an S-A deliverable under a
given Statement of Work due to the occurrence of unexpected
technical difficulties, S-A may terminate this Agreement or any
Statement of Work thereunder as follows:
a. S-A must send WorldGate written notice of the nature and extent
of the technical difficulties encountered, the solutions
attempted, and an estimate of the effort needed to solve the
technical difficulties.
b. S-A agrees to work with WorldGate for a period of sixty (60)
days to overcome or work around the technical difficulties.
c. If, at the end of the sixty day period, either (1) WorldGate
and S-A are jointly unable to solve or work around the
technical difficulties or (2) WorldGate does not wish at that
time to pay for the expenses of such difficulties, S-A may
terminate this Agreement.
d. In the event of such termination, S-A shall have no further
obligation to WorldGate, and S-A agrees to refund to WorldGate
those moneys paid to S-A up to the date of termination by S-A
for that Statement of Work.
19. TERMINATION BY WORLDGATE
19.1 WorldGate may terminate this Agreement or any Statement of Work for
cause if S-A has not remedied the following failure(s) within thirty
(30) days of its receipt of a written Notice to Cure from WorldGate:
a. S-A fails to meet any of its material obligations; or
b. S-A becomes insolvent or makes an assignment for the benefit of
creditors, or a receiver or similar officer is appointed to
take charge of all or part of S-A's assets; or
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c. S-A does not meet the agreed upon milestones specified in any
Statement of Work; provided such failure is not due to a
failure on the part of WorldGate to meet a prior deliverable
date that is necessary for S-A to meet a given milestone; or
d. S-A fails to comply with the Proprietary Information provisions
of this Agreement.
19.2 If WorldGate terminates this Agreement for cause, each party will
return all Proprietary Information given to it by the other party
except, for WorldGate, the WorldGate Interoperability Information,
or shall verify, in a manner acceptable to the other party, that it
was destroyed. Each party shall also return all equipment loaned to
it by the other party.
19.3 Subject to the fulfillment of any accrued obligations, including the
payment of any moneys there due and owing, WorldGate may terminate
(a) this Agreement and the rights and obligations of the parties
under it, except as set forth in Section 20 of this Agreement, at
any time for its convenience by giving S-A one hundred eighty (180)
days advance written notice, or (b) a particular Statement of Work
under this Agreement and the rights and obligations of the parties
under it at any time for its convenience by giving S-A sixty (60)
days advance written notice.
19.4 In the event that WorldGate determines, in its sole judgment, that
it is unable to complete the development of a WorldGate deliverable
under a given Statement of Work due to the occurrence of unexpected
technical difficulties, WorldGate may terminate this Agreement or
any applicable Statement of Work thereunder as follows:
a. WorldGate must send S-A written notice of the nature and extent
of the technical difficulties encountered, the solutions
attempted, and an estimate of the effort needed to solve the
technical difficulties.
b. WorldGate agrees to work with S-A for a period of sixty (60)
days to overcome or work around the technical difficulties.
c. If, at the end of the sixty day period, either (1) WorldGate
and S-A are jointly unable to solve or work around the
technical difficulties, or (2) S-A does not wish at that time
to pay for the expense of such difficulties, WorldGate may
terminate this Agreement.
d. In the event of such termination, WorldGate shall have no
further obligation to S-A, and WorldGate agrees to refund to
S-A those moneys paid to WorldGate up to the termination by
WorldGate.
20. SURVIVAL
20.1 Section 7.4, which is included in Section 7: Compensation; Sections
8.1, 8.5, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.13 and 8.14, which are
included in Section 8:
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Ownership of Inventions/Licenses; Section 11: Warranties; Section
12: Similar Products; Section 13: Intellectual Property
Indemnification; and Section 14: Proprietary Information, shall
survive any termination of this Agreement, except as stated
otherwise in this Agreement. Termination of this Agreement shall
not, however, terminate any right of a customer of a party to
continue to use products which were rightfully distributed prior to
the effective date of such termination by a party hereunder and
which products are being used by the customer in accordance with the
terms and conditions of this Agreement, provided that any fees due
to a party hereunder as a result of the use or distribution of
Licensed Technology incorporated into such products has been duly
paid by the responsible party in accordance with the terms and
conditions of this Agreement.
20.2 Notwithstanding any other provisions of this Agreement, in the event
of a termination for convenience by either party under Section 18.3
of this Agreement or Section 19.3 of this Agreement, all obligations
under this Agreement shall survive such termination only with
respect to any CPE ordered by or delivered to an existing customer
in accordance with this Agreement prior to the date of such
termination. Support obligations under Sections 10.4, 10.5, and 10.6
of this Agreement shall survive a termination for convenience under
Section 18.3 or Section 19.3 only with respect to any CPE ordered by
or delivered to an existing customer in accordance with this
Agreement prior to the date of such termination and only for a
period of twelve (12) months from the date of such termination.
21. NOTICES
Notices to be given under this Agreement shall be in writing and sent by
prepaid registered or certified mail, return receipt requested, or by
facsimile with confirming receipt, or by receipted express service, to:
For S-A: Copy to:
Attn: Ken Klaer Office of General Counsel
Scientific-Atlanta, Inc. Scientific-Atlanta, Inc.
4386 Park Drive One Technology Parkway, South
Norcross, GA 30093 USA Norcross, GA 30092-2967 USA
Fax: 770-903-3914 Fax: 770-903-4837
For WorldGate: Copy to:
Attn: Dave Wachob Randall Gort
WorldGate Communications, Inc. WorldGate Communications, Inc.
3220 Tillman Drive, Suite 300 3220 Tillman Drive, Suite 300
Bensalem, PA 19020 Bensalem, PA 19020
Fax: (215) 633-9590 Fax: (215) 633-9590
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All such notices, if properly addressed, shall be effective when received and in
every case ten (10) days after mailing or deposit with a courier or receipted
express delivery service.
22. GENERAL
22.1 Attachments A1, A2, B, C, and D are attached to this Agreement and
are made a part of this Agreement. Each numbered attachment A is a
Statement of Work. In the event of a conflict between the terms in a
given Statement of Work and the body of the Agreement, the terms of
the Statement of Work shall govern. In the event of a conflict
between the terms of Attachment B and the body of this Agreement,
the terms of body of this Agreement shall govern. The Attachments
may be amended from time to time by mutual agreement of the parties.
22.2 The relationship of the parties is that of independent contractors.
Neither party is the agent of the other party and neither is
authorized to act on behalf of the other party.
22.3 Neither party shall assign this Agreement or any rights or
obligations under it without the prior written consent of the other.
WorldGate and S-A may subcontract its obligations to other companies
that agree in writing to be bound by the terms of this Agreement.
22.4 This Agreement and the rights and obligations of the parties to it
shall be governed under the laws of the state of New York, except
that its conflict of laws provisions shall not apply.
22.5 Neither party to this Agreement shall be liable for any failure or
delay in performance any of its obligations hereunder during any
period in which such failure or delay is caused by fire, flood, war,
embargo, riot or the intervention of any government authority,
provided that the party suffering such delay immediately notifies
the other party of the delay. If, however, one party's performance
is delayed for reasons defined above, for a cumulative period of
thirty (30) days or more from the date of that party's notification
to the other party, then the other party, notwithstanding any other
provisions of this Agreement to the contrary, may terminate this
Agreement by written notice to the non-performing party by certified
mail, return receipt requested, without penalty. The non-performing
party shall pay the other party, as full and liquidated compensation
for all goods and services actually received and performed, all sums
actually due and owing on the date written notice is received by the
other party.
22.6 This Agreement is the complete and entire understanding between the
parties on this subject matter and supersedes all prior discussions
or agreements on this subject between them. It may not be modified
except by a writing referencing this Agreement, signed by authorized
representatives of both
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parties, and communicated pursuant to Section 21. If either party
fails to enforce any term, failure to enforce on that occasion shall
not prevent enforcement on any other occasion.
22.7 All rights and remedies, whether conferred by this agreement or by
any other instrument, or by law, shall be cumulative and may be
exercised singularly or concurrently. If any provision of this
Agreement is held invalid by a law, rule, order or regulation of any
government or by the final determination of any court of competent
jurisdiction, such invalidity shall not affect the enforceability of
any other provisions not held invalid.
AGREED:
Scientific-Atlanta, Inc. ("S-A") WorldGate, Inc. ("WorldGate")
By: /s/ H. Allen Ecker By: /s/ Randall J. Gort.
H. Allen Ecker Name: Randall J. Gort
President, Subscriber Business Unit Title: V.P. Corporate Affairs
Date: 10/15/98 Date: 9/29/98
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ATTACHMENT A1
STATEMENT OF WORK
WORLDGATE BOARD DEVELOPMENT
I. SUMMARY OF STATEMENT OF WORK
This Statement of Work related to the development activities for the WorldGate
Board including any WorldGate ASICs, and WorldGate Software and includes:
a. Brief description of the development activity
b. Designation of Technical and Executive Committee members and Support
Interfaces
c. Written Specifications of the Developmental Activities
d. Schedule and List of Deliverables
e. Testing Procedures
f. Acceptance Testing Criteria
g. Payments
h. Commission Terms
i. Other terms specific to Development Activities
Page 1 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 2 of Attachment A1
a. BRIEF DESCRIPTION OF THE DEVELOPMENT ACTIVITY
This development agreement is for the delivery of WorldGate's Internet Access
solution over analog and advanced analog CPE architectures. The goal is to
leverage an MSO's existing infrastructure to provide Internet access to
consumers in an advanced analog environment. It is designed to help accelerate
the adoption of information and commerce in the broadband marketplace.
The delivery of WorldGate's Internet Access solution over S-A's delivery
architectures is intended to include the following S-A settop products: NTSC,
PAL-l, PAL-M, PAL-BG. It will be localized as dictated by local market
requirements.
The development activities will include an ASIC board which fits inside S-A's
existing settops described above to provide Internet access. It includes, at a
minimum, the capability to provide 16 million colors, 500 mA power consumption,
400x400 screen resolution, and a software "switch" for the appropriate video
format.
b. DESIGNATION OF TECHNICAL AND EXECUTIVE COMMITTEE MEMBERS AND SUPPORT
INTERFACES.
<TABLE>
<S> <C>
Technical Committee Members
S-A: WorldGate:
Executive Committee
S-A: WorldGate:
</TABLE>
c. WRITTEN SPECIFICATIONS OF THE DEVELOPMENT ACTIVITIES
This will be developed jointly by the development core teams in
[INFORMATION REDACTED]##.
d. SCHEDULE AND LIST OF DELIVERABLES - SEE ATTACHMENT APPENDIX
e. TESTING PROCEDURES
This will be identified in the Quality Acceptance Plan document.
f. ACCEPTANCE TESTING CRITERIA
This will be identified in the Quality Acceptance Plan document.
g. PAYMENTS:
S-A will pay WorldGate [INFORMATION REDACTED]## per WorldGate Board which
enables WorldGate's Internet Access service in S-A's set-tops. This covers
all language and format types (i.e. NTSC, PAL-l, PAL-M, PAL-B/G, etc.)
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
Boards will be delivered to S-A or an S-A designated site as specified in
an accepted PO from S-A referencing this Agreement. All prices are FOB
WorldGate's manufacturing site. S-A shall remit payments to WorldGate for
WorldGate Boards within sixty (60) days of shipment of such boards by
WorldGate from its facilities to S-A or an S-A customer. WorldGate shall
provide three (3) months notice for new board changes.
Page 2 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 3 of Attachment A1
h. Commission Terms: [INFORMATION REDACTED]##.
II. DETAILS OF STATEMENT OF WORK (CHARTER FIELD TRIAL)
<TABLE>
<S> <C>
CUSTOMER: Charter Communications
WHEN: Starting [INFORMATION REDACTED]##
WHERE: Alhambra, CA
Newtown, CT
</TABLE>
See table at the end of the document
<TABLE>
<S> <C> <C>
DISTRIBUTION: WG will ship units to Charter
PROJECT MNGR: TBD, SA TBD, WG
SUPPORT: WG lead
- - WG headend WG will provide and support
- - Headend SW WG will provide and support
- - Keyboards WG will provide and support
- - Internet access Charter will provide and support
- - 8610WG WG will support Internet access via
the 8610WG; SA normal functionality. Units
will be shipped back to WG; WG will test and
send to SA if WG board is normal.
- - WG agreed to repair 8610WGs during the field trial that had problems with
the WG board.
- - Documentation WG will provide MSO Installation Manual and Consumer
User Guide. SA will provide an 8610 User Guide.
REGULATORY: WG must certify that their changes do not cause the
set-top to go out of specifications.
SA will certify that the base unit passes FCC and UL.
Units delivered in April and May will not be regulatory
approved.
</TABLE>
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
Page 3 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 4 of Attachment A1
<TABLE>
<CAPTION>
MNFG & DESIGN: [INFORMATION REDACTED]##
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ASIC WG WG WG WG WG WG WG WG
- - WG Board WG WG WG WG WG WG WG WG
- WG WILL ORDER THE SHIELD CANS AND MANUFACTURE THE
WG BOARD; THE PAPER WORK FOR THE SHIELD CAN HAS
BEEN SENT TO THEM.
- - Power supplies* Ext SA SA SA SA SA SA SA
- WG will swap the existing power supplies with
new power supplies from [INFORMATION REDACTED]##
to [INFORMATION REDACTED]##*.
- From Phase 2 on, the new power supplies will be
integrated into the 8610s.
- - Daughter Board* WG WG WG WG WG WG WG WG/
SA
- WG will be responsible for manufacturing the
daughtercard, and has the paper work.
- - RF Connect Bd WG WG WG WG WG WG WG WG
- WG WILL MANUFACTURE.
- - RF Bd Modify* WG WG WG WG WG WG WG WG/
SA
- - Chassis None SA SA SA SA SA SA SA
modifications
- MACO WILL MAKE STARTING [INFORMATION
REDACTED]##. WG WILL MAKE MODIFICATIONS FOR THE
UNITS IN APRIL
- - Modify analog Bd* WG WG WG WG WG WG WG WG/
SA
- WG WILL DESOKET THE BOARDS UNTIL [INFORMATION
REDACTED]##. MACRO WILL BE RESPONSIBLE FROM
THEN ON FOR PHASE 2 UNITS.
- - Final units WG WG WG WG WG WG WG WG
assembly
- [INFORMATION REDACTED]##
</TABLE>
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
* All Phase 1 units require this. With Phase 1 now occurring in [INFORMATION
REDACTED]## and Phase 2 units starting in [INFORMATION REDACTED]##, there will
be an overlap.
Page 4 (for all attachments to the Development Agreement between S-A and WG)
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
Page 5 of Attachment A1
UNIT TEST: SA will test sample for STT functionality. Initial testing to
begin the week of [INFORMATION REDACTED]##.
SYSTEM TEST: SA will provide copies of SR4.5 test plans for STTs.
WG will lead system test in Atlanta when SR4.6 testing starts.
<TABLE>
<CAPTION>
SYSTEM/SITE MANAGEMENT:
<S> <C>
- - Survey WG will be responsible;
SA will provide additional input.
- - Installation & Debug WG will be responsible.
- - Support & Service WG will be responsible as outlined in Service
section; WG will also provide SA WSD
organization, WG names and telephone numbers.
</TABLE>
PROPOSAL: WG lead for field trial units, while SA will support.
SA lead for production units, while WG will support.
<TABLE>
<CAPTION>
SCHEDULE: Attached (page 5 from 02/19/98 meeting)
<S> <C>
- - ASIC Available now
- - WG Board [INFORMATION REDACTED]##
- - WG Bd Mechanicals Prototype of Engineering samples
[INFORMATION REDACTED]##
- - WG Bd Mechanicals Final [INFORMATION REDACTED]##
- - Switching Power Supply Engineering samples [INFORMATION REDACTED]##
- - Switching Power Supply Order Pre-production [INFORMATION REDACTED]##
- - MACO Modifications TBD during meeting week of [INFORMATION REDACTED]##
PRODUCT: 8610
PRICING: WG's board will cost SA [INFORMATION REDACTED]##.
</TABLE>
MISCELLANEOUS:
- - Field trial units are prototypes and may not meet all published technical
or operating specifications.
- - The first 25 units will use an external power supply.
- - WG and SA will document any product discrepancies.
- - No public disclosure about this agreement unless mutually agreed by both
parties.
- - SA and WG may promote and support similar trials.
- - SA can start WB/SR4.6 by [INFORMATION REDACTED]## using WG produced 8610WG.
- - WG produced 8610WG will be functionally equivalent to production units.
- - WG will provide test resources in Atlanta to alpha test.
- - WG will run beta test.
- - MACO will provide modified 8610WGs (chassis, socket) by [INFORMATION
REDACTED]##.
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
- - SA designed power supplies will be available for production by [INFORMATION
REDACTED]##.
- - SA will enter field problems into Tracker until units go to beta.
- - MACO will have pre-production, Phase 2 units by [INFORMATION REDACTED]##,
and production units by [INFORMATION REDACTED]##.
- - WG produced board will not support audio demasking.
- - MACO Phase 2 units, starting [INFORMATION REDACTED]##, will incorporate
audio demasking.
- - There will be no billing interface for the units delivered in April and May
(needs clarification)
Page 5 (for all attachments to the Development Agreement between S-A and WG)
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
Page 6 Attachment A1
MISCELLANEOUS, CONTINUED:
- - SA will provide assistance in the procurement of parts necessary for the
demo units ([INFORMATION REDACTED]##), but it will be WG's responsibility
to purchase the components.
- - WG will modify an SA RF Processor for the demo units and future units until
their replacement product becomes available.
- - SA will provide WG HEC configuration files.
- - SA will drop ship to WG MACO modified 8610s from [INFORMATION REDACTED]##.
- - SA will drop ship all 4,000 units to WG.
<TABLE>
<CAPTION>
DESCRIPTION [INFORMATION REDACTED]##
<S> <C>
# Phase 1 Units [INFORMATION REDACTED]##
# Phase 2 Units [INFORMATION REDACTED]##
Power Source [INFORMATION REDACTED]##
FCC/UL Approval
[INFORMATION REDACTED]##
SA System [INFORMATION REDACTED]##
Release Certif.
Modifications [INFORMATION REDACTED]##
Audio Masking [INFORMATION REDACTED]##
Ship To [INFORMATION REDACTED]##
</TABLE>
* Phase 2 Units only
** Cut J14, install W9-W27, remove IC201. Other changes may be made as well.
AGREED TO BY:
<TABLE>
<CAPTION>
SCIENTIFIC-ATLANTA, INC. WORLDGATE COMMUNICATIONS, INC.
<S> <C>
By: /s/ UNINTELLIGIBLE By: /s/ RANDALL J. GORT
------------------ --------------------------
Title: President, SNS Title: V.P. Corporate Affairs
Date: 10/15/98 Date: 9/29/98
</TABLE>
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
Page 6 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
ATTACHMENT A2
STATEMENT OF WORK
CERTIFICATION/FEATURE ENHANCEMENT OF WORLDGATE TECHNOLOGY
FOR SA 8600X SET-TOP
I) EXECUTIVE SUMMARY
A) BRIEF DESCRIPTION OF DEVELOPMENT ACTIVITY:
SA will support WG's efforts to develop the WG Technology for use with the 8600x
CPE. SA's efforts will include support with required SA system manager
modifications as well as firmware changes.
B) DESIGNATION OF TECHNICAL AND EXECUTIVE COMMITTEE MEMBERS AND SUPPORT
INTERFACES:
To be determined on or before [INFORMATION REDACTED]##.
C) WRITTEN SPECIFICATIONS OF THE DEVELOPMENT ACTIVITIES:
This will be developed jointly by the development core teams by [INFORMATION
REDACTED]##.
D) SCHEDULE AND LIST OF DELIVERABLES:
See attached details.
Anticipated completion of development efforts for unit test and --[INFORMATION
REDACTED]##
Anticipated completion of development efforts: system integration and testing
- - [INFORMATION REDACTED]##
E) TESTING PROCEDURES:
This will be developed jointly by the development core teams in [INFORMATION
REDACTED]##.
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
Page 7 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 2 of Attachment A2
F) ACCEPTANCE TESTING CRITERIA:
This will be developed jointly by the development core teams in [INFORMATION
REDACTED]##.
G) PAYMENTS: [INFORMATION REDACTED]##
H) OTHER (INCLUDING COMMISSION TERMS):
To be determined on or before [INFORMATION REDACTED]##.
II) DETAILS OF STATEMENT OF WORK
This statement of work related to the development activities for the WorldGate
software download to the 8600X and future advanced analog products includes:
a. brief description of the development activity
b. Designation of technical and executive committee members and support
interfaces
c. Written specifications of the developmental activities
d. Schedule and deliverables
e. Testing procedures
f. Acceptance testing criteria
g. Payments
h. Commission terms
i. Other terms specific to developmental activities
A) BRIEF DESCRIPTION OF THE DEVELOPMENT ACTIVITY
This development agreement is for the delivery of WorldGate's Internet Access
Solution over the 8600x CPE. The goal is to leverage an MSO's existing
infrastructure to provide Internet access to consumers in an advanced analog
environment. It is designed to help accelerate the adoption of information and
commerce in the broadband marketplace.
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
The delivery of WorldGate's Internet Access solution over SA's delivery
architectures is intended to include the following Scientific-Atlanta Home
Communications Terminals: 8600X (NTSC-domestic market only).
Page 8 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 3 of Attachment A2
The development activities will include headend (i.e. system manager) and set
top software development and download capability. For the 8600X this will
include the capability to provide Internet access service using the native
capabilities of the settop, which are 16 colors and 320X200 screen resolution.
B) DESIGNATION OF TECHNICAL AND EXECUTIVE COMMITTEE MEMBERS AND SUPPORT
INTERFACES
To be determined on or before [INFORMATION REDACTED]##.
C) WRITTEN SPECIFICATIONS OF THE DEVELOPMENT ACTIVITIES
This will be developed jointly by the development core teams by [INFORMATION
REDACTED]##.
D) SCHEDULE AND DELIVERABLES
This will be developed jointly by the development core teams in [INFORMATION
REDACTED]##. The list below outlines the preliminary items includes:
1. Software development Debug
2. Joint Unit Test and evaluation
3. System Integration Test and alpha release
4. Regulatory approval, if necessary
<TABLE>
<CAPTION>
WORLDGATE DELIVERABLES (UNDER SECTION D, "SCHEDULE AND DELIVERABLES")
<S> <C> <C>
Development and test equipment and tools(loaned)
2 channel WG server [REDACTED]##
QNX development environment (PC and licensed tools) [REDACTED]##
Software/Testing
modifications to WG set top application [REDACTED]##
TOCS 8600X/Scrambler packetization mods. [REDACTED]##
TICS support for fixed 16 color palette [REDACTED]##
TICS 16 color adaptive palette prototype [REDACTED]##
TICS 16 color adaptive palette optimized [REDACTED]##
WG TOCS/HCT appl. Integration test [REDACTED]##
WG TICS/TOCS/HCT appl. QA Unit test [REDACTED]##
Hardware
TOCS package to support minimum of 4 ARTIC PCI adapters [REDACTED]##
RF Demodulator compatible with SA RF IPPV transmitter [REDACTED]##
Documentation
QNX documentation/sample code [REDACTED]##
TICS adaptive 16 color adaptive palette overview [REDACTED]##
WG Unit test plan [REDACTED]##
WG set top application s/w overview [REDACTED]##
</TABLE>
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
Page 9 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 4 of Attachment A2
SA DELIVERABLES (UNDER SECTION D, "SCHEDULE AND DELIVERABLES")
Development and test equipment and tools (loaned)
1 8600X development environment(emulator, PC, 2 8600X) [REDACTED]##
1 System Manager, 1 HEC, 2 8656X scramblers, 2 ARTIC adapters [REDACTED]##
1 RF-IPPV processor [REDACTED]##
2 SA IR keyboards [REDACTED]##
2 8656X scramblers(additional) [REDACTED]##
2 ARTIC RS485 PCI adapters (additional) [REDACTED]##
Software
Software mods to 8600X to host WG set top application
First drop with limited services, tested and working [REDACTED]##
Second drop with additional services, tested and working [REDACTED]##
Third drop with all services, tested and working [REDACTED]##
ARTIC driver for QNX with test program [REDACTED]##
Hardware
SA IR keyboard
Beta units [REDACTED]##
Production units [REDACTED]##
Documentation
Technical Design Specification for WG on 8600X [REDACTED]##
Scrambler transaction formats required for WG support [REDACTED]##
HCT transaction formats required for WG support [REDACTED]##
JOINT DELIVERABLES
HCT Unit testing at SA [REDACTED]##
Western Show [REDACTED]##
System Integration testing at SA [REDACTED]##
OTHER ACTIVITIES FOR SECTION D, "SCHEDULE AND DELIVERABLES"
Under Section D, activities will include some or all of the following:
D.1. PHASE 3 VERIFICATION - REVIEWS
D.1.a. System Integration Test Exit Review: Verify that the tasks are complete
and the product is ready to go to Alpha Test. Topics include:
- If a process model has been completed - is it in place for
testing?
- Design stability and boundary conditions
- Requirements tracing to test
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
- Publications first draft available for review
D.1.a.1. CHECKLIST FOR THE REVIEW
The following Entry/Exit Criteria Checklist is intended to be printed
out and used for the review. When completed, it should be kept with
the permanent records for the System Release/Product.
Page 10 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 5 of Attachment A2
SYSTEM INTEGRATION TEST EXIT REVIEW CHECKLIST
<TABLE>
<S> <C>
- --------------------------- ------------------------------------------------
SYSTEM RELEASE PRODUCT NAME
- --------------------------- ------------------------------------------------
S/W RELEASE RESPONSIBLE PERSON
- --------------------------- ------------------------------------------------
DATE
- --------------------------- ------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CHECKLIST IS TASK ALPHA TEST
APPLICABLE? LEAD INITIALS
Y/N COMPLETE DEFERRED
<S> <C> <C> <C> <C>
1. System Integration Test completed
--------------- ------------- ------------
2. The Alpha Test Plans signed and approved by
- originator
--------------- ------------- ------------
- Technical Lead
--------------- ------------- ------------
- Quality Director
--------------- ------------- ------------
- Director System Test
--------------- ------------- ------------
- Release Team Lead
--------------- ------------- ------------
3. List all User documentation and the version
--------------- ------------- ------------
- any special documentation required for this release including
installation and upgrade instructions
--------------- ------------- ------------
- First Draft available from Publications
--------------- ------------- ------------
4. The test metrics should include the following information:
- number of problems found during the System Integration Test
--------------- ------------- ------------
- number of problems resolved during the System Integration Test
--------------- ------------- ------------
- number of problems found, but still unresolved listed by
severity
--------------- ------------- ------------
5. Status of Problems from System Integration
- no more than 5 Showstopper and High problems should exist.
--------------- ------------- ------------
- action plan to resolve each Showstopper and High open problem
--------------- ------------- ------------
- expected fix date and potential impact on Alpha testing.
--------------- ------------- ------------
- the defect severity priority level that will be fixed is
listed
--------------- ------------- ------------
- plans to fix the problems {current release/deferred}
--------------- ------------- ------------
- agreement of when the problems will be fixed
--------------- ------------- ------------
6. Metrics are to be collected regarding defect discovery and fixes
--------------- ------------- ------------
7. The code available on the final media
--------------- ------------- ------------
8. Version of code identified on the media.
--------------- ------------- ------------
9. Installation instructions ready for Alpha Test
--------------- ------------- ------------
10. Upgrade instructions ready for Alpha Test
--------------- ------------- ------------
11. Received lists by component of changes made since previous system
release (PERPs, issue fixes from defect tracking system, and PCD
requirements, etc.)
--------------- ------------- ------------
12. Notify World Wide Service that Alpha Test is starting
--------------- ------------- ------------
13. Make sure the Beta Sites/Controlled Rollout are ready and have
signed the Beta Agreement/Controlled Rollout Agreement
--------------- ------------- ------------
14. Verify Beta Site's Configuration and Equipment Status
--------------- ------------- ------------
15. Start Alpha Test with current open problems
--------------- ------------- ------------
16. Review results & decisions are documented and sent to the team
--------------- ------------- ------------
17. Action item list created and sent to all team members?
--------------- ------------- ------------
</TABLE>
Page 11 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 6 of Attachment A2
OTHER COMMITMENTS
WG will support server modifications to allow convenient access to common
mailboxes between S-A digital products using PowerTV E-mail solution and analog
products using Worldgate e-mail solution, and any such future product will be
addressed in a future Statement of Work that includes its own terms and
conditions.
WG will be responsible for ongoing maintenance and support of WG HCT
application and QNX Artic driver software.
WG will be responsible for testing the ARTIC driver in 4 channel
configuration.
E) TESTING PROCEDURES
This will be developed jointly by the development core teams in [INFORMATION
REDACTED]##.
F) ACCEPTANCE TESTING CRITERIA
This will be developed jointly by the development core teams in [INFORMATION
REDACTED]##.
G) OTHER (INCLUDING DEFINITIONS AND LICENSES)
(i) DEFINITIONS: For purposes of this Statement of Work:
"S-A Software" means the software which is developed and owned by S-A and
which, in combination with the WorldGate Key Software, enables WorldGate
Internet access for a CPE in which the S-A Software resides.
"WorldGate Key Software" means the software which is developed and owned by
WorldGate and which, in combination with the S-A Software, enables WorldGate
Internet access for a CPE in which the WorldGate Key Software resides.
(ii) LICENSES: In addition to other rights and licenses granted under this
Development Agreement:
(a) S-A and WorldGate are hereby granted a royalty-free, nonexclusive
license to use and copy the WorldGate Key Software and the S-A Software, as
applicable, as reasonably required to accomplish the development effort as set
forth herein; and
(b) WorldGate hereby grants to S-A a nonexclusive, worldwide license to
distribute and copy the WorldGate Key Software solely for the purpose of loading
the WorldGate Key Software in combination with the S-A Software into the CPEs of
its customers to facilitate the provision of WorldGate Internet access service
by such customers.
[INFORMATION REDACTED]##
Any provision of the WorldGate Internet access service will be subject to
an additional license by WorldGate to the customer as part of an affiliation
agreement between WorldGate and the customer.
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
Page 12 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 7 of Attachment A2
H) COMMISSION TERMS - [INFORMATION REDACTED]##
I) OTHER
If, after a reasonable period of time, WorldGate fails to provide
sufficient support for problem determination and resolution of a software
problem with the WG set top application and such problem impacts the performance
of the set top, WorldGate agrees to provide SA with the source code for the WG
set top application. SA agrees that the source code shall be used only for the
purposes of correcting the software problem, and that all copies of the source
code shall be returned to WorldGate upon resolution of the problem by SA or
when, after a reasonable period of time, SA has been unable to correct the
defect. The source code for the WG set top application shall be considered to be
confidential information of WorldGate.
SA will provide WorldGate with Artic Card driver source code. Use of this
source code is restricted to this project.
WG will participate on-site for unit testing and system integration.
AGREED TO BY:
<TABLE>
<CAPTION>
SCIENTIFIC-ATLANTA, INC. WORLDGATE COMMUNICATIONS, INC.
<S> <C>
By: /s/ UNINTELLIGIBLE By: /s/ RANDALL J. GORT
------------------ -------------------------
Title: President, SNS Title: V.P. Corporate Affairs
Date: 10/15/98 Date: 9/29/98
</TABLE>
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
Page 13 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
ATTACHMENT A3
STATEMENT OF WORK - EXECUTIVE SUMMARY
CERTIFICATION/COST REDUCTION/FEATURE ENHANCEMENT OF
WORLDGATE TECHNOLOGY FOR SA 8610, 8611, AND 8619 CPE
A) BRIEF DESCRIPTION OF DEVELOPMENT ACTIVITY:
SA will support WG's efforts to cost reduce the WG Technology for use with the
8610 CPE. SA's efforts will include support with general mechanical, firmware
and hardware design, and implementation. The efforts will also include
modification of the 8611 and 8619 to incorporate the WG module.
B) DESIGNATION OF TECHNICAL AND EXECUTIVE COMMITTEE MEMBERS AND SUPPORT
INTERFACES:
To be determined on or before [INFORMATION REDACTED]##.
C) WRITTEN SPECIFICATIONS OF THE DEVELOPMENT ACTIVITIES:
This will be developed jointly by the development core teams by [INFORMATION
REDACTED]##.
D) SCHEDULE AND LIST OF DELIVERABLES:
This will be developed jointly by the development core teams in [INFORMATION
REDACTED]##.
Anticipated completion of the 8610 cost reduction/feature enhancement cycle:
[INFORMATION REDACTED]##
Anticipated completion of the first 8611 prototype product: [INFORMATION
REDACTED]##
Anticipated completion of the first 8619 product [INFORMATION REDACTED]##
Anticipated completion of 8610 certification: [INFORMATION REDACTED]##
E) TESTING PROCEDURES:
This will be developed jointly by the development core teams in [INFORMATION
REDACTED]##.
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
Page 14 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 2 of Attachment A3
F) ACCEPTANCE TESTING CRITERIA:
This will be developed jointly by the development core teams in [INFORMATION
REDACTED]##.
G) PAYMENTS: [INFORMATION REDACTED]##
H) OTHER:
To be determined on or before [INFORMATION REDACTED]##.
AGREED TO BY:
<TABLE>
<CAPTION>
SCIENTIFIC-ATLANTA, INC. WORLDGATE COMMUNICATIONS, INC.
<S> <C>
By: /s/ UNINTELLIGIBLE By: /s/ RANDALL J. GORT
------------------ --------------------------
Title: President, SNS Title: V.P. Corporate Affairs
Date: 10/15/98 Date: 9/29/98
</TABLE>
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
Page 15 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
ATTACHMENT A4
STATEMENT OF WORK
SA SR4.7 WORLDGATE SYSTEM INTEGRATION AND TESTING
A) BRIEF DESCRIPTION OF DEVELOPMENT ACTIVITY:
SA will support WG's efforts to certify the WG Technology for use with the 8600x
CPE. SA's efforts will include support with system integration (alpha testing)
and beta/field testing.
B) DESIGNATION OF TECHNICAL AND EXECUTIVE COMMITTEE MEMBERS AND SUPPORT
INTERFACES:
To be determined on or before [INFORMATION REDACTED]##.
C) WRITTEN SPECIFICATIONS OF THE DEVELOPMENT ACTIVITIES:
This will be developed jointly by the development core teams in [INFORMATION
REDACTED]##.
D) SCHEDULE AND LIST OF DELIVERABLES:
This will be developed jointly by the development core teams by [INFORMATION
REDACTED]##.
Anticipated completion of alpha testing: [INFORMATION REDACTED]##
Anticipated completion of beta testing: [INFORMATION REDACTED]##
Anticipated completion of certification: [INFORMATION REDACTED]##
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
Page 16 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 2 of Attachment A4
Under Section (D), "Schedule and List of Deliverables", activities will include
some or all of the following:
PHASE 3 VERIFICATION - REVIEWS
D.1. ALPHA TEST EXIT REVIEW
Verify that the tasks are complete and the product is ready to go to Beta
Test. Topics include:
- Requirements for tracing to test
- Product functionality and performance
D.1.a) CHECKLIST FOR THE REVIEW
The following Entry/Exit Criteria Checklist is intended to be printed out
and used for the review. When completed, it should be kept with the
permanent records for the System Release/Product.
Page 17 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 3 of Attachment A4
Alpha Test Exit Review Checklist
<TABLE>
<S> <C>
- --------------------------- ------------------------------------------------
SYSTEM RELEASE PRODUCT NAME
- --------------------------- ------------------------------------------------
S/W RELEASE RESPONSIBLE PERSON
- --------------------------- ------------------------------------------------
DATE
- --------------------------- ------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CHECKLIST IS TASK BETA TEST
APPLICABLE? LEAD INITIALS
Y/N COMPLETE DEFERRED
<S> <C> <C> <C> <C>
1. All Alpha test plans should be completed as planned and all issues
resolved.
- a list of all test plans that were executed
--------------- ------------- ------------
- a list of all features that were not tested
--------------- ------------- ------------
- test plans that were not executed along with the explanation
--------------- ------------- ------------
- exceptions to this rule should be noted
--------------- ------------- ------------
- no Showstopper or High problems
--------------- ------------- ------------
2. The test results should include the following information:
- the number of problems found and resolved during the Alpha
Test phase
--------------- ------------- ------------
- the number of problems resolved during the Alpha Test Phase
--------------- ------------- ------------
- a list of the remaining open issues sorted by severity
--------------- ------------- ------------
3. Beta Test Plans Approved for all Beta Sites
- signed by Program Manager, Test Manager, Quality, Author
--------------- ------------- ------------
4. Beta Site Agreements approved
- list of who is authorized to sign
--------------- ------------- ------------
- all Beta Sites signed by customer before going on site
--------------- ------------- ------------
5. Metrics; defect discovery and fixes during Alpha Test
- bar Graph showing number of outstanding problems of each type
--------------- ------------- ------------
- cumulative Graph of Open Vs Closed Problems
--------------- ------------- ------------
6. List of all User documentation and the approved version
--------------- ------------- ------------
7. Test all documentation required for this release including the
following:
- the installation and upgrade instructions,
--------------- ------------- ------------
- the product update package
--------------- ------------- ------------
8. All media received
--------------- ------------- ------------
9. A master set and backup set of the release software available on the
final media for each Beta customer
- the version of code identified on each set of media?
--------------- ------------- ------------
- all sets of software be tested before going to the customer
site(s)?
--------------- ------------- ------------
- master set responsibility of Alpha Test Manager
--------------- ------------- ------------
- backup of masters is responsibility of Manager of Network
--------------- ------------- ------------
</TABLE>
Page 18 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 4 of Attachment A4
<TABLE>
<S> <C> <C> <C> <C>
10. List of all products in test and the version
- all version levels are know
--------------- ------------- ------------
- labels with version/model number on all the equipment
--------------- ------------- ------------
- list of all products and version numbers completed
--------------- ------------- ------------
11. Status of Problems from Alpha
- Determine Problem Tracking Database Query to use each time to
view issues
--------------- ------------- ------------
- review ALL issues in problem list to verify correct severity
level assigned
--------------- ------------- ------------
- the defect severity priority level that will be fixed is
listed
--------------- ------------- ------------
- plans to fix the problems {current release/deferred}
--------------- ------------- ------------
- agreement of when the problems will be fixed
--------------- ------------- ------------
- where will the problems be re-tested? {regression, phase II
Beta,...?}
--------------- ------------- ------------
- start Beta Test with current open problems?
--------------- ------------- ------------
- escalation process to communicate Beta Problems
--------------- ------------- ------------
12. The lower severity problems found during Alpha testing will be
reviewed;
- will be fixed during the Beta test or deferred to a later
release
--------------- ------------- ------------
- will cumulative effect of the open issues invalidate the
Beta test?
--------------- ------------- ------------
13. Process to record all Beta Site issues in the Problem Tracking System
--------------- ------------- ------------
14. Installation instructions ready for Beta Test
--------------- ------------- ------------
15. The Upgrade instructions ready for Beta Test
--------------- ------------- ------------
16. Received lists, by component, of changes made since previous system
release {PERPs, issue fixes from defect tracking system, and PCD
requirements, etc.)
--------------- ------------- ------------
17. Two teams identified for each Beta Site {one sleeps/other works}
--------------- ------------- ------------
18. Atlanta Engineering Team to support Beta Site
--------------- ------------- ------------
19. Contingency Plans established
--------------- ------------- ------------
20. Plan to back up all customer databases before start of Beta
--------------- ------------- ------------
21. Checklist of tasks to be done before leaving Atlanta
- all installation media
--------------- ------------- ------------
- latest site configuration
--------------- ------------- ------------
- all documentation
--------------- ------------- ------------
- verify media before leaving Atlanta
--------------- ------------- ------------
- checklist of tasks to be done before Installation
--------------- ------------- ------------
- old media in case we must go back
--------------- ------------- ------------
- review prior error logs
--------------- ------------- ------------
22. Checklist of tasks to be done after Installation
- procedure to verify system functionality
--------------- ------------- ------------
- beta upgrade Checklist created
--------------- ------------- ------------
</TABLE>
Page 19 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 5 of Attachment A4
<TABLE>
<S> <C> <C> <C> <C>
23. Documentation
- relevant test site configurations
--------------- ------------- ------------
- all download methods need to be covered
--------------- ------------- ------------
- issues addressed from old release to new release-patches,
features
--------------- ------------- ------------
- method to upgrade multiple head ends
--------------- ------------- ------------
- backward compatibility with prior release
--------------- ------------- ------------
24. Test Upgrade Instructions?
--------------- ------------- ------------
25. Beta Site Agreement copy available for team
--------------- ------------- ------------
26. Training completed for all team members
--------------- ------------- ------------
27. Technical Support has installed components and performed tests
--------------- ------------- ------------
28. Configuration of Beta Site Documented {equipment/version, etc.}
--------------- ------------- ------------
29. Beta Site Status reporting channels and schedule to report to Beta
Program Manager established
--------------- ------------- ------------
30.
--------------- ------------- ------------
31.
--------------- ------------- ------------
32. Review results & decisions are documented and sent to the team
--------------- ------------- ------------
33. Action item list created and sent to all team members?
--------------- ------------- ------------
</TABLE>
Page 20 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 6 of Attachment A4
D.2. BETA TEST EXIT REVIEW
Beta Sites have signed the approvals, all issues are closed and the
product is ready for General Availability.
Topics include;
- Requirements tracing to tests
- Product functionality and performance
D.2.A) CHECKLIST FOR THE REVIEW
The following Entry/Exit Criteria Checklist is intended to be printed
out and used for the review. When completed it should be kept with the
permanent records for the System Release/Product.
Page 21 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 7 of Attachment A4
BETA TEST EXIT CHECKLIST
<TABLE>
<S> <C>
- --------------------------- ------------------------------------------------
SYSTEM RELEASE PRODUCT NAME
- --------------------------- ------------------------------------------------
S/W RELEASE RESPONSIBLE PERSON
- --------------------------- ------------------------------------------------
DATE
- --------------------------- ------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CHECKLIST IS TASK CORE TEAM LEADER/
PROGRAM MANAGER'S
APPLICABLE? INITIALS
Y/N COMPLETE DEFERRED
<S> <C> <C> <C> <C>
1. Controlled and Uncontrolled portions of the Beta test phase;
- successfully completed and all issues resolved.
--------------- ------------- ------------
2. The test results should include the following information:
- list of issues found during the Beta phase & resolutions
--------------- ------------- ------------
- list of the remaining open issues sorted by severity
--------------- ------------- ------------
- all features that were not tested with explanation for these
exceptions.
--------------- ------------- ------------
3. Beta Problem Status
- Determine Problem Tracking Database Query to use each time to
view issues for GA
--------------- ------------- ------------
- no open Showstopper Problems
--------------- ------------- ------------
- no open High problems
--------------- ------------- ------------
- no open Medium Problems
--------------- ------------- ------------
- no open Low Problems
--------------- ------------- ------------
- any exceptions to the above explained and agreed to
--------------- ------------- ------------
4. Enter General Availability with current open problems
- General Manager's Waiver removed
--------------- ------------- ------------
- Conditional Product Release removed
--------------- ------------- ------------
- Full Product Release
--------------- ------------- ------------
5. Metrics; defect discovery and fixes during Beta Test
--------------- ------------- ------------
6. All User documentation required for this release including;
- the installation and upgrade instructions
--------------- ------------- ------------
- the customer release notes.
--------------- ------------- ------------
7. All software media backed up
--------------- ------------- ------------
8. Virus Scan for all executable code
--------------- ------------- ------------
9. List of all products {software, hardware, documentation} ready for
release and the version
--------------- ------------- ------------
- all Products are under Change Control
--------------- ------------- ------------
10. Formal Letter of agreement to end Beta signed by Customer, Program
Manager and Beta Test Manager
--------------- ------------- ------------
11. Complete the Impact Process Checklists found in the Multi-Level
Release Plan
- Appendix A; Product Release Memo
--------------- ------------- ------------
- Appendix B; Functional Deliverables Checklist
--------------- ------------- ------------
12. Publication's Final Draft of Documents
--------------- ------------- ------------
13. ECN approved for all Hardware, Software, etc.
--------------- ------------- ------------
- ECN must be approved for each component of the SR
--------------- ------------- ------------
</TABLE>
Page 22 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 8 of Attachment A4
<TABLE>
<S> <C> <C> <C> <C>
14. Archive the Active Problem Tracking database to Inactive, see ASN
Problem Tracking Process ENGA 17
--------------- ------------- ------------
15. `Dummy Order' run thru system from Order Entry and resulting
software/equipment installed and operated in lab?
--------------- ------------- ------------
16. Tested Upgrade Instructions?
--------------- ------------- ------------
17.
--------------- ------------- ------------
18.
--------------- ------------- ------------
19. Review results & decisions are documented and sent to the team
--------------- ------------- ------------
20. Action item list created and sent to all team members?
--------------- ------------- ------------
</TABLE>
Page 23 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 9 of Attachment A4
D.3. PAC 3 ENGINEERING READINESS REVIEW
Engineering preparation for the PAC Phase 3 Review. The result of this
meeting is to provide Engineering input to the Core Team.
Review the activities in Phase 3 to make sure that the critical
tasks are completed. If tasks or milestones are not complete insure
that there are answers for all open issues, such as schedule
problems, test problems, resources, etc. and recovery plans for
presentation to the PAC. Determine if the project is complete and
ready to go to General Availability.
Topics include;
<TABLE>
<S> <C> <C> <C>
- Risk Assessment - Recovery Plans
- Technical overview - Updated Schedule, Resources & Cost
{Program and Product}
- Assumptions - Review the Metrics collected to date
- Risks & Contingencies
</TABLE>
D.3.A) CHECKLIST FOR THE REVIEW
Entry/Exit Checklist
Page 24 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 10 of Attachment A4
PAC 3 ENGINEERING READINESS REVIEW CHECKLIST
<TABLE>
<S> <C>
- --------------------------- ------------------------------------------------
SYSTEM RELEASE PRODUCT NAME
- --------------------------- ------------------------------------------------
S/W RELEASE RESPONSIBLE PERSON
- --------------------------- ------------------------------------------------
DATE
- --------------------------- ------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CHECKLIST CORE TEAM LEADER/
IS TASK PROGRAM MANAGER'S
APPLICABLE? INITIALS
Y/N COMPLETE DEFERRED
<S> <C> <C> <C> <C>
1. Beta Site status
--------------- ------------- ------------
2. List the top 10 Risks?
--------------- ------------- ------------
3. Contingency plans?
--------------- ------------- ------------
4. Recovery Plans
--------------- ------------- ------------
5. Technical overview
--------------- ------------- ------------
6. Review Metrics collected to date
--------------- ------------- ------------
7. List the assumptions?
--------------- ------------- ------------
8. Discuss presentation for PAC 3 Concept Review?
--------------- ------------- ------------
9. Schedule update?
--------------- ------------- ------------
10. Resources update?
--------------- ------------- ------------
11. Cost update?
--------------- ------------- ------------
12. Non-Engineering Functional Group's deliverables status
--------------- ------------- ------------
13.
--------------- ------------- ------------
14.
--------------- ------------- ------------
15. Review results & decisions are documented and sent to the team
--------------- ------------- ------------
16. Action item list created and sent to all team members?
--------------- ------------- ------------
</TABLE>
Page 25 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 11 of Attachment A4
D.4. GENERAL AVAILABILITY REVIEW
Verify that the customer, product, factory and all support functions
are ready to launch the System/Sub-system.
The review should include:
<TABLE>
<S> <C> <C> <C>
- Cost Roll-ups - User Documentation Status Review
- Routings - Release Notes
- GEMS - User Documentation
- Review the test results - ECNs written and approved
- Metrics Review - Changes to the Development Process
- Verify functional group
readiness for release
</TABLE>
D.4.A) CHECKLIST FOR THE REVIEW
The Multi-Level Release Process requires that the following
checklist be completed in order to release the product. It
is found in Procedure number 2PRO0405; Multi-Level Release
Process, Appendix B Functional Deliverables Checklist.
Page 26 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 12 of Attachment A4
GENERAL AVAILABILITY REVIEW CHECKLIST
<TABLE>
<S> <C>
- --------------------------- ------------------------------------------------
SYSTEM RELEASE PRODUCT NAME
- --------------------------- ------------------------------------------------
S/W RELEASE RESPONSIBLE PERSON
- --------------------------- ------------------------------------------------
DATE
- --------------------------- ------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CHECKLIST CORE TEAM LEADER/
IS TASK PROGRAM MANAGER'S
APPLICABLE? INITIALS
Y/N COMPLETE DEFERRED
<S> <C> <C> <C> <C>
1. MLRP Checklist completed?
--------------- ------------- ------------
2. Release Memo approved?
--------------- ------------- ------------
3. GEMS Setup?
--------------- ------------- ------------
- MRP completed?
--------------- ------------- ------------
- Bills of Material setup?
--------------- ------------- ------------
- Bill of Material and MRP reviewed for completeness?
--------------- ------------- ------------
- Buyer code correct?
--------------- ------------- ------------
- Lead times established?
--------------- ------------- ------------
- Build inventory for upgrades, Tech Services Emergency Kits
--------------- ------------- ------------
4. `Dummy Order' run thru system from Order Entry and resulting
software/equipment installed and operated in lab?
--------------- ------------- ------------
5.
--------------- ------------- ------------
6.
--------------- ------------- ------------
7. Review results & decisions are documented and sent
to the team
--------------- ------------- ------------
8. Action item list created and sent to all team members?
--------------- ------------- ------------
</TABLE>
Page 27 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 13 of Attachment A4
D.5. PAC PHASE 3 REVIEW
Review is held to approve the product to enter Phase 4 Launch.
E) TESTING PROCEDURES:
This will be developed jointly by the development core teams in [INFORMATION
REDACTED]##.
F) ACCEPTANCE TESTING CRITERIA:
This will be developed jointly by the development core teams in [INFORMATION
REDACTED]##.
G) PAYMENTS: [INFORMATION REDACTED]##
H) OTHER:
WG will be first line of support for field issues which appear to be related to
Internet access and will work jointly with SA on field problem isolation and
correction.
WG will participate on-site for alpha and beta testing.
AGREED TO BY:
<TABLE>
<CAPTION>
SCIENTIFIC-ATLANTA, INC. WORLDGATE COMMUNICATIONS, INC.
<S> <C>
By: /s/ UNINTELLIGIBLE By: /s/ RANDALL J. GORT
------------------ --------------------------
Title: President, SNS Title: V.P. Corporate Affairs
Date: 10/15/98 Date: 9/29/98
</TABLE>
- ----------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
Page 28 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
ATTACHMENT B
AGREEMENT FOR LOAN OF PRODUCTS
Name and Address of Bailee:
Bailor and Bailee agree that the following terms and conditions shall govern the
loan to the Bailee of Products listed below.
<TABLE>
<CAPTION>
- ------------- --------------- -----------------------------------------------
ITEM Quantity Description of Equipment
- ------------- --------------- -----------------------------------------------
<S> <C> <C>
1
- ------------- --------------- -----------------------------------------------
2
- ------------- --------------- -----------------------------------------------
3
- ------------- --------------- -----------------------------------------------
4
- ------------- --------------- -----------------------------------------------
</TABLE>
Approximate Delivery Date:
Return Date:
Address where Products will be located:
NOTE: THE ATTACHED TERMS AND CONDITIONS ARE PART OF THIS AGREEMENT.
<TABLE>
<CAPTION>
Bailee Bailor
<S> <C>
By: By:
----------------------------- -----------------------------
Title: Title:
----------------------------- -----------------------------
Date: Date:
----------------------------- -----------------------------
</TABLE>
Page 29 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 2 of Attachment B
TERMS AND CONDITIONS OF LOAN AGREEMENT
The purpose of this Agreement is to provide for the loan of certain equipment
and/or software ("Products") listed on the front hereof by Bailor to Bailee at
no charge.
1. BAILEE AGREES:
1.1 To pay all installation and de-installation charges and all
transportation charges from and to Bailor's facilities, including, if
applicable, shipping, rigging, drayage, packing, and other charges
connected with the delivery and return of the Products;
1.2 To assume all risk of loss or damage to the Products upon delivery by
Bailor to the carrier;
1.3 To insure against loss of or damage to the Products for their list
price value with an insurance company acceptable to Bailor for the term of
this Agreement. Bailor will be loss payee, and at its option may request a
certificate of insurance evidencing coverage for the property loaned under
this Agreement;
1.4 To be responsible for maintenance of the Products;
1.5 To be responsible for any and all taxes pertaining to the Products or
their use, including but not limited to property and use taxes, and to
reimburse Bailor where Bailor is required to pay such a tax;
1.6 To not remove the Products from the facility where they were originally
installed unless Bailor's prior written consent is obtained;
1.7 To return the Products to Bailor on or before the specified Return Date
whereupon the term of this Agreement shall expire, in as good condition as
when received, it being agreed that the Bailee shall be responsible for any
damage thereto while in his or the carrier's possession, ordinary wear and
tear excepted;
1.8 That the Products shall remain the personal property of Bailor
throughout the term of this Agreement. Bailee shall have no right, title,
or interest therein; and
1.9 To not transfer, sell, assign, sublicense, pledge, or otherwise dispose
of, encumber or suffer a lien or encumbrance upon or against any interest
in these Products without Bailor's prior written consent.
2. BAILOR AGREES:
2.1 To deliver to Bailee the Products described herein. Delivery will be
F.O.B. Bailots plants.
Page 30 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 3 of Attachment B
2.2 To install the Products at the location provided by Bailee set forth
above.
3. THE PARTIES AGREE THAT:
3.1 All single-use licensed software, including any subsequent updates and
any part thereof ("Software") may be used on only the single CPU or
equipment configuration specified in the applicable Software Product
literature on which the Software is first installed, and may be copied, in
whole or in part (with the proper inclusion of the Bailor copyright notice
and any Bailor proprietary notices on the Software) only for use on that
CPU or specified equipment configuration.
3.2 The Software may be used on another single CPU on a temporary basis
during a malfunction of the original CPU which causes the software to be
inoperable.
3.3 Bailee shall not make available the Software in any form to any third
party (except Bailee's employees or agents directly concerned with Bailee's
licensed use of the Software.
3.4 Software licenses granted without media are subject to all of the terms
of this Software Product License, except that Bailee may obtain the
software by copying licensed Software in the Bailee's possession onto the
CPU for which the Software is licensed.
3.5 Source-licensed software requires the execution of a separate Software
Program Sources License Agreement between Bailee and Bailor.
3.6 Third-party software designated in the applicable price list as subject
to a third-party license agreement is subject to the terms and conditions
of the License Agreement accompanying the software. Bailee will not copy,
use, disclose or transfer the software except as provided in the applicable
license agreement.
3.7 No title to or ownership of any software is transferred to Bailee.
3.8 Bailor may terminate all software licenses granted hereunder and
require return of the software if Bailee fails to comply with these license
terms and conditions.
3.9 Bailor may terminate the licenses of software granted hereunder and
require return of the software if Bailee fails to comply with these license
terms and conditions.
3.10 Bailee agrees, upon notice of such termination or the expiration of
the term of this Agreement, to immediately return to Bailor the software
provided hereunder and all copies or portions thereof.
Page 31 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Page 4 of Attachment B
3.11 THE PRODUCTS SUPPLIED HEREUNDER ARE FURNISHED "AS IS." BAILOR
DISCLAIMS WITHOUT LIMITATION ALL IMPLIED WARRANTIES OF FITNESS, IN NO EVENT
WILL BAILOR BE LIABLE FOR DAMAGES TO PROPERTY OR ANY DAMAGES RESULTING FROM
LOSS OF DATA, PROFITS OR USE OF PRODUCTS, OR FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
THIS LIMITATION OF BAILOR'S LIABILITY WILL APPLY REGARDLESS OF THE FORM OF
ACTION, WHETHER IN CONTRACT OR TORT INCLUDING NEGLIGENCE. BAILEE AGREES TO
DEFEND AND HOLD BAILOR HARMLESS AGAINST ANY CLAIMS INCLUDING COURT COSTS
AND LEGAL EXPENSES RELATING TO THE PRODUCTS LOANS BY BAILOR.
3.12 This Agreement is governed by the laws of the State of [NEW YORK]
except that the Conflicts of Laws provisions for the selection of forum law
shall not apply.
3.13 This Agreement constitutes the entire Agreement between the parties
and supersedes all prior negotiations and communications, oral or written,
between the parties with respect to the subject matter hereof, and no
deviation from these terms and conditions shall be binding unless in
writing and signed by the party against whom the same is sought to be
enforced.
Page 32 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
ATTACHMENT C
WORLDGATE INFORMATION
Page 33 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
ATTACHMENT D
S-A INFORMATION
Page 34 (for all attachments to the Development Agreement between S-A and WG)
<PAGE>
Exhibit 10.5
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MOU"), entered into as of the 2nd
day of September 1998, by and between General Instrument Corporation ("GI") and
WorldGate Communications, Inc. hereinafter, ("WorldGate"), sets forth certain
understandings between GI and WorldGate with respect to WorldGate's plans to
adapt its television-based Internet access application to permit such
application to operate on GI-designated advanced analog and digital terminals.
1. SCOPE OF MOU
A. WorldGate has developed a television-based Internet access application
and service (the "Application") which it would like to deploy on
certain of GI's advanced analog and digital terminal models (the "GI
Terminals").
B. In connection with deploying the Application on the GI Terminals,
WorldGate has requested GI (i) to sell to WorldGate certain equipment,
(ii) to provide to WorldGate GI's assistance to design and develop
certain hardware and software and (iii) to perform such other services
as required for such deployment on the GI Terminals and as agreed by
the parties, all as further described in the attached Exhibit A (the
"WorldGate Projects").
C. GI agrees to support the efforts of WorldGate with respect to the
WorldGate Projects and the deployment of the Application on the GI
Terminals, by:
1. providing technical information that GI normally provides to
independent hardware and software developers to enable
applications to interface with the GI Terminals,
2. providing engineering consulting support to WorldGate in
connection with the WorldGate Projects,
3. beginning and continuing, with reasonable diligence,
the world necessary to modify the design of the GI
Terminals and to develop an interface (the "GI
Interface") so that the GI Terminals can accommodate
the WorldGate Application, and
4. providing technical support to certify that the
addition of the WorldGate Application to the GI
Terminals does not affect or alter the published
functionality and specifications of the GI Terminals.
D. The parties understand and agree that both GI and WorldGate will incur
significant expense with respect to the project described herein and
the support described in the preceding paragraph.
E. Within not more than ninety (90) days from the date of this MOU, GI
and WorldGate will (i) agree on the priority of the listed WorldGate
Projects and a detailed milestone
<PAGE>
schedule for the completion of the WorldGate Projects determined by
the parties to have a high priority, (ii) determine any other business
and legal terms that are necessary for the completion of such work, as
well as the marketing of the Application and (iii) use all
commercially reasonable efforts to finalize and execute a definitive
agreement which will incorporate such business and legal terms (the
"Definitive Agreement"), with such Definitive Agreement to cover the
agreed high priority projects on a project by project basis.
2. OBLIGATIONS OF THE PARTIES. The parties agree that the provisions of
this MOU are binding obligations, except for Section 7 of this MOU which is
non-binding and reflects only a statement of the intentions of the parties with
respect to the matters addressed therein and does not constitute a binding
obligation. The parties covenant never to contend to the contrary. Neither party
shall make a claim against, or be liable to, the other party or its affiliates
or agents for any damages, including without limitation, lost profits or injury
to business reputation, resulting from the continuation or abandonment of
negotiations or the development work described in this MOU, including the
consequences thereof.
3. REIMBURSEMENT OF GI'S COSTS AND EXPENSES. The parties acknowledge that
this MOU is executed so that GI may determine the feasibility of and begin the
design and engineering work necessary to (I) accomplish the WorldGate Projects
and (ii) qualify the Application to run on the GI Terminals (collectively, the
"Preliminary Work"). [REMAINDER OF PARAGRAPH REDACTED.]##
4. DISCLAIMER. Neither party guarantees or makes any representation or
warranty that it will successfully complete the WorldGate Projects. Either party
is free at any time to redesign its existing or future equipment, hardware
and/or software, without any obligation to ensure that such redesigned
equipment, hardware and/or software will support or be compatible with the other
party's equipment, hardware and/or software.
5. DISCLOSURE/COOPERATION. The Parties have entered into an Application
Certification and Support Agreement dated as of November 14, 1997, as
supplemented by the Letter Agreement dated November 14, 1997, which agreements
contain confidentiality provisions which currently govern the disclosure of
confidential information by the parties. The parties hereby reaffirm the
applicability of such confidentiality provisions to the disclosures of
confidential information and activities addressed in this MOU. The parties will
reasonably cooperate with respect to disclosure of information (which may
include providing prototypes of the WorldGate Application and/or the GI
Terminals) necessary to enable the parties to perform their obligations
hereunder and under the Definitive Agreement. Any changes by WorldGate to its
Application, and any changes by GI to the GI Terminals will be immediately
communicated to the other party in the event such changes impact the services to
be performed hereunder.
__________________________
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
6. INTELLECTUAL PROPERTY RIGHTS.
(a) The parties agree to use all commercially reasonable efforts to
negotiate and in good faith finalize in the Definitive Agreement the
ownership and licensing rights with respect to any Intellectual
Property developed or used in connection with the completion of the
WorldGate Projects. Notwithstanding the foregoing, no right, title or
interest in any of GI's existing Intellectual Property is granted to
WorldGate under this MOU and no right, title or interest in any of
WorldGate's existing Intellectual Property is granted to GI under this
MOU.
(b) For purposes of this paragraph, the term "Intellectual Property" shall
mean all patents, copyrights, mask works, trademarks and trade secrets,
including without limitation any ideas, inventions, know-how,
techniques, methods, designs and processes, whether or not patentable.
7. MARKETING. The Parties intend to reasonably cooperate with each other
in implementing a marketing plan for promoting the Application and the GI
Terminals.
8. RELATIONSHIP BETWEEN THE PARTIES/NON-EXCLUSIVITY. Nothing contained in
this MOU shall be construed or interpreted to the effect that the parties hereto
have established or intend to establish any form of corporate association,
agency or partnership. This MOU and any action taken pursuant to the terms and
conditions hereof shall not obligate either party to enter into any further
business relationship. Except as otherwise agreed in writing by the parties, the
parties hereto agree that either party may meet, exchange information, enter
into agreements and conduct business relationships of any kind with third
parties, to the exclusion of the other party hereto relating to activities
described in this MOU. Except as otherwise agreed to in writing by the parties,
the provisions of this MOU shall not serve to impair the right of either party
to develop, make, use, procure, and/or market products or services now or in the
future that may be competitive with those offered by the other, nor to develop
and provide products to competitors of the other party, nor require either party
to disclose any planning or other information to the other. Neither party has
made any commitment to the other regarding the consummation of any proposed
business relationship and, except as otherwise provided in this MOU, each party
will bear its own costs and expenses in connection with this MOU whether or not
such a relationship is consummated.
9. PUBLICITY. Neither party shall publicly announce or disclose the terms
or conditions of this MOU, or advertise or release any publicity regarding this
MOU or the activities hereunder, without the prior written consent of the other
party. This provision shall survive the expiration, termination or cancellation
of this MOU.
10. COUNTERPARTS. This MOU may be executed in two (2) or more counterparts,
and by each party on the same or different counterparts, buy all of such
counterparts shall together constitute one and the same instrument and
understanding of the parties hereto.
11. GOVERNING LAW. This MOU shall be governed and construed in accordance
with the
<PAGE>
laws of the Commonwealth of Pennsylvania, without application of conflict of
laws principles, and the parties hereby agree to submit to the jurisdiction of
all federal and state courts within the Commonwealth of Pennsylvania.
This MEMORANDUM OF UNDERSTANDING is executed as of the date first set forth
above by authorized representatives of the parties hereto.
WORLDGATE COMMUNICATIONS, INC.
By: /s/ D. A. Dill
Name: David A. Dill
Title: CFO
Date: September 2, 1998
GENERAL INSTRUMENT CORPORATION
By: _____________________________________
Name: Richard C. Smith
Title: Executive Vice President
Date: September 2, 1998
<PAGE>
laws of the Commonwealth of Pennsylvania, without application of conflict of
laws principles, and the parties hereby agree to submit to the jurisdiction of
all federal and state courts within the Commonwealth of Pennsylvania.
This MEMORANDUM OF UNDERSTANDING is executed as of the date first set forth
above by authorized representatives of the parties hereto.
WORLDGATE COMMUNICATIONS, INC.
By: _____________________________________
Name:
Title:
Date: September 2, 1998
GENERAL INSTRUMENT CORPORATION
By: /s/ Richard C. Smith
Name: Richard C. Smith
Title: Executive Vice President
Date: September 2, 1998
<PAGE>
EXHIBIT A
<PAGE>
WORLDGATE / GI DNS STATEMENT OF WORK
7/13/98
<TABLE>
<CAPTION>
PROJECT TARGET SCHEDULE ESTIMATED COST
- ------- --------------- --------------
<S> <C> <C>
CERTIFICATIONS
- -GI will certify WG commercial release versions to schedule GI ## ##
releases [REMAINDER REDACTED]##
DEVELOPMENT SUPPORT
- -Support of WG application utilizing scheduled GI release ##
enhancements [TEXT REDACTED]## onto the following platforms:
-DCT 1000 ##
-DWT 1000
-DCT 2000
-DVI 2000
-DCT 5000
</TABLE>
**All dates referenced are based on current GI schedules and are subject to
change at GI discretion. Change in dates for deliverables stated or implied can
occur at discretion of either party with written notice. Costs are estimates and
based on projected statement of work and milestone/deliverables for each project
yet to be finalized. Timeline change, feature set modification, hardware
changes, etc. can impact price estimates. GI will notify Worldgate of pricing
changes in writing prior to project start date.
______________________________
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
<TABLE>
PROJECT (continued) TARGET SCHEDULE ESTIMATED COST
- ------- --------------- --------------
<S> <C> <C>
CERTIFICATIONS
- -Integration and test of WG application to scheduled release ##
enhancements [INFORMATION REDACTED]## onto the following platforms. Assumes 1
major integration and test effort per official quarterly release:
-DCT 1000 ##
-DWT 1000
-DCT 2000
-Dvi 2000
-DCT 5000
- -Support of WG development of the following projects:
[INFORMATION REDACTED]## ## ##
- -Integration and test of WG development of the following projects: ## ##
[INFORMATION REDACTED]##
HARDWARE
- -GI will provide WG with DNS hardware necessary for WG development
and test purposes in quantities and products agreed upon by both ## ##
parties, as well as DNS equipment necessary for demonstration purposes
(purchase/loan).
TOTAL PROJECT FINDING ##
</TABLE>
____________________________
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
WORLDGATE / GI ANS STATEMENT OF WORK
7/30/98
<TABLE>
<CAPTION>
ESTIMATED
PROJECT TARGET SCHEDULE COST
- ------- --------------- ---------
<S> <C> <C>
CERTIFICATIONS
- -GI will certify WG commercial release versions to:
-scheduled GI releases ## ##
-WG cost reduction programs
-Third Party applications
DEVELOPMENT SUPPORT
- -Design support of both current and future implementations of
the WG application to scheduled release enhancements of the CFT
2200 with the following vide standards
[INFORMATION REDACTED]## ## ##
- -Integration and test of both current and future implementations
of the WG application to scheduled release enhancements of the CFT
2200 with the following video standards:
## ##
[INFORMATION REDACTED]##
- -Support, integration
and test of the WG application to the following set top platforms:
[INFORMATION REDACTED]## ## ##
HARDWARE
- -GI will provide WG with ANS hardware necessary for WG development, ## ##
test and trial purposes in quantities and products agreed upon by
both parties, as well as ANS equipment necessary for
demonstration purposes (purchase/loan).
TOTAL PROJECT FUNDING ##
</TABLE>
- -----------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
EXHIBIT 10.7
MASTER AGREEMENT
THIS AGREEMENT IS MADE THIS 7TH DAY OF NOVEMBER, 1997, BY AND BETWEEN CHARTER
COMMUNICATIONS, INC. ("CHARTER") AND WORLDGATE COMMUNICATIONS, INC.
("WORLDGATE"), REGARDING THE CONTEMPORANEOUS (I) EXECUTION OF AN AFFILIATION
AGREEMENT IN THE FORM ATTACHED (THE "AFFILIATION AGREEMENT") AND THE
ASSOCIATED DEPLOYMENT OF THE WORLDGATE INTERNET ACCESS SERVICE WITHIN
CHARTER'S CABLE TELEVISION INSTALLATIONS (II) INVESTMENT BY CHARTER IN
WORLDGATE PURSUANT TO THE TERMS OF A STOCK PURCHASE AGREEMENT AND/OR
SHAREHOLDER AGREEMENTS(THE "STOCK PURCHASE AGREEMENTS"), AND (III) THE GRANT
OF WARRANTS TO CHARTER PURSUANT TO THE TERMS OF A WARRANT AGREEMENT IN THE
FORM ATTACHED (THE "WARRANT AGREEMENT").
1. CHARTER AND WORLDGATE ARE ENTERING INTO THE AFFILIATION AGREEMENT
CONTEMPORANEOUSLY HEREWITH TO PROVIDE FOR THE DEPLOYMENT OF THE WORLDGATE
SERVICE (AS DEFINED IN THE AFFILIATION AGREEMENT) IN CHARTER'S CABLE
OPERATIONS.
2. CHARTER WILL USE REASONABLE EFFORTS TO DEPLOY THE WORLDGATE SERVICE
AND INSTALL APPROPRIATE HEADEND EQUIPMENT (I) IN ALL MARKETS IN WHICH CHARTER
HAS IN EXCESS OF 25,000 SUBSCRIBERS (THE "MAJOR MARKETS") WITHIN
[INFORMATION REDACTED]## OF SUCH MARKETS BECOMING TECHNICALLY CAPABLE OF
PROVIDING INTERACTIVE PAY-PER-VIEW SERVICE, AND (II) TO THE EXTENT CHARTER
DETERMINES THAT IT IS ECONOMICALLY PRACTICAL, IN ALL MARKETS WHICH ARE NOT
MAJOR MARKETS BUT WHICH ARE TECHNICALLY CAPABLE OF PROVIDING INTERACTIVE
PAY-PER-VIEW SERVICE.
3. WHEN WORLDGATE HAS A TELEPHONE RETURN PATH SERVICE AVAILABLE, CHARTER
WILL, IF ECONOMICALLY PRACTICAL, OVER A [INFORMATION REDACTED]## PERIOD
THEREAFTER, MAKE ALL REASONABLE EFFORTS TO INSTALL THE APPROPRIATE HEADEND
EQUIPMENT AND DEPLOY THE WORLDGATE SERVICE IN THE REMAINING CHARTER MARKETS,
THEREBY MAKING THE SERVICE AVAILABLE TO ALL OF THEIR CUSTOMERS.
4. SHOULD CHARTER ACQUIRE ADDITIONAL MARKETS IT WILL HAVE A
[INFORMATION REDACTED]## PERIOD FROM THE DATE OF THE CLOSING OF THE
ACQUISITION TO INSTALL THE APPROPRIATE HEADEND EQUIPMENT AND DEPLOY THE
WORLDGATE SERVICE IN THE NEW MARKETS, IF ECONOMICALLY PRACTICAL, SUBJECT TO
THE AVAILABILITY OF THE TELEPHONE RETURN PATH SERVICE, IF REQUIRED, AND
PROVIDED THAT, NOTWITHSTANDING THE ABOVE PERIOD, CHARTER USES ALL REASONABLE
EFFORTS TO INSTALL SUCH EQUIPMENT AND DEPLOY SUCH WORLDGATE SERVICE AS SOON
AS IS ECONOMICALLY PRACTICAL.
5. CHARTER WILL EXTENSIVELY MARKET THE WORLDGATE SERVICE WITHIN ITS
MARKET AREAS.
6. CHARTER WILL EXERCISE ALL REASONABLE EFFORTS TO SUPPORT TRIALS OF NEW
WORLDGATE SERVICE ENHANCEMENTS, INCLUDING TECHNICAL ASSESSMENT, WEEKLY
FEEDBACK, EXTENSIVE CONSUMER INSTALLATIONS, AND CUSTOMER SATISFACTION
ANALYSIS.
7. UPON THE FINAL APPROVAL OF THIS AGREEMENT, THE AFFILIATION AGREEMENT
AND THE WARRANT BY WORLDGATE'S BOARD OF DIRECTORS AND SHAREHOLDERS, AS
SPECIFIED IN SECTION 18 OF THIS AGREEMENT (WHICH APPROVAL IS ANTICIPATED TO
OCCUR ON NOVEMBER 10, 1997), CHARTER AND WORLDGATE WILL ISSUE A MUTUALLY
ACCEPTABLE PRESS RELEASE REGARDING CHARTER'S COMMITMENT TO FULLY LAUNCH THE
WORLDGATE SERVICE. AT AN APPROPRIATE TIME (CONSISTENT WITH SEC REQUIREMENTS
AND OTHER APPLICABLE LAWS, RULES AND REGULATIONS) PRIOR TO WORLDGATE'S IPO,
CHARTER WILL ISSUE A MUTUALLY ACCEPTABLE PRESS RELEASE REGARDING ITS PROGRESS
IN LAUNCHING THE WORLDGATE SERVICE. IT WILL INCLUDE USAGE STATISTICS,
CUSTOMER TAKE RATES, AND OTHER INFORMATION WHICH REFLECTS CUSTOMERS'
SATISFACTION WITH THE SERVICE.
8. CHARTER WILL CONTINUE TO BE CANDID AND DILIGENT IN ITS RESPONSES TO
PRESS INQUIRIES REGARDING THE WORLDGATE SERVICE AND TO REFERENCE CHECKS
REGARDING ITS SATISFACTION WITH THE WORLDGATE SERVICE.
9. IF CHARTER IS SOLD, THE TERMS OF THE THIS AGREEMENT AND THE
AFFILIATION AGREEMENT WILL BE ASSIGNED TO THE NEW OWNERS AND WILL REMAIN IN
FORCE FOR ALL THEN EXISTING CHARTER SYSTEMS AND MARKETS.
10. CHARTER AND WORLDGATE ARE ENTERING INTO THE WARRANT AGREEMENT AND
CONTEMPORANEOUSLY HEREWITH, AND UPON AND AFTER THE CLOSING OF THE SERIES B
FINANCING, CHARTER WILL BE ENTITLED TO PURCHASE UP TO 394,880 SHARES OF
SERIES B PREFERRED STOCK AT $7.10 PER SHARE, PURSUANT TO THE TERMS AND
CONDITIONS OF THE WARRANT AGREEMENT.
11. THE WARRANTS, AND UNDERLYING SHARES, ISSUED AND ISSUABLE TO CHARTER
WILL BE COVERED BY STANDARD ANTI-DILUTION AND REGISTRATION RIGHTS AS MADE
AVAILABLE TO THE OTHER PURCHASERS OF THE SERIES B PREFERRED SHARES.
- ------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
12. EFFECTIVE AT THE CLOSING OF THE SERIES B FINANCING WORLDGATE WILL
SELL TO CHARTER AND CHARTER WILL PURCHASE $500,000 IN VALUE OF SERIES B
PREFERRED STOCK AT $7.10 PER SHARE (OR IF LESS, THE ACTUAL PURCHASE PRICE OF
SUCH SHARES UNDER THE OFFERING) PURSUANT TO THE TERMS OF THE STOCK PURCHASE
AGREEMENTS, WHICH CHARTER AND WORLDGATE WILL NEGOTIATE TOGETHER WITH THE OTHER
PROSPECTIVE PURCHASERS OF SUCH SHARES, AND MUTUALLY EXECUTE ALONG WITH SUCH
PROSPECTIVE PURCHASERS AS PART OF THE CLOSING OF THE SERIES B FINANCING.
13. THIS AGREEMENT, THE AFFILIATION AGREEMENT, THE STOCK PURCHASE
AGREEMENTS AND WARRANT AGREEMENT SUPERSEDE PRIOR DISCUSSIONS, LETTERS OF INTENT
AND AGREEMENTS OF THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF
(EXCLUSIVE OF ANY OUTSTANDING OBLIGATIONS OF CONFIDENTIALITY AND NON-USE UNDER
THE EXISTING NON-DISCLOSURE AGREEMENT BETWEEN THE PARTIES). THE TERMS HEREOF MAY
BE AMENDED ONLY BY A WRITING EXECUTED BY AUTHORIZED REPRESENTATIVES OF BOTH
PARTIES.
14. THIS AGREEMENT DOES NOT IN ANY WAY CREATE THE RELATIONSHIP OF
FRANCHISE, JOINT VENTURE, PARTNERSHIP OR AGENCY BETWEEN WORLDGATE AND CHARTER,
AND EACH SHALL REMAIN AN INDEPENDENT CONTRACTOR, AND AS SUCH SHALL NOT ACT OR
REPRESENT ITSELF, DIRECTLY OR BY IMPLICATION, AS AGENT FOR THE OTHER OR ASSUME
OR CREATE ANY OBLIGATION OF OR IN THE NAME OF THE OTHER.
15. A WAIVER BY EITHER PARTY OF ANY OF THE TERMS OR CONDITIONS OF THIS
AGREEMENT SHALL NOT, IN ANY INSTANCE, BE DEEMED OR CONSTRUED TO BE A WAIVER OF
SUCH TERMS OR CONDITIONS FOR THE FUTURE OR OF ANY SUBSEQUENT BREACH THEREOF. NO
PAYMENT OR ACCEPTANCE THEREOF UNDER THIS AGREEMENT SHALL OPERATE AS A WAIVER OF
ANY PROVISION HEREOF. ALL REMEDIES, RIGHTS, UNDERTAKINGS, OBLIGATIONS AND
AGREEMENTS CONTAINED IN THIS AGREEMENT SHALL BE CUMULATIVE AND NONE OF THEM
SHALL BE IN LIMITATION OF ANY OTHER REMEDY, RIGHT, UNDERTAKING, OBLIGATION, OR
AGREEMENT OF EITHER PARTY.
WORLDGATE Communications
CONFIDENTIAL 971108-0253
<PAGE>
16. EXCEPT AS HEREIN OTHERWISE EXPRESSLY PROVIDED, ALL NOTICES,
STATEMENTS AND OTHER DOCUMENTS DESIRED OR REQUIRED TO BE GIVEN HEREUNDER SHALL
BE IN WRITING AND SHALL BE GIVEN BY PERSONAL DELIVERY, CERTIFIED MAIL, OR FAX
(WITH A COPY SENT BY REGULAR US MAIL). ALL NOTICES, STATEMENTS AND OTHER
DOCUMENTS SHALL BE SENT TO:
If to WG:
WORLDGATE COMMUNICATIONS, INC.
3220 TILLMAN DRIVE, SUITE 300
BENSALEM, PA 19020
ATTN: GENERAL COUNSEL
IF TO AFFILIATE:
CHARTER COMMUNICATIONS, INC.
POWERS COURT DRIVE
ST. LOUIS, MO 63138
ATTN: MICHAEL A. DENATALE, VICE PRESIDENT - CORPORATE DEVELOPMENT
WITH A COPY TO CURTIS S. SHAW, SENIOR VICE PRESIDENT AND GENERAL COUNSEL
(OR AT SUCH OTHER ADDRESS AS MAY BE DESIGNATED IN WRITING BY EITHER PARTY NO
LESS THAN THIRTY (30) DAYS PRIOR TO THE DATE OF TRANSMISSION OF THE NOTICE,
STATEMENT, ETC.). NOTICE GIVEN BY DOMESTIC MAIL SHALL BE DEEMED GIVEN THREE (3)
DAYS AFTER THE DATE OF MAILING; NOTICE GIVEN BY INTERNATIONAL MAIL SHALL BE
DEEMED GIVEN TEN (10) DAYS AFTER THE DATE OF MAILING, NOTICE GIVEN BY FAX SHALL
BE DEEMED GIVEN AT THE TIME OF DISPATCH; NOTICE GIVEN BY PERSONAL DELIVERY SHALL
BE DEEMED GIVEN UPON DELIVERY BY THE MESSENGER; AND NOTICE GIVEN BY OVERNIGHT
DELIVERY SHALL BE DEEMED GIVEN THE FIRST BUSINESS DAY FOLLOWING DELIVERY TO THE
OVERNIGHT DELIVERY SERVICE.
17. ALL MATTERS PERTAINING TO THIS AGREEMENT (INCLUDING ITS
INTERPRETATION, VALIDITY, PERFORMANCE AND BREACH), IN WHATEVERJURISDICTION
ACTION MAY BE BROUGHT, SHALL BE GOVERNED BY THE LAWS OF DELAWARE (EXCLUDING ITS
CONFLICT OF LAW PROVISIONS). THE PARTIES HERETO EXPRESSLY CONSENT AND AGREE TO
SUBMIT TO THE JURISDICTION OF ANY COURT OF COMPETENT JURISDICTION IN THE STATE
OF DELAWARE, AND TO ACCEPT SERVICE OF PROCESS OUTSIDE THE STATE OF DELAWARE IN
ANY MATTER TO BE SUBMITTED TO ANY SUCH COURT PURSUANT HERETO. WHEREVER THERE IS
ANY CONFLICT BETWEEN ANY PROVISION HEREOF AND ANY LAW OR REQUIREMENT WITH THE
FORCE OF LAW, THIS AGREEMENT SHALL REMAIN VALID AND SUCH PROVISION HEREOF SHALL
BE RESTRICTED TO THE EXTENT, AND ONLY TO THE EXTENT, NECESSARY TO BRING IT
WITHIN THE APPLICABLE REQUIREMENTS, UNLESS SUCH RESTRICTION SHALL HAVE THE
EFFECT OF MATERIALLY NULLIFYING, OR IMPAIRING, THIS AGREEMENT.
18. THIS AGREEMENT, THE AFFILIATION AGREEMENT, THE STOCKHOLDERS
AGREEMENTS AND THE WARRANT AGREEMENT ARE SUBJECT TO THE APPROVAL OF THE BOARD OF
DIRECTORS AND SHAREHOLDERS OF WORLDGATE COMMUNICATIONS, INC., AND NEITHER
WORLDGATE NOR CHARTER SHALL BE BOUND BY THE PROVISIONS HEREOF OR THEREOF UNLESS
AND UNTIL ALL SUCH AGREEMENTS ARE APPROVED BY THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF WORLDGATE COMMUNICATIONS, INC.
WORLDGATE Communications CONFIDENTIAL 971108-0253
<PAGE>
19. ALL REFERENCES TO THE SERIES B PREFERRED STOCK OF WORLDGATE ASSUME
THE CAPITALIZATION STRUCTURE OF WORLDGATE DESCRIBED IN THE CONFIDENTIAL PRIVATE
PLACEMENT MEMORANDUM, DATED SEPTEMBER 29, 1997, AND ASSUME AN OFFERING WILL
OCCUR ON OR BEFORE NOVEMBER 30, 1997, AT A PRICE OF $7.10 PER SERIES B
PREFERRED SHARE. APPROPRIATE ADJUSTMENTS WILL BE MADE IN THE TERMS OF THIS
AGREEMENT, THE WARRANT AGREEMENT AND THE STOCKHOLDERS AGREEMENTS TO ACCOMMODATE
ANY VARIANCES.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed and
accepted by their duly authorized representatives as of the day and year first
written above.
Charter Communications, Inc.
By: /S/ Curtis S. Shaw By: /s/ Randall J. Gort
------------------------- --------------------------
Name: Curtis S. Shaw Name: Randall J. Gort
Title: Senior Vice President Title: Vice President
Date: November 7, 1997 Date: November 7, 1997
Tel.: 314-965-0555 x 408 Tel.: 215-633-5116
Fax: 314-965-8793 Fax: 215-633-9590
WorldGate Communications
Charter.masterAgreement.11-7-97.doc
<PAGE>
Exhibit 10.9
WORLDGATE AFFILIATION AGREEMENT
THIS AGREEMENT DATED NOVEMBER 7,1997 IS BETWEEN CHARTER COMMUNICATIONS, INC.,
WITH ITS PRINCIPAL PLACE OF BUSINESS AT 12444 POWERSCOURT DRIVE, ST. LOUIS, MO
63131, (HEREINAFTER REFERRED TO AS "AFFILIATE") AND WORLDGATE COMMUNICATIONS,
INC., WITH ITS PRINCIPAL PLACE OF BUSINESS AT: 3220 TILLMAN DRIVE, SUITE 300,
BENSALEM, PA 19020 (HEREINAFTER REFERRED TO AS "WG").
AFFILIATE AND WG (COLLECTIVELY THE "PARTIES") HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS:
The following terms, abbreviations and definitions used in this
Agreement shall have the meanings set forth herein below:
(a) "SYSTEM(S)" means Affiliate's television distribution system(s)
for one or more geographical service areas, as from time to time are identified
in Exhibit A.
(b) "PRIVATE RESIDENCE" means a private residential dwelling unit.
(c) "PROVIDER(S)" means one or more third parties providing content
for Subscriber access on or as part of the WorldGate-SM- Service.
(d) "SUBSCRIBER" means an Affiliate customer authorized to gain access
to the WorldGatell Service as part of Affiliate's System.
(e) "SUBSCRIBER ACCESSIBLE CONTENT" MEANS the programs, information,
and other content which, from time to time, has been licensed or is otherwise
provided by WG and others for access by Subscribers on or as part of the
WorldGate-SM- Service .
(f) "SUBSCRIBER TRANSACTION" means any instance whereby a Subscriber
accesses or is authorized to access the WorldGate Service.
(g) "TERM" means the term of this Agreement which shall commence on
the date hereof, and shall.terminate five (5) years from the date set forth
above, except if renewed or terminated earlier as provided herein.
(h) "WORLDGATE PLATFORM" means the hardware and software components to
be supplied by WG to Affiliate and used by Affiliate with Affiliate's System to
provide Subscriber access to the WorldGate Service hereunder.
(i) "WORLDGATE SERVICE" means an interactive Internet access service
which
Page 1 of 22
<PAGE>
Page 2 of 22
utilizes WG's proprietary WorldGate Platform in connection with the Affiliate's
System(s) for addressably transmitting downstream application information
(including Subscriber Accessible Content) to Subscribers in the Affiliate's
System channels (vertical blanking intervals, full-field video text channels or
MPEG data stream) and, either utilizing separate RF carriers in certain segments
of the upstream communication spectrum of the System's current allocated
spectrum and/or a suitable phone-network based return facility for transmitting
upstream communication.
2. AUTHORIZATION OF RIGHTS, WORLDGATE PLATFORMS AND SYSTEM:
(a) WG hereby authorizes Affiliate, during the Term hereof, to provide
Subscribers access to the WorldGate Service, via the WorldGate Platforms in
connection with Affiliate's System, in accordance with the terms and conditions
of this Agreement. Except as agreed by the Parties such WG Service will not
materially interfere with Affiliate's ability to use the published features and
functions of the applicable set top converters with the correctly configured
expansion modules.
(b) From time to time during the term hereof WG shall provide to
Affiliate and Affiliate shall acquire by purchase, lease or such other
acquisition transaction as may be agreed by the Parties, certain systems and the
components of the WorldGate Platform as are further identified in Exhibit B. The
terms and conditions of such acquisition as well as the associated installation,
maintenance and warranty of the WorldGate Platforms are also set forth in
Exhibit B.
(c) WG shall make available to Affiliate such Subscriber Accessible
Content as may, from time to time, be determined by the Parties. Affiliate,
however, acknowledges that creators of Subscriber Accessible Content may, from
time to time, and for any reason make additions to, deletions from and/or
otherwise modify Subscriber Accessible Content, and accordingly, WG also
reserves such right. Affiliate and WG further acknowledge and agree that such
Subscriber Accessible Content including, without limitation, access to the World
Wide Web, may include materials and information of uncertain or even
objectionable origin, nature and/or character, and that WG expressly disclaims
any responsibility for or liability associated with Subscriber's access to or
use of the Subscriber Accessible Content to the extent such materials and
information were either not created by WG or the provision of which is not in
WG's control and discretion.
(d) Affiliate may request modifications of or additions to certain
user interface screens or other aspects of the WorldGate Platform and/or the
Subscriber Accessible Content. WG agrees to work with Affiliate to accommodate
such requests to the extent that WG agrees such modifications are viable and
will enhance the WorldGate Service.
(e) (i) Affiliate shall provide a suitable System and facilities
associated therewith as further identified in Exhibit A. Such Systems as are
listed in the initial Exhibit A hereto are the Systems in which Affiliate has in
excess of 25,000 customers and that are technically capable of providing
interactive pay per view service. Affiliate will have a period not to exceed six
(6) months from the effective date hereof to install the appropriate headend
equipment and to
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
Page 3 of 22
otherwise deploy the WorldGate Service in these systems. (ii) Affiliate may,
from time to time, add additional Systems, in which event Affiliate shall use
commercially reasonable efforts to provide WG with at least ninety (90) days
advance written notice of any such proposed additions to the Systems. Upon the
agreement of the Parties this Agreement shall be promptly amended to cover such
proposed additions, by the execution of supplemental and/or superseding Exhibit
A(s) setting forth the agreed a ' nd then current information relevant to such
Systems. (iii) Further, Affiliate may make changes to the Systems and facilities
comprising the same, and/or WG may make changes to the WG Platform. In the event
such changes materially affect the performance of the WorldGate Service, the
Party making the changes shall use reasonable efforts to provide the other Party
with as much advance notice of the same as is possible. (iv) The installation,
maintenance and support of such Systems and associated facilities shall be the
sole responsibility of Affiliate and its suppliers. Affiliate acknowledges and
agrees that WG and its contractors will require both physical and on-line access
to the System and the WorldGate Platform connected thereto to perform their
obligations hereunder. Affiliate shall provide WG and its contractors reasonable
physical and remote (via modem and other electronic means) access to such
Systems (including the facilities and technical personnel associated therewith)
and to the WorldGate Platforms connected or to be connected thereto, to afford
any required installation, support, service and reporting by WG hereunder.
3. RESERVATION OF RIGHTS:
(a) Affiliate agrees that it is the essence of this Agreement that:
(i) the WorldGate Platform shall not be modified in any manner unless approved
in writing by WG; (ii) the WorldGate Platform shall not be utilized to provide
services other than the WorldGate Service, provided, however, Affiliate may use
the set top converters to provide other services as long as the provision of
such other services does not use the WG headend or the WG Programs ( as defined
in Exhibit B); and (iii) Affiliate shall not authorize any other party to do any
of the acts forbidden herein (collectively, the "Prohibited Acts"), without the
specific written consent of WG and/or its content providers as may be required,
or except as otherwise set forth herein.
(b) Affiliate shall immediately notify WG upon the occurrence or
likely occurrence of any Prohibited Acts of which it becomes aware.
(c) All licenses, rights and interest in, to and with respect to the
WorldGate Platform, the Subscriber Accessible Content, the elements, parts and
derivations thereof (including without limitation the writings, images,
displays, electronic reproductions, user interfaces, sounds and other works
embodied therein, derived therefrom or ancillary thereto, and the media of
reproduction, performance or exhibition thereof), as well as the intellectual
property rights related thereto, not specifically granted herein to Affiliate or
to Affiliate's Subscribers, shall be and are expressly and entirely reserved by
WG and the applicable Content Providers. The licenses granted to Affiliate and
Affiliate's Subscribers hereunder do not include any right to sublicense any
third party, in whole or in part.
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
Page 4 of 22
4. MARKETING AND PROMOTION OF THE WORLDGATE SERVICE: The Parties agree to
diligently market and promote the WorldGate Service to all Affiliate's customers
which are or become part of Affiliate's System(s). In particular and without
limitation the Parties agree to provide such marketing and promotional services
as are further identified in Exhibit C. The Parties also recognize that the
WorldGate brand is a substantial asset of WG and that use of such brand as well
as any other applicable WG trademarks and service marks is limited to promotion
of the WG service in a manner consistent with that typically used with other
quality and valued trademarks and service marks. The WG marks shall be
prominently displayed in all consumer communications promoting the WG services
such as, but not limited to, marketing materials, advertisements, direct mail
pieces, bill stuffers, price lists, etc. Examples of any marketing materials and
TV spots developed by Affiliate promoting the WG services, and all other uses of
the WG marks shall be furnished to WG upon WG's request. The WG marks may be
promoted with Affiliate's mark with WG's prior written approval.
5. PAYMENTS, ACCESS FEES AND TAXES:
(a) As consideration for the rights granted and services performed
hereunder, Affiliate shall pay to WG Subscriber Access Fees for the WorldGate
Service, as more fully set forth in Exhibit D1. WG has published a rate card for
its standard Subscriber Access Fees effective as of the execution date of this
Agreement as set forth in Exhibit D2. In the event of a change in WG's published
rate card, in which the standard Subscriber Access Fees set forth therein are
reduced from those set forth in the initial Exhibit D2, or any subsequent
Exhibit D2, then Exhibit D2 shall be amended, or further amended, as the case
may be, to reflect the then current published rate card, and such Subscriber
Access Fees then set forth in Exhibit D1 shall be reduced, and Exhibit D1 shall
be amended, such that the reduced rates in the amended Exhibit D1 have the same
discount with respect to the amended Exhibit D2 and the then current published
rate card thereby reflected as the Subscriber Access Fees in the initial Exhibit
D1 have with respect to the standard Subscriber Access Fees set forth in the
initial Exhibit D2. Furthermore, if at any time, more than sixty five (65%)
percent of WG's other affiliates (i.e., other cable operators) are paying
Subscriber Access Fees which are less than the standard Subscriber Access Fees
set forth in then current Exhibit D2, such Exhibit D2 shall be amended to
reflect Subscriber Access Fees such that no more than sixty five (65%) percent
of WG's other affiliates are paying less than the amended rates, and Exhibit D1
shall be amended accordingly.
(b) Notwithstanding the required payment of a Subscriber Access Fee as
described above, the Parties agree and acknowledge that Affiliate is free to
determine what fees, if any, it charges its Subscribers with respect to access
to the WorldGate Service and/or any Subscriber Transactions.
(c) All payments hereunder, including, without limitation, the
Subscriber Access Fee are payable without deduction for any franchise fees and
taxes (including interest and penalties on any such amounts) now or hereafter
imposed upon Affiliate or based upon the licensing, rental, delivery,
exhibition, possession, or use of the WG Platform or the access to any
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
Page 5 of 22
Subscriber Accessible Content hereunder, but excluding however any taxes
assessed upon any of WG's income or personal property (collectively "Taxes").
Affiliate shall pay and hold WG and Content Providers forever harmless from any
liability associated with such Taxes.
(d) Except as set forth in sub-paragraph (a), above, all payments
hereunder, including without limitation the purchase price of the components of
the WorldGate Platform are due within forty-five (45) days of the receipt of
invoice for the same. Interest shall accrue on all amounts not paid when due at
a rate equal to the lesser of twelve (12%) percent per annum or any maximum rate
imposed under applicable laws and regulations. Payments shall not be deferred or
subjected to setoff by Affiliate. Payments may not be suspended and shall
continue during the pendency of any dispute hereunder, provided, however, that
Affiliate may withhold payment of an amount to the extent Affiliate in good
faith and with a basis it reasonably believes to be legitimate disputes that
such amount is due and payable to WG. All payments to be made to WG shall be in
the currency of the United States unless otherwise agreed in writing by the
parties.
6. STATEMENTS AND REPORTS: WG shall provide to Affiliate an accounting statement
and report within ten (10) days after the end of each calendar month in which
the WorldGate Service is distributed hereunder. Said statement shall include at
least the following information: the number of Subscribers. Such information may
be provided electronically as part of Affiliate's access to computer terminals
included in the WorldGate Platform. Affiliate acknowledges that WG requires
access to records and information relating to Subscribers and Subscriber
Transactions in order to provide such statements and reports and hereby consents
to the same. While Affiliate acknowledge's WG's need for access to its
subscriber records and information, WG acknowledges that Affiliate shall retain
all proprietary rights to Affiliate's subscriber records and information and
that, except as required for the purposes of this Agreement, WG is prohibited
from sharing, selling or otherwise disseminating such Affiliate subscriber
records and information to third parties. WG will adhere to the Privacy Act
provisions Of the Telecommunications Act of 1984, as amended. The Parties also
recognize the importance and desirability of developing an interface between the
WorldGate Platform and the current standard cable operator billing interfaces,
and wg will use all commercially reasonable efforts to develop such interface in
accordance with the typical commercial requirements for the same, and in a
timely manner consistent with the deployment schedule hereunder.
7. AUDIT: Affiliate and WG shall keep accurate and complete books and records of
Subscriber Transactions and accounts hereunder, and any required adjustments
thereto. Subject to the confidentiality provisions contained herein Affiliate
and WG may, not more than once during each calendar year and upon at least
thirty days prior written notice, at their expense and during regular business
hours, have the right to audit all such books and records of the other
pertaining to the Subscriber Transactions occurring over Affiliate's System.
Such audits shall be conducted by a nationally recognized, independent public
accounting firm chosen by the auditing Party on the auditing Party's behalf. The
audited Party agrees to fully cooperate with auditing Party's representatives
and/or designees, and shall provide such
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
Page 6 of 22
representatives and/or designees with an office or adequate space in which to
facilitate any audit of such books and/or recor ' ds. If an audit or checking
reveals a discrepancy in the Access Fee owed for the audit period, WG and
Affiliate agree to make prompt adjustments of such accounts along with any
required credits or payments associated therewith.
8. REPRESENTATIONS AND WARRANTIES OF THE PARTIES:
(a) Each of the Parties represents and warrants that (i) it has the
authority and power to enter into this Agreement and to perform its obligations
hereunder; and (ii) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
and are deemed to be valid, binding and enforceable obligations.
9. INDEMNIFICATION:
(a) WG shall indemnify, defend and forever hold harmless Affiliate and
its subsidiaries, officers, directors, employees, agents and shareholders
against and from any and all claims, costs, liabilities, judgments, damages and
expenses (including, without limitation, reasonable attorney's fees) arising out
of any breach by WG of any warranty, representation or other provisions of this
Agreement. Affiliate shall indemnify, defend and forever hold harmless WG and
its subsidiaries, officers, directors, employees, shareholders and agents
against and from any and all claims, costs, liabilities, judgments, damages and
expenses (including, without limitation, reasonable attorney's fees) arising out
of any breach by Affiliate of any warranty, representation or other provisions
of this Agreement.
(b) WG shall indemnify Affiliate against (i) any award of damages and
costs made against Affiliate by a final judgment (final judgment as used herein
shall not be construed as requiring Affiliate to pursue an appeal which is not
reasonably likely of materially changing a currently standing judgement) of a
court of competent jurisdiction in any such action, insofar as the same are
based on a claim that the WG Platform infringes any United States copyright,
trademark or patent, and (ii) any settlements and compromises approved by WG as
described below. WG shall control the defense of any such action including
appeals, and all negotiations thereof, including the right to effect any
settlement or compromise. In case the use of the WorldGate Platform is, in any
action, held to constitute such an infringement and the use thereof is enjoined,
WG shall, at its option and expense (i) procure for Affiliate the right to
continue using the WorIdGate Platform, (ii) replace or modify the same so that
it becomes noninfringing and performs the same service with substantially the
same quality, or (iii) authorize Affiliate to return the WorldGate Platform and
provide Affiliate with a refund of the purchase price, less an allowance for
past use, prorated based upon a five year life. WG shall have no liability for
any claim of infringement based on: (1) any use of other than a current
unaltered release of the WorldGate Platform; or (2) any access to or use of the
Subscriber Accessible Content or any combination or use of the WorldGate
Platform with non-WG hardware, software, Subscriber Accessible Content or data.
The foregoing states the entire liability with respect to infringement of any
intellectual property rights with regard to the WorldGate Platform.
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
Page 7 of 22
(c) In any case in which indemnification is sought hereunder:
(i) The party seeking indemnification shall promptly notify
the other party in writing upon the initiation of any claim or litigation to
which the indemnification relates;
(ii) The party seeking indemnification shall afford the other
party the opportunity to participate in, and, at the option of such other party,
to control, any compromise, settlement, litigation or other resolution or
disposition of any such claim.
(iii) The party seeking indemnification shall fully cooperate
with the reasonable requests of the other party in its participation in, and
control of, any compromise, settlement, litigation or other resolution or
disposition of any such claim.
10. SECURITY: Each Party shall employ such security systems and procedures as
may be reasonable and commercially feasible to prevent theft, pirating or other
unauthorized access to the WorldGate Service.
11. RENEWAL, TERMINATION AND DEFAULTS:
(a) Upon the expiration of the initial Term hereunder this Agreement
shall be automatically renewed for additional successive two (2) year periods
thereafter unless terminated by either Party upon ninety (90) days written
notice prior to the expiration of such initial Term and any renewal period.
(b) Either party shall be entitled, in addition to all of its other
rights and remedies at law, and at its option forthwith, upon giving notice to
the other party to terminate this Agreement,
(i) if said other party shall fail to perform any of its
obligations or undertakings required of it hereunder, or shall be in breach of
any of its warranties or representations herein contained, and shall not have
cured or remedied such failure or breach within sixty (60) days of written
notification thereof.
(ii) If a party hereunder commences a voluntary case under
Title 11 of the United States Bankruptcy Code as now and hereafter in effect, or
any successor statute, or any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or a party consents to the entry of an order for
relief in an involuntary case, or to the conversion of a voluntary case to an
involuntary case, under any such law, or consents to the appointment of or
taking possession by a receiver, trustee or other custodian for all or a
substantial part of its property; a party makes any assignment for the benefit
of creditors; a party is unable or fails or admits in writing of its inability
or failure to pay its debts as such debts become due; or the Board of Directors
or other governing body of a party adopts any resolution or otherwise approves
authorization to act upon any of the foregoing, such action shall be deemed a
breach
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
Page 8 of 22
hereunder.
(iii) If any order, judgment or decree is entered against
decreeing the dissolution or split-up of such party, and such order remains
undischarged or unstated for a period in excess of thirty (30) calendar days,
such action shall be deemed a breach hereunder.
(c) Sections 1,3,7-10,11(c),14,15,16, and 18-20, as well as any
obligation which has accrued prior to any expiration or termination of this
Agreement (including, without limitation, all payments which are or may become
due and payable under Section 5 hereo~ shall survive such expiration or
termination.
12. ASSIGNMENT: Either party hereunder shall have the right to assign its rights
and obligations to a third party which is acquiring all or substantially all of
its assets, or any company with which it may merge or consolidate. In the event
Affiliate sells one or more Systems to a third party other than as part of a
sale of substantially all of its assets or a merger or consolidation as
aforesaid, Affiliate may assign its rights and obligation hereunder with respect
to such affected Systems or Systems to the third party subject to any increase
in Subscriber Access Fees required by WG. Alternatively if either Affiliate or
the proposed assignee are not willing to accept such increase, such assignment
may occur only if WG agrees in writing to maintain the current applicable
Subscriber Access Fees, and in such event WG may require Affiliate to make such
assignment. In the event Affiliate's obligations and rights are assigned
hereunder as a result of a sale of a System, such System shall be stricken from
Exhibit A. In the event of a sale of a System which does not result in an
assignment hereunder, such Systems shall also be stricken from Exhibit A subject
to the return to WG of the applicable WorldGate Platform compenents (i.e., the
headend equipment and the WorldGate Programs.) Except as expressly set forth in
the prior sentence neither party hereunder shall have the right to assign,
transfer or hypothecate its rights and obligations hereunder, without the
other's prior written approval. Any other purported assignment of this
Agreement, shall be deemed null and void.
13. HEADINGS, RELATIONSHIP OF PARTIES: The titles of the paragraphs of this
Agreement are for convenience only and shall not in any way affect the
interpretation of this Agreement. This agreement does not in any way create the
relationship of franchise, joint venture, partnership or agency between WG and
Affiliate, and each shall remain an independent contractor, and as such shall
not act or represent itself, directly or by implication, as agent for the other
or assume or create any obligation of or in the name of the other.
14. NON-WAIVER OF BREACH; REMEDIES CUMULATIVE:
(a) A waiver by either party of any of the terms or conditions of this
Agreement shall not, in any instance, be deemed or construed to be a waiver of
such terms or conditions for the future or of any subsequent breach thereof. No
payment or acceptance thereof under this
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
PAGE 9 OF 22
Agreement shall operate as a waiver of any provision hereof.
(b) All remedies, rights, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation, or agreement of
either party. IN NO EVENT SHALL EITHER PARTY HEREUNDER BE LIABLE TO THE OTHER
FOR SPECIAL, PUNITIVE, CONSEQUENTIAL (INCLUDING WITHOUT LIMITATION ANY LOST
PROFIT OR INVESTMENT AND THE LIKE), INDIRECT OR INCIDENTAL DAMAGES, BY WAY OF
INDEMNITY OR OTHERWISE.
(c) In no event shall WG be liable for damages(excluding any indemnity
hereunder) in excess of the amounts paid to WG hereunder with respect to the
particular subject matter giving rise to such damages.
15. NOTICES: Except as herein otherwise expressly provided, all notices,
statements and other documents desired or required to be GIVEN hereunder shall
be in writing and shall be GIVEN by personal delivery, certified mail, or fax
(with a copy sent by regular US mail). All notices, statements and other
documents shall be sent to:
If to WG:
<TABLE>
<CAPTION>
<S> <C>
Accounting statements and remittances All other notices should be sent to:
should be sent to:
WORLDGATE COMMUNICATIONS, INC. WORLDGATE COMMUNICATIONS, INC.
3220 Tillman Drive, Suite 300 3220 Tillman Drive, Suite 300
Bensalem, PA 19020 Bensalem, PA 19020
Attn: Accounting Services Attn: Affiliate Administration
</TABLE>
If to Affiliate:
CHARTER COMMUNICATIONS, INC.
12444 Powerscourt Drive - Ste. 400
St. Louis, MO 63131-3660
Attn: Michael A. DeNatale, Vice President-Corporate Development
With a copy to:
Curtis S. Shaw, Senior Vice President and General Counsel, at the above address
(or at such other address as may be designated in writing by either party no
less than thirty (30) days prior to the date of transmission of the notice,
statement, etc.). Notice given by domestic mail shall be deemed given three (3)
days after the date of mailing; Notice given by international mail shall be
deemed given ten (10) days after the date of mailing, notice given by fax shall
be deemed given at the time of dispatch;
<PAGE>
Page 10 of 22
notice given by personal delivery shall be deemed given upon delivery by the
messenger; and notice given by overnight delivery shall be deemed given the
first business day following delivery to the overnight delivery service.
16. GOVERNING LAW:
(a) All matters pertaining to this Agreement (including its
interpretation, validity, performance and breach), in whatever jurisdiction
action may be brought, shall be governed by the laws of Delaware (excluding its
conflict of law provisions) . The parties hereto expressly consent and agree to
submit to the jurisdiction of any court of competent jurisdiction in the State
of Delaware, and to accept service of process outside the State of Delaware in
any matter to be submitted to any such court pursuant hereto.
(b) Wherever there is any conflict between any provision hereof and
any law or requirement with the force of law, this Agreement shall remain valid
and such provision hereof shall be restricted to the extent, and only to the
extent, necessary to bring it within the applicable requirements, unless such
restriction shall have the effect of materially nullifying, or impairing, this
Agreement.
17. FORCE MAJEURE: Neither party shall, in any manner whatsoever, be liable or
otherwise responsible for any delay or default in, or failure of performance
(other than the failure to make payments hereunder) resulting from or arising
out of or in connection with, any "Event of Force Majeure" and no such delay,
default in, or failure of performance shall constitute a breach by either party
hereunder. For purposes of this Agreement, an "Event of Force Majeure" in
respect of a party shall mean any act, cause contingency or circumstances beyond
the control of such party to the extent beyond the control of such other party,
in the nature of (by way of example and not limitation) any governmental action,
nationalization, expropriation, confiscation, seizure, allocation, embargo,
prohibition of import or export of goods or products, regulation, order or
restriction (whether foreign, federal or state), war (whether or not declared),
civil commotion, disobedience or unrest, insurrection, public strike, riot or
revolution, lack of or shortage of, or inability to obtain, any labor,
machinery, materials, fuel, supplies or equipment from economically practical
sources of supply, strike, work stoppage or slowdown, lockout or other labor
dispute, fire, flood, drought, other natural calamity, damage or destruction to
plant and/or equipment, or any other accident, condition, cause, contingency or
circumstance (including, without limitation, acts of God) within or without the
United States beyond the control of such party.
18. CONFIDENTIALITY:
(a) The recipient of any confidential information of the other
hereunder agrees to safeguard the confidentiality of such confidential
information by applying policies and procedures adequate for that purpose,
including without limitation, restricting the disclosure of
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
this confidential information to employees and consultants needing to know the
same for the purpose of this Agreement, provided that Recipient shall have the
obligation and associated liability of ensuring that all such employees and
consultants which gain access to the information hereunder abide by these terms
and conditions of confidentiality. During the term of this Agreement and for a
period of thirty six months thereafter the recipient shall not disclose any such
confidential information to any other person, firm or corporation, or use the
same except for the purpose stated hereinabove, and shall exercise at least the
same degree of care to guard against disclosure or unauthorized use of such
confidential information, as the recipient employs with respect to its own
confidential information, but in no event less than reasonable care. Information
to be disclosed confidentially hereunder shall be fixed in a tangible medium of
expression that is marked "Proprietary" or "Confidential", or if disclosed in
other than a tangible medium of expression, indicated by the disclosing Party as
being "Proprietary" or "Confidential" at the time of disclosure and within
thirty (30) days thereafter summarized by the disclosing Party in a writing to
the recipient, in which writing the confidential information is identified as
"Proprietary" or "Confidential". A tangible medium of expression shall be deemed
to include, by way of example, memoranda, written descriptions, drawings,
photographs, models, prototypes, tapes, disks and circuitry.
(b) The recipient shall have no obligation of confidentiality
hereunder with respect to any information which:
(i) is already properly known to the recipient other than as a
result of a prior confidential disclosure by the disclosing Party;
(ii) is or becomes publicly known otherwise than by the
recipient's (or someone receiving the information from recipient) fault or
breach of this Agreement;
(iii) is rightfully received by the recipient without
restriction from a third party who is not under an obligation of
confidentiality, directly or indirectly, to the disclosing Party.;
(iv) is independently developed by the recipient without
benefit of the confidential information received hereunder;
(v) is approved for release in writing by the disclosing
Party; or
(vi) is disclosed by the recipient pursuant to judicial or
regulatory action, provided that the disclosing party is promptly notified at
the time such action is initiated and the recipient fully cooperates with the
disclosing Party in seeking continued confidential treatment of such information
to the extent possible.
(c) The Parties agree that, except as may be reasonably required by
applicable law, rule, regulation, court order or the like, neither of them shall
publicly divulge or announce, or in any manner disclose to any third party,
other than its attorneys, accountants, parents, and partners, any of the
specific terms and conditions of this Agreement, including without limitation
the Subscriber Access Fees payable hereunder, and the parties further warrant
and agree that none of their officers, directors or employees will do so.
19. PROCEDURE PRIOR TO LITIGATION: Prior to initiating any litigation with
respect to any controversy, claim or dispute arising hereunder or related
hereto, but excluding any claim arising under Sections 3, 10 or 18 of this
Agreement (a "Dispute") a Party must first notify the
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
Page 12 of 22
other Party and request in writing that such Dispute be submitted to an
executive committee consisting of one senior ranking executive named by each of
the Parties for such purpose. Such named executive shall have the authority and
be capable of making binding decisions on behalf of such Party with respect to
such Dispute. Within five (5) business days following the receipt of such notice
(or such other period as may be agreed by the Parties) each Party shall have
named its executive committee participant, and within ten (10) business days
following the receipt of such notice (or such other period as may be agreed by
the Parties) the executive committee shall meet to discuss the Dispute. If the
executive committee is not able to resolve the Dispute within twenty (20)
business days following the receipt of such notice (or such other period as may
be agreed by the Parties), then either Party may proceed with the initiation of
such litigation as may be appropriate.
20. ENTIRE UNDERSTANDING: This Agreement, including the Exhibits identified
herein, sets forth the entire understanding of the parties with respect to the
subject matter hereof, and all prior concurrent oral agreements or all prior
written agreements with respect to such subject matter have been merged herein.
No representations or warranties have been made other than those expressly
provided for herein. This Agreement may not be modified, except by a written
instrument signed by an authorized representative of the parties, and this
provision may not be waived except by written instrument signed by an officer of
the parties. In the event this agreement is translated into any foreign language
counterpart, the English language counterpart shall remain controlling.
IN WITNESS WHEREOF, THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE SIGNED AND
ACCEPTED BY THEIR DULY AUTHORIZED REPRESENTATIVES AS OF THE DAY AND YEAR FIRST
WRITTEN ABOVE.
<TABLE>
<S> <C>
Affilliate: Charter Communications, Inc. WorldGate Communications, Inc.
By: /s/ Curtis Shaw By: /s/ Randall J. Gort
Name: Curtis S. Shaw Name: Randall J. Gort
Title: Senior Vice President Title: Vice President
Date: November 7, 1997 Date: November 7, 1997
Tel.: 314-965-0555 x 408 215-633-5116
Fax: 314-965-8793 215-633-9590
</TABLE>
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
Page 13 of 22
EXHIBIT A
TELEVISION DISTRIBUTION SYSTEMS
<TABLE>
<CAPTION>
<S> <C> <C>
SYSTEM NAME MAILING ADDRESS BASIC SUBSCRIBERS
- --------------------------------------------------------------------------------
## ## ##
## ## ##
</TABLE>
Each System identified above must include the following minimum facilities (to
be supplemented as WG subscriber base grows): (a) T-1/internet Access Link in
accordance with WG's requirements (b) Cisco 2501 Router with IP Software (or
approved equivalent) (c) Kentrox D-Serv CSU/DSU (or approved equivalent)
Effective Date: __________ Affiliate Initials: _________ WG Initials: __________
- --------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
PAGE 14 OF 22
EXHIBIT B
WORLDGATE PLATFORM
PLATFORM COMPONENTS AND PRICING
Set forth below are the components of the WorldGate Platform and Affiliate's
price for the same as of the effective date set forth below. Such prices are FOB
WG's factory, and are valid for a period of one-year from this effective date
after which time they are subject to change by WG to reflect current market
conditions and the prices for such products and services then being generally
charged to WG's affiliate customers purchasing the products and services in
similar quantities.
<TABLE>
<CAPTION>
OTHER UNITS - SAME
ITEM FIRST UNIT IN A HEADEND HEADEND
- ---- ----------------------- ------------------
<S> <C> <C>
## ## ##
## ## ##
## ##
## ## ##
</TABLE>
Affiliates will require and shall purchase hereunder one or more Headend
Controllers, as required, for each System identified on Exhibit A of this
Agreement. Except as otherwise agreed by the Parties in writing, the above fees
do not include site surveys or training which will be done on a time and
material basis at WG's customary rates (international locations will also
involve additional travel and per diem charges.) Notwithstanding the use of the
term "purchase" herein, such headend controller(s) and servers as acquired
hereunder includes certain WorldGate and third party software, microcode and
documentation, whether stored in electronic (including firmware), magnetic,
optical or other media (collectively Programs) for which title to and all
proprietary rights in are reserved to WG and its suppliers. All access to and
use of such Programs is subject to the terms and conditions of WG's Software
License attached hereto and incorporated herein as Exhibit B-1.
LIMITED PRODUCT WARRANTY
Upon the installation of the Headend Controller WG will perform the Verification
of Performance procedure as set forth in the attached Exhibit B2 as the same may
be amended from time to time with the mutual agreement of the Parties. Affiliate
will be notified prior to the performance of such procedure and shall
participate in such procedure if it desires. Upon the successful completion of
such procedure the Headend controller will be deemed installed for purposes of
this Agreement. In addition to the warranties set forth in Section 8 of the
Affiliation Agreement, WG warrants that as supplied hereunder and for a period
of twelve months from the installation thereof (but not more than thirteen
months from the delivery thereof) such WorldGate Platform components will
perform under normal use and service substantially in the manner specified in
the applicable published technical specification as published by WG prior to the
execution of this Agreement as set forth in the attached Exhibit B3 (as the same
may be amended from
- ----------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
PAGE 15 OF 22
time to time with the mutual agreement of the parties), and that for this period
the hardware components of the WorldGate Platform will be free from defects in
materials and workmanship. This warranty shall not apply to any items subjected
to accident, misuse, neglect, mishandling or any installation, testing, repair
or alteration by anyone other than WG or its authorized vendors, or any use of
non-approved components in connection with the WG Platform. WG's warranty
hereunder extends to Affiliate and to no other person or entity. This warranty
shall not be enlarged or otherwise affected by, and no obligation or liability
shall arise hereunder by WG's rendering of technical advice, help line support
or service in connection with the products furnished hereunder. Any claims
arising out of the aforesaid warranty must be submitted to, and the affected
components must be returned or otherwise made available to WG in accordance with
its published procedures, during the specified warranty period or within thirty
(30) days of the expiration of such period. Subject to the preceding conditions,
WG will promptly examine such WorldGate Platform components and repair or
replace any such components which are defective with respect to the above
warranty. In the event WG is not able to repair or replace such components as
hereby required, such non-conforming WorldGate Platform components may be
returned to WG and WG will issue a credit for the purchase price of the returned
components, as depreciated over a 5 year period. Any required service, repair or
replacement (and the costs and expenses associated therewith) which are not
covered by the above warranty will be the responsibility of Affiliate and
subject to Affiliate's execution of any required WG service contract and its
payment of WG's customary fees and charges as may be associated therewith, which
shall be no greater than being charged to WG's affiliate customers purchasing
the products and services in similar quantities.
THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING WITHOUT LIMITATION, ANY IMPLIED OR STATUTORY WARRANTY OF
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ANY
WARRANTY HEREUNDER, EXPRESS OR OTHERWISE, IS LIMITED TO THE WARRANTY TERM AND
CONDITIONS AS SET FORTH ABOVE. THE FOREGOING IS NOT INTENDED TO LIMIT OR EXPAND
THE INDEMNITIES AS SET FORTH IN SECTION 9 OF THIS AGREEMENT.
POST WARRANTY MAINTENANCE SUPPORT
WG will make available to Affiliate, at its sole option, post warranty
maintenance support for the WorldGate Platform pursuant to the terms and
conditions of the attached Exhibit B-4
AFFILIATE SUPPORT
WG will provide, at no additional charge to Affiliate, technical support to
Affiliate's customer service and engineering staff, 7 days per week, 24 hours
per day, with such support to be provided by telephone, facsimile and Internet.
Except as is required pursuant to WG's written warranty herein any travel from
WG's facilities will be subject to Affiliate's payment for time and materials at
WG's customary rates, as well as reimbursement for travel and per them charges,
which shall be no greater than being charged to WG's affiliate customers
purchasing the products and services in similar quantities.
- ----------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
Page 16 of 22
PLANT SPARES
WG and Affiliate will cooperate to formulate and implement a reasonable program
for spare parts inventory and replacement and emergency response.
ON SITE TRAINING
Prior to the initial launch of the WorldGate Service at a System WG will conduct
one on site customer service training program for a period not to exceed three
consecutive days. Subsequent to the launch and upon the request of Affiliate, WG
will, at no additional charge, conduct one additional on-site training program
for a period not to exceed two days, at a time to be mutually determined.
Additional training will be available on a time and materials basis at WG's
customary rates, as well as reimbursement for travel and per them charges, which
shall be no greater than being charged to WG's affiliate customers purchasing
the products and services in similar quantities.
SUBSCRIBER SUPPORT
Until December 31, 1998, WG shall make available to WorldGate Subscribers at
domestic United States's locations, a toll-free help line, accessible twenty
four hours per day, seven days per week, to assist WorldGate service Subscribers
with questions relating to their WorldGate Service. Following December 31, 1998
such help line shall become toll-based. [REMAINDER OF PARAGRAPH REDACTED] ##
CHANNEL HYPERLINKINGSM AND OTHER REVENUE SHARING OPPORTUNITIES
The parties anticipate that the Subscriber Accessible Content will include
opportunities to generate revenue from third parties through Channel
Hyperlinking, advertising, commodity buying/selling, lead generation and similar
services which may be enabled by the WorldGate Platform. The Parties further
recognize that such opportunities may require commitments with advertising
agencies and other third parties as well as administrative, accounting, and
other services and associated costs, fees, and expenses in order to permit such
revenue to be generated. The Parties will work together to maximize such
opportunities. Any net revenue which is generated as a result of such services
as the Parties agree to make available to Subscribers or any other party as part
of the WorldGate Service hereunder will be evenly shared by WG and Affiliate,
after payment of such associated costs, fees, and expenses, and subject to any
required commitments as aforesaid.
Effective Date: __________ Affiliate Initials: __________ WG Initials: _________
- --------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
PAGE 17 OF 22
EXHIBIT B-1
SOFTWARE LICENSE
The terms and provisions of this Exhibit B-I (Software License) provide for the
licensing by WG to Affiliate of certain Programs (as such term is defined in the
Affiliation Agreement) furnished with and to be used either as part of or in
conjunction with the WG Platform to be provided by WG to Affiliate under an
Affiliation Agreement, of which this Exhibit forms a part.
1. GRANT OF LICENSE: WG (hereinafter Licensor) hereby grants to Affiliate
(hereinafter Licensee) and Licensee hereby accepts a personal, nonexclusive
license to use the Programs on the terms and conditions set forth herein and in
the Affiliation Agreement. Except as specifically provided herein and therein,
no interest, right or license, express or implied, is granted.
2. OWNERSHIP RIGHTS: Any reference to sale or purchase not withstanding, title
to the Programs and all copies thereof shall be and remain in Licensor, and no
title to or ownership of the Programs or any portion thereof is conveyed or
transferred to the Licensee. Licensee acknowledges that the Programs constitute
confidential and proprietary information and trade secrets of Licensor, whether
or not the Programs, or any portion thereof, are or may be copyrighted or
copyrightable and/or patented or patentable, and that disclosure of the Programs
to Licensee is on the basis of the confidential relationship between Licensee
and Licensor under this Agreement.
3. RESTRICTION ON TRANSFER: Licensee shall not sell, assign, sub-license,
transfer, or otherwise make available the Programs, in whole or in part, except
as may be permitted by this Software License Agreement and only with written
prior consent by WG.
4. RESTRICTION ON USE, DISASSEMBLY AND REVERSE ENGINEERING: Licensee may use
the Programs solely and exclusively on the computer(s) furnished by WG as part
of the WG Platform sold to Affiliate under terms of the Affiliation Agreement,
except that the Programs may also be temporarily used on or with a compatible
backup computer if the WG Platform computers are inoperative because of
malfunction or during the performance of preventive maintenance or engineering
changes, but only for such reasonable time as required to restore such WG
Platform to operative status. Licensee shall use the Programs only in connection
with its immediate internal operations with respect to the provision to its
customers of the WG Service, and shall not offer nor supply the use of the
Programs to others under any circumstance. Licensee shall not disassemble or
otherwise reverse engineer the Programs unless approved in writing.
5. RESTRICTION ON COPYING: Licensee shall make no copies of the Programs, or
any part thereof, except that Licensee may make only that number of copies as
reasonably required solely for the purposes of backup and archival storage. All
copies shall be clearly marked by Licensee with the same Licensor proprietary
and copyright restrictions which appear on the Programs originally supplied to
Licensee, and be stored by Licensee in a secure manner.
6. RESTRICTION ON DISCLOSURE: Except as expressly permitted herein, or as is
required to be disclosed pursuant to judicial or regulatory action, provided
that Licensor is promptly notified at the time such action is initiated and
Licensee fully cooperates with Licensor in seeking continued confidential
treatment of such information to the extent possible, Licensee shall not
disclose or otherwise make available the Programs, or any portion thereof, to
any third party or to any employee or agent of Licensee who is not of necessity
authorized by Licensee to use the Programs as part of Licensee's provision of
the WG Service.
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
PAGE 18 OF 22
Licensee shall take all reasonable steps necessary to ensure the Programs, or
any portions thereof, are not disclosed or otherwise made available by Licensee
(or employees or agents of Licensee) to any third party except as aforesaid.
7. TERMS AND TERMINATION: The term of this License Agreement and the license
granted hereunder shall commence on the date hereof, and shall terminate on the
earlier of. (a) when Licensee ceases to operate or otherwise de-installs or
replaces the WG Platform; or (b) the termination or expiration of the
Affiliation Agreement.
Upon any termination of this Software License Agreement, pursuant to (a)
or (b) above, Licensee shall immediately return the Programs and all copies
thereof to Licensor, and shall, within one (1) month after any such termination
furnish Licensor a written statement certifying that the original and all copies
and extracts (including partial copies and extracts) of the Programs and any
related material received from Licensor or made in connection with such license
have been returned to Licensor or, upon Licensor's written request, destroyed.
Description ______________________________________ Release No. _________________
Effective Date: _________ Affiliate Initials: _________ WG Initials: ___________
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
EXHIBIT B2
[EXHIBIT REDACTED]##
- -------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
EXHIBIT B3
PERFORMANCE SPECIFICATIONS FOR WORLDGATE SYSTEM
1. Downstream data rate:
Aggregate downstream data rate shall be at least 100 kbits/second per
channel (assuming at least 8 lines of VBI used)
2. Upstream Data rate
Aggregate upstream data rate shall be at least 13.98 kbits/second per
channel
3. Number of simultaneous users per downstream channel
Each downstream channel will support at least 8 simultaneous sessions.
4. Number of simultaneous users per upstream channel
Each upstream channel will support at least 8 simultaneous sessions.
5. Packet error immunity
Service will operate satisfactorily in environments with upstream error
rates as poor as 10(-3).
6. Login time
Login response will be under 3 seconds on unimpaired cable plant.
7. Server capacity
Each WorldGate server will have sufficient resources to operate 50
simultaneous sessions.
<PAGE>
Page 19 of 22
EXHIBIT B-4
MAINTENANCE SERVICES PROGRAM
Affiliate may elect, at any time, to enroll in WG's Maintenance Service Program.
Under this program WG will maintain the WorldGate Platform in good working
condition, install any applicable engineering changes and also perform
preventative maintenance with respect to the WorldGate Platform. Such services
will be provided on-site or remotely, and will involve the adjustment, repair
and/or the replacement of WorldGate Platform components, each as is appropriate
in WG's judgement. The current annual fee for such Maintenance Service Program
for domestic U.S. locations is U.S.$5,000 per headend package to be covered
hereunder (Such fee may vary for non-U.S. locations.) WG, however, reserves the
right to increase this fee at any time after the first year of service under
this program, subject to Affiliate's right to terminate service hereunder as set
forth below.
WorldGate's Maintenance Program does not cover items which are normally
construed to be consumables, such as inks, paper and the like, or items not
provided by WG. WorldGate's Maintenance Program also does not cover any failure,
damage or defect related to misuse, mishandling, accident, unsuitable physical
or operating environment, any installation, testing, handling, modification or
repair by other than WG personnel, or any use or connection of the WorldGate
Platform to an item not covered by this program.
In order to provide maintenance service hereunder WG will require, and Affiliate
agrees to provide (1) prompt notification of any problems, (2) cooperation and
assistance in analyzing, confirming and determining the cause of any problem and
in implementing any applicable maintenance procedures, (3) reasonable physical
and electronic access to Affiliate's System and the WorldGate Platforms therein.
Components provided during repair or replacement hereunder may not be new, but
will be in good working order. Any removed components become the property of WG.
WG will endeavor to provide to Affiliate at least two weeks prior notice of its
intent to install any applicable engineering changes. Such engineering changes
shall be installed only at Charter's discretion, provided that WG shall be
relieved from any liabilities associated with Charter's decision to not install
any such engineering change.
Upon Affiliate's election to enroll in WG's Maintenance Service Program, WG will
arrange for an inspection of the applicable WorldGate Platform(s). This
inspection will be waived and the WorldGate Platform will be deemed to be in
good working condition if this Maintenance Service Program becomes effective
immediately upon expiration of the warranty period. If the WorldGate Platform is
not in good working condition, Affiliate may (1) have WG restore the WorldGate
Platform to good working condition at WG's customary rates, as well as
reimbursement for travel and per them charges, or (2) withdraw its request for
enrollment and WG will refund any amounts paid in advance for such WorldGate
Maintenance Program with respect to the applicable WorldGate Platform.
Commencement of such service program for any applicable WorldGate Platform
cannot occur until after WG has determined that such WorldGate Platform is in
good working order. Any election to enroll in the WorldGate Maintenance Program
should be accompanied by the required annual fee as set forth above. If
additional equipment is added to a previously commenced service program, such
equipment will be subject to inspection as aforesaid and once determined by WG
to be in good working condition, shall be covered by such program for the
remainder of the ongoing term of the program, upon payment by Affiliate of the
prorata fee for such enrollment as determined on a 12 calendar month basis.
Affiliate may terminate this Maintenance Service Program for any applicable
WorldGate Platform upon one (1) month's prior written notice to WG, under any of
the following circumstances (1) the applicable WorldGate Platform has been under
the Maintenance Service Program for at least six months; (2) the applicable
WorldGate Platform has been removed from all productive use with Affiliate's
System; or (3) as of the effective date of an increase in the annual fee for the
Maintenance Service Program.
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
Page 20 of 22
WG may terminate this Maintenance Service Program for any applicable WorldGate
Platform upon one (1) month's prior written notice if Affiliate elects not to
have installed any applicable engineering changes.
Either Affiliate or WG may terminate service for any WorldGate Platform upon at
least one (1) month's prior written notice if the other does not meet its
obligations under this Agreement and does not cure such failure to meet its
obligations within such period. On any termination of service for a WorldGate
Platform, WG will refund any applicable credit on a prorated basis.
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
PAGE 21 OF 22
EXHIBIT C
MARKETING AND PROMOTION OF THE WORLDGATE SERVICE
The Parties will provide, throughout the term of this Agreement, at least the
following identified activities to market and promote the WorldGate Service:
WG WILL PROVIDE:
fourtimes yearly direct mail campaign to non-WorldGate Subscribers (WG will
supply creative and will provide both printing and bulk delivery for
purchase at WG's cost)
bill stuffers (for purchase at WG's cost)
four times yearly local cable interconnect advertising media buys
four 30 and four 60 second video promotions for use as commercials distributed
yearly
training for customer service representatives
selected print media placement
camera-ready ad mats
four-color quarterly consumer guide (for purchase at WG's cost)
point of sale displays
leave behind piece and on-line tutorial for consumer education
participation in the sponsorship of up to four WG/Charter Subscriber Expos per
year in each System
co-branding opportunities consistent with Pargraphs 2.(d) and 4 of this
Agreement
development, promotion and hosting of an affiliate user group
AFFILIATE WILL PROVIDE:
four times yearly direct mail campaign to non-WorldGate households (Affiliate
will provide mailing lists, address labeling, out-bound postage and return
fulfillment costs)
a minimum of 500 ad avails of 30 second length per month, inserted on
Affiliate's Systems on ad supported channels as agreed between the parties
to be run at times between 6:00 AM to 12:00 PM (midnight local time) --
promoting the WorldGate Service, with WG approved commercials
affidavits verifying above commercials
bill stuffer insertion and mailing in Subscriber billing cycle, three times per
annum.
reasonable use of local origination text-based channels (if available) to
promote WorldGate Services
placement of WG approved 30 and 60 second commercials (or other WG provided
promotional pieces) on Affiliate's PPV promotion channel(s) for regular
rotation for two week intervals, monthly
trained customer service representatives for all WorldGate Services
participation in the sponsorship of up to four WG/Charter Subscriber Expos per
year in each System
Effective Date: __________ Affiliate Initials: __________ WG Initials:__________
WORLDGATE COMMUNICATIONS CONFIDENTIAL
<PAGE>
Page 22 of 22
EXHIBIT DI
SUBSCRIBER ACCESS FEES
The following Subscriber Access Fees shall be payable by Affiliate to WG
hereunder (Any adjustment to the specified Fees herein as may result from
changes in the number of Subscribers shall be applied prospectively and only
after notice to WG of the effective date of such change):
As used herein "WorldGate-Subscribers" for any month shall mean the total month
ending aggregate number of WorldGate Subscribers for the particular month based
on the billing systems monthly financial reports, but subject to any audited
correction.
MONTHLY PER SUBSCRIBER ACCESS FEE FOR WORLDGATE SERVICE (NON-METERED)
<TABLE>
<CAPTION>
SUBSCRIBERS MONTHY FEE
----------- ----------
<S> <C>
1-250,000 ##
250,001 plus ##
</TABLE>
EXHIBIT D2
WORLDGATE RATE CARD FOR MONTHLY PER/SUBSCRIBER ACCESS FEES
<TABLE>
<CAPTION>
SUBSCRIBERS MONTHLY FEE
--------------- -----------
<S> <C>
0-100,000 ##
100,001-200,000 ##
200,001-350,000 ##
350,001-500,000 ##
500,001-750,000 ##
750,001-1,000,000 ##
1,000,000 Plus ##
</TABLE>
Effective Date: ________________ Affiliate Initials: _____________ WG Initials:
WORLDGATE COMMUNICATIONS CONFIDENTIAL
- --------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
Exhibit 10.10
WORLDGATE AFFILIATION AGREEMENT
THIS AGREEMENT DATED 12/8/98, IS BETWEEN PRESTIGE CABLE, INC., WITH ITS
PRINCIPAL PLACE OF BUSINESS AT 406 OLD MILL ROAD, CARTERSVILLE, GA 30120,
(HEREINAFTER REFERRED TO AS "AFFILIATE") AND WORLDGATE COMMUNICATIONS, INC.,
WITH ITS PRINCIPAL PLACE OF BUSINESS AT: 3220 TILLMAN DRIVE, SUITE 300,
BENSALEM, PA 19020 (HEREINAFTER REFERRED TO AS "WG").
AFFILIATE AND WG (COLLECTIVELY THE "PARTIES") HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS:
The following terms, abbreviations and definitions used in this Agreement
shall have the meanings set forth herein below:
(a) "SYSTEM(S)" means Affiliate's television distribution system(s),
including the equipment and facilities directly associated therewith, for the
geographical service areas identified in Exhibit A. Affiliate may, from time to
time, add additional Systems, in which event Affiliate shall provide WG with at
least ninety (90) days advance written notice of any such proposed additions to
the System, and upon the agreement of the Parties with respect to the proposed
additions this Agreement shall be promptly amended to cover the proposed
additions by the execution of supplemental and/or superseding Exhibit A(s)
setting forth the agreed and then current information relevant to such Systems.
(b) "SUBSCRIBER" means a person or entity gaining access to the
WorldGate-SM- Service through Affiliate's System(s).
(c) "SUBSCRIBER ACCESSIBLE CONTENT" means the data, information,
programs, displays, applications and other content (including without
limitation, the Internet) which, from time to time, are provided for access
by Subscribers to the WorldGate-SM- Service. Affiliate acknowledges that
elements of such Subscriber Accessible Content, such as the Internet, may
include materials and information of unreliable, uncertain or even
objectionable origin, nature and/or character, and that WG expressly
disclaims any responsibility for or liability associated with Subscriber's
access to or use of the Subscriber Accessible Content. Affiliate further
acknowledges that Subscriber Accessible Content is dynamic and that the
providers thereof may, from time to time, and for any reason make additions
to, deletions from and otherwise modify Subscriber Accessible Content.
(d) "TERM" means the term of this Agreement which shall commence on the
date hereof, and shall terminate seven (7) years from such date, except if
renewed or terminated earlier as provided herein.
(g) "WORLDGATE-SM- PLATFORM" means the hardware and software components to
be supplied by WG for Affiliate's use in connection with Affiliate's System(s)
to provide Subscriber access to the WorldGate Service hereunder.
(h) "WORLDGATE-SM- SERVICE" means an interactive Internet access service
which utilizes the WorldGate Platform in connection with the Affiliate's
System(s) for addressably transmitting downstream application information
(including Subscriber Accessible Content) to Subscribers in the System's
channels (vertical blanking intervals, full video channels or MPEG data stream)
and, either utilizing separate rf sub-bands of the System's current allocated
spectrum and/or a suitable phone-network based return facility for transmitting
upstream communication.
WorldGate Communications Confidential
<PAGE>
2. AUTHORIZATION OF RIGHTS, WORLDGATE PLATFORM AND SYSTEMS:
(a) During the Term hereof WG authorizes Affiliate to use the WorldGate
Platform to provide the WorldGate Service to Subscribers, and such Subscribers
to have access to and use of the WorldGate Service via the WorldGate Platform in
connection with Affiliate's System, in accordance with the terms and conditions
of this Agreement.
(b) Upon the execution of this Agreement, and from time to time thereafter
as the number of Subscribers increases, Affiliate shall acquire by purchase,
lease or such other acquisition transaction as determined by the Parties, the
components of the WorldGate Platform which WG and Affiliate agree in writing to
be required to offer the WorldGate Service. Certain terms and conditions with
respect to such acquisition, warranty and support of the WorldGate Platform are
set forth in Exhibit B.
(c) Affiliate shall provide suitable Systems as further identified in
Exhibit A. The installation, maintenance and support of such Systems shall be
the sole responsibility of Affiliate and its suppliers. To enable WG to perform
its obligations hereunder Affiliate shall provide to WG (and its contractors)
reasonable physical access (upon advance notice by WG) as well as continuous
electronic access (via electronic means including direct modem and Internet
connections) to such Systems, and to the WorldGate Platforms connected thereto.
3. RESERVATION OF RIGHTS; TRADEMARKS; PROMOTION OF SERVICE:
(a) All licenses, rights and interest in, to and with respect to the
WorldGate Service (including without limitation the Subscriber Accessible
Content,) the elements, parts and derivations thereof (including without
limitation the writings, images, displays, electronic reproductions, user
interfaces, sounds, data, information and other works embodied therein, derived
therefrom or ancillary thereto, and the media of reproduction, performance or
exhibition thereof), as well as the intellectual property rights related
thereto, not specifically granted herein to Affiliate or to Subscribers, shall
be and are expressly and entirely reserved by WG and the applicable providers of
such Subscriber Accessible Content. The rights and licenses granted to Affiliate
and the Subscribers pursuant to this Affiliation Agreement do not include any
right to sublicense any third party, in whole or in part.
(b) Affiliate agrees that it is the essence of this Agreement that,
without the specific written consent of WG, or except as otherwise set forth
herein: (i) the WorldGate Platform shall not be modified by Affiliate in any
manner; (ii) the WorldGate Platform shall not be utilized by Affiliate for any
purpose other than to provide the WorldGate Service; and (iii) Affiliate shall
not authorize any other party to do any of the acts forbidden herein
(collectively, the "Prohibited Acts"). Affiliate shall immediately notify WG
upon the occurrence or likely occurrence of any Prohibited Acts of which it
becomes aware.
(c) The Parties recognize that each other's trademarks and brands are
significant assets of the Party owning the same and that any use of such
trademarks and brands shall only be with the other's prior consent and then only
in a manner consistent with that typically used with quality and valued
trademarks and brands, and intended to promote the good will associated with the
same. Affiliate agrees to prominently display the applicable WG brands in all
external communications promoting Internet access for television such as, but
not limited to, advertisements, commercials, direct mail pieces, bill stuffers,
and price lists. Affiliate agrees to diligently promote the WorldGate Service
with resources and activities which are no less than those generally used to
promote other offerings having a comparable potential customer base, including
participation in such cooperative marketing activities as may be agreed by the
Parties, including without limitation the activities set forth in Exhibit C.
WorldGate Communications Confidential
<PAGE>
4. PAYMENTS, ACCESS FEES AND TAXES:
(a) As consideration for the rights granted and services performed
hereunder with respect to the WorldGate Service, Affiliate shall pay to WG
Subscriber Access Fees as more fully set forth in Exhibit D. Notwithstanding the
required payment of a Subscriber Access Fee as described above, the Parties
agree and acknowledge that Affiliate is free to determine what fees, if any, it
charges its customers with respect to access to the WorldGate Service. All
quotations, prices, fees and monies due thereunder to WG are net of all duties,
franchise fees and taxes (including interest and penalties on any such amounts)
now or hereafter imposed or based upon the licensing, rental, purchase,
shipment, delivery, transmission, exhibition, possession, or use of the
WorldGate Platform, the access to the WorldGate Service and any Subscriber
Accessible Content, or any transfer of technology hereunder, but excluding
however any taxes assessed upon any of WG's income (collectively "Taxes").
Affiliate shall indemnify and hold WG forever harmless from any liability
associated with such Taxes.
(b) Except for Subscriber Access Fees all payments hereunder shall be made
promptly at the net invoice price within thirty (30) days after the receipt of
an invoice for the same. Invoices for equipment purchased shall be provided to
Affiliate upon delivery of such equipment. Interest shall accrue on all amounts
not paid when due at a rate equal to the lesser of twelve (12%) percent per
annum or any maximum rate imposed under applicable laws and regulations.
Payments shall not be deferred or subjected to setoff by Affiliate. Payments may
not be suspended and shall continue during the pendency of any dispute
hereunder. All prices and fees stated herein and all payments to be made to WG
hereunder are expressed in, and shall be made, in the currency of the United
States unless otherwise agreed in writing by the parties. WG reserves the right
to change or limit the amount or duration of any payment credit terms which may
be extended to Affiliate hereunder in the event of any change in the credit
worthiness of Affiliate as determined by WG in its sole discretion.
5. STATEMENTS AND REPORTS: To afford determination and/or verification of
the Subscriber Access Fees due WG shall provide to Affiliate an accounting
statement and report within twenty (20) days after the beginning of each
calendar month in which the WorldGate Service is distributed hereunder. Said
statement shall include the following information to the extent applicable: the
number of Subscribers, the type of Subscriber accounts, the Subscriber usage,
and the total amount due for access to the WorldGate Service hereunder. Such
information may be provided electronically by Affiliate access to computer
terminals associated with the WorldGate Platform and/or in connection with a
third party standard billing interface. Affiliate acknowledges and agrees that
WG will have access to such of Affiliate's records and information relating to
Subscribers as reasonably required to comply with WG's contractual obligations
and to provide such statements and reports as are required hereunder.
6. AUDIT: Affiliate and WG shall keep accurate and complete books and
records of Subscriber accounts and their access to and use of the WorldGate
Service. Subject to the confidentiality provisions contained herein, each of
Affiliate and WG may, not more than once during each calendar year and upon at
least thirty days prior written notice, at its expense and during regular
business hours, have the right to audit all such books and records of the other.
Such audits shall be conducted by a internationally recognized, independent
public accounting firm chosen by the auditing Party on the auditing Party's
behalf. The audited Party agrees to fully cooperate with auditing Party's
representatives and/or designees, and shall provide such representatives and/or
designees with adequate space in which to facilitate any audit of such books
and/or records. If an audit reveals a discrepancy in the amounts owed for the
audit period, WG and Affiliate agree to make prompt adjustments of such accounts
along with any required credits or payments associated therewith.
WorldGate Communications Confidential
<PAGE>
7. REPRESENTATIONS AND WARRANTIES OF THE PARTIES:
(a) Each of the Parties represents and warrants that (i) it has the
authority and power to enter into this Agreement and to perform its obligations
hereunder; and (ii) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
and are deemed to be valid, binding and enforceable obligations.
8. INDEMNIFICATION:
(a) WG shall indemnify Affiliate against (i) any award of damages and
costs made against Affiliate by a final judgment of a court of competent
jurisdiction in any such action, insofar as the same are based on a claim that
the WorldGate Platform infringes any United States patent, and (ii) any
settlements or compromises made by WG as described below. WG shall control the
defense of any such action including appeals, and all of negotiations thereof,
including the right to effect any settlement or compromise. In case the use of
the WorldGate Platform is, in any action, held to constitute such an
infringement and the use thereof is enjoined, WG shall, at its option and
expense (x) procure for Affiliate the right to continue using the WorldGate
Platform, (y) replace or modify the same so that it becomes non-infringing and
performs the same service with substantially the same quality, or (z) authorize
Affiliate to return the effected WorldGate Platform and provide Affiliate with a
refund of the purchase price, less an allowance for past use prorated based upon
the initial term of this Agreement. The above indemnity shall not apply to and
WG shall have no liability for any claim of infringement based on: (1) any use
of other than a current unaltered release of the WorldGate Platform; or (2) any
access to or use of the Subscriber Accessible Content; or (3) any combination or
use of the WorldGate Platform with non-WG hardware, software, methods, processes
or applications, or (4) any use of the WorldGate Platform other than is
authorized herein. The foregoing states the entire liability with respect to
infringement of any intellectual property rights with regard to the WorldGate
Platform.
(b) Affiliate shall indemnify WG against (i) any award of damages and
costs made against WG by a final judgment of a court of competent jurisdiction
in any such action, insofar as the same are based on a claim of infringement
arising out of: (1) any use of other than a current unaltered release of the
WorldGate Platform; or (2) any combination or use of the WorldGate Platform with
non-WG hardware or software, methods, processes, applications, or any Affiliate
sourced or required Subscriber Accessible Content, or (3) any use of the
WorldGate Platform other than is authorized herein, and (ii) any settlements or
compromises made by Affiliate as described below.
(c) In any case in which indemnification is sought hereunder:
(i) The party seeking indemnification shall promptly notify the
other party in writing upon the initiation of any claim or litigation to
which the indemnification relates;
(ii) The party seeking indemnification shall afford the other party
the opportunity to participate in, and, at the option of such other party,
to control, any compromise, settlement, litigation or other resolution or
disposition of any such claim.
(iii) The party seeking indemnification shall fully cooperate with
the reasonable requests of the other party in its participation in, and
control of, any compromise, settlement, litigation or other resolution or
disposition of any such claim.
WorldGate Communications Confidential
<PAGE>
9. TERMINATION AND DEFAULTS:
(a) Either party shall be entitled to terminate this Agreement within one
hundred eighty (180) of the date hereof (the "trial period"), if it determines
that the Subscriber demand for the WorldGate Service is not acceptable. If
Affiliate terminates this Agreement during the trial period as aforesaid and
prior to the expiration of such trial period, but no later than 10 business days
after it's notice of termination, returns to WG the components of the Headend
Package, in working condition, reasonable wear and tear excepted, Affiliate will
receive a refund of the purchase price for such components so returned.
(b) In addition to all of its other rights and remedies at law and in
equity, either party shall be entitled at its option forthwith, upon giving
notice to the other party, to terminate this Agreement and all licenses granted
hereunder, (i) if said other party shall fail to perform any of its obligations
or undertakings required of it hereunder, or shall be in breach of any of its
warranties or representations herein contained, and shall not have cured or
remedied such failure or breach within sixty (60) days of written notification
thereof; provided, however that with respect to any failure to pay Subscriber
Access Fees such cure period shall be reduced to ten (10) business days from the
date of written notification hereunder; (ii) if a party hereunder commences a
voluntary case under Title 11 of the United States Bankruptcy Code as now and
hereafter in effect, or any successor statute, or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or a party consents
to the entry of an order for relief in an involuntary case, or to the conversion
of a voluntary case to an involuntary case, under any such law, or consents to
the appointment of or taking possession by a receiver, trustee or other
custodian for all or a substantial part of its property; a party makes any
assignment for the benefit of creditors; a party is unable or fails or admits in
writing of its inability or failure to pay its debts as such debts become due;
or the Board of Directors or other governing body of a party adopts any
resolution or otherwise approves authorization to act upon any of the foregoing,
such action shall be deemed a breach hereunder; or (iii) if any order, judgment
or decree is entered against decreeing the dissolution or split-up of such
party, and such order remains undischarged or unstated for a period in excess of
thirty (30) calendar days, such action shall be deemed a breach hereunder.
(c) Sections 3,(a), 3(b), 6, 8-12, and 14-16, as well as any obligation
which has accrued prior to any expiration or termination of this Agreement shall
survive such expiration or termination. All outstanding amounts owing hereunder
shall become immediately due and payable in the event of any expiration or
termination of this Agreement.
10. NON-WAIVER OF BREACH; REMEDIES CUMULATIVE; LIMITATION ON DAMAGES:
(a) A waiver by either party of any of the terms or conditions of this
Agreement shall not, in any instance, be deemed or construed to be a waiver of
such terms or conditions for the future or of any subsequent breach thereof. No
payment or acceptance thereof under this Agreement shall operate as a waiver of
any provision hereof.
(b) Except as set forth herein all remedies, rights, undertakings,
obligations and agreements contained in this Agreement shall be cumulative and
none of them shall be in limitation of any other remedy, right, undertaking,
obligation, or agreement of either party. IN NO EVENT SHALL EITHER PARTY
HEREUNDER BE LIABLE TO THE OTHER FOR SPECIAL, PUNITIVE, CONSEQUENTIAL (INCLUDING
WITHOUT LIMITATION ANY LOST PROFIT OR INVESTMENT AND THE LIKE), INDIRECT OR
INCIDENTAL DAMAGES, BY WAY OF INDEMNITY OR OTHERWISE.
(c) In no event shall WG be liable for damages in excess of the amounts
paid to WG hereunder with respect to the particular subject matter giving rise
to such damages.
WorldGate Communications Confidential
<PAGE>
11. NOTICES: Except as herein otherwise expressly provided, all notices,
statements and other documents desired or required to be given hereunder shall
be in writing and shall be given by overnight courier service or other personal
delivery, certified mail, email or fax or other comparable immediate electronic
transmission (with a copy sent by regular U.S. mail). All notices, statements
and other documents shall be sent to:
If to WG:
Accounting statements and All other notices should be sent to:
remittances should be sent to:
WORLDGATE COMMUNICATIONS, INC. WORLDGATE COMMUNICATIONS, INC.
3220 Tillman Drive, Suite 300 3220 Tillman Drive, Suite 300
Bensalem, PA 19020 Bensalem, PA 19020
Attn: Accounting Services Attn: Affiliate Administration
with a copy to the General Counsel
If to Affiliate:
PRESTIGE CABLE, INC.
406 Old Mill Road
Cartersville, GA 30120
Attn:
-------------------
(or at such other address as may be designated in writing by either party no
less than thirty (30) days prior to the date of transmission of the notice,
statement, etc.). Notice given by mail within the contiguous United States shall
be deemed given three (3) days after the date of mailing; Notice given by
international mail shall be deemed given ten (10) days after the date of
mailing, notice given by electronic transmission, courier service or by personal
delivery shall be deemed given upon delivery by the transmission service or
messenger.
12. GOVERNING LAW AND EXPORT RESTRICTIONS: All matters pertaining to this
Agreement (including its interpretation, validity, performance and breach), in
whatever jurisdiction action may be brought, shall be governed by the laws of
the State of Delaware (excluding its conflict of law provisions as well as any
adoption of the Convention on Contracts for the International Sale of Goods and
successors thereto). The parties hereto expressly consent and agree to submit to
the jurisdiction of any court of competent jurisdiction in the State of
Delaware, and to accept service of process outside the State of Delaware in any
matter to be submitted to any such court pursuant hereto. Wherever there is any
conflict between any provision hereof and any law or requirement with the force
of law, this Agreement shall remain valid and such provision hereof shall be
restricted to the extent, and only to the extent, necessary to bring it within
the applicable requirements, unless such restriction shall, in the opinion of
WG, have the effect of materially nullifying, or impairing, this Agreement.
Affiliate shall comply fully with all then current applicable laws and
regulations relating to the export of products and technical data including, but
not limited to, any regulations of the United States Office of Export
Administration.
13. FORCE MAJEURE: Neither party shall, in any manner whatsoever, be
liable or otherwise responsible for any delay or default in, or failure of
performance (other than the failure to make payments hereunder) resulting from
or arising out of or in connection with, any "Event of Force Majeure" and no
such
WorldGate Communications Confidential
<PAGE>
delay, default in, or failure of performance shall constitute a breach by either
party hereunder. For purposes of this Agreement, an "Event of Force Majeure" in
respect of a party shall mean any act, cause contingency or circumstances beyond
the reasonable control of such party, including, without limitation, and to the
extent beyond the control of such other party, any governmental action,
nationalization, expropriation, confiscation, seizure, allocation, embargo,
prohibition of import or export of goods or products, regulation, order or
restriction (whether foreign, federal or state), war (whether or not declared),
civil commotion, disobedience or unrest, insurrection, public strike, riot or
revolution, lack of or shortage of, or inability to obtain, any labor,
machinery, materials, fuel, supplies or equipment from normal sources of supply,
strike, work stoppage or slowdown, lockout or other labor dispute, earthquake,
hurricane, other natural calamity, damage or destruction to plant and/or
equipment, fire or any other accident, condition, cause, contingency or
circumstance (including, without limitation, acts of God) beyond the reasonable
control of such party.
14. CONFIDENTIALITY:
(a) The recipient of any confidential information of the other hereunder
agrees to safeguard the confidentiality of such confidential information by
applying policies and procedures adequate for that purpose, including without
limitation, restricting the disclosure of this confidential information to
employees and consultants needing to know the same for the purpose of this
Agreement, who have agreed in writing to safeguard such confidential information
in a manner consistent with the provisions of this paragraph. The recipient
shall not disclose any such confidential information to any other person, firm
or corporation, or use the same except for the purpose stated hereinabove, and
shall exercise at least the same degree of care to guard against disclosure or
unauthorized use of such confidential information, as the recipient employs with
respect to its own confidential information, but in no event less than
reasonable care.
(b) The recipient shall have no obligation of confidentiality hereunder
with respect to any information which:
(i) is already properly known to the recipient other than as a
result of a prior confidential disclosure by the disclosing Party;
(ii) is or becomes publicly known otherwise than by the recipient's
(or someone receiving the information from recipient) fault or breach of
this Agreement;
(iii) is rightfully received by the recipient without restriction
from a third party who is not under an obligation of confidentiality,
directly or indirectly, to the disclosing Party;
(iv) is independently developed by the recipient without benefit of
the confidential information received hereunder;
(v) is approved for release in writing by the disclosing Party; or
(vi) is required to be disclosed by the recipient pursuant to
judicial or regulatory action, provided that the disclosing party is
promptly notified at the time such action is initiated and the recipient
fully cooperates with the disclosing Party in seeking continued
confidential treatment of such information to the extent possible.
(c) Except as may be reasonably required by applicable law, regulation or
court order, the Parties agree that neither of them shall publicly divulge or
announce, or in any manner disclose to any third party, other than its attorneys
and accountants, any of the specific terms and conditions of this Agreement,
including without limitation the Subscriber Access Fees payable hereunder, and
the parties further warrant and agree that none of their officers, directors or
employees will do so.
WorldGate Communications Confidential
<PAGE>
15. PROCEDURE PRIOR TO LITIGATION: Prior to initiating any litigation with
respect to any controversy, claim or dispute arising hereunder or related
hereto, but excluding any claim arising under Sections 3 or 14 of this Agreement
(a "Dispute") a Party must first notify the other Party and request in writing
that such Dispute be submitted to an executive committee consisting of one
senior ranking executive named by each of the Parties for such purpose. Such
named executive shall have the authority and be capable of making binding
decisions on behalf of such Party with respect to such Dispute. Within five (5)
business days following the receipt of such notice (or such other period as may
be agreed by the Parties) each Party shall have named its executive committee
participant, and within ten (10) business days following the receipt of such
notice (or such other period as may be agreed by the Parties) the executive
committee shall meet to discuss the Dispute. If the executive committee is not
able to resolve the Dispute within twenty (20) business days following the
receipt of such notice (or such other period as may be agreed by the Parties),
then either Party may proceed with the initiation of such litigation as may be
appropriate.
16. MISCELLANEOUS; ENTIRE UNDERSTANDING: The titles of the paragraphs of
this Agreement are for convenience only and shall not in any way affect the
interpretation of this Agreement. This Agreement does not in any way create the
relationship of franchise, joint venture, partnership or agency between WG and
Affiliate, and each shall remain an independent contractor, and as such shall
not act or represent itself, directly or by implication, as agent for the other
or assume or create any obligation of or in the name of the other. This
Agreement will inure to the benefit of and be binding upon the Parties and their
respective representatives, and permitted successors and assignees. This
Agreement, including the Exhibits identified herein, sets forth the entire
understanding of the parties with respect to the subject matter hereof, and all
oral agreements and all prior written agreements with respect to such subject
matter have been merged herein. No representations or warranties have been made
other than those expressly provided for herein. This Agreement may not be
modified, except by a written instrument signed by an authorized representative
of the Parties, and this provision may not be waived except by written
instrument signed by an officer of the Parties. This Agreement may be executed
in any number of counterparts, with each such counterpart deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument. In the event this agreement is translated into any foreign language
counterpart, the English language counterpart shall remain controlling. This
Agreement shall be presumed to have been negotiated and drafted by both Parties
for the purpose of construing any ambiguities hereunder.
IN WITNESS WHEREOF, THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE SIGNED AND
ACCEPTED BY THEIR DULY AUTHORIZED REPRESENTATIVES AS OF THE DAY AND YEAR FIRST
WRITTEN ABOVE.
Affiliate: PRESTIGE CABLE, INC. WG
By: /s/ Robert F. Buckfelder By: /s/ Scott B. Campbell
Name: Robert F. Buckfelder Name: Scott B. Campbell
Title: Vice President Title: V.P. Business Development
Date: 11/30/98 Date: 12/8/98
Tel.: 704-663-4617 Tel.: 215-633-5100
Fax: 704-663-0905 Fax: 215-633-9590
WorldGate Communications Confidential
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
TELEVISION DISTRIBUTION SYSTEMS
SYSTEM NAME LAUNCH DATE APPROX. # OF SUBSCRIBERS
----------- ----------- ------------------------
<S> <C> <C>
## ## ##
## ## ##
## ## ##
## ## ##
</TABLE>
Each System identified above must include at least the following minimum
facilities (to be supplemented as Subscriber base grows):
(a) dedicated Internet Access Link - T1 or equivalent with comparable data
rates
(b) Cisco 2501 Router with IP Software (or approved equivalent)
(c) Kentrox D-Serv CSU/DSU (or approved equivalent)
EXHIBIT B
WORLDGATE PLATFORM
PLATFORM COMPONENTS AND PRICING:
Set forth below are standard components of the WorldGate Platform typically used
for a System and the price for the same as of the effective date set forth
below. Such prices are FOB WG's factory, and are valid for a period of ninety
(90) days from this effective date after which time they are subject to change
by WG to reflect current prices.
<TABLE>
<CAPTION>
ITEM FIRST UNIT IN A HEADEND OTHER UNITS - SAME HEADEND
---- ----------------------- --------------------------
<S> <C> <C>
Headend Package (analog) ## ##
Large System Headend Package (analog) ##
Channel HyperLinking Server ##
WorldGate Keyboard* ## ##
* Non-U.S. language keyboards will be quoted separately.
</TABLE>
[PARAGRAPH REDACTED]##
PROGRAM LICENSE:
Notwithstanding the use of the term "purchase" herein, or any other documents
providing for the acquisition of such WorldGate Platform by Affiliate, the
WorldGate Platform includes certain WorldGate and third party software,
microcode and documentation, whether stored in electronic (including firmware),
magnetic, optical or other media (collectively Programs) for which title to and
all proprietary rights in are reserved to WG and its suppliers. All access to
- ------------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
WorldGate Communications Confidential
<PAGE>
and use of such Programs is subject to the terms and conditions of WG's License
attached hereto and incorporated herein as Exhibit B-1.
LIMITED PRODUCT WARRANTY:
WG hereby warrants that as installed hereunder and for a period of three months
thereafter ( but not more than four months after delivery if there is a delay
between delivery and installation other than as may result from the actions
and/or omissions of WG) such WorldGate Platform components will perform under
normal use and service substantially in the manner specified in the applicable
technical specification as published by WG prior to the execution of this
Agreement, and that for this period the hardware components of the WorldGate
Platform will be free from defects in materials and workmanship. This warranty
shall not apply to any items subjected to accident, misuse, neglect,
mishandling, unsuitable physical or operating environments or any installation,
testing, repair, adjustment or alteration by anyone other than WG or its
authorized vendors, or any use of non-approved components in connection with the
WorldGate Platform. WG's warranty hereunder extends to Affiliate only, and to no
other person or entity. This warranty shall not be enlarged or otherwise
affected by, and no obligation or liability shall arise hereunder by WG's
rendering of technical advice, help line support or service in connection with
the products furnished hereunder. Any claims arising out of the aforesaid
warranty must be submitted to, and the affected components must be returned or
otherwise made available to WG in accordance with its published procedures,
during the specified warranty period. Subject to the preceding conditions, WG
will promptly examine such WorldGate Platform components and repair or replace
any such components which are defective with respect to the above warranty. Any
required service, repair or replacement (and the costs and expenses associated
therewith) which are not covered by the above warranty will be the
responsibility of Affiliate unless covered by an applicable WG service contract.
THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING WITHOUT LIMITATION, ANY IMPLIED OR STATUTORY WARRANTY OF
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ANY
WARRANTY HEREUNDER, EXPRESS OR OTHERWISE, IS LIMITED TO THE WARRANTY TERM AND
CONDITIONS AS SET FORTH ABOVE.
AFFILIATE TECHNICAL SUPPORT:
WG will at no additional charge to Affiliate provide technical support to
Affiliate's customer service and engineering staff, 7 days per week, 24 hours
per day, with such support to be provided by telephone, facsimile and/or the
Internet. Except as is provided by WG pursuant to the terms and conditions of
any applicable service contract or WG's written warranty herein, any required
travel from WG's facilities or support in addition to that provided by
telephone, facsimile or Internet hereunder will require payment for time and
materials at WG's customary rates, as well as reimbursement for travel and per
diem charges.
ON SITE TRAINING:
Prior to the initial launch of the WorldGate Service on Affiliate's Systems WG
will conduct one on site customer service training program of up to 3 days in
duration for domestic U.S. installations. Training for non-U.S. installations as
well as additional training will be available on a time and materials basis at
WG's customary rates, as well as reimbursement for travel, lodging and other per
diem charges.
PLANT SPARES:
WG and Affiliate will cooperate to formulate and implement a recommended program
for spare parts inventory, local maintenance strategy and emergency response.
SUBSCRIBER HELP LINE:
WG shall make available to WorldGate Subscribers for domestic US locations, a
toll-based help line to assist WorldGate service Subscribers with questions
relating to their WorldGate Service. Affiliate shall be responsible for all
other Subscriber support. It is anticipated that initial Subscriber support will
be provided by Affiliate with WG providing second level toll-based to
Subscribers through the above telephone help line.
WorldGate Communications Confidential
<PAGE>
EXHIBIT B-1
LICENSE AGREEMENT TERMS AND CONDITIONS
These terms and conditions provide for the licensing by WorldGate (hereinafter
Licensor) to Licensee of WorldGate(SM) and third party software, microcode and
documentation, whether stored in electronic (including firmware), magnetic,
optical, printed or other media (collectively Programs) for which title to and
all proprietary rights in are reserved to Licensor and its suppliers. These
Programs are being furnished to Licensee as part of a commercial relationship
between Licensee and Licensor for the sole purpose (the "Purpose") of enabling
Licensee's activities assisting Licensor with the promotion, distribution and
use of the WorldGate(SM) Internet access service (the "WorldGate Service") to
its subscribers (the "Customers) as reasonably required for and in accordance
with such relationship.
1. GRANT OF LIMITED LICENSE: Licensor hereby grants to Licensee
(hereinafter Licensee) and Licensee hereby accepts a personal, nonexclusive
license solely to use the Programs on the terms and conditions set forth herein.
Except as specifically provided herein, no interest, right or license, express
or implied, is granted in or to the Programs, and all such other interests,
rights and licenses are hereby reserved.
2. OWNERSHIP RIGHTS: Any reference to sale or purchase not withstanding,
title to the Programs and all copies and derivatives thereof, in whole or in
part, shall be and remain in Licensor and its suppliers, and no title to or
ownership of the Programs or any derivative thereof is conveyed or otherwise
transferred to the Licensee. Licensee acknowledges that the Programs constitute
confidential and proprietary information and trade secrets of Licensor and its
suppliers, whether or not the Programs, or any portion thereof, are or may be
copyrighted or copyrightable and/or patented or patentable, and that the
Programs are being made available to Licensee only on the basis of a
confidential and proprietary relationship between Licensee and Licensor
established as part of the aforesaid commercial relationship for the above
Purpose.
3. RESTRICTION ON TRANSFER: Licensee shall not sell, assign, sub-license or
otherwise transfer the Programs, or any portion thereof to any third party.
4. RESTRICTION ON USE, DISASSEMBLY AND REVERSE ENGINEERING: Licensee may
use the Programs solely and exclusively at Licensee's offices as identified by
Licensee as the ship to location for the Programs and the computer(s) and
associated peripherals (the "WorldGate Platform") furnished by Licensor to
Licensee, as and when provided by Licensor to Licensee. Licensee shall use the
Programs only as part of the operation of the WorldGate Platform to provide the
WorldGate Service to the Customers, and then only in connection with Licensee's
immediate internal operations as reasonably required in accordance with, and in
furtherance of the Purpose set forth above, and shall not otherwise use nor
offer or supply the use of the Programs to others under any circumstance.
Licensee shall not, either directly or through any third party, de-compile,
disassemble or otherwise reverse engineer the Programs.
5. RESTRICTION ON COPYING AND ALTERATION: Licensee shall make no copies
of, alterations to, or other derivatives of the Programs, or any part thereof,
or remove any proprietary and/or copyright legends or restrictions which are in
the Programs originally supplied to Licensee.
6. RESTRICTION ON DISCLOSURE: Licensee shall store the Programs in a
secure manner and make the Programs available only to Licensee's employees who
require access to the same for the above Purpose and who agree to abide by these
terms. Except as expressly permitted herein, Licensee shall not disclose or
otherwise make available the Programs, or any portion thereof, to any third
party or to any other employee or agent of Licensee. Licensee shall take all
reasonable steps necessary to ensure the Programs, and any and all portions,
copies and derivatives thereof, are not disclosed or otherwise made available by
Licensee (or employees or agents of Licensee) to any third party except as
aforesaid.
7. TERM, TERMINATION AND REMEDIES: The term of this License Agreement and
the license granted hereunder shall terminate on the earlier of: (a) the
termination or expiration of the aforesaid commercial relationship with
Licensor or the failure of Licensee to comply with any of the terms and
provisions hereof or of any agreement providing for such relationship, which
failure continues for a period of five (5) days after written notice thereof,
or (b) when Licensee ceases to operate, de-installs or otherwise no longer
requires access to the WorldGate Service or Platform for such Purpose. Upon
termination of this License Agreement all rights to use the Programs shall
terminate and Licensee shall immediately cease all use of the Programs and
return the Programs and all copies thereof, in whole or in part, to Licensor
(or upon Licensor's written request destroy the same,) and furnish Licensor a
written statement certifying that the original and all such copies of the
Programs and any related material received from Licensor or made in
connection with such license have been returned to Licensor or destroyed
pursuant to Licensor's written request. Licensor reserves all rights and
remedies, whether provided by contract, at law, self-help, in equity and/or
otherwise, to enforce it rights under this License Agreement. Licensee
acknowledges and agrees that any breach or threatened breach of this License
Agreement shall cause Licensor irreparable injury for which there may be no
adequate remedy at law, and that in addition to any other remedies available,
Licensor shall be entitled to obtain injunctive relief as well as actual
damages.
WorldGate Communications Confidential
<PAGE>
EXHIBIT C
MARKETING AND PROMOTION OF THE WORLDGATE SERVICE
The Parties will provide, throughout the term of this Agreement, at least the
following identified activities to market and promote the WorldGate Service:
WG WILL PROVIDE:
- - joint press release prior to 12/1/99 of execution of Affiliate Agreement
and Affiliate's system-wide deployment
- - three times yearly direct mail piece; (WG will supply creative and provide
both printing and mail processing for purchase at WG's cost).
- - camera-ready ad slicks for newspaper and cable guide promotion.
- - creative for bill inserts and Point of Purchase displays (for purchase at
WG's cost).
- - four: 30/25:5 second video spots for use as commercials, distributed
annually.
- - WG User Guide available in electronic format.
- - one (1) "Leave Behind" instructional video for subscribers and one (1)
printed generic WG User Guide can be purchased at WG's cost.
- - training for installers and all customer contact personnel.
AFFILIATE WILL PROVIDE:
- - joint press release prior to 12/1/99 of execution of Affiliate Agreement
and Affiliate's system-wide deployment
- - at Affiliate's discretion, send direct mail at least three times per year
to non-WG households in all WG serviceable areas. (Affiliate will provide
mailing lists, address labeling, out-bound postage and return fulfillment
costs.)
- - at Affiliate's discretion, run a minimum of 1000,: 30-second spots on
cable system ad avails with WG approved commercials per month. Ad
insertion to take place on ad supported channels as agreed between
parties, to be run at times between 6:00 AM to 12:00 PM (local time).
- - at Affiliate's discretion, cross-channel affidavits supporting ad
insertion (time and channel) to be submitted to WG quarterly.
- - at Affiliate's discretion, placement of WG approved :30-second commercials
(or other WG provided promotional pieces) on Affiliate's PPV promotion
channel(s), for regular rotation for two-week intervals, monthly.
- - at Affiliate's discretion, WG bill insert or envelope advertisement in or
on cable subscriber monthly billing statement, three times per annum.
- - at Affiliate's discretion, reasonable use of local origination text-based
channels (if available) to promote WG.
- - at Affiliate's discretion, train all customer contact representatives on
all WG Services.
- - at Affiliate's discretion, reasonable promotion of WorldGate Service on
Affiliate's web home page
Effective Date: Affiliate Initials: WG Initials:
----------- ------------- ---------
WorldGate Communications Confidential
<PAGE>
EXHIBIT D
SUBSCRIBER ACCESS FEES
SERVICE ACCESS FEES:
The following WorldGate Service Access Fees are payable by Affiliate to WG on a
monthly basis for each Subscriber having access to the WorldGate Service during
such month (prorated based upon a 30 day month for Subscribers having access to
the WorldGate Service for less than a full calendar month). Various penetration
benchmarks are also set forth which, if achieved, will result in an adjustment
in the particular amount payable for such Service Access Fees. Affiliate's
performance with respect to these benchmarks and the resultant amounts payable
hereunder shall be determined on an aggregate System wide basis based on the
results of all Systems hereunder. Any adjustment in the amount payable for such
Access Fees shall apply only for prospective periods after the benchmarks have
been achieved, and then only after written notice has been provided by Affiliate
to WG providing the details as to such achievement.
For purposes of determining the applicable rate for the Service Access Fees
payable hereunder for the Systems (x) the number of "WorldGate Subscribers" for
any month shall mean the average number of actual Subscribers to the WorldGate
Service for that month and shall include only the Subscribers being invoiced for
and paying the standard retail charge which Affiliate invoices its customers for
the WorldGate Service (Service Access Fees are, however, payable by Affiliate to
WG for all Subscribers receiving access to the WorldGate Service irrespective of
whether such standard retail charge or any payment is made by such Subscribers
to Affiliate), and (y) the number of "WorldGate Capable Customers for any month
shall mean the average number of Affiliate's actual customers (including only
those customers being invoiced for and paying the standard retail charge which
Affiliate invoices for its television programming distribution service) which
during the month had sufficient System architecture and Head-end Package
components of the WorldGate Platform installed and operational to permit such
customer to have become a WorldGate Subscriber, had the customer so chosen, and
(z) the "Penetration for any month shall mean the number of WorldGate
Subscribers divided by the number of WorldGate Capable Customers as determined
above. Monthly averages hereunder shall be determined dividing by two the sum of
the applicable number on the first and last business days of the month.
In addition to the Service Access Fees as set forth below Affiliate shall pay to
WG as Subscriber Access Fees in the event the amount which Affiliate invoices
and/or otherwise charges its customers as part Affiliate's standard monthly
retail price for the WorldGate Service exceeds U.S.$14.95 for an unmetered
service option, an amount equal to thirty-five (35%) percent of such excess.
WORLDGATE PLUS SERVICE:
FOR AFFILIATES OFFERING THE WORLDGATE SERVICE AS AN UNLIMITED USAGE SERVICE ON
AN A' LA CARTE BASIS (INCLUDES AN ALLOTTED USAGE TIME PER SUBSCRIBER PER MONTH
WHICH IS NOT LIMITED IN NUMBER OF HOURS).
[CHART REDACTED]##
CHANNEL HYPERLINKING-SM- AND OTHER REVENUE SHARING OPPORTUNITIES:
The parties anticipate that the Subscriber Accessible Content will include
opportunities to generate revenue from third parties through Channel
HyperLinking, advertising, commodity buying/selling lead generation and similar
services which may be enabled by the WorldGate Platform. The Parties further
recognize that such opportunities may require commitments with advertising
agencies and other third parties as well as administrative, accounting, and
other services and associated costs, fees, and expenses in order to permit such
revenue to be generated. The Parties will
- ------------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
work together to maximize such opportunities. Any net revenue which is generated
as a result of such services as the Parties agree to make available to
Subscribers as part of the WorldGate Service hereunder will be evenly shared by
WG and Affiliate, after payment of such associated costs, fees, and expenses,
and subject to any required commitments as aforesaid.
WorldGate Communications Confidential
<PAGE>
Exhibit 10.11
WORLDGATE AFFILIATION AGREEMENT
THIS AGREEMENT DATED OCTOBER 19, 1998, IS BETWEEN MASSILLON CABLETV, INC., WITH
ITS PRINCIPAL PLACE OF BUSINESS AT 814 CABLE STREET, MASSILLON, OH 44647
(HEREINAFTER REFERRED TO AS "AFFILIATE") AND WORLDGATE COMMUNICATIONS, INC.,
WITH ITS PRINCIPAL PLACE OF BUSINESS AT: 3220 TILLMAN DRIVE, SUITE 300,
BENSALEM, PA 19020 (HEREINAFTER REFERRED TO AS "WG").
AFFILIATE AND WG (COLLECTIVELY THE "PARTIES") HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS:
The following terms, abbreviations and definitions used in this Agreement
shall have the meanings set forth herein below:
(a) " COMMERCIAL ESTABLISHMENT" means non-lodging related public and
private facilities which serve the general public or selected members of the
general public, including government and professional offices and non-lodging
related retail businesses such as stores, but excluding lodging related
businesses such as hotels, resorts and casinos.
(b) "PRIVATE RESIDENCE" means a private, non-transient residential
dwelling unit.
(c) "SYSTEM(S)" means Affiliate's cable television distribution system(s),
including the facilities directly associated therewith, for the geographical
service areas identified in Exhibit A. Affiliate may, from time to time, add
additional Systems, in which event Affiliate shall provide WG with at least
thirty (30) days advance written notice of any such proposed additions to the
System, and upon the agreement of the Parties with respect to the proposed
additions this Agreement shall be promptly amended to cover the proposed
additions by the execution of supplemental and/or superseding Exhibit A(s)
setting forth the agreed and then current information relevant to such Systems.
(d) "SUBSCRIBER" means a Commercial Establishment or Private Residence
gaining access to the WorldGate-SM- Service through Affiliate's System(s).
(e) "SUBSCRIBER ACCESSIBLE CONTENT" means the data, information,
programs, displays, applications and other content (including without
limitation, the Internet) which, from time to time, are provided for access
by Subscribers to the WorldGate-SM- Service. Affiliate and WG acknowledge
that elements of such Subscriber Accessible Content, such as the Internet,
may include materials and information of unreliable, uncertain or even
objectionable origin, nature and/or character, and that Subscriber Accessible
Content is dynamic and that the providers thereof may, from time to time, and
for any reason make additions to, deletions from and otherwise modify
Subscriber Accessible Content.
(f) "TERM" means the term of this Agreement which shall commence on the
date hereof, and shall terminate five (5) years from such date, except if
renewed or terminated earlier as provided herein.
<PAGE>
(g) "WORLDGATE-SM- PLATFORM" means the hardware and software components
to be supplied by WG to Affiliate and used by Affiliate in connection with
Affiliate's System(s) to provide Subscriber access to the WorldGate Service
hereunder.
(h) "WORLDGATE-SM- SERVICE" means an interactive Internet access
service which utilizes the WorldGate Platform in connection with the
Affiliate's System(s) for addressably transmitting downstream application
information (including Subscriber Accessible Content) to Subscribers in the
System's channels (vertical blanking intervals, full video channels or MPEG
data stream) and, either utilizing separate rf sub-bands of the System's
current allocated spectrum and/or a suitable phone-network based return
facility for transmitting upstream communication.
2. AUTHORIZATION OF RIGHTS, WORLDGATE PLATFORM AND SYSTEMS, PROMOTION:
(a) During the Term hereof WG authorizes Affiliate to provide to
Subscribers, and such Subscribers to have, access to and use of the WorldGate
Service, via the WorldGate Platform in connection with Affiliate's System, in
accordance with the terms and conditions of this Agreement. For so long as the
WorldGate Service is provided hereunder as the only offering on the Systems for
Internet on a television, WG will not authorize any other person or entity to
provide the WorldGate Service to the geographic areas directly served by the
Systems.
(b) Upon the execution of this Agreement, and as the Subscriber base
increases thereafter, Affiliate shall acquire by purchase, lease or such other
acquisition transaction as may be agreed in writing by the Parties, the
additional components of the WorldGate Platform to maintain reasonable
performance characteristics for the Service, which Affiliate desires to acquire
to offer the WorldGate Service. The standard configuration components of the
WorldGate Platform as well as certain terms and conditions with respect to such
acquisition as well as the associated warranty and support of the WorldGate
Platform are also set forth in Exhibit B.
(c) Affiliate shall also provide suitable Systems as further described in
Exhibit A. The installation, maintenance and support of such Systems shall be
the sole responsibility of Affiliate and its suppliers. To enable WG to perform
its obligations hereunder Affiliate shall provide to WG (and its contractors)
reasonable physical access (upon advance notice by WG and subject to Affiliate's
security procedures) as well as continuous electronic access (via electronic
means including direct modem and Internet connections) to such Systems, and to
the WorldGate Platforms connected thereto.
(d) The Parties shall diligently promote and market the WorldGate Service
to customers which are or become part of Affiliate's Systems, including without
limitation, by providing such activities as are described in Exhibit D.
3. RESERVATION OF RIGHTS; TRADEMARKS:
(a) All licenses, rights and interest in, to and with respect to the
WorldGate Platform, the WorldGate Service (including without limitation the
Subscriber Accessible Content,) the
<PAGE>
elements, parts and derivations thereof (including without limitation the
writings, images, displays, electronic reproductions, user interfaces, sounds,
data, information and other works embodied therein, derived therefrom or
ancillary thereto, and the media of reproduction, performance or exhibition
thereof), as well as the intellectual property rights related thereto, not
specifically granted herein to Affiliate or to Subscribers, shall be and are
expressly and entirely reserved by WG and the applicable providers of such
Subscriber Accessible Content. The rights and licenses granted to Affiliate and
the Subscribers pursuant to this Affiliation Agreement do not include any right
to sublicense any third party, in whole or in part.
(b) Affiliate agrees that it is the essence of this Agreement that,
without the specific written consent of WG, or except as otherwise set forth
herein: (i) the WorldGate Platform shall not be modified by Affiliate in any
manner; (ii) the WorldGate Platform shall not be utilized by Affiliate for any
purpose other than to provide the WorldGate Service; and (iii) Affiliate shall
not authorize any other party to do any of the acts forbidden herein
(collectively, the "Prohibited Acts"). Affiliate shall immediately notify WG
upon the occurrence or likely occurrence of any Prohibited Acts of which it
becomes aware.
(c) The Parties recognize that each other's trademarks and brands are
significant assets of the Party owning the same and that any use of such
trademarks and brands shall only be with the other's prior consent and then only
in a manner consistent with that typically used with quality and valued
trademarks and brands, and intended to promote the good will associated with the
same. As part of diligently promoting the WorldGate Service, Affiliate agrees to
prominently display the applicable WG brands in all external communications
promoting Internet access for television such as, but not limited to,
advertisements, commercials, direct mail pieces, bill stuffers, and price lists.
4. PAYMENTS, ACCESS FEES AND TAXES:
(a) As consideration for the rights granted and services performed
hereunder with respect to the WorldGate Service, Affiliate shall pay to WG
Subscriber Access Fees as more fully set forth in Exhibit C. Notwithstanding the
required payment of a Subscriber Access Fee as described above, the Parties
agree and acknowledge that Affiliate is free to determine what fees, if any, it
charges its customers with respect to access to the WorldGate Service. All fees
due to WG hereunder are net of all duties, franchise fees and taxes (including
interest and penalties on any such amounts) now or hereafter imposed or based
upon the licensing, rental, purchase, shipment, delivery, transmission,
exhibition, possession, or use of the WorldGate Platform, the access to any
Subscriber Accessible Content, or any transfer of technology hereunder, but
excluding however any taxes assessed upon any of WG's income or personal
property (collectively "Taxes"). Affiliate shall indemnify and hold WG forever
harmless from any liability associated with such Taxes.
(b) Except for Subscriber Access Fees all payments hereunder, including
without limitation the purchase price of the components of the WorldGate
Platform to be acquired shall be made promptly at the net invoice price (i) in
cash before shipment, or (ii) upon written credit approval by WG, within
forty-five (45) days after the receipt of an invoice for the same. The above
notwithstanding, payment for the components of the WorldGate Platform which have
been shipped to Affiliate prior to the execution of this Affiliation Agreement
is due and shall be made on or before November 15, 1998. Subscriber Access Fees
are due within forty-five (45) days of the receipt of invoice for the same.
Interest shall accrue on all amounts not paid when
<PAGE>
due at a rate equal to the lesser of twelve (12%) percent per annum or any
maximum rate imposed under applicable laws and regulations. Payments shall not
be deferred or subjected to setoff by Affiliate, the parties will however
reasonably cooperate to adjust the Subscriber Access Fees to reflect a pro-rata
portion of any credits granted to Subscribers which are not able to receive the
WorldGate Service due to a failure of the WorldGate Platform. Payments may not
be suspended and shall continue during the pendency of any dispute hereunder.
All fees stated herein and all payments to be made to WG hereunder are expressed
in, and shall be made, in the currency of the United States unless otherwise
agreed in writing by the parties. WG reserves the right to change or limit the
amount or duration of any payment credit terms which may be extended to
Affiliate hereunder in the event of any change in the credit worthiness of
Affiliate as determined by WG in its sole discretion.
5. STATEMENTS AND REPORTS: To afford determination and/or verification of
the Subscriber Access Fees due WG shall provide to Affiliate an accounting
statement and report within forty-five (45) days after the beginning of each
calendar month in which the WorldGate Service is distributed hereunder. Said
statement shall include the following information to the extent applicable: the
number of Subscribers, the type of Subscriber accounts, the Subscriber usage,
and the total amount due for access to the WorldGate Service hereunder. Such
information may be provided electronically by Affiliate access to computer
terminals associated with the WorldGate Platform and/or in connection with a
third party standard billing interface. Affiliate acknowledges that WG requires
access to records and information relating to Subscribers in order to provide
such statements and reports and hereby consents to the same.
6. AUDIT: During the term hereof and for a period of one year after any
expiration or termination hereof Affiliate and WG shall keep accurate and
complete books and records of Subscriber accounts and their access to and use of
the WorldGate Service. Subject to the confidentiality provisions contained
herein, each of the Affiliate and WG may, not more than once during each
calendar year and upon at least thirty days prior written notice, at its expense
and during regular business hours, have the right to audit all such books and
records of the other. Such audits shall be conducted by an internationally
recognized, independent public accounting firm chosen by the auditing Party on
the auditing Party's behalf. The audited Party agrees to fully cooperate with
auditing Party's representatives and/or designees, and shall provide such
representatives and/or designees with adequate space in which to facilitate any
audit of such books and/or records. If an audit or checking reveals a
discrepancy in the Subscriber Access Fees owed for the audit period, WG and
Affiliate agree to make prompt adjustments of such accounts along with any
required credits or payments associated therewith. Upon written agreement by the
parties such audit results shall be deemed final and binding upon the parties,
absent evidence of fraud.
7. REPRESENTATIONS AND WARRANTIES OF THE PARTIES:
(a) Each of the Parties represents and warrants that (i) it has the
authority and power to enter into this Agreement and to perform its obligations
hereunder; and (ii) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
and are deemed to be valid, binding and enforceable obligations.
<PAGE>
8. INDEMNIFICATION AND CONTENT RISK ALLOCATION:
(a) WG shall indemnify Affiliate against (i) any award of damages and
costs made against Affiliate by a final judgment of a court of competent
jurisdiction in any such action, insofar as the same are based on a claim that
the WorldGate Platform infringes any United States patent, and (ii) any
settlements or compromises made by WG as described below. WG shall control the
defense of any such action including appeals, and all of negotiations thereof,
including the right to effect any settlement or compromise. In case the use of
the WorldGate Platform is, in any action, held to constitute such an
infringement and the use thereof is enjoined, WG shall, at its option and
expense (x) procure for Affiliate the right to continue using the WorldGate
Platform, (y) replace or modify the same so that it becomes non-infringing and
performs the same service with substantially the same quality, or (z) authorize
Affiliate to return the effected WorldGate Platform and provide Affiliate with a
refund of the purchase price, less an allowance for past use prorated based upon
the initial term of this Agreement. The above indemnity shall not apply to and
WG shall have no liability for any claim of infringement based on: (1) any use
of other than a current unaltered release of the WorldGate Platform; or (2) any
combination or use of the WorldGate Platform with non-WG hardware, software,
information, data or content, or (3) any use of the WorldGate Platform other
than is authorized herein. The foregoing states the entire liability with
respect to infringement of any intellectual property rights with regard to the
WorldGate Platform.
(b) Affiliate shall indemnify WG against (i) any award of damages and
costs made against WG by a final judgment of a court of competent jurisdiction
in any such action, insofar as the same are based on a claim of infringement
arising out of: (1) any use of other than a current unaltered release of the
WorldGate Platform; or (2) any combination or use of the WorldGate Platform with
non-WG hardware or software, or (3) any use of the WorldGate Platform other than
is authorized herein, and (ii) any settlements or compromises made by Affiliate
as described below.
(c) The Parties agree that damages and costs may arise hereunder as a
result of claims and disputes by third parties against one or both of the
Parties with respect to the Subscriber's use of Subscriber Accessible Content,
which is beyond the responsibility and/or control of the Parties. In this regard
the Parties will agree upon and implement terms and conditions for Subscriber
use of the WorldGate Service which require Subscriber's acknowledgment of such
factors as are set forth in Paragraph 1(e) of this Agreement and Subscriber's
agreement that any access to and use of Subscriber Accessible Content is and
will be the sole responsibility of the Subscriber. Subscriber's agreement to
these terms and conditions of use will be a pre-requisite to activating a
Subscriber account. Furthermore, the Parties agree to cooperate in good faith
and to take such actions as are reasonable and consistent with prudent business
practices with respect to the defense and/or settlement of such third party
claims and disputes and the equitable allocation of the resulting damages and
costs, including, without limitation, providing the other prompt notice in
writing of any such claim of which it becomes aware. The Parties acknowledge
that from time to time WG, Affiliate or both Parties may receive notice that
Subscriber Accessible Content is alleged to violate the copyright of one or more
entities ("NCL"). Upon receipt of an NCL, the Party receiving said NCL shall
notify the other Party and both Parties shall take such actions as are
reasonable and consistent with prudent business practices with respect to the
NCL.
(d) In any case in which indemnification is sought hereunder:
<PAGE>
(i) The party seeking indemnification shall promptly notify the
other party in writing upon the initiation of any claim or litigation to
which the indemnification relates;
(ii) The party seeking indemnification shall afford the other party
the opportunity to participate in, and, at the option of such other party,
to control, any compromise, settlement, litigation or other resolution or
disposition of any such claim.
(iii) The party seeking indemnification shall fully cooperate with
the reasonable requests of the other party in its participation in, and
control of, any compromise, settlement, litigation or other resolution or
disposition of any such claim.
9. RENEWAL, TERMINATION AND DEFAULTS:
(a) Upon the expiration of the initial Term hereunder this Agreement shall
be automatically renewed for additional successive two (2) year periods
thereafter unless terminated by either Party upon ninety (90) days written
notice prior to the expiration of such initial Term or any renewal period, as
applicable. The Subscriber Access Fees payable during any renewal period shall
be WG's then current published rates or such other rates as may be agreed by the
parties in writing.
(b) In addition to all of its other rights and remedies at law and in
equity, either party shall be entitled at its option forthwith, upon giving
notice to the other party, to terminate this Agreement and all licenses granted
hereunder, (i) if said other party shall fail to perform any of its obligations
or undertakings required of it hereunder, or shall be in breach of any of its
warranties or representations herein contained, and shall not have cured or
remedied such failure or breach within sixty (60) days of written notification
thereof; provided, however that with respect to any failure to pay Subscriber
Access Fees such cure period shall be reduced to ten (10) business days from the
date of written notification hereunder; (ii) if a party hereunder commences a
voluntary case under Title 11 of the United States Bankruptcy Code as now and
hereafter in effect, or any successor statute, or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or a party consents
to the entry of an order for relief in an involuntary case, or to the conversion
of a voluntary case to an involuntary case, under any such law, or consents to
the appointment of or taking possession by a receiver, trustee or other
custodian for all or a substantial part of its property; a party makes any
assignment for the benefit of creditors; a party is unable or fails or admits in
writing of its inability or failure to pay its debts as such debts become due;
or the Board of Directors or other governing body of a party adopts any
resolution or otherwise approves authorization to act upon any of the foregoing,
such action shall be deemed a breach hereunder; or (iii) if any order, judgment
or decree is entered against decreeing the dissolution or split-up of such
party, and such order remains undischarged or unstated for a period in excess of
thirty (30) calendar days, such action shall be deemed a breach hereunder.
(c) Sections 8-12, and 14-16, as well as any obligation which has accrued
prior to any expiration or termination of this Agreement shall survive such
expiration or termination by a period not to exceed five (5) years from such
expiration or termination. All outstanding amounts owing hereunder shall become
immediately due and payable in the event of any expiration or termination of
this Agreement.
<PAGE>
10. NON-WAIVER OF BREACH; REMEDIES CUMULATIVE; LIMITATION ON DAMAGES:
(a) A waiver by either party of any of the terms or conditions of this
Agreement shall not, in any instance, be deemed or construed to be a waiver of
such terms or conditions for the future or of any subsequent breach thereof. No
payment or acceptance thereof under this Agreement shall operate as a waiver of
any provision hereof.
(b) Except as set forth herein all remedies, rights, undertakings,
obligations and agreements contained in this Agreement shall be cumulative and
none of them shall be in limitation of any other remedy, right, undertaking,
obligation, or agreement of either party. IN NO EVENT SHALL EITHER PARTY
HEREUNDER BE LIABLE TO THE OTHER FOR SPECIAL, PUNITIVE, CONSEQUENTIAL (INCLUDING
WITHOUT LIMITATION ANY LOST PROFIT OR INVESTMENT AND THE LIKE), INDIRECT OR
INCIDENTAL DAMAGES, BY WAY OF INDEMNITY OR OTHERWISE.
(c) In no event shall WG be liable for damages in excess of the amounts
paid to WG hereunder with respect to the particular subject matter giving rise
to such damages.
11. NOTICES: Except as herein otherwise expressly provided, all notices,
statements and other documents desired or required to be given hereunder shall
be in writing and shall be given by overnight courier service or other personal
delivery, email or fax or other comparable immediate electronic transmission
(with a copy sent by regular U.S. mail). All notices, statements and other
documents shall be sent to:
If to WG:
Accounting statements and All other notices should be sent to:
remittances should be sent to:
WORLDGATE COMMUNICATIONS, INC. WORLDGATE COMMUNICATIONS, INC.
3220 Tillman Drive, Suite 300 3220 Tillman Drive, Suite 300
Bensalem, PA 19020 Bensalem, PA 19020
Attn: Accounting Services Attn: Affiliate Administration
with a copy to the General Counsel
If to Affiliate:
MASSILLON CABLETV, INC.
814 Cable Court NW
Massillon, OH 44647
Attn: Mr. Bob Gessner
(or at such other address as may be designated in writing by either party no
less than thirty (30) days prior to the date of transmission of the notice,
statement, etc.). Notice given by electronic transmission, courier service or by
personal delivery shall be deemed given upon delivery by the transmission
service or messenger.
<PAGE>
12. GOVERNING LAW AND EXPORT RESTRICTIONS: All matters pertaining to this
Agreement (including its interpretation, validity, performance and breach), in
whatever jurisdiction action may be brought, shall be governed by the laws of
the State of Delaware (excluding its conflict of law provisions). The parties
hereto expressly consent and agree to submit to the jurisdiction of any court of
competent jurisdiction in the State of Delaware, and to accept service of
process outside the State of Delaware in any matter to be submitted to any such
court pursuant hereto. Wherever there is any conflict between any provision
hereof and any law or requirement with the force of law, this Agreement shall
remain valid and such provision hereof shall be restricted to the extent, and
only to the extent, necessary to bring it within the applicable requirements,
unless such restriction shall, in the opinion of WG, have the effect of
materially nullifying, or impairing, this Agreement. Affiliate shall comply
fully with all then current applicable laws and regulations relating to the
export of products and technical data including, but not limited to, any
regulations of the United States Office of Export Administration.
13. FORCE MAJEURE: Neither party shall, in any manner whatsoever, be
liable or otherwise responsible for any delay or default in, or failure of
performance (other than the failure to make payments hereunder) resulting from
or arising out of or in connection with, any "Event of Force Majeure" and no
such delay, default in, or failure of performance shall constitute a breach by
either party hereunder. For purposes of this Agreement, an "Event of Force
Majeure" in respect of a party shall mean any act, cause contingency or
circumstances beyond the reasonable control of such party, including, without
limitation, and to the extent beyond the control of such other party, any
governmental action, nationalization, expropriation, confiscation, seizure,
allocation, embargo, prohibition of import or export of goods or products,
regulation, order or restriction (whether foreign, federal or state), war
(whether or not declared), civil commotion, disobedience or unrest,
insurrection, public strike, riot or revolution, lack of or shortage of, or
inability to obtain, any labor, machinery, materials, fuel, supplies or
equipment from normal sources of supply, strike, work stoppage or slowdown,
lockout or other labor dispute, earthquake, hurricane, other natural calamity,
damage or destruction to plant and/or equipment, fire or any other accident,
condition, cause, contingency or circumstance (including, without limitation,
acts of God) within or without the United States beyond the reasonable control
of such party.
14. CONFIDENTIALITY:
(a) The recipient of any confidential information of the other hereunder
agrees to safeguard the confidentiality of such confidential information by
applying policies and procedures adequate for that purpose, including without
limitation, restricting the disclosure of this confidential information to
employees and consultants needing to know the same for the purpose of this
Agreement, who have agreed in writing to safeguard such confidential information
in a manner consistent with the provisions of this paragraph. The recipient
shall not disclose any such confidential information to any other person, firm
or corporation, or use the same except for the purpose stated hereinabove, and
shall exercise at least the same degree of care to guard against disclosure or
unauthorized use of such confidential information, as the recipient employs with
respect to its own confidential information, but in no event less than
reasonable care.
<PAGE>
(b) The recipient shall have no obligation of confidentiality hereunder
with respect to any information which:
(i) is already properly known to the recipient other than as a
result of a prior confidential disclosure by the disclosing Party;
(ii) is or becomes publicly known otherwise than by the recipient's
(or someone receiving the information from recipient) fault or breach of
this Agreement;
(iii) is rightfully received by the recipient without restriction
from a third party who is not under an obligation of confidentiality,
directly or indirectly, to the disclosing Party;
(iv) is independently developed by the recipient without benefit of
the confidential information received hereunder;
(v) is approved for release in writing by the disclosing Party; or
(vi) is required to be disclosed by the recipient pursuant to
judicial or regulatory action, provided that the disclosing party is
promptly notified at the time such action is initiated and the recipient
fully cooperates with the disclosing Party in seeking continued
confidential treatment of such information to the extent possible.
(c) Except as may be reasonably required by applicable law, regulation or
court order, the Parties agree that neither of them shall publicly divulge or
announce, or in any manner disclose to any third party, other than its attorneys
and accountants, any of the specific terms and conditions of this Agreement,
including without limitation the Subscriber Access Fees payable hereunder, and
the parties further warrant and agree that none of their officers, directors or
employees will do so.
15. PROCEDURE PRIOR TO LITIGATION: Prior to initiating any litigation with
respect to any controversy, claim or dispute arising hereunder or related
hereto, but excluding any claim arising under Sections 3 or 14 of this Agreement
(a "Dispute") a Party must first notify the other Party and request in writing
that such Dispute be submitted to an executive committee consisting of one
senior ranking executive named by each of the Parties for such purpose. Such
named executive shall have the authority and be capable of making binding
decisions on behalf of such Party with respect to such Dispute. Within five (5)
business days following the receipt of such notice (or such other period as may
be agreed by the Parties) each Party shall have named its executive committee
participant, and within ten (10) business days following the receipt of such
notice (or such other period as may be agreed by the Parties) the executive
committee shall meet to discuss the Dispute. If the executive committee is not
able to resolve the Dispute within twenty (20) business days following the
receipt of such notice (or such other period as may be agreed by the Parties),
then either Party may proceed with the initiation of such litigation as may be
appropriate.
16. MISCELLANEOUS; ENTIRE UNDERSTANDING: The titles of the paragraphs of
this Agreement are for convenience only and shall not in any way affect the
interpretation of this Agreement. This Agreement does not in any way create the
relationship of franchise, joint venture, partnership or agency between WG and
Affiliate, and each shall remain an independent contractor, and as such shall
not act or represent itself, directly or by implication, as agent for the other
or assume or create any obligation of or in the name of the other. This
Agreement will inure to the benefit of and be binding upon the Parties and their
respective representatives, and permitted successors and assignees. This
Agreement, including the Exhibits identified herein, sets forth the entire
understanding of the parties with respect to the subject matter hereof, and all
oral agreements and all prior written agreements with respect to such subject
matter have been merged herein. No representations or warranties have been
<PAGE>
made other than those expressly provided for herein. This Agreement may not be
modified, except by a written instrument signed by an authorized representative
of the parties, and this provision may not be waived except by written
instrument signed by an officer of the parties. This Agreement may be executed
in any number of counterparts, with each such counterpart deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument. In the event this agreement is translated into any foreign language
counterpart, the English language counterpart shall remain controlling. This
Agreement shall be presumed to have been negotiated and drafted by both Parties
for the purpose of construing any ambiguities hereunder.
IN WITNESS WHEREOF, THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE SIGNED AND
ACCEPTED BY THEIR DULY AUTHORIZED REPRESENTATIVES AS OF THE DAY AND YEAR FIRST
WRITTEN ABOVE.
Affiliate: MASSILLON CABLETV, INC. WG
By: /s/ Robert Gessner By: /s/ Peter Mondics
Name: Robert Gessner Name: Peter Mondics
Title: VP Title: VP
Date: 11/2/98 Date: 11/13/98
Tel.: 330-833-5509 Tel.: 215-633-5100
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
TELEVISION DISTRIBUTION SYSTEMS
SYSTEM NAME MAILING ADDRESS BASIC SUBSCRIBERS
----------- --------------- -----------------
<S> <C> <C>
## ## ##
## ## ##
</TABLE>
Each System identified above must include at least the following minimum
facilities (to be supplemented as the Subscriber base grows):
(a) dedicated Internet Access Link - T1 or equivalent with comparable data
rates
(b) Cisco 2501 Router with IP Software (or approved equivalent)
(c) Kentrox D-Serv CSU/DSU (or approved equivalent)
EXHIBIT B
WORLDGATE PLATFORM
PLATFORM COMPONENTS AND PRICING:
Set forth below are the standard components of the WorldGate Platform and the
price for the same as of the effective date set forth below. Such prices are FOB
WG's factory, and are valid for a period of one-year from this effective date
after which time they are subject to change by WG to reflect current market
conditions, provided that WG represents that such prices as WG will charge
Affiliate for these standard components will be no less favorable than those
contemporaneously charged to like affiliates under terms and conditions
comparable to those set forth herein.
- ------------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
<TABLE>
<CAPTION>
ITEM FIRST UNIT IN A HEADEND OTHER UNITS - SAME HEADEND
---- ----------------------- --------------------------
<S> <C> <C>
Headend Package (analog) ## ##
Large System Headend Package (analog) ## ##
Channel HyperLinking Server ## ##
WorldGate Keyboard* ## ##
* Non-U.S. language keyboards will be quoted separately.
</TABLE>
Custom configuration options are available and will be quoted separately if
required based upon the results of a site survey and expected Subscriber base.
The above prices do not include site surveys and installation which are
available on a time and material basis at WG's customary rates (plus travel and
per diem charges.) The above prices do not include any improvements and/or
modifications to Affiliate's Systems. Notwithstanding the use of the term
"purchase" herein, such WorldGate Platform as acquired hereunder includes
certain WorldGate and third party software, microcode and documentation, whether
stored in electronic (including firmware), magnetic, optical or other media
(collectively Programs) for which title to and all proprietary rights in are
reserved to WG and its suppliers. All access to and use of such Programs is
subject to the terms and conditions of WG's Software License attached hereto and
incorporated herein as Exhibit B-1.
LIMITED PRODUCT WARRANTY:
WG hereby warrants that as installed hereunder and for a period of twelve months
thereafter ( but not more than thirteen months after delivery if there is a
delay between delivery and installation other than as may result from the
actions and/or omissions of WG) such WorldGate Platform components will perform
under normal use and service substantially in the manner specified in the
current applicable published technical specification as issued by WG prior to
the execution of this Agreement, and that for this period the hardware
components of the WorldGate Platform will be free from defects in materials and
workmanship. This warranty shall not apply to any items subjected to accident,
misuse, neglect, mishandling, unsuitable physical or operating environments or
any installation, testing, repair, adjustment or alteration by anyone other than
WG or its authorized vendors, or any use of non-approved components in
connection with the WorldGate Platform. WG's warranty hereunder extends to
Affiliate only, and to no other person or entity. This warranty shall not be
enlarged or otherwise affected by, and no obligation or liability shall arise
hereunder by WG's rendering of technical advice, help line support or service in
connection with the products furnished hereunder. Any claims
- ------------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
arising out of the aforesaid warranty must be submitted to, and the affected
components must be returned or otherwise made available to WG in accordance with
its published procedures, during the specified warranty period. Subject to the
preceding conditions, WG will promptly examine such WorldGate Platform
components and repair or replace any such components which are defective with
respect to the above warranty. Any required service, repair or replacement (and
the costs and expenses associated therewith) which are not covered by the above
warranty will be the responsibility of Affiliate unless covered by an applicable
WG service contract.
THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING WITHOUT LIMITATION, ANY IMPLIED OR STATUTORY WARRANTY OF
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ANY
WARRANTY HEREUNDER, EXPRESS OR OTHERWISE, IS LIMITED TO THE WARRANTY TERM AND
CONDITIONS AS SET FORTH ABOVE.
AFFILIATE TECHNICAL SUPPORT:
WG will at no additional charge to Affiliate provide technical support to
Affiliate's customer service and engineering staff, 7 days per week, 24 hours
per day, with such support to be provided by telephone, facsimile and/or the
Internet. Except as is provided by WG pursuant to the terms and conditions of
any applicable service contract or WG's written warranty herein, any required
travel from WG's facilities or support in addition to that provided by
telephone, facsimile or Internet hereunder will require payment for time and
materials at WG's customary rates, as well as reimbursement for travel and per
diem charges.
ON SITE TRAINING:
Prior to the initial launch of the WorldGate Service on Affiliate's Systems WG
will conduct one on site technical and customer service training program of up
to 3 days in duration. Additional training will be available on a time and
materials basis at WG's customary rates, as well as reimbursement for travel,
lodging and other per diem charges.
PLANT SPARES:
WG and Affiliate will cooperate to formulate and implement a recommended program
for spare parts inventory, local maintenance strategy and emergency response.
SOFTWARE RELEASES AND UPGRADES:
WG shall provide at no additional cost to Affiliate such bug fixes and other
software releases as it makes available without charge to its other affiliates,
and will use commercially reasonable efforts to notify Affiliate when it becomes
aware of such bugs.
<PAGE>
EXHIBIT B-1
SOFTWARE LICENSE
The terms and provisions of this Exhibit B-1 (Software License) provide for the
licensing by WG to Affiliate of certain Programs (as such term is defined in the
Affiliation Agreement) furnished with and to be used either as part of or in
conjunction with the WorldGate Platform to be provided by WG to Affiliate under
an Affiliation Agreement, of which this Exhibit forms a part.
1. GRANT OF LICENSE: WG (hereinafter Licensor) hereby grants to Affiliate
(hereinafter Licensee) and Licensee hereby accepts a personal, nonexclusive
license to use the Programs on the terms and conditions set forth herein and in
the Affiliation Agreement. Except as specifically provided herein and therein,
no interest, right or license, express or implied, is granted, and such other
interests, rights and licenses are hereby reserved.
2. OWNERSHIP RIGHTS: Any reference to sale or purchase not withstanding, title
to the Programs and all copies and derivatives thereof shall be and remain in
Licensor, and no title to or ownership of the Programs or any derivative or
portion thereof is conveyed or transferred to the Licensee. Licensee
acknowledges that the Programs constitute confidential and proprietary
information and trade secrets of Licensor, whether or not the Programs, or any
portion thereof, are or may be copyrighted or copyrightable and/or patented or
patentable, and that disclosure of the Programs to Licensee is on the basis of
the confidential relationship between Licensee and Licensor under this
Agreement.
3. RESTRICTION ON TRANSFER: Licensee shall not sell, assign, sub-license,
transfer, or otherwise make available the Programs, in whole or in part, except
as may be permitted by this Software License Agreement.
4. RESTRICTION ON USE, DISASSEMBLY AND REVERSE ENGINEERING: Licensee may use the
Programs solely and exclusively on the computer(s) and associated peripherals
furnished by WG as part of the WorldGate Platform sold to Affiliate under terms
of the Affiliation Agreement, except that the Programs may also be temporarily
used on or with a compatible backup computer and associated peripherals if the
WorldGate Platform computers and associated peripherals are inoperative because
of malfunction or during the performance of preventive maintenance or
engineering changes, but only for such reasonable time as required to restore
such WorldGate Platform to operative status. Licensee shall use the Programs
only in connection with its immediate internal operations with respect to the
provision to its customers of the WorldGate Service as authorized by the
Affiliation Agreement, and shall not otherwise use nor offer or supply the use
of the Programs to others under any circumstance. Licensee shall not de-compile,
disassemble or otherwise reverse engineer the Programs.
5. RESTRICTION ON COPYING: Licensee shall make no copies (including any
derivatives) of the Programs, or any part thereof, except that Licensee may make
one (1) copy of the Program solely for the purposes of backup and archival
storage. All copies shall be clearly marked by Licensee with the same Licensor
proprietary and copyright restrictions which appear on the Programs originally
supplied to Licensee, and be stored by Licensee in a secure manner.
6. RESTRICTION ON DISCLOSURE: Except as expressly permitted herein, Licensee
shall not disclose or otherwise make available the Programs, or any portion
thereof, to any third party or to any employee or agent of Licensee who is not
of necessity reasonably authorized by Licensee to access and use the Programs as
part of Licensee's provision of the WorldGate Service. Licensee shall take all
reasonable steps necessary to ensure the Programs, or any portions, copies or
derivatives thereof, are not disclosed or otherwise made available by Licensee
(or employees or agents of Licensee) to any third party except as aforesaid.
7. TERMS AND TERMINATION: The term of this License Agreement and the license
granted hereunder shall commence on the date hereof, and shall terminate on the
earlier of: (a) when Licensee ceases to offer the WorldGate Service or when
Licensee ceases to operate or de-installs the WorldGate Platform; or (b) the
termination or expiration of the Affiliation Agreement or the failure of
Licensee to comply with any of the terms and provisions hereof or of the
Affiliation Agreement (including without limitation, the failure to pay any fees
when due), which failure continues for a period of ten (10) days after written
notice thereof.
Upon termination of this Software License Agreement all rights to use the
Programs shall terminate and Licensee shall immediately cease use of the
Programs, and shall, within one (1) month after any such termination return the
<PAGE>
Programs and all copies thereof to WG (or upon WG's written request destroy the
same,) and furnish WG a written statement certifying that the original and all
copies and extracts (including partial copies and extracts) of the Programs and
any related material received from WG or made in connection with such license
have been returned to WG, or destroyed pursuant to WG's written request. WG
reserves all rights and remedies, whether provided by contract, at law, in
equity and/or otherwise, to enforce it rights under this license. Licensee
acknowledges and agrees that any breach or threatened breach of this software
license shall cause WG irreparable injury for which there may be no adequate
remedy at law, and that in addition to any other remedies available, WG shall be
entitled to obtain injunctive relief as well as actual damages.
<TABLE>
<CAPTION>
<S> <C> <C>
Effective Date: October 19, 1998 Affiliate Initials: /s/ unintelligible WG Initials: /s/ unintelligble
</TABLE>
<PAGE>
EXHIBIT C
SUBSCRIBER ACCESS FEES
SERVICE ACCESS FEES FOR PRIVATE RESIDENCES:
The following WorldGate Service Access Fees are payable by Affiliate to WG on a
monthly basis for each Private Residence having access to the WorldGate Service
during such month (prorated based upon a 30 day month for Private Residences
having access to the WorldGate Service for less than a full calendar month). The
table set forth below includes various benchmarks which, if achieved, will
result in an adjustment in the particular amount payable for such Access Fees.
Affiliate's performance with respect to these benchmarks and the resultant
amounts payable hereunder shall be determined on an aggregate System wide basis
based on the results of all Systems hereunder. Any adjustment in the amount
payable for such Access Fees shall apply only for prospective periods after the
benchmarks have been achieved, and then only after written notice has been
provided by Affiliate to WG providing the details as to such achievement.
For purposes of determining the applicable rate for the Service Access Fees
payable hereunder for the Systems (x) the number of "WorldGate Private
Residences" for any month shall mean the average number of actual Private
Residences to the WorldGate Service for that month and shall include only the
Private Residences being invoiced for and paying the standard retail charge
which Affiliate invoices its customers for the WorldGate Service (Service Access
Fees are, however, payable by Affiliate to WG for all Private Residences
receiving access to the WorldGate Service irrespective of whether such standard
retail charge or any payment is made by such Private Residences to Affiliate),
and (y) the number of AWorldGate Capable Customers for any month shall mean the
average number of Affiliate's actual customers (including only those customers
being invoiced for and paying the standard retail charge which Affiliate
invoices for its television programming distribution service) which during the
month had sufficient System architecture and Head-end Package components of the
WorldGate Platform installed and operational to permit such customer to have
become a WorldGate Private Residence, had the customer so chosen, and (z) the
APenetration for any month shall mean the number of WorldGate Private Residences
divided by the number of WorldGate Capable Customers as determined above.
Monthly averages hereunder shall be determined dividing by two the sum of the
applicable number on the first and last business days of the month.
FOR AFFILIATES OFFERING THE WORLDGATE SERVICE AS AN UNLIMITED USAGE SERVICE ON
AN A' LA CARTE BASIS (INCLUDES AN ALLOTTED USAGE TIME PER SUBSCRIBER PER MONTH
WHICH IS NOT LIMITED IN NUMBER OF HOURS).
[INFORMATION REDACTED]##
[PARAGRAPH REDACTED]##
- ---------------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
[PARAGRAPH REDACTED]##
OTHER TRANSACTIONAL REVENUE OPPORTUNITIES:
The parties anticipate that the Subscriber Accessible Content will include
opportunities to generate revenue from third parties through Channel
HyperLinking, advertising, commodity buying/selling, lead generation and similar
services, whether through direct hits or click-throughs (collectively
"Transactions") which may be facilitated by the WorldGate Platform. The Parties
further recognize that such opportunities may require commitments with
advertising agencies and other third parties as well as administrative,
accounting, and other services and associated costs, fees, and expenses in order
to permit such revenue to be generated. The Parties will work together to
maximize such opportunities. Any net revenue which is generated as a result of
such services as the Parties agree to make available to Subscribers as part of
the WorldGate Service hereunder will be shared as follows by WG and Affiliate,
after payment of such associated costs, fees, and expenses, and subject to any
required commitments as aforesaid.
Fees and other consideration generated through Transactions facilitated by the
use of the WorldGate Service, but other than through the use of Channel
HyperLinking, will be [REMAINDER OF PARAGRAPH REDACTED]##
[PARAGRAPH REDACTED]##
- ---------------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
EXHIBIT D
MARKETING AND PROMOTION OF THE WORLDGATE SERVICE
The Parties will provide, throughout the term of this Agreement, at least the
following identified activities to market and promote the WorldGate Service:
WG WILL PROVIDE:
- four times yearly direct mail campaign to non-WorldGate Subscribers
(WG will supply creative and will provide both printing and bulk
delivery for purchase at WG's cost)
- bill stuffers (for purchase at WG's cost)
- four times yearly local cable interconnect advertising media buys
- four 30 and four 60 second video promotions for use as commercials,
distributed yearly
- training for customer service representatives
- selected print media placement
- camera-ready ad mats
- four-color quarterly consumer guide (for purchase at WG's cost)
- point of sale displays
- leave behind piece and on-line tutorial for consumer education
AFFILIATE WILL PROVIDE:
- four times yearly direct mail campaign to non-WorldGate households
(Affiliate will provide mailing lists, address labeling, out-bound
postage and return fulfillment costs)
- a minimum of 500 ad avails promoting the WorldGate Service with WG
approved commercials of either 30 or 60 second length per month,
inserted on Affiliate's Systems on ad supported channels as agreed
between the parties, to be run at times between 6:00 AM to 12:00 PM
(midnight local time)
- affidavits verifying above commercials
- bill stuffer insertion and/or envelope advertising and mailing in
Subscriber billing cycle, three times per annum
- reasonable use of local origination text-based channels (if
available) to promote WorldGate Services
- placement of WG approved 30 and 60 second commercials (or other WG
provided promotional pieces) on Affiliate's PPV promotion
channel(s), for regular rotation for two week intervals, monthly
- trained customer service representatives for all WorldGate Services
- reasonable promotion of WorldGate Service on Affiliate's web home
page
<TABLE>
<CAPTION>
<S> <C> <C>
Effective Date: October 19, 1998 Affiliate Initials: /s/ unintellibible WG Initials: /s/ unintelligbile
</TABLE>
<PAGE>
Exhibit 10.12
WORLDGATE AFFILIATION AGREEMENT
THIS AGREEMENT DATED SEPTEMBER 25, 1998, IS BETWEEN, TVCABLE S.A. WITH ITS
PRINCIPAL PLACE OF BUSINESS AT BOSMEDIANO CASA 5 Y GONZALEZ SUAREZ, QUITO,
ECUADOR, (HEREINAFTER REFERRED TO AS "AFFILIATE") AND WORLDGATE COMMUNICATIONS,
INC., WITH ITS PRINCIPAL PLACE OF BUSINESS AT: 3220 TILLMAN DRIVE, SUITE 300,
BENSALEM, PA 19020 (HEREINAFTER REFERRED TO AS "WG"). THE PARTIES ARE ENTERING
INTO THIS AGREEMENT CONTINGENT UPON THE SUCCESSFUL COMPLETION OF THE WORLDGATE
SERVICE TEST AS SET FORTH IN THE WORLDGATE SERVICE INITIAL DEPLOYMENT PROPOSAL,
ACCEPTED BY AFFILIATE AS OF 5/29/98 WHICH IS INCORPORATED HEREIN BY REFERENCE.
AFFILIATE AND WG (COLLECTIVELY THE "PARTIES") HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS:
The following terms, abbreviations and definitions used in this
Agreement shall have the meanings set forth herein below:
(a) "SYSTEM(S)" means Affiliate's television distribution system(s)
for one or more geographical service areas, as from time to time are
identified in Exhibit A.
(b) "PROVIDER(S)" means one or more third parties providing content
for Subscriber access on or as part of the WorldGate-SM- Service.
(c) "SUBSCRIBER" means a person or entity gaining access to the
WorldGate-SM- Service as part of Affiliate's System.
(d) "SUBSCRIBER ACCESSIBLE CONTENT" means the programs, displays,
data, information, and other content (including without limitation,
the Internet) which, from time to time, has been licensed or is
otherwise provided by WG and others for access by Subscribers on or as
part of the WorldGate-SM- Service.
(e) "SUBSCRIBER TRANSACTION" means any instance whereby a Subscriber
accesses or is authorized to access the WorldGate Service.
(f) "TERM" means the term of this Agreement which shall commence on
the date hereof, and shall terminate seven (7) years from the date set
forth above, except if renewed or terminated earlier as provided
herein.
(g) "WORLDGATE PLATFORM" means the hardware and software components to
be supplied by WG to Affiliate and used by Affiliate in connection
with Affiliate's System to provide Subscriber access to the WorldGate
Service hereunder.
(h) "WORLDGATE SERVICE" means an interactive Internet access service
which utilizes WG's proprietary WorldGate Platform in connection with
the Affiliate's System(s) for addressably transmitting downstream
application information (including Subscriber Accessible Content) to
Subscribers in the System's channels (vertical blanking intervals,
full video channels or MPEG data stream) and, either utilizing
separate rf sub-bands
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
of the System's current allocated spectrum and/or a suitable
phone-network based return facility for transmitting upstream
communication.
2. AUTHORIZATION OF RIGHTS, WORLDGATE PLATFORMS AND SYSTEM:
(a) WG hereby authorizes Affiliate, during the Term hereof, to provide
to Subscribers access to and use of the WorldGate Service, via the
WorldGate Platforms in connection with Affiliate's System, in
accordance with the terms and conditions of this Agreement.
(b) From time to time during the term hereof WG shall provide to
Affiliate and Affiliate shall acquire by purchase, lease or such other
acquisition transaction as may be agreed by the Parties, certain
systems and the components of the WorldGate Platform as are further
identified in Exhibit B. The terms and conditions of such acquisition
as well as the associated installation, maintenance and warranty of
the WorldGate Platforms are also set forth in Exhibit B.
(c) WG shall make available to Affiliate such Subscriber Accessible
Content as may, from time to time, be determined by the Parties.
Affiliate, however, acknowledges that the providers of Subscriber
Accessible Content may, from time to time, and for any reason make
additions to, deletions from and/or otherwise modify Subscriber
Accessible Content, and accordingly, WG also reserves such right.
Affiliate further acknowledges that such Subscriber Accessible
Content, including without limitation, the WWW, may include materials
and information of uncertain or even objectionable origin, nature
and/or character, and that WG expressly disclaims any responsibility
for or liability associated with Subscriber's access to or use of the
Subscriber Accessible Content.
(d) Affiliate may request modifications of or additions to certain
user interface screens or other aspects of the WorldGate Platform
and/or the Subscriber Accessible Content. WG agrees to work with
Affiliate to accommodate such requests to the extent that WG agrees
such modifications are viable and will enhance the WorldGate Service.
(e) Affiliate shall provide a suitable System and facilities
associated therewith as further identified in Exhibit A. Affiliate
may, from time to time, add additional Systems, in which event
Affiliate shall use commercially reasonable efforts to provide WG with
at least ninety (90) days advance written notice of any such proposed
additions to the System. Upon the agreement of the Parties this
Agreement shall be promptly amended to cover the proposed additions by
the execution of supplemental and/or superseding Exhibit A(s) setting
forth the agreed and then current information relevant to such
Systems. Further, Affiliate may, from time to time, make changes to
the Systems and facilities comprising the same, and/or WG may make
changes to the WG Platform. In the event such changes materially
affect the performance of the WorldGate Service, the Party making the
changes shall use all reasonable efforts to provide the other Party
with as much advance notice of the same as is reasonably possible. The
installation, maintenance and support of such Systems and associated
facilities shall be the sole responsibility of Affiliate and its
suppliers. Affiliate acknowledges and agrees that WG and its
contractors will require both physical and remote access to the System
and the WorldGate Platform connected thereto to perform their
obligations hereunder. Affiliate
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
shall provide WG and its contractors reasonable physical and remote
(via modem, Internet and other electronic means) access to such
Systems (including the facilities and technical personnel associated
therewith) and to the WorldGate Platforms connected or to be connected
thereto, to afford any required installation, support, service,
reporting and other duties to be performed by WG hereunder.
3. RESERVATION OF RIGHTS:
(a) Affiliate agrees that it is the essence of this Agreement that:
(i) the WorldGate Platform shall not be modified by Affiliate in any
manner; (ii) the WorldGate Platform shall not be utilized by Affiliate
to provide services other than the WorldGate Service; and (iii)
Affiliate shall not authorize any other party to do any of the acts
forbidden herein (collectively, the "Prohibited Acts"), without the
specific written consent of WG and/or its content providers as may be
required, or except as otherwise set forth herein.
(b) Affiliate shall immediately notify WG upon the occurrence or
likely occurrence of any Prohibited Acts of which it becomes aware.
(c) All licenses, rights and interest in, to and with respect to the
WorldGate Platform, the Subscriber Accessible Content, the elements,
parts and derivations thereof (including without limitation the
writings, images, displays, electronic reproductions, user interfaces,
sounds, data, information and other works embodied therein, derived
therefrom or ancillary thereto, and the media of reproduction,
performance or exhibition thereof), as well as the intellectual
property rights related thereto, not specifically granted herein to
Affiliate or to Affiliate's Subscribers, shall be and are expressly
and entirely reserved by WG and the applicable Content Providers. The
licenses granted to Affiliate and Affiliate's Subscribers hereunder do
not include any right to sublicense any third party, in whole or in
part.
4. MARKETING AND PROMOTION OF THE WORLDGATE SERVICE: The Parties agree to
diligently market and promote the WorldGate Service to all of
Affiliate's customers which are or become part of Affiliate's
System(s). In particular and without limitation the Parties agree to
provide such marketing and promotional services as are further
identified in Exhibit C. The Parties also recognize that the WorldGate
brand is a substantial asset of WG and that use of such brand as well
as any other applicable WG trademarks and service marks is limited to
promotion of the WG service in a manner consistent with that typically
used with other quality and valued trademarks and service marks. The
WG marks shall be prominently displayed in all consumer communications
promoting the WG services such as, but not limited to, marketing
materials, advertisements, direct mail pieces, bill stuffers, price
lists, etc. All marketing materials and TV spots developed by
Affiliate promoting the WG services, and all other uses of the WG
marks shall be approved by WG in writing prior to initial
dissemination. The WG marks may be promoted with Affiliate's mark with
WG's prior written approval.
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
5. PAYMENTS, ACCESS FEES AND TAXES:
(a) As consideration for the rights granted and services performed
hereunder, Affiliate shall pay to WG Subscriber Access Fees for the
WorldGate Service, as more fully set forth in Exhibit D hereunder. The
Parties acknowledge that changes may be required in such Subscriber
Access Fees as a result of material changes in the services and
systems offered hereunder (including without limitation the addition
of optional services, etc.) or in the event of changes in the
regulatory environment governing such services and systems which
affect the cost or such services and systems to WG. In such event the
Parties agree to negotiate in good faith any resulting changes to the
Subscriber Access Fees hereunder.
(b) Notwithstanding the required payment of a Subscriber Access Fee as
described above, the Parties agree and acknowledge that Affiliate is
free to determine what fees, if any, it charges its Subscribers with
respect to access to the WorldGate Service and/or any Subscriber
Transactions.
(c) All payments and fees due to WG hereunder, including without
limitation the Subscriber Access Fee, are net of all franchise fees
and taxes (including interest and penalties on any such amounts) now
or hereafter imposed or based upon the licensing, rental, purchase,
delivery, exhibition, possession, or use of the WG Platform or the
access to any Subscriber Accessible Content hereunder, but excluding
however any taxes assessed upon any of WG's income or personal
property (collectively "Taxes"). Affiliate shall pay and hold WG and
Content Providers forever harmless from any liability associated with
such Taxes.
(d) Except as set forth in sub-paragraph (a), above, all payments
hereunder, including without limitation the purchase price of the
components of the WorldGate Platform are due within thirty (30) days
of the receipt of invoice for the same. Interest shall accrue on all
amounts not paid when due at a rate equal to the lesser of twelve
(12%) percent per annum or any maximum rate imposed under applicable
laws and regulations. Payments shall not be deferred or subjected to
setoff by Affiliate. Payments may not be suspended and shall continue
during the pendency of any dispute hereunder. All payments to be made
to WG shall be in the currency of the United States unless otherwise
agreed in writing by the parties.
6. STATEMENTS AND REPORTS: To afford determination and/or verification of
the Subscriber Access Fees due hereunder WG shall provide to Affiliate
an accounting statement and report within ten (10) days after the end
of each calendar month in which the WorldGate Service is distributed
hereunder. Said statement shall include at least the following
information to the extent applicable: the number of Subscribers, the
type of Subscriber accounts and the number of such type of accounts,
the Subscriber Transaction time, and the total amount due for all
Subscriber Transactions and Subscriber access to the WorldGate
Services hereunder. Such information shall be provided electronically
by access to computer terminals associated with the WorldGate Platform
and/or in connection with a third party standard billing interface.
Affiliate acknowledges that WG requires access to records and
information relating to
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
Subscribers in order to provide such statements and reports and hereby
consents to the same.
7. AUDIT: Affiliate and WG shall keep accurate and complete books and
records of Subscriber Transactions and accounts hereunder, and any
required adjustments thereto. Subject to the confidentiality
provisions contained herein Affiliate and WG may, not more than once
during each calendar year and upon at least thirty days prior written
notice, at their expense and during regular business hours, have the
right to audit all such books and records of the other pertaining to
the Subscriber Transactions occurring over Affiliate's System. Such
audits shall be conducted by a nationally recognized, independent
public accounting firm chosen by the auditing Party on the auditing
Party's behalf. The audited Party agrees to fully cooperate with
auditing Party's representatives and/or designees, and shall provide
such representatives and/or designees with an office or adequate space
in which to facilitate any audit of such books and/or records. If an
audit or checking reveals a discrepancy in the Access Fee owed for the
audit period, WG and Affiliate agree to make prompt adjustments of
such accounts along with any required credits or payments associated
therewith.
8. REPRESENTATIONS AND WARRANTIES OF THE PARTIES:
(a) Each of the Parties represents and warrants that (i) it has the
authority and power to enter into this Agreement and to perform its
obligations hereunder; and (ii) the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized and are deemed to be valid, binding and
enforceable obligations.
9. INDEMNIFICATION:
(a) WG shall indemnify Affiliate against (i) any award of damages and
costs made against Affiliate by a final judgment of a court of
competent jurisdiction in any such action, insofar as the same are
based on a claim that the WG Platform infringes any United States
patent, and (ii) any settlements or compromises approved by WG as
described below. WG shall control the defense of any such action
including appeals, and all of negotiations thereof, including the
right to effect any settlement or compromise. In case the use of the
WorldGate Platform is, in any action, held to constitute such an
infringement and the use thereof is enjoined, WG shall, at its option
and expense (x) procure for Affiliate the right to continue using the
WorldGate Platform, (y) replace or modify the same so that it becomes
non-infringing and performs the same service with substantially the
same quality, or (z) authorize Affiliate to return the effected
WorldGate Platform and provide Affiliate with a refund of the purchase
price, less an allowance for past use prorated based upon the initial
term of this Agreement. The above indemnity shall not apply to and WG
shall have no liability for any claim of infringement based on: (1)
any use of other than a current unaltered release of the WorldGate
Platform; or (2) any access to or use of the Subscriber Accessible
Content; or (3) any combination or use of the WorldGate Platform with
non-WG hardware, software, Subscriber Accessible Content or data, or
(4) any use of the WorldGate
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
Platform other than is authorized herein. The foregoing states the
entire liability with respect to infringement of any intellectual
property rights with regard to the WorldGate Platform.
(b) Affiliate shall indemnify WG against (i) any award of damages and
costs made against WG by a final judgment of a court of competent
jurisdiction in any such action, insofar as the same are based on a
claim of infringement arising out of: (1) any use of other than a
current unaltered release of the WorldGate Platform; or (2) any
combination or use of the WorldGate Platform with non-WG hardware,
software, Subscriber Accessible Content or data, or (3) any use of the
WorldGate Platform other than is authorized herein, and (ii) any
settlements or compromises approved by Affiliate as described below.
(c) In any case in which indemnification is sought hereunder:
(i) The party seeking indemnification shall promptly notify
the other party in writing upon the initiation of any claim
or litigation to which the indemnification relates;
(ii) The party seeking indemnification shall afford the other
party the opportunity to participate in, and, at the option
of such other party, to control, any compromise, settlement,
litigation or other resolution or disposition of any such
claim.
(iii) The party seeking indemnification shall fully cooperate
with the reasonable requests of the other party in its
participation in, and control of, any compromise, settlement,
litigation or other resolution or disposition of any such
claim.
10. SECURITY: Affiliate shall employ such security systems and procedures
as may be reasonable and commercially feasible to prevent theft,
pirating or other unauthorized access to the WorldGate Service as it
is distributed over Affiliate's System.
11. RENEWAL, TERMINATION AND DEFAULTS:
(a) Upon the expiration of the initial Term hereunder this Agreement
shall be automatically renewed for additional successive two (2) year
periods thereafter unless terminated by either Party upon ninety (90)
days written notice prior to the expiration of such initial Term and
any renewal period. The Subscriber Access Fees payable during any
renewal period shall be renegotiated.
(b) In addition to all of its other rights and remedies at law and in
equity, either party shall be entitled at its option forthwith, upon
giving notice to the other party, to terminate this Agreement, (i) if
said other party shall fail to perform any of its obligations or
undertakings required of it hereunder, or shall be in breach of any of
its warranties or representations herein contained, and shall not have
cured or remedied such failure or breach within sixty (60) days of
written notification thereof; (ii) if a party hereunder
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
commences a voluntary case under Title 11 of the United States
Bankruptcy Code as now and hereafter in effect, or any successor
statute, or any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or a party consents to the entry of an
order for relief in an involuntary case, or to the conversion of a
voluntary case to an involuntary case, under any such law, or consents
to the appointment of or taking possession by a receiver, trustee or
other custodian for all or a substantial part of its property; a party
makes any assignment for the benefit of creditors; a party is unable
or fails or admits in writing of its inability or failure to pay its
debts as such debts become due; or the Board of Directors or other
governing body of a party adopts any resolution or otherwise approves
authorization to act upon any of the foregoing, such action shall be
deemed a breach hereunder; or (iii) if any order, judgment or decree
is entered against decreeing the dissolution or split-up of such
party, and such order remains undischarged or unstated for a period in
excess of thirty (30) calendar days, such action shall be deemed a
breach hereunder.
(c) WG may terminate this Agreement upon at least one hundred twenty
(120) days prior notice in the event the Parties cannot agree upon any
required changes to the Fees in accordance with Paragraph 5(a)
hereunder.
(d) Sections 1,3,7-10, 11(c), 14,15,16, and 18-20, as well as any
obligation which has accrued prior to any expiration or termination of
this Agreement shall survive such expiration or termination. All
outstanding Access Fees and other amounts owing to WG hereunder shall
become immediately due and payable in the event of any expiration or
termination of this Agreement.
12. ASSIGNMENT: WorldGate shall have the right to assign its rights and
obligations hereunder to a third party which is acquiring all or
substantially all of its assets, or any company with which it may
merge or consolidate. Except as expressly set forth in the prior
sentence neither party hereunder shall have the right to assign,
transfer or hypothecate its rights and obligations hereunder, without
the other's prior written approval. Any other purported assignment of
this Agreement, shall be deemed null and void.
13. HEADINGS, RELATIONSHIP OF PARTIES: The titles of the paragraphs of
this Agreement are for convenience only and shall not in any way
affect the interpretation of this Agreement. This agreement does not
in any way create the relationship of franchise, joint venture,
partnership or agency between WG and Affiliate, and each shall remain
an independent contractor, and as such shall not act or represent
itself, directly or by implication, as agent for the other or assume
or create any obligation of or in the name of the other.
14. NON-WAIVER OF BREACH; REMEDIES CUMULATIVE:
(a) A waiver by either party of any of the terms or conditions of
this Agreement shall not, in any instance, be deemed or
construed to be a waiver of such terms or conditions for the
future or of any subsequent breach thereof. No payment or
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
acceptance thereof under this Agreement shall operate as a
waiver of any provision hereof.
(b) Except as set forth herein all remedies, rights, undertakings,
obligations and agreements contained in this Agreement shall
be cumulative and none of them shall be in limitation of any
other remedy, right, undertaking, obligation, or agreement of
either party. IN NO EVENT SHALL EITHER PARTY HEREUNDER BE
LIABLE TO THE OTHER FOR SPECIAL, PUNITIVE, CONSEQUENTIAL
(INCLUDING WITHOUT LIMITATION ANY LOST PROFIT OR INVESTMENT
AND THE LIKE), INDIRECT OR INCIDENTAL DAMAGES, BY WAY OF
INDEMNITY OR OTHERWISE.
(c) In no event shall WG be liable for damages, by way of
indemnity or otherwise, in excess of the amounts paid to WG
hereunder with respect to the particular subject matter giving
rise to such damages.
15. NOTICES: Except as herein otherwise expressly provided, all notices,
statements and other documents desired or required to be given
hereunder shall be in writing and shall be given by personal delivery,
certified mail, email (with a copy sent by regular US mail) or fax
(with a copy sent by regular US mail). All notices, statements and
other documents shall be sent to:
If to WG:
<TABLE>
<S> <C>
Accounting statements and All other notices should be sent to:
remittances should be sent to:
WORLDGATE COMMUNICATIONS, INC. WORLDGATE COMMUNICATIONS, INC.
3220 Tillman Drive, Suite 300 3220 Tillman Drive, Suite 300
Bensalem, PA 19020 Bensalem, PA 19020
Attn: Accounting Services Attn: Affiliate Administration
</TABLE>
If to Affiliate:
TVCABLE S.A.
Bosmediano Casa 5 y Gonzalez Suarez
Apartado 17-11-6499
Quito, Ecuador
(or at such other address as may be designated in writing by either
party no less than thirty (30) days prior to the date of transmission
of the notice, statement, etc.). Notice given by domestic mail shall
be deemed given three (3) days after the date of mailing; Notice given
by international mail shall be deemed given ten (10) days after the
date of mailing, notice given by fax shall be deemed given at the time
of dispatch; notice given by email or personal delivery shall be
deemed given upon delivery by the email service or messenger.
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
16. GOVERNING LAW AND EXPORT RESTRICTIONS:
(a) All matters pertaining to this Agreement (including its
interpretation, validity, performance and breach), in whatever
jurisdiction action may be brought, shall be governed by the laws of
the State of Delaware (excluding its conflict of law provisions) . The
parties hereto expressly consent and agree to submit to the
jurisdiction of any court of competent jurisdiction in the State of
Delaware, and to accept service of process outside the State of
Delaware in any matter to be submitted to any such court pursuant
hereto.
(b) Wherever there is any conflict between any provision hereof and
any law or requirement with the force of law, this Agreement shall
remain valid and such provision hereof shall be restricted to the
extent, and only to the extent, necessary to bring it within the
applicable requirements, unless such restriction shall, in the opinion
of WG, have the effect of materially nullifying, or impairing, this
Agreement.
(c) Affiliate shall comply fully with all then current applicable laws
and regulations relating to the export of products and technical data
including, but not limited to, any regulations of the United States
Office of Export Administration.
17. FORCE MAJEURE: Neither party shall, in any manner whatsoever, be
liable or otherwise responsible for any delay or default in, or
failure of performance (other than the failure to make payments
hereunder) resulting from or arising out of or in connection with, any
"Event of Force Majeure" and no such delay, default in, or failure of
performance shall constitute a breach by either party hereunder. For
purposes of this Agreement, an "Event of Force Majeure" in respect of
a party shall mean any act, cause contingency or circumstances beyond
the control of such party, including, without limitation, and to the
extent beyond the control of such other party, any governmental
action, nationalization, expropriation, confiscation, seizure,
allocation, embargo, prohibition of import or export of goods or
products, regulation, order or restriction (whether foreign, federal
or state), war (whether or not declared), civil commotion,
disobedience or unrest, insurrection, public strike, riot or
revolution, lack of or shortage of, or inability to obtain, any labor,
machinery, materials, fuel, supplies or equipment from normal sources
of supply, strike, work stoppage or slowdown, lockout or other labor
dispute, earthquake, hurricane, fire, flood, drought, other natural
calamity, damage or destruction to plant and/or equipment, or any
other accident, condition, cause, contingency or circumstance
(including, without limitation, acts of God) within or without the
United States beyond the control of such party.
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
18. CONFIDENTIALITY:
(a) The recipient of any confidential information of the other
hereunder agrees to safeguard the confidentiality of such confidential
information by applying policies and procedures adequate for that
purpose, including without limitation, restricting the disclosure of
this confidential information to employees and consultants needing to
know the same for the purpose of this Agreement, who have agreed in
writing to safeguard such confidential information in a manner
consistent with the provisions of this paragraph. The recipient shall
not disclose any such confidential information to any other person,
firm or corporation, or use the same except for the purpose stated
hereinabove, and shall exercise at least the same degree of care to
guard against disclosure or unauthorized use of such confidential
information, as the recipient employs with respect to its own
confidential information, but in no event less than reasonable care.
Information to be disclosed confidentially hereunder shall be fixed in
a tangible medium of expression that is marked "Proprietary" or
"Confidential", or if disclosed in other than a tangible medium of
expression, indicated by the disclosing Party as being "Proprietary"
or "Confidential" at the time of disclosure and within thirty (30)
days thereafter summarized by the disclosing Party in a writing to the
recipient, in which writing the confidential information is identified
as "Proprietary" or "Confidential". A tangible medium of expression
shall be deemed to include, by way of example, memoranda, written
descriptions, drawings, photographs, models, prototypes, tapes, disks
and circuitry.
(b) The recipient shall have no obligation of confidentiality
hereunder with respect to any information which:
(i) is already properly known to the recipient other than as a
result of a prior confidential disclosure by the disclosing
Party;
(ii) is or becomes publicly known otherwise than by the
recipient's (or someone receiving the information from
recipient) fault or breach of this Agreement;
(iii) is rightfully received by the recipient without
restriction from a third party who is not under an obligation
of confidentiality, directly or indirectly, to the disclosing
Party;
(iv) is independently developed by the recipient without
benefit of the confidential information received hereunder;
(v) is approved for release in writing by the disclosing
Party; or
(vi) is disclosed by the recipient pursuant to judicial or
regulatory action, provided that the disclosing party is
promptly notified at the time such action is initiated and
the recipient fully cooperates with the disclosing Party in
seeking continued confidential treatment of such information
to the extent possible.
(c) Except as may be reasonably required by applicable law, regulation
or court order, the Parties agree that neither of them shall publicly
divulge or announce, or in any manner disclose to any third party,
other than its attorneys, accountants, parents, and partners, any of
the specific terms and conditions of this Agreement, including without
limitation the Subscriber Access Fees payable hereunder, and the
parties further warrant and agree that none of their officers,
directors or employees will do so.
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
19. PROCEDURE PRIOR TO LITIGATION: Prior to initiating any litigation with
respect to any controversy, claim or dispute arising hereunder or
related hereto, but excluding any claim arising under Sections 3, 10
or 18 of this Agreement (a "Dispute") a Party must first notify the
other Party and request in writing that such Dispute be submitted to
an executive committee consisting of one senior ranking executive
named by each of the Parties for such purpose. Such named executive
shall have the authority and be capable of making binding decisions on
behalf of such Party with respect to such Dispute. Within five (5)
business days following the receipt of such notice (or such other
period as may be agreed by the Parties) each Party shall have named
its executive committee participant, and within ten (10) business days
following the receipt of such notice (or such other period as may be
agreed by the Parties) the executive committee shall meet to discuss
the Dispute. If the executive committee is not able to resolve the
Dispute within twenty (20) business days following the receipt of such
notice (or such other period as may be agreed by the Parties), then
either Party may proceed with the initiation of such litigation as may
be appropriate.
20. ENTIRE UNDERSTANDING: This Agreement, including the Exhibits
identified herein, sets forth the entire understanding of the parties
with respect to the subject matter hereof, and all prior concurrent
oral agreements or all prior written agreements with respect to such
subject matter have been merged herein. No representations or
warranties have been made other than those expressly provided for
herein. This Agreement may not be modified, except by a written
instrument signed by an authorized representative of the parties, and
this provision may not be waived except by written instrument signed
by an officer of the parties. In the event this agreement is
translated into any foreign language counterpart, the English language
counterpart shall remain controlling. This Agreement shall be presumed
to have been negotiated and drafted by both Parties for the purpose of
construing any ambiguities hereunder.
IN WITNESS WHEREOF, THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE SIGNED AND
ACCEPTED BY THEIR DULY AUTHORIZED REPRESENTATIVES AS OF THE DAY AND YEAR FIRST
WRITTEN ABOVE.
<TABLE>
<S> <C>
TVCable S.A.: WorldGate Communications, Inc.
By: /s/ Jorge Schwartz By: /s/ David E. Wachob
Name: Jorge Schwartz Name: David E. Wachob
Title: Chief Executive Officer Title: Vice President & General Manager
Date: September 25, 1998 Date: September 25, 1998
Tel.: (593-2) 461-181 Tel.: 215-633-5100
Fax: (593-2) 252-798 Fax: 215-633-9590
</TABLE>
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
EXHIBIT A
TELEVISION DISTRIBUTION SYSTEMS
<TABLE>
<CAPTION>
SYSTEM NAME MAILING ADDRESS BASIC SUBSCRIBERS
----------- --------------- -----------------
TVCable S.A. Apartado 17-11-6499 to be advised
Quito Ecuador
<S> <C> <C>
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
</TABLE>
Each System identified above must include at least the following minimum
facilities (to be supplemented as WG subscriber base grows):
(a) dedicated T-1/Internet Access Link
(b) Cisco 2501 Router with IP Software (or approved equivalent) (c)
Kentrox D-Serv CSU/DSU (or approved equivalent)
<TABLE>
<CAPTION>
<S> <C> <C>
Effective Date: September 25, 1998 Affiliate Initials:/s/ unintelligible WG Initials:___________
</TABLE>
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
EXHIBIT B
WORLDGATE PLATFORM
PLATFORM COMPONENTS AND PRICING:
Set forth below are the components of the WorldGate Platform and Affiliate's
price for the same as of the effective date set forth below. Such prices are FOB
WG's factory, and are valid for a period of one-year from this effective date
after which time they are subject to change by WG to reflect current market
conditions.
<TABLE>
<CAPTION>
ITEM UNIT PRICE
---- ----------
<S> <C>
Headend Package (analog)* ##
Large System Headend Package (analog)* ##
Channel Hyperlinking Server* ##
WorldGate Keyboard** ##
</TABLE>
* 5% discount on second Headend Package
** Non-U.S. language keyboards will be quoted separately.
Affiliate will require and shall purchase hereunder one or more Headend Packages
and WorldGate Keyboards, as required, for each System identified on Exhibit A of
this Agreement. Custom configuration options are available and will be quoted
separately if required based upon expected subscriber base. The above fees do
not include site surveys and installation, which are available on a time and
material basis at WG's customary rates (including any applicable travel and per
diem charges.) The above fees do not include any improvements and/or
modifications to Affiliate's Systems. Notwithstanding the use of the term
"purchase" herein, such WorldGate Platform as acquired hereunder includes
certain WorldGate and third party software, microcode and documentation, whether
stored in electronic (including firmware), magnetic, optical or other media
(collectively Programs) for which title to and all proprietary rights in are
reserved to WG and its suppliers. All access to and use of such Programs is
subject to the terms and conditions of WG's Software License attached hereto and
incorporated herein as Exhibit B-1.
LIMITED PRODUCT WARRANTY:
In addition to the warranties set forth in Section 8 of this Agreement, WG
warrants that as installed hereunder and for a period of three months thereafter
( but not more than four months after delivery if there is a delay between
delivery and installation other than as may result from the actions and/or
omissions of WG) such WorldGate Platform components will perform under normal
use and service substantially in the manner specified in the applicable
published
- ---------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
technical specification as published b1y WG prior to the execution of this
Agreement , and that for this period the hardware components of the WorldGate
Platform will be free from defects in materials and workmanship. This warranty
shall not apply to any items subjected to accident, misuse, neglect,
mishandling, unsuitable physical or operating environments or any installation,
testing, repair or alteration by anyone other than WG or its authorized vendors,
or any use of non-approved components in connection with the WG Platform. WG's
warranty hereunder extends to Affiliate and to no other person or entity. This
warranty shall not be enlarged or otherwise affected by, and no obligation or
liability shall arise hereunder by WG's rendering of technical advice, help line
support or service in connection with the products furnished hereunder. Any
claims arising out of the aforesaid warranty must be submitted to, and the
affected components must be returned or otherwise made available to WG in
accordance with its published procedures, during the specified warranty period
or within thirty (30) days of the expiration of such period. Subject to the
preceding conditions, WG will promptly examine such WorldGate Platform
components and repair or replace any such components which are defective with
respect to the above warranty. Any required service, repair or replacement (and
the costs and expenses associated therewith) which are not covered by the above
warranty will be the responsibility of Affiliate unless covered by an applicable
WG service contract.
THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING WITHOUT LIMITATION, ANY IMPLIED OR STATUTORY WARRANTY OF
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ANY
WARRANTY HEREUNDER, EXPRESS OR OTHERWISE, IS LIMITED TO THE WARRANTY TERM AND
CONDITIONS AS SET FORTH ABOVE.
AFFILIATE TECHNICAL SUPPORT:
WG will at no additional charge to Affiliate provide technical support to
Affiliate's customer service and engineering staff, 7 days per week, 24 hours
per day, with such support to be provided by telephone, facsimile and Internet.
Except as is provided by WG pursuant to the terms and conditions of any
applicable service contract or WG's written warranty herein, any required travel
from WG's facilities or support in addition to that provided by telephone,
facsimile and Internet hereunder will require payment for time and materials at
WG's customary rates, as well as reimbursement for travel and per diem charges.
ON SITE TRAINING:
On site customer training is available on a time and materials basis at WG's
customary rates, as well as reimbursement for travel and per diem charges.
PLANT SPARES:
WG and Affiliate will cooperate to formulate and implement a program for spare
parts inventory and emergency response.
- ------------------------------
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
EXHIBIT B-1
SOFTWARE LICENSE
The terms and provisions of this Exhibit B-1 (Software License) provide for the
licensing by WG to Affiliate of certain Programs (as such term is defined in the
Affiliation Agreement) furnished with and to be used either as part of or in
conjunction with the WG Platform to be provided by WG to Affiliate under an
Affiliation Agreement, of which this Exhibit forms a part.
1. GRANT OF LICENSE: WG (hereinafter Licensor) hereby grants to Affiliate
(hereinafter Licensee) and Licensee hereby accepts a personal,
nonexclusive license to use the Programs on the terms and conditions
set forth herein and in the Affiliation Agreement. Except as
specifically provided herein and therein, no interest, right or
license, express or implied, is granted, and such other interests,
rights and licenses are hereby reserved.
2. OWNERSHIP RIGHTS: Any reference to sale or purchase not withstanding,
title to the Programs and all copies and derivatives thereof shall be
and remain in Licensor, and no title to or ownership of the Programs or
any derivative or portion thereof is conveyed or transferred to the
Licensee. Licensee acknowledges that the Programs constitute
confidential and proprietary information and trade secrets of Licensor,
whether or not the Programs, or any portion thereof, are or may be
copyrighted or copyrightable and/or patented or patentable, and that
disclosure of the Programs to Licensee is on the basis of the
confidential relationship between Licensee and Licensor under this
Agreement.
3. RESTRICTION ON TRANSFER: Licensee shall not sell, assign, sub-license,
transfer, or otherwise make available the Programs, in whole or in
part, except as may be permitted by this Software License Agreement and
only with written prior consent by WG.
4. RESTRICTION ON USE, DISASSEMBLY AND REVERSE ENGINEERING: Licensee may
use the Programs solely and exclusively on the computer(s) and
associated peripherals furnished by WG as part of the WorldGate
Platform sold to Affiliate under terms of the Affiliation Agreement,
except that the Programs may also be temporarily used on or with a
compatible backup computer and associated peripherals if the WorldGate
Platform computers and associated peripherals are inoperative because
of malfunction or during the performance of preventive maintenance or
engineering changes, but only for such reasonable time as required to
restore such WG Platform to operative status. Licensee shall use the
Programs only in connection with its immediate internal operations
with respect to the provision to its customers of the WorldGate
Service as authorized by the Affiliation Agreement, and shall not
otherwise use nor offer or supply the use of the Programs to others
under any circumstance. Licensee shall not de-compile, disassemble or
otherwise reverse engineer the Programs.
5. RESTRICTION ON COPYING: Licensee shall make no copies (including any
derivatives) of the Programs, or any part thereof, except that Licensee
may make one (1) copy of the Program solely for the purposes of backup
and archival storage. All copies shall be clearly marked by Licensee
with the same Licensor proprietary and copyright restrictions which
appear on the Programs originally supplied to Licensee, and be stored
by Licensee in a secure manner.
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
6. RESTRICTION ON DISCLOSURE: Except as expressly permitted herein,
Licensee shall not disclose or otherwise make available the Programs,
or any portion thereof, to any third party or to any employee or agent
of Licensee who is not of necessity authorized by Licensee to use the
Programs as part of Licensee's provision of the WG Service. Licensee
shall take all reasonable steps necessary to ensure the Programs, or
any portions, copies or derivatives thereof, are not disclosed or
otherwise made available by Licensee (or employees or agents of
Licensee) to any third party except as aforesaid.
7. TERMS AND TERMINATION: The term of this License Agreement and the
license granted hereunder shall commence on the date hereof, and shall
terminate on the earlier of: (a) when Licensee ceases to operate or
otherwise de-installs or replaces the WG Platform; or (b) the
termination or expiration of the Affiliation Agreement or the failure
of Licensee to pay any fees or to comply with any of the terms and
provisions hereof or of the Affiliation Agreement pursuant to which the
WG Platform has been provided, which failure continues for a period of
ten (10) days after written notice to cure such failure and avoid
termination.
Upon any termination of this Software License Agreement, pursuant to
(a) or (b) above, Licensee shall immediately cease use of the Programs
and return the Programs and all copies thereof to WG, and shall, within
one (1) month after any such termination furnish WG a written statement
certifying that the original and all copies and extracts (including
partial copies and extracts) of the Programs and any related material
received from WG or made in connection with such license have been
returned to WG or, upon WG's written request, destroyed. WG reserves
all rights and remedies at law, in equity and otherwise provided
pursuant to the terms and conditions of this Agreement, to enforce it
rights under this license. Licensee acknowledges and agrees that any
breach or threatened breach of this software license shall cause WG
irreparable injury for which there may be no adequate remedy at law,
and that in addition to any other remedies available, WG shall
therefore be entitled to obtain injunctive relief without the necessity
of proving actual damages.
Description________________________________ Release No._____________
<TABLE>
<CAPTION>
<S> <C>
Effective Date: September 25, 1998 Affiliate Initials: /s/ unintelligible WG Initials:______
</TABLE>
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
EXHIBIT C
MARKETING AND PROMOTION OF THE WORLDGATE SERVICE
The Parties will provide, throughout the term of this Agreement, at least the
following identified activities to market and promote the WorldGate Service:
WG WILL PROVIDE:
- four times yearly direct mail campaign to non-WorldGate Subscribers
(WG will supply creative and will provide both printing and bulk
delivery for purchase at WG's cost)
- bill stuffers (for purchase at WG's cost)
- four times yearly local cable interconnect advertising media buys
- four 30 and four 60 second video promotions for use as commercials
distributed yearly
- training for customer service representatives
- selected print media placement
- camera-ready ad mats
- four-color quarterly consumer guide (for purchase at WG's cost)
- point of sale displays
- leave behind piece and on-line tutorial for consumer education
AFFILIATE WILL PROVIDE:
- four times yearly direct mail campaign to non-WorldGate households
(Affiliate will provide mailing lists, address labeling, out-bound
postage and return fulfillment costs)
- a minimum of 500 ad avails of either 30 or 60 second length per month,
inserted on Affiliate's Systems on ad supported channels as agreed
between the parties to be run at times between 6:00 AM to 12:00 PM
(midnight local time) -- promoting the WorldGate Service, with WG
approved commercials
- reasonable use of local origination text-based channels (if available)
to promote WorldGate Services
- trained customer service representatives for all WorldGate Services
- reasonable promotion of Affiliate's web home page
<TABLE>
<CAPTION>
<S> <C>
Effective Date: September 25, 1998 Affiliate Initials: /s/ unintelligible WG Initials:___________
</TABLE>
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
EXHIBIT D
MONTHLY SUBSCRIBER ACCESS FEES
The following Subscriber Access Fees are payable by Affiliate to WG on a monthly
basis for each Subscriber having access to the WorldGate Service during such
month (prorated based upon a 30 day month for Subscribers having access to the
WorldGate Service for less than a full calendar month). Four different options
are presented for the determination of the amount of such Subscriber Access
Fees, with each option reflecting a different marketing/pricing method which may
be used by Affiliate to provide the WorldGate Service to its customers. Unless
exceptions are made in accordance with a subsequent written agreement between
the parties the method to be used hereunder, once selected by Affiliate, shall
apply to all of the Systems, and for the full term of this Agreement. These
options also set forth various benchmarks which, if achieved, will result in an
adjustment in the particular amount payable for such Subscriber Access Fees.
Affiliate's performance with respect to these benchmarks and the resultant
amounts payable hereunder shall be determined on an aggregate System wide basis
based on the results of all Systems hereunder. Any adjustment in the amount
payable for such Subscriber Access Fees shall apply only for prospective periods
after the benchmarks have been achieved, and then only after written notice has
been provided by Affiliate to WG providing the details as to such achievement.
[PARAGRAPH REDACTED]##
For purposes of determining the amount of the Subscriber Access Fees payable
hereunder for the Systems (x) the number of "WorldGate Subscribers" for any
month shall mean the average number of actual Subscribers to the WorldGate
Service for that month and shall include only the Subscribers being invoiced for
and paying the standard retail charge which Affiliate invoices its customers for
the WorldGate Service (Subscriber Access Fees are, however, payable by Affiliate
to WG for all Subscribers receiving access to the WorldGate Service irrespective
of whether any payment is made by such Subscribers to Affiliate), and (y) the
number of "WorldGate Capable Customers for any month shall mean the average
number of Affiliate's actual customers (including only those customers being
invoiced for and paying the standard retail charge which Affiliate invoices for
its television programming distribution service) which during the month had
sufficient System architecture and Head-end Package components of the WorldGate
Platform installed and operational to permit such customer to have become a
WorldGate Subscriber, had the customer so chosen, and (z) the "Penetration for
any month shall mean the number of WorldGate Subscribers divided by the number
of WorldGate Capable Customers as determined above. Monthly averages hereunder
shall be determined dividing by two the sum of the applicable number on the
first and last business days of the month.
Effective Date: September 25, 1998 Affiliate Initials: /s/ unintelligible
WG Initials:___________
- ------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
(INTERNATIONAL RATES - EFFECTIVE 8/19/98)
WORLDGATE PLUS SERVICE:
1. FOR AFFILIATES OFFERING THE WORLDGATE SERVICE AS A METERED USAGE SERVICE ON
AN A' LA CARTE BASIS (INCLUDES AN ALLOTTED USAGE TIME PER SUBSCRIBER OF UP TO
TWO HOURS PER MONTH).
[CHART REDACTED]##
2. FOR AFFILIATES OFFERING THE WORLDGATE SERVICE AS AN UNLIMITED USAGE SERVICE
ON AN A' LA CARTE BASIS (INCLUDES AN ALLOTTED USAGE TIME PER SUBSCRIBER PER
MONTH WHICH IS NOT LIMITED IN NUMBER OF HOURS).
[CHART REDACTED]##
<TABLE>
<CAPTION>
<S> <C>
Effective Date: September 25, 1998 Affiliate Initials: /s/ unintelligible Initials:___________
</TABLE>
- -----------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
(INTERNATIONAL RATES - EFFECTIVE 1/1/98)
WORLDGATE BASIC SERVICE:
3. FOR AFFILIATES OFFERING THE WORLDGATE SERVICE AS A METERED USAGE SERVICE AND
AS A BASIC SERVICE ACROSS AND AS PART OF ALL TIERS OF SERVICE (INCLUDES AN
ALLOTTED USAGE TIME PER SUBSCRIBER OF UP TO TWO HOURS PER MONTH).
[CHART REDACTED]##
4. FOR AFFILIATES OFFERING THE WORLDGATE SERVICE AS A UNLIMITED USAGE SERVICE
AND AS A BASIC SERVICE ACROSS AND AS PART OF ALL TIERS OF SERVICE. (INCLUDES AN
ALLOTTED USAGE TIME PER SUBSCRIBER PER MONTH WHICH IS NOT LIMITED IN NUMBER OF
HOURS).
[CHART REDACTED]##
- ---------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<TABLE>
<S> <C>
Effective Date: September 25, 1998 Affiliate Initials: /s/ unintelligible WG Initials:___________
</TABLE>
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
CHANNEL HYPERLINKING-SM- AND OTHER REVENUE SHARING OPPORTUNITIES
The parties anticipate that the Subscriber Accessible Content will include
opportunities to generate revenue from third parties through Channel
Hyperlinking, advertising, commodity buying/selling lead generation and similar
services which may be enabled by the WorldGate Platform. The Parties further
recognize that such opportunities may require commitments with advertising
agencies and other third parties as well as administrative, accounting, and
other services and associated costs, fees, and expenses in order to permit such
revenue to be generated. The Parties will work together to maximize such
opportunities. Any net revenue which is generated as a result of such services
as the Parties agree to make available to Subscribers as part of the WorldGate
Service hereunder will be evenly shared by WG and Affiliate, after payment of
such associated costs, fees, and expenses, and subject to any required
commitments as aforesaid.
<TABLE>
<CAPTION>
<S> <S>
Effective Date: September 25, 1998 Affiliate Initials: /s/ unintelligible WG Initials:__________
</TABLE>
WorldGate Communications, Inc. CONFIDENTIAL
<PAGE>
Exhibit 10.13
WORLDGATE AFFILIATION AGREEMENT
THIS AGREEMENT DATED _________________, IS BETWEEN CITY OF TACOMA, TACOMA
PUBLIC UTILITIES, DBA CLICK! NETWORK , WITH ITS PRINCIPAL PLACE OF BUSINESS
AT 3628 SOUTH 35TH STREET, TACOMA, WA 98411-0007 , (HEREINAFTER REFERRED TO
AS "AFFILIATE") AND WORLDGATE COMMUNICATIONS, INC., WITH ITS PRINCIPAL PLACE
OF BUSINESS AT: 3220 TILLMAN DRIVE, SUITE 300, BENSALEM, PA 19020
(HEREINAFTER REFERRED TO AS "WG").
AFFILIATE AND WG (COLLECTIVELY THE "PARTIES") HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS:
The following terms, abbreviations and definitions used in this
Agreement shall have the meanings set forth herein below:
(a) "SYSTEM(S)" means Affiliate's television distribution system(s) for
one or more geographical service areas, as from time to time are identified in
Exhibit A.
(b) "PROVIDER(S)" means one or more entities providing Subscriber
Accessible Content for Subscriber access on or as part of the WorldGate-SM-
Service.
(c) "SUBSCRIBER" means a person or entity gaining access to the
WorldGate-SM- Service as part of Affiliate's System.
(d) "SUBSCRIBER ACCESSIBLE CONTENT" means the programs, displays,
data, information, and other content (including without limitation, the
Internet) which, from time to time, has been licensed or is otherwise
provided by WG and other Providers for access by Subscribers on or as part of
the WorldGate-SM- Service.
(e) "SUBSCRIBER TRANSACTION" means any instance whereby a Subscriber
uses or otherwise accesses the WorldGate Service.
(f) "TERM" means the term of this Agreement which shall commence on the
date hereof, and shall terminate seven (7) years from the date set forth above,
except if renewed or terminated earlier as provided herein.
(g) "WORLDGATE-SM- PLATFORM" means the hardware and software
components to be supplied by WG to Affiliate and used by Affiliate in
connection with Affiliate's System to provide Subscriber access to the
WorldGate Service hereunder.
(h) "WORLDGATE-SM- SERVICE" means an interactive Internet access
service which utilizes the WorldGate Platform in connection with the
Affiliate's System(s) for addressably transmitting downstream application
information (including Subscriber Accessible Content) to Subscribers in the
System's channels (vertical blanking intervals, full video channels or MPEG
data stream) and, either utilizing separate rf sub-bands of the System's
current allocated
<PAGE>
spectrum and/or a suitable phone-network based return facility for transmitting
upstream communication.
2. AUTHORIZATION OF RIGHTS, WORLDGATE PLATFORMS AND SYSTEM:
(a) WG hereby authorizes Affiliate, during the Term hereof, to provide
to Subscribers access to and use of the WorldGate Service, via the WorldGate
Platforms in connection with Affiliate's System, in accordance with the terms
and conditions of this Agreement.
(b) From time to time during the term hereof WG shall provide to
Affiliate and Affiliate shall acquire by purchase, lease or such other
acquisition transaction as may be agreed in writing by the Parties, certain
systems and the components of the WorldGate Platform as are further identified
in Exhibit B. Certain terms and conditions with respect to such acquisition as
well as the associated installation, maintenance and warranty of the WorldGate
Platforms are also set forth in Exhibit B.
(c) WG shall make available to Subscribers such Subscriber Accessible
Content as may, from time to time, be determined by the Parties. Affiliate,
however, acknowledges that the Providers of Subscriber Accessible Content may,
from time to time, and for any reason make additions to, deletions from and/or
otherwise modify Subscriber Accessible Content, and accordingly, WG also
reserves such right. Affiliate further acknowledges that elements of such
Subscriber Accessible Content, such as the Internet, may include materials and
information of unreliable, uncertain or even objectionable origin, nature and/or
character, and that WG expressly disclaims any responsibility for or liability
associated with Subscriber's access to or use of the Subscriber Accessible
Content.
(d) Affiliate may request modifications of or additions to certain user
interface screens or other aspects of the WorldGate Platform and/or the
Subscriber Accessible Content. WG agrees to work with Affiliate to accommodate
such requests to the extent that WG agrees such modifications are viable and
will enhance the WorldGate Service.
(e) Affiliate shall provide a suitable System and facilities associated
therewith as further identified in Exhibit A. Affiliate may, from time to time,
add additional Systems, in which event Affiliate shall use commercially
reasonable efforts to provide WG with at least ninety (90) days advance written
notice of any such proposed additions to the System, and upon the agreement of
the Parties with respect to the proposed additions this Agreement shall be
promptly amended to cover the proposed additions by the execution of
supplemental and/or superseding Exhibit A(s) setting forth the agreed and then
current information relevant to such Systems. Furthermore and from time to time,
Affiliate may make other changes to the Systems and facilities comprising the
same and/or WG may make changes to the WorldGate Platform and/or the WorldGate
Service. In the event such changes materially affect the performance of the
WorldGate Service, the Party making the changes shall use all reasonable efforts
to provide the other Party with as much advance notice of the same as is
reasonably possible, and the Parties shall reasonably cooperate with each other
to minimize any resulting detrimental effect from such changes.
(f) The installation, maintenance and support of such Systems and
associated facilities shall be the sole responsibility of Affiliate and its
suppliers. WG (and its contractors),
<PAGE>
however, requires both physical and electronic access to the System and the
WorldGate Platform connected thereto to perform its obligations hereunder.
Affiliate shall provide WG (and its contractors) reasonable physical access upon
advance notice as well as electronic access (via modem, the Internet and other
electronic means) to such Systems (including the facilities and technical
personnel associated therewith) and to the WorldGate Platforms connected or to
be connected thereto, as required to perform its obligations hereunder,
including without limitation, the installation, support and service of the
WorldGate Platform, as well as the reporting and invoicing of Subscriber
Transactions.
3. RESERVATION OF RIGHTS:
(a) Affiliate agrees that it is the essence of this Agreement that,
without the specific written consent of WG, or except as otherwise set forth
herein: (i) the WorldGate Platform shall not be modified by Affiliate in any
manner; (ii) the WorldGate Platform shall not be utilized by Affiliate to
provide services other than the WorldGate Service; and (iii) Affiliate shall not
authorize any other party to do any of the acts forbidden herein (the foregoing
subparagraphs (i)-(iii)) are collectively referred to herein as the "Prohibited
Acts").
(b) Affiliate shall immediately notify WG upon the occurrence or likely
occurrence of any Prohibited Acts of which it becomes aware.
(c) All licenses, rights and interest in, to and with respect to the
WorldGate Platform, the Subscriber Accessible Content, the elements, parts and
derivations thereof (including without limitation the writings, images,
displays, electronic reproductions, user interfaces, sounds, data, information
and other works embodied therein, derived therefrom or ancillary thereto, and
the media of reproduction, performance or exhibition thereof), as well as the
intellectual property rights related thereto, not specifically granted herein to
Affiliate or to Subscribers, shall be and are expressly and entirely reserved by
WG and the applicable Providers. The rights and licenses granted to Affiliate
and the Subscribers hereunder do not include any right to sublicense any third
party, in whole or in part.
4. MARKETING AND PROMOTION OF THE WORLDGATE SERVICE: The Parties agree to
diligently market and promote the WorldGate Service to all of Affiliate's
customers which are or become part of Affiliate's System(s). In particular and
without limitation the Parties agree to provide such marketing and promotional
services as are further identified in Exhibit C. The Parties recognize that each
other's trademarks and brands are significant assets of the Party owning the
same and that any use of such trademarks and brands shall only be with the
other's prior consent and then only in a manner consistent with that typically
used with other quality and valued trademarks and brands. The WG marks shall be
prominently displayed in all consumer communications promoting the WorldGate
Services such as, but not limited to, marketing materials, advertisements,
direct mail pieces, bill stuffers, price lists, etc. All marketing materials and
TV spots developed by Affiliate promoting the WorldGate Services, and all other
uses of the WG marks shall be approved by WG in writing prior to initial
dissemination. The WG marks may be promoted with Affiliate's mark with WG's
prior written approval.
5. PAYMENTS, ACCESS FEES AND TAXES:
(a) As consideration for the rights granted and services performed
hereunder with respect to the WorldGate Service, Affiliate shall pay to WG
Subscriber Access Fees as more
<PAGE>
fully set forth in Exhibit D. The Parties acknowledge that changes may be
required in such Subscriber Access Fees as a result of material changes in the
services and systems which are agreed to be offered hereunder (including without
limitation, the addition of optional services, etc.) or in the event of changes
in the regulatory environment governing such services and systems which
materially affect the cost or such services and systems to WG. In such event the
Parties agree to negotiate in good faith any resulting changes to the Subscriber
Access Fees hereunder.
(b) Notwithstanding the required payment of a Subscriber Access Fee as
described above, the Parties agree and acknowledge that Affiliate is free to
determine what fees, if any, it charges its customers with respect to access to
the WorldGate Service and/or any Subscriber Transactions.
(c) Except as expressly stated, all payments and fees due to WG
hereunder, including without limitation the Subscriber Access Fee, are net of
all duties, franchise fees and taxes (including interest and penalties on any
such amounts) now or hereafter imposed or based upon the licensing, rental,
purchase, shipment, delivery, transmission, exhibition, possession, or use of
the WorldGate Platform, the access to any Subscriber Accessible Content, or any
transfer of technology hereunder, but excluding however any taxes assessed upon
any of WG's income or personal property (collectively "Taxes"). Affiliate has
advised WG that licensing and/or registration fees may be due for doing business
in the State of Washington and the City of Tacoma in the aggregate amount of
approximately $97.00, and WG agrees to pay this amount if so required by the
governmental authorities in these jurisdictions. WG agrees to register with the
City of Tacoma and to pay all applicable City of Tacoma taxes. Provided,
however, if the City's taxes, tax rates, franchise fees and/or license fees are
amended or adopted so to increase above the current 0.0048% of gross income,
then Affiliate agrees to reimburse WG to the extent of such increase.
(d) Except for Subscriber Access Fees or as otherwise directed by WG in
writing, all payments hereunder, including without limitation the purchase price
of the components of the WorldGate Platform shall be made promptly at the net
invoice price (i) in cash before shipment, or (ii) by establishing a confirmed,
irrevocable letter of credit in form and substance and with a primary bank
satisfactory to WG, payable against delivery of a site draft, bill of lading or
other similar document requested by WG, or (iii) upon written credit approval by
WG, within thirty (30) days after the receipt of an invoice for the same.
Subscriber Access Fees and such other payments as are directed in writing by WG
are due within twenty (20) days of the receipt of invoice for the same. Interest
shall accrue on all amounts not paid when due at a rate equal to the lesser of
twelve (12%) percent per annum or any maximum rate imposed under applicable laws
and regulations. Payments shall not be deferred or subjected to setoff by
Affiliate. Payments may not be suspended and shall continue during the pendency
of any dispute hereunder. All payments to be made to WG shall be in the currency
of the United States unless otherwise agreed in writing by the parties. WG
reserves the right to change or limit the amount or duration of any payment
credit terms which may be extended to Affiliate hereunder in the event of any
change in the credit worthiness of Affiliate as determined by WG in its sole
discretion.
6. STATEMENTS AND REPORTS: To afford determination and/or verification of the
Subscriber Access Fees due hereunder WG shall provide to Affiliate an accounting
statement and report within twenty (20) days after the end of each calendar
month in which the WorldGate
<PAGE>
Service is distributed hereunder. Said statement shall include at least the
following information to the extent applicable: the number of Subscribers, the
type of Subscriber accounts and the number of such type of accounts, the
Subscriber Transaction time, and the total amount due for all Subscriber
Transactions and Subscriber access to the WorldGate Services hereunder. Such
information may be provided electronically by access to computer terminals
associated with the WorldGate Platform and/or in connection with a third party
standard billing interface. Affiliate acknowledges that WG requires access to
records and information relating to Subscribers in order to provide such
statements and reports and hereby consents to the same.
7. AUDIT: Affiliate and WG shall keep accurate and complete books and records of
Subscriber Transactions and accounts hereunder, and any required adjustments
thereto. Subject to the confidentiality provisions contained herein Affiliate
and WG may, not more than once during each calendar year and upon at least
thirty days prior written notice, at their expense and during regular business
hours, have the right to audit all such books and records of the other
pertaining to the Subscriber Transactions occurring over Affiliate's System.
Such audits shall be conducted by a nationally recognized, independent public
accounting firm chosen by the auditing Party on the auditing Party's behalf. The
audited Party agrees to fully cooperate with auditing Party's representatives
and/or designees, and shall provide such representatives and/or designees with
an office or adequate space in which to facilitate any audit of such books
and/or records. If an audit or checking reveals a discrepancy in the Access Fee
owed for the audit period, WG and Affiliate agree to make prompt adjustments of
such accounts along with any required credits or payments associated therewith.
8. REPRESENTATIONS AND WARRANTIES OF THE PARTIES:
(a) Each of the Parties represents and warrants that (i) it has the
authority and power to enter into this Agreement and to perform its obligations
hereunder; and (ii) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
and are deemed to be valid, binding and enforceable obligations.
9. INDEMNIFICATION:
(a) WG shall indemnify Affiliate against (i) any award of damages and
costs made against Affiliate by a final judgment of a court of competent
jurisdiction in any such action, insofar as the same are based on a claim that
the WorldGate Platform infringes any United States patent, and (ii) any
settlements or compromises approved by WG as described below. WG shall control
the defense of any such action including appeals, and all of negotiations
thereof, including the right to effect any settlement or compromise. In case the
use of the WorldGate Platform is, in any action, held to constitute such an
infringement and the use thereof is enjoined, WG shall, at its option and
expense (x) procure for Affiliate the right to continue using the WorldGate
Platform, (y) replace or modify the same so that it becomes non-infringing and
performs the same service with substantially the same quality, or (z) authorize
Affiliate to return the effected WorldGate Platform and provide Affiliate with a
refund of the purchase price, less an allowance for past use prorated based upon
the initial term of this Agreement. The above indemnity shall not apply to and
WG shall have no liability for any claim
<PAGE>
of infringement based on: (1) any use of other than a current unaltered release
of the WorldGate Platform; or (2) any access to or use of the Subscriber
Accessible Content; or (3) any combination or use of the WorldGate Platform with
non-WG hardware, software, information, data or content, or (4) any use of the
WorldGate Platform other than is authorized herein. The foregoing states the
entire liability with respect to infringement of any intellectual property
rights with regard to the WorldGate Platform.
(b) Affiliate shall indemnify WG against (i) any award of damages and
costs made against WG by a final judgment of a court of competent jurisdiction
in any such action, insofar as the same are based on a claim of infringement
arising out of: (1) any use of other than a current unaltered release of the
WorldGate Platform; or (2) any combination or use of the WorldGate Platform with
non-WG hardware, software, Subscriber Accessible Content or data, or (3) any use
of the WorldGate Platform other than is authorized herein, and (ii) any
settlements or compromises approved by Affiliate as described below.
(c) In any case in which indemnification is sought hereunder:
(i) The party seeking indemnification shall promptly notify
the other party in writing upon the initiation of any claim or litigation to
which the indemnification relates;
(ii) The party seeking indemnification shall afford the other
party the opportunity to participate in, and, at the option of such other party,
to control, any compromise, settlement, litigation or other resolution or
disposition of any such claim.
(iii) The party seeking indemnification shall fully cooperate
with the reasonable requests of the other party in its participation in, and
control of, any compromise, settlement, litigation or other resolution or
disposition of any such claim.
10. SECURITY: Affiliate shall employ such security systems and procedures as may
be reasonable and commercially feasible to prevent theft, pirating or other
unauthorized access to the WorldGate Service as it is distributed over
Affiliate's System.
11. RENEWAL, TERMINATION AND DEFAULTS:
(a) Upon the expiration of the initial Term hereunder this Agreement
shall be automatically renewed for additional successive two (2) year periods
thereafter unless terminated by either Party upon ninety (90) days written
notice prior to the expiration of such initial Term and any renewal period. The
Subscriber Access Fees payable during any renewal period shall be subject to a
5% escalator, compounded annually, or if lower, WG's then current published
rates.
(b) In addition to all of its other rights and remedies at law and in
equity, either party shall be entitled at its option forthwith, upon giving
notice to the other party, to terminate this Agreement and all licenses granted
hereunder, (i) if said other party shall fail to perform any of its obligations
or undertakings required of it hereunder, or shall be in breach of any of its
warranties or representations herein contained, and shall not have cured or
remedied such failure or breach within sixty (60) days of written notification
thereof; provided, however that with respect to any failure to pay Subscriber
Access Fees such cure period shall be reduced to ten (10) business days from the
date of written notification hereunder; (ii) if a party hereunder
<PAGE>
commences a voluntary case under Title 11 of the United States Bankruptcy Code
as now and hereafter in effect, or any successor statute, or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or a
party consents to the entry of an order for relief in an involuntary case, or to
the conversion of a voluntary case to an involuntary case, under any such law,
or consents to the appointment of or taking possession by a receiver, trustee or
other custodian for all or a substantial part of its property; a party makes any
assignment for the benefit of creditors; a party is unable or fails or admits in
writing of its inability or failure to pay its debts as such debts become due;
or the Board of Directors or other governing body of a party adopts any
resolution or otherwise approves authorization to act upon any of the foregoing,
such action shall be deemed a breach hereunder; or (iii) if any order, judgment
or decree is entered against decreeing the dissolution or split-up of such
party, and such order remains undischarged or unstated for a period in excess of
thirty (30) calendar days, such action shall be deemed a breach hereunder.
(c) WG may terminate this Agreement upon at least one hundred twenty
(120) days prior notice in the event the Parties cannot agree upon any required
changes to the Fees in accordance with Paragraph 5(a) hereunder.
(d) Sections 1,3,7-10, 11(d), 14-16, and 18-20, as well as any
obligation which has accrued prior to any expiration or termination of this
Agreement shall survive such expiration or termination. All outstanding Access
Fees and other amounts owing to WG hereunder shall become immediately due and
payable in the event of any expiration or termination of this Agreement.
12. ASSIGNMENT: WorldGate shall have the right to assign its rights and
obligations hereunder to a third party which is acquiring all or substantially
all of its assets, or any company with which it may merge or consolidate. Except
as expressly set forth in the prior sentence neither party hereunder shall have
the right to assign, transfer or hypothecate its rights and obligations
hereunder, without the other's prior written approval. Any other purported
assignment of this Agreement, shall be deemed null and void.
13. HEADINGS, RELATIONSHIP OF PARTIES: The titles of the paragraphs of this
Agreement are for convenience only and shall not in any way affect the
interpretation of this Agreement. This agreement does not in any way create the
relationship of franchise, joint venture, partnership or agency between WG and
Affiliate, and each shall remain an independent contractor, and as such shall
not act or represent itself, directly or by implication, as agent for the other
or assume or create any obligation of or in the name of the other.
14. NON-WAIVER OF BREACH; REMEDIES CUMULATIVE:
(a) A waiver by either party of any of the terms or conditions of this
Agreement shall not, in any instance, be deemed or construed to be a waiver of
such terms or conditions for the future or of any subsequent breach thereof. No
payment or acceptance thereof under this Agreement shall operate as a waiver of
any provision hereof.
(b) Except as set forth herein all remedies, rights, undertakings,
obligations and agreements contained in this Agreement shall be cumulative and
none of them shall be in
<PAGE>
limitation of any other remedy, right, undertaking, obligation, or agreement of
either party. IN NO EVENT SHALL EITHER PARTY HEREUNDER BE LIABLE TO THE OTHER
FOR SPECIAL, PUNITIVE, CONSEQUENTIAL (INCLUDING WITHOUT LIMITATION ANY LOST
PROFIT OR INVESTMENT AND THE LIKE), INDIRECT OR INCIDENTAL DAMAGES, BY WAY OF
INDEMNITY OR OTHERWISE.
(c) In no event shall WG be liable for damages exceeding the cost of
the equipment purchased hereunder as referenced in Exhibit B..
15. NOTICES: Except as herein otherwise expressly provided, all notices,
statements and other documents desired or required to be given hereunder shall
be in writing and shall be given by personal delivery, certified mail, email
(with a copy sent by regular US mail) or fax (with a copy sent by regular US
mail). All notices, statements and other documents shall be sent to:
If to WG:
<TABLE>
<S> <C>
Accounting statements and All other notices should be sent to:
remittances should be sent to:
WORLDGATE COMMUNICATIONS, INC. WORLDGATE COMMUNICATIONS, INC.
3220 Tillman Drive, Suite 300 3220 Tillman Drive, Suite 300
Bensalem, PA 19020 Bensalem, PA 19020
Attn: Accounting Services Attn: Affiliate Administration
</TABLE>
If to Affiliate:
Click! Network
3628 South 35th Street
Tacoma, WA 98411-0007
Attn: Marketing Manager
(or at such other address as may be designated in writing by either party no
less than thirty (30) days prior to the date of transmission of the notice,
statement, etc.). Notice given by domestic mail shall be deemed given three (3)
days after the date of mailing; Notice given by international mail shall be
deemed given ten (10) days after the date of mailing, notice given by fax shall
be deemed given at the time of dispatch; notice given by email or personal
delivery shall be deemed given upon delivery by the email service or messenger.
16. GOVERNING LAW AND EXPORT RESTRICTIONS:
(a) All matters pertaining to this Agreement (including its
interpretation, validity, performance and breach), in whatever jurisdiction
action may be brought, shall be governed by the laws of the State of Delaware
(excluding its conflict of law provisions) . The parties hereto expressly
consent and agree to submit to the jurisdiction of any court of competent
jurisdiction
<PAGE>
(i) in the State of Delaware with respect to any action initiated by Affiliate,
and (ii) in the State of Washington with respect to any action initiated by WG,
and to accept service of process outside the States of Delaware and Washington,
as applicable, in any matter to be submitted to any such court pursuant hereto.
(b) Wherever there is any conflict between any provision hereof and any
law or requirement with the force of law, this Agreement shall remain valid and
such provision hereof shall be restricted to the extent, and only to the extent,
necessary to bring it within the applicable requirements, unless such
restriction shall, in the opinion of WG, have the effect of materially
nullifying, or impairing, this Agreement.
(c) Affiliate shall comply fully with all then current applicable laws
and regulations relating to the export of products and technical data including,
but not limited to, any regulations of the United States Office of Export
Administration.
17. FORCE MAJEURE: Neither party shall, in any manner whatsoever, be liable or
otherwise responsible for any delay or default in, or failure of performance
(other than the failure to make payments hereunder) resulting from or arising
out of or in connection with, any "Event of Force Majeure" and no such delay,
default in, or failure of performance shall constitute a breach by either party
hereunder. For purposes of this Agreement, an "Event of Force Majeure" in
respect of a party shall mean any act, cause contingency or circumstances beyond
the control of such party, including, without limitation, and to the extent
beyond the control of such other party, any governmental action,
nationalization, expropriation, confiscation, seizure, allocation, embargo,
prohibition of import or export of goods or products, regulation, order or
restriction (whether foreign, federal or state), war (whether or not declared),
civil commotion, disobedience or unrest, insurrection, public strike, riot or
revolution, lack of or shortage of, or inability to obtain, any labor,
machinery, materials, fuel, supplies or equipment from normal sources of supply,
strike, work stoppage or slowdown, lockout or other labor dispute, earthquake,
hurricane, fire, flood, drought, other natural calamity, damage or destruction
to plant and/or equipment, or any other accident, condition, cause, contingency
or circumstance (including, without limitation, acts of God) within or without
the United States beyond the control of such party.
18. CONFIDENTIALITY:
(a) The recipient of any confidential information of the other
hereunder agrees to safeguard the confidentiality of such confidential
information by applying policies and procedures adequate for that purpose,
including without limitation, restricting the disclosure of this confidential
information to employees and consultants needing to know the same for the
purpose of this Agreement, who have agreed in writing to safeguard such
confidential information in a manner consistent with the provisions of this
paragraph. The recipient shall not disclose any such confidential information to
any other person, firm or corporation, or use the same except for the purpose
stated hereinabove, and shall exercise at least the same degree of care to guard
against disclosure or unauthorized use of such confidential information, as the
recipient employs with respect to its own confidential information, but in no
event less than reasonable care. Information to be disclosed confidentially
hereunder shall be fixed in a tangible medium of expression that is marked
"Proprietary" or "Confidential", or if disclosed in other than a tangible medium
of expression, indicated by the disclosing Party as being
<PAGE>
"Proprietary" or "Confidential" at the time of disclosure and within thirty (30)
days thereafter summarized by the disclosing Party in a writing to the
recipient, in which writing the confidential information is identified as
"Proprietary" or "Confidential". A tangible medium of expression shall be deemed
to include, by way of example, memoranda, written descriptions, drawings,
photographs, models, prototypes, tapes, disks and circuitry.
(b) The recipient shall have no obligation of confidentiality hereunder
with respect to any information which:
(i) is already properly known to the recipient other than as a
result of a prior confidential disclosure by the disclosing Party;
(ii) is or becomes publicly known otherwise than by the
recipient's (or someone receiving the information from recipient) fault or
breach of this Agreement;
(iii) is rightfully received by the recipient without
restriction from a third party who is not under an obligation of
confidentiality, directly or indirectly, to the disclosing Party;
(iv) is independently developed by the recipient without
benefit of the confidential information received hereunder;
(v) is approved for release in writing by the disclosing
Party; or
(vi) is disclosed by the recipient pursuant to judicial or
regulatory action, provided that the disclosing party is promptly notified at
the time such action is initiated and the recipient fully cooperates with the
disclosing Party in seeking continued confidential treatment of such information
to the extent possible.
(c) Except as may be reasonably required by applicable law, regulation
or court order, the Parties agree that neither of them shall publicly divulge or
announce, or in any manner disclose to any third party, other than its
attorneys, accountants, parents, and partners, any of the specific terms and
conditions of this Agreement, including without limitation the Subscriber Access
Fees payable hereunder, and the parties further warrant and agree that none of
their officers, directors or employees will do so. Click! Network will notify WG
of such a request for disclosure so that WG may take its own course of action.
19. PROCEDURE PRIOR TO LITIGATION: Prior to initiating any litigation with
respect to any controversy, claim or dispute arising hereunder or related
hereto, but excluding any claim arising under Sections 3, 10 or 18 of this
Agreement (a "Dispute") a Party must first notify the other Party and request in
writing that such Dispute be submitted to an executive committee consisting of
one senior ranking executive named by each of the Parties for such purpose. Such
named executive shall have the authority and be capable of making binding
decisions on behalf of such Party with respect to such Dispute. Within five (5)
business days following the receipt of such notice (or such other period as may
be agreed by the Parties) each Party shall have named its executive committee
participant, and within ten (10) business days following the receipt of such
notice (or such other period as may be agreed by the Parties) the executive
committee shall meet to discuss the Dispute. If the executive committee is not
able to resolve the Dispute within twenty (20) business days following the
receipt of such notice (or such other period as may be agreed by the Parties),
then either Party may proceed with the initiation of such litigation as may be
appropriate.
20. ENTIRE UNDERSTANDING: This Agreement, including the Exhibits identified
herein, sets forth the entire understanding of the parties with respect to the
subject matter hereof, and all prior concurrent oral agreements or all prior
written agreements with respect to such subject
<PAGE>
matter have been merged herein. No representations or warranties have been made
other than those expressly provided for herein. This Agreement may not be
modified, except by a written instrument signed by an authorized representative
of the parties, and this provision may not be waived except by written
instrument signed by an officer of the parties. In the event this agreement is
translated into any foreign language counterpart, the English language
counterpart shall remain controlling. This Agreement shall be presumed to have
been negotiated and drafted by both Parties for the purpose of construing any
ambiguities hereunder.
IN WITNESS WHEREOF, THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE SIGNED AND
ACCEPTED BY THEIR DULY AUTHORIZED REPRESENTATIVES AS OF THE DAY AND YEAR FIRST
WRITTEN ABOVE.
<TABLE>
<S> <C>
Affiliate: CITY OF TACOMA, TACOMA PUBLIC UTILITIES, WG
DBA Click! Network
By: /s/ Mark Crisson By: /s/ Peter Mondics
Name: Mark Crisson Name: Peter Mondics
Title: Director of Utilities Title: unintelligible
Date:11/25/98 Date: 12/7/98
Tel.: 253-502-8900 Tel.: 215-633-5100
Fax: 253-502-8493 Fax: 215-633-9590
</TABLE>
Approved as to form & legality
/s/ UNINTELLIGIBLE
-------------------------
[Unintelligble] Assistant City Attorney
Approved:
By: /s/ UNINTELLIGIBLE
--------------------
Finance Director
<PAGE>
EXHIBIT A
TELEVISION DISTRIBUTION SYSTEMS
<TABLE>
<CAPTION>
SYSTEM NAME MAILING ADDRESS BASIC SUBSCRIBERS
----------- --------------- -----------------
<S> <C> <C>
## ## ##
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
- -------------------------- -------------------------- --------------------------
</TABLE>
Each System identified above must include at least the following minimum
facilities (to be supplemented as WG subscriber base grows):
(a) dedicated Internet Access Link - T1 or equivalent with comparable
data rates
(b) Cisco 2501 Router with IP Software (or approved equivalent)
(c) Kentrox D-Serv CSU/DSU (or approved equivalent)
Effective Date: 12/14/98 Affiliate Initials: /s/ unintelligible WG
Initials: /s/ unintelligible
- -----------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
EXHIBIT B
WORLDGATE PLATFORM
PLATFORM COMPONENTS AND PRICING:
Set forth below are the standard components of the WorldGate Platform and
Affiliate's price for the same as of the effective date set forth below. Such
prices are FOB WG's factory, and are valid for a period of one-year from this
effective date after which time they are subject to change by WG to reflect
current market conditions.
<TABLE>
<CAPTION>
ITEM FIRST UNIT IN A HEADEND OTHER UNITS - SAME HEADEND
---- ----------------------- --------------------------
<S> <C> <C>
Headend Package (analog) ## ##
Large System Headend Package (analog) ##
Channel HyperLinking Server ##
WorldGate Keyboard* ## ##
</TABLE>
* Non-U.S. language keyboards will be quoted separately.
Affiliate will require and shall purchase hereunder one or more Headend Packages
and WorldGate Keyboards, as required, for each System identified on Exhibit A of
this Agreement. Custom configuration options are available and will be quoted
separately if required based upon expected subscriber base (For initial
quotation see Exhibit b-2 attached hereto and incorporated herein by reference).
The above fees include routine site surveys and installation for domestic U.S.
locations. Non-routine and/or non-U.S. surveys and installation are available on
a time and material basis at WG's customary rates (international locations will
also involve travel and per diem charges.) The above fees do not include any
improvements and/or modifications to Affiliate's Systems. Notwithstanding the
use of the term "purchase" herein, such WorldGate Platform as acquired hereunder
includes certain WorldGate and third party software, microcode and
documentation, whether stored in electronic (including firmware), magnetic,
optical or other media (collectively Programs) for which title to and all
proprietary rights in are reserved to WG and its suppliers. All access to and
use of such Programs is subject to the terms and conditions of WG's Software
License attached hereto and incorporated herein as Exhibit B-1.
LIMITED PRODUCT WARRANTY:
In addition to the warranties set forth in Section 8 of this Agreement, WG
warrants that as installed hereunder and for a period of three months thereafter
( but not more than four months after delivery if there is a delay between
delivery and installation other than as may result from
- -----------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
the actions and/or omissions of WG) such WorldGate Platform components will
perform under normal use and service substantially in the manner specified in
the applicable published technical specification as published by WG prior to the
execution of this Agreement , and that for this period the hardware components
of the WorldGate Platform will be free from defects in materials and
workmanship. This warranty shall not apply to any items subjected to accident,
misuse, neglect, mishandling, unsuitable physical or operating environments or
any installation, testing, repair or alteration by anyone other than WG or its
authorized vendors, or any use of non-approved components in connection with the
WorldGate Platform. WG's warranty hereunder extends to Affiliate and to no other
person or entity. This warranty shall not be enlarged or otherwise affected by,
and no obligation or liability shall arise hereunder by WG's rendering of
technical advice, help line support or service in connection with the products
furnished hereunder. Any claims arising out of the aforesaid warranty must be
submitted to, and the affected components must be returned or otherwise made
available to WG in accordance with its published procedures, during the
specified warranty period or within thirty (30) days of the expiration of such
period. Subject to the preceding conditions, WG will promptly examine such
WorldGate Platform components and repair or replace any such components which
are defective with respect to the above warranty. Any required service, repair
or replacement (and the costs and expenses associated therewith) which are not
covered by the above warranty will be the responsibility of Affiliate unless
covered by an applicable WG service contract.
THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING WITHOUT LIMITATION, ANY IMPLIED OR STATUTORY WARRANTY OF
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ANY
WARRANTY HEREUNDER, EXPRESS OR OTHERWISE, IS LIMITED TO THE WARRANTY TERM AND
CONDITIONS AS SET FORTH ABOVE.
AFFILIATE TECHNICAL SUPPORT:
WG will at no additional charge to Affiliate provide technical support to
Affiliate's customer service and engineering staff, 7 days per week, 24 hours
per day, with such support to be provided by telephone, facsimile and Internet.
Except as is provided by WG pursuant to the terms and conditions of any
applicable service contract or WG's written warranty herein, any required travel
from WG's facilities or support in addition to that provided by telephone,
facsimile and Internet hereunder will require payment for time and materials at
WG's customary rates, as well as reimbursement for travel and per diem charges.
ON SITE TRAINING:
Prior to the initial launch of the WorldGate Service on Affiliate's Systems WG
will conduct one on site customer service training program of up to 3 days in
duration for domestic U.S. installations. Training for non-U.S. installations as
well as additional training will be available on a time and materials basis at
WG's customary rates, as well as reimbursement for travel and per diem charges.
PLANT SPARES:
WG and Affiliate will cooperate to formulate and implement a recommended program
for spare parts inventory, local maintenance strategy and emergency response.
<PAGE>
SUBSCRIBER HELP LINE:
WG shall make available to WorldGate Subscribers (for domestic US locations
only) a toll-based help line to assist WorldGate service Subscribers with
questions relating to their WorldGate Service. Affiliate shall be responsible
for all other Subscriber support.
<PAGE>
EXHIBIT B-1
SOFTWARE LICENSE
The terms and provisions of this Exhibit B-1 (Software License) provide for the
licensing by WG to Affiliate of certain Programs (as such term is defined in the
Affiliation Agreement) furnished with and to be used either as part of or in
conjunction with the WorldGate Platform to be provided by WG to Affiliate under
an Affiliation Agreement, of which this Exhibit forms a part.
1. GRANT OF LICENSE: WG (hereinafter Licensor) hereby grants to Affiliate
(hereinafter Licensee) and Licensee hereby accepts a personal, nonexclusive
license to use the Programs on the terms and conditions set forth herein and in
the Affiliation Agreement. Except as specifically provided herein and therein,
no interest, right or license, express or implied, is granted, and such other
interests, rights and licenses are hereby reserved.
2. OWNERSHIP RIGHTS: Any reference to sale or purchase not withstanding, title
to the Programs and all copies and derivatives thereof shall be and remain in
Licensor, and no title to or ownership of the Programs or any derivative or
portion thereof is conveyed or transferred to the Licensee. Licensee
acknowledges that the Programs constitute confidential and proprietary
information and trade secrets of Licensor, whether or not the Programs, or any
portion thereof, are or may be copyrighted or copyrightable and/or patented or
patentable, and that disclosure of the Programs to Licensee is on the basis of
the confidential relationship between Licensee and Licensor under this
Agreement.
3. RESTRICTION ON TRANSFER: Licensee shall not sell, assign, sub-license,
transfer, or otherwise make available the Programs, in whole or in part, except
as may be permitted by this Software License Agreement and only with written
prior consent by WG.
4. RESTRICTION ON USE, DISASSEMBLY AND REVERSE ENGINEERING: Licensee may use the
Programs solely and exclusively on the computer(s) and associated peripherals
furnished by WG as part of the WorldGate Platform sold to Affiliate under terms
of the Affiliation Agreement, except that the Programs may also be temporarily
used on or with a compatible backup computer and associated peripherals if the
WorldGate Platform computers and associated peripherals are inoperative because
of malfunction or during the performance of preventive maintenance or
engineering changes, but only for such reasonable time as required to restore
such WorldGate Platform to operative status. Licensee shall use the Programs
only in connection with its immediate internal operations with respect to the
provision to its customers of the WorldGate Service as authorized by the
Affiliation Agreement, and shall not otherwise use nor offer or supply the use
of the Programs to others under any circumstance. Licensee shall not de-compile,
disassemble or otherwise reverse engineer the Programs.
5. RESTRICTION ON COPYING: Licensee shall make no copies (including any
derivatives) of the Programs, or any part thereof, except that Licensee may make
one (1) copy of the Program solely for the purposes of backup and archival
storage. All copies shall be clearly marked by Licensee with the same Licensor
proprietary and copyright restrictions which appear on the Programs originally
supplied to Licensee, and be stored by Licensee in a secure manner.
6. RESTRICTION ON DISCLOSURE: Except as expressly permitted herein, Licensee
shall not disclose or otherwise make available the Programs, or any portion
thereof, to any third party or
<PAGE>
to any employee or agent of Licensee who is not of necessity authorized by
Licensee to use the Programs as part of Licensee's provision of the WorldGate
Service. Licensee shall take all reasonable steps necessary to ensure the
Programs, or any portions, copies or derivatives thereof, are not disclosed or
otherwise made available by Licensee (or employees or agents of Licensee) to any
third party except as aforesaid.
7. TERMS AND TERMINATION: The term of this License Agreement and the license
granted hereunder shall commence on the date hereof, and shall terminate on the
earlier of: (a) when Licensee ceases to operate or otherwise de-installs or
replaces the WorldGate Platform; or (b) the termination or expiration of the
Affiliation Agreement or the failure of Licensee to pay any fees or to comply
with any of the terms and provisions hereof or of the Affiliation Agreement
pursuant to which the WorldGate Platform has been provided, which failure
continues for a period of ten (10) days after written notice to cure such
failure and avoid termination.
Upon any termination of this Software License Agreement, pursuant to (a) or (b)
above, Licensee shall immediately cease use of the Programs and return the
Programs and all copies thereof to WG, and shall, within one (1) month after any
such termination furnish WG a written statement certifying that the original and
all copies and extracts (including partial copies and extracts) of the Programs
and any related material received from WG or made in connection with such
license have been returned to WG or, upon WG's written request, destroyed. WG
reserves all rights and remedies at law, in equity and otherwise provided
pursuant to the terms and conditions of this Agreement, to enforce it rights
under this license. Licensee acknowledges and agrees that any breach or
threatened breach of this software license shall cause WG irreparable injury for
which there may be no adequate remedy at law, and that in addition to any other
remedies available, WG shall therefore be entitled to obtain injunctive relief
without the necessity of proving actual damages.
Description___________________________________________Release No._______________
Effective Date: 12/14/98 Affiliate Initials: /s/ unintelligible WG Initials:
/s/ unintelligible
<PAGE>
EXHIBIT B-2
WORLDGATE PLATFORM QUOTATION*
Large System Analog Headend as follows: [INFORMATION REDACTED]##
1. [INFORMATION REDACTED]##
2. [INFORMATION REDACTED]##
3. [INFORMATION REDACTED]##
4. [INFORMATION REDACTED]##
5. [INFORMATION REDACTED]##
6. Keyboards
Total
*PER THE REQUEST OF AFFILIATE THE ABOVE PRICES HAVE BEEN RESTATED TO INCLUDE
CITY TAX (I.E., 0.0048%) AND STATE TAX (I.E., 1.5%).
- ----------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
EXHIBIT C
MARKETING AND PROMOTION OF THE WORLDGATE SERVICE
The Parties will provide, throughout the term of this Agreement, at least the
following identified activities to market and promote the WorldGate Service:
WG WILL PROVIDE:
- - four times yearly direct mail campaign to non-WorldGate Subscribers (WG
will supply creative and will provide both printing and bulk delivery for
purchase at WG's cost)
- - bill stuffers (for purchase at WG's cost)
- - four times yearly local cable cross channel promotion, when technology is
available
- - four 30 and four 60 second video promotions for use as commercials,
distributed yearly
- - training for customer service representatives
- - selected print media placement
- - camera-ready ad mats
- - four-color quarterly consumer guide (for purchase at WG's cost)
- - point of sale displays
- - leave behind piece and on-line tutorial for consumer education
- - training tape for Subscribers
- - updates for user guides as the same become available
AFFILIATE WILL PROVIDE:
- - four times yearly direct mail campaign to non-WorldGate households
(Affiliate will provide mailing lists, address labeling, out-bound postage
and return fulfillment costs)
- - a minimum of 200 ad avails promoting the WorldGate Service with WG approved
commercials of either 30 or 60 second length per month, inserted on
Affiliate's Systems on ad supported channels as agreed between the parties,
to be run at times between 6:00 AM to 12:00 PM (midnight local time) when
such capability is technically available
- - affidavits (in the form of a computer printout) verifying above commercials
- - bill stuffer insertion and/or envelope advertising and mailing in
Subscriber billing cycle, three times per annum
- - reasonable use of local origination text-based channels (if available) to
promote WorldGate Services
- - placement of WG approved 30 and 60 second commercials (or other WG provided
promotional pieces) on Affiliate's PPV promotion channel(s), for regular
rotation for two week intervals, monthly
- - trained customer service representatives for all WorldGate Services
- - reasonable promotion of WorldGate Service on Affiliate's web home page
Effective Date: 12/14/98 Affiliate Initials: /s/ unintelligible WG Initials:
/s/ unintelligible
<PAGE>
EXHIBIT D
MONTHLY SUBSCRIBER ACCESS FEES
The following Subscriber Access Fees are payable by Affiliate to WG on a monthly
basis for each Subscriber having access to the WorldGate Service during such
month (prorated based upon a 30 day month for Subscribers having access to the
WorldGate Service for less than a full calendar month). The pricing grid sets
forth various benchmarks which, if achieved, will result in an adjustment in the
particular amount payable for such Subscriber Access Fees. Affiliate's
performance with respect to these benchmarks and the resultant amounts payable
hereunder shall be determined on an aggregate System wide basis based on the
results of all Systems hereunder. Any adjustment in the amount payable for such
Subscriber Access Fees shall apply only for prospective periods after the
benchmarks have been achieved, and then only after written notice has been
provided by Affiliate to WG providing the details as to such achievement.
In addition to the Subscriber Access Fees as set forth below Affiliate shall pay
to WG as Subscriber Access Fees, in the event the amount which Affiliate
invoices and/or otherwise charges its customers as part Affiliate's standard
monthly retail price for the WorldGate Service exceeds U.S.$10.95, an amount
equal to thirty-five (35%) percent of such excess.
For purposes of determining the amount of the Subscriber Access Fees payable
hereunder for the Systems (x) the number of "WorldGate Subscribers" for any
month shall mean the average number of actual Subscribers to the WorldGate
Service for that month and shall include only the Subscribers being invoiced for
and paying the standard retail charge which Affiliate invoices its customers for
the WorldGate Service (Subscriber Access Fees are, however, payable by Affiliate
to WG for all Subscribers receiving access to the WorldGate Service irrespective
of whether any payment is made by such Subscribers to Affiliate), and (y) the
number of AWorldGate Capable Customers for any month shall mean the average
number of Affiliate's actual customers (including only those customers being
invoiced for and paying the standard retail charge which Affiliate invoices for
its television programming distribution service) which during the month had
sufficient System architecture and Head-end Package components of the WorldGate
Platform installed and operational to permit such customer to have become a
WorldGate Subscriber, had the customer so chosen, and (z) the APenetration for
any month shall mean the number of WorldGate Subscribers divided by the number
of WorldGate Capable Customers as determined above. Monthly averages hereunder
shall be determined dividing by two the sum of the applicable number on the
first and last business days of the month.
THE FOLLOWING RATES APPLY ONLY TO AFFILIATES OFFERING THE WORLDGATE SERVICE AS A
UNLIMITED USAGE SERVICE AND AS A BASIC SERVICE TO ALL CUSTOMERS, ACROSS AND AS
PART OF ALL TIERS OF SERVICE. (INCLUDES AN ALLOTTED USAGE TIME PER SUBSCRIBER
PER MONTH WHICH IS NOT LIMITED IN NUMBER OF HOURS).
[CHART REDACTED]##
*PER THE REQUEST OF AFFILIATE THE ABOVE FEES HAVE BEEN RESTATED TO INCLUDE $0.01
CITY TAX (I.E., 0.0048%)
- ------------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
CHANNEL HYPERLINKING-SM- AND OTHER REVENUE SHARING OPPORTUNITIES
The parties anticipate that the Subscriber Accessible Content will include
opportunities to generate revenue from third parties through Channel
Hyperlinking, advertising, commodity buying/selling lead generation and similar
services which may be enabled by the WorldGate Platform. The Parties further
recognize that such opportunities may require commitments with advertising
agencies and other third parties as well as administrative, accounting, and
other services and associated costs, fees, and expenses in order to permit such
revenue to be generated. The Parties will work together to maximize such
opportunities. Any revenue which is generated as a result of such services as
the Parties agree to make available to Subscribers as part of the WorldGate
Service hereunder will be shared by WG and Affiliate either evenly or upon an
alternative percentage basis to be negotiated by the parties, in either case
after subtracting such associated costs, fees, and expenses, and subject to any
required commitments as aforesaid.
Effective Date: 12/14/98 Affiliate Initials:/s/ unintelligble WG Initials: /s/
unintelligble
<PAGE>
Exhibit 10.17
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of March 2, 1999 (this "AGREEMENT"), by
WorldGate Communications, Inc., a Delaware corporation (the "COMPANY"), in favor
of Strong River Investment, Inc., a British Virgin Islands corporation, and its
successors, endorsees, transferees and assigns ("STRONG RIVER"), and Ampal
American-Israel Corporation, a New York corporation, and its endorsees,
transferees, heirs and assigns ("AMPAL"). Strong River and Ampal are sometimes
collectively referred to in this Agreement as the "SECURED PARTIES."
W I T N E S S E T H:
WHEREAS, Strong River agreed to extend a loan to the Company in the
aggregate amount of $3,000,000 (the "STRONG RIVER LOAN"), which is evidenced by
(i) a Senior Secured Promissory Note of the Company in the principal aggregate
amount of $2,500,000 due December 2, 1999 or such other date pursuant to its
terms thereof (as amended, modified, or supplemented from time to time, the
"FIRST STRONG RIVER NOTE") and (ii) (i) a Senior Secured Promissory Note of the
Company in the principal aggregate amount of $500,000 due September 2, 1999 or
such other date pursuant to its terms thereof (as amended, modified, or
supplemented from time to time, the "SECOND STRONG RIVER NOTE" and together with
the First Strong River Note, the "STRONG RIVER NOTES") and, in connection
therewith, the Company issued to Strong River a certain Common Stock purchase
warrant of even date herewith to purchase shares of the Company's common stock
(the "STRONG RIVER WARRANT");
WHEREAS, Ampal agreed to extend a loan to the Company in the aggregate
amount of $3,000,000 (the "AMPAL LOAN"), which is evidenced by (i) a Senior
Secured Promissory Note of the Company in the principal aggregate amount of
$2,500,000 due December 2, 1999 or such other date pursuant to its terms thereof
(as amended, modified, or supplemented from time to time, the "FIRST AMPAL
NOTE") and (ii) (i) a Senior Secured Promissory Note of the Company in the
principal aggregate amount of $500,000 due September 2, 1999 or such other date
pursuant to its terms thereof (as amended, modified, or supplemented from time
to time, the "SECOND AMPAL NOTE" and together with the First Ampal Note, the
"AMPAL NOTES") and, in connection therewith, the Company issued to Ampal a
certain Common Stock purchase warrant of even date herewith to purchase shares
of the Company's common stock (the "AMPAL WARRANT"); and
WHEREAS, in order to induce the Secured Parties to extend the Strong River
Loan and the Ampal Loan, respectively, the Company has agreed to execute and
deliver to the Secured Parties this Agreement for the benefit of the Secured
Parties and to grant a first priority security interest in certain property of
the Company to secure the prompt payment, performance and discharge in full of
all of the Company's payment obligations under the Strong River Notes and the
Ampal Notes.
<PAGE>
NOW, THEREFORE, in consideration of the agreements herein contained and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "GENERAL INTANGIBLES"and "PROCEEDS") shall have the respective meanings
given such terms in Article 9 of the UCC.
(a) "COLLATERAL" means the collateral in which the Secured Parties are
granted a security interest by this Agreement and which shall include, except as
set forth below, the following, whether presently owned or existing or hereafter
acquired or coming into existence, and all additions and accessions thereto and
all substitutions and replacements thereof, and all proceeds, products and
accounts thereof, including without limitation all proceeds of insurance
covering the same and of any tort claims in connection therewith:
(i) All Goods of the Company, including, without limitations, all
machinery, equipment, computers, motor vehicles, trucks, tanks, boats,
ships, appliances, furniture, special and general tools, fixtures,
test and quality control devices and other equipment of every kind and
nature and wherever situated, together with all documents of title and
documents representing the same, all additions and accessions thereto,
replacements therefor, all parts therefor, and all substitutes for any
of the foregoing and all other items used and useful in connection
with the Company's businesses and all improvements thereto
(collectively, the "Equipment"); and
(ii) All Inventory of the Company; and
(iii) All of the Company's contract rights and general
intangibles, including, without limitation, all partnership interests,
stock or other securities, licenses, distribution and other
agreements, computer software development rights, leases, franchises,
customer lists, quality control procedures, grants and rights,
goodwill, trademarks, service marks, trade styles, trade names,
patents, patent applications, copyrights, deposit accounts, and income
tax refunds (collectively, the "General Intangibles"); and
(iv) All Receivables of the Company including all insurance
proceeds, and rights to refunds or indemnification whatsoever owing,
together with all instruments, all documents of title representing any
of the foregoing, all rights in any merchandising, goods, equipment,
motor vehicles and trucks which any of the same may represent, and all
right, title, security and guaranties with respect to each Receivable,
including any right of stoppage in transit; and
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(v) All of the Company's documents, instruments and chattel
paper, files, records, books of account, business papers, computer
programs and the products and proceeds of all of the foregoing
Collateral set forth in clauses (i)-(iv) above.
Collateral shall not herein include the property described on SCHEDULE B
attached hereto (the "Excluded Collateral").
(b) "LOANS" means, collectively, the Strong River Loan and the Ampal
Loan.
(c) "MAJORITY-IN-INTEREST" means the Secured Party or Secured Parties
(as the case may be) holding in excess of 50% of the aggregate principal amount
outstanding under the Notes, determined on a cumulative basis.
(d) "NOTE(S)" means, collectively, the Strong River Notes and the Ampal
Notes.
(e) "OBLIGATIONS" means all of the Company's obligations under this
Agreement, the Notes, in each case, whether now or hereafter existing, voluntary
or involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later decreased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from the Secured Parties as a preference, fraudulent transfer or
otherwise as such obligations may be amended, supplemented, converted, extended
or modified from time to time.
(e) "PERMITTED LIENS" means the liens contemplated in SCHEDULE D
attached hereto.
(f) "UCC" means the Uniform Commercial Code, as currently in effect in
the State of Pennsylvania.
(g) "WARRANTS" means, collectively, the Strong River Warrant and the
Ampal Warrant.
2. GRANT OF SECURITY INTEREST. As an inducement for the Secured Parties to
extend the Loans to the Company and to secure the complete and timely payment,
performance and discharge in full of all of the Obligations, the Company hereby,
unconditionally and irrevocably, pledges, grants and hypothecates to the Secured
Parties, a continuing security interest in, a first lien upon and a right of
set-off against all of the Company's right, title and interest of whatsoever
kind and nature in and to the Collateral (the "SECURITY INTEREST").
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3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE COMPANY.
The Company represents and warrants to, and covenants and agrees with, the
Secured Parties as follows:
(a) The Company has the requisite corporate power and authority to enter
into this Agreement and otherwise to carry out its obligations thereunder. The
execution, delivery and performance by the Company of this Agreement and the
filings contemplated therein have been duly authorized by all necessary action
on the part of the Company and no further action is required by the Company.
(b) The Company represents and warrants that it has no place of business
or offices where its respective books of account and records are kept (other
than temporarily at the offices of its attorneys or accountants) or places where
Collateral is stored or located, except as set forth on SCHEDULE A attached
hereto;
(c) The Company is the sole owner of the Collateral (except for
non-exclusive licenses granted by the Company in the ordinary course of
business), free and clear of any liens, security interests, encumbrances, rights
or claims, and is fully authorized to grant the Security Interest in and to
pledge the Collateral. There is not on file in any governmental or regulatory
authority, agency or recording office an effective financing statement, security
agreement, license or transfer or any notice of any of the foregoing (other than
those that have been filed in favor of the Secured Parties pursuant to this
Agreement) covering or affecting any of the Collateral. So long as this
Agreement shall be in effect, except for the Permitted Liens, the Company shall
not execute and shall not knowingly permit to be on file in any such office or
agency any such financing statement or other document or instrument (except to
the extent filed or recorded in favor of the Secured Parties pursuant to the
terms of this Agreement).
(d) No part of the Collateral has been judged invalid or unenforceable.
Except as set on SCHEDULE C attached hereto, no written claim has been received
that any Collateral or the Company's use of any Collateral violates the rights
of any third party. Except as set forth on SCHEDULE C attached hereto, there has
been no adverse decision to the Company's claim of ownership rights in or
exclusive rights to use the Collateral in any jurisdiction or to the Company's
right to keep and maintain such Collateral in full force and effect, and there
is no proceeding involving said rights pending or, to the best knowledge of the
Company, threatened before any court, judicial body, administrative or
regulatory agency, arbitrator or other governmental authority.
(e) The Company shall at all times maintain its books of
account and records relating to the Collateral at its principal place of
business and its Collateral at the locations set forth on SCHEDULE A attached
hereto and may not relocate such books of account and records or tangible
Collateral (other than, in the case of tangible Collateral, in the ordinary
course of business) unless it delivers to the Secured Parties at least 30 days
prior to such relocation (i) written notice of such relocation and the new
location thereof (which must be within the United States) and (ii) evidence that
appropriate financing statements and other necessary documents have been filed
and recorded
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and other steps have been taken to perfect the Security Interest to
create in favor of the Secured Parties valid, perfected and continuing first
priority liens in the Collateral.
(f) This Agreement creates in favor of the Secured Parties a valid
security interest in the Collateral securing the payment and performance of the
Obligations and, upon making the filings described in the immediately following
sentence, a perfected first priority security interest in such Collateral.
Except for the filing of financing statements on Form-1 under the UCC with the
jurisdictions indicated on SCHEDULE E attached hereto, no authorization or
approval of or filing with or notice to any governmental authority or regulatory
body is required either (i) for the grant by the Company of, or the
effectiveness of, the Security Interest granted hereby or for the execution,
delivery and performance of this Agreement by the Company or (ii) for the
perfection of or exercise by the Secured Parties of their rights and remedies
hereunder.
(g) The execution, delivery and performance of this Agreement does not
conflict with or cause a breach or default, or an event that with or without the
passage of time or notice, shall constitute a breach or default, under any
agreement to which the Company is a party or by the Company is bound. No consent
(including, without limitation, from stock holders or creditors of the Company)
is required for the Company to enter into and perform its obligations hereunder.
(h) The Company shall at all times maintain the liens and Security
Interest provided for hereunder as valid and perfected first priority liens and
security interests in the Collateral in favor of the Secured Parties until the
Obligations are satisfied in full. The Company hereby agrees to defend the same
against any and all persons. The Company shall safeguard and protect all
Collateral for the account of the Secured Parties. At the request of the Secured
Parties, the Company will sign and deliver to the Secured Parties at any time or
from time to time one or more financing statements pursuant to the UCC (or any
other applicable statute) in form reasonably satisfactory to the Secured Parties
and will pay the cost of filing the same in all public offices wherever filing
is, or is deemed by the Secured Parties to be, necessary or desirable to effect
the rights and obligations provided for herein. Without limiting the generality
of the foregoing, the Company shall pay all fees, taxes and other amounts
necessary to maintain the Collateral and the Security Interest hereunder, and
the Company shall obtain and furnish to the Secured Parties from time to time,
upon demand, such releases and/or subordinations of claims and liens which may
be required to maintain the priority of the Security Interest hereunder.
(i) Except for the Permitted Liens, the Company will not transfer,
pledge, hypothecate, encumber, license (except for non-exclusive licenses
granted by the Company in the ordinary course of business), sell or otherwise
dispose (except, in the case of a sale, lease or loan of inventory, in the
ordinary course of business) of any of the Collateral without the prior written
consent of the Secured Parties.
(j) The Company shall keep and preserve its Equipment, Inventory and
other tangible Collateral in good condition, repair and order and shall not
operate or locate any such Collateral (or cause to be operated or located) in
any area excluded from insurance coverage.
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(k) The Company shall, within ten (10) days of obtaining knowledge
thereof, advise the Secured Parties promptly, in sufficient detail, of any
substantial change in the Collateral, and of the occurrence of any event which
would have a material adverse effect on the value of the Collateral or on the
Secured Parties' respective security interests therein.
(l) The Company shall promptly execute and deliver to the Secured
Parties such further deeds, mortgages, assignments, security agreements,
financing statements or other instruments, documents, certificates and
assurances and take such further action as the Secured Parties may from time to
time reasonably request and may in its good faith discretion deem necessary to
perfect, protect or enforce its security interest in the Collateral including,
without limitation, the execution and delivery of a separate security agreement
with respect to the Company's intellectual property ("INTELLECTUAL PROPERTY
SECURITY AGREEMENT") in which the Secured Parties have been granted a security
interest hereunder, substantially in a form acceptable to the Secured Parties,
which Intellectual Property Security Agreement, other than as stated therein,
shall be subject to all of the terms and conditions hereof.
(m) The Company shall permit the Secured Parties and their
representatives and agents to inspect the Collateral at any time, and to make
copies of records pertaining to the Collateral as may be requested by the
Secured Parties from time to time.
(n) On the date of execution of this Agreement, the Company will deliver
to the Secured Parties one or more executed UCC financing statements on Form-1
with respect to the Security Interest for filing in the state and county
jurisdictions of the Company's principal place of business and in such other
jurisdictions (including, but not limited to, the offices and jurisdictions
referenced in Section 3(f) hereof) as may be requested by the Secured Parties.
(o) The Company will take all steps reasonably necessary to diligently
pursue and seek to preserve, enforce and collect any rights, claims, causes of
action and accounts receivable in respect of the Collateral.
(p) The Company shall promptly notify the Secured Parties in sufficient
detail upon becoming aware of any attachment, garnishment, execution or other
legal process levied against any Collateral and of any other information
received by the Company that may materially affect the value of the Collateral,
the Security Interest or the rights and remedies of the Secured Parties
hereunder.
(q) All information heretofore, herein or hereafter supplied to the
Secured Parties by or on behalf of the Company with respect to the Collateral is
accurate and complete in all material respects as of the date furnished.
(r) SCHEDULE A attached hereto contains a list of all of the Company's
subsidiaries. Such subsidiaries do not own any material assets and do not
conduct any business.
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(s) The Company's Registration Statement on Form S-1 filed on February
9, 1999 (file number 333-71997), as amended or supplemented is true and correct
in all material respects and does not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
disclosure and information made therein, in light of the circumstances under
which they were made, not misleading, other than any information to be supplied
by amendment or supplement which, when supplied, shall be true and correct in
all material respects and not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make such information, in
light of the circumstances under which made, not misleading.
4. DEFAULTS. The following events shall be "EVENTS OF DEFAULT":
(a) The failure by the Company to pay any amounts of principal, interest
on premium, if any, when, as, and in the amount due, pursuant to any of the
Notes;
(b) Any representation or warranty of the Company in this Agreement or
in the Intellectual Property Security Agreement shall prove to have been
incorrect in any material respect when made;
(c) The failure by the Company to observe or perform any of its
obligations hereunder or in the Intellectual Property Security Agreement for ten
(10) days after receipt by the Company of notice of such failure from a
Majority-in-Interest; and
(d) Any breach or default under the Warrants.
5. DUTY TO HOLD IN TRUST. Upon the occurrence of any Event of Default and
at any time thereafter, for so long as such Event of Default is continuing, the
Company shall, upon receipt by it of any revenue, income or other sums subject
to the Security Interest, whether payable pursuant to the Notes or otherwise, or
of any check, draft, note, trade acceptance or other instrument evidencing an
obligation to pay any such sum, hold the same in trust for the Secured Parties
and shall upon written request forthwith endorse and transfer any such sums or
instruments, or both, to the Secured Parties (on a pro rata basis in accordance
with the principal amount then outstanding under such Secured Party's respective
Notes, determined on a cumulative basis)for application to the satisfaction of
the Obligations.
6. RIGHTS AND REMEDIES UPON DEFAULT. Upon occurrence of any Event of
Default and at any time thereafter, for so long as such Event of Default is
continuing, the Secured Parties shall have the right to exercise all of the
remedies conferred hereunder, and Strong River shall have the right to exercise
all remedies conferred under the Strong River Notes and Ampal shall have the
right to exercise all remedies conferred under the Ampal Notes, and each Secured
Party shall have all the rights and remedies of a secured party under the UCC
and/or any other applicable law (including the Uniform Commercial Code of any
jurisdiction in which any Collateral is then located). Without limitation, the
Secured Parties shall have the following rights and powers:
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(a) The Secured Parties shall have the right to take possession of the
Collateral and, for that purpose, enter, with the aid and assistance of any
person, any premises where the Collateral, or any part thereof, is or may be
placed and remove the same, and the Company shall assemble the Collateral and
make it available to the Secured Parties at places which the Secured Parties
shall reasonably select, whether at the Company's premises or elsewhere, and
make available to the Secured Parties, without rent, all of the Company's
respective premises and facilities for the purpose of the Secured Parties taking
possession of, removing or putting the Collateral in saleable or disposable
form.
(b) The Secured Parties shall have the right to assign, sell, lease or
otherwise dispose of and deliver all or any part of the Collateral, at public or
private sale or otherwise, either with or without special conditions or
stipulations, for cash or on credit or for future delivery, in such parcel or
parcels and at such time or times and at such place or places, and upon such
terms and conditions as the Secured Parties may deem commercially reasonable,
all without (except as shall be required by applicable statute and cannot be
waived) advertisement or demand upon or notice to the Company or right of
redemption of the Company, which are hereby expressly waived. Upon each such
sale, lease, assignment or other transfer of Collateral, the Secured Parties
may, unless prohibited by applicable law which cannot be waived, purchase all or
any part of the Collateral being sold, free from and discharged of all trusts,
claims, right of redemption and equities of the Company, which are hereby waived
and released.
7. APPLICATIONS OF PROCEEDS. The proceeds of any such sale, lease or other
disposition of the Collateral hereunder shall be applied first, to the expenses
of retaking, holding, storing, processing and preparing for sale, selling, and
the like (including, without limitation, any taxes, reasonable fees and other
reasonable costs incurred in connection therewith) of the Collateral, to the
reasonable attorneys' fees and expenses incurred by the Secured Parties in
enforcing their rights hereunder and in connection with collecting, storing and
disposing of the Collateral, and then to satisfaction of the Obligations, and to
the payment of any other amounts required by applicable law, after which the
Secured Parties shall promptly pay to the Company any surplus proceeds. If, upon
the sale, license or other disposition of the Collateral, the proceeds thereof
are insufficient to pay all amounts to which the Secured Parties are legally
entitled, each Secured Party will be entitled to their pro rata portion of such
proceeds (determined by reference to the aggregate amount of principal and
accrued and unpaid interest then due under each of their respective Notes,
determined on a cumulative basis), and the Company will be liable for the
deficiency, together with interest thereon, at the rate of 11% per annum (the
"DEFAULT RATE"), and the reasonable fees of any attorneys employed by the
Secured Parties to collect such deficiency, PROVIDED, that the Default Rate
shall not apply with respect to any amounts due under the Notes. To the extent
permitted by applicable law, the Company waives all claims, damages and demands
against the Secured Parties arising out of the repossession, removal, retention
or sale of the Collateral, unless due to the gross negligence or willful
misconduct of the Secured Parties.
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8. COSTS AND EXPENSES. The Company agrees to pay all reasonable
out-of-pocket fees, costs and expenses incurred in connection with any filing
required hereunder, including without limitation, any financing statements,
continuation statements, partial releases and/or termination statements related
thereto or any expenses of any searches reasonably required by the Secured
Parties. The Company shall also pay all other claims and charges which in the
reasonable opinion of the Secured Parties might prejudice, imperil or otherwise
affect the Collateral or the Security Interest therein. The Company will also,
upon demand, pay to the Secured Parties the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, which the Secured Parties may incur in connection with (i)
the enforcement of this Agreement, (ii) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Collateral, or
(iii) the exercise or enforcement of any of the rights of the Secured Parties
under the Notes. Until so paid, any fees payable hereunder shall be added to the
principal amount of the Obligations and shall bear interest at the Default Rate.
9. RESPONSIBILITY FOR COLLATERAL. The Company assumes all liabilities and
responsibility in connection with all Collateral, and the obligations of the
Company hereunder or under the Notes shall in no way be affected or diminished
by reason of the loss, destruction, damage or theft of any of the Collateral or
its unavailability for any reason.
10. SECURITY INTEREST ABSOLUTE. All rights of the Secured Parties and all
Obligations of the Company hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
any Note or any agreement entered into in connection with the foregoing, or any
portion hereof or thereof; (b) any change in the time, manner or place of
payment or performance of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Notes or any other agreement entered into in connection with the
foregoing; (c) any exchange, release or nonperfection of any of the Collateral,
or any release or amendment or waiver of or consent to departure from any other
collateral for, or any guaranty, or any other security, for all or any of the
Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and
cancel in its sole discretion any insurance claims or matters made or arising in
connection with the Collateral; or (e) any other circumstance which might
otherwise constitute any legal or equitable defense available to the Company, or
a discharge of all or any part of the Security Interest granted hereby. Until
the Obligations shall have been paid and performed in full, the rights of the
Secured Parties shall continue even if the Obligations are barred for any
reason, including, without limitation, the running of the statute of limitations
or bankruptcy. The Company expressly waives presentment, protest, notice of
protest, demand, notice of nonpayment and demand for performance. In the event
that at any time any transfer of any Collateral or any payment received by the
Secured Parties hereunder shall be deemed by final order of a court of competent
jurisdiction to have been a voidable preference or fraudulent conveyance under
the bankruptcy or insolvency laws of the United States, or shall be deemed to be
otherwise due to any party other than the Secured Parties, then, in any such
event, the Company's obligations hereunder shall survive cancellation of this
Agreement, and shall not be discharged or satisfied by any prior payment thereof
and/or cancellation of this Agreement, but shall remain a valid and binding
obligation enforceable in accordance with the terms and provisions hereof. The
Company waives
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all right to require any Secured Party to proceed against any other person or to
apply any Collateral which the Secured Parties may hold at any time, or to
marshal assets, or to pursue any other remedy. The Company waives any defense
arising by reason of the application of the statute of limitations to any
obligation secured hereby.
11. TERM OF AGREEMENT. This Agreement shall terminate when all payments
under the Notes have been made in full and all other Obligations have been paid
or discharged. Upon such termination, the Secured Parties, at the request and at
the expense of the Company, will join in executing any termination statement
with respect to any financing statement executed and filed pursuant to this
Agreement.
12. POWER OF ATTORNEY; FURTHER ASSURANCES. (a) The Company authorizes the
Secured Parties, and does hereby make, constitute and appoint them, and their
respective officers, agents, successors or assigns with full power of
substitution, as the Company's true and lawful attorney-in-fact, with power, in
its own name or in the name of the Company, to, after the occurrence and during
the continuance of an Event of Default, (i) endorse any notes, checks, drafts,
money orders, or other instruments of payment (including payments payable under
or in respect of any policy of insurance) in respect of the Collateral that may
come into possession of the Secured Parties; (ii) to sign and endorse any UCC
financing statement or any invoice, freight or express bill, bill of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts, and other documents
relating to the Collateral; (iii) to pay or discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on or threatened
against the Collateral; (iv) to demand, collect, receipt for, compromise, settle
and sue for monies due in respect of the Collateral; and (v) generally, to do,
at the option of the Secured Parties, and at the Company's expense, at any time,
or from time to time, all acts and things which the Secured Parties reasonably
deem necessary to protect, preserve and realize upon the Collateral and the
Security Interest granted therein in order to effect the intent of this
Agreement, the Notes all as fully and effectually as the Company might or could
do; and the Company hereby ratifies all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is coupled with an
interest and shall be irrevocable for the term of this Agreement and thereafter
as long as any of the Obligations shall be outstanding.
(b) On a continuing basis, the Company will make, execute, acknowledge
and deliver, and file and record, in the proper filing and recording places in
any jurisdiction, including, without limitation, with the jurisdictions
indicated on SCHEDULE E attached hereto, all such instruments, and take all such
action as may reasonably be deemed necessary or advisable, or as reasonably
requested by the Secured Parties, to perfect the Security Interest granted
hereunder and otherwise to carry out the intent and purposes of this Agreement,
or for assuring and confirming to the Secured Parties the grant or perfection of
a security interest in all the Collateral.
(c) The Company hereby irrevocably appoints the Secured Parties as the
Company's attorneys-in-fact, with full authority in the place and stead of the
Company and in the name of the Company, from time to time in the Secured
Parties' discretion, to take any action
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and to execute any instrument which the Secured Parties may reasonably deem
necessary or advisable to accomplish the purposes of this Agreement, including
the filing, in their sole discretion, of one or more financing or continuation
statements and amendments thereto, relative to any of the Collateral without the
signature of the Company where permitted by law.
13. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto, and
shall be deemed to have been duly given when (i) if delivered by hand, upon
receipt, (ii) if sent by facsimile, upon receipt of proof of sending thereof,
(iii) if sent by nationally recognized overnight delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered or
certified mail, return receipt requested, postage prepaid, four days after
posting in the U.S. mails, in each case if delivered to the following addresses
(or such other addresses as a party may duly notify the other in accordance with
the provisions of this paragraph):
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If to the Company: WorldGate Communications, Inc.
3220 Tillman Drive, Suite 300
Bensalem, PA 19020
Facsimile No.: (215) 633-9654
Attn: David A. Dill
With copies to: Randall J. Gort
WorldGate Communications, Inc.
3220 Tillman Drive, Suite 300
Bensalem, PA 19020
Facsimile No.: (215) 633-9590
If to Strong River: Strong River Investment, Inc.
c/o Cavallo Capital Corp.
630 Fifth Avenue, Suite 2000
New York, NY 10111
Facsimile No.: (212) 332-3256
Attn: Avi Vigder
If to Ampal: Ampal American Israel Corporation
1177 Avenue of the Americas
New York, NY 10036
Facsimile No.: 212-782-2114
Attn: Eli Goldberg
With copies to (for Robinson Silverman Pearce Aronsohn & Berman LLP
communications 1290 Avenue of the Americas
to any Secured Party) New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq.
14. OTHER SECURITY. To the extent that the Obligations are now or hereafter
secured by property other than the Collateral or by the guarantee, endorsement
or property of any other person, firm, corporation or other entity, then the
Secured Parties shall have the right, in their sole discretion, to pursue,
relinquish, subordinate, modify or take any other action with respect thereto,
without in any way modifying or affecting any of the Secured Parties' rights and
remedies hereunder.
15. ACTIONS BY SECURED PARTIES. Any action required or permitted hereunder
to be taken by or on behalf of the Secured Parties shall, for such action to be
valid, require the approval of the Majority-in-Interest prior to the taking of
such action. If the consent, approval or disapproval of the Secured Parties is
required or permitted pursuant to this Agreement, such consent, approval or
disapproval shall only be valid if given by the Majority-in-Interest.
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16. MISCELLANEOUS.
(a) No course of dealing between the Company and the Secured Parties,
nor any failure to exercise, nor any delay in exercising, on the part of the
Secured Parties, any right, power or privilege hereunder or under the Notes
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
(b) All of the rights and remedies of the Secured Parties with respect
to the Collateral, whether established hereby or by the Notes or by any other
agreements, instruments or documents or by law shall be cumulative and may be
exercised singly or concurrently.
(c) This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and is intended to supersede all prior
negotiations, understandings and agreements with respect thereto. Except as
specifically set forth in this Agreement, no provision of this Agreement may be
modified or amended except by a written agreement specifically referring to this
Agreement and signed by the parties hereto.
(d) In the event that any provision of this Agreement is held to be
invalid, prohibited or unenforceable in any jurisdiction for any reason, unless
such provision is narrowed by judicial construction, this Agreement shall, as to
such jurisdiction, be construed as if such invalid, prohibited or unenforceable
provision had been more narrowly drawn so as not to be invalid, prohibited or
unenforceable. If, notwithstanding the foregoing, any provision of this
Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other provisions of
this Agreement and without affecting the validity or enforceability of such
provision or the other provisions of this Agreement in any other jurisdiction.
(e) No waiver of any breach or default or any right under this Agreement
shall be considered valid unless in writing and signed by the party giving such
waiver, and no such waiver shall be deemed a waiver of any subsequent breach or
default or right, whether of the same or similar nature or otherwise.
(f) This Agreement shall be binding upon and inure to the benefit of
each party hereto and its successors and assigns.
(g) Each party shall take such further action and execute and deliver
such further documents as may be necessary or appropriate in order to carry out
the provisions and purposes of this Agreement.
(h) This Agreement shall be construed in accordance with the laws of the
State of New York, except to the extent the validity, perfection or enforcement
of a security interest
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hereunder in respect of any particular Collateral which are governed by a
jurisdiction other than the State of New York in which case such law shall
govern. Each of the parties hereto irrevocably submit to the exclusive
jurisdiction of any New York State or United States Federal court sitting in
Manhattan county over any action or proceeding arising out of or relating to
this Agreement, and the parties hereto hereby irrevocably agree that all claims
in respect of such action or proceeding may be heard and determined in such New
York State or Federal court. The parties hereto agree that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
The parties hereto further waive any objection to venue in the State of New York
and any objection to an action or proceeding in the State of New York on the
basis of forum non convenient.
(i) EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A
JURY TRAIL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY
DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATER OF
THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY
HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED ON THIS
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL CONTINUE TO RELY
ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY WAIVES ITS RIGHTS TO A JURY TRIAL
FOLLOWING SUCH CONSULTATION. THIS WAIVER IS IRREVOCABLE, MEANING THAT,
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS AND SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF A
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
(j) This Agreement may be executed in any number of counterparts, each
of which when so executed shall be deemed to be an original and, all of which
taken together shall constitute one and the same Agreement. In the event that
any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.
* * * * * * * * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed on the day and year first above written.
WORLDGATE COMMUNICATIONS, INC.
By: /s/ Randall Gort
-------------------------------
Name: Randall Gort
Title: Vice President,
Corporate Affairs
STRONG RIVER INVESTMENT, INC.
By: /s/ Kenneth L. Henderson
-------------------------------
Name: Kenneth L. Henderson
Title: Attorney-in-fact
AMPAL AMERICAN-ISRAEL CORPORATION
By: /s/ unintelligible
-------------------------------
Name: unintelligible
Title: CEO
<PAGE>
Exhibit 10.18
INTELLECTUAL PROPERTY SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of March 2, 1999 (this "AGREEMENT"), by
WorldGate Communications, Inc., a Delaware corporation and having its principal
place of business at 3220 Tillman Drive, Suite 300, Bensalem, PA 19020 (the
"COMPANY"), in favor of Strong River Investment, Inc., a British Virgin Islands
corporation, and its successors, endorsees, transferees and assigns ("STRONG
RIVER"), and Ampal American-Israel Corporation, a New York corporation, and its
endorsees, transferees, heirs and assigns ("AMPAL"). Strong River and Ampal are
sometimes collectively referred to in this Agreement as the "SECURED PARTIES."
W I T N E S S E T H:
WHEREAS, Strong River agreed to extend a loan to the Company in the
aggregate amount of $3,000,000 (the "STRONG RIVER LOAN"), which is evidenced by
(i) a Senior Secured Promissory Note of the Company in the principal aggregate
amount of $2,500,000 due December 2, 1999 or such other date pursuant to its
terms thereof (as amended, modified, or supplemented from time to time, the
"FIRST STRONG RIVER NOTE") and (ii) (i) a Senior Secured Promissory Note of the
Company in the principal aggregate amount of $500,000 due September 2, 1999 or
such other date pursuant to its terms thereof (as amended, modified, or
supplemented from time to time, the "SECOND STRONG RIVER NOTE" and together with
the First Strong River Note, the "STRONG RIVER NOTES") and, in connection
therewith, the Company issued to Strong River a certain Common Stock purchase
warrant of even date herewith to purchase shares of the Company's common stock
(the "STRONG RIVER WARRANT");
WHEREAS, Ampal agreed to extend a loan to the Company in the aggregate
amount of $3,000,000 (the "AMPAL LOAN"), which is evidenced by (i) a Senior
Secured Promissory Note of the Company in the principal aggregate amount of
$2,500,000 due December 2, 1999 or such other date pursuant to its terms thereof
(as amended, modified, or supplemented from time to time, the "FIRST AMPAL
NOTE") and (ii) (i) a Senior Secured Promissory Note of the Company in the
principal aggregate amount of $500,000 due September 2, 1999 or such other date
pursuant to its terms thereof (as amended, modified, or supplemented from time
to time, the "SECOND AMPAL NOTE" and together with the First Ampal Note, the
"AMPAL NOTES") and, in connection therewith, the Company issued to Ampal a
certain Common Stock purchase warrant of even date herewith to purchase shares
of the Company's common stock (the "AMPAL WARRANT"); and
WHEREAS, in order to induce the Secured Parties to extend the Strong River
Loan and the Ampal Loan, respectively, the Company has agreed to execute and
deliver to the Secured Parties this Agreement for the benefit of the Secured
Parties and to grant a first priority security interest in certain general
intangible property of the Company to secure the prompt payment, performance and
<PAGE>
discharge in full of all of the Company's payment obligations under the Strong
River Notes and the Ampal Notes.
NOW, THEREFORE, in consideration of the agreements herein contained and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "GENERAL INTANGIBLES"and "PROCEEDS") shall have the respective meanings
given such terms in Article 9 of the UCC.
(a) "COLLATERAL" means all of the Company's right, title and interest in
and to all of Trademarks, Patents, Copyrights, and other general intangible
property of the Company, all trade secrets, intellectual property rights in
computer software and computer software products, design rights which may be
available to the Company, rights to proceeds arising from any and all claims for
damages by way of past, present and future infringement of any Collateral with
the right but not the obligation to sue on behalf of and collect such damages
for said use or infringement, licenses to use any of the Copyrights, Patents or
Trademarks, and all license fees and royalties arising from such use to the
extent permitted by such license or rights. The term "Collateral" shall include
all of the foregoing items, whether presently owned or existing or hereafter
acquired or coming into existence, all additions and accessions thereto, all
substitutions and replacements thereof, and all proceeds, products and accounts
thereof, including without limitation all proceeds from the licensing or sale or
other transfer of Collateral and of insurance covering the same and of any tort
claims in connection therewith.
(b) "COPYRIGHTS" means any and all copyrights, copyright applications,
copyright registration and like protections in each work or authorship and
derivative work thereof that is created by the Company, whether published or
unpublished and whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held, including, without limitation,
those set forth on EXHIBIT A attached hereto.
(c) "LOANS" means, collectively, the Strong River Loan and the Ampal
Loan.
(d) "MAJORITY-IN-INTEREST" means the Secured Party or Secured Parties
(as the case may be) holding in excess of 50% of the aggregate principal amount
outstanding under the Notes, determined on a cumulative basis.
(e) "NOTE(S)" means, collectively, the Strong River Notes and the Ampal
Notes.
(f) "OBLIGATIONS" means all of the Company's obligations under this
Agreement, the Notes, in each case, whether now or hereafter existing, voluntary
or involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later decreased, created or incurred,
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and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from the Secured Parties as a preference, fraudulent transfer or
otherwise as such obligations may be amended, supplemented, converted, extended
or modified from time to time.
(g) "PATENTS" means all of the Company's patents, patent applications,
letters patent and like protections of the United States or any other country,
including, without limitation, improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, and including,
without limitation, those set forth on EXHIBIT B attached hereto.
(e ) "PERMITTED LIENS" means the liens contemplated in SCHEDULE C
attached hereto
(h) "TRADEMARKS" means any trademark, service mark right, whether or not
registered, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of the Company connected
with or symbolized by such trademarks, including, without limitation, those set
forth on EXHIBIT C attached hereto.
(i) "UCC" means the Uniform Commercial Code, as currently in effect in
the State of Pennsylvania.
(i) "WARRANTS" means, collectively, the Strong River Warrant and the
Ampal Warrant.
2. GRANT OF SECURITY INTEREST. As an inducement for the Secured Parties to
extend the Loans to the Company and to secure the complete and timely payment,
performance and discharge in full of all of the Obligations, the Company hereby,
unconditionally and irrevocably, pledges, grants and hypothecates to the Secured
Parties, a continuing security interest in, a first lien upon and a right of
set-off against all of the Company's right, title and interest of whatsoever
kind and nature in and to the Collateral (the "SECURITY INTEREST").
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE COMPANY.
The Company represents and warrants to, and covenants and agrees with, the
Secured Parties as follows:
(a) The Company has the requisite corporate power and authority to enter
into this Agreement and otherwise to carry out its obligations thereunder. The
execution, delivery and performance by the Company of this Agreement and the
filings contemplated therein have been duly authorized by all necessary action
on the part of the Company and no further action is required by the Company.
(b) The Company is the sole owner of the Collateral (except for
non-exclusive licenses granted by the Company in the ordinary course of
business), free and clear of any liens, security interests, encumbrances, rights
or claims, and is fully authorized to grant the Security Interest in and to
pledge the Collateral. There is not on file in any governmental or regulatory
authority, agency or recording office an effective financing statement, security
agreement, license
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or transfer or any notice of any of the foregoing (other than those that have
been filed in favor of the Secured Parties pursuant to this Agreement) covering
or affecting any of the Collateral. So long as this Agreement shall be in effect
and, except for the Permitted Liens, the Company shall not execute and shall not
knowingly permit to be on file in any such office or agency any such financing
statement or other document or instrument (except to the extent filed or
recorded in favor of the Secured Parties pursuant to the terms of this
Agreement).
(c) EXHIBIT A sets forth a true and complete list of all Copyrights in
existence as of the date of this Agreement. EXHIBIT B sets forth a true and
complete list of all Patents that have been filed as of the date of this
Agreement. EXHIBIT C sets forth a true and complete list of all Trademarks filed
as of the date of this Agreement. The Company shall, within ten (10) days of
obtaining knowledge thereof, advise the Secured Parties in writing of any change
in the composition of the Collateral, including, without limitation, any
subsequent ownership rights of the Company in or to any Copyright, Patent or
Trademark.
(d) Each of the Patents, Trademarks and Copyrights is valid and
enforceable (if not yet registered then only to the extent that such
non-registered status affords), and no part of the Collateral has been judged
invalid or unenforceable. Except as set forth below, no written claim has been
received that any of the Patents, Trademarks or Copyrights or the Company's use
of any Collateral violates the rights of any third party. Except as set forth
below, there has been no adverse decision to the Company's claim of ownership
rights in or exclusive rights to use the Collateral in any jurisdiction or to
the Company's right to keep and maintain such Collateral in full force and
effect, and there is no proceeding involving said rights pending or, to the best
knowledge of the Company, threatened before any court, judicial body,
administrative or regulatory agency, arbitrator or other governmental authority.
SCHEDULE A attached hereto contains a description of pending patent litigation
to which the Company is a party.
(e) The Company shall at all times maintain its books of account and
records relating to the Collateral at its principal place of business and may
not relocate such books of account and records unless it delivers to the Secured
Parties at least 30 days prior to such relocation (i) written notice of such
relocation and the new location thereof (which must be within the United States)
and (ii) evidence that appropriate financing statements and other necessary
documents have been filed and recorded and other steps have been taken to
perfect the Security Interest to create in favor of the Secured Parties valid,
perfected and continuing first priority liens in the Collateral. The principal
place of business of the Company is located at the address set forth in the
introduction to this Agreement.
(f) This Agreement creates in favor of the Secured Parties a valid
security interest in the Collateral, including the Collateral listed on the
Exhibits hereto, securing the payment and performance of the Obligations, and,
upon making the filings described in the immediately following sentence, a
perfected first priority security interest in such Collateral. Except for (x)
the filing of this Agreement with the United States Patent and Trademark Office
with respect to the Patents and Trademarks, and (y) the filing of financing
statements on Form-1 under the UCC with
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<PAGE>
the jurisdictions indicated on SCHEDULE D attached hereto; no authorization or
approval of or filing with or notice to any governmental authority or regulatory
body is required either (i) for the grant by the Company of, or the
effectiveness of, the Security Interest granted hereby or for the execution,
delivery and performance of this Agreement by the Company or (ii) for the
perfection of or exercise by the Secured Parties of their rights and remedies
hereunder. The Company acknowledges and agrees that a copy of this Agreement (or
instruments executed and delivered pursuant hereto) will be filed and recorded
with the United States Patent and Trademark Office with respect to the Patents
and Trademarks that are now or hereafter in existence.
(g) The execution, delivery and performance of this Agreement does not
conflict with or cause a breach or default, or an event that with or without the
passage of time or notice, shall constitute a breach or default, under any
agreement to which the Company is a party or by the Company is bound. No consent
(including, without limitation, from stock holders or creditors of the Company)
is required for the Company to enter into and perform its obligations hereunder.
(h) The Company shall at all times maintain the liens and Security
Interest provided for hereunder as valid and perfected first priority liens and
security interests in the Collateral in favor of the Secured Parties until the
Obligations are satisfied in full. The Company hereby agrees to defend the same
against any and all persons. The Company shall safeguard and protect all
Collateral for the account of the Secured Parties. At the request of the Secured
Parties, the Company will sign and deliver to the Secured Parties at any time or
from time to time one or more financing statements pursuant to the UCC (or any
other applicable statute) in form reasonably satisfactory to the Secured Parties
and will pay the cost of filing the same in all public offices wherever filing
is, or is deemed by the Secured Parties to be, necessary or desirable to effect
the rights and obligations provided for herein. Without limiting the generality
of the foregoing, the Company shall pay all fees, taxes and other amounts
necessary to maintain the Collateral and the Security Interest hereunder, and
the Company shall obtain and furnish to the Secured Parties from time to time,
upon demand, such releases and/or subordinations of claims and liens which may
be reasonably required to maintain the priority of the Security Interest
hereunder.
(i) The Company will not allow any Collateral to be abandoned, forfeited
or dedicated to the public without the prior written consent of the Secured
Parties. The Company will not transfer, pledge, hypothecate, encumber, license
(except for non-exclusive licenses granted by the Company in the ordinary course
of business), sell or otherwise dispose of any of the Collateral without the
prior written consent of the Secured Parties.
(j) The Company shall permit the Secured Parties and their
representatives and agents to inspect the Collateral at any time, and to make
copies of records pertaining to the Collateral as may be requested by the
Secured Parties from time to time.
(k) On the date of execution of this Agreement, the Company will deliver
to the Secured Parties one or more executed UCC financing statements on Form-1
(and any such other forms relating to the perfection of the Security Interest)
with respect to the Security Interest for filing
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<PAGE>
in the state and county jurisdictions of the Company's principal place of
business and in such other jurisdictions (including, but not limited to, the
offices and jurisdictions referenced in Section 3(f) hereof) as may be requested
by the Secured Parties.
(l) The Company will take all steps reasonably necessary to diligently
pursue and seek to preserve, enforce and collect any rights, claims, causes of
action and accounts receivable in respect of the Collateral.
(m) The Company shall notify the Secured Parties in sufficient detail
upon becoming aware of any attachment, garnishment, execution or other legal
process levied against any Collateral and of any other information received by
the Company that may materially affect the value of the Collateral, the Security
Interest or the rights and remedies of the Secured Parties hereunder.
(n) All information heretofore, herein or hereafter supplied to the
Secured Parties by or on behalf of the Company with respect to the Collateral is
accurate and complete in all material respects as of the date furnished.
(o) SCHEDULE B attached hereto contains a list of all of the Company's
subsidiaries. Such subsidiaries do not own any material assets and do not
conduct any business.
(p) The Company's Registration Statement on Form S-1 filed on
February 9, 1999 (file number 333-71997) as amended or supplemented, is true and
correct in all material respects and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
disclosure and information, in light of the circumstances under which they were
made, not misleading other than any information to be supplied by amendment or
supplement which, when supplied, shall be true and correct in all material
respects and not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make such information made
therein, in light of the circumstances under which made, not misleading.
4. DEFAULTS. The following events shall be "EVENTS OF DEFAULT":
(a) The failure by the Company to pay any amounts of principal, interest
on premium, if any, when, as, and in the amount due, pursuant to any of the
Notes;
(b) Any representation or warranty of the Company in this Agreement or
in the Security Agreement, dated the date hereof between the parties hereto
shall prove to have been incorrect in any material respect when made;
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(c) The failure by the Company to observe or perform any of its
obligations hereunder or in the Security Agreement, dated the date hereof
between the parties hereto for ten (10) days after receipt by the Company of
notice of such failure from a Majority-in-Interest; and
(d) Any breach or default under the Warrants.
5. DUTY TO HOLD IN TRUST. Upon the occurrence of any Event of Default and
at any time thereafter, for so long as such Event of Default is continuing, the
Company shall, upon receipt by it of any revenue, income or other sums subject
to the Security Interest, whether payable pursuant to the Notes or otherwise, or
of any check, draft, note, trade acceptance or other instrument evidencing an
obligation to pay any such sum, hold the same in trust for the Secured Parties
and shall upon written request forthwith endorse and transfer any such sums or
instruments, or both, to the Secured Parties (on a pro rata basis in accordance
with the principal amount then outstanding under such Secured Party's respective
Notes, determined on a cumulative basis) for application to the satisfaction of
the Obligations.
6. RIGHTS AND REMEDIES UPON DEFAULT. Upon occurrence of any Event of
Default and at any time thereafter, for so long as such Event of Default is
continuing, the Secured Parties shall have the right to exercise all of the
remedies conferred hereunder, and Strong River shall have the right to exercise
all remedies conferred under the Strong River Notes and Ampal shall have the
right to exercise all remedies conferred under the Ampal Notes, and each Secured
Party shall have all the rights and remedies of a secured party under the UCC
and/or any other applicable law (including the Uniform Commercial Code of any
jurisdiction in which any Collateral is then located). Without limitation, the
Secured Parties shall have the following rights and powers:
(a) The Secured Parties shall have the right to take possession of all
tangible manifestations or embodiments of the Collateral and, for that purpose,
enter, with the aid and assistance of any person, any premises where the
Collateral, or any part thereof, is or may be placed and remove the same, and
the Company shall assemble the Collateral and make it available to the Secured
Parties at places which the Secured Parties shall reasonably select, whether at
the Company's premises or elsewhere.
(b) The Secured Parties shall have the right to assign, sell, or
otherwise dispose of and deliver all or any part of the Collateral, at public or
private sale or otherwise, either with or without special conditions or
stipulations, for cash or on credit or for future delivery, in such parcel or
parcels and at such time or times and at such place or places, and upon such
terms and conditions as the Secured Parties may deem commercially reasonable,
all without (except as shall be required by applicable statute and cannot be
waived) advertisement or demand upon or notice to the Company or right of
redemption of the Company, which are hereby expressly waived. Upon each such
sale, assignment or other transfer of Collateral, the Secured Parties may,
unless prohibited by applicable law which cannot be waived, purchase all or any
part of the Collateral being sold, free from and discharged of all trusts,
claims, right of redemption and equities of the Company, which are hereby waived
and released.
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(c) The Secured Parties may license or, to the same extent the Company
is permitted by law and contract to do so, sublicense, whether or an exclusive
or non-exclusive basis, any of the Collateral throughout the world for such
term, on such conditions and in such manner as the Secured Parties shall, in
their sole discretion, determine.
(d) The Secured Parties may (without assuming any obligations or
liabilities thereunder), at any time, enforce (and shall have the exclusive
right to enforce) against licensee or sublicensee all rights and remedies of the
Company in, to and under any license agreement with respect to such Collateral,
and take or refrain from taking any action thereunder.
(e) The Secured Parties may, in order to implement the assignment,
license, sale or other disposition of any of the Collateral pursuant to this
Section, pursuant to the authority provided for in Section 11, execute and
deliver on behalf of the Company one or more instruments of assignment of the
Collateral in form suitable for filing, recording or registration in any
jurisdictions as the Secured Parties may determine advisable.
7. APPLICATIONS OF PROCEEDS; EXPENSES. (a) The proceeds of any such sale,
lease, license or other disposition of the Collateral hereunder shall be applied
first, to the expenses of retaking, holding, storing, processing and preparing
for sale, selling, and the like (including, without limitation, any taxes,
reasonable fees and other reasonable costs incurred in connection therewith) of
the Collateral, to the reasonable attorneys' fees and expenses incurred by the
Secured Parties in enforcing their rights hereunder and in connection with
collecting, storing and disposing of the Collateral, and then to satisfaction of
the Obligations, and to the payment of any other amounts required by applicable
law, after which the Secured Parties shall promptly pay to the Company any
surplus proceeds. If, upon the sale, license or other disposition of the
Collateral, the proceeds thereof are insufficient to pay all amounts to which
the Secured Parties are legally entitled, each Secured Party will be entitled to
their pro rata portion of such proceeds (determined by reference to the
aggregate amount of principal and accrued and unpaid interest then due under
each of their respective Notes, determined on a cumulative basis), and the
Company will be liable for the deficiency, together with interest thereon, at
the rate of 11% per annum (the "DEFAULT RATE"), and the reasonable fees of any
attorneys employed by the Secured Parties to collect such deficiency, PROVIDED,
that the Default Rate shall not apply with respect to any amounts due under the
Notes. To the extent permitted by applicable law, the Company waives all claims,
damages and demands against the Secured Parties arising out of the repossession,
removal, retention or sale of the Collateral, unless due to the gross negligence
or willful misconduct of the Secured Parties.
(b) The Company agrees to pay all reasonable out-of-pocket fees, costs
and expenses incurred in connection with any filing required hereunder,
including, without limitation, any financing statements, continuation
statements, partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Secured Parties. The
Company shall also pay all other claims and charges which in the reasonable
opinion of the Secured Parties might prejudice, imperil or otherwise affect the
Collateral or the Security Interest therein.
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The Company will also, upon demand, pay to the Secured Parties the amount of any
and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which the Secured Parties may incur in
connection with (i) the enforcement of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the Collateral, or (iii) the exercise or enforcement of any of the rights of
the Secured Parties under the Notes. Until so paid, any fees payable hereunder
shall be added to the principal amount of the Obligations and shall bear
interest at the Default Rate.
8. RESPONSIBILITY FOR COLLATERAL. The Company assumes all liabilities and
responsibility in connection with all Collateral, and the obligations of the
Company hereunder or under the Notes shall in no way be affected or diminished
by reason of the loss, destruction, damage or theft of any of the Collateral or
its unavailability for any reason.
9. SECURITY INTEREST ABSOLUTE. All rights of the Secured Parties and all
Obligations of the Company hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
any Note or any agreement entered into in connection with the foregoing, or any
portion hereof or thereof; (b) any change in the time, manner or place of
payment or performance of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Notes or any other agreement entered into in connection with the
foregoing; (c) any exchange, release or nonperfection of any of the Collateral,
or any release or amendment or waiver of or consent to departure from any other
collateral for, or any guaranty, or any other security, for all or any of the
Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and
cancel in its sole discretion any insurance claims or matters made or arising in
connection with the Collateral; or (e) any other circumstance which might
otherwise constitute any legal or equitable defense available to the Company, or
a discharge of all or any part of the Security Interest granted hereby. Until
the Obligations shall have been paid and performed in full, the rights of the
Secured Parties shall continue even if the Obligations are barred for any
reason, including, without limitation, the running of the statute of limitations
or bankruptcy. The Company expressly waives presentment, protest, notice of
protest, demand, notice of nonpayment and demand for performance. In the event
that at any time any transfer of any Collateral or any payment received by the
Secured Parties hereunder shall be deemed by final order of a court of competent
jurisdiction to have been a voidable preference or fraudulent conveyance under
the bankruptcy or insolvency laws of the United States, or shall be deemed to be
otherwise due to any party other than the Secured Parties, then, in any such
event, the Company's obligations hereunder shall survive cancellation of this
Agreement, and shall not be discharged or satisfied by any prior payment thereof
and/or cancellation of this Agreement, but shall remain a valid and binding
obligation enforceable in accordance with the terms and provisions hereof. The
Company waives all right to require any Secured Party to proceed against any
other person or to apply any Collateral which the Secured Parties may hold at
any time, or to marshal assets, or to pursue any other remedy. The Company
waives any defense arising by reason of the application of the statute of
limitations to any obligation secured hereby.
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10. TERM OF AGREEMENT. This Agreement shall terminate when all payments
under the Notes have been made in full and all other Obligations have been paid
or discharged. Upon such termination, the Secured Parties, at the request and at
the expense of the Company, will join in executing any termination statement
with respect to any financing statement executed and filed pursuant to this
Agreement.
11. POWER OF ATTORNEY; FURTHER ASSURANCES. (a) The Company authorizes the
Secured Parties, and does hereby make, constitute and appoint them, and their
respective officers, agents, successors or assigns with full power of
substitution, as the Company's true and lawful attorney-in-fact, with power, in
its own name or in the name of the Company, to, after the occurrence and during
the continuance of an Event of Default, (i) endorse any notes, checks, drafts,
money orders, or other instruments of payment (including payments payable under
or in respect of any policy of insurance) in respect of the Collateral that may
come into possession of the Secured Parties; (ii) to sign and endorse any UCC
financing statement or any invoice, freight or express bill, bill of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts, and other documents
relating to the Collateral; (iii) to pay or discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on or threatened
against the Collateral; (iv) to demand, collect, receipt for, compromise, settle
and sue for monies due in respect of the Collateral; and (v) generally, to do,
at the option of the Secured Parties, and at the Company's expense, at any time,
or from time to time, all acts and things which the Secured Parties reasonably
deem necessary to protect, preserve and realize upon the Collateral and the
Security Interest granted therein in order to effect the intent of this
Agreement, the Notes all as fully and effectually as the Company might or could
do; and the Company hereby ratifies all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is coupled with an
interest and shall be irrevocable for the term of this Agreement and thereafter
as long as any of the Obligations shall be outstanding.
(b) On a continuing basis, the Company will make, execute, acknowledge
and deliver, and file and record in the proper filing and recording places in
any jurisdiction, all such instruments, including appropriate financing and
continuation statements and collateral agreements and filings with the United
States Patent and Trademark Office, the Register of Copyrights and the
jurisdictions indicated on SCHEDULE D attached hereto, and take all such action
as may reasonably be deemed necessary or advisable, or as reasonably requested
by the Secured Parties, to perfect the Security Interest granted hereunder and
otherwise to carry out the intent and purposes of this Agreement, or for
assuring and confirming to the Secured Parties the grant or perfection of a
security interest in all the Collateral.
(c) The Company hereby irrevocably appoints the Secured Parties as the
Company's attorneys-in-fact, with full authority in the place and stead of the
Company and in the name of the Company, from time to time in the Secured
Parties' discretion, to take any action and to execute any instrument which the
Secured Parties may reasonably deem necessary or advisable to accomplish the
purposes of this Agreement, including:
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(i) To modify this Agreement without first obtaining the Company's
approval of or signature to such modification by amending EXHIBIT A, EXHIBIT B
and EXHIBIT C, hereof, as appropriate, to include reference to such right, title
or interest in any Copyrights, Patents or Trademarks acquired by the Company
after the execution hereof or to delete any reference to any right, title or
interest in such Copyrights, Patents or Trademarks in which the Company no
longer has or claims any right, title or interest; and
(ii) To file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of the Company where permitted by law.
12. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto, and
shall be deemed to have been duly given when (i) if delivered by hand, upon
receipt, (ii) if sent by facsimile, upon receipt of proof of sending thereof,
(iii) if sent by nationally recognized overnight delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered or
certified mail, return receipt requested, postage prepaid, four days after
posting in the U.S. mails, in each case if delivered to the following addresses
(or such other addresses as a party may duly notify the other in accordance with
the provisions of this paragraph):
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If to the Company: WorldGate Communications, Inc.
3220 Tillman Drive, Suite 300
Bensalem, PA 19020
Facsimile No.: (215) 633-9654
Attn: David A. Dill
With copies to: Randall J. Gort
WorldGate Communications, Inc.
3220 Tillman Drive, Suite 300
Bensalem, PA 19020
Facsimile No.: (215) 633-9590
If to Strong River: Strong River Investment, Inc.
c/o Cavallo Capital Corp.
630 Fifth Avenue, Suite 2000
New York, NY 10111
Facsimile No.: (212) 332-3256
Attn: Avi Vigder
If to Ampal: Ampal American Israel Corporation
1177 Avenue of the Americas
New York, NY 10036
Facsimile No.: 212-782-2114
Attn: Eli Goldberg
With copies to (for Robinson Silverman Pearce Aronsohn &
communications Berman LLP
to any Secured Party) 1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq.
13. OTHER SECURITY. To the extent that the Obligations are now or hereafter
secured by property other than the Collateral or by the guarantee, endorsement
or property of any other person, firm, corporation or other entity, then the
Secured Parties shall have the right, in their sole discretion, to pursue,
relinquish, subordinate, modify or take any other action with respect thereto,
without in any way modifying or affecting any of the Secured Parties' rights and
remedies hereunder.
14. ACTIONS BY SECURED PARTIES. Any action required or permitted hereunder
to be taken by or on behalf of the Secured Parties shall, for such action to be
valid, require the approval of the Majority-in-Interest prior to the taking of
such action. If the consent, approval or disapproval of the Secured Parties is
required or permitted pursuant to this Agreement, such consent, approval or
disapproval shall only be valid if given by the Majority-in-Interest.
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15. MISCELLANEOUS.
(a) No course of dealing between the Company and the Secured Parties,
nor any failure to exercise, nor any delay in exercising, on the part of the
Secured Parties, any right, power or privilege hereunder or under the Notes
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
(b) All of the rights and remedies of the Secured Parties with respect
to the Collateral, whether established hereby or by the Notes or by any other
agreements, instruments or documents or by law shall be cumulative and may be
exercised singly or concurrently.
(c) This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and is intended to supersede all prior
negotiations, understandings and agreements with respect thereto. Except as
specifically set forth in this Agreement, no provision of this Agreement may be
modified or amended except by a written agreement specifically referring to this
Agreement and signed by the parties hereto.
(d) In the event that any provision of this Agreement is held to be
invalid, prohibited or unenforceable in any jurisdiction for any reason, unless
such provision is narrowed by judicial construction, this Agreement shall, as to
such jurisdiction, be construed as if such invalid, prohibited or unenforceable
provision had been more narrowly drawn so as not to be invalid, prohibited or
unenforceable. If, notwithstanding the foregoing, any provision of this
Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other provisions of
this Agreement and without affecting the validity or enforceability of such
provision or the other provisions of this Agreement in any other jurisdiction.
(e) No waiver of any breach or default or any right under this Agreement
shall be considered valid unless in writing and signed by the party giving such
waiver, and no such waiver shall be deemed a waiver of any subsequent breach or
default or right, whether of the same or similar nature or otherwise.
(f) This Agreement shall be binding upon and inure to the benefit of
each party hereto and its successors and assigns.
(g) Each party shall take such further action and execute and deliver
such further documents as may be necessary or appropriate in order to carry out
the provisions and purposes of this Agreement.
(h) This Agreement shall be construed in accordance with the laws of the
State of New York, except to the extent the validity, perfection or enforcement
of a security interest
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hereunder in respect of any particular Collateral which are governed by a
jurisdiction other than the State of New York in which case such law shall
govern. Each of the parties hereto irrevocably submit to the exclusive
jurisdiction of any New York State or United States Federal court sitting in
Manhattan county over any action or proceeding arising out of or relating to
this Agreement, and the parties hereto hereby irrevocably agree that all claims
in respect of such action or proceeding may be heard and determined in such New
York State or Federal court. The parties hereto agree that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
The parties hereto further waive any objection to venue in the State of New York
and any objection to an action or proceeding in the State of New York on the
basis of forum non convenient.
(i) EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A
JURY TRAIL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY
DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATER OF
THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY
HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED ON THIS
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL CONTINUE TO RELY
ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY WAIVES ITS RIGHTS TO A JURY TRIAL
FOLLOWING SUCH CONSULTATION. THIS WAIVER IS IRREVOCABLE, MEANING THAT,
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS AND SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF A
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
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<PAGE>
(j) This Agreement may be executed in any number of counterparts, each
of which when so executed shall be deemed to be an original and, all of which
taken together shall constitute one and the same Agreement. In the event that
any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.
* * * * * * * * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Intellectual
Property Security Agreement to be duly executed on the day and year first above
written.
WORLDGATE COMMUNICATIONS, INC.
By: /s/ Randall Gort
-------------------------------
Name: Randall Gort
Title: Vice President,
Corporate Affairs
STRONG RIVER INVESTMENT, INC.
By: /s/ Kenneth L. Henderson
-------------------------------
Name: Kenneth L. Henderson
Title: Attorney-in-fact
AMPAL AMERICAN-ISRAEL CORPORATION
By: /s/ Unintelligible
-------------------------------
Name: uninteligible
Title: CEO
<PAGE>
Exhibit 10.19
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
WORLDGATE COMMUNICATIONS, INC.
WARRANT
Dated: March 2, 1999
WorldGate Communications, Inc., a Delaware corporation (the
"Company"), hereby certifies that, for value received, Ampal American-Israel
Corporation or its registered assigns ("Holder"), is entitled, subject to
the terms set forth below, to purchase from the Company up to a total of such
number of shares of Common Stock, $.01 par value per share (the "Common
Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares") as shall equal the quotient obtained by
dividing 2,734,800 (the "Invested Amount") by the lower of (i) 16.50 and (ii)
the per share price at which the Common Stock is offered to the public in the
Initial Public Offering (as hereinafter defined) (the "IPO Price") at a U.S.
dollar ($) exercise price per share equal to the lower of (i) 16.50 and (ii)
the IPO Price (as adjusted from time to time pursuant to the terms hereunder,
the "Exercise Price"), at any time and from time to time from and after the
date hereof and through and including the date which shall be the later of
(i) three (3) years from the date hereof and (ii) thirty (30) months from the
date of the closing of the Initial Public Offering, but in no event later
than March 2, 2004 (such date, the "Expiration Date"), and subject to the
following terms and conditions:
1. REGISTRATION OF WARRANT. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof. The Company may deem and
treat the registered Holder of this Warrant as the absolute owner hereof for the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, and the Company shall not be affected by notice to the contrary.
2. REGISTRATION OF TRANSFERS AND EXCHANGES.
<PAGE>
(a) Subject to the provisions of Section 15 hereof, the Company shall
register the transfer of any portion of this Warrant by the Holder to any
affiliate or affiliates of the Holder or any fund or funds under common
management with the Holder (collectively, the "PERMITTED TRANSFEREES") or among
the Permitted Transferees in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Transfer Agent or to the Company at the office specified in or pursuant
to Section 3(b) PROVIDED, that the Company's consent shall be required for any
transfer other than to Permitted Transferees. Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by
the transferee thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing in the aggregate the right to purchase the
number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. DURATION AND EXERCISE OF WARRANT.
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 4:00 P.M., New York City time, at any time and from time to
time, on or after the date hereof to and including the Expiration Date. At 4:00
P.M., New York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value. Prior to the
Expiration Date, the Company may not call or otherwise redeem this Warrant
without the prior written consent of the Holder.
(b) Subject to Sections 2(a), 6 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 12 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in the manner provided hereunder,
all as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than five (5) business days after the Date
of Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise. Any person so designated by the Holder to receive Warrant Shares
shall be deemed to have become holder of record of such Warrant Shares as of the
Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii)
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<PAGE>
payment of the Exercise Price for the number of Warrant Shares so indicated
by the Holder to be purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. If less than all of
the Warrant Shares which may be purchased under this Warrant are exercised at
any time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
4. LOCK-UP. The Holder shall agree not to effect any public sale or
distribution of securities of the same class as those being registered or a
similar security of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144, during the 14 days prior to, and during the 180-day period (or such
lesser period as may be determined by the Company in its sole discretion)
beginning on, the effective date of any registration statement filed by the
Company under the Securities Act registering its securities for sale by the
Company to the public in an underwritten public offering, PROVIDED, that the
Company shall obtain from all directors and officers of the Company and all
affiliates of such directors and officers, all affiliates of the Company and all
other similarly situated holders of warrants or convertible securities of the
Company their agreement that they will also defer the sale of their shares
(except as part of the registration) for the same period.
5. REGISTRATION RIGHTS. (a) No later than the first business day
following the 150th day immediately following the date of the closing of the
Initial Public Offering, the Company shall file a "shelf" registration
statement, naming the Holders as selling stockholders thereunder, registering
for resale under the Securities Act all the Warrant Shares (such shares, the
"Eligible Securities"). The Company shall use its best efforts to cause such
registration statement to (i) be declared effective as promptly as possible, but
in any case within 180 days after the date of the closing of the Initial Public
Offering, and (ii) remain effective until the earlier of the date all of the
Warrant Shares have been sold in accordance with such registration statement or
the Expiration Date, PROVIDED, that if such registration statement has not been
declared effective by the 240th day after the date of the closing of the Initial
Public Offering (the "Liquidated Damages Date"), the Company shall pay to the
Holder (i) on the Liquidated Damages Date, 1% of the Invested Amount in cash, as
liquidated damages and not as a penalty, (ii) on the first month anniversary of
the Liquidated Damages Date, if such registration statement has not been
declared effective as of such date, an additional 1% of the Invested Amount in
cash, as liquidated damages and not as a penalty, and thereafter (iii) on each
monthly anniversary of the Liquidated Damages Date on which such registration
statement has not been declared effective, an additional 2% of the Invested
Amount in cash, as liquidated damages and not as a penalty PROVIDED, FURTHER,
that the Company shall not be obligated to pay aggregate liquidated damages
under this Section 5(a) in excess of $500,000. In any registration effectuated
under this Section 5, the Company will pay all registration expenses in
connection therewith other than the fees and expenses of the Holder's counsel,
underwriting discounts and commissions, brokerage commissions, non-accountable
expense allowances
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attributable to the sale of the Holder's Eligible Securities and the Holder's
other out-of-pocket expenses.
(b) The Company's obligations under this Section shall terminate when
Holder may sell or otherwise transfer the Eligible Securities without
registration under the Securities Act by virtue of Rule 144, without limitation
as to volume of sales.
(c) Holder may not participate in any underwritten registration
hereunder unless Holder (i) agrees to sell its securities on the basis provided
in any underwriting arrangements approved by the Company, and (ii) completes and
executes all questionnaires, custody agreements, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements.
(d) Following the filing of a registration statement registering the
Eligible Securities of Holder and during any period that the registration
statement is effective, Holder shall:
(i) not effect any stabilization transactions or engage in any
stabilization activity in connection with any securities of the
Company in contravention of Regulation M under the Exchange Act;
(ii) furnish each broker or dealer through whom Holder offers
Eligible Securities such number of copies of the prospectus as the
broker may require and otherwise comply with prospectus delivery
requirements under the Securities Act;
(iii) not, and shall not permit any Affiliated Purchaser (as that
term is defined in Regulation M under the Exchange Act) to, bid for or
purchase for any account in which Holder has a beneficial interest, or
attempt to induce any other person to purchase, any securities of the
Company in contravention of Regulation M under the Exchange Act;
(iv) not offer or agree to pay, directly or indirectly, to anyone
any compensation for soliciting another to purchase, or for purchasing
(other than for Holder's own account), any securities of the Company
on a national securities exchange in contravention of Regulation M
under the Exchange Act;
(v) cooperate with the Company as the Company fulfills its
obligations under this Section;
(vi) furnish such information concerning Holder and the
distribution of the Eligible Securities as the Company may from time
to time reasonably request;
(vii) sell Eligible Securities only in the manner described in the
registration statement; and
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(viii) not sell Eligible Securities during any period after the
Company has provided notice (the "Blackout Notice") to Holder of the
happening of any event as a result of which the prospectus included in
the registration statement contains an untrue statement of a material
fact or omits to state any material fact required to be stated therein
or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading, and until
the Company provides notice to Holder that the registration statement
no longer fails to state a material fact required to be stated
therein, misstates a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements made
not misleading, PROVIDED, that, the Company shall, no later than forty
(40) days from the submission to the Holder of any Blackout Notice,
modify and amend the registration statement and the prospectus
included therein such that it no longer fails to state a material fact
required to be stated therein, misstates a material fact or omits to
state a material fact required to be stated therein or necessary to
make the statements made not misleading. The Company will pay all
registration expenses in connection therewith other than the fees and
expenses of Holder's counsel, underwriting discounts and commissions,
brokerage commissions, non-accountable expense allowances attributable
to the sale of Holder's Eligible Securities, and Holders' other out of
pocket expenses.
6. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the initial Holder. The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
7. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
requested, satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. RESERVATION OF WARRANT SHARES. The Company covenants that it will
at all times reserve and keep available out of the aggregate of its authorized
but unissued Common Stock, solely for the purpose of enabling it to issue
Warrant Shares upon exercise of this Warrant as herein provided, the number of
Warrant Shares which are then issuable and deliverable upon the exercise of this
entire Warrant, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holder (taking into account the
adjustments and restrictions of Section 9). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
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9. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9. Upon each such adjustment of the
Exercise Price pursuant to this Section 9, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend (except scheduled dividends paid on outstanding
preferred stock as of the date hereof which contain a stated dividend rate) or
otherwise make a distribution or distributions on shares of its Common Stock or
on any other class of capital stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount such Holder
would have been entitled to had such Holder exercised this Warrant immediately
prior to such reclassification, consolidation, merger, sale, transfer or share
exchange. The terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to the Holder the
right to receive the securities or property set forth in this Section 9(b) upon
any exercise following any such reclassification, consolidation, merger, sale,
transfer or share exchange.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
9(a), (b) and (d)), then in each such case the Exercise Price shall be
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determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
(d) If, at any time while this Warrant is outstanding, the Company
shall issue or cause to be issued rights or warrants to acquire or otherwise
sell or distribute shares of Common Stock for a consideration per share less
than the Market Price (as defined herein) then in effect, then, forthwith upon
such issue or sale, the Exercise Price shall be reduced to the price (calculated
to the nearest cent) determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of (i) the number of shares of Common Stock outstanding immediately prior to
such issuance, and (ii) the number of shares of Common Stock which the aggregate
consideration received (or to be received, assuming exercise or conversion in
full of such rights, warrants and convertible securities) for the issuance of
such additional shares of Common Stock would purchase at such Market Price, and
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately after the issuance of such additional shares
provided, however, no adjustment shall be made (i) for any issuance of any
shares of Common Stock prior to or concurrently with the execution and delivery
of this Warrant, (ii) for the issuance of any shares of Common Stock pursuant to
the exercise of any option, warrant or rights or upon the conversion of the
Company's Series A Convertible Preferred Stock, the Series B Convertible
Preferred Stock, the Series C Convertible Preferred Stock and the Class B Common
Stock, any convertible promissory note or any other convertible security by
holders of any such convertible security that were granted or issued prior to or
on the date of this Warrant, (iii) for any issuance of any shares of Common
Stock pursuant to the exercise of any options granted pursuant to any employee,
non-employee, director or incentive stock option plan, (iv) for any shares of
Common Stock issued or issuable pursuant to any warrant or right that resulted
in any adjustment pursuant to this Section and (v) for any issuance of any
capital stock or otherwise in connection with any underwritten public offering
under the Securities Act. Such adjustment shall be made successively whenever
such an issuance is made. The fair market value deemed to be received for any
additional shares of capital stock issuable pursuant to any warrants or rights
to subscribe for or purchase the same shall be the consideration received by the
Company for issuing such warrants or rights plus the additional consideration
payable to the Company upon the exercise of such warrants or rights. Upon the
expiration of any rights or warrants, without exercise, the issuance of which
rights or warrants effected an adjustment in the Exercise Price, such Exercise
Price shall forthwith be readjusted and thereafter be the price which it would
have been (but reflecting any other adjustments in the Exercise Price made
pursuant to the provisions of this Section 9 after the issuance of such rights
or warrants) immediately prior to the issuance or sale of such rights or
warrants. If the purchase price provided for in any rights or warrants changes
at any time (other than under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect
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<PAGE>
at the time of the change shall be adjusted to the Exercise Price that would
have been in effect at such time had such rights or warrants still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold.
For purposes of this Section, "Market Price" means, per share of
Common Stock on any date specified herein: (i) the average of the closing prices
per share of the Common Stock for the five days immediately preceding such date
published in The Wall Street Journal or, if no such closing price on such dates
is published in The Wall Street Journal, the average of the closing bid and
asked prices for the five days immediately preceding such date, as officially
reported on the principal national securities exchange on which the Common Stock
is then listed or admitted to trading; or (ii) if the Common Stock is not then
listed or admitted to trading on any national securities exchange but is
designated as a national market system security by the NASD, the average of the
trading prices of the Common Stock for the five days immediately preceding such
date; or (iii) if there shall have been no trading on such dates or if the
Common Stock is not so designated, the average of the reported closing bid and
asked prices of the Common Shares for the five days immediately preceding such
date as shown by the Nasdaq National Market or other over-the-counter market and
reported by any member firm of the New York Stock Exchange selected by the
Company; or (iv) if none of (i), (ii) or (iii) is applicable, a market price per
share determined in such reasonable manner as may be prescribed by the Company's
Board of Directors.
(e) For the purposes of this Section 9, the following clauses shall
also be applicable:
(i) RECORD DATE. In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (A)
to receive a dividend or other distribution payable in Common Stock or
in securities convertible or exchangeable into shares of Common Stock,
or (B) to subscribe for or purchase Common Stock or securities
convertible or exchangeable into shares of Common Stock, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
(ii) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held
by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
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<PAGE>
(g) Whenever the Exercise Price is adjusted pursuant to Section 9(c)
above, the Holder, after receipt of the determination by the Appraiser, shall
have the right to select an additional appraiser (which shall be a nationally
recognized accounting firm), in which case the adjustment shall be equal to the
average of the adjustments recommended by each of the Appraiser and such
appraiser. The Holder shall promptly mail or cause to be mailed to the Company,
a notice setting forth the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. Such adjustment
shall become effective immediately after the record date mentioned above.
(h) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common
Stock; or
(iii) the Company shall authorize the granting to
all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any
class or of any rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection with any
reclassification of the Common Stock of the Company, any
consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets
of the Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the affairs of the
Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 15 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property
9
<PAGE>
deliverable upon such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding up; PROVIDED, HOWEVER, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
10. PAYMENT OF EXERCISE PRICE. The Holder may pay the Exercise Price
by delivery of immediately available funds.
11. FRACTIONAL SHARES. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 11, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.
12. NOTICES. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 4:00 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 4:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company,
WorldGate Communications, Inc., 3220 Tillman Drive, Suite 300, Bensalem, PA
19020, attention David A. Dill, or (ii) if to the Holder, to the Holder at the
address or facsimile number appearing on the Warrant Register, or such other
address or facsimile number as a party may provide to the other in accordance
with this Section 12.
13. WARRANT AGENT.
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent.
(b) Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
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<PAGE>
14. MISCELLANEOUS.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder and
their successors and assigns.
(b) Subject to Section 14(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant. This
Warrant shall inure to the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
(d) The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(f) For purposes of this Warrant, the term "INITIAL PUBLIC OFFERING"
shall mean the first offering of securities of the Company after the date hereof
pursuant to a registration statement filed under the Securities Act.
(g) The Holder shall not be entitled to, nor shall anything contained
in this Warrant be construed to confer upon the Holder, any right as a
stockholder of the Company, including, without limitation, any right to vote,
give or withhold consent to action by the stockholders of the Company (whether
upon any recapitalization, issue of shares, reclassification of
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<PAGE>
shares, consolidation, merger, conveyance or otherwise), receive notice of
meetings or other action affecting stockholders (except for notices provided for
in this Warrant), receive dividends or subscription rights.
15. SECURITIES LAWS REPRESENTATIONS AND WARRANTIES; TRANSFER TO COMPLY
WITH SECURITIES LAWS.
(a) The Holder, by acceptance of this Warrant, represents and warrants
to the Company that this Warrant is being, and any Warrant Shares acquired on
exercise of this Warrant will be, acquired by the Holder for its own account,
not as nominee or agent, and not with a view to resale or distribution within
the meaning of the Securities Act of 1933, as amended (the "Securities Act") and
the Holder will not distribute this Warrant or any Warrant Shares in violation
of the Securities Act or any applicable state or foreign law.
(b) The Holder, by acceptance of this Warrant: (i) acknowledges that
this Warrant and the Warrant Shares are not registered under the Securities Act
or any state securities laws and that this Warrant and any Warrant Shares to be
issued to it upon the exercise of this Warrant must be held indefinitely by it
unless they are subsequently registered under the Securities Act and all
applicable state securities laws or an exemption from registration is available,
(ii) is aware that any routine sales under Rule 144 promulgated under the
Securities Act ("Rule 144") of this Warrant and the Warrant Shares may be made
only in limited amounts and in accordance with the terms and conditions of Rule
144 and that in such cases where Rule 144 is not applicable, compliance with
some other registration exemption will be required, (iii) is aware that Rule 144
is not presently available for use by the Holder for resale of such Warrant and
Warrant Shares, and (iv) is aware that, except as set forth herein, the Company
is not obligated to register under the Securities Act any sale, transfer or
other disposition of this Warrant or the Warrant Shares.
(c) The Holder, by acceptance of this Warrant, confirms that the
Company has made available to it the opportunity to ask questions of and receive
answers from the Company's officers and directors concerning the terms and
conditions of the issuance hereof and the business and financial condition of
the Company, and to acquire, and the Holder has received to its satisfaction,
such additional information about the business and financial condition of the
Company as it has requested.
(d) The Holder, by acceptance of this Warrant, represents that (i) it
is an "accredited investor" as such term is defined in Rule 501(a)(3)
promulgated under the Securities Act, (ii) its financial condition is such that
it can afford to bear the economic risk of holding this Warrant and the Warrant
Shares for an indefinite period of time and suffer complete loss of its
investment in this Warrant, and (iii) its knowledge and experience in financial
and business matters are such that it is capable of evaluating the merits and
risks of its purchase of this Warrant.
(e) The certificate representing any Warrant Shares acquired upon
exercise of this Warrant, and any shares of Common Stock or other securities
issued in respect of
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<PAGE>
such Warrant Shares upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall be stamped or otherwise imprinted
with the following legend (unless such a legend is no longer required under the
Securities Act or unless the Warrant Shares have been registered under the
Securities Act for resale by the Holder):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE SOLD EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT."
(f) The Company shall not be required to register the transfer of this
Warrant or any Warrant Shares on the books of the Company unless the Company
shall have been provided with an opinion of counsel reasonably satisfactory to
it or no-action letters from the Securities and Exchange Commission or the
appropriate state regulatory agencies prior to such transfer to the effect that
registration under the Securities Act and any applicable state securities law is
not required in connection with the transaction resulting in such transfer;
provided, however, that no such opinion of counsel or no-action letter shall be
necessary in order to effectuate a transfer in accordance with the provisions of
Rule 144(k) promulgated under the Securities Act. Each Warrant or certificate
for Warrant Shares issued upon any transfer, as above provided, shall bear the
restrictive legend set forth above, except that such restrictive legend shall
not be required if in the
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<PAGE>
opinion of counsel reasonably satisfactory to the Company or no-action letters
referred to above are to the further effect that such legend is not required in
order to establish compliance with the provisions of the Securities Act and any
applicable state securities law, or if the transfer is made in accordance with
the provisions of Rule 144(k) under the Securities Act.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
WORLDGATE COMMUNICATIONS, INC.
By: /s/ Randall Gort
Name: Randall Gort
Title: Vice President, Corporate Affairs
<PAGE>
Exhibit 10.20
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
WORLDGATE COMMUNICATIONS, INC.
WARRANT
Dated: March 2, 1999
WorldGate Communications, Inc., a Delaware corporation (the
"Company"), hereby certifies that, for value received, Strong River
Investment, Inc. or its registered assigns ("Holder"), is entitled, subject
to the terms set forth below, to purchase from the Company up to a total of
such number of shares of Common Stock, $.01 par value per share (the "Common
Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares") as shall equal the quotient obtained by
dividing 2,734,800 (the "Invested Amount") by the lower of (i) 16.50 and (ii)
the per share price at which the Common Stock is offered to the public in the
Initial Public Offering (as hereinafter defined) (the "IPO Price") at a U.S.
dollar ($) exercise price per share equal to the lower of (i) 16.50 and (ii)
the IPO Price (as adjusted from time to time pursuant to the terms hereunder,
the "Exercise Price"), at any time and from time to time from and after the
date hereof and through and including the date which shall be the later of
(i) three (3) years from the date hereof and (ii) thirty (30) months from the
date of the closing of the Initial Public Offering, but in no event later
than March 2, 2004 (such date, the "Expiration Date"), and subject to the
following terms and conditions:
1. REGISTRATION OF WARRANT. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof. The Company may deem and
treat the registered Holder of this Warrant as the absolute owner hereof for the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, and the Company shall not be affected by notice to the contrary.
2. REGISTRATION OF TRANSFERS AND EXCHANGES.
<PAGE>
(a) Subject to the provisions of Section 15 hereof, the Company shall
register the transfer of any portion of this Warrant by the Holder to any
affiliate or affiliates of the Holder or any fund or funds under common
management with the Holder (collectively, the "PERMITTED TRANSFEREES") or among
the Permitted Transferees in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Transfer Agent or to the Company at the office specified in or pursuant
to Section 3(b) PROVIDED, that the Company's consent shall be required for any
transfer other than to Permitted Transferees. Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by
the transferee thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing in the aggregate the right to purchase the
number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. DURATION AND EXERCISE OF WARRANT.
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 4:00 P.M., New York City time, at any time and from time to
time, on or after the date hereof to and including the Expiration Date. At 4:00
P.M., New York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value. Prior to the
Expiration Date, the Company may not call or otherwise redeem this Warrant
without the prior written consent of the Holder.
(b) Subject to Sections 2(a), 6 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 12 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in the manner provided hereunder,
all as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than five (5) business days after the Date
of Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise. Any person so designated by the Holder to receive Warrant Shares
shall be deemed to have become holder of record of such Warrant Shares as of the
Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii)
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<PAGE>
payment of the Exercise Price for the number of Warrant Shares so indicated
by the Holder to be purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. If less than all of
the Warrant Shares which may be purchased under this Warrant are exercised at
any time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
4. LOCK-UP. The Holder shall agree not to effect any public sale or
distribution of securities of the same class as those being registered or a
similar security of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144, during the 14 days prior to, and during the 180-day period (or such
lesser period as may be determined by the Company in its sole discretion)
beginning on, the effective date of any registration statement filed by the
Company under the Securities Act registering its securities for sale by the
Company to the public in an underwritten public offering, PROVIDED, that the
Company shall obtain from all directors and officers of the Company and all
affiliates of such directors and officers, all affiliates of the Company and all
other similarly situated holders of warrants or convertible securities of the
Company their agreement that they will also defer the sale of their shares
(except as part of the registration) for the same period.
5. REGISTRATION RIGHTS. (a) No later than the first business day
following the 150th day immediately following the date of the closing of the
Initial Public Offering, the Company shall file a "shelf" registration
statement, naming the Holders as selling stockholders thereunder, registering
for resale under the Securities Act all the Warrant Shares (such shares, the
"Eligible Securities"). The Company shall use its best efforts to cause such
registration statement to (i) be declared effective as promptly as possible, but
in any case within 180 days after the date of the closing of the Initial Public
Offering, and (ii) remain effective until the earlier of the date all of the
Warrant Shares have been sold in accordance with such registration statement or
the Expiration Date, PROVIDED, that if such registration statement has not been
declared effective by the 240th day after the date of the closing of the Initial
Public Offering (the "Liquidated Damages Date"), the Company shall pay to the
Holder (i) on the Liquidated Damages Date, 1% of the Invested Amount in cash, as
liquidated damages and not as a penalty, (ii) on the first month anniversary of
the Liquidated Damages Date, if such registration statement has not been
declared effective as of such date, an additional 1% of the Invested Amount in
cash, as liquidated damages and not as a penalty, and thereafter (iii) on each
monthly anniversary of the Liquidated Damages Date on which such registration
statement has not been declared effective, an additional 2% of the Invested
Amount in cash, as liquidated damages and not as a penalty PROVIDED, FURTHER,
that the Company shall not be obligated to pay aggregate liquidated damages
under this Section 5(a) in excess of $500,000. In any registration effectuated
under this Section 5, the Company will pay all registration expenses in
connection therewith other than the fees and expenses of the Holder's counsel,
underwriting discounts and commissions, brokerage commissions, non-accountable
expense allowances
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<PAGE>
attributable to the sale of the Holder's Eligible Securities and the Holder's
other out-of-pocket expenses.
(b) The Company's obligations under this Section shall terminate when
Holder may sell or otherwise transfer the Eligible Securities without
registration under the Securities Act by virtue of Rule 144, without limitation
as to volume of sales.
(c) Holder may not participate in any underwritten registration
hereunder unless Holder (i) agrees to sell its securities on the basis provided
in any underwriting arrangements approved by the Company, and (ii) completes and
executes all questionnaires, custody agreements, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements.
(d) Following the filing of a registration statement registering the
Eligible Securities of Holder and during any period that the registration
statement is effective, Holder shall:
(i) not effect any stabilization transactions or engage in any
stabilization activity in connection with any securities of the
Company in contravention of Regulation M under the Exchange Act;
(ii) furnish each broker or dealer through whom Holder offers
Eligible Securities such number of copies of the prospectus as the
broker may require and otherwise comply with prospectus delivery
requirements under the Securities Act;
(iii) not, and shall not permit any Affiliated Purchaser (as that
term is defined in Regulation M under the Exchange Act) to, bid for or
purchase for any account in which Holder has a beneficial interest, or
attempt to induce any other person to purchase, any securities of the
Company in contravention of Regulation M under the Exchange Act;
(iv) not offer or agree to pay, directly or indirectly, to anyone
any compensation for soliciting another to purchase, or for purchasing
(other than for Holder's own account), any securities of the Company
on a national securities exchange in contravention of Regulation M
under the Exchange Act;
(v) cooperate with the Company as the Company fulfills its
obligations under this Section;
(vi) furnish such information concerning Holder and the
distribution of the Eligible Securities as the Company may from time
to time reasonably request;
(vii) sell Eligible Securities only in the manner described in the
registration statement; and
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<PAGE>
(viii) not sell Eligible Securities during any period after the
Company has provided notice (the "Blackout Notice") to Holder of the
happening of any event as a result of which the prospectus included in
the registration statement contains an untrue statement of a material
fact or omits to state any material fact required to be stated therein
or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading, and until
the Company provides notice to Holder that the registration statement
no longer fails to state a material fact required to be stated
therein, misstates a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements made
not misleading, PROVIDED, that, the Company shall, no later than forty
(40) days from the submission to the Holder of any Blackout Notice,
modify and amend the registration statement and the prospectus
included therein such that it no longer fails to state a material fact
required to be stated therein, misstates a material fact or omits to
state a material fact required to be stated therein or necessary to
make the statements made not misleading. The Company will pay all
registration expenses in connection therewith other than the fees and
expenses of Holder's counsel, underwriting discounts and commissions,
brokerage commissions, non-accountable expense allowances attributable
to the sale of Holder's Eligible Securities, and Holders' other out of
pocket expenses.
6. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the initial Holder. The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
7. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
requested, satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. RESERVATION OF WARRANT SHARES. The Company covenants that it will
at all times reserve and keep available out of the aggregate of its authorized
but unissued Common Stock, solely for the purpose of enabling it to issue
Warrant Shares upon exercise of this Warrant as herein provided, the number of
Warrant Shares which are then issuable and deliverable upon the exercise of this
entire Warrant, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holder (taking into account the
adjustments and restrictions of Section 9). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
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<PAGE>
9. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9. Upon each such adjustment of the
Exercise Price pursuant to this Section 9, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend (except scheduled dividends paid on outstanding
preferred stock as of the date hereof which contain a stated dividend rate) or
otherwise make a distribution or distributions on shares of its Common Stock or
on any other class of capital stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount such Holder
would have been entitled to had such Holder exercised this Warrant immediately
prior to such reclassification, consolidation, merger, sale, transfer or share
exchange. The terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to the Holder the
right to receive the securities or property set forth in this Section 9(b) upon
any exercise following any such reclassification, consolidation, merger, sale,
transfer or share exchange.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
9(a), (b) and (d)), then in each such case the Exercise Price shall be
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<PAGE>
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
(d) If, at any time while this Warrant is outstanding, the Company
shall issue or cause to be issued rights or warrants to acquire or otherwise
sell or distribute shares of Common Stock for a consideration per share less
than the Market Price (as defined herein) then in effect, then, forthwith upon
such issue or sale, the Exercise Price shall be reduced to the price (calculated
to the nearest cent) determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of (i) the number of shares of Common Stock outstanding immediately prior to
such issuance, and (ii) the number of shares of Common Stock which the aggregate
consideration received (or to be received, assuming exercise or conversion in
full of such rights, warrants and convertible securities) for the issuance of
such additional shares of Common Stock would purchase at such Market Price, and
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately after the issuance of such additional shares
provided, however, no adjustment shall be made (i) for any issuance of any
shares of Common Stock prior to or concurrently with the execution and delivery
of this Warrant, (ii) for the issuance of any shares of Common Stock pursuant to
the exercise of any option, warrant or rights or upon the conversion of the
Company's Series A Convertible Preferred Stock, the Series B Convertible
Preferred Stock, the Series C Convertible Preferred Stock and the Class B Common
Stock, any convertible promissory note or any other convertible security by
holders of any such convertible security that were granted or issued prior to or
on the date of this Warrant, (iii) for any issuance of any shares of Common
Stock pursuant to the exercise of any options granted pursuant to any employee,
non-employee, director or incentive stock option plan, (iv) for any shares of
Common Stock issued or issuable pursuant to any warrant or right that resulted
in any adjustment pursuant to this Section and (v) for any issuance of any
capital stock or otherwise in connection with any underwritten public offering
under the Securities Act. Such adjustment shall be made successively whenever
such an issuance is made. The fair market value deemed to be received for any
additional shares of capital stock issuable pursuant to any warrants or rights
to subscribe for or purchase the same shall be the consideration received by the
Company for issuing such warrants or rights plus the additional consideration
payable to the Company upon the exercise of such warrants or rights. Upon the
expiration of any rights or warrants, without exercise, the issuance of which
rights or warrants effected an adjustment in the Exercise Price, such Exercise
Price shall forthwith be readjusted and thereafter be the price which it would
have been (but reflecting any other adjustments in the Exercise Price made
pursuant to the provisions of this Section 9 after the issuance of such rights
or warrants) immediately prior to the issuance or sale of such rights or
warrants. If the purchase price provided for in any rights or warrants changes
at any time (other than under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect
7
<PAGE>
at the time of the change shall be adjusted to the Exercise Price that would
have been in effect at such time had such rights or warrants still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold.
For purposes of this Section, "Market Price" means, per share of
Common Stock on any date specified herein: (i) the average of the closing prices
per share of the Common Stock for the five days immediately preceding such date
published in The Wall Street Journal or, if no such closing price on such dates
is published in The Wall Street Journal, the average of the closing bid and
asked prices for the five days immediately preceding such date, as officially
reported on the principal national securities exchange on which the Common Stock
is then listed or admitted to trading; or (ii) if the Common Stock is not then
listed or admitted to trading on any national securities exchange but is
designated as a national market system security by the NASD, the average of the
trading prices of the Common Stock for the five days immediately preceding such
date; or (iii) if there shall have been no trading on such dates or if the
Common Stock is not so designated, the average of the reported closing bid and
asked prices of the Common Shares for the five days immediately preceding such
date as shown by the Nasdaq National Market or other over-the-counter market and
reported by any member firm of the New York Stock Exchange selected by the
Company; or (iv) if none of (i), (ii) or (iii) is applicable, a market price per
share determined in such reasonable manner as may be prescribed by the Company's
Board of Directors.
(e) For the purposes of this Section 9, the following clauses shall
also be applicable:
(i) RECORD DATE. In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (A)
to receive a dividend or other distribution payable in Common Stock or
in securities convertible or exchangeable into shares of Common Stock,
or (B) to subscribe for or purchase Common Stock or securities
convertible or exchangeable into shares of Common Stock, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
(ii) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held
by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
8
<PAGE>
(g) Whenever the Exercise Price is adjusted pursuant to Section 9(c)
above, the Holder, after receipt of the determination by the Appraiser, shall
have the right to select an additional appraiser (which shall be a nationally
recognized accounting firm), in which case the adjustment shall be equal to the
average of the adjustments recommended by each of the Appraiser and such
appraiser. The Holder shall promptly mail or cause to be mailed to the Company,
a notice setting forth the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. Such adjustment
shall become effective immediately after the record date mentioned above.
(h) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common
Stock; or
(iii) the Company shall authorize the granting to
all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any
class or of any rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection with any
reclassification of the Common Stock of the Company, any
consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets
of the Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the affairs of the
Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 15 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property
9
<PAGE>
deliverable upon such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding up; PROVIDED, HOWEVER, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
10. PAYMENT OF EXERCISE PRICE. The Holder may pay the Exercise Price
by delivery of immediately available funds.
11. FRACTIONAL SHARES. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 11, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.
12. NOTICES. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 4:00 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 4:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company,
WorldGate Communications, Inc., 3220 Tillman Drive, Suite 300, Bensalem, PA
19020, attention David A. Dill, or (ii) if to the Holder, to the Holder at the
address or facsimile number appearing on the Warrant Register, or such other
address or facsimile number as a party may provide to the other in accordance
with this Section 12.
13. WARRANT AGENT.
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent.
(b) Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
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<PAGE>
14. MISCELLANEOUS.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder and
their successors and assigns.
(b) Subject to Section 14(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant. This
Warrant shall inure to the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
(d) The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(f) For purposes of this Warrant, the term "INITIAL PUBLIC OFFERING"
shall mean the first offering of securities of the Company after the date hereof
pursuant to a registration statement filed under the Securities Act.
(g) The Holder shall not be entitled to, nor shall anything contained
in this Warrant be construed to confer upon the Holder, any right as a
stockholder of the Company, including, without limitation, any right to vote,
give or withhold consent to action by the stockholders of the Company (whether
upon any recapitalization, issue of shares, reclassification of
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<PAGE>
shares, consolidation, merger, conveyance or otherwise), receive notice of
meetings or other action affecting stockholders (except for notices provided for
in this Warrant), receive dividends or subscription rights.
15. SECURITIES LAWS REPRESENTATIONS AND WARRANTIES; TRANSFER TO COMPLY
WITH SECURITIES LAWS.
(a) The Holder, by acceptance of this Warrant, represents and warrants
to the Company that this Warrant is being, and any Warrant Shares acquired on
exercise of this Warrant will be, acquired by the Holder for its own account,
not as nominee or agent, and not with a view to resale or distribution within
the meaning of the Securities Act of 1933, as amended (the "Securities Act") and
the Holder will not distribute this Warrant or any Warrant Shares in violation
of the Securities Act or any applicable state or foreign law.
(b) The Holder, by acceptance of this Warrant: (i) acknowledges that
this Warrant and the Warrant Shares are not registered under the Securities Act
or any state securities laws and that this Warrant and any Warrant Shares to be
issued to it upon the exercise of this Warrant must be held indefinitely by it
unless they are subsequently registered under the Securities Act and all
applicable state securities laws or an exemption from registration is available,
(ii) is aware that any routine sales under Rule 144 promulgated under the
Securities Act ("Rule 144") of this Warrant and the Warrant Shares may be made
only in limited amounts and in accordance with the terms and conditions of Rule
144 and that in such cases where Rule 144 is not applicable, compliance with
some other registration exemption will be required, (iii) is aware that Rule 144
is not presently available for use by the Holder for resale of such Warrant and
Warrant Shares, and (iv) is aware that, except as set forth herein, the Company
is not obligated to register under the Securities Act any sale, transfer or
other disposition of this Warrant or the Warrant Shares.
(c) The Holder, by acceptance of this Warrant, confirms that the
Company has made available to it the opportunity to ask questions of and receive
answers from the Company's officers and directors concerning the terms and
conditions of the issuance hereof and the business and financial condition of
the Company, and to acquire, and the Holder has received to its satisfaction,
such additional information about the business and financial condition of the
Company as it has requested.
(d) The Holder, by acceptance of this Warrant, represents that (i) it
is an "accredited investor" as such term is defined in Rule 501(a)(3)
promulgated under the Securities Act, (ii) its financial condition is such that
it can afford to bear the economic risk of holding this Warrant and the Warrant
Shares for an indefinite period of time and suffer complete loss of its
investment in this Warrant, and (iii) its knowledge and experience in financial
and business matters are such that it is capable of evaluating the merits and
risks of its purchase of this Warrant.
(e) The certificate representing any Warrant Shares acquired upon
exercise of this Warrant, and any shares of Common Stock or other securities
issued in respect of
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<PAGE>
such Warrant Shares upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall be stamped or otherwise imprinted
with the following legend (unless such a legend is no longer required under the
Securities Act or unless the Warrant Shares have been registered under the
Securities Act for resale by the Holder):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE SOLD EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT."
(f) The Company shall not be required to register the transfer of this
Warrant or any Warrant Shares on the books of the Company unless the Company
shall have been provided with an opinion of counsel reasonably satisfactory to
it or no-action letters from the Securities and Exchange Commission or the
appropriate state regulatory agencies prior to such transfer to the effect that
registration under the Securities Act and any applicable state securities law is
not required in connection with the transaction resulting in such transfer;
provided, however, that no such opinion of counsel or no-action letter shall be
necessary in order to effectuate a transfer in accordance with the provisions of
Rule 144(k) promulgated under the Securities Act. Each Warrant or certificate
for Warrant Shares issued upon any transfer, as above provided, shall bear the
restrictive legend set forth above, except that such restrictive legend shall
not be required if in the
13
<PAGE>
opinion of counsel reasonably satisfactory to the Company or no-action letters
referred to above are to the further effect that such legend is not required in
order to establish compliance with the provisions of the Securities Act and any
applicable state securities law, or if the transfer is made in accordance with
the provisions of Rule 144(k) under the Securities Act.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
WORLDGATE COMMUNICATIONS, INC.
By: /s/ Randall Gort
Name: Randall Gort
Title: Vice President, Corporate Affairs
<PAGE>
Exhibit 10.21
SENIOR SECURED PROMISSORY NOTE
$500,000 March 2, 1999
FOR VALUE RECEIVED, WorldGate Communications, Inc., a Delaware
corporation, having an address at 3220 Tillman Drive, Suite 300, Bensalem, PA
19020 (the "Maker"), hereby promises to pay to the order of Ampal American
Israel Corporation or its successors and assigns (the "Payee"), at its address
at 1177 Avenue of the Americas, New York, NY 10036, or such other address as the
Payee shall provide in writing to the Maker for such purpose, in lawful money of
the United States of America, the principal sum of $500,000 on September 2,
1999, or on such earlier date as such principal amount may become due and
payable pursuant to the terms hereof (the "Maturity Date").
This Promissory Note shall be subject to the terms and conditions of
each of (i) the Security Agreement, effective as of the date hereof, among the
Maker, the Payee and Strong River Investment, Inc. and (ii) the Intellectual
Property Security Agreement, effective as of the date hereof, among the Maker,
the Payee and Strong River Investment, Inc. (collectively, the "Security
Agreements").
The Maker (i) shall have the right to prepay this Promissory Note in
whole, and not in part, as at the end of any calendar month, on the last
business day of such month, and (ii) shall prepay this Promissory Note in full
upon and concurrently with the first closing of the sale of securities in
connection with the first public offering of securities of the Maker occurring
after the date hereof that has been registered under the Securities Act of 1933,
as amended. In the case of any such prepayment, the amount prepaid shall be
computed in accordance with the following prepayment formula:
Prepayment Formula: [1+ (.0104 * X)] * [93.76% of the principal amount due
hereunder], where X is a whole number equal to the number of months (or
portions thereof) elapsed since the date of the issuance of this
Promissory Note to the date of the prepayment thereof.
Each of the following shall constitute an Event of Default hereunder
("Event of Default"):
(a) the Maker shall fail to pay any amounts due (including principal,
interest and fees) hereunder when due (whether by maturity,
acceleration or otherwise);
<PAGE>
(b) the occurrence of an Event of Default under any of the Security
Agreements;
(c) any representation, warranty or opinion made or given in this
Promissory Note, in any Security Agreement, or in any certificate,
opinion, financial or other statement delivered pursuant to or in
connection with this Promissory Note or the Security Agreements
shall prove to have been untrue, false or misleading in any material
respect on or as of (as the case may be) the date as of which made;
(d) The occurrence of any event or circumstance, and continuation
thereof unremedied for any applicable grace period, under any
agreement, guaranty or evidence of indebtedness relating to any
obligation of the Maker for borrowed money, other than the
indebtedness evidenced by this Promissory Note, which would give the
holder thereof or any other person the right to declare such
obligation due and payable, assuming that any required notice had
been given at the time of such occurrence and, with respect to a
default in the payment of principal or interest on such
indebtedness, which indebtedness has an outstanding principal amount
in excess of $100,000 in the aggregate;
(e) The entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of Maker in an involuntary
case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of Maker, or for any substantial part of any of its
property, or ordering the winding-up or liquidation of any of its
affairs and the continuance of any such decree or order unstayed and
in effect for a period of 60 consecutive days;
(f) The commencement by Maker of a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other
similar laws, or the consent by Maker to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of Maker, or for
any substantial part of any of its property, or the making by any of
them of any assignment for the benefit of creditors, or the failure
of Maker generally to pay its debts as such debts become due, or the
taking of corporate or other action by Maker in furtherance of any
of the foregoing;
<PAGE>
(g) The entry of any judgments against Maker aggregating more than
$100,000 or any attachments or other levy against the property of
Maker with respect to claims aggregating in excess of $100,000, if
the same remain unpaid, unappealed, undis charged, unbonded,
unstayed or undismissed, for a period of 60 days;
(h) This Promissory Note, any Security Agreement or any other document
or agreement related hereto or thereto shall, at any time after
their respective execution and delivery and for any reason, cease to
be in full force and effect or shall be declared to be null and
void, or the validity or enforceability thereof shall be contested
by Maker, or Maker shall deny that it has any or further liability
or obligation hereunder or thereunder;
(i) Any material adverse change in the financial condition, or the value
of the collateral that is the subject of the Security Agreements,
determined in the good faith discretion of the Maker; and
(j) the sale of all or substantially all of the assets of the Maker or
any merger or consolidation involving the Maker (whether or not the
Maker is the surviving corporation) shall be consummated.
Upon the occurrence of an Event of Default, the Payee may, by notice
to the Maker, declare the unpaid principal amount of this Promissory Note due
and payable whereupon the same shall become and be forthwith due and payable
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Maker, PROVIDED that in the case of an Event
of Default described in clauses (e) and (f) above, the unpaid principal amount
of this Promissory Note shall be immediately due and payable without any notice
or other action by the Payee.
If the Maker shall fail to pay any amounts due hereunder when due,
whether on the Maturity Date or otherwise, the Maker shall pay shall pay
interest on any and all such amounts at the rate of (i) 18% per annum during the
first 30 days of the continuance of such default, (ii) 30% per annum during the
second 30 days of the continuance of such default, and (iii) 40% per annum
thereafter, in each case accruing daily from such date until paid in full.
If any payment under this Promissory Note becomes due and payable on
a Saturday, Sunday or a legal holiday under the laws of the State of New York,
the date for payment shall be extended to the next succeeding business day.
No delay on the part of the Payee in exercising any of its options,
powers or rights nor any partial or single exercise of its options, powers or
rights shall constitute a waiver thereof or
-3-
<PAGE>
of any other option, power or right, and no waiver on the part of the Payee
of any of its options, powers or rights shall constitute a waiver of any
other option, power or right.
This Promissory Note shall be binding upon the Maker and its
successors and shall inure to the benefit of the Payee and its successors and
assigns. The term "Payee," as used herein, shall also include any endorsee,
assignee or other holder of this Promissory Note.
This Promissory Note has been duly authorized, executed and
delivered by the Maker and is the legal obligation of the Maker, enforceable
against the Maker in accordance with its terms.
If this Promissory Note is lost, stolen, mutilated or otherwise
destroyed, the Maker shall execute and deliver to the Payee a new promissory
note containing the same terms, and in the same form, as this Promissory Note.
In such event, the Maker may require the Payee to deliver to the Maker an
affidavit of lost instrument and customary indemnity in respect thereof as a
condition to the delivery of any such new promissory note.
The Maker hereby (i) waives presentment, demand, notice of dishonor,
notice of protest and protest and all other notices or demands in connection
with the delivery, acceptance, performance, default, endorsement or guaranty of
this Promissory Note and (ii) agrees to pay all costs and expenses, including
reasonable attorneys' fees, incurred by the Payee in connection with the
enforcement or collection of this Promissory Note.
This Promissory Note may be modified or cancelled only by the
written agreement of the Maker and the Payee. This Promissory Note shall be
cancelled upon payment by the Maker of all amounts due hereunder.
-4-
<PAGE>
This Promissory Note shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York without regard to
the principles of conflicts of law thereof. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Promissory Note and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law.
WORLDGATE COMMUNICATIONS, INC.
/s/ Randall Gort
---------------------------
Name: Randall Gort
Title: V.P., Corporate Affairs
Attest:
/s/ David Dill
- -----------------------
-5-
<PAGE>
Exhibit 10.22
SENIOR SECURED PROMISSORY NOTE
$2,500,000 March 2, 1999
FOR VALUE RECEIVED, WorldGate Communications, Inc., a Delaware
corporation, having an address at 3220 Tillman Drive, Suite 300, Bensalem, PA
19020 (the "Maker"), hereby promises to pay to the order of Ampal American
Israel Corporation, or its successors and assigns (the "Payee"), at its address
at 1177 Avenue of the Americas, New York, NY 10036 or such other address as the
Payee shall provide in writing to the Maker for such purpose, in lawful money of
the United States of America, the principal sum of $2,500,000 on December 2,
1999, or on such earlier date as such principal amount may become due and
payable pursuant to the terms hereof (the "Maturity Date").
This Promissory Note shall be subject to the terms and conditions of
each of (i) the Security Agreement, effective as of the date hereof, among the
Maker, the Payee and Strong River Investment, Inc. and (ii) the Intellectual
Property Security Agreement, effective as of the date hereof, among the Maker,
the Payee and Strong River Investment, Inc. (collectively, the "Security
Agreements").
The Maker (i) shall have the right to prepay this Promissory Note in
whole, and not in part, as at the end of any calendar month, on the last
business day of such month, and (ii) shall prepay this Promissory Note in full
upon and concurrently with the first closing of the sale of securities in
connection with the first public offering of securities of the Maker occurring
after the date hereof that has been registered under the Securities Act of 1933,
as amended. In the case of any such prepayment, the amount prepaid shall be
computed in accordance with the following prepayment formula:
Prepayment Formula: [1+ (.0104 * X)] * [90.64% of the principal amount due
hereunder], where X is a whole number equal to the number of months (or
portions thereof) elapsed since the date of the issuance of this
Promissory Note to the date of the prepayment thereof.
Each of the following shall constitute an Event of Default hereunder
("Event of Default"):
(a) the Maker shall fail to pay any amounts due (including principal,
interest and fees) hereunder when due (whether by maturity,
acceleration or otherwise);
<PAGE>
(b) the occurrence of an Event of Default under any of the Security
Agreements;
(c) any representation, warranty or opinion made or given in this
Promissory Note, in any Security Agreement, or in any certificate,
opinion, financial or other statement delivered pursuant to or in
connection with this Promissory Note or the Security Agreements
shall prove to have been untrue, false or misleading in any material
respect on or as of (as the case may be) the date as of which made;
(d) The occurrence of any event or circumstance, and continuation
thereof unremedied for any applicable grace period, under any
agreement, guaranty or evidence of indebtedness relating to any
obligation of the Maker for borrowed money, other than the
indebtedness evidenced by this Promissory Note, which would give the
holder thereof or any other person the right to declare such
obligation due and payable, assuming that any required notice had
been given at the time of such occurrence and, with respect to a
default in the payment of principal or interest on such
indebtedness, which indebtedness has an outstanding principal amount
in excess of $100,000 in the aggregate;
(e) The entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of Maker in an involuntary
case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of Maker, or for any substantial part of any of its
property, or ordering the winding-up or liquidation of any of its
affairs and the continuance of any such decree or order unstayed and
in effect for a period of 60 consecutive days;
(f) The commencement by Maker of a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other
similar laws, or the consent by Maker to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of Maker, or for
any substantial part of any of its property, or the making by any of
them of any assignment for the benefit of creditors, or the failure
of Maker generally to pay its debts as such debts become due, or the
taking of corporate or other action by Maker in furtherance of any
of the foregoing;
<PAGE>
(g) The entry of any judgments against Maker aggregating more than
$100,000 or any attachments or other levy against the property of
Maker with respect to claims aggregating in excess of $100,000, if
the same remain unpaid, unappealed, undis charged, unbonded,
unstayed or undismissed, for a period of 60 days;
(h) This Promissory Note, any Security Agreement or any other document
or agreement related hereto or thereto shall, at any time after
their respective execution and delivery and for any reason, cease to
be in full force and effect or shall be declared to be null and
void, or the validity or enforceability thereof shall be contested
by Maker, or Maker shall deny that it has any or further liability
or obligation hereunder or thereunder;
(i) Any material adverse change in the financial condition, or the value
of the collateral that is the subject of the Security Agreements,
determined in the good faith discretion of the Maker; and
(j) the sale of all or substantially all of the assets of the Maker or
any merger or consolidation involving the Maker (whether or not the
Maker is the surviving corporation) shall be consummated.
Upon the occurrence of an Event of Default, the Payee may, by notice
to the Maker, declare the unpaid principal amount of this Promissory Note due
and payable whereupon the same shall become and be forthwith due and payable
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Maker, PROVIDED that in the case of an Event
of Default described in clauses (e) and (f) above, the unpaid principal amount
of this Promissory Note shall be immediately due and payable without any notice
or other action by the Payee.
If the Maker shall fail to pay any amounts due hereunder when due,
whether on the Maturity Date or otherwise, the Maker shall pay shall pay
interest on any and all such amounts at the rate of (i) 18% per annum during the
first 30 days of the continuance of such default, (ii) 30% per annum during the
second 30 days of the continuance of such default, and (iii) 40% per annum
thereafter, in each case accruing daily from such date until paid in full.
If any payment under this Promissory Note becomes due and payable on
a Saturday, Sunday or a legal holiday under the laws of the State of New York,
the date for payment shall be extended to the next succeeding business day.
No delay on the part of the Payee in exercising any of its options,
powers or rights nor any partial or single exercise of its options, powers or
rights shall constitute a waiver thereof or
-3-
<PAGE>
of any other option, power or right, and no waiver on the part of the Payee of
any of its options, powers or rights shall constitute a waiver of any other
option, power or right.
This Promissory Note shall be binding upon the Maker and its
successors and shall inure to the benefit of the Payee and its successors and
assigns. The term "Payee," as used herein, shall also include any endorsee,
assignee or other holder of this Promissory Note.
This Promissory Note has been duly authorized, executed and
delivered by the Maker and is the legal obligation of the Maker, enforceable
against the Maker in accordance with its terms.
If this Promissory Note is lost, stolen, mutilated or otherwise
destroyed, the Maker shall execute and deliver to the Payee a new promissory
note containing the same terms, and in the same form, as this Promissory Note.
In such event, the Maker may require the Payee to deliver to the Maker an
affidavit of lost instrument and customary indemnity in respect thereof as a
condition to the delivery of any such new promissory note.
The Maker hereby (i) waives presentment, demand, notice of dishonor,
notice of protest and protest and all other notices or demands in connection
with the delivery, acceptance, performance, default, endorsement or guaranty of
this Promissory Note and (ii) agrees to pay all costs and expenses, including
reasonable attorneys' fees, incurred by the Payee in connection with the
enforcement or collection of this Promissory Note.
This Promissory Note may be modified or cancelled only by the
written agreement of the Maker and the Payee. This Promissory Note shall be
cancelled upon payment by the Maker of all amounts due hereunder.
-4-
<PAGE>
This Promissory Note shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York without regard to
the principles of conflicts of law thereof. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Promissory Note and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law.
WORLDGATE COMMUNICATIONS, INC.
/s/ Randall Gort
------------------------------
Name: Randall Gort
Title: V.P., Corporate Affairs
Attest:
/s/ David Dill
- -----------------------
-5-
<PAGE>
Exhibit 10.23
SENIOR SECURED PROMISSORY NOTE
$500,000 March 2, 1999
FOR VALUE RECEIVED, WorldGate Communications, Inc., a Delaware
corporation, having an address at 3220 Tillman Drive, Suite 300, Bensalem, PA
19020 (the "Maker"), hereby promises to pay to the order of Strong River
Investment, Inc. or its successors and assigns (the "Payee"), at its address c/o
Cavallo Capital Corp., 630 Fifth Avenue, Suite 2000, New York, NY 10111, or such
other address as the Payee shall provide in writing to the Maker for such
purpose, in lawful money of the United States of America, the principal sum of
$500,000 on September 2, 1999, or on such earlier date as such principal amount
may become due and payable pursuant to the terms hereof (the "Maturity Date").
This Promissory Note shall be subject to the terms and conditions of
each of (i) the Security Agreement, effective as of the date hereof, among the
Maker, the Payee and Ampal American Israel Corporation and (ii) the Intellectual
Property Security Agreement, effective as of the date hereof, among the Maker,
the Payee and Ampal American Israel Corporation (collectively, the "Security
Agreements").
The Maker (i) shall have the right to prepay this Promissory Note in
whole, and not in part, as at the end of any calendar month, on the last
business day of such month, and (ii) shall prepay this Promissory Note in full
upon and concurrently with the first closing of the sale of securities in
connection with the first public offering of securities of the Maker occurring
after the date hereof that has been registered under the Securities Act of 1933,
as amended. In the case of any such prepayment, the amount prepaid shall be
computed in accordance with the following prepayment formula:
Prepayment Formula: [1+ (.0104 * X)] * [93.76% of the principal amount due
hereunder], where X is a whole number equal to the number of months (or
portions thereof) elapsed since the date of the issuance of this
Promissory Note to the date of the prepayment thereof.
Each of the following shall constitute an Event of Default hereunder
("Event of Default"):
(a) the Maker shall fail to pay any amounts due (including principal,
interest and fees) hereunder when due (whether by maturity,
acceleration or otherwise);
<PAGE>
(b) the occurrence of an Event of Default under any of the Security
Agreements;
(c) any representation, warranty or opinion made or given in this
Promissory Note, in any Security Agreement, or in any certificate,
opinion, financial or other statement delivered pursuant to or in
connection with this Promissory Note or the Security Agreements
shall prove to have been untrue, false or misleading in any material
respect on or as of (as the case may be) the date as of which made;
(d) The occurrence of any event or circumstance, and continuation
thereof unremedied for any applicable grace period, under any
agreement, guaranty or evidence of indebtedness relating to any
obligation of the Maker for borrowed money, other than the
indebtedness evidenced by this Promissory Note, which would give the
holder thereof or any other person the right to declare such
obligation due and payable, assuming that any required notice had
been given at the time of such occurrence and, with respect to a
default in the payment of principal or interest on such
indebtedness, which indebtedness has an outstanding principal amount
in excess of $100,000 in the aggregate;
(e) The entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of Maker in an involuntary
case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of Maker, or for any substantial part of any of its
property, or ordering the winding-up or liquidation of any of its
affairs and the continuance of any such decree or order unstayed and
in effect for a period of 60 consecutive days;
(f) The commencement by Maker of a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other
similar laws, or the consent by Maker to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of Maker, or for
any substantial part of any of its property, or the making by any of
them of any assignment for the benefit of creditors, or the failure
of Maker generally to pay its debts as such debts become due, or the
taking of corporate or other action by Maker in furtherance of any
of the foregoing;
<PAGE>
(g) The entry of any judgments against Maker aggregating more than
$100,000 or any attachments or other levy against the property of
Maker with respect to claims aggregating in excess of $100,000, if
the same remain unpaid, unappealed, undis charged, unbonded,
unstayed or undismissed, for a period of 60 days;
(h) This Promissory Note, any Security Agreement or any other document
or agreement related hereto or thereto shall, at any time after
their respective execution and delivery and for any reason, cease to
be in full force and effect or shall be declared to be null and
void, or the validity or enforceability thereof shall be contested
by Maker, or Maker shall deny that it has any or further liability
or obligation hereunder or thereunder;
(i) Any material adverse change in the financial condition, or the value
of the collateral that is the subject of the Security Agreements,
determined in the good faith discretion of the Maker; and
(j) the sale of all or substantially all of the assets of the Maker or
any merger or consolidation involving the Maker (whether or not the
Maker is the surviving corporation) shall be consummated.
Upon the occurrence of an Event of Default, the Payee may, by notice
to the Maker, declare the unpaid principal amount of this Promissory Note due
and payable whereupon the same shall become and be forthwith due and payable
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Maker, PROVIDED that in the case of an Event
of Default described in clauses (e) and (f) above, the unpaid principal amount
of this Promissory Note shall be immediately due and payable without any notice
or other action by the Payee.
If the Maker shall fail to pay any amounts due hereunder when due,
whether on the Maturity Date or otherwise, the Maker shall pay shall pay
interest on any and all such amounts at the rate of (i) 18% per annum during the
first 30 days of the continuance of such default, (ii) 30% per annum during the
second 30 days of the continuance of such default, and (iii) 40% per annum
thereafter, in each case accruing daily from such date until paid in full.
If any payment under this Promissory Note becomes due and payable on
a Saturday, Sunday or a legal holiday under the laws of the State of New York,
the date for payment shall be extended to the next succeeding business day.
No delay on the part of the Payee in exercising any of its options,
powers or rights nor any partial or single exercise of its options, powers or
rights shall constitute a waiver thereof or
-3-
<PAGE>
of any other option, power or right, and no waiver on the part of the Payee of
any of its options, powers or rights shall constitute a waiver of any other
option, power or right.
This Promissory Note shall be binding upon the Maker and its
successors and shall inure to the benefit of the Payee and its successors and
assigns. The term "Payee," as used herein, shall also include any endorsee,
assignee or other holder of this Promissory Note.
This Promissory Note has been duly authorized, executed and
delivered by the Maker and is the legal obligation of the Maker, enforceable
against the Maker in accordance with its terms.
If this Promissory Note is lost, stolen, mutilated or otherwise
destroyed, the Maker shall execute and deliver to the Payee a new promissory
note containing the same terms, and in the same form, as this Promissory Note.
In such event, the Maker may require the Payee to deliver to the Maker an
affidavit of lost instrument and customary indemnity in respect thereof as a
condition to the delivery of any such new promissory note.
The Maker hereby (i) waives presentment, demand, notice of dishonor,
notice of protest and protest and all other notices or demands in connection
with the delivery, acceptance, performance, default, endorsement or guaranty of
this Promissory Note and (ii) agrees to pay all costs and expenses, including
reasonable attorneys' fees, incurred by the Payee in connection with the
enforcement or collection of this Promissory Note.
This Promissory Note may be modified or cancelled only by the
written agreement of the Maker and the Payee. This Promissory Note shall be
cancelled upon payment by the Maker of all amounts due hereunder.
-4-
<PAGE>
This Promissory Note shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York without regard to
the principles of conflicts of law thereof. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Promissory Note and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law.
WORLDGATE COMMUNICATIONS, INC.
/s/ Randall Gort
------------------------------
Name: Randall Gort
Title: V.P., Corporate Affairs
Attest:
/s/ David Dill
- -----------------------
-5-
<PAGE>
Exhibit 10.24
SENIOR SECURED PROMISSORY NOTE
$2,500,000 March 2, 1999
FOR VALUE RECEIVED, WorldGate Communications, Inc., a Delaware
corporation, having an address at 3220 Tillman Drive, Suite 300, Bensalem, PA
19020 (the "Maker"), hereby promises to pay to the order of Strong River
Investment, Inc. or its successors and assigns (the "Payee"), at its address c/o
Cavallo Capital Corp., 630 Fifth Avenue, Suite 2000, New York, NY 10111, or such
other address as the Payee shall provide in writing to the Maker for such
purpose, in lawful money of the United States of America, the principal sum of
$2,500,000 on December 2, 1999, or on such earlier date as such principal amount
may become due and payable pursuant to the terms hereof (the "Maturity Date").
This Promissory Note shall be subject to the terms and conditions of
each of (i) the Security Agreement, effective as of the date hereof, among the
Maker, the Payee and Ampal American Israel Corporation and (ii) the Intellectual
Property Security Agreement, effective as of the date hereof, among the Maker,
the Payee and Ampal American Israel Corporation (collectively, the "Security
Agreements").
The Maker (i) shall have the right to prepay this Promissory Note in
whole, and not in part, as at the end of any calendar month, on the last
business day of such month, and (ii) shall prepay this Promissory Note in full
upon and concurrently with the first closing of the sale of securities in
connection with the first public offering of securities of the Maker occurring
after the date hereof that has been registered under the Securities Act of 1933,
as amended. In the case of any such prepayment, the amount prepaid shall be
computed in accordance with the following prepayment formula:
Prepayment Formula: [1+ (.0104 * X)] * [90.64% of the principal amount due
hereunder], where X is a whole number equal to the number of months (or
portions thereof) elapsed since the date of the issuance of this
Promissory Note to the date of the prepayment thereof.
Each of the following shall constitute an Event of Default hereunder
("Event of Default"):
(a) the Maker shall fail to pay any amounts due (including principal,
interest and fees) hereunder when due (whether by maturity,
acceleration or otherwise);
<PAGE>
(b) the occurrence of an Event of Default under any of the Security
Agreements;
(c) any representation, warranty or opinion made or given in this
Promissory Note, in any Security Agreement, or in any certificate,
opinion, financial or other statement delivered pursuant to or in
connection with this Promissory Note or the Security Agreements
shall prove to have been untrue, false or misleading in any material
respect on or as of (as the case may be) the date as of which made;
(d) The occurrence of any event or circumstance, and continuation
thereof unremedied for any applicable grace period, under any
agreement, guaranty or evidence of indebtedness relating to any
obligation of the Maker for borrowed money, other than the
indebtedness evidenced by this Promissory Note, which would give the
holder thereof or any other person the right to declare such
obligation due and payable, assuming that any required notice had
been given at the time of such occurrence and, with respect to a
default in the payment of principal or interest on such
indebtedness, which indebtedness has an outstanding principal amount
in excess of $100,000 in the aggregate;
(e) The entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of Maker in an involuntary
case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of Maker, or for any substantial part of any of its
property, or ordering the winding-up or liquidation of any of its
affairs and the continuance of any such decree or order unstayed and
in effect for a period of 60 consecutive days;
(f) The commencement by Maker of a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other
similar laws, or the consent by Maker to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of Maker, or for
any substantial part of any of its property, or the making by any of
them of any assignment for the benefit of creditors, or the failure
of Maker generally to pay its debts as such debts become due, or the
taking of corporate or other action by Maker in furtherance of any
of the foregoing;
<PAGE>
(g) The entry of any judgments against Maker aggregating more than
$100,000 or any attachments or other levy against the property of
Maker with respect to claims aggregating in excess of $100,000, if
the same remain unpaid, unappealed, undis charged, unbonded,
unstayed or undismissed, for a period of 60 days;
(h) This Promissory Note, any Security Agreement or any other document
or agreement related hereto or thereto shall, at any time after
their respective execution and delivery and for any reason, cease to
be in full force and effect or shall be declared to be null and
void, or the validity or enforceability thereof shall be contested
by Maker, or Maker shall deny that it has any or further liability
or obligation hereunder or thereunder;
(i) Any material adverse change in the financial condition, or the value
of the collateral that is the subject of the Security Agreements,
determined in the good faith discretion of the Maker; and
(j) the sale of all or substantially all of the assets of the Maker or
any merger or consolidation involving the Maker (whether or not the
Maker is the surviving corporation) shall be consummated.
Upon the occurrence of an Event of Default, the Payee may, by notice
to the Maker, declare the unpaid principal amount of this Promissory Note due
and payable whereupon the same shall become and be forthwith due and payable
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Maker, PROVIDED that in the case of an Event
of Default described in clauses (e) and (f) above, the unpaid principal amount
of this Promissory Note shall be immediately due and payable without any notice
or other action by the Payee.
If the Maker shall fail to pay any amounts due hereunder when due,
whether on the Maturity Date or otherwise, the Maker shall pay shall pay
interest on any and all such amounts at the rate of (i) 18% per annum during the
first 30 days of the continuance of such default, (ii) 30% per annum during the
second 30 days of the continuance of such default, and (iii) 40% per annum
thereafter, in each case accruing daily from such date until paid in full.
If any payment under this Promissory Note becomes due and payable on
a Saturday, Sunday or a legal holiday under the laws of the State of New York,
the date for payment shall be extended to the next succeeding business day.
No delay on the part of the Payee in exercising any of its options,
powers or rights nor any partial or single exercise of its options, powers or
rights shall constitute a waiver thereof or
-3-
<PAGE>
of any other option, power or right, and no waiver on the part of the Payee of
any of its options, powers or rights shall constitute a waiver of any other
option, power or right.
This Promissory Note shall be binding upon the Maker and its
successors and shall inure to the benefit of the Payee and its successors and
assigns. The term "Payee," as used herein, shall also include any endorsee,
assignee or other holder of this Promissory Note.
This Promissory Note has been duly authorized, executed and
delivered by the Maker and is the legal obligation of the Maker, enforceable
against the Maker in accordance with its terms.
If this Promissory Note is lost, stolen, mutilated or otherwise
destroyed, the Maker shall execute and deliver to the Payee a new promissory
note containing the same terms, and in the same form, as this Promissory Note.
In such event, the Maker may require the Payee to deliver to the Maker an
affidavit of lost instrument and customary indemnity in respect thereof as a
condition to the delivery of any such new promissory note.
The Maker hereby (i) waives presentment, demand, notice of dishonor,
notice of protest and protest and all other notices or demands in connection
with the delivery, acceptance, performance, default, endorsement or guaranty of
this Promissory Note and (ii) agrees to pay all costs and expenses, including
reasonable attorneys' fees, incurred by the Payee in connection with the
enforcement or collection of this Promissory Note.
This Promissory Note may be modified or cancelled only by the
written agreement of the Maker and the Payee. This Promissory Note shall be
cancelled upon payment by the Maker of all amounts due hereunder.
-4-
<PAGE>
This Promissory Note shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York without regard to
the principles of conflicts of law thereof. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Promissory Note and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law.
WORLDGATE COMMUNICATIONS, INC.
/s/ Randall Gort
------------------------------
Name: Randall Gort
Title: V.P., Corporate Affairs
Attest:
/s/ David Dill
- -----------------------
-5-
<PAGE>
Exhibit 10.25
NextLevel Systems, Inc.
Broadband Networks Group
2200 Byberry Road
Hatboro, Pennsylvania 19040
Tel 215-674-4800 /800-523-6678
www.nlvl.com
November 14,1997
Worldgate Communications, Inc.
3220 Tillman Drive
Suite 300
Bensalem, PA 19020
Gentlemen:
This letter outlines our current understanding regarding the terms and
conditions under which NextLevel Systems, Inc. ("NLS") and Worldgate
Communications, Inc. ("Worldgate") will develop, manufacture, market and sell
the hardware and software necessary to enable Worldgate's television-based
internet access application (the "Worldgate Application") to operate on NLS's
CFT2200 advanced analog settops.
A. NLS agrees that the initial deployment and marketing of the Worldgate
Application in North America will be substantially and exclusively (unless
otherwise agreed between the parties) on the following terms and conditions:
1. Worldgate will design and develop a hardware and embedded
software add-on module ("Worldgate Add-On Module") to be
integrated with NLS's existing Feature Expansion Modules
("FEM") contained within NLS's current CFT2200 settop
terminal, according to the terms and conditions contained in
the Certification Agreement attached hereto as Exhibit A (the
"Certification Agreement").
2. Prior to any marketing or selling of the Worldgate Add-On
Module and the Worldgate Application as certified by NLS, the
Worldgate Add-On Module and Worldgate Application must be
certified in accordance with the requirements of the
Certification Agreement. Prior to such certification,
Worldgate shall market and sell the Worldgate Application and
the Worldgate Add-On Module only as "pending certification."
NextLevel will not provide any support relating to uncertified
Worldgate products.
3. After certification, Worldgate will market and sell the
Worldgate Add-On Module and the Worldgate Application
separately from NLS's CFT2200 settop terminal and will not
quote any prices to a customer concerning any NLS products,
including without limitation CFT2200 settop terminals equipped
with FEMs. All pricing for such NLS products shall be quoted
exclusively by NLS. All pricing for Worldgate products shall
be quoted exclusively by Worldgate and may include passing-on
of any FEM
<PAGE>
exclusively by NLS. All pricing for Worldgate products shall
be quoted exclusively by Worldgate and may include passing-on
of any FEM reimbursement costs to the customer. Worldgate and
NLS will also enter into a joint marketing agreement on terms
and conditions acceptable to both parties in connection with
the marketing and sale of their respective products as
described in this Section A.
4. In connection with Worldgate's marketing and sale of the
Worldgate Module and the Worldgate Application, Worldgate will
be exclusively responsible for all overhead, costs and
expenses associated with (i) the anufacture of the Worldgate
Add-On Module (ii) the delivery of the Worldgate Add-On Module
to NLS's designated factory (iii) the download of all software
required to enable the Worldgate Application to operate on
NLS's FEM and CFn200 settop, including the cost of
incorporating any Worldgate software in NLS's mono-file
downloads for CFT'2200 settops and (iv) all headend and other
equipment and software specific to the Worldgate Application
and service.
5. Worldgate will pay NILS an assembly and logistics fee to be
mutually agreed upon between the parties, to cover the cost of
having NLS install each Worldgate Add-On Module in NLS's FEM
at NLS's factory or other NLS designated facility.
6. For NLS customers desiring NLS's digital audio and third party
application functionality, NLS will sell CFT2200 settops
equipped with the Worldgate Add-On Module at no incremental
increase in price over the standard prices charged for CFT2200
settop terminals equipped with FEMs containing such
functionality. For NLS customers electing not to purchase
digital audio or third party application functionality, NLS
will sell the customer CFT2200 settops with an FEM (with
functionality disabled) at no incremental increase in price
over the standard prices charged for base CFT2200 settop
terminals; however, for this implementation Worldgate will
reimburse NLS for the difference between the price of the
CFT2200 base settop and the price of the CFT2200 settop with a
fully functional FEM. NLS will sell CFT2200 settops equipped
with the Worldgate Add-On Module only to cable system which
have been authorized by Worldgate to purchase such equipment.
7. Worldgate will separately warrant the Worldgate Application
and the Worldgate Add-On Module to NLS customers and shall be
responsible for all warranty claims related to such equipment
and service. Worldgate shall indemnify NLS for all liability,
costs, damages and expenses associated with breach of any
warranty related to the Worldgate Add-On Module and the
Worldgate Application. In addition, Worldgate will indemnify
NLS against all liability, costs, damages and expenses
incurred by NLS which are caused by or associated with
failures of the Worldgate Add-On Module and/or the Worldgate
Application, including all liability,
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<PAGE>
costs, damages and expenses associated with late delivery
penalties and retrieval costs, as well as all penalties
associated with out-of-box failure, field failure and
system failure of CFT2200 settop terminals equipped with
the Worldgate Add-On Module. NLS will indemnify Worldgate
against all liability, costs, damages and expenses incurred
by Worldgate as a result of breach of warranty claims
relating to the Worldgate Application and/or the Worldgate
Add-On Module,-but only to the extent that such liability,
costs, damages and expenses are caused by NLS.
8. Worldgate will authorize NLS technicians to service, repair
and/or replace defective Worldgate Add-On Modules and will
provide all documentation and training of NLS technicians
necessary for such technicians to carry out such
responsibilities, all at Worldgate's sole cost and expense.
Such documentation and training shall include documentation
and training relating to network and system equipment and
software required in order for the Worldgate Application to
operate on cable systems.
9. Worldgate will indemnify NLS and its customers from any and
all intellectual property infringement claims related to the
design, development, marketing, sale and use of the Worldgate
Application and the Worldgate Add-On Module, to the extent
that Worldgate is partially or wholly responsible for such
infringement claims. Worldgate agrees for itself and for its
successors and assigns (the "Releasing Party"), that the
Releasing Party shall not assert at any time against NLS, its
successors and assigns (the "Released Party"), nor permit or
allow any other person, firm or entity to assert against the
Released Party any patent in which the Releasing Party now or
in the future owns any right, title or interest, or otherwise
controls, for any infringement of such patent or patent
interest as a result of the past, present or future design,
development, manufacture, marketing, sale and/or use of third
party products which are integrated in and\or certified to run
on any NLS products and which offer, in whole or in part, the
same or similar functionality as the Worldgate Application and
the Worldgate Add-On Module. This clause shall not be
interpreted to mean that Worldgate shall be limited in seeking
any remedy it might have against any third party or to limit
Worldgate's right to enforce an injunction or other judgment
against such third party. This clause also does not apply to
any allegation by Worldgate of direct patent infringement
solely undertaken by NLS through its employees or contractors.
10. NLS shall not be responsible or liable to Worldgate for any
delay or failure to integrate or certify the Worldgate
Application or the Worldgate Add-On Module to operate on any
NLS advanced analog settop terminal.
11. Worldgate will support the implementation of the Worldgate
Application described in Section A of this letter agreement
for so long as NLS's customers desire to continue purchasing
the Section A implementation. In
3
<PAGE>
addition, if the implementation described in Section B becomes
commercially available, Worldgate will continue to market,
sell and support the implementation described in Section A and
shall upgrade (to the extent required by the marketplace) the
Section A implementation to provide any additional
functionality provided in the Section B implementation.
Worldgate will be solely responsible for the cost of any
upgrade (but not retrofit) of the Section A implementation of
the Worldgate Application in order to comply with the
requirements of the preceding sentence.
B. ADDITIONAL WORLDGATE MODULES. The parties may mutually agree after
further discussion and evaluation, that Worldgate would design and develop the
internal modules described in Section B. I hereof for NLS's CFT2200 which would
replace the NLS FEM and which would also contain (i) the hardware and software
necessary for NLS's digital audio functionality, including the Music Choice
Service, home theater and digital audio security, and (ii) support for all 3rd
party applications designated by NLS, including Wink enhance broadcasting,
CableSoft virtual channels and interactive electronic program guides
(hereinafter, "3rd Party Applications"), according to the timetables described
in Section B.1 (collectively, the "Additional Worldgate Modules"). Such
functionality shall be backward compatible with the implementation described in
Section A and shall have the same quality and functionality as currently
available on CFT2200 settops equipped with FEMs. In such an event, the design,
development, marketing, manufacture and sale of the Additional Worldgate Modules
in North America would be accomplished substantially and exclusively (unless
otherwise agreed between the parties) on the following terms and conditions:
1. Worldgate will be responsible for designing and developing the
Additional Worldgate Modules according to NLS's
specifications, to be certified (as described in Section BA
hereof) and available for sale to NLS's customers by the dates
indicated:
a. Worldgate Only module 4/15/98
b. Worldgate with Digital Audio 7/15/98
c. Worldgate/3rd Party Applications 10/15/98
The above dates are based on NLS providing the level of
support described in Section B.3 hereof.
2. If necessary, NLS would license any necessary intellectual
property to Worldgate (to the extent NLS has the right to do
so) in order to permit Worldgate to incorporate the Music
Choice Service and other NLS proprietary digital audio
functionality on the Additional Worldgate Modules. Such
license would be limited exclusively for the purpose of
designing, developing, marketing and selling the Additional
Worldgate Modules exclusively for use in NLS's CFT2200
settops, with no right to sublicense or to use such
intellectual property for any other purpose. All intellectual
property resulting from the design, development and
4
<PAGE>
integration of NLS's digital audio functionality with the
Additional Worldgate Modules, including any modifications or
improvements thereof (whether created jointly, or by either
Worldgate or NLS separately) would be owned exclusively by
NLS.
3. To facilitate the design of the Additional Worldgate Modules,
NLS will make available to Worldgat6, free of charge, the
following technical support on a dedicated basis,one regularly
scheduled day per week, for a period of 3 months from the date
of this letter:
- One (1) hardware engineer
- One (1) firmware engineer
Additional NLS resources can be made available, if necessary,
on a time & material basis, with a minimum per-day fee of
$2,000. All technical support will either be telephonic or
will be provided at NLS's designated facility.
4. Prior to marketing and distribution of any of the Additional
Worldgate Modules and the Worldgate Application as
"certified", (i) such hardware and software must be certified
to operate on NLS's CFT2200 settop in a manner similar to the
certification process outlined in the Certification Agreement
attached as Exhibit A hereto, subject to the payment of fees
by Worldgate to NLS as mutually agreed upon between the
parties, (ii) prior to such certification, any such hardware
and software will be marketed only as "pending certification",
and (iii) Worldgate and NLS will only advise customers that
Worldgate and NLS are working together to provide the
Worldgate Application with an NLS CFT2200 base settop (without
the functionality currently available through the FEM), which
Worldgate anticipates will provide the features and
functionality currently available on CFT2200 settops equipped
with FEMs, by providing such features and functionality
through the Additional Worldgate Module and the Worldgate
Application. Except for the intellectual property rights
described in Section B.2 (which will be governed by the terms
of a separate license agreement consistent with the terms of
Section B.2), all intellectual property rights arising out of
the design and development of the Additional Worldgate Modules
will be handled in a manner consistent with the Certification
Agreement. NextLevel will not provide any support for
uncertified Worldgate products.
5. After certification, the applicable Additional Worldgate
Modules and the Worldgate Application would be manufactured,
marketed and sold substantially as described in item nos. A.2
through A.9, above as if the applicable Worldgate Modules were
the "Worldgate Add-On Module" described in Section A, except
that in connection with marketing and selling the Additional
Worldgate Modules with NLS's CFT2200 settops (i) NLS will
market and sell to its customers a base CFT2200 (without
5
<PAGE>
FEM) at no incremental increase in price over the price of
NLS's base CFT-2200 (without FEM), (ii) Worldgate will
separately market and sell the applicable Additional Worldgate
Modules to NLS customers and (iii) if NLS's CFT2200 settop is
delivered to a customer without an FEM, Worldgate shall not be
required to reimburse NLS for the cost of the FEM.
6. NLS shall not be responsible or liable to Worldgate for any
delay or failure to integrate or certify the Worldgate
Application or any of the Additional Worldgate Modules to
operate on any NLS advanced analog settop terminal.
C. The parties may enter into Definitive Agreements, as may be necessary,
consistent with the terms and conditions described above.
D. Each party agrees not to disclose the terms of this letter or the activities
described herein to any third party without the other's written consent.
E. Either party may, in its sole discretion, terminate its obligations under
this letter at any time without and further liability to the other party, in the
event that such party decides that the integration of the Worldgate Application
with NextLevel's CFT2200 is not economically feasible or is not in such party's
best interest. Notwithstanding the foregoing, the obligations contained in
sections A.2 and BA shall continue after any termination.
F. EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED HEREIN, IN NO EVENT SHALL EITHER
NEXTLEVEL OR WORLDGATE BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL,
CONSEQUENTIAL OR INDIRECT DAMAGES ARISING IN ANY WAY OUT OF THIS LETTER, HOWEVER
CAUSED AND ON ANY THEORY OF LIABILITY. THIS LIMITATION SHALL APPLY EVEN IF SUCH
PARTY KNOWS OR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED
FOR HEREIN. NOTWITHSTANDING THE FOREGOING, NEITHER PARTY SHALL BE LIABLE TO THE
OTHER PARTY FOR ANY LOSS OF PROFITS OR LOSS OF DATA OCCURRING AS A RESULT OF THE
ACTIVITIES DESCRIBED HEREIN.
G. The relationship of the parties established by this letter is that of
independent contractors, and nothing contained in this letter shall be construed
to (i) give either party the power to direct and control the day-to-day
activities of the other, (ii) constitute the parties as partners, joint
venturers, co-owners or otherwise as participants in a joint or common
undertaking, or (iii) allow either party to create or assume any obligation on
6
<PAGE>
behalf of the other party for any purpose whatsoever. This letter does not
create any exclusivity.
If you are in agreement with the foregoing, please execute a copy of this letter
and return it to the undersigned at your earliest convenience.
NEXTLEVEL SYSTEMS, INC.,
Broadband Networks Group
By: /s/ Daniel M. Moloney
--------------------------
Name: Daniel M. Moloney
------------------------
Title: VP/GM ANS
-----------------------
Agreed:
WORLDGATE COMMUNICATIONS, INC.
By: /s/ David S. Wachob
-----------------------------
Name: David S. Wachob
---------------------------
Title: VP/GM
--------------------------
7
<PAGE>
EXHIBIT 10.26
WORLDGATE AFFILIATION AGREEMENT
THIS AGREEMENT DATED SEPTEMBER 30, 1998, IS BETWEEN CABLE BAHAMAS, LTD., WITH
------------------- --------------------
ITS PRINCIPAL PLACE OF BUSINESS AT ROBINSON ROAD P.O. BOX CB - 13050, NASSAU,
------------------------------------------
BAHAMAS, (HEREINAFTER REFERRED TO AS "AFFILIATE") AND WORLDGATE COMMUNICATIONS,
- --------
INC., WITH ITS PRINCIPAL PLACE OF BUSINESS AT: 3220 TILLMAN DRIVE, SUITE 300,
BENSALEM, PA 19020 (HEREINAFTER REFERRED TO AS "WG").
AFFILIATE AND WG (COLLECTIVELY THE "PARTIES") HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS:
The following terms, abbreviations and definitions used in this
Agreement shall have the meanings set forth herein below:
(a) " COMMERCIAL ESTABLISHMENT" means non-lodging related public and
private facilities which serve the general public or selected members of the
general public, including government and professional offices and non-lodging
related retail businesses such as stores, but excluding lodging related
businesses such as hotels, resorts and casinos.
(b) "PRIVATE RESIDENCE" means a private, non-transient residential
dwelling unit.
(c) "SYSTEM(S)" means Affiliate's cable television distribution
system(s), including the facilities directly associated therewith, for the
geographical service areas identified in Exhibit A. Affiliate may, from time to
time, add additional Systems, in which event Affiliate shall provide WG with at
least thirty (30) days advance written notice of any such proposed additions to
the System, and upon the agreement of the Parties with respect to the proposed
additions this Agreement shall be promptly amended to cover the proposed
additions by the execution of supplemental and/or superseding Exhibit A(s)
setting forth the agreed and then current information relevant to such Systems.
(d) "SUBSCRIBER" means a Commercial Establishment or Private Residence
gaining access to the WorldGate-SM- Service through Affiliate's System(s).
(e) "SUBSCRIBER ACCESSIBLE CONTENT" means the data, information,
programs, displays, applications and other content (including without
limitation, the Internet) which, from time to time, are provided for access by
Subscribers to the WorldGate-SM- Service. Affiliate and WG acknowledge that
elements of such Subscriber Accessible Content, such as the Internet, may
include materials and information of unreliable, uncertain or even objectionable
origin, nature and/or character, and that Subscriber Accessible Content is
dynamic and that the providers thereof may, from time to time, and for any
reason make additions to, deletions from and otherwise modify Subscriber
Accessible Content.
(f) "TERM" means the term of this Agreement which shall commence on the
date hereof, and shall terminate five (5) years from such date, except if
renewed or terminated earlier as provided herein.
<PAGE>
(g) "WORLDGATE-SM- PLATFORM" means the hardware and software components
to be supplied by WG to Affiliate and used by Affiliate in connection with
Affiliate's System(s) to provide Subscriber access to the WorldGate Service
hereunder.
(h) "WORLDGATE-SM- SERVICE" means an interactive Internet access
service which utilizes the WorldGate Platform in connection with the
Affiliate's System(s) for addressably transmitting downstream application
information (including Subscriber Accessible Content) to Subscribers in the
System's channels (vertical blanking intervals, full video channels or MPEG
data stream) and, either utilizing separate rf sub-bands of the System's
current allocated spectrum and/or a suitable phone-network based return
facility for transmitting upstream communication.
2. AUTHORIZATION OF RIGHTS, WORLDGATE PLATFORM AND SYSTEMS:
(a) During the Term hereof WG authorizes Affiliate to provide to
Subscribers, and such Subscribers to have, access to and use of the WorldGate
Service, via the WorldGate Platform in connection with Affiliate's System, in
accordance with the terms and conditions of this Agreement. For so long as the
WorldGate Service is provided hereunder as the only offering on the Systems for
Internet on a television, WG will not authorize any other person or entity to
provide the WorldGate Service to the geographic areas directly served by the
Systems.
(b) Upon the execution of this Agreement, and as the Subscriber base
increases thereafter, Affiliate shall acquire by purchase, lease or such other
acquisition transaction as may be agreed in writing by the Parties, the
additional components of the WorldGate Platform to maintain reasonable
performance characteristics for the Service, which Affiliate desires to acquire
to offer the WorldGate Service. The standard configuration components of the
WorldGate Platform as well as certain terms and conditions with respect to such
acquisition as well as the associated warranty and support of the WorldGate
Platform are also set forth in Exhibit B.
(c) Affiliate shall also provide suitable Systems as further described
in Exhibit A. The installation, maintenance and support of such Systems shall be
the sole responsibility of Affiliate and its suppliers. To enable WG to perform
its obligations hereunder Affiliate shall provide to WG (and its contractors)
reasonable physical access (upon advance notice by WG and subject to Affiliate's
security procedures) as well as continuous electronic access (via electronic
means including direct modem and Internet connections) to such Systems, and to
the WorldGate Platforms connected thereto.
3. RESERVATION OF RIGHTS; TRADEMARKS:
(a) All licenses, rights and interest in, to and with respect to the
WorldGate Platform, the WorldGate Service (including without limitation the
Subscriber Accessible Content,) the elements, parts and derivations thereof
(including without limitation the writings, images, displays, electronic
reproductions, user interfaces, sounds, data, information and other works
embodied therein, derived therefrom or ancillary thereto, and the media of
reproduction, performance or exhibition thereof), as well as the intellectual
property rights related thereto, not specifically granted herein to Affiliate or
to Subscribers, shall be and are expressly and entirely
<PAGE>
reserved by WG and the applicable providers of such Subscriber Accessible
Content. The rights and licenses granted to Affiliate and the Subscribers
pursuant to this Affiliation Agreement do not include any right to sublicense
any third party, in whole or in part.
(b) Affiliate agrees that it is the essence of this Agreement that,
without the specific written consent of WG, or except as otherwise set forth
herein: (i) the WorldGate Platform shall not be modified by Affiliate in any
manner; (ii) the WorldGate Platform shall not be utilized by Affiliate for any
purpose other than to provide the WorldGate Service; and (iii) Affiliate shall
not authorize any other party to do any of the acts forbidden herein
(collectively, the "Prohibited Acts"). Affiliate shall immediately notify WG
upon the occurrence or likely occurrence of any Prohibited Acts of which it
becomes aware.
(c) The Parties recognize that each other's trademarks and brands are
significant assets of the Party owning the same and that any use of such
trademarks and brands shall only be with the other's prior consent and then only
in a manner consistent with that typically used with quality and valued
trademarks and brands, and intended to promote the good will associated with the
same. As part of diligently promoting the WorldGate Service, Affiliate agrees to
prominently display the applicable WG brands in all external communications
promoting Internet access for television such as, but not limited to,
advertisements, commercials, direct mail pieces, bill stuffers, and price lists.
4. PAYMENTS, ACCESS FEES AND TAXES:
(a) As consideration for the rights granted and services performed
hereunder with respect to the WorldGate Service, Affiliate shall pay to WG
Subscriber Access Fees as more fully set forth in Exhibit C. Notwithstanding the
required payment of a Subscriber Access Fee as described above, the Parties
agree and acknowledge that Affiliate is free to determine what fees, if any, it
charges its customers with respect to access to the WorldGate Service. All fees
due to WG hereunder are net of all duties, franchise fees and taxes (including
interest and penalties on any such amounts) now or hereafter imposed or based
upon the licensing, rental, purchase, shipment, delivery, transmission,
exhibition, possession, or use of the WorldGate Platform, the access to any
Subscriber Accessible Content, or any transfer of technology hereunder, but
excluding however any taxes assessed upon any of WG's income or personal
property (collectively "Taxes"). Affiliate shall indemnify and hold WG forever
harmless from any liability associated with such Taxes.
(b) Except for Subscriber Access Fees all payments hereunder, including
without limitation the purchase price of the components of the WorldGate
Platform to be acquired shall be made promptly at the net invoice price (i) in
cash before shipment, or (ii) upon written credit approval by WG, within
forty-five (45) days after the receipt of an invoice for the same. The above
notwithstanding, payment for the components of the WorldGate Platform which have
been shipped to Affiliate prior to the execution of this Affiliation Agreement
is due and shall be made on or before October 1, 1998. Subscriber Access Fees
are due within forty-five (45) days of the receipt of invoice for the same.
Interest shall accrue on all amounts not paid when due at a rate equal to the
lesser of twelve (12%) percent per annum or any maximum rate imposed under
applicable laws and regulations. Payments shall not be deferred or subjected to
setoff by Affiliate, the parties will however reasonably cooperate to adjust the
Subscriber Access Fees to reflect a pro-rata portion of any credits granted to
Subscribers which are not able to receive the WorldGate Service due to a failure
of the WorldGate Platform. Payments may not be
<PAGE>
suspended and shall continue during the pendency of any dispute hereunder.
All fees stated herein and all payments to be made to WG hereunder are
expressed in, and shall be made, in the currency of the United States unless
otherwise agreed in writing by the parties. WG reserves the right to change
or limit the amount or duration of any payment credit terms which may be
extended to Affiliate hereunder in the event of any change in the credit
worthiness of Affiliate as determined by WG in its sole discretion.
5. STATEMENTS AND REPORTS: To afford determination and/or verification of the
Subscriber Access Fees due WG shall provide to Affiliate an accounting
statement and report within forty-five (45) days after the beginning of each
calendar month in which the WorldGate Service is distributed hereunder. Said
statement shall include the following information to the extent applicable:
the number of Subscribers, the type of Subscriber accounts, the Subscriber
usage, and the total amount due for access to the WorldGate Service
hereunder. Such information may be provided electronically by Affiliate
access to computer terminals associated with the WorldGate Platform and/or in
connection with a third party standard billing interface. Affiliate
acknowledges that WG requires access to records and information relating to
Subscribers in order to provide such statements and reports and hereby
consents to the same.
6. AUDIT: During the term hereof and for a period of one year after any
expiration or termination hereof Affiliate and WG shall keep accurate and
complete books and records of Subscriber accounts and their access to and use of
the WorldGate Service. Subject to the confidentiality provisions contained
herein, each of the Affiliate and WG may, not more than once during each
calendar year and upon at least thirty days prior written notice, at its expense
and during regular business hours, have the right to audit all such books and
records of the other. Such audits shall be conducted by an internationally
recognized, independent public accounting firm chosen by the auditing Party on
the auditing Party's behalf. The audited Party agrees to fully cooperate with
auditing Party's representatives and/or designees, and shall provide such
representatives and/or designees with adequate space in which to facilitate any
audit of such books and/or records. If an audit or checking reveals a
discrepancy in the Subscriber Access Fees owed for the audit period, WG and
Affiliate agree to make prompt adjustments of such accounts along with any
required credits or payments associated therewith. Upon written agreement by the
parties such audit results shall be deemed final and binding upon the parties,
absent evidence of fraud.
7. REPRESENTATIONS AND WARRANTIES OF THE PARTIES:
(a) Each of the Parties represents and warrants that (i) it has the
authority and power to enter into this Agreement and to perform its obligations
hereunder; and (ii) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
and are deemed to be valid, binding and enforceable obligations.
8. INDEMNIFICATION AND CONTENT RISK ALLOCATION:
(a) WG shall indemnify Affiliate against (i) any award of damages and
costs made against Affiliate by a final judgment of a court of competent
jurisdiction in any such action, insofar as the same are based on a claim that
the WorldGate Platform infringes any United
<PAGE>
States patent, and (ii) any settlements or compromises made by WG as
described below. WG shall control the defense of any such action including
appeals, and all of negotiations thereof, including the right to effect any
settlement or compromise. In case the use of the WorldGate Platform is, in
any action, held to constitute such an infringement and the use thereof is
enjoined, WG shall, at its option and expense (x) procure for Affiliate the
right to continue using the WorldGate Platform, (y) replace or modify the
same so that it becomes non-infringing and performs the same service with
substantially the same quality, or (z) authorize Affiliate to return the
effected WorldGate Platform and provide Affiliate with a refund of the
purchase price, less an allowance for past use prorated based upon the
initial term of this Agreement. The above indemnity shall not apply to and WG
shall have no liability for any claim of infringement based on: (1) any use
of other than a current unaltered release of the WorldGate Platform; or (2)
any combination or use of the WorldGate Platform with non-WG hardware,
software, information, data or content, or (3) any use of the WorldGate
Platform other than is authorized herein. The foregoing states the entire
liability with respect to infringement of any intellectual property rights
with regard to the WorldGate Platform.
(b) Affiliate shall indemnify WG against (i) any award of damages and
costs made against WG by a final judgment of a court of competent jurisdiction
in any such action, insofar as the same are based on a claim of infringement
arising out of: (1) any use of other than a current unaltered release of the
WorldGate Platform; or (2) any combination or use of the WorldGate Platform with
non-WG hardware or software, or (3) any use of the WorldGate Platform other than
is authorized herein, and (ii) any settlements or compromises made by Affiliate
as described below.
(c) The Parties agree that damages and costs may arise hereunder as a
result of claims and disputes by third parties against one or both of the
Parties with respect to the Subscriber's use of Subscriber Accessible Content,
which is beyond the responsibility and/or control of the Parties. In this regard
the Parties will agree upon and implement terms and conditions for Subscriber
use of the WorldGate Service which require Subscriber's acknowledgment of such
factors as are set forth in Paragraph 1(e) of this Agreement and Subscriber's
agreement that any access to and use of Subscriber Accessible Content is and
will be the sole responsibility of the Subscriber. Subscriber's agreement to
these terms and conditions of use will be a pre-requisite to activating a
Subscriber account. Furthermore, the Parties agree to cooperate in good faith
and to take such actions as are reasonable and consistent with prudent business
practices with respect to the defense and/or settlement of such third party
claims and disputes and the equitable allocation of the resulting damages and
costs, including, without limitation, providing the other prompt notice in
writing of any such claim of which it becomes aware. The Parties acknowledge
that from time to time WG, Affiliate or both Parties may receive notice that
Subscriber Accessible Content is alleged to violate the copyright of one or more
entities ("NCL"). Upon receipt of an NCL, the Party receiving said NCL shall
notify the other Party and both Parties shall take such actions as are
reasonable and consistent with prudent business practices with respect to the
NCL.
(d) In any case in which indemnification is sought hereunder:
(i) The party seeking indemnification shall promptly notify
the other party in writing upon the initiation of any claim or litigation to
which the indemnification relates;
<PAGE>
(ii) The party seeking indemnification shall afford the other
party the opportunity to participate in, and, at the option of such other party,
to control, any compromise, settlement, litigation or other resolution or
disposition of any such claim.
(iii) The party seeking indemnification shall fully cooperate
with the reasonable requests of the other party in its participation in, and
control of, any compromise, settlement, litigation or other resolution or
disposition of any such claim.
9. RENEWAL, TERMINATION AND DEFAULTS:
(a) Upon the expiration of the initial Term hereunder this Agreement
shall be automatically renewed for additional successive two (2) year periods
thereafter unless terminated by either Party upon ninety (90) days written
notice prior to the expiration of such initial Term or any renewal period, as
applicable. The Subscriber Access Fees payable during any renewal period shall
be WG's then current published rates or such other rates as may be agreed by the
parties in writing.
(b) In addition to all of its other rights and remedies at law and in
equity, either party shall be entitled at its option forthwith, upon giving
notice to the other party, to terminate this Agreement and all licenses granted
hereunder, (i) if said other party shall fail to perform any of its obligations
or undertakings required of it hereunder, or shall be in breach of any of its
warranties or representations herein contained, and shall not have cured or
remedied such failure or breach within sixty (60) days of written notification
thereof; provided, however that with respect to any failure to pay Subscriber
Access Fees such cure period shall be reduced to ten (10) business days from the
date of written notification hereunder; (ii) if a party hereunder commences a
voluntary case under Title 11 of the United States Bankruptcy Code as now and
hereafter in effect, or any successor statute, or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or a party consents
to the entry of an order for relief in an involuntary case, or to the conversion
of a voluntary case to an involuntary case, under any such law, or consents to
the appointment of or taking possession by a receiver, trustee or other
custodian for all or a substantial part of its property; a party makes any
assignment for the benefit of creditors; a party is unable or fails or admits in
writing of its inability or failure to pay its debts as such debts become due;
or the Board of Directors or other governing body of a party adopts any
resolution or otherwise approves authorization to act upon any of the foregoing,
such action shall be deemed a breach hereunder; or (iii) if any order, judgment
or decree is entered against decreeing the dissolution or split-up of such
party, and such order remains undischarged or unstated for a period in excess of
thirty (30) calendar days, such action shall be deemed a breach hereunder.
(c) Sections 8-12, and 14-16, as well as any obligation which has
accrued prior to any expiration or termination of this Agreement shall survive
such expiration or termination by a period not to exceed five (5) years from
such expiration or termination. All outstanding amounts owing hereunder shall
become immediately due and payable in the event of any expiration or termination
of this Agreement.
10. NON-WAIVER OF BREACH; REMEDIES CUMULATIVE; LIMITATION ON DAMAGES:
<PAGE>
(a) A waiver by either party of any of the terms or conditions of this
Agreement shall not, in any instance, be deemed or construed to be a waiver of
such terms or conditions for the future or of any subsequent breach thereof. No
payment or acceptance thereof under this Agreement shall operate as a waiver of
any provision hereof.
(b) Except as set forth herein all remedies, rights, undertakings,
obligations and agreements contained in this Agreement shall be cumulative and
none of them shall be in limitation of any other remedy, right, undertaking,
obligation, or agreement of either party. IN NO EVENT SHALL EITHER PARTY
HEREUNDER BE LIABLE TO THE OTHER FOR SPECIAL, PUNITIVE, CONSEQUENTIAL (INCLUDING
WITHOUT LIMITATION ANY LOST PROFIT OR INVESTMENT AND THE LIKE), INDIRECT OR
INCIDENTAL DAMAGES, BY WAY OF INDEMNITY OR OTHERWISE.
(c) In no event shall WG be liable for damages in excess of the amounts
paid to WG hereunder with respect to the particular subject matter giving rise
to such damages.
11. NOTICES: Except as herein otherwise expressly provided, all notices,
statements and other documents desired or required to be given hereunder shall
be in writing and shall be given by overnight courier service or other personal
delivery, email or fax or other comparable immediate electronic transmission
(with a copy sent by regular U.S. mail).
All notices, statements and other documents shall be sent to:
If to WG:
Accounting statements and All other notices should be sent to:
remittances should be sent to:
WORLDGATE COMMUNICATIONS, INC. WORLDGATE COMMUNICATIONS, INC.
3220 Tillman Drive, Suite 300 3220 Tillman Drive, Suite 300
Bensalem, PA 19020 Bensalem, PA 19020
Attn: Accounting Services Attn: Affiliate Administration
with a copy to the General Counsel
If to Affiliate:
CABLE BAHAMAS, LTD.
Robinson Road
P.O. Box CB - 13050
Nassau, Bahamas
Attn: Rick Pardy
(or at such other address as may be designated in writing by either party no
less than thirty (30) days prior to the date of transmission of the notice,
statement, etc.). Notice given by electronic transmission, courier service or by
personal delivery shall be deemed given upon delivery by the transmission
service or messenger.
<PAGE>
12. GOVERNING LAW AND EXPORT RESTRICTIONS: All matters pertaining to this
Agreement (including its interpretation, validity, performance and breach), in
whatever jurisdiction action may be brought, shall be governed by the laws of
the State of Delaware (excluding its conflict of law provisions). The parties
hereto expressly consent and agree to submit to the jurisdiction of any court of
competent jurisdiction in the State of Delaware, and to accept service of
process outside the State of Delaware in any matter to be submitted to any such
court pursuant hereto. Wherever there is any conflict between any provision
hereof and any law or requirement with the force of law, this Agreement shall
remain valid and such provision hereof shall be restricted to the extent, and
only to the extent, necessary to bring it within the applicable requirements,
unless such restriction shall, in the opinion of WG, have the effect of
materially nullifying, or impairing, this Agreement. Affiliate shall comply
fully with all then current applicable laws and regulations relating to the
export of products and technical data including, but not limited to, any
regulations of the United States Office of Export Administration.
13. FORCE MAJEURE: Neither party shall, in any manner whatsoever, be liable or
otherwise responsible for any delay or default in, or failure of performance
(other than the failure to make payments hereunder) resulting from or arising
out of or in connection with, any "Event of Force Majeure" and no such delay,
default in, or failure of performance shall constitute a breach by either party
hereunder. For purposes of this Agreement, an "Event of Force Majeure" in
respect of a party shall mean any act, cause contingency or circumstances beyond
the reasonable control of such party, including, without limitation, and to the
extent beyond the control of such other party, any governmental action,
nationalization, expropriation, confiscation, seizure, allocation, embargo,
prohibition of import or export of goods or products, regulation, order or
restriction (whether foreign, federal or state), war (whether or not declared),
civil commotion, disobedience or unrest, insurrection, public strike, riot or
revolution, lack of or shortage of, or inability to obtain, any labor,
machinery, materials, fuel, supplies or equipment from normal sources of supply,
strike, work stoppage or slowdown, lockout or other labor dispute, earthquake,
hurricane, other natural calamity, damage or destruction to plant and/or
equipment, fire or any other accident, condition, cause, contingency or
circumstance (including, without limitation, acts of God) within or without the
United States beyond the reasonable control of such party.
14. CONFIDENTIALITY:
(a) The recipient of any confidential information of the other
hereunder agrees to safeguard the confidentiality of such confidential
information by applying policies and procedures adequate for that purpose,
including without limitation, restricting the disclosure of this confidential
information to employees and consultants needing to know the same for the
purpose of this Agreement, who have agreed in writing to safeguard such
confidential information in a manner consistent with the provisions of this
paragraph. The recipient shall not disclose any such confidential information to
any other person, firm or corporation, or use the same except for the purpose
stated hereinabove, and shall exercise at least the same degree of care to guard
against disclosure or unauthorized use of such confidential information, as the
recipient employs with respect to its own confidential information, but in no
event less than reasonable care.
(b) The recipient shall have no obligation of confidentiality hereunder
with respect to any information which:
<PAGE>
(i) is already properly known to the recipient other than as a
result of a prior confidential disclosure by the disclosing Party;
(ii) is or becomes publicly known otherwise than by the
recipient's (or someone receiving the information from recipient) fault or
breach of this Agreement;
(iii) is rightfully received by the recipient without restriction
from a third party who is not under an obligation of confidentiality, directly
or indirectly, to the disclosing Party;
(iv) is independently developed by the recipient without benefit
of the confidential information received hereunder;
(v) is approved for release in writing by the disclosing Party;
or
(vi) is required to be disclosed by the recipient pursuant to
judicial or regulatory action, provided that the disclosing party is promptly
notified at the time such action is initiated and the recipient fully cooperates
with the disclosing Party in seeking continued confidential treatment of such
information to the extent possible.
(c) Except as may be reasonably required by applicable law, regulation
or court order, the Parties agree that neither of them shall publicly divulge or
announce, or in any manner disclose to any third party, other than its attorneys
and accountants, any of the specific terms and conditions of this Agreement,
including without limitation the Subscriber Access Fees payable hereunder, and
the parties further warrant and agree that none of their officers, directors or
employees will do so.
15. PROCEDURE PRIOR TO LITIGATION: Prior to initiating any litigation with
respect to any controversy, claim or dispute arising hereunder or related
hereto, but excluding any claim arising under Sections 3 or 14 of this Agreement
(a "Dispute") a Party must first notify the other Party and request in writing
that such Dispute be submitted to an executive committee consisting of one
senior ranking executive named by each of the Parties for such purpose. Such
named executive shall have the authority and be capable of making binding
decisions on behalf of such Party with respect to such Dispute. Within five (5)
business days following the receipt of such notice (or such other period as may
be agreed by the Parties) each Party shall have named its executive committee
participant, and within ten (10) business days following the receipt of such
notice (or such other period as may be agreed by the Parties) the executive
committee shall meet to discuss the Dispute. If the executive committee is not
able to resolve the Dispute within twenty (20) business days following the
receipt of such notice (or such other period as may be agreed by the Parties),
then either Party may proceed with the initiation of such litigation as may be
appropriate.
16. MISCELLANEOUS; ENTIRE UNDERSTANDING: The titles of the paragraphs of this
Agreement are for convenience only and shall not in any way affect the
interpretation of this Agreement. This Agreement does not in any way create the
relationship of franchise, joint venture, partnership or agency between WG and
Affiliate, and each shall remain an independent contractor, and as such shall
not act or represent itself, directly or by implication, as agent for the other
or assume or create any obligation of or in the name of the other. This
Agreement will inure to the benefit of and be binding upon the Parties and their
respective representatives, and permitted successors and assignees. This
Agreement, including the Exhibits identified herein, sets forth the entire
understanding of the parties with respect to the subject matter hereof, and all
oral agreements and all prior written agreements with respect to such subject
matter have been merged herein. No representations or warranties have been made
other than those expressly provided for herein. This Agreement may not be
modified, except by a written
<PAGE>
instrument signed by an authorized representative of the parties, and this
provision may not be waived except by written instrument signed by an officer
of the parties. This Agreement may be executed in any number of counterparts,
with each such counterpart deemed to be an original, but all such
counterparts shall together constitute one and the same instrument. In the
event this agreement is translated into any foreign language counterpart, the
English language counterpart shall remain controlling. This Agreement shall
be presumed to have been negotiated and drafted by both Parties for the
purpose of construing any ambiguities hereunder.
IN WITNESS WHEREOF, THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE SIGNED AND
ACCEPTED BY THEIR DULY AUTHORIZED REPRESENTATIVES AS OF THE DAY AND YEAR FIRST
WRITTEN ABOVE.
Affiliate: CABLE BAHAMAS, LTD. WG
By: /s/ unintelligible By: /s/ Peter Mondics
------------------------------ ------------------------------
Name: unintelligible Name: Peter Mondics
Title: President & COO Title: VP Sales
Date: September 30, 1998 Date: September 30, 1998
Tel.: 242-356-6780 Tel.: 215-633-5100
Fax: 242-356-8982 Fax: 215-633-9590
<PAGE>
EXHIBIT A
TELEVISION DISTRIBUTION SYSTEMS
<TABLE>
<CAPTION>
SYSTEM NAME MAILING ADDRESS BASIC SUBSCRIBERS
## ## ##
----------- --------------- -----------------
<S> <C> <C>
-------------------------- -------------------------- --------------------------
-------------------------- -------------------------- --------------------------
-------------------------- -------------------------- --------------------------
-------------------------- -------------------------- --------------------------
</TABLE>
Each System identified above must include at least the following minimum
facilities (to be supplemented as the Subscriber base grows):
(a) dedicated Internet Access Link - T1 or equivalent with comparable
data rates
(b) Cisco 2501 Router with IP Software (or approved
equivalent)
(c) Kentrox D-Serv CSU/DSU (or approved equivalent)
- ------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
EXHIBIT B
WORLDGATE PLATFORM
PLATFORM COMPONENTS AND PRICING:
Set forth below are the standard components of the WorldGate Platform and the
price for the same as of the effective date set forth below. Such prices are FOB
WG's factory, and are valid for a period of one-year from this effective date
after which time they are subject to change by WG to reflect current market
conditions, provided that WG represents that such prices as WG will charge
Affiliate for these standard components will be no less favorable than those
contemporaneously charged to like affiliates under terms and conditions
comparable to those set forth herein.
<TABLE>
<CAPTION>
FIRST UNIT IN A OTHER UNITS--SAME
ITEM HEADEND HEADEND
---- --------------- -----------------
<S> <C> <C>
Headend Package (analog) ## ##
Large System Headend Package (analog) ## ##
Channel HyperLinking Server ## ##
WorldGate Keyboard* ## ##
</TABLE>
- ------------
* Non-U.S. language keyboards will be quoted separately.
Custom configuration options are available and will be quoted separately if
required based upon the results of a site survey and expected Subscriber base.
The above prices do not include site surveys and installation which are
available on a time and material basis at WG's customary rates (plus travel and
per diem charges.) The above prices do not include any improvements and/or
modifications to Affiliate's Systems. Notwithstanding the use of the term
"purchase" herein, such WorldGate Platform as acquired hereunder includes
certain WorldGate and third party software, microcode and documentation, whether
stored in electronic (including firmware), magnetic, optical or other media
(collectively Programs) for which title to and all proprietary rights in are
reserved to WG and its suppliers. All access to and use of such Programs is
subject to the terms and conditions of WG's Software License attached hereto and
incorporated herein as Exhibit B-1.
LIMITED PRODUCT WARRANTY:
- ------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
WG hereby warrants that as installed hereunder and for a period of twelve months
thereafter ( but not more than thirteen months after delivery if there is a
delay between delivery and installation other than as may result from the
actions and/or omissions of WG) such WorldGate Platform components will perform
under normal use and service substantially in the manner specified in the
current applicable published technical specification as issued by WG prior to
the execution of this Agreement, and that for this period the hardware
components of the WorldGate Platform will be free from defects in materials and
workmanship. This warranty shall not apply to any items subjected to accident,
misuse, neglect, mishandling, unsuitable physical or operating environments or
any installation, testing, repair, adjustment or alteration by anyone other than
WG or its authorized vendors, or any use of non-approved components in
connection with the WorldGate Platform. WG's warranty hereunder extends to
Affiliate only, and to no other person or entity. This warranty shall not be
enlarged or otherwise affected by, and no obligation or liability shall arise
hereunder by WG's rendering of technical advice, help line support or service in
connection with the products furnished hereunder. Any claims arising out of the
aforesaid warranty must be submitted to, and the affected components must be
returned or otherwise made available to WG in accordance with its published
procedures, during the specified warranty period. Subject to the preceding
conditions, WG will promptly examine such WorldGate Platform components and
repair or replace any such components which are defective with respect to the
above warranty. Any required service, repair or replacement (and the costs and
expenses associated therewith) which are not covered by the above warranty will
be the responsibility of Affiliate unless covered by an applicable WG service
contract.
THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING WITHOUT LIMITATION, ANY IMPLIED OR STATUTORY WARRANTY OF
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ANY
WARRANTY HEREUNDER, EXPRESS OR OTHERWISE, IS LIMITED TO THE WARRANTY TERM AND
CONDITIONS AS SET FORTH ABOVE.
AFFILIATE TECHNICAL SUPPORT:
WG will at no additional charge to Affiliate provide technical support to
Affiliate's customer service and engineering staff, 7 days per week, 24 hours
per day, with such support to be provided by telephone, facsimile and/or the
Internet. Except as is provided by WG pursuant to the terms and conditions of
any applicable service contract or WG's written warranty herein, any required
travel from WG's facilities or support in addition to that provided by
telephone, facsimile or Internet hereunder will require payment for time and
materials at WG's customary rates, as well as reimbursement for travel and per
diem charges.
ON SITE TRAINING:
Prior to the initial launch of the WorldGate Service on Affiliate's Systems WG
will conduct one on site technical and customer service training program of up
to 3 days in duration. Additional training will be available on a time and
materials basis at WG's customary rates, as well as reimbursement for travel,
lodging and other per diem charges.
<PAGE>
PLANT SPARES:
WG and Affiliate will cooperate to formulate and implement a recommended program
for spare parts inventory, local maintenance strategy and emergency response.
SOFTWARE RELEASES AND UPGRADES:
WG shall provide at no additional cost to Affiliate such bug fixes and other
software releases as it makes available without charge to its other affiliates,
and will use commercially reasonable efforts to notify Affiliate when it becomes
aware of such bugs.
<PAGE>
EXHIBIT B-1
SOFTWARE LICENSE
The terms and provisions of this Exhibit B-1 (Software License) provide for the
licensing by WG to Affiliate of certain Programs (as such term is defined in the
Affiliation Agreement) furnished with and to be used either as part of or in
conjunction with the WorldGate Platform to be provided by WG to Affiliate under
an Affiliation Agreement, of which this Exhibit forms a part.
1. GRANT OF LICENSE: WG (hereinafter Licensor) hereby grants to Affiliate
(hereinafter Licensee) and Licensee hereby accepts a personal, nonexclusive
license to use the Programs on the terms and conditions set forth herein and in
the Affiliation Agreement. Except as specifically provided herein and therein,
no interest, right or license, express or implied, is granted, and such other
interests, rights and licenses are hereby reserved.
2. OWNERSHIP RIGHTS: Any reference to sale or purchase not withstanding, title
to the Programs and all copies and derivatives thereof shall be and remain in
Licensor, and no title to or ownership of the Programs or any derivative or
portion thereof is conveyed or transferred to the Licensee. Licensee
acknowledges that the Programs constitute confidential and proprietary
information and trade secrets of Licensor, whether or not the Programs, or any
portion thereof, are or may be copyrighted or copyrightable and/or patented or
patentable, and that disclosure of the Programs to Licensee is on the basis of
the confidential relationship between Licensee and Licensor under this
Agreement.
3. RESTRICTION ON TRANSFER: Licensee shall not sell, assign, sub-license,
transfer, or otherwise make available the Programs, in whole or in part, except
as may be permitted by this Software License Agreement.
4. RESTRICTION ON USE, DISASSEMBLY AND REVERSE ENGINEERING: Licensee may use the
Programs solely and exclusively on the computer(s) and associated peripherals
furnished by WG as part of the WorldGate Platform sold to Affiliate under terms
of the Affiliation Agreement, except that the Programs may also be temporarily
used on or with a compatible backup computer and associated peripherals if the
WorldGate Platform computers and associated peripherals are inoperative because
of malfunction or during the performance of preventive maintenance or
engineering changes, but only for such reasonable time as required to restore
such WorldGate Platform to operative status. Licensee shall use the Programs
only in connection with its immediate internal operations with respect to the
provision to its customers of the WorldGate Service as authorized by the
Affiliation Agreement, and shall not otherwise use nor offer or supply the use
of the Programs to others under any circumstance. Licensee shall not de-compile,
disassemble or otherwise reverse engineer the Programs.
5. RESTRICTION ON COPYING: Licensee shall make no copies (including any
derivatives) of the Programs, or any part thereof, except that Licensee may make
one (1) copy of the Program solely for the purposes of backup and archival
storage. All copies shall be clearly marked by Licensee with the same Licensor
proprietary and copyright restrictions which appear on the Programs originally
supplied to Licensee, and be stored by Licensee in a secure manner.
6. RESTRICTION ON DISCLOSURE: Except as expressly permitted herein, Licensee
shall not disclose or otherwise make available the Programs, or any portion
thereof, to any third party or to any employee or agent of Licensee who is not
of necessity reasonably authorized by Licensee to access and use the Programs as
part of Licensee's provision of the WorldGate Service. Licensee shall take all
reasonable steps necessary to ensure the Programs, or any portions, copies or
derivatives thereof, are not disclosed or otherwise made available by Licensee
(or employees or agents of Licensee) to any third party except as aforesaid.
7. TERMS AND TERMINATION: The term of this License Agreement and the license
granted hereunder shall commence on the date hereof, and shall terminate on the
earlier of: (a) when Licensee ceases to offer the WorldGate Service or when
Licensee ceases to operate or de-installs the WorldGate Platform; or (b) the
termination or expiration of the Affiliation Agreement or the failure of
Licensee to comply with any of the terms and provisions hereof or of the
Affiliation Agreement (including without limitation, the failure to pay any fees
when due), which failure continues for a period of ten (10) days after written
notice thereof.
Upon termination of this Software License Agreement all rights to use the
Programs shall terminate and Licensee shall immediately cease use of the
Programs, and shall, within one (1) month after any such termination return the
<PAGE>
Programs and all copies thereof to WG (or upon WG's written request destroy the
same,) and furnish WG a written statement certifying that the original and all
copies and extracts (including partial copies and extracts) of the Programs and
any related material received from WG or made in connection with such license
have been returned to WG, or destroyed pursuant to WG's written request. WG
reserves all rights and remedies, whether provided by contract, at law, in
equity and/or otherwise, to enforce it rights under this license. Licensee
acknowledges and agrees that any breach or threatened breach of this software
license shall cause WG irreparable injury for which there may be no adequate
remedy at law, and that in addition to any other remedies available, WG shall be
entitled to obtain injunctive relief as well as actual damages.
Affiliate Initials: /s/ unintelligible WG Initials: /s/ unintelligible
------------------ ------------------
Effective Date: October 1, 1998
<PAGE>
EXHIBIT C
SUBSCRIBER ACCESS FEES
SERVICE ACCESS FEES FOR PRIVATE RESIDENCES:
The following WorldGate Service Access Fees are payable by Affiliate to WG on a
monthly basis for each Private Residence having access to the WorldGate Service
during such month (prorated based upon a 30 day month for Private Residences
having access to the WorldGate Service for less than a full calendar month). The
table set forth below includes various benchmarks which, if achieved, will
result in an adjustment in the particular amount payable for such Access Fees.
Affiliate's performance with respect to these benchmarks and the resultant
amounts payable hereunder shall be determined on an aggregate System wide basis
based on the results of all Systems hereunder. Any adjustment in the amount
payable for such Access Fees shall apply only for prospective periods after the
benchmarks have been achieved, and then only after written notice has been
provided by Affiliate to WG providing the details as to such achievement.
For purposes of determining the applicable rate for the Service Access Fees
payable hereunder for the Systems (x) the number of "WorldGate Private
Residences" for any month shall mean the average number of actual Private
Residences to the WorldGate Service for that month and shall include only the
Private Residences being invoiced for and paying the standard retail charge
which Affiliate invoices its customers for the WorldGate Service (Service Access
Fees are, however, payable by Affiliate to WG for all Private Residences
receiving access to the WorldGate Service irrespective of whether such standard
retail charge or any payment is made by such Private Residences to Affiliate),
and (y) the number of AWorldGate Capable Customers for any month shall mean the
average number of Affiliate's actual customers (including only those customers
being invoiced for and paying the standard retail charge which Affiliate
invoices for its television programming distribution service) which during the
month had sufficient System architecture and Head-end Package components of the
WorldGate Platform installed and operational to permit such customer to have
become a WorldGate Private Residence, had the customer so chosen, and (z) the
APenetration for any month shall mean the number of WorldGate Private Residences
divided by the number of WorldGate Capable Customers as determined above.
Monthly averages hereunder shall be determined dividing by two the sum of the
applicable number on the first and last business days of the month.
FOR AFFILIATES OFFERING THE WORLDGATE SERVICE AS AN UNLIMITED USAGE SERVICE ON
AN A' LA CARTE BASIS (INCLUDES AN ALLOTTED USAGE TIME PER SUBSCRIBER PER MONTH
WHICH IS NOT LIMITED IN NUMBER OF HOURS).
[CHART REDACTED]##
[PARAGRAPH REDACTED]##
[PARAGRAPH REDACTED]##
OTHER TRANSACTIONAL REVENUE OPPORTUNITIES:
The parties anticipate that the Subscriber Accessible Content will include
opportunities to generate revenue from third parties through Channel
HyperLinking, advertising, commodity buying/selling, lead generation and similar
services, whether through direct hits or click-throughs (collectively
"Transactions") which may be facilitated by the WorldGate Platform. The Parties
further recognize that such opportunities may require commitments with
advertising agencies and other third parties as well as administrative,
accounting, and other services and associated costs, fees, and expenses in order
to permit such revenue to be generated. The Parties will work together to
- ------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
maximize such opportunities. Any net revenue which is generated as a result of
such services as the Parties agree to make available to Subscribers as part of
the WorldGate Service hereunder will be shared as follows by WG and Affiliate,
after payment of such associated costs, fees, and expenses, and subject to any
required commitments as aforesaid.
Fees and other consideration generated through Transactions facilitated by the
use of the WorldGate Service, but other than through the use of Channel
HyperLinking, will be [REMAINDER OF PARAGRAPH REDACTED]##
[PARAGRAPH REDACTED]##
- ------------
## THE INFORMATION CONTAINED IN THIS PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT.
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF WORLDGATE
1. WorldGate Service, Inc.
2. WorldGate Finance, Inc.
<PAGE>
Exhhibit 23.1
Consent Of Independent Accountants
We consent to the inclusion in this Registration Statement on Form
S-1 of our report, which will be issued upon the effectiveness of the stock
split as described in Note 10 to the financial statements, dated February 8,
1999 except as to the information in Note 10,for which the date is ,
1999, on our audits of the financial statements of Worldgate Communications,
Inc. We also consent to the references to our firm under the captions
"Selected Financial Data" and" Experts."
PricewaterhouseCoopers LLP
Philadelphia,Pennsylvania
March 23,1999
