<PAGE>
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION STATEMENT NO. 333-87029
PROSPECTUS
WORLDGATE COMMUNICATIONS, INC.
705,353 Shares of Common Stock
-----------------------------
This prospectus relates to the resale by the selling stockholders of up
to a total of 331,490 shares of common stock that will be issued by us to
certain selling stockholders upon exercise of outstanding warrants to purchase
shares of common stock at per share exercise price of $16.50 and 373,863 shares
of common stock. The par value of the common stock is $.01 per share. We cannot
assure you that any of the warrants will be exercised, and, therefore, we cannot
assure you that we will receive any proceeds from the exercise of the warrants.
We will not receive any proceeds from the shares sold by the selling
stockholders.
Our common stock is traded on the Nasdaq National Market under the
symbol "WGAT." On July 25, 2000, the last sale price for the common stock was
$29.44 per share.
-----------------------------
Investing in our common stock involves risks. You should carefully
consider the "risk factors" beginning on page 3 of this prospectus before you
decide to invest.
-----------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
Our principal executive offices are located at 3190 Tremont Avenue,
Trevose, Pennsylvania 19053 and our telephone number is (215) 354-5100.
The date of this prospectus is July 26, 2000.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. You should read this entire prospectus carefully.
WORLDGATE COMMUNICATIONS
WorldGate provides a 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,
- the ability to access the Internet with a standard cable
television box that has been WORLDGATE enabled, without a
phone line, an in-home computer or a dedicated set-top
appliance,
- a centralized computer network design that allows for easy
deployment and set-up, central system management and centrally
administered upgrades, and
- a television-based entry point to the Internet that enables
viewers to dynamically link from television programming and
advertising to related Internet content.
The WORLDGATE Service is designed to operate with cable systems using
advanced analog and/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 both an advanced analog and
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. As of
March 31, 2000, there were approximately 19,000 subscribers to the WORLDGATE
Service and 16 cable operators are commercially deploying the WORLDGATE Service.
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, advertising
agencies and e-commerce merchants to develop a centralized database that
provides viewers with our CHANNEL HYPERLINKING capability.
We believe that our low cost combination of television and the Internet
will help transform advertising, electronic commerce and information delivery
for the consumer mass market.
-2-
<PAGE>
RISK FACTORS
THIS SECTION HIGHLIGHTS SPECIFIC RISKS WITH RESPECT TO AN INVESTMENT IN OUR
BUSINESS. INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
PURCHASING OUR COMMON STOCK IS VERY RISKY AND YOU SHOULD BE ABLE TO BEAR THE
COMPLETE LOSS OF YOUR INVESTMENT. WE ALSO CAUTION YOU THAT THIS PROSPECTUS
INCLUDES FORWARD-LOOKING STATEMENTS THAT ARE BASED ON MANAGEMENT'S BELIEFS AND
ASSUMPTIONS AND ON INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS AND DOCUMENTS INCORPORATED BY REFERENCE HEREIN BEFORE PURCHASING OUR
COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES
WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN BY US OR THAT WE
CURRENTLY DEEM IMMATERIAL ALSO MAY IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED. IN SUCH CASE, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF
YOUR INVESTMENT.
WE MAY EXPERIENCE DIFFICULTIES DEVELOPING AND IMPLEMENTING OUR MARKETING AND
BUSINESS PLANS.
We began operations in March 1995 and our service was first made
commercially available in the third quarter of 1998. As a result, our operating,
sales and marketing and other strategies are still being developed, and we do
not have a history which may give us or you an indication of how we may respond
to situations presented to us. 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 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 have 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. To make a profit, we must 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 March 31, 2000 were
approximately $8.3 million, and our aggregate accumulated deficit at March 31,
2000 was approximately $99.9 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.
BECAUSE TELEVISION-BASED INTERNET ACCESS IS NEW, WE CANNOT BE CERTAIN THAT A
MARKET 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 been widely
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
-3-
<PAGE>
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 or competing
technology becomes more widely accepted, our business, operating results, and
financial condition will be materially adversely affected.
THE COMPETITIVE MARKET FOR INTERNET ACCESS MAY LIMIT DEMAND OR PRICING FOR THE
WORLDGATE SERVICE.
We experience intense competition. Many companies provide and others
may in the future provide Internet access and other services with functionality
similar to those comprising the WORLDGATE Service.
As a result of this and future competition, demand for the WORLDGATE
Service may suffer, we may be restricted in the pricing we can charge for the
WORLDGATE Service and our business, financial condition and results of
operations may be adversely affected. 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, name recognition,
compelling content, access to consumers and other resources, and more
established relationships with cable operators, advertisers and content and
application providers than we have.
WE MAY NOT SUCCEED IF CABLE OPERATORS DO NOT OFFER THE WORLDGATE SERVICE TO
THEIR SUBSCRIBERS.
We have entered into a limited number of agreements with cable
operators providing for the commercial launch of the WORLDGATE Service in some
of the markets served by these cable operators. 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, they will not offer the WORLDGATE Service to their subscribers.
Furthermore, because there are a limited number of cable operators, as well as
consolidation in the industry, the failure to reach agreements with these major
cable operators which service a significant number of cable subscribers could
materially adversely affect the market for the WORLDGATE Service.
OUR REVENUES WILL DEPEND ON THE MANNER IN WHICH CABLE OPERATORS MARKET AND PRICE
THE WORLDGATE SERVICE.
We depend on cable operators to provide the WORLDGATE Service to their
subscribers and therefore 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 charge to their subscribers
for the WORLDGATE Service, and
- the extent to which cable operators purchase additional
WorldGate equipment to avoid reduction in performance if
subscriber demand grows.
Our revenues may not meet our expectations if the cable operators'
marketing, pricing and operating strategies are inconsistent with our business
model.
-4-
<PAGE>
THE MARKET FOR THE WORLDGATE SERVICE WILL BE ADVERSELY AFFECTED IF CABLE
OPERATORS DO NOT CONTINUE TO UPGRADE THEIR SYSTEM INFRASTRUCTURES TO SUPPORT
TWO-WAY DATA TRANSMISSIONS.
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.
Although the WORLDGATE Service can operate over one-way cable plant
that is only capable of transmitting programming to subscribers, it can do so
only in conjunction with a telephone line. As such, it is less convenient and
efficient for a subscriber to use the WORLDGATE Service over one-way cable plant
and, to date, the majority of cable operators who are deploying the WORLDGATE
Service have done so over two-way cable plants that are capable of transmitting
information from the cable operator's facility to the subscribers and vice
versa. We cannot assure you that cable operators will upgrade their cable plant
to two-way plant or that they will do so in a timely and satisfactory manner. 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 Communications, Inc. and AT&T Corporation, whose cable systems
collectively serve more than 26 million U.S. homes, or at least 26% of all U.S.
homes, have entered into distribution agreements with At Home Corporation. These
agreements contain 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 residential Internet services over their cable
plants at data transmission speeds greater than 128 Kbps. These agreements 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. 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 AND 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, AT&T, Comcast, Cox and
Cablevision are stockholders of At Home; and MediaOne Group, Inc. (which has
agreed to be acquired by AT&T) and Time Warner have established their own
cable-based Internet service, called Road Runner, with proprietary content
featuring various Time Warner publications and services. Also, some companies
that provide Internet services, such as Microsoft Corporation, are stockholders
of cable operators or cable box manufacturers. We cannot assure you that there
will not be other investments among providers of Internet services, cable
operators and/or cable box manufacturers. As a result, these cable operators and
cable box manufacturers may be reluctant to provide any service, including the
WORLDGATE Service, or to otherwise work with any entity that provides other
Internet services in competition with their affiliates.
-5-
<PAGE>
ONLY CABLE TELEVISION SUBSCRIBERS WHO UTILIZE A CABLE SET-TOP BOX CAN RECEIVE
THE WORLDGATE SERVICE.
For cable television subscribers to receive the WORLDGATE Service, they
must have a cable set-top box that can be WorldGate enabled. Currently, many
cable television subscribers receive their cable television service through the
cable line directly into their televisions, without a set-top box. We cannot
assure you that cable operators serving these subscribers will elect to provide
them with set-top boxes for the purpose of offering the WORLDGATE Service, or
that these customers will choose to utilize a set-top box in order to receive
the WORLDGATE Service.
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. Neither General Instrument (now a
part of Motorola) nor Scientific Atlanta is required to install our technology
in its cable boxes and neither company is prohibited from establishing
relationships with any of our competitors and incorporating our competitors'
technologies into 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
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 and 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. 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 reduction
in performance 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 performance reduction and service interruptions from time to time in
the past and we expect that these problems will continue from time to time. 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 COULD BE COSTLY AND RESULT IN
THE LOSS OF SIGNIFICANT RIGHTS.
We are subject to patent litigation that claims we are infringing other
parties' intellectual property rights.
-6-
<PAGE>
- Interactive Channel Technologies, Inc. and SMI Holdings, Inc.,
subsidiaries of Source Media, Inc. (whose technology has been
acquired by Liberate Technologies), filed a complaint against
us alleging that we infringed patents issued to Source Media.
- Advanced Interactive, Inc. filed a complaint against us and
several other defendants alleging that the defendants
infringed a patent assigned to Advanced Interactive.
If the plaintiffs win either lawsuit, we could be precluded from
offering the WORLDGATE Service. We cannot 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. 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.
THE SUCCESS 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. As of
March 31, 2000, other than QVC, Inc., no advertiser or programmer had paid us to
use our CHANNEL HYPERLINKING technology, or was obligated to use our CHANNEL
HYPERLINKING technology in their advertisements or programs. We believe that the
adoption of the CHANNEL HYPERLINKING technology is substantially dependent on
our service meeting advertisers' and programmers' business or operational
expectations or strategies, and us achieving a significant number of subscribers
to the WORLDGATE Service.
We cannot assure you that we will achieve either of the above goals. 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.
RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR SERVICES OBSOLETE.
The market for consumer Internet access services and online content is
characterized by rapid technological developments, frequent new product
introductions and evolving industry standards. The nature of the market for
these products and services and their rapid evolution requires that we
continually improve the performance, features and reliability of the WORLDGATE
Service, particularly in response to competitive offerings. We may not be
successful in responding quickly, cost-effectively and adequately to these
developments. There may be a time-limited market opportunity for the WORLDGATE
Service, and we may not be successful in achieving widespread acceptance of the
WORLDGATE Service before competitors offer products and services with speed and
performance similar to, or better than, our current offerings.
THE LOSS OF ANY ONE OF OUR LARGEST CUSTOMERS COULD ADVERSELY AFFECT OUR REVENUES
AND FUTURE PROSPECTS.
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, our
business, operating results and financial condition could be materially
adversely affected. In 1997, three cable operators accounted for approximately
100% of our revenues, in 1998, ten cable operators accounted for approximately
98% of our revenues, and in 1999, ten cable
-7-
<PAGE>
operators accounted for 79% of our revenues. Moreover, in 1998, Charter and
Click!Network accounted for 44% and 10%, respectively, of our revenues, and in
1999, Charter, Click!Network, Buckeye Cable Systems and Singapore CableVision
Ltd. accounted for 26%, 5%, 17% and 13%, respectively, of our revenues. We
cannot assure you that any of these customers will continue to offer the
WORLDGATE Service to their cable subscribers.
OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO MANY UNCERTAINTIES.
A key component of our strategy is the expansion of the WORLDGATE
Service into international markets. We have limited experience in developing
localized versions of our service and in developing relationships with
international cable system operators. We may not be successful in expanding our
service offerings into foreign markets. In addition to the uncertainty regarding
our ability to generate revenues from foreign operations and expand our
international presence, there are certain risks inherent in doing business on an
international level, such as:
- difficulties in collecting accounts receivable and longer
collection periods,
- regulatory requirements, including the regulation of Internet
access,
- export and import restrictions, including tariffs and other
trade barriers,
- difficulties in staffing and managing foreign operations;
- political instability, and
- fluctuations in currency exchange rates.
Any of these factors could materially adversely affect the success of
our current and future international operations.
WE MAY HAVE LIABILITY FOR INFORMATION RETRIEVED OR 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 how
they apply 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.
-8-
<PAGE>
WE COULD BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION WHICH AFFECTS OUR
ABILITY TO OFFER OUR SERVICE OR WHICH AFFECTS DEMAND FOR OUR SERVICE.
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.
The Federal Communications Commission has established regulations that, among
other things, set licensing, access, installation and equipment standards for
communications systems. We are uncertain how these regulations may be applied to
Internet services offered over cable television systems.
We also anticipate that due to its increasing popularity and use, the
Internet 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 HAL M. 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 any officer or employee of WorldGate 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.
THE ABILITY TO INFLUENCE THE OUTCOME OF STOCKHOLDER VOTES MAY BE LIMITED BY THE
SIGNIFICANT OWNERSHIP INTEREST OF OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER.
Hal M. Krisbergh beneficially owns approximately 28% of the outstanding
common stock as of July 1, 2000. Mr. Krisbergh has 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.
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.
WE MAY BE UNABLE TO OBTAIN NECESSARY ADDITIONAL CAPITAL TO FUND OPERATIONS IN
THE FUTURE.
-9-
<PAGE>
To date, we have funded operations primarily through private sales of
equity securities and through our initial public offering of common stock in
April 1999. 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 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 increase the number of
subscribers, and
- the rate of commercialization of the WORLDGATE Service and the
acquisition of related businesses or technology, if any.
We cannot predict the timing or 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.
OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.
The market price of our common stock has been and will likely continue
to be highly volatile as the stock market in general, and the market for
Internet-related and technology companies in particular, has been highly
volatile. Investors may not be able to resell their shares of our common stock
following periods of volatility because of the market's adverse reaction to such
volatility. The trading prices of many technology and Internet-related
companies' stocks have reached historical highs within the last 52 weeks and
have reflected relative valuations substantially above historical levels. During
the same period, such companies' stocks have also been highly volatile and have
recorded lows well below such historical highs. We cannot assure you that our
stock will trade at the same levels of other Internet stocks or that Internet
stocks in general will sustain their current market prices. Factors that could
cause such volatility may include, among other things:
- actual or anticipated variations in quarterly
operating results;
- announcements of technological innovations;
- new products or services;
- changes in financial estimates by securities
analysts;
- conditions or trends in the Internet or cable
industry;
- changes in the market valuations of other Internet or
cable companies;
- announcements by us or our competitors of significant
acquisitions, strategic partnerships or joint
ventures;
- capital commitments;
- additions or departures of key personnel; and
-10-
<PAGE>
- sales of common stock.
Many of these factors are beyond our control. These factors may
materially adversely affect the market price of our common stock, regardless of
our operating performance.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD LOWER OUR STOCK PRICE.
The market price for our common stock could drop as a result of sales
of a large number of our presently outstanding shares, including shares issued
upon the exercise of outstanding options and warrants, 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. Certain holders of
our common stock have demand and piggy-back registration rights. The exercise of
such rights could adversely affect the market price of our common stock. We have
also filed:
- on April 28, 2000, a registration statement (Registration No.
333-35936) under the Securities Act for resale of 119,047
shares of common stock that we issued to the selling
stockholder, and
- on May 20, 1999 a registration statement to register all
shares of common stock under our stock option plan.
- We have also agreed to file a registration statement on
Form S-3 covering the resale of 1,531,211 shares of common
stock that we agreed to sell to four investors on
July 24, 2000.
These shares are, or will be upon issuance by us, eligible for
resale in the public market without restriction.
OUR RESULTS MAY DIFFER MATERIALLY FROM THOSE FORECASTED OR EXPRESSED IN THE
FORWARD-LOOKING STATEMENTS.
Expressed forward-looking statements 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.
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 document. 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
document or to reflect the occurrence of unanticipated events.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the
selling stockholders. The selling stockholders will receive all of the net
proceeds from the sale of the shares.
The selling stockholders will pay any underwriting discounts and
commissions and expenses incurred by them for brokerage, accounting, tax, legal
services or other expenses incurred by the selling stockholders in disposing of
their shares. We will bear all other costs, fees and expenses incurred in
effecting the registration of the shares covered by this prospectus, including,
without limitation, all registration and filing fees, Nasdaq National Market
listing fees, fees and expenses of our counsel, fees of our accountants, and
blue sky fees and expenses.
-11-
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the shares of common stock by the selling stockholders
as of July 1, 2000. The shares are being registered to permit public secondary
trading of these shares, and each selling stockholder may offer the shares for
resale from time to time.
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 July 1, 2000 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.
<TABLE>
<CAPTION>
------------------------------------ ----------------------------------- --------------------- ----------------------------------
BENEFICIAL OWNERSHIP BENEFICIARY OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING (1)
------------------------------------ ----------------------------------- --------------------- ----------------------------------
NAME OF COMPANY NUMBER OF PERCENTAGE NUMBER OF SHARES NUMBER OF PERCENTAGE
SELLING STOCKHOLDERS SHARES # BEING OFFERED SHARES #
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Ampal American Israel 165,745 * 165,745 -- --
Corporation (2)
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Balanced Capital Passive, L.P. (3) 3,030 * 3,030 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Derrick O. Boston (3) 606 * 606 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Citicorp(3) 1,082,342 5.0% 120,000 962,342 4.4%
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Jonathan Davidson (3) 606 * 606 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Howard Kahn (3) 3,030 * 3,030 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Peggy Kahn (3) 5,060 * 5,060 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Elmer L. Kaplin (3) 2,272 * 2,272 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Ned J. Kaplin (3) 6,818 * 6,818 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Joseph and Lois Kieserman (3) 3,666 * 3,666 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Knox Irrevocable Trust (3) 3,030 * 3,030 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
D. Scott Kosch (3) 303 * 303 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
David P. Michaels (3) 606 * 606 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Henry and Ellen Mishel (3) 110,003 * 21,003 89,000 *
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Powell Resources (3) 6,060 * 6,060 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Harold G. Schaeffer (3) 3,788 * 3,788 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
James Schaeffer (3) 1,515 * 1,515 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Robert D. Schaeffer (3) 3,288 * 3,288 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Frank and Kathleen Seidman (3) 3,030 * 3,030 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Bruce D. Smith (3) 2,666 * 2,666 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Howard Sternberg Trust (3) 1,666 * 1,666 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
Strong River Investments, Inc. (2) 165,745 * 165,745 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
XL Ventures LLC (3) 181,820 * 181,820 -- --
------------------------------------ ---------------- ------------------ --------------------- --------------- ------------------
</TABLE>
# Percentage is based on 21,699,759 shares of outstanding common stock as of
July 1, 2000.
* Less than 1% of the outstanding common stock.
-12-
<PAGE>
(1) Assumes the resale by the selling stockholders of all shares offered
for sale under this prospectus.
(2) Ampal and Strong River are holders of warrants to purchase in the
aggregate up to 331,490 shares of common stock at a per share exercise
price of $16.50. We issued these warrants in connection with our
issuance of face-value $6.0 million discounted notes in March 1999.
This prospectus is included in the shelf registration statement we
agreed to file for the shares of common stock issuable upon exercise of
the warrants.
(3) These selling stockholders exercised their piggy back registration
rights granted to them in connection with the sale of our series C
preferred stock from September 1998 through February 1999. The series C
preferred stock converted to common stock upon consummation of our
initial public offering in April 1999.
PLAN OF DISTRIBUTION
The selling stockholders or their pledgees, donees, transferees or
other successors in interest, may sell all, a portion or none of the shares
registered in the registration statement in which this prospectus is included
from time to time. Any such sales may be in one or more transactions on Nasdaq
at prices prevailing at the times of such sales or in private sales of the
securities at prices related to the prevailing market prices or at negotiated
prices. The sales may involve:
- a block transaction in which the broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction,
- a purchase by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus,
- ordinary brokerage transactions in which the broker solicits
purchasers,
- an exchange distribution in accordance with the rules of the NASD,
- privately negotiated transactions,
- short sales,
- broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share,
- a combination of any such methods of sale, and
- any other method permitted pursuant to applicable law
Broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions (the selling stockholders do not expect
that most compensation will be in excess of customary commissions).
The selling stockholders and any broker-dealers that participate in the
distribution of the shares may be deemed to be underwriters and any commission
received by them and any profit on the resale shares purchased by them might be
deemed to be underwriting discounts and commissions under the Securities Act.
-13-
<PAGE>
The selling stockholders may also engage in short sales against the
box, puts and calls and other transactions in securities of WorldGate or
derivatives of WorldGate securities and may sell or deliver shares in connection
with these trades. The selling stockholders may pledge the shares to their
brokers under the margin provisions of customer agreements. If a selling
stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares.
WorldGate is required to pay all registration expenses in connection
with the registration of the shares other than fees and expenses of the selling
stockholders' counsel, underwriting discounts and commissions, brokerage
commissions, non-accountable expense allowances attributable to the sale of the
selling stockholders' shares and the selling stockholders' other out of pocket
expenses.
There can be no assurance that the selling stockholders will sell any
or all of the shares. We will receive no proceeds from any sales of the shares
by the selling stockholders.
The registration statement of which this prospectus is a part has been
filed with the Commission by us in accordance with the registration rights
granted to the selling stockholders.
The selling stockholders have advised us that they or their pledgees,
donees, transferees or other successors in interest may sell all or a portion of
the securities covered by this prospectus pursuant to Rule 144.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with the Securities and Exchange Commission,
which means we can satisfy our legal obligations to disclose important
information contained in those documents by referring you to them. The
information included in the following documents is incorporated by reference and
is considered part of this prospectus. More recent information that we file with
the Securities and Exchange Commission automatically updates and supersedes any
inconsistent information contained in prior filings.
The documents listed below have been filed under the Exchange Act with
the Securities and Exchange Commission and are incorporated by reference:
(a) Our annual report on Form 10-K for the fiscal year ended
December 31, 1999.
(b) Our quarterly report on Form 10-Q for the quarterly period
ended March 31, 2000.
(c) The description of our common stock contained in the our
registration statement on Form 8-A filed under Section 12 of
the Exchange Act, including any amendments or reports filed
for the purpose of updating such description.
We also incorporate by reference all documents subsequently filed by us
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until the
offering of the shares of common stock under this prospectus is completed. You
may request a copy of these filings, at no cost, by writing or telephoning us at
WorldGate Communications, Inc., 3190 Tremont Avenue, Trevose, Pennsylvania,
19053, attn: Secretary, telephone: (215) 354-5100.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-3 with the Securities
and Exchange Commission registering the shares of our common stock that are
being offered by this prospectus. This prospectus is a part of the registration
statement and, as the Securities and Exchange Commission rules
-14-
<PAGE>
permit, does not contain all of the information that stockholders can find in
the registration statement or the exhibits to the registration statement.
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file at the Securities and Exchange Commission's public
reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Securities and Exchange Commission's regional offices in New York (7 World Trade
Center, Suite 1300, New York, New York 10048) and Chicago (Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511). In addition,
registration statements and certain other filings made with the Securities and
Exchange Commission through its "EDGAR" system are publicly available through
the Securities and Exchange Commission's Web site on the Internet located at
http://www.sec.gov. This registration statement, including all exhibits, has
been filed with the Securities and Exchange Commission through EDGAR. Reports,
proxy and information statements and other information concerning us can be
inspected at the offices of the Nasdaq National Market, 1735 K Street, N.W.,
Washington, D.C. 20006-1506.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus
will be passed upon for us by Drinker Biddle & Reath LLP, Berwyn, Pennsylvania.
EXPERTS
The financial statements incorporated into this prospectus by reference
to the annual report on Form 10-K for the year ended December 31, 1999 have been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
-15-
<PAGE>
No dealer, salesman or other person has
been authorized to give any information
or to make any representations other than
those contained in this prospectus in
connection with the offer made hereby,
and, if given or made, such information
or representations must not be relied
upon as having been authorized by
WorldGate Communications, Inc. This
prospectus does not constitute an offer
to sell, or a solicitation of an offer to
buy, the securities offered hereby to any
person in any state or other jurisdiction
in which such offer or solicitation is
unlawful. Neither the delivery of this
prospectus nor any sale made hereunder
shall, under any circumstances, imply
that information contained herein is
correct as of any time subsequent to its
date or that there has not been any WORLDGATE COMMUNICATIONS, INC.
change in the facts set forth in this
prospectus or in our affairs since the 705,353 SHARES OF COMMON STOCK
date hereof.
........................
PROSPECTUS
........................
JULY 26, 2000
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY...................2
RISK FACTORS.........................3
USE OF PROCEEDS.....................11
SELLING STOCKHOLDERS................12
PLAN OF DISTRIBUTION................13
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE............14
ADDITIONAL INFORMATION..............14
LEGAL MATTERS.......................15
EXPERTS.............................15
