<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted
|X| Definitive Proxy Statement by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to
Rule 14a-11 or Rule 14a-12
WORLDGATE COMMUNICATIONS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
--------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------
(4) Date Filed:
<PAGE>
[WorldGate Logo]
WORLDGATE COMMUNICATIONS, INC.
3190 Tremont Avenue
Trevose, PA 19053
August 30, 2000
Dear Shareholder:
On behalf of the Board of Directors of WorldGate Communications, Inc., I
cordially invite you to attend our 2000 Annual Meeting of Shareholders. We will
be holding the Annual Meeting at the Holiday Inn Select - Bucks County, 4700
Street Road, Trevose, Pennsylvania on October 5, 2000, at 10:00 a.m. local time.
Enclosed with this letter is a Notice of the Annual Meeting, a Proxy
Statement, a proxy card and a return envelope. The Proxy Statement provides
details of the business that we will consider at the Annual Meeting and other
information about WorldGate. Also enclosed with this letter is a copy of
WorldGate's Annual Report to Shareholders and Report on Form 10-K for the year
ending December 31, 1999. These documents will provide you with further
information about our company.
Whether or not you plan to attend the Annual Meeting, please sign, date and
promptly return the proxy card in the enclosed prepaid return envelope. Your
shares will be voted at the Annual Meeting in accordance with your proxy
instructions. Of course, if you attend the Annual Meeting you may vote in
person. If you plan to attend the meeting, please mark the appropriate box on
the enclosed proxy card.
Sincerely,
/s/ Hal M. Krisbergh
Hal M. Krisbergh
Chairman and Chief Executive Officer
YOUR VOTE IS IMPORTANT!
Please Sign, Date and Return Your Proxy Card Before the Annual Meeting.
If you have any questions about voting your shares, please contact
Randall J. Gort at 215-354-5105.
<PAGE>
[WorldGate Logo]
WORLDGATE COMMUNICATIONS, INC.
3190 Tremont Avenue
Trevose, PA 19053
-------------------------------
NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
OCTOBER 5, 2000
-------------------------------
TO THE SHAREHOLDERS OF
WORLDGATE COMMUNICATIONS, INC.:
Notice is hereby given that the 2000 annual meeting of shareholders (the
"Annual Meeting") of WORLDGATE COMMUNICATIONS, INC. (the "Company" or
"WorldGate") will be held at the Holiday Inn Select - Bucks County, 4700 Street
Road, Trevose, Pennsylvania 19053 on October 5, 2000, at 10:00 a.m., local time,
for the following purposes:
1. To elect seven directors;
2. To ratify and approve amendments to the Company's 1996 Stock Option
Plan, increasing the number of shares reserved for issuance under the
Plan to 3,200,000;
3. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending December 31, 2000;
and
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Only shareholders of record as of the close of business on August 25, 2000
will be entitled to notice of the Annual Meeting and to vote at the Annual
Meeting and any adjournments thereof. A list of shareholders of the Company as
of the close of business on August 25, 2000 will be available for inspection
during normal business hours for ten days prior to the Annual Meeting at the
Company's executive offices at 3190 Tremont Avenue, Trevose, Pennsylvania 19053.
By order of the Board of Directors,
Randall J. Gort
Secretary
Trevose, Pennsylvania
August 30, 2000
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING,
BUT WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON,
EACH SHAREHOLDER IS URGED TO COMPLETE, SIGN AND RETURN
THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES. A PERSON GIVING A
PROXY HAS THE POWER TO REVOKE IT, AT ANY TIME BEFORE THE
PROXY IS VOTED, BY WRITTEN NOTICE TO THE SECRETARY OF THE
COMPANY OR, FOR ANY SHAREHOLDER WHO IS PRESENT
AT THE MEETING, BY WITHDRAWING THE PROXY AND VOTING IN PERSON.
<PAGE>
[WORLDGATE LOGO]
WORLDGATE COMMUNICATIONS, INC.
3190 Tremont Avenue
Trevose, PA 19053
-------------------------------
PROXY STATEMENT
FOR
2000 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
OCTOBER 5, 2000
-------------------------------
This proxy statement and the accompanying form of proxy are being mailed on
or about August 30, 2000 to the shareholders of WorldGate Communications, Inc.
(the "Company" or "WorldGate"). These materials are being furnished in
connection with the solicitation by the Board of Directors of the Company of
proxies to be voted at the 2000 Annual Meeting of Shareholders (the "Annual
Meeting") to be held at the Holiday Inn Select Bucks County, 4700 Street Road,
Trevose, Pennsylvania 19053 on October 5, 2000, at 10:00 a.m., local time, and
at any adjournments thereof.
At the Annual Meeting, shareholders of the Company will be asked to vote
upon (i) the election of seven directors, (ii) the ratification and approval of
amendments to the Company's 1996 Stock Option Plan, increasing the number of
shares reserved for issuance under the Plan to 3,200,000 and (iii) the
ratification of the selection of PricewaterhouseCoopers LLP as independent
auditors of the Company. If other matters properly come before the Annual
Meeting, however, the persons named in the accompanying proxy intend to vote
thereon in accordance with their judgment.
The cost of solicitation of proxies will be borne by the Company. The
Company also will request banks and brokers to solicit proxies from their
customers, where appropriate, and will reimburse such persons for reasonable
expenses incurred in that regard.
The Company's annual report to shareholders on Form 10-K, for the year
ended December 31, 1999, including financial statements, is being mailed to
shareholders with this proxy statement but does not constitute a part of this
proxy statement.
VOTING AT THE MEETING
Only holders of record of shares of the Company's Common Stock, par value
$0.01 per share ("Common Stock"), at the close of business on August 25, 2000,
the record date, are entitled to vote at the Annual Meeting. As of that date,
there were 23,228,030 shares of Common Stock outstanding. Each shareholder
entitled to vote shall have the right to one vote for each outstanding share of
Common Stock held in such shareholder's name.
Shares cannot be voted at the Annual Meeting unless the holder of record is
present in person or by proxy. The enclosed form of proxy is a means by which a
shareholder may authorize the voting of his, her or its shares at the Annual
Meeting.
<PAGE>
The Company presently has no other class of stock outstanding and entitled
to be voted at the Annual Meeting. The presence in person or by proxy of
shareholders entitled to cast a majority of all votes entitled to be cast at the
Annual Meeting will constitute a quorum. If a broker that is a record holder of
Common Stock does not return a signed proxy, the shares of Common Stock
represented by such proxy will not be considered present at the Meeting and will
not be counted toward establishing a quorum. If a broker that is a record holder
of Common Stock does return a signed proxy, but is not authorized to vote on one
or more matters (each such matter, a "broker non-vote"), the shares of Common
Stock represented by such proxy will be considered present at the Meeting for
purposes of determining the presence of a quorum.
Assuming a quorum is present, (i) directors of the Company will be elected
by a plurality of the votes cast by shareholders present, in person or by proxy,
and entitled to vote for the election of directors at the Annual Meeting, and
(ii) the affirmative vote of a majority of the votes cast by shareholders
present, in person or by proxy, and entitled to vote at the Annual Meeting will
be required for the ratification and approval of the amendment to the Stock
Option Plan and the ratification of the appointment of the auditors for the
current fiscal year. Abstentions and broker non-votes will have no effect on the
outcome of these votes.
Shareholders are urged to specify their choices by marking the appropriate
boxes on the enclosed proxy card. The shares of Common Stock represented by each
properly executed proxy will be voted at the Annual Meeting in accordance with
each shareholder's directions. If no choice has been specified and the enclosed
proxy card is properly executed and returned, the shares will be voted "FOR" the
nominees for election as directors named under the caption "Election of
Directors", "FOR the ratification and approval of the amendments to the 1996
Stock Option Plan and "FOR" the ratification of the appointment of
PricewaterhouseCoopers LLP as the Company's auditors for the year ending
December 31, 2000. If any other matters are properly presented at the Annual
Meeting for action, the proxy holders will vote the proxies (which confer
discretionary authority to vote on such matters) in accordance with their
judgment.
Execution of the accompanying proxy will not affect a shareholder's right
to attend the Annual Meeting and vote in person. Any shareholder giving a proxy
has the right to revoke it by giving written notice of revocation to the
Secretary of the Company, or by delivering a subsequently executed proxy, at any
time before the proxy is voted.
YOUR PROXY VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE ASKED TO COMPLETE, SIGN
AND RETURN THE ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING. IF YOU PLAN TO ATTEND THE ANNUAL MEETING TO VOTE IN PERSON AND
YOUR SHARES ARE REGISTERED WITH THE COMPANY'S TRANSFER AGENT IN THE NAME OF A
BROKER OR BANK, YOU MUST SECURE A PROXY FROM YOUR BROKER OR BANK ASSIGNING
VOTING RIGHTS TO YOU FOR YOUR SHARES OF COMMON STOCK.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of such number of directors
as is fixed from time to time by resolutions adopted by the board. At the Annual
Meeting, seven directors will be elected. The term of office for each director
will expire at the 2001 annual meeting of shareholders, and each director will
hold office until the election and qualification of the director's successor or
until the director's earlier death, removal or resignation.
The Board of Directors has nominated for election as directors of the Company
Thomas G. Baxter, Alan Gerry, Marcia J. Hooper, Clarence L. Irving, Jr.,
Hal M. Krisbergh, David E. Wachob and Ronald A. Walter. All nominees are
presently directors of the Company.
All nominees have consented to be named and to serve if elected. Unless
otherwise instructed by the shareholders, the persons named in the proxies will
vote the shares represented thereby for the election of such nominees. The Board
of Directors believes all nominees will be able to serve as directors; if this
should not be the case, however, the proxies may be voted for one or more
substitute nominees to be designated by the Board of Directors, or the board may
decide to reduce the number of directors. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES NAMED BELOW.
-------------------------------
NOMINEES FOR ELECTION
-------------------------------
YEAR FIRST BECAME DIRECTOR,
PRINCIPAL OCCUPATIONS DURING
PAST FIVE YEARS AND
NAME OF DIRECTOR AGE CERTAIN DIRECTORSHIPS
---------------- --- ---------------------
Hal M. Krisbergh 53 Mr. Krisbergh has served as Chairman and
Chief Executive Officer of WorldGate
since its inception in March 1995. From
September 1981 to September 1994, Mr.
Krisbergh was an executive officer of
General Instrument (now a part of
Motorola, Inc.). Mr. Krisbergh served as
President of General Instrument's
Communications Division and, for the
past 16 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, opto-electronics and
digital audio technologies. 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.
David E. Wachob 46 Mr. Wachob has served as Vice President,
General Manager and director of
WorldGate since its inception in 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 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.
3
<PAGE>
YEAR FIRST BECAME DIRECTOR,
PRINCIPAL OCCUPATIONS DURING
PAST FIVE YEARS AND
NAME OF DIRECTOR AGE CERTAIN DIRECTORSHIPS
---------------- --- ---------------------
Thomas G. Baxter 53 Mr. Baxter has been a member of
WorldGate's board of directors since
July 1998. Mr. Baxter has been the
President of Audible, Inc., a publicly
traded company that provides spoken word
audio to users via the Internet, since
February 2000. Mr. Baxter was an
operating partner in the investment
banking firm of Evercore Partners from
1998 to February 2000. Mr. Baxter is a
director of Dycom Industries, Inc. From
January 1990 to January 1998, 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. 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 71 Mr. 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 46 Ms. 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 LionBridge
Technologies, Inc., an Internet services
company, and PolyMedica Corporation, a
medical products and services provider.
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.
Clarence L. Irving, Jr. 45 Mr. Irving has been a member of
WorldGate's board of directors since
July 2000. Mr. Irving is a Co-Founder of
UrbanMagic and has been a Senior
Manager since January 2000. He has been
President and Chief Executive Officer of
Irving Information Group, a consulting
services firm, since October 1999 and
has served as a director of Covad
Communications Group, Inc. since April
1999. Mr. Irving served as Assistant
Secretary of Commerce to the United
States Department of Commerce from June
1993 to October 1999.
Ronald A. Walter 57 Mr. Walter has been a member of
WorldGate's board of directors since
April 1998. Mr. Walter is Executive Vice
President of Citigroup Investments Inc.,
and has been a senior officer 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. 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 New York City in the 1970s.
4
<PAGE>
GENERAL INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of the Company met on 11 occasions in 1999. The
Delaware General Corporate Law provides that the Board, by resolution adopted by
a majority of the entire board, may designate one or more committees, each of
which shall consist of one or more directors. The Board has elected from its
members an Audit Committee and a Compensation Committee. Each director attended
at least 75% of the aggregate of the meetings of the Board held during the
period for which he or she was a director and the meetings of the committee or
committees on which he or she served during 1999.
COMPENSATION COMMITTEE. The Compensation Committee has general supervisory
power over, and the power to grant options under, the Company's 1996 Stock
Option Plan. In addition, the Compensation Committee recommends to the board the
compensation of the Company's Chief Executive Officer, reviews and takes action
on the recommendations of the Chief Executive Officer as to the compensation of
the Company's other officers and key personnel, approves the grants of any
bonuses to officers, and reviews other compensation matters generally. The
Compensation Committee met six times in 1999. The Compensation Committee is
currently composed of three directors, including Mr. Krisbergh and two directors
that are not officers or employees of the Company, Mr. Gerry and Ms. Hooper.
AUDIT COMMITTEE. The Audit Committee is responsible for providing general
oversight with respect to the accounting principles employed in WorldGate's
financial reporting. The Audit Committee monitors the Company's financial
reporting process and internal control system, reviews and appraises the audit
efforts of the Company's independent accountants and provides an avenue of
communication among the independent accountants, financial and senior management
and the Board of Directors. The Audit Committee meets at least three times
annually, and meets at least once annually with the Company's management and
independent public accountants to review the scope of auditing procedures, the
Company's policies relating to internal auditing and accounting procedures and
controls, and to discuss results of the annual audit of the Company's financial
statements. The Audit Committee met four times since its formation in March of
1999. In 1999, the Audit Committee was composed of Ms. Hooper, Mr. Walter and
Mr. Wachob. Mr. Wachob recently resigned from the Audit Committee so that his
seat on the Committee could be filled by an independent director (I.E., one who
is not an officer or employee of the Company).
5
<PAGE>
PROPOSAL NO. 2
RATIFICATION AND APPROVAL OF AMENDMENT TO STOCK OPTION PLAN
WorldGate's 1996 Stock Option Plan (as amended, the "Plan") authorizes the
Board to grant incentive and nonqualified stock options. The Plan enables the
Board to create equity incentives to help WorldGate attract, retain and motivate
the best available talent for the successful conduct of its business. The Board
of Directors approved amendments to the Plan, subject to the approval of the
shareholders, increasing the number of shares reserved for issuance under the
Plan to 1,600,000 in May 1999 and then to 3,200,000 in May 2000. The Board
believes that these increases were necessary because the remaining shares under
the Plan were insufficient to accomplish the purpose of the Plan. In the Board's
opinion, the addition of shares under this proposal would enable WorldGate to
attract and retain the necessary talent to execute its business objectives in
the near term.
The affirmative vote of a majority of the votes cast in person or by proxy
at the meeting will be required to ratify and approve these amendments to the
Plan. Abstentions will NOT be counted toward the tabulation of votes cast on the
proposal. Broker non-votes will be counted towards a quorum, but will not be
counted for any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION AND
APPROVAL OF THE AMENDMENTS TO THE PLAN TO INCREASE THE NUMBER OF SHARES RESERVED
FOR ISSUANCE UNDER THE PLAN TO 3,200,000.
The following is a summary of certain material provisions of the Plan. The
summary is qualified in its entirety by reference to the Plan.
PURPOSE
The Plan is intended to advance the interests of WorldGate by encouraging
the acquisition of an equity interest in WorldGate and providing employees and
non-employee directors of WorldGate, and consultants and advisors to WorldGate,
with the opportunity to receive grants of incentive stock options and
nonqualified stock options (collectively, the "options").
WorldGate believes that the Plan will serve as an incentive for the
participants to contribute materially to the growth of WorldGate, thereby
benefiting WorldGate's shareholders by aligning the economic interests of the
participants with those of the shareholders.
SHARES SUBJECT TO PLAN
The Plan, as amended, provides for the granting of options to purchase up
to 3,200,000 shares of Common Stock of WorldGate. No optionee may receive
options under the Plan for more than 200,000 shares of Common Stock over the
life of the Plan. These limits are subject to adjustments to reflect any stock
splits, stock dividends, share combinations, or similar changes in the
capitalization of WorldGate. Common Stock issuable under the Plan may be
authorized but unissued Common Stock or reacquired Common Stock, and WorldGate
may purchase Common Stock for this purpose. If any option granted under the Plan
expires, is cancelled or otherwise terminates, in whole or in part, without
having been exercised, the Common Stock subject to the unexercised portion of
such option will again be available for the granting of options under the Plan.
ADMINISTRATION
The Plan is administered by the Compensation Committee. The Committee has
full authority, subject to the terms of the Plan, to select optionees, to
determine the terms and conditions of options, and generally to administer the
Plan.
6
<PAGE>
ELIGIBILITY
All employees of WorldGate (including directors of WorldGate who are
employees), or of a parent or subsidiary corporation, who hold positions of
responsibility and whose performance, in the judgment of the Committee, can have
a significant effect on the long-term success of WorldGate ("Employees"), all
directors of WorldGate who are not also employees of WorldGate ("Non-Employee
Directors") and all advisors and consultants (collectively, "Consultants") whose
services, in the judgment of the Committee, can have a significant effect on the
long-term success of WorldGate are eligible to participate in the Plan.
Employees are eligible to receive incentive stock options ("ISOs") and
nonqualified stock options ("NQSOs") under the Plan. Non-Employee Directors and
Consultants are eligible to receive only NQSOs.
Individuals employed by another corporation who become Employees by reason
of a corporate merger, consolidation, acquisition of stock or property,
reorganization, or liquidation involving WorldGate or any of its subsidiaries
may receive options under the Plan in substitution for stock options or
restricted stock granted by such corporation. The terms and conditions of the
substitute grant may vary from the terms and conditions required by the Plan and
from those of the prior stock option or restricted stock grant. The Committee
shall prescribe the provisions of the substitute grants.
AMENDMENT AND DURATION OF PLAN
Except to the extent limited by the Plan, the Internal Revenue Code (the
"Code"), and Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Board has the power, without the consent of the
shareholders, to discontinue the Plan or to amend its terms. The Plan will
terminate at midnight on December 4, 2006, unless discontinued earlier by the
Board or extended by the Board with the approval of the shareholders. No options
may be granted after such termination, but options outstanding at the time of
termination will remain exercisable in accordance with their terms, and will
vest in accordance with their terms.
TERMS AND CONDITIONS - NONQUALIFIED STOCK OPTIONS
TERM AND PURCHASE PRICE. NQSOs may be granted for periods of not more than
10 years at a purchase price per share determined and fixed by the Committee,
which may be equal to, greater than, or less than the fair market value of such
Common Stock on the date of grant of such option. NQSOs are exercisable in such
installments as the Committee may determine.
An optionee may exercise an option by delivering a notice of exercise to
the Committee with accompanying payment of the purchase price. The purchase
price may be paid in (i) U.S. Dollars by cash, wire transfer of immediately
available funds, or certified check payable to the order of WorldGate, or (ii)
with the approval of the Committee, by delivering shares of Common Stock owned
by the optionee including shares acquired in connection with the exercise of a
particular option and having a fair market value on the date of exercise equal
to the purchase price. Such notice may instruct WorldGate to deliver shares due
upon the exercise to any registered broker or dealer designated by WorldGate in
lieu of delivery to the optionee.
OPTIONAL PURCHASE BY WORLDGATE. In the sole discretion of the Committee, in
lieu of the exercise of an option, the optionee may be permitted to transfer the
option to WorldGate in exchange for a cash payment equal to the excess of (i)
the then fair market value of the shares subject to the option over (ii) the
purchase price of such option.
WITHHOLDING; USE OF SHARES TO SATISFY TAX OBLIGATION. The obligation of
WorldGate to deliver Common Stock upon the exercise of any option is subject to
any applicable Federal, state and local tax withholding requirements. The Plan
provides that, if the exercise of any NQSO is subject to the withholding
requirements of applicable Federal, state or local income tax laws, the optionee
or other person receiving shares of Common Stock upon the exercise of an option
shall be required to pay to WorldGate the amount of any Federal, state, or local
taxes which WorldGate is required to withhold with respect to the exercise of
such option and WorldGate shall have the right to deduct from other wages paid
to the optionee by WorldGate (including through the withholding of Common Stock
purchased upon the exercise of an option, if then authorized by the Committee
and applicable law) the amount
7
<PAGE>
of any tax required to be deducted, withheld or paid over with respect to
such option which is not otherwise paid.
EXPIRATION OF OPTIONS. Any exercisable NQSO held by an Employee or
Consultant who dies or terminates employment or service due to disability will
remain exercisable by the Employee or Consultant or the Employee or Consultant's
personal representative for one year after the Employee or Consultant's death or
termination of employment or service due to disability (or such other period of
time as may be specified in the grant letter), but in no event beyond the normal
expiration date of the option.
If an optionee ceases to be an Employee or Consultant on account of a
termination for cause by WorldGate or on account of a voluntary separation from
WorldGate without the consent of WorldGate, any exercisable NQSO held by the
optionee shall terminate as of the date the optionee's employment or service
terminates (except as the Committee may otherwise provide in writing).
In the event the optionee ceases to be an Employee or Consultant for any
other reason, any exercisable NQSO held by such optionee will remain exercisable
by the optionee for three months after the date on which the optionee ceases to
be an Employee or Consultant (or such other period of time as may be specified
in the grant letter), but in no event beyond the normal expiration date of the
option.
If an optionee ceases to be an Employee or a Consultant for reasons other
than voluntary termination without the consent of WorldGate or termination for
cause, but continues to serve as a member of the Board, such optionee's service
as a member of the Board shall be considered as continued employment or service
with WorldGate.
If an optionee ceases to be a Non-Employee Director for any reason other
than death, any exercisable NQSO held by such optionee will remain exercisable
until the earlier of (i) the normal expiration date of the option, or (ii) 90
days after the Non-Employee Director's termination of service.
Any exercisable NQSO held by a Non-Employee Director who dies while a
member of the Board, or within the period after termination of service during
which the option is exercisable, will remain exercisable until the earlier of
(i) the normal expiration date of the option, or (ii) one year after the
Non-Employee Director's death.
CHANGE OF CONTROL. All outstanding options shall become immediately
exercisable upon a "Change of Control" (as defined in the Plan), unless the
Committee determines otherwise.
TERMS AND CONDITIONS - INCENTIVE STOCK OPTIONS
ISOs are subject to the same terms and conditions under the Plan as are
described above for NQSOs, except as follows:
ELIGIBILITY. Only Employees are eligible to receive ISOs. ISOs may not be
granted to Non-Employee Directors or Consultants.
TERM AND PURCHASE PRICE. The purchase price per share of Common Stock
subject to ISOs shall be equal to, or greater than, the fair market value of
such Common Stock on the date of grant of such option. In cases where ISOs are
granted to a person who owns more than 10% of the voting stock of WorldGate or
of a parent or subsidiary corporation, the purchase price must not be less than
110% of the fair market value of the optioned Common Stock on the date of grant,
and the term of such options cannot be more than five years.
FAIR MARKET VALUE. The aggregate fair market value (determined at the time
the option is granted) of the Common Stock with respect to which ISOs are
exercisable for the first time during any calendar year (under the Plan and any
other ISO plan of WorldGate or of a parent or subsidiary corporation) may not
exceed $100,000.
OTHER REQUIREMENTS. There are also certain other requirements, such as
specified holding periods for Common Stock received upon exercise of such ISOs
and limitations on exercisability following termination of employment, which
must be satisfied in order for an optionee to obtain ISO treatment under the
Code.
8
<PAGE>
TRANSFERABILITY; REGISTRATION OF SHARES
Options are not assignable or transferable by an optionee other than by
will or the laws of descent and distribution or, if permitted under Rule 16b-3
of the Exchange Act and if permitted in any specific case by the Committee in
its sole discretion, pursuant to a qualified domestic relations order.
Notwithstanding the foregoing, the Committee may permit an optionee to transfer
NQSOs to the optionee's spouse or a child or grandchild or to one or more trusts
for the benefit of such family members or to partnerships in which such family
members are the only partners, provided that the optionee receives no
consideration for such transfer and that the optionee and the transferee agree
to such conditions as the Committee may impose.
GRANT LETTERS
The Plan requires that optionees enter into grant letters with WorldGate
which incorporate the terms of the options and such other terms, conditions, and
restrictions, not inconsistent with the Plan and applicable law, as the
Committee may determine.
CHANGE OF CONTROL
In the event of a Change of Control and effective upon such Change of
Control, each optionee shall have 20 days, after the optionee receives written
notice from the Committee about the Change of Control, to exercise any
outstanding options, unless the Committee determines otherwise. If an optionee
does not exercise his options in a timely manner, such options shall terminate
as of the date of the Change of Control. Notwithstanding the foregoing, an
option will not terminate if assumed by the surviving or acquiring corporation,
or its parent, upon a merger or consolidation.
FEDERAL INCOME TAX TREATMENT OF OPTIONS
The current federal income tax treatment of grants under the Plan is
described below. The following discussion is only a summary, is not intended to
be all inclusive or to constitute tax advice, and, among other things, does not
cover possible state, local or foreign tax consequences.
NONQUALIFIED STOCK OPTIONS
To the extent options, when granted, are NQSOs, or to the extent
options, when granted, are intended to be ISOs but fail to qualify as such, the
principal Federal income tax consequences to each optionee and to WorldGate
should generally be as follows:
(1) Upon the grant of an NQSO, the optionee will not recognize taxable
income and WorldGate will not be entitled to a deduction.
(2) Upon the exercise of the NQSO, the optionee generally will
recognize ordinary income as of the date of exercise in an amount equal to the
excess of the fair market value of the Common Stock on the date of exercise over
the purchase price.
(3) WorldGate will be entitled to a deduction to the extent of the
ordinary income recognized by the optionee in accordance with the rules of
Section 83 of the Code (and Section 162(m) of the Code, to the extent
applicable) and the regulations thereunder.
(4) An optionee other than a Consultant or Non-Employee Director
exercising an NQSO is subject to Federal income tax withholding on the income
recognized as a result of the exercise of the NQSO. As mentioned above, the
Committee, in its discretion, may permit the optionee to elect to surrender or
deliver Common Stock otherwise issuable upon exercise in order to satisfy this
withholding requirement, subject to certain restrictions set forth in the Plan.
9
<PAGE>
(5) The basis of the Common Stock received by an optionee upon the
exercise of an NQSO is the purchase price paid plus the amount recognized by the
optionee as income attributable to such Common Stock upon such exercise. The
optionee's holding period for such Common Stock begins on the day after the date
on which the optionee recognizes income with respect to the transfer of such
Common Stock, I.E., generally the day after the exercise date. Gain or loss
recognized by the recipient upon a subsequent disposition of such Common Stock
will be long-term or short-term capital gain or loss, if such Common Stock is
otherwise a capital asset in the hands of the recipient.
Any net capital gain (I.E., the excess of net long-term capital gains
for the taxable year over net short-term capital losses for such taxable year)
will be currently taxed at a maximum capital gain rate of 20%. Any net capital
loss can only be used to offset up to $3,000 per year ($1,500 per year in the
case of a married individual filing separately) of ordinary income or carried
forward to a subsequent year.
INCENTIVE STOCK OPTIONS.
To the extent options, when granted, qualify as ISOs under Section 422
of the Code, the principle Federal income tax consequences to each optionee and
to WorldGate should generally be as follows:
(1) Upon the grant of an ISO, the optionee will not recognize taxable
income and WorldGate will not be entitled to a deduction. Moreover, upon the
exercise by the optionee of the ISO, the optionee will not recognize taxable
income and WorldGate will not be entitled to a deduction, provided the optionee
was an employee of WorldGate during the entire period from the date of grant of
the ISO until three months before the date of exercise (increased to 12 months
if employment ceased due to total and permanent disability). The employment
requirement is waived in the event of the optionee's death. (Of course, in all
of these situations, the ISO itself may provide a shorter exercise period after
employment ceases than the allowable period under the Code.) Notwithstanding the
preceding paragraph, the excess of the fair market value of the Common Stock at
the time of exercise over the purchase price will generally be included in the
optionee's alternative minimum taxable income in the year of exercise.
If the employment requirements described above are not met, the tax
consequences relating to NQSOs (discussed above) will apply.
(2) The basis of the Common Stock received by an optionee upon the
exercise of an ISO is the purchase price. The optionee's holding period for such
Common Stock begins on the date of exercise. If the optionee disposes of the
Common Stock acquired under an ISO after holding such Common Stock for at least
two years following the date of grant of the ISO and at least one year following
the date of transfer of the Common Stock to the optionee following exercise of
the ISO, the optionee will recognize a long-term capital gain or loss equal to
the difference between the amount realized upon the disposition and the purchase
price, if such Common Stock is otherwise a capital asset in the hands of the
optionee.
Any net capital gain (I.E., the excess of net long-term capital gains
for the taxable year over net short-term capital losses for such taxable year)
will be currently taxed at a maximum capital gain rate of 20%. Any net capital
loss can only be used to offset up to $3,000 per year of ordinary income
(reduced to $1,500 in the case of a married individual filing separately) or
carried forward to a subsequent year.
(3) If the optionee makes a disqualifying disposition of the Common
Stock (that is, disposes of the Common Stock within two years after the date of
grant of the ISO or within one year after the transfer of the Common Stock to
the optionee), but all other requirements of Section 422 of the Code are met,
the optionee will generally recognize ordinary income upon disposition of the
Common Stock in an amount equal to the lesser of (i) the fair market value of
the Common Stock on the date of exercise minus the purchase price, or (ii) the
amount realized on disposition minus the purchase price. The basis of the Common
Stock with respect to which a disqualifying disposition occurs will be increased
as of the date of disposition by the amount included in the optionee's ordinary
income. Disqualifying dispositions of Common Stock may also, depending upon the
sales price, result in either short-term or long-term capital gain or loss under
the Code rules which govern other stock dispositions, assuming that the Common
Stock is held as a capital asset. The tax treatment of such capital gain or
10
<PAGE>
loss is summarized in paragraph (2) above.
(4) Where all requirements of Section 422 of the Code, including the
holding and employment requirements described in paragraphs (1) and (2) above,
are met, WorldGate is not entitled to any Federal income tax deduction with
respect to the ISO. In those cases where any of such requirements are not met,
WorldGate generally will be allowed a Federal income tax deduction to the extent
of the ordinary income includible in the optionee's gross income in accordance
with the provisions of Section 83 of the Code (and Section 162(m) of the Code,
to the extent applicable) and the regulations thereunder.
(5) The use of Common Stock received upon the exercise of an ISO to
pay the purchase price in connection with the exercise of other ISOs within
either the two-year or one-year holding periods described in (2) above will
constitute a disqualifying disposition of the Common Stock so used which will
result in income (or loss) to the optionee as described in paragraph (3) above
and, to the extent of a recognized gain, a deduction to WorldGate in the manner
and to the extent described in paragraph (4) above.
OTHER CONSIDERATIONS
The Plan is not qualified under Section 401(a) of the Code and, based
upon current law and published interpretations, WorldGate believes the Plan is
not subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended.
The comments set forth in the above paragraphs are only a summary of
certain of the Federal income tax consequences relating to the Plan as adopted
by WorldGate on December 5, 1996 and amended thereafter. No consideration has
been given to the effects of state, local, and other laws (tax or other) on the
Plan or on the optionee, which laws will vary depending upon the particular
jurisdiction or jurisdictions involved.
11
<PAGE>
PROPOSAL NO. 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP ("PwC") as
the Company's independent auditors for the fiscal year ending December 31, 2000,
and has further directed that management submit the selection of independent
auditors for ratification by the shareholders at the Annual Meeting. PwC audited
the Company's financial statements for the first time in 1999. Representatives
of PwC are expected to be present at the Annual Meeting, will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
Shareholder ratification of the selection of PwC as the Company's
independent auditors is not required by the Company's By-laws or otherwise.
However, the Board is submitting the selection of PwC to the shareholders for
ratification as a matter of good corporate practice. If the shareholders fail to
ratify the selection, the Audit Committee and the Board will reconsider whether
or not to retain that firm. Even if the selection is ratified, the Audit
Committee and the Board in their discretion may direct the appointment of
different independent auditors at any time during the year if they determine
that such a change would be in the best interests of the Company and its
shareholders.
The affirmative vote of a majority of the votes cast in person or by proxy
at the meeting will be required to ratify the selection of PwC. Abstentions will
NOT be counted toward the tabulation of votes cast on the proposal. Broker
non-votes will be counted towards a quorum, but will not be counted for any
purpose in determining whether this matter has been approved. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF THE SELECTION OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR
ENDING DECEMBER 31, 2000.
12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of August 25, 2000
regarding the ownership of Common Stock (i) by each person known by the Company
to be the beneficial owner of more than five percent of the outstanding Common
Stock, (ii) by each director of the Company, (iii) by each executive officer of
the Company named in the Summary Compensation Table included elsewhere in this
proxy statement and (iv) by all current executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNED (2) OWNERSHIP (3)
---------------------------------------- --------- -------------
<S> <C> <C>
Hal M. Krisbergh (4)........................................ 5,935,266 25.18%
Scott B. Campbell (5)....................................... 47,334 *
Gerard K. Kunkel (6)........................................ 50,584 *
Peter C. Mondics (7)........................................ 70,442 *
David E. Wachob (8)......................................... 467,231 2.01%
Thomas G. Baxter (9)........................................ 4,667 *
Alan Gerry ................................................. 185,666 *
Marcia J. Hooper (10)...................................... -- *
Clarence L. Irving, Jr. .................................... -- *
Ronald A. Walter (11) ...................................... -- *
All current executive officers and directors as a group 7,639,763 32.04%
(15 persons) (12).........................................
</TABLE>
--------------------
* Less than one percent.
(1) The address of each beneficial owner is WorldGate Communications, Inc.,
3190 Tremont Ave., Trevose, PA 19053.
(2) The number of shares indicated includes shares issuable upon the exercise
of outstanding stock options and warrants held by each individual or group
to the extent such options and warrants are exercisable within sixty days
of August 25, 2000.
(3) The percentage for each individual or group is based on the aggregate of
the shares outstanding as of August 25, 2000 (23,228,030 shares) and all
shares which the listed beneficial owner has the right to acquire within
sixty days of August 25, 2000 from options and warrants.
(4) Includes (a) 316,206 shares of common stock held in two grantor retained
annuity trusts, each containing 158,103 shares, with Mr. Krisbergh and Mr.
Krisbergh's wife each acting as a trustee for one of the trusts, (b) 15,237
shares of common stock held by Mr. Krisbergh as custodian for his minor
child and (c) 15,237 shares of common stock held by Mr. Krisbergh's wife as
custodian for their minor child. Mr. Krisbergh disclaims beneficial
ownership of these shares.
(5) Includes options to purchase 47,334 shares of common stock.
(6) Includes options to purchase 50,584 shares of common stock.
(7) Includes 2,666 shares of common stock held by Mr. Mondics' minor child and
options to purchase 17,919 shares of common stock.
(8) Includes options to purchase 13,334 shares of common stock.
(9) Includes options to purchase 4,167 shares of common stock and includes 500
shares owned by a trust of which Mr. Baxter is a trustee.
(10) 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. She was originally elected to the Company's Board of Directors as a
representative of the holders of WorldGate's then outstanding Series A
Preferred Stock. Ms. Hooper disclaims beneficial ownership of the shares
held of record by the Advent Funds.
(11) Does not include 1,082,343 shares of Common Stock held by Citicorp. Mr.
Walter is a vice president of Citicorp and Citibank, N.A.
(12) Includes (a) options to purchase 217,924 shares of common stock and (b)
397,310 shares of common stock owned by family members and affiliates of
some members of the group.
13
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The current executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Hal M. Krisbergh 53 Chairman and Chief Executive Officer
James V. Agnello 46 Vice President, Chief Financial Officer
Joseph E. Augenbraun 36 Senior Vice President, Engineering
Scott B. Campbell 53 Vice President, Business Development
Randall J. Gort 51 Vice President, General Counsel and Secretary
Gerard K. Kunkel 42 Senior Vice President, Sales and Marketing
Jae Hea Edward Lee 37 Senior Vice President, Operations
Peter C. Mondics 47 Vice President, Affiliate Sales and Marketing
Kenneth P. Nimmer 60 Vice President, Consumer Marketing
David E. Wachob 46 Director, Vice President and General Manager
</TABLE>
HAL M. KRISBERGH. For Mr. Krisbergh's business background, see "Election of
Directors."
JAMES V. AGNELLO joined WorldGate in April 2000. Mr. Agnello is a Certified
Public Accountant and for the past eighteen years has held a variety of
financial management positions with SmithKline Beecham Corporation, including:
from November 1990 to February 2000 as Vice President-Controller for the
company's Clinical Laboratory division, from January 1986 to November 1990 as
Finance Director/Regional Controller, Southeast Region, from March 1985 to
January 1986 as Manager, Financial Planning, Northeast Region, and from August
1982 to March 1985 as Internal Auditor. Prior his time at SmithKline Beecham, he
held a variety of positions with the public accounting firm of Touche Ross & Co.
(now Deloitte and Touche) from August 1977 to August 1982.
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.
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
14
<PAGE>
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 domestic sales and marketing as well as the development and
deployment of WorldGate's CHANNEL HYPERLINKINGsm 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. For Mr. Wachob's business background, see "Election of
Directors."
Officers are elected or appointed by the Board of Directors to serve until
the appointment or election and qualification of their successors or their
earlier termination or resignation.
15
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid
with respect to the named executive officers for services rendered in all
capacities during the years ended December 31, 1998 and December 31, 1999.
SUMMARY COMPENSATION TABLE
FISCAL YEARS 1999 AND 1998
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
<S> <C> <C> <C>
Hal M. Krisbergh................................. 1998 $320,250 $144,113
Chairman and Chief Executive Officer 1999 $339,465 $152,759
Scott B. Campbell................................ 1998 $160,000 $48,000
Vice President, Business Development 1999 $171,605 $51,481
Peter C. Mondics................................. 1998 $159,375 $47,813
Vice President, Affiliate Sales and Marketing 1999 $168,945 $50,683
Gerard K. Kunkel................................. 1998 $147,140 $44,142
Senior Vice President, Sales and Marketing 1999 $165,273 $49,582
David E. Wachob.................................. 1998 $149,450 $44,835
Director, Vice President and General Manager 1999 $161,254 $48,376
</TABLE>
The Company has established a bonus plan wh ich provides for the payment of
bonuses to executive officers and other employees based upon the performance of
the Company, 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, the Company generally assesses the prior year's performance and makes
bonus payments during the first calendar quarter of each year.
The Company has a Retirement Savings Plan that is funded by the
participants' salary reduction contributions. All employees of the Company are
eligible to participate in the plan upon joining the Company. The plan is
intended to permit any eligible employee who wishes to participate to contribute
up to 12% of the employee's compensation on a before-tax basis under Section
401(k) of the Internal Revenue Code, subject to certain limitations. The plan
provides for discretionary Company matching contributions that are to be made in
proportion to each employee's contribution as well as discretionary Company
profit-sharing contributions, subject to certain limitations. Discretionary
Company matching contributions and profit-sharing contributions vest based upon
the employee's length of service and are payable upon an employee's retirement,
death, disability or termination of employment or, under specified
circumstances, upon an employee's immediate and heavy financial emergency.
Contributions are invested, in such proportions as the employee may elect in any
of 10 mutual investment funds. In 1999, the Company made no discretionary
profit-sharing contributions to the plan.
In addition to salary and bonus compensation, the Company has a stock
option plan, the WorldGate 1996 Stock Option Plan. The Plan provides for the
granting of awards to such officers, other employees, consultants and directors
of the Company and its affiliates as the Compensation Committee may determine
from time to time. Generally, outstanding options vest in equal installments
over a four-year period, but in no event may an option be
16
<PAGE>
exercised more than ten years following the date of its grant, subject to
acceleration in the event of some changes of control of the Company. On May 4,
1999 and May 4, 2000, the Board approved increases, subject to shareholder
approval, in the total number of shares of Common Stock available under the plan
to 1,600,000 shares and then to 3,200,000 shares, respectively. For a summary
description of the Plan, see "Proposal No. 2."
The following table presents information regarding options granted to the
Company's named executive officers during fiscal 1999 to purchase shares of the
Company's Common Stock. In accordance with SEC rules, the table shows the
hypothetical "gains" or "option spreads" that would exist for the respective
options based on assumed rates of annual compound stock price of 5% and 10% from
the date the options were granted over the full option term.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
----------------------------------------------------------------------------------------------------------------------------
Percent of
Number of Total
Securities Options Granted
Underlying to Employees in Exercise
Options Fiscal Year Price Expiration
NAME Granted 1999 Per Share Date 5% 10%
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hal M. Krisbergh
Chairman and Chief Executive
Officer None.
----------------------------------------------------------------------------------------------------------------------------
Scott B. Campbell
Vice President, Business ---
Development 13,333 1.9% $16.50 3/17/09 $138,353 $350,614
----------------------------------------------------------------------------------------------------------------------------
Peter C. Mondics
Vice President, Affiliate Sales 10,000 1.4% $22.88 10/21/09 143,891 364,648
and Marketing 13,333 1.9% $16.50 3/17/09 138,353 350,614
----------------------------------------------------------------------------------------------------------------------------
Gerard K. Kunkel
Senior Vice President Sales and 25,000 3.5% $22.88 10/21/09 359,728 911,621
Marketing 13,333 1.9% $16.50 3/17/09 138,353 350,614
----------------------------------------------------------------------------------------------------------------------------
David E. Wachob
Director, Vice President and 45,000 6.4% $22.88 10/21/09 647,510 1,640,917
General Manager 13,333 1.9% $16.50 3/17/09 138,353 350,614
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
The following table shows the number of shares of Common Stock subject to
exercisable and unexercisable stock options held by each of the named executive
officers as of December 31, 1999. The table also reflects the values of such
options based on the positive spread between the exercise price of such options
and $47.56, which was the closing sales price of a share of Common Stock
reported on the Nasdaq National Market on December 31, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT AT DECEMBER 31,
DECEMBER 31, 1999 1999
------------------------------------------------------------------------------------------------------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hal M. Krisbergh -- -- -- -- -- --
Chairman and
Chief Executive Officer
------------------------------------------------------------------------------------------------------------------------
Scott B. Campbell -- -- -- 83,332 1,359,330 2,020,356
Vice President,
Business Development
------------------------------------------------------------------------------------------------------------------------
Peter C. Mondics -- -- -- 104,999 1,132,990 2,950,281
Vice President, Affiliate
Sales and Marketing
------------------------------------------------------------------------------------------------------------------------
Gerard K. Kunkel 4,000 78,125 22,666 91,666 1,178,080 2,884,244
Senior Vice President,
Sales and Marketing
------------------------------------------------------------------------------------------------------------------------
David E. Wachob -- -- -- 53,333 -- 1,401,456
Director, Vice President and
General Manager
------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPENSATION OF DIRECTORS
Mr. Baxter, Ms. Hooper and Mr. Irving are reimbursed for travel and other
expenses related to their service on the board of directors. In addition, the
Company pays to Mr. Baxter a stipend of $1,000 for each board meeting he attends
in person and on March 17, 1999, the Company granted to him options to purchase
3,333 shares of common stock at an exercise price of $16.50 per share. On July
26, 2000, the Company granted to Mr. Irving options to purchase 25,000 shares of
common stock at an exercise price of $28 3/8 per share. These options will vest
in four equal annual installments on the anniversary of the grant date. Other
than Mr. Baxter, Ms. Hooper and Mr. Irving, no other board member is reimbursed
for his or her travel and other expenses or compensated for his or her service
on the board.
EMPLOYMENT AGREEMENTS
No named executive officer is a party to an employment agreement with
WorldGate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Stock Option Committee (the "Compensation Committee")
is currently composed of Messrs. Krisbergh and Gerry and Ms. Hooper. The
Compensation Committee makes recommendations to the board concerning the
compensation and benefits programs for its directors, officers and employees,
including all options granted under the Company's option plan. With the
exception of Mr. Krisbergh, no member of the Compensation Committee is an
officer or employee of the Company. Mr. Krisbergh does not, however, participate
in the determination of his own compensation.
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THE FOLLOWING COMPENSATION COMMITTEE REPORT AND THE COMPARATIVE STOCK
PERFORMANCE GRAPH SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL
STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY FILING UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY
INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED
FILED UNDER SUCH ACTS.
REPORT OF COMPENSATION AND STOCK OPTION COMMITTEE ON EXECUTIVE
COMPENSATION
This report by the Compensation Committee of the Board of Directors (the
"Committee") discusses the Committee's compensation objectives and policies
applicable to the Company's executive officers. The report reviews the
Committee's policy generally with respect to the compensation of all executive
officers as a group for fiscal 1999 and specifically reviews the compensation
established for the Company's Chief Executive Officer as reported in the Summary
Compensation Table. Other than Mr. Krisbergh, the Committee is composed entirely
of non-employee directors of the Company. The Committee also administers the
Company's Stock Option Plans.
COMPENSATION PHILOSOPHY
The Committee consists of two non-employee directors and Mr. Krisbergh. Mr.
Krisbergh does not, however, participate in the determination of his own
compensation. The Committee is responsible for setting cash and long-term
incentive compensation for executive officers and other key employees of the
Company. The Company's compensation policies are intended to create a direct
relationship between the level of compensation paid to executives and the
Company's current and long-term level of performance. The Committee believes
that this relationship is best implemented by providing a compensation package
of separate components, all of which are designed to enhance the Company's
overall performance. The components are base salary, short-term compensation in
the form of annual bonuses and long-term incentive compensation in the form of
stock options.
BASE SALARIES
The base salaries for the Company's senior executive officers for 1999 were
established subjectively by the Committee. The salaries of such officers were
established based on the market environment and the Company's need to attract
and retain key personnel for whom the Company must compete against larger, more
established companies.
SHORT-TERM ANNUAL BONUSES
Annual bonuses established for the executive officers are intended to
provide an incentive for improved performance in the short term. The Committee
establishes target bonus levels at the beginning of the year. For 1999, these
bonuses were established based on predetermined goals such as member counts,
revenue and financial performance.
LONG-TERM INCENTIVE COMPENSATION
The Company's long-term incentive compensation plan for its senior
executive officers is based on the Company's stock option plan. This plan
promotes ownership of the Company's Common Stock, which, in turn, provides a
common interest between the shareholder of the Company and the executive
officers of the Company. In establishing a long-term compensation plan, the
Board of Directors concluded that any compensation received under such plans
should be directly linked to the performance of the Company, as reflected by
increases in the price of its Common Stock, and the contribution of the
individual thereto. Options have an exercise price equal to the fair market
value of the shares on the date of grant and, to encourage a long-term
perspective, have an exercise period of ten years and generally vest over four
years. The number of options granted to executive officers is determined by the
Committee, which is charged with administering the stock option plan. The base
salaries, targeted bonus amounts and number of stock options established for or
granted to the Company's executive officers for 1999 are based, in part on the
Committee's understanding of compensation amounts and forms paid to persons in
comparable
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roles performing at comparable levels at other companies in the same or
related industries. Such amounts however, mainly reflect the subjective
discretion of the members of the Committee based on the evaluation of the
Company's current and anticipated future financial performance, the contribution
of the individual executive officers to such financial performance, the
contribution of the individual executive officers to the Company in areas not
necessarily reflected by the Company's financial performance and the most
appropriate incentive to link the performance and compensation of the executive
officers to the stockholder's return on the Company's Common Stock.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
During fiscal year 1999, Mr. Krisbergh's base salary was increased to
maintain a fully competitive position among Chief Executive Officers of
similarly-situated high technology companies. This increase of six percent was
based also on Mr. Krisbergh's excellent performance during the previous year.
Mr. Krisbergh also had an opportunity to earn additional incentive pay
under the Company's short-term annual bonus program, based on his performance
against qualitative objectives. The Committee approved payment of $152,759 based
on excellent performance. In reaching its decision, the Committee noted the
Company's completion of a successful initial public offering, successful system
rollouts of the Company's Internet access product, strengthening of already
excellent relations with major customers and the financial community, and
actions to further develop organizational and individual competencies.
Mr. Krisbergh requested that he not be included in any grant of stock
options under the Company's stock option plans during fiscal 1999, stating his
preference that the current pool be used for other officers and employees.
LIMITATIONS ON DEDUCTIBILITY OF COMPENSATION
Under the 1993 Omnibus Budget Reconciliation Act, a portion of annual
compensation payable after 1993 to any of the Company's five highest paid
executive officers would not be deductible by the Company for federal income tax
purposes to the extent such officer's overall compensation exceeds $1,000,000.
Qualifying performance-based incentive compensation, however, would be both
deductible and excluded for purposes of calculating the $1,000,000 base.
Although the Committee does not presently intend to award compensation in excess
of the $1,000,000 cap, it will continue to address this issue when formulating
compensation arrangements for the Company's executive officers.
Respectfully submitted,
Compensation Committee
Hal M. Krisbergh
Alan Gerry and
Marcia J. Hooper
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COMPARATIVE STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Company's Common Stock for the period beginning on the Company's initial
public offering on April 15, 1999 through December 31, 1999 with the
cumulative total shareholder return of (i) the Nasdaq Stock Market (U.S.)
Index, (ii) the Nasdaq Telecommunications Index and (iii) the Chase H & Q
Internet Index for the same period. The comparison assumes an investment of
$100 on April 15, 1999 in each index and in the Common Stock of the Company,
and further assumes reinvestment of dividends.
Comparison of 8 Month Cumulative Total Return*
Among WorldGate Communications, Inc.,
The Nasdaq Stock Market (U.S.) Index,
The Nasdaq Telecommunications Index and the Chase H & Q Internet Index
4/15/1999 6/99 9/99 12/99
--------- ---- ---- -----
WorldGate Communications, Inc. 100.00 150.74 67.28 139.89
Nasdaq Stock Market (U.S.) 100.00 106.94 109.54 161.38
Nasdaq Telecommunications 100.00 98.72 90.14 131.01
Chase H & Q Internet 100.00 91.37 93.93 181.82
* $100 invested on April 15, 1999 in stock or index -- including reinvestment
of dividends, if any. Fiscal year ending December 31, 1999.
21
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INFORMATION CONCERNING INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP has served as the Company's independent
accountants since 1996. The Company has requested that a representative of
PricewaterhouseCoopers LLP attend the Annual Meeting. Such representative will
have an opportunity to make a statement, if he or she desires, and will be
available to respond to appropriate questions of shareholders.
OTHER MATTERS
The Board of Directors is not aware of any matters not set forth herein
that may come before the meeting. If, however, further business properly comes
before the meeting, the persons named in the proxies will vote the shares
represented thereby in accordance with their judgment.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of our
common stock (collectively, the "reporting persons") to file reports of
ownership with the Securities and Exchange Commission and to furnish us with
copies of these reports. Based solely on our review of those documents received
by us, and written representations, if any, received from reporting persons with
respect to the filing of reports on Forms 3, 4 and 5, we believe that all
filings required to be made by the reporting persons for fiscal year 1999 were
made on a timely basis with the exception of one late filing for the month of
August 1999 on Form 4 by Mr. Baxter.
SHAREHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
Shareholders may submit proposals on matters appropriate for shareholder
action at annual meetings in accordance with regulations adopted by the SEC. To
be considered for inclusion in the proxy statement and form of proxy relating to
the 2001 annual meeting, such proposals must be received by the Company no later
than May 1, 2001. Such proposals must relate to matters appropriate for
shareholder action and be consistent with regulations of the Securities and
Exchange Commission. If the May 1, 2001 deadline is missed, a shareholder
proposal may still be submitted for consideration at the 2001 annual meeting,
although it will not be included in the proxy statement, if it is received no
later than July 16, 2001. If notification of a shareholder proposal is not
received by July 16, 2001, the Company may vote, in its discretion, any and all
of the proxies received in its solicitation against such proposal. All proposals
should be directed to the attention of the Secretary of the Company.
ANNUAL REPORT ON FORM 10-K
The Company has furnished without charge to each person whose proxy is
being solicited, a copy of the Company's annual report on Form 10-K, for the
year ended December 31, 1999, including the financial statements, but excluding
exhibits. Requests for additional copies of such report should be directed to
the Company, Attention: Investor Relations.
By order of the Board of Directors,
Randall J. Gort
Secretary
August 30, 2000
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PROXY WORLDGATE COMMUNICATIONS, INC. PROXY
ANNUAL MEETING OF SHAREHOLDERS, OCTOBER 5, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Hal M. Krisbergh and Randall J. Gort, or
either one of them acting singly, with full power of substitution, the proxy or
proxies of the undersigned to attend the Annual Meeting of Shareholders of
WorldGate Communications, Inc. to be held on October 5, 2000, and any
adjournments thereof, to vote all shares of common stock that the undersigned
would be entitled to vote if personally present in the manner indicated below
and on the reverse side, and on any other matters properly brought before the
meeting or any adjournments thereof, all as set forth in the August 30, 2000
Proxy Statement.
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN BLUE OR BLACK INK
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL NOMINEES AND FOR
PROPOSALS 2 AND 3.
1. Election of the following nominees as directors: Thomas G. Baxter, Alan
Gerry, Marcia J. Hooper, Clarence L. Irving, Jr., Hal M. Krisbergh, David
E. Wachob and Ronald A. Walter.
FOR ALL NOMINEES WITHHOLD FOR ALL NOMINEES
[ ] [ ]
WITHHOLD FOR THE FOLLOWING ONLY:
(WRITE THE NAMES OF THE NOMINEE(S)
IN THE SPACE BELOW)
------------------------------------------------
2. To amend the 1996 Stock Option Plan to increase the number of shares
available under the plan to 3,200,000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Ratification of selection of PricewaterhouseCoopers LLP as Independent
Auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF
ANNUAL MEETING, PROXY STATEMENT AND ANNUAL REPORT OF
WORLDGATE COMMUNICATIONS, INC.
(SIGNATURE SHOULD BE EXACTLY AS NAME OR
NAMES ON THIS PROXY. IF STOCK IS HELD
JOINTLY, EACH HOLDER SHOULD SIGN. IF
SIGNING IS BY ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE.)
DATE____________________, 2000
----------------------------------
SIGNATURE
----------------------------------
SIGNATURE IF HELD JOINTLY
I PLAN TO ATTEND THE MEETING:
YES [ ] NO [ ]
THIS PROXY WILL BE VOTED FOR ALL NOMINEES AND FOR APPROVAL OF
PROPOSALS 2 AND 3 UNLESS OTHERWISE INDICATED, AND IN THE DISCRETION
OF THE PROXIES ON ALL MATTERS PROPERLY
BROUGHT BEFORE THE MEETING.
