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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------------------
For the Quarter ended: September 30, 1997 Commission File Number 000-21685
INTELIDATA TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 54-1820617
(State of incorporation) (I.R.S. Employer Identification Number)
13100 Worldgate Drive, Suite 600, Herndon, VA 20170
(Address of Principal Executive Offices)
(703) 834-8500
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
The number of shares of the registrant's Common Stock outstanding on October 31,
1997 was 31,163,027.
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<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996.....................3
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1997 and 1996......4
Condensed Consolidated Statement of Changes in
Stockholders' Equity
Nine Months Ended September 30, 1997.........................5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996................6
Notes to Condensed Consolidated Financial Statements.........7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...........................................20
Item 6. Exhibits and Reports on Form 8-K............................20
SIGNATURES....................................................................21
<PAGE>
PART I: FINANCIAL INFORMATION
- ------------------------------
ITEM 1: FINANCIAL STATEMENTS
- -----------------------------
<TABLE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(in thousands, except share data)
<CAPTION>
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 305 $ 26,644
Short-term investments 10,770 12,418
Accounts receivable, net of reserves of
$5,738 in 1997 and $1,788 in 1996 17,158 12,925
Inventories 19,673 28,420
Prepaid expenses and other current assets 396 2,582
----------- -----------
Total current assets 48,302 82,989
NONCURRENT ASSETS
Costs in excess of net assets acquired -- 50,061
Property, plant and equipment, net 6,830 9,143
Investments 1,267 253
Other assets 309 1,300
----------- -----------
TOTAL ASSETS $ 56,708 $ 143,746
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,883 $ 4,684
Accrued expenses and other liabilities 10,507 12,773
Short-term borrowings 1,300 2,000
----------- -----------
TOTAL LIABILITIES 13,690 19,457
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; authorized 5,000,000 shares;
no shares issued and outstanding -- --
Common stock, $0.001 par value; authorized 60,000,000 shares;
issued 31,844,527 shares in 1997 and 31,816,693 shares in 1996;
outstanding 31,163,027 shares in 1997 and 31,816,693 shares in 1996 32 32
Additional paid-in capital 243,857 243,757
Treasury stock, at cost, 681,500 shares (2,064) --
Receivable from sale of stock -- (2,456)
Deferred compensation (46) (133)
Accumulated deficit (198,761) (116,911)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 43,018 124,289
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 56,708 $ 143,746
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(in thousands, except per share data; unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Telecommunications $ 10,841 $ 512 $ 47,033 $ 1,358
Electronic commerce 824 551 3,035 1,579
Interactive services 43 -- 67 --
----------- ----------- ----------- -----------
Total revenues 11,708 1,063 50,135 2,937
----------- ----------- ----------- -----------
COST OF REVENUES
Telecommunications 9,018 573 33,643 1,266
Electronic commerce 500 130 2,002 709
Interactive services 40 -- 60 --
----------- ----------- ----------- -----------
Total cost of revenues 9,558 703 35,705 1,975
----------- ----------- ----------- -----------
Gross profit 2,150 360 14,430 962
OPERATING EXPENSES
General and administrative 4,736 2,926 11,437 7,448
Selling and marketing 4,397 185 10,207 268
Research and development 2,751 5,700 7,335 6,875
Unusual charges 69,125 -- 69,691 --
---------- ----------- ----------- -----------
Total operating expenses 81,009 8,811 98,670 14,591
----------- ----------- ----------- -----------
Operating loss (78,859) (8,451) (84,240) (13,629)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest, net 299 306 1,184 998
Equity in affiliate (600) (537) 1,267 (1,431)
Other -- 158 -- 344
----------- ----------- ----------- -----------
Total other income (expense) (301) (73) 2,451 (89)
----------- ----------- ----------- -----------
Loss before income taxes (79,160) (8,524) (81,789) (13,718)
Income taxes 18 -- 61 --
----------- ----------- ----------- -----------
Net loss $ (79,178) $ (8,524) $ (81,850) $ (13,718)
=========== =========== =========== ===========
Net loss per common share $ (2.51) $ (0.53) $ (2.58) $ (0.86)
=========== =========== =========== ===========
Weighted average outstanding shares 31,497 16,044 31,711 15,903
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
(in thousands; unaudited)
<CAPTION>
Common stock Additional Receivable
--------------- paid-in Treasury from sale Deferred Accumulated
Shares Amount capital Stock of stock Compensation Deficit Total
------ ------ ---------- -------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 31,817 $ 32 $ 243,757 $ - $ (2,456) $ (133) $ (116,911) $ 124,289
Issuance of common stock:
Exercise of stock options 5 - 5 - - - - 5
Employee stock purchase plan 23 - 95 - - - - 95
Acquisition of treasury stock (682) - - (2,064) - - - (2,064)
Unusual charges - - - - 2,456 - - 2,456
Compensation expense - - - - - 87 - 87
Net loss - - - - - - (81,850) (81,850)
------ ------ ---------- -------- ---------- -------- ----------- ---------
Balance at September 30, 1997 31,163 $ 32 $ 243,857 $ (2,064) $ - $ (46) $ (198,761) $ 43,018
====== ====== ========== ======== ========== ======== =========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(in thousands; unaudited)
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (81,850) $ (13,718)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 4,280 352
Provision for bad debts 550 --
Equity in affiliate (1,267) 1,431
Noncash unusual charges 69,691 --
In-process research and development from acquired company -- 4,914
Deferred compensation and other noncash activities 87 114
Changes in certain assets and liabilities, net of effects of noncash
transactions:
Accounts receivable (8,183) 222
Inventories (1,456) (81)
Prepaid expenses and other current assets 1,116 (132)
Other assets 223 (802)
Accounts payable (2,801) (65)
Accrued expenses and other liabilities (4,762) 352
----------- -----------
Net cash used in operating activities (24,372) (7,413)
----------- -----------
Cash flows from investing activities
Net activity of short-term investments and restricted cash 1,648 (1,013)
Purchases of property and equipment (951) (1,702)
Proceeds from sale of property and equipment -- 407
Other investing activities -- (78)
----------- -----------
Net cash provided by (used in) investing activities 697 (2,386)
----------- -----------
Cash flows from financing activities
Payment of short-term borrowings (700) --
Payments to acquire treasury stock (2,064) --
Proceeds from issuance of common stock 100 2,173
----------- -----------
Net cash provided by (used in) financing activities (2,664) 2,173
----------- -----------
Decrease in cash and cash equivalents (26,339) (7,626)
Cash and cash equivalents, beginning of period 26,644 25,120
----------- -----------
Cash and cash equivalents, end of period $ 305 $ 17,494
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The condensed consolidated balance sheet as of September 30,
1997, and the related condensed consolidated statements of operations
for the three and nine month periods ended September 30, 1997 and 1996,
and the consolidated statements of cash flows for the nine month
periods ended September 30, 1997 and 1996 presented in this Form 10-Q
represent the results of InteliData Technologies Corporation for 1997
and the historical results of US Order, Inc. ("US Order") for 1996. On
November 7, 1996, US Order and Colonial Data Technologies Corp.
("Colonial Data") merged with and into InteliData Technologies
Corporation ("InteliData" or the "Company").
The condensed consolidated balance sheet of InteliData as of
September 30, 1997, and the related condensed consolidated statements
of operations for the three and nine month periods ended September 30,
1997 and 1996, and the consolidated statements of cash flows for the
nine month periods ended September 30, 1997 and 1996, are unaudited. In
the opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been included. Interim
results are not necessarily indicative of results for a full year.
Certain amounts have been reclassified to conform to the current year
presentation.
The condensed consolidated financial statements and notes are
presented as required by Form 10-Q, and do not contain certain
information included in the Company's annual audited financial
statements and notes. These financial statements should be read in
conjunction with the annual audited financial statements of the Company
and the notes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in
the Form 10-K for the fiscal year ended December 31, 1996.
(2) New Accounting Standards
Statement of Financial Accounting Standards No. 128, Earnings
Per Share ("SFAS 128") was issued in February 1997 and is effective for
financial statements issued after December 15, 1997. The statement
establishes new standards for computing and presenting earnings per
share ("EPS") and will require restatement of prior years' information.
This statement simplifies the standards for computing EPS previously
found in APB Opinion 15. It replaces the presentation of primary and
fully diluted EPS with a presentation of basic EPS and diluted EPS,
requires a dual presentation on the face of the financial statements,
and requires a reconciliation of basic EPS to diluted EPS. The
presentation of basic EPS and diluted EPS would have been the same as
EPS actually reported for the respective periods.
<PAGE>
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130") was issued in June 1997 and is
effective for financial statements issued after December 15, 1997. The
statement establishes new standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements.
Management has not yet determined the impact of SFAS 130 on future
financial statement presentations.
Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information
("SFAS 131") was issued in June 1997 and is effective for financial
statements issued after December 15, 1997. This Statement establishes
standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. Management has not
yet determined the impact of SFAS 131 on future financial statement
presentations.
(3) Investment in Joint Venture
As previously disclosed, on August 4, 1997, the Company
provided notice to its joint venture partner, Blau Marketing
Technologies, Inc. ("BMT") of its intention to terminate the parties'
joint venture in Worldwide Telecom Partners, Inc. ("WTP") effective
September 5, 1997. The joint venture provided telecommunications
products combined with marketing services to the telecommunications
industry. As of September 30, 1997, the Company wrote-off its
investment in the joint venture and provided for certain reserves for
accounts receivable due from the joint venture.
The Company's subsidiary filed suit in September 1997 against
WTP, BMT and Barry Blau in Connecticut Superior Court seeking payment
by WTP of past due accounts receivable in the amount of approximately
$11.0 million and making certain other claims including breach of
contract. BMT filed a separate suit against the Company and its
subsidiary, WTP and John C. Backus on October 31, 1997 alleging breach
of contract and making certain other claims and seeking damages in
excess of $15,000. The Company believes that its claims and defenses in
the above-described actions are meritorious and intends to vigorously
pursue its remedies.
(4) Unusual Charges
During the third quarter of 1997 the Company announced a
strategic repositioning of the Company's telecommunications division
based on recent events in its marketplace. In connection with this
repositioning and corporate restructuring, the Company's management
evaluated its financial position and determined that it would be
appropriate to charge to operations the remaining intangible assets due
to impairment, adjust inventory carrying amounts to the lower of cost
or market, and reflect certain restructuring charges, including charges
for separation agreements with employees and
<PAGE>
charges associated with the termination of a joint venture agreement.
Additionally, the Company adjusted the carrying value of a receivable
from the sale of stock for an advertising credit based on the
Company's expected use of the credit. Such third quarter 1997 charges
aggregated $49,246,000 for the impairment of intangible assets;
$11,333,000 for inventories and commitments; $2,437,000 for
restructuring charges and separation agreements; $3,653,000 for assets
relating to the joint venture; and $2,456,000 for impairment of the
advertising credits. The impairment was based on the excess of the
carrying value of the assets over the assets' fair values. The fair
value of the assets were generally determined as the estimates of
future cash flows generated by the assets.
(5) Stock Options
In order to motivate and retain employees, on May 21, 1997,
the Company offered employees, except for the Chairman of the Board and
the Chief Executive Officer, participating in the Company's Stock
Option Plans the opportunity to replace any remaining unvested stock
options as of May 21, 1997 with an equal number of options at an
exercise price of $6.00, which was above the closing market price on
such date. Approximately, 642,000 stock options with exercise prices
ranging from $6.38 to $23.75 were replaced. The replacement options
vest over three years from May 21, 1997 in equal annual increments.
(6) Stock Repurchase Program
On August 12, 1997, the Company announced that its board of
directors authorized a stock repurchase program whereby the Company is
authorized to repurchase from time to time up to two million shares of
the Company's common stock from the open market. As of September 30,
1997, the Company had paid $2,064,000 to repurchase 681,500 shares of
its common stock.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
The following represents the results of operations for InteliData for the three
and nine months ended September 30, 1997 and 1996. Results for the three and
nine months ended September 30, 1997 represent the operations of InteliData;
results for the three and nine months ended September 30, 1996 were based on the
stand alone operations of US Order, Inc., the predecessor corporation to
InteliData.
During the third quarter of 1997 the Company announced a strategic repositioning
of the Company's telecommunications division based on recent events in its
marketplace. In connection with this repositioning and corporate restructuring,
the Company's management evaluated its financial position and determined that it
would be appropriate to charge to operations the remaining intangible assets due
to impairment, adjust inventory carrying amounts to the lower of cost or market,
and reflect certain restructuring charges, including charges for separation
agreements with employees and charges associated with the termination of a joint
venture agreement. Additionally, the Company adjusted the carrying value of a
receivable from the sale of stock for an advertising credit based on its
expected use of the credit. The impairment was based on the excess of the
carrying value of the assets over the assets' fair values. The fair value of the
assets were generally determined as the estimates of future cash flows generated
by the assets.
On August 1, 1994, the Company entered into an Acquisition Agreement with Visa
International Services Association ("Visa"), pursuant to which the Company sold
its electronic banking and bill payment operations to Visa for approximately $15
million, the assumption of certain liabilities and the right to receive certain
royalties during a 72-month period commencing January 1, 1995 (the "Acquisition
Agreement"). Visa subsequently licensed certain of its rights under the
Acquisition Agreement to Visa InterActive. In connection with Integrion
Financial Network, LLC's ("Integrion") acquisition of substantially all of the
assets of Visa InterActive, including Visa InterActive's license to Integrion to
use the Bill-Pay System, effective September 30, 1997, the Company entered into
a Settlement Agreement with Visa and Visa InterActive whereby the Company
received $5 million as a non-refundable prepayment for any royalty payments
otherwise owed to the Company from Visa's domestic licensees, including
Integrion, until August 22, 1999. Thereafter, and until the expiration of the
Acquisition Agreement on December 31, 2000, the Company shall receive all
royalty payments otherwise due to the Company from Visa's domestic licensees,
including Integrion, as otherwise provided in the Acquisition Agreement. In
addition, the Company is entitled to receive royalty payments from international
licensees to whom Visa may license the Bill-Pay System, through December 31,
2000. The Company intends to recognize the revenue from the prepaid royalties
ratably through the third quarter of 1999.
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues
The Company's third quarter revenues were $11,708,000 in 1997 compared
to $1,063,000 in 1996 an increase of $10,645,000. Revenues generated by the
telecommunications division were $10,841,000 during the third quarter of 1997.
Telecommunications division revenues are generated primarily from marketing and
promotional campaigns for Caller ID units and services conducted by telephone
operating companies and the Company. Contributing to the telecommunications
revenues were $8,417,000 from the sale of approximately 257,000 Caller ID
adjuncts; 1,987 integrated telephones and 2,227 multi-line systems; $1,987,000
from customers within a Caller ID leasing program; and $437,000 in the telephone
repair business. Telecommunications revenues for the fourth quarter are expected
to be in line with the Company's performance in the third quarter.
The electronic commerce division contributed $824,000 in revenues in
the third quarter of 1997, a 50% increase over the same period in the prior
year. The increase is primarily attributed to the expansion of the division's
software sales and related services which aggregated $588,000 for the third
quarter of 1997. Software revenues were $274,000 for the third quarter of 1997
compared to $0 for the third quarter of 1996. Service fee revenues for the third
quarter of 1997 were $236,000 compared to $551,000 for the same period in 1996,
a decrease of $315,000. The decrease is predominantly related to a decrease in
the Company's customer support revenues, which are remarketed by Visa
InterActive to Visa member banks, which aggregated $155,000 for the third
quarter of 1997 compared to $422,000 for the same period one year ago. This
decrease is a result of a wind-down relating to the Company's termination of the
customer service agreement with Visa InterActive announced in the first quarter
of 1997. The customer service agreement terminated effective July 31, 1997.
Monthly service fees revenues decreased to $81,000 in 1997 from $140,000 for the
same period in 1996. Monthly service fees revenues are from customers who use
the Company's previous generation smart telephones and associated interactive
applications, and the decrease was primarily due to the Company's continuing
efforts to convert these customers to Visa member banks.
The interactive services division recorded revenue of $43,000 during
the third quarter of 1997 related to SmartTime(R) services that are available to
customers on a variety of small screen devices, primarily screen telephones, as
well as consulting service revenue.
Cost of Revenues
The Company's third quarter cost of revenues increased to $9,558,000
for 1997 from $703,000 for the same period in 1996. The telecommunications
division contributed $9,018,000 of the total cost of revenues, consisting of
$7,437,000 from the sale of Caller ID adjuncts, integrated telephones and
multi-line system shipments; $1,254,000 from leasing activities and $327,000
from telephone repair services.
<PAGE>
The electronic commerce division reported cost of revenues aggregating
$500,000 for the third quarter of 1997 or a 284% increase over the same period
in the prior year. Cost of revenues from the electronic commerce division during
the third quarter of 1997 consisted of consulting and professional services
including service cost of revenue related to generating monthly fee revenues.
The interactive services division recorded cost of revenues of $40,000
during the third quarter of 1997. The Company expects that because of certain
fixed fees and expenses associated with providing interactive services, the cost
of revenues for this division will remain high as a percentage of revenues.
Overall gross profit margins decreased to 18% for the third quarter of
1997 from 34% for the third quarter of 1996. Gross profit margins for the
telecommunications, electronic commerce and interactive services divisions were
17%, 39% and 7%, respectively for the third quarter of 1997. The gross profit
margin derived from the sale of Caller ID adjuncts, integrated telephones and
multi-line systems was 12% for the third quarter of 1997. Primarily, Caller ID
adjunct sales contributed to the low margin associated with the
telecommunications product sales as the Company sold certain adjuncts at prices
below original cost. Accordingly, the Company incurred a charge in the third
quarter to write down its inventories. During the quarter, the Company
experienced severe pricing pressures from competition in Caller ID adjuncts. The
market for the Company's telecommunications products is highly competitive and
is also subject to increased pressures resulting from rapid technological change
and the emergence of new market entrants. The Company's management expects such
pricing pressures for its telecommunications products to continue in the future
and accordingly, the Company is reviewing various outsourcing arrangements for
products. See Unusual Charges.
General and Administrative
General and administrative expenses were $4,736,000 for the third
quarter of 1997 as compared to $2,926,000 in the third quarter of 1996, an
increase of 62% over the same period last year. The increase of $1,810,000 was
primarily the result of additional staff obtained through the merger with
Colonial Data and the acquisition of Braun, Simmons & Co., Inc. ("Braun
Simmons") in September 1996, and upgrading network systems and operations and
specific increases in legal fees primarily for the defense of a patent
infringement lawsuit in the amount of $532,000 (with summary judgment on the
infringement claims entered on October 23, 1997 in favor of the Company by the
United States District Judge) and an increase in the Company's provision for bad
debts in the amount of $963,000. Throughout the remainder of the year, the
Company expects to control general and administrative expenses and plans to
continually assess its operations in managing the continued development of the
Company's infrastructure.
Selling and Marketing
Selling and marketing expenses increased to $4,397,000 for the third
quarter of 1997 from $185,000 for the same period last year. The Company is
increasing its marketing efforts in promoting its residential and small business
telecommunications product lines to retail markets and to the regional Bell
operating companies and other telephone operating companies with
<PAGE>
whom the Company generates product, lease and service revenues. In the third
quarter of 1997, selling and marketing expenses were related primarily to the
support of the Company's telecommunications division customer service
department, development of innovative marketing programs, advertising through
trade publications and trade shows, introduction of the multi-line systems in
the retail market, supporting payroll for the Company's sales force and working
with third party vendors to sell telecommunications products. The Company
expects selling and marketing expenses to fluctuate widely in future reporting
periods based on the timing of marketing campaigns and the support of retail
sales.
Selling and marketing expenses associated with the electronic commerce
division and interactive services divisions aggregated $564,000 and $230,000,
respectively for the three months ended September 30, 1997. The Company
regularly markets and promotes the Company's home banking connectivity products
to financial institutions and interactive services products to telephone and
paging companies and other distribution channels.
Research and Development
Research and development costs were $2,751,000 in the third quarter of
1997 as compared to $5,700,000 for the same period in 1996. The decrease of
$2,949,000 was largely attributable to the recognition of in-process research
and development expenses of $4,914,000 associated with the acquisition of Braun
Simmons in 1996. Exclusive of the in-process research and development charge in
1996, the Company increased research and development expenses by $1,965,000
primarily relating to the developing, designing and testing of new
telecommunications products, and the Company's home banking connectivity
products and, the Company's two-line smart telephone and its associated
interactive services. The Company has been actively engaged in research and
development since its inception and expects that these activities will be
essential to the operations of the Company in the future. The Company expects
research and development costs to remain consistent with the third quarter level
during the remainder of 1997.
Unusual Charges
Unusual charges aggregated $69,125,000 for the third quarter of 1997.
The unusual charges are associated primarily with a strategic repositioning of
the Company's telecommunications division based on recent events in its
marketplace announced in the third quarter of 1997. In connection with this
repositioning and corporate restructuring, the Company's management evaluated
its financial position and determined that it would be appropriate to charge to
operations the remaining intangible assets due to impairment, adjust inventory
carrying amounts to the lower of cost or market, and reflect certain
restructuring charges, including charges for separation agreements with
employees and charges associated with the termination of a joint venture
agreement. Additionally, the Company adjusted the carrying value of a receivable
from the sale of stock for an advertising credit based on the Company's expected
use of the credit. Such third quarter 1997 charges aggregated $49,246,000 for
the impairment of intangible assets; $11,333,000 for inventories and
commitments; $2,437,000 for restructuring charges and separation agreements;
$3,653,000 for assets relating to the joint venture; and $2,456,000 for
impairment of the advertising credits. The impairment was
<PAGE>
based on the excess of the carrying value of the assets over the assets' fair
values. The fair value of the assets were generally determined as the estimates
of future cash flows generated by the assets.
Other Income (Expense)
Other income (expense) was $(301,000) for the third quarter of 1997
compared to $(73,000) for the same period in the prior year. Interest income,
net was $299,000 for the third quarter of 1997 compared to $306,000 for the
third quarter of 1996. The decrease of $7,000 was due to lower average balances
for cash, equivalents and short-term investment balances for the third quarter
of 1997 compared to the third quarter of 1996. The Company incurred minimal
interest expense in the third quarter of 1997 and 1996. During the third quarter
of 1997, the Company adjusted its investment in Home Financial Network, Inc. by
$(600,000) based upon expected operations of this company and in 1996, the
Company incurred a loss of $(537,000) in its proportionate share of Home
Financial Network, Inc. and recognized other income from the sale of assets of
$158,000.
Weighted Average Outstanding Shares and Net Loss Per Common Share
The primary and fully diluted weighted average shares increased to
31,497,000 for the third quarter of 1997 compared to 16,044,000 for the third
quarter of 1996. The increase resulted primarily from shares issued in
connection with the acquisition of Braun, Simmons and the merger with Colonial
Data in September and November 1996, respectively.
As a result of the foregoing, net loss per common share was $(2.51) for
the third quarter of 1997 compared to $(0.53) for the third quarter of 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues
The Company's first nine month revenues were $50,135,000 in 1997
compared to $2,937,000 in 1996 an increase of $47,198,000. Revenues generated by
the telecommunications division were $47,033,000 during the first nine months of
1997. Telecommunications division revenues are generated primarily from
marketing and promotional campaigns for Caller ID units and services conducted
by telephone operating companies and the Company. Contributing to the
telecommunications revenues were $38,240,000 from the sale of approximately
1,195,500 Caller ID adjuncts, 65,737 integrated telephones and 5,298 multi-line
systems; $7,008,000 from customers within a US West Communications leasing
program; and $1,785,000 in the telephone repair business.
The electronic commerce division contributed $3,035,000 in revenues in
the first nine months of 1997, a 92% increase over the same period in the prior
year. The increase is primarily attributed to the expansion of the division's
software sales and related services which aggregated $1,717,000 for the first
nine months of 1997. Software revenues were $965,000 for the nine
<PAGE>
months ended September 30, 1997 compared to $133,000 for the nine months ended
September 30, 1996. Service fee revenues for the first nine months of 1997 were
$1,313,000 compared to $1,579,000 for the same period in 1996, a decrease of
$266,000. The service fees revenues were generated primarily from customer
support services and monthly service fees. The Company's customer support
revenues, which are remarketed by Visa InterActive to Visa member banks,
aggregated $1,043,000 for the first nine months of 1997, compared to $1,138,000
for the same period in the prior year. Monthly service fees revenues decreased
to $270,000 in 1997 from $290,000 for the same period in 1996. Monthly service
fees revenues are from customers who use the Company's previous generation smart
telephones and associated interactive applications, and the decrease was
primarily due to the Company's continuing efforts to convert these customers to
Visa member banks.
The interactive services division recorded revenues of $67,000 for the
first nine months related to bill-pay subscriptions and SmartTime(R) services
that are available to customers on a variety of small screen devices, primarily
screen telephones, as well as consulting service revenue.
Cost of Revenues
The Company's first nine months cost of revenues increased to
$35,705,000 for 1997 from $1,975,000 for the same period in 1996. The
telecommunications division contributed $33,643,000 of the total cost of
revenues, consisting of $28,581,000 from the sale of Caller ID and multi-line
product shipments; $3,920,000 from leasing activities and $1,142,000 from
telephone repair services.
The electronic commerce division reported cost of revenues aggregating
$2,002,000 for the first nine months of 1997 or a 182% increase over the same
period in the prior year. Cost of revenues from the electronic commerce division
during the first nine months of 1997 consisted of software product sales,
customer service expenses, and consulting and professional services including
service cost of revenue related to generating monthly fee revenues.
The interactive services division recorded cost of revenues of $60,000
during the first nine months of 1997. The Company expects that because of
certain fixed fees and expenses associated with providing interactive services,
the cost of revenues for this division will remain high as a percentage of
revenues.
Overall gross profit margins decreased to 27% for the first nine months
of 1997 compared to 33% for the first nine months of 1996. Gross profit margins
for the telecommunications, electronic commerce and interactive services
divisions were 28%, 34% and 10%, respectively for the first nine months of 1997.
The gross profit margin derived from the sale of Caller ID and multi-line
products was 29% for the first nine months of 1997. During the third quarter of
1997, the Company experienced severe pricing pressures from competition in
Caller ID adjuncts which contributed to a charge to write down certain
inventories. The market for the Company's telecommunications products is highly
competitive and is also subject to increased pressures resulting from rapid
technological change and the emergence of new market entrants. The Company's
management expects such pricing pressures to continue in the future and
<PAGE>
accordingly, the Company is reviewing various outsourcing arrangements for
products. See Unusual Charges.
General and Administrative
General and administrative expenses were $11,437,000 for the first nine
months of 1997 as compared to $7,448,000 in the first nine months of 1996. The
increase of $3,989,000 was primarily the result of additional staff obtained
through the merger with Colonial Data and the acquisition of Braun Simmons and
upgrading network systems and operations. Additionally, during the third quarter
of 1997, the Company incurred specific increases in legal fees primarily for the
defense of a patent infringement lawsuit in the amount of $532,000 (with summary
judgment on the infringement claims entered on October 23, 1997 in favor of the
Company by the United States District Judge) and an increase in the Company's
provision for bad debts in the amount of $963,000. Throughout the year, the
Company expects to control general and administrative expenses and plans to
continually assess its operations in managing the continued development of the
Company's infrastructure.
Selling and Marketing
Selling and marketing expenses increased to $10,207,000 for the first
nine months of 1997 from $268,000 for the same period last year. The Company is
increasing its marketing efforts in promoting its residential and small business
telecommunications product lines to retail markets and to the regional Bell
operating companies and other telephone operating companies with whom the
Company generates its telecommunications product, lease and service revenues. In
the first nine months of 1997, selling and marketing expenses were related
primarily to the support of the Company's customer service department, the
development of innovative marketing programs, advertising through trade
publications and trade shows, introducing the multi-line systems in the retail
market, initiating a direct sales force, organizing direct mail campaigns for
smart telephones, paying payroll for the Company's sales force and working with
telemarketers and other third party vendors to sell telecommunications products.
Selling and marketing expenses associated with the electronic commerce
division and interactive services divisions aggregated $922,000 and $559,000,
respectively for the nine months ended September 30, 1997. The Company regularly
markets and promotes the Company's home banking connectivity products to
financial institutions and interactive services products to telephone and paging
companies and other distribution channels.
Research and Development
Research and development costs were $7,335,000 in the first nine months
of 1997 as compared to $6,875,000 for the same period in 1996. The increase of
$460,000 was largely attributable to a recognition of in-process research and
development expenses of $4,914,000 associated with the acquisition of Braun
Simmons in the third quarter of 1996. Exclusive of the reclassification,
research and development charges increased by $5,374,000 over the same period
last year. This increase is attributed to developing, designing and testing new
telecommunications products and the Company's home banking connectivity products
and
<PAGE>
support services and the Company's next generation smart telephone and its
associated interactive services. The Company has been actively engaged in
research and development since its inception and expects that these activities
will be essential to the operations of the Company in the future. The Company
expects research and development costs to remain consistent during the remainder
of 1997.
Unusual Charges
Unusual charges aggregated $69,691,000 for the nine months ended
September 30, 1997. The unusual charges relate primarily with a strategic
repositioning of the Company's telecommunications division based on recent
events in its marketplace announced in the third quarter of 1997. In connection
with this repositioning and corporate restructuring, the Company's management
evaluated its financial position and determined that it would be appropriate to
charge to operations the remaining intangible assets due to impairment, adjust
inventory carrying amounts to the lower of cost or market, and reflect certain
restructuring charges, including charges for separation agreements with
employees and charges associated with the termination of a joint venture
agreement. Additionally, the Company adjusted the carrying value of a receivable
from the sale of stock for an advertising credit based on the Company's expected
use of the credit. Such third quarter 1997 charges aggregated $49,246,000 for
the impairment of intangible assets; $11,333,000 for inventories and
commitments; $2,437,000 for restructuring charges and separation agreements;
$3,653,000 for assets relating to the joint venture; and $2,456,000 for
impairment of the advertising credits. The impairment was based on the excess of
the carrying value of the assets over the assets' fair values. The fair value of
the assets were generally determined as the estimates of future cash flows
generated by the assets.
Other Income (Expense)
Other income (expense) was $2,451,000 for the first nine months of 1997
compared to $(89,000) for the same period in the prior year. Interest income,
net was $1,184,000 for the first nine months of 1997 compared to $998,000 for
the first nine months of 1996. The increase of $186,000 was due to increased
cash, equivalents and short-term investment balances for the first nine months
of 1997 compared to the first nine months of 1996, primarily related to the
merger with Colonial Data which provided additional cash, equivalents and
short-term investment balances. The Company incurred minimal interest expense in
the first nine months of 1997 and 1996. The Company recorded its equity in its
investment in Home Financial Network, Inc. of $1,267,000 and in the first nine
months of 1996, the Company incurred a loss of $1,431,000 in its proportionate
share of Home Financial Network, Inc. and recognized other income, primarily
from the sale of assets of $344,000.
Weighted Average Outstanding Shares and Net Loss Per Common Share
The primary and fully diluted weighted average shares increased to
31,711,000 for the first nine months of 1997 compared to 15,903,000 for the
first nine months of 1996. The increase resulted primarily from shares issued in
connection with the acquisition of Braun, Simmons and the merger with Colonial
Data in September and November 1996, respectively.
<PAGE>
As a result of the foregoing, net loss per common share was $(2.58) for
the first nine months of 1997 compared to $(0.86) for the third quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1997, the Company's cash, equivalents
and short-term investments decreased by $26,339,000 resulting from the payment
of outstanding liabilities at December 31, 1996 and the financing of operations
and certain accounts receivable balances. At September 30, 1997, the Company had
$11,075,000 in cash, equivalents and short-term investments that were invested
in financial instruments that are diversified among high credit quality
securities. The investments are reported at cost, which approximates market
value, and are classified as short-term investments and cash equivalents.
Additionally, at September 30, 1997, the Company had working capital of
$34,612,000 with no long-term debt. The Company's total assets exceeded total
liabilities by $43,018,000.
During the first nine months of 1997, cash used in operating activities
was $24,372,000 compared to $7,413,000 in the same period in 1996. This increase
was primarily related to funding operations, financing an increase in accounts
receivable of $8,183,000, funding net payments from accounts payable and accrued
expenses of $7,563,000, offset in part by decreases in inventories, prepaid
expenses and other assets aggregating $3,762,000.
Investing activities provided $697,000 during the first nine months of
1997 compared to using $2,386,000 in the same period in 1996. Cash provided by
investing activities was primarily contributed by the sale of short-term
investments offset in part by the purchase of certain property and equipment,
primarily to support an upgrade for the Company's internal networks.
Financing activities used $2,664,000 in the first nine months of 1997
compared to providing $2,173,000 in the same period in 1996. Current year
activities consisted of the repurchasing of shares of the Company's common stock
for $2,064,000, net changes in short-term borrowings from December 31, 1996 in
the amount of $700,000 offset by proceeds received from the issuance of common
stock during the first nine months of 1997. During the first nine months of
1996, the Company received $2,173,000 from the issuance of common stock.
The Company's primary needs for cash in the future are for investments
in product development, working capital, the financing of operations, strategic
ventures, capital expenditures and the upgrade of the Company's systems and
operations. In order to meet the Company's needs for cash throughout the year,
the Company will utilize cash and short-term investments and may utilize, to the
extent available, funds generated from operations through the remainder of 1997
through the collections of accounts receivable and sale of inventories.
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The above information includes forward-looking statements, the
realization of which may be impacted by the factors discussed below. The
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 (the "Act"). This report
contains forward looking statements that are subject to risks and uncertainties,
including, but not limited to, the Company's ability to successfully implement
its recently announced telecommunications business strategy, the effects of a
down-sized workforce on its operations, the impact of competitive products,
pricing pressure, product demand and market acceptance risks, timing of customer
programs, reliance on key strategic alliances, the outcome of pending
litigation, the ability to attract and retain key employees, manufacturing
delays, outsourcing partners, the availability of key component parts,
availability of cash for growth, product obsolescence, inventory levels and
valuations, ability to reduce product costs, fluctuations in operating results,
ability to continue funding operating losses, delays in development of highly
complex products and other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission, including the risk factors
disclosed in the Company's Form 10-K for the fiscal year ended December 31,
1996. These risks could cause the Company's actual results for 1997 and beyond
to differ materially from those expressed in any forward looking statements made
by, or on behalf of, the Company. The foregoing list of factors should not be
construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company prior to the date hereof or the effectiveness of
said Act.
<PAGE>
PART II: OTHER INFORMATION
- --------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
The Company's subsidiary filed suit in September 1997 against Worldwide
Telecom Partners, Inc. ("WTP"), Blau Marketing Technologies, Inc. ("BMT") and
Barry Blau in Connecticut Superior Court seeking payment by WTP of past due
accounts receivable in the amount of approximately $11.0 million and making
certain other claims including breach of contract. WTP is a terminated joint
venture which provided telecommunications products combined with marketing
services to telcos. BMT filed a separate suit against the Company and its
subsidiary, WTP and John C. Backus on October 31, 1997 alleging breach of
contract and making certain other claims and seeking damages in excess of
$15,000. The Company believes that its claims and defenses in the
above-described actions are meritorious and intends to vigorously pursue its
remedies.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
10.28 Employment Agreement dated August 11, 1997 between InteliData
Technologies Corporation and John C. Backus, Jr.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTELIDATA TECHNOLOGIES CORPORATION
By: /s/ John C. Backus
----------------------------------------
John C. Backus
President and Chief Executive Officer
By: /s/ John W. Hillyard
----------------------------------------
John W. Hillyard
Vice President and Chief Financial Officer
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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<CASH> 305
<SECURITIES> 10,770
<RECEIVABLES> 22,896
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Execution Copy
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of August 11, 1997 ("Agreement"), is by
and between InteliData Technologies Corporation, a Delaware corporation
("InteliData") and John C. Backus, Jr. ("Backus").
WHEREAS, Backus has been an employee of InteliData and its predecessors
since January 20, 1985.
WHEREAS, InteliData has promoted and desires to continue to employ Backus
as President and Chief Executive Officer and Backus desires to continue his
employment in such capacity1;
NOW, THEREFORE, InteliData and Backus, in consideration of the mutual
covenants and promises contained herein, do hereby agree as follows:
1. Acceptance of Employment. Subject to the terms and conditions set
forth below, InteliData agrees to employ Backus and Backus accepts such
employment.
2. Term. The period of employment shall be from the date first written
above through December 31, 2000, unless further extended or sooner terminated as
hereinafter set forth. Such employment period shall be automatically extended
for successive eighteen month terms on January 1, 2001 and following the
expiration of each extension term unless InteliData has provided Backus, or
Backus has provided InteliData, with at least six months prior written notice of
their intention to allow this agreement to expire at the end of such initial or
extended term, in which event the employment period will terminate on the last
day of such term.
3. Position and Duties. Backus shall serve as President and Chief
Executive Officer of InteliData with the duties described in InteliData's
By-Laws, as in effect on the date hereof. Backus may serve on the board of
directors of other companies with the prior approval of InteliData's Chairman of
the Board of Directors. Backus shall devote substantially all of his working
time and attention to the business and affairs of InteliData. During the term of
this Agreement, InteliData shall annually nominate, and take such action as may
be necessary or appropriate to seek stockholder election of Backus to
InteliData's Board of Directors. Backus agrees to resign from the Board of
Directors in connection with, and effective upon, termination of his employment
with InteliData.
4. Compensation and Related Matters.
(a) Base Salary. Backus shall receive a base salary of $350,000 per
annum payable in accordance with the payroll procedures for InteliData's
salaried employees in effect during the term of this Agreement.
(b) Eligibility for Bonuses. Backus shall be eligible to receive an
annual bonus of up to 75% of his base salary in effect at the time. In addition,
Backus shall be entitled to participate in all bonus and incentive compensation
plans or arrangements hereinafter made available by InteliData to its officers
and directors.
(c) Performance Stock Options.
(i) Backus shall be granted options to purchase 600,000 shares
of Common Stock, par value $0.001 per share of InteliData ("Common Stock")
pursuant to the InteliData Technologies Corporation 1996 Incentive Plan (the
"Plan"), as set forth in the Stock Option Agreement between InteliData and
Backus of even date herewith (the "Option Agreement"), a copy of which is
attached as Exhibit A hereto.
(ii) Backus agrees to hold 25,000 shares of InteliData Common
Stock for the balance of the term of this Agreement (and for any renewals
thereof.) For purposes of this Agreement, any shares of InteliData common stock
owned by members of Backus' immediate family (i.e., spouse, sons or daughters)
or any trust for the benefit of or partnership consisting of partners limited to
such persons shall be counted toward Backus' InteliData stock ownership and
holding requirements.
InteliData agrees that each option agreement with respect to options
to purchase Common Stock granted prior to the date hereof shall be amended such
that (i) the definition of "Change in Control" for purposes of any such
agreements and options shall have the meaning assigned to such term in the
Option Agreement, and (ii) all terms and conditions of such options (other than
exercise price, vesting and term absent acceleration) shall be as set forth in
the Option Agreement.
(d) Business Expenses. Backus shall be entitled to reimbursement of
reasonable and ordinary business-related expenses consistent with InteliData's
policies in effect from time to time.
(e) Fringe Benefits. In addition to any benefits specifically set
forth herein, Backus shall be entitled to all employee benefits made available
now or in the future to other officers of InteliData. In the event this
Agreement is terminated by either party for any reason (other than death or for
Cause), Backus may participate in InteliData's life, disability, health, dental,
accident and other benefit programs following such termination for one year for
each year of service since January 1985 (pro rated in the case of a partial
year), at no higher cost to Backus than Backus' costs immediately prior to the
date of termination, or until Backus obtains comparable coverage at a comparable
cost with a future employer. In the event the Company's plans do not permit
continued participation by Backus after his termination, then Backus will
instead be entitled to a lump sum payment from InteliData of the expected cost
to Backus to purchase and continue all such benefit programs, as an individual
or family policyholder, grossed up for all local, state and Federal taxes at the
maximum tax rates, for a coverage period of three years.
(i) InteliData shall allow Backus at his request to use company
aircraft for personal travel for up to 100 flight hours per year, provided that
InteliData business travel shall have priority of use over Backus' personal
travel requirements. Backus shall reimburse InteliData for his use of company
aircraft hereunder at the Standard Industry Fare Level ("SIFL"), set by the
Department of Transportation from time to time as required by IRS Rules Section
1.61-21(g).
(ii) InteliData shall reimburse Backus on an annual basis for the
premiums paid by Backus with respect to a $5,000,000 term life insurance policy
(which policy shall be owned by Backus), plus an amount sufficient to pay all
federal, state and local taxes applicable to such payment.
(iii)InteliData shall reimburse Backus on an annual basis for
premiums paid by Backus with respect to a disability policy selected by Backus
providing for benefits of up to 75% of Backus' average annual compensation
(calculated in accordance with the terms of such policy), plus an amount
sufficient to pay all federal, state and local taxes applicable to such payment.
(f) Vacations. Backus shall be entitled to paid vacation in each
calendar year consistent with the InteliData vacation policy applicable to
executive officers of the rank of Vice President and above (currently 5 weeks
per calendar year, with full tenure credit since January 1985). Backus shall be
entitled to all paid holidays observed by InteliData.
(g) Indemnification; D&O Insurance. InteliData shall provide (or
cause to be provided) to Backus indemnification against all expenses (including
direct payment by InteliData of attorneys' fees through attorneys selected by
Backus), judgments, fines and amounts paid in settlements in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including an action by or in the
right of InteliData or any of its predecessors, affiliates or subsidiaries,
including without limitation Colonial Data Technologies, Inc.(including all
subsidiaries of Colonial Data Technologies, Inc.,) WorldWide Telecom Partners,
US Order, Inc., WorldCorp, Inc., VISA Interactive and Home Financial Network
("HFN")) by reason of his being or having been an officer, director or employee
of InteliData or any affiliated entity, advance expenses (including attorneys'
fees) incurred by Backus in defending any such civil, criminal, administrative
or investigative action, suit or proceeding and maintain directors' and
officers' liability insurance coverage (including coverage for
securities-related claims) upon substantially the terms and conditions set forth
in Exhibit B hereto (the "Indemnity Agreement"). The provisions of this Section
4(g) shall indefinitely survive termination of this Agreement and Backus'
employment hereunder with respect to acts and events occurring prior to and
through the date of termination.
(h) Retirement Benefit. InteliData agrees that upon termination of
this Agreement or Backus' employment hereunder for any reason by either party,
other than a termination for Cause, it shall pay to Backus a lump sum payment
equal to the undiscounted value of the actuarial equivalent of a straight life
annuity for a married non-smoking male at age fifty-five through age eighty in
the amount of $5,000 for each calendar year or portion thereof since January
1985 for which Backus was employed by InteliData or any of its predecessors or
affiliates (including without limitation WorldCorp, Inc., World Airways, Inc.,
Key Airlines and their respective subsidiaries, predecessors, successors and
affiliates) (the "Retirement Benefit".)
5. Termination of Employment.
(a) Death. Backus' employment hereunder shall terminate upon his
death, in which event InteliData shall have no further obligation to Backus or
his estate with respect to compensation, other than the disposition of life
insurance and related benefits, accrued and unpaid base salary, accrued
vacation, earned incentive compensation for periods prior to the date of
termination, and the Retirement Benefit.
(b) By Backus. Backus may terminate this agreement upon 90 days
prior written notice to InteliData. In the event Backus' employment is
terminated pursuant to this section 5 (b), InteliData's only obligation to
Backus will be the payment of any accrued and unpaid base salary, accrued
vacation, and earned incentive compensation for the period from the date written
notice is given by Backus, plus 90 days (or such later period if Backus agrees
to work beyond 90 days), and the Retirement Benefit.
(c) By InteliData for Disability. If Backus incurs a disability and
such disability continues for a period of twelve (12) consecutive months, then
InteliData may terminate Backus' employment upon written notice to Backus, in
which event InteliData shall continue to pay to Backus his full salary and
benefits with respect to compensation under Section 4 of this Agreement until
Backus becomes eligible for disability income payments under InteliData's
disability income plan. While receiving disability income payments under such
plan, InteliData shall continue to pay to Backus the difference between such
disability income payments and his salary under section 4 until the expiration
date of this agreement, including any and all extensions. In addition, Backus
shall be entitled to continue participation in all benefit plans provided for
under Section 4 for a period of time following such termination equal in length
to the period from January 1985 through the termination date. The term
"disability" means a physical or mental illness that will prevent Backus from
doing substantial gainful work for at least twelve (12) months. If Backus
becomes entitled to Social Security benefits payable on account of disability,
he will be conclusively deemed to be disabled for purposes of this Agreement.
(d) By InteliData for Cause. The Board of Directors of InteliData
may terminate this Agreement for Cause. "Cause" shall be defined as: (i) willful
failure to perform at the direction of the resolutions of the Board of Directors
(other than any such failure resulting from Backus' incapacity due to physical
or mental illness or any such actual or anticipated failure after Backus gives
notice of termination of employment for Good Reason (as hereinafter defined));
(ii) willful dishonesty in office with the intent to materially defraud in
connection with Backus' employment hereunder; or (iii) gross negligence in the
performance of the services contemplated by this Agreement. Backus may only be
terminated for Cause pursuant to a resolution duly adopted by the majority vote
of its entire membership present physically at a meeting of the Board called for
such purpose (provided that a majority of the members approving such resolution
were directors of InteliData elected at its last annual meeting of
stockholders), finding that, in the good faith opinion of the Board, Backus was
guilty of conduct set forth in clause (i), (ii), or (iii) above, and specifying
the particulars thereof in detail; provided, however, that Backus may not be
terminated for Cause unless: (1) Backus receives at least ten (10) business days
prior written notice of InteliData's intention to terminate this Agreement for
Cause and the specific reasons therefor; and (2) Backus has an opportunity to
meet in person with InteliData's entire Board of Directors and be given, if the
acts are correctable, a reasonable opportunity and reasonable period of time to
correct the act or acts (or non-action) giving rise to such written notice; and
(3) the Board, by resolution duly adopted by the affirmative vote of a majority
of the entire membership of the Board finds that Backus fails to make such
correction after reasonable opportunity to do so, this Agreement may be
terminated for Cause.
(e) By InteliData for Other Than Cause. The Board of Directors may
terminate this Agreement for reasons other than Cause in accordance with
sub-paragraph (d) above after giving at least 90 days prior written notice of
such termination to Backus. In addition to all other rights of Backus hereunder
following such termination:
(i) InteliData will pay to Backus within ten (10) days of notice
of termination (or, in the case of incentive bonus compensation, within ten (10)
days of determination of amounts payable under the applicable bonus plan
generally) the undiscounted remainder of his base salary then in effect, any
deferred salary and/or bonus compensation payable under this Agreement or
pursuant to any other plan or arrangement of InteliData or any affiliate in
which Backus is a participant, whether or not then vested or payable and the
Retirement Benefit;
(ii) InteliData shall pay to Backus an amount equal to the
highest incentive bonus paid to Backus for any of the three calendar years
immediately preceding the date of termination, prorated through his month of
departure; and
(iii) Backus shall be entitled to retain at his election the
prepaid mileage balance in his United Airlines Passplus Account, provided that
to the extent such balance at the date of termination exceeds $25,000, Backus
shall pay to InteliData an amount equal to such balance in excess of $25,000.
In addition, all granted but unexercisable stock options under all of
Backus' Option Agreements (and any additional options granted upon extension of
the term hereof, if applicable) shall become immediately exercisable and remain
exercisable for the remaining term of such options.
(f) By Backus for Good Reason. Backus may terminate his employment
hereunder (for purposes of this Agreement "Good Reason") after giving at least
30 days notice in the event that: (i) InteliData relocates its general and
administrative offices or Backus' place of employment to an area other than the
Washington, D.C. Standard Metropolitan Statistical Area (the "Washington SMSA"),
(ii) he is assigned any duties substantially inconsistent with his
responsibilities as described by Section 3 hereof or a substantial adverse
alteration is made to the nature or status of such responsibilities (which for
purposes of this Agreement shall be deemed to include the removal or
non-reelection of Backus to InteliData's Board of Directors unless consented to
in writing by Backus), (iii) InteliData reduces his annual base salary as in
effect on the date hereof or as the same may be increased from time to time;
(iv) InteliData fails, without Backus' consent, to pay Backus any portion of his
current compensation, or to pay him any portion of an installment of deferred
compensation under any deferred compensation program of InteliData, within seven
(7) days of the date such compensation is due; (v) InteliData fails to continue
in effect any compensation plan in which Backus participates which is material
to Backus' total compensation, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to such plan,
or the failure by InteliData to continue Backus' participation therein (or in
such substitute or alternative Plan) on a basis not materially less favorable,
both in terms of the amount of benefits provided and the level of Backus'
participation relative to other participants; (vi) InteliData fails to continue
to provide Backus with benefits substantially similar to those enjoyed by Backus
under any of InteliData's pension, life insurance, medical, health and accident,
or disability plans in which Backus was participating; (vii) InteliData takes
any action which would directly or indirectly materially reduce any of such
benefits or deprive Backus of any material fringe benefit enjoyed by Backus, or
InteliData fails to provide Backus with the number of paid vacation days to
which Backus is entitled hereunder; (viii) InteliData terminates, or proposes to
terminate Backus' employment hereunder contrary to the requirements of Section
5(e) hereof (for purposes of this Agreement, no such termination or purported
termination shall be effective); (ix) a Change in Control (as defined below)
occurs; or (x) the Board determines that InteliData should be sold, liquidated
or dissolved or a majority of assets sold prior to the end of this Agreement; or
(xi) InteliData, or a majority of InteliData's assets, are sold, acquired,
merged, dissolved, consolidated, liquidated, spun off, split off, reorganized or
otherwise restructured. In the event that Backus elects to terminate this
Agreement and his employment with InteliData or any successor in interest in
accordance with the provisions of this section, in addition to all other rights
of Backus hereunder following such termination;
(i) InteliData will pay to Backus within ten (10) days of notice
of termination (or, in the case of incentive bonus compensation, within ten (10)
days of determination of amounts payable under the applicable bonus plan
generally) the undiscounted remainder of his base salary then in effect, any
deferred salary and/or bonus compensation payable under this Agreement or
pursuant to any other plan or arrangement of InteliData or any affiliate in
which Backus is a participant, whether or not then vested or payable and the
Retirement Benefit;
(ii) InteliData shall pay to Backus an amount equal to the
highest incentive bonus paid to Backus for any of the three calendar years
immediately preceding the date of termination prorated through his month of
departure; and
(iii) Backus shall be entitled to retain at his election the
prepaid mileage balance in his United Airlines Passplus Account, provided that
to the extent such balance at the date of termination exceeds $25,000, Backus
shall pay to InteliData an amount equal to such balance in excess of $25,000.
In addition all granted but unvested stock options under all of Backus'
Option Agreements (including any additional options granted upon extension of
the term hereof) shall become immediately exercisable and remain exercisable for
the remaining term of such option. Any other payments due or actions required
under this paragraph shall be made within 10 days of termination of the
Agreement (or, in the case of incentive bonus compensation, within ten (10) days
of determination of amounts payable under the applicable bonus plan generally).
(g) Termination Following a Change in Control. In the event of
termination of Backus' employment hereunder within two years prior to or
following a Change in Control, for any reason (including by Backus for Good
Reason but excluding any termination by InteliData for Cause) in addition to the
rights provided in the Option Agreement and all other rights provided hereunder:
(i) InteliData will pay to Backus within ten (10) days of notice
of termination (or, in the case of incentive bonus compensation, within ten (10)
days of determination of amounts payable under the applicable bonus plan
generally) the undiscounted remainder of his base salary then in effect, any
deferred salary and/or bonus compensation payable under this Agreement or
pursuant to any other plan or arrangement of InteliData or any affiliate in
which Backus is a participant, whether or not then vested or payable and the
Retirement Benefit;
(ii) InteliData shall pay to Backus an amount equal to the
highest incentive bonus paid to Backus for any of the three calendar years
immediately preceding the Change in Control, prorated through his month of
departure; and
(iii) Backus shall be entitled to retain at his election the
prepaid mileage balance in his United Airlines Passplus Account, provided that
to the extent such balance at the date of termination exceeds $25,000, Backus
shall pay to InteliData an amount equal to such balance in excess of $25,000.
For purposes of this Section 5, a "Change in Control" shall be deemed to
have occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:
(i) Any person, or any persons acting together which would
constitute a "group" for purposes of section 13(d) of the Securities Exchange
Act of 1934, together with any affiliate thereof shall beneficially own (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) at
least 50% of the total voting power of all classes of capital stock of the
Company entitled to vote generally in the election of directors of the Company;
or
(ii) Any event or series of events that results in the Directors
on the Board of Directors, who were Directors prior to the event or series of
events, to cease to constitute a majority of the Board of Directors of any
parent of or successor to the Company; or
(iii) The merger, consolidation or reorganization (a) in which
the Company is the continuing or surviving corporation, (b) in which the Company
is not the continuing or surviving corporation, or ( c) pursuant to which the
Company's common stock would be converted into cash, securities or other
property, except in the case of either (a), (b), or ( c), a consolidation or
merger of the company in which the holders of the Common Stock immediately prior
to the consolidation or merger have, directly or indirectly, at least a majority
of the total voting power of all classes of capital stock entitled to vote
generally in the election of directors of the continuing or surviving
corporation immediately after such consolidation or merger in substantially the
same proportion as their ownership of Common Stock immediately before such
transaction ; or
(iv) The consummation of a tender or exchange offer for shares of
the Company's Common Stock (other than tender or exchange offers made by the
Company or Company-sponsored employee benefit plans); or
(v) The sale or transfer of a majority of the assets of the
Company to another corporation or to any person or entity; or
(vi) The Board of Directors of InteliData approves a plan of
complete or partial liquidation of InteliData or an agreement for the sale or
disposition by InteliData of a majority of its assets.
For purposes of this Section, "Person" shall have the meaning given in
Section (3)(a)(9) of the Exchange Act, as modified and used in Sections 13(d)
and 14(d) thereof; however, a Person shall not include (i) the Company or any of
its subsidiaries or affiliates, (ii) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any of its
subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
(h) Notice of Termination. Termination of this Agreement by
InteliData or termination of this Agreement by Backus shall be communicated by
written notice to the other party hereto, specifically indicating the
termination provision relied upon.
(i) In the event that Backus becomes entitled to the payments and
benefits described in this Section 5 (together with any other benefits to which
Backus is entitled hereunder following a termination entitling Backus to the
payments and benefits of this Section 5, the "Severance Benefits"), if any of
the Severance Benefits will be subject to any excise tax (the "Excise Tax")
imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), InteliData shall pay to Backus an additional amount (the "Gross-Up
Payment") such that the net amount retained by Backus, after deduction of any
Excise Tax on the Severance Benefits and any federal, state and local income and
employment tax and Excise Tax upon the payment provided for by this Section 5,
shall be equal to the Severance Benefits. For purposes of determining whether
any of the Severance Benefits will be subject to the Excise Tax and the amount
of such Excise Tax, (i) any other payments or benefits received or to be
received by Backus in connection with a Change in Control or Backus' termination
of employment (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with InteliData, any person whose actions result
in a change in control or any person affiliated with InteliData or such person)
shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by InteliData's independent
auditors and reasonably acceptable to Backus such other payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of
Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole
or in part) represent reasonable compensation for services actually rendered,
within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base
Amount as defined in Section 280G(b)(3) of the Code allocable to such reasonable
compensation, or are otherwise not subject to the Excise Tax, (ii) the amount of
the Severance Benefits that shall be treated as subject to the Excise Tax shall
be equal to the lesser of (a) the total amount of the Severance Benefits or (b)
the amount of excess parachute payments within the meaning of Section 280G(b)(1)
of the Code (after applying clause (i) above), and (iii) the value of all
non-cash benefits or any deferred payment or benefit shall be determined by
InteliData's independent auditors in accordance with the principles of Section
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, Backus shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of InteliData's
residence on the date of termination, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes. In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of
Backus' employment, Backus shall repay to InteliData (without interest), at the
time that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise tax and federal,
state and local income and employment tax imposed on the Gross-Up Payment being
repaid by Backus to the extent that such repayment results in a reduction in
Excise Tax and/or federal, state or local income or employment tax deduction).
In the event that the Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of Backus' employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), InteliData shall make an
additional Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable by Backus with respect to such excess) at the
time that the amount of such excess is finally determined. Backus and InteliData
shall each reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Severance Benefits.
(j) InteliData also shall pay to Backus all legal and accounting fees
and expenses incurred by Backus as a result of a termination which entitles him
to the Severance Benefits (including all such fees and expenses, if any,
incurred in disputing any such termination, in seeking in good faith to obtain
or enforce any benefit or right provided by this Agreement or in any dispute
with any taxing authority with respect to any Excise Tax). Such payments shall
be made within five (5) business days after delivery of Backus' written requests
for payment accompanied with evidence of such fees and expenses incurred as
InteliData may reasonably require.
(k) Company Property. Upon the termination of Backus' employment
under this agreement, for any reason, Backus shall be entitled to retain, as his
own property, mobile telephones, notebook and other computers and their related
peripherals, other electronic equipment, furnishings, all equipment manufactured
by InteliData and used by Backus, and other property issued to Backus in the
course of his employment.
6. Beneficiary. The Beneficiary of any payment to be made in the event
of Backus' death shall be his wife, or such other person or persons as Backus
shall designate in writing to InteliData. If no beneficiary shall survive
Backus, any such payments shall be made to his estate.
7. No Waiver. The failure of either party at any time to enforce any
provisions of this Agreement or to exercise any remedy, option, right, power or
privilege provided for herein, or to require the performance by the other party
of any of the provisions hereof, shall in no way be deemed a waiver of such
provision at the same or at any prior or subsequent time.
8. Governing Law. This Agreement is governed by and shall be construed
in accordance with the laws of the Commonwealth of Virginia. Backus agrees to
submit to personal jurisdiction in the Commonwealth of Virginia.
9. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not be deemed to affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
10. Successors. This Agreement shall be binding upon InteliData, its
successors and assigns, including any corporation or other business entity which
may acquire all or substantially all of InteliData's assets or business, or
within which InteliData may be consolidated or merged, or any surviving
corporation in a merger involving InteliData.
11. Waiver or Modification of Agreement. No waiver or modification of
this Agreement shall be valid unless in writing and duly executed by both
parties.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which together will constitute one and the same
instrument.
13. Controlling Agreement. In the event of any inconsistency or conflict
between the provisions of this Agreement and any term or provision of the Option
Agreement or Plan, the provisions of this Agreement shall govern and supersede
such conflicting or inconsistent provision. InteliData agrees to cause the Plan
to be amended as may be required to eliminate any such conflict or
inconsistency.
14. Noncompetition Covenants. Backus agrees that during the term of this
Agreement, and thereafter for a period of two years following termination of his
employment hereunder (other than in the event of any termination by InteliData
other than for Cause or by Backus for Good Reason, or termination for any reason
within two years prior to or following a Change in Control, in which events the
restrictions of this Section 14 shall not apply), he will not, without the prior
written consent of the Board of Directors as evidenced by a resolution adopted
by the Board, directly or indirectly, whether as employee, partner, owner,
agent, director, officer, consultant or equity holder (except as the holder of
not more than 5% of the outstanding equity interests at the time of acquisition
of a publicly traded entity, or any successor thereto), engage in any business
competitive with any business in which InteliData or any of its affiliates were
engaged on the date of termination (a "Competitive Business"). The foregoing
shall not prohibit Backus from becoming affiliated with any person engaged in a
Competitive Business provided that Backus' affiliation does not include any
involvement in any capacity with such Competitive Business.
Backus acknowledges that his violation of this Section 14 would cause
InteliData and its affiliates to suffer irreparable damage, and that the
character, period and scope of the restrictions set forth herein are reasonably
required for the protection of InteliData. Therefore, in addition to any other
remedies available to InteliData under this Agreement or otherwise, InteliData
shall be entitled to seek injunctive relief with respect to any violation of
this Section 14 in any court of competent jurisdiction.
15. Nondisparagement. Each party hereto agrees that during the
effectiveness of and following termination of this Agreement for any reason, it
will not make any disparaging statements, remarks or comments with respect to
the remaining party, whether written or oral.
IN WITNESS WHEREOF, parties have executed this Agreement as of the date and
year first above written.
InteliData Technologies Corporation
By:/s/ William F. Gorog
--------------------------------------
William F. Gorog
Chairman of the Board
/s/ John C. Backus, Jr.
--------------------------------------
John C. Backus, Jr.
President and
Chief Executive Officer
Address: 9085 Eaton Park Road
Great Falls, VA 22066
