<PAGE>
Filed Pursuant to Rule 424(b)(3) Registration No. 333-19481
O F F E R T O E X C H A N G E
ALL OUTSTANDING
10.00% SENIOR SUBORDINATED NOTES
DUE SEPTEMBER 30, 2000
($10,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
10.00% SENIOR SUBORDINATED NOTES
DUE SEPTEMBER 30, 2000
OF
WORLDCORP, INC.
----------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., HERNDON, VIRGINIA TIME,
ON OCTOBER 16, 1997, UNLESS EXTENDED
----------
WorldCorp, Inc., a Delaware corporation (the "Company" or "WorldCorp"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange $1,000 principal amount of its 10.00% Senior Subordinated Notes due
September 30, 2000 (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement (as defined herein) of which this Prospectus constitutes
a part, for each $1,000 principal amount of the outstanding 10.00% Senior
Subordinated Notes due September 30, 2000 (the "Old Notes") of the Company, of
which $10,000,000 principal amount is outstanding. The New Notes and the Old
Notes are collectively referred to herein as the "Notes."
WORLDCORP HAD $15.0 MILLION OF SENIOR INDEBTEDNESS OUTSTANDING, $65
MILLION OF SUBORDINATED INDEBTEDNESS OUTSTANDING, $10 MILLION OF OLD NOTES
OUTSTANDING AND NO FIRM ARRANGEMENTS TO ISSUE ANY SIGNIFICANT SUBORDINATED
INDEBTEDNESS, IN EACH CASE AS OF JUNE 30, 1997. THE COMPANY'S TOTAL INDEBTEDNESS
AND TOTAL CAPITALIZATION AS OF JUNE 30, 1997, WERE $200.4 MILLION AND ($39.5)
MILLION, RESPECTIVELY. THE COMPANY CURRENTLY HAS APPROXIMATELY $65 MILLION OF
OUTSTANDING INDEBTEDNESS TO WHICH THE NEW NOTES WOULD BE SENIOR. THE INDENTURE
DOES NOT LIMIT THE COMPANY'S ABILITY TO SECURE SENIOR INDEBTEDNESS.
The Company will accept for exchange any and all Old Notes that are
validly tendered on or prior to 5:00 p.m., New York City time, on the date the
Exchange Offer expires, which will be October 16, 1997, unless the Exchange
Offer is extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior to
the Expiration Date, unless previously accepted for payment. The Exchange Offer
is not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain conditions which
may be waived by the Company and to the terms and provisions of the Purchase
Agreement (as defined herein). See "The Exchange Offer." Old Notes may be
tendered only in denominations of $1,000 and integral multiples thereof.
The New Notes will be obligations of the Company entitled to the
benefits of the Indenture (as defined herein). The form and terms of the New
Notes are the same in all material respects as the form and terms of the Old
Notes except that (i) the New Notes have been registered under the Securities
Act and will not contain terms restricting the transfer thereof (other than as
provided below), (ii) the New Notes will be issued free from any covenant
regarding registration, and (iii) the New Notes will be subject to the
requirements of the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), and therefore will be issued under an Indenture (as defined
herein) that provides for various rights and benefits of the holders of the New
Notes to be exercisable, received and coordinated through a Trustee (as defined
herein) in the manner required by the Trust Indenture Act. See "The Exchange
Offer."
See "Risk Factors" beginning on page 18 for a discussion of certain
factors that should be considered by prospective investors.
---------- (Continued on Next Page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REP-
RESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------
The date of this Prospectus is September 16, 1997.
<PAGE>
(Continued from Cover Page)
The New Notes will bear interest from March 31, 1997. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes accrued
from March 31, 1997 to the date of the issuance of the New Notes. Interest on
the New Notes is payable semi-annually on September 30 and March 31 in each
year, commencing September 30, 1997, and at maturity and shall be computed on
the basis of a 360-day year or twelve 30-day months. Interest shall accrue from
March 31, 1997, at a rate of 10.00% per annum. The New Notes will be unsecured
senior subordinated obligations of the Company and will be subordinated in right
of payment to all existing and future Senior Indebtedness (as defined herein) of
the Company.
The Notes may be declared due prior to their expressed maturity date,
voluntary prepayments may be made thereon and certain prepayments are required
to be made thereon, all in the events, on the terms and in the manner provided
in the Indenture. Such prepayments include (i) certain required sinking fund
payments on September 30, 1998 and September 30, 1999, (ii) certain required
prepayments upon the occurrence of certain events specified in the Indenture,
and (iii) certain optional prepayments. The principal of the Notes may not be
prepaid prior to the expressed maturity date except as provided in the
Indenture.
The Old Notes are, and the New Notes will be, subordinated in right of
payment to all existing and future Senior Indebtedness (as defined herein) of
the Company.
The Old Notes were issued and sold on September 30, 1996, in
transactions not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act and the rules
promulgated thereunder. Accordingly, the Old Notes may not be reoffered, resold
or otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. The New Notes are being offered hereunder in
order to satisfy certain of the obligations of the Company under the Purchase
Agreement relating to the registration of the New Notes under the Securities
Act. See "The Exchange Offer -- General." The Company is making the Exchange
Offer in reliance upon an interpretation by the staff of the Securities and
Exchange Commission (the "Commission") set forth in a series of no-action
letters issued to third parties. See Exxon Capital Holdings Corp. (available
April 13, 1989), Morgan Stanley & Co. Incorporated (available June 5, 1991) and
Shearman & Sterling (available July 2, 1993). Based on such interpretation, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business, such holder has no arrangement
with any person to participate in the distribution of such New Notes and neither
such holder nor any such other person is engaging in or intends to engage in a
distribution of such New Notes. However, the Company has not sought, and does
not intend to seek, its own no-action letter, and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal relating to the Exchange Offer states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such New Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. Each broker-dealer that
receives New Notes from the Company in the Exchange Offer and not as a result of
market-making or other trading activities, in the absence of an exemption, must
comply with the registration requirements of the Securities Act. The Company has
agreed that, for a period of 90 days after the Expiration Date, it will make
this Prospectus and any amendment or supplement to this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company will not receive any proceeds from this offering, and no
underwriter is being utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The New Notes are a new issue of securities for which there is
currently no trading market. Any Old Notes not tendered or accepted in the
Exchange Offer will remain outstanding. If the New Notes are traded after their
initial issuance, they may trade at a discount from their principal amount,
depending upon prevailing interest rates, the market for similar securities and
other factors, including general economic conditions and the financial condition
and performance of, and prospects for, the Company. There can be no assurance as
to the development or liquidity of any market for the Old Notes and the New
Notes. The Company does not intend to apply for listing of the New Notes on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information filed by
the Company may be inspected and copied at the public reference facilities of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices: Seven World Trade
Center, 13th Floor, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and copies of such material
can be obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In
addition, such material can also be obtained from the Commission's Web site at
http://www.sec.gov. Such information may also be inspected and copied at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits and schedules thereto and reference is
hereby made to the Registration Statement and the exhibits and schedules thereto
for further information with respect to the Company and the securities offered
hereby. Statements contained herein concerning the provisions of any documents
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is made
to the copy of such document so filed. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are hereby incorporated by reference into this
Prospectus: (i) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, (ii) the Company's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1997, and June 30, 1997, and (iii) the Company's
Current Reports on Form 8-K filed as of June 23, 1997 and July 14, 1997, all
filed pursuant to Section 13 or 15(d) of the Exchange Act. All documents filed
by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein or in any Prospectus Supplement
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, on the written or oral request of such person,
a copy of any or all of the documents referred to above which have been or may
be incorporated by reference into this Prospectus, other than certain exhibits
to such documents. Requests for such copies should be directed to Investor
Relations, WorldCorp, Inc., 13873 Park Center Road, Suite 490, Herndon, Virginia
20171 (telephone: (703) 834-9200).
UNTIL DECEMBER 15, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
2
<PAGE>
WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST FROM INVESTOR RELATIONS, WORLDCORP,
INC. IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE
MADE NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE.
NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR
BOTH TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................... 2
PROSPECTUS SUMMARY.................................................... 4
RISK FACTORS.......................................................... 18
USE OF PROCEEDS....................................................... 36
THE EXCHANGE OFFER.................................................... 36
DESCRIPTION OF OLD NOTES.............................................. 42
DESCRIPTION OF NEW NOTES.............................................. 42
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES...................... 50
PLAN OF DISTRIBUTION.................................................. 53
VALIDITY OF NEW NOTES................................................. 54
EXPERTS ............................................................. 54
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995:
WorldCorp desires to take advantage of the new "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. WorldCorp wishes to
caution readers that this Exchange Offer contains forward looking statements
that are subject to risks and uncertainties, including, but not limited to, the
impact of competitive products, product demand and market acceptance risks,
reliance on key strategic alliances, fluctuations in operating results and other
risks detailed from time to time in the Company's filings with the Securities
and Exchange Commission, including risk factors disclosed in the Company's Form
10-K for the fiscal year ended December 31, 1996 and those discussed in "Risk
Factors." See "Risk Factors." 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 Company
WorldCorp was organized in March 1987 to serve as the holding company
for World Airways, Inc., a Delaware corporation ("World Airways"), which was
organized in March 1948 and is the predecessor to WorldCorp. WorldCorp owns
positions in companies that operate in two distinct business areas: aviation
services (through World Airways) and consumer telecommunications, electronic
commerce, and interactive services (through InteliData Technologies Corporation
("InteliData"), a newly-formed Delaware corporation and successor by merger to
US Order, Inc., a Delaware corporation ("US Order") and Colonial Data
Technologies Corporation, a Delaware corporation ("Colonial Data")). WorldCorp
owns its stock in InteliData through WorldCorp Investments, Inc., a Delaware
corporation and wholly owned subsidiary of WorldCorp ("WorldCorp Investments"
and, together with WorldCorp, "WorldCorp" or the "Company").
In February 1994, pursuant to an October 1993 agreement, WorldCorp sold
24.9% of its ownership in World Airways to MHS Berhad ("MHS"), a Malaysian
aviation company. Effective December 31, 1994, WorldCorp increased its ownership
in World Airways to 80.1% through the purchase of 5% of World Airways common
stock held by MHS. In October 1995, World Airways completed an initial public
offering in which 2,000,000 shares of its common stock were issued and sold by
World Airways and 900,000 shares were sold by WorldCorp. As of June 30, 1997,
WorldCorp and MHS owned approximately 61.7% and 17.7%, respectively, of the
outstanding common stock of World Airways.
In June 1995, US Order completed an initial public offering whereby
3,062,500 shares of its common stock were issued and sold by US Order, and
1,365,000 shares were sold by WorldCorp. On November 7, 1996, US Order and
Colonial Data were each merged (the "Merger") with and into InteliData. As a
result of the Merger, as of June 30, 1997, WorldCorp owned approximately 28.9%
of the outstanding common stock of InteliData (the "InteliData Common Stock").
The principal executive offices of WorldCorp are located at Washington
Dulles International Airport in The Hallmark Building, 13873 Park Center Road,
Herndon, Virginia 20171. WorldCorp's telephone number is (703) 834-9200.
4
<PAGE>
World Airways
World Airways is a global provider of long-range passenger and cargo
air transportation outsourcing services to major international airlines under
fixed rate, multi-year contracts. World Airways' passenger and freight
operations employ 13 wide-body aircraft which are operated under contracts,
primarily with Pacific Rim airlines. These contracts generally require World
Airways to supply aircraft, crew, maintenance and insurance ("ACMI" or "wet
lease"), while World Airways' customers are responsible for a large portion of
the other operating costs, including fuel. World Airways' airline customers have
determined that outsourcing a portion of their wide-body passenger and cargo
requirements can be less expensive, and offers greater operational and financial
flexibility, than purchasing new aircraft and additional spare parts required
for such aircraft.
World Airways also leads a contractor teaming arrangement that is one
of the largest suppliers of commercial airlift to the United States Air Forces
Air Mobility Command ("USAF").
World Airways, which was founded in 1948, has been providing ACMI
contract services since 1973. Management believes that, as a result of a July
1996 restructuring of its operations to concentrate on ACMI contract services,
and because it is a U.S. certificated "flag" carrier, World Airways is
well-positioned to benefit from the growth in the global air passenger and air
cargo markets, particularly in the Pacific Rim region and South America, where
World Airways has concentrated a significant amount of its resources.
World Airways restructured its business in July 1996 to focus on ACMI
contract services, taking a one-time charge of $21.0 million as of June 30,
1996. As a result, World Airways terminated all scheduled services on October
27, 1996. World Airways' block hours flown from continuing operations increased
approximately 10% in the first six months of 1997 over the first six months of
1996 and increased approximately 23% in the year ended December 31, 1996 over
the year ended December 31, 1995. In addition, World Airways had operating
revenues of approximately $160.7 million and $151.9 million for the first six
months of 1997 and 1996, respectively, and operating revenues of approximately
$309.6 million and $242.4 million for 1996 and 1995, respectively. Due to
accelerated maintenance on two MD-11s in June 1997, World Airways' block hours
flown from continuing operations increased by 1% in the second quarter of 1997
as compared to the same period of the previous year. These aircraft are now
available for operation and are substantially booked for the second half of
1997.
World Airways operates a fleet of nine MD-11 and four DC10-30 wide-body
aircraft. The average age of the MD-11 fleet is 3.4 years. World Airways'
overall fleet age averages 7.7 years. When appropriate, World Airways will add
to this fleet to accommodate the needs of new and existing customers. World
Airways believes that aircraft are available at commercially reasonable rates
for this purpose.
World Airways' operating philosophy is to build on its existing ACMI
relationships to achieve a strong platform for future growth. World Airways
concentrates on ACMI contracts which shift yield, load factor and certain cost
risks to the customer. The customer bears the risk of filling the aircraft with
passengers or cargo and assumes a large portion of the operating expenses,
including fuel. World Airways has elected to emphasize its ACMI business because
it perceives a number of opportunities created by a growing global economy,
particularly growth in second and third world economies where the demand for
airlift exceeds the capacity. World Airways attempts to maximize profitability
by combining its multi-year ACMI contracts with short-term, higher-yielding ACMI
agreements which meet the peak seasonal requirements of its customers. World
Airways responds opportunistically to rapidly changing market conditions by
maintaining a flexible fleet of aircraft that can be deployed in a variety of
configurations.
While its aircraft currently serve predominantly passenger customers,
World Airways substantially increases its potential customer base by being able
to serve both passenger and cargo customers. World Airways flies passenger,
cargo and passenger/cargo convertible aircraft that it believes permit it to
react opportunistically to changing demand. For example, World Airways uses
convertible aircraft in a
5
<PAGE>
passenger configuration to meet peak seasonal flying for Malaysian Airline
System Berhad and P.T. Garuda Indonesia during the spring of each year. World
Airways can subsequently use the same convertible aircraft in a cargo
configuration for a customer, such as UPS, later in the same year.
World Airways focuses its marketing efforts on the Pacific Rim, Europe,
and more recently, South America, where rapid economic development drives demand
for its services. World Airways believes that its modern fleet of long-range
medium-density wide-body MD-11 and DC10-30 aircraft are ideally suited to these
less dense international routes and provide superior economics as compared to
other popular aircraft, such as the Boeing 747 which has excess capacity. World
Airways has operated in the Pacific Rim almost since its inception in 1948, more
recently has penetrated the South American market, and believes that it has
developed the ability to serve these markets well.
World Airways has been providing safe, reliable services for almost 50
years. World Airways has flown for the USAF since 1956, for Malaysian Airline
System Berhad since 1981 and for P.T. Garuda Indonesia since 1973. On July 3,
1997, World Airways entered into a multi-aircraft agreement with Viacao Aereo
Sao Paulo ("VASP").
6
<PAGE>
InteliData
InteliData was incorporated on August 23, 1996 under the Delaware
General Corporation Law in order to effect the merger ("Merger") of US Order and
Colonial Data. The Merger was announced on August 5, 1996, when US Order and
Colonial Data entered into an Agreement and Plan of Merger ("Merger Agreement").
On November 7, 1996, the Merger was consummated with each share of outstanding
US Order and Colonial Data common stock being exchanged for one share of
InteliData common stock. The Merger was treated as a purchase of Colonial Data
by US Order. Following the Merger, WorldCorp reports its proportionate share of
InteliData's financial results using the equity method of accounting. At June
30, 1997, WorldCorp's ownership in InteliData was approximately 28.9%.
Effective September 30, 1996, US Order acquired the business of Braun,
Simmons & Co., an Ohio corporation ("Braun Simmons"), for approximately $7
million consisting of cash and US Order common stock and including US Order
transaction costs. Braun Simmons was an information engineering firm
specializing in the development of home banking and electronic commerce
solutions for financial institutions. The acquisition expands InteliData's
product line for both large and small financial institutions.
The business of InteliData consists of the businesses previously
conducted by US Order, Colonial Data and Colonial Data's subsidiaries.
InteliData develops and markets products and services for the telecommunications
and financial services industries through its three business divisions: consumer
telecommunications, electronic commerce and interactive services.
The consumer telecommunications division designs, develops and markets
telecommunications products that support intelligent network services being
developed and implemented by the regional Bell operating companies ("RBOCs") and
other telephone companies ("telcos"). InteliData has concentrated its product
development and marketing efforts on products that support Caller ID and other
emerging intelligent network services, including a smart telephone, the
Telesmart 4000/Intelifone(TM), which provides consumers call management features
and the ability to access numerous network services and interactive applications
via telephone. InteliData currently offers a line of Caller ID adjunct units and
telephones with integrated Caller ID, small business telecommunications systems
and high-end consumer telecommunications equipment. InteliData also repairs and
refurbishes telecommunications products for commercial customers and provides
other services that support the development and implementation of intelligent
network services.
The electronic commerce division develops and markets products and
services to assist financial institutions in their home banking and electronic
bill payment initiatives. The products are designed to assist consumers in
accessing and transacting business with their banks and credit unions
electronically, and to assist financial institutions in connecting to and
transacting business with third parties, including data processors and billers.
The services focus on a financial institution's back office, offering
outsourcing for data entry, telemarketing, customer service and technical
support. InteliData currently receives its electronic commerce revenues largely
from the sale of products and services to Visa International Service
Association, Inc. ("Visa") member banks.
The interactive services division was established to provide
interactive applications for use on smart telephones and other small screen
devices, such as alpha-numeric pagers, Personal Communication Systems ("PCS")
telephones and personal digital assistants ("PDAs"). InteliData intends to sell
interactive applications directly to end users and through other companies,
including telcos and wireless communications companies. InteliData's current
interactive applications include electronic national directory assistance
lookup, one-way alpha-numeric paging, one-way internet e-mail, a personal
directory data save and restore function and information services such as news,
weather, sports scores, stock quotes, lottery results and horoscopes.
7
<PAGE>
Recent Events
On August 29, 1996, WorldCorp entered into a bridge loan (the "Bridge
Loan") with a financial institution (the "Bank"), pursuant to which WorldCorp
borrowed $25.0 million at an interest rate equal to the London Interbank Offered
Rate ("LIBOR") plus 2.50%. All borrowings under the Bridge Loan initially were
collateralized by $15.0 million in cash, all of the InteliData and World Airways
Common Stock beneficially owned by WorldCorp and a first priority security
interest in the Company's assets. Using the proceeds from the Bridge Loan, on
September 30, 1996, WorldCorp redeemed all of the remaining outstanding
principal amount of approximately $25.0 million of its 13 7/8% Subordinated
Notes due August 15, 1997 (the "13 7/8% Notes"). In October 1996, the cash
collateralization was reduced to $7.0 million as a result of a $10.0 million
repayment of the monies borrowed under the Bridge Loan. On December 31, 1996,
the Company successfully renegotiated the terms of the Bridge Loan (the
"Renegotiated Bridge Loan"). Pursuant to the Renegotiated Bridge Loan, the
interest rate was lowered to LIBOR plus 1.75%, and all borrowings are now
collateralized by $1.0 million in cash, all of the InteliData and World Airways
Common Stock beneficially owned by WorldCorp and a first priority security
interest in the Company's assets. In addition, certain financial covenants have
been released. On February 26, 1997, the Renegotiated Bridge Loan was further
amended to permit the Margin Loan (as described herein). The Renegotiated Bridge
Loan matures on September 29, 1997.
On September 30, 1996, WorldCorp sold the $10,000,000 in original
aggregate principal amount of its Old Notes pursuant to a purchase agreement,
dated as of September 30, 1996, among WorldCorp and the purchasers named therein
(the "Purchase Agreement"). The initial purchasers of the Notes also received
warrants, dated September 30, 1996 and expiring September 30, 2000, to acquire
120,000 shares of the common stock of WorldCorp, $.001 par value per share (the
"Common Stock"), additional warrants, issuable to such purchasers on October 1,
1997 and expiring on September 30, 2001, to acquire 40,000 shares of Common
Stock and additional warrants, issuable to such purchasers on October 1, 1998
and expiring on September 30, 2002, to acquire 40,000 shares of Common Stock,
which additional warrants will be issued only if certain market conditions are
met (collectively, the "Warrants"). The Warrants have an exercise price of $6.00
per share, subject to adjustments as set forth therein. Proceeds from the sale
of the Notes were used to repay $10.0 million aggregate principal amount
outstanding under the Renegotiated Bridge Loan. As of June 30, 1997, the
outstanding principal balance under the Renegotiated Bridge Loan was $15.0
million, and there was $10.0 million in aggregate principal amount outstanding
under the Notes.
The Purchase Agreement and the Renegotiated Bridge Loan generally
restrict stock repurchases by WorldCorp and its subsidiaries, except under
certain limited circumstances. These borrowings also contain a number of
covenants that, among other things, restrict the ability of WorldCorp to dispose
of assets, make certain acquisitions of the stock of other entities, incur
additional indebtedness, and make capital expenditures. The Renegotiated Bridge
Loan also contains certain covenants which, among other things, require
WorldCorp to maintain at least a 50.1% ownership of World Airways and in certain
instances to make repayment of the Renegotiated Bridge Loan. Pursuant to the
Renegotiated Bridge Loan, WorldCorp may retire or otherwise acquire up to $10.0
million worth of WorldCorp Common Stock. In addition, WorldCorp was permitted to
exchange with the WorldCorp Employee Savings and Stock Ownership Plan, in a
non-cash transaction, Common Stock held by the trust for common stock of World
Airways, provided, WorldCorp retained a 50.1% ownership of World Airways.
Pursuant to the Purchase Agreement, WorldCorp is permitted to purchase, redeem,
retire or otherwise acquire for value (i) at any time, Common Stock for up to
$25.0 million in cash and up to 650,000 shares of Common Stock using shares of
common stock of World Airways of which WorldCorp is the beneficial owner, and
(ii) up to $5.0 million worth of additional shares of Common Stock for every
$15.0 million increase in Asset Value (as defined herein) at such time compared
to such Asset Value as of September 12, 1996. As of September 12, 1996 and June
30, 1997, the Asset Value was $185.7 million and $109.5 million, respectively.
In September 1996, WorldCorp announced its intention to purchase up to 2.5
million shares of its publicly-traded common stock (the "WorldCorp Common
Stock") pursuant to open market transactions. As of June 30, 1997, the Company
had purchased 1,362,500 shares of WorldCorp Common Stock for an aggregate cost
of $7.8 million. WorldCorp does not intend to purchase any additional shares at
this time. On July 31, 1997, WorldCorp received a notice
8
<PAGE>
of default on the Renegotiated Bridge Loan, whereby the bank may proceed with
the exercise of its rights and remedies under the loan documents and applicable
laws if the default is not corrected within 15 days following the date of
notice. Based on discussions with the bank, WorldCorp believes that the bank
will not exercise its rights at this time. No assurances can be given that the
bank will not exercise its rights in the future.
On January 27, 1997, WorldCorp entered into a $1.0 million margin loan
with Scott & Stringfellow, Inc. ("Scott & Stringfellow"), whereby WorldCorp
pledged approximately 400,000 shares of InteliData common stock which WorldCorp
owns as collateral for such loan (the "Margin Loan"). The purpose of the Margin
Loan was to obtain cash for short-term working capital purposes. As of June 30,
1997, WorldCorp had no outstanding balance on the Margin Loan.
On August 26, 1997, World Airways issued $50 million of convertible
senior subordinated debentures (the "144A Debentures"), in a private offering,
due in 2004 (the "144A Offering"). The 144A Debentures are unsecured
obligations, convertible into shares of World Airways' common stock, and
subordinated to all present and future senior indebtedness of World Airways. The
144A Debentures were offered in reliance on the exemption form the registration
requirements provided by Rule 144A of the Securities Act. Accordingly, the 144A
Debentures and the underlying common stock have not been registered under the
Securities Act and have been offered only to certain accredited investors. World
Airways intends to use net proceeds of the 144A Offering to purchase
approximately 4.0 million shares of its common stock, repay certain indebtedness
and increase working capital.
In connection with the 144A Offering, World Airways and WorldCorp have
entered into an agreement (the "Agreement") for the purchase by World Airways of
up to 4.0 million shares of the common stock of World Airways owned by WorldCorp
at a purchase price per share of $7.65. World Airways has received an opinion
from Furman Selz LLC that the terms of the Agreement are fair to the
stockholders of World Airways from a financial point of view. Closing under the
Agreement is subject to certain contractual and regulatory contingencies,
including the approval of the Boards of Directors of World Airways and
WorldCorp. Discussions with MHS following the 144A Offering also could have an
impact on the number of shares of common stock of World Airways repurchased from
WorldCorp. MHS has certain rights under a shareholders agreement, dated as of
February 3, 1994, as amended, among WorldCorp, MHS and World Airways (the
"Shareholders Agreement"). The Shareholders Agreement includes a provision that
provides that if WorldCorp were to dispose of its holdings in World Airways with
the result that WorldCorp's ownership interest in World Airways falls below 51%
of the outstanding shares of the common stock of World Airways, then MHS may
either sell its shares to a third party or require WorldCorp to sell a pro rata
number of shares held by MHS to the party purchasing WorldCorp's shares.
In August 1997, the Board of Directors of InteliData approved a stock
repurchase program whereby InteliData may repurchase up to 2,000,000 shares of
its common stock from time to time on the open market. There can be no assurance
as to the number of shares ultimately repurchased.
Effective September 10, 1997, Walter M. Fiederowicz resigned as Chief
Executive Officer of WorldCorp. In addition, Mark S. Lynch resigned as Chief
Financial Officer of both WoldCorp and World Airways. T. Coleman Andrews, III,
Chairman of the Board of Directors of WoldCorp, has temporarily assumed the
responsibilities of Chief Executive Officer, pending the hiring of a new Chief
Executive Officer.
Summary of the Terms of the Renegotiated Bridge Loan
<TABLE>
<S> <C>
Borrower...................... WorldCorp.
Loan Amount................... $15.0 million.
Maturity Date................. September 29, 1997.
Interest...................... LIBOR Rate in effect from time to time plus 175
basis points.
Cash Collateral............... $1.0 million.
Securities Collateral......... All stock and warrants owned by WorldCorp and
WorldCorp Investments in InteliData and World
Airways, including
</TABLE>
9
<PAGE>
6,929,586 shares of common stock of World
Airways and approximately 8.7
million shares of InteliData Common Stock.
Approximately 400,000
shares of InteliData Common Stock
are pledged to Scott & Stringfellow
as collateral for the repayment of
the Margin Loan.
Guarantor........................ WorldCorp Investments, a wholly-owned
subsidiary of the Company.
Prepayment of Loan............... WorldCorp may prepay the loan in whole or in
part at any time without penalty or premium,
provided that any such prepayment (a) is in
the amount of $1 million or any integral
multiple thereof, and (b) is accompanied by
all unpaid and accrued interest on the
amount so prepaid to the date of prepayment.
Security Interest................ WorldCorp and WorldCorp Investments have
granted the Bank a security interest in the
Cash Collateral and Securities Collateral.
Merger, Sale of Assets, etc...... WorldCorp and WorldCorp Investments covenant
that they will not, without the Bank's prior
written consent, suffer or permit to occur
any merger, consolidation, dissolution or
liquidation and certain other transactions
unless WorldCorp provides advance written
notice and continues as the surviving
entity, remains in full compliance with the
terms of the Renegotiated Bridge Loan and
management of WorldCorp remains
substantially unchanged.
Certain Covenants................ The Renegotiated Bridge Loan contains
certain covenants, which, among other
things, require WorldCorp to maintain at
least a 50.1% ownership of World Airways,
restrict WorldCorp and World Airways from
entering into a merger, sale of assets,
consolidation, dissolution or share
exchange, restrict WorldCorp or World
Airways from purchases of certain assets,
and restrict prepayment of Funded Debt,
which includes any obligation of WorldCorp
to any person other than the Bank that is
payable more than one year from the date of
its creation and which under Generally
Accepted Accounting Principles ("GAAP") is
shown on the balance sheet as a liability
excluding certain reserves. In addition, the
Renegotiated Bridge Loan stipulates that the
fair market value of each share of World
Airways and InteliData common stock that
collateralizes the loan must equal or exceed
$5.00 per share at all times.
Summary of the Terms of the Exchange Offer
The Exchange Offer relates to the exchange of up to $10,000,000 aggregate
principal amount of Old Notes for up to an equal aggregate principal amount of
New Notes. The New Notes will be obligations of the Company entitled to the
benefits of the Indenture. The form and terms of the New Notes are the same as
the form and terms of the Old Notes except that (i) the New Notes have been
registered under the Securities Act and will not contain terms restricting the
transfer thereof (other than as provided herein), (ii) the New Notes will be
subject to the requirements of the Trust Indenture Act and therefore will be
issued under an Indenture (as defined herein) that provides for various rights
and benefits of the holders of the New Notes to be exercisable, received and
coordinated through the Trustee (as defined herein) in the manner required by
the Trust Indenture Act and (iii) the New Notes will be issued free from any
covenant regarding registration. The Old Notes and the New Notes are herein
collectively referred to as the "Notes." See "Description of New Notes."
10
<PAGE>
The Exchange Offer............... $1,000 principal amount of New Notes will be
issued in exchange for each $1,000 principal
amount of Old Notes validly tendered
pursuant to the Exchange Offer. As of the
date hereof, $10,000,000 in aggregate
principal amount of Old Notes are
outstanding. The Company will issue the New
Notes to tendering holders of Old Notes
promptly after the Expiration Date.
Resale........................... The Company believes that the New Notes
issued pursuant to the Exchange Offer
generally will be freely transferable by the
holders thereof without registration or any
prospectus delivery requirement under the
Securities Act, except that a "dealer" or
any "affiliate" of the Company, as such
terms are defined under the Securities Act,
that exchanges Old Notes held for its own
account (a "Restricted Holder") may be
required to deliver copies of this
Prospectus in connection with any resale of
the New Notes issued in exchange for such
Old Notes. See "The Exchange Offer--
General" and "Plan of Distribution."
Expiration Date.................. 5:00 p.m., New York City time, on
October 16, 1997, unless the Exchange Offer
is extended, in which case the term
"Expiration Date" means the latest date and
time to which the Exchange Offer is
extended. See "The Exchange Offer--
Expiration Date; Extensions; Amendments."
Accrued Interest on the New
Notes and the Old Notes........ The New Notes will bear interest from March
31, 1997. Holders of Old Notes whose Old
Notes are accepted for exchange will be
deemed to have waived the right to receive
any payment in respect of interest on such
Old Notes accrued from March 31, 1997 to the
date of the issuance of the New Notes.
Consequently, holders who exchange their Old
Notes for New Notes will receive the same
interest payment on September 30, 1997 (the
first interest payment date with respect to
the Old Notes and the New Notes) that they
would have received had they not accepted
the Exchange Offer. See "The Exchange
Offer--Interest on the New Notes."
Termination of the Exchange
Offer.......................... The Company may terminate the Exchange Offer
if it determines that its ability to proceed
with the Exchange Offer could be materially
impaired due to any legal or governmental
action, any new law, statute, rule or
regulation or any interpretation of the
staff of the Commission of any existing law,
statute, rule or regulation or if the
Company deems it advisable to terminate the
Exchange Offer. Holders of Old Notes will
have certain rights against the Company
under the Purchase Agreement should the
Company fail to consummate the Exchange
Offer. See "The Exchange Offer--
Termination."
No federal or state regulatory requirements
must be complied with or approvals obtained
in connection with the Exchange Offer, other
than applicable requirements under federal
and state securities laws.
11
<PAGE>
Procedures for Tendering Old
Notes.......................... Each holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the accompanying Letter of Transmittal,
or a facsimile thereof, in accordance with
the instructions contained herein and
therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with the Old Notes to be exchanged
and any other required documentation, to
Norwest Bank Minnesota, National
Association, as Exchange Agent, at the
address set forth herein and therein or
effect a tender of Old Notes pursuant to the
procedures for book-entry transfer as
provided for herein. See "The Exchange
Offer -- Procedures for Tendering."
Special Procedures for
Beneficial Holders............. Any beneficial holder whose Old Notes are
registered in the name of his broker,
dealer, commercial bank, trust company or
other nominee and who wishes to tender in
the Exchange Offer should contact such
registered holder promptly and instruct such
registered holder to tender on his behalf.
If such beneficial holder wishes to tender
on his own behalf, such beneficial holder
must, prior to completing and executing the
Letter of Transmittal and delivering his Old
Notes, either make appropriate arrangements
to register ownership of the Old Notes in
such holder's name or obtain a properly
completed bond power from the registered
holder. The transfer of record ownership may
take considerable time. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery Procedures.. Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes (or who cannot complete the
procedure for book-entry transfer on a
timely basis) and a properly completed
Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date
may tender their Old Notes according to the
guaranteed delivery procedures set forth in
"The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights................ Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time,
on the business day prior to the Expiration
Date, unless previously accepted for
exchange. See "The Exchange Offer --
Withdrawal of Tenders."
Acceptance of Old Notes and
Delivery of New Notes.......... Subject to certain conditions (as summarized
above in "Termination of the Exchange Offer"
and described more fully in "The Exchange
Offer -- Termination"), the Company will
accept for exchange any and all Old Notes
which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will
be delivered promptly following the
Expiration Date. See "The Exchange Offer --
General."
12
<PAGE>
Certain Federal Income Tax
Consequences................... The exchange pursuant to the Exchange Offer
will generally not be a taxable event for
federal income tax purposes. See "Certain
Federal Income Tax Consequences."
Exchange Agent................... Norwest Bank Minnesota, National
Association, the Trustee under the
Indenture, is serving as exchange agent (the
"Exchange Agent") in connection with the
Exchange Offer. See "The Exchange Offer --
Exchange Agent."
Use of Proceeds.................. There will be no cash proceeds payable to
the Company from the issuance of the New
Notes pursuant to the Exchange Offer. Net
proceeds received by the Company from the
sale of the Old Notes were applied to repay
a portion of the amount outstanding under
the Renegotiated Bridge Loan.
Summary Description of New Notes
Securities Offered............... $10,000,000 aggregate principal amount of
10.00% Senior Subordinated Notes due
September 30, 2000 (the "New Notes").
Maturity Date.................... September 30, 2000.
Interest......................... Payable semi-annually in cash on March 31,
and September 30, commencing on September
30, 1997.
Ranking.......................... The Old Notes are, and the New Notes will
be, unsecured, general obligations of the
Company subordinated in right of payment to
all existing and future Senior Indebtedness
of the Company (which includes all
indebtedness under the Renegotiated Bridge
Loan). The New Notes will rank senior in
right of payment to all existing and future
Subordinated Indebtedness of the Company and
on parity with the Old Notes. Senior
Indebtedness shall not exceed $50.0 million.
At June 30, 1997, the Company (excluding its
subsidiaries) had $15.0 million of Senior
Indebtedness outstanding, $65 million of
Subordinated Indebtedness outstanding, $10
million of Old Notes outstanding and no firm
arrangements to issue any significant
Subordinated Indebtedness. The Company
believes that, based upon current financing
arrangements and the Company's ability to
raise additional capital through issuing
equity, selling shares of its World Airways
or InteliData common stock, or through
entering into new loan arrangements, the
Company will be able to meet its principal
and interest payment obligations on the
Notes. There can be no assurance, however,
that the Company's future financial
condition will be such as to permit the
Company to service its indebtedness,
including the New Notes. Additionally, if
the Company sells any shares of InteliData
Common Stock, 20% of the net proceeds (i.e.,
gross proceeds less direct costs associated
with such sales) received by the Company
upon such sale will be used to prepay the
then outstanding Notes, pro rata, within 30
days. Any sale by the Company of shares of
common stock of either World Airways or
InteliData would also require a waiver from
13
<PAGE>
the Bank in accordance with the Renegotiated
Bridge Loan. See "Risk Factors -- Ranking of
the Notes" and "Description of New Notes --
Ranking."
No Guaranties.................... The Old Notes are not, and the New Notes
will not be guaranteed by the Company or any
other entity. Therefore, there can be no
assurance that should there be a Mandatory
Prepayment of the Notes that adequate funds
will be available to the Company to prepay
the Notes. See "Risk Factors"
Optional Prepayment.............. The Notes may be prepaid at the election of
the Company, in whole or from time to time
in part (in units of at least $250,000), at
par together with accrued interest to the
date of prepayment.
Mandatory Prepayment............. If the Asset Value at the end of any fiscal
quarter is less than $70.0 million, then the
Company shall prepay 50% of each of the then
outstanding Notes within 60 days. If the
Asset Value at the end of any fiscal quarter
is less than $50.0 million, then the Company
shall prepay all of the then outstanding
Notes within 60 days. In the event of a
Mandatory Prepayment of the Notes, WorldCorp
would seek to raise additional capital
through issuing equity, selling shares of
its World Airways or InteliData common
stock, or through entering into new loan
arrangements, in order to meet the principal
and interest payment obligations on the
Notes. There can be no assurance, however,
that WorldCorp would be able to obtain
sufficient capital through such financings
or that the terms of such financings would
be favorable to WorldCorp.
If the Company sells any shares of
InteliData Common Stock, 20% of the net
proceeds (i.e., gross proceeds less direct
costs associated with such sales) received
by the Company upon such sale will be used
to prepay the then outstanding Notes, pro
rata, within 30 days. Any sale by the
Company of shares of common stock of either
World Airways or InteliData would also
require a waiver from the Bank in accordance
with the Renegotiated Bridge Loan.
Sinking Fund Payments............ The Company shall prepay pursuant to a
sinking fund and there shall become due and
payable 20% of the outstanding principal
amount of the then outstanding Notes, or
such lesser amount as would constitute
payment in full of the then outstanding
Notes on such date, on September 30, 1998
and September 30, 1999. No premium shall be
payable in connection with any such sinking
fund payment.
Change of Control................ There is no Change of Control provision.
Certain Covenants................ The Purchase Agreement pursuant to which the
Old Notes were issued and the indenture
pursuant to which the New Notes will be
issued (the "Indenture") each contain
covenants for the benefit of the holders of
the Notes (the "Holders"), including
covenants limiting the incurrence of
additional Senior Indebtedness, the payment
of dividends and other distributions and the
terms of additional Subordinated
Indebtedness. See "Description of New Notes
-- Certain Covenants."
14
<PAGE>
Freely Transferable.............. Generally, the New Notes will be freely
transferable under the Securities Act by
holders who are not affiliates of the
Company. The New Notes otherwise will be
substantially identical in all material
respects (including interest rate and
maturity) to the Old Notes. See "Description
of New Notes."
Registration Rights.............. The Company is obligated to file a
registration statement with the Commission
with respect to the registration of the New
Notes under the Securities Act and to use
its best efforts to have such registration
statement declared effective, which
registration will be effected through the
Exchange Offer. Holders who do not
participate in the Exchange Offer may
thereafter hold a less liquid security. See
"Description of New Notes -- Registration
Rights."
Risk Factors
For a discussion of certain factors that should be considered by
prospective investors, see "Risk Factors."
15
<PAGE>
Selected Financial Data
The following table sets forth selected consolidated statement of
operations data, operating data and balance sheet data for the Company for the
periods indicated. The historical financial information for, and as of the end
of, each of the years ended December 31, 1992, 1993, 1994, 1995 and 1996 are
derived from the audited consolidated financial statements of the Company for
such years. This information should be read in conjunction with, and is
qualified by reference to, the consolidated financial statements of the Company
and the notes thereto incorporated by reference in this Prospectus. The
following selected financial data for the six months ended June 30, 1996 and
1997 are derived from the Company's unaudited financial statements. In the
opinion of management of the Company, such unaudited financial statements
include all adjustments necessary for a fair presentation of the results of
operations for such periods. Operating results for the six months ended June 30,
1997 are not necessarily indicative of results that may be expected for the
entire year ending December 31, 1997. The data appearing under the caption
"Operating Data" are derived from the records of the Company. The unaudited pro
forma condensed consolidated statements of operations data for the year ended
December 31, 1996 give effect to the Merger as if it was completed as of January
1, 1996. As a result, WorldCorp's pro forma consolidated statement of operations
data includes InteliData's results for the period under the equity method of
accounting. Such statements of operations data do not include the combined
effect of the $20.9 million nonrecurring charge for the Company's share of
InteliData's charge for in-process research and development or the gain on
issuance of stock by InteliData of approximately $42.6 million, which was offset
by the elimination of approximately $1.3 million of goodwill related to US
Order, which were recorded by the Company as a result of this transaction in the
fourth quarter of 1996. However, such statements do reflect adjustments for the
elimination of historical transactions between WorldCorp, US Order and Colonial
Data, amortization of goodwill and related income tax effects.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Results of Operations:
Operating revenues .............................. $ 180,416 $ 179,932 $ 182,147 $ 246,572 $ 313,672
Operating expenses .............................. 217,271 203,177/(1)/ 200,959/(2)/ 240,279 310,935
--------- --------- --------- --------- ---------
Operating income (loss) ......................... (36,855)/(4)/ (23,245) (18,812) 6,293 2,737
Earnings (loss) from continuing operations
before income taxes, minority interest,
extraordinary item and change in accounting
principle ..................................... (44,692) (33,698) 10,496/(5)/ 65,685/(6)/ 8,509/(7)/
Earnings (loss) from continuing operations before
extraordinary item and change in accounting
principle ..................................... (42,891) (30,945) 8,308 64,158 7,437
Discontinued operations,
net of tax and minority interest .............. -- -- -- (3,950) (19,191)
Extraordinary gain (loss) on acquisition
of debt, net .................................. (3,253) -- -- -- --
Change in accounting principle .................. (1,973) -- -- -- --
Net earnings (loss) ............................. $ (48,117) $(30,945) $ 8,308 $ 60,208 $ (11,754)
Primary earnings (loss) per common
equivalent share:
Continuing operations ....................... $ (3.02) $ (2.12) $ 0.54 $ 3.75 $ 0.45
Net earnings (loss) ......................... (3.39) (2.12) 0.54 3.52 (0.70)
Fully diluted earnings (loss) per common
equivalent share:
Continuing operations ....................... * * $ 0.53 $ 2.99 *
Net earnings (loss) ......................... * * 0.53 2.82 *
Operating Data:
Ratio of earnings to fixed charges/(8)/.......... -- -- 1.33x 2.78x 1.72x
Deficiency in earnings to cover fixed charges.... $ 44,692 $ 33,698 -- -- --
<CAPTION>
Pro Six Months Ended
Forma June 30,
--------- ----------------------
1996 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Results of Operations:
Operating revenues ............................... $ 309,587 $ 153,747 $ 160,676
Operating expenses ............................... 291,745 148,971 $ 149,166/(3)/
--------- --------- ---------
Operating income (loss) .......................... 17,842 (4,776) 11,510
Earnings (loss) from continuing operations
before income taxes, minority interest,
extraordinary item and change in
accounting principle ........................... (181) 189 4,943
Earnings (loss) from continuing operations
before extraordinary item and change
in accounting principle ........................ (8,061) (2,214) 496
Discontinued operations,
net of tax and minority interest ............... (19,191) (19,377) --
Extraordinary gain (loss) on acquisition
of debt, net ................................... -- -- --
Change in accounting principle ................... -- -- --
Net earnings (loss) .............................. $ (27,252) $ (21,591) $ 496
Primary earnings (loss) per common
equivalent share:
Continuing operations ........................ $ (0.48) $ (0.14) $ 0.03
Net earnings (loss) .......................... (1.63) (1.32) 0.03
Fully diluted earnings (loss) per common
equivalent share:
Continuing operations ........................ * * *
Net earnings (loss) .......................... * * *
Operating Data:
Ratio of earnings to fixed charges/(8)/........... 1.09x 1.01x 1.19x
Deficiency in earnings to cover fixed charges..... -- -- --
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30
--------------------------------------------------------- --------
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and short-term investments .................... $14,769 $17,584 $8,828 $78,661/(9)/ $ 14,509/(9)/ $10,591/(9)/
Working capital (deficit) .......................... (9,193) (24,850) (34,926) 39,622 (40,308) (46,585)
Total assets ....................................... 93,346 98,119 98,536 202,089 178,963 168,288
Long-term obligations including current maturities.. 104,192 129,049 119,032 122,700 114,794 114,722
Common Stockholders' accumulated deficit ........... (76,362) (101,073) (88,193) (23,297) (40,337) (39,500)
</TABLE>
- -------------------
* Fully diluted earnings per share are anti-dilutive.
(1) Includes $2.3 million of termination fees related to the early return of
three DC10-30 aircraft.
(2) Includes a $4.2 million reversal of excess accrued maintenance reserves
associated with the expiration of three DC10 aircraft leases in 1994.
(3) Operating expenses for the six months ended June 30, 1997, include a $1.0
million reversal of accrued maintenance expense in excess of the cost of
an overhaul of a DC-10 aircraft.
(4) Includes a $31.4 million loss on the sale of Key Airlines, Incorporated,
partially offset by $4.1 million related to settlement of contract claims
with the U.S. Government related to Operation Desert Shield/Desert Storm.
(5) Includes a $27.0 million gain on the sale of 24.9% of World Airways common
stock and a $14.5 million gain on the sale of US Order's bill payment
operations.
(6) Includes the $51.3 million gain realized on US Order's offering in June
1995 and other stock transactions and the $16.0 million gain realized on
World Airways' offering in October 1995.
(7) Includes the $41.3 million net gain realized on the issuance of stock by
InteliData to effect the Merger of US Order and Colonial Data in November
1996; a $2.4 million net loss on other stock transactions of World Airways
and InteliData; partially offset by approximately $23.6 million of
one-time noncash Merger related charges.
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings (loss) before income taxes, minority interest,
extraordinary items and cumulative effect of change in accounting
principle, fixed charges, and equity in loss of non-consolidated
subsidiary. Fixed charges consist of interest expense, including
amortization of debt issuance costs and one-third of rent expense which is
deemed to be representative of interest expense.
(9) Includes restricted cash and short-term investments of $3.1 million, $2.5
million and $4.8 million as of June 30, 1997 and December 31, 1996 and
1995, respectively. In addition, includes $9.5 million, $8.1 million and
$54.5 million, as of June 30, 1997 and December 31, 1996 and 1995,
respectively, of cash and short-term investments held by World Airways and
InteliData, which is not available to satisfy WorldCorp's obligations.
17
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully by
prospective investors in evaluating an investment in the Notes. Set forth below
are certain risk factors with respect to WorldCorp, World Airways and
InteliData.
Risk Factors with Respect to WorldCorp:
Holding Company Structure and Liquidity
WorldCorp is a highly leveraged holding company. As a holding company,
all of WorldCorp's funds are generated through its positions in World Airways
and InteliData, which have not paid dividends on common stock since 1992. At
June 30, 1997, World Airways had a working capital deficit of $31.9 million and
had substantial debt and lease commitments. At June 30, 1997, InteliData had
working capital of $62.9 million, with no long-term debt. World Airways' ability
to pay dividends is currently restricted under a borrowing arrangement. World
Airways and InteliData currently intend to retain their future earnings, if any,
to fund the growth and development of their businesses and, therefore, do not
anticipate paying any cash dividends in the foreseeable future. Of the $10.6
million in cash and short-term investments WorldCorp held at June 30, 1997,
approximately $9.5 million was held by World Airways and, therefore, is not
available to satisfy WorldCorp's obligations. As of June 30, 1997, WorldCorp had
parent company repayment obligations, including principal and interest, of
approximately $18.1 million for the remainder of 1997. In order to meet these
obligations and its general and administrative costs, WorldCorp must use its
existing cash and either sell shares of World Airways or InteliData, or issue
additional debt or equity. Under the terms of certain borrowing arrangements,
however, WorldCorp has pledged all of its shares of World Airways and InteliData
as collateral for the borrowings.
On December 31, 1996, the Company successfully renegotiated the terms
of the Bridge Loan and executed the Renegotiated Bridge Loan. Pursuant to the
Renegotiated Bridge Loan, all borrowings are now collateralized by $1.0 million
in cash, all of the InteliData Common Stock and World Airways beneficially owned
by WorldCorp and a first priority security interest in the Company's assets. In
addition, certain financial covenants have been released. On February 26, 1997,
the Renegotiated Bridge Loan was further amended to permit the Margin Loan. As
of June 30, 1997, WorldCorp had no outstanding balance on the Margin Loan.
WorldCorp also announced its intention to purchase up to 2.5 million shares of
WorldCorp Common Stock pursuant to open market transactions. As of June 30,
1997, the Company had purchased 1,362,500 shares of WorldCorp Common Stock for
an aggregate cost of $7.8 million. WorldCorp does not intend to purchase any
additional shares at this time.
In May 1992, WorldCorp issued $65 million of 7% Convertible
Subordinated Debentures due 2004 (the "7% Debentures") issued pursuant to an
Indenture (the "7% Indenture"). The 7% Debentures are convertible into the
common stock of WorldCorp at $11.06 per share, subject to adjustment in certain
events, and bear an annual interest rate of 7%. The 7% Indenture governing
WorldCorp's 7% Debentures provides that WorldCorp will cause World Airways to
not pay dividends upon the occurrence of any event of default by WorldCorp under
such 7% Indenture. Further, the Indenture defines Subordinated Indebtedness to
include the 7% Debentures and as such, the Notes will rank senior in right of
payment to the 7% Debentures.
Substantial Leverage; Inability to Service Indebtedness
The Company has substantial indebtedness and is highly leveraged. At
June 30, 1997, the Company's total long-term indebtedness including current
maturities was $114.7 million, the Company had liabilities (including total
debt) of approximately $200.4 million and total stockholders' deficit of
$(39.5) million. In the ordinary course of business, the Company has incurred
and, subject to certain covenants and financial tests set out in the
Renegotiated Bridge Loan, the 7% Indenture and the Indenture, will continue to
incur additional indebtedness to
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fund working capital requirements and for other corporate purposes. See
"Description of Renegotiated Bridge Loan" and "Description of New Notes."
The degree to which the Company is leveraged could have important
consequences to holders of the New Notes, including: (i) the Company's ability
to obtain financing in the future for working capital or other purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of principal and interest on its indebtedness;
(iii) the indebtedness outstanding under the Renegotiated Bridge Loan is secured
and will mature prior to the maturity of the New Notes; (iv) certain of the
Company's borrowings are at variable rates of interest, which could result in
higher interest expense in the event of increases in interest rates; and (v) the
Company's high degree of leverage may make it more vulnerable to economic
downturns and may limit its ability to withstand competitive pressures.
The Company believes that, based upon current financing arrangements
and the Company's ability to raise additional capital through issuing equity,
selling shares of its World Airways or InteliData common stock, or through
entering into new loan arrangements, the Company will be able to meet its
principal and interest payment obligations on its outstanding indebtedness.
There can be no assurance, however, that the Company's future financial
condition will be such as to permit the Company to service its indebtedness,
including the New Notes.
New Notes Represent Unsecured, Subordinated Claims; No Limitation on Additional
Indebtedness
The New Notes will be unsecured obligations of the Company that are
subordinated in right of payment to all Senior Indebtedness of the Company,
including all indebtedness under the Renegotiated Bridge Loan. As of June 30,
1997, $15 million of Senior Indebtedness was outstanding, $65 million of
Subordinated Indebtedness was outstanding and $10 million of Old Notes were
outstanding. The Indenture, the 7% Indenture and the Renegotiated Bridge Loan
permit the Company to incur additional Senior Indebtedness, provided that
certain conditions are met, and the Company expects from time to time to incur
additional Senior Indebtedness. Furthermore, the Indenture does not limit the
Company's ability to secure Senior Indebtedness. In the event of the insolvency,
liquidation, reorganization, dissolution or other winding up of the Company or
upon a default in payment with respect to, or the acceleration of, or if a
judicial proceeding is pending with respect to, any default under any Senior
Indebtedness, the Bank under the Renegotiated Bridge Loan and any other
creditors who are holders of Senior Indebtedness must be paid in full before a
holder of the New Notes may be paid. Accordingly, there may be insufficient
assets remaining after such payments to pay principal of or interest on the New
Notes. See "Description of New Notes -- Ranking."
The Company's obligations under the Renegotiated Bridge Loan are
collateralized by $1.0 million in cash and all stock and warrants owned by
WorldCorp and WorldCorp Investments in InteliData and World Airways, including
6,915,915 shares of common stock of World Airways and approximately 8.7 million
shares of InteliData Common Stock. Approximately 400,000 shares of InteliData
Common Stock are pledged to Scott & Stringfellow as security for the repayment
of the Margin Loan. As of June 30, 1997, the Company has no outstanding balance
on the Margin Loan. These securities represent substantially all of the assets
of the Company. In addition, WorldCorp Investments is the guarantor of the
Renegotiated Bridge Loan. If a default occurs under the Renegotiated Bridge Loan
and the Company is unable to repay such borrowings, the Bank would have the
right to exercise the remedies available to secured creditors under applicable
law and pursuant to the Renegotiated Bridge Loan. See "-Restrictive Debt
Covenants; Consequences of Failure to Comply with Debt Covenants." Accordingly,
the Bank would be entitled to payment in full out of the assets securing such
indebtedness prior to payment to holders of the New Notes. If the Bank, Scott &
Stringfellow or the holders of any other secured indebtedness were to foreclose
on the collateral securing the Company's obligations to the Bank and Scott &
Stringfellow, it is possible that there would be insufficient assets remaining
after satisfaction in full of all such indebtedness to satisfy in full the
claims of holders of the New Notes.
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Restrictive Debt Covenants; Consequences of Failure to Comply with Debt
Covenants
The Renegotiated Bridge Loan and the Indenture contain a number of
significant covenants that, among other things, restrict the ability of the
Company to dispose of assets, incur additional indebtedness, pay dividends,
enter into sale-leaseback transactions, create liens, make capital expenditures
and make certain investments or acquisitions and otherwise restrict corporate
activities. In addition, the Renegotiated Bridge Loan stipulates that the fair
market value of each share of World Airways and InteliData common stock that
collateralizes the Renegotiated Bridge Loan must equal or exceed $5.00 per share
at all times. The ability of the Company to comply with such provisions may be
affected by events beyond the Company's control. The breach of any of these
covenants could result in a default under the Renegotiated Bridge Loan. See
"Summary of Renegotiated Bridge Loan." In the event of any such default,
depending upon the actions taken by the Bank, the Company could be prohibited
from making any payments of principal or interest on the New Notes. See
"Description of New Notes -- Ranking." In addition, the Bank could elect to
declare all amounts borrowed under the Renegotiated Bridge Loan, together with
accrued interest, to be due and payable or could proceed against the collateral
securing such indebtedness. On July 31, 1997, WorldCorp received a notice of
default on the Renegotiated Bridge Loan, whereby the bank may proceed with the
exercise of its rights and remedies under the loan documents and applicable laws
if the default is not corrected within 15 days following the date of notice.
Based on discussions with the bank, WorldCorp believes that the bank will not
exercise its rights at this time. No assurances can be given that the bank will
not exercise its rights in the future.
Absence of Public Market for Notes
There is no existing market for the Notes and there can be no assurance
as to the liquidity of any markets that may develop for the Notes, the ability
of the holders to sell their Notes or the price at which holders of the Notes
may be able to sell their Notes. Future trading prices of the Notes will depend
on many factors, including, among other things, prevailing interest rates,
WorldCorp's operating results and the market for similar securities.
Ranking of the Notes
The Old Notes are, and the New Notes will be, unsecured, general
obligations of the Company, subordinated in right of payment to all existing
and future Senior Indebtedness of the Company, including indebtedness under
the Renegotiated Bridge Loan but senior in right of payment to all existing
and future Subordinated Indebtedness. Amounts outstanding under the Renegotiated
Bridge Loan are collateralized by a first priority security interest in the
Company's assets and a pledge of all of the Company's shares of World Airways
and InteliData. Under the terms of the Indenture, Senior Indebtedness shall
not exceed $50.0 million. At June 30, 1997, the Company had $15.0 million of
Senior Indebtedness, approximately $65 million of Subordinated Indebtedness
outstanding and $10 million of Old Notes outstanding. In the event of
bankruptcy, liquidation or reorganization of the Company, the assets of the
Company would be available to pay obligations on the Notes only after all Senior
Indebtedness has been repaid in full. In addition, under the terms of the New
Notes, the Company is required to use 20% of the net proceeds from sales of the
InteliData Common Stock it beneficially owns to repay the Notes. Consequently,
sufficient assets may not exist to pay amounts due on the Notes. In addition,
the subordination provisions of the Indenture provide that no cash payments may
be made with respect to the Notes during the continuance of a payment default
under any Senior Indebtedness of the Company. See "Description of New Notes --
Ranking."
Mandatory Prepayment
Pursuant to the Indenture, WorldCorp is obligated under certain
conditions to make certain mandatory prepayments of the Notes. If the Asset
Value at the end of any fiscal quarter is less than $70.0 million, then
WorldCorp must prepay 50% of each of the then outstanding Notes within 60 days.
If the Asset Value at the end of any fiscal quarter is less than $50.0 million,
then WorldCorp must prepay all of the then outstanding Notes within 60 days. If
WorldCorp sells any shares of InteliData Common Stock, 20% of the net proceeds
(i.e., gross proceeds less
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direct costs associated with such sales) received by WorldCorp upon such sale
will be used to prepay the then outstanding Notes within 30 days. There can be
no assurance that WorldCorp will not be required to make such mandatory
prepayments and if so, such prepayments could have an adverse effect on
WorldCorp's financial condition and results of operations. In the event of a
Mandatory Prepayment of the Notes, WorldCorp would seek to raise additional
capital through issuing equity, selling shares of its World Airways or
InteliData common stock, or through entering into new loan arrangements, in
order to meet the principal and interest payment obligations on the Notes. There
can be no assurance, however, that the Company would be able to obtain
sufficient capital through such financings or that the terms of such financings
would be favorable to WorldCorp.
Risk Factors with Respect to World Airways:
Significant Financial Leverage
World Airways is highly leveraged. World Airways incurred substantial
debt and lease commitments during the past three years in connection with its
acquisition of MD-11 aircraft and related spare parts. In addition, World
Airways has significant future long-term obligations under aircraft lease
obligations relating to its aircraft.
As of June 30, 1997, World Airways had outstanding $29.1 million in
long-term debt and capital leases, with expected debt service and capital lease
expense of $5.9 million for the six months ending December 31, 1997 and $13.3
million for the year ending December 31, 1998. As of June 30, 1997, after giving
effect to the 144A Offering and use of proceeds therefrom, World Airways' total
indebtedness would have been approximately $86.8 million, $36.8 million of which
would have been senior indebtedness, including $6.7 million attributable to
capital lease obligations, no indebtedness of World Airways would have ranked
pari passu with the 144A Debentures, and no indebtedness would have been
subordinated indebtedness. In the event that World Airways repurchases shares of
its common stock following the 144A Offering, total stockholders' equity would
be reduced by the amount of purchase price for such common stock. The indenture
governing the terms of the 144A Debentures (the "144A Indenture") does not limit
the amount of additional indebtedness, including senior indebtedness, which
World Airways can create, incur, assume or guarantee.
World Airways currently has incurred significant annual cash fixed
charge expenses. After giving effect to the 144A Offering, the as adjusted ratio
of earnings to fixed charges for the fiscal year ended December 31, 1996 would
have been 1.44 to 1 compared to 1.60 to 1 before the 144A Offering.
World Airways' ability to make interest payments on the 144A Debentures
will be dependent on World Airways' future operating performance, which is
itself dependent on a number of factors, many of which are beyond World Airways'
control. World Airways' ability to repay the 144A Debentures at maturity will
depend upon these same factors and the ability of World Airways to raise
additional funds.
Liquidity and Capital Resources
World Airways' cash and cash equivalents at June 30, 1997 and December
31, 1996 were $8.3 million and $7.0 million, respectively. As is common in the
airline industry, World Airways operates with a working capital deficit. At June
30, 1997, World Airways' current assets were $33.5 million and current
liabilities were $65.3 million. World Airways has substantial long-term aircraft
lease obligations with respect to its current aircraft fleet. Although there can
be no assurances, World Airways believes that its existing contracts and
additional business which it expects to obtain in the near term, along with its
existing cash and financing arrangements and the net proceeds from the 144A
Offering will be sufficient to allow World
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Airways to meet its cash requirements related to debt service and the operating
and capital requirements for its continuing operations for the next 12
months.
In 1996, World Airways instituted a program to purchase up to one
million shares of its publicly-traded common stock pursuant to open market
transactions. As of June 30, 1997, World Airways had purchased 770,000
shares of Common Stock at an aggregate cost of approximately $7.8 million
pursuant to such program. In addition, on August 26, 1997, WorldCorp and World
Airways entered into the Agreement for the repurchase by World Airways of up to
4.0 million shares of World Airways' common stock owned by WorldCorp.
In the event that World Airways enters into leases for additional
aircraft, World Airways will need to make capital expenditures for additional
spare engines and parts. No assurances can be given, however, that World Airways
will obtain all of the financing required for such capital expenditures.
Dependence Upon Key Customers
World Airways' business relies heavily on its contracts with Malaysian
Airlines System Berhad ("Malaysian Airlines"), Philippine Airlines, Inc.
("Philippine Airlines"), P.T. Garuda Indonesia ("Garuda") and the USAF. For the
first six months of 1997, these customers provided 27%, 36%, 19% and 15%,
respectively, of World Airways' revenues and 30%, 38%, 20% and 8%, respectively,
of total block hours. In 1996, these customers accounted for 34%, 15%, 13% and
25%, respectively, of World Airways' revenues and 42%, 17%, 14%, and 17%,
respectively, of total block hours flown from continuing operations. As a result
of teaming arrangements, World Airways has been awarded one of the largest USAF
fixed awards under the Civil Reserve Air Fleet ("CRAF") program for the U.S.
Government's 1997-98 fiscal year. World Airways, however, cannot determine how
the reduction in overall Defense Department spending may affect arrangements
with the USAF in future years. The loss of any of these contracts with these key
customers, a renegotiation of the terms of these contracts or a substantial
reduction in business from any of them, if not replaced, could have a material
adverse effect on the financial condition or results of operations of World
Airways. Although World Airways' customers bear the financial risk of filling
the World Airways' aircraft with passengers or cargo, World Airways can be
affected adversely if its customers are unable to operate its aircraft
profitably, or if one or more of World Airways' customers experience a material
adverse change in their market demand, financial condition or results of
operations. Under these circumstances, World Airways can be adversely affected
by receiving delayed or partial payments or by receiving customer demands for
rate and utilization reductions, flight cancellations, and/or early termination
of their agreements.
As of June 30, 1997, World Airways operated four MD-11 passenger
aircraft for Philippine Airlines under an agreement with high minimum monthly
utilization levels. Philippine Airlines, however, is experiencing financial
difficulties, and since March 1997 had been making monthly lease payments to
World Airways on an installment basis according to a payment plan agreed to by
World Airways and Philippine Airlines at the beginning of each month. On July
11, 1997, World Airways agreed to shift two MD-11s currently operating for
Philippine Airlines to VASP later in the third quarter. As of the date hereof,
Philippine Airlines is in compliance with its agreements with World Airways and
has reconfirmed its commitment to operate the remaining two MD-11s currently in
its fleet until February 1998. Failure by Philippine Airlines to meet its
aircraft lease obligations, if not offset by other business, would have a
material adverse effect on the financial condition, cash flows and results of
operations of World Airways.
On July 3, 1997, World Airways entered a binding Memorandum of
Agreement with VASP for the lease of two MD-11 passenger aircraft to commence in
the third quarter. World Airways is also leasing a cargo plane to VASP under an
ACMI contract which began in June 1997. The loss of this agreement, a
renegotiation of its terms or a substantial reduction of business for VASP, if
not replaced, could have a material adverse effect on the financial condition or
results of operations of World Airways.
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Geographic Concentration
World Airways derives a significant percentage of its revenues and
block hours from its operations in the Pacific Rim region. While World Airways
believes the Pacific Rim region is a growth market for air transportation, any
economic decline or any military or political disturbance in this area may
interfere with World Airways' ability to provide service and could have a
material adverse effect on the financial condition or results of operations of
World Airways.
Operating Losses
While World Airways generated operating income each year from 1987
through 1992 and in 1995, it sustained operating losses in 1993 and 1994 of $7.3
million and $5.2 million, respectively, and net losses of $9.0 million in each
of these two years. For the year ended December 31, 1996, World Airways incurred
a net loss of $14.0 million, which resulted from operating losses incurred in
World Airways' scheduled service operations, which were discontinued in 1996,
and the related estimated loss on disposal. Earnings from continuing operations
were $18.4 million for 1996. While World Airways generated operating income for
the six months ended June 30, 1997 of $12.8 million, there can be no assurance
that World Airways will be able to generate operating income for the remainder
of 1997 or future years.
Utilization of Aircraft
Due to the large capital costs of leasing and maintaining World
Airways' aircraft, each of World Airways' aircraft must have high utilization at
attractive rates in order for World Airways to operate profitably. Although
World Airways' strategy is to enter into long-term contracts with its customers,
the terms of World Airways' existing customer contracts are substantially
shorter than the terms of World Airways' lease obligations with respect to the
aircraft. Approximately 70% and 13% of World Airways' contract backlog at June
30, 1997, relates to its multi-year contracts with Malaysian Airlines and
Philippine Airlines, respectively. In addition, a significant portion of World
Airways' current contracts expire near the end of 1997. There can be no
assurance that World Airways will be able to enter into additional contracts
with new or existing customers or that it will be able to obtain enough
additional business to fully utilize each aircraft. World Airways' financial
results could be materially adversely affected even by relatively brief periods
of low aircraft utilization and yields. In order to maximize aircraft
utilization, World Airways does not intend to acquire new aircraft unless such
aircraft would be necessary to service existing needs or World Airways has
obtained additional ACMI contracts for the aircraft to service. World Airways is
seeking to obtain additional ACMI contracts with new and existing customers, to
which such new aircraft would be dedicated when placed in service, but World
Airways can provide no assurance that it will obtain new ACMI contracts or that
existing ACMI contracts will be renewed or extended.
Aircraft Fleet
Each of the aircraft in World Airways' existing fleet is to a large
extent contractually dedicated by World Airways to the service of one or more
customers, with limited aircraft available to provide back-up capability.
Therefore, in the event the use of one or more of World Airways' aircraft was
lost, World Airways might have difficulty fulfilling its obligations under one
or more of these contracts, if it were unable to obtain substitute aircraft.
Also, if World Airways is successful in entering into additional agreements to
use its aircraft fleet on a year-round as opposed to seasonal basis, World
Airways will have fewer aircraft available to meet the peak seasonal demands for
its traditional customers such as Garuda for the Hadj pilgrimage and the USAF
for short-term expansion flying. To continue to meet the peak seasonal demand
requirements of its customers, World Airways will have to acquire additional
aircraft on short-term leases. World Airways has historically been successful in
obtaining MD-11 and DC10- 30 aircraft and the financing necessary for the
acquisition of such aircraft. There can be no assurance,
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however, that World Airways will be able to lease such aircraft or a
satisfactory substitute, that the terms of such leases will be favorable to
World Airways or that World Airways will be able to obtain satisfactory
financing necessary for the acquisition of such aircraft in the future.
Moreover, World Airways may decline to renew most of its MD-11 leases, which are
renewable at World Airways' option for 10 one-year extensions in years six
through 15 of the lease term. However, the failure to renew such leases would
result in penalties.
Aging DC10-30 Aircraft
World Airways' existing fleet includes four DC10-30 aircraft which were
manufactured between 1974 and 1988. Manufacturer Service Bulletins ("Service
Bulletins") and the FAA's Airworthiness Directives ("Directives")
issued under its "Aging Aircraft" program could cause DC10-30 aircraft operators
to be subject to extensive aircraft examinations and require DC10-30 aircraft to
undergo structural inspections and modifications to address problems of
corrosion and structural fatigue at specified times. It is possible that Service
Bulletins or Directives applicable to the types of aircraft or engines included
in World Airways' fleet could be issued in the future. The cost of compliance
with Directives and Service Bulletins cannot currently be estimated, but could
be substantial and could have a material adverse effect on the financial
condition or results of operations of World Airways.
Reliance on Others
World Airways has entered into agreements with contractors, including
other airlines, to provide certain facilities and services required for its
operations, including all of World Airways' off-wing engine maintenance and most
airframe maintenance. World Airways has also entered into agreements with
contractors to provide security, ground handling and personnel training.
Although World Airways believes that there are many advantages to outsourcing
these activities, the failure of these contractors to provide essential services
that are not otherwise entirely within the control of World Airways could have a
material adverse effect on the financial condition or results of operations of
World Airways.
Maintenance
Engine maintenance accounts for most of World Airways' annual
maintenance expenses. Typically, the hourly cost of engine maintenance increases
as the aircraft ages. World Airways outsources major airframe maintenance and
power plant work to several suppliers. World Airways has a 10-year contract
expiring in August 2003 with United Technologies Corporation's Pratt & Whitney
Group for all off-wing maintenance on the PW 4462 engines that power its MD-11
aircraft. Under this contract, the manufacturer agreed to provide such
maintenance services at a cost not to exceed specified rates per engine flight
hour during the term of the contract. World Airways' maintenance costs
associated with the MD-11 aircraft and PW 4462 engines have been significantly
reduced due in part to manufacturer guarantees and warranties, which began to
expire in 1995 and which will fully expire by 1998. In addition, the specified
rate per engine flight hour is subject to annual escalation, increasing
substantially in 1998. Accordingly, while World Airways believes the terms of
this agreement have resulted in lower engine maintenance costs than it otherwise
would incur, engine maintenance costs will increase substantially during the
last five years of the agreement. World Airways has begun to accrue these
increased expenses in 1997 and such expenses will continue to increase during
the remainder of the term of the contract as World Airways' aircraft fleet
ages.
Shareholders Agreement with MHS; Limitation on Voting by Foreign Citizens
MHS currently owns 17.7% of the outstanding Common Stock. Under the
Shareholders Agreement, WorldCorp has agreed to vote its shares of World Airways
common stock to elect the number of directors nominated by MHS that represent
MHS' proportionate interest in World Airways, but in no event less than two
directors. In addition, World Airways is not permitted to consummate the sale of
all or substantially all of its business or make a fundamental change in its
line of business without the approval of the directors designated by MHS.
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Accordingly, MHS could block World Airways from entering into a transaction or
taking actions that could be in the best interests of stockholders.
Notwithstanding any other provision of the Shareholders Agreement, if without
the prior written consent of MHS, World Airways sells all or substantially all
of its business or fundamentally changes its line of business, then MHS has the
right to require WorldCorp to purchase all or part of MHS' shares at fair market
value, which could have the effect of discouraging WorldCorp from taking certain
actions that could be in the best interests of other stockholders of World
Airways. See "--World Airways' NOLs." The Shareholders Agreement terminates if
either WorldCorp's or MHS' ownership interest falls below 5% of the outstanding
capital stock of World Airways. The Shareholders Agreement provides that if
WorldCorp were to dispose of its holdings in World Airways with the result that
WorldCorp's ownership interest in World Airways falls below 51% of the
outstanding shares of World Airways' common stock, then MHS may either sell its
shares to a third party or require WorldCorp to sell a pro rata number of shares
held by MHS to the party purchasing WorldCorp's shares of World Airways' common
stock.
Under applicable regulatory restrictions, because World Airways is a
U.S. certificated flag carrier, no more than 25% of the voting stock of World
Airways may be owned or controlled, directly or indirectly, by persons who are
not U.S. citizens ("Foreign Citizens"). World Airways' Certificate of
Incorporation and Bylaws provide that no shares of capital stock may be voted by
or at the direction of Foreign Citizens unless such shares are registered on a
separate stock record (the "Foreign Stock Record"). No shares of Common Stock
owned by Foreign Citizens will be registered on the Foreign Stock Record of
World Airways to the extent that the aggregate ownership by Foreign Citizens
reflected in the Foreign Stock Record would exceed 25% of World Airways'
outstanding shares of Common Stock.
Employee Relations
World Airways' flight attendants are represented by the International
Brotherhood of Teamsters (the "Teamsters") under a collective bargaining
agreement which expires in August 2000. World Airways' flight attendants
challenged the use of foreign flight attendant crews on World Airways' flights
for Malaysian Airlines and Garuda which has historically been World Airways'
operating procedure. World Airways is contractually obligated to permit its
Southeast Asian customers to deploy their own flight attendants. While the
arbitrator in this matter recently denied the union's request for back pay to
affected flight attendants for flying relating to the 1994 Hadj, the arbitrator
concluded that World Airways' contract with its flight attendants requires World
Airways to first actively seek profitable business opportunities that require
using World Airways' flight attendants, before World Airways may accept wet
lease business opportunities that use the flight attendants of World Airways'
customers. World Airways can provide no assurances as to how the imposition of
this requirement will affect World Airways' financial condition or results of
operations. World Airways' cockpit crew members, who are also represented by the
Teamsters, are subject to a four-year collective bargaining agreement expiring
in June 1998. World Airways is unable to predict whether any of its employees
not currently represented by a labor union, such as World Airways' maintenance
personnel, will elect to be represented by a labor union or collective
bargaining unit. The election of such employees for representation in such an
organization could result in employee compensation and working condition demands
that could have a material adverse effect on the financial condition or results
of operations of World Airways.
World Airways' NOLs
As of December 31, 1996, World Airways had net operating loss
carryforwards ("NOLs") for federal income tax purposes of $104.7 million ($38.1
million of which is subject to a $6.9 million annual limitation as a result of
an ownership change of World Airways for tax purposes in 1991). These NOLs, if
not utilized to offset taxable income in future periods, would expire between
1998 and 2011. Use of World Airways' NOLs in future years could be further
limited if an ownership change were to occur in the future. World Airways
believes that the sale of common stock in its initial public offering did not
cause an ownership change. However, the application
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of the Internal Revenue Code (the "Code") in this area is subject to
interpretation by the Internal Revenue Service. The NOLs are subject to
examination by the IRS and, thus, are subject to adjustment or disallowance
resulting from any such IRS examination. In addition, conversion of the 144A
Debentures or future transactions in the common stock of World Airways, or the
common stock of World Airways' stockholders may cause an ownership change, which
could result in a substantial reduction in the annual limitation in the use of
the NOLs and the loss of a substantial portion of the NOLs available to World
Airways.
Seasonality
Historically, World Airways' business has been significantly affected
by seasonal factors. During the first quarter, World Airways typically
experiences lower levels of utilization and yields due to lower demand for
passenger and cargo services relative to other times of the year. World Airways
experiences higher levels of utilization and yields in the second quarter,
principally due to peak demand for commercial passenger services associated with
the annual Hadj pilgrimage. In 1997, World Airways' flight operations associated
with the Hadj pilgrimage occurred from March 15 to May 20. Because the Islamic
calendar is a lunar-based calendar, the Hadj pilgrimage occurs approximately 10
to 12 days earlier each year relative to the Western (Gregorian) calendar. As a
result, revenues resulting from future Hadj pilgrimage contracts will continue
to shift from the second quarter to the first quarter over the next several
years. World Airways believes that its contracts with Malaysian Airlines and the
USAF should lessen the effect of these seasonal factors.
Legal and Administrative Proceedings
World Airways has periodically received correspondence from the FAA
with respect to minor noncompliance matters. In November 1996, as the FAA has
increased its scrutiny of U.S. airlines, World Airways was assessed a
preliminary fine of $810,000 in connection with certain security violations by
ground handling crews contracted by World Airways for services at foreign
airport locations. Under 49 U.S.C. 46301, any violation of pertinent provisions
of 49 U.S.C. 40101 or related rules is subject to a civil penalty for each
violation. Upon review of the evidence or facts and circumstances relating to
the violation, the statute allows for the compromise of proposed civil
penalties. The proposed penalties were imposed by the FAA in connection with
recent inspections at foreign airport facilities and relate primarily to ground
handling services provided by World Airways' customers in connection with their
operations; specifically, the inspection procedures of its aircraft, passengers
and associated cargo. In each of these instances, World Airways was in
compliance with international regulations, but not the more stringent U.S.
requirements, despite the fact that the flights in question did not originate or
terminate in the United States. World Airways has taken steps to comply with the
U.S. requirements and is currently working with the FAA to settle these claims
and believes that any fines ultimately imposed by the FAA will not have a
material adverse effect on the financial condition or results of operations of
World Airways. While World Airways believes it is currently in compliance in all
material respects with all appropriate standards and has all required licenses
and authorities, any material non-compliance by World Airways therewith or the
revocation or suspension of licenses or authorities could have a material
adverse effect on the financial condition or results of operations of World
Airways.
In addition, World Airways is party to routine litigation and
administrative proceedings incidental to its business, none of which is believed
by World Airways to be likely to have a material adverse effect on the financial
condition of World Airways.
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Possible Volatility of Stock Price
The market price of World Airways' common stock has been subject to
significant fluctuations in response to World Airways' operating results and
other factors. The market price of the shares of World Airways' common stock has
varied significantly and may be volatile depending on news announcements and
changes in general market conditions. In particular, news announcements
regarding quarterly results of operations, competitive developments, litigation
or governmental regulatory actions impacting World Airways may adversely affect
the World Airways' common stock price. In addition, because the number of shares
of common stock of World Airways held by the public is relatively small, the
sale of substantial number of shares of the common stock of World Airways in a
short period of time could adversely affect the market price of the common stock
of World Airways. In addition, the stock market has from time to time
experienced extreme price and volume volatility. These fluctuations may be
unrelated to the operating performance of particular companies whose shares are
traded. Market fluctuations may adversely affect the market price of World
Airways' common stock.
Anti-takeover Provisions; Certain Provisions of Delaware Law, Certificate of
Incorporation and Bylaws
Certain provisions of Delaware law, World Airways' Certificate of
Incorporation and Bylaws and the Shareholders Agreement could have the effect of
making it more difficult for a third party to acquire, or of discouraging
a third party from attempting to acquire, control of World Airways. Certain of
these provisions allow World Airways to issue preferred stock with rights senior
to those of the common stock of World Airways without any further vote or action
by the holders of common stock of World Airways. The issuance of preferred stock
of World Airways could decrease the amount of earnings and assets available for
distribution to the holders of common stock of World Airways or could adversely
affect the rights and powers, including voting rights, of the holders of the
common stock of World Airways. In certain circumstances, such issuance could
have the effect of decreasing the market price of the common stock of World
Airways. In addition, the Certificate of Incorporation provides for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. Classification of the Board of Directors expands the time
required to change the composition of a majority of directors and may tend to
discourage an acquisition proposal for World Airways.
Control by WorldCorp; Potential Conflicts of Interest
As of June 30, 1997, WorldCorp owned approximately 61.7% of the
outstanding common stock of World Airways. WorldCorp is a holding company that
owns positions in two companies: InteliData and World Airways. WorldCorp is
highly leveraged and therefore requires substantial funds to cover debt service
each year. As a holding company, all of WorldCorp's funds are generated through
its subsidiaries, neither of which is expected to pay dividends in the
foreseeable future. As a result of WorldCorp's cash requirements, it may be
required to sell additional shares of common stock of World Airways during 1997,
and such sales, or the threat of such sales, could have a material adverse
effect on the market price of the common stock of World Airways. Except as
limited by contractual arrangements with MHS, WorldCorp also is in a position to
control the outcome of substantially all issues submitted to World Airways'
stockholders, including the election of all of World Airways' Board of
Directors, adoption of amendments to World Airways' Certificate of
Incorporation, and approval of mergers. Under Delaware law, WorldCorp may
approve certain actions by written consent without a meeting of the stockholders
of World Airways.
In connection with the Renegotiated Bridge Loan, WorldCorp has pledged
all of the shares of common stock of World Airways beneficially owned by
WorldCorp (the "WorldCorp Shares"). The Renegotiated Bridge Loan matures on
September 29, 1997. WorldCorp and World Airways have entered into an agreement
for the repurchase of common stock of World Airways owned by WorldCorp. If a
closing occurs under this agreement, WorldCorp expects to use a portion of the
proceeds from that transaction to repay the
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Renegotiated Bridge Loan. If a closing does not occur under this agreement and
WorldCorp does not refinance the Renegotiated Bridge Loan, it would be necessary
for WorldCorp to sell assets in order to repay the Renegotiated Bridge Loan. In
the event WorldCorp is unable to satisfy its payment obligations under the
Renegotiated Bridge Loan on a timely basis, the bank may sell or otherwise
dispose of all or any part of the WorldCorp Shares. The inability of WorldCorp
to satisfy its payment obligations under the Renegotiated Bridge Loan on a
timely basis and a subsequent disposition by the bank of the WorldCorp Shares,
may adversely affect the market price of the common stock of World Airways. On
July 31, 1997, WorldCorp received a notice of default on the Renegotiated Bridge
Loan, whereby the bank may proceed with the exercise of its rights and remedies
under the loan documents and applicable laws if the default is not corrected
within 15 days following the date of notice. Based on discussions with the bank,
World Airways believes that the bank will not exercise its rights at this time.
No assurances can be given that the bank will not exercise its rights in the
future.
Risks Related to the Air Transportation Industry
Cyclical Nature of Air Carrier Business
World Airways operates in a challenging business environment. The air
transportation industry is highly sensitive to general economic conditions.
Since a substantial portion of passenger airline travel (both business and
personal) is discretionary, the industry tends to experience severe adverse
financial results during general economic downturns and can be adversely
affected by unexpected global political developments. The financial results of
air cargo carriers are also adversely affected by general economic downturns due
to the reduced demand for air cargo transportation. In 1993 and 1994, the
combination of a generally weak global economy and the depressed state of the
air transportation industry adversely affected World Airways' operating
performance. Although World Airways recently has experienced a growth in demand
for its services, such that block hours flown from continuing operations
increased 10% for the first six months of 1997 over the same period in 1996 and
by 23% for 1996 over 1995, there can be no assurance that this level of growth
will continue.
Competition
The market for outsourcing air passenger and cargo ACMI services is
highly competitive. Certain of the passenger and cargo air carriers against
which World Airways competes possess substantially greater financial resources
and more extensive facilities and equipment than those which are now, or will in
the foreseeable future become, available to World Airways. World Airways
believes that the most important bases for competition in the ACMI outsourcing
business are the age of the aircraft fleet, the passenger, payload and cubic
capacities of the aircraft, and the price, flexibility, quality and reliability
of the air transportation service provided. Competitors in the ACMI outsourcing
market include MartinAir Holland, Tower Air and American TransAir and all-cargo
carriers, such as Atlas Air, Gemini Air Cargo, Polar Air Cargo and Kitty Hawk,
and scheduled and non-scheduled passenger carriers which have substantial belly
capacity. The ability of World Airways to continue to grow depends upon its
success in convincing major international airlines that outsourcing some portion
of their air passenger and cargo business remains more cost-effective than
undertaking passenger or cargo operations with their own incremental capacity
and resources. The allocation of military air transportation contracts by the
USAF is based upon the number and type of aircraft a carrier, alone or through a
teaming arrangement, makes available for use in times of national emergencies.
The formation of competing teaming arrangements comprised of larger partners
than those sponsored by World Airways, an increase by other air carriers in
their commitment of aircraft to the emergency program, or the withdrawal of
World Airways' current partners, could adversely affect the size of the USAF
contracts, if any, which are awarded to World Airways in future years.
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Regulation
World Airways is subject to government regulation and control under the
laws of the United States and the various other countries in which it operates.
It is also governed by bilateral air transport services agreements between the
U.S. and the countries to which World Airways provides airline service. World
Airways is subject to Title 49 of the United States Code (the "Transportation
Code"), under which the Department of Transportation (the "DOT") and the Federal
Aviation Administration (the "FAA") exercise regulatory authority. Additionally,
foreign governments assert jurisdiction over air routes and fares to and from
the U.S., airport operation rights and facilities access. Due to its
participation in CRAF, World Airways is subject to inspections approximately
every two years by the USAF as a condition to retaining its eligibility to
provide military charter flights. The USAF may terminate its contract with World
Airways if World Airways fails to pass such inspection or otherwise fails to
maintain satisfactory performance levels. World Airways has periodically
received correspondence from the FAA with respect to minor noncompliance
matters.
Insurance Coverage and Expenses
World Airways is exposed to potential losses that may be incurred in
the event of an aircraft accident. Any such accident could involve not only
repair or replacement of a damaged aircraft and the consequent temporary or
permanent loss from service, but also significant potential claims of injured
passengers and others. World Airways is required by the DOT to carry liability
insurance on each of its aircraft. Although World Airways believes its current
insurance coverage is adequate and consistent with the current industry
practice, there can be no assurance that the amount of such coverage will not be
changed or that World Airways will not bear substantial losses from accidents.
Substantial claims resulting from an accident in excess of related insurance
coverage could have a material adverse effect on the financial condition or
results of operations of World Airways. In addition, World Airways' insurance
expenses could significantly increase if World Airways were to provide service
to destinations where military action is taking place. Any such increases in
expenses could have a material adverse effect on the financial condition or
results of operations of World Airways. As is customary in the airline business,
World Airways has no business interruption insurance. Any extended interruption
of World Airways' operations due to the loss, or unavailability due to
unscheduled servicing or repair, or lack of availability of substitute aircraft
could have a material adverse effect on the financial condition or results of
operations of World Airways.
Aviation Fuel
The air transportation industry in general is affected by the price and
availability of aviation fuel. Both the cost and availability of aviation fuel
are subject to many economic and political factors and events occurring
throughout the world and remain subject to the various unpredictable economic
and market factors that affect the supply of all petroleum products.
Fluctuations in the price of fuel have not had a significant impact on World
Airways' operations in recent years because, in general, World Airways' ACMI
contracts with its customers limit World Airways' exposure to increases in fuel
prices. However, a substantial increase in the price or the unavailability of
aviation fuel could have a material adverse effect on the air transportation
industry in general and the financial condition and results of operations of
World Airways.
Risk Factors with Respect to InteliData:
Uncertainty as to Future Financial Results
InteliData believes that the Merger will offer opportunities for
long-term efficiencies that should positively affect future operating results of
the combined companies. However, the combined companies will be more complex and
diverse than either US Order or Colonial Data individually, and the combination
and continued operation of their distinct business operations will present
difficult challenges for InteliData's management due to the increased time and
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resources required in the management effort. While the management and the Board
of Directors of InteliData believe that the combination can be effected in a
manner that will realize the value of the two companies, neither management
group has experience in combinations of this size or complexity. Accordingly,
there can be no assurance that the process of effecting the business combination
can be effectively managed to realize the operational efficiencies anticipated
to result from the Merger.
Following the Merger, in order to maintain and increase profitability,
the combined Company will need to successfully integrate and streamline
overlapping functions. The two predecessor companies had different systems and
procedures in many operational areas that must be rationalized and integrated.
There can be no assurances that integration will be accomplished smoothly or
successfully. The difficulties of such integration may be increased by the
necessity of coordinating geographically separated organizations. The
integration of certain operations following the Merger will require the
dedication of management resources that may temporarily distract attention from
the day-to-day business of the combined companies. Failure to effectively
accomplish the integration of the two companies' operations could have an
adverse effect on InteliData's results of operation and financial condition.
Developing Marketplace
Home banking and smart telephones are developing markets. Consumer
preferences in interactive technologies are difficult to predict. InteliData's
future growth and profitability will depend, in part, upon consumer acceptance
of electronic home banking and smart telephone technologies and a significant
expansion in the consumer market for telephone-based interactive applications
technologies. Even if these markets experience substantial growth, there can be
no assurance that InteliData's products and services will be commercially
successful or benefit from such growth.
Much of InteliData's success in the smart telephone market depends on
InteliData's ability to meet design specifications and delivery requirements for
its products and services. There can be no assurance of the timing of
introduction of, necessary regulatory approvals for, or market acceptance of
these services and applications. InteliData faces competition in these markets
from other emerging interactive applications delivered through personal
computers, cable television and Integrated Service Digital Network ("ISDN").
Fluctuations in Operating Results
Historically, US Order and Colonial Data have experienced fluctuations
in quarterly operating results, and accordingly, InteliData may experience
fluctuations in quarterly operating results due to a variety of factors, some of
which are beyond InteliData's control. These include the size and timing of
customer orders or the royalty payments from Visa InterActive, if any, changes
in InteliData's pricing policies or those of its competitors, new product
introductions or enhancements by competitors, delays in the introduction of new
products or product enhancements by InteliData or by its competitors, customer
order deferrals in anticipation of upgrades and new products, market acceptance
of new products, the timing and nature of sales, marketing, and research and
development expenses by InteliData and its competitors, the timing of programs
offering Caller ID or other intelligent network services by a telco, disruptions
in sources of supply, the effects of regulation on Caller ID and other
intelligent network services, the timing and extent of promotional activities by
a telco, changes in service charges by a telco, other changes in operating
expenses, personnel changes and general economic conditions. Additionally,
certain RBOCs have entered into merger agreements. InteliData is unable to
assess the future effect on the company of these mergers, if consummated, and of
other possible consolidations in the telecommunications industry. No assurance
can be given that such quarterly variations will not occur in the future and,
accordingly, the results of any one quarter may not be indicative of the
operating results for future quarters.
Reliance on Caller ID Revenues
A substantial majority of InteliData's revenues are derived from sales
and leases of its Caller ID products. The sale or lease of these products is
directly linked to the implementation and promotion of Caller ID service by
telcos.
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The timing of such implementation may be affected by government regulation, by
changes in the telecommunications industry resulting from changes in the
regulatory and competitive environment, by switch and software upgrades and by
other factors. There can be no assurance that telcos will continue to introduce
and promote this service successfully or that it will gain widespread market
acceptance. Delays in the introduction of Caller ID service in local markets or
failure of this service to gain widespread market acceptance would materially
and adversely affect InteliData's business, operating results and financial
condition.
Concentration of Distribution of Products and Services
InteliData sells its telecommunications products and services to
telcos, individual telephone subscribers, other equipment manufacturers on a
private label basis ("private label customers") and retail chains. In addition,
InteliData leases its products to individual telco subscribers. Sales and leases
to individual telco subscribers are largely dependent on direct fulfillment
distribution arrangements with certain RBOCs and other telcos. Since InteliData
views the telcos with which it maintains direct fulfillment relationships as its
customers, it considers its customer base to be highly concentrated.
InteliData's current telco fulfillment arrangements are not exclusive and may be
terminated by either party. For the six months ended June 30, 1997, InteliData's
two largest customers, WorldWide Telecom Partners, Inc. and Nynex Corp.
accounted for 23% and 12% of InteliData's revenues, respectively. The loss of
any one or more of InteliData's major customers or the termination of its
distribution arrangements with any telco or the failure to be selected for
significant orders or programs by a telco could materially and adversely affect
InteliData's business, operating results, and financial condition. In addition,
consolidation in the telecommunications industry or changes in the
telecommunications regulatory environment could result in the loss of such
customers or business.
InteliData Common Stock Owned by WorldCorp
As of June 30, 1997, WorldCorp beneficially owned approximately 28.9%
of the outstanding InteliData Common Stock. WorldCorp is highly leveraged, and
therefore requires substantial funds to meet debt service requirements each
year. As a result of WorldCorp's cash requirements, it may be required to sell
shares of InteliData's Common Stock during 1997 and such sales, or the threat of
such sales, could have a material adverse effect on the market price for
InteliData's common stock. In addition, InteliData's Board of Directors has nine
members, four of whom also serve on the Board of Directors of WorldCorp. As a
result of membership on InteliData's Board and stock ownership, WorldCorp may
have a significant influence on the decisions made by InteliData.
Technological Considerations
InteliData's business activities are concentrated in fields
characterized by rapid and significant technological advances. There can be no
assurance that InteliData will remain competitive technologically or that
InteliData's products, processes or services will continue to be reflective of
such advances. Failure to introduce new products or product enhancements that
achieve market acceptance on a timely basis could materially and adversely
affect InteliData's business, operating results and financial condition. There
can be no assurance that InteliData will not encounter unanticipated technical,
marketing or other problems or delays relating to new products, features or
services which InteliData has recently introduced or which it may introduce in
the future. Moreover, there can be no assurance that InteliData's new products,
features or services will be successful, that the introduction of new products,
features or services by InteliData's competitors will not materially and
adversely affect the sales of InteliData's existing products or that InteliData
will be able to adapt to future changes in the telecommunications industry. Most
of InteliData's competitors and potential competitors have significantly greater
financial, technological and research and development resources than InteliData.
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Dependence on Foreign Production
InteliData's Caller ID units and certain other products, including the
smart telephone, the Telesmart 4000/Intelifone(TM), are manufactured by
companies with facilities in Hong Kong, Malaysia, and the People's Republic of
China. These facilities are supplemented, in part, by other manufacturers in
Asia for certain integrated telephone and small business system products and by
limited manufacturing facilities in Connecticut. The availability or cost of
these Caller ID units and smart telephones may be adversely affected by
political, economic or labor conditions in Hong Kong, Malaysia or the People's
Republic of China, including the 1997 return of Hong Kong to China, and by
fluctuations in currency exchange rates. In addition, a change in the tariff
structure or other trade policies of the United States or countries from which
InteliData will import products could adversely affect InteliData's foreign
manufacturing strategies.
Importance of Strategic Alliances
One of InteliData's business strategies is to manufacture or sell its
products and services through strategic alliances. The success of this strategy
will depend to an extent both on the ultimate success of its strategic partners
as well as on the ability of its partners to successfully market InteliData's
products and services. There can be no assurance that any alliance partners will
view their alliance with InteliData as significant for their own businesses or
that they will not reassess their commitment to InteliData at any time in the
future.
Competition
Consumer Telecommunications
---------------------------
The market for InteliData's products is highly competitive and subject
to increased competition resulting from rapid technological change as well as
resulting from changes in the telecommunications regulatory environment, the
telecommunications industry consolidation and the emergence of new market
entrants. At present, InteliData's principal competitors are CIDCO, Lucent and
Northern Telecom. InteliData's Caller ID products also compete with Caller ID
telephones offered by Panasonic, Sony, Thomson and US Electronics.
Marketing of InteliData's smart telephone is subject to competition
from smart telephones marketed or developed by Philips, Northern Telecom and
CIDCO as well as other emerging platforms for interactive applications delivered
through personal computers and cable television. InteliData expects competition
in the markets for its consumer telecommunications products and services to
increase in the future and expects competition from existing and new
competitors, possibly including RBOCs, other telcos or other current customers,
as well as from network switch- based services and from the increased
application of cellular technology. InteliData's primary current and potential
competitors in the market for its consumer telecommunications products and
services have substantially greater financial, marketing and technical resources
than InteliData. Competition could materially and adversely affect InteliData's
results of operations through price reductions and loss of market share.
InteliData competes with a large number of competitors for its repair
services and other services supporting the development and implementation of
intelligent network services. Several of InteliData's competitors in the market
for such services have substantially greater financial, marketing and
technological resources than InteliData. There can be no assurance that
InteliData will be able to continue to compete successfully against its existing
competitors or that it will be able to compete successfully against new
competitors.
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Electronic Commerce
-------------------
The market for interactive products and services is highly competitive
and subject to rapid innovation and technological change, shifting consumer
preferences and frequent new product introductions. InteliData's home banking
products and services compete with services offered by a number of competitors
and competition may intensify as a result of new market entrants. Banks have
developed home banking products for their own customers and, in the future, may
offer these services to other banks. Non-banks also may develop home banking
products to offer to banks. Computer software and data processing companies also
offer home banking services. Visa competes with other organizations, including
MasterCard International, Inc. ("MasterCard"), which offers its Masterbanking
home banking service through CheckFree Corporation. Many competitors exist for
InteliData's various banking products including other manufacturers of
touch-tone response systems, other financial software companies and financial
services software and service companies. InteliData believes that its primary
competition for its customer support services will come from financial
institutions and third parties that choose to offer customer support services
either directly through Visa's customer support messaging standard ("CSMS")
product or on their own. InteliData expects that competition in all of these
areas will increase in the near future.
Relationship with Visa
InteliData sold the Visa Bill-Pay System to Visa on August 1, 1994, for
approximately $15 million in cash, the assumption of certain liabilities and
rights to a 72-month royalty period commencing January 1, 1995 and ending
December 31, 2000 (the "Royalty Period"). Visa subsequently transferred these
assets to Visa InterActive, its wholly owned subsidiary. The royalty obligation
is based on the number of customers who use the Visa Bill-Pay System during the
Royalty Period. The agreement with Visa expressly provides that the royalty will
apply only if the means by which a customer makes an electronic bill payment
involves the use of a "significant portion" of the Visa Bill-Pay System.
In August 1997, Visa announced that it had sold the assets and
operations of Visa Interactive to Integrion Financial Network ("Integrion").
Visa has retained the Visa Bill-Pay System that was developed around technology
acquired from InteliData by Visa in 1994 and the system will become a licensed
product to Integrion. Visa will continue to be responsible for payment of
royalties to InteliData for bank customers who utilize home banking and bill
payment services based on technology previously acquired from InteliData.
However, there can be no assurance that Visa or Integrion will continue to
actively market products and services that would result in payment of royalties
to InteliData.
Royalties to InteliData are calculated and paid by Visa InterActive
quarterly during the Royalty Period. Because the amount of the royalties to
InteliData is dependent upon the number of customers that use the Visa Bill-Pay
System on a monthly basis during the Royalty Period, InteliData cannot provide
any assurances of the amount of royalties, if any, that will be payable by Visa
InterActive to InteliData. The royalty payment will be reduced for each quarter
through December 31, 1997, by an offset amount (the "Visa Offset") which was
initially set at $73,000. If the royalty payment that would otherwise be due in
respect of a quarter is smaller than the offset amount for that quarter, no
royalty payment will be made to InteliData, and the difference between $73,000
and the royalty otherwise due will increase the size of the Visa Offset for the
next quarter. The aggregate amount of the Visa Offset for the Royalty Period is
$880,000. InteliData did not receive any royalty revenue from Visa in 1996 due
to the Visa Offset and does not expect to receive any royalty revenue after
application of the Visa Offset until at least the second half of 1997.
In addition, under the terms of its agreement with Visa, Visa
InterActive is not obligated to pay royalties to InteliData for active bank
customers who utilize home banking and bill payment technology independently
developed by Visa InterActive. If Visa InterActive independently develops or
acquires its own home banking and bill payment technology which does not use or
build upon InteliData's technology, this could have a material adverse effect on
the amount of royalties payable by Visa InterActive to InteliData. As a
condition of Visa's acquisition of the Visa Bill-Pay
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System, InteliData has agreed to work exclusively with Visa in certain areas and
to refrain from certain activities that are in competition with Visa and its
affiliates. These covenants may increase InteliData's reliance upon Visa.
Dependence on Key Employees
InteliData is highly dependent on certain key executive officers and
technical employees to manage the operations and business of InteliData as well
as to implement the business plans of InteliData on an ongoing basis. The loss
of any such key employees could have an adverse impact on the future operations
of InteliData.
Regulation
The Telecommunications Act of 1996 and regulations or orders
promulgated thereunder may result in or accelerate changes in various aspects of
the telecommunications industry, including the competitive environment, the
delivery and pricing of various telecommunications products and services and
possible consolidation. Although InteliData is unable to predict what effect, if
any, the Telecommunications Act of 1996 or other regulatory developments may
have upon the telecommunications industry or InteliData's business, any such
effects could have a material adverse impact on the future operations of
InteliData.
In the United States, Caller ID and other intelligent network services
are subject to federal and state regulation. Caller ID and other intelligent
network services may in the future be subject to further regulation by the
federal government, state public utility commissions and other regulatory
authorities, as well as court challenges, including possible challenges due to
protests from special interest groups that object to such services on the basis
of privacy concerns. An order issued by the FCC effective December 1, 1995,
requires all United States telephone service providers with Signaling System 7
switching architecture to transmit to each other without charge Caller ID number
information on interstate calls within the United States (except for public pay
phones and party lines). The FCC's order also requires that telcos that offer
Caller ID service must provide to their telephone subscribers without charge a
per-call blocking mechanism to block the transmission of their Caller ID
information on interstate calls and must inform subscribers that their telephone
numbers may be identified to a called party and how to use this blocking
capability.
Volatility of Stock Price
The market price of InteliData's Common Stock has experienced
significant volatility. The stock market has experienced volatility that has
particularly affected the market prices of equity securities of many high
technology and developmental stage companies and that has often been unrelated
to the operating performance of such companies. Factors such as announcements of
the introduction of new products or services by InteliData or its competitors,
announcements of joint development efforts or corporate partnerships in the
interactive applications industry, market conditions in the banking,
telecommunications and other emerging growth company sectors and rumors relating
to InteliData or its competitors may have a significant impact on the market
price of InteliData's Common Stock.
Limited Proprietary Protection
InteliData possesses limited patent or registered intellectual property
rights with respect to its technology. InteliData depends in part upon its
proprietary technology and know-how to differentiate its products from those of
its competitors and works independently and from time to time with third parties
with respect to the design and engineering of its own products. InteliData also
relies on a combination of contractual rights and trade secret laws to protect
its proprietary technology. There can be no assurance, however, that InteliData
will be able to protect its technology or successfully develop new technology or
gain access to such technology or that third parties will not be able to develop
similar technology independently or that competitors will not obtain
unauthorized access to InteliData's proprietary technology, that third parties
will not misuse the technology to which InteliData has granted access, or that
InteliData's contractual or legal remedies will be sufficient to protect
InteliData's interests in its proprietary technology.
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Certain of Lucent's Caller ID patents are licensed by Lucent to
InteliData and others, including InteliData's competitors. If the Lucent license
were terminated and InteliData were unable to negotiate a new patent license
agreement with Lucent, InteliData would no longer be authorized to manufacture
or sell Caller ID products in the United States other than to the RBOCs and to
Lucent. As a result, InteliData's business would be materially and adversely
affected.
Limited Sources of Supply
The key components used in InteliData's products are currently being
purchased from multiple sources, except for its application specific integrated
circuit ("ASIC") chips, which are purchased from a single source, Integrated
Circuit Systems, Inc. Although InteliData believes it could develop other
sources for each of the components for its products, the process could take
several months. The inability or refusal of any such source to continue to
supply components could have a material adverse effect on InteliData pending the
development of an alternative source.
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USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
New Notes offered hereby. In consideration for issuing the New Notes as
contemplated in this Prospectus, the Company will receive in exchange Old Notes
in like principal amount, the terms of which are the same in all material
respects as the form and terms of the New Notes except that (i) the New Notes
have been registered under the Securities Act and will not contain terms
restricting the transfer thereof and (ii) the New Notes will be subject to the
requirements of the Trust Indenture Act and therefore will be issued under an
Indenture that provides for various rights and benefits of the holders of the
New Notes to be exercisable, received and coordinated through a Trustee in the
manner required by the Trust Indenture Act. The Old Notes surrendered in
exchange for the New Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the New Notes will not result in any increase in the
indebtedness of the Company.
The net proceeds received by the Company from the offering of the Old
Notes was approximately $10.0 million and was used to repay a portion of the
amount outstanding under the Renegotiated Bridge Loan.
THE EXCHANGE OFFER
General
In connection with the sale of the Old Notes, the purchasers thereof
became entitled to the benefits of certain registration rights as set forth in
the Purchase Agreement. Pursuant to the Purchase Agreement, the Company agreed,
to file, at its cost, a registration statement with the Commission with respect
to registration of the New Notes under the Securities Act and to use its best
efforts to have such registration statement declared effective, which
registration will be effected through the Exchange Offer. Upon such registration
statement being declared effective, the Company has agreed to offer the New
Notes in return for surrender of the Old Notes. For each Old Note surrendered to
the Company under the Exchange Offer, the Holder will receive a New Note of
equal principal amount. Interest on each New Note will accrue from March 31,
1997. In the event that applicable interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer or under
certain other circumstances, the Company has agreed to file, at its cost, a
shelf registration statement with the Commission with respect to resales of the
Old Notes under the Securities Act, and to use its reasonable best efforts to
cause to become effective a shelf registration statement with respect to resales
of the Old Notes. The Company shall, in the event of such a shelf registration,
provide to each holder copies of the prospectus, notify each holder when the
shelf registration statement for the Old Notes has become effective and take
certain other actions as are required to permit resales of the Old Notes.
In the event the Exchange Offer is consummated, the Company will not be
required under the Purchase Agreement to file a shelf registration statement to
register any outstanding Old Notes. The Exchange Offer shall be deemed to have
been consummated upon the earlier to occur of (i) the Company having exchanged
New Notes for all outstanding Old Notes pursuant to the Exchange Offer and (ii)
the Company having exchanged, pursuant to the Exchange Offer, New Notes for all
Old Notes that have been tendered and not withdrawn on the Expiration Date. In
such event, holders of Old Notes seeking liquidity in their investment would
have to rely on exemptions to registration requirements under the securities
laws, including the Securities Act. See "Description of New Notes --
Registration Rights" and "Risk Factors."
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal, the Company will
accept all Old Notes properly tendered prior to 5:00 p.m., New York City time,
on the Expiration Date. The Company will issue $1,000 principal amount of New
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer in denominations of $1,000 and integral
multiples thereof.
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Based on no-action letters issued by the staff of the Commission to
third parties, the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such New
Notes. Any holder of Old Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the New Notes could not rely on such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
This Prospectus, together with the accompanying letter of transmittal
(the "Letter of Transmittal"), is being sent to all registered holders of Old
Notes as of September 16, 1997 (the "Record Date").
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to Norwest
Bank Minnesota, National Association (the "Exchange Agent"). See "-- Exchange
Agent." The Exchange Agent will act as agent for the tendering holders of Old
Notes for the purpose of receiving New Notes from the Company and delivering New
Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders of Old Notes who tender pursuant to the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "-- Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean October 16, 1997, unless the
Company, in its sole discretion, extends the Exchange Offer, in which case the
term "Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Old
Notes, to extend the Exchange Offer or to terminate the Exchange Offer and to
refuse to accept Old Notes not previously accepted, if any of the conditions set
forth herein under "Termination" shall have occurred and shall not have been
waived by the Company (if permitted to be waived by the Company), by giving oral
or written notice of such delay, extension or termination to the Exchange Agent,
and (ii) to amend the terms of the Exchange Offer in any manner deemed by it to
be advantageous to the exchanging holders of the Old Notes. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material change, the
Company will promptly disclose such amendment in a manner reasonably calculated
to inform the holders of the Old Notes of such amendment.
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Without limiting the manner in which the Company may choose to make
public announcements of any delay in acceptance, extension, termination or
amendment of the Exchange Offer, the Company shall have no obligation to
publish, advertise, or otherwise communicate any such public announcement, other
than by making a timely release to the Dow Jones News Service.
Interest on the New Notes
The New Notes will bear interest from March 31, 1997, payable
semiannually on March 31 and September 30, of each year commencing on September
30, 1997, at the rate of 10.00% per annum. Holders of Old Notes whose Old Notes
are accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on the Old Notes accrued from March 31, 1997
until the date of the issuance of the New Notes. Consequently, holders who
exchange their Old Notes for New Notes will receive the same interest payment on
September 30, 1997 (the first interest payment date with respect to the Old
Notes and the New Notes) that they would have received had they not accepted the
Exchange Offer.
Procedures for Tendering
To tender in the Exchange Offer, a holder must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date.
The tender by a holder of Old Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its
address set forth herein. Holders may also request that their respective
brokers, dealers, commercial banks, trust companies or nominees effect such
tender for such holders.
The method of delivery of Old Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the holders. Instead of delivery by mail, it is recommended that holders use
a reliable overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure timely delivery. No Letter of Transmittal or Old
Notes should be sent to the Company.
Only a holder of Old Notes may tender such Old Notes in the Exchange
Offer. The term "holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such holder's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Old Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special
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Issuance Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Old Notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive any irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Old Notes nor shall any
of them incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such irregularities have
been cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering holder of such Old Notes unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
(a) purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date, or, as set forth under "Termination," to terminate the
Exchange Offer and (b) to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers may differ from the terms of the Exchange
Offer.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available, or (ii) who cannot deliver their Old Notes, the
Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder of the Old
Notes, the certificate number or numbers of such Old Notes and the
principal amount of Old Notes tendered, stating that the tender is
being made thereby, and guaranteeing that, within five business days
after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing the Old Notes
to be tendered in prior form for transfer and any other documents
required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
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(c) Such properly completed and executed Letter of Transmittal
(or facsimile thereof), together with the certificate(s) representing
all tendered Old Notes in proper form for transfer and all other
documents required by the Letter of Transmittal are received by the
Exchange Agent within five business days after the Expiration Date.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the business
day prior to the Expiration Date, unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the business day prior to the Expiration Date and prior to acceptance for
exchange thereof by the Company. Any such notice of withdrawal must (i) specify
the name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes), (iii) be
signed by the Depositor in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to permit the Trustee with respect to the Old Notes to register the
transfer of such Old Notes into the name of the Depositor withdrawing the tender
and (iv) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly retendered. Any
Old Notes which have been tendered but which are not accepted for exchange will
be returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "Procedures for Tendering" at any time prior to
the Expiration Date.
Termination
Notwithstanding any other term of the Exchange Offer, the Company will
not be required to accept for exchange, or exchange New Notes for, any Old Notes
not theretofore accepted for exchange, and may terminate or amend the Exchange
Offer as provided herein before the acceptance of such Old Notes if: (i) any
action or proceeding is instituted or threatened in any court or by or before
any governmental agency with respect to the Exchange Offer, that, in the
Company's judgment, might materially impair the Company's ability to proceed
with the Exchange Offer, (ii) any law, statute, rule or regulation is proposed,
adopted or enacted, or any existing law, statute rule or regulation is
interpreted by the staff of the Commission in a manner, that, in the Company's
judgment, might materially impair the Company's ability to proceed with the
Exchange Offer, or (iii) any change (or any development involving a prospective
change) shall have occurred or be threatened in the business, properties,
assets, liabilities, financial condition, operations, results of operations or
prospects of the Company that is or may be adverse to the Company, or the
Company shall have become aware of facts that have or may have adverse
significance with respect to the value of the Notes or the New Notes, which, in
the reasonable judgment of the Company, in any of these cases, and regardless of
the circumstances (including any action by the Company) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer or with such
acceptance for exchange or with such exchange.
If the Company determines that it may terminate the Exchange Offer, as
set forth above, the Company may (i) refuse to accept any Old Notes and return
any Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes, (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn, or (iv) amend
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the offer. If such waiver constitutes a material change in the Exchange Offer,
the Company will disclose such change by means of a supplement to this
Prospectus that will be distributed to each registered holder of Old Notes, and
the Company will extend the Exchange Offer for a period of five to 10 business
days, depending upon the significance of the waiver and the manner of disclosure
to the registered holders if the Old Notes, if the Exchange Offer would
otherwise expire during such period. See "Description of New Notes -
Registration Rights."
Exchange Agent
Norwest Bank Minnesota, National Association, the Trustee under the
Indenture, has been appointed as Exchange Agent for the Exchange Offer.
Questions and requests for assistance and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent addressed as follows:
By Mail: Norwest Bank Minnesota, National Association
P.O. Box 1517
Minneapolis, Minnesota 55480-1517
Attention: Corporate Trust Operations
By Overnight Courier: Norwest Bank Minnesota, National Association
Norwest Center
6th and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Operations
Facsimile Transmission: (612) 667-4927
Confirm by Telephone: (612) 667-9764
By Hand: Norwest Bank Minnesota, National Association
Northstar East, 12th Floor
608 2nd Avenue
Minneapolis, Minnesota 55479-0113
Attention: Corporate Trust Operations
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer will
be borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and employees of the Company and its affiliates in person, by telegraph
or telephone.
The Company will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services estimated
to be approximately $1,000 and will reimburse the Exchange Agent for its
reasonable out-of-pocket expenses in connection therewith. The Company may also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Old Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than
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the registered holder of the Old Notes tendered, or if tendered Old Notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
Accounting Treatment
The expenses of the Exchange Offer will be amortized by the Company
over the term of the New Notes under generally accepted accounting principles.
DESCRIPTION OF OLD NOTES
The Old Notes were issued and sold on September 30, 1996, in
transactions not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act and the rules
promulgated thereunder. Accordingly, the Old Notes may not be reoffered, resold
or otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. The New Notes are being offered hereunder in
order to satisfy certain of the obligations of the Company under the Purchase
Agreement relating to the registration of the New Notes under the Securities
Act. The form and terms of the New Notes are the same in all material respects
as the form and terms of the Old Notes except that (i) the New Notes have been
registered under the Securities Act and will not contain terms restricting the
transfer thereof (other than as provided below), (ii) the New Notes will be
issued free from any covenant regarding registration, and (iii) the New Notes
will be subject to the requirements of the Trust Indenture Act, and therefore
will be issued under the Indenture that provides for various rights and benefits
of the holders of the New Notes to be exercisable, received and coordinated
through a Trustee in the manner required by the Trust Indenture Act. The other
material terms of the New Notes as set forth in the Indenture are identical to
such material terms as set forth in the Purchase Agreement. See "Description of
New Notes."
DESCRIPTION OF NEW NOTES
The form and terms of the New Notes are the same in all material
respects as the form and terms of the Old Notes except that (i) the New Notes
have been registered under the Securities Act and will not contain terms
restricting the transfer thereof, (ii) the New Notes will be issued free from
any covenant regarding registration, and (iii) the New Notes will be subject to
the requirements of the Trust Indenture Act, and therefore will be issued under
an Indenture that provides for various rights and benefits of the holders of the
New Notes to be exercisable, received and coordinated through a trustee in the
manner required by the Trust Indenture Act.
The New Notes will be, issued under an Indenture, dated as of September
30, 1996 (the "Indenture"), among the Company, as Issuer, and Norwest Bank
Minnesota, National Association, as Trustee (the "Trustee"). The Indenture is
governed by the Trust Indenture Act.
The following summary of the material provisions of the Indenture and
the New Notes does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Indenture
and the New Notes including the definitions of certain terms therein and those
terms made a part thereof by the Trust Indenture Act. Whenever particular
Sections or defined terms of the Indenture not otherwise defined herein are
referred to, such Sections or defined terms are incorporated herein by
reference. References in this section to the "Notes" shall be references to the
Old Notes and the New Notes.
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The Indenture authorizes a maximum principal amount of $10,000,000 of
New Notes at any one time outstanding. The New Notes will be issued solely in
exchange for an equal principal amount of Old Notes pursuant to the Exchange
Offer. See "-- Registration Rights."
General
The Old Notes are, and the New Notes will be, unsecured senior
subordinated obligations of the Company and will mature on September 30, 2000.
The New Notes will bear interest at the rate of 10.00% from March 31, 1997 or
from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semiannually on March 31 and September 30 of each year,
commencing September 30, 1997.
Principal of and interest on the New Notes will be payable at the
corporate trust office of the Trustee in Minneapolis, Minnesota, and the New
Notes may be presented for registration of transfer or exchange, at the office
or agency of the Company maintained for that purpose in Herndon, Virginia;
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the Holders as such address appears in the
Security Register.
The New Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount and any integral
multiple thereof. No service charge will be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
Ranking
The indebtedness evidenced by the Old Notes is, and the New Notes will
be, unsecured, general obligations of the Company, subordinated in right of
payment, as set forth in the Purchase Agreement and the Indenture, respectively,
to the prior payment of all present and future Senior Indebtedness of the
Company, whether outstanding on the date of issuance or thereafter incurred.
All Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes and all Indebtedness of the Company that is Subordinated
Indebtedness will rank junior to the Notes in accordance with the provisions of
the Purchase Agreement and the Indenture. The Old Notes and the New Notes will
rank in parity with each other.
In the event that the Company defaults in the payment of any principal
of or interest on any Senior Indebtedness when the same becomes due and payable,
whether at maturity or at a date fixed for repayment or by declaration of
acceleration or otherwise, then, upon written notice of such default to the
Company by the holders of Senior Indebtedness or any trustee therefor or
representative thereof, unless and until such default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment (in cash,
property, securities, by set-off or otherwise) shall be made or agreed to be
made on account of the principal of or interest on any of the Notes, or in
respect of any prepayment, retirement, purchase or other acquisition of any of
the Notes. In the event of:
(i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Company, its creditors or its property,
(ii) any proceeding for the liquidation, dissolution or other
winding up of the Company, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors, or
(iv) any other marshalling of the assets of the Company,
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all Senior Indebtedness (including any interest thereon accruing after the
commencement of any such proceedings) shall first be paid in full before any
payment or distribution, whether in cash, securities or other property, shall be
made to any holder of any of the Notes on account thereof. Any payment or
distribution, whether in cash, securities or other property (other than
securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at least to
the extent provided in the subordination provisions of the Purchasing Agreement
and the Indenture with respect to the indebtedness evidenced by the Notes, to
the payment of all Senior Indebtedness at the time outstanding and to any
securities issued in respect thereof under any such plan of reorganization or
readjustment), which would otherwise (but for such subordination provisions) be
payable or deliverable in respect of the Notes shall be paid or delivered
directly to the holders of Senior Indebtedness in accordance with the priorities
then existing among such holders until all Senior Indebtedness (including any
interest thereof accruing after the commencement of any such proceedings) shall
have been paid in full. In the event of any such proceeding, after payment in
full of all sums owing with respect to Senior Indebtedness, the Holders of the
Notes shall be entitled to be paid from the remaining assets of the Company the
amounts at the time due and owing on account of unpaid principal of and interest
on the Notes and such other obligations before any payment or other
distribution, whether in cash, property or otherwise, shall be made on account
of any capital stock or any obligations of the Company ranking junior to the
Notes and such other obligations.
Senior Indebtedness shall not be deemed to have been paid in full
unless the holders thereof shall have received cash, securities or other
property equal to the amount of such Senior Indebtedness then outstanding. Upon
the payment in full of all Senior Indebtedness, the Holders of Notes shall be
subrogated to all rights of any holders of Senior Indebtedness to receive any
further payments or distributions applicable to the Senior Indebtedness until
the indebtedness evidenced by the Notes shall have been paid in full, and such
payments or distributions received by such Holders, by reason of such
subrogation, of cash, securities or other property which otherwise would be paid
or distributed to the holders of Senior Indebtedness, shall, as between the
Company and its creditors other than the holders of Senior Indebtedness, on the
one hand, and such Holders, on the other hand, be deemed to be a payment by the
Company on account of Senior Indebtedness, and not on account of the Notes.
No provision contained in the Purchase Agreement, the Indenture or the
Notes will affect the obligation of the Company, which is absolute and
unconditional, to pay, when due, principal of, and interest on the Notes. The
subordination provisions of the Purchase Agreement, the Indenture and the Notes
do not prevent the occurrence of any Event of Default under the Purchase
Agreement, the Indenture or the Notes or limit the rights of the Trustee or any
Holder to pursue any other rights or remedies with respect to the Notes.
By reason of the subordination provisions contained in the Purchase
Agreement and the Indenture, in the event of bankruptcy, liquidation, insolvency
or other similar proceedings, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Holders of the Notes, and
creditors of the Company who are not holders of Senior Indebtedness may recover
less, ratably, than holders of Senior Indebtedness and may recover more,
ratably, than the Holders of the Notes.
Certain Covenants
The Indenture contains covenants including, among others, those set
forth below.
Subordination
The Company shall cause all future Subordinated Indebtedness to be
subordinated to the Notes in the same manner, on the same terms and to the same
extent as the Notes are subordinated to Senior Indebtedness pursuant to the
Purchase Agreement and the Indenture, and the Company shall include such terms
in any agreement, note or instrument evidencing such future Subordinated
Indebtedness.
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Stock Repurchase
Each subsidiary of the Company shall be permitted to, directly or
indirectly, repurchase, redeem, retire or otherwise acquire for value any of its
shares of capital stock of any class or any warrants, rights, options to
purchase or acquire any shares of its capital stock.
Limitations on Senior Indebtedness
The Company agrees that Senior Indebtedness shall not exceed $50.0
million.
Limitation on Dividends, Distributions and Certain Transactions
The Company shall not declare or pay any dividend or make any
distribution on or in respect of any of its capital stock or to its stockholders
(other than dividends or distributions payable solely in its capital stock) or
purchase, redeem or otherwise acquire or retire for value any capital stock or
any warrants, rights or options (including any securities convertible into or
exercisable or exchangeable for such capital stock, but not including the Notes
or the warrants) of the Company or any subsidiary of the Company, provided,
however, that unless a default or an Event of Default (as defined herein) has
occurred and is continuing, such provisions shall not prevent (i) the retirement
of any shares of the Company's capital stock by exchange for, or out of the
proceeds of, the substantially concurrent sale of other shares of its capital
stock, (ii) the purchase, redemption, retirement or other acquisition for value,
at any time, of the Common Stock using $25.0 million in cash and up to 650,000
shares of Common Stock using shares of common stock of World Airways of which
the Company is the beneficial owner or (iii) any prepayment of the Notes
pursuant to the terms thereof; provided, further, that such provisions shall not
prevent the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment complied with the
provisions of this limitation on dividends. The Company shall also be able to
repurchase, redeem, retire or otherwise acquire for value up to $5.0 million of
additional shares of Common Stock for every $15.0 million increase in Asset
Value at such time compared to such Asset Value as of September 12, 1996. "Asset
Value" is defined in the Indenture to mean (A) the market value of the common
stock of World Airways beneficially owned by the Company, the InteliData Common
Stock beneficially owned by the Company, the common stock of any other
Subsidiary of the Company beneficially owned by the Company which is listed on
an exchange or quoted on the Nasdaq National Market, and the Common Stock, in
each case measured based on the monthly closing prices of each of the common
stocks as listed on the New York Stock Exchange or the Nasdaq National Market,
as the case may be, plus (B) the value of all other tangible assets of the
Company calculated in accordance with GAAP consistently applied, measured based
on the value of such assets as of the applicable date of calculation. As of
September 12, 1996, the Asset Value was approximately $185.7 million.
Optional Prepayment
The Notes may be repaid at the election of the Company, in whole or
from time to time in part (in units of at least $250,000), at par together with
accrued interest to the date of prepayment.
Mandatory Prepayment
If the Asset Value at the end of any fiscal quarter of the Company is
less than $70.0 million, then the Company shall prepay 50% of each of the then
outstanding Notes within 60 days of the end of such fiscal quarter. If the Asset
Value at the end of any fiscal quarter of the Company is less than $50.0
million, then the Company shall prepay all of the then outstanding Notes within
60 days of the end of such fiscal quarter. As of September 12, 1996 and June 30,
1997, the Asset Value was $185.7 million and $109.5 million, respectively.
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If the Company sells any shares of InteliData Common Stock, 20% of the
net proceeds (i.e., gross proceeds less direct costs associated with such sales)
received by the Company upon such sale will be used to prepay the then
outstanding Notes, pro rata, within 30 days.
Sinking Fund Payments
The Company shall prepay pursuant to a sinking fund, and there shall
become due and payable 20% of the outstanding principal amount of each of the
then outstanding Notes, or such lesser amount as would constitute payment in
full of the then outstanding Notes on such date, on September 30, 1998 and
September 30, 1999. No premium shall be payable in connection with any such
sinking fund payment.
The Company (i) may deliver outstanding New Notes (other than any
previously called for prepayment or any sinking fund payment) and (ii) may apply
as a credit New Notes that have been prepaid at the election of the Company
pursuant to the terms of such New Notes, in satisfaction of all or any part of
any sinking fund payment with respect to the New Notes required to be made;
provided that such New Notes have not been previously so credited. Such New
Notes shall be received and credited for such purpose by the Trustee for
prepayment through operation of the sinking fund and the amount of such sinking
fund payment shall be reduced accordingly.
Consolidation
The Company shall not consolidate with or merge into any other person
or convey, transfer or lease its properties and assets substantially as an
entirety to any person, and the Company shall not permit any person to
consolidate with or merge into the Company, unless (i) in case the Company shall
consolidate with or merge into another person or convey, transfer or lease its
properties and assets substantially as an entirety to any person, the person
formed by such consolidation or into which the Company is merged or the person
which acquires by conveyance or transfer, or which leases, the properties and
assets of the Company substantially as an entirety shall be a corporation,
partnership or trust, shall be organized and validly existing under the laws of
the United States of America, any State thereof or the District of Columbia and
shall expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, the due and punctual payment of the principal of and
interest on all the Notes and the performance or observance of every covenant of
the Indenture on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction, no Event of Default, and no
event which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing; and (iii) the Company has
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger, conveyance, transfer or lease and,
if a supplemental indenture is required in connection with such transaction,
such supplemental indenture, complies with the Indenture and that all conditions
precedent therein provided for relating to such transaction have been complied
with.
Commission Reports
Notwithstanding that the Company may not be required to remain subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company will file with the Commission and provide the Trustee and Holders of the
Notes with such annual reports and such information, documents and other reports
as may be required by the Trust Indenture Act, such information, documents and
other reports to be so filed and provided at the times specified for the filing
of such information, documents and reports under the Trust Indenture Act.
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Events of Default
The following events will be defined as "Events of Default" in the
Indenture:
(i) default shall occur in the payment of interest on any New Note when
the same shall have become due and such default shall continue for more than 10
calendar days; or (ii) default shall occur in the making of any required
prepayment on any of the New Notes as provided in Section 1102 of the Indenture
or sinking fund payment as provided in Section 1201 of the Indenture or in the
making of any other payment of the principal of any New Notes at their stated
maturity; or (iii) default shall be made in the payment of the principal of or
interest or premium on Indebtedness of the Company and its subsidiaries
aggregating in excess of $5.0 million, as and when the same shall become due and
payable by the lapse of time, by declaration of acceleration, by call for
redemption or otherwise, and such default shall continue beyond the period of
grace, if any, allowed with respect thereto unless such default is being
contested in good faith by appropriate actions or proceedings; or (iv) default
shall occur in the observance or performance of any other covenant of the
Indenture which is not remedied within 30 calendar days after the Company has
received written notice thereof; or (v) any representation or warranty made by
the Company in the Indenture, or made by the Company in any statement or
certificate furnished by the Company in connection with the consummation of the
issuance and delivery of the New Notes or furnished by the Company pursuant
thereto, is untrue in any material respect as of the date of the issuance or
making thereof; or (vi) any judgment, writ or warrant of attachment or any
similar process in an aggregate amount in excess of $5.0 million shall be
entered or filed against the Company or any subsidiary of the Company or against
any property or assets of either and remain unpaid, unvacated, unbonded or
unstayed (through appeal or otherwise) for a period of 60 days after the date of
entry or filing thereof; or (vii) the Company or any subsidiary of the Company
shall: (A) generally not pay its debts as they become due or admit in writing
its inability to pay its debts generally as they become due; (B) file a petition
in bankruptcy or for reorganization or for the adoption of an arrangement under
the Federal Bankruptcy Code, or any similar applicable bankruptcy or insolvency
law, as now or in the future amended (herein collectively called "Bankruptcy
Laws"), or an answer or other pleading admitting or failing to deny the material
allegations of such a petition or seeking, consenting to or acquiescing in
relief provided for under the Bankruptcy Laws; (C) make an assignment of all or
a substantial part of its property for the benefit of its creditors; (D) seek or
consent to or acquiesce in the appointment of a receiver, liquidator, custodian
or trustee of it or for all or a substantial part of its property; (E) be
subject to the entry of a court order, which shall not be vacated, set aside or
stayed within 45 days from the date of entry, appointing a receiver, liquidator,
custodian or trustee of it or for all or a substantial part of its property; (F)
be subject to the institution against it of bankruptcy, reorganization,
arrangement or insolvency proceedings, or other proceedings pursuant to the
Bankruptcy Laws or any other proceedings for judicial modification or alteration
of the rights of creditors, which proceedings are not dismissed within 60 days
after such institution or which otherwise result in the Company or such
subsidiary being finally adjudicated a bankrupt or insolvent; or (G) be subject
to the assumption of custody or sequestration by a court of competent
jurisdiction of all or a substantial part of its property, which custody or
sequestration shall not be suspended or terminated within 60 days from its
inception.
When any Event of Default described in clause (i) or (ii) above has
occurred and is continuing, any Holder of any New Note may, and when any Event
of Default described in clauses (iii) through (vi) above, both inclusive, has
occurred and is continuing, the Holder or Holders of a majority in aggregate
principal amount of the New Notes at the time outstanding may, by notice in
writing, declare the entire principal and all interest accrued on all New Notes
to be due and payable. When any Event of Default described in paragraph (vii)
has occurred and is continuing, all of the New Notes, and all interest accrued
thereon, shall automatically become due and payable. Upon the New Notes becoming
due and payable as a result of any Event of Default, the Company will pay to the
Holders of the New Notes the entire principal of, and interest accrued on, the
New Notes. The Company has further agreed to pay to the Holder or Holders of the
New Notes all costs and expenses incurred by them in the collection or
enforcement of any New Notes upon any such default hereunder or thereon,
including reasonable attorneys' fees.
If the principal of and accrued interest on all or any outstanding New
Notes have been declared immediately due and payable by reason of any Event of
Default, the Holders of a majority in aggregate principal amount of the New
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Notes then outstanding may within 90 days of the New Notes becoming due and
payable, by written instrument filed with the Company, rescind and annul such
declaration and the consequences thereof, provided that at the time such
declaration is annulled and rescinded: (i) no judgment or decree has been
entered for the payment of any monies due pursuant to the New Notes or the
Indenture; (ii) all arrears of interest upon all the New Notes and all other
sums payable under the New Notes and under the Indenture shall have been duly
paid; and (iii) each and every default and Event of Default shall have been made
good, cured or waived pursuant to Section 513 of the Indenture.
The Holders of at least a majority in principal amount of the then
outstanding New Notes shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the New
Notes, provided that: (i) such direction shall not be in conflict with any rule
of law or with the Indenture, expose the Trustee to personal liability or be
unduly prejudicial to holders not joining therein, and (ii) the Trustee may take
any other action deemed proper by the Trustee which is not inconsistent with
such direction. The Holders of not less than a majority in principal amount of
the then outstanding New Notes may on behalf of the Holders of all the New Notes
waive any past default hereunder with respect to such securities and its
consequences, except a default:
(A) in the payment of the principal of or interest on any New Note,
or
(B) in respect of a covenant or provision which under Article Nine of
the Indenture cannot be modified or amended without the consent of the
Holder of each outstanding New Note affected.
No Holder of any New Note shall have any right to institute any
proceeding, judicial or otherwise, with respect to the Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(i) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the New Notes; (ii) the holders of
not less than 25% in principal amount of the then outstanding New Notes shall
have made written request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee hereunder; (iii) such Holder or
Holders have offered to the Trustee reasonable indemnity against the costs,
expenses and liabilities to be incurred in compliance with such request; (iv)
the Trustee for 60 days after its receipt of such notice, request and offer of
indemnity has failed to institute any such proceeding; and (v) no direction
inconsistent with such written request has been given to the Trustee during such
60-day period by the Holders of a majority in principal amount of the then
outstanding New Notes; it being understood and intended that no one or more of
such Holders shall have any right in any manner whatever by virtue of, or by
availing of, any provision of the Indenture to affect, disturb or prejudice the
rights of any other of such Holders, or to obtain or to seek to obtain priority
or preference over any other of such Holders or to enforce any right under the
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all of such Holders.
In case of any judicial proceeding relative to the Company (or any
other obligor upon the New Notes), its property or its creditors, the Trustee
shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to file and prove a
claim for the whole amount of principal and interest owing and unpaid in respect
of the New Notes and to file such other papers or documents as may be necessary
or advisable in order to have claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements, and advances of the Trustee,
its agents and counsel) and of the Holders allowed in such judicial proceeding,
and to collect and receive any moneys or other property payable or deliverable
on any such claims and to distribute the same; and any custodian, receiver,
assignee, trustee, liquidator, sequestrator or other similar official in any
such judicial proceeding is authorized pursuant to the Indenture by each Holder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607 of the Indenture. The Indenture also
requires certain officers of the Company to certify, within 30 days
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after the end of each fiscal quarter, that Senior Indebtedness did not exceed
$50.0 million and that no mandatory prepayment of the Notes is required.
No provision of the Indenture authorizes the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the New Notes
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and may be a member of the creditors'
committee.
The Indenture will require certain officers of the Company to certify,
within 120 days after the end of each fiscal year, that a review of the
activities of the Company during such year and of the Company's performance
under the Indenture has been made under such officer's supervision and whether
such officer knows of any defaults by the Company under the Indenture throughout
such year or, if there has been such a default, specifying each such default and
the nature and status thereof. The Company will also be obligated to notify the
Trustee of any default or defaults in the performance of any covenants or
agreements under the Indenture.
Modification and Waiver
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount of the outstanding New Notes; provided
that no such modification or amendment may, without the consent of each Holder
of the New Notes affected thereby, (i) change the stated maturity of the
principal of, or any installment of principal of or interest on, any New Note,
or reduce the principal amount thereof or the rate of interest thereon upon the
prepayment thereof, or change the method of determination of interest thereon,
or change any provisions with respect to prepayments pursuant to Article Eleven
of the Indenture or sinking fund payments pursuant to Article Twelve of the
Indenture, or change any place of payment where, or the coin or currency in
which, any Note or the interest thereon is payable or impair the right to
institute suit for the enforcement of any such payment or the provisions of this
Indenture with respect to the subordination of the Securities, in a manner
adverse to the Holders of the New Notes, or (ii) reduce the percentage in
principal amount of the then outstanding New Note, the consent of whose Holders
is required for any such supplemental indenture, or the consent of whose Holders
is required for any waiver (of compliance with certain provisions of the
Indenture or certain defaults hereunder and their consequences) provided for in
the Indenture, or (iii) modify any of the provisions of Section 902, Section 513
or Section 1008 of the Indenture, except to increase any such percentage or to
provide that certain other provisions of the Indenture cannot be modified or
waived without the consent of the Holder of each outstanding New Note affected
thereby.
Regarding the Trustee
Norwest Bank Minnesota, National Association is the Trustee under the
Indenture and is also the Exchange Agent in the Exchange Offer.
Denomination
Old Notes initially sold to institutional "accredited investors" were
issued only in fully registered definitive form without coupons, in
denominations of $1,000 of principal amount and integral multiples of $1,000 in
excess thereof. New Notes may be issued only in fully registered definitive form
without coupons, in denominations of $1,000 and integral multiplies thereof.
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Governing Law
The Indenture provides that it and the New Notes will be governed by,
and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
Registration Rights
The Company is a party to the Purchase Agreement with the initial
purchasers of the Old Notes, pursuant to which the Company has agreed, for the
benefit of the holders of the Old Notes to file, at its cost, a registration
statement with the Commission with respect to registration of the Old Notes
under the Securities Act and to use its best efforts, to have such registration
statement declared effective, which registration will be effected through the
Exchange Offer. In the event that applicable interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer or under
certain other circumstances, the Company has agreed to file, at its cost, a
shelf registration statement with the Commission under the Securities Act and to
use its reasonable best efforts to cause such shelf registration statement to
become effective with respect to resales of the Old Notes. The Company shall, in
the event of such a shelf registration, provide to each holder copies of a
prospectus, notify each holder when the shelf registration statement for the Old
Notes has become effective and take certain other actions as are required to
permit resales of the Old Notes.
In the event the Exchange Offer is consummated, the Company will not be
required under the Purchase Agreement to file a shelf registration statement to
register any outstanding Old Notes. The Exchange Offer shall be deemed to have
been consummated upon the earlier to occur of (i) the Company having exchanged
New Notes for all outstanding Old Notes pursuant to the Exchange Offer or (ii)
the Company having exchanged, pursuant to the Exchange Offer, New Notes for all
Old Notes that have been tendered and not withdrawn on the Expiration Date. In
such event, holders of Old Notes seeking liquidity in their investment would
have to rely on exemptions to registration requirements under the securities
laws, including the Securities Act.
Interest on each New Note will accrue from March 31, 1997 or from the
most recent interest payment date to which interest was paid on the Old Note
surrendered in exchange therefor or on the New Note, as the case may be. The New
Notes will bear interest at the original interest rate borne by the Old Notes.
The summary herein of certain provisions of the Purchase Agreement and
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Purchase
Agreement and the Indenture.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following represents the opinion of Hunton & Williams, counsel to
the Company, with respect to certain material United States federal income tax
consequences of the ownership and disposition of the Notes. This summary deals
only with Notes held as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), by
holders ("Holders") that for United States federal income tax purposes are (i)
citizens or residents of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source, or
(iv) a trust subject to primary supervision by a court in the United States and
control by one or more United States fiduciaries. Thus, the following does not
address any tax consequences that apply specifically to nonresident aliens or
foreign entities. Moreover, it does not discuss all of the tax consequences that
may be relevant to a Holder in light of his particular circumstances or to
Holders subject to special rules, such as certain financial institutions,
insurance companies, dealers in securities, individual retirement and certain
tax deferred accounts, and persons who engage in
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a straddle or a hedge relating to a Note. The following also assumes that a
Holder will not make an election to treat all interest on a Note as original
issue discount pursuant to pertinent Treasury Regulations. This summary is based
on existing laws, existing and proposed regulations, and applicable judicial and
administrative determinations, all of which are subject to change at any time,
and any such changes may be retroactively applied in a manner that could
adversely affect Holders.
Exchange Offer
For United States federal income tax purposes, the Exchange will be
disregarded and each New Note will be treated as a continuation of the
corresponding Old Note. Accordingly, Holders will not recognize gain or loss
upon the Exchange.
Interest on the Notes
Interest on a Note generally will be taxable to a Holder as ordinary
interest income at the time it accrues or is received in accordance with the
Holder's method of accounting for federal income tax purposes. In addition,
special rules governing the treatment of original issue discount will apply to
the Notes, as described below, and consequently Holders of Notes will be taxed
on additional income as such discount accrues.
Original Issue Discount
The Old Notes were issued, and the New Notes (as a continuation of the
Old Notes) will be treated as issued, with original issue discount ("OID")
within the meaning of Section 1273 of the Code because a portion of the issue
price of the Old Notes and Warrants must be allocated to Warrants, causing the
issue price of an Old Note to be less than its principal amount. The Company has
determined that, for each $1,000 principal amount of the Old Notes, $34.65 of
the total issue price is allocable to Warrants, and $965.35 is allocable to the
Old Notes. That allocation will be binding on each Holder, unless the Holder
explicitly discloses that his allocation of issue price between an Old Note and
Warrants is different from that allocation. Unless otherwise provided by the
Internal Revenue Service, such disclosure must be made on a statement attached
to the Holder's timely filed federal income tax return for the taxable year in
which the Holder acquired the Old Note.
The amount of OID on a Note is the excess of the "stated redemption
price at maturity" over the "issue price" of the Note. The stated redemption
price at maturity of a Note is the total of all payments provided by the Note
excluding payments of qualified stated interest. The semiannual interest
payments on the Notes are qualified stated interest payments. Thus, the stated
redemption price at maturity is the stated principal amount, and the amount of
OID is $34.65 per $1,000 of principal amount. Holders of the Notes (including
Holders who are cash basis taxpayers) will include OID in income currently as
interest as it accrues over the life of the Notes under a formula based upon the
semiannual compounding of interest at a rate that provides for a constant yield
to maturity, which (based on the Company's allocation of issue price to the Old
Notes) is 11.253%. Under this formula, Holders of the Notes generally will have
to include in gross income greater amounts of OID in each successive accrual
period. As further described below, accrued OID generally must be included in
income by subsequent as well as original Holders of the Notes.
In general, the amount of OID that a Holder of a Note must include in
income for a taxable year is the sum of the "daily portions" of OID on the Note
for all days during the taxable year that such Holder owns the Note. Such daily
portions are determined by allocating to each day in the accrual period a
ratable portion of the OID allocable to that accrual period. An accrual period
is each successive period that ends on March 31 or September 30. In the case of
an initial Holder of an Old Note, the amount of OID on a Note allocable to each
accrual period is determined by multiplying the "adjusted issue price" of the
Note by its yield to maturity (based on compounding at the close of each accrual
period). The adjusted issue price of a Note at the beginning of any accrual
period will be the sum of its issue price and the amount of OID allocable to all
prior accrual periods, reduced by the amount of any payments (other than
payments of qualified stated interest) made with respect to such Note in all
prior accrual periods. A subsequent Holder
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also will be required to include in gross income daily portions of OID with
respect to the Note. However, if such a subsequent Holder acquires the Note for
an amount greater than the Note's adjusted issue price (i.e., at an acquisition
premium), the subsequent Holder's daily portions of OID with respect to the Note
will be reduced by an allocable portion of the amount by which the price paid by
such Holder (up to the stated principal amount) exceeds the Note's adjusted
issue price.
The Company is to provide annual information statements to certain
noncorporate Holders and to the Internal Revenue Service stating the amount of
OID determined to have accrued on the Notes. A Holder that acquires a Note at an
acquisition premium must independently determine the amount of OID includible in
income with respect to such Note.
Sale or Retirement of Notes
Upon the sale, retirement (including redemption) or other taxable
disposition of all or part of a Note, a Holder will recognize gain or loss equal
to the difference between the amount realized on such sale, retirement or other
disposition and the Holder's adjusted tax basis in the Note or part thereof. Any
recognized gain or loss will be capital gain or loss, except to the extent of
any accrued market discount (see "Market Discount" below). For these purposes,
the amount realized does not include any amount received for accrued interest on
a Note, which will be taxable as interest income. A Holder's adjusted tax basis
in a Note acquired by purchase will equal the cost of such Note to the Holder,
increased by the amount of any accrued OID and market discount included in
taxable income by the Holder with respect to such Note and reduced by any
amortized Section 171 premium (see "Amortizable Premium" below) and any prior
payments (other than payments of qualified stated interest) on the Note to the
Holder. The redemption of only part of a Note will require the allocation of the
entire note's adjusted tax basis and adjusted issue price between the redeemed
part and the part retained by the Holder in order to determine gain or loss and
future accruals of OID.
Market Discount
A secondary market purchaser of a Note at a discount from the adjusted
issue price of the Note acquires such Note with "market discount." However,
market discount with respect to a Note will be considered to be zero if such
market discount is minimal, i.e., less than the product of (A) 0.25% of the
adjusted issue price of such Note multiplied by (B) the weighted average
maturity of the Note after the date of purchase. Under Section 1276 of the Code,
the purchaser of a Note with more than a minimal amount of market discount
generally will be required to treat any gain on the sale, exchange, redemption
or other disposition of all or part of the Note as ordinary income to the extent
of accrued (but not previously taxable) market discount. Market discount
generally will accrue ratably during the period from the date of purchase to the
maturity date of the Note, unless the Holder irrevocably elects to accrue such
market discount on the basis of a constant interest rate.
Under Section 1277 of the Code, a Holder who has acquired a Note at a
market discount generally will be required to defer any interest deductions
attributable to any indebtedness incurred or continued to purchase or carry the
Note, to the extent such deductions exceed interest and OID income on the Note.
Any such deferred interest expense generally will be allowable as a deduction
not later than the year in which the related market discount is recognized. As
an alternative to the inclusion of market discount in income upon disposition of
a Note, a Holder may make an election to include market discount in income as it
accrues on all market discount instruments acquired by the Holder during or
after the taxable year for which the election is made. In that case, the
preceding deferral rule for interest expense will not apply.
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Amortizable Premium
A secondary market purchaser of a Note at a premium over the stated
principal amount of the Note (plus accrued interest) generally may elect to
amortize such premium ("Section 171 premium") from the purchase date to
the maturity date, under a constant yield method that reflects semiannual
compounding. Amortized Section 171 premium generally will be treated as an
offset to interest income on a Note and not as a separate deduction.
Section 171 premium does not include any acquisition premium
attributable to the portion of a purchase price for a Note that exceeds the
adjusted issue price but not the stated principal amount of such Note. As
described above under "Original Issue Discount," such an acquisition premium
reduces the amount of OID includible in the income of the Holder.
Backup Withholding
A Holder may be subject to "backup withholding" under certain
circumstances. Backup withholding applies to a Holder if the Holder, among other
things, (i) fails to furnish his social security number or other taxpayer
identification number ("TIN") to the payor responsible for backup withholding
(for example, the Holder's securities broker), (ii) furnishes such payor an
incorrect TIN, (iii) fails to provide such payor with a certified statement,
signed under penalties of perjury, that the TIN provided to the payor is correct
and that the Holder is not subject to backup withholding, or (iv) fails to
report properly interest and dividends on his tax return. Backup withholding,
however, does not apply to payments made to certain exempt recipients, such as
corporations and tax-exempt organizations. The backup withholding rate is 31% of
"reportable payments," which generally will include interest payments and
principal payments on the Notes.
The federal income tax discussion set forth above may not be applicable
to a Holder, depending upon a Holder's particular situation, and therefore each
Holder should consult his tax advisor with respect to the tax consequences of
the ownership and disposition of the Notes, including the tax consequences under
state, local, foreign and other tax laws and the possible effects of changes in
federal or other tax law.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale for a period of 90 days from the date of this Prospectus,
or shorter period as will terminate when all Old Notes acquired by
broker-dealers for their own accounts as a result of market-making activities or
other trading activities have been exchanged for New Notes and resold by such
broker-dealers.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and
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any profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 90 days from the date of this Prospectus, or such
shorter period as will terminate when all Old Notes acquired by broker-dealers
for their own accounts as a result of market-making activities or other trading
activities have been exchanged for New Notes and resold by such broker-dealers,
the Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal.
VALIDITY OF NEW NOTES
The validity of the New Notes will be passed upon for the Company by
Hunton & Williams, Richmond, Virginia. In rendering its opinion on the validity
of the New Notes, Hunton & Williams will express no opinion as to Federal or
state laws relating to fraudulent transfers. Certain of the tax consequences of
the Exchange Offer will be passed upon by Hunton & Williams, Richmond, Virginia,
as tax counsel to the Company.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996
and 1995, and the related consolidated statements of operations, changes in
common stockholders' deficit and cash flows for each of the years in the
three-year period ended December 31, 1996, and the related financial statement
schedules, included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, incorporated by reference herein, have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1996
consolidated financial statements states that their opinion, insofar as it
relates to the amounts included for InteliData Technologies Corporation, is
based solely on the report of other auditors. The consolidated financial
statements of InteliData Technologies Corporation as of December 31, 1996, and
for the year then ended, included in WorldCorp's Annual Report on Form 10-K for
the year ended December 31, 1996, incorporated by reference herein and in the
Registration Statement, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report incorporated herein by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
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