<PAGE>
As filed with the Securities and Exchange Commission on May 6, 1999
Registration Statement No. 333-71937
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 2
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
iXL Enterprises, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 7373 58-2234342
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
----------------
1888 Emery St., NW
Atlanta, GA 30318
(800) 573-5544
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
U. BERTRAM ELLIS, JR.
Chief Executive Officer
iXL Enterprises, Inc.
1888 Emery St., NW
Atlanta, GA 30318
(404) 267-3800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
JAMES S. ALTENBACH MARGARET A. DAVENPORT GREGORY C. SMITH
Minkin & Snyder Debevoise & Plimpton Skadden, Arps, Slate,
One Buckhead Plaza 875 Third Avenue Meagher & Flom LLP
3060 Peachtree Road, New York, NY 10022 525 University Avenue
Suite 1100 (212) 909-6000 Palo Alto, CA 94301
Atlanta, GA 30305 (650) 470-4500
(404) 261-8000
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a U.S. and Canadian offering of the registrant's common
stock and one to be used in a concurrent international offering of the common
stock. The international prospectus will be identical to the U.S. prospectus
except that it will have a different front cover page, underwriting section and
back cover page. The U.S. prospectus is included herein and is followed by the
alternate front cover page, underwriting section and back cover page to be used
in the international prospectus, which have each been labeled "Alternative Page
for International Prospectus."
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated May 6, 1999
P R O S P E C T U S
[Logo of iXL Enterprises, Inc.]
6,000,000 Shares
iXL ENTERPRISES, INC.
Common Stock
------------
This is iXL Enterprises, Inc.'s initial public offering of common stock.
The U.S. underwriters will offer 4,800,000 shares in the United States and
Canada and the international managers will offer 1,200,000 shares outside the
United States and Canada.
We expect the public offering price to be between $10.00 and $12.00 per
share. Currently, no public market exists for the shares. After pricing of the
offering, the common stock will trade on the Nasdaq National Market under the
symbol "IIXL."
Affiliates of General Electric Company have agreed to purchase an aggregate
of 2,000,000 shares of common stock directly from iXL Enterprises, Inc. in a
private placement transaction. This investment is expected to be completed
concurrently with the closing of this initial public offering, if regulatory
and other conditions are satisfied, at a price per share equal to the initial
public offering price.
Investing in the common stock involves risks which are described in the
"Risk Factors" section beginning on page 11 of this prospectus.
------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price ....... $ $
Underwriting Discount ....... $ $
Proceeds, before expenses, to
iXL Enterprises, Inc. ...... $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional 720,000 shares
at the public offering price, less the underwriting discount, within 30 days
from the date of this prospectus to cover over-allotments. The international
managers may similarly purchase up to an aggregate of an additional 180,000
shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of common stock will be ready for delivery in New York, New
York, on or about , 1999.
------------
Merrill Lynch & Co. Donaldson, Lufkin & Jenrette
------------
BancBoston Robertson Stephens SG Cowen
------------
The date of this prospectus is , 1999.
<PAGE>
{DIAGRAM PORTRAYING A DESCRIPTION OF THE COMPANY, ITS SERVICES, AND ITS
ENGAGEMENT METHODOLOGY. THE LAYOUT AND TEXT CONTAINED IN THIS DOCUMENT IS AS
FOLLOWS:}
{HEADING: TOP OF PAGE:}
{LEFT SIDE: iXL LOGO}
{CENTER: STYLIZED TEXT:}
(Our Vision) "To pioneer the use of digital technology to transform how
business gets done."
{RIGHT SIDE: CFN LOGO}
{SECTION 1: MIDDLE OF PAGE: RIGHT SIDE}
{CAPTION: Services}
Internet Strategy Consulting
Internet-based Business Consulting
. Business Design
. Business Information Management Systems
. E-Commerce Systems and Services
. Interactive Learning Environments
. Digital Media
Solution Sets(TM)
. Pitchman/R/
. Siteman /TM/
Industry Practice Groups
. Banking & Financial Services
. Healthcare
. Media & Entertainment
. Travel
. Telecommunications
{SECTION 2: MIDDLE OF PAGE: RIGHT SIDE}
{CAPTION: iXL}
We are a leading Internet services company that provides Internet strategy
consulting and comprehensive Internet-based business solutions to Fortune 1000
companies and other corporate users of information technology.
We help businesses identify how the Internet can be used to their competitive
advantage and then use our expertise in creative design and systems engineering
to help our clients take advantage of that opportunity - fast.
We create success for our clients by identifying and taking advantage of
emerging business opportunities generated through the application and use of
Internet-based technologies. We use that strength to help our clients create
new relationships through previously unimagined uses of technology in their
business.
Our core competencies include Internet business design, E-Commerce, customer
management, business information management, digital media including the
development of Enhanced Television (E-TV), and the creation of interactive
learning environments.
We succeed by shortening the distance between the creation of ideas and the
realization of their economic benefit for our clients.
{CAPTION: CFN}
CFN is a sophisticated e-commerce platform for marketing financial services and
employee benefits electronically. Through a corporate intranet, the Internet,
as well as through a telesales center, CFN brings together providers of services
and benefits together with employees who want to purchase those services. The
CFN platform allows employees to electronically compare, shop and purchase the
services they need easily and efficiently.
{SECTION 3: BOTTOM OF PAGE}
{CAPTION: iD5 Methodology}
{GRAPHIC OF FIVE POLYGONS DEPICTING iXL's FIVE STAGE ENGAGEMENT METHODOLOGY}
1. Discover Collect information relative to the engagement objective.
2. Define Formulate an Internet business strategy.
3. Design Refine/document specifications of the Internet business
strategy.
4. Develop Build elements required to implement the Internet business.
5. Deploy Deliver the final solution.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 12
Forward-looking Statements............................................... 21
Trademarks............................................................... 21
Information in Prospectus................................................ 21
Relationship with General Electric....................................... 22
Use of Proceeds.......................................................... 23
Dividend Policy.......................................................... 23
Capitalization........................................................... 24
Dilution................................................................. 27
Pro Forma Consolidated Financial Information............................. 29
Selected Consolidated Financial Data..................................... 38
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 39
Business................................................................. 57
Management............................................................... 76
Certain Transactions..................................................... 85
Principal Stockholders................................................... 90
Description of Capital Stock............................................. 93
Shares Eligible for Future Sale.......................................... 97
United States Federal Tax Considerations for Non-U.S. Holders............ 99
Underwriting............................................................. 101
Legal Matters............................................................ 104
Experts.................................................................. 105
Additional Information................................................... 105
Index to Financial Statements............................................ F-1
</TABLE>
3
<PAGE>
SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus, including the financial data and
related notes, before making an investment decision.
iXL Enterprises, Inc.
We are a leading Internet services company which provides Internet
strategy consulting and comprehensive Internet-based solutions to Fortune 1000
companies and other corporate users of information technology. We help
businesses identify how the Internet can be used to their competitive advantage
and use our expertise in creative design and systems engineering to design,
develop and deploy advanced Internet applications and solutions.
Our service offerings include:
. Internet strategy consulting;
. e-commerce systems and services;
. business information management systems;
. interactive learning environments;
. digital media services;
. traditional website development;
. customized hosting;
. proprietary sales presentation systems; and
. Web publishing technology.
We use our extensive engineering capabilities to deliver complex
Internet-based business solutions by employing proven technologies such as
Java, XML, Perl, CGI, C and C++. To foster the best possible solutions and
service, we have assembled industry practice groups including professionals
with expertise in the business practices and processes of specific industries.
In addition, we utilize an engagement methodology called iD5 which defines and
delineates business procedures and processes to take full advantage of best
practices developed throughout iXL. We offer our services primarily on a fixed-
price basis. In 1998 our clients included BellSouth, Carlson Wagonlit Travel,
Chase Manhattan Bank, First USA, Gateway, GE, Lucent, Time Warner and WebMD.
The Internet represents a revolutionary and powerful new opportunity for
business. International Data Corporation expects dramatic growth in total e-
commerce transaction volume, projecting an increase from $32 billion in 1998 to
$426 billion in 2002. E-commerce refers to the buying and selling of goods and
services on the Internet. Many companies currently do not have the capabilities
required to conduct e-commerce with suppliers and customers. These companies
are looking to independent service providers that can assist them in taking
full advantage of the Internet's ability to improve their business. We expect
this need to drive growth in the worldwide Internet development services
market, which according to International Data Corporation, will grow from $7
billion in 1998 to $44 billion by 2002.
We have expanded rapidly since our founding in March 1996 through a
combination of acquisitions and internal growth. We have completed 34
acquisitions to gain critical mass, experienced professionals, industry
expertise, technical skills and geographic coverage. We have invested in our
management information systems to create a scalable organization capable of
maximizing the sharing of our knowledge base and the utilization of our staff.
As of April 30, 1999, we had approximately 1,475 employees. Our headquarters is
located in Atlanta, Georgia, and we have 17 regional offices located throughout
the United States and in England, Germany and Spain.
4
<PAGE>
In addition to our strategic Internet services offerings, we have
developed Consumer Financial Network, Inc., a sophisticated e-commerce platform
for marketing financial services and employee benefits over corporate intranets
and the Internet, as well as through a telesales center. CFN's equity is owned
77% by iXL and 23% by General Electric after giving effect to General
Electric's expected $50 million equity investment in CFN. CFN has contracted
with competing providers of various financial and other services to create a
platform for comparison shopping and purchase of these services. The CFN
platform currently offers the following services:
. automobile, homeowners and other lines of personal insurance;
. home mortgages;
. home equity loans;
. auto finance;
. long-term care insurance;
. term life insurance; and
. prepaid legal services.
CFN's platform is currently provided at no cost to large companies and
associations for distribution as a human resources benefit to their employees
or members. CFN also intends to make its platform available to the general
public. CFN service providers include Nationwide Mutual Insurance Co., Liberty
Mutual Insurance Co., and Chase Manhattan Mortgage Corporation. Member
companies include Nextel, Coca-Cola, Delta Air Lines and BellSouth. CFN
receives a fee from the service providers for each sale of their services
through the CFN network.
iXL's goal is to become the leading provider of strategic Internet
services and to become a leader in Internet-delivered financial services and
employee benefits. To achieve this goal, we intend to:
. leverage and expand our industry expertise;
. develop our technology capabilities;
. expand our geographic coverage;
. capture and disseminate our knowledge and best practices;
. expand our client relationships;
. attract, train and retain experienced professionals; and
. enhance and extend the CFN platform.
Affiliates of General Electric Company have been iXL investors since
December 1997 and made a first investment in CFN in November 1998. In April
1999, this relationship expanded when iXL and an affiliate of General Electric
Company executed an agreement providing for the delivery of strategic Internet
services to General Electric. iXL also issued to an affiliate of General
Electric Company warrants to purchase 1,000,000 shares of common stock at an
exercise price of $15.00 per share. In April 1999, iXL, CFN and affiliates of
General Electric Company also executed agreements which if consummated would
expand this relationship to include:
. the purchase by affiliates of General Electric Company of
2,000,000 shares of common stock at the initial public offering
price;
. a $50 million equity investment by affiliates of General Electric
Company in CFN; and
. the issuance by iXL to an affiliate of General Electric of
warrants to purchase 1,500,000 shares of common stock at an
exercise price equal to the initial public offering price; this
issuance will be in connection with a marketing campaign the
details of which are to be agreed upon in the future and a
reasonable efforts agreement to provide access to CFN's platform
to employees of a General Electric affiliate.
5
<PAGE>
iXL is a Delaware corporation. Our principal executive offices are
located at 1888 Emery St., NW, Atlanta, Georgia 30318, and our telephone number
is (800) 573-5544. We maintain a World Wide Web site, at www.iXL.com. The
reference to our World Wide Web address does not mean we are incorporating by
reference the information contained at the site. In this prospectus, "iXL,"
"we," "us" and "our" refer to iXL Enterprises, Inc. and its subsidiaries, but
not to the underwriters listed in this prospectus. These terms include the
businesses we have acquired, unless the context otherwise requires. "CFN"
refers to iXL's subsidiary, Consumer Financial Network, Inc., and its
subsidiaries.
6
<PAGE>
Prospectus Assumptions
Upon the completion of this offering, the only class of our capital stock
outstanding will be our common stock. Except where otherwise indicated, all
information in this prospectus assumes:
. the sale of the shares of common stock offered by this prospectus
at an assumed offering price of $11.00 per share based on the
midpoint of the range on the cover page of this prospectus;
. the sale and issuance to affiliates of General Electric Company
upon the closing of this offering of an aggregate of 2,000,000
shares of common stock at an assumed purchase price of $11.00 per
share based on the midpoint of the range on the cover page of this
prospectus;
. the issuance to an affiliate of General Electric Company upon the
closing of this offering of warrants to purchase 1,500,000 shares
of common stock at an exercise price per share equal to the initial
public offering price of the common stock;
. the sale and issuance by CFN to affiliates of General Electric
Company of 16,190,475 shares of CFN's Series B Convertible
Preferred Stock for an aggregate purchase price of approximately
$50 million;
. the reclassification of Class A, Class B and Class C Convertible
Preferred Stock, Class D Nonvoting Preferred Stock and Class A and
Class B Common Stock into common stock;
. the automatic conversion of warrants to purchase shares of Class B
Convertible Preferred Stock and Class A and Class B Common Stock
into warrants to purchase shares of common stock;
. the exercise of warrants to purchase 1,246,000 shares of common
stock, for cash consideration of $4.58 per share upon the closing
of this offering;
. the exercise of warrants to purchase 240,006 shares of common stock
with a weighted average exercise price of $1.95 per share which are
mandatorily exercisable upon the closing of this offering into
197,459 shares of common stock, assuming a cashless exercise based
on the assumed initial public offering price of $11.00 per share;
. the underwriters' over-allotment option will not be exercised; and
. for purposes of determining the number of shares of common stock
issuable upon the reclassification of Class D Nonvoting Preferred
Stock a reclassification date of April 30, 1999.
7
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered:
U.S. offering............... 4,800,000 shares
International offering...... 1,200,000 shares
Total...................... 6,000,000 shares
Shares outstanding after the
U.S. and international
offerings.................. 63,579,194 shares
Over-allotment option....... 900,000 shares
Use of proceeds............. We estimate that the net proceeds from this offering
without exercise of the over-allotment option will be
approximately $57.5 million assuming an offering price of
$11.00 per share based on the midpoint of the range on
the cover page of this prospectus. We intend to use these
net proceeds for (a) repayment of indebtedness and (b)
general corporate purposes, including working capital
requirements and acquisitions. See "Use of Proceeds."
Risk factors................ See "Risk Factors" for a discussion of factors you should
carefully consider before deciding to invest in shares of
the common stock.
Nasdaq National Market
symbol..................... "IIXL"
</TABLE>
The common stock outstanding after this offering excludes:
. 24,585,707 shares of common stock issuable upon exercise of stock
options outstanding as of the date of this prospectus at a weighted
average exercise price of $7.89 per share;
. 6,414,293 shares of common stock issuable upon exercise of stock
options reserved for grant;
. 3,500,000 shares of common stock issuable upon exercise of warrants
with a weighted average exercise price of $13.57 per share; and
. 4,000,000 shares of common stock to be registered for use in future
acquisitions.
See "Capitalization."
8
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Information
The following summary historical and pro forma consolidated financial
information and pro forma as adjusted information should be read in conjunction
with "Pro Forma Consolidated Financial Information," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and iXL's audited Consolidated Financial Statements
included elsewhere in this prospectus. The consolidated statement of operations
data set forth below for the years ended December 31, 1997 and 1998 are derived
from and qualified by reference to iXL's audited Consolidated Financial
Statements, which appear elsewhere in this prospectus. The consolidated
statement of operations data for the three months ended March 31, 1998 and 1999
and the consolidated balance sheet data at March 31, 1999 are derived from and
are qualified by reference to, iXL's unaudited Consolidated Financial
Statements, which appear elsewhere in this prospectus and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial data for such periods.
The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full year or for
any future period. All of iXL's acquisitions have been accounted for using the
purchase method and accordingly, the actual consolidated statement of
operations data reflects the results of operations of these businesses from
their respective acquisition dates. The summary pro forma and pro forma as
adjusted information does not purport to represent what our results actually
would have been if these events had occurred at the dates indicated, nor does
this information purport to project our results for any future period.
We adjust our historical condensed consolidated statement of operations
for the year ended December 31, 1998 to arrive at the unaudited pro forma
condensed consolidated statement of operations for the year ended December 31,
1998 to reflect:
. the acquisitions we have made since January 1, 1998 as if they
occurred on January 1, 1998;
. a reduction in interest expense due to the repayment of $9.4
million of revolving debt from the proceeds of the issuance of
22,825 shares of Class A Convertible Preferred Stock in January
1999; and
. accretion on CFN Series B Convertible Preferred Stock as if it
were outstanding for the full year; the issuance of the CFN
Series B Convertible Preferred Stock is expected to occur on the
earlier of the closing of this offering or August 31, 1999,
assuming regulatory conditions are satisfied.
We adjust our historical condensed consolidated statement of operations
for the three months ended March 31, 1999 to arrive at the unaudited pro forma
condensed consolidated statement of operations for the three months ended March
31, 1999 to reflect:
. a reduction in interest expense due to the the repayment of $9.4
million of revolving debt from the proceeds of the issuance of
22,825 shares of Class A Convertible Preferred Stock in January
1999; and
. accretion on the CFN Series B Convertible Preferred Stock as if
it were outstanding for the full three-month period; the
issuance of the CFN Series B Convertible Preferred Stock is
expected to occur on the earlier of the closing of this offering
or August 31, 1999, assuming regulatory conditions are
satisfied.
9
<PAGE>
We adjust our historical condensed consolidated balance sheet as of March
31, 1999 to arrive at the unaudited pro forma condensed consolidated balance
sheet as of March 31, 1999 as if the following event that is expected to occur
after March 31, 1999 occurred on March 31, 1999:
. the sale and issuance by CFN to General Electric of 16,190,475
shares of CFN's Series B Convertible Preferred Stock and the
application of the estimated net proceeds of $49.3 million.
We further adjust to arrive at our unaudited pro forma as adjusted
condensed consolidated balance sheet as if the following events occurred on
March 31, 1999:
. the sale of the shares of common stock offered by this
prospectus and the application of the resulting estimated net
proceeds, including the repayment of $9.9 million of debt;
. the sale and issuance to General Electric upon the closing of
this offering of an aggregate of 2,000,000 shares of common
stock at an assumed purchase price of $11.00 per share;
. the exercise of warrants to purchase 1,246,000 shares of common
stock for cash consideration of $4.58 per share upon the closing
of this offering;
. the exercise of warrants to purchase 240,006 shares of common
stock with a weighted average exercise price of $1.95 per share
which are mandatorily exercisable upon the closing of this
offering into 197,459 shares of common stock, assuming a
cashless exercise based on the assumed initial public offering
price of $11.00 per share; the warrants have the following
exercise prices: 9,106 at $0.0000439 per share, 150,000 at $2.50
per share, 46,200 at $1.2973 per share and 34,700 at $0.9514 per
share; and
. the reclassification of Class A, Class B and Class C Convertible
Preferred Stock, Class D Nonvoting Preferred Stock and Class A
and Class B Common Stock into common stock upon the closing of
this offering.
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March
Years Ended December 31, 31,
----------------------------- ----------------------------
1997 1998 1998 1998 1999 1999
Actual Actual Pro Forma Actual Actual Pro Forma
-------- -------- --------- ------- -------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues................ $ 18,986 $ 64,767 $ 87,160 $ 6,864 $ 33,012 $ 33,012
Cost of revenues........ 11,343 44,242 58,563 4,899 19,583 19,583
-------- -------- -------- ------- -------- --------
Gross profit.......... 7,643 20,525 28,597 1,965 13,429 13,429
Sales and marketing
expenses............... 3,903 17,325 18,676 2,036 8,150 8,150
General and
administrative
expenses............... 9,114 30,163 39,648 2,956 15,725 15,725
Research and development
expenses............... 4,820 4,408 4,413 907 1,058 1,058
Depreciation............ 1,408 5,217 5,895 699 2,284 2,284
Amortization............ 5,191 10,590 17,668 1,182 4,351 4,351
-------- -------- -------- ------- -------- --------
Loss from operations.. (16,793) (47,178) (57,703) (5,815) (18,139) (18,139)
Other income (expense),
net.................... 116 (28) (138) 36 69 69
Loss on equity
investment............. (1,443) (1,640) (1,640) (395) (65) (65)
Interest income......... 136 750 777 264 216 216
Interest expense........ (238) (770) (1,705) (28) (336) (286)
-------- -------- -------- ------- -------- --------
Loss before income
taxes................ (18,222) (48,866) (60,409) (5,938) (18,255) (18,205)
Income tax benefit
(expense).............. 2,782 -- (8) -- -- --
-------- -------- -------- ------- -------- --------
Net loss.............. (15,440) (48,866) (60,417) (5,938) (18,255) (18,205)
Dividends and accretion
on mandatorily
redeemable preferred
stock.................. -- (9,099) (10,713) (725) (5,293) (5,697)
-------- -------- -------- ------- -------- --------
Net loss available to
common stockholders.. $(15,440) $(57,965) $(71,130) $(6,663) $(23,548) $(23,902)
======== ======== ======== ======= ======== ========
Basic and diluted net
loss per common share.. $ (2.36) $ (4.92) $ (4.42) $ (0.78) $(1.46) $ (1.49)
======== ======== ======== ======= ======== ========
Weighted average common
shares outstanding..... 6,540 11,777 16,088 8,592 16,082 16,082
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------------
Pro Forma as
Actual Pro Forma Adjusted
-------- --------- ------------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents..................... $ 13,880 $ 63,180 $139,835
Working capital............................... 24,715 74,015 151,120
Total assets.................................. 143,698 193,198 267,555
Debt, including current portion............... 12,000 12,000 2,100
Mandatorily redeemable preferred stock........ 70,414 70,414 --
Mandatorily redeemable preferred stock of
subsidiary................................... 9,839 47,839 47,839
Stockholders' equity.......................... 26,645 38,145 193,266
</TABLE>
11
<PAGE>
RISK FACTORS
Investing in our common stock will provide you with an equity ownership
interest in iXL. As an iXL stockholder, you may be exposed to risks inherent in
our business. The performance of your shares will reflect the performance of
our business relative to competition, industry conditions and general economic
and market conditions. The value of your investment may increase or decline and
could result in a loss. You should carefully consider the following factors as
well as other information contained in this prospectus before deciding to
invest in shares of our common stock.
Risks Related to iXL's Business
Our limited operating history makes it difficult to evaluate our business.
We were founded in March 1996. As a result, we have a limited operating
history on which you can base your evaluation of our business and prospects.
Our business and prospects must be considered in light of the risks and
uncertainties frequently encountered by companies in their early stages of
development. These risks are further amplified by the fact that we are
operating in the new and rapidly evolving strategic Internet services market.
These risks and uncertainties include the following:
. our business model and strategy have evolved and are continually
being reviewed;
. we may not be able to successfully implement our business model
and strategy; and
. our management has not worked together for very long.
We cannot be sure that we will be successful in meeting these challenges
and addressing these risks and uncertainties. If we are unable to do so, our
business will not be successful and the value of your investment in iXL will
decline.
Potential fluctuations in our quarterly results make financial forecasting
difficult and could affect our common stock trading price.
As a result of our limited operating history, rapid growth, numerous
acquisitions and the emerging nature of the markets in which we compete, we
believe that quarter-to-quarter comparisons of results of operations for
preceding quarters are not necessarily meaningful. Also, it is difficult to
forecast our quarterly results due to the difficulty in predicting the amount
and timing of client expenditures, our acquisitions and our employee
utilization. Our quarterly results of operations may fluctuate significantly in
the future as a result of a variety of factors, many of which are outside our
control. You should not rely on the results of any one quarter as an indication
of our future performance. Revenue in the fourth quarter of 1998 was favorably
impacted by several large engagements. We did not experience a comparable
increase in revenue growth during the first quarter of 1999. We may not
experience comparable increases in the remainder of 1999. If in some future
quarter our results of operations were to fall below the expectations of
securities analysts and investors, the trading price of our common stock would
likely decline. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
We have an accumulated deficit, are not currently profitable and expect to
incur future losses.
We have incurred substantial losses since our inception and we anticipate
continuing to incur substantial losses for the foreseeable future. As of March
31, 1999, we had an accumulated deficit of approximately $84 million.
Additionally, our revenue composition has changed substantially from inception,
and we expect further change as our business develops. Historically, a
substantial majority of our revenue was derived from traditional website
development and implementation of our Solution Sets(TM). Solution Sets are
templated Internet applications which we customize for our clients. To succeed,
we must take advantage of our existing relationships to substantially increase
our revenue derived from more comprehensive strategic Internet services. To
facilitate this increase in revenues, we intend to continue to invest heavily
in acquisitions,
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infrastructure, development and marketing. As a result, we may not be able to
achieve or sustain profitability. If we fail to achieve or sustain
profitability, the value of your investment in iXL will decline. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We may be unable to continue to grow at our historical growth rates or to
effectively manage our growth.
Continued, planned growth is a key component of increasing the value of
our common stock. In the past two years our business has grown significantly,
and we anticipate future internal growth and growth through acquisitions. From
January 1, 1997 to April 30, 1999, our staff increased from approximately 90 to
approximately 1,475 employees. This rapid growth places a significant demand on
management and operational resources. In order to manage growth effectively, we
must implement and improve our operational systems and controls.
Our growth could also be adversely affected by many other factors,
including economic downturns, as clients would reduce or delay their
expenditures with us. As a result of these concerns, we cannot be sure that we
will continue to grow, or, if we do grow, that we will be able to maintain our
historical growth rate.
Our continued growth is dependent on the successful completion of acquisitions.
Since our inception, we have made 34 acquisitions. We anticipate that a
large portion of our future growth will continue to be accomplished through
acquisitions. The success of this plan depends upon our ability to:
. identify suitable acquisition opportunities;
. effectively integrate acquired personnel, operations, products and
technologies into our organization;
. retain and motivate the personnel of acquired businesses;
. retain customers of acquired businesses; and
. obtain necessary financing on acceptable terms.
Additionally, in pursuing acquisition opportunities we may compete with
other companies with similar growth strategies, some of which may be larger
than we are and have greater financial and other resources than we do.
Competition for acquisition targets could also result in increased prices for
acquisition targets and a diminished pool of companies available for
acquisition.
We may not be able to keep up with the demand for services under our guaranteed
payment services agreements.
We have recently entered into multi-year services agreements with General
Electric and Delta Air Lines for the delivery of strategic Internet services.
These agreements guarantee minimum payments to iXL. We will be required to
commit significant resources to meet the demands of these contracts. If we are
unable to hire enough employees or deploy sufficient resources to meet these
demands, we may not be able to provide these clients with the services
requested by them. This could cause these clients to become dissatisfied with
us and reduce their future demand for our services. It could also harm our
reputation with other clients as well as decrease the resources available to
services those clients. These impacts could harm our financial condition. We
may execute additional agreements of this type in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Transactions--Other Transactions."
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Our fixed-price contracts involve financial risk.
Most of our contracts are currently on a fixed-price basis, rather than a
time and materials basis. We assume greater financial risk on fixed-price
contracts than on time and materials engagements. We have a limited history in
estimating our costs for our fixed-price engagements. Further, the average size
of our contracts is currently increasing, resulting in a corresponding increase
in our exposure to the financial risks of fixed-price contracts. If we fail to
estimate costs accurately or encounter unexpected problems, our financial
performance will be adversely effected. To reduce this financial risk, on
larger contracts, we try to price these fixed-price contracts on a three-phase
basis--strategic review, design and implementation. Each phase is priced
separately, immediately prior to its commencement. We may not be able to price
a majority of our larger contracts on a three-phase basis. Currently less than
a third of our revenues are from contracts priced on a three-phase basis. We
have had to commit unanticipated resources to complete some of our projects,
resulting in lower gross margins. We may experience similar situations in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
If we fail to attract and retain employees, our growth could be limited and our
costs could increase.
Historically we have experienced significant employee turnover. Our
future success will depend in large part upon our ability to attract, train and
retain additional highly skilled executive-level management and creative,
technical, consulting and sales personnel. The competition in the strategic
Internet services industry for such personnel is intense, and we cannot be sure
that we will be successful in attracting, training and retaining such
personnel. Most of our employees and several of our executive officers have
joined us recently, either through acquisitions or otherwise. Our ability to
generate revenues is dependent upon the number and expertise of the personnel
we employ. Most of our employees are not subject to noncompetition agreements
or agreements which condition a portion of acquisition consideration on future
performance of an acquired company's management. High turnover resulting in
additional training expense would decrease our profitability. Also, we may have
difficulty retaining employees who received significant amounts of common stock
in connection with the acquisition by iXL of their previous employer once those
employees are able to sell their shares of common stock following this
offering.
We depend on our key management personnel for our future success.
Our success depends largely on the skills of our key management and
technical personnel. The loss of one or more of our key management and
technical personnel may materially and adversely affect our business and
results of operations. Currently, our key management and technical personnel
are U. Bertram Ellis, our Chief Executive Officer, William C. Nussey, our
subsidiary iXL, Inc.'s President and Chief Operating Officer, C. Cathleen
Raffaeli, CFN's President and Chief Operating Officer, M. Wayne Boylston, our
Executive Vice President, Chief Financial Officer, Treasurer and Assistant
Secretary, Michael Chlan, CFN's Chief Information Officer, Barry Sikes, our
Executive Vice President for Worldwide Operations, David Clauson, iXL, Inc.'s
Executive Vice President for Worldwide Marketing, and Benjamin Chen, Chief
Information Officer of iXL, Inc. We do not maintain key man insurance for any
of our employees other than Mr. Ellis. We cannot guarantee that we will be able
to replace any of these individuals in the event their services become
unavailable. See "Management."
We generally do not have long-term contracts and need to establish
relationships with new clients.
Our clients generally retain us on a project-by-project basis, rather
than under long-term contracts. As a result, a client may or may not engage us
for further services once a project is completed or may unilaterally reduce the
scope of, or terminate, existing projects. To become profitable, we need to
establish and develop relationships with additional Fortune 1000 companies and
other corporate users of information technology. The absence of long-term
contracts and the need for new clients create an uncertain revenue stream,
which could negatively affect our financial condition.
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Failure to raise necessary capital could restrict our growth, limit our
development of new products and services and hinder our ability to compete.
We may need to raise significant additional funds in order to achieve our
business objectives. Failure to raise these funds may:
. restrict our growth;
. limit our development of new products and services; and
. hinder our ability to compete.
Any of these consequences would have a material adverse effect on our business,
results of operations and financial condition.
We may be liable for defects or errors in the solutions we develop.
Many of the solutions we develop are critical to the operations of our
clients' businesses. Any defects or errors in these solutions could result in:
. delayed or lost client revenues;
. adverse customer reaction toward iXL;
. negative publicity;
. additional expenditures to correct the problem; and
. claims against us.
Our standard contracts limit our damages arising from our negligent
conduct in rendering our services. These contractual provisions may not protect
us from liability for damages. In addition, large claims may not be adequately
covered by insurance and may raise our insurance costs.
Year 2000 risks may adversely affect our business.
Many currently installed computer systems and software products are coded
to accept only two-digit entries to identify a year in the date code field.
Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they may not be able to distinguish between 20th century
dates and 21st century dates. Accordingly, in the coming year, many companies,
including our customers, potential customers, vendors and strategic partners,
may need to upgrade their systems to comply with applicable "Year 2000"
requirements. The computer systems we currently rely on to conduct our business
are: programming software, graphics design software, accounting and billing
software, word processing, spreadsheet, project management and presentation
software, communications software, and network, server and personal computing
hardware.
Because we and our clients are dependent, to a very substantial degree,
upon the proper functioning of our and their computer systems, a failure of our
or their systems to correctly recognize dates beyond December 31, 1999 could
materially disrupt our operations, which could materially and adversely affect
our business, results of operations and financial condition. Additionally, our
failure to provide Year 2000 compliant products and services to our clients
could result in financial loss, harm to our reputation and legal liability.
Likewise, the failure of the computer systems and products of the third parties
with which we transact business to be Year 2000 compliant could materially
disrupt their and our operations. For a discussion of our Year 2000 readiness
program, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Risks."
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Our ability to protect our intellectual property is important to our business.
We have a variety of copyrights, trademarks, trade secrets and other
intellectual property rights which are important to our business. Patent
applications have been filed for the CFN platform and for Siteman(TM), which
may or may not be granted. If these applications are not granted, our
competitors may be able to copy our technology without compensating us. The
steps we take to protect our intellectual property may not be adequate.
Effective protection may not be available in every country. In addition,
although we believe that our intellectual property rights do not infringe on
the intellectual property rights of others, we cannot be sure that other
parties will not assert claims against us. We may expend significant financial
and managerial resources on these claims.
Our investments in iXL Ventures involve risk.
Through iXL Ventures, we have occasionally invested in, and may continue
to invest on an opportunistic basis in, businesses engaged in the "new media
and e-commerce" segment of the technology industry. Our investments in these
types of businesses have typically consisted of the provision of capital and
the devotion of our time and resources in developing these new businesses. The
businesses in which we invest are generally unproven, involve substantial risk
and may never be profitable. See "Business--iXL Ventures."
Our international operations and expansion involve financial and operational
risk.
Revenue from our three European offices was minimal in 1998. We have only
minimal experience in managing international offices and only limited
experience in marketing services to international clients. Revenues from our
international offices may prove inadequate to cover the expenses of
establishing and maintaining our international offices and marketing to
international clients. In addition, there are risks inherent in doing business
on an international level, such as fluctuations in currency exchange rates and
potentially adverse tax consequences, any of which could adversely affect our
international operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Risks Related to the Strategic Internet Services Industry
The developing market for strategic Internet services and the level of
acceptance of the Internet as a business medium will affect our business.
The market for strategic Internet services is relatively new and is
evolving rapidly. Our future growth is dependent upon our ability to provide
strategic Internet services that are accepted by our existing and future
clients as an integral part of their business model. Demand and market
acceptance for recently introduced services are subject to a high level of
uncertainty. The level of demand and acceptance of strategic Internet services
is dependent upon a number of factors, including:
. the growth in consumer access to and acceptance of new interactive
technologies such as the Internet;
. companies adopting Internet-based business models; and
. the development of technologies that facilitate two-way
communication between companies and targeted audiences.
Significant issues concerning the commercial use of these technologies
include security, reliability, cost, ease of use and quality of service. These
issues remain unresolved and may inhibit the growth of Internet business
solutions that utilize these technologies.
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Industry analysts and others have made many predictions concerning the
growth of the Internet as a business medium. These predictions should not be
relied upon. If the market for strategic Internet services fails to develop, or
develops more slowly than expected, or if our services do not achieve market
acceptance, our business will not succeed and the value of your investment in
our common stock will decline.
We may not be able to keep up with the continuous technological change in our
market which could harm our business.
Our success will depend, in part, on our ability to respond to
technological advances. We may not be successful in responding quickly, cost-
effectively and sufficiently to these developments. If we are unable, for
technical, financial or other reasons, to adapt in a timely manner in response
to technological advances, we will not be able to compete effectively. In
addition, employee time allocated to responding to technological advances will
not be available for client engagements.
We operate in a highly competitive market with low barriers to entry which
could limit our market share and harm our financial performance.
While the market for strategic Internet services is relatively new, it is
already highly competitive and characterized by an increasing number of
entrants that have introduced or developed products and services similar to
those offered by us. In addition, there are relatively low barriers to entry
into our business. We have no patented or other proprietary technology that
would preclude or inhibit competitors from entering the strategic Internet
services market. We believe that due to the low cost of entering our markets,
competition will intensify and increase in the future. This intense competition
may limit our ability to become profitable or result in the loss of market
share. As a result, our competitors may be better positioned to address
developments in the industry or may react more effectively to industry changes,
which could adversely affect our business.
Most of our employees are not subject to noncompetition agreements. As a
result, we are subject to the risk that our employees may leave us and may
start competing businesses. The emergence of these enterprises will further
increase the level of competition in our markets and could adversely affect our
growth and financial performance. See "Business--Competition."
Risks Related to Our CFN Subsidiary
CFN's business model is new and unproven.
CFN, our 77%-owned subsidiary, generated losses of approximately $13.5
million in 1998 and is expected to generate significant losses for the
foreseeable future. CFN's business model is new and unproven, and its success
will depend on:
. the willingness of consumers to purchase financial and other
services through the CFN platform rather than through traditional
distribution methods;
. CFN's services becoming available to a large number of consumers;
and
. whether providers of services will view participation on the CFN
platform as an attractive opportunity.
To date, the volume of transactions through the CFN platform has been
limited and, accordingly, the revenue recognized by CFN has been minimal. CFN
also intends to make its platform available to the general public over the
Internet and through its telesales center. This expansion is in its early
stages of planning and development. CFN has no experience selling to the
general public. CFN may not be able to expand its agreements with its existing
services providers to include the provision of services to the general public.
Also, none of the providers of services on the CFN platform has a long-term
contract with CFN. The failure of CFN
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to successfully implement its business plan could adversely affect our business
results and financial condition. See "Business--Consumer Financial Network."
CFN must expend significant resources to grow its infrastructure.
CFN's performance will depend in large part upon its ability to estimate
accurately its resource requirements. CFN has expended, and will continue to
expend, significant resources:
. to build electronic data interchange interfaces with its provider
network;
. to grow its technology infrastructure;
. to add participating companies and employees to its platform; and
. to establish access to the CFN platform for participating
companies' employees.
CFN incurs these expenses in advance of any recognition of revenue.
CFN has no control over the prices or other aspects of the services
offered through its platform. We do not know if customers will find these
services more attractive than other alternatives available.
CFN's numerous established competitors could harm its prospects.
CFN competes with other Internet-based providers of financial and other
services, as well as traditional providers of these services. We expect CFN to
face competition from an increasing number of sources in the marketplace. If
CFN fails to compete successfully against current or future competitors, it may
not become profitable and our financial condition may be adversely affected.
See "Business--Competition."
Government regulation and legal uncertainties related to CFN could adversely
affect our business.
CFN is subject to extensive regulation under the financial services and
insurance laws of the United States and the states in which it offers services.
The failure to comply with these regulatory requirements can lead to
revocation, suspension or loss of licensing status, termination of contracts
and legal and administrative enforcement actions. Licensing laws and
regulations often differ materially between states and within individual
states. Moreover, the regulatory agencies governing CFN's activities have
substantial discretion in evaluating the permissibility of CFN's current and
future activities. Many aspects of CFN's operations, however, have not been
subject to federal or state regulatory interpretation. Regulatory requirements
are subject to change from time to time and may in the future further restrict
CFN's ability to conduct its business. See "Business--Consumer Financial
Network--Government Regulation of Insurance, Auto Finance and Mortgages."
Risks Related to the Offering
You may encounter volatility in the market price for our common stock.
The stock market has recently experienced significant price and volume
fluctuations that have particularly affected the market prices of equity
securities of many technology companies. These price and volume fluctuations
often have been unrelated to the operating performance of the affected
companies. In the past, following periods of volatility in the market price of
a company's securities, securities class action litigation has often been
instituted against these companies. Also, in connection with our acquisition
strategy and financing activities, we have issued many shares of our common
stock to a large number of people and entities under exemptions from the
relevant securities laws. If the market price of our common stock significantly
decreases, one or more of these investors may file a claim against us for a
refund of their investment or for other damages. These types of litigation,
regardless of the outcome, could result in substantial costs and a diversion of
management's attention and resources, which could adversely affect our
business, results of operations and financial condition.
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Kelso and CB Capital Investors will continue to have significant influence over
us.
Upon completion of this offering, the Kelso funds, through Kelso
Investment Associates V, L.P. and Kelso Equity Partners V, L.P., and CB Capital
Investors, L.P., will beneficially own approximately 24.7% and 12.6%,
respectively, of the outstanding common stock, or 24.4% and 12.4%,
respectively, if the underwriters' over-allotment option is exercised in full.
These stockholders have entered into an agreement providing that so long as
they own more than 5% of our common stock, designees of Kelso and CB Capital
Investors will be included on our slate of directors submitted for stockholder
election. As a result of their ownership of common stock and this nomination
agreement, these stockholders will have significant influence over the election
of our directors. Furthermore, given the size of their individual holdings,
these stockholders may be able to exercise significant influence over other
matters requiring stockholder approval, including the approval of significant
corporate transactions. For example, such concentration of ownership may have
the effect of delaying or preventing a change in control of iXL. See
"Management--Amended Stockholders Agreement," "Principal Stockholders,"
"Certain Transactions" and "Description of Capital Stock--Certain Antitakeover
Effects of Provisions of iXL's Certificate of Incorporation and Bylaws and
Delaware Law."
There has been no prior public market for our common stock.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering. If such a market does not develop or is not
sustained, it may be difficult for you to sell your shares of common stock at a
price that is attractive to you. We will negotiate and determine the initial
public offering price with the representatives of the underwriters based on
several factors. This price may vary from the market price of our common stock
after the offering. See "Underwriting."
Antitakeover provisions of our Certificate of Incorporation and Bylaws and
Delaware law could prevent or delay a change of control.
Our Board of Directors may issue up to 5 million shares of our preferred
stock and may determine the price, rights, preferences, privileges, and
restrictions, including voting and conversion rights, of these shares of
preferred stock. These determinations may be made without any further vote or
action by our stockholders. The issuance of preferred stock may make it more
difficult for a third party to acquire control of us. In addition, the rights
of the holders of common stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be
issued in the future. Further, provisions of Delaware law, our Certificate of
Incorporation and our Bylaws could delay or impede a merger, tender offer or
proxy contest involving iXL. For example, Section 203 of the Delaware General
Corporation Law could prohibit us from engaging in a business transaction with
large stockholders for a period of three years and our Certificate of
Incorporation and Bylaws require advance notice for stockholder proposals and
director nominations to be considered at a meeting of stockholders. See
"Description of Capital Stock--Blank Check Preferred Stock" and "--Certain
Antitakeover Effects of Provisions of iXL's Certificate of Incorporation and
Bylaws and Delaware Law."
Future sales into the public market could cause the market price of our common
stock to decline.
Our current stockholders hold a substantial number of shares of our
common stock which they will be able to sell in the public market in the near
future. Sales of a substantial number of shares of our common stock in the
public market following this offering could adversely affect the market price
of our common stock. For a description of the availability for sale of shares
of our common stock that are already outstanding or that are sold in this
offering, see "Description of Capital Stock" and "Shares Eligible for Future
Sale."
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Our management has broad discretion over the use of proceeds from this offering
and from the private placement to General Electric.
Approximately $10 million of the net proceeds of this offering will be
used to repay outstanding debt. We have not designated any specific uses for
the remaining net proceeds of this offering or the proceeds from the private
placement to General Electric. Therefore, our management will have broad
discretion in how we use these net proceeds, which may include general
corporate purposes, such as working capital requirements and acquisitions. The
failure of management to apply these proceeds effectively would adversely
affect our financial condition and would most likely cause the market price of
our common stock to decline. See "Use of Proceeds."
The net tangible book value of our common stock issued in this offering will be
less than the offering price.
The initial public offering price for this offering is substantially
higher than the net tangible book value per share of the outstanding common
stock immediately after the offering. If you purchase common stock in the
offering, you will incur immediate and substantial dilution. Dilution is a
reduction in the net tangible book value per share from the price you pay per
share for our common stock. We also have outstanding a large number of stock
options and warrants to purchase common stock with exercise prices
significantly below the estimated initial public offering price of the common
stock. To the extent these options or warrants are exercised, there will be
further dilution. In addition, we intend to file a "shelf" Registration
Statement to register 4,000,000 shares of our common stock which will be used
as acquisition consideration for our continuing acquisition program. We intend
to continue to grant substantial stock options to our employees. See "Dilution"
and "Business--Acquisitions."
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events, including, among other things:
. implementing our business strategy;
. managing our rapid growth and employee costs;
. managing CFN's expenditures and making CFN profitable;
. expanding CFN's customer base;
. integrating acquired businesses;
. forecasting e-commerce and strategic Internet services market
growth; and
. competing in the strategic Internet services industry.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such
terms or other comparable terminology.
Forward-looking statements are subject to known and unknown risks,
uncertainties and other factors that may cause our and the strategic Internet
services industry's actual results, levels of activity, performance,
achievements and prospects to be materially different from those expressed or
implied by such forward-looking statements. These risks, uncertainties and
other factors include those identified under "Risk Factors."
We undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties, and assumptions, the
forward-looking events discussed in this prospectus might not occur. See "Risk
Factors."
TRADEMARKS
iXL(TM), the iXL logo, Interactive Excellence(TM), Internet
Excellence(TM), the CFN logo, CFN(TM), Consumer Financial Network(TM),
CFN.com(TM), iD5(TM) and the names of products and services offered by iXL and
CFN are trademarks, registered trademarks, service marks or registered service
marks of iXL and CFN. This prospectus also includes product names, trade names
and trademarks of other companies.
INFORMATION IN PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
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RELATIONSHIP WITH GENERAL ELECTRIC
Affiliates of General Electric have been iXL investors since December
1997 and made their first investment in CFN in November 1998. In April 1999,
this relationship expanded when iXL and an affiliate of General Electric
Company executed an agreement providing for the delivery of strategic Internet
services to General Electric and for guaranteed revenue to iXL of at least $20
million for the first fifteen months of the term of the contract. iXL also
issued to GE Capital Equity Investments, Inc. warrants to purchase 1,000,000
shares of common stock at an exercise price of $15.00 per share. In April
1999, iXL, CFN and affiliates of General Electric Company also executed
agreements which if consummated would expand this relationship further to
include:
. the purchase upon the closing of this initial public offering by
affiliates of General Electric Company of an aggregate of
2,000,000 shares of common stock at the initial public offering
price;
. the purchase by affiliates of General Electric Company of
16,190,475 shares of CFN's Series B Convertible Preferred Stock
for an aggregate purchase price of approximately $50 million; and
. the issuance to GE Capital Equity Investments, Inc. of warrants to
purchase 1,500,000 shares of common stock at an exercise price per
share equal to the initial public offering price in connection
with (1) a marketing campaign by General Electric contemplated to
advertise General Electric's relationships with iXL and CFN and
improve awareness of iXL and CFN's services the details of which
will be agreed upon in the future and (2) GE Capital Equity
Investments, Inc.'s reasonable efforts to provide access to CFN's
platform to its employees and to employees of its affiliates
including General Electric Company.
The affiliates of General Electric Company primarily involved in these
transactions include GE Capital Equity Investments, Inc. and the General
Electric Pension Trust. References herein to "General Electric" shall include
General Electric Company and these affiliates unless the context indicates
otherwise. iXL and General Electric intend to pursue additional opportunities
together. See "Certain Transactions--Private Placement Investment in iXL," "--
CFN Equity Investments" and "--Other Transactions."
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USE OF PROCEEDS
The net proceeds to iXL from the sale of shares of common stock in this
offering are estimated to be $57.5 million, based upon an assumed offering
price of $11.00 per share and after deducting underwriting discounts and
commissions and estimated offering expenses of $8.5 million payable by iXL. If
the underwriters exercise their over-allotment option in full, the net proceeds
to iXL are estimated to be $66.7 million. The principal purposes of this
offering are to obtain additional capital and to create a public market for
iXL's common stock, which will facilitate future access by iXL to the public
equity markets. iXL expects to use approximately $10 million of these net
proceeds to repay all indebtedness under iXL's credit facility, except for a
$10 million revolving credit facility which will remain available. The maturity
date for this indebtedness is June 30, 2001, and as of April 30, 1999, the
interest rate on the outstanding amount was 9.75%. No debt will be outstanding
under this credit facility after this repayment, although the $10 million
revolving credit facility will remain available. iXL will have significant
discretion in the use of the remaining net proceeds of this offering for
general corporate purposes.
The net proceeds to iXL from the sale of an aggregate of 2,000,000 shares
of common stock to General Electric are estimated to be $21.5 million, based
upon an assumed purchase price of $11.00 per share, after deducting advisory
fees of $500,000 payable by iXL. iXL expects to use these net proceeds for
general corporate purposes, and will have significant discretion in their use.
iXL regularly evaluates potential domestic and international acquisition
candidates, and is currently holding preliminary discussions with a number of
candidates. If, after due diligence review and negotiation, companies can be
acquired on a basis considered fair to iXL and its stockholders, iXL may
proceed with an acquisition. No potential acquisitions are currently considered
to be pending or probable. iXL intends to file a "shelf" Registration Statement
on Form S-4 to register 4,000,000 shares of its common stock for use in future
acquisitions. iXL expects most of its future joint ventures or acquisitions to
involve the issuance of additional shares of its common stock. To the extent
iXL chooses to use cash as consideration for future acquisitions, iXL may use
the proceeds from this offering or it may obtain additional financing.
Pending use of the net proceeds for the above purposes, iXL intends to
invest such funds in short-term, interest-bearing, investment-grade
obligations. See "Risk Factors--Risks Related to the Offering--Our management
has broad discretion over the use of proceeds from this offering."
DIVIDEND POLICY
iXL has never declared or paid any cash dividends on the common stock.
iXL does not expect to pay any cash dividends in the foreseeable future. Under
the terms of its credit agreement, iXL is restricted from paying dividends to
its stockholders. iXL may in the future issue shares of preferred stock which
may have different or superior dividend rights than the common stock. Upon the
closing of this offering, all outstanding shares of Class D Nonvoting Preferred
Stock, which have previously accrued dividends at a rate of 12% per annum, will
be reclassified as 7,241,746 shares of common stock.
23
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of March 31,
1999 pro forma as if the following event that occurred after March 31, 1999
occurred on March 31, 1999:
. the sale and issuance by CFN to General Electric of 16,190,475
shares of CFN's Series B Convertible Preferred Stock and the
application of the estimated net proceeds of $49.3 million.
The table is further adjusted pro forma as if the following events
occurred on March 31, 1999:
. the sale of the shares of common stock at an assumed initial
public offering price of $11.00 per share offered by this
prospectus and the application of the resulting estimated net
proceeds of $57.5 million including the repayment of $9.9
million of debt;
. the sale and issuance to General Electric upon the closing of
this offering of an aggregate of 2,000,000 shares of common
stock and the application of the estimated net proceeds of
$21.5 million;
. the exercise of warrants to purchase 1,246,000 shares of common
stock for cash consideration of $4.58 per share upon the
closing of this offering;
. the exercise of warrants to purchase 240,006 shares of common
stock with a weighted average exercise price of $1.95 per share
which are mandatorily exercisable upon the closing of this
offering into 197,459 shares of common stock, assuming a
cashless exercise based on the initial public offering price;
and
. the reclassification of Class A, Class B and Class C
Convertible Preferred Stock, Class D Nonvoting Preferred Stock
and Class A and Class B Common Stock into common stock upon the
closing of this offering.
24
<PAGE>
You should read this capitalization table together with "Selected
Consolidated Financial Data," "Pro Forma Consolidated Financial Information"
and our consolidated financial statements and notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------------------------
Pro Forma
Actual Pro Forma as Adjusted
--------------- --------------- -----------------
(in thousands except share and per share data)
<S> <C> <C> <C>
Cash and cash equivalents.. $ 13,880 $ 63,180 $ 139,835
=============== =============== ===============
Current portion of long-
term debt................. $ 815 $ 815 $ 815
=============== =============== ===============
Long-term debt............. $ 11,185 $ 11,185 $ 1,285
Mandatorily redeemable
preferred stock:
Class D Nonvoting
Preferred Stock.......... 26,017 26,017 --
Class B Convertible
Preferred Stock.......... 40,602 40,602 --
Class C Convertible
Preferred Stock.......... 3,795 3,795 --
Series A Convertible
Preferred Stock of CFN... 9,839 9,839 9,839
Series B Convertible
Preferred Stock of CFN... -- 38,000 38,000
Stockholders' equity:
Class A Convertible
Preferred Stock.......... 2 2 --
Class A Common Stock...... -- -- --
Common stock.............. 163 163 636
Additional paid-in
capital.................. 114,859 126,359 281,009
Accumulated deficit....... (84,142) (84,142) (84,142)
Treasury stock............ (888) (888) (888)
Note receivable from
stockholder.............. (900) (900) (900)
Unearned compensation..... (2,449) (2,449) (2,449)
--------------- --------------- ---------------
Total stockholders'
equity................. 26,645 38,145 193,266
--------------- --------------- ---------------
Total capitalization.... $ 118,083 $ 167,583 $ 242,390
=============== =============== ===============
</TABLE>
The following provides further information regarding iXL's securities
described in the above table:
. Class D Nonvoting Preferred Stock, $.01 par value, includes:
50,000 shares (at March 31, 1999, and Pro Forma) and 0 shares
(Pro Forma as Adjusted) authorized, respectively; 35,700 shares
(at March 31, 1999 and Pro Forma) and 0 shares (Pro Forma as
Adjusted) issued and outstanding, respectively. Consideration
received upon issuance of Class D Nonvoting Preferred Stock was
allocated to the 35,700 outstanding shares of Class D Nonvoting
Preferred Stock issued to date ($22,465) and the minimum number
of shares of common stock issuable upon the redemption of Class
D Nonvoting Preferred Stock ($13,235) based on their relative
fair values at the time of issuance.
. Class B Convertible Preferred Stock, $.01 par value, includes:
100,000 shares (at March 31, 1999 and Pro Forma) and 0 shares
(Pro Forma as Adjusted) authorized, respectively; 98,767 shares
(at March 31, 1999 and Pro Forma) and 0 shares (Pro Forma as
Adjusted) issued and outstanding, respectively.
. Class C Convertible Preferred Stock, $.01 par value, includes:
15,000 shares (at March 31, 1999 and Pro Forma) and 0 shares
(Pro Forma as Adjusted) authorized, respectively; 9,232 (at
March 31, 1999 and Pro Forma) and 0 shares (Pro Forma as
Adjusted) issued and outstanding, respectively.
. CFN's Series A Convertible Preferred Stock, $.01 par value,
includes: 24,900,000 shares (at March 31, 1999, Pro Forma and
Pro Forma as Adjusted) authorized, respectively; 13,333,334
shares (at March 31, 1999, Pro Forma and Pro Forma as Adjusted)
issued and outstanding, respectively.
25
<PAGE>
. CFN's Series B Convertible Preferred Stock, $.01 per share,
includes: 0 shares (at March 31, 1999) and 16,190,475 shares
(Pro Forma and Pro Forma as Adjusted), authorized,
respectively; 0 shares (at March 31, 1999) and 16,190,475
shares (Pro Forma and Pro Forma as Adjusted), issued and
outstanding, respectively.
. Class A Convertible Preferred Stock, $.01 par value, includes:
250,000 shares (at March 31, 1999 and Pro Forma) and 0 shares
(Pro Forma as Adjusted), authorized, respectively; 200,116
shares (at March 31, 1999 and Pro Forma), and 0 shares (Pro
Forma as Adjusted) issued and outstanding, respectively.
. Class A Common Stock, $.01 par value, includes: 75,000,000
shares (at March 31, 1999 and Pro Forma) and 0 shares (Pro
Forma as Adjusted) authorized, respectively; 0 shares (at March
31, 1999, Pro Forma, and Pro Forma as Adjusted) issued and
outstanding, respectively. Excludes 1,500,000 shares of Class A
Common Stock subject to outstanding warrants at a weighted
average exercise price of $13.33 per share, which will convert
into warrants to purchase 1,500,000 shares of common stock at a
weighted average exercise price of $13.33 per share upon the
closing of this offering.
. Common stock, $.01 par value, was previously designated as the
"Class B Common Stock" and includes: 200,000,000 (at March 31,
1999, Pro Forma and Pro Forma as Adjusted) authorized,
respectively; 16,082,489 shares (at March 31, 1999 and Pro
Forma), and 63,579,194 shares (Pro Forma as Adjusted) issued
and outstanding, respectively. Excludes 2,000,000 shares of
common stock subject to outstanding warrants at a weighted
average exercise price of $13.75 per share, 24,585,707 shares
of common stock reserved for options granted under iXL's stock
option plans at a weighted average exercise price of $7.89 per
share, and 6,475,843 shares of common stock reserved for
options to be granted under iXL's stock option plans. Also
excludes 4,000,000 shares of common stock to be registered
pursuant to a Registration Statement on Form S-4 for use in
future acquisitions. "See Risk Factors--Risks Related to the
Offering--The net tangible book value of our common stock
issued in this offering will be less than the offering price."
26
<PAGE>
DILUTION
The pro forma net tangible book value of iXL at March 31, 1999 was
$56,164,000, or $1.01 per share of common stock. Pro forma net tangible book
value per share represents the amount of total tangible assets less total
liabilities and mandatorily redeemable preferred stock of subsidiary divided by
55,579,194, the number of shares of common stock treated as outstanding on a
pro forma basis. This number includes:
. the reclassification of Class A, Class B and Class C
Convertible Preferred Stock, Class D Nonvoting Preferred Stock
and Class A and Class B Common Stock into common stock upon the
closing of this offering;
. the exercise of warrants to purchase 1,246,000 shares of common
stock for cash consideration upon the closing of this offering;
and
. the exercise of warrants to purchase 240,006 shares of common
stock with a weighted average exercise price of $1.95 per share
which are mandatorily exercisable upon the closing of this
offering into 197,459 shares of common stock, assuming a
cashless exercise based on the initial public offering price.
This number excludes:
. 24,585,707 shares of common stock issuable upon exercise of
stock options outstanding as of the date of this prospectus at
a weighted average exercise price of $7.89 per share;
. 6,414,293 shares of common stock issuable upon exercise of
stock options reserved for grant;
. 1,000,000 shares of common stock issuable upon exercise of
warrants with an exercise price of $10.00 per share, 1,000,000
shares of common stock issuable upon exercise of warrants with
an exercise price of $15.00 per share, and 1,500,000 shares of
common stock issuable upon exercise of warrants with an
exercise price equal to the initial public offering price; and
. 4,000,000 shares of common stock to be registered for use in
future acquisitions.
See "Description of Capital Stock" and "Risk Factors--Risks Related to
the Offering--The net tangible book value of our common stock issued in this
offering will be less than the offering price."
After giving effect to (1) the sale by iXL of 6,000,000 shares of common
stock offered by this prospectus at an assumed public offering price of $11.00
per share and the application of the estimated net proceeds of $57.5 million,
and (2) the sale by iXL to General Electric of 2,000,000 shares of common stock
at an assumed purchase price of $11.00 per share and the application of the
estimated net proceeds of $21.5 million, iXL's pro forma net tangible book
value at March 31, 1999 would have been $135,164,000, or $2.13 per share. This
represents an immediate increase in net pro forma tangible book value to
existing stockholders of $1.12 per share and an immediate dilution of $8.87 per
share to new investors. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share: ................ $11.00
Pro forma net tangible book value per share as of March 31,
1999.......................................................... $1.01
Increase per share attributable to new investors............... 1.12
-----
Pro forma net tangible book value per share giving effect to this
offering........................................................ 2.13
------
Dilution per share to new investors.............................. $ 8.87
======
</TABLE>
27
<PAGE>
The following table summarizes, on a pro forma basis as of March 31, 1999
after giving effect to the inclusions and exclusions listed above, the
differences between existing stockholders and new investors with respect to the
number of shares of common stock purchased from iXL, the total consideration
paid and the average price per share paid:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 55,579,194 87% $187,198,733 68% $3.37
Private placement............. 2,000,000 3 22,000,000 8 11.00
New investors................. 6,000,000 10 66,000,000 24 11.00
---------- --- ------------ --- -----
Total......................... 63,579,194 100% $275,198,733 100% $4.33
========== === ============ === =====
</TABLE>
28
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Our consolidated financial statements and the historical audited
financial statements of some of the companies we acquired are included
elsewhere in this prospectus. The unaudited pro forma consolidated financial
information presented here should be read together with those financial
statements and related notes.
We adjust our historical condensed consolidated statement of operations
for the year ended December 31, 1998 to arrive at the unaudited pro forma
condensed consolidated statement of operations for the year ended December 31,
1998 to reflect:
. the acquisitions we have made since January 1, 1998 as if they
occurred on January 1, 1998;
. a reduction in interest expense due to the repayment of $9.4
million of revolving debt from the proceeds of the issuance of
22,825 shares of Class A Convertible Preferred Stock in January
1999; and
. accretion of the CFN Series B Convertible Preferred Stock as if
it were outstanding for the full year. The issuance of the CFN
Series B Convertible Preferred Stock is expected to occur on
the earlier of the closing of this offering or August 31, 1999,
assuming regulatory conditions are satisfied.
We further adjust to arrive at our unaudited pro forma as adjusted
condensed consolidated statement of operations for the year ended December 31,
1998 to reflect:
. a reduction in interest expense due to the repayment of $9.9
million of debt from the proceeds from the sale of shares of
common stock offered by this prospectus; and
. the reclassification of Class A, Class B and Class C
Convertible Preferred Stock, Class D Nonvoting Preferred Stock
and Class A and Class B Common Stock into common stock upon the
closing of this offering.
We adjust our historical condensed consolidated statement of operations
for the three months ended March 31, 1999 to arrive at the unaudited pro forma
condensed consolidated statement of operations for the three months ended March
31, 1999 to reflect:
. a reduction in interest expense due to the repayment of $9.4
million of revolving debt from the proceeds of the issuance of
22,825 shares of Class A Convertible Preferred Stock in January
1999; and
. accretion on the CFN Series B Convertible Preferred Stock as if
it were outstanding for the full three month period. The
issuance of the CFN Series B Convertible Preferred Stock is
expected to occur on the earlier of the closing of this
offering or August 31, 1999, assuming regulatory conditions are
satisfied.
We further adjust to arrive at our unaudited pro forma as adjusted
condensed consolidated statement of operations for the three months ended March
31, 1999 to reflect:
. a reduction of interest expense due to the repayment of $9.9
million of debt from the proceeds from the sale of shares of
common stock offered by this prospectus; and
. the reclassification of Class A, Class B and Class C
Convertible Preferred Stock, Class D Nonvoting Preferred Stock
and Class A and Class B Common Stock into common stock upon the
closing of this offering.
29
<PAGE>
We adjust our historical condensed consolidated balance sheet as of March
31, 1999 to arrive at the unaudited pro forma condensed consolidated balance
sheet as of March 31, 1999 as if the following event that is expected to occur
after March 31, 1999 occurred on March 31, 1999:
. the sale and issuance by CFN to General Electric of 16,190,475
shares of CFN's Series B Convertible Preferred Stock and the
application of the estimated net proceeds of $49.3 million.
We further adjust to arrive at our unaudited pro forma as adjusted
condensed consolidated balance sheet as if the following events occurred on
March 31, 1999:
. the sale of the shares of common stock offered by this
prospectus and the application of the resulting estimated net
proceeds, including the repayment of $9.9 million of debt;
. the sale and issuance to General Electric upon the closing of
this offering of an aggregate of 2,000,000 shares of common
stock at an assumed purchase price of $11.00 per share;
. the exercise of warrants to purchase 1,246,000 shares of common
stock for cash consideration of $4.58 per share upon the
closing of this offering;
. the exercise of warrants to purchase 240,006 shares of common
stock with a weighted average exercise price of $1.95 per share
which are mandatorily exercisable upon the closing of this
offering into 197,459 shares of common stock, assuming a
cashless exercise based on the assumed initial public offering
price of $11.00 per share; the warrants have the following
exercise prices: 9,106 at $0.0000439 per share, 150,000 at
$2.50 per share, 46,200 at $1.2973 per share and 34,700 at
$0.9514 per share; and
. the reclassification of Class A, Class B and Class C
Convertible Preferred Stock, Class D Nonvoting Preferred Stock
and Class A and Class B Common Stock into common stock upon the
closing of this offering.
All of iXL's acquisitions have been accounted for using the purchase
method and accordingly, each purchase price has been allocated to the tangible
and identifiable intangible assets acquired and liabilities assumed on the
basis of their fair values on the acquisition dates. The historical carrying
amounts of identified net tangible assets, including cash, accounts receivable,
property and equipment, and accounts payable, approximated their fair values.
Identifiable intangible assets and the purchase price in excess of identified
tangible and intangible net assets acquired have been allocated to goodwill are
being amortized over their estimated useful lives. Identifiable intangible
assets consist primarily of assembled workforce, which is being amortized over
a period of three years. Goodwill is being amortized primarily over five years.
The fair value of the common stock issued as consideration for the
companies acquired by iXL since January 1, 1998 was determined based upon
periodic independent appraisals of the common stock.
The pro forma condensed consolidated statement of operations are not
necessarily indicative of the results of operations that would have been
achieved had the transactions occurred on January 1, 1998 and should not be
construed as being representative of future results of operations. Upon
consummation of this offering, the reclassification of the Class D Nonvoting
Preferred Stock will result in a charge to net loss available to common
stockholders equal to the difference between $35.7 million plus accrued
dividends and the carrying value of the Class D Nonvoting Preferred Stock.
30
<PAGE>
Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Companies
Acquired Further
Historical in Pro Forma Pro Forma Pro Forma
Company 1998(2)(3) Adjustments Pro Forma Adjustments(7) as Adjusted
---------- ---------- ----------- --------- -------------- -----------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 64,767 $ 22,393 $ -- $ 87,160 $ -- $ 87,160
Cost of revenues........ 44,242 14,321 -- 58,563 -- 58,563
-------- -------- ------- -------- ------- --------
Gross profit.......... 20,525 8,072 -- 28,597 -- 28,597
Sales and marketing
expenses............... 17,325 1,351 -- 18,676 -- 18,676
General and
administrative
expenses............... 30,163 9,485 -- 39,648 -- 39,648
Research and development
expenses............... 4,408 5 -- 4,413 -- 4,413
Depreciation............ 5,217 678 -- 5,895 -- 5,895
Amortization............ 10,590 -- 7,078 (4) 17,668 -- 17,668
-------- -------- ------- -------- ------- --------
Loss from operations.. (47,178) (3,447) (7,078) (57,703) -- (57,703)
Other expense, net...... (28) (110) -- (138) -- (138)
Loss on equity
investment............. (1,640) -- -- (1,640) -- (1,640)
Interest income......... 750 27 -- 777 -- 777
Interest expense........ (770) (332) (603)(5) (1,705) 450(7) (1,255)
-------- -------- ------- -------- ------- --------
Loss before income
taxes................ (48,866) (3,862) (7,681) (60,409) 450 (59,959)
Income tax expense...... -- (8) -- (8) -- (8)
-------- -------- ------- -------- ------- --------
Net loss.............. (48,866) (3,870) (7,681) (60,417) 450 (59,967)
-------- -------- ------- -------- ------- --------
Dividends and accretion
on mandatorily
redeemable preferred
stock.................. (9,099) -- (1,614)(6) (10,713) 10,713(7) --
-------- -------- ------- -------- ------- --------
Net loss available to
common stockholders.. $(57,965) $ (3,870) $(9,295) $(71,130) $11,163 $(59,967)
======== ======== ======= ======== ======= ========
Basic and diluted net
loss per common
share(1)............... $ (4.92) $ (4.42) $ (1.07)
======== ======== ========
Weighted average common
shares outstanding(1).. 11,777 16,088 55,962
</TABLE>
31
<PAGE>
Pro Forma Condensed Consolidated Statement of Operations
for the Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Further
Historical Pro Forma Pro Forma Pro Forma
Company Adjustments Pro Forma Adjustments(7) as Adjusted
---------- ----------- --------- -------------- -----------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 33,012 $ -- $ 33,012 $ -- $ 33,012
Cost of revenues........ 19,583 -- 19,583 -- 19,583
-------- ----- -------- ------ ---------
Gross profit.......... 13,429 -- 13,429 -- 13,429
Sales and marketing
expenses............... 8,150 -- 8,150 -- 8,150
General and
administrative
expenses............... 15,725 -- 15,725 -- 15,725
Research and development
expenses............... 1,058 -- 1,058 -- 1,058
Depreciation............ 2,284 -- 2,284 -- 2,284
Amortization............ 4,351 4,351 -- 4,351
-------- ----- -------- ------ ---------
Loss from operations.. (18,139) (18,139) -- (18,139)
Other expense, net...... 69 -- 69 -- 69
Loss on equity
investment............. (65) -- (65) -- (65)
Interest income......... 216 -- 216 -- 216
Interest expense........ (336) 50 (8) (286) 279(7) (7)
-------- ----- -------- ------ ---------
Loss before income
taxes................ (18,255) 50 (18,205) 279 (17,926)
Income tax expense...... -- -- -- -- --
-------- ----- -------- ------ ---------
Net loss.............. (18,255) 50 (18,205) 279 (17,926)
-------- ----- -------- ------ ---------
Dividends and accretion
on mandatorily
redeemable preferred
stock.................. (5,293) (404)(9) (5,697) 5,697(7) --
-------- ----- -------- ------ ---------
Net loss available to
common stockholders.. $(23,548) $(354) $(23,902) $5,976 $ (17,926)
======== ===== ======== ====== =========
Basic and diluted net
loss per common
share(1)............... $ (1.46) $ (1.49) $ (0.28)
======== ======== =========
Weighted average common
shares outstanding(1).. 16,082 16,082 63,224
</TABLE>
32
<PAGE>
Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 1999
<TABLE>
<CAPTION>
Further
Historical Pro Forma Pro Forma Pro Forma
Company Adjustments(10) Pro Forma Adjustments(7) as Adjusted
---------- --------------- --------- -------------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents............ $ 13,880 $49,300 $ 63,180 $ 76,655 $139,835
Accounts receivable
(net).................. 20,957 -- 20,957 -- 20,957
Unbilled revenues....... 11,736 -- 11,736 -- 11,736
Prepaid expenses and
other assets........... 3,757 -- 3,757 -- 3,757
-------- ------- -------- -------- --------
Total current
assets............. 50,330 49,300 99,630 76,655 176,285
Property and equipment,
net.................... 32,296 -- 32,296 -- 32,296
Intangible assets, net.. 58,102 -- 58,102 -- 58,102
Other non-current
assets................. 2,970 200 3,170 (2,298) 872
-------- ------- -------- -------- --------
Total assets........ $143,698 $49,500 $193,198 $ 74,357 $267,555
======== ======= ======== ======== ========
Liabilities and
Stockholders' Equity:
Accounts payable........ $ 4,783 $ -- $ 4,783 $ (450) $ 4,333
Deferred revenues....... 8,904 -- 8,904 -- 8,904
Accrued liabilities..... 11,113 -- 11,113 -- 11,113
Current portion of long-
term debt.............. 815 -- 815 -- 815
-------- ------- -------- -------- --------
Total current
liabilities........ 25,615 -- 25,615 (450) 25,165
Long-term debt.......... 11,185 -- 11,185 (9,900) 1,285
-------- ------- -------- -------- --------
Total liabilities... 36,800 -- 36,800 (10,350) 26,450
Mandatorily redeemable
preferred stock........ 70,414 -- 70,414 (70,414) --
Mandatorily redeemable
preferred stock of
subsidiary............. 9,839 38,000 47,839 -- 47,839
Stockholders' equity
Class A Convertible
Preferred Stock...... 2 -- 2 (2) --
Common stock.......... 163 -- 163 473 636
Additional paid-in
capital.............. 114,859 11,500 126,359 154,650 281,009
Accumulated deficit... (84,142) -- (84,142) -- (84,142)
Treasury stock at
cost................. (888) -- (888) -- (888)
Note receivable from
stockholder.......... (900) -- (900) -- (900)
Unearned
compensation......... (2,449) -- (2,449) -- (2,449)
-------- ------- -------- -------- --------
Total stockholders'
equity............. 26,645 11,500 38,145 155,121 193,266
-------- ------- -------- -------- --------
Total liabilities,
mandatorily
redeemable
preferred stock and
stockholders'
equity............. $143,698 $49,500 $193,198 $ 74,357 $267,555
======== ======= ======== ======== ========
</TABLE>
33
<PAGE>
Notes to Pro Forma Condensed Consolidated Financial Information
The following adjustments were applied to iXL's Consolidated Financial
Statements and the financial data of the companies acquired by iXL since
January 1, 1998 to arrive at the unaudited Pro Forma Consolidated Financial
Information.
(1) Potential common shares consist of Class A, Class B, and Class C
Convertible Preferred Stock using the as-converted method, and stock
options and warrants using the treasury stock method and contingently
issuable shares held in escrow, which are excluded from the computation as
their effect is antidilutive.
(2) During 1998, iXL acquired 24 companies and accounted for them using the
purchase method. The companies acquired and purchase price, including the
shares of common stock and related warrants and options issued, are
presented in the table below individually for those acquisitions with a
purchase price greater than $2.0 million and in the aggregate for those
with a purchase price of less than $2.0 million. The per share fair value
of common stock for each acquisition was determined based upon independent
appraisals obtained by iXL.
<TABLE>
<CAPTION>
Fair Value
Per Share of Net Excess of
Fair Value Shares of Cash Used for Tangible Cost Over
of iXL Common Warrants/ Acquisitions, Total Assets/ Fair Value of
Common Stock Options Net of Cash Purchase (Liabilities) Assembled Net Assets
Business Acquired Stock Issued Issued Acquired Price Acquired Workforce Acquired
----------------- ---------- --------- --------- ------------- -------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Digital Planet, Inc. ... $5.50 259,584 -- $ 1,962 $ 3,550 $ (39) $ 1,012 $ 2,577
Micro Interactive,
Inc. .................. 5.50 740,000 19,500 1,718 5,809 281 999 4,529
CommerceWAVE, Inc. ..... 5.82 877,898 64,434 117 5,459 (1,037) 662 5,134
Image Communications,
Inc. .................. 5.82 378,999 125,054 753 3,324 381 1,213 1,730
Spinners Incorporated
....................... 5.82 674,132 66,495 1,383 5,543 499 1,129 3,915
Tekna, Inc. ............ 4.50 712,622 125,757 611 4,758 527 820 3,411
Larry Miller
Productions, Inc. .... 4.50 113,823 248,135 1,812 3,490 (143) 963 2,670
NetResponse ........... 4.50 701,375 73,625 1,719 5,307 1,312 1,168 2,827
Ionix Development
Corp. ................. 4.50 358,551 -- 1,059 3,013 231 778 2,004
Pequot Systems, Inc. ... 4.50 378,066 -- 792 2,501 154 357 1,990
TwoWay Communications
LLC ................... 4.50 269,421 -- 1,246 2,469 335 713 1,421
Other Acquisitions...... -- 2,295,530 57,215 3,430 14,188 795 6,075 7,318
--------- ------- ------- ------- ------- ------- -------
Total.................. 7,760,001 780,215 $16,602 $59,411 $ 3,296 $15,889 $39,526
========= ======= ======= ======= ======= ======= =======
</TABLE>
34
<PAGE>
(3) For those companies acquired during 1998 that had a purchase price of
greater than $2.0 million, the following table presents the income
statements for the period January 1, 1998 through the date of acquisition.
Acquisitions with a purchase price less than $2.0 million are aggregated in
the Other Acquisitions column.
<TABLE>
<CAPTION>
Micro Image Larry
Inter- Commun- Spinners Miller
Digital active, Commerce- ications, Incorp- Tekna Product-
Planet Inc. WAVE Inc. Inc. orated Inc. ions, Inc.
------- ------- --------- --------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $1,262 $ 956 $ 563 $ 847 $1,369 $1,990 $2,040
Cost of revenues...... 748 536 458 601 871 1,058 2,114
------ ----- ----- ----- ------ ------ -------
Gross profit.......... 514 420 105 246 498 932 (74)
Sales and marketing
expenses............. 168 38 159 61 20 271 314
General and
administrative
expenses............. 397 702 457 564 405 983 1,550
Research and
development
expenses............. -- -- 5 -- -- -- --
Depreciation.......... 30 75 34 65 37 80 47
Amortization.......... -- -- -- -- -- -- --
------ ----- ----- ----- ------ ------ -------
Loss from operations.. (81) (395) (550) (444) 36 (402) (1,985)
Other (expense),
income............... -- 1 -- 50 -- (179) 2
Interest income....... -- 6 4 -- -- 5 6
Interest expense...... (35) (17) (26) (37) (6) (8) (36)
------ ----- ----- ----- ------ ------ -------
Loss before income
taxes................ (116) (405) (572) (431) 30 (584) (2,013)
Income tax expense.... -- -- (1) -- -- -- --
------ ----- ----- ----- ------ ------ -------
Net loss.............. $(116) $(405) $(573) $(431) $ 30 $ (584) $(2,013)
====== ===== ===== ===== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Two Way
Pequot Net- Commun- Ionix Companies
Systems, Response, ications, Development Other acquired in
Inc. L.L.C. L.L.C. Corporation Acquisitions 1998
-------- --------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $1,354 $3,293 $1,400 $1,484 $5,835 $22,393
Cost of revenues...... 1,100 1,560 718 1,007 3,550 14,321
------ ------ ------ ------ ------ -------
Gross profit.......... 254 1,733 682 477 2,285 8,072
Sales and marketing
expenses............. 26 4 -- 2 288 1,351
General and
administrative
expenses............. 549 1,540 667 267 1,404 9,485
Research and
development
expenses............. -- -- -- -- -- 5
Depreciation.......... 19 96 8 10 177 678
Amortization.......... -- -- -- -- -- --
------ ------ ------ ------ ------ -------
Loss from operations.. (340) 93 7 198 416 (3,447)
Other (expense),
income............... -- (2) -- 1 17 (110)
Interest income....... 1 -- -- 5 -- 27
Interest expense...... -- (98) (34) (6) (29) (332)
------ ------ ------ ------ ------ -------
Loss before income
taxes................ (339) (7) (27) 198 404 (3,862)
Income tax expense.... (6) -- -- -- (1) (8)
------ ------ ------ ------ ------ ------- ---
Net loss.............. $ (345) $ (7) $ (27) $ 198 $ 403 $(3,870)
====== ====== ====== ====== ====== =======
</TABLE>
(4) To record amortization expense for the year ended December 31, 1998 related
to the identifiable intangible assets and goodwill acquired in connection
with the acquisitions of companies by iXL since January 1, 1998. Such
amounts are amortized over the estimated useful life of each asset.
Identifiable intangible assets consist primarily of assembled workforce,
which is being amortized over a period of three years. Goodwill is being
amortized over five years. Some of the shares issuable at the acquisition
dates were placed in escrow. These shares will either be issued to the
previous owners of these companies or returned to iXL based upon whether or
not performance targets of the respective acquired company are achieved. As
of December 31, 1998, iXL has excluded 287,304 shares of common stock that
had not been earned under the terms of the acquisition agreements from the
recognized purchase price
35
<PAGE>
calculations. Any purchase price adjustments resulting from the issuance of
these escrowed shares to the previous owners of these companies will be
recognized as adjustments to goodwill and will be amortized over the
remaining period of the expected benefit. See Note 3 to iXL's Consolidated
Financial Statements as of and for the year ended December 31, 1998. 50,000
of these shares have since been earned and have been released from escrow
since December 31, 1998. 100,000 of these shares are expected to revert
back to iXL, since the performance target was not achieved. These shares
have not yet been released from escrow as the procedures for release of
these shares have not been completed. The remaining 137,304 shares are to
remain in escrow until October 1999, the deadline for meeting the relevant
performance target.
(5) To reflect the following adjustments to interest expense:
. In connection with the acquisition of 14 of the companies acquired
by iXL since January 1, 1998, iXL repaid approximately $7.3
million in debt. Interest expense was reduced by $371,000,
representing the reversal of the interest expense recorded by the
acquired companies as if the repayments had occurred on January 1,
1998. The amount was calculated based upon the actual interest
expense recorded by the acquired companies on the related debt
from January 1, 1998 to the respective acquisition date.
. In connection with the acquisition of 17 of the companies acquired
by iXL since January 1, 1998, iXL paid approximately $16.9 million
in cash which was used for a combination of repayment of acquired
company debt and as a component of the purchase price. Interest
expense was increased by $1.0 million, representing the interest
expense iXL would have recorded had the acquisition occurred on
January 1, 1998. This interest expense adjustment was calculated
by applying iXL's incremental borrowing rate to the amount of cash
paid for each acquisition from January 1, 1998 to the respective
acquisition date. The interest rate used was prime plus 2%, which
is the interest rate on iXL's current credit agreement which was
entered into during 1998.
. A decrease in interest expense due to the repayment of $9.4
million of revolving debt from the proceeds of the issuance of
22,825 shares of Class A Convertible Preferred Stock in January
1999. This debt was outstanding for a period of 17 days in 1998
(from December 14, 1998 through December 31, 1998). The interest
expense adjustment was calculated based on the actual interest
expense incurred by iXL on the revolving debt during the period
noted.
(6) To record accretion on the CFN Series B Convertible Preferred Stock as if
it were outstanding for the full year. The issuance of the CFN Series B
Convertible Preferred Stock is expected to occur on the earlier of the
closing of this offering or August 31, 1999, assuming regulatory
conditions are satisfied.
(7) Reflects:
. the sale by iXL of 6,000,000 shares of common stock offered at an
assumed initial public offering price of $11.00 per share after
deducting the estimated underwriting discounts and commissions and
offering expenses payable by iXL as described under "Use of
Proceeds;"
. the sale and issuance to General Electric upon the closing of this
offering of an aggregate of 2,000,000 shares of common stock at an
assumed purchase price of $11.00 per share based on the midpoint
of the range on the cover page of this prospectus;
. the exercise of warrants to purchase 1,246,000 shares of common
stock for cash consideration of $4.58 per share upon the closing
of this offering; this assumption is based on each warrant
holder's indication that they will exercise these warrants upon
the closing of this offering;
. the exercise of warrants to purchase 240,006 shares of common
stock with a weighted average exercise price of $1.95 per share
which are mandatorily exercisable upon the closing of this
offering into 197,459 shares of common stock, assuming a cashless
exercise based on the assumed initial public offering price of
$11.00 per share; the warrants have the following exercise prices:
9,106 at $0.0000439 per share, 150,000 at $2.50 per share, 46,200
at $1.2973 per share and 34,700 at $0.9514 per share;
36
<PAGE>
. the repayment of $9.9 million of debt upon the closing of this
offering and the related decrease in interest expense. The
interest expense adjustment was calculated based on the actual
interest expense incurred by iXL on the debt during the periods
noted, which was prime plus 2% under iXL's credit agreement. This
debt was outstanding for 153 days in the year ended December 31,
1998 and 90 days in the three months ended March 31, 1999; and
. the reclassification of Class A, Class B, and Class C Convertible
Preferred Stock, Class D Nonvoting Preferred Stock and Class A and
Class B Common Stock into common stock and the related reduction
in the dividends and accretion on mandatorily redeemable preferred
stock.
(8) To reflect a decrease in interest expense due to the repayment of $9.4
million of revolving debt. This amount of debt was outstanding for a period
of 19 days in 1999 (from January 1, 1999 through January 20, 1999). The
interest expense adjustment was calculated based on the actual interest
expense incurred by iXL on the revolving debt during the period noted.
(9) To record accretion on the CFN Series B Convertible Preferred Stock as if
it were outstanding for the full three-month period ended March 31, 1999.
The issuance of the CFN Series B Convertible Preferred Stock will occur on
the earlier of the closing of this offering or August 31, 1999.
(10) Reflects the following events that are expected to occur after March 31,
1999 as if each occurred on March 31, 1999:
. the sale and issuance by CFN to General Electric of 16,190,475
shares of CFN's Series B Convertible Preferred Stock for a
purchase price of approximately $50 million, net of issuance costs
of $700,000. This issuance will occur on the earlier of the
closing of this offering or August 31, 1999 and the estimated net
proceeds have been reflected as an adjustment to cash. These
proceeds have been recorded as mandatorily redeemable preferred
stock of subsidiary and additional paid-in capital; and
. the issuance to GE Capital Equity Investments, Inc. of warrants to
purchase 1,500,000 shares of iXL common stock. The fair value of
these warrants of $11.5 million has been calculated using the
Black-Scholes option pricing model. The assumptions utilized in
determining this fair value are as follows: life of warrant = five
years; expected volatility = 85%; dividend yield = 0%; risk-free
rate = 5%; fair market value of underlying stock on date of grant
= $11.00; exercise price = $11.00. $200 of the value of the
warrants has been allocated to the agreement by GE Capital Equity
Investments, Inc. to provide access to CFN's platform to its
employees. Such amount has been reflected in the pro forma
adjustments in other assets and will be expensed when GE Capital
Equity Investments, Inc. performs its duties under the agreement.
The remaining $11.3 million of value of the warrants has been
allocated to and recorded as a reduction of mandatorily redeemable
preferred stock of subsidiary and an increase in additional paid-
in capital. This amount will be accreted over the redemption
period to increase the carrying value of the CFN Series B
Convertible Preferred Stock to its redemption value of $50,000.
37
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected Consolidated Financial Data with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and iXL's audited Consolidated Financial Statements included
elsewhere in this prospectus. iXL commenced operations effective May 1, 1996.
All of iXL's acquisitions have been accounted for using the purchase method,
and accordingly, the statement of operations data of iXL for all periods
presented reflect the results of operations from these businesses from their
respective acquisition dates. The consolidated statement of operations data set
forth below for the eight months ended December 31, 1996, the years ended
December 31, 1997 and 1998, and the consolidated balance sheet data at December
31, 1996, 1997 and 1998 are derived from and qualified by reference to iXL's
audited Consolidated Financial Statements, which appear elsewhere in this
prospectus. The consolidated statement of operations data for the three months
ended March 31, 1998 and 1999 and the consolidated balance sheet data at March
31, 1999 are derived from and are qualified by reference to, iXL's unaudited
Consolidated Financial Statements, which appear elsewhere in this prospectus
and, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial data
for such periods. The results of operations for the three months ended March
31, 1999 are not necessarily indicative of the results to be expected for the
full year or for any future period.
<TABLE>
<CAPTION>
Three Months
Eight Months Years Ended Ended
Ended December 31, March 31,
December 31, ------------------ -----------------
1996 1997 1998 1998 1999
------------ -------- -------- ------- --------
Consolidated Statement of
Operations Data: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues................... $ 5,379 $ 18,986 $ 64,767 $ 6,864 $ 33,012
Cost of revenues........... 3,577 11,343 44,242 4,899 19,583
------- -------- -------- ------- --------
Gross profit............. 1,802 7,643 20,525 1,965 13,429
Sales and marketing
expenses.................. 812 3,903 17,325 2,036 8,150
General and administrative
expenses.................. 1,247 9,114 30,163 2,956 15,725
Research and development
expenses.................. -- 4,820 4,408 907 1,058
Depreciation............... 372 1,408 5,217 699 2,284
Amortization............... 928 5,191 10,590 1,182 4,351
------- -------- -------- ------- --------
Loss from operations..... (1,557) (16,793) (47,178) (5,815) (18,139)
Other income (expense),
net....................... 48 116 (28) 36 69
Loss on equity investment.. (249) (1,443) (1,640) (395) (65)
Interest income............ 32 136 750 264 216
Interest expense........... (30) (238) (770) (28) (336)
------- -------- -------- ------- --------
Loss before income
taxes................... (1,756) (18,222) (48,866) (5,938) (18,255)
Income tax benefit......... 302 2,782 -- -- --
------- -------- -------- ------- --------
Net loss................. (1,454) (15,440) (48,866) (5,938) (18,255)
Dividends and accretion on
mandatorily redeemable
preferred stock........... -- -- (9,099) (725) (5,293)
------- -------- -------- ------- --------
Net loss available to
common stockholders..... $(1,454) $(15,440) $(57,965) $(6,663) $(23,548)
======= ======== ======== ======= ========
Basic and diluted net loss
per common share.......... $ (0.37) $ (2.36) $ (4.92) $ (0.78) $ (1.46)
======= ======== ======== ======= ========
Weighted average common
shares outstanding........ 3,972 6,540 11,777 8,592 16,082
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
-------------------------- March 31,
1996 1997 1998 1999
------- -------- --------- ----------------
Consolidated Balance Sheet Data: (in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents........ $ 409 $ 23,038 $ 19,259 $ 13,880
Working capital.................. 217 23,879 27,119 24,715
Total assets..................... 16,472 57,612 142,951 143,698
Debt, including current portion.. 691 1,273 21,420 12,000
Mandatorily redeemable preferred
stock........................... -- 29,930 65,679 70,414
Mandatorily redeemable preferred
stock of subsidiary............. -- -- 9,839 9,839
Stockholders' equity............. 12,989 21,950 25,560 26,645
</TABLE>
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion of the financial condition and
results of operations of iXL with "Selected Consolidated Financial Data," "Pro
Forma Consolidated Financial Information" and iXL's Consolidated Financial
Statements, including the Notes included elsewhere in this prospectus.
Overview
iXL is a leading Internet services company which provides Internet
strategy consulting and comprehensive Internet-based solutions to Fortune 1000
companies and other corporate users of information technology. iXL helps
businesses identify how the Internet can be used to their competitive advantage
and uses its expertise in creative design and systems engineering to design,
develop and deploy advanced Internet applications and solutions.
iXL was founded in March 1996, and since that time has acquired a total
of 34 companies. All of iXL's acquisitions have been accounted for using the
purchase method. Therefore, the historical financial data include the results
of operations of companies acquired from their respective acquisition dates.
iXL has incurred substantial losses since its inception and anticipates
continuing to incur substantial losses for the foreseeable future. As of March
31, 1999, iXL had an accumulated deficit of approximately $84 million. Although
iXL has experienced revenue growth, this growth may not be sustainable or
indicative of future results of operations.
iXL's customers generally retain iXL on a project-by-project basis. iXL
typically does not have material contracts that commit a customer to use its
services on a long-term basis. Revenue is recognized primarily using the
percentage of completion method on a contract-by-contract basis. iXL's use of
the percentage of completion method of revenue recognition requires management
to estimate the degree of completion of each project. To the extent these
estimates prove to be inaccurate, the revenues and gross profits reported for
periods during which work on the project is ongoing may not accurately reflect
the final results of the project. Any anticipated losses on projects are
charged to earnings when identified. iXL primarily prices its projects on a
fixed-price basis, rather than on a time and materials basis, and it typically
assumes the fixed-price contracts of companies it acquires. iXL has begun
implementation of an internally developed estimation process to determine the
fixed price for an engagement, and standardize pricing throughout its offices.
This methodology incorporates standard personnel billing rates, project
implementation risks and the overall technical complexity of the project. We
believe that the standardization of pricing throughout our network of offices
will decrease project pricing risk. iXL attempts to price larger, fixed-price
contracts on a three-phase basis--strategic review, design and implementation.
Each phase is priced separately, immediately prior to its commencement. Less
than a third of iXL's revenues are currently derived from contracts priced on a
three-phase basis. See "Risk Factors--Risks Related to iXL's Business--Our
fixed-price contracts involve financial risk."
Through both acquisitions and its directed marketing efforts, iXL has
established a diversified base of clients in a wide range of industries,
including the industries targeted by iXL's marketing efforts.
iXL's revenues are comprised of fees from Internet strategy consulting,
Internet-based business solutions and iXL Solution Sets. iXL's revenue
composition has changed substantially from inception, and iXL expects further
change as its business develops. Historically, a substantial majority of iXL's
revenues have been derived from traditional website development and the
implementation of iXL's Solution Sets. To succeed, iXL must leverage its
existing relationships and establish new relationships in order to
substantially increase the revenues derived from more comprehensive strategic
Internet services.
We have recently entered into multi-year services agreements with General
Electric and Delta Air Lines under which we have agreed to provide strategic
Internet services. These agreements guarantee minimum payments to iXL for
services provided by iXL. In connection with these agreements, we have issued
warrants to General Electric and Delta Air Lines which will result in non-cash
charges that will reduce our reported revenue. For Delta Air Lines, this charge
will be approximately $1.2 million, reducing the $10 million of guaranteed
revenue from Delta in 1999 and early 2000 to $8.8 million, and for General
Electric this charge will be approximately $4.8 million, reducing the $20
million of guaranteed revenue from General Electric in 1999 and early 2000 to
$15.2 million.
39
<PAGE>
iXL's expenses include cost of revenues, sales and marketing, general and
administrative, and research and development expenses. Cost of revenues
includes salaries, benefits and related overhead expenses associated with the
generation of revenues. Sales and marketing expenses include promotion, new
business generation expenses and the salary and benefit costs of personnel in
these functions. General and administrative expenses include management,
accounting, legal and human resources costs. Research and development expenses
include salary and benefit costs of technical personnel developing Solution
Sets and component frameworks. iXL's expenses also include non-cash charges
related to option grants and warrant issuances.
In connection with (1) the reasonable efforts of GE Capital Equity
Investments, Inc. to provide the CFN platform to its employees and (2) a joint
marketing campaign with General Electric the details of which are not yet
determined, iXL will issue warrants to purchase 1,500,000 shares of common
stock to General Electric. Sales and marketing expense, net loss available to
common stockholders and stockholders' equity will be impacted by non-cash
charges related to this warrant issuance. For more information on the
accounting treatment of these warrants, see note 10 to the Pro Forma Condensed
Consolidated Financial Information.
iXL's future success will depend in large part upon its ability to
attract, train and retain additional highly skilled executive-level management
and creative, technical, consulting and sales personnel. Competition for such
personnel is intense, and iXL is unsure that it will be successful in
attracting, training and retaining such personnel. Historically iXL has
experienced significant employee turnover, and its ability to control employee
turnover will have a significant impact on its profitability.
CFN has expended and will continue to expend significant resources to
build electronic data interchange interfaces with participating institutions,
to grow its technology infrastructure, to add additional participating
companies and employees to the platform and to establish access to the CFN
platform for participating companies' employees. These expenditures must be
incurred in advance of the recognition of revenue. None of these expenses is
incurred under long-term vendor contracts. As a result, these expenses are
expensed as incurred, except for fixed asset purchases which are depreciated
over their expected useful lives. CFN recognizes revenue upon completion of an
end-user transaction through the CFN operating network, which also will require
the realization of expenses in advance of related revenue. To date, the volume
of transactions on CFN has been limited and, accordingly, the revenue
recognized has been minimal. As a result, iXL may not be able to achieve or
sustain profitability. CFN incurred an operating loss of $13.5 million for the
year ended December 31, 1998 and $4.0 million for the three months ended March
31, 1999. See "Risk Factors--Risks Related to Our CFN Subsidiary--CFN's
business model is new and unproven" and "--CFN must expend significant
resources to grow its infrastructure."
iXL incurred non-cash stock compensation expense related to its option
grants for the year ended December 31, 1998, totaling $1.6 million and $1.5
million for the three months ended March 31, 1999. iXL expects to recognize
approximately $2.1 million in 1999, $850,000 in 2000, $600,000 in 2001 and
$330,000 in 2002 in stock compensation expense relating to the grant of options
in 1998 and 1999.
Acquisition Program
iXL has acquired a total of 34 businesses since its inception and intends
to continue acquiring similar businesses. iXL evaluates acquisitions based on
numerous quantitative and qualitative factors. Quantitative factors include
historical and projected revenues and profitability, geographic coverage and
contract backlog. Qualitative factors include strategic and cultural fit,
management skills, customer base and technical proficiency. Most of the
consideration paid by iXL for prior acquisitions has been in the form of common
stock. iXL anticipates that common stock and options to acquire common stock
will continue to constitute most of the consideration used to make future
acquisitions. iXL's acquisition program will result in additional ownership
dilution to investors participating in this offering. See "Risk Factors--Risks
Related to the Offering--The net tangible book value of our common stock issued
in this offering will be less than the offering price."
All of iXL's acquisitions have been accounted for using the purchase
method. The results of operations of the acquired entities are consolidated
with those of iXL from the date of the acquisition. For each acquisition, a
portion of the purchase price is allocated to the tangible and identifiable
intangible assets acquired
40
<PAGE>
and liabilities assumed based on their respective fair market values on the
acquisition date. A portion of the purchase price in excess of tangible and
identifiable intangible assets and liabilities assumed is allocated to goodwill
and amortized on a straight-line basis over the estimated period of benefit,
which is primarily five years. Identifiable intangible assets consist primarily
of assembled workforce and are being amortized over a period of three years.
For the year ended December 31, 1998, amortization expense was $10.6 million.
iXL expects additional acquisition-related amortization expense as a result of
its acquisition program.
We believe our acquisitions have contributed to our growth by rapidly
expanding our employee base, geographic coverage, client base, industry
expertise and technical skills. Our acquisitions with a purchase price
exceeding $5 million are as follows:
In May 1997, we acquired BoxTop Interactive, Inc., a Los Angeles creative
design firm, for a purchase price of $10 million and the assumption of $1.5
million of debt which was subsequently repaid. The acquisition of BoxTop
provided media and entertainment industry expertise and geographic presence in
California, and expanded our workforce by approximately 60 skilled employees.
In May 1998, we acquired Micro Interactive, Inc., a New York interactive
media firm, for a purchase price of $5.8 million and the assumption of $426,000
of debt, which was subsequently repaid. The acquisition of Micro Interactive
provided interactive multimedia technical skills and expanded our workforce by
approximately 35 skilled employees.
In July 1998, we acquired CommerceWAVE, Inc., a San Diego e-commerce
firm, for a purchase price of $5.5 million and the assumption of $450,000 of
debt, which was subsequently repaid. The acquisition of CommerceWAVE provided
e-commerce strategy consulting expertise and engineering capabilities and
geographic presence in San Diego, and expanded our workforce by approximately
22 skilled employees.
In July 1998, we also acquired Spinners Incorporated, a Boston,
Massachusetts software engineering and creative design firm, for a purchase
price of $5.5 million. The acquisition provided software engineering and
creative design expertise, financial service industry knowledge and added to
iXL's client base. The acquisition also added 31 skilled employees.
In September 1998, we acquired NetResponse L.L.C., an Arlington, Virginia
strategy consulting, software engineering and creative design firm, for a
purchase price of $5.3 million and the assumption of $1.8 million of debt,
which was subsequently repaid. The acquisition provided strategy consulting
expertise, software engineering skills and 36 skilled employees, and added to
iXL's client base.
iXL anticipates that a material portion of its future growth will be
accomplished by acquiring existing businesses. Most of iXL's growth in
personnel has been through acquisitions. The success of this plan depends upon,
among other things, iXL's ability to integrate acquired personnel, operations,
products and technologies into its organization effectively, to retain and
motivate key personnel of acquired businesses and to retain customers of
acquired firms. iXL cannot guarantee that it will be able to identify suitable
acquisition opportunities, obtain any necessary financing on acceptable terms
to finance such acquisitions, consummate such acquisitions or successfully
integrate acquired personnel and operations. See "Risk Factors--Risks Related
to iXL's Business--We may be unable to continue to grow at our historical
growth rates or to effectively manage our growth" and "--Our continued growth
is dependent on the successful completion of acquisitions."
41
<PAGE>
Quarterly Historical Results of Operations
The following table presents the unaudited historical quarterly results
of operations. We believe that our historical financial statements are not
necessarily indicative of future results of operations. You should read these
quarterly historical results of operations with the historical audited
financial statements of iXL and certain of the companies acquired by iXL since
January 1, 1998 and related Notes.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999
--------- -------- ------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 6,864 $ 10,520 $ 18,123 $ 29,260 $33,012
Cost of revenues........ 4,899 8,086 12,628 18,629 19,583
------- -------- -------- -------- --------
Gross profit............ 1,965 2,434 5,495 10,631 13,429
Sales and marketing
expenses............... 2,036 2,887 4,573 7,829 8,150
General and administra-
tive expenses.......... 2,956 5,862 7,021 14,324 15,725
Research and development
expenses............... 907 1,322 1,244 935 1,058
Depreciation............ 699 955 1,261 2,302 2,284
Amortization............ 1,182 1,709 3,101 4,598 4,351
------- -------- -------- -------- --------
Loss from operations.... $(5,815) $(10,301) $(11,705) $(19,357) $(18,139)
======= ======== ======== ======== ========
</TABLE>
Comparison of Three Months Ended March 31, 1999 and March 31, 1998
Revenues. Revenues increased $26.1 million, or 381% to $33.0 million for
the quarter ended March 31, 1999 from $6.9 million for the quarter ended March
31, 1998. The majority of the increase was attributable to our acquisition
program which expanded our headcount and client base. The increase was also
attributable to an increase in the size of client engagements and the
development and growth of industry practice groups.
Cost of revenues. Cost of revenues increased $14.7 million, or 300% to
$19.6 million for the quarter ended March 31, 1999 from $4.9 million for the
quarter ended March 31, 1998. As a percentage of revenues, cost of revenues
decreased from 71% for the quarter ended March 31, 1998 to 59% for the quarter
ended March 31, 1999. As a percentage of revenue, the decrease in cost of sales
was primarily attributable to the growth of our industry practice groups and
strategy consulting practice. The dollar increase was primarily attributable to
the an increase in headcount due to the integration of the companies acquired
by iXL since January 1, 1998, as well as to employee training and the
development of the CFN platform. Also included in this increase was $78,000 of
non-cash expense related to stock compensation charges.
Sales and marketing expenses. Sales and marketing expenses increased $6.1
million, or 300% to $8.1 million for the quarter ended March 31, 1999 from $2.0
million for the quarter ended March 31, 1998. As a percentage of revenues,
sales and marketing expenses decreased from 30% for the quarter ended March 31,
1998 to 25% for the quarter ended March 31, 1999. The dollar increase was
primarily attributable to the increase in headcount due to the integration of
the companies acquired by iXL since January 1, 1998, as well as the development
of iXL's sales and marketing infrastructure and staff. Also included in this
increase was $418,000 of non-cash expense related to stock compensation
charges.
General and administrative expenses. General and administrative expenses
increased $12.7 million, or 432% to $15.7 million for the quarter ended March
31, 1999 from $3.0 million for the quarter ended March 31, 1998. As a
percentage of revenues, general and administrative expenses increased from 43%
for the quarter ended March 31, 1998 to 48% for the quarter ended March 31,
1999. The increase in dollar and percentage terms was primarily attributable to
the increase in headcount due to the integration of the companies acquired by
iXL since January 1, 1998, as well as the expansion of management
infrastructure to support the growth in iXL's operations, the general and
administrative costs of the companies acquired by iXL since January 1, 1998
42
<PAGE>
and associated integration costs. Additionally, this increase included a
donation of $1.0 million to fund the iXL Center for Electronic Commerce in the
DuPree College of Management at Georgia Tech and $978,000 of non-cash expense
related to stock compensation charges.
Research and development expenses. Research and development expenses
increased $151,000, or 17% to $1.1 million for the quarter ended March 31, 1999
from $907,000 for the quarter ended March 31, 1998. As a percentage of
revenues, research and development expenses decreased from 13% for the quarter
ended March 31, 1998 to 3% for the quarter ended March 31, 1999.
Depreciation. Depreciation expenses increased $1.6 million to $2.3
million for the quarter ended March 31, 1999 from $700,000 for the quarter
ended March 31, 1998. The increase related to the depreciation of assets of the
companies acquired by iXL since January 1, 1998 and the investments in physical
infrastructure at these companies after acquisition.
Amortization. Amortization expense increased $3.2 million to $4.4 million
for the quarter ended March 31, 1999 from $1.2 million for the quarter ended
March 31, 1998. The increase was a result of the goodwill and assembled
workforce recorded in connection with the acquisitions which took place during
1998.
Comparison of Three Months Ended March 31, 1999 and December 31, 1998
Revenues. Revenues increased $3.7 million, or 13% to $33.0 million for
the quarter ended March 31, 1999 from $29.3 million for the quarter ended
December 31, 1998. This increase was primarily attributable to an increased
number of engagements for existing and new customers, as well as an increased
engagement size. The percentage increase was lower than in prior quarters
because revenues in the fourth quarter of 1998 were favorably impacted by
several large engagements during this period. Annualized revenue for our top
100 clients increased from 62% of total revenue in the quarter ended December
31, 1998 to 71% for the quarter ended March 31, 1999. iXL may not experience
comparable increases in the remainder of 1999.
Cost of revenues. Cost of revenues increased $1.0 million, or 5% to $19.6
million for the quarter ended March 31, 1999 from $18.6 million for the quarter
ended December 31, 1998. As a percentage of revenues, cost of revenues
decreased from 64% for the quarter ended December 31, 1998 to 59% for the
quarter ended March 31, 1999. The percentage decrease in the first quarter of
1999 to 59% was primarily attributable to iXL's emphasis on obtaining contracts
with higher gross margins. The first quarter of 1999 included in cost of
revenues $78,000 of non-cash stock option expense whereas the fourth quarter of
1998 included $133,000 of non-cash stock option expense.
Sales and marketing expenses. Sales and marketing expenses increased by
$321,000, or 4% to $8.1 million for the quarter ended March 31, 1999 from $7.8
million for the quarter ended December 31, 1998. As a percentage of revenues,
sales and marketing expenses decreased from 27% for the quarter ended December
31, 1998 to 25% for the quarter ended March 31, 1999. This dollar increase was
primarily attributable to an increase in our sales and marketing headcount by
over 25 professionals during the three months ended March 31, 1999. The first
quarter of 1999 included in sales and marketing expenses $418,000 of non-cash
stock option expense and the fourth quarter of 1998 included $928,000 of non-
cash stock option expense. Additionally, the fourth quarter of 1998 included in
sales and marketing expenses $813,000 of non-cash expense related to warrant
issuances.
General and administrative expenses. General and administrative expenses
increased $1.4 million, or 10% to $15.7 million for the quarter ended March 31,
1999 from $14.3 million for the quarter ended December 31, 1998. As a
percentage of revenues, general and administrative expenses decreased from 49%
for the quarter ended December 31, 1998 to 48% for the quarter ended March 31,
1999. The dollar increase was primarily attributable to a donation of $1.0
million to fund the iXL Center for Electronic Commerce in the DuPree College of
Management at Georgia Tech as well as the expansion of management
infrastructure to support the growth in iXL's operations, including the
development of CFN. We increased our general and administrative
43
<PAGE>
headcount by over 30 professionals during the three months ended March 31,
1999. iXL expects its general and administrative expenses to increase as it
continues to grow. The first quarter of 1999 included in general and
administration expenses $978,000 of non-cash stock option expense and the
fourth quarter of 1998 included $1.4 million of non-cash stock option expense.
Research and development expenses. Research and development expenses
increased $123,000, or 13% to $1.1 million for the quarter ended March 31, 1999
from $935,000 for the quarter ended December 31, 1998. As a percentage of
revenues, research and development expenses remained constant for the quarters
ended March 31, 1999 and December 31, 1998, respectively.
Depreciation. Depreciation expenses decreased $18,000 in the quarter
ending March 31, 1999 from the previous quarter.
Amortization. Amortization expense decreased slightly to $4.4 million for
the quarter ended March 31, 1999 from $4.6 million for the quarter ended
December 31, 1998. The decrease was a result of the sale of certain intangible
assets.
Comparison of Three Months Ended December 31, 1998 and September 30, 1998
Revenues. Revenues increased $11.2 million, or 62% to $29.3 million for
the quarter ended December 31, 1998 from $18.1 million for the quarter ended
September 30, 1998. The majority of the increase was attributable to iXL's
acquisition program which expanded our headcount and client base. The increase
was also attributable to an increase in the size of client engagements and the
development and growth of industry practice groups.
Cost of revenues. Cost of revenues increased $6.0 million, or 48% to
$18.6 million for the quarter ended December 31, 1998 from $12.6 million for
the quarter ended September 30, 1998. As a percentage of revenues, cost of
revenues decreased from 70% for the quarter ended September 30, 1998 to 64% for
the quarter ended December 31, 1998. The dollar increase was primarily
attributable to the integration of the companies acquired by iXL since January
1, 1998, as well as to employee training and the increased operating expenses
of CFN.
Sales and marketing expenses. Sales and marketing expenses increased $3.2
million, or 71% to $7.8 million for the quarter ended December 31, 1998 from
$4.6 million for the quarter ended September 30, 1998. As a percentage of
revenues, sales and marketing expenses increased from 25% for the quarter ended
September 30, 1998 to 27% for the quarter ended December 31, 1998. The increase
in dollar and percentage terms was primarily attributable to the development of
iXL's sales and marketing infrastructure and staff. We increased our sales and
marketing headcount by approximately 5 professionals during the three months
ended December 31, 1998. Also included in this increase was $813,000 of non-
cash expense related to warrant issuances.
General and administrative expenses. General and administrative expenses
increased $7.3 million, or 104% to $14.3 million for the quarter ended December
31, 1998 from $7.0 million for the quarter ended September 30, 1998. As a
percentage of revenues, general and administrative expenses increased from 39%
for the quarter ended September 30, 1998 to 49% for the quarter ended December
31, 1998. The increase in dollar and percentage terms was primarily
attributable to the expansion of management infrastructure to support the
growth in iXL's operations, the general and administrative costs of the
companies acquired by iXL since January 1, 1998 and associated integration
costs. Also included in this increase was $1.4 million of non-cash stock option
expense.
Research and development expenses. Research and development expenses
decreased $309,000, or 25% to $935,000 for the quarter ended December 31, 1998
from $1.2 million for the quarter ended September 30, 1998. As a percentage of
revenues, research and development expenses decreased from 7% for the quarter
44
<PAGE>
ended September 30, 1998 to 3% for the quarter ended December 31, 1998. The
decrease in dollar and percentage terms was primarily due to the completion of
the final phases of development of Solution Set products.
Depreciation. Depreciation expenses increased $1.0 million to $2.3
million for the quarter ended December 31, 1998 from $1.3 million for the
quarter ended September 30, 1998. The increase related to the depreciation of
assets of the companies acquired by iXL since January 1, 1998 and investments
in physical infrastructure at these companies after acquisition.
Amortization. Amortization expenses increased $1.5 million to $4.6
million for the quarter ended December 31, 1998 from $3.1 million for the
quarter ended September 30, 1998. The increase was a result of the goodwill and
assembled workforce recorded in connection with the 17 acquisitions which took
place during the third quarter of 1998.
Comparison of Three Months Ended September 30, 1998 and June 30, 1998
Revenues. Revenues increased $7.6 million, or 72% to $18.1 million for
the quarter ended September 30, 1998 from $10.5 million for the quarter ended
June 30, 1998. The majority of the increase was attributable to iXL's
acquisition program which expanded our headcount and client base. The increase
was also attributable to an increase in the size of client engagements.
Cost of revenues. Cost of revenues increased $4.5 million, or 56% to
$12.6 million for the quarter ended September 30, 1998 from $8.1 million for
the quarter ended June 30, 1998. As a percentage of revenues, cost of revenues
decreased from 77% for the quarter ended June 30, 1998 to 70% from the quarter
ended September 30, 1998. The dollar increase was primarily attributable to the
integration of the companies acquired by iXL since January 1, 1998, as well as
to the increased operating expenses of CFN.
Sales and marketing expenses. Sales and marketing expenses increased $1.7
million, or 58% to $4.6 million for the quarter ended September 30, 1998 from
$2.9 million for the quarter ended June 30, 1998. As a percentage of revenues,
sales and marketing expenses decreased from 27% for the quarter ended June 30,
1998 to 25% for the quarter ended September 30, 1998. The dollar increase was
primarily attributable to the development of iXL's sales and marketing
infrastructure and staff.
General and administrative expenses. General and administrative expenses
increased $1.1 million, or 20% to $7.0 million for the quarter ended September
30, 1998 from $5.9 million for the quarter ended June 30, 1998. As a percentage
of revenues, general and administrative expenses decreased from 56% for the
quarter ended June 30, 1998 to 39% for the quarter ended September 30, 1998.
The dollar increase was primarily attributable to the expansion of management
infrastructure to support the growth in iXL's operations, the general and
administrative costs of the companies acquired by iXL since January 1, 1998 and
associated integration costs.
Research and development expenses. Research and development expenses
decreased $78,000, or 6% to $1.2 million for the quarter ended September 30,
1998 from $1.3 million for the quarter ended June 30, 1998. As a percentage of
revenues, research and development expenses decreased from 13% for the quarter
ended June 30, 1998 to 7% for the quarter ended September 30, 1998.
Depreciation. Depreciation expenses increased $306,000 to $1.3 million
for the quarter ended September 30, 1998 from $955,000 for the quarter ended
June 30, 1998. The increase related to the depreciation of assets of the
companies acquired by iXL since January 1, 1998 and the investments in physical
infrastructure at these companies after acquisition.
Amortization. Amortization expense increased $1.4 million to $3.1 million
for the quarter ended September 30, 1998 from $1.7 million for the quarter
ended June 30, 1998. The increase was a result of the goodwill and assembled
workforce recorded in connection with the 17 acquisitions which took place
during the third quarter of 1998.
45
<PAGE>
Comparison of Three Months Ended June 30, 1998 and March 31, 1998
Revenues. Revenues increased $3.6 million, or 53% to $10.5 million for
the quarter ended June 30, 1998 from $6.9 million for the quarter ended March
31, 1998. The majority of the increase was attributable to iXL's acquisition
program which expanded our headcount and client base. The increase was also
attributable to an increase in the size of client engagements.
Cost of revenues. Cost of revenues increased $3.2 million, or 65% to $8.1
million for the quarter ended June 30, 1998 from $4.9 million for the quarter
ended March 31, 1998. As a percentage of revenues, cost of revenues increased
from 71% for the quarter ended March 31, 1998 to 77% from the quarter ended
June 30, 1998. The increase in dollar and percentage terms was primarily
attributable to the integration of the companies acquired by iXL since January
1, 1998, as well as to the increased operating expenses of CFN.
Sales and marketing expenses. Sales and marketing expenses increased
$851,000, or 42% to $2.9 million for the quarter ended June 30, 1998 from $2.0
million for the quarter ended March 31, 1998. As a percentage of revenues,
sales and marketing expenses decreased from 30% for the quarter ended March 31,
1998 to 27% for the quarter ended June 30, 1998. The dollar increase was
primarily attributable to the development of iXL's sales and marketing
infrastructure and staff.
General and administrative expenses. General and administrative expenses
increased $2.9 million, or 98% to $5.9 million for the quarter ended June 30,
1998 from $3.0 million for the quarter ended March 31, 1998. As a percentage of
revenues, general and administrative expenses increased from 43% for the
quarter ended March 31, 1998 to 56% for the quarter ended June 30, 1998. The
increase in dollar and percentage terms was primarily attributable to the
expansion of management infrastructure to support the growth in iXL's
operations, the general and administrative costs of the companies acquired by
iXL since January 1, 1998 and associated integration costs. Approximately
$800,000 of the increase (representing 8% of second quarter of 1998 revenues)
related to the expansion of CFN's infrastructure.
Research and development expenses. Research and development expenses
increased $415,000, or 46% to $1.3 million for the quarter ended June 30, 1998
from $907,000 for the quarter ended March 31, 1998. As a percentage of
revenues, research and development expenses remained constant at 13% for the
quarters ended March 31, 1998 and June 30, 1998. The dollar increase primarily
relates to the costs of developing Solution Sets and the CFN platform.
Depreciation. Depreciation expenses increased $256,000 to $955,000 for
the quarter ended June 30, 1998 from $699,000 for the quarter ended March 31,
1998. The increase related to the depreciation of assets of the companies
acquired by iXL since January 1, 1998 and the investments in physical
infrastructure at these companies after acquisition.
Amortization. Amortization expense increased $527,000 to $1.7 million for
the quarter ended June 30, 1998 from $1.2 million for the quarter ended March
31, 1998. The increase was a result of the goodwill and assembled workforce
recorded in connection with the four acquisitions which took place during the
second quarter of 1998.
Quarterly Pro Forma Results of Operations
The following table presents the unaudited pro forma quarterly results of
operations, which include adjustments to give effect to the acquisitions of
companies by iXL since January 1, 1998 as if they had occurred on January 1,
1998. Primarily because of iXL's large number of acquisitions in 1998, iXL has
included its quarterly results of operations on a pro forma basis to facilitate
the understanding of the effects of business acquisitions on iXL's operations.
Management believes that the pro forma quarterly results of operations may be
useful to investors in evaluating the financial performance of iXL. The pro
forma quarterly results of operations are not necessarily indicative of the
results of operations that would have been achieved
46
<PAGE>
had the transactions occurred at the beginning of the periods presented and
should not be construed as being
representative of future results of operations. These pro forma amounts include
the same adjustments that are reflected in the pro forma consolidated statement
of operations. You should read these pro forma quarterly results of operations
with the unaudited pro forma condensed consolidated statement of operations and
the historical audited financial statements of iXL and some of the companies
acquired by iXL and related notes included elsewhere in this prospectus. See
"Pro Forma Consolidated Financial Information."
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999
--------- -------- ------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $15,437 $ 18,663 $ 23,800 $ 29,260 $33,012
Cost of revenues........ 10,116 13,251 16,566 18,630 19,583
------- -------- -------- -------- --------
Gross profit.......... 5,321 5,412 7,234 10,630 13,429
Sales and marketing ex-
penses................. 2,537 3,377 4,934 7,828 8,150
General and administra-
tive expenses.......... 6,147 8,835 10,342 14,324 15,725
Research and development
expenses............... 907 1,327 1,244 935 1,058
Depreciation............ 982 1,190 1,421 2,302 2,284
Amortization............ 4,332 4,330 4,408 4,598 4,351
------- -------- -------- -------- --------
Loss from operations.. $(9,584) $(13,647) $(15,115) $(19,357) $(18,139)
======= ======== ======== ======== ========
</TABLE>
Comparison of Three Months Ended March 31, 1999 and March 31, 1998
Revenues. Revenues increased $17.6 million, or 114% to $33.0 million for
the quarter ended March 31, 1999 from $15.4 million for the quarter ended March
31, 1998. This increase was primarily attributable to an increased number of
engagements for existing and new customers, as well as an increased engagement
size. In particular, revenues in the first quarter of 1999 were favorably
impacted by several large engagements during this period. Annualized revenue
for our top 100 clients increased from 44% of total pro forma revenue in the
quarter ended March 31, 1998 to 71% for the quarter ended March 31, 1999.
Cost of revenues. Cost of revenues increased $9.5 million, or 94% to
$19.6 million for the quarter ended March 31, 1999 from $10.1 million for the
quarter ended March 31, 1998. As a percentage of revenues, cost of revenues
decreased from 66% for the quarter ended March 31, 1998 to 59% from the quarter
ended March 31, 1999. The first quarter of 1999 percentage decrease to 59% was
primarily attributable to iXL's emphasis on obtaining contracts with higher
gross margins. Also included in this increase in cost of revenues was $78,000
of non-cash stock option expense.
Sales and marketing expenses. Sales and marketing expenses increased $5.6
million, or 221% to $8.1 million for the quarter ended March 31, 1999 from $2.5
million for the quarter ended March 31, 1998. As a percentage of revenues,
sales and marketing expenses increased from 16% for the quarter ended March 31,
1998 to 25% for the quarter ended March 31, 1999. We increased our sales and
marketing headcount by over 25 professionals during the quarter ended March 31,
1998. Also included in this increase in sales and marketing expenses was
$418,000 of non-cash stock option expense.
General and administrative expenses. General and administrative expenses
increased $9.6 million, or 156% to $15.7 million for the quarter ended March
31, 1999 from $6.1 million for the quarter ended March 31, 1998. As a
percentage of revenues, general and administrative expenses increased from 40%
for the quarter ended March 31, 1998 to 48% for the quarter ended March 31,
1999. The increase in dollar and percentage terms was primarily attributable to
the expansion of management infrastructure to support the growth in iXL's
operations, including the development of CFN. We increased our general and
administrative headcount by over 30 professionals during the three months ended
March 31, 1999. Also included in this increase in general and administrative
expenses was $978,000 of non-cash stock option expense.
47
<PAGE>
Research and development expenses. Research and development expenses
increased $151,000, or 17% to $1.1 million for the quarter ended March 31, 1999
from $907,000 for the quarter ended March 31, 1998. As a percentage of
revenues, research and development expenses decreased from 6% for the quarter
ended March 31, 1998 to 3% for the quarter ended March 31, 1999.
Depreciation. Depreciation expenses increased $1.3 million to $2.3
million for the quarter ended March 31, 1999 from $982,000 for the quarter
ended March 31, 1998. The increase related to the depreciation of assets of the
companies acquired by iXL since January 1, 1998 and the investments in physical
infrastructure at these companies after acquisition.
Amortization. Amortization expense remained relatively constant for the
quarters ended March 31, 1999 and March 31, 1998.
Comparison of Three Months Ended March 31, 1999 and December 31, 1998
iXL did not complete any acquisitions in the fourth quarter of 1998 or
the first quarter of 1999. As a result, iXL's pro forma operating results do
not differ from its historical operating results during these time periods.
Please refer to "--Quarterly Historical Results of Operations--Comparison of
Three Months Ending March 31, 1999 and December 31, 1998" for a comparative
analysis of these quarters.
Comparison of Three Months Ended December 31, 1998 and September 30, 1998
Revenues. Revenues increased $5.5 million, or 23% to $29.3 million for
the quarter ended December 31, 1998 from $23.8 million for the quarter ended
September 30, 1998. This increase was primarily attributable to an increased
number of engagements for existing and new customers, as well as an increased
engagement size. In particular, revenues in the fourth quarter were favorably
impacted by several large engagements during this period. Annualized revenue
for our top 100 clients increased from 55% of total pro forma revenue in the
quarter ended September 30, 1998 to 62% for the quarter ended December 31,
1998. iXL may not experience comparable increases in the remainder of 1999.
Cost of revenues. Cost of revenues increased $2.0 million, or 12% to
$18.6 million for the quarter ended December 31, 1998 from $16.6 million for
the quarter ended September 30, 1998. As a percentage of revenues, costs of
revenues decreased from 70% for the quarter ended September 30, 1998 to 63% for
the quarter ended December 31, 1998. The percentage decrease to 63% was
primarily attributable to iXL's emphasis on obtaining contracts with higher
gross margins and the absence of any acquisitions in this period. The fourth
quarter of 1998 included in cost of revenues $133,000 of non-cash stock option
expense and the third quarter of 1998 included $532,000 of non-cash stock
option expense.
Sales and marketing expenses. Sales and marketing expenses increased $2.9
million, or 59% to $7.8 million for the quarter ended December 31, 1998 from
$4.9 million for the quarter ended September 30, 1998. As a percentage of
revenues, sales and marketing expenses increased from 21% for the quarter ended
September 30, 1998 to 27% for the quarter ended December 31, 1998. The increase
in dollar and percentage terms was primarily attributable to the development of
infrastructure and the creation and expansion of iXL's sales and product
management staffs. We increased our sales and marketing headcount by
approximately 10 professionals during the three months ended December 31, 1998.
Also included in this increase was $813,000 of non-cash expense related to
warrant issuances. Additionally, the fourth quarter of 1998 included in sales
and marketing expenses $928,000 of non-cash stock option expense and the third
quarter of 1998 included $133,000 of non-cash stock option expense. iXL expects
its sales and marketing expenses to increase as it continues to grow.
General and administrative expenses. General and administrative expenses
increased $4.0 million, or 39% to $14.3 million for the quarter ended December
31, 1998 from $10.3 million for the quarter ended September 30, 1998. As a
percentage of revenues, general and administrative expenses increased from 43%
for the quarter ended September 30, 1998 to 49% for the quarter ended December
31, 1998. The increase in dollar and percentage terms was primarily
attributable to the expansion of management infrastructure necessary to support
the growth in iXL's operations, including the development of CFN. We increased
our general and
48
<PAGE>
administrative headcount by over 30 professionals during the quarter ended
December 31, 1998. iXL expects its general and administrative expenses to
increase as it continues to grow. The fourth quarter of 1998 included in
general and administrative expenses $1.4 million of non-cash stock option
expense and the third quarter of 1998 included $805,000 of non-cash stock
option expense.
Research and development expenses. Research and development expenses
decreased $309,000, or 25% to $935,000 for the quarter ended December 31, 1998
from $1.2 million for the quarter ended September 30, 1998. As a percentage of
revenues, research and development expenses decreased from 5% for the quarter
ended September 30, 1998 to 3% for the quarter ended December 31, 1998. The
decrease in dollar and percentage terms was primarily due to the completion of
the final phases of development of Solution Set products.
Depreciation. Depreciation expenses increased $881,000 to $2.3 million
for the quarter ended December 31, 1998 from $1.4 million for the quarter ended
September 30, 1998. The increase was primarily attributable to investments in
physical infrastructure at the acquired companies after acquisition.
Amortization. Amortization expenses increased $190,000 to $4.6 million
for the quarter ended December 31, 1998 from $4.4 million for the quarter ended
September 30, 1998. The increase was attributable to the goodwill and assembled
workforce recorded in connection with the twenty-four acquisitions which took
place during 1998. See "--Acquisition Program."
Comparison of Three Months Ended September 30, 1998 and June 30, 1998
Revenues. Revenues increased $5.1 million, or 28% to $23.8 million for
the quarter ended September 30, 1998 from $18.7 million for the quarter ended
June 30, 1998. This increase was primarily attributable to an increased number
of engagements for existing and new customers, as well as an increased
engagement size. Annualized revenue for our top 100 clients remained relatively
constant for the quarter ended September 30, 1998 as compared to the quarter
ended June 30, 1998.
Cost of revenues. Cost of revenues increased $3.3 million, or 25% to
$16.6 million for the quarter ended September 30, 1998 from $13.3 million for
the quarter ended June 30, 1998. As a percentage of revenues, cost of revenues
decreased from 71% for the quarter ended June 30, 1998 to 70% from the quarter
ended September 30, 1998. The dollar increase was primarily attributable to the
related increase in revenue, and to a lesser extent, a non-cash charge for
stock compensation expense. The third quarter of 1998 included in cost of
revenues $532,000 of non-cash stock option expense and the second quarter of
1998 included $107,000 of non-cash stock option expense.
Sales and marketing expenses. Sales and marketing expenses increased $1.6
million, or 46% to $4.9 million for the quarter ended September 30, 1998 from
$3.4 million for the quarter ended June 30, 1998. As a percentage of revenues,
sales and marketing expenses increased from 18% for the quarter ended June 30,
1998 to 21% for the quarter ended September 30, 1998. The increase in dollar
and percentage terms was primarily attributable to the development of iXL's
sales and product management infrastructure and staff. The third quarter of
1998 included in sales and marketing expenses $133,000 of non-cash stock option
expense and the second quarter of 1998 included $97,000 of non-cash stock
option expense.
General and administrative expenses. General and administrative expenses
increased $1.5 million, or 17% to $10.3 million for the quarter ended September
30, 1998 from $8.8 million for the quarter ended June 30, 1998. As a percentage
of revenues, general and administrative expenses decreased from 47% for the
quarter ended June 30, 1998 to 44% for the quarter ended September 30,1998. The
dollar increase was primarily attributable to the expansion of management
infrastructure to support the growth in iXL's operations, associated
integration costs and the development of CFN. The third quarter of 1998
included in general and administrative expenses $805,000 of non-cash stock
option expense and the second quarter of 1998 included $141,000 of non-cash
stock option expense.
49
<PAGE>
Research and development expenses. Research and development expenses
decreased $83,000, or 6% to $1.2 million for the quarter ended September 30,
1998 from $1.3 million for the quarter ended June 30, 1998. As a percentage of
revenues, research and development expenses decreased from 7% for the quarter
ended June 30, 1998 to 5% for the quarter ended September 30, 1998.
Depreciation. Depreciation expenses increased $231,000 to $1.4 million
for the quarter ended September 30, 1998 from $1.2 million for the quarter
ended June 30, 1998. The increase was primarily attributable to the investments
in physical infrastructure at the acquired companies after acquisition.
Amortization. Amortization expense remained relatively constant for the
quarter ended September 30, 1998 as compared to the quarter ended June 30,
1998.
Comparison of Three Months Ended June 30, 1998 and March 31, 1998
Revenues. Revenues increased $3.3 million, or 21% to $18.7 million for
the quarter ended June 30, 1998 from $15.4 million for the quarter ended March
31, 1998. This increase was primarily attributable to an increased number of
engagements for existing and new customers, as well as an increased engagement
size. Annualized revenue for our top 100 clients increased to 57% of annualized
revenue for the quarter ended June 30, 1998 from 44% of annualized revenue for
the quarter ended March 31, 1998.
Cost of revenues. Cost of revenues increased $3.2 million, or 31% to
$13.3 million for the quarter ended June 30, 1998 from $10.1 million for the
quarter ended March 31, 1998. As a percentage of revenues, cost of revenues
increased from 65% for the quarter ended March 31, 1998 to 71% from the quarter
ended June 30, 1998. The increase in dollar and percentage terms was primarily
attributable to the related increase in revenue and integration of the
companies acquired by iXL since January 1, 1998. The first and second quarters
included $476,000 and $726,000 for the increased operating expenses of CFN,
respectively. Additionally, the second quarter included $107,000 of non-cash
stock option expense.
Sales and marketing expenses. Sales and marketing expenses increased
$840,000, or 33% to $3.4 million for the quarter ended June 30, 1998 from $2.5
million for the quarter ended March 31, 1998. As a percentage of revenues,
sales and marketing expenses increased from 16% for the quarter ended March 31,
1998 to 18% for the quarter ended June 30, 1998. The increase in dollar and
percentage terms was primarily attributable to the development of iXL's sales
and product management infrastructure and staff. The second quarter of 1998
included $97,000 of non-cash stock option expense.
General and administrative expenses. General and administrative expenses
increased $2.7 million, or 44% to $8.8 million for the quarter ended June 30,
1998 from $6.1 million for the quarter ended March 31, 1998. As a percentage of
revenues, general and administrative expenses increased from 40% for the
quarter ended March 31, 1998 to 47% for the quarter ended June 30, 1998. The
increase in dollar and percentage terms was primarily attributable to the
expansion of management infrastructure to support the growth in iXL's
operations, associated integration costs and the development of CFN. The second
quarter of 1998 included $1.9 million and the first quarter of 1998 included
$1.9 million for the development CFN infrastructure. The second quarter
included $141,000 of non-cash stock option expense.
Research and development expenses. Research and development expenses
decreased $420,000, or 46% to $1.3 million for the quarter ended June 30, 1998
from $907,000 for the quarter ended March 31, 1998. As a percentage of
revenues, research and development expenses increased from 6% for the quarter
ended March 31, 1998 to 7% for the quarter ended June 30, 1998.
Depreciation. Depreciation expenses increased $208,000 to $1.2 million
for the quarter ended June 30, 1998 from $982,000 for the quarter ended March
31, 1998. The increase was primarily attributable to the investments in
physical infrastructure at the acquired companies after acquisition.
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Amortization. Amortization expense remained relatively constant for the
quarter ended June 30, 1998 as compared to the quarter ended March 31, 1998.
Annual Historical Results of Operations
Years Ended December 31, 1998 and December 31, 1997
The following discussion relates to iXL's actual operating results for
the periods noted. These operating results include the operations of the
companies acquired by iXL during the periods referenced from the date of
acquisition only. As a result, we believe the operating results for the year
ended December 31, 1998 are not comparable to the operating results for the
year ended December 31, 1997. See "Pro Forma Consolidated Financial
Information."
Revenues. Revenues increased $45.8 million, or 241% to $64.8 million for
the year ended December 31, 1998 from $19.0 million for the year ended December
31, 1997. This increase was attributable to iXL's acquisition program, an
increase in the size and number of client engagements, and, to a lesser extent,
the development and growth of industry practice groups. CFN had no revenue in
1997 and accounted for $251,000 of iXL's 1998 revenues.
Cost of revenues. Cost of revenues increased $32.9 million, or 290% to
$44.2 million for the year ended December 31, 1998 from $11.3 million for the
year ended December 31, 1997. As a percentage of revenues, cost of revenues
increased from 60% for the year ended December 31, 1997 to 68% for the year
ended December 31, 1998. The increase in dollar and percentage terms was
primarily attributable to the integration of the companies acquired by iXL
since January 1, 1998 and, to a lesser extent, employee training and the
development of CFN. CFN had no revenues or cost of revenues during 1997.
Sales and marketing expenses. Sales and marketing expenses increased
$13.4 million, or 344% to $17.3 million for the year ended December 31, 1998
from $3.9 million for the year ended December 31, 1997. As a percentage of
revenues, sales and marketing expenses increased from 21% for the year ended
December 31, 1997 to 27% for the year ended December 31, 1998. This increase in
dollar and percentage terms was primarily attributable to the continued
development and expansion of iXL's sales and marketing infrastructure and
staff. Through acquisition and internal growth, iXL's sales staff increased
from 40 employees at the end of 1997 to 105 employees at the end of 1998. In
addition, we hired the Executive Vice President for Worldwide Marketing of iXL,
Inc. During 1998 we expanded the corporate sales and marketing departments and
related support staff to provide corporate oversight and additional support for
the iXL offices. We also hired specialized salespeople in iXL's key industry
groups. Also included in this increase was $813,000 of non-cash expense related
to warrant issuances.
General and administrative expenses. General and administrative expenses
increased $21.1 million, or 231% to $30.2 million for the year ended December
31, 1998 from $9.1 million for the year ended December 31, 1997. As a
percentage of revenues, general and administrative expenses decreased from 48%
for the year ended December 31, 1997 to 47% for year ended December 31, 1998.
The dollar increase was primarily attributable to the companies acquired by iXL
since January 1, 1998, associated integration costs and the expansion of
management infrastructure to support the growth in iXL's operations. Also
included in this increase was $1.4 million of non-cash stock option expense.
Research and development expenses. Research and development expenses
decreased $412,000, or 9% to $4.4 million for the year ended December 31, 1998
from $4.8 million for the year ended December 31, 1997. As a percentage of
revenues, research and development expenses decreased from 25% for the year
ended December 31, 1997 to 7% for the year ended December 31, 1998. Research
and development costs in 1998 were primarily related to the continued
development of an automated quote system at CFN. The purchase price of BoxTop
Interactive, Inc. included a $2.4 million charge to in-process research and
development expenses in 1997 relating to an Internet-based videoconferencing
product under development which had not reached
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technological feasibility. Certain related core technology was valued as
existing technology and not included in the value of the acquired in-process
technology. The value of the purchased in-process technology was determined by
estimating the present value of the projected net cash flows to be generated by
the development efforts completed as of the acquisition. Revenue, expenses, and
other cash flow items associated with commercialization of the product were
estimated for a discrete projection period. Strong revenue growth was projected
for this product through 1999; thereafter, revenue was expected to increase
moderately each year through 2001. The cash flows were then discounted to
present value at 35%, a rate of return that considers the relative risk of
achieving the projected cash flows and the time value of money. Finally, a
stage of completion factor was applied to the sum of the present values of the
cash flows in the discrete projection period. Application of the stage of
completion factor correctly excludes from the value of in-process technology
that value associated with remaining development tasks (which are not in-
process). The stage of completion factor was calculated giving consideration to
the costs incurred to date on the in-process technology relative to the total
anticipated costs for the project. Additionally, consideration of the level of
difficulty of completed development tasks relative to those remaining was also
made. In the fourth quarter of 1998, due to the introduction of competing
products utilizing alternative technologies into the market, management decided
to cease further investment in the development of this product.
Depreciation. Depreciation expenses increased $3.8 million to $5.2
million for the year ended December 31, 1998 from $1.4 million for the year
ended December 31, 1997. The increase related to the depreciation of assets of
the companies acquired by iXL since January 1, 1997 and investments in physical
infrastructure at these companies after acquisition.
Amortization. Amortization expenses increased $5.4 million to $10.6
million for the year ended December 31, 1998 from $5.2 million for the year
ended December 31, 1997. The increase was a result of the goodwill and
assembled workforce recorded in connection with the 24 acquisitions which took
place during 1998 and the four acquisitions which took place during 1997.
Interest expense. Interest expense increased $600,000 to approximately
$800,000 in 1998 primarily due to borrowings under the iXL's credit facility.
Years Ended December 31, 1997 and Eight Months Ended December 31, 1996
The operating results for the eight months ended December 31, 1996 date
from iXL's inception in March 1996. Due to this shorter operating period, iXL's
early stage of development during this period, and the numerous acquisitions
effected during 1996 and 1997, iXL believes the operating results for the year
ended December 31, 1997 are not comparable to the operating results in the
eight months ended December 31, 1996.
Revenues. Revenues increased $13.6 million, or 253% to $19.0 million for
the year ended December 31, 1997 from $5.4 million for the eight months ended
December 31, 1996. The acquisitions of BoxTop Interactive, Inc., Swan
Interactive Media, Inc. and The Whitley Group, Inc. during 1997 accounted for
$5.1 million of the increase in revenues. A full year of operations and growth
in iXL's Atlanta and Memphis offices accounted for the remaining increase.
Cost of revenues. Cost of revenues increased $7.7 million, or 217% to
$11.3 million for the year ended December 31, 1997 from $3.6 million for the
eight months ended December 31, 1996. As a percentage of revenues, cost of
revenues decreased from 66% for the eight months ended December 31, 1996 to 60%
for the year ended December 31, 1997. The acquisitions of BoxTop Interactive,
Inc., Swan Interactive Media, Inc. and The Whitley Group, Inc. during 1997
accounted for $2.9 million of the increase in cost of revenues. A full year of
operations and growth in iXL's Atlanta and Memphis offices accounted for the
remaining dollar increase.
Sales and marketing expenses. Sales and marketing expenses increased $3.1
million, or 381% to $3.9 million for the year ended December 31, 1997 from
$812,000 for the eight months ended December 31, 1996. As a percentage of
revenues, sales and marketing expenses increased from 15% for the eight months
ended
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December 31, 1996 to 21% for the year ended December 31, 1997. The acquisitions
of BoxTop Interactive, Inc., Swan Interactive Media, Inc. and The Whitley
Group, Inc. during 1997 and CFN in late 1996 accounted for $2.3 million of the
increase in sales and marketing expenses. A full year of operations and growth
in iXL's Atlanta and Memphis offices accounted for the remaining increase in
dollar and percentage terms.
General and administrative expenses. General and administrative expenses
increased $7.9 million, or 631% to $9.1 million for the year ended December 31,
1997 from $1.2 million for the eight months ended December 31, 1996. As a
percentage of revenues, general and administrative expenses increased from 23%
for the eight months ended December 31, 1996 to 48% for the year ended December
31, 1997. The acquisitions of BoxTop Interactive, Swan Media, The Whitley Group
and CFN during 1997 accounted for $5.5 million of the increase in general and
administrative expenses. A full year of operations and growth in iXL's Atlanta
and Memphis offices accounted for the remaining increase in dollar and
percentage terms.
Research and development expenses. Research and development expenses were
$4.8 million for the year ended December 31, 1997 and zero for the eight months
ended December 31, 1996. This included $2.4 million from the acquisition of
BoxTop Interactive, Inc. which was allocated to in-process technology. The
remaining expense is primarily related to the development of CFN's
infrastructure.
Depreciation. Depreciation expenses increased $1.0 million to $1.4
million for the year ended December 31, 1997 from $372,000 for the eight months
ended December 31, 1996. The increase was related to the depreciation of assets
of the companies acquired by iXL since January 1, 1997 and investments in
physical infrastructure at the companies acquired by iXL since January 1, 1997
after acquisition. iXL made significant investments in the acquired companies
after their acquisition to expand and improve office space and combine multiple
acquisitions within metropolitan areas. We also invested in computer and
telecommunications equipment at the newly acquired offices to provide
interoffice connectivity.
Amortization. Amortization expenses increased $4.3 million to $5.2
million for the year ended December 31, 1997 from $928,000 for the eight months
ended December 31, 1996. The increase primarily was attributable to the
amortization of goodwill and intangible assets and assembled workforce recorded
in connection with the four 1997 acquisitions. The increase is also
attributable to a charge related to the discontinued use of a brand name and
the result of a full year of operations in 1997. In connection with the
acquisition of BoxTop Interactive, Inc., in May 1997, $2.1 million of the
purchase price was allocated to a brand name. In December 1998, iXL
discontinued use of this brand name and wrote off the remaining unamortized
balance of $1.7 million.
Interest expense. Interest expense from capital leases, building mortgage
and loans from stockholders resulted in the increase in interest expense of
$208,000 in 1997 compared to 1996.
Income tax. The recognition of the income tax benefit of $1.6 million for
1997 is due to the net operating losses incurred by iXL which were utilized to
offset certain long-term deferred tax liabilities acquired in the acquisitions.
As of December 31, 1997 and 1998, iXL had net operating loss
carryforwards for federal income tax purposes of approximately $11.2 million
and $46.6 million, respectively. iXL acquired loss carryforwards of
approximately $1.6 million in 1997 and $3.5 million in 1998. The carryforwards
expire in varying amounts through 2018. The use of acquired net operating loss
carryforwards is restricted in accordance with Internal Revenue Service
regulations. A valuation allowance has been recorded against iXL's net deferred
tax asset as management believes it is more likely than not that they will not
be realized. See Note 10 to iXL's Consolidated Financial Statements.
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Liquidity and Capital Resources
Since inception, iXL has financed its operations primarily through
private sales of capital stock, which totaled approximately $132.2 million in
aggregate net proceeds through April 30, 1999, including approximately $22.7
million from the sale of 22,825 shares of Class A Convertible Preferred Stock
in January 1999. CFN also expects to receive net proceeds of approximately
$49.8 million from the sale of 16,190,475 shares of CFN's Series B Convertible
Preferred Stock in the second quarter of 1999. On July 29, 1998, iXL entered
into a credit facility with Chase Manhattan Bank providing for borrowings of up
to $20 million. At December 31, 1998, approximately $20 million of borrowings
were outstanding under this credit facility. In January 1999, iXL repaid all of
the approximately $9.4 million then outstanding under the revolving facility of
the credit facility. Additionally, iXL expects to repay all of the
approximately $10 million outstanding under the term facility of the credit
facility with a portion of the net proceeds of the offering. The $10 million
term facility commitment will terminate upon this payment, and only the
revolving commitment of $10 million will remain available under the credit
facility. iXL's obligations under the credit facility are secured by
substantially all of the assets of iXL and its domestic subsidiaries other than
CFN and CFN's subsidiaries. These obligations are also secured by all of the
stock of iXL's domestic subsidiaries, other than CFN's subsidiaries, and 65% of
the stock of iXL's foreign subsidiaries. Borrowings under the credit facility
accrue interest at a rate of 2% plus the greater of Chase Manhattan Bank's
prime rate or .5% plus the weighted average of the rates on overnight Federal
funds transactions. As of April 30, 1999, the interest rate on the outstanding
balance was 9.75%.
At March 31, 1999, iXL had approximately $13.9 million in cash and cash
equivalents. For the period from inception to March 31, 1999, iXL used
approximately $62.9 million, $27.9 million and $34.1 million to fund operating
activities, acquisition activities, and capital expenditures, respectively.
These expenditures were financed primarily with proceeds of sales of iXL's
capital stock.
In addition, at March 31, 1999, iXL had outstanding commitments for
capital expenditures totaling approximately $3.2 million, primarily related to
the expansion and improvement of its Atlanta, New York and Boston offices. The
remainder of iXL's significant commitments consist of obligations outstanding
under operating leases.
At December 31, 1998, the approximate future minimum lease payments for
noncancelable operating leases are:
<TABLE>
<CAPTION>
Year Amount
---- --------------
(in thousands)
<S> <C>
1999....................................................... $ 6,586
2000....................................................... 5,862
2001....................................................... 5,485
2002....................................................... 5,264
2003....................................................... 4,112
Thereafter................................................. 15,832
-------
$43,141
=======
</TABLE>
iXL believes its available cash resources and credit facilities, combined
with the net proceeds of this offering, the investment by General Electric in
common stock and General Electric's investment in CFN's Series B Convertible
Preferred Stock, will be sufficient to meet its anticipated working capital and
capital expenditure requirements for at least the next 12 months. However, iXL
may need to raise significant additional funds sooner in order to support its
growth, develop new or enhanced services and products, respond to competitive
pressures, acquire complementary businesses or technologies or take advantage
of unanticipated opportunities. See "Risk Factors--Risks Related to iXL's
Business--Failure to raise necessary capital could restrict our growth, limit
our development of new products and services and hinder our ability to
compete."
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Year 2000 Risk
Many currently installed computer systems and software products are coded
to accept only two-digit entries to identify a year in the date code field.
Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they may not be able to distinguish between 20th century
dates and 21st century dates. Accordingly, many companies, including iXL and
iXL's customers, potential customers, vendors and strategic partners, may need
to upgrade their systems to comply with applicable "Year 2000" requirements.
Because iXL and its clients are dependent, to a very substantial degree,
upon the proper functioning of its and their computer systems, a failure of its
or their systems to correctly recognize dates beyond December 31, 1999 could
materially disrupt operations, which could materially and adversely affect
iXL's business, results of operations and financial condition. Additionally,
iXL's failure to provide Year 2000 compliant products and services to our
clients could result in financial loss, reputation harm and legal liability.
In 1998, iXL formed a Year 2000 Assessment and Contingency Planning
Committee to review both its information technology systems, hardware and
software, and its non-information technology systems, and where necessary to
plan for and supervise the remediation of those systems. The Y2K Committee is
headed by the Chief Information Officer of iXL, Inc. Other members of the Y2K
Committee include two full-time outside consultants and one full-time and four
part-time company employees. The Y2K Committee, utilizing iXL's iD5 engagement
methodology, has divided iXL's Year 2000 efforts into five phases: discovery
(currently complete), definition (currently 50% complete), design (currently
60% complete), development (currently 60% complete) and deployment. Each of
these phases is scheduled to be complete by the end of June 1999. iXL believes
it has identified its mission critical systems. iXL has obtained confirmations
from the providers of these systems that they are Year 2000 compliant. iXL
expects to conduct internal tests of such systems as part of its Year 2000
efforts.
iXL is researching Year 2000 compliance of all existing iXL systems
supplied by third party providers. Where Year 2000 compliance documentation is
not publicly available, iXL is issuing written requests to these providers to
certify Year 2000 compliance. iXL has already obtained written certification
regarding the critical hardware and software systems used to assemble client
solutions or to support iXL's internal electronic infrastructure. iXL has not
yet obtained written certification regarding facilities items such as elevators
and other non-standard applications and systems that are not prevalent
throughout all iXL offices.
iXL is testing all of its other systems internally. Although iXL has not
yet completed this testing, iXL has not yet identified any older systems of the
varieties more likely susceptible to Year 2000 problems. Consequently, iXL
believes its greatest potential exposure will be presented by the failure of
external systems such as utilities and telecommunications. Further, if iXL's
clients experience Year 2000 problems, iXL may be precluded from continuing to
provide services for these clients until the problems are resolved. Internally,
iXL believes its greatest potential exposure would be presented by its
accounting systems, although these functions can be handled manually without
interrupting iXL's business.
iXL does not intend to examine third party readiness, although CFN is
examining the readiness of third parties that provide date sensitive
information critical to CFN's business. iXL is also not researching its
clients' readiness, except to the extent clients request iXL to examine
solutions delivered by iXL.
iXL is developing contingency plans for critical individual information
technology systems and non-information technology systems for implementation,
if required, due to Year 2000 risks not fully resolved by iXL's Year 2000
program. Management currently believes that the Year 2000 risk will not pose
significant operational problems for iXL's computer systems. However, there is
no guarantee that iXL's Year 2000 program, including consulting with third
parties, will avoid any material adverse effect on iXL's operations, customer
relations or financial condition. iXL estimates the total cost of its Year 2000
program to be approximately $165,000, $75,000 of which has been incurred as of
April 30, 1999. However, there is no guarantee that the actual costs incurred
will not be materially higher than this estimate. See "Risk Factors--Risks
Related to iXL's Business--Year 2000 risks may adversely affect our business."
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New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. iXL will be required to adopt FAS 133 for the quarter ended March
31, 2000. iXL has not entered into any derivative financial instruments.
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BUSINESS
Overview
We are a leading Internet services company which provides Internet
strategy consulting and comprehensive Internet-based solutions to Fortune 1000
companies and other corporate users of information technology. We help
businesses identify how the Internet can be used to their competitive advantage
and use our expertise in creative design and systems engineering to design,
develop and deploy advanced Internet applications and solutions.
iXL was founded in March 1996 and in May 1996 made its first acquisitions
through the consolidation of four complimentary multimedia and interactive
services companies. Later in 1996, to implement iXL's move into the Internet
services industry, iXL acquired its first Internet-related business. iXL
acquired four additional complimentary services companies in 1997 and 24 more
in 1998. These acquisitions, as well as substantial hiring of new employees,
resulted in iXL's current composition. iXL is a Delaware corporation.
In late 1996, iXL also acquired CFN, which at that time resembled a
traditional insurance agency that allowed corporate executives to comparison
shop for insurance and mortgages. Under iXL's direction, CFN quickly adopted
Internet strategies which have resulted in CFN's current composition as an e-
commerce platform for marketing financial services via corporate intranets and
the Internet.
Industry Background
Growth of the Internet
The Internet has grown rapidly in recent years, spurred by developments
such as easy-to-use Web browsers, a large and growing installed base of
advanced personal computers, the adoption of faster and more cost-efficient
networks, the emergence of compelling Web-based content and commerce
applications, and the growing sophistication of the user base. According to
International Data Corporation, a leading research firm, the number of Internet
users was 98 million worldwide at the end of 1998, and will continue to grow to
320 million by the end of 2002. The broad acceptance of the Internet has also
led to the emergence of intranets and extranets as new global communications
and commerce environments, representing a significant opportunity for
enterprises to interact in new and different ways with customers, employees,
suppliers and partners. Intranets are secure websites accessible only within a
given company, and extranets are intranets also available to select outsiders.
Growth of E-Commerce
The initial commercial use of the Internet was as an informational and
advertising medium, commonly referred to as "brochureware." From this origin
the Internet is evolving into a platform for conducting transactions and
establishing virtual storefronts and trading networks. Companies have also
begun to expand their use of efficient and low-cost Internet-based technologies
to enhance traditional operations such as customer service, supply chain
management, employee training and communication. In addition, companies such as
eBay, Amazon.com and E*Trade have extended beyond conventional models for the
sale and delivery of goods and services by operating an Internet-only business
and maintaining a limited physical presence. International Data Corporation
expects dramatic growth in total e-commerce transaction volume, projecting an
increase from $32 billion in 1998 to $426 billion in 2002.
Market for Strategic Internet Services
The Internet represents a revolutionary and powerful new opportunity for
business. Many companies that do not currently utilize the Internet are being
forced to reevaluate their business models and to adopt or supplement existing
Internet-based business solutions. The development and implementation of
Internet-based
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solutions require the successful integration of strategy consulting, creative
design and systems engineering skills. Historically, expertise in these areas
either has not existed within an organization or has been located in disparate
functional areas. Accordingly, many businesses have chosen to outsource a
significant portion of the development, design and maintenance of their
intranets, extranets, websites and e-commerce applications to independent
service providers who can capitalize on their accumulated strategic, creative
and technical expertise. Such outsourcing needs have generated worldwide demand
for Internet professional services, which International Data Corporation
estimates will grow from $7 billion in 1998 to $44 billion in 2002. See "Risk
Factors--Risks Related to the Strategic Internet Services Industry--The
developing market for strategic Internet services and the level of acceptance
of the Internet as a business medium will affect our business."
Companies increasingly are discovering that many traditional service
providers lack the requisite expertise to implement comprehensive Internet-
based solutions. Many information technology services providers lack the
creative and marketing skills required to build audiences and deliver unique
and compelling content and also lack Internet expertise and implementation
capabilities. Advertising and marketing communications firms typically lack the
extensive technical skills and systems integration expertise required to
produce the increasingly complex solutions demanded by clients. Many strategy
consulting firms lack Internet expertise, marketing perspective and
implementation capabilities to deliver comprehensive solutions.
A number of Internet services firms have emerged to address these needs.
However, many of these smaller providers tend to develop expertise in a limited
number of industry segments because of the relatively small number of Internet
solution engagements they have completed. Furthermore, the ability of many of
these firms to service clients is constrained by their smaller size, limited
geographic scope and lack of capital resources. In addition, many of these
firms lack the depth, management and infrastructure necessary to develop the
capability required to meet the increasingly larger and more complex needs of
an expanding, sophisticated client base. See "Risk Factors--Risks Related to
the Strategic Internet Services Industry--We operate in a highly competitive
market with low barriers to entry which could limit our market share and harm
our financial performance" and "--The developing market for strategic Internet
services and the level of acceptance of the Internet as a business medium will
affect our business."
We believe that as businesses' familiarity and sophistication with
Internet technologies grow, so will the need for Internet services providers
who can help formulate a focused, strategic and integrated approach to the
implementation of Internet-based business solutions that enhance their clients'
businesses. We believe that the rapidly increasing demand for Internet
solutions, combined with the inability of many current providers to integrate
the strategic, creative and technical skills required by clients, has created
significant market opportunities for strategic Internet services providers such
as iXL.
iXL Solution
iXL uses its expertise in strategy consulting, creative design and
systems engineering to provide services that help clients identify and
capitalize on Internet-driven opportunities to improve and expand their
businesses. Key elements of the iXL solution are:
. Comprehensive Strategic Internet Services. We provide a
comprehensive set of strategic Internet services to clients
looking to enhance their existing business model by integrating
their business processes with an Internet strategy. We believe our
advantage lies in our ability to assist clients in the development
of an appropriate Internet strategy and then to deploy the
appropriate Internet services necessary to implement that
strategy. Typical iXL engagements include the strategic
application of e-commerce solutions to enhance existing business
processes, the identification of new business processes and
opportunities created by the Internet, the use of creative design
and marketing to acquire, cross-sell and retain consumers online,
and the integration of Web-based applications with our client's
existing systems. We believe that the breadth and focus of our
service offerings allow us to meet our clients' Internet needs
from strategy to deployment in an efficient and cohesive manner.
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. Sophisticated Technology Solutions. We use our extensive
engineering capabilities to deliver complex Internet-based
business solutions. Our engineers provide application development
and systems integration services by employing proven Internet
technologies such as Java, XML, Perl, CGI, C and C++. Typical
solutions include developing Internet-enabled business
applications, integrating web-based applications with our client's
existing systems and databases, and building sophisticated e-
commerce platforms. During 1998, to support our growing technology
development capability, we substantially increased our engineering
staff from approximately 50 to over 300 individuals through
acquisitions and new hires. We have also established strategic
affiliations with leading technology vendors such as Microsoft,
Intel, Sun, and Oracle. These affiliations typically allow us
early access to training, product support and technology developed
by these companies.
. Geographic Coverage and Benefits of Scale. We believe our
geographic coverage allows us to better serve our clients on a
local basis, helping to forge strong, long-term client
relationships and service the widespread offices of its clients
and their customers and vendors. As of April 30, 1999, iXL had
offices in Atlanta, Georgia; New York, New York; Los Angeles, San
Francisco, San Diego, and Santa Clara, California; Washington,
D.C.; Chicago, Illinois; Boston, Massachusetts; Denver, Colorado;
Charlotte, North Carolina; Richmond, Virginia; Memphis, Tennessee;
Norwalk, Connecticut; London, England; Berlin and Hamburg,
Germany; and Madrid, Spain. Our internal information technology
infrastructure links our various offices and leverages the
expertise of our professionals throughout the organization. Our
scale enables us to handle larger, more complex engagements,
expand our base of knowledge and best practices and employ more
experts, spreading their cost and expertise over a larger
enterprise.
. Use of Engagement Methodology (iD5) to Deliver Solutions. We
utilize an engagement methodology known as iD5 which has five
stages: Discover, Define, Design, Develop, Deploy. iD5 governs and
directs all phases of project management from initial engagement
definition to final solutions delivery. These procedures are
updated periodically to reflect new best practices identified
throughout iXL. The goal of iD5 is to provide consistent
procedures for all engagement phases which encourage usage of best
practices, while providing clients with greater clarity of
expectations, regular progress reports, and a higher degree of
project organization. Accordingly, we believe iD5 helps us achieve
on-time and on-budget solutions, capture our best practices and
integrate acquired businesses.
. Multidisciplined Team Approach. We staff engagements with a
multidisciplined team of professionals including project managers,
strategic consultants, creative designers, information
architects--professionals whose expertise includes both artistic
design and technology-- industry experts and software engineers.
By assembling these multidisciplined teams of professionals, we
believe that we provide comprehensive Internet-based solutions to
clients.
. Experienced Senior Executives. Our senior management team is
highly experienced in a variety of disciplines relevant to our
ability to grow and to service the needs of our clients. Our
senior executives have managed both emerging and mature businesses
in a variety of industries, including media and entertainment,
technology, travel and financial services. Our management also
includes an experienced acquisition team that has successfully
acquired and integrated a large number of businesses in various
industries.
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iXL Strategy
iXL's goal is to become the leading provider of strategic Internet
services to Fortune 1000 companies and other corporate users of information
technology. To achieve this objective, we are pursuing the following
strategies:
. Leverage and Expand Industry Expertise. We have assembled industry
practice groups including experienced professionals with expertise
in the business practices and
processes of specific industries. We believe our industry
expertise enables us to provide effective Internet strategy
consulting and services tailored to the special needs of our
clients in these industries. In addition, industry expertise
reduces the learning curve on new engagements, improving
efficiency of implementation and reducing project delivery times.
Our strategy is to expand our existing industry practice groups by
recruiting senior professionals from major consulting firms and
companies in the relevant industries. We also acquire companies
with specific industry expertise. We have established practice
groups, which are in varying stages of development and staffing,
in the Banking & Financial Services, Media & Entertainment,
Travel, Telecommunications and Healthcare industries. We believe
that these industries have been leaders in the utilization of
Internet-enabled technologies. See "--iXL Industry Practice
Groups."
. Continue to Develop Technology Capabilities. We have significant
capabilities in systems engineering and applications development
which we use to deliver complex Internet-based business solutions.
We intend to hire additional software engineers and develop new
technology skill-sets to deliver the best possible solutions and
meet the evolving needs of clients. Our research and development
team is dedicated to identifying, testing and defining new
Internet-based technologies. We have developed software
applications that can be re-used for more than one client or for
more than one engagement. This library of reusable applications
continues to grow as projects are completed. We intend to use
these software applications to deliver solutions rapidly and cost-
effectively. We believe this will be a significant advantage when
providing services under fixed-price contracts.
. Expand Geographic Coverage. Since our inception, we have expanded
our geographic presence aggressively through a combination of
acquisitions and internal growth. iXL has 18 offices located
throughout the United States and in England, Germany and Spain. We
believe our broad geographic coverage allows us to serve our
clients on a local basis, helping to forge strong, long-term
client relationships, and to serve the widespread offices of our
clients and their customers and vendors. Our strategy is to
continue our geographic expansion through additional acquisitions
and external hiring.
. Capture and Disseminate Knowledge and Best Practices. Our
employees have developed a broad base of knowledge and best
practices through numerous strategic Internet services engagements
and from prior experience. Our strategy is to capture this broad
range of knowledge and best practices for dissemination throughout
iXL, and to continue to expand these capabilities through
acquisitions and external hiring. During the course of its client
engagements, we also identify distinct solutions which can be
developed into and distributed as new iXL Solution Sets. We
accomplish this dissemination in part through frequent iXL
Summits, where employees within a given discipline meet in person
to receive education and share best practices. Our Technical
Operations Center also plays a critical role in the dissemination
process, linking all of our local offices via a comprehensive
Internet protocol-based network combined with a centralized
knowledge management system.
. Expand Client Relationships. We have established business
relationships with a diverse base of clients. Our strategy is to
leverage our industry expertise, technology skills, and scale by
expanding the scope of existing client relationships into broader
engagements, including
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Internet strategy consulting, creative design, systems engineering
and application development services.
. Attract, Train and Retain Experienced Professionals. Our growth
and our ability to provide strategic Internet services are based
in large part on our ability to attract, train and retain
experienced professionals. Our strategy is to expand our existing
expertise by recruiting senior professionals from major consulting
firms, creative design firms and information technology services
firms as well as from other strategic Internet services companies.
We maintain an informal, team-driven and results-oriented culture
that is attractive to energetic, talented professionals and
provides incentives for our employees through a competitive
compensation plan, equity ownership and our stock option plans. We
provide training on a continuing basis for our employees through
our iXL University programs, which are designed to address the
rapidly changing technological environment in which our employees
are engaged.
. Pursue Strategic Acquisitions. We intend to continue to pursue
strategic acquisitions that provide additional skilled management,
technical and creative personnel, client relationships,
technological skills, industry expertise and geographic coverage.
iXL Engagement Methodology (iD5)
We have developed an engagement methodology known as "iD5" which governs
and directs all phases of project management from initial engagement
definition to final solutions delivery. iD5 consists of five distinct, clearly
delineated stages which provide our clients with clear expectations of both
the engagement process and the solutions to be provided. The five stages are:
. Discover. Collect information relevant to the engagement
objective.
. Define. Formulate an Internet business strategy.
. Design. Refine and document specifications of the Internet
business strategy.
. Develop. Build elements required to implement the Internet
business strategy.
. Deploy. Deliver final solution(s).
iD5 enables us to effectively serve our clients by:
. clarifying client expectations;
. promoting consistent and efficient service;
. combining strategic, creative and technical capabilities;
. minimizing the time it takes to deliver our services; and
. establishing best practices to be followed throughout iXL.
iD5 is periodically revised and improved to assimilate and deploy new
tools and new best practices developed in the course of iXL's many engagements
throughout all of our offices. Through this process, all iXL offices benefit
from the knowledge gained in the course of engagements by any iXL office.
iXL Services
We believe we offer clients a single source for the comprehensive range
of services required to identify, design, develop and deploy Internet-based
business solutions which complement or expand conventional business processes.
Our services include Internet strategy consulting, Internet-based business
solutions, and our iXL Solution Sets.
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Internet Strategy Consulting
We offer consulting services to our clients with the objective of
developing Internet solutions that augment a client's overall business
strategy. We offer Internet strategy consulting that combines our knowledge of
industry dynamics and business processes with an understanding of the client's
specific needs. We have established practice groups, which are in varying
stages of development and staffing, in the Banking & Financial Services, Media
& Entertainment, Travel, Telecommunications and Healthcare industries. We also
employ strategy consultants with general business and Internet expertise. We
presently employ approximately 70 professionals who provide strategy consulting
services.
While Internet strategy consulting directly generates only a small
percentage of our revenues, we believe that Internet strategy consulting will
be an important service offering which will differentiate iXL from many of our
competitors. By offering strategy consulting services, we believe we can
leverage the consulting and strategy planning expertise of our various industry
experts into engagements which will utilize the services provided by other iXL
practice groups.
Internet-Based Business Solutions
Our revenues are principally derived from the design and delivery of
Internet-based business solutions. These solutions typically are Web-based
applications, many of which integrate with a client's existing computer
systems. These solutions can incorporate multiple capabilities including
Internet strategy consulting, creative design, information architecture,
software engineering, project management, and audio, video and animation
production.
Among our Internet-based business solutions, we offer e-commerce systems
and services, business information management systems, interactive learning
environments, digital media services, and website development and hosting
services.
. E-Commerce Systems and Services. We design, develop and deploy
sophisticated e-commerce applications for bringing buyers and
sellers together via the Internet. In 1998, we created over 60
different e-commerce applications on behalf of our clients,
ranging from online retail sites to electronic procurement
systems. Our strength in e-commerce lies in our ability to
integrate third-party software with a client's existing computing
and network infrastructure to create a robust e-commerce
environment for the client's customers and prospects. Our
technology group utilizes a set of core e-commerce enabling
technologies from companies, including:
. Microsoft and Netscape, for e-commerce server applications;
. Oracle, Sybase and Informix, for database platform
development; and
. Sun and Hewlett-Packard, for networking products and
services.
We have created our own e-commerce applications for specific
client needs. We also work with many third-party software
companies, such as CyberCash, Accipiter and NetGravity which have
developed more general applications for conducting different
aspects of e-commerce ranging from security to online transaction
payments processing.
. Business Information Management Systems. We design and develop
sophisticated computer based business information management
systems. These include database-driven websites that help clients
manage their customer, supplier, and vendor relationships more
effectively and provide secure database access. Some of these
websites also have the capacity to recognize and profile the types
of information a user is typically interested in, and to provide
that information automatically to the user during future visits to
the site. As part of our Business Information Management Systems
capability, we develop intranets and extranets which enable our
clients to communicate with employees, customers, suppliers and
vendors, as well as track and store critical business data and
other information.
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. Interactive Learning Environments. We have developed expertise in
providing education and training using interactive multimedia and
Web technology. We employ instructional designers who create and
adapt training materials for use in multimedia and online
environments. Interactive learning environments have been
attractive to service industry organizations which are
geographically dispersed, rely on employees with a common base of
skill sets and experience high turnover. We have developed several
customized solutions to meet the needs of our clients and are
developing an additional iXL Solution Set to facilitate the
creation and publication of interactive training courses. iXL's
learning environments utilize RealNetworks G-2 streaming,
Microsoft Media Technologies, Macromedia Dreamweaver, Flash,
TopClass and Podium Web-based training systems. See "--iXL
Solution Sets" and "--Employees."
. Digital Media Services. We have developed solutions that combine
video, audio, animation, graphics and content into digital media
presentations. These media are also frequently utilized to create
Internet-based presentations. We possess expertise in numerous
post-production editing technologies. These technologies are used
for the assembly of video and audio content used in many of our
clients' Internet applications. We also provide video production
services including the design, scripting, production, testing and
distribution of audio and video clips and full broadcast-quality
presentations. In addition, we own the worldwide perpetual rights
to a comprehensive stock video library of over 500,000 clips.
Examples of our work in this area include the development of new
capabilities for delivering audio and video content via the
Internet for Real Networks, developing specialized data management
software for Object Design and the delivery of high resolution
imagery via the Internet for Live Pictures. We also have an
Enhanced Television (E-TV) group that is developing technology,
applications, content and expertise for use in the emerging
industry of digitally delivered Internet Protocol-based
information and entertainment. Currently, we are working with
media, technology and telecommunications companies to design and
build the navigational infrastructures, business models and
strategic relationships required for success in the E-TV
marketplace.
. Traditional Websites and Hosting. To provide complete Internet
solutions, we offer development of traditional websites and state-
of-the-art website hosting services through our Memphis,
Tennessee, and San Jose, California, hosting facilities. Our
hosting capabilities are offered primarily to clients who require
unique and specific hosting technology.
iXL Solution Sets
iXL uses its technology development capabilities to create custom
applications based on a common, reusable framework and component library. These
"iXL Solution Sets" can be customized and implemented quickly and cost-
effectively. We believe that our iXL Solution Sets meet the needs of clients
for fast, replicable and easily implemented solutions for computer-based
presentations and multiple website deployment and content management. iXL's
Solution Sets include:
. Pitchman(R). Pitchman is a presentation tool which combines high-
end graphics, animation, video and audio in an easy-to-transport
and easy-to-display laptop computer format which allows the user
to synchronize with the latest version of the presentation via a
corporate intranet or the Internet. Sales and marketing
professionals are the primary market for Pitchman. We have sold
over 500 Pitchman laptop presentations to various clients
including British Airways, Time Warner, News Corporation and
Scudder Kemper.
. Siteman(TM). Siteman is a state-of-the-art browser-based system
for creating and managing up to thousands of websites that share a
common style and similar look. Siteman allows novice users to
quickly design and build custom websites by selecting from a
library of templates and adding content. It also enables users to
easily edit content online, yet restricts them from modifying
specified content areas and the overall style of the sites. iXL
also provides support
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for end users who need assistance in creating sites with this
product. We developed Siteman as part of our iXL Solution Sets
strategy. Recently we sold Siteman to a software manufacturer,
retaining a perpetual, worldwide, royalty-free license on a non-
transferable, non-exclusive basis. This license permits us to
continue to offer Siteman as one of our Solution Sets. Siteman
clients have included AutoConnect, Carlson Wagonlit Travel and
WebMD.
. We are also developing an additional iXL Solution Set designed to
facilitate the creation and publication of interactive training
courses.
iXL Industry Practice Groups
iXL has established practice groups in the Banking & Financial Services,
Media & Entertainment, Travel, Telecommunications and Healthcare industries.
These practice groups are in varying stages of development and staffing. We
are also in the process of developing practice groups for the Technology and
Retail industries. To build our industry practice group expertise, we leverage
the experience of our employees who have previously worked for major
consulting firms or companies in the relevant industries. We have utilized its
industry expertise in serving the clients listed below. These clients,
included for illustrative purposes, are not intended to be representative of
our clients generally.
<TABLE>
<CAPTION>
Industry Clients
-------- -------
<S> <C>
Banking & Financial Services................. Chase Manhattan Bank
First USA
Merrill Lynch
Scudder Kemper
Media & Entertainment........................ Cox Enterprises
News Corporation
Time Warner
Universal Studios
Travel....................................... Budget Rent a Car
Carlson Wagonlit Travel
Delta Air Lines
Virgin Atlantic
Telecommunications........................... BellSouth
Lucent
Premiere Technologies
Healthcare................................... Eli Lilly
HBOC
WebMD
</TABLE>
Sales and Marketing
The role of iXL's marketing program is to create and sustain preference
and loyalty for the iXL brand as a leading provider of strategic Internet
services. Marketing occurs at the corporate and local levels. The corporate
marketing department has overall responsibility for communications,
advertising, public relations and our website, and also engineers and oversees
central marketing and communications programs for use by each of our local
offices. At the local level, each office also has a marketing representative
responsible for building brand awareness within each geographic region. These
local representatives report to the President of each office, with the
Executive Vice President for Worldwide Marketing of iXL, Inc. having overall
responsibility and oversight.
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As part of its continuing relationship with iXL and CFN, General Electric
has agreed to implement a mutually satisfactory marketing campaign regarding
iXL and CFN. The details of the marketing campaign have not yet been agreed to
by General Electric and iXL. This campaign is expected to emphasize General
Electric's relationships with iXL and CFN and to improve awareness of iXL and
CFN's services. General Electric will also use its reasonable efforts to
provide access to CFN's platform to its employees and to employees of its
affiliates.
iXL's sales force totals approximately 155 sales representatives. Each of
iXL's offices has its own sales representatives who sell all services offered
by iXL to the clients and prospects located in their geographical region. These
local representatives report to the President of each office, with the
Executive Vice President for Worldwide Operations of iXL having overall
responsibility and oversight.
Examples of iXL Internet Solutions
iXL is capable of providing a wide range of services tailored to each of
our clients' individual needs and concerns. The following examples illustrate
our diverse strategic Internet service capabilities:
Budget Rent a Car
Budget Rent a Car engaged iXL to implement an Internet strategy,
including an online reservation engine for its drivebudget.com website. iXL's
solution utilized a sophisticated reservations booking engine that integrates
directly with Budget's mainframe-driven customer reservation and inventory
control systems. This integrated system allows Budget to accurately identify
vehicles that are available in rental inventory at a given Budget location. In
addition to pricing and booking reservations via the Internet, Budget's
customers can view available vehicles and access vehicle specifications such as
seating and cargo space. The system also provides travel planning functions
including maps, travel safety tips, and time and distance calculations.
To promote awareness of the site, iXL designed an online marketing
campaign, including an extensive search engine optimization effort, which has
resulted in increasing online bookings and reservations. Through this shift to
an online environment, Budget believes it is realizing significant cost savings
and achieving stronger customer relationships by providing more choice, control
and convenience.
Chase Manhattan Bank
iXL's client relationship with Chase Manhattan Bank began with a single
project in the second quarter of 1998, and has expanded to include projects for
four of Chase Manhattan Bank's six largest divisions and for the bank's
investment company, Chase Capital Partners. We believe our Banking and
Financial Services practice group's industry expertise has enabled iXL to
broaden the scope of its relationship with Chase Manhattan Bank.
Among its current projects for Chase Manhattan Bank, iXL is building an
electronic bill presentment and payment system which will allow Chase Manhattan
Bank customers to view banking statements and pay bills online. The data from
this online system will also drive Chase Manhattan Bank's Value-Added Online
Marketing system, designed by iXL, which profiles Chase Manhattan Bank
customers by the banking services they utilize, their credit profile, and their
Chase Manhattan Bank website browsing habits.
Additionally, iXL is providing Internet services to Chase Manhattan
Bank's small business group and its merchant services division. The focus of
these engagements is to create Internet business and product strategies and
facilitate the implementation of e-commerce. iXL is also working with Chase
Manhattan Bank to overhaul the Chase.com website to make the site more
responsive and effective for Chase Manhattan Bank customers. iXL developed the
strategic plan for this assignment and is designing and developing the
infrastructure and architecture required to support a site that better
integrates Chase Manhattan Bank's online portfolio of products and services.
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WebMD
WebMD provides Internet-based services to healthcare professionals and
consumers through its webmd.com website. Since WebMD's inception, iXL has
provided it with a full range of strategic Internet services, including initial
definition of WebMD's Internet-based healthcare services product to be offered
via the webmd.com website. Once defined, systems design, application
development, engineering and hosting of the WebMD service was performed by iXL,
including the integration of over eighty databases capable of online search and
third-party online service offerings. WebMD has a limited operating history and
has minimal revenues at this time.
The webmd.com website provides doctors access to a suite of Internet-
based applications which are designed to enable them to manage their time more
efficiently and to serve patients more effectively. These applications provide
several centrally managed services, including access to electronic data
interchange services, enhanced communications services, healthcare-related
information and other Internet-based services that are useful to healthcare
professionals. WebMD's website is designed to simplify healthcare practices by
integrating multiple administrative, communications and research functions into
a single easy to use Internet-based solution. WebMD's free consumer website
includes access to premium, branded healthcare-related information,
personalized, targeted information about specific health conditions and
content-specific online communities that allow consumers to participate in
real-time discussions and support networks through the Internet. The webmd.com
website is designed to assist consumers in making informed healthcare
decisions.
iXL also created the interactive distance-learning component and
knowledge management systems of WebMD. iXL's Siteman Solution Set was the
platform for the Web publishing component of the WebMD service. Additionally,
iXL developed the marketing programs for WebMD including Pitchman presentations
for the physician, patient and healthcare community.
Acquisitions
The strategic Internet services industry is highly fragmented, consisting
of a large number of small companies providing limited service offerings.
Therefore, an important element of iXL's growth strategy is the acquisition of
selected companies with complementary technologies and capabilities. Our
strategy has been to augment our growth through acquisitions of small, regional
strategic Internet services companies. By obtaining critical mass in a
particular regional market, we believe we are able to provide the
responsiveness and quality of service of a small company with the greater depth
and breadth of services of a large organization. The acquisitions have resulted
in a broad geographic presence, allowing us to compete more effectively for
national accounts. Our post-acquisition strategy is to enhance the
competitiveness and profitability of each acquired company.
We identify acquisition candidates through our ongoing industry searches,
through our business network and through contact initiated by companies seeking
to be purchased. Potential targets are evaluated on numerous quantitative and
qualitative factors. Quantitative factors include historical and projected
revenues and profitability, geographic coverage and contract backlog.
Qualitative factors include strategic and cultural fit, management skill,
customer base and technical proficiency.
These factors are evaluated as part of a four-part assessment process:
. a detailed audit and operating assessment is initiated;
. acquisition pricing models are carefully evaluated;
. specific technology skills and capabilities are ascertained; and
. management qualifications and compatibility are appraised.
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Our post-acquisition process includes the integration of all financial
reporting systems, operating procedures, and training programs into the iXL
culture and infrastructure. Integration typically begins before the acquisition
transaction has been closed, with a goal of total integration promptly
following closing. Our Technical Operations Center plays a critical role in
this process, connecting the acquired business's systems to our central
systems. Our goal is to provide each of our offices with all tools and
resources needed to attain the maximum possible growth and profitability.
Accordingly, we have rarely based the purchase price for a company we acquired
on the post-acquisition performance of that company because we believe such
arrangements can impede the integration of multiple acquired businesses in the
same city by motivating them to compete against one another.
Historically, we have used our common stock for substantially all of the
consideration for our acquisitions. We anticipate that this will continue in
the future and intend to register 4,000,000 shares of common stock pursuant to
a "shelf" Registration Statement on Form S-4 for this purpose. By maximizing
the use of stock as acquisition consideration, we believe that the acquired
companies' management has a greater incentive to focus on iXL's long-term
growth through the appreciation of its stock price. We also generally grant
stock options to employees of newly acquired companies as a means of increasing
employee and management retention.
We began our acquisitions in May 1996 when we acquired iXL Interactive
Excellence, Inc., Creative Video Library, Inc., Creative Video Inc., and
Entrepreneur Television, Inc., companies whose focus was to assist corporate
clients in the design and creation of multimedia and video communication
projects. In December 1996, we acquired CFN, which at such time, was a
traditional insurance agent that allowed corporate executives to comparison
shop for insurance and mortgages. CFN was seeking iXL's strategic and technical
assistance to sell insurance services over corporate intranets. Since the CFN
acquisition, iXL has developed and implemented the sophisticated CFN e-commerce
platform for marketing financial services and employee benefits electronically
over the Internet and corporate intranets. iXL has acquired 29 other companies
all engaged in related businesses. See "Risk Factors--Risks Related to iXL's
Business--Our continued growth is dependent on the successful completion of
acquisitions" and "--We may be unable to continue to grow at our historical
growth rates or to effectively manage our growth."
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The following table summarizes iXL's other acquisitions since June 1996,
listed in chronological order. This information includes 237,304 shares of
common stock held in escrow that have not been earned under the terms of the
relevant acquisition agreements. See Note 4 to the Pro Forma Consolidated
Financial Information.
<TABLE>
<CAPTION>
Number of Shares issued in
Employees at connection with
Businesses Acquired Primary Capabilities Date Acquired Acquisition Date Acquisition
------------------- -------------------- ------------- ---------------- ----------------
<C> <S> <C> <C> <C>
Memphis On-Line, Inc. ........... Hosting June 5, 1996 15 none
Memphis, TN
Webbed Feet, LLC................. Creative design February 14, 1997 1 40,000
Atlanta, GA
The Whitley Group, Inc. ......... Interactive multimedia April 4, 1997 20 454,400
Charlotte, NC
BoxTop Interactive Inc. ......... Creative design May 30, 1997 60 3,416,700
Los Angeles, CA
Swan Interactive Media, Inc. .... Software engineering July 28, 1997 15 283,800
Atlanta, GA
Small World Software, Inc. ...... Software engineering and January 26, 1998 26 271,356
New York, NY creative design
Green Room Productions, L.L.C. .. Travel expertise, February 5, 1998 28 344,270
San Francisco, CA creative design and
engineering
CCG Online....................... Travel expertise, March 27, 1998 23 266,000
Denver, CO creative design and
software engineering
Spin Cycle Entertainment......... Creative design and May 8, 1998 20 155,200
Los Angeles, CA software engineering
Digital Planet................... Creative design and May 12, 1998 31 359,584
Los Angeles, CA software engineering
InTouch Interactive, Inc. ....... Software engineering May 12, 1998 11 195,834
Charlotte, NC
Micro Interactive, Inc. ......... Interactive multimedia May 14, 1998 35 740,000
New York, NY
CommerceWAVE, Inc. .............. E-commerce July 2, 1998 22 877,898
San Diego, CA
Wissing & Laurence, Inc. ........ Video production July 8, 1998 2 50,000
New York, NY
601 Design, Inc. ................ Video production July 16, 1998 7 200,000
New York, NY
Image Communications, Inc. ...... Creative design July 22, 1998 40 378,999
Vienna, VA
Campana New Media, S.L. and
The Other Media, S.L. .......... Creative design July 28, 1998 8 37,107
Madrid, Spain
Spinners Incorporated............ Creative design, July 30, 1998 31 674,132
Boston, MA software engineering and
financial
services expertise
Tekna, Inc. ..................... Software engineering and September 4, 1998 27 762,622
Richmond, VA creative design
LAVA Gesellschaft fur Digitale
Medien GmbH..................... Software engineering September 7, 1998 28 321,428
Hamburg, Germany
Larry Miller Productions, Inc.... Creative design September 9, 1998 33 113,823
Boston, MA
Denovo New Media Limited......... Creative design September 10, 1998 5 42,852
London, England
Exchange Place Solutions, Inc.... Financial services September 10, 1998 4 275,000
Atlanta, GA consulting
Pantheon Interactive, Inc........ Software engineering September 18, 1998 15 271,787
Santa Clara, CA
Two-Way Communications, L.L.C. .. Creative design and September 18, 1998 23 269,421
Chicago, IL healthcare expertise
NetResponse, L.L.C............... Strategy consulting, September 22, 1998 36 701,375
Arlington, VA software engineering and
creative design
Ionix Development Corporation.... Software engineering September 23, 1998 22 358,551
Chicago, IL
Pequot Systems, Inc.............. Financial services September 24, 1998 12 378,066
Norwalk, CT expertise and software
engineering
</TABLE>
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Strategic Alliances and Affiliations
We have entered into, and intend to continue entering into, strategic
alliances and affiliations with a select group of technology service providers.
The primary goals of our strategic alliances and affiliations are:
. to enhance iXL's overall service offerings;
. to create or identify new revenue opportunities through referrals
and the creation of new service offerings; and
. to increase iXL's credibility and visibility in the marketplace
through collaboration in joint marketing.
We have established strategic affiliations with, among others, Microsoft,
Intel, Sun and Oracle. These strategic affiliations provide us early access to
training, product support and technology.
We have also established strategic alliances with companies offering
technologies which serve important roles in the deployment or delivery of iXL
services. These alliances focus on the joint development of integrated
solutions which utilize the technologies offered by iXL's partners to deliver
the services designed by iXL. Our strategic alliances include alliances with
RealNetworks and @radical.media, Inc. Through our strategic alliance with
RealNetworks, a leading provider of media streaming technologies, we will be
presented as a preferred provider of content for events streamed via
RealNetworks technologies. Through our alliance with @radical.media, which
specializes in production and broadcast of high-end commercial advertising
campaigns, we expect to gain access to @radical.media's clients seeking
complementary Internet solutions.
The contracts governing the strategic affiliations and alliances
generally do not have long durations or minimum requirements. In addition, they
are generally terminable by iXL or the other party at will.
Technology
Our Technical Operations Center is our computer systems center which
links all of our local offices with a centralized knowledge management system.
The Technical Operations Center enables us to integrate operations of local
offices into all facets of iXL, including, financial reporting, e-mail, and
dissemination of knowledge and best practices. The Technical Operations Center
allows for the rapid integration of acquired businesses, facilitates collection
and dissemination of knowledge and best practices throughout iXL and supports
enterprise business systems. The Technical Operations Center maintains its
network operations and monitoring in Atlanta, with central data center and
intellectual property transit support from its data center in Memphis,
Tennessee, and co-location facilities in San Jose, California. The Technical
Operations Center manages our general ledger accounting systems, global project
and time tracking systems, sales force automation, electronic messaging,
central data warehouse repository services, wide area network infrastructure,
intellectual property transport services and global digital security. These
functions are closely integrated in a worldwide iXL intranet that additionally
supports human resources and distance learning. We view the Technical
Operations Center as a key strategic asset, providing a platform to permit
rapid growth and a working model of the solutions we can design for our
clients. See "Risk Factors--Risks Related to iXL's Business--We may be unable
to continue to grow at our historical growth rates or to effectively manage our
growth."
While readily available third-party technologies are used to develop
nearly all iXL solutions, iXL does not believe it is not dependent on any given
technology to deliver its solutions. Typically, iXL chooses among multiple
software products to select the most appropriate product for a given use. If
any one product ceased to be available to iXL, other similar products are
generally available. Further, the third-party providers generally license their
products directly to iXL's clients. Consequently, iXL is not at risk of loss of
individual licenses.
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Consumer Financial Network
Consumer Financial Network, Inc., or CFN, is a sophisticated e-commerce
platform for marketing financial services and employee benefits over corporate
intranets and the Internet, as well as through a telesales center. CFN's equity
is owned 77% by iXL and 23% by General Electric. CFN has contracted with
competing providers of financial services and employee benefits to create a
platform for the comparison shopping and purchase of these services. CFN is
provided at no cost to large companies and associations, many with 5,000 or
more employees, for distribution as a human resources benefit to their
employees or members. Currently, CFN provides access to the following services:
<TABLE>
<CAPTION>
Financial Services Employee Benefits
------------------ -----------------
<S> <C>
Auto Insurance Long-Term Care
Homeowners Insurance Individual Life Insurance
Mortgages Vision Services
Home Equity Loans Legal Services
Auto Finance
</TABLE>
Traditionally, the services currently offered by CFN have not been
presented on a standardized or comparable basis. Accordingly, consumers have
often been deterred from obtaining meaningful price comparisons from competing
services providers. Many consumers have been unable or unwilling to devote the
time required to compile comparative quotes and have instead relied on other
factors unrelated to the price or the terms provided in purchasing these
services.
We believe CFN is an attractive offering for consumers because CFN
enables consumers to receive explanatory information and an unbiased comparison
of products, services and quotes based on equivalent terms from multiple
providers of financial services and employee benefits. In addition, because CFN
aggregates employees of multiple major companies and members of associations,
and aggregates a nationwide network of services providers who compete for each
individual member's business, CFN is often able to negotiate discounted pricing
for its customers. Consumers can access CFN online, by telephone or by fax.
We believe the CFN platform is attractive to services providers, because
it is designed to:
. provide access to employed consumers, a highly desirable market
segment;
. allow each provider to directly access its preferred target market
by including multiple providers of similar services;
. provide a lower cost of customer acquisition than traditional
distribution channels due to automated consumer access and bulk
acquisition of consumers through the participation of large
employers and associations;
. allow providers to expand geographically; and
. allow providers to utilize automatic payroll deduction to secure
payment for services sold.
As a result of the benefits outlined above as well as the aggregated
customer base available through CFN, providers contracting with CFN may offer
discounted rates and other features that are more competitive than the
individual rates and features they otherwise may offer through traditional
distribution channels.
CFN earns fees on each sale of services made through its online and
telesales platforms. Currently, the significant majority of consumer inquiries
to CFN for services offered by CFN's providers are made through CFN's telesales
center. Our goal is for the relative volume of online inquiries as well as the
automation of the entire process from inquiry to completed transaction to
increase significantly in the future as intranets become more widespread and as
customers become more familiar with the Internet. We believe that such an
increase in online inquiries in proportion to telesales center inquiries will
reduce CFN's support costs. CFN's performance will depend in large part upon
CFN's ability to estimate accurately the resource requirements and the revenues
generated by customers engaging in the transactions with service providers on
the CFN platform. Expenses and
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investments must be incurred well in advance of the potential transactions
intended to generate revenue to justify this cost structure. See "Risk
Factors--Risks Related to Our CFN Subsidiary--CFN's business model is new and
unproven" and "--CFN must expend significant resources to grow its
infrastructure."
Member Companies
We believe CFN is attractive to employers because it enables them to
offer to their employees, at no cost to the employer, a wide range of financial
services and employee benefits at generally discounted rates. Initially, CFN
has chosen to provide its platform to large companies and associations as a no
cost human resources benefit for their employees. Current CFN member companies
include:
<TABLE>
<S> <C>
Advantica Ritz Carlton Hotels
Amerigas Ryder Corporation
BellSouth Society for Human Resource Management
Coca-Cola Company Texas A&M University
Delta Air Lines Thomson Corporation
Nextel Williams Companies
</TABLE>
Once CFN has established a relationship with a participating employer,
CFN's strategy is to become part of the payroll deduction system of the
employer. This arrangement allows employers more flexibility in their payroll
deduction systems, while enabling CFN to provide multiple services to
employees. Becoming part of the payroll deduction system also enhances CFN's
ability to retain employees as customers for its providers. Automatic payroll
deduction allows services providers to offer payment plans that are structured
around the frequency of payroll deductions and is the most desirable form of
payment for CFN's participating services providers.
Provider Network
CFN's platform includes property and casualty insurance, home finance,
automobile finance, legal services, long-term care, term life insurance and
vision plans. Providers available on the CFN platform include:
. American Express Property Casualty companies, Chubb Group of
Insurance Cos., Electric Insurance Company, Liberty Mutual
Insurance Co., and Nationwide Mutual Insurance Co. in property and
casualty insurance;
. Banc One, Chase Manhattan Mortgage Corporation, Countrywide, First
Union National Bank and Travelers Home Mortgage Service in home
finance;
. debis Financial Services in automobile finance;
. Law Phone in legal services;
. Mass Casualty and Transamerica in long-term care;
. Empire General Life in life insurance; and
. Vision Care Advantage in vision services.
The terms of these contracts range from one to three years. Most
contracts terminate either on or before December 31, 1999 or December 31, 2000,
and some contracts are on a trial basis only. The contracts specify the terms
of the agreement with CFN, generally including information on terms of pricing
to be provided, the fulfillment process, compensation to CFN, necessary
regulatory requirements, restrictions on use of consumer information provided
by CFN, indemnification, and intellectual property protection for CFN. There
are no minimum volume requirements required from CFN to providers. CFN is
currently working to obtain non-residential mortgage brokerage licenses where
necessary. In jurisdictions where CFN is currently not so licensed, CFN
provides mortgages through one of its appropriately licensed providers.
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Market Expansion
CFN intends to expand its business beyond its existing corporate employee
market to make its platform available to the general public over the Internet
and through its telesales center. This expansion will likely be effected
primarily by entering into agreements with selected Internet portals and other
retail and informational sites to expand awareness of the CFN platform. This
expansion into the general public arena would broaden the prospective customer
base for both CFN and its services providers.
CFN intends to expand its agreements with its existing services providers
to include the provision of services to the general public. Many of CFN's
corporate providers may elect to not be included in the platform that will be
made available to the general public. The service offerings and the
corresponding prices offered to the general public will likely be different
from those offered to CFN's corporate participants. See "Risk Factors--Risks
Related to Our CFN Subsidiary--CFN's business model is new and unproven."
Technology
CFN's e-commerce platform consists of three component layers. The first,
or top, layer is the Internet website accessed by the consumer which gathers
and displays information. The second component layer is decision software
which takes the employee information and chooses applicable services from the
provider information maintained in this second layer. The third component
layer stores consumer information and integrates the CFN platform with CFN
providers' systems.
The e-commerce technology developed by CFN, for which CFN has two utility
patents pending, is a flexible multi-function comparative quoting system.
While the current application is for the dissemination of information about
financial services and employee benefits, the quoting system has uses in many
industries. CFN believes this technology could be applied to other situations
to allow consumers to compare multiple products from different providers.
For a discussion of risks related to CFN, see "Risk Factors--Risks
Related to Our CFN Subsidiary."
Government Regulation of Insurance, Auto Finance and Mortgages
In most states, there are two broad categories of insurance agency
licenses, one for property and casualty insurance and the other for life and
health insurance. CFN's wholly owned subsidiary, CFN Agency, Inc., a Delaware
corporation, is licensed as a resident insurance agency for both property and
casualty insurance and life and health insurance by the state of Georgia. For
property and casualty insurance business, CFN Agency is licensed as a
nonresident corporate insurance agency or at least one employee of CFN Agency
is individually licensed as a nonresident insurance agent in all 50 states.
For life and health insurance business, CFN Agency is licensed as a
nonresident corporate insurance agency or at least one CFN employee agent is
individually licensed as a nonresident insurance agent in 45 states.
Because of the lack of uniformity in state insurance agency licensing
laws, a corporate insurance agency cannot obtain an insurance agency license
in all fifty states. Some states do not issue insurance agency licenses to
corporations but only issue insurance agent licenses to individuals. Other
states issue corporate insurance agency licenses only if the state of
residence of the applicant for a corporate insurance agency license applicant
reciprocates by issuing corporate insurance agency licenses to insurance
agencies resident in the foreign state. In some states where CFN Agency does
not have a nonresident corporate insurance agency license, a CFN employee
agent is individually licensed in those states as a nonresident insurance
agent and the CFN employee agent transacts the business of CFN Agency where
permitted. If any CFN employee agent's employment with CFN is terminated, CFN
Agency may not be able to transact its business unless and until it has
another employee who is individually licensed as a nonresident insurance agent
in the states where CFN Agency does not hold a nonresident corporate insurance
agency license. If a state in which CFN Agency does not hold a nonresident
corporate insurance agency license determines that CFN Agency is transacting
business in such state as an unlicensed insurance agency, CFN Agency could be
subject to fines and prohibited from doing insurance business in that state.
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Some states regulate prepaid legal plan companies as an insurance company
or their products as specialized legal expense products, while other states
regulate prepaid insurance plans as non-insurance services. In states that
regulate prepaid legal plan companies as insurance companies, the product is
usually classified as casualty insurance. Certain states' bar associations
require prepaid legal plans to file periodic information statements. CFN does
not believe it is subject to such requirements.
It is not guaranteed that a state in which CFN Agency does not hold a
nonresident corporate insurance agency license will not assert that CFN Agency
is transacting business in such state as an unlicensed insurance agency.
Generally, commissions payable for the sale of insurance products cannot be
paid to, or received by, a person or entity that is not licensed as an
insurance agent or agency, as applicable. There is no guarantee that a state in
which CFN Agency does not hold a nonresident corporate insurance agency license
will not assert that commissions assigned by the CFN employee agent to CFN
Agency are an assignment of insurance commissions occurring in such state to an
unlicensed corporate insurance agency. In the states in which CFN Agency does
not hold a nonresident corporate insurance agency license, the insurance
companies that have contracted with CFN Agency pay commissions to the CFN
employee agent, who then assigns such commissions to CFN Agency. If a state in
which CFN Agency does not hold a nonresident corporate insurance agency license
determines that CFN Agency is wrongfully receiving an assignment of insurance
commissions in, or with respect to insurance policies sold in, that state as an
unlicensed insurance agency, both CFN Agency and the subject CFN employee agent
could be subject to fines and prohibited from doing business in that state.
CFN Agency operates a telephone call center located in Duluth, Georgia.
Some of the CFN employee agents work in this telephone call center. These call
center agents provide information and education to consumers who are employees
of client companies or members of client affinity groups regarding the
insurance products described on CFN's website. Some of the call center agents
are also licensed in states other than Georgia as nonresident insurance agents;
however, each call center agent is not licensed as an insurance agent in all 50
states. There is no guarantee that a state in which a call center agent is not
licensed as a nonresident insurance agent will not assert that such call center
agent is, by providing information and education to consumers about insurance
products on the CFN website in the state, transacting insurance agent
activities without being licensed by such state as a nonresident insurance
agent. If a state in which a call center agent does not hold a nonresident
insurance agent license determines that a call center agent has transacted the
business of an insurance agent in that state, both CFN Agency and such call
center agent could be subject to fines and prohibited from doing insurance
business in that state.
CFN operates its residential mortgage and auto finance business through
its wholly owned subsidiary, CFN Finance, Inc., a Delaware corporation. There
are numerous federal and state statutes and regulations affecting these
activities including licensing requirements and laws that prohibit
discrimination, unfair and deceptive trade practices, and require disclosure of
basic information to consumers concerning credit terms and settlement costs,
limit fees and charges paid by consumers and lenders, and otherwise regulate
terms and conditions of credit and the procedures by which credit is offered
and administered and that impose fiduciary duties on a person acting as a
broker. CFN Finance is in the process of applying, where necessary, for broker
licenses to permit it to operate its residential mortgage finance and, where
required, its auto finance programs. There is the possibility that some states
may not grant such a license to CFN Finance. Until these licenses are granted,
CFN Finance has entered into a licensing agreement with a Federal savings and
loan association to operate CFN Finance's residential mortgage finance program
in those states which require licenses. CFN Finance's auto finance program is
being offered in states where no licenses are required for CFN Finance. For the
states that require auto finance broker licenses and from which CFN Finance has
not yet received such a license, CFN Finance has entered into a licensing
agreement with a Federal savings bank to operate CFN Finance's auto finance
program pursuant to the authority granted under a Federal charter. Federal law
governing federal savings banks preempts the ability of states to require that
a Federal savings bank be licensed under state law in order to conduct a
finance broker business. There is no guarantee that the residential mortgage
program licensing agreement will be renewed upon its expiration date of October
31, 1999, the auto finance licensing agreement will be renewed upon its
expiration date of November 11, 1999, or that either agreement will not be
terminated sooner and that CFN Finance will have acquired the appropriate
license or
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that CFN Finance will be able to find another way to conduct its business in
any state that requires a license if the license agreement terminates in that
state. There also is no guarantee that a state regulatory agency or a consumer
will not challenge the operation of the business under the license agreement.
See "Risk Factors--Risks Related to Our CFN Subsidiary--Government regulation
and legal uncertainties related to CFN could adversely affect our business."
iXL Ventures
As a complement to its core business, iXL has occasionally, on an
opportunistic basis, participated in the development of other Internet-related
businesses through iXL Ventures. iXL seeks to combine its management
experience, technical expertise and financial capital to develop new ideas.
When these new ideas warrant further development, iXL seeks strategic investors
to assist in the full development of these projects into viable stand-alone
businesses. CFN is the first major stand-alone business to emerge from this
process. Currently, other iXL Ventures include:
. FANSonly(TM) owned by University Netcasting, Inc., which is a series
of commercial Internet sites for leading colleges and universities;
. Kinzan, Inc., a software and services company that develops,
distributes and hosts Siteman;
. Enhanced Television (E-TV), which is digital interactive television
delivered via the Internet; and
. Last Minute Travel, an online discount travel service.
Competition
While the market for strategic Internet services is relatively new, it is
already highly competitive and characterized by an increasing number of
entrants that have introduced or developed products and services similar to
those offered by iXL. We believe that competition will intensify and increase
in the future. Our target market is rapidly evolving and is subject to
continuous technological change. As a result, iXL's competitors may be better
positioned to address these developments or may react more favorably to these
changes, which could have a material adverse effect on iXL's business, results
of operations and financial condition. iXL competes on the basis of a number of
factors, including the attractiveness of the strategic Internet services
offered, the breadth and quality of these services, creative design,
engineering expertise, pricing, technological innovation, and understanding
clients' strategies and needs. Many of these factors are beyond our control.
Existing or future competitors may develop or offer strategic Internet services
that provide significant technological, creative, performance, price or other
advantages over the services offered by us.
iXL's competitors can be divided into several groups:
. strategic Internet services providers;
. large information technology consulting services providers;
. computer hardware and service vendors;
. strategic consulting firms; and
. interactive advertising agencies.
iXL also may compete with telecommunications companies. Although most of
these types of competitors to date have not offered a full range of Internet
professional services, several have announced their intention to do so. These
competitors at any time could elect to focus their resources in iXL's target
markets, which could adversely affect our business, results of operations and
financial condition. Many of iXL's current and potential competitors have
longer operating histories, larger installed customer bases, longer
relationships with clients and significantly greater financial, technical,
marketing and public relations resources than iXL. Competitors that have
established relationships with large companies but limited expertise in
providing Internet solutions may nonetheless be able to successfully use their
client relationships to enter the Company's target market or prevent iXL's
penetration into their client accounts. We believe that our primary competitors
currently are International Business Machines Corporation, USWeb Corporation,
Sapient Corporation, and smaller Internet service providers.
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Additionally, in pursuing acquisition opportunities we may compete with
other companies with similar growth strategies, certain of which competitors
may be larger and have greater financial and other resources than we have.
Competition for these acquisition targets likely could also result in increased
prices of acquisition targets and a diminished pool of companies available for
acquisition.
There are relatively low barriers to entry into the strategic Internet
services industry. iXL has no patented or other proprietary technology that
would preclude or inhibit competitors from entering the Internet professional
services market. Therefore, iXL must rely on the skill of its personnel and the
quality of its client service. The costs to develop and provide Internet
services are low. Therefore, iXL expects that it will continually face
additional competition from new entrants into the market in the future, and iXL
is subject to the risk that its employees may leave iXL and start competing
businesses. The emergence of these enterprises could have a material adverse
effect on our business, results of operations and financial condition. See
"Risk Factors--Risks Related to the Stategic Internet Services Industry--We
operate in a highly competitive market with low barriers to entry which could
limit our market share and harm our financial performance."
The success of CFN will be highly dependent upon CFN's services becoming
available to a large number of participating employees. CFN expects to face
competition from an increasing number of sources in the marketplace. CFN
competes with other Internet-based providers of insurance and other financial
services, as well as traditional insurance companies providing group rates to
corporate employees. CFN believes that its primary and more direct competitors
currently are HomeCom Communications, Inc., ValueSearch, Inc. and Answer
Financial, Inc. CFN also may compete with Microsoft Corporation, which
currently provides comparative quotes from home mortgages on the web. If CFN
fails to compete successfully against current or future competitors, CFN's
business results of operations and financial conditions will be materially and
adversely affected. See "Risk Factors--Risks Related to Our CFN Subsidiary--
CFN's numerous established competitors could harm its prospects".
Employees
As of April 30, 1999, iXL had approximately 1,475 employees, including
approximately 70 strategy consultants, 360 engineers and 275 creative
designers. None of iXL's employees is represented by a labor union. iXL has
experienced no work stoppages and believes its relationship with its employees
is good.
In an ongoing effort to train and develop its professionals, iXL has
established iXL University, a forum to educate its employees on issues ranging
from new technologies to office protocol. Employees may attend iXL University
by attending live presentations in Atlanta, by viewing the live webcast of such
presentations, or by viewing at any time archived versions of presentations
through the iXL University website. In addition, iXL holds regular company-wide
meetings among leaders in specific practice areas. iXL also takes advantage of
its corporate intranet to foster company-wide communications and knowledge
management. See "Risk Factors--Risks Related to iXL's Business--If we fail to
attract and retain employees our growth could be limited and our costs could
increase."
Properties and Facilities
iXL's executive offices are located in Atlanta, consisting of
approximately 138,000 square feet of leased space, the lease for which expires
in 2007. With the exception of IXL-Memphis, Inc., which owns an approximately
15,000 square foot office building and an approximately 5,600 square foot
warehouse, iXL leases space for its regional offices in the following
metropolitan areas: New York, NY; Los Angeles, San Francisco, San Diego, and
Santa Clara, CA; Chicago, IL; Boston, MA; Washington, D.C.; Charlotte, NC;
Richmond, VA; Denver, CO; Norwalk, CT; Hamburg and Berlin, Germany; London,
England; and Madrid, Spain. CFN leases space for its executive offices in
Duluth, Georgia.
Legal Proceedings
iXL currently and from time to time is involved in litigation incidental
to the conduct of its business. iXL is not a party to any lawsuit or proceeding
that, in the opinion of management of iXL, is likely to have a material adverse
effect on iXL.
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MANAGEMENT
Executive Officers and Directors
Certain information regarding the executive officers and directors of iXL
as of April 1, 1999 is set forth below:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
U. Bertram Ellis, Jr.(1) 45 Chief Executive Officer and Chairman of the
Board of Directors
Kevin M. Wall 46 Vice Chairman and Director
James R. Rocco 44 Vice Chairman
William C. Nussey 33 President and Chief Operating Officer of iXL,
Inc. and Director
C. Cathleen Raffaeli 42 President and Chief Operating Officer of CFN
Barry T. Sikes 46 Executive Vice President for Worldwide
Operations of iXL, Inc.
M. Wayne Boylston 41 Executive Vice President, Chief Financial
Officer, Treasurer, and Assistant Secretary
David E. Clauson 44 Executive Vice President for Worldwide
Marketing of iXL, Inc.
Thomas R. Wall, IV(2) 40 Director
Frank K. Bynum, Jr.(1)(2)(3) 36 Director
I. Robert Greene(1)(2) 38 Director
Jerome D. Colonna 35 Director
Thomas G. Rosencrants(3) 49 Director
Jeffrey T. Arnold 29 Director
Gary C. Wendt(4) 57 Director
</TABLE>
- --------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
(4) Mr. Wendt has agreed to serve as a Director of iXL shortly after the
closing of the offering.
U. Bertram (Bert) Ellis, Jr. founded iXL in March 1996 and has served as
Chairman of the Board of Directors and Chief Executive Officer since that time.
Prior to founding iXL, Mr. Ellis founded Ellis Communications, Inc., an owner
of television and radio stations, in 1993, and served as its President from
1993 to 1996. Prior to founding Ellis Communications, Inc., Mr. Ellis served as
President, Chief Executive Officer, and Chief Operating Officer of Act III
Broadcasting, Inc., an owner of television stations, from 1986 to 1992. Mr.
Ellis received a Bachelor of Arts degree in Economics from the University of
Virginia and an MBA from the University of Virginia Graduate School of Business
Administration. Mr. Ellis also serves as a Director of WebMD, Inc.
Kevin M. Wall has served as Vice Chairman since April 1998 and as a
director since May 1997. Mr. Wall joined iXL in May 1997 upon the acquisition
by iXL of BoxTop Interactive, Inc., and served as the President and Chief
Executive Officer of BoxTop Interactive, Inc. from its founding in 1995 until
1998. Prior to founding BoxTop Interactive, Inc., Mr. Wall served as Chairman
of BoxTop Entertainment, Inc., a television production company specializing in
network specials, from 1990 until 1995. Prior to forming BoxTop Entertainment,
Inc., Mr. Wall founded Radio Vision International, Inc., a television
production company specializing in network specials and syndication of
television specials, and served as its Chairman from its founding until 1990.
Mr. Wall attended Indiana University-Purdue University Fort Wayne. Mr. Kevin
Wall is not related to Mr. Thomas R. Wall, IV.
James R. Rocco has served as Vice Chairman since August 1998. Mr. Rocco
previously served as a director from April 1996 to February 1999 and as the
President and Chief Operating Officer from April 1996 until August 1998. Mr.
Rocco founded Creative Video, Inc. and served as its President from July 1986
until it was acquired by iXL in April 1996. Mr. Rocco graduated cum laude from
St. John's University in New York in 1976 with Bachelor degrees in
Communications and Business.
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William C. Nussey has served as a Director of iXL since December 1997,
and as the President and Chief Operating Officer of iXL, Inc. since joining iXL
in May 1998. From 1996 to May 1998 Mr. Nussey served as an associate with
Greylock Ventures, a private investment firm. From 1994 to 1996, Mr. Nussey
attended Harvard Business School. In 1985, Mr. Nussey co-founded Da Vinci
Systems, Inc., a software and application design company, and served as its
Chief Executive Officer from its founding until its sale in 1994 to ON
Technology, Inc. After its sale, Mr. Nussey served as a consultant to ON
Technology while attending Harvard Business School. Mr. Nussey received a
Bachelor of Science degree in Electrical Engineering from North Carolina State
University and an MBA from Harvard Business School.
C. Cathleen Raffaeli is the President and Chief Operating Officer of CFN,
and has served in such capacity since joining CFN in November 1998. From 1994
through 1998, Ms. Raffaeli held positions of increasing responsibility with
Citicorp, most recently as the Executive Director, Commercial Card Division.
From 1988 through 1994, Ms. Raffaeli held positions of increasing
responsibility with Chemical Bank, last serving as the Senior Vice President,
Mortgage Banking Division. Ms. Raffaeli received a Bachelor of Science degree
in Finance from the University of Baltimore and an MBA from New York
University.
Barry T. Sikes has served as Executive Vice President for Worldwide
Operations since August 1998. Mr. Sikes previously served as Vice President--
Operations from April 1996 until August 1998. From 1991 until 1996, Mr. Sikes
served as the Chief Operating Officer of Creative Video, Inc. Mr. Sikes
received a degree in Electronics Engineering from The Cape Fear Institute.
M. Wayne Boylston has served as Chief Financial Officer, Executive Vice
President, Treasurer and Assistant Secretary since joining iXL in August 1998.
From 1990 to 1995, Mr. Boylston served as Vice President and Corporate
Controller of Healthdyne, Inc. and from 1995 until February 1998, Mr. Boylston
served as Vice President--Finance, Chief Financial Officer and Treasurer of
Healthdyne Technologies, Inc. From February 1998 until July 1998 Mr. Boylston
served as a consultant to Healthdyne Technologies, Inc. following its merger
with Respironics, Inc. Mr. Boylston is a Certified Public Accountant and has a
Bachelor of Business Administration degree from Emory University.
David E. Clauson has served as Executive Vice President for Worldwide
Marketing of iXL, Inc. since joining iXL in August 1998. From 1991 until July
1998, Mr. Clauson served in various positions of increasing responsibility with
subsidiaries of True North Communications, Inc., most recently as the Senior
Vice President/Worldwide Account Director of its Foote, Cone & Belding
subsidiary. Mr. Clauson has a Bachelor of Arts degree in American Urban History
from the University of California at Los Angeles.
Thomas R. Wall, IV has served as a Director of iXL since April 1996. Mr.
Wall has held various positions of increasing responsibility with Kelso &
Company, a private investment firm, since 1983, and currently serves as one of
its Managing Directors. Mr. Wall also serves as a director of AMF Bowling,
Inc., Consolidated Vision Group, Inc., Cygnus Publishing, Inc., Mitchell
Supreme Fuel Company, Mosler, Inc., Peebles Inc., and 21st Century Newspapers,
Inc. Mr. Wall received a Bachelor of Science degree in Business Administration
from Washington & Lee University. Mr. Thomas Wall is not related to Mr. Kevin
M. Wall.
Frank K. Bynum, Jr. has served as a Director of iXL since April 1996. Mr.
Bynum has held various positions of increasing responsibility with Kelso &
Company since 1987, and currently serves as one of its Managing Directors. Mr.
Bynum also serves as a director of Cygnus Publishing, Inc., Hosiery Corporation
of America, Inc., 21st Century Newspapers, Inc. and MJD Communications, Inc.
Mr. Bynum received a Bachelor of Arts degree in History from the University of
Virginia.
I. Robert Greene has served as a Director of iXL since December 1997. Mr.
Greene has served as a General Partner with Chase Capital Partners (formerly
Chemical Venture Partners), an investment firm, since January 1999, and
previously served as a Principal from 1994 through 1998. From 1988 to 1994, Mr.
Greene served as a Director and Principal of Prudential Equity Investors, an
investment firm. Mr. Greene also serves on the Investment Committee of Flatiron
Partners, LLC and the Advisory Board of Techfund Capital, and is the President
of the New York Venture Capital Forum. Mr. Greene received a Bachelor of
Science degree from the Wharton School and an MBA from M.I.T./The Sloan School.
Mr. Greene serves as a Director of Multex.com, Inc.
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Jerome D. Colonna has served as a Director of iXL since December 1997.
Mr. Colonna co-founded Flatiron Partners, LLC in August 1996 and has served as
a partner in Flatiron since its founding. Previously, Mr. Colonna co-founded
CMG @ Ventures L.P. in February 1995 and served as a partner until July 1996.
From 1985 to 1995, Mr. Colonna served in various positions with CMP Media,
Inc., including Editorial Director, Interactive Media Group. From 1985 to 1993,
he served in a variety of roles at Information Week, including that of Editor.
Mr. Colonna received a Bachelor of Arts degree from Queens College, City
University of New York. Mr. Colonna serves as a Director of GeoCities, Inc.
Thomas G. Rosencrants has served as a Director of iXL since January 1999.
Mr. Rosencrants founded Greystone Capital Group, LLC in April 1997 and serves
as its Chairman and Chief Executive Officer. Greystone Capital Group, LLC is
the General Partner for Greystone Capital Partners I, L.P. From 1991 to April
1997 he served as Senior Vice President and head of the Insurance Research
Group of The Robinson-Humphrey Company, Inc. Mr. Rosencrants is a Chartered
Financial Analyst, has an MBA from the Roosevelt University in Chicago and a
Bachelor of Arts degree from the University of Dayton.
Jeffrey T. Arnold has served as a Director since February 1999. Mr.
Arnold founded and has served as Chairman of the Board and Chief Executive
Officer of WebMD, Inc. since its inception in October 1996. In addition, Mr.
Arnold served as the President of WebMD, Inc. from its inception until
September 1997. From April 1994 until Endeavor Technologies, Inc.'s merger with
WebMD, Inc. in March 1997, Mr. Arnold served in various capacities at Endeavor
Technologies, Inc., including as Chairman and Chief Executive Officer. Mr.
Arnold received a Bachelor of Arts degree from the University of Georgia.
Gary C. Wendt will become a Director immediately after the closing of
this offering. From 1986 to 1998, Mr. Wendt served as Chairman, Chief Executive
Officer and President of General Electric Capital Services, Inc. and will
continue to serve as a consultant through July 1, 1999. Mr. Wendt received a
Bachelor of Science degree from the University of Wisconsin and an MBA from
Harvard Business School.
iXL believes retention of its management is critical to its success. See
"Risk Factors--Risks Related to iXL's Business--We depend on our key management
personnel for our future success" and "Risk Factors--Risks Related to iXL's
Business--If we fail to attract and retain employees our growth could be
limited and our costs could increase."
Board Committees
The Board of Directors has established an Executive Committee, a
Compensation Committee and an Audit Committee. The Executive Committee,
consisting of Mr. Ellis, Mr. Bynum, and Mr. Greene, is empowered to exercise
all powers and authority of the Board as determined by the Board in the
authorizing resolution. The Compensation Committee, consisting of Mr. Thomas R.
Wall, IV, Mr. Bynum, and Mr. Greene, administers iXL's stock option plans,
including approval of all options granted. The Audit Committee, consisting of
Mr. Bynum and Mr. Rosencrants, will recommend the selection of independent
public accountants to the Board of Directors, review the scope and results of
the audit and other services provided by iXL's independent accountants, and
review iXL's accounting practices and its systems of internal accounting
controls.
Director Compensation
iXL reimburses its directors for all out-of-pocket expenses incurred in
the performance of their duties as directors of iXL. iXL currently does not pay
fees to its directors for attendance at meetings.
Amended Stockholders Agreement
The Third Amended Stockholders Agreement entitles certain stockholders to
designate nominees to iXL's board of directors as follows. The Third Amended
Stockholders Agreement entitles Kelso Investment
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<PAGE>
Associates V, L.P. and Kelso Equity Partners V, L.P. to jointly designate two
individuals to be included as nominees on the board of directors' slate of
nominees so long as Kelso Investment Associates V, L.P. and Kelso Equity
Partners V, L.P. together hold 5% or more of our outstanding common stock. CB
Capital Investors, L.P. has the right to designate as a nominee one member so
long as it owns at least 5% of our outstanding common stock. The Third Amended
Stockholders Agreement does not obligate any stockholder to vote its common
stock in favor of any nominated directors.
Compensation Committee Interlocks and Insider Participation
No member of iXL's Compensation Committee serves as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving as a member of iXL's Board of Directors or
Compensation Committee. See "Certain Transactions" for a description of
transactions between iXL and entities affiliated with members of the
Compensation Committee.
Employment Agreements
iXL has assumed the employment agreement originally executed as of August
1, 1996 between Mr. Kevin Wall and BoxTop Interactive, Inc. Mr. Kevin Wall's
employment agreement was assumed by iXL in April 1998. This agreement has a
four-year term expiring July 31, 2000. Under this agreement, Mr. Kevin Wall's
base annual salary shall be $302,500 for the one-year period from August 1,
1998 through July 31, 1999, and $332,750 for the one-year period from August 1,
1999 through July 31, 2000. Under this agreement, Mr. Kevin Wall is entitled to
an automobile allowance of $1,000 per month and has received grants of options
to purchase 635,900 shares of common stock.
iXL, Inc. has entered into an employment agreement with Mr. Nussey.
Pursuant to this employment agreement, if iXL, Inc. terminates Mr. Nussey's
employment without cause at any time or if Mr. Nussey resigns for good cause,
(i) iXL, Inc. shall, for a period of eighteen months or until Mr. Nussey begins
employment with any other company, continue to pay as payable pursuant to the
employment agreement his salary and bonus as severance pay and continue to
provide benefits to him, and (ii) the vesting of unvested stock options granted
to Mr. Nussey pursuant to his employment agreement shall be immediately
accelerated twelve months, and all options which remain unvested after such
acceleration shall terminate. Upon a termination of his employment by virtue of
his death, Mr. Nussey's estate shall be entitled to all salary payable to him
for the remainder of the year of his death. In addition, upon a termination of
Mr. Nussey's employment by virtue of his death or disability, Mr. Nussey or his
estate shall be entitled to the pro rata portion of his bonus with respect to
the portion of the year prior to his death or disability. The base salary for
Mr. Nussey pursuant to his employment agreement is $250,000 per year, and the
target bonus is $50,000 per year. The base salary and target bonus are to be
reviewed annually, and may be increased from time to time by iXL, Inc. Once
increased, the base salary may not be decreased and the target bonus may not be
set at less than $50,000 per full fiscal year. The employment agreement also
provides that Mr. Nussey shall not compete with iXL, Inc. for a period of one
year following the termination of his employment.
Limitation on Liability and Indemnification Matters
Section 145 of the Delaware General Corporation Law permits the
indemnification of directors, officers, employees and agents of Delaware
corporations. iXL's Certificate of Incorporation and By-Laws provide that iXL
shall indemnify its directors and officers to the fullest extent permitted by
the Delaware General Corporation Law. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers or persons controlling iXL pursuant to the foregoing
provisions, the opinion of the Securities and Exchange Commission is that such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
As permitted by the Delaware General Corporation Law, iXL's Certificate
of Incorporation also limits the liability of directors of iXL for damages in
derivative and third party lawsuits for breach of a director's fiduciary duty
except for liability:
. for any breach of the director's duty of loyalty to iXL or its
stockholders;
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<PAGE>
. for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
. for unlawful payments of dividends or unlawful stock purchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. for any transaction for which the director derived improper
personal benefit.
The limitation of liability applies only to monetary damages and,
presumably, would not affect the availability of equitable remedies such as
injunction or rescission. The limitation of liability applies only to the acts
of omission of directors as directors and does not apply to any such act or
omission as an officer of iXL or to any liabilities imposed under federal
securities laws.
The purchase agreements between iXL and the underwriters with respect to
the offering made hereby provide for indemnification by the underwriters and
their controlling persons, on the one hand, and of iXL and its controlling
persons on the other hand, for certain liabilities arising under the Securities
Act of 1933 and the Securities Exchange Act of 1934 or otherwise.
iXL intends to obtain directors' and officers' insurance providing
indemnification for certain of iXL's directors, officers, affiliates, partners
or employees for certain liabilities.
iXL has entered into agreements to indemnify its directors and executive
officers, in addition to indemnification provided for in iXL's Bylaws. These
agreements, among other things, indemnify iXL's directors and executive
officers for certain expenses, including attorneys' fees, judgments, fines and
settlement amounts incurred by any such person in any action or proceeding,
including any action by or in the right of iXL, arising out of such person's
services as a director or executive officer of iXL, any subsidiary of iXL or
any other company or enterprise to which the person provides services at the
request of iXL. iXL believes that these provisions and agreements are necessary
to attract and retain qualified directors and executive officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of iXL where indemnification is expected
to be required or permitted. iXL is not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
Executive Compensation
The following table sets forth information concerning the compensation
paid by iXL during the fiscal years ended December 31, 1996, 1997 and 1998 to
iXL's Chief Executive Officer and each of iXL's four other highest paid
executive officers in 1998:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- -------------
Name and Options
Principal Position Year Salary Bonus (# of Shares)
------------------ ---- -------- -------- -------------
<S> <C> <C> <C> <C>
U. Bertram Ellis, Jr...................... 1998 $247,000 $100,000 338,889
Chairman and Chief 1997 232,300 -- 550,000
Executive Officer 1996 -- -- 1,000,000
Kevin M. Wall............................. 1998 276,000 -- --
Vice Chairman 1997 167,800 -- 170,000
1996 -- -- --
James R. Rocco............................ 1998 180,600 50,000 106,056
Vice Chairman 1997 163,900 25,000 297,000
1996 105,600 -- --
William C. Nussey......................... 1998 166,500 50,000 1,844,276
President and Chief Operating Officer 1997 -- -- --
of iXL, Inc. 1996 -- -- --
Barry T. Sikes............................ 1998 163,300 45,000 140,500
Executive Vice President for 1997 137,700 25,000 165,000
Worldwide Operations 1996 103,600 -- 255,000
</TABLE>
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<PAGE>
The above table excludes certain executive officers of iXL whose annual base
salaries exceed salaries reported in the table, but who were hired during 1998,
and consequently during 1998 earned less than the officers reported in the
table above. The 1996 figures are for the eight months ended December 31, 1996.
The annual base salaries for Mr. Ellis, Mr. Rocco, and Mr. Sikes were $0,
$175,000 and $140,000, respectively. The figures listed represent payment for
actual employment during the eight months ended December 31, 1996. Mr. Nussey's
fiscal year 1998 salary is for approximately seven months ended December 31,
1998. Mr. Nussey's annual base salary for fiscal year 1998 was $250,000.
Bonuses are determined at the discretion of the Compensation Committee.
Option Grants and Exercises During Fiscal Year 1998
No stock options were exercised by the Chief Executive Officer or the
four other highest paid executive officers during fiscal year 1998. The
following table below sets forth individual grants of stock options made during
fiscal year 1998 to each of the Chief Executive Officer and the four other
highest paid executive officers:
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock
Price Appreciation
Annual Compensation for Option Term
----------------------------- -------------------
Number of
Securities % of Total Options
Underlying Granted to Exercise or
Named Executive Officer Options Employees in Base Price Expiration
and Principal Position Granted Fiscal Year Per Share Date 5% 10%
- ----------------------- ---------- ------------------ ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
U. Bertram Ellis, Jr. .. 50,000 0.4% $3.00 02/26/08 $ 171,707 $ 362,264
Chairman and Chief 88,889 0.6% 3.00 02/26/08 305,257 644,026
Executive Officer 50,000 0.4% 3.50 02/26/08 146,707 337,264
50,000 0.4% 4.00 02/26/08 121,707 312,264
50,000 0.4% 4.50 02/26/08 96,707 287,264
50,000 0.4% 5.00 02/26/08 71,707 262,264
--------- ----
338,889 2.6%
========= ====
Kevin M. Wall .......... -- -- -- -- -- --
Vice Chairman
James R. Rocco ......... 500 * 1.00 02/26/08 2,717 4,623
Vice Chairman 5,556 * 3.00 02/26/08 19,080 40,255
100,000 0.8% 3.50 02/26/08 293,413 674,528
--------- ----
106,056 0.8%
========= ====
William C. Nussey ...... 5,176 * 3.50 05/01/08 24,040 49,010
President and Chief
Operating 389,100 2.9% 4.00 05/01/08 1,612,614 3,489,726
Officer of iXL, Inc. 900,000 6.8% 4.50 05/01/08 3,280,028 7,261,841
550,000 4.1% 10.00 05/01/08 -- 1,632,792
--------- ----
1,844,276 13.8%
========= ====
Barry T. Sikes.......... 500 * 1.00 02/26/08 2,717 4,623
Executive Vice President
for 100,000 .8% 3.50 02/26/08 293,413 674,528
Worldwide Operations 40,000 .3% 10.00 11/25/08 -- 118,748
--------- ----
140,500 1.1%
========= ====
</TABLE>
The options described in the above table were granted under iXL's 1996 Stock
Option Plan and generally provide for vesting over either four or five years.
The columns headed "Potential Realizable Value at Assumed Annual Rates of Stock
Price Appreciation for Option Term" show the hypothetical gains or option
spreads of options granted based on 5% or 10% assumed annual rates of
compounded stock price appreciation and do not represent iXL's estimates or
projections of iXL's future common stock prices.
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<PAGE>
Year-End Option Values
The following table sets forth the number and value of exercisable and
unexercisable options held at December 31, 1998 by each of the Chief Executive
Officer and the four other highest paid executive officers:
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1998 December 31, 1998
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
U. Bertram Ellis, Jr. .... 1,330,000 558,889 $6,925,000 $2,225,001
Chairman and Chief
Executive Officer
Kevin Wall ............... 703,900 102,000 4,505,145 510,000
Vice Chairman
James R. Rocco............ 178,740 225,216 683,070 883,632
Vice Chairman
William C. Nussey......... 521,009 1,323,267 1,153,327 2,929,228
President and Chief
Operating Officer
of iXL, Inc.
Barry T. Sikes............ 252,000 308,500 1,203,000 1,205,250
Executive Vice President
for
Worldwide Operations
</TABLE>
In the above table, the value of unexercised in-the-money options at
December 31, 1998 are calculated by determining the difference between the
deemed fair market value of the securities on December 31, 1998 underlying the
options and the exercise price. The fair market value of the securities as of
December 31, 1998 was based on preliminary valuations of iXL performed by
independent appraisers at the request of iXL. Information for Mr. Kevin Wall
includes 635,900 options granted to him prior to the acquisition of BoxTop
Interactive, Inc. at an exercise price of $0.95 per share.
Stock Option Plans
1996 Stock Option Plan
General. iXL's 1996 Stock Option Plan was established to promote the
success of iXL by providing an additional means to attract and retain key
personnel through added long-term incentives for high levels of performance and
for significant efforts to improve the financial performance of iXL. The 1996
Stock Option Plan authorizes the granting of options for up to an aggregate
maximum of 25 million shares of iXL's common stock to employees of iXL. As
options lapse or terminate without exercise, any unpurchased shares previously
subject to such lapsed or terminated options may be available for further
options under the 1996 Stock Option Plan.
Administration. The 1996 Stock Option Plan is administered by the
Compensation Committee, which as of the date of this prospectus is comprised of
Mr. Thomas R. Wall, Mr. Bynum and Mr. Greene. The Compensation Committee may
delegate administrative functions to individuals who are officers or employees
of iXL.
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<PAGE>
The Compensation Committee has the authority to construe and interpret
the 1996 Stock Option Plan and any agreements defining the rights and
obligations of iXL and eligible employees who receive options awards under the
1996 Stock Option Plan, to further define the terms used in the 1996 Stock
Option Plan, to prescribe, amend and rescind rules and regulations relating to
administration of the 1996 Stock Option Plan, to determine the duration and
purposes of leaves of absence which may be granted to Participants without
constituting a termination of their employment for purposes of the 1996 Stock
Option Plan and to make all other determinations necessary or advisable for the
administration of the 1996 Stock Option Plan. Determinations of the
Compensation Committee on the foregoing matters are conclusive.
Grant of Options. Awards of options to purchase common stock under the
1996 Stock Option Plan may be granted only to employees of iXL Enterprises,
Inc. and its subsidiaries. Members of the Board of Directors who are not iXL
employees are not eligible to receive awards. Options may be granted to
employees by action of the Compensation Committee. The Compensation Committee
determines the terms of each option and the number of shares of common stock
subject to each option. The terms of each option need not be identical. Each
option is subject to the terms and conditions set forth in the 1996 Stock
Option Plan and such other terms and conditions established by the Compensation
Committee as are not inconsistent with the purpose and provisions of the 1996
Stock Option Plan. Each option granted is designated as either a nonqualified
stock option or an incentive stock option.
iXL expects that most options granted pursuant to the 1996 Stock Option
Plan will be subject to vesting over a period of years, such as 20% increments
each year over a period of five years, during which the optionholder must
continue to be an employee of iXL or one of its subsidiaries. The Compensation
Committee, however, may choose to impose different vesting requirements or none
at all. An optionholder has no rights as a stockholder with respect to any
shares covered by his or her option until the date a stock certificate is
issued for such shares following his or her exercise of such option.
Exercise of Options. Except as otherwise provided in the 1996 Stock
Option Plan, an option may be exercised, in whole or in part, on the date or
dates specified in the Award Agreement executed by and between iXL and an
eligible employee and thereafter shall remain exercisable until the expiration
or earlier termination of the option. Not less than 10 shares of common stock
may be purchased at one time unless the number purchased is the total number at
the time available for purchase under the terms of the option. No option
granted pursuant to the 1996 Stock Option Plan is transferable by an
optionholder other than by will or by the applicable laws of descent and
distribution, and such option is exercisable during the eligible employee's
lifetime only by the eligible employee.
1998 Non-Employee Stock Option Plan
iXL's 1998 Non-Employee Stock Option Plan contains essentially the same
terms as the 1996 Stock Option Plan, except that the 1998 Non-Employee Stock
Option Plan was established for grants to persons who are not employees of the
Company. Persons who may receive grants under the 1998 Non-Employee Stock
Option Plan include outside consultants and members of the Board of Directors
who are not employees of iXL and other non-employees who the Compensation
Committee determines have provided services to iXL. The 1998 Non-Employee Stock
Option Plan authorizes the granting of options for up to an aggregate maximum
of 1 million shares of iXL's common stock.
1999 Employee Stock Option Plan
The Board of Directors has adopted and the stockholders of iXL have
approved the 1999 iXL Enterprises, Inc. Stock Option Plan. The 1999 Stock
Option Plan provides for the grant of stock options, including incentive stock
options.
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<PAGE>
Grant of Options. Stock options may be granted to key employees,
including executive officers of iXL, its subsidiaries and affiliates as
determined by the Compensation Committee. The number of employees participating
in the 1999 Stock Option Plan will vary from year to year. The shares to be
granted with respect to options under the 1999 Stock Option Plan shall be
shares of common stock, may consist, in whole or in part, of treasury stock or
authorized but unissued stock not reserved for any other purpose and may not
exceed 5 million, as such number may be adjusted to reflect changes in iXL's
capitalization.
If shares subject to an option under the 1999 Stock Option Plan cease to
be subject to the option, such shares will again be available for future grant
under the 1999 Stock Option Plan. In the event of certain changes in iXL's
capital structure affecting the common stock, the Compensation Committee may
make appropriate adjustments in the number and kinds of shares that may be
awarded and in the number and kinds of shares covered by options then
outstanding under the 1999 Stock Option Plan, and, where applicable, exercise
price of outstanding options under the 1999 Stock Option Plan. The 1999 Stock
Option Plan will be administered by the Compensation Committee.
The Compensation Committee may grant options to purchase shares of common
stock that are either "qualified," which includes those awards that satisfy the
requirements of Section 422 of the Internal Revenue Code for incentive stock
options, or "nonqualified," which includes those awards that are not intended
to satisfy the requirements of Section 422 of the Internal Revenue Code. Under
the terms of the 1999 Stock Option Plan, the exercise price of the options
will, unless the Compensation Committee determines otherwise, not be less than
such common stock's fair market value at the time of grant. The exercise price
of the options is payable in cash or its equivalent or by exchanging shares of
common stock owned by the participant, through an arrangement with a broker
approved by iXL where payment of the exercise price is accomplished with the
proceeds of the sale of common stock, or by a combination of the foregoing.
Exercise of Options. The options will generally have a term of ten years,
unless the Compensation Committee specifies a shorter term, and will become
exercisable following the performance of a minimum period of service or the
satisfaction of performance goals, as determined by the Compensation Committee.
If an option holder ceases employment with iXL as a result of the holder's
death, disability or retirement, the holder, or his or her beneficiary or legal
representative, may exercise any then exercisable option for a period of one
year, or a greater or lesser period as determined by the Compensation Committee
at grant, but in no event after the date the option otherwise expires. If an
option holder's employment is terminated for any other reason, the holder may
exercise any then exercisable option for a period of 30 days, or such greater
period not exceeding 90 days as determined by the Compensation Committee, but
in no event after the date the option otherwise expires; provided that if the
holder's employment is terminated for cause all of his or her options will
immediately terminate, regardless of whether then exercisable.
If there is a "change in control," all options that are not then vested
will become vested unless the options are either assumed or substituted for
equivalent options by the new controlling entity following the change in
control.
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<PAGE>
CERTAIN TRANSACTIONS
iXL Equity Investments
The following table sets forth the purchases of iXL's capital stock by
iXL's executive officers, directors, five percent stockholders and their
respective affiliates and certain related parties prior to this offering and
the private placement to General Electric:
<TABLE>
<CAPTION>
Aggregate
Date of Purchase
Purchaser Transaction Securities Purchased Price
--------- ----------- -------------------- ---------
<S> <C> <C> <C>
CB Capital Investors, December 17, 1997 46,153 shares of Class B Convertible $14,999,725
L.P.
Preferred Stock, and warrants to
purchase 6,390 shares of Class B
Convertible Preferred Stock
December 17, 1997 9,232 shares of Class C Convertible 3,000,400
Preferred Stock
August 14, 1998 9,000 shares of Class D Nonvoting 9,000,000
Preferred Stock
General Electric Capital December 23, 1997 15,384 shares of Class B Convertible 4,999,800
Corporation Preferred Stock, and warrants to
purchase 1,775 shares of Class B
Convertible Preferred Stock
August 31, 1998 2,500 shares of Class D Nonvoting 2,500,000
Preferred Stock
General Electric Capital January 15, 1999 5,000 shares of Class A Convertible 5,000,000
Assurance Company Preferred Stock
(affiliate
of General Electric
Capital
Corporation)
Greystone Capital January 15, 1999 10,000 shares of Class A Convertible 10,000,000
Partners I,
L.P. (affiliate of Preferred Stock
Thomas G.
Rosencrants, director of
iXL)
Kelso Equity Partners V, April 30, 1996 5,955 shares of Class A Convertible 595,500
L.P.
(affiliate of Kelso Preferred Stock
Investment
Associates V, L.P.)
April 4, 1997 3,302 shares of Class A Convertible 825,500
Preferred Stock
August 14, 1998 1,000 shares of Class D Nonvoting 1,000,000
Preferred Stock
Kelso Investment April 30, 1996 93,295 shares of Class A Convertible 9,329,500
Associates V,
L.P. Preferred Stock
April 4, 1997 35,818 shares of Class A Convertible 8,954,500
Preferred Stock
August 14, 1998 9,000 shares of Class D Nonvoting 9,000,000
Preferred Stock
David E. Clauson September 18, 1998 1,000 shares of Class A Convertible 1,000,000
Preferred Stock
</TABLE>
- --------
table continued on following page
85
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Date of Purchase
Purchaser Transaction Securities Purchased Price
--------- ----------- -------------------- ---------
<S> <C> <C> <C>
U. Bertram Ellis, Jr. April 30, 1996 1,000 shares of Class A Convertible $ 100,000
Preferred Stock
September 30, 1996 9,000 shares of Class A Convertible 900,000
Preferred Stock
April 4, 1997 4,000 shares of Class A Convertible 1,000,000
Preferred Stock
August 28, 1998 1,000 shares of Class D Nonvoting 1,000,000
Preferred Stock
William C. Nussey August 25, 1998 100 shares of Class A Convertible 100,000
Preferred Stock
John Rocco (brother of February 20, 1998 615 shares of Class A Convertible 199,875
James R.
Rocco) Preferred Stock
</TABLE>
In connection with each of the issuances described above, the purchasers
listed above were required to execute iXL's stockholders' agreement and
registration rights agreement. Each issuance described above was valued based
on iXL's estimate of its fair market value at the time of each issuance. The
business purpose of each issuance was to raise working capital, except for the
issuance to Mr. Clauson, which was made as a condition to his employment with
iXL. As payment of a portion of the purchase price for his shares, Mr. Clauson
executed in favor of iXL a promissory note in the original principal amount of
$900,000. This note is a non-recourse note secured by a pledge of the 1,000
shares of Class A Convertible Preferred Stock held by Mr. Clauson. This note
accrues simple interest at a rate of 5.48% per annum, and matures on the
earlier of September 18, 2001 or the date on which Mr. Clauson transfers any of
the 1,000 shares of Class A Convertible Preferred Stock held by him.
Each of the issuances described above, other than the issuance to Mr.
Clauson, was made contemporaneous with, and on identical terms as, issuances to
unaffiliated persons. The issuance to Mr. Clauson was also made at about the
same time and on identical terms as issuances made to unaffiliated persons,
with the sole exception that Mr. Clauson, as a condition of the initiation of
his employment, was permitted to pay a portion of the purchase price through
execution of the promissory note described above. This 5.48% interest rate of
the promissory note was determined with reference to the standard federal rate
in effect at the time of the execution of the note. For a description of the
securities issued in these transactions, see "Description of Capital Stock--
Description of Reclassified Securities."
Private Placement Investment in iXL
General Electric has agreed to purchase directly from iXL Enterprises,
Inc., in a private placement transaction expected to be completed concurrently
with the closing of this offering, if regulatory and other conditions are
satisfied, an aggregate of 2,000,000 shares of common stock at a price per
share equal to the initial public offering price. In connection with this
issuance, the investors will enter into iXL's Stockholders Agreement and iXL's
Registration Rights Agreement. The business purpose of this issuance is to
raise working capital. See "Relationship with General Electric."
CFN Equity Investments
On November 3, 1998, General Electric purchased 13,333,334 shares of
CFN's Series A Convertible Preferred Stock for an aggregate purchase price of
$10,000,000. In connection with this issuance, CFN, iXL, and General Electric
executed a Stockholders Agreement and a Registration Rights Agreement with
respect to CFN capital stock. This issuance was valued based on CFN's estimate
of its fair market value at the time of such issuance. The business purpose of
this issuance was to raise working capital for CFN and to establish a
relationship between General Electric and CFN. iXL believes that this issuance
was negotiated at arm's length
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<PAGE>
and was made on terms no less favorable to iXL and CFN than could have been
obtained from unaffiliated third parties. At the time of this transaction,
General Electric beneficially owned less than 5% of the outstanding common
stock of iXL, on an as-converted basis.
General Electric is expected to purchase 16,190,475 shares of CFN's
Series B Convertible Preferred Stock for an aggregate purchase price of $50
million. In connection with this issuance, CFN, iXL, and General Electric will
execute amendments to the existing CFN Stockholders Agreement and to the
existing CFN Registration Rights Agreement, and an Investor Agreement with CFN.
Under the Registration Rights Agreement, iXL and General Electric have the
right to force a registration of CFN's capital stock. The business purpose of
this issuance is to raise working capital and to expand the relationship
between General Electric and CFN. This issuance was valued based on a
negotiated estimate of CFN's fair market value. iXL believes that this issuance
was negotiated at arm's length and was made on terms no less favorable to iXL
and CFN than could have been obtained from unaffiliated third parties. This
issuance is subject to regulatory and other conditions which, if not satisfied,
could result in the termination of the contemplated transaction. See
"Relationship with General Electric" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Overview."
Acquisitions
In May 1996, iXL acquired Creative Video, Inc., Creative Video Library,
Inc., and Entrepreneur Television, Inc. In connection with that transaction,
Mr. Rocco received $2,478,800 in cash and 1,055,300 shares of common stock,
valued at $1.00 per share for the purpose of such acquisition, in exchange for
his capital stock holdings in such acquired entities, and Mr. Sikes received
$518,775 in cash and 221,100 shares of common stock, valued at $1.00 per share
for the purpose of such acquisition, in exchange for his capital stock holdings
in such acquired entities. Mr. Rocco held 46% of the equity of Creative Video,
Inc., 49% of the equity of Creative Video Library, Inc., and 50% of the equity
of Entrepreneur Television, Inc., and served as the Secretary, President, and
President of each company, respectively. Mr. Rocco also served as a Director of
each company. Mr. Sikes held 10% of the equity of Creative Video, Inc., 7% of
the equity of Creative Video Library, Inc., and 6% of the equity of
Entrepreneur Television, Inc., and served as a Director of each company. Mr.
Sikes also served as the President of Creative Video, Inc. and as the Treasurer
of Creative Video Library, Inc. In May 1997, iXL acquired BoxTop Interactive,
Inc. In connection with that transaction, Mr. Kevin Wall received 1,773,600
shares of common stock, valued at $2.50 per share for the purpose of such
acquisition, in exchange for his capital stock holdings in BoxTop Interactive,
Inc., which represented 52% of the equity.Mr. Wall served as the Chairman of
the Board and Chief Executive Officer of BoxTop Interactive, Inc. The valuation
of the shares issued to Mr. Rocco, Mr. Sikes, and Mr. Wall was determined by
negotiation.
Loans
From February 1997 to August 1998, Mr. Ellis and/or his wife made nine
separate loans to iXL in an aggregate principal amount of $12 million. The
maximum principal balance of these loans at any one time was $6 million. All
such loans accrued interest at a rate of either 10% or 12% per annum. All such
loans have been repaid in full with accrued interest. From September 1997 to
December 1997, Mr. James R. Rocco loaned iXL $300,000. These loans accrued
interest at a rate of 12% per annum, and have been repaid in full with accrued
interest. The purpose of each of the loans described in this paragraph was to
provide working capital to iXL.
From May 30, 1997 to March 30, 1998, Mr. Kevin Wall borrowed, from time
to time, amounts never exceeding $268,753 under a revolving line of credit from
iXL, at an interest rate of 8% per annum. The purpose of this loan was to
provide personal funds to Mr. Wall. This loan was repaid on March 30, 1998 from
the proceeds of the sale by Mr. Kevin Wall to iXL of 184,616 shares of common
stock for a purchase price of $3.25 per share. The valuation of these shares
was determined by negotiation.
Chase Manhattan Bank is the Administrative Agent and sole lender under
iXL's credit facility. Chase Manhattan Bank is a limited partner of CB Capital
Investors, L.P. For a description of the material terms of iXL's credit
facility, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
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Other Transactions
In April 1996, iXL paid Kelso & Company a fee of $150,000 for financial
advisory services and reimbursed Kelso & Company for out-of-pocket expenses
incurred in connection with rendering such services. In addition, iXL agreed to
pay Kelso & Company an annual fee of $15,000 for continuing financial advisory
services and to reimburse Kelso & Company for out-of-pocket expenses incurred,
which in 1996, 1997 and 1998 totaled approximately $13,000, $75,000 and
$85,000, respectively. iXL has also agreed to indemnify Kelso & Company against
certain claims, losses, damages, liabilities and expenses which may arise in
connection with rendering such financial advisory services. Kelso & Company has
agreed, other than with respect to such indemnification and expenses
provisions, to terminate its annual financial services agreement. In connection
with consulting services regarding the offering, iXL has agreed to pay Kelso &
Company a fee equal to $750,000 upon the closing of the offering, payable in
shares of common stock, valued at the gross offering price prior to
underwriting and other selling discounts. The business purpose of these
transactions was to secure the advisory services of Kelso & Company.
iXL has issued to General Electric Capital Corporation warrants to
purchase 500,000 shares of common stock at an exercise price of $10.00 per
share in exchange for marketing services. The business purpose of this
transaction was to promote awareness of iXL's services.
Upon the closing of this offering, iXL expects to issue to GE Capital
Equity Investments, Inc. warrants to purchase 1,500,000 shares of common stock
at an exercise price per share equal to the initial public offering price.
These warrants are to be issued in exchange for the implementation of a
mutually satisfactory marketing campaign and as an incentive to make CFN's
platform available to GE Capital Equity Investments, Inc. employees. The
details of the marketing campaign have not yet been agreed to. The business
purpose of this transaction was to promote awareness of iXL's services and to
secure additional eligible employees to CFN's member base. CFN and General
Electric are also discussing other expansions of this relationship, including
co-marketing, data sharing, cross selling, technology licensing and other
similar arrangements. See "Relationship with General Electric."
The stockholders of iXL Interactive Excellence, Inc. were parties to a
Stock Option Agreement, dated October 24, 1994, pursuant to which Ellis
Communications, Inc. had an option to acquire 100% of the capital stock of iXL
Interactive Excellence, Inc. from such stockholders. In connection with the
proposed sale of Ellis Communications, Ellis Communications and the iXL
Interactive Excellence, Inc. stockholders desired to terminate this Stock
Option Agreement, and pursuant to a Termination Agreement dated March 26, 1996
and a fairness opinion from an investment banking firm, such iXL Interactive
Excellence, Inc. stockholders paid ECI $100,000 as consideration for
termination of this Stock Option Agreement. Ellis Communications, at such time,
was controlled by affiliates of Kelso & Company, and Mr. Ellis was the
President, Chief Executive Officer and Chairman of the Board of Directors of
Ellis Communications.
Mr. Ellis is a limited partner in the partnership that owns the building
in which iXL began leasing space in May 1997. Pursuant to the terms of the
lease, iXL currently pays rent of approximately $93,000 per month, and the
lease expires December 31, 2008. In 1996, 1997 and 1998, iXL paid total annual
rent of approximately $6,000, $441,000 and $628,000, respectively. iXL believes
its lease of such space is at fair market value and was negotiated on an arm's-
length basis. iXL's effective lease rate is $14.64 per square foot, compared to
a range of $12.50 to $16.50 per square foot for comparable space.
In June 1998, iXL, Inc. created a new wholly owned subsidiary,
Permit.Com, Inc., a Delaware corporation. In exchange for additional stock of
Permit.Com, Inc., iXL, Inc. then transferred all of the assets related to the
Permit.Com division and operations of iXL, Inc. to Permit.Com, Inc.
Subsequently, the sole director of iXL, Inc. approved and declared a dividend
of all of the outstanding common stock (100,000 shares) of Permit.Com, Inc. to
iXL as the sole shareholder of iXL, Inc. On June 26, 1998, the Board of
Directors of iXL approved and declared a dividend of the common stock of
Permit.Com, Inc. payable to stockholders of iXL of record as of June 1, 1998.
The aggregate value of this dividend was approximately $420,000, based on an
independent appraisal of the Permit.Com assets.
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Each of iXL and CFN provides services in the ordinary course of business
to WebMD, Inc., for which Mr. Jeffrey T. Arnold serves as Chairman and Chief
Executive Officer and Mr. Ellis serves as a Director and is also a shareholder,
CB Capital Investors, L.P., General Electric Capital Corporation, and Kelso &
Company, or their respective affiliates. In 1998 iXL recognized revenues of
approximately $1.5 million and $200,000, respectively, from CB Capital
Investors, L.P., and General Electric Capital Corporation or their respective
affiliates. In 1997 and 1998 iXL recognized revenues from WebMD, Inc. of
approximately $53,000 and $5.6 million, respectively. In 1997 and 1998, iXL
recognized revenues from Kelso & Company or its affiliates of approximately
$100,000 and $300,000, respectively.
iXL-New York, Inc., a wholly owned subsidiary of iXL, and General
Electric have executed a Master Services Agreement under which iXL will provide
services in the ordinary course of business to General Electric. Under this
agreement, General Electric will be obligated to pay to iXL, for the first year
of the term of the contract, the greater of $20 million or the actual billed
value of the services provided by iXL. If at the end of the first year, General
Electric has not used $20 million worth of services, it will have an additional
three months to use the remaining balance. There are no guaranteed minimum
payments after this initial period. This contract has a five-year term and is
terminable by General Electric after the first anniversary of the contract. In
partial consideration of this contract, iXL issued to GE Capital Equity
Investments, Inc. warrants to purchase 1,000,000 shares of common stock for an
exercise price of $15.00 per share. The business purpose of this transaction
was to help solidify and expand its relationship with General Electric. The
terms of this arrangement are similar to the terms of iXL's arrangement with
Delta Air Lines, Inc. See "Relationship with General Electric."
iXL has entered into a Stockholders' Agreement with some of its
stockholders. iXL has also entered into a Registration Rights Agreement with
its stockholders. See "Management--Amended Stockholders Agreement" and
"Description of Capital Stock--Registration Rights Agreement."
iXL believes that all of the transactions set forth above were negotiated
at arm's length and were made on terms no less favorable to iXL than could have
been obtained from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to iXL with
respect to the beneficial ownership of the common stock as of April 1, 1999,
giving effect to the events described in "Prospectus Assumptions" other than
this offering, and as adjusted to reflect the sale of common stock offered by
iXL hereby for each stockholder who is known by iXL to beneficially own more
than 5% of the common stock, each of iXL's directors, as its Chief Executive
Officer and the other four highest paid executive officers and all directors
and executive officers of iXL as a group:
<TABLE>
<CAPTION>
Shares of Percentage Ownership
Common Stock ----------------------
Beneficially Prior to the After the
Stockholder Owned Offering Offering
----------- ------------ ------------ ---------
<S> <C> <C> <C>
Kelso Investment Associates V, L.P. and
Kelso Equity Partners V, L.P. ........... 15,733,301 27.3% 24.7%
Joseph S. Schuchert..................... -- -- --
Frank T. Nickell........................ -- -- --
Thomas R. Wall, IV...................... -- -- --
George E. Matelich...................... -- -- --
Michael B. Goldberg..................... -- -- --
David I. Wahrhaftig..................... -- -- --
Frank K. Bynum, Jr. .................... -- -- --
Philip E. Berney........................ 10,000 * *
c/o Kelso & Company
320 Park Avenue
24th Floor
New York, NY 10022
CB Capital Investors, L.P. ............... 8,003,798 13.9% 12.6%
I. Robert Greene........................ -- -- --
380 Madison Avenue
12th Floor
New York, NY 10017-2591
General Electric Capital Corporation and
General Electric Capital Assurance
Company.................................. 5,221,934 9.0% 8.1%
120 Long Ridge Road
Stamford, CT
U. Bertram Ellis, Jr. .................... 2,936,603 5.0% 4.5%
Kevin M. Wall............................. 2,292,884 3.9% 3.6%
James R. Rocco............................ 1,207,040 2.1% 1.9%
William C. Nussey......................... 692,384 1.2% 1.1%
Barry T. Sikes............................ 473,100 * *
Thomas G. Rosencrants..................... 1,000,000 1.7% 1.6%
All Directors and Executive Officers as a
Group (11 persons)....................... 32,685,168 53.6% 48.8%
</TABLE>
- --------
* Less than 1% of the outstanding shares of the class of securities.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares of
common stock. The number of shares beneficially owned includes shares of common
stock issuable upon the exercise of options or warrants that are currently
exercisable or exercisable within 60 days of April 1, 1999. Percentage of
beneficial ownership is based on 57,579,194 shares of common stock outstanding
as of April 1, 1999, 63,579,194 shares of common stock outstanding after
completion of this offering.
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Messrs. Schuchert, Nickell, Wall, Matelich, Goldberg, Wahrhaftig, Bynum
and Berney may be deemed to share beneficial ownership of shares of common
stock owned of record by Kelso Investment Associates V, L.P. and Kelso Equity
Partners V, L.P., by virtue of their status as general partners of the general
partner of Kelso Investment Associates V, L.P. and as general partners of Kelso
Equity Partners V, L.P. Messrs. Schuchert, Nickell, Wall, Matelich, Goldberg,
Wahrhaftig, Bynum and Berney share investment and voting power with respect to
securities owned by Kelso Investment Associates V, L.P. and Kelso Equity
Partners V, L.P., but disclaim beneficial ownership of such securities.
Information for Kelso Investment Associates V, L.P. and Kelso Equity
Partners V, L.P. includes 12,911,300 shares held by Kelso Investment Associates
V, L.P. and 724,600 shares held by Kelso Equity Partners V, L.P, 1,826,298
shares and 202,922 shares issuable to Kelso Investment Associates V, L.P. and
Kelso Equity Partners V, L.P, respectively, upon the reclassification of Class
D Nonvoting Preferred Stock into common stock, and 68,181 shares Kelso Equity
Partners V, L.P. will acquire from Kelso & Company immediately after payment of
the Kelso fee. Kelso Investment Associates V, L.P. and Kelso Equity Partners V,
L.P., due to their common control, could be deemed to beneficially own each of
the other's shares, but disclaim such beneficial ownership. Mr. Nickell could
be deemed to beneficially own 800 shares of common stock owned by trusts of
which Mr. Nickell is the trustee; however, Mr. Nickell disclaims such
beneficial ownership. Mr. Thomas Wall could be deemed to beneficially own
200,300 shares of common stock owned by trusts of which Mr. Wall is the
trustee; however, Mr. Wall disclaims such beneficial ownership.
Information for CB Capital Investors, L.P. includes 639,000 shares of
common stock issuable upon exercise of warrants for cash consideration upon the
closing of this offering, and 1,826,298 shares issuable upon the
reclassification of Class D Nonvoting Preferred Stock as common stock. Mr.
Greene is a general partner of Chase Capital Partners, a New York general
partnership, which is the general partner of CB Capital Investors, L.P.
Accordingly, Mr. Greene could be deemed to beneficially own the shares
beneficially owned by CB Capital Investors, L.P. However, Mr. Greene disclaims
beneficial ownership of all common stock owned by CB Capital Investors, L.P,
except an indeterminate number thereof in which he has a pecuniary interest as
a general partner of Chase Capital Partners.
Information for General Electric Capital Corporation and General Electric
Capital Assurance Company includes (a) for General Electric Capital
Corporation: 1,538,400 shares of common stock currently held, 177,500 shares of
common stock issuable upon the exercise of warrants for cash consideration upon
the closing of this offering, 500,000 shares of common stock issuable upon the
exercise of warrants exercisable within 60 days of the date hereof, an
aggregate of 2,000,000 shares of common stock to be issued to affiliates of
General Electric Company concurrently with the closing of this offering, and
506,034 shares of common stock issuable upon the reclassification of the Class
D Nonvoting Preferred Stock into common stock, and (b) for General Electric
Capital Assurance Company: 500,000 shares of common stock currently held.
Excludes 2,500,000 shares of common stock issuable to GE Capital Equity
Investments, Inc. upon the exercise of warrants which are not exercisable
within 60 days from the date hereof.
Information for U. Bertram Ellis, Jr. includes 1,330,000 shares of common
stock issuable upon exercise of options exercisable within 60 days from the
date hereof and 202,503 shares issuable upon the reclassification of Class D
Nonvoting Preferred Stock into common stock. Excludes 2,058,889 shares of
common stock issuable upon exercise of options which are not exercisable within
60 days from the date hereof.
Information for Kevin M. Wall includes 703,900 shares of common stock
issuable upon exercise of options exercisable within 60 days from the date
hereof. Excludes 102,000 shares of common stock issuable upon exercise of
options which are not exercisable within 60 days from the date hereof.
Information for James R. Rocco includes 178,740 shares of common stock
issuable upon exercise of options exercisable within 60 days from the date
hereof. Excludes 296,260 shares of common stock issuable upon exercise of
options which are not exercisable within 60 days from the date hereof.
Information for William C. Nussey includes 682,384 shares of common stock
issuable upon exercise of options exercisable within 60 days from the date
hereof. Excludes 1,161,892 shares of common stock issuable upon exercise of
options which are not exercisable within 60 days from the date hereof.
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Information for Barry T. Sikes includes 252,000 shares of common stock
issuable upon exercise of options exercisable within 60 days from the date
hereof. Excludes 333,500 shares of common stock issuable upon exercise of
options which are not exercisable within 60 days from the date hereof.
Thomas G. Rosencrants is a general partner of Greystone Capital Partners
I, L.P., which holds 1,000,000 shares of common stock. Mr. Rosencrants
disclaims beneficial ownership of such shares.
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DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of iXL and material
provisions of iXL's Certificate of Incorporation and Bylaws is a summary and is
qualified by reference to the provisions of the Certificate of Incorporation
and Bylaws, which have been filed as exhibits to iXL's Registration Statement
of which this prospectus is a part.
Upon the closing of this offering, the authorized capital stock of iXL
will be 205,000,000 shares, consisting of 200,000,000 shares of common stock,
par value $0.01 per share, and 5,000,000 shares of undesignated preferred
stock, par value $0.01 per share.
Common Stock
As of April 1, 1999, giving effect to the events described in "Prospectus
Assumptions" other than this offering, there were 57,579,194 shares of common
stock outstanding held of record by 262 stockholders.
Common stock is entitled to one vote per share on all matters on which
stockholders are entitled to vote. Common stock does not have cumulative voting
rights or other preemptive or subscription rights, and is not redeemable by
iXL. Holders of shares of common stock are entitled to any dividends as may be
declared by the Board of Directors out of legally available funds. Upon
liquidation, dissolution or winding-up of iXL, after required payments to
creditors, the assets of iXL will be divided pro rata on a per share basis
among the holders of the common stock.
Description of Reclassified Securities
Class A, Class B, and Class C Convertible Preferred Stock and Class D
Nonvoting Preferred Stock will be reclassified as common stock upon the closing
of this offering. No Preferred Stock will be outstanding after this offering.
The following descriptions of these classes of preferred stock are based upon
the provisions in effect immediately prior to reclassification.
Based on the conversion mechanics in effect immediately prior to the
reclassification of iXL's preferred stock into common stock upon the closing of
this offering:
. each share of Class A, Class B, and Class C Convertible Preferred
Stock converts into 100 shares of Class A Common Stock, each
share of which is in turn convertible into one share of Class B
Common Stock; and
. each share of Class A and Class B Convertible Preferred Stock is
entitled to 1,000 votes; Class C Convertible Preferred Stock is
not entitled to any voting rights.
Class A, Class B, and Class C Convertible Preferred Stock are entitled to
receive dividends pro rata with dividends properly declared and paid with
respect to the common stock, on a basis as if the Class A, Class B, and Class C
Convertible Preferred Stock were converted into Class A Common Stock. Upon a
voluntary or involuntary dissolution, liquidation or winding-up of iXL, after
payments to creditors but prior to any payments in respect of any common stock,
holders of Class A, Class B, and Class C Convertible Preferred Stock are
entitled to receive a liquidation preference equal to the price at which the
stock was originally issued by iXL, subject to proportional adjustment upon any
subdivision or combination of such class of preferred stock occurring after
December 17, 1997. iXL may redeem all outstanding Class A, Class B, and Class C
Convertible Preferred Stock upon a change of control. Holders of Class B and
Class C Convertible Preferred Stock have the right at their option to require
iXL to redeem such stock held by them at any time on or after December
31, 2004.
Class D Nonvoting Preferred Stock has no voting rights. The Class D
Nonvoting Preferred Stock is entitled to receive dividends which accrue on a
daily basis at the rate of 12% per annum. Dividends are not required to be paid
until the earlier of the date occurring three years and six months after August
14, 1998, or
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upon the initial public offering of the common stock. Upon a voluntary or
involuntary dissolution, liquidation or winding-up of iXL, after payments to
creditors but prior to any payments in respect of any other preferred stock or
common stock, holders of Class D Nonvoting Preferred Stock are entitled to
receive a liquidation preference equal to $1,000 per share plus any accrued but
unpaid dividends to the date of payment. Holders of Class D Nonvoting Preferred
Stock have the right at their option to require iXL to redeem Class D Nonvoting
Preferred Stock held by them at any time after August 14, 2005, or at any time
after one of the following redemption events, if earlier:
. a breach of the dividend payment provisions of the Class D
Nonvoting Preferred Stock;
. a bankruptcy of iXL or any of its subsidiaries;
. a judgment for payment of money in an amount exceeding
$5,000,000;
. the acceleration of indebtedness in an amount exceeding
$5,000,000;
. a breach of the documents governing the issuance of the Class D
Nonvoting Preferred Stock; and
. a change of control.
iXL may, at its option, redeem all or less than all of the outstanding Class D
Nonvoting Preferred Stock at any time. Upon redemption, the holders of Class D
Nonvoting Preferred Stock will receive $1,000 per share plus any accrued but
unpaid dividends to the date of payment, and assuming the initial public
offering of the common stock occurs prior to August 14, 1999, approximately
104.27 shares of common stock for each share of Class D Nonvoting Preferred
Stock redeemed.
Blank Check Preferred Stock
Effective upon the closing of this offering, the Board of Directors will
have the authority, without further action by the stockholders, to issue up to
5,000,000 shares of preferred stock in one or more series, and
to fix the rights, designations, preferences, privileges, qualifications and
restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, rights and terms of redemption, liquidation preferences
and sinking fund terms, any or all of which may be greater than the rights of
the common stock. No shares of preferred stock will be outstanding upon the
closing of this offering. The issuance of preferred stock could adversely
affect the voting power of holders of common stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation. Such
issuance could have the effect of decreasing the market price of the common
stock. The issuance of preferred stock may have the effect of delaying,
deterring or preventing a change in control of iXL without any further action
by the stockholders. iXL has no present plans to issue any shares of preferred
stock.
Registration Rights Agreement
iXL, Kelso Investment Associates V, L.P., Kelso Equity Partners V, L.P.
and CB Capital Investors, L.P. and most other stockholders of iXL prior to this
offering are parties to a Registration Rights Agreement, dated as of April 30,
1996. All shares of common stock outstanding prior to this offering, as well as
(1) all shares of common stock issuable upon exercise of warrants outstanding
prior to this offering, (2) all shares of common stock issuable upon the
reclassification of the iXL's preferred stock upon the closing of this
offering, and (3) all shares of common stock to be held by Kelso Equity
Partners V, L.P. that are issuable in connection with the fee payable to Kelso
& Company upon the closing of this offering, are subject to the Registration
Rights Agreement. The Registration Rights Agreement, at any time and from time
to time after May 1, 1997, the holder or holders of 50% or more of the common
stock may request that iXL effect a demand registration under the Securities
Act of the common stock held by the majority stockholders. After this request,
iXL must use its best efforts to effect such a registration of all common stock
held by the majority stockholders and all other holders of common stock.
In addition to the demand registration, if iXL at any time proposes to
effect a registration of its equity securities and the type of registration
permits, all holders of common stock may include their shares in that
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registration. The number of shares to be registered under a demand registration
or a piggyback registration may be reduced on a pro rata basis if the managing
underwriter in an underwritten offering or the investment banker in a non-
underwritten offering advises iXL that the number of shares requested to be so
included exceeds the number which can be sold in the offering. The registration
rights agreement provides for cross-indemnification by iXL and the sellers of
common stock for losses, claims and damages incurred by the other resulting
from untrue statements or omissions contained in the registration statement.
All expenses incurred in connection with each registration under the
Registration Rights Agreement will be paid by iXL. Additionally, pursuant to
the Registration Rights Agreement, all stockholders who have purchased iXL's
capital stock prior to this offering have agreed not to effect any public sale
or distribution of their stock during the 180 days after the closing of this
offering. For a description of the fee payable to Kelso & Company described
above, see "Certain Transactions."
Certain Antitakeover Effects of Provisions of iXL's Certificate of
Incorporation and Bylawsand Delaware Law
General. Provisions of the Delaware General Corporation Law and iXL's
Certificate of Incorporation and Bylaws could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party to
acquire, control of iXL. These provisions could limit the price that investors
might be willing to pay in the future for shares of iXL's common stock. These
provisions of Delaware law and iXL's Certificate of Incorporation and Bylaws
may also have the effect of discouraging or preventing certain types of
transactions involving an actual or threatened change of control of iXL,
including unsolicited takeover attempts, even though such a transaction may
offer iXL's stockholders the opportunity to sell their stock at a price above
the prevailing market price. iXL's Certificate of Incorporation allows iXL to
issue preferred stock with rights senior to those of the common stock and other
rights that could adversely affect the interests of holders of common stock,
which could decrease the amount of earnings or assets available for
distribution to the holders of common stock or could adversely affect the
rights and powers, including voting rights, of the holders of common stock. In
some circumstances, this type of issuance could have the effect of decreasing
the market price of the common stock, as well as having the antitakeover effect
discussed above. See "Risk Factors--Risks Related to the Offering--Antitakeover
provisions of our Certificate of Incorporation and Bylaws, and Delaware law
could prevent or delay a change of control."
Delaware Takeover Statute. iXL is subject to Section 203 of the Delaware
General Corporation Law, which prohibits a Delaware corporation from engaging
in a "business combination" with some persons for three years following the
date any of these persons becomes an interested stockholder. Interested
stockholders generally include persons who are the beneficial owners of 15% or
more of the outstanding voting stock of the corporation and persons who are
affiliates or associates of the corporation and who hold 15% or more of the
corporation's outstanding voting stock at any time within three years before
the date on which that person's status as an interested stockholder is
determined. A business combination includes:
. a merger or consolidation;
. the sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets having an aggregate market value equal to
10% or more of either the aggregate market value of all assets of
the corporation determined on a consolidated basis or the
aggregate market value of all the outstanding stock of the
corporation;
. any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested
stockholder, except in a transaction that effects a pro rata
distribution to all stockholders of the corporation;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series, or securities convertible into the stock of any class or
series, of the corporation that is owned directly or indirectly by
the interested stockholder; or
. any receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
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Section 203 of the Delaware General Corporation Law does not apply to a
business combination if before a person becomes an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination, or upon completion of the transaction that resulted in
the interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, other than the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the interested stockholder.
Certificate of Incorporation and Bylaws. iXL's Bylaws also require that
special meetings of the stockholders of iXL may be called only by the Board of
Directors, the Chairman of the Board or the Chief Executive Officer of iXL or
by any person or persons holding shares representing at least 20% of the
outstanding capital stock. iXL's Bylaws also require advance written notice,
which must be received by the Secretary of iXL not less than 90 days prior to
the meeting, by a stockholder of a proposal or directors nomination which such
stockholder desires to present at an annual or special meeting of
stockholders. iXL's Certificate of Incorporation does not include a provision
for cumulative voting in the election of directors. Under cumulative voting, a
minority stockholder holding a sufficient number of shares may be able to
ensure the election of one or more directors. The absence of cumulative voting
may have the effect of limiting the ability of minority stockholders to effect
changes in the Board of Directors and, as a result, may have the effect of
deterring a hostile takeover or delaying or preventing changes in control or
management of iXL.
iXL's Bylaws provide that the authorized number of directors may be
changed only by a resolution adopted by a majority of the entire Board of
Directors. Vacancies in the Board of Directors may be filled by a majority of
directors in office, although less than a quorum. See "Risk Factors--Risks
Related to the Offering--Anti-takeover provisions of our Certificate of
Incorporation and Bylaws, and Delaware law could prevent or delay a change of
control."
No Shareholder Action by Written Consent. The Certificate of
Incorporation will prohibit stockholders from taking action by written consent
in lieu of an annual or special meeting, and thus stockholders will only be
able to take action at an annual or special meeting called in accordance with
the Bylaws.
Transfer Agent and Registrar
SunTrust Bank, Atlanta has been appointed as transfer agent and
registrar for the common stock.
Listing
The common stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "IIXL."
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, iXL will have outstanding an aggregate
of 63,579,194 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradeable, unless such
shares are purchased by affiliates of iXL, as that term is defined in Rule 144
under the Securities Act of 1933. The remaining 57,579,194 shares of common
stock held by stockholders are "restricted securities," as that term is defined
in Rule 144 under the Securities Act. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rule 144 or 701 promulgated under the Securities Act. As a
result of contractual restrictions, the 180-day lock-ups described below and
the provisions of Rules 144 and 701, additional shares will be available for
sale in the public market as follows:
. no restricted securities will be eligible for immediate sale on the
date of this prospectus;
. 191,804 restricted securities issuable pursuant to stock options
will be eligible for sale 90 days after the date of this
prospectus;
. 55,313,194 restricted securities--plus 11,347,265 shares of common
stock issuable pursuant to stock options--will be eligible for sale
upon expiration of the lock-up agreements described below 180 days
after the date of this prospectus; and
. the remainder of the restricted securities will be eligible for
sale from time to time thereafter upon expiration of their
respective one-year holding periods.
In general, under Rule 144 as currently in effect, a person, including an
affiliate, who has beneficially owned restricted shares for at least one year
from the later of the date the restricted securities were acquired from iXL or,
if applicable, from an affiliate on the date on which they were fully paid, is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the then-outstanding shares of common stock or
the average weekly trading volume of the common stock in the public market as
reported through the Nasdaq National Market during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to requirements as
to the manner and notice of sale and the availability of public information
about iXL.
Restricted securities held by affiliates of iXL are subject to the
foregoing volume limitations, holding period and other restrictions under Rule
144. Affiliates may sell shares other than restricted securities in accordance
with the foregoing volume limitations and other restrictions, but without
regard to any holding period.
Further, under Rule 144(k), if a period of at least two years has elapsed
since the later of the date restricted securities were acquired from iXL or
from an affiliate of iXL or the date on which they were fully paid, a holder of
restricted securities who is not an affiliate of iXL at the time of sale, and
has not been an affiliate of iXL for at least three months prior to the sale,
would be entitled to sell the shares immediately without regard to volume
limitations and the other conditions described above.
Prior to this offering, there has been no market for the common stock and
no prediction can be made as to the effect, if any, that the market sales of
shares or the availability of such shares for sale will have on the market
price of the common stock from time to time. Nevertheless, sales of substantial
amounts of common stock in the public market could have an adverse impact on
the market price of our common stock and iXL's ability to raise additional
capital.
In general, under Rule 701 of the Securities Act as currently in effect,
any employee, officer, director, consultant or advisor of iXL who purchased
shares from iXL in connection with a compensatory stock or option plan or
written employment agreement is eligible to resell such shares 90 days after
the effective date of this offering in reliance on Rule 144, but without
compliance with certain restrictions, including the holding period, contained
in Rule 144.
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iXL may file a registration statement under the Securities Act to
register shares of common stock reserved for issuance under its stock option
plans after 180 days from the date of this prospectus, thus permitting the
resale of such shares by non-affiliates in the public market without
restriction under the Securities Act. See "Management--Stock Option Plans."
Such registration statement would become effective immediately upon filing. As
of April 30, 1999, options to purchase approximately 24,585,707 shares of
common stock were outstanding under iXL's stock option plans.
iXL intends to register 4,000,000 shares of common stock pursuant to a
"shelf" Registration Statement on Form S-4 for use in future acquisitions.
After issuance, these shares could be sold in the public markets, although it
is anticipated that these shares acquired within 180 days of the date of this
prospectus would be subject to lock-up agreements that would limit their
ability to sell shares of common stock for that 180-day period.
After the closing of this offering, the holders of approximately
57,579,194 shares of common stock, including approximately 3,000,000 shares of
common stock issuable upon exercise of outstanding warrants, will be entitled
to certain rights with respect to the registration of such shares under the
Securities Act. See "Description of Capital Stock--Registration Rights
Agreement."
At the request of iXL, the underwriters have reserved up to not more than
10% of the shares of common stock being offered for sale at the public offering
price to certain employees and friends and certain other persons designated by
iXL. The number of shares of common stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares which are not purchased will be offered by the
underwriters to the general public on the same basis as the other shares of
common stock being offered. All purchasers of the shares of common stock
reserved pursuant to this paragraph will be required to enter into agreements
restricting the transferability of such shares for a period of 180 days after
the date of this prospectus.
The holders of substantially all of the shares of common stock, options
and warrants currently outstanding and all executive officers and directors of
iXL have agreed that for a period of 180 days after the date of this prospectus
they will not offer, sell or otherwise dispose of, any shares of common stock,
options or warrants to acquire shares of common stock or securities
exchangeable for or convertible into common stock. However, Merrill Lynch, in
its sole discretion, may release such persons from these lock-up agreements, in
whole or in part, at any time without notice. Stockholders holding a majority
of the common stock outstanding prior to this offering have the right to demand
the registration of their shares for sale to the public market at any time
after the expiration of the 180-day lock-up described above. In addition,
substantially all of the holders of shares of common stock and warrants to
purchase shares of common stock are entitled to certain rights to participate
with respect to registration of such shares for sale to the public market. iXL
may also file a Registration Statement on Form S-8 after 180 days of the date
of this prospectus to register shares of common stock reserved for issuance
under its stock option plans, thus permitting the resale of shares of common
stock received upon exercise of stock options by non-affiliates in the public
market without restriction under the Securities Act.
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UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a summary of certain United States federal income and
estate tax consequences of the ownership and disposition of our common stock by
non-U.S. holders. As used herein, "non-U.S. holder" means any person or entity
that holds our common stock, other than:
. an individual citizen or resident of the United States;
. a corporation created or organized in or under the laws of the
United States, or of any state of the United States or the District
of Columbia; or
. a partnership, trust or estate treated, for United States federal
income tax purposes, as a domestic partnership, trust or estate.
This summary is based on provisions of the U.S. Internal Revenue Code of
1986, as amended, existing, temporary and proposed United States Treasury
regulations promulgated thereunder and administrative and judicial
interpretations of each, all as of the date hereof and all of which are subject
to change, possibly on a retroactive basis.
This summary is for general information only. The tax treatment of a
particular non-U.S. holder may vary depending on the holder's particular
situation. In addition, this summary does not include any description of the
tax laws of any state, local or non-U.S. government that may be applicable to a
particular non-U.S. holder.
Prospective purchasers are urged to consult their own tax advisors with
respect to the particular U.S. federal income and estate tax consequences to
them of the ownership and disposition of our common stock, as well as the tax
consequences under state, local, non-U.S. and other U.S. federal income tax
laws and the possible effects of changes in tax laws.
Income Tax
Dividends
Generally, dividends paid on our common stock to a non-U.S. holder will
be subject to U.S. federal income tax. Except for dividends that are
effectively connected with a non-U.S. holder's conduct of a trade or business
within the United States, this tax is imposed and collected by withholding at
the rate of 30% of the amount of the dividend, unless reduced by an applicable
income tax treaty. Currently, dividends paid to an address in a country other
than the United States are presumed to be paid to a resident of that country in
determining whether a non-U.S. holder can benefit from a reduced withholding
tax rate pursuant to a tax treaty.
However, under United States Treasury regulations applicable to dividend
and other payments made after December 31, 2000, a non-U.S. holder who is the
beneficial owner (within the meaning of the regulations) of dividends paid on
our common stock and who wishes to claim the benefit of an applicable treaty is
generally required to satisfy certification and documentation requirements,
including (in certain cases) the need to make recertifications for periods
after December 31, 2000. Special rules apply to claims for treaty benefits made
by non-U.S. persons that are entities rather than individuals and to beneficial
owners (within the meaning of the regulations) of dividends paid to entities in
which the beneficial owners are interest holders.
Except as may be otherwise provided in an applicable income tax treaty,
dividends paid on our common stock to a non-U.S. holder that are effectively
connected with the holder's conduct of a trade or business within the United
States are subject to tax at ordinary U.S. federal income tax rates. This tax
is not collected by withholding (except as described below under "Backup
Withholding and Information Reporting"). All or part of any effectively
connected dividends received by a non-U.S. corporation may also, under certain
circumstances, be subject to an additional branch profits tax which will be
imposed at a 30% rate or, possibly, a reduced rate under an applicable income
tax treaty. A non-U.S. holder who wishes to claim an exemption from withholding
for effectively connected dividends is generally required to satisfy certain
certification and documentation requirements.
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A non-U.S. holder that is eligible for a reduced rate of U.S. withholding
tax pursuant to a tax treaty may obtain a refund of any excess amounts withheld
by filing an appropriate claim for refund with the Internal Revenue Service.
Disposition of Our Common Stock
Generally, non-U.S. holders will not be subject to U.S. federal income
tax (or withholding thereof) in respect of gain recognized on a disposition of
our common stock unless:
<TABLE>
<C> <S>
(i) the gain is effectively connected with the holder's conduct of a
trade or business within the United States (in which case the
branch profits tax described above may also apply if the holder is
a non-U.S. corporation);
(ii) in the case of a holder who is a non-resident alien individual and
holds our common stock as a capital asset, the holder is present in
the United States for 183 or more days in the taxable year of the
sale and other conditions are met;
(iii) we are or have been a "United States real property holding
corporation" for U.S. federal income tax purposes (which we do not
believe we are or have been and do not expect to become in the
future) and certain other conditions are met; or
(iv) the holder is subject to tax pursuant to United States federal
income tax provisions applicable to certain United States
expatriates.
</TABLE>
Estate Tax
If an individual non-U.S. holder owns, or is treated as owning, our
common stock at the time of his or her death, such stock would be includable in
the individual's gross estate for U.S. federal estate tax purposes and may be
subject to U.S. federal estate tax imposed on the estates of nonresident
aliens, in the absence of a contrary provision contained in an applicable tax
treaty.
Backup Withholding and Information Reporting
Dividends
Under current law, dividends paid on our common stock to a non-U.S.
holder at an address outside the United States are generally exempt from backup
withholding tax and U.S. information reporting requirements (but not from
regular withholding tax as discussed above). Under the Treasury regulations
that are applicable to dividends paid after December 31, 2000, a non-U.S.
person must generally provide proper documentation indicating the person's non-
U.S. status to a withholding agent in order to avoid backup withholding tax;
however, dividends paid to certain exempt recipients (not including
individuals) will not be subject to backup withholding even if documentation is
not provided if the withholding agent is allowed to rely on presumptions
concerning the recipient's non-U.S. status (including payment to an address
outside the United States).
Broker Sales
Payments of proceeds from the sale of our common stock by a non-U.S.
holder made to or through a U.S. office of a broker are generally subject to
both information reporting and backup withholding at a rate of 31% unless the
holder certifies its non-U.S. status under penalties of perjury or otherwise
establishes entitlement to an exemption. Payments of proceeds from the sale of
our common stock by a non-U.S. holder made to or through a non-U.S. office of a
broker generally will not be subject to information reporting or backup
withholding. However, payments made to or through certain non-U.S. offices,
including the non-U.S. offices of a U.S. broker, are generally subject to
information reporting (but not backup withholding) unless the holder certifies
its non-U.S. status under penalties of perjury or otherwise establishes
entitlement to an exemption.
A non-U.S. holder may obtain a refund of any excess amounts withheld
under the backup withholding rules by filing an appropriate claim for refund
with the I.R.S.
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UNDERWRITING
General
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, BancBoston Robertson Stephens Inc. and SG
Cowen Securities Corporation are acting as representatives of each of the
underwriters named below. Subject to the terms and conditions set forth in a
U.S. purchase agreement among iXL and the U.S. underwriters, and concurrently
with the sale of 1,200,000 shares of common stock to the international
managers, iXL has agreed to sell to the U.S. underwriters, and each of the U.S.
underwriters severally and not jointly has agreed to purchase from iXL the
number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
Donaldson, Lufkin & Jenrette Securities Corporation...................
BancBoston Robertson Stephens Inc.....................................
SG Cowen Securities Corporation.......................................
---------
Total............................................................ 4,800,000
=========
</TABLE>
iXL has also entered into an international purchase agreement with
certain underwriters outside the United States and Canada for whom Merrill
Lynch International, Donaldson, Lufkin & Jenrette International, BancBoston
Robertson Stephens Inc. and SG Cowen Securities Corporation are acting as lead
managers. Subject to the terms and conditions set forth in the international
purchase agreement, and concurrently with the sale of 4,800,000 shares of
common stock to the U.S. underwriters pursuant to the U.S. purchase agreement,
iXL has agreed to sell to the international managers, and the international
managers severally have agreed to purchase from iXL, an aggregate of 1,200,000
shares of common stock. The initial public offering price per share and the
total underwriting discount, per share of common stock are identical under the
U.S. purchase agreement and the international purchase agreement.
In the U.S. purchase agreement and the international purchase agreement,
the several U.S. underwriters and the several international managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of common stock being sold pursuant to
each such agreement if any of the shares of common stock being sold pursuant to
such agreement are purchased. In the event of a default by an underwriter, the
U.S. purchase agreement and the international purchase agreement provide that,
in certain circumstances, the purchase commitments of non-defaulting
underwriters may be increased or the purchase agreements may be terminated. The
closings with respect to the sale of shares of common stock to be purchased by
the U.S. underwriters and the international managers are conditioned upon one
another.
The representatives have advised iXL that the U.S. underwriters propose
initially to offer the shares of common stock to the public at the initial
public offering price set forth on the cover page of this prospectus and to
certain dealers at such price less a concession not in excess of $ per share
of common stock. The U.S. underwriters may allow, and such dealers may reallow,
a discount not in excess of $ per share of common stock to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may change.
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Over-allotment Option
iXL has granted options to the U.S. underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of 720,000
additional shares of common stock at the initial public offering price set
forth on the cover page of this prospectus, less the underwriting discount. The
U.S. underwriters may exercise these options solely to cover over-allotments,
if any, made on the sale of the common stock offered in this prospectus. To the
extent that the U.S. underwriters exercise these options, each U.S. underwriter
will be obligated, subject to certain conditions, to purchase a number of
additional shares of common stock proportionate to that U.S. underwriter's
initial amount reflected in the above table. iXL has granted options to the
international managers, exercisable for 30 days after the date of this
prospectus, to purchase up to an aggregate of 180,000 additional shares of
common stock to cover over-allotments, if any, on terms similar to those
granted to the U.S. underwriters.
Commissions and Discounts
The following table shows the per share and total underwriting discounts
and commissions to be paid by iXL to the underwriters and the proceeds before
expenses to iXL. This information is presented assuming either no exercise or
full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
Per Share Without Option With Option
--------- -------------- -----------
<S> <C> <C> <C>
Public Offering Price...................... $ $ $
Underwriting Discount...................... $ $ $
Proceeds, before expenses, to iXL.......... $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $3.9 million and are payable by iXL.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and
certain other conditions. The underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part.
Reserved Shares
At iXL's request, the underwriters have reserved for sale, at the initial
public offering price, up to 10% of the shares offered hereby for employees,
directors and other persons with relationships with iXL who have expressed an
interest in purchasing shares of common stock in the offering. The number of
shares of common stock available for sale to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
not so purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered in this prospectus.
No Sales of Common Stock or Similar Securities
iXL and iXL's executive officers and directors and most existing
stockholders have agreed, subject to certain exceptions, not to directly or
indirectly
. offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any
option -- other than options granted by iXL pursuant its stock
options plans -- right or warrant for the sale of or otherwise
dispose of or transfer any shares of common stock or securities
convertible into exchangeable or exercisable for common stock,
whether now owned or thereafter acquired by the person executing
the agreement or with respect to which the person executing the
agreement thereafter acquires the power of disposition, or file a
registration statement under the Securities Act with respect to the
foregoing, other than a registration statement on Form S-4 covering
up to 4,000,000 shares of common stock to be issued in connection
with acquisitions; or
. enter into any swap or other agreement that transfers, in whole or
in part, the economic consequences of ownership of the common stock
whether any such swap or transaction is to be settled by delivery
of common stock or other securities, in cash or otherwise, without
the prior written consent of Merrill Lynch on behalf of the
underwriters for a period of 180 days after the date of this
prospectus. See "Shares Eligible for Future Sale."
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Nasdaq National Market Listing
The common stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "IIXL."
Prior to the offering, there has been no public market for iXL's common
stock. The initial public offering price will be determined through
negotiations between iXL and the representatives and the lead managers. The
factors considered in determining the initial public offering price, in
addition to prevailing market conditions, are:
. price-earnings ratio of publicly traded companies that the
representatives and the lead managers believe to be comparable to
iXL;
. certain financial information of iXL;
. the history of, and the prospects for, iXL and the industry in
which it competes; and
. an assessment of (1) iXL's management, (2) its past and present
operations, (3) the prospects for, and timing of, future revenues
of iXL, (4) the present state of iXL's developments, and (5) the
above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to iXL.
There can be no assurance that an active trading market will develop for
the common stock or that the common stock will trade in the public market
subsequent to the offering at or above the initial public offering price.
The underwriters do not expect sales of the common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered hereby.
Intersyndicate Agreement
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Pursuant to the intersyndicate agreement, the U.S. underwriters and
the international managers are permitted to sell shares of common stock to each
other for purposes of resale at the initial public offering price, less an
amount not greater than the selling concession. Under the terms of the
intersyndicate agreement, the U.S. underwriters and any dealer to whom they
sell shares of common stock will not offer to sell or sell shares of common
stock to persons who are non-U.S. or non-Canadian persons or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the international managers any dealer to whom they sell shares of common
stock will not offer to sell or sell shares of common stock to U.S. persons or
to Canadian persons or to persons they believe intend to resell to U.S. or
Canadian persons, except in the case of transactions pursuant to the
intersyndicate agreement.
iXL has agreed to indemnify the underwriters against certain liabilities,
including certain liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make for those liabilities.
Price Stabilization and Short Positions
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and certain selling group members to bid for and purchase the common stock. As
an exception to these rules, the representatives are permitted to engage in
certain transactions that stabilize the price of the common stock. Those
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering. This means that if they sell more shares of
common stock than are set forth on the cover page of this
103
<PAGE>
prospectus. In that case, the representatives and lead managers, respectively,
may reduce that short position by purchasing common stock in the open market.
The representatives and lead managers, respectively, may also elect to reduce
any short position by exercising all or part of the over-allotment option
described above.
Penalty Bids
The representatives and lead managers, respectively, may also impose a
penalty bid on certain underwriters and selling group members. This means that
if the representatives and lead managers, respectively, purchase shares of
common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of the common stock to the extent
that it discourages resales of the common stock.
Neither iXL nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
iXL nor any of the underwriters makes any representation that the
representatives or lead managers will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Other Relationships
iXL provides services to Merrill Lynch and certain of its affiliates in
the ordinary course of business. Donaldson, Lufkin & Jenrette from time to time
provides investment banking services to Kelso & Company and its affiliates.
General Electric has agreed to purchase an aggregate of 2,000,000 shares
of common stock directly from iXL in a private placement transaction. This
investment is expected to be completed concurrently with the closing of this
initial public offering, at a price per share equal to the initial public
offering price. iXL has retained Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation to act as
advisors for this private placement and will pay advisory fees of $250,000 to
each. iXL will also indemnify these advisors against certain liabilities
relating to this private placement, including liabilities under the Securities
Act.
iXL has retained Merrill Lynch to conduct a valuation of CFN for a
customary fee not to exceed $500,000.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
shares of common stock offered hereby will be passed upon for iXL by Minkin &
Snyder, a Professional Corporation, Atlanta, Georgia. Attorneys employed by
Minkin & Snyder hold 120,350 shares of common stock and options to purchase
11,449 shares of common stock. From September 1997 to December 17, 1997, Mr.
James S. Altenbach, a member of Minkin & Snyder, loaned $100,000 to iXL at an
interest rate of 12% per annum. Mr. Altenbach currently serves as Secretary of
iXL and its subsidiaries including CFN. Certain other legal matters will be
passed upon for iXL by Debevoise & Plimpton, New York, New York. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto,
California.
104
<PAGE>
EXPERTS
The financial statements included in this prospectus have been audited by
PricewaterhouseCoopers LLP, independent accountants. The companies and periods
covered by these audits are indicated in the individual reports of
PricewaterhouseCoopers LLP. Such financial statements have been so included in
reliance on the reports of PricewaterhouseCoopers LLP given on the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
iXL has filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 under the Securities Act, and the rules and regulations
promulgated thereunder, with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules to the Registration Statement. For further information
with respect to iXL and the common stock, reference is hereby made to such
Registration Statement and the exhibits and schedules to the Registration
Statement, which may be inspected and copied at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of all or any part thereof may be obtained
at prescribed rates from the Commission's Public Reference Section at such
addresses. Also, the Commission maintains a World Wide Web site on the
Internet, at http://www.sec.gov, that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Statements contained in the prospectus as to the contents
of any contract or other document that is filed as an exhibit to the
Registration Statement are qualified by reference to the full text of the
relevant contract or document.
iXL intends to furnish its stockholders with annual reports containing
financial statements audited by an independent public accounting firm and make
available to its stockholders quarterly reports for the first three quarters of
each fiscal year containing interim unaudited financial information.
105
<PAGE>
iXL ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
iXL ENTERPRISES, INC.
Report of Independent Accountants.......................................... F-3
Consolidated Balance Sheet................................................. F-4
Consolidated Statement of Operations....................................... F-5
Consolidated Statement of Changes in Stockholders' Equity.................. F-6
Consolidated Statement of Cash Flows....................................... F-7
Notes to Consolidated Financial Statements................................. F-8
BOXTOP INTERACTIVE, INC.
Report of Independent Accountants.......................................... F-31
Balance Sheet.............................................................. F-32
Statement of Operations.................................................... F-33
Statement of Shareholders' Deficit......................................... F-34
Statement of Cash Flows.................................................... F-35
Notes to Financial Statements.............................................. F-36
GREEN ROOM PRODUCTIONS L.L.C.
Report of Independent Accountants.......................................... F-43
Balance Sheet.............................................................. F-44
Statement of Operations and Change in Members' Deficit..................... F-45
Statement of Cash Flows.................................................... F-46
Notes to Financial Statements.............................................. F-47
DIGITAL PLANET
Report of Independent Accountants.......................................... F-51
Balance Sheet.............................................................. F-52
Statement of Operations.................................................... F-53
Statement of Changes in Shareholders' Deficit.............................. F-54
Statement of Cash Flows.................................................... F-55
Notes to Financial Statements.............................................. F-56
MICRO INTERACTIVE, INC.
Report of Independent Accountants.......................................... F-63
Balance Sheet.............................................................. F-64
Statement of Operations.................................................... F-65
Statement of Changes in Shareholders' Deficit.............................. F-66
Statement of Cash Flows.................................................... F-67
Notes to Financial Statements.............................................. F-68
COMMERCEWAVE, INC.
Report of Independent Accountants.......................................... F-73
Balance Sheet.............................................................. F-74
Statement of Operations.................................................... F-75
Statement of Changes in Shareholders' Equity (Deficit)..................... F-76
Statement of Cash Flows.................................................... F-77
Notes to Financial Statements.............................................. F-78
</TABLE>
F-1
<PAGE>
iXL ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS
(Continued)
<TABLE>
<S> <C>
SPINNERS INCORPORATED
Report of Independent Accountants......................................... F-85
Balance Sheet............................................................. F-86
Statement of Operations................................................... F-87
Statement of Changes in Shareholders' Equity.............................. F-88
Statement of Cash Flows................................................... F-89
Notes to Financial Statements............................................. F-90
TEKNA, INC.
Report of Independent Accountants......................................... F-96
Balance Sheet............................................................. F-97
Statement of Operations................................................... F-98
Statement of Changes in Shareholders' Equity.............................. F-99
Statement of Cash Flows................................................... F-100
Notes to Financial Statements............................................. F-101
LARRY MILLER PRODUCTIONS, INC.
Report of Independent Accountants......................................... F-105
Balance Sheets............................................................ F-106
Statement of Operations................................................... F-107
Statement of Changes in Shareholders' Equity (Deficit).................... F-108
Statement of Cash Flows................................................... F-109
Notes to Financial Statements............................................. F-110
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
iXL Enterprises, Inc.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of iXL Enterprises, Inc. and its subsidiaries at December
31, 1997 and 1998, and the results of their operations and their cash flows for
the period from May 1, 1996 (commencement of operations) through December 31,
1996 and the years ended December 31, 1997 and 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
February 5, 1999
F-3
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, March 31, 1999
----------------- -------------------
Pro Forma
1997 1998 Actual (Note 1)
------- -------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............. $23,038 $ 19,259 $ 13,880 $63,180
Accounts receivable less allowance for
doubtful accounts of $138, $796, $998
and $998............................. 3,259 17,737 20,957 20,957
Unbilled revenues..................... 1,858 8,089 11,736 11,736
Prepaid expenses and other assets..... 616 3,355 3,757 3,757
------- -------- -------- --------
Total current assets................ 28,771 48,440 50,330 99,630
Property and equipment, net........... 9,178 27,975 32,296 32,296
Intangible assets, net................ 18,205 64,217 58,102 58,102
Equity investment in affiliate, net... 1,115 -- -- --
Other non-current assets.............. 343 2,319 2,970 3,170
------- -------- -------- --------
Total assets........................ $57,612 $142,951 $143,698 $193,198
======= ======== ======== ========
LIABILITIES, MANDATORILY REDEEMABLE PRE-
FERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...................... $ 2,242 $ 6,438 $ 4,783 $ 4,783
Deferred revenues..................... 471 6,072 8,904 8,904
Accrued liabilities................... 1,746 7,943 11,113 11,113
Current portion of long-term debt..... 433 868 815 815
------- -------- -------- --------
Total current liabilities........... 4,892 21,321 25,615 25,615
Long-term debt.......................... 840 20,552 11,185 11,185
------- -------- -------- --------
Total liabilities..................... 5,732 41,873 36,800 36,800
------- -------- -------- --------
Mandatorily redeemable preferred stock.. 29,930 65,679 70,414 --
Mandatorily redeemable preferred stock
of subsidiary.......................... -- 9,839 9,839 47,839
------- -------- -------- --------
29,930 75,518 80,253 47,839
------- -------- -------- --------
Commitments and contingencies (Note 13)
Stockholders' equity
Class A Convertible Preferred Stock,
par value $.01, 250,000 shares
authorized; issued and outstanding
169,260, 177,291, 200,116 and 0;
aggregate liquidation preference of
$25,590, $31,103, $53,928 and $0..... 2 2 2 --
Class A Common Stock, par value $.01,
75,000,000 shares authorized; issued
and outstanding 0, 0, 0 and 0........
Class B Common Stock, par value $.01,
200,000,000 shares authorized; issued
and outstanding 8,229,800,
16,334,905, 16,334,905 and 54,388,151
(including 0, 252,416, 252,416 and
252,416 shares held
in treasury)......................... 82 163 163 544
Additional paid-in capital............ 38,760 94,820 114,859 196,394
Accumulated deficit................... (16,894) (65,760) (84,015) (84,015)
Accumulated other comprehensive
income............................... -- (10) (127) (127)
Note receivable from stockholder...... -- (900) (900) (900)
Unearned compensation................. -- (1,867) (2,449) (2,449)
Treasury stock at cost; 0, 252,416,
252,416 and 252,416 shares........... -- (888) (888) (888)
------- -------- -------- --------
Total stockholders' equity.......... 21,950 25,560 26,645 108,559
------- -------- -------- --------
Total liabilities, mandatorily
redeemable preferred stock and
stockholders' equity............... $57,612 $142,951 $143,698 $193,198
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the period Three Months
May 1, 1996 Years ended ended
through December 31, March 31,
December 31, ------------------ -----------------
1996 1997 1998 1998 1999
-------------- -------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 5,379 $ 18,986 $ 64,767 $ 6,864 $ 33,012
Cost of revenues........ 3,577 11,343 44,242 4,899 19,583
------- -------- -------- ------- --------
Gross profit.......... 1,802 7,643 20,525 1,965 13,429
Sales and marketing
expenses............... 812 3,903 17,325 2,036 8,150
General and
administrative
expenses............... 1,247 9,114 30,163 2,956 15,725
Research and development
expenses............... -- 4,820 4,408 907 1,058
Depreciation............ 372 1,408 5,217 699 2,284
Amortization............ 928 5,191 10,590 1,182 4,351
------- -------- -------- ------- --------
Loss from operations.. (1,557) (16,793) (47,178) (5,815) (18,139)
Other income (expense),
net.................... 48 116 (28) 36 69
Loss on equity
investment............. (249) (1,443) (1,640) (395) (65)
Interest income......... 32 136 750 264 216
Interest expense........ (30) (238) (770) (28) (336)
------- -------- -------- ------- --------
Loss before income
taxes................ (1,756) (18,222) (48,866) (5,938) (18,255)
Income tax benefit...... 302 2,782 -- -- --
------- -------- -------- ------- --------
Net loss.............. (1,454) (15,440) (48,866) (5,938) (18,255)
Dividends and accretion
on mandatorily
redeemable preferred
stock.................. -- -- (9,099) (725) (5,293)
------- -------- -------- ------- --------
Net loss available to
common stockholders.. $(1,454) $(15,440) $(57,965) $(6,663) $(23,548)
======= ======== ======== ======= ========
Basic and diluted net
loss per common
share................ $ (0.37) $ (2.36) $ (4.92) $ (0.78) $ (1.46)
======= ======== ======== ======= ========
Weighted average
common shares
outstanding.......... 3,972 6,540 11,777 8,592 16,082
======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated Note
Additional Other Receivable
Class A Class B Paid-in Accumulated Comprehensive Comprehensive from Unearned
Preferred Stock Common Stock Capital Deficit Income Income Stockholder Compensation
---------------------------------- ---------- ----------- ------------- ------------- ----------- ------------
Shares Value Shares Value
--------- ----------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial capital
contribution..... 101,500 $ 1 300 $ -- $ 10,149 $ -- $ -- $ -- $-- $ --
Stock issuance... 10,000 -- 25,000 -- 1,025 -- -- -- -- --
Stock issuance in
connection with
acquisitions..... -- -- 4,009,500 40 3,228 -- -- -- -- --
Net loss......... -- -- -- -- -- (1,454) -- -- -- --
--------- ----- ---------- ---- -------- -------- ------- ----- ------ -------
Balance, December
31, 1996......... 111,500 1 4,034,800 40 14,402 (1,454) -- -- -- --
Stock issuance... 57,760 1 13,619 -- -- -- -- --
Stock issuance in
connection with
acquisitions..... -- -- 4,195,000 42 10,739 -- -- -- -- --
Net loss......... -- -- -- -- -- (15,440) -- -- -- --
--------- ----- ---------- ---- -------- -------- ------- ----- ------ -------
Balance, December
31, 1997......... 169,260 2 8,229,800 82 38,760 (16,894) -- -- -- --
--------- ----- ---------- ---- -------- -------- ------- ----- ------ -------
Stock issuance... 8,031 -- -- -- 5,512 -- -- -- (900) --
Stock issuance in
connection with
acquisitions..... -- -- 8,047,305 81 41,663 -- -- -- -- --
Treasury stock
acquired......... -- -- (252,416) -- -- -- -- -- -- --
Stock options ex-
ercised.......... -- -- 57,800 -- -- -- -- -- -- --
Dividends and ac-
cretion on
mandatorily re-
deemable pre-
ferred stock..... -- -- -- -- (8,671) -- -- -- -- --
Common Stock to
be issued in con-
nection with
Class D Pre-
ferred........... -- -- -- -- 13,235 -- -- -- -- --
Issuance of stock
options and war-
rants............ -- -- -- -- 3,508 -- -- -- -- (3,508)
Stock compensa-
tion and warrant
expenses......... -- -- -- -- 813 -- -- -- -- 1,641
Comprehensive in-
come:
Net loss........ -- -- -- -- -- (48,866) (48,866) -- -- --
Foreign currency
translation ad-
justment........ -- -- -- -- -- -- (10) (10) -- --
-------
Other comprehen-
sive income..... -- -- -- -- -- -- (10) -- -- --
-------
Comprehensive in-
come............. (48,876)
--------- ----- ---------- ---- -------- -------- ------- ----- ------ -------
Balance, December
31, 1998......... 177,291 2 16,082,489 163 94,820 (65,760) (10) (900) (1,867)
--------- ----- ---------- ---- -------- -------- ------- ----- ------ -------
Stock issuance... 22,825 -- -- -- 22,718 -- -- -- -- --
Dividends and ac-
cretion on
mandatorily re-
deemable pre-
ferred stock..... -- -- -- -- (4,735) -- -- -- -- --
Issuance of stock
options.......... -- -- -- -- 2,056 -- -- -- -- (2,056)
Stock compensa-
tion and warrant
expenses......... -- -- -- -- -- -- -- -- -- 1,474
Comprehensive in-
come:
Net loss........ -- -- -- -- -- (18,255) (18,255) -- -- --
Foreign currency
translation ad-
justment........ -- -- -- -- -- -- (117) (117) -- --
-------
Other comprehen-
sive income..... -- -- -- -- -- -- (117) -- -- --
-------
Comprehensive in-
come............. -- -- -- -- -- -- (18,372) -- --
--------- ----- ---------- ---- -------- -------- ------- ----- ------ -------
Balance, March
31, 1999......... 200,116 $2 16,082,489 $163 $114,859 $(84,015) $(127) $(900) $(2,449)
========= ===== ========== ==== ======== ======== ===== ====== =======
<CAPTION>
Total
Treasury Stockholders'
Stock Equity
-------- -------------
<S> <C> <C>
Initial capital
contribution..... $ -- $10,150
Stock issuance... -- 1,025
Stock issuance in
connection with
acquisitions..... -- 3,268
Net loss......... -- (1,454)
-------- -------------
Balance, December
31, 1996......... -- 12,989
Stock issuance... -- 13,620
Stock issuance in
connection with
acquisitions..... -- 10,781
Net loss......... -- (15,440)
-------- -------------
Balance, December
31, 1997......... -- 21,950
-------- -------------
Stock issuance... -- 4,612
Stock issuance in
connection with
acquisitions..... -- 41,744
Treasury stock
acquired......... (888) (888)
Stock options ex-
ercised.......... -- --
Dividends and ac-
cretion on
mandatorily re-
deemable pre-
ferred stock..... -- (8,671)
Common Stock to
be issued in con-
nection with
Class D Pre-
ferred........... -- 13,235
Issuance of stock
options and war-
rants............ -- --
Stock compensa-
tion and warrant
expenses......... -- 2,454
Comprehensive in-
come:
Net loss........ -- (48,866)
Foreign currency
translation ad-
justment........ -- (10)
Other comprehen-
sive income..... -- --
Comprehensive in-
come.............
-------- -------------
Balance, December
31, 1998......... (888) 25,560
-------- -------------
Stock issuance... -- 22,718
Dividends and ac-
cretion on
mandatorily re-
deemable pre-
ferred stock..... -- (4,735)
Issuance of stock
options.......... -- --
Stock compensa-
tion and warrant
expenses......... -- 1,474
Comprehensive in-
come:
Net loss........ -- (18,255)
Foreign currency
translation ad-
justment........ -- (117)
Other comprehen-
sive income..... -- --
Comprehensive in-
come.............
-------- -------------
Balance, March
31, 1999......... $(888) $26,645
======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the period
May 1, 1996 Years ended Three Months ended
through December 31, March 31,
December 31, ------------------ -------------------
1996 1997 1998 1998 1999
-------------- -------- -------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities
Net loss................ $(1,454) $(15,440) $(48,866) $ (5,938) $ (18,255)
Adjustments to reconcile
net loss to net cash
used in operating ac-
tivities
Depreciation ......... 372 1,408 5,217 699 2,284
Amortization.......... 928 5,191 10,590 1,182 4,351
Provision for bad
debts................ 134 118 1,227 93 202
Acquired in-process
technology........... -- 2,400 -- -- --
Deferred income tax-
es................... (344) (2,782) -- -- --
Non-cash investment
and losses in equity
affiliate and amorti-
zation............... (168) 807 1,365 307 64
Stock option and war-
rant expense......... -- -- 2,454 -- 1,474
Changes in assets and
liabilities, net of
effects from purchase
of subsidiaries
Accounts receiv-
able............... (249) (1,538) (9,840) (935) (3,422)
Unbilled revenues... (112) (1,597) (5,328) (420) (3,647)
Prepaid expenses and
other assets....... (5) (684) (4,669) (1,519) (1,075)
Accounts payable and
accrued liabili-
ties............... (332) 1,534 5,523 (766) 1,515
Deferred revenues... 195 (156) 4,888 641 2,832
------- -------- -------- -------- ---------
Net cash used in op-
erating activi-
ties............... (1,035) (10,739) (37,439) (6,656) (13,677)
------- -------- -------- -------- ---------
Cash flows from invest-
ing activities
Purchases of property
and equipment........ (666) (6,704) (20,304) (3,123) (6,463)
Purchases of subsidi-
aries, net of cash
acquired............. (7,833) (3,433) (16,602) (1,489) --
Investment in equity
affiliate............ (1,129) (625) -- -- --
Loan to equity affili-
ate.................. -- (250) -- -- --
Gain on sale of fixed
and intangible as-
sets................. -- -- -- -- 1,892
------- -------- -------- -------- ---------
Net cash used in in-
vesting activi-
ties............... (9,628) (11,012) (36,906) (4,612) (4,571)
------- -------- -------- -------- ---------
Cash flows from financ-
ing activities
Proceeds from
borrowings........... 250 6,849 23,428 -- --
Repayment of
borrowings........... (119) (6,259) (6,729) (200) (9,732)
Proceeds from issuance
of mandatorily
redeemable preferred
stock................ -- 29,930 40,314 5,021 --
Proceeds from issuance
of stock............. 10,941 13,860 4,612 1,038 22,718
Proceeds from issuance
of mandatorily
redeemable preferred
stock of subsidiary.. -- -- 9,839 -- --
Acquisition of trea-
sury stock........... -- -- (888) (788) --
------- -------- -------- -------- ---------
Net cash provided by
financing activi-
ties 11,072 44,380 70,576 5,071 12,986
------- -------- -------- -------- ---------
Effect of exchange rate
changes on cash and
cash equivalents....... -- -- (10) -- (117)
Net increase (de-
crease) in cash and
cash equivalents... 409 22,629 (3,779) (6,197) (5,379)
Cash and cash equiva-
lents at beginning of
period................. -- 409 23,038 23,038 19,259
------- -------- -------- -------- ---------
Cash and cash equiva-
lents at end of peri-
od..................... $ 409 $ 23,038 $ 19,259 $ 16,841 $ 13,880
======= ======== ======== ======== =========
Supplemental disclosure
of cash flow informa-
tion
Cash paid for inter-
est.................. $ 29 $ 168 $ 797 $ 98 $ 347
======= ======== ======== ======== =========
Non-cash investing and
financing activities
Acquisition of equip-
ment through capital
leases............... $ 112 $ 289 $ 569 $ -- $ 312
======= ======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
1. Background and Summary of Significant Accounting Policies
iXL Enterprises, Inc. (the "Company") is an Internet services company,
which provides Internet strategy consulting and comprehensive Internet-based
solutions to Fortune 1000 companies and other corporate users of information
technology. The Company helps businesses identify how the Internet can be used
to their competitive advantage and provides expertise in creative design and
systems engineering to design, develop and deploy advanced Internet
applications and solutions. In addition to its Internet services offerings, the
Company operates Consumer Financial Network, Inc. ("CFN"), a sophisticated e-
commerce platform for marketing financial services and employee benefits over
corporate intranets and the Internet, as well as through a telesales center.
iXL Enterprises, Inc. is a Delaware corporation formed in March 1996.
Since its inception, iXL Enterprises, Inc. has acquired 34 companies (see Note
3).
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries after the elimination of all significant
intercompany accounts and transactions. The Company accounts for its investment
in University Netcasting, Inc. ("UNI") using the equity method.
The Company owns 100% of the common stock of CFN. In addition to its
common stock, CFN has mandatorily redeemable convertible preferred stock of
which 13,333,334 shares are issued and outstanding as of December 31, 1998 and
are owned by a third party. The Company owns 88% of CFN on an as-converted
basis. As the Company owns 100% of the common stock of CFN, it will continue to
reflect in its consolidated financial statements all of the operating results
of CFN until such time the CFN mandatorily redeemable convertible preferred
stock is converted into CFN common stock.
Revenue recognition
Revenues are recognized for fixed fee contracts using the percentage of
completion method based on costs incurred. Revenues are recognized as services
are performed for time and materials contracts. CFN recognizes revenues upon
completion of an end-user transaction through the CFN operating network.
Revenues related to software development contracts, including planning,
installation, implementation and training that require significant
customization or modification are recognized using the percentage of completion
method. Revenues from sales of software that do not require customization or
modification are recognized upon delivery, or when all essential elements have
been delivered, in accordance with the American Institute of Certified Public
Accountants ("AICPA") Statement of Position 97-2, "Software Revenue
Recognition."
Unbilled revenues represent revenues earned under contracts in advance of
billings. Such amounts are normally converted into accounts receivable within
90 days. Deferred revenues represent billings made or cash received in advance
of services performed or costs incurred under contracts. Any anticipated losses
on contracts are charged to earnings when identified. Revenues from post-
contract support are recorded as services are provided.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Property and equipment
Property and equipment is recorded at cost, less accumulated
depreciation. Expenditures for renewals and improvements that significantly add
to the productive capacity or extend the useful life of an asset are
F-8
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
capitalized. Expenditures for maintenance and repairs are charged to operations
as incurred. Depreciation expense is provided using the straight-line method
over the estimated useful lives for purchased assets. Equipment held under
capital leases is amortized using the straight-line method over the lesser of
the useful life or the lease term. Leasehold improvements are amortized over
the shorter of the useful lives of the assets or the remaining term of the
lease.
Intangible assets
Intangible assets consist primarily of assembled workforce and excess of
cost over fair value of net assets acquired ("goodwill") and are stated at cost
less accumulated amortization. Identifiable intangible assets consist primarily
of assembled workforce, which is being amortized over its estimated future life
of three years. Goodwill is being amortized over its estimated future life of
five to fifteen years, primarily five years.
The carrying value of the excess of cost over fair value of net assets
acquired and other intangible assets are reviewed if facts and circumstances
suggest that they may be impaired. If this review indicates goodwill or other
intangibles will not be recoverable, as determined based on future expected
cash flows or other fair market value determinations, the Company's carrying
value of the goodwill or other intangibles is reduced to fair value.
Software developments costs
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed," software development costs are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers. To
date, the establishment of technological feasibility of the Company's products
and general release of such software have substantially coincided. As a result,
software development costs qualifying for capitalization have been
insignificant and therefore, have not been capitalized.
Internal use computer software
The Company adopted the AICPA Statement of Position 98-1 "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use"
effective January 1, 1998. The Company capitalizes external costs related to
software and implementation services in connection with its internal use
software systems.
Income taxes
The Company has applied the asset and liability approach of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," for
financial accounting and reporting purposes. The Company accounts for certain
items of income and expense in different time periods for financial reporting
and income tax purposes. Provisions for deferred income taxes are made in
recognition of such temporary differences, where applicable. A valuation
allowance is established against deferred tax assets unless the Company
believes it is more likely than not that the benefit will be realized.
Stock-based compensation plans
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations and elects the disclosure option of Statement of Financial
Accounting Standards No. 123,
F-9
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
"Accounting for Stock-Based Compensation" ("FAS 123"). Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
fair value of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock.
Basic and diluted net loss per share
Basic net loss per common share is based on the weighted average number
of shares of Common Stock outstanding during the period. No potential common
shares have been included in the diluted earnings per share calculation as they
would have been antidilutive due to the net loss reported by the Company. The
convertible securities outstanding and the number of common shares into which
they are convertible are as follows:
<TABLE>
<CAPTION>
Number of Common Shares into
which they are convertible at
each year-end
--------------------------------
Security 1996 1997 1998
-------- ---------- ---------- ----------
<S> <C> <C> <C>
Stock Options.......................... 1,915,500 5,549,200 18,226,112
Warrants............................... -- 1,295,900 2,486,006
Class A Convertible Preferred Stock.... 11,150,000 16,926,000 17,729,100
Class B Mandatorily Redeemable
Convertible Preferred................. -- 8,307,500 9,876,700
Class C Mandatorily Redeemable
Convertible Preferred ................ -- 923,200 923,200
</TABLE>
The Class D Mandatorily Redeemable Nonvoting Preferred Stock is not a
convertible security, but provides for certain amounts of Common Stock to be
issued upon redemption. The minimum aggregate number of shares to be issued
upon redemption is 3,722,502.
CFN has outstanding mandatorily redeemable preferred stock that is
exchangeable into Common Stock of the Company upon the occurrence of certain
events ("CFN Mandatorily Redeemable Preferred") (see Note 8). These
contingently issuable shares have not been included in diluted earnings per
share as they would be antidilutive.
Net loss available to common stockholders used in calculating basic and
diluted earnings per share includes charges related to dividends and accretion
on mandatorily redeemable preferred stock.
Stock split
In January 1998, the Board of Directors declared a stock split of the
Class B Common Stock effected in the form of a dividend distribution of 99
shares of Class B Common Stock for each share of Class B Common Stock held as
of January 9, 1998. The accompanying consolidated financial statements give
retroactive effect for this stock dividend as if it occurred at inception of
the Company.
Foreign currency translation
The financial position and results of operations of foreign subsidiaries
are measured using the currency of the respective countries as the functional
currency. Assets and liabilities are translated into the reporting currency
(U.S. dollars) at the foreign exchange rate in effect at the balance sheet
date, while revenue and expenses for the year are translated at the average
exchange rate in effect during the year. Translation gains and losses are not
included in determining net income or loss but are accumulated and reported as
a separate component of stockholders' equity. The Company has not entered into
any hedging contracts during any of the periods presented.
F-10
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Fair value of financial instruments
The carrying amounts of financial instruments, including cash, cash
equivalents, accounts receivable, accounts payable and accrued expenses,
approximate fair value. The carrying amount of long-term debt approximates fair
value based on current rates of interest available to the Company for loans of
similar maturities.
Comprehensive income
Effective January 1, 1998, the Company implemented Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income." This standard
requires that the total changes in equity resulting from revenue, expenses, and
gains and losses, including those which do not affect the accumulated deficit,
be reported. Accordingly, those amounts which are comprised solely of foreign
currency translation adjustments, are included in other comprehensive income in
the consolidated statements of stockholders' equity.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in the accompanying consolidated financial statements are
based upon management's evaluation of the relevant facts and circumstances as
of the date of the financial statements. Actual results could differ from those
estimates.
Unaudited information
The interim financial information as of and for the three months ended
March 31, 1999 and 1998 is unaudited. However, in the opinion of management,
such information has been prepared on the same basis as the audited financial
statements and includes all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for the periods presented. The interim results, however,
are not necessarily indicative of results for any future period.
The pro forma consolidated balance sheet as of March 31, 1999 is
unaudited. However, in the opinion of management, such information has been
prepared on the same basis as the audited financial statements and includes
adjustments to reflect (i) the assumed net proceeds of $49,300 from a
commitment to issue 16,190,475 shares of CFN Series B mandatorily redeemable
convertible preferred stock upon the earlier of the initial public offering
date or August 31, 1999; (ii) the conversion of the Class A Preferred, the
Class B Mandatorily Redeemable Convertible Preferred Stock ("Class B
Preferred"), and the Class C Mandatorily Redeemable Convertible Preferred Stock
("Class C Preferred") into Common Stock; and (iii) the issuance of Common Stock
issuable upon the exchange of the Class D Mandatorily Redeemable Preferred
Stock ("Class D Preferred") which includes the Common Stock issuable in lieu of
cash for the liquidation value and accrued dividends, such number of common
shares has been estimated assuming an initial public offering price of $11.00,
as if such events occurred on December 31, 1998.
New accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The Company will be required to adopt FAS 133 for the quarter ended
March 31, 2000. The Company has not entered into any significant derivative
financial instrument transactions.
F-11
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
2. Property and Equipment
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
Estimated
Useful December 31,
Lives In ---------------
Years 1997 1998
--------- ------ -------
<S> <C> <C> <C>
Land.......................................... N/A $ 100 $ 100
Building...................................... 40 550 550
Improvements.................................. 5-10 1,456 4,852
Furniture and fixtures........................ 5-7 1,286 5,472
Computer equipment and software............... 3-5 5,496 19,883
Equipment..................................... 5-10 2,247 6,068
------ -------
11,135 36,925
Less: Accumulated depreciation and
amortization................................. (1,957) (8,950)
------ -------
$9,178 $27,975
====== =======
</TABLE>
At December 31, 1997 and 1998, the Company had approximately $961 and
$2,570, respectively, of vehicles and equipment under capital leases included
in property and equipment and related accumulated amortization of approximately
$335 and $889, respectively. Amortization of these assets recorded under
capital leases is included in depreciation expense.
F-12
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
3. Acquisitions
During the two-year period ended December 31, 1998, the Company acquired
28 companies. The companies acquired and purchase price, including the shares
of Class B Common Stock and related warrants and options issued are as follows:
<TABLE>
<CAPTION>
Fair Value
Per Share of Net Excess of
Fair Value Shares of Cash Used for Tangible Cost Over
of iXL Common Warrants/ Acquisitions, Total Assets Fair Value of
Date Common Stock Options Net of Cash Purchase (Liabilities) Assembled Net Assets
Business Acquired Acquired Stock Issued Issued(1) Acquired Price Acquired Workforce Acquired
----------------- -------------- ---------- --------- --------- ------------- -------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BoxTop
Interactive,
Inc.--
Los Angeles,
CA(3)........... May 1997 $2.10 3,416,700 1,236,800 $ 1,182 $10,044 $(1,635) $ 1,946 6,171
Other
Acquisitions
(aggregated
1997)........... Various 778,300 179,800 2,251 2,804 26 1,213 2,038
--------- --------- ------- ------- ------- ------- -------
Total of 1997
Acquisitions... 4,195,000 1,416,600 $ 3,433 $12,848 $(1,609) $ 3,159 $ 8,209
========= ========= ======= ======= ======= ======= =======
Digital Planet,
Inc.--
Los Angeles,
CA(3)(4)........ May 1998 5.50 259,584 -- $ 1,962 $ 3,550 $ (39) $ 1,012 $ 2,577
Micro
Interactive,
Inc.--
New York,
NY(2)........... May 1998 5.50 740,000 19,500 1,718 5,809 281 999 4,529
CommerceWAVE,
Inc.--
San Diego,
CA(6)........... July 1998 5.82 877,898 64,434 117 5,459 (1,037) 662 5,134
Image
Communications,
Inc.--
Vienna, VA(3)... July 1998 5.82 378,999 125,054 753 3,324 381 1,213 1,730
Spinners
Incorporated--
Boston,
MA(3)(4)(8)..... July 1998 5.82 674,132 66,495 1,383 5,543 499 1,129 3,915
Tekna, Inc.--
Richmond,
VA(3)(4)........ September 1998 4.50 712,622 125,757 611 4,758 527 820 3,411
Larry Miller
Productions,
Inc.--
Boston, MA(3)... September 1998 4.50 113,823 248,135 1,812 3,490 (143) 963 2,670
NetResponse--
Arlington,
VA(3)(4)(10).... September 1998 4.50 701,375 73,625 1,719 5,307 1,312 1,168 2,827
Ionix Development
Corp.--
Chicago, IL(4).. September 1998 4.50 358,551 -- 1,059 3,013 231 778 2,004
Pequot Systems,
Inc.--
Norwalk,
CT(4)(8)........ September 1998 4.50 378,066 -- 792 2,501 154 357 1,990
TwoWay
Communications
LLC--Chicago,
IL(3)(9)........ September 1998 4.50 269,421 -- 1,246 2,469 335 713 1,421
Other
Acquisitions
(aggregated
1998)........... Various 2,295,530 57,215 3,430 14,188 795 6,075 7,318
--------- --------- ------- ------- ------- ------- -------
Total of 1998
acquisitions... 7,760,001 780,215 $16,602 $59,411 $ 3,296 $15,889 $39,526
========= ========= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) Amounts equal the number of Class B Common Stock shares to be issued upon
exercise of the warrants and options.
Primary capabilities: (2)Interactive multimedia (3)Creative design (4)Software
engineering (5)Travel expertise (6)E-Commerce (7)Video production
(8)Financial Services Consulting (9)Healthcare expertise (10)Strategy
consulting.
F-13
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Individual acquisitions with a purchase price of $2,000 or less have been
aggregated in Other Acquisitions in the schedule above and consist of the
following:
<TABLE>
<CAPTION>
Per Share
Fair Value
of iXL
Date Common
Business Acquired Acquired Stock
- ----------------- -------------- ----------
<S> <C> <C>
Webbed Feet, LLC--Atlanta, GA(3).................... February 1997 $2.00
The Whitley Group, Inc.--Charlotte, NC(2)........... April 1997 2.00
Swan Interactive Media, Inc.--Atlanta, GA(4)........ July 1997 2.25
Small World Software, Inc.--New York, NY(3)(4)...... January 1998 3.23
Green Room Productions, L.L.C.--San Francisco,
CA(3)(4)(5)........................................ February 1998 3.23
CCG Online--Denver, CO(3)(4)(5)..................... March 1998 4.60
Spin Cycle Entertainment, Inc.--Los Angeles,
CA(3)(4)........................................... May 1998 5.50
InTouch Interactive, Inc.--Charlotte, NC(4)......... May 1998 5.50
Campana New Media, S.L. and The Other Media, S.L.--
Madrid, Spain(3)................................... July 1998 5.82
601 Design, Inc.--New York, NY(7)................... July 1998 5.82
Wissing & Laurence, Inc.--New York, NY(7)........... July 1998 5.82
LAVA--Hamburg, Germany(4)........................... September 1998 4.50
Denovo New Media, Ltd.--London, England(3).......... September 1998 4.50
Exchange Place Solutions, Inc.--Atlanta, GA(8)...... September 1998 4.50
Pantheon Interactive, Inc.--Santa Clara, CA(4)...... September 1998 4.50
</TABLE>
All acquisitions have been accounted for using the purchase method, and
accordingly, the purchase price has been allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed on the basis of
their fair value on the acquisition dates. The historical carrying amounts of
tangible net assets acquired approximated their fair values. The fair value of
identifiable intangible assets acquired were based on independent appraisals or
management estimates. Since the date of acquisition, the results of operations
of the acquired companies have been included in the Consolidated Statement of
Operations.
The allocation of the purchase price of BoxTop Interactive, Inc. resulted
in a $2,400 charge to in-process research and development expenses in 1997
relating to an Internet-based video conferencing product under development
which had not reached technological feasibility. Such charge has been included
in research and development expenses in the Consolidated Statement of
Operations. Certain related core technology was valued as existing technology
and not included in the value of the acquired technology in-process. The value
of the purchased in-process technology was determined by estimating the present
value of the projected net cash flows to be generated by the development
efforts completed as of the acquisition. Revenue, expenses, and other cash flow
items associated with commercialization of the product were estimated for a
discrete projection period. Strong revenue growth was projected for this
product through 1999; thereafter, revenue was expected to increase moderately
each year through 2001. The cash flows were then discounted to present value at
35%, a rate of return that considers the relative risk of achieving the
projected cash flows and the time value of money. Finally, a stage of
completion factor was applied to the sum of the present values of the cash
flows in the discrete projection period. Application of the stage of completion
factor correctly excludes from the value of in-process technology that value
associated with remaining development tasks (which are not in-process). The
stage of completion factor was calculated giving consideration to the costs
incurred to date on the in-process technology relative to the total anticipated
costs for the project. Additionally, consideration of the level of difficulty
of completed development tasks relative to those remaining was also made. In
the fourth quarter of 1998, due to the introduction of competing products
utilizing alternative technologies into the market, management decided to cease
further investment in the development of this product.
F-14
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
For acquisitions made in 1997 and 1998, the purchase price in excess of
identifiable tangible and intangible assets acquired and liabilities assumed of
$8,209 and $39,526, respectively, was allocated to goodwill and is being
amortized over estimated useful lives of five years. Approximately $3,159 and
$15,889 of the aggregate purchase price was allocated to assembled workforce in
place for acquisitions made in 1997 and 1998, respectively, and is being
amortized over its estimated useful life of three years.
The Company discontinued the use of a brandname acquired in the purchase
of BoxTop Interactive, Inc. and charged the remaining book value of that
intangible asset, approximately $1,700, to amortization expense in 1997.
The purchase price of the acquisitions consists of the consideration
provided to the selling stockholders, which includes Common Stock, options,
warrants and cash. The fair value of the Company's Common Stock issued as
consideration for the acquisitions was determined based primarily upon
independent appraisals. The fair value of options and warrants issued in
connection with the 1998 acquisitions was determined using the Black-Scholes
option pricing model using the following assumptions: dividend yield of 0%,
expected volatility 60%, risk free interest rate of 5.37% and an expected life
of 2 to 5 years, depending on the terms of the specific acquisition.
The terms of three of the Company's 1998 acquisition agreements provide
for additional consideration if the acquired entities' revenues exceed certain
levels. Such additional consideration is payable in shares of the Company's
Common Stock and will be recorded, if earned, as additional purchase price. For
two of the acquired companies, the contingency period ended December 31, 1998;
for the other entity, the contingency period ends October 31, 1999. As of
December 31, 1998, a total of 287,304 shares of the Company's Class B Common
Stock were held in escrow in relation to these agreements.
The targeted revenues were achieved at one of the acquired entities whose
contingency period ended December 31, 1998. As such, 50,000 shares of the
Company's Common Stock will be released from escrow in March 1999 and have been
accounted for as additional purchase price as of December 31, 1998.
For those acquisitions that have been structured as tax-free exchanges of
stock, the differences between the fair value of the acquired assets, including
intangible assets, and their historical tax bases are not deductible for income
tax purposes.
The following unaudited pro forma financial information reflects the
results of operations for the years ended December 31, 1997 and 1998, as if the
acquisitions had occurred on January 1, 1997. These unaudited pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of what operating results would have been had the acquisitions
actually taken place on January 1, 1997 and may not be indicative of future
operating results. The unaudited pro forma results are summarized as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Revenues.............................................. $ 55,301 $ 87,160
======== ========
Net loss.............................................. $(31,364) $(60,417)
======== ========
Net loss available to common stockholders............. $(31,364) $ 71,130
======== ========
Basic and diluted net loss per common share........... $ (1.93) $ 4.42
======== ========
</TABLE>
F-15
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
4. Intangible Assets
Intangible assets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Excess of cost over fair
value of net assets ac-
quired................. $15,540 $55,066
Assembled work force.... 4,027 19,916
Other................... 2,629 3,816
------- -------
22,196 78,798
Less--accumulated amor-
tization............... (3,991) (14,581)
------- -------
$18,205 $64,217
======= =======
</TABLE>
5.Equity Investment in Affiliate
Effective August 27, 1996, the Company acquired a 22% equity interest in
the outstanding convertible preferred stock of UNI for $750 in cash. UNI
develops and manages sports information websites for colleges, universities and
athletic associations. Pursuant to agreements with UNI, the Company performed
Internet development and financial consulting services and payment for these
services has been made in shares of UNI convertible preferred stock valued at
$1 per share.
The Company accounts for its investment in UNI under the equity method.
The Company's investments in UNI have been accounted for as excess of cost over
fair value of net assets acquired and were being amortized over five years as a
reduction to the investment account together with the Company's share of UNI
losses. The Company's investment balance in UNI reached zero in the fourth
quarter of 1998. Because the Company has no obligation to fund UNI's operations
or deficit, the Company has discontinued recording its share of UNI's losses.
The Company will not recognize its share of any future earnings from UNI until
UNI earnings are sufficient to recover the unrecognized losses.
The following is a summary of the activity in the investment in UNI:
<TABLE>
<CAPTION>
For the
period
May 1, 1996 Years Ended
through December 31,
December 31, ----------------
1996 1997 1998
------------ ------- -------
<S> <C> <C> <C>
Net investment in UNI balance, beginning
of period............................... $ -- $ 1,298 $ 1,115
Additional investment in UNI............. 1,547 1,260 525
Equity in UNI net loss................... (174) (1,001) (1,010)
Amortization of goodwill................. (75) (442) (630)
------ ------- -------
Net investment in UNI balance, end of pe-
riod.................................... $1,298 $ 1,115 $ --
====== ======= =======
</TABLE>
F-16
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
The following is a summary of certain unaudited financial information of
UNI as of and for the years ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ ------
<S> <C> <C>
Current assets............................................. $ 467 $2,703
Non current assets......................................... 176 333
Current liabilities........................................ 543 1,295
Non current liabilities.................................... 560 --
Stockholders' equity....................................... (460) 1,741
Net revenues............................................... 795 1,559
Net loss................................................... (2,919) (5,071)
</TABLE>
As of December 31, 1998, the Company owned a 23% interest in UNI. UNI has
certain outstanding stock options and warrants which, if exercised, would not
materially reduce the Company's investment ownership percentage in UNI.
6. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Accrued compensation and related costs...................... $ 709 $3,244
Other accrued liabilities................................... 1,037 4,699
------ ------
$1,746 $7,943
====== ======
</TABLE>
7. Long-Term Debt
The Company's long-term debt is comprised of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
----- -------
<S> <C> <C>
Borrowings under Credit Agreement........................ $ -- $19,328
8.25% note payable to bank in monthly installments
through January 2002, collateralized by land and
building................................................ 484 465
Notes payable to banks and a former shareholder at
interest rates from 8.9% to 10.4%; all repaid in 1998... 183 --
Capital lease obligations, at interest rates from 4% to
24% expiring from 1998 to 2003.......................... 606 1,627
----- -------
Total debt............................................. 1,273 21,420
Less current portion of long-term debt................... (433) (868)
----- -------
Long-term debt........................................... $ 840 $20,552
===== =======
</TABLE>
In July 1998, the Company entered into a credit agreement (the "Credit
Agreement") with a bank providing for borrowings of up to $20,000. The Credit
Agreement expires June 30, 2001. The Credit Agreement includes a $10,000 term
loan and a $10,000 revolving line of credit and bears interest payable
quarterly at the higher of the prime rate plus 2% or the federal funds
effective rate plus 2.5%. The Credit Agreement is secured by liens on
substantially all of the assets of the Company's domestic subsidiaries, except
F-17
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
CFN, including a pledge of the capital stock of the same subsidiary companies.
The Credit Agreement provides for borrowings based upon a borrowing base
formula. Borrowings under the term loan portion of the Credit Agreement are
payable $50 each quarter, commencing September 30, 1998, with the balance due
upon expiration. A 0.5% annual commitment fee is charged on the average unused
portion of the revolving line of credit. At December 31, 1998, the Company's
borrowing rate under the Credit Agreement was 9.75%.
Under the terms of the Credit Agreement and notes payable to banks, the
Company is required to maintain certain financial covenants related to
consolidated earnings, consolidated debt to capital and working capital, among
others. At December 31, 1998, the Company was in compliance with, or has
received a waiver of all covenants.
As of December 31, 1998, the Company had letters of credit outstanding,
totaling $1,740. Certificates of deposits in the same amount, which are
included in prepaid expenses and other assets, are pledged as collateral for
these letters of credit.
As of December 31, 1998, aggregate principal maturities of notes payable
and capital lease obligations are as follows:
<TABLE>
<CAPTION>
December 31,
Year 1998
---- ------------
<S> <C>
1999.......................................................... $ 868
2000.......................................................... 674
2001.......................................................... 19,220
2002.......................................................... 627
2003.......................................................... 31
-------
$21,420
=======
</TABLE>
8. Mandatorily Redeemable Preferred Stock; Mandatorily Redeemable Preferred
Stock of Subsidiary; and Warrants
A total of 265,000 shares of mandatorily redeemable convertible preferred
stock have been designated for issuance; 200,000, 15,000 and 50,000 of such
shares have been designated as Class B, Class C and Class D, respectively.
In December 1997, for net consideration of approximately $26,900 and
$2,990, the Company issued 83,075 shares of Class B Preferred, par value $.01,
and 9,232 shares of Class C Preferred, par value $.01. In conjunction with this
equity transaction, the Company issued warrants to purchase 10,650 shares of
Class B Preferred for $458 per share.
In February 1998, for net consideration of approximately $4,935 the
Company issued 15,692 shares of Class B Preferred and warrants to purchase
1,810 shares of Class B Preferred for $458 per share.
In August 1998, for net consideration of approximately $35,400, the
Company issued 35,700 shares of Class D Preferred, $.01 par value.
In November 1998, the Company issued warrants to purchase 500,000 shares
of Class A Common Stock at $10 per share. The warrants expire three years from
the date of grant and were issued upon the Company's approval of a marketing
plan. The fair value of the warrants was measured on the date the warrants
F-18
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
were earned, using the Black-Scholes option pricing model and was recorded as
an expense of approximately $815 in the fourth quarter of 1998. The assumptions
utilized by the Company in determining the fair value of these warrants were as
follows: dividend yield 0%, risk-free interest rate 5.0%, expected volatility
72%, and expected life of 3 years.
In December 1998, the Company issued warrants to purchase 500,000 shares
of Class B Common Stock at $10 per share. The warrants expire the later of
eighteen months from the date of grant or twelve months after an initial public
offering of the Company's Common Stock. The warrants were granted in
conjunction with a contract that will generate revenue for the Company
beginning in 1999 and are exercisable immediately. The fair value of the
warrants of $1,200 was measured at the grant date using the Black-Scholes
option pricing model and the related charge will be recorded as contra-revenue
as the services are provided to the customer over the next twelve to eighteen
months. The assumptions utilized by the Company in determining the fair value
of these warrants were as follows: dividend yield 0%, risk free interest rate
5.0%, expected volatility 82%, and expected life of 18 months.
The Company has accounted for the Class B, Class C and Class D Preferred
as mandatorily redeemable preferred stock. Accordingly, the Company is accruing
dividends and amortizing any difference between the carrying value and the
redemption value over the redemption period with a charge to additional paid-in
capital ("APIC").
The Class D Preferred provides that, upon redemption the holders will
receive $1,000 per share plus any accrued and unpaid dividends and a certain
number of shares of Class B Common Stock of the Company. The aggregate number
of shares of Class B Common Stock to be issued varies based on the timing of a
Qualified Public Offering, but at a minimum, equals 3,722,502 shares. The
proceeds from the issuance of the Class D Preferred have been allocated to the
Class D Preferred (included in mandatorily redeemable preferred stock) and
Class B Common Stock to be issued (included in additional paid-in-capital),
based on the relative fair values of the securities as of the date of issuance.
Of the approximately $35,400 total proceeds from the issuance of the Class D
Preferred, $22,165 was allocated to the Class D Preferred and the remaining
$13,235 was allocated to Class B Common Stock to be issued. The amount
allocated to the Class B Common Stock to be issued was based on the fair value
of the guaranteed minimum number of shares (3,722,502) to be issued. The number
of shares of Class B Common Stock to be issued increases depending on the
timing of a Qualified Public Offering, up to a maximum of 5,279,293 shares. The
fair value of the additional 1,556,791 potentially issuable shares of Class B
Common Stock is determined at the end of each reporting period and is ratably
charged to net loss available to common stockholders, over the 7-year
redemption period. The Company is accruing the 12% dividend on the Class D
Preferred and accreting any difference between the carrying value and the
redemption value over the 7-year redemption period with a charge to APIC.
The amount charged to APIC related to the Class B and Class C Preferred
was $5,449 and $926, respectively, for the year ended December 31, 1998. The
Company has reserved 18,817 Class B Preferred shares for exercise of warrants
and conversion of 10,799,020 Class A Common Shares.
The rights, preferences and privileges with respect to the Class B, Class
C and Class D Preferred are as follows:
Voting
Class B Preferred has the same number of votes as each share of Class A
Common Stock into which such preferred stock may be converted. Class C and
Class D Preferred have no voting rights.
F-19
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Dividends
The Company may make distributions to Class B and Class C Preferred;
however, there is no requirement for dividends. If a distribution is made to
common stockholders, Class A, Class B and Class C Preferred stockholders will
receive a similar per share amount based on the number of shares of Class A
Common Stock into which the Class A, Class B and Class C Preferred will
convert. The Class D Preferred accrues dividends at the rate of 12% per annum.
Conversion
Each share of Class B and Class C Preferred is convertible at the option
of the holder into 100 shares of Class A Common Stock. This conversion rate is
subject to change if certain events occur that would otherwise dilute the
conversion rights of the Class B and Class C Preferred. Such conversion is
automatic upon the effective date of an initial public offering of the
Company's Common Stock with a per share price of at least $7 and for which the
aggregate proceeds to the Company equal at least $30,000 (a "Qualified Public
Offering"). The Class D Preferred is not convertible.
Redemption
The Company has the right to redeem the Class B and Class C Preferred
prior to December 31, 2004 only upon a change in control. The Class B and Class
C Preferred stockholders have the right, at their option, to require the
Company to redeem any or all of the stock on or after December 31, 2004. The
redemption amount will be the fair value per share of the Class B and Class C
Preferred, as of the date of redemption, plus an amount equal to all declared
and unpaid dividends. The Company is accreting the carrying value of the Class
B and Class C Preferred up to the redemption price over the period from
issuance until December 31, 2004.
The Company has the right to redeem the Class D Preferred at any time
prior to its mandatory redemption date of August 2005. The Class D Preferred
stockholders have the right to require the Company to redeem the shares only
upon the occurrence of certain events. Holders of Class D Preferred have the
right at their option to require the Company to redeem the Class D Preferred
held by them at any time after August 2005, or at any time after one of the
following redemption events, if earlier: a breach of the dividend payment
provisions of the Class D Preferred; a bankruptcy of the Company or any of its
subsidiaries; a judgment for payment of money in an amount exceeding $5,000;
the acceleration of indebtedness in an amount exceeding $5,000; a breach of the
documents governing the issuance of the Class D Preferred; or a change of
control. The redemption amount is equal to the liquidation preference amount
plus all accrued and unpaid dividends plus a certain number of shares of Class
B Common Stock, which varies depending on the timing of a Qualified Public
Offering, as follows:
<TABLE>
<CAPTION>
Number of Class B
Common Stock Shares
Date of Qualified Public Offering to be issued
--------------------------------- -------------------
<S> <C>
prior to or on August 14, 1999......................... 3,722,502
August 15, 1999-February 14, 2000...................... 4,647,602
after February 14, 2000................................ 5,279,293
</TABLE>
Liquidation
The Class D Preferred has liquidation preference over the Class A, Class
B and Class C Preferred, which all have the same liquidation preference based
on their respective liquidation values. All classes of preferred stock have
liquidation preference over the Class A and Class B Common Stock. The
liquidation value equals $325 per share for the Class B and Class C Preferred
and $1,000 per share for the Class D Preferred plus any declared and unpaid
dividends, subject to adjustment.
F-20
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
The following is a summary of the carrying value of the mandatorily
redeemable preferred stock:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1997 1998
------------------- -------------------
Redemption Carrying Redemption Carrying
Value Value Value Value
---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Class B Preferred............... $27,000 $26,937 $93,829 $37,683
Class C Preferred............... 3,000 2,993 8,770 3,523
Class D Preferred............... -- -- 50,552 24,473
------- -------
$29,930 $65,679
======= =======
</TABLE>
The rights, preferences and privileges with respect to the mandatorily
redeemable preferred stock of subsidiary, CFN Mandatorily Redeemable Preferred,
are as follows:
Authorized number of shares
As of December 31, 1998, there were 24,900,000, 13,333,334 and 13,333,334
shares of CFN Mandatorily Redeemable Preferred shares authorized, issued and
outstanding, respectively. There were no shares authorized, issued or
outstanding as of December 31, 1997.
Voting
Each share of CFN Mandatorily Redeemable Preferred is entitled to one
vote on issues that are subject to a vote of the CFN stockholders.
Dividends
CFN may make distributions to CFN Mandatorily Redeemable Preferred
stockholders; however, there is no requirement for dividends. If a distribution
is made to the common stockholder of CFN, CFN Mandatorily Redeemable Preferred
stockholders will receive a similar per share amount based on the number of CFN
common shares into which the CFN Mandatorily Redeemable Preferred is then
convertible.
Conversion
Each share of CFN Mandatorily Redeemable Preferred is convertible into
one share of CFN Common Stock. This conversion rate is subject to change if
certain events occur that would otherwise dilute the conversion rights of the
CFN Mandatorily Redeemable Preferred stockholders. Such conversion is at the
option of the holder and is also automatic upon the effective date of an
initial public offering of at least 15% of CFN's Common Stock with a per share
price of at least $2 (the "CFN Qualified Public Offering").
Liquidation
The CFN Mandatorily Redeemable Preferred has liquidation preference over
the CFN Common Stock. The Liquidation Value is equal to $0.75 per share and is
subject to adjustment if certain events occur that would otherwise dilute the
liquidation rights of the CFN Mandatorily Redeemable Preferred. The amount to
be paid to the CFN Mandatorily Redeemable Preferred stockholders equals the
liquidation value plus any declared and unpaid dividends as of the liquidation
date. CFN Mandatorily Redeemable Preferred stockholders will not participate in
any balance remaining after such amounts have been paid.
F-21
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Redemption
CFN Mandatorily Redeemable Preferred stockholders have the right at their
option, to require CFN to redeem any or all of the CFN Mandatorily Redeemable
Preferred on or after December 31, 2005. Such redemption will be a redemption
price per share equal to the Liquidation Value plus all declared and unpaid
dividends. As of December 31, 1998, the carrying value of the CFN Mandatorily
Redeemable Preferred equaled its redemption value.
Exchange into Common Stock of the Company
Pursuant to the terms of the CFN stockholders' agreement each of the CFN
Mandatorily Redeemable Preferred stockholders has the right to exchange all,
but not less than all, of their CFN Mandatorily Redeemable Preferred into the
Company's Common Stock under two separate exchange rights. First, an exchange
may be made upon a change in control of CFN, unless (a) the change in control
occurs in the context of a tag-along, drag-along, or sale of CFN governed by
the CFN stockholders agreement, (b) the change in control transaction involves
the issuance of securities of CFN and the holders of CFN Mandatorily Redeemable
Preferred choose to exercise their preemptive rights with respect to such
issuance, or (c) the transaction effecting the change in control is a CFN
Qualified Public Offering. Second, the CFN Mandatorily Redeemable Preferred
stockholders have a one-time right to exchange on November 3, 2001, unless the
Company is no longer a stockholder of CFN and no CFN Qualified Public Offering
has occurred. In either case, the exchange rate will be based on the relative
fair values of CFN and the Company. The value of CFN Mandatorily Redeemable
Preferred upon a change in control transaction will be the price per share paid
in connection with such transaction. The value of CFN Mandatorily Redeemable
Preferred under the exchange right available on November 3, 2001 will be the
greater of the Liquidation Value of such stock or the appraised fair market
value of such stock assuming a conversion of such stock into the Common Stock
of CFN. CFN Mandatorily Redeemable Preferred will then be exchanged into an
equivalent value of the Company's Common Stock based on a trailing average of
closing prices of the Company's Common Stock, if such stock is publicly traded,
or the most recent appraisal of the Company, if such stock is not publicly
traded.
Commitment to Purchase CFN Mandatorily Redeemable Preferred
If as of November 3, 1999, CFN has sold fewer than 24,900,000, shares of
CFN Mandatorily Redeemable Preferred (including the 13,333,334 sold as of
December 31, 1998), the Company will purchase the number of shares of CFN
Mandatorily Redeemable Preferred equal to the difference between 24,900,000 and
the number of shares theretofore sold by CFN for $0.75 per share.
9. Stockholders' Equity
The Company's capital stock consists of $.01 par value Class A Common
Stock, $.01 par value Class B Common Stock, and $.01 par value Class A
Preferred. At December 31, 1997 and 1998, there were no outstanding shares of
Class A Common Stock.
During the year ended December 31, 1998, for consideration of
approximately $5,510, which includes a $900 note receivable, the Company issued
8,031 shares of Class A Preferred.
The rights, preferences and privileges with respect to the Common Stock
and Class A Preferred are as follows:
Voting
Holders of shares of Class A Common Stock are entitled to ten votes per
share, holders of Class B Common Stock are entitled to one vote per share and
holders of Class A Preferred are entitled to voting rights as if the stock had
been converted into Class A Common Stock.
F-22
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Dividends
Holders of shares of Class A and Class B Common Stock are entitled to
share, on an as converted basis with the Class A Preferred, Class B Preferred
and Class C Preferred any dividends declared by the Board of Directors.
Conversion
Holders of shares of Class A Common Stock are entitled to convert their
shares into Class B Common Stock at any time on a share-for-share basis. Each
share of Class A Preferred is convertible into 100 shares of Class A Common
Stock. This conversion rate is subject to change if certain events occur that
would otherwise dilute the conversion rights of the Class A Preferred. Such
conversion is automatic upon the effective date of a Qualified Public Offering.
The Company has reserved 25,000,000 shares of Class B Common Stock for issuance
upon conversion of Class A Preferred.
Redemption
The Class A Preferred stockholders have no option to require the Company
to redeem their stock. The Company has the right to an early redemption, at the
liquidation value, only upon a change in control, as defined.
Liquidation
The Class A Preferred has liquidation preference over the Class A and
Class B Common Stock. The liquidation value for the Class A Preferred will
equal the amount invested, which ranges from $100 to $1,000 per share, plus any
declared and unpaid dividends.
Other
Under certain limited circumstances as described in the Stockholders'
Agreement ("Agreement"), management can put their preferred and/or common
shares back to the Company at fair value, as defined in the Agreement. The
Company is obligated to pay for the shares in cash, or at the option of the
Board of the Directors, with a promissory note. The Agreement terminates upon
the effective date of a Qualified Public Offering.
Treasury stock
During February and March 1998, the Company purchased a total of 242,416
shares of Class B Common Stock from two employees at a purchase price of $3.25
per share. During September 1998, the Company purchased a total of 10,000
shares of Class B Common Stock from one employee at a price of $10 per share.
F-23
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
10. Income Taxes
The components of the benefit (provision) for income taxes consist of the
following:
<TABLE>
<CAPTION>
For the period
May 1, 1996 Years ended
through December 31,
December 31, --------------
1996 1997 1998
-------------- ------- ------
<S> <C> <C> <C>
Current:
State....................................... $(42) $ -- $ --
---- ------- -----
Deferred:
State....................................... 101 --
Federal..................................... 243 2,782 --
---- ------- -----
344 2,782 --
---- ------- -----
$302 $ 2,782 $ --
==== ======= =====
</TABLE>
As of December 31, 1997 and 1998, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $11,200 and
$46,560, respectively. The Company acquired loss carryforwards of approximately
$1,100 in 1996, $1,560 in 1997 and $3,510 in 1998. The carryforwards expire in
varying amounts through 2018. The use of acquired net operating loss
carryforwards is restricted in accordance with Internal Revenue Service
regulations.
In addition, under the Tax Reform Act of 1986, the amounts of, and the
benefits from, net operating loss carryforwards may be impaired or limited in
certain circumstances. These circumstances include, but are not limited to, a
cumulative stock ownership change of greater than 50% over a three-year period.
A valuation allowance has been recorded against the Company's net deferred tax
asset as management believes it is more likely than not that they will not be
realized.
A reconciliation of the federal statutory rate and the effective income
tax rate follows:
<TABLE>
<CAPTION>
For the period
May 1, 1996 Years ended
through December 31,
December 31, -----------------
1996 1997 1998
-------------- ------- --------
<S> <C> <C> <C>
Statutory federal tax rate (34%)....... $ 597 $ 6,195 $ 16,614
Nondeductible amortization............. (315) (1,684) (2,667)
State income tax....................... 24 252 743
Losses of foreign subsidiaries......... -- -- (860)
Change in valuation allowance,
including effect of acquisitions...... (312) (2,159) (13,427)
Other.................................. 308 178 (403)
----- ------- --------
$ 302 $ 2,782 $ --
===== ======= ========
</TABLE>
F-24
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Deferred tax (assets) liabilities are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Gross deferred tax assets
Allowance for doubtful accounts...................... $ (28) $ (349)
Loss in equity investment............................ (643) (750)
Intangibles.......................................... -- (967)
Net operating loss carryforward...................... (4,330) (16,923)
Valuation allowance.................................. 2,711 11,400
------- --------
$(2,290) $ (7,589)
======= ========
Gross deferred tax liabilities
Property and equipment............................... 242 842
Intangible assets.................................... 1,832 6,570
Conversion from S Corporation to C Corporation....... 116 77
Other................................................ 100 100
------- --------
2,290 7,589
------- --------
Net deferred tax asset................................. $ -- $ --
======= ========
</TABLE>
11. Stock-Based Compensation
The Company's 1996 Stock Option Plan (the "1996 Stock Option Plan") was
established to promote the success of the Company by providing an additional
means to attract and retain key personnel. Pursuant to the terms of the 1996
Stock Option Plan, a committee of the Board of Directors is authorized to grant
options to purchase Class B Common Stock not to exceed an aggregate maximum of
25,000,000 shares to officers and employees. The committee is further
authorized to establish the exercise price and the vesting terms.
In December 1998, the Board of Directors of the Company adopted the 1998
Non-Employee Stock Option Plan (the "1998 Stock Option Plan"), which contains
essentially the same terms as the 1996 Stock Option Plan, except that the 1998
Stock Option Plan was established for grants to persons who are not employees
of the Company. The 1998 Stock Option Plan authorizes the granting for up to an
aggregate maximum of 1,000,000 options, of which 290,464 were outstanding as of
December 31, 1998.
The Company expects that most options granted pursuant to the plans will
be subject to vesting over a period of 4 to 5 years, such as 20% increments
each year over a period of five years, during which the optionee must continue
to be an employee of the Company. The committee, however, may choose to impose
different vesting requirements or none at all. Options outstanding under the
Plan generally have a term of ten years.
The Company applies APB 25 and related Interpretations in accounting for
the Plan. During 1997 and 1998, $0 and $1,641, respectively, of compensation
expense was recognized. Stock options issued in connection with acquisitions
were accounted for as purchase price.
F-25
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Had compensation expense for the Company's Plan been determined under the
provisions of FAS 123 based on the fair value at the grant date, the Company's
net loss and loss per share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
For the period
May 1, 1996 For the years ended
through December 31,
December 31, --------------------
1996 1997 1998
-------------- --------- ---------
<S> <C> <C> <C>
Net loss
As reported....................... $(1,454) $ (15,440) $ (48,866)
Pro forma......................... $(1,481) $(15,501) $(50,388)
Basic and diluted net loss per
common share
As reported....................... $ (0.37) $ (2.36) $ (4.92)
Pro forma......................... $ (0.37) $ (2.37) $ (5.05)
</TABLE>
The minimum value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions used for grants during the 1996, 1997 and 1998 periods,
respectively; dividend yield of 0% for all periods; expected volatility of 0%
for all periods, risk free interest rate of 6.3%, 5.7% and 5.0%, expected life
of 5 years, 4 years and 4 years.
A summary of stock options as of December 31, 1996, 1997 and 1998 and
activity during the period ending on those dates is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------- ------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Options
--------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- -- 1,915,500 $1.77 5,549,200 $2.35
Granted................. 1,920,500 $1 .77 3,847,200 $2.59 13,310,331 $7.31
Exercised............... -- -- -- -- (57,800) $0.01
Forfeited............... (5,000) $ 1.00 (213,500) $1.03 (575,619) $5.39
--------- ------ --------- ----- ---------- -----
Outstanding at the end
of period.............. 1,915,500 $ 1.77 5,549,200 $2.35 18,226,112 $5.89
--------- ------ --------- ----- ---------- -----
Options exercisable at
end of period.......... 1,183,100 $ 1.93 3,045,300 $2.03 7,833,247 $3.88
--------- ------ --------- ----- ---------- -----
Weighted average fair
value of options
granted during the
period.................
<CAPTION>
1996 1997 1998
------------------- ------------------- --------------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Fair Average Fair Average Fair
Options Granted During Exercise Market Exercise Market Exercise Market
the Year Price Value Price Value Price Price
---------------------- --------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Option price greater than fair market value $ 0.70 $ 1.77 $ 2.13 $3.45 $ 9.91 $ --
Option price=fair market value -- -- $ 2.50 $2.50 $ 5.00 $0.91
Option price lesser than fair market value -- -- $ 2.13 $0.90 $ 3.49 $2.10
</TABLE>
F-26
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Number Number
Outstanding Weighted Weighted Exercisable Weighted
at Average Average at Average
December Remaining Exercise December Exercise
Range of 31, Contractual Price 31, Price
Exercise Prices 1998 Life $ 1998 $
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.01-$0.75 537,954 9.30 $ 0.19 531,460 $ 0.18
$0.95-$1.32 1,423,665 8.15 $ 0.97 1,217,835 $ 0.97
$1.84-$2.60 2,533,004 7.91 $ 2.18 1,866,974 $ 2.12
$3.00-$4.50 4,575,339 9.05 $ 3.97 2,102,997 $ 3.87
$5.00-$6.00 1,904,351 9.18 $ 5.08 818,487 $ 5.06
$8.00-$10.00 7,251,799 9.78 $10.00 1,295,494 $10.00
---------- ---------
18,226,112 7,833,247
========== =========
</TABLE>
12. Employee Benefit Plans
Employees of the Company can elect to participate in the iXL
Enterprises, Inc. Savings Plan (the "Plan") which is intended to be qualified
and exempt from tax under Section 401(k) of the Internal Revenue Code.
Employees are eligible to participate in the Plan after one month of service
and can elect to invest 1% to 16% of their pre-tax earnings. All employee
contributions are fully vested and there have not been material contributions
to the Plan by the Company.
13. Commitments and Contingencies
Certain operating facilities and equipment are leased under non-
cancelable agreements. Operating lease expense charged to operations was
approximately $184 in 1996, $956 in 1997 and $3,844 in 1998. As of December
31, 1998, the approximate future minimum lease payments for noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 6,586
2000............................................................... 5,862
2001............................................................... 5,485
2002............................................................... 5,264
2003............................................................... 4,112
Thereafter......................................................... 15,832
-------
$43,141
=======
</TABLE>
As of December 31, 1998, the Company has commitments for capital
expenditures of approximately $5,400, primarily in connection with expansion
and improvement of its Atlanta, New York and Denver offices.
The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of the management, the amount
of the ultimate outcome of these actions will not materially affect the
Company's financial position, results of operations or cash flows.
F-27
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
14. Business Segments
The Company operates in two business segments: strategic Internet
services, which includes Internet strategy consulting, Internet-based business
solutions and solution sets; and CFN, an e-commerce platform for marketing
financial services and employee benefits.
iXL's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment requires different technology, strategic competencies, and marketing
strategies.
A summary of the Company's two business segments for the two years ended
December 31, 1998 is set forth below. For the year ended December 31, 1997,
CFN's information includes the period from December 20, 1996 (date of
acquisition) through December 31, 1997:
<TABLE>
<CAPTION>
Strategic
Internet
1998 Services CFN Total
---- --------- ------- -------
<S> <C> <C> <C>
Revenues....................................... $64,516 $ 251 $64,767
Loss from operations........................... (33,636) (13,542) (47,178)
Loss on equity investment...................... (1,640) -- (1,640)
Interest income................................ 713 37 750
Interest expense............................... 750 20 770
Amortization................................... 10,534 56 10,590
Depreciation................................... 4,542 675 5,217
Identifiable assets............................ 86,207 9,696 95,903
Capital expenditures........................... 18,082 2,222 20,304
<CAPTION>
1997
----
<S> <C> <C> <C>
Revenues....................................... $18,986 $ -- $18,986
Loss from operations........................... (12,126) (4,667) (16,793)
Loss on equity investment...................... (1,443) -- (1,443)
Interest income................................ 136 -- 136
Interest expense............................... 238 -- 238
Amortization................................... 5,135 56 5,191
Depreciation................................... 1,328 80 1,408
Identifiable assets............................ 42,795 1,454 44,249
Capital expenditures........................... 5,795 909 6,704
</TABLE>
15. Related Party Transactions
In January 1997, the Company entered into an agreement to lease its
headquarters office space from Park Place Emery, L.L.C. ("PPE") commencing
April 1, 1997 for a term of eleven years. The Chief Executive Officer and
Chairman of the Board of Directors (the "Chairman") of the Company is a limited
partner in PPE. The Company paid $441 and $628 under this lease in 1997 and
1998, respectively.
During 1997, certain executive officers of the Company loaned the Company
a total of $6,600. The loans bore interest at 12% and were repaid during the
year. Interest expense recognized in 1997 related to these borrowings was
approximately $88. In June 1998, the Chairman's spouse loaned the Company
$4,000 at an interest rate of 10%. The principal and interest on this note were
repaid in July 1998.
F-28
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
In April 1996, the Company paid Kelso & Company a fee of $150 for
financial advisory services. In addition, the Company agreed to pay Kelso &
Company an annual fee of $15 for financial advisory services. The Company has
also agreed to indemnify Kelso & Company against certain claims, losses,
damages, liabilities and expenses which may arise in connection with rendering
such financial advisory services.
In June 1998, the Company created a wholly owned subsidiary, Permit.Com,
Inc. On June 26, 1998, the Board of Directors of the Company approved and
declared a dividend of the common stock of Permit.Com, Inc. payable to
stockholders of the Company of record as of June 1, 1998. The carrying value of
the assets of Permit.Com, Inc. were $0.
The Company recognized revenues in 1996, 1997 and 1998 from providing
services to certain of its investors, and entities related to its investors, of
$0, $100 and $2,177, respectively.
16. Subsequent Events
In January 1999, for net consideration of $22,718, the Company issued
22,825 shares of Class A Preferred. A portion of the proceeds were used to
repay approximately $9,430 of the borrowings under the revolving line of credit
portion of the Credit Agreement.
The Company's Board of Directors authorized the Company to file a Form S-
1 with the Securities and Exchange Commission under the Securities Act of 1933
with respect to an initial public offering of the Company's Common Stock. In
connection with the offering, the Company has agreed to pay Kelso & Company a
fee equal to $750 payable in shares of Common Stock, valued at the offering
price.
In February 1999, the Company's Board of Directors adopted the 1999
Employee Stock Option Plan (the "1999 Stock Option Plan"). The 1999 Stock
Option Plan authorizes the granting of options to purchase up to an aggregate
maximum of 5,000,000 shares of Class B Common Stock.
Prior to the closing of the Company's initial public offering, the
Company's shareholders will approve an amendment to the Company's Certificate
of Incorporation which will take effect upon such closing. Pursuant to such
amendment, upon the closing of the initial public offering, all outstanding
shares of Class A, Class B and Class C Convertible Preferred Stock, Class D
Nonvoting Preferred Stock, and Class A and Class B Common Stock will be
reclassified as common stock. This reclassification will preclude the automatic
conversion feature of the Class A, Class B and Class C Convertible Preferred
Stock.
The Class D Preferred Stockholders will, as a result of the
reclassification, receive in the aggregate 3,722,502 shares of common stock
plus a number of shares equal to the Class D Preferred Stock liquidation value
of $35,700 plus accrued dividends divided by the gross initial public offering
price of common stock before deducting any underwriting or other selling
discounts. This transaction will result in a charge to net loss available to
common shareholders equal to the difference between $35,700 plus accrued
dividends and the carrying value of the Class D Preferred Stock.
Subsequent Event (unaudited)
In April 1999, the Company entered into several agreements with
affiliates of the General Electric Company ("GE") whereby (1) GE committed to
purchase 16,190,475 shares of CFN series B mandatorily redeemable convertible
preferred stock (12.5% of CFN, on an as converted basis) for a purchase price
of approximately $50,000 payable upon the earlier of the initial public
offering date or August 31, 1999 (2) GE entered into a services agreement that
provides that GE will purchase
F-29
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
$20,000 of services from the Company and in exchange for entering into such
agreement the Company will grant GE warrants to purchase 1 million shares of
the Company's common stock at an exercise price of $15 per share (3) GE
committed to purchase 2 million shares of the Company's common stock at a price
per share equal to the initial public offering price in a private placement
that will be concurrent with the proposed initial public offering and (4) the
Company will grant GE warrants to purchase 1.5 million shares of the Company's
common stock at an exercise price equal to the initial public offering price in
consideration for GE (a) entering into a mutually acceptable marketing campaign
expected to advertise its relationships with the Company and CFN, and (b)
entering into an agreement to use reasonable efforts to provide access to CFN's
platform to employees of GE Capital Equity Investments, Inc.
In conjunction with the above agreements, the exchangeability feature of
the CFN Mandatorily Redeemable Preferred, as described in Note 8, was
eliminated. In addition, the commitment of the Company to purchase additional
shares of CFN Mandatorily Redeemable Preferred, as described in Note 8, was
also eliminated.
F-30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
BoxTop Interactive, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in shareholders' deficit and of cash flows present
fairly, in all material respects, the financial position of BoxTop Interactive,
Inc. (the "Company") at September 30, 1996 and May 31, 1997, and the results of
its operations and its cash flows for the period November 6, 1995 (inception)
through September 30, 1996 and the period October 1, 1996 through May 31, 1997,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
October 3, 1997
F-31
<PAGE>
BOXTOP INTERACTIVE, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, May 31,
1996 1997
------------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash.............................................. $ 2,288 $ --
Accounts receivable............................... 241,007 319,869
Prepaid expenses and other assets................. 2,255 81,139
---------- -----------
Total current assets............................ 245,550 401,008
---------- -----------
Property and equipment, net......................... 313,876 391,454
Advances to shareholder............................. 18,945 79,565
Intangible asset, net of accumulated amortization of
$10,415 at May 31, 1997............................ -- 239,585
Other noncurrent assets............................. 25,751 27,373
---------- -----------
Total assets.................................... $ 604,122 $ 1,138,985
========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable.................................. $ 502,476 $ 604,007
Accrued expenses.................................. 606,663 319,861
Current portion of long-term debt................. 223,718 1,493,836
Current portion of capital lease obligations...... 37,024 41,351
Due to affiliate.................................. 60,052 208,835
---------- -----------
Total current liabilities....................... 1,429,933 2,667,890
---------- -----------
Long-term debt...................................... 36,620 24,413
Capital lease obligations........................... 81,844 50,854
---------- -----------
Total liabilities............................... 1,548,397 2,743,157
---------- -----------
Shareholders' deficit
Common stock, $.01 par value; Authorized
50,000,000 shares; issued and outstanding
3,200,000 and 3,350,000 shares, respectively..... 32,000 33,500
Additional paid-in capital........................ 2,490 89,490
Accumulated deficit............................... (978,765) (1,727,162)
---------- -----------
Total shareholders' deficit..................... (944,275) (1,604,172)
---------- -----------
Total liabilities and shareholders' deficit..... $ 604,122 $ 1,138,985
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
BOXTOP INTERACTIVE, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the period
November 6, 1995 For the period
(inception) October 1, 1996
through through
September 30, 1996 May 31, 1997
------------------ ---------------
<S> <C> <C>
Revenues..................................... $1,746,022 $2,759,993
---------- ----------
Costs and expenses
Direct cost of revenues.................... 684,013 1,113,615
Selling, general and administrative........ 1,935,205 2,231,895
Depreciation and amortization.............. 74,234 114,467
---------- ----------
Total operating expenses................. 2,693,452 3,459,977
---------- ----------
Loss from operations..................... (947,430) (699,984)
---------- ----------
Interest expense............................. (30,535) (56,338)
Other income................................. -- 8,725
---------- ----------
Loss before income taxes................. (977,965) (747,597)
Income taxes................................. (800) (800)
---------- ----------
Net loss................................. $ (978,765) $ (748,397)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
BOXTOP INTERACTIVE, INC.
STATEMENT OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common stock Additional Total
----------------- Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Deficit
--------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Initial capital
contribution........... 1,000 $ 10 $ 2,490 $ -- $ 2,500
Issuance of common
stock................ 3,199,000 31,990 -- -- 31,990
Net loss.............. -- -- -- (978,765) (978,765)
--------- ------- ------- ----------- -----------
Balance, September 30,
1996................... 3,200,000 32,000 2,490 (978,765) (944,275)
Issuance of common
stock................ 150,000 1,500 17,000 -- 18,500
Issuance of stock
options and
warrants............. -- -- 70,000 -- 70,000
Net loss.............. -- -- -- (748,397) (748,397)
--------- ------- ------- ----------- -----------
Balance, May 31, 1997... 3,350,000 $33,500 $89,490 $(1,727,162) $(1,604,172)
========= ======= ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
BOXTOP INTERACTIVE, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
November 6, 1995 For the period
(inception) October 1, 1996
through through
September 30, 1996 May 31, 1997
------------------ ---------------
<S> <C> <C>
Cash flows from operating activities
Net loss................................... $(978,765) $ (748,397)
Adjustments to reconcile net loss to net
cash used for operating activities
Stock compensation expense................ 31,990 88,500
Depreciation and amortization............. 74,234 114,467
Changes in assets and liabilities
Accounts receivable...................... (241,007) (78,862)
Prepaid expenses and other assets........ 13,745 (78,884)
Advances to shareholder.................. (18,945) (60,620)
Other noncurrent assets.................. (25,751) (1,622)
Accounts payable......................... 502,476 101,531
Accrued expenses......................... 606,663 (286,802)
Due to affiliate......................... (5,854) (101,217)
--------- ----------
Net cash used for operating activities.. (41,214) (1,051,906)
--------- ----------
Cash flows from investing activities
Purchase of property and equipment......... (135,409) (181,630)
--------- ----------
Net cash used for investing activities.. (135,409) (181,630)
--------- ----------
Cash flows from financing activities
Borrowings from long-term debt............. 200,000 1,375,000
Repayments of long-term debt............... (15,770) (117,089)
Repayments of capital lease obligations.... (7,819) (26,663)
--------- ----------
Net cash provided by financing
activities............................. 176,411 1,231,248
--------- ----------
Net decrease in cash.................... (212) (2,288)
Cash, beginning of period................... 2,500 2,288
--------- ----------
Cash, end of period......................... $ 2,288 $ --
========= ==========
Supplemental disclosure of cash flow
information
Cash paid during the period for interest... $ 16,655 $ 17,334
========= ==========
Cash paid during the period for income
taxes..................................... $ 800 $ --
========= ==========
Non-cash activities
Cost of licensing agreement................ $ -- $ 250,000
Assets acquired under capital lease........ $ 126,686 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
BOXTOP INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS
1. Business
BoxTop Interactive, Inc. (the "Company") develops, maintains and hosts
interactive web sites for clients in a variety of industries. The Company also
develops interactive audio and visual communication applications for use with
personal and business computers. The Company is a California corporation and
was incorporated on November 6, 1995.
2. Summary of Significant Accounting Policies
Revenue recognition
Revenues from website development, hosting and maintenance services are
recognized as the services are performed. Sales to customers representing 10%
or more of revenues for the eight months ended May 31, 1997 are as follows:
customer A--$900,000 and customer B--$451,000. Sales to customers representing
10% or more of revenues for the eleven months ended September 30, 1996 are as
follows: customer C--$262,000, customer D--$175,000, customer E--$248,000, and
customer F--$168,000.
Property and equipment
Property and equipment are recorded at cost, less accumulated
depreciation and amortization. Expenditures for renewals and improvements that
significantly add to the productive capacity or extend the useful life of an
asset are capitalized. Expenditures for maintenance and repairs are charged to
operations as incurred. Depreciation expense is provided using the straight-
line method over the estimated useful lives of the assets, which ranges from
three to five years. Leasehold improvements are amortized using the straight-
line method over the lesser of the lease term or the estimated useful life.
Equipment held under capital lease is recorded at the lower of the fair market
value of the lease or the present value of future minimum lease payments. These
leased assets are amortized using the straight-line method over the lesser of
the lease term or the estimated useful life.
Intangible asset
The intangible asset balance represents the cost of a licensing agreement
between BoxTop Entertainment, Inc. (an affiliate company) and the Company. The
licensing agreement is for the indefinite use of the BoxTop tradename and logo.
The intangible asset is stated at cost less accumulated amortization.
Amortization expense is provided using the straight-line method over ten years.
The carrying value of the intangible asset is reviewed periodically for
impairment based on future expected cash flows. Based on its review, the
Company does not believe that an impairment has occurred.
Software development costs
Software development costs incurred in connection with the Company's
licensed software products are accounted for in accordance with the provisions
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed" (FAS 86). Capitalization of
such costs begins only upon establishment of technological feasibility as
defined in FAS 86 and ends when the resulting product is available for sale.
All costs incurred to establish the technological feasibility of software
products are classified as research and development and are expensed as
incurred. No products had reached technological feasibility during the period
from November 6, 1995 (inception) through May 31, 1997. Research and
development costs included in selling, general and administrative expense
approximated $78,000 and
F-36
<PAGE>
BOXTOP INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
$224,000 for the period November 6, 1995 (inception) through September 30,
1996, and the period October 1, 1996 through May 31, 1997, respectively.
Income taxes
The Company has applied the asset and liability approach of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS
109), for financial accounting and reporting purposes. The Company accounts for
certain items of income and expense in different time periods for financial
reporting and income tax purposes. Provisions for deferred income taxes are
made in recognition of such temporary differences, where applicable. A
valuation allowance is established against deferred tax assets unless the
Company believes it is more likely than not that the benefit will be realized.
Stock-based compensation
The Company has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25), and related Interpretations and to elect the disclosure option of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (FAS 123). Accordingly, compensation cost for stock options
is measured as the excess, if any, of the fair market value of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Fair value of financial instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable and accrued expenses approximate fair value. The
carrying amount of long-term debt approximates fair value based on current
rates of interest available to the Company for loans of similar maturities.
3. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30, May 31,
1996 1997
------------- ---------
<S> <C> <C>
Furniture and fixtures............................. $ 16,394 $ 31,388
Computer equipment................................. 376,017 502,826
Leasehold improvements............................. 1,438 21,260
Computer software.................................. -- 20,005
-------- ---------
393,849 575,479
Less accumulated depreciation and amortization..... (79,973) (184,025)
-------- ---------
Property and equipment, net...................... $313,876 $ 391,454
======== =========
</TABLE>
F-37
<PAGE>
BOXTOP INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
At September 30, 1996 and May 31, 1997, the Company had approximately
$127,000 of equipment under capital lease included in property and equipment in
the accompanying financial statements.
4. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30, May 31,
1996 1997
------------- --------
<S> <C> <C>
Payroll taxes payable................................ $402,972 $ --
Customer advances.................................... 165,419 180,994
Accrued vacation..................................... 28,000 40,952
Deferred rent........................................ -- 31,603
Accrued interest..................................... -- 36,016
Other................................................ 10,272 30,296
-------- --------
$606,663 $319,861
======== ========
</TABLE>
5. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, May 31,
1996 1997
------------- -----------
<S> <C> <C>
Notes payable to shareholders (see Note 11),
accruing monthly interest based on an annual rate
of 8%. Outstanding principal and accrued interest
are due 120 days after demand. These notes are
secured by substantially all of the assets of the
Company and are guaranteed by the principal
shareholder of the Company. These notes require a
late payment penalty of 5.0% of the outstanding
principal and accrued interest should payment not
be received within 120 days after demand........... $200,000 $ 100,000
Notes payable accruing monthly interest based on an
annual rate of 8%. Outstanding principal and
accrued interest are due on the earlier of demand
or July 1, 1997. These notes are secured by
substantially all of the assets of the Company and
are guaranteed by the principal shareholders of the
Company............................................ -- 750,000
Notes payable accruing monthly interest based on an
annual rate of 15%. Outstanding principal and
accrued interest are due on July 1, 1997. These
notes are secured by substantially all of the
assets of the Company and are guaranteed by the
principal shareholder of the Company. In connection
with these borrowings the Company issued warrants
to acquire 375,000 shares of the Company's common
stock at $1.00 per share exercisable on demand..... -- 375,000
Note payable to IXL Enterprises, Inc. (see note 12),
accruing monthly interest based on an annual rate
of 8%. Outstanding principal and accrued interest
are due on June 17, 1997. The note is guaranteed by
the principal shareholder of the Company........... -- 250,000
Bank equipment note payable bearing interest at the
Bank's prime rate plus 2%. This note requires
monthly principal payments of $1,526 plus interest
through September 1999............................. 54,930 42,723
Other............................................... 5,408 526
-------- -----------
Total debt...................................... 260,338 1,518,249
Less current portion of long-term debt............ (223,718) (1,493,836)
-------- -----------
Long-term debt.................................... $ 36,620 $ 24,413
======== ===========
</TABLE>
F-38
<PAGE>
BOXTOP INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Future maturities of principal payments under long-term debt are as
follows:
<TABLE>
<CAPTION>
Year ending
May 31,
-----------
<S> <C>
1998............................................................ $1,493,836
1999............................................................ 24,413
----------
$1,518,249
==========
</TABLE>
In June 1997, the Company was acquired by iXL Enterprises, Inc. (see Note
12). A portion of the proceeds from the acquisition was used to repay the
Company's outstanding debt and accrued interest of approximately $1,600,000 at
the date of acquisition.
6. Shareholders' deficit
Stock
The Company is authorized to issue two classes of stock designated
respectively as "common stock" and "preferred stock." The number of shares of
common stock and preferred stock authorized for issuance is 50,000,000 and
5,000,000, respectively.
Any liquidation preferences, dividends, voting rights and convertible
features of the preferred stock are to be determined by the Company's Board of
Directors at the time of issuance. From November 6, 1995 (inception) through
May 31, 1997, there was no preferred stock issued or outstanding.
During the period November 6, 1995 (inception) through September 30, 1996
and the period October 1, 1996 through May 31, 1997, the Company recognized
stock compensation expense of approximately $32,000 and $19,000, respectively,
related to the issuance of its common stock to employees and consultants. The
Company estimated the fair value of its stock at the date it was issued to
employees and consultants taking into consideration the Company's results of
operations, a stock repurchase, the sale of the Company to iXL and certain
other transactions.
Warrants
In connection with borrowings made by the Company during the period
October 1, 1996 through May 31, 1997, the Company issued warrants to acquire
375,000 shares of the Company's common stock at $1.00 per share exercisable on
demand. The fair value of the warrants at the date of grant was estimated to be
less than $1,000 and accordingly no amounts were allocated to them.
In December 1996 and May 1997, the Company issued warrants to consultants
to acquire 30,000 shares of the Company's common stock at an exercise price of
$1.10 per share and 40,000 shares of the Company's common stock at an exercise
price of $1.50 per share, respectively. Such warrants were exercisable
immediately. The Company recognized expense of approximately $38,000 in
connection with the issuance of warrants in May 1997. These warrants remained
outstanding as of May 31, 1997.
In connection with a customer making a $500,000 cash deposit with the
Company in October 1996 for future services, the Company issued warrants to
acquire 712,500 shares of the Company's common stock at $.90 per share
exercisable on demand. As of May 31, 1997, the Company has customer advances of
approximately $180,000 related to remaining services to be performed under the
agreement. These warrants remained outstanding as of May 31, 1997. The fair
value of the warrants at the date of grant was estimated to be less than $1,000
and accordingly no amounts were allocated to them.
F-39
<PAGE>
BOXTOP INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The fair value of each warrant issued during the period October 1, 1996
through May 31, 1997 was estimated on the date of the grant using the Black-
Scholes option pricing model with the following weighted-average assumptions:
dividend yield of 0%; expected volatility of 20%; risk free interest rate of
6%; expected life of 3 years.
7. Income Taxes
The Company's income tax expense for the period November 6, 1995
(inception) through September 30, 1996 and the period October 1, 1996 through
May 31, 1997, consists entirely of the California State minimum income tax of
$800.
The Company had net deferred tax assets consisting primarily of federal
and state net operating loss carryforwards. The Company has no items which give
rise to significant deferred tax liabilities. At September 30, 1996 and May 31,
1997, the Company has recorded a full valuation allowance offsetting the net
deferred tax assets as management believes it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
At May 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $1,560,000 expiring in 2012. The
Internal Revenue Code can impose certain limitations on the future availability
of net operating loss carryforwards, including annual limitations on the amount
of the carryforwards which could be utilized following substantial changes in a
company's ownership.
The difference between the Company's effective income tax rate and
multiplying the Company's loss before income taxes by the Federal statutory
income tax rate for each of the periods presented in the financial statements
is due primarily to the recording of a valuation allowance to offset the
Company's net deferred tax asset.
8. Stock Option Plan
The Board of Directors has adopted a stock option plan (the Plan).
Pursuant to the terms of the Plan, the Board of Directors is authorized to
grant options to purchase common stock not to exceed 3,000,000 shares to
officers, employees and nonemployees. The Board of Directors is further
authorized to establish the exercise price and the vesting terms.
Pro forma information regarding net loss is required by FAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method. Had compensation cost for the Company's Plan been
determined based on the fair value at the grant date consistent with the
provisions of FAS 123, the Company's net loss would have been increased to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
September 30, May 31,
1996 1997
------------- ---------
<S> <C> <C>
Net loss
As reported....................................... $(978,765) $(748,397)
Pro forma......................................... (978,865) (810,397)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions used for grants during the 1996 and 1997 periods,
respectively: dividend yield of 0% for both periods; expected volatility of 0%
for both periods; risk free interest rate of 6.3% for both periods; expected
life of 3.2 years and 3.0 years.
F-40
<PAGE>
BOXTOP INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
A summary of stock options as of September 30, 1996 and May 31, 1997,
and changes during the periods ending on those dates is as follows:
<TABLE>
<CAPTION>
September 30, 1996 May 31, 1997
-------------------- ----------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
---------- --------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period.. -- $ -- 405,000 $0.97
Granted............................. 405,000 $ 0.97 465,000 $1.10
---------- -------
Outstanding at end of period........ 405,000 $ 0.97 870,000 $1.04
========== =======
Weighted average fair value of
options granted during the period:
Exercise price exceeds fair value
of stock......................... $ -- $0.13
Exercise price equals fair value
of stock......................... $ -- $ --
Exercise price is less than fair
value of stock................... $ -- $0.99
</TABLE>
No options were exercised or forfeited during the period from November
6, 1995 (inception) through May 31, 1997.
The following table summarizes information about stock options
outstanding at May 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- --------------------
Weighted
Weighted Average Weighted
Number Average Remaining Number Average
Exercise Outstanding Exercise Contractual Exercisable Exercise
Prices at 5/31/97 Price Life at 5/31/97 Price
-------- ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.10 550,000 $1.10 9.60 250,000 $1.10
$1.10 270,000 $1.10 4.50 145,000 $1.10
$0.01 50,000 $0.01 4.20 16,668 $0.01
</TABLE>
In May 1997, the Company granted certain employees options to acquire
40,000 shares of the Company's common stock at $1.10 per share. These options
vested immediately. The Company recognized approximately $32,000 of stock
compensation expense related to the issuance of these options.
9. Commitments
The Company is obligated under various capital leases for computer
equipment that expire at various dates through 1999. The gross amount of
computer equipment and related accumulated amortization included in property
and equipment and recorded under capital lease is as follows:
<TABLE>
<CAPTION>
September 31, May 31,
1996 1997
------------- --------
<S> <C> <C>
Computer Equipment................................. $126,686 $126,686
Less accumulated amortization.................... (23,226) (40,117)
-------- --------
$103,460 $ 86,569
======== ========
</TABLE>
Amortization of assets held under capital lease for the period November
6, 1995 (inception) through September 30, 1996 and the period October 1, 1996
through May 31, 1997 of approximately $23,000 and $17,000, respectively, is
included with depreciation expense.
F-41
<PAGE>
BOXTOP INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under non-cancelable operating leases and
future minimum capital lease payments as of May 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending Capital Operating
May 31, Leases Leases
----------- -------- ---------
<S> <C> <C>
1998.................................................. $ 52,500 $212,208
1999.................................................. 52,500 212,208
2000.................................................. 4,015 212,208
2001.................................................. -- 123,788
-------- --------
Total minimum lease payments............................ $109,015 $760,412
======== ========
</TABLE>
Rental expense under operating leases, primarily the Company's office
facility, for the period November 6, 1995 (inception) through September 30,
1996 and the period October 1, 1996 through May 31, 1997 totaled approximately
$96,000 and $154,000, respectively.
10. Employee Benefit Plan
During the period October 1, 1996 through May 31, 1997, the Company
established a 401(k) plan (the Plan) under Section 401(k) of the Internal
Revenue Code. The Plan permitted the Company to make discretionary
contributions to employees' 401(k) accounts, subject to IRS limitations on
maximum contributions. During the period from October 1, 1996 through May 31,
1997, the Company made no contributions to this plan.
11. Related Party Transactions
The amounts due to affiliate represent monies owed to BoxTop
Entertainment, Inc., an affiliated company who provided non-interest bearing
advances to the Company. During the period November 6, 1995 through September
30, 1996, certain shared operating expenses including payroll, rent and other
costs were allocated between BoxTop Entertainment, Inc. and the Company. Costs
allocated to the Company were approximately $280,000, and are reflected in
general and administrative expenses in the accompanying financial statements.
The Company made non-interest bearing advances to its principal
shareholder. Amounts outstanding at September 30, 1996 and May 31, 1997 were
$18,945 and $79,565, respectively.
At September 30, 1996 and May 31, 1997, the Company had outstanding loans
of $200,000 and $100,000, respectively, due to certain of its shareholders. The
loans bear interest at 8% per annum.
12. Subsequent Events
On May 30, 1997, the Company was acquired by iXL Enterprises, Inc.
F-42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of iXL Enterprises, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations and change in members' deficit and of cash flows present fairly,
in all material respects, the financial position of Green Room Productions
L.L.C. at December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
September 3, 1998
F-43
<PAGE>
GREEN ROOM PRODUCTIONS L.L.C.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
ASSETS
Current assets
Cash............................................................ $ 37,532
Accounts receivable............................................. 282,573
Cost and estimated earnings in excess of billings on uncompleted
contracts...................................................... 39,660
Due from bank for factored accounts receivable.................. 10,878
----------
Total current assets.......................................... 370,643
Equipment, net.................................................... 123,388
Other assets...................................................... 3,000
----------
Total assets.................................................. $ 497,031
==========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Accounts payable................................................ $ 82,888
Accrued expenses................................................ 77,727
Short-term borrowings........................................... 118,170
Current portion of capital lease obligations.................... 55,367
Billings in excess of costs and estimated earnings on
uncompleted contracts.......................................... 43,073
----------
Total current liabilities..................................... 377,225
Capital lease obligations......................................... 20,583
----------
Total liabilities............................................. 397,808
----------
Members' equity
Members' Units, no par value; 1,000,000 units issued and
outstanding....................................................
Unallocated capital............................................. 1,093,411
Members' deficit................................................ (994,188)
----------
Total members' equity......................................... 99,223
----------
Commitments.......................................................
----------
Total liabilities and members' equity......................... $ 497,031
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
GREEN ROOM PRODUCTIONS L.L.C.
STATEMENT OF OPERATIONS AND CHANGE IN MEMBERS' DEFICIT
<TABLE>
<CAPTION>
For the year
ended
December 31,
1997
------------
<S> <C>
Revenues.......................................................... $1,483,003
Cost of revenues.................................................. 948,011
----------
Gross profit.................................................... 534,992
Selling, general and administrative expenses...................... 970,143
Depreciation and amortization..................................... 58,894
----------
Loss from operations............................................ (494,045)
Interest expense and other, net................................... (16,672)
----------
Net loss........................................................ (510,717)
Members' deficit, beginning of year............................... (483,471)
----------
Members' deficit, end of year..................................... $ (994,188)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
GREEN ROOM PRODUCTIONS L.L.C.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year
ended
December 31,
1997
------------
<S> <C>
Cash flows from operating activities
Net loss......................................................... $(510,717)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities
Depreciation and amortization................................... 58,894
Changes in operating assets and liabilities
Accounts receivable............................................ (215,909)
Costs and estimated earnings in excess of billings on
uncompleted contracts......................................... (21,912)
Other assets................................................... 23,164
Accounts payable and accrued expenses.......................... 95,723
Billings in excess of costs and estimated earnings on
uncompleted contracts......................................... 43,073
---------
Net cash used in operating activities......................... (527,684)
---------
Cash flows from investing activities
Capital expenditures............................................. (9,182)
---------
Net cash used in investing activities......................... (9,182)
---------
Cash flows from financing activities
Net proceeds from factored account receivables................... 54,391
Payments on capital leases....................................... (42,752)
---------
Net cash provided by financing activities..................... 11,639
---------
Net decrease in cash.......................................... (525,227)
Cash, beginning of year........................................... 562,759
---------
Cash, end of year................................................. $ 37,532
=========
Supplemental disclosure of cash flow information
Cash paid during the period for interest......................... $ 29,662
=========
Non-cash investing and financing activities
Acquisition of equipment through capital leases.................. $ 65,503
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
GREEN ROOM PRODUCTIONS L.L.C.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of business
Green Room Productions L.L.C. (the "Company") creates consumer-oriented
content for the World Wide Web (the "Web"). The content developed for the Web
consists of informative and promotional websites with a focus on the travel
industry. The Company's customers are located throughout the United States.
Significant accounting policies
Revenue recognition
Revenue from service contracts is recognized over the contractual period
using the percentage-of-completion method based on when services are performed.
Advance billings in excess of costs represent deferred revenue and are recorded
as billings in excess of costs and estimated earnings on uncompleted contracts.
Unbilled receivables in excess of billings represent earned revenues and are
recorded as costs and estimated earnings in excess of billings on uncompleted
contracts. Operating expenses, including indirect costs and administrative
expenses, are charged to income as incurred and are not allocated to contract
costs. At the time a loss on a contract becomes known, the entire amount of the
estimated loss is accrued.
Equipment
Equipment is recorded at cost, less accumulated depreciation.
Expenditures for renewals and improvements that significantly add to the
productive capacity or extend the useful life of an asset are capitalized.
Expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation expense is provided on the straight-line method over the estimated
useful lives for purchased assets, which range from 3 to 7 years. Equipment
held under capital lease is amortized on the straight-line method over the
lesser of the useful life or the lease term.
Income taxes
The Company is organized as a limited liability corporation (L.L.C.). As
such, the Company's income, or losses, are passed through directly to the
shareholders of the Company. As a result, no provision for income taxes has
been made in the accompanying financial statements.
Stock-based compensation
The Company has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and related Interpretations and has elected the disclosure option of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (FAS 123). Accordingly, compensation cost for stock options
is measured as the excess, if any, of the fair value of the Company's stock at
the date of the grant over the amount an employee must pay to acquire the
stock.
Fair value of financial instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable and accrued expenses approximate fair value. The
carrying amounts of borrowings approximate fair value based on current rates of
interest available to the Company for loans of similar maturities.
F-47
<PAGE>
GREEN ROOM PRODUCTIONS L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Comprehensive income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires entities to report comprehensive income, which
represents the change in equity during a period from non-owner sources. The
Company has not incurred any such activity other than the net loss for all
periods presented.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses during the reporting period. Actual results could differ from
those estimates and could materially affect the reported amounts of assets,
liabilities and future operating results.
2. Equipment
Equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Computer equipment.............................................. $147,279
Computer software............................................... 21,577
Furniture and fixtures.......................................... 35,058
--------
203,914
Less accumulated depreciation and amortization.................. (80,526)
--------
Equipment, net.................................................. $123,388
========
</TABLE>
At December 31, 1997, the Company had equipment under capital lease, net
of amortization, of $75,486.
3. Borrowings
Borrowings consist of the following:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Capital lease obligations, payable in monthly installments of
$137 to $1,738 expiring from 1998 to 2000, collateralized by
equipment with a net book value of $75,486 as of December
31, 1997.................................................... $ 75,950
Borrowing, secured by factored accounts receivable........... 54,391
Note payable to a member, unsecured, which provides for
quarterly interest only payments at 11%..................... 9,423
Note payable to a member, unsecured, which provides for
quarterly interest only payments at 11%..................... 27,416
Note payable to a member, unsecured, which provides for
quarterly interest only payments at 11%..................... 26,940
---------
194,120
Less current maturities...................................... (173,537)
---------
Long-term portion............................................ $ 20,583
=========
</TABLE>
F-48
<PAGE>
GREEN ROOM PRODUCTIONS L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Total interest expense recognized for the year ended December 31, 1997
was $18,785, including $8,048 owed to related parties.
During 1996 the Company entered into an agreement with a bank whereby
the Company sold certain qualified accounts receivable to the bank, with
recourse, for the amount of the accounts receivable less fees and interest.
Fees were calculated at 1% of the amount of the receivable at the date of
sale. Interest is calculated as 0.2% of the amount of the outstanding balance
for each day the receivable is outstanding. As of December 31, 1997, the
Company had an outstanding factored balance of $54,391.
The aggregate maturities required on notes payable and capital lease
obligations are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1998........................................................... $173,537
1999........................................................... 26,761
2000........................................................... 1,637
Less amounts representing interest on capital leases........... (7,815)
--------
$194,120
========
</TABLE>
4. Employee Benefits
Unit plan
During 1996, the Company adopted an employee unit plan which provides
for the granting of member units to officers and other key employees of the
Company. These awards vest over a three-year period. The plan terminates on
December 31, 2007. All new awards of units are withdrawn from the three
original members.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for the plan. During the years ended December 31, 1997, no
compensation cost was recognized for issuance of 15,750 units under the
Company's plan.
401(k) savings plan
Effective April 1, 1997, the Company established a 401(k) plan for
substantially all employees over the age of 21 and with more than six months
of services as defined by the plan. The plan allows for discretionary employer
matching contributions up to 15% of the employees' compensation, subject to
limitations. The matching contributions made during the year ended December
31, 1997 were not significant.
F-49
<PAGE>
GREEN ROOM PRODUCTIONS L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Concentrations of Credit Risk
Net sales for the year ended December 31, 1997 for several major
customers, together with the receivable due from each customer, are presented
below. The Company does not obtain, nor require, any collateral or other
security instruments related to these balances.
<TABLE>
<CAPTION>
December 31,
1997
---------------------
Accounts
Amount of Receivable
Customer Net Sales Balance
-------- ---------- ----------
<S> <C> <C>
A.................................................. $ 506,557 $ 39,998
B.................................................. 201,637 30,682
C.................................................. 177,245 12,529
D.................................................. 139,500 59,433
E.................................................. 127,901 45,009
---------- --------
$1,152,840 $187,651
========== ========
</TABLE>
6. Commitments
Future minimum lease payments under non-cancelable operating leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1998............................................................. $64,000
1999............................................................. 2,000
-------
Total minimum lease payments..................................... $66,000
=======
</TABLE>
The Company's operating leases are primarily for office equipment and the
Company's office facility. Rental expense under operating leases for the year
ended December 31, 1997 totaled approximately $139,000.
7. Subsequent Event
On February 5, 1998, the Company was acquired by iXL Enterprises, Inc.
F-50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
iXL Enterprises, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in shareholders' deficit, and of cash flows present
fairly, in all material respects, the financial position of Digital Planet at
September 30, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
July 13, 1998
F-51
<PAGE>
DIGITAL PLANET
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, March 31,
1997 1998
------------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash.............................................. $ 87,355 $ 98,302
Accounts receivable............................... 482,997 651,770
Cost and estimated earnings in excess of billings
on uncompleted contracts......................... 92,091 --
Other current assets.............................. 48,162 21,977
----------- -----------
Total current assets............................ 710,605 772,049
Equipment, net...................................... 188,559 450,776
Other assets........................................ 19,632 26,474
----------- -----------
Total assets.................................... $ 918,796 $ 1,249,299
=========== ===========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable.................................. $ 227,597 $ 258,779
Accrued expenses.................................. 228,218 173,530
Short-term borrowings............................. 762,225 1,096,502
Current portion of capital lease obligations...... 9,936 26,179
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... 32,874 83,912
----------- -----------
Total current liabilities....................... 1,260,850 1,638,902
Deferred rent....................................... -- 28,131
Capital lease obligations........................... 8,006 100,506
----------- -----------
Total liabilities............................... 1,268,856 1,767,539
----------- -----------
Series A mandatorily redeemable convertible
preferred stock, 1,966,163 shares designated;
811,597 shares issued and outstanding.............. 613,567 613,567
----------- -----------
Series A preferred stock warrants, 1,154,566
outstanding........................................ 161,639 161,639
----------- -----------
Shareholders' deficit
Common stock, no par value; 40,000,000 shares
authorized; 9,579,500 and 9,580,000 shares issued
and outstanding at September 30, 1997 and March
31, 1998, respectively........................... 9,580 9,830
Additional paid-in capital.......................... 48,838 48,838
Accumulated deficit................................. (1,183,684) (1,352,114)
----------- -----------
Total shareholders' deficit..................... (1,125,266) (1,293,446)
----------- -----------
Commitments
----------- -----------
Total liabilities and shareholders' deficit..... $ 918,796 $ 1,249,299
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
DIGITAL PLANET
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the
Year For the Six Months
Ended Ended
September March 31,
30, ---------------------- --- ---
1997 1997 1998
---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues.......................... $3,745,947 $1,921,302 $1,598,868
Cost of revenues.................. 2,031,531 1,037,503 1,006,664
---------- ---------- ----------
Gross profit.................... 1,714,416 883,799 592,204
Selling, general and
administrative expenses.......... 1,209,550 513,647 625,766
Depreciation and amortization..... 45,277 11,319 36,658
---------- ---------- ----------
Income (loss) from operations... 459,589 358,833 (70,220)
Interest expense, net............. (56,824) (11,867) (97,410)
---------- ---------- ----------
Income (loss) before income
taxes.......................... 402,765 346,966 (167,630)
Income tax provision.............. 800 800 800
---------- ---------- ----------
Net income (loss)............... 401,965 346,166 (168,430)
Accretion on Series A mandatorily
redeemable convertible preferred
stock.......................... (149,646) (149,646) --
---------- ---------- ----------
Net income (loss) available to
common shareholders.............. $ 252,319 $ 196,520 $ (168,430)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
DIGITAL PLANET
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock
------------------ Additional
Shares Paid-in Accumulated
Outstanding Amount Capital Deficit Total
----------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, September 30,
1996................... 9,579,500 $9,580 $48,838 $(1,436,003) $(1,377,585)
Accretion on Series A
mandatorily redeemable
convertible preferred
stock.................. -- -- -- (149,646) (149,646)
Net income............ -- -- -- 401,965 401,965
--------- ------ ------- ----------- -----------
Balance, September 30,
1997................... 9,579,500 9,580 48,838 (1,183,684) (1,125,266)
Exercise of stock
options (unaudited).... 500 250 -- -- 250
Net loss (unaudited).. -- -- -- (168,430) (168,430)
--------- ------ ------- ----------- -----------
Balance, March 31, 1998
(unaudited)............ 9,580,000 $9,830 $48,838 $(1,352,114) $(1,293,446)
========= ====== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE>
DIGITAL PLANET
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months
For the year ended
ended March 31,
September 30, --------------------
1997 1997 1998
------------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)......................... $ 401,965 $ 346,166 $(168,430)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities
Depreciation and amortization............ 45,277 11,319 36,658
Changes in operating assets and
liabilities
Accounts receivable..................... (194,908) (81,190) (168,773)
Costs and estimated earnings in excess
of billings on uncompleted contracts... (92,091) -- 92,091
Other assets............................ (44,429) (2,537) 19,222
Accounts payable and accrued expenses... 263,579 (12,357) (23,506)
Billings in excess of costs and
estimated earnings on uncompleted
contracts.............................. (819,073) (239,143) 51,038
Deferred rent........................... -- -- 28,131
--------- --------- ---------
Net cash (used in) provided by
operating activities.................. (439,680) 22,258 (133,569)
--------- --------- ---------
Cash flows from investing activities
Capital expenditures...................... (97,679) (10,855) (185,810)
Other..................................... (8,060) -- --
--------- --------- ---------
Net cash used in investing activities.. (105,739) (10,855) (185,810)
--------- --------- ---------
Cash flows from financing activities
Proceeds from factored accounts
receivable............................... 167,081 -- 87,250
Payments on revolving line of credit...... (50,000) -- --
Payments on capital leases................ (10,353) (2,588) (4,202)
Payments on short-term borrowings......... (85,846) (24,711) (2,972)
Proceeds from short-term borrowings....... 500,000 -- 250,000
Proceeds from exercise of stock options... -- -- 250
--------- --------- ---------
Net cash provided by (used in)
financing activities.................. 520,882 (27,299) 330,326
--------- --------- ---------
Net (decrease) increase in cash........ (24,537) (15,896) 10,947
Cash, beginning of period.................. 111,892 111,892 87,355
--------- --------- ---------
Cash, end of period........................ $ 87,355 $ 95,996 $ 98,302
========= ========= =========
Supplemental disclosures of cash flow
information
Cash paid during the period for interest.. $ 38,898 $ 11,867 $ 65,023
========= ========= =========
Cash paid during the period for income
taxes.................................... $ 800 $ -- $ --
========= ========= =========
Non-cash investing and financing activities
Accretion on Series A mandatorily
redeemable convertible preferred stock... $ 149,646 $ 149,646 $ --
========= ========= =========
Acquisition of equipment through capital
leases.................................... $ -- $ -- $ 112,944
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
DIGITAL PLANET
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of business
Digital Planet (the "Company") was incorporated on October 26, 1994 in
California and is engaged in the development of consumer-oriented content for
the World Wide Web and other media. The Company's customers are located
throughout the United States.
Significant accounting policies
Revenue recognition
Revenue from service contracts is recognized over the contractual period
using the percentage-of-completion method based on when services are performed.
Advance billings in excess of costs represent deferred revenue and are recorded
as billings in excess of costs and estimated earnings on uncompleted contracts.
Unbilled receivables in excess of billings represent earned revenues and are
recorded as costs and estimated earnings in excess of billings on uncompleted
contracts. Revenue for services in which reasonable estimates to complete could
not be made is recognized upon completion and when all remaining obligations
are not significant. Operating expenses, including indirect costs and
administrative expenses, are charged to income as incurred and are not
allocated to contract costs. Any anticipated losses on contracts are charged to
earnings when identified.
Equipment
Equipment is recorded at cost, less accumulated depreciation.
Expenditures for renewals and improvements that significantly add to the
productive capacity or extend the useful life of an asset are capitalized.
Expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation expense is provided on the straight-line method over the estimated
useful lives for purchased assets, which range from 3 to 7 years. Equipment
held under capital lease is amortized on the straight-line method over the
lesser of the useful life or the lease term. Leasehold improvements are
amortized using the straight-line method over the lesser of the useful life or
the lease term.
Income taxes
The Company has applied the asset and liability approach of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," for
financial accounting and reporting purposes. The Company accounts for certain
items of income and expense in different time periods for financial reporting
and income tax purposes. Provisions for deferred income taxes are made in
recognition of such temporary differences, where applicable. A valuation
allowance is established against deferred tax assets unless the Company
believes it is more likely than not that the benefit will be realized.
Stock-based compensation
The Company has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and related Interpretations and has elected the disclosure option of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (FAS 123). Accordingly, compensation cost for stock options
is measured as the excess, if any, of the fair value of the Company's stock at
the date of the grant over the amount an employee must pay to acquire the
stock.
F-56
<PAGE>
DIGITAL PLANET
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fair value of financial instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable, accrued expenses and mandatorily redeemable
convertible preferred stock approximate fair value. The carrying amount of
borrowings approximate fair value based on current rates of interest available
to the Company for loans of similar maturities.
Comprehensive income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires entities to report comprehensive income, which
represents the change in equity during a period from non-owner sources. The
Company has not incurred any such activity other than the net income (loss) for
all periods presented.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses during the reporting period. Actual results could differ from
those estimates and could materially affect the reported amounts of assets,
liabilities and future operating results.
Interim financial information
The accompanying financial statements and related notes as of March 31,
1998 and for the six months ended March 31, 1997 and 1998 are unaudited. In the
opinion of management, the unaudited interim financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the Company's financial position as of March 31, 1998 and the
results of the Company's operations and its cash flows for the six months ended
March 31, 1997 and 1998. The results for the six months ended March 31, 1998
are not necessarily indicative of the results to be expected for the year
ending September 30, 1998.
2. Equipment
Equipment consists of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1997 1998
------------- -----------
(unaudited)
<S> <C> <C>
Computer equipment................................ $253,608 $468,297
Computer software................................. 20,483 24,982
Leasehold improvements............................ 12,361 91,926
-------- --------
286,452 585,205
Less accumulated depreciation and amortization.... (97,893) (134,429)
-------- --------
Equipment, net.................................... $188,559 $450,776
======== ========
</TABLE>
At September 30, 1997 and March 31, 1998, the Company had equipment under
capital lease, net of amortization, of $25,066 and $131,518, respectively.
F-57
<PAGE>
DIGITAL PLANET
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Borrowings
Borrowings consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1997 1998
------------- -----------
(unaudited)
<S> <C> <C>
Note payable, unsecured, due March 1, 1998 which
provides for payment of the principal balance,
plus interest accrued at prime plus 2%......... $ 500,000 $ 500,000
Note payable, unsecured, due April 15, 1998
which provides for payment of the principal
balance plus interest accrued at 12%........... -- 250,000
Capital lease obligations, payable in monthly
instalments of $156 to $1,083 expiring from
1998 to 2003, collateralized by equipment with
a net book value of $25,066 and $131,518 at
September 30, 1997 and March 31, 1998,
respectively................................... 17,942 126,685
Borrowing, secured by factored accounts
receivable..................................... 167,081 254,331
Note payable to shareholder, unsecured, which
provides for periodic principal payments of
$500 to $1,500 plus interest at 10%. The note
was repaid in May 1998......................... 55,659 56,014
Note payable to an officer, unsecured, which
provides for monthly interest only payments at
10%. The note was repaid in May 1998........... 10,786 8,339
Note payable to shareholder, unsecured, which
provides for monthly interest only payments at
10%. The note was repaid in May 1998........... 28,699 27,818
--------- -----------
780,167 1,223,187
Less current maturities......................... (772,161) (1,122,681)
--------- -----------
Long-term portion............................... $ 8,006 $ 100,506
========= ===========
</TABLE>
Total interest expense recognized by the Company for the year ended
September 30, 1997 and the six months ended March 31, 1998 was $60,639 and
$97,902, respectively, including $34,905 and $38,381, respectively, recognized
with respect to related party borrowings. The Company maintained a $50,000 line
of credit which expired and was repaid on July 1, 1997.
The $500,000 note payable was issued pursuant to an agreement with a
private investor and included a detachable warrant to purchase up to 166,667
shares of the Company's common stock for $3 per share through April 2000 (see
Note 6). The value of the warrants was not material. The note was repaid with
proceeds from the sale of the Company to iXL Enterprises, Inc. (see Note 11).
The warrant was not exercised. On July 25, 1997, the Company entered into an
agreement with a bank whereby the Company sold certain qualified accounts
receivable to the bank, with recourse, for the amount of the accounts
receivable less fees and interest. Fees are calculated at 1% of the amount of
the accounts receivable at the date of sale. Interest is calculated as 0.1% of
the amount of the outstanding balance for each day the accounts receivable are
outstanding. As of May 12, 1998, all of the factored accounts receivable had
been collected from the customer.
On January 14, 1998, the Company entered into an agreement with iXL
Enterprises, Inc. to borrow $250,000 pursuant to a note which accrues interest
at 12% per year.
F-58
<PAGE>
DIGITAL PLANET
NOTES TO FINANCIAL STATEMENTS--(Continued)
The aggregate maturities required on borrowings including capital lease
obligations are as follows:
<TABLE>
<CAPTION>
Year ending September 30,
-------------------------
<S> <C>
1998............................................................. $774,500
1999............................................................. 7,625
2000............................................................. 1,271
--------
783,396
Less amounts representing interest on capital leases............... (3,229)
--------
$780,167
========
</TABLE>
4. Income Taxes
At September 30, 1997, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $204,000. The carryforwards
expire in varying amounts in 2003 through 2013. A valuation allowance has been
established against the benefit of the net operating loss carryforwards and
other deferred tax assets which the Company does not believe are more likely
than not to be realized. Under the Tax Reform Act of 1986, the amount of and
the benefit from federal net operating losses that can be carried forward may
be limited in certain circumstances. Events which may cause changes in the
Company's tax carryovers include, but are not limited to, a cumulative
ownership change of more than 50% over a three-year period.
The income tax provision differs from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax income for
the year ended September 30, 1997 due to the utilization of net operating loss
carryforwards which had been previously reserved for.
5. Series A Mandatorily Redeemable Convertible Preferred Stock
In June 1996, the Company entered into an agreement to issue 811,597
shares of Series A 8% Mandatorily Redeemable Convertible Preferred Stock and
1,154,566 Preferred Stock Warrants in return for the termination of a loan,
advances and the cancellation of previously issued warrants with a combined
carrying value totaling $511,306. The aggregate authorized number of preferred
shares is 10,000,000 of which 1,966,163 are designated as Series A Mandatorily
Redeemable Convertible Preferred Stock ("Series A Preferred Stock") with
811,597 shares issued and outstanding at September 30, 1997 and March 31,
1998.
Each share of Series A Preferred Stock outstanding is convertible at the
option of the holder into one share of common stock, subject to certain
adjustments, and automatically converts upon the completion of an underwritten
public offering of common stock with gross proceeds of at least $7.5 million
and a public offering price of not less than $2.52 per share.
The holders of the Series A Preferred Stock are entitled to receive
their original issuance price of $0.63 per share in liquidation, plus an
amount equal to all declared but unpaid dividends, prior and in preference to
any distribution to the holders of common stock. At September 30, 1997 and
March 31, 1998, the aggregate liquidation value of the Series A Preferred
Stock is $511,306. Each share of preferred stock is redeemable at the option
of the holder for $613,567 (120% of its original issuance price) any time
after January 1, 1997.
F-59
<PAGE>
DIGITAL PLANET
NOTES TO FINANCIAL STATEMENTS--(Continued)
The holders of the preferred stock are entitled to elect two members to
the Board of Directors and have voting rights equal to common stock on an if-
converted basis. Preferred stockholders also are entitled to receive
noncumulative dividends in preference to any dividends on common stock at a
rate per share equal to 8% of the original per share value. No dividends have
been declared as of September 30, 1997 or March 31, 1998. The Company is
restricted from authorizing or creating any new class or series of stock which
has a preference over or is equal to the preferred stock.
The 1,154,566 Preferred Stock Warrants allow the holders to purchase
1,154,566 shares of the Company's Series A Preferred Stock at $0.63 per share
subject to adjustment upon the occurrence of certain events as defined in the
agreement. The warrants are exercisable through the earlier of July 10, 1999 or
a public offering, as defined, and provide for certain registration rights.
In May 1998, the Company purchased all of the outstanding Series A
Preferred Stock and Preferred Stock Warrants from the holders.
The combined carrying value of $511,306 was allocated between the Series
A Preferred Stock and the Preferred Stock Warrants based upon the relative fair
value of each instrument. The value allocated to the warrants was $161,639 and
the amount allocated to the stock was $349,667. The Series A Preferred Stock
carrying value was increased such that at January 1, 1997, when the stock can
be redeemed, it is stated at its redemption value. The Company has recorded
this accretion using the effective interest method by increasing the value of
the Series A Preferred Stock and increasing the accumulated deficit.
Mandatorily redeemable preferred stock activity consists of the following
for the year ended September 30, 1997:
<TABLE>
<S> <C>
Balance at September 30, 1996...................................... $463,921
Accretion to redemption value.................................... 149,646
--------
Balance at September 30, 1997...................................... $613,567
========
</TABLE>
6. Common Stock Warrants
As of both September 30, 1997 and March 31, 1998, the Company had
warrants outstanding held by a customer and a private lender (see Note 3) which
allowed the holders to purchase 348,842 and 166,667 shares of the Company's
common stock, respectively, at a weighted-average price of $1.18 and $3.00 per
share, respectively. The customer warrants were issued in May 1996 and were
allocated a value of approximately $49,000.
7. Employee Benefits
Stock option plan
In June 1996, the Company adopted a stock option plan which provides for
the grant of incentive and nonqualified options to officers, other key
employees of the Company and certain directors and consultants to purchase up
to 421,500 shares of the Company's common stock. On January 1, 1998, the number
of authorized shares was increased to 1,000,000. Options are granted at prices
equal to at least 100% of the fair market value of the stock at the date of
grant, expire no later than ten years from the date of grant and become
exercisable as the Board of Directors determines. At September 30, 1997 and
March 31, 1998, respectively, 387,457 and 990,700 stock options were
outstanding with exercise prices ranging from $0.50 to $6.00 per share.
F-60
<PAGE>
DIGITAL PLANET
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes stock option activity for the year ended
September 30, 1997:
<TABLE>
<CAPTION>
September 30,
1997
-----------------
Weighted
Average
Exercise
Options Price
------- --------
<S> <C> <C>
Outstanding, beginning of year............................. 290,457 $0.55
Granted.................................................... 145,000 $2.00
Exercised.................................................. -- --
Forfeited.................................................. (48,000) $1.24
Outstanding, end of year................................... 387,457 $1.01
------- -----
Options exercisable at end of year......................... 58,091 $0.55
======= =====
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ----------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
at Remaining Average at Average
September 30, Contractual Exercise September 30, Exercise
Range of Exercise Prices 1997 Life Price 1997 Price
------------------------ ------------- ----------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
$0.50................... 175,000 3.66 $0.50 35,000 $0.50
$0.63................... 115,457 3.92 $0.63 23,091 $0.63
$1.24................... 55,000 2.16 $1.24 -- --
$3.00................... 30,000 4.54 $3.00 -- --
$6.00................... 12,000 4.58 $6.00 -- --
------- ------
387,457 58,091
======= ======
</TABLE>
The Company granted 729,200 options during the six months ended March 31,
1998. The Company applies APB Opinion No. 25 and related Interpretations in
accounting for the plan. During the year ended September 30, 1997 and the six
months ended March 31, 1998, no compensation cost was recognized for the
issuance of stock options under the Company's plan. Had compensation cost for
the Company's stock option plan been determined based on the fair value method
as described in Financial Accounting StandardsNo. 123, "Accounting for Stock-
Based Compensation," there would not be a material difference from the
Company's reported results of operations.
401(k) savings plan
Effective January 1, 1996, the Company established a 401(k) plan for
substantially all employees over the age of 21 with more than six months of
service as defined by the plan. The plan allows for discretionary employer
matching contribution up to 4% of the employees' compensation, subject to
limitations. The matching contributions made during the year ended September
30, 1997 and the six months ended March 31, 1998 were not material.
8. Related Party Transactions
During the year ended September 30, 1997 and the six months ended March
31, 1998, the Company performed services for one of its Series A Preferred
Stock investors and recognized revenue in the amount of $615,640 and $40,000,
respectively.
F-61
<PAGE>
DIGITAL PLANET
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Concentrations of Credit Risk
Net sales for the year ended September 30, 1997 for several major
customers, together with the receivable due from each customer, are presented
below. The Company does not obtain, nor require, any collateral or other
security instruments related to these balances.
<TABLE>
<CAPTION>
September 30, 1997
---------------------
Accounts
Amount of Receivable
Customer Net Sales Balance
-------- ---------- ----------
<S> <C> <C>
A.................................................... $ 458,400 $ --
B (related party, see Note 8)........................ 615,640 5,000
C.................................................... 1,082,537 139,323
D.................................................... 1,143,973 315,899
---------- --------
$3,300,550 $460,222
========== ========
</TABLE>
10. Commitments
Future minimum lease payments under non-cancelable operating leases as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending September 30,
-------------------------
<S> <C>
1998.............................................................. $118,806
1999.............................................................. 183,450
2000.............................................................. 195,483
2001.............................................................. 207,510
2002.............................................................. 219,543
Thereafter........................................................ 55,638
--------
Total minimum lease payments...................................... $980,430
========
</TABLE>
The Company's operating leases are primarily for office equipment and the
Company's office facility. Rental expense under operating leases for the year
ended September 30, 1997 and the six months ended March 31, 1998 totaled
approximately $223,000 and $127,000, respectively.
11. Subsequent Events
On May 12, 1998, the Company was acquired by iXL Enterprises, Inc.
F-62
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
iXL Enterprises, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in shareholders' deficit, and of cash flows present
fairly, in all material respects, the financial position of Micro Interactive,
Inc. at December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
June 26, 1998
F-63
<PAGE>
MICRO INTERACTIVE, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash................................................ $ 203,414 $ 91,994
Accounts receivable................................. 651,239 521,407
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 371,300 300,133
Prepaid expenses.................................... 56,944 69,569
---------- ----------
Total current assets.............................. 1,282,897 983,103
Property and equipment, net........................... 113,936 106,248
Other assets.......................................... 49,617 49,617
---------- ----------
Total assets...................................... $1,446,450 $1,138,968
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable.................................... $ 139,399 $ 94,954
Accrued expenses.................................... 79,758 40,450
Accrued payroll..................................... 80,900 80,900
Borrowings under line of credit..................... -- 25,000
Current portion of long-term debt................... 244,444 215,277
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 675,000 441,372
Current portion of capital lease obligations........ 29,000 31,000
---------- ----------
Total current liabilities......................... 1,248,501 928,953
Due to related parties................................ 250,000 250,000
Deferred rent......................................... 89,713 89,713
Capital lease obligations............................. 16,000 14,000
---------- ----------
Total liabilities................................. 1,604,214 1,282,666
---------- ----------
Shareholders' deficit
Common stock, $.01 par value; 3,000,000 shares
authorized; 796,000 shares issued and outstanding.. 7,960 7,960
Additional paid-in capital.......................... 350,240 350,240
Accumulated deficit................................. (515,964) (501,898)
---------- ----------
Total shareholders' deficit....................... (157,764) (143,698)
---------- ----------
Commitments
---------- ----------
Total liabilities and shareholders' deficit....... $1,446,450 $1,138,968
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
MICRO INTERACTIVE, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the three
For the year months ended March
ended 31,
December 31, -------------------
1997 1997 1998
------------ ---------- --------
(unaudited)
<S> <C> <C> <C>
Revenues..................................... $3,220,300 $1,116,206 $870,837
Cost of revenues............................. 1,788,706 679,279 506,968
---------- ---------- --------
Gross profit............................... 1,431,594 436,927 363,869
Selling, general and administrative
expenses.................................... 1,466,786 297,090 291,431
Depreciation and amortization................ 88,455 40,700 45,357
---------- ---------- --------
(Loss) income from operations.............. (123,647) 99,137 27,081
Interest expense, net........................ 37,549 2,751 10,648
---------- ---------- --------
(Loss) income before income taxes.......... (161,196) 96,386 16,433
Income tax provision......................... 3,900 855 2,367
---------- ---------- --------
Net (loss) income.......................... $ (165,096) $ 95,531 $ 14,066
========== ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
MICRO INTERACTIVE, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock
------------------ Additional
Shares Paid-in Accumulated
Outstanding Amount Capital Deficit Total
----------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1996.................... 750,000 $7,500 $ 17,500 $(288,268) $(263,268)
Distributions to
shareholders............ -- -- -- (62,600) (62,600)
Issuance of common stock,
net of stock issuance
costs................... 46,000 460 332,740 -- 333,200
Net loss............... -- -- -- (165,096) (165,096)
------- ------ -------- --------- ---------
Balance, December 31,
1997.................... 796,000 7,960 350,240 (515,964) (157,764)
Net income
(unaudited)........... -- -- -- 14,066 14,066
------- ------ -------- --------- ---------
Balance, March 31, 1998
(unaudited)............. 796,000 $7,960 $350,240 $(501,898) $(143,698)
======= ====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
MICRO INTERACTIVE, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the
three months
For the ended
year ended March 31,
December 31, ------------------
1997 1997 1998
------------ -------- --------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net (loss) income............................ $(165,096) $ 95,531 $ 14,066
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities
Depreciation and amortization............... 88,655 40,700 45,357
Non cash charge to operations............... 33,280 -- --
Changes in operating assets and liabilities
Accounts receivable........................ (105,604) 253,849 129,832
Costs and estimated earnings in excess of
billings on uncompleted contracts......... (125,300) 215,604 71,167
Accounts payable and accrued expenses...... (66,557) (137,908) (83,753)
Deferred rent.............................. 42,113 -- --
Billings in excess of costs and estimated
earnings on uncompleted contracts......... 235,700 (385,022) (233,628)
Other assets............................... (41,705) 51 (12,625)
--------- -------- --------
Net cash provided by (used in) operating
activities............................... (104,514) 82,805 (69,584)
--------- -------- --------
Cash flows from investing activities
Capital expenditures......................... (46,060) (13,431) (27,319)
--------- -------- --------
Net cash used in investing activities..... (46,060) (13,431) (27,319)
--------- -------- --------
Cash flows from financing activities
Proceeds (payments) on revolving line of
credit, net................................. (128,000) -- 25,000
Payments on long-term debt................... (75,000) (8,333) (29,167)
Proceeds from issuance of debt............... 250,000 -- --
Proceeds from issuance of common stock....... 299,920 -- --
Payments on capital leases................... (54,375) (10,200) (10,350)
Distributions to shareholders................ (62,600) (43,600) --
--------- -------- --------
Net cash provided by (used in) financing
activities............................... 229,945 (62,133) (14,517)
--------- -------- --------
Net increase (decrease) in cash........... 79,371 7,241 (111,420)
Cash, beginning of period..................... 124,043 124,043 203,414
Cash, end of period .......................... $ 203,414 $131,284 $ 91,994
========= ======== ========
Supplemental disclosures of cash flow
information
Cash paid during the period for interest..... $ 44,763 $ 4,931 $ 5,075
========= ======== ========
Non-cash investing and financing activities
Acquisition of equipment through capital
leases...................................... $ 18,175 $ 5,400 $ 9,500
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
MICRO INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of business
Micro Interactive, Inc. (the Company) designs and produces interactive
multimedia software applications, primarily on CD-ROM, for use by worldwide
companies in connection with corporate communications, marketing, sales
publicity and training.
Significant accounting policies
Revenue recognition
The Company records revenues based on the completed contract method.
Accordingly, revenue is recognized only when all remaining obligations are not
significant. All related billings and costs for uncompleted contracts have been
deferred as billings on uncompleted contracts and costs on uncompleted
contracts.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Equipment
Equipment is recorded at cost, less accumulated depreciation.
Expenditures for renewals and improvements that significantly add to the
productive capacity or extend the useful life of an asset are capitalized.
Expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation expense is provided on the straight-line method over the estimated
useful lives for purchased assets, which range from 5 to 7 years. Equipment
held under capital leases is amortized on the straight-line method over the
lesser of the useful life or the lease term.
Income taxes
The Company has elected to be taxed as an S Corporation for Federal and
State tax purposes, whereby the Company's taxable income accrues directly to
the shareholders. The Company remains subject to New York City and New York
State S Corporation taxes.
Stock-based compensation
The Company has elected to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations and has elected to elect the disclosure option of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair value of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
F-68
<PAGE>
MICRO INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fair value of financial instruments
The carrying amounts of financial instruments including cash, cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximate fair value. The carrying amount of long-term debt approximates fair
value based on current rates of interest available to the Company for loans of
similar maturities.
Comprehensive income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires entities to report comprehensive income which
represents the change in equity during a period from non-owner sources. The
Company has not incurred any such activity other than its net income (loss) for
all periods presented.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses during the reporting period. Actual results could differ from
those estimates and could materially affect the reported amounts of assets,
liabilities and future operating results.
Interim Financial Information
The accompanying financial statements and related notes as of March 31,
1998 and for the three months ended March 31, 1997 and 1998 are unaudited. In
the opinion of management, the unaudited interim financial statements have been
prepared on the same basis as the audited financial statements and reflect all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the financial position as of March 31, 1998, and the results of
the Company's operations and its cash flows for the three months ended March
31, 1997 and 1998. The results for the three months ended March 31, 1998 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1998.
2. Equipment
Equipment consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Furniture and fixtures............................. $ 76,668 $ 77,229
Computers and related equipment.................... 349,545 363,778
Leasehold improvements............................. 21,815 21,815
--------- ---------
448,028 462,822
Less accumulated depreciation and amortization..... (334,092) (356,574)
--------- ---------
Equipment, net..................................... $ 113,936 $ 106,248
========= =========
</TABLE>
At December 31, 1997, the Company had equipment under capital lease, net
of related amortization, of $27,300.
F-69
<PAGE>
MICRO INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Concentrations of Credit Risk
For the year ended December 31, 1997, two customers (one through multiple
operating divisions located in various countries worldwide) accounted for
approximately 37.5% and 10.5% of total revenues, respectively.
4. Borrowings
Borrowings consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Term loans due to bank payable in monthly
principal instalments of $9,722 through January
1999, thereafter $6,944 through June 2000...... $244,444 $215,277
Notes payable to related parties due March 22,
2000........................................... 250,000 250,000
-------- --------
$494,444 $465,277
======== ========
</TABLE>
Revolving line of credit
The Company had a line of credit with the Bank of New York as of December
31, 1996 which allowed for advances up to $250,000 and expired on May 30, 1997.
On May 30, 1997, the Company entered into a new agreement with the same bank
which increased the line of credit to $500,000 allowing for advances in
increments of $25,000 and expiring on May 30, 1998. The line of credit is
payable on demand and bears interest at the bank's prime rate plus 1 3/4% (10
1/4% at December 31, 1997). The line of credit is secured by the Company's
assets. Amounts outstanding under the agreement at December 31, 1997 and March
31, 1998 were $0 and $25,000, respectively.
Term loans
On January 25, 1996, the Company entered into an agreement with the bank
of New York to borrow $100,000. The note is secured by the Company's assets and
bears interest at the bank's prime rate plus 1 3/4% and is payable in monthly
instalments of $2,778 through January 1999.
On May 30, 1997, the Company entered into an agreement with the Bank of
New York to increase its borrowings to $250,000. The note is secured by the
Company's assets and bears interest at the bank's prime rate plus 1 3/4%. The
loan is payable in monthly instalments of $6,944 through June 2000. The Company
is subject to certain covenants under the bank debt agreement, including
maintaining working capital and tangible net worth requirements, among others.
As of December 31, 1997, the Company had violated certain of these covenants.
The Company did not obtain waivers for these violations; however, the Company
repaid these borrowings subsequent to year end. As a result of the covenant
violation, the amount of the term loans outstanding as of December 31, 1997 is
classified as current.
Related party debt
In 1995, the Company entered into loan agreements with two related
parties. These loans in the amounts of $137,500 and $112,500 bear interest at
rates of 6 1/8% and 8 3/4%, respectively, and are due March 22, 2000. These
loans are subordinate to the term loans and line of credit with Bank of New
York.
F-70
<PAGE>
MICRO INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Interest expense recognized with respect to these borrowings for the year
ended December 31, 1997 was $21,098.
The aggregate maturities required on borrowings and capital lease
obligations as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1998........................................................... $276,237
1999........................................................... 11,694
2000........................................................... 254,385
2001........................................................... 1,461
Less amounts representing interest on capital leases........... (4,333)
--------
$539,444
========
</TABLE>
5. Private Placement Offering
In June 1997, the Company sold 46,000 shares of common stock for
$299,920. Five of the six investors purchased shares of stock at $8.33 per
share with the remaining investor (a related party) purchasing 16,000 shares at
$6.25 per share pursuant to a warrant issued contemporaneously with the
offering. The Company has recorded a charge to operations of $33,280 to reflect
the lower share price paid by this investor. The Company issued 6,000 of the
46,000 shares to its legal counsel as payment for legal services rendered in
connection with the offering. Such costs have been netted against the proceeds
raised.
6. 1996 Stock Option Plan
The Company's 1996 Stock Option Plan provides for the granting to certain
employees as incentive stock options the purchase of up to 50,000 shares of the
Company's common stock. Options are exercisable over the exercise period (which
shall not exceed ten years from the date of grant) at such times and upon such
conditions as the stock option committee may determine. Options are granted at
fair market value as determined by the stock option committee except for stock
options to 10% or more shareholders, for whom the option price must be at least
110% of the fair market value.
Had compensation cost for the Company's plan been determined based on the
fair value at the grant date consistent with the provisions of FAS 123, the
Company's net loss would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Net loss
As reported................................................. $(131,816)
Pro forma................................................... $(146,824)
</TABLE>
The minimum value of each option is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants during 1997; dividend yield of 0% for the period;
expected volatility of 0% for the period; average risk free interest rate 6.4%;
expected life of 4.5 years for the period.
F-71
<PAGE>
MICRO INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
A summary of stock option activity as of and for the year ended December
31, 1997, is as follows:
<TABLE>
<CAPTION>
December 31,
1997
-----------------
Weighted
Average
Exercise
Options Price
------- --------
<S> <C> <C>
Outstanding at beginning of year......................... 11,000 $10.00
Granted.................................................. 16,500 $ 8.33
Forfeited................................................ (7,000) $10.00
------
Outstanding at end of year............................... 20,500 $ 9.06
======
Options exercisable at end of year....................... 6,500 $ 8.59
------
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- --------------------------
Weighted
Average Weighted
Number Remaining Number Average
Range of Outstanding at Contractual Exercisable at Exercise
Exercise Prices December 31, 1997 Life December 31, 1997 Price
--------------- ----------------- ----------- ----------------- --------
<S> <C> <C> <C> <C>
$ 8.33 11,500 9.58 5,500 $ 8.33
$10.00 9,000 8.64 1,000 $10.00
------ -----
20,500 6,500 $ 8.59
====== =====
</TABLE>
7. Commitments
The Company leases its office under an operating lease which expires
December 2001. The lease provides for escalations for increases in real estate
taxes and operating expenses. Operating lease expense charged for the year
ended December 31, 1997 (consisting of the office lease) was $178,280. The
aggregate minimum rentals remaining through dates of expiration payable over
the next four years are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1998........................................................... $184,900
1999........................................................... 184,900
2000........................................................... 184,900
2001........................................................... 184,900
--------
Total minimum lease payments................................... $739,600
========
</TABLE>
8. Subsequent Event
On May 8, 1998, the Company was acquired by iXL Enterprises, Inc.
F-72
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
iXL Enterprises, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in shareholders' equity (deficit), and of cash flows
present fairly, in all material respects, the financial position of
CommerceWave, Inc. at December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
August 21, 1998
F-73
<PAGE>
COMMERCEWAVE, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash................................................ $ 277,080 $ 1,251
Accounts receivable less allowance for doubtful
accounts of $64,750 and $54,331, respectively...... 399,903 195,250
Other current assets................................ 12,131 2,400
--------- ---------
Total current assets.............................. 689,114 198,901
Equipment, net........................................ 167,086 150,614
Other assets.......................................... 22,929 14,719
--------- ---------
Total assets...................................... $ 879,129 $ 364,234
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.................................... $ 225,225 $ 188,142
Accrued expenses.................................... 122,508 143,781
Current portion of notes payable and capital lease
obligations........................................ 402,510 372,401
Advances from related parties....................... 27,770 71,276
--------- ---------
Total current liabilities......................... 778,013 775,600
Notes payable and capital lease obligations........... 24,659 25,454
--------- ---------
Total liabilities................................. 802,672 801,054
--------- ---------
Shareholders' equity (deficit)
Preferred stock, Series A, no par value; 4,050,405
shares authorized, issued and outstanding.......... 861,000 861,000
Common stock, no par value; 24,000,000 shares
authorized; 8,000,000 shares issued and
outstanding........................................ 20,000 20,000
Additional paid-in capital.......................... (613,663) (554,663)
Accumulated deficit................................. (190,880) (763,157)
--------- ---------
Total shareholders' equity (deficit).............. 76,457 (436,820)
--------- ---------
Commitments
--------- ---------
Total liabilities and shareholders' equity
(deficit)........................................ $ 879,129 $ 364,234
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE>
COMMERCEWAVE, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the six months ended
For the year ended June 30,
December 31, 1997 1997 1998
------------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Revenues....................... $1,636,614 $ 669,644 $ 563,438
Cost of revenues............... 760,673 335,300 438,866
---------- ------------ ------------
Gross profit................. 875,941 334,344 124,572
Selling, general and
administrative expenses....... 1,093,551 510,251 635,111
Depreciation and amortization.. 65,294 28,129 33,971
Research and development
expenses...................... 151,568 118,380 5,147
---------- ------------ ------------
Loss from operations......... (434,472) (322,416) (549,657)
Interest expense, net.......... (55,044) (32,303) (21,820)
Other income................... 32,204 12,451 --
---------- ------------ ------------
Loss before income taxes..... (457,312) (342,268) (571,477)
Income tax provision........... 800 800 800
---------- ------------ ------------
Net loss..................... $ (458,112) $ (343,068) $ (572,277)
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
COMMERCEWAVE, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------------- -------------------- Additional
Shares Shares Paid-in Accumulated
Outstanding Amount Outstanding Amount Capital Deficit Total
----------- ------- ----------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... 8,000,000 $20,000 -- -- -- $(346,431) $(326,431)
Sale of preferred stock,
net of issuance costs.. -- -- 4,050,405 $861,000 -- -- 861,000
Net loss under S
Corporation tax status
(January 1, 1997
through July 31,
1997).................. -- -- -- -- -- (267,232) (267,232)
S Corporation to C
Corporation conversion
effective August 1,
1997................... -- -- -- -- $(613,663) 613,663 --
Net loss under C
Corporation tax status
(August 1, 1997 through
December 31, 1997)..... -- -- -- -- -- (190,880) (190,880)
--------- ------- --------- -------- --------- --------- ---------
Balance, December 31,
1997................... 8,000,000 20,000 4,050,405 861,000 (613,663) (190,880) 76,457
Stock compensation
(unaudited)............ -- -- -- -- 59,000 -- 59,000
Net loss (unaudited).... -- -- -- -- -- (572,277) (572,277)
--------- ------- --------- -------- --------- --------- ---------
Balance, June 30 1998
(unaudited)............ 8,000,000 $20,000 4,050,405 $861,000 $(554,663) $(763,157) $(436,820)
========= ======= ========= ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE>
COMMERCEWAVE, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months
For the year ended
ended June 30,
December 31, --------------------
1997 1997 1998
------------ --------- ---------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net loss................................... $(458,112) $(343,068) $(572,277)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities
Depreciation and amortization............. 65,294 28,129 33,971
Stock compensation expense................ -- -- 59,000
Change in operating assets and liabilities
Accounts receivable...................... (174,711) 105,197 204,653
Other assets............................. (7,304) (4,821) 9,209
Accounts payable and accrued expenses.... 76,830 22,832 (15,809)
--------- --------- ---------
Net cash used in operating activities... (498,003) (191,731) (281,253)
--------- --------- ---------
Cash flows from investing activities
Capital expenditures....................... (19,072) (3,469)
--------- --------- ---------
Net cash used in investing activities... (19,072) -- (3,469)
--------- --------- ---------
Cash flows from financing activities
Payments on notes payable and capital
leases.................................... (114,973) (43,784) (34,614)
Proceeds from sale of preferred stock...... 861,000 -- --
Proceeds from advances from related
parties................................... 17,770 222,609 43,506
--------- --------- ---------
Net cash provided by financing
activities............................. 763,797 178,825 8,892
--------- --------- ---------
Net increase (decrease) in cash......... 246,722 (12,906) (275,830)
Cash, beginning of period................... 30,358 30,358 277,081
--------- --------- ---------
Cash, end of period......................... $ 277,080 $ 17,452 $ 1,251
========= ========= =========
Supplemental disclosures of cash flow
information
Cash paid during the period for interest... $ 17,733 $ 8,867 $ 7,975
========= ========= =========
Cash paid during the period for income
taxes..................................... $ 800 $ -- $ --
========= ========= =========
Non-cash investing and financing activities
Acquisition of equipment through capital
leases.................................... $ 34,366 $ 12,553 $ 5,299
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE>
COMMERCEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of business
CommerceWave, Inc. (the "Company") offers products and consulting
services related to electronic commerce. The Company markets a suite of
commerce solutions ranging from an Internet-based interactive commerce software
for merchants to transaction processing systems. The Company provides
consulting services in transaction processing, point-of-sale terminal
applications and Internet commerce solutions. Effective September 30, 1996, the
Board of Directors of the Company elected to change the Company's name
(formerly Professional Business Solutions, Inc.) to CommerceWave, Inc.
Significant accounting policies
Revenue recognition
Revenue from consulting services is recognized based on actual time
incurred which is billed at an agreed-upon hourly rate. Revenue from product
sales is recognized upon shipment of the product when the Company has no
significant obligations remaining. Revenue from software customizations is
recorded as services are provided. Maintenance revenue is recognized on a pro
rata basis over the terms of the maintenance agreements.
Equipment
Equipment is recorded at cost, less accumulated depreciation.
Expenditures for renewals and improvements that significantly add to the
productive capacity or extend the useful life of an asset are capitalized.
Expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation expense is provided on the straight-line method over the estimated
useful lives for purchased assets, which range from 3 to 5 years. Equipment
held under capital lease is amortized on the straight-line method over the
lesser of the useful life or the lease term.
Software development costs
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or otherwise
Marketed," software development costs are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers. To
date, the establishment of technological feasibility of the Company's products
and general release of such software have substantially coincided. As a result,
software development costs qualifying for capitalization have been
insignificant, and therefore, the Company has not capitalized any software
development costs.
Income taxes
The Company has applied the asset and liability approach of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" for
financial accounting and reporting purposes. The Company accounts for certain
items of income and expense in different time periods for financial reporting
and income tax purposes. Provisions for deferred income taxes are made in
recognition of such temporary differences, where applicable. A valuation
allowance is established against deferred tax assets unless the Company
believes it is more likely than not that the benefit will be realized.
F-78
<PAGE>
COMMERCEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-based compensation
The Company has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and related Interpretations and has elected the disclosure option of
Statement of Financial Accounting Standards No 123, "Accounting for Stock-Based
Compensation" (FAS 123). Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair value of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
Fair value of financial instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable and accrued expenses approximate fair value. The
carrying amounts of convertible notes payable and other borrowings approximate
fair value based on current rates of interest available to the Company for
loans of similar maturities.
Comprehensive income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires entities to report comprehensive income, which
represents the change in equity during a period from non-owner sources. The
Company has not incurred any such activity other than the net loss for all
periods presented.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses during the reporting period. Actual results could differ from
those estimates and could materially affect the reported amounts of assets,
liabilities and future operating results.
Interim financial information
The accompanying financial statements and related notes as of June 30,
1998 and for the six months ended June 30, 1997 and 1998 are unaudited. In the
opinion of management, these statements have been prepared on the same basis as
the audited financial statements and reflect all adjustments, which include
only normal recurring adjustments, necessary to present fairly the Company's
financial position as of June 30, 1998 and the results of the Company's
operations and its cash flows for the six months ended June 30, 1997 and 1998.
The results for the six months ended June 30, 1998 are not necessarily
indicative of the results to be expected for the year ending December 31, 1998.
F-79
<PAGE>
COMMERCEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Equipment
Equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Office furniture and equipment................... $ 45,103 $ 46,427
Computer equipment............................... 196,512 203,956
Computer software................................ 47,784 47,784
--------- ---------
289,399 298,167
Less accumulated depreciation and amortization... (122,313) (147,553)
--------- ---------
Equipment, net................................... $ 167,086 $ 150,614
========= =========
</TABLE>
Equipment held under capital lease is as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Office furniture and equipment.................... $ 23,228 $ 23,228
Computer equipment................................ 119,324 124,623
Computer software................................. 25,117 25,117
-------- --------
167,669 172,968
Less accumulated amortization..................... (67,008) (77,788)
-------- --------
Equipment, net.................................... $100,661 $ 95,180
======== ========
</TABLE>
Several of the Company's capital leases contain purchase options by which
the Company can purchase the equipment at the end of the lease term for $1.00.
3. Accrued Expenses
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Accrued vacation.................................. $ 43,936 $ 36,168
Accrued salaries.................................. 27,662 27,662
Accrued interest.................................. 37,825 53,688
Other............................................. 13,085 26,263
-------- --------
$122,508 $143,781
======== ========
</TABLE>
F-80
<PAGE>
COMMERCEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Borrowings
Borrowings consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Convertible note payable, unsecured, which
accrues interest at 8%.......................... $ 150,000 $ 150,000
Convertible note payable, unsecured, which
accrues interest at 8%.......................... 150,000 150,000
Convertible note payable, unsecured, which
accrues interest at 8%.......................... 50,000 50,000
Note payable to bank, which accrues interest at
prime plus 2% (10.5% at December 31, 1997) and
matures on February 15, 1998.................... 8,558 --
Capital leases, payable in monthly instalments of
$178 to $783 expiring from 1998 to 2000
collateralized by equipment with a net book
value of $100,661 and $95,180 at December 31,
1997 and June 30, 1998, respectively............ 68,611 47,855
--------- ---------
427,169 397,855
Less current maturities.......................... (402,510) (372,401)
--------- ---------
Long-term portion................................ $ 24,659 $ 25,454
========= =========
</TABLE>
In 1996 the Company issued three notes payable, as indicated in the table
above, for total proceeds to the Company of $350,000. The notes are convertible
into common stock upon the closing of an equity transaction in which the
consideration received by the Company is greater than $1,000,000 (the Equity
Transaction). The conversion rate is calculated as 80%, 83%, and 90%,
respectively, of the per share price paid by the investors in the Equity
Transaction but shall be no less than $8.45 per share. The notes payable were
repaid in conjunction with the Company's acquisition by iXL Enterprises, Inc.
(see Note 12).
The Company recognized interest expense of $64,250 and $28,148 for the
year ended December 31, 1997 and for the six months ended June 30, 1998,
respectively.
The aggregate maturities required on notes payable and capital leases as
of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Notes Capital
Year ending December 31, Payable Leases Total
------------------------ -------- ------- --------
<S> <C> <C> <C>
1998......................................... $358,558 $53,898 $412,456
1999......................................... -- 22,901 22,901
2000......................................... -- 4,472 4,472
-------- ------- --------
358,558 81,271 439,829
Less amounts representing interest........... -- (12,660) (12,660)
-------- ------- --------
$358,558 $68,611 $427,169
======== ======= ========
</TABLE>
F-81
<PAGE>
COMMERCEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Concentrations of Credit Risk
Net sales for the year ended December 31, 1997 for several major
customers, together with the receivable due from each customer, are presented
below. The Company does not obtain, nor require, any collateral or other
security instruments related to these balances.
<TABLE>
<CAPTION>
December 31, 1997
---------------------
Accounts
Amount of Receivable
Customer Net Sales Balance
-------- ---------- ----------
<S> <C> <C>
A.................................................. $ 176,387 $100,019
B.................................................. 470,887 137,682
C.................................................. 266,719 116,083
D.................................................. 239,184 23,554
E.................................................. -- --
---------- --------
$1,153,177 $377,338
========== ========
</TABLE>
6. 1997 Stock Option Plan
The Company's stock option plan provides for the granting of options to
acquire up to 1,000,000 shares of the Company's common stock. The options may
either be incentive stock options or non-qualified stock options as defined in
the Internal Revenue Code. The Board of Directors will govern the terms of each
option grant and will determine the exercise price, the vesting period and the
exercise period of each option. The exercise period may not exceed ten years
from the date of grant.
For the year ended December 31, 1997, no compensation costs were
recognized in connection with option grants. In June 1998, the Company granted
308,600 options to certain employees with exercise prices below the estimated
fair value of the Company's common stock. These options vested immediately. As
a result, the Company recorded compensation costs of $59,000.
Had compensation cost for the Company's option plan been determined based
on the fair value method as described in Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation," the Company's net loss would
have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Net loss
As reported..................................... $(458,112) $(572,277)
Pro forma....................................... $(480,195) $(596,439)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants during the December 31, 1997 and June 30,
1998 periods, respectively: dividend yield of 0% for all periods; expected
volatility of 0% for all periods; risk free interest rate of 5.71% and 5.52%;
expected life of five years and two years. The weighted average fair value of
the options granted for the year ended December 31, 1997 and the six months
ended June 30, 1998 is $0.05 and $0.13, respectively.
F-82
<PAGE>
COMMERCEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes stock option activity for the year ended
December 31, 1997:
<TABLE>
<CAPTION>
December 31, 1997
--------------------
Weighted
Average
Exercise
Options Price
--------- ---------
<S> <C> <C>
Outstanding, beginning of year.......................... -- $ 0.00
Granted................................................. 718,500 0.22
Exercised............................................... -- 0.00
Forfeited............................................... (9,900) 0.22
---------
Outstanding, end of year................................ 708,600 0.22
---------
Options exercisable at end of year...................... 176,660 $ 0.22
=========
</TABLE>
The stock options outstanding at December 31, 1997 have a weighted
average remaining contractual life of 4 years.
7. Shareholders' Equity (Deficit)
Preferred stock
In August 1997, the Company issued 4,050,405 of Series A convertible
preferred stock at $0.22 per share for total proceeds of $861,000, net of
issuance cost of $39,000. Two preferred stock investors advanced the Company a
total of $200,000 in June and April of 1997, respectively, prior to the
issuance of the shares and final settlement of the price in August 1997. The
holders of the preferred stock are entitled to elect two members to the Board
of Directors and have voting rights equal to common stock on an if-converted
basis. Preferred stockholders also are entitled to receive noncumulative
dividends in preference to any dividends on common stock at a rate of $0.01 per
share. No dividends have been declared for the year ended December 31, 1997 nor
for the six months ended June 30, 1998.
The holders of the preferred stock are entitled to receive their original
issuance price of $0.22 per share in liquidation, plus an amount equal to all
declared but unpaid dividends, prior and in preference to any distribution to
the holders of common stock. Each share of preferred stock is convertible into
one share of common stock.
Stock split
In 1997, the Company approved a 10 for 1 split of its common stock. The
Company restated the share data for this transaction as if it occurred at
inception of the Company.
8. 401(k) Savings Plan
Effective October 1, 1996, the Company established a 401(k) plan for
substantially all of its employees over the age of 21 with an employment date
prior to the effective date of the plan or with more than one year of service,
as defined in the plan. The plan allows for discretionary employer matching
contributions, subject to limitations. The matching contributions made during
the year ended December 31, 1997 and the six months ended June 30, 1998 were
not material.
F-83
<PAGE>
COMMERCEWAVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Commitments
Future minimum lease payments under non-cancelable operating leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1998........................................................... $ 78,948
1999........................................................... 52,835
--------
Total minimum lease payments................................... $131,783
========
</TABLE>
The Company's operating leases are primarily for office equipment and the
Company's office facility. Rental expense under operating leases for the year
ended December 31, 1997 and for the six months ended June 30, 1998 totaled
approximately $102,000 and $43,000, respectively.
10. Income Taxes
From inception through July 31, 1997 the Company elected to be taxed as
an S Corporation for federal and state tax purposes, whereby the Company's
taxable income accrues directly to the shareholders. The Company elected to be
taxed as a C Corporation for federal and state tax purposes effective August 1,
1997. Due to the change in tax status, the Company has transferred its
accumulated deficit as of July 31, 1997 of $613,663 to additional paid in
capital.
The provision for income taxes results from a minimum state tax
liability. No other current provision for income tax expense or benefit has
been provided by the Company for the year ended December 31, 1997 or for the
six months ended June 30, 1998 due to a net loss being recognized for income
tax purposes. Further, no deferred income tax expense or benefit has been
provided as changes in net deferred tax assets, consisting primarily of net
operating loss carryforwards, and liabilities have been fully offset by a
valuation allowance.
11. Related Party Transactions
On June 29, 1998, the Company received an advance from iXL Enterprises,
Inc. (iXL) in the amount of $50,000. The advance was used for working capital.
The advance was considered as part of the purchase price when the Company was
acquired by iXL (see Note 12). The Company also recognized $22,913 of revenues
for the six months ended June 30, 1998 in connection with providing
professional services to iXL prior to the acquisition. The amount was included
in accounts receivable at June 30, 1998.
12. Subsequent Event
On July 2, 1998, the Company was acquired by iXL Enterprises, Inc.
F-84
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
iXL Enterprises, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in shareholders' equity, and of cash flows present
fairly, in all material respects, the financial position of Spinners
Incorporated at December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
September 4, 1998
F-85
<PAGE>
SPINNERS INCORPORATED
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash................................................ $107,361 $176,317
Accounts receivable................................. 333,300 281,420
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 51,000 67,264
Investment--held-to-maturity........................ 81,413 --
Other current assets................................ 46,436 1,115
-------- --------
Total current assets.............................. 619,510 526,116
Property and equipment, net........................... 231,447 403,817
Other assets.......................................... 27,489 49,898
-------- --------
Total assets...................................... $878,446 $979,831
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.................................... $ 3,543 $ 52,266
Accrued expenses.................................... 45,934 73,029
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... 106,750 52,975
Current portion of capital lease obligations........ 49,540 85,532
-------- --------
Total current liabilities......................... 205,767 263,802
Capital lease obligations............................. 41,576 146,761
-------- --------
Total liabilities................................. 247,343 410,563
-------- --------
Shareholders' equity
Common stock, $.01 par value; 10,000,000 shares
authorized; 7,000,000 shares issued and
outstanding........................................ 70,000 70,000
Additional paid-in capital.......................... 161,000 161,000
Unearned compensation............................... (144,000) (124,000)
Retained earnings................................... 544,103 462,268
-------- --------
Total shareholders' equity........................ 631,103 569,268
-------- --------
Commitments
-------- --------
Total liabilities and shareholders' equity........ $878,446 $979,831
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-86
<PAGE>
SPINNERS INCORPORATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year For the Six Months
Ended Ended June 30,
December 31, -------------------
1997 1997 1998
------------ -------- ----------
(unaudited)
<S> <C> <C> <C>
Revenues.................................... $1,742,439 $747,138 $1,104,261
Cost of revenues............................ 798,942 316,467 727,238
---------- -------- ----------
Gross profit.............................. 943,497 430,671 377,023
Selling, general and administrative
expenses................................... 489,028 139,526 343,956
Depreciation and amortization............... 38,182 12,193 36,814
---------- -------- ----------
Income (loss) from operations............. 416,287 278,952 (3,747)
Interest income (expense), net.............. (8,684) 1,912 (6,088)
---------- -------- ----------
Net income (loss)......................... $ 407,603 $280,864 $ (9,835)
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-87
<PAGE>
SPINNERS INCORPORATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------- Additional Unearned
Shares Paid-in Compensation Retained
Outstanding Amount Capital Expense Earnings Total
----------- ------- ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... 7,000,000 $70,000 -- -- $173,100 $243,100
Distributions......... -- -- -- -- (36,600) (36,600)
Issuance of stock
options.............. -- -- $161,000 $(161,000) -- --
Stock compensation.... -- -- -- 17,000 -- 17,000
Net income............ -- -- -- -- 407,603 407,603
--------- ------- -------- --------- -------- --------
Balance, December 31,
1997................... 7,000,000 70,000 161,000 (144,000) 544,103 631,103
Distributions
(unaudited).......... -- -- -- -- (72,000) (72,000)
Stock compensation
(unaudited).......... -- -- -- 20,000 -- 20,000
Net loss (unaudited).. -- -- -- -- (9,835) (9,835)
--------- ------- -------- --------- -------- --------
Balance, June 30, 1998
(unaudited)............ 7,000,000 $70,000 $161,000 $(124,000) $462,268 $569,268
========= ======= ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE>
SPINNERS INCORPORATED
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year For the Six Months Ended
Ended June 30,
December 31, --------------------------
1997 1997 1998
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss).................... $ 407,603 $ 280,864 $ (9,835)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities
Depreciation and amortization....... 38,182 12,193 36,814
Stock compensation expense.......... 17,000 -- 20,000
Changes in operating assets and
liabilities
Accounts receivable................ (216,505) (10,579) 51,880
Costs and estimated earnings in
excess of billings on uncompleted
contracts......................... (51,000) (63,000) (16,264)
Other assets....................... (57,677) (1,850) 22,912
Accounts payable and accrued
expenses.......................... 35,030 26,057 75,818
Billings in excess of costs and
estimated earnings on uncompleted
contracts......................... 106,750 2,000 (53,775)
--------- ------------ ------------
Net cash provided by operating
activities....................... 279,383 245,685 127,550
--------- ------------ ------------
Cash flows from investing activities
Capital expenditures................. (84,945) (54,539) (28,142)
Proceeds from (purchase of)
investment securities............... (81,413) (81,413) 81,413
--------- ------------ ------------
Net cash provided by (used in)
investing activities............. (166,358) (135,952) 53,271
--------- ------------ ------------
Cash flows from financing activities
Payments on capital leases........... (22,230) (4,900) (39,865)
Distributions to shareholders........ (36,600) (36,600) (72,000)
--------- ------------ ------------
Net cash used in financing
activities....................... (58,830) (41,500) (111,865)
--------- ------------ ------------
Net increase in cash.............. 54,195 68,233 68,956
Cash, beginning of period............. 53,166 53,166 107,361
--------- ------------ ------------
Cash, end of period................... $ 107,361 $ 121,399 $ 176,317
========= ============ ============
Supplemental disclosures of cash flow
information
Cash paid during the period for
interest............................ $ 12,894 $ 365 $ 10,271
========= ============ ============
Non-cash investing and financing
activities
Acquisition of property and equipment
through capital leases.............. $ 100,896 $ 32,706 $ 181,042
========= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE>
SPINNERS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of business
Spinners Incorporated (the "Company" or "Spinners") specializes in
providing integrated technology and design services that allow organizations to
successfully incorporate internet technology as a core component of their
business. Spinners' clients are located in the northeast United States.
Significant accounting policies
Revenue recognition
Revenue from service contracts is recognized over the contractual period
using the percentage-of-completion method based on when services are performed.
Advance billings for services in excess of costs represent deferred revenue and
are recorded as billings in excess of costs and estimated earnings on
uncompleted contracts. Unbilled receivables in excess of billings represent
earned revenues and are recorded as costs and estimated earnings in excess of
billings. Operating expenses, including indirect costs and administrative
expenses, are charged to operations as incurred and are not allocated to
contract costs. Any anticipated losses on contracts are charged to earnings
when identified. There were no loss contracts at December 31, 1997.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Investment securities
The Company's investment securities consist of a U.S. treasury bill with
the face amount of $85,000 that is classified as a held-to-maturity security.
Held-to-maturity securities are stated at amortized cost with gains recognized
in earnings as required by FAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The maturity date for the U.S. treasury bill is
January 8, 1998.
Property and equipment
Property and equipment are recorded at cost, less accumulated
depreciation. Depreciation and amortization are provided using the straight-
line method over the estimated useful life. Equipment is depreciated over five
years. Equipment held under capital lease is recorded at the lower of the fair
market value of the lease or the present value of future minimum lease
payments. The leased assets are depreciated over the lesser of the lease term
or the estimated useful life. Leasehold improvements are amortized over the
lesser of the lease term or the estimated useful life.
Income taxes
The Company has elected to be taxed as an S Corporation for federal and
state tax purposes, whereby the Company's taxable income accrues directly to
the shareholders. As a result, no provision for income taxes has been made in
the accompanying financial statements.
F-90
<PAGE>
SPINNERS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-based compensation
The Company has elected to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations and has elected the disclosure option of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123). Accordingly, compensation cost for stock options is measured as the
excess, if any, of the fair value of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock.
Fair value of financial instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable, held-to-maturity securities, and accrued expenses
approximate fair value. The carrying amounts of borrowings approximate fair
value based on current rates of interest available to the Company for loans of
similar maturities.
Comprehensive income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires entities to report comprehensive income, which
represents the change in equity during a period from non-owner sources. The
Company has not incurred any comprehensive income components other than the net
income (loss) for all periods presented.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses during the reporting period. Actual results could differ from
those estimates and could materially affect the reported amounts of assets,
liabilities and future operating results.
Interim financial information
The accompanying financial statements and related notes as of June 30,
1998 and for the six months ended June 30, 1997 and 1998 are unaudited. In the
opinion of management these statements have been prepared on the same basis as
the audited financial statements and reflect all adjustments, consisting of
only normal recurring adjustments, necessary to present fairly the Company's
financial position as of June 30, 1998 and the results of the Company's
operations and its cash flows for the six months ended June 30, 1997 and 1998.
The results for the six months ended June 30, 1998 are not necessarily
indicative of the results to be expected for the year ending December 31, 1998.
F-91
<PAGE>
SPINNERS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Equipment
Equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Equipment........................................ $273,829 $353,000
Furniture and fixtures........................... 12,250 124,163
Leasehold improvements........................... -- 18,100
-------- --------
286,079 495,263
Less accumulated depreciation and amortization... (54,632) (91,446)
-------- --------
Equipment, net................................... $231,447 $403,817
======== ========
</TABLE>
At December 31, 1997 and June 30, 1998, the Company had property and
equipment under capital lease as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Property and equipment under capital lease....... $120,951 $281,859
Less accumulated amortization.................... (11,863) (29,579)
-------- --------
$109,088 $252,280
======== ========
</TABLE>
3. Borrowings
Borrowings consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Capital lease obligations payable in monthly
installments of $5,792 to $10,459 expiring from
1998 to 2003, collateralized by equipment with a
net book value of $124,011 and $305,053,
respectively.................................... $ 91,116 $232,293
Less current maturities.......................... (49,540) (85,532)
-------- --------
Long-term portion................................ $ 41,576 $146,761
======== ========
</TABLE>
Total interest expense for the year ended December 31, 1997 and the six
months ended June 30, 1997 and 1998 was $12,894, $365 and $10,271,
respectively.
F-92
<PAGE>
SPINNERS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
The aggregate maturities required on capital lease obligations as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1998........................................................... $ 65,319
1999........................................................... 39,298
2000........................................................... 7,549
2001........................................................... 926
Less amounts representing interest............................. (21,976)
--------
$ 91,116
========
</TABLE>
4. Shareholders' Equity
From inception until June 10, 1997, the Company had 1,054 shares of no
par value common stock outstanding. On June 10, 1997, the Company canceled the
1,054 shares of no par value common stock and in its place issued 7,000,000
shares of $0.01 par value common stock (10,000,000 shares authorized) to
existing shareholders based on their proportionate interest. The Company has
accounted for this transaction as a stock split and, accordingly, has restated
share data in the accompanying financial statements as if it occurred at
inception of the Company.
5. Employee Benefits
1997 stock option plan
In June 1997, the Company adopted a stock option plan (the "Plan") which
provides for the grant of incentive and nonqualified stock options to
directors, officers, employees of the Company and certain consultants to
purchase up to 1,000,000 shares of the Company's common stock. Options expire
not later than ten years from the date of grant and other terms are determined
by the Board of Directors. At December 31, 1997 and June 30, 1998 outstanding
stock options totaled 696,500 and 690,500, respectively, with exercise prices
at $.25 per share.
The following table summarizes stock option activity for the year ended
December 31, 1997:
<TABLE>
<CAPTION>
December 31,
1997
-----------------
Weighted
Average
Exercise
Options Price
------- --------
<S> <C> <C>
Outstanding beginning of year............................ -- --
Granted.................................................. 706,500 $.25
Exercised................................................ -- --
Forfeited................................................ (20,000) .25
------- ----
Outstanding end of year.................................. 686,500 $.25
======= ====
</TABLE>
During the year ended December 31, 1997, the Company recorded
compensation expense of $17,000 related to the granting of stock options to
employees with exercise prices below the estimated fair market value of the
common stock at the date of grant. There were no options exercisable at
December 31, 1997.
F-93
<PAGE>
SPINNERS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
In addition, during the year ended December 31, 1997 the Company granted
10,000 stock options to a non-employee consultant for services. The fair value
of the options issued has been determined to be insignificant.
The Company has adopted the disclosure only provision of FAS 123. Had
compensation cost for the Company's stock option grants described above been
determined based on the fair value at the grant date for awards in 1997
consistent with the provision of FAS 123, the Company's net income would have
been decreased to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Net income
As reported................................................... $407,603
Pro forma..................................................... $397,942
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1997: dividend yield of 0%, weighted
average risk free interest rate of 6.41%, volatility of 0% and expected life
of 4 years.
The following table summarizes information about stock options
outstanding at December 31,1997.
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------------------------------------------------
Weighted
Average Weighted
Number Remaining Average
Outstanding Contractual Exercise
at 12/31/97 Life Price
----------- ----------- --------
<S> <C> <C>
686,500 10 years $.25
</TABLE>
401(k) profit sharing plan
Effective January 1, 1996, the Company established a 401(k) plan for
substantially all employees over the age of 21 with no requirement of minimum
services. The plan allows for discretionary employer qualified contributions.
For the year ended December 31, 1997, the Company made no contribution to the
plan.
6. Concentrations of Credit Risk
Net sales for the year ended December 31, 1997, of three major
customers, together with the receivable due from each customer, are presented
below. The Company does not obtain, nor require, any collateral or other
security instruments related to these balances.
<TABLE>
<CAPTION>
December 31, 1997
---------------------
Accounts
Amount of Receivable
Customer Net Sales Balance
-------- ---------- ----------
<S> <C> <C>
A...................................................... $ 702,040 $ 76,838
B...................................................... 280,834 185,400
C...................................................... 183,096 --
---------- --------
$1,165,970 $262,238
========== ========
</TABLE>
F-94
<PAGE>
SPINNERS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Commitments
The Company leases its office facility under a noncancelable operating
lease expiring in May 1998 with monthly payments of $12,923. Rental expense
charged for the year ended December 31, 1997 and for the six-month period ended
June 30, 1998 was $137,802 and $107,192, respectively.
As of December 31, 1997, future minimum lease payments under non-
cancelable operating leases due over the next year total $64,614.
8. Subsequent Events
On July 30, 1998, the Company was acquired by iXL Enterprises, Inc.
F-95
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
iXL Enterprises, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in shareholders' equity, and of cash flows present
fairly, in all material respects, the financial position of Tekna, Inc. at
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
September 24, 1998
F-96
<PAGE>
TEKNA, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash................................................ $ 175,420 $ 45,919
Accounts receivable................................. 274,793 654,960
Related party receivables........................... 7,675 5,063
--------- ----------
Total current assets.............................. 457,888 705,942
Equipment, net........................................ 268,313 295,708
Other assets.......................................... 103 9,345
--------- ----------
Total assets...................................... $ 726,304 $1,010,995
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.................................... $ 46,501 $ 124,672
Accrued expenses.................................... 54,736 42,887
Accrued interest.................................... 4,913 26,637
Notes payable to shareholder........................ 424,203 424,203
--------- ----------
Total current liabilities......................... 530,353 618,399
Shareholders' equity
Common stock, $1.00 par value; 1,000,000 shares
authorized; 850,000 shares issued and outstanding.. 850,000 850,000
Additional paid-in capital.......................... -- 664,000
Unearned compensation............................... -- (398,380)
Accumulated deficit................................. (654,049) (723,024)
--------- ----------
Total shareholders' equity........................ 195,951 392,596
--------- ----------
Commitments.........................................
--------- ----------
Total liabilities and shareholders' equity........ $ 726,304 $1,010,995
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE>
TEKNA, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the year For the six
ended months
December 31, ended June 30,
1997 1997 1998
------------ ----- ----------
(unaudited)
<S> <C> <C> <C>
Revenues....................................... $239,776 -- $1,183,663
Cost of revenues............................... 129,375 -- 609,223
-------- ----- ----------
Gross profit................................. 110,401 -- 574,440
Selling, general and administrative expenses... 111,723 -- 618,217
Depreciation and amortization.................. 17,397 $ 426 29,513
-------- ----- ----------
Loss from operations......................... (18,719) (426) (73,290)
Interest income, net........................... 2,167 -- 4,315
-------- ----- ----------
Net loss..................................... $(16,552) $(426) $ (68,975)
======== ===== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE>
TEKNA, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------------- Additional
Shares Paid-in Unearned Accumulated
Outstanding Amount Capital Compensation Deficit Total
----------- -------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... 1,000 $ 1,000 $ 24,000 $ -- $ (23,497) $ 1,503
Issuance of common
stock.................. 587 587 74,413 -- 75,000
Capital contributions... -- -- 136,000 -- -- 136,000
Net income............ -- -- -- -- (16,552) (16,552)
Common stock split...... 848,413 848,413 (234,413) -- (614,000) --
------- -------- --------- --------- --------- --------
Balance, December 31,
1997................... 850,000 850,000 -- -- (654,049) 195,951
Issuance of options
(unaudited)............ -- -- 664,000 (664,000) -- --
Stock compensation
(unaudited)............ -- -- -- 265,620 -- 265,620
Net loss (unaudited).. -- -- -- -- (68,975) (68,975)
------- -------- --------- --------- --------- --------
Balance, June 30, 1998
(unaudited)............ 850,000 $850,000 $ 664,000 $(398,380) $(723,024) $392,596
======= ======== ========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-99
<PAGE>
TEKNA, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year For the six
ended months ended
December 31, June 30,
1997 1997 1998
------------ ------ ---------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net loss...................................... $ (16,552) $ (426) $ (68,975)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization................ 17,397 426 29,513
Stock compensation........................... -- -- 265,620
Changes in operating assets and liabilities
Accounts receivable......................... (213,793) -- (380,167)
Other assets................................ (7,675) -- (6,630)
Accounts payable and accrued expenses....... 106,150 -- 88,046
--------- ------ ---------
Net cash used in operating activities...... (114,473) -- (72,593)
--------- ------ ---------
Cash flows from investing activities
Capital expenditures.......................... (60,107) -- (56,908)
--------- ------ ---------
Net cash used in investing activities...... (60,107) -- (56,908)
--------- ------ ---------
Cash flows from financing activities
Proceeds from capital contribution............ 75,000 -- --
Proceeds from note payable to shareholder..... 200,000 -- --
Proceeds from issuance of common stock........ 75,000 -- --
--------- ------ ---------
Net cash provided by financing activities.. 350,000 -- --
--------- ------ ---------
Net increase (decrease) in cash............ 175,420 -- (129,501)
Cash, beginning of period...................... -- -- 175,420
--------- ------ ---------
Cash, end of period............................ $ 175,420 $ -- $ 45,919
========= ====== =========
Non-cash investing and financing activities
Acquisition of equipment through note payable
to shareholder............................... $ 224,203 $ -- $ --
========= ====== =========
Receivable contributed by shareholder for
acquired service contract.................... $ 61,000 $ -- $ --
========= ====== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-100
<PAGE>
TEKNA, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of business
Tekna, Inc. (the "Company") is a provider of internet related development
services. Its primary service lines are Web-enabled business applications,
object-oriented development, multimedia and Internet-based training for varied
clientele ranging from small entities to major Fortune 500 corporations. The
Company's customers are located throughout the United States.
Tekna, Inc. (formerly Booth Technologies, Inc.) was formed in 1994 as a
subchapter S corporation. Effective November 1, 1997, the Company acquired
certain assets and assumed certain liabilities through issuance of a note
payable of $224,203 to its sole shareholder at the time based on the carrying
amount of the assets acquired.
Significant accounting policies
Revenue recognition
Revenue from service contracts is recognized over the contractual period
using the percentage-of-completion method based on when services are performed.
Advance billings for services in excess of costs, represent deferred revenue
and are recorded as billings in excess of costs and estimated earnings on
uncompleted contracts. Unbilled receivables in excess of billings represent
earned revenues and are recorded as costs and estimated earnings in excess of
billings. Operating expenses, including indirect costs and administrative
expenses, are charged to income as incurred and are not allocated to contract
costs. At the time a loss on a contract becomes known, the entire amount of the
estimated loss is accrued. As of December 31, 1997 there are no unbilled
receivables or deferred revenue amounts.
Equipment
Equipment is recorded at cost, less accumulated depreciation.
Expenditures for renewals and improvements that significantly add to the
productive capacity or extend the useful life of an asset are capitalized.
Expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation expense is provided on the straight-line method over the estimated
useful lives for purchased assets, which range from 5 to 7 years.
Income taxes
The Company has elected to be taxed as an S corporation for federal and
state tax purposes, whereby the Company's taxable income accrues directly to
the shareholders. As a result, no provision for income taxes has been made in
the accompanying statements.
Stock split
On December 15, 1997, the shareholders of the Company approved an
increase in the number of authorized shares of common stock from 5,000 to
1,000,000. On January 1, 1998, the Company issued 848,413 shares to its two
existing shareholders in proportion to their then existing common stock
ownership interests. Because the Company elected to retain the $1.00 par value
of its common stock, the transaction resulted in a
F-101
<PAGE>
TEKNA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
transfer of $234,413 and $614,000 from additional paid-in capital and
accumulated deficit, respectively, to common stock in the December 31, 1997
balance sheet.
Stock-based compensation
The Company has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and related interpretations and has elected the disclosure option of
Statement of Financial Accounting Standards No 123, "Accounting for Stock-Based
Compensation" (FAS 123). Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair value of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
Fair value of financial instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable and accrued expenses approximate fair value. The
carrying amounts of borrowings approximate fair value based on current rates of
interest available to the Company for loans of similar maturities.
Comprehensive income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires entities to report comprehensive income, which
represents the change in equity during a period from non-owner sources. The
Company has not incurred any such activity other than the net loss for all
periods presented.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses during the reporting period. Actual results could differ from
those estimates and could materially affect the reported amounts of assets,
liabilities and future operating results.
Interim financial information
The accompanying financial statements and related notes as of June 30,
1998 and for the six months ended June 30, 1997 and 1998 are unaudited. In the
opinion of management, the unaudited interim financial statements have been
prepared on the same basis as the annual financial statements and reflect all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the Company's financial position as of June 30, 1998, and the
results of the Company's operations and its cash flows for the six months June
30, 1997 and 1998. The results for the six months ending June 30, 1998 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998.
F-102
<PAGE>
TEKNA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Equipment
Equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Furniture and fixtures............................. $ 64,445 $ 73,160
Computer equipment................................. 217,316 241,670
Computer software.................................. 6,490 11,620
Leasehold improvements............................. -- 18,709
-------- --------
288,251 345,159
Less accumulated depreciation and amortization..... (19,938) (49,451)
-------- --------
Equipment, net..................................... $268,313 $295,708
======== ========
</TABLE>
3. Notes Payable to Shareholder
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Note payable to a shareholder, secured by all
equipment and a second priority interest in
accounts receivable, which provides for payment
of the principal balance on demand plus
interest accrued at 10%........................ $224,203 $224,203
Note payable to a shareholder, secured by all
equipment and a second priority interest in
accounts receivable, which provides for payment
of the principal balance on demand plus
interest accrued at 10%........................ 200,000 200,000
-------- --------
$424,203 $424,203
======== ========
</TABLE>
Total interest expense incurred with respect to these borrowings was
$4,913 for the year ended December 31, 1997.
4. 401(k) Savings Plan
Effective January 1, 1998, the Company established a 401(k) savings plan
for substantially all of its employees with more than three months of service
as defined by the plan. The employer has no obligation under the plan to make a
contribution.
F-103
<PAGE>
TEKNA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Concentrations of Credit Risk
Net sales for the year ended December 31, 1997 for several major
customers, together with the receivable due from each customer, are presented
below. The Company does not obtain, nor require, any collateral or other
security instruments related to these balances.
<TABLE>
<CAPTION>
December 31, 1997
-------------------
Amount Accounts
of Net Receivable
Customer Sales Balance
-------- -------- ----------
<S> <C> <C>
A...................................................... $ 60,742 $121,742
B...................................................... 52,739 37,073
C...................................................... 50,260 50,260
D...................................................... 35,000 35,000
-------- --------
$198,741 $244,075
======== ========
</TABLE>
6. Commitments
Future minimum lease payments under non-cancelable operating leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1998............................................................. $144,416
1999............................................................. 154,185
2000............................................................. 151,976
2001............................................................. 31,223
--------
Total minimum lease payments..................................... $481,800
========
</TABLE>
The Company's operating leases are primarily for office equipment and the
Company's office facility. Rental expense under operating leases for the year
ended December 31, 1997 totaled $7,809.
7. Subsequent Events
In April 1998, the Company entered into a line of credit agreement with a
bank. The line of credit allows for borrowings of up to $500,000 at the bank's
prime rate plus 2% and any borrowings are payable to the bank on demand. No
borrowings have been made on the line as of June 30, 1998.
In June 1998 the Company granted stock options to certain of its
employees. The Company recorded a charge to compensation expense of $265,620
for the six months ended June 30, 1998 related to these options.
On September 4, 1998, the Company was acquired by iXL Enterprises, Inc.
F-104
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
iXL Enterprises, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in shareholders' deficit, and of cash flows present
fairly, in all material respects, the financial position of Larry Miller
Productions, Inc. at December 31, 1997, and the results of its operations and
its cash flows for the year ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
November 10, 1998
F-105
<PAGE>
LARRY MILLER PRODUCTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash................................................ $ 435,442 $ 274,956
Accounts receivable................................. 571,806 476,856
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... 72,800 33,389
Refundable income taxes............................. 96,454 --
Other current assets................................ 26,793 15,093
---------- -----------
Total current assets............................. 1,203,295 800,294
Furniture, fixtures and equipment, net............... 158,220 129,213
Other assets......................................... -- 89,764
---------- -----------
Total assets..................................... $1,361,515 $ 1,019,271
========== ===========
Liabilities, and Shareholders' Deficit
Current liabilities:
Accounts payable.................................... $ 522,158 $ 273,611
Accrued expenses and other liabilities.............. 170,925 197,729
Prebillings......................................... 248,777 295,630
Line of credit...................................... 250,000 250,000
Stock repurchase obligation......................... 61,561 61,561
Current portion of capital lease obligations........ 49,745 46,259
Current portion on notes payable.................... -- 100,000
---------- -----------
Total current liabilities........................ 1,303,166 1,224,790
Capital lease obligations........................... 62,568 55,265
Notes payable....................................... -- 200,000
---------- -----------
Total liabilities................................ 1,365,734 1,480,055
---------- -----------
Shareholders' deficit
Common stock
Class A voting stock, $.01 par value, 1,000 shares
authorized; 1,000 shares issued................... 10 10
Class B non-voting stock, $.01 par value, 1,000 and
2,000 shares authorized, respectively; 350 shares
issued............................................ 3 3
Treasury stock
Class A voting stock, 550 shares (Note 6).......... (61,561) (61,561)
Class B non-voting stock, 100 shares at cost....... (5,000) (5,000)
Additional paid-in capital.......................... 14,298 105,356
Retained earnings (accumulated deficit)............. 48,031 (499,592)
---------- -----------
Total shareholders' deficit...................... (4,219) (460,784)
---------- -----------
Total liabilities and shareholders' deficit...... $1,361,515 $ 1,019,271
---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-106
<PAGE>
LARRY MILLER PRODUCTIONS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the year ended For six months ended
December 31, June 30,
------------------ ----------------------
1997 1997 1998
------------------ ---------- ----------
(unaudited)
<S> <C> <C> <C>
Gross sales........................ $4,195,024 $1,837,634 $1,678,015
Cost of sales...................... 2,964,601 1,235,540 1,470,792
---------- ---------- ----------
Gross profit..................... 1,230,423 602,094 207,223
Selling, general and administrative
expenses.......................... 1,637,026 692,611 684,824
Depreciation and amortization
expenses.......................... 104,100 46,455 47,871
---------- ---------- ----------
Loss from operations............. (510,703) (136,972) (525,472)
Interest income (expense), net..... (28,225) (8,846) (22,151)
Miscellaneous income............... 6,521 -- --
---------- ---------- ----------
Loss before income tax benefit... (532,407) (145,818) (547,623)
Income tax benefit from loss
carryback......................... 75,359 20,640 --
---------- ---------- ----------
Net loss......................... $ (457,048) $ (125,178) $ (547,623)
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<PAGE>
LARRY MILLER PRODUCTIONS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Class A Class B Class A Class B Retained
Common Stock Common Stock Treasury Stock Treasury Stock Earnings
------------- ------------- Paid-in --------------- -------------- (Accumulated
Shares Amount Shares Amount Capital Shares Amount Shares Amount Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996........... 1,000 $ 10 350 $ 3 $ 14,298 550 $(61,561) 50 $(2,500) $ 505,079 $ 455,329
Purchase of
treasury stock
at cost........ -- -- -- -- -- -- -- 50 (2,500) -- (2,500)
Net loss........ -- -- -- -- -- -- -- -- -- (457,048) (457,048)
----- ---- ---- ---- -------- ---- -------- --- ------- --------- ---------
Balance at
December 31,
1997........... 1,000 10 350 3 14,298 550 (61,561) 100 (5,000) 48,031 (4,219)
Issuance of
warrants in
connection with
debt
(unaudited).... -- -- -- -- 91,058 -- -- -- -- -- 91,058
Net loss
(unaudited).... -- -- -- -- -- -- -- -- -- (547,623) (547,623)
----- ---- ---- ---- -------- ---- -------- --- ------- --------- ---------
Balance at June
30, 1998
(unaudited).... 1,000 $ 10 350 $ 3 $105,356 550 $(61,561) 100 $(5,000) $(499,592) $(460,784)
===== ==== ==== ==== ======== ==== ======== === ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-108
<PAGE>
LARRY MILLER PRODUCTIONS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year For six months
ended ended June 30,
December 31, --------------------
1997 1997 1998
------------ --------- --------------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss............................... $(457,048) $(125,178) $(547,623)
Adjustments to reconcile net loss to
net cash provided by operating
activities
Depreciation and amortization......... 104,100 46,455 47,871
Changes in assets and liabilities
Accounts receivable.................. (200,705) (204,615) 94,950
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................... 13,503 (52,297) 39,411
Other assets......................... (106,127) (31,560) 108,154
Accounts payable .................... 362,714 135,497 (248,547)
Accrued expenses and other
liabilities......................... 54,600 (97,310) 26,804
Prebillings.......................... 4,270 (105,282) 46,853
--------- --------- ---------
Net cash used in operating
activities......................... (224,693) (434,290) (432,127)
--------- --------- ---------
Cash flows from financing activities
Borrowings on line of credit........... 303,880 303,880 --
Proceeds from issuance of notes
payable............................... -- -- 300,000
Payments on line of credit and capital
lease obligations..................... (103,439) (75,249) (28,359)
Purchase of treasury stock............. (2,500) -- --
--------- --------- ---------
Net cash provided by financing
activities......................... 197,941 228,631 271,641
--------- --------- ---------
Net decrease in cash................ (26,752) (205,659) (160,486)
Cash, beginning of period............... 462,194 462,194 435,442
--------- --------- ---------
Cash, end of period..................... $ 435,442 $ 256,535 $ 274,956
--------- --------- ---------
Supplemental Disclosures of Cash Flow
Information
Cash paid during the period for
interest.............................. $ 35,365 $ 10,824 $ 25,735
--------- --------- ---------
Non-cash financing and investing
activities
Acquisition of property and equipment
through capital leases................ $ 91,174 $ 79,248 $ 17,570
--------- --------- ---------
Warrants issued in connection with
debt.................................. $ -- $ -- $ 91,058
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-109
<PAGE>
LARRY MILLER PRODUCTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1.Nature of Business and Summary of Significant Accounting Policies
Nature of business
Larry Miller Productions, Inc. (the "Company") provides marketing
strategy and planning, consulting, multimedia presentation design,
evaluation, management, and website development. The Company services
clients in the northeastern United States.
Significant accounting policies
Revenue recognition
For program design, multimedia creation and Web development contracts,
revenues are recognized using the percentage of completion method over
the period of contracts based on costs incurred. For event management
contracts, revenues are recognized as the services are performed or on a
percentage of completion basis for fixed fee arrangements. Website
maintenance revenues are billed and recognized monthly over the term of
agreements. Billings for services in excess of costs represent deferred
revenue and are recorded as prebillings and earned revenue in excess of
billings are recorded as costs and estimated earnings in excess of
billings on uncompleted contracts in the balance sheet. Operating
expenses, including indirect costs and administrative expenses, are
charged to operations as incurred and are not allocated to contract
costs. Any anticipated losses on contracts are charged to earnings when
identified.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Furniture, fixtures and equipment
Furniture, fixtures and equipment are stated at cost less accumulated
depreciation, which is computed using an accelerated method over the
estimated useful lives of the related assets; generally five to seven
years. Equipment held under capital lease is recorded at the lower of
the fair market value of the leased property or the present value of
future minimum lease payments. Leasehold improvements are amortized over
the lesser of the remaining lease term or the estimated useful life of
the assets. Upon sale, retirement or other disposition of these assets,
the cost and the related accumulated depreciation are removed from the
respective accounts and any gain or loss on the disposition is included
in operations.
Income taxes
The Company has applied the asset and liability approach of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" for
financial accounting and reporting purposes. The Company accounts for
certain items of income and expense in different time periods for
financial reporting and income tax purposes.
F-110
<PAGE>
LARRY MILLER PRODUCTIONS, INC.
Notes to Financial Statements
A reconciliation of the federal statutory rate and the effective income
tax rate follows:
<TABLE>
<CAPTION>
Year ended
December 31,
1997
------------
<S> <C>
Statutory federal income tax rate (34%)...................... $(181,019)
Permanent differences........................................ 2,705
Benefit of state income taxes................................ (24,750)
Increase in valuation allowance.............................. 127,706
---------
Income tax (benefit) provision.............................. $ (75,359)
=========
</TABLE>
The significant components of the Company's net deferred tax assets were
as follows:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Deferred tax assets..........................................
Deferred revenue............................................ $ 94,436
Loss contract accrual....................................... 11,008
Net operating loss carryforwards............................ 22,261
---------
Net deferred tax assets...................................... 127,705
Valuation allowance.......................................... (127,705)
---------
$ --
=========
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards
for income tax purposes of approximately $58,643, expiring in the year 2012.
Realization of these assets is contingent on having future taxable earnings.
Based on the loss incurred in 1997 and the fundamental change in the strategic
direction of the Company, management believes that a full valuation allowance
should be recorded against the deferred tax assets. The refundable income taxes
at December 31, 1997 of $96,454 is the result of estimated tax payments made in
excess of amount owed and the carryback of net operating losses. The Company
received this refund in cash in 1998.
In addition, under the Tax Reform Act of 1986, the amounts of, and the
benefits from, net operating loss carryforwards may be impaired or limited in
certain circumstances. The company experienced an ownership change as defined
under Section 368(a) of the Internal Revenue Code in September 1998. As a
result of the ownership change, net operating loss carryforwards, which were
incurred prior to the date of change, are subject to annual limitation on their
future use.
Fair value of financial instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable, accrued expenses, line of credit and notes
payable approximate fair value. The carrying amounts of capital lease
obligations approximate fair value based on monthly lease payments, lease term,
interest available to the Company for similar leases and cost of leased assets.
F-111
<PAGE>
LARRY MILLER PRODUCTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Comprehensive income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires entities to report comprehensive income,
which represents the change in equity during a period from non-owner
sources. The Company has not incurred any comprehensive income
components other than the net income for all periods presented.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates and could materially affect the reported amount of assets,
liabilities and future operating results.
2.Unaudited Interim Financial Information
The accompanying balance sheet as of June 30, 1998, the statement of
changes in shareholders' equity (deficit) for the six-month period ended
June 30, 1998 and the statements of operations and of cash flows for the
six-month periods ended June 30, 1997 and 1998 are unaudited. In the
opinion of management these statements have been prepared on the same
basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the results of the interim periods. The financial data
and other information disclosed in these notes to financial statements
related to these periods are unaudited. The results for the six months
ended June 30, 1998 are not necessarily indicative of the results to be
expected for the year ending December 31, 1998.
3.Concentration of Credit Risk
As of December 31, 1997, three customers accounted for 47% of accounts
receivable. As of June 30, 1997 and 1998, three customers accounted for
52% of accounts receivable and two customers accounted for 43% of
accounts receivable, respectively. The Company did not obtain or require
any collateral or other security instruments related to the balances.
For the year ended December 31, 1997, net sales from one customer were
$474,730, which accounted for 11% of the Company's total net sales.
F-112
<PAGE>
LARRY MILLER PRODUCTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
4.Furniture, Fixtures and Equipment
Furniture, fixtures and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Equipment........................................ $390,844 $390,844
Equipment under capital leases................... 186,757 204,326
Furniture and fixtures........................... 57,515 57,515
Leasehold improvements........................... 20,406 20,406
-------- --------
655,522 673,091
Less accumulated depreciation and amortization... (497,302) (543,878)
-------- --------
Furniture, fixtures and equipment, net........... $158,220 $129,213
======== ========
</TABLE>
5.Revolving Line of Credit, Notes Payable and Capital Lease Obligations
Revolving line of credit
On April 11, 1997, the Company obtained a line of credit allowing
borrowings up to $250,000. Borrowings bear interest at the prime rate
(8.5% at December 31, 1997) plus 1.0% per annum. The amounts borrowed
are due on demand and collateralized by substantially all of the
Company's assets and the shareholder's personal guarantee. The Company
has borrowed $250,000 under the line of credit at December 31, 1997 and
June 30, 1998, respectively.
Notes payable and capital lease obligations
Notes payable and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
Capital leases payable in monthly instalments of
$6,468 to $6,031 expiring from 1998 to 2002,
collateralized by equipment with a net book
value of $177,231 and $174,601, respectively.... $112,313 $101,524
Notes payable to an individual creditor with an
interest rate at 12% per annum, due August 1,
1998, collateralized by pledge of stocks owned
by Class A Common stockholders and a
shareholder's personal guarantee................ -- 100,000
Notes payable to individual creditors in
quarterly interest only installments until May
1, 2000, and subsequently in monthly instalments
of $4,250 through May 1, 2005, with an interest
rate of 10% per annum, subordinated to the line
of credit....................................... -- 200,000
-------- --------
112,313 401,524
Less current portion............................. 49,745 148,259
-------- --------
Long-term portion................................ $ 62,568 $255,265
======== ========
</TABLE>
F-113
<PAGE>
LARRY MILLER PRODUCTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Total interest expense for the year ended December 31,1997 and the six
months ended June 30, 1997 and 1998 was $35,365, $10,824 and, $25,735,
respectively.
The aggregate maturities required over the next five years on capital
lease obligations are as follows:
<TABLE>
<CAPTION>
Year ending December 31, Total
------------------------ --------
<S> <C>
1998........................................................... $ 67,405
1999........................................................... 41,445
2000........................................................... 24,010
2001........................................................... 3,384
2002........................................................... 2,820
Less amounts representing interest............................. (26,751)
--------
$112,313
--------
</TABLE>
6.Stock Repurchase Agreement
On January 1, 1994, the Company entered into an agreement with its major
shareholder to repurchase all of the Company's stock held by the said
shareholder for a purchase price of $61,561. The total price will be
paid by monthly installments of $1,710 for a period of 36 months
starting on January 1, 1998. The repurchase price may be prepaid by the
Company only upon the unanimous agreement of the voting Trustees of the
said shareholder's Voting Trust. Until all these payments are made in
full on December 1, 2000, the said shareholder shall retain all rights
of ownership with respect to shares owned by him. On July 13, 1998, the
Company obtained the approval from the voting Trustees of the said
shareholder's Voting Trust and repurchased all of 550 shares of Class A
Common Stock held by the said shareholder for a lump sum payment of
$100,000.
7.Treasury Stock
During the year ended December 31, 1997, the Company acquired 50 shares
of its Class B Non-Voting Common Stock at a cost of $50 per share for an
aggregate amount of $2,500.
8.401(k) Retirement Plan
Effective January 1, 1996, the Company established a 401(k) plan for
substantially all employees over the age of 21 with no requirement of
minimum services. The plan allows the Company to make discretionary
contributions to the Plan. For the year ended December 31, 1997 and for
the six-month periods ended June 30, 1997 and 1998, the Company made no
contributions to the plan.
9.Commitments
The Company leases its office facility and vehicles under noncancelable
operating leases expiring through January 2001 with aggregate monthly
payments of $12,598. Rental expense charged for the year ended December
31, 1997 and for the six-month periods ended June 30, 1997 and 1998 was
$163,037, $78,891 and $104,477 respectively.
F-114
<PAGE>
LARRY MILLER PRODUCTIONS, INC.
Notes to Financial Statements
As of December 31, 1997, future minimum lease payments under the non-
cancelable operating leases over the next four years are as follows:
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------
<S> <C>
1998........................................................... $ 147,984
1999........................................................... 140,004
2000........................................................... 140,004
2001........................................................... 23,334
---------
Total minimum lease payments................................... $ 451,326
---------
</TABLE>
10.Subsequent Events
Stock purchase warrants
On May 13, 1998, the Company issued stock purchase warrants to two
individual creditors in connection with the issuance of $200,000 in the
form of Promissory Notes. The stock purchase warrants allow the
creditors to purchase up to 40 shares of Class B Non-Voting Common
Stock, par value $.01 per share of the Company at the price of $.01 per
share at any time through May 1, 2005. The Company has recorded deferred
debt issuance cost of $91,058 for the estimated fair value at the grant
date of these warrants.
Settlement agreement
On June 15, 1998, the Company entered into an agreement with another
party to settle a dispute between the two parties with respect to
consulting services. The Company has agreed to pay an aggregate amount
of $51,500 on an installment basis over a five-month period beginning in
June 1998.
Non-qualified stock options
In August 1998, the board of directors granted fully vested stock
options to certain employees and directors to purchase up to 1,300
shares of Class B Non-Voting Common Stock, $.01 par value, at an
exercise price of $25 per share. The options expire ten years from the
date of grant.
Merger
On September 10, 1998, the Company was acquired by iXL Enterprises, Inc.
F-115
<PAGE>
{DIAGRAM LISTING LOGOS OF PROMINENT iXL CLIENTS}
{CAPTION: Representative Clients}
{Logo of America Online}
{Logo of Budget}
{Logo of Carlson Wagonlit}
{Logo of Chase}
{Logo fo Cox}
{Logo of Delta}
{Logo of Eli Lilly}
{Logo of FedEx}
{Logo of First Union}
{Logo of GE}
{Logo of McKesson HBOC}
{Logo of HealthQuest}
{Logo of Monsanto}
{Logo of Sun Microsystems}
{Logo of WebMD}
Pending:
(Disclaimer)
The above trademarks are the sole and exclusive property of their
respective owners. The above companies do not endorse or otherwise
except responsibility for the information contained in this document.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
6,000,000 Shares
[LOGO OF IXL ENTERPRISES, INC. APPEARS HERE]
iXL ENTERPRISES, INC.
Common Stock
----------------
PROSPECTUS
----------------
Merrill Lynch & Co.
Donaldson, Lufkin & Jenrette
----------------
BancBoston Robertson Stephens
SG Cowen
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[Alternative Page for International Prospectus]
Subject to Completion
Preliminary Prospectus dated May 6, 1999
PROSPECTUS
6,000,000 Shares
[Logo of iXL Enterprises, Inc.]
iXL ENTERPRISES, INC.
Common Stock
-----------
This is iXL Enterprises, Inc.'s initial public offering of common stock.
The international managers will offer 1,200,000 shares outside the United
States and Canada and the U.S. underwriters will offer 4,800,000 shares in the
United States and Canada.
We expect the public offering price to be between $10.00 and $12.00 per
share. Currently, no public market exists for the shares. After pricing of the
offering, the common stock will trade on the Nasdaq National Market under the
symbol "IIXL."
Affiliates of General Electric Company have agreed to purchase an aggregate
of 2,000,000 shares of common stock directly from iXL Enterprises, Inc. in a
private placement transaction. This investment is expected to be completed
concurrently with the closing of this initial public offering, if regulatory
and other conditions are satisfied, at a price per share equal to the initial
public offering price.
Investing in the common stock involves risks which are described in the
"Risk Factors" section beginning on page 11 of this prospectus.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price .......................... $ $
Underwriting Discount .......................... $ $
Proceeds, before expenses, to iXL Enterprises,
Inc. .......................................... $ $
</TABLE>
The international managers may also purchase up to an additional 180,000
shares at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus to cover over-allotments. The U.S.
underwriters may similarly purchase up to an aggregate of an additional 720,000
shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of common stock will be ready for delivery in New York, New
York, on or about , 1999.
-----------
Merrill Lynch International Donaldson, Lufkin & Jenrette
-----------
BancBoston Robertson Stephens SG Cowen
-----------
The date of this prospectus is , 1999.
<PAGE>
[Alternate Page for International Prospectus]
UNDERWRITING
General
Merrill Lynch International, Donaldson, Lufkin & Jenrette International,
BancBoston Robertson Stephens Inc. and SG Cowen Securities Corporation are
acting as lead managers for each of the international managers named below.
Subject to the terms and conditions set forth in an international purchase
agreement among iXL and the international managers, and concurrently with the
sale of 4,800,000 shares of common stock to the U.S. underwriters, iXL has
agreed to sell to the international managers, and each of the international
managers severally and not jointly has agreed to purchase from iXL the number
of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
Number of
International Manager Shares
--------------------- ---------
<S> <C>
Merrill Lynch International.....................................
Donaldson, Lufkin, & Jenrette International.....................
BancBoston Robertson Stephens Inc. .............................
SG Cowen Securities Corporation.................................
---------
Total........................................................... 1,200,000
=========
</TABLE>
iXL has also entered into a U.S. purchase agreement with certain
underwriters in the United States and Canada for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, BancBoston Robertson Stephens Inc. and SG Cowen Securities
Corporation are acting as representatives. Subject to the terms and conditions
set forth in the U.S. purchase agreement, and concurrently with the sale of
1,200,000 shares of common stock to the international managers pursuant to the
international purchase agreement, iXL has agreed to sell to the U.S.
underwriters, and the U.S. underwriters severally have agreed to purchase from
iXL, an aggregate of 4,800,000 shares of common stock. The initial public
offering price, and the total underwriting discount, per share of common stock
are identical under the international purchase agreement and the U.S. purchase
agreement.
In the international purchase agreement and the U.S. purchase agreement,
the several international managers and the several U.S. underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of common stock being sold pursuant to
each such agreement if any of the shares of common stock being sold pursuant to
such agreement are purchased. In the event of a default by an underwriter, the
international purchase agreement and the U.S. purchase agreement provide that,
in certain circumstances, the purchase commitments of non-defaulting
underwriters may be increased or the purchase agreements may be terminated. The
closings with respect to the sale of shares of common stock to be purchased by
the international managers and the U.S. underwriters are conditioned upon one
another.
The lead managers have advised iXL that the international managers
propose initially to offer the shares of common stock to the public at the
initial public offering price set forth on the cover page of this prospectus
and to certain dealers at such price less a concession not in excess of $
per share of common stock. The international managers may allow, and such
dealers may reallow, a discount not in excess of $ per share of common stock
to certain other dealers. After the initial public offering, the public
offering price, concession and discount may change.
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<PAGE>
[Alternate Page for International Prospectus]
Over-allotment Option
iXL has granted options to the international managers, exercisable for 30
days after the date of this prospectus, to purchase up to an aggregate of
180,000 additional shares of common stock at the initial public offering price
set forth on the cover page of this prospectus, less the underwriting discount.
The international managers may exercise these options solely to cover over-
allotments, if any, made on the sale of the common stock offered hereby. To the
extent that the international managers exercise these options, each
international managers will be obligated, subject to certain conditions, to
purchase a number of additional shares of common stock proportionate to that
international manager's initial amount reflected in the above table. iXL has
granted options to the U.S. underwriters, exercisable for 30 days after the
date of this prospectus, to purchase up to an aggregate of 720,000 additional
shares of common stock to cover over-allotments, if any, on terms similar to
those granted to the international managers.
Commissions and Discounts
The following table shows the per share and total underwriting discounts
and commissions to be paid by iXL to the underwriters and the proceeds before
expenses to iXL. This information is presented assuming either no exercise or
full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
Per Share Without Option With Option
--------- -------------- -----------
<S> <C> <C> <C>
Public Offering Price.................... $ $ $
Underwriting Discount.................... $ $ $
Proceeds, before expenses, to the
Company................................. $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $3.9 million and are payable by iXL.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and
certain other conditions. The underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part.
Reserved Shares
At iXL's request, the underwriters have reserved for sale, at the initial
public offering price, up to 10% of the shares offered hereby for employees,
directors and other persons with relationships with iXL who have expressed an
interest in purchasing shares of common stock in the offering. The number of
shares of common stock available for sale to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
not so purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered in this prospectus.
No Sales of Common Stock or Similar Securities
iXL and iXL's executive officers and directors and most existing
stockholders have agreed, subject to certain exceptions, not to directly or
indirectly
. offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any
option -- other than options granted by iXL pursuant its stock
options plans -- right or warrant for the sale of or otherwise
dispose of or transfer any shares of common stock or securities
convertible into exchangeable or exercisable for common stock,
whether now owned or thereafter acquired by the person executing the
agreement or with respect to which the person executing the
agreement thereafter acquires the power of
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<PAGE>
[Alternate Page for International Prospectus]
disposition, or file a registration statement under the Securities
Act with respect to the foregoing -- other than a registration
statement on Form S-4 covering up to 4,000,000 shares of common
stock to be issued in connection with acquisitions; or
. enter into any swap or other agreement that transfers, in whole or
in part, the economic consequences of ownership of the common stock
whether any such swap or transaction is to be settled by delivery of
common stock or other securities, in cash or otherwise, without the
prior written consent of Merrill Lynch on behalf of the underwriters
for a period of 180 days after the date of this prospectus. See
"Shares Eligible for Future Sale."
Nasdaq National Market Listing
The common stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "IIXL."
Prior to the offering, there has been no public market for iXL's common
stock. The initial public offering price will be determined through
negotiations between iXL and the lead managers and the representatives. The
factors considered in determining the initial public offering price, in
addition to prevailing market conditions, are:
. price-earnings ratio of publicly traded companies that the lead
managers and the representatives believe to be comparable to iXL;
. certain financial information of iXL;
. the history of, and the prospects for, iXL and the industry in which
it competes; and
. an assessment of (1) iXL's management, (2) its past and present
operations, (3) the prospects for, and timing of, future revenues of
iXL, (4) the present state of iXL's developments, and (5) the above
factors in relation to market values and various valuation measures
of other companies engaged in activities similar to iXL.
There can be no assurance that an active trading market will develop for
the common stock or that the common stock will trade in the public market
subsequent to the offering at or above the initial public offering price.
The underwriters do not expect sales of the common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered hereby.
Intersyndicate Agreement
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Pursuant to the intersyndicate agreement, the U.S. underwriters and
the international managers are permitted to sell shares of common stock to each
other for purposes of resale at the initial public offering price, less an
amount not greater than the selling concession. Under the terms of the
intersyndicate agreement, the U.S. underwriters and any dealer to whom they
sell shares of common stock will not offer to sell or sell shares of common
stock to persons who are non-U.S. or non- Canadian persons or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the international managers and any dealer to whom they sell shares of
common stock will not
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<PAGE>
[Alternate Page for International Prospectus]
offer to sell or sell shares of common stock to U.S. persons or to Canadian
persons or to persons they believe intend to resell to U.S. or Canadian
persons, except in the case of transactions pursuant to the intersyndicate
agreement.
iXL has agreed to indemnify the underwriters against certain liabilities,
including certain liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
Price Stabilization and Short Positions
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and certain selling group members to bid for and purchase the common stock. As
an exception to these rules, the lead managers are permitted to engage in
certain transactions that stabilize the price of the common stock. Those
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering. This means that if they sell more shares of
common stock than are set forth on the cover page of this prospectus.In that
case, the representatives and lead managers, respectively, may reduce that
short position by purchasing common stock in the open market. The
representatives and lead managers, respectively, may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above.
Penalty Bids
The representatives and lead managers, respectively, may also impose a
penalty bid on certain underwriters and selling group members. This means that
if the representatives and lead managers, respectively, purchase shares of
common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of the common stock to the extent
that it discourages resales of the common stock.
Neither iXL nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
iXL nor any of the underwriters makes any representation that the
representatives or lead managers will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Sales in Certain Jurisdictions
Each international manager has agreed that:
. it has not offered or sold and, prior to the expiration of the
period of six months from the closing date, will not offer or sell
any shares of common stock to persons in the United Kingdom, except
to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments, as principal or
agent, for the purposes of their businesses or otherwise in
circumstances which do not constitute an offer to the public in the
United Kingdom for the purposes of the Public Offers of Securities
Regulations 1995;
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<PAGE>
[Alternate Page for International Prospectus]
. it has complied and will comply with all applicable provisions of
the Public Offers of Securities Regulations 1995 and of the
Financial Services Act 1986 with respect to anything done by it in
relation to the shares of Common Stock in, from or otherwise
involving the United Kingdom; and
. it has only issued or passed on and will only issue or pass on in
the United Kingdom any document received by it in connection with
the issue or sale of shares of common stock to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 (as amended) or
is a person to whom such document may otherwise lawfully be issued
or passed on.
No action has been or will be taken in any jurisdiction -- except in the
United States -- that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to iXL or shares of common stock in any jurisdiction
where action for that purpose is required. Accordingly, the shares of common
stock may not be offered or sold, directly or indirectly, and neither this
prospectus nor any other offering material or advertisements in connection with
the shares of common stock may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.
Purchasers of the shares offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page hereof.
Other Relationships
iXL provides services to Merrill Lynch and certain of its affiliates in
the ordinary course of business. Donaldson, Lufkin & Jenrette from time to time
provides investment banking services to Kelso & Company and its affiliates.
General Electric has agreed to purchase an aggregate of 2,000,000 shares
of common stock directly from iXL in a private placement transaction. This
investment is expected to be completed concurrently with the closing of this
initial public offering, at a price per share equal to the initial public
offering price. iXL has retained Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation to act as
advisors for this private placement and will pay advisory fees of $250,000 to
each. iXL will also indemnify these advisors against certain liabilities
relating to this private placement, including liabilities under the Securities
Act.
iXL has retained Merrill Lynch to conduct a valuation of CFN for a
customary fee not to exceed $500,000.
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<PAGE>
[Alternative Page for International Prospectus]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
6,000,000 Shares
[LOGO OF IXL ENTERPRISES, INC. APPEARS HERE]
iXL ENTERPRISES, INC.
Common Stock
----------------
PROSPECTUS
----------------
Merrill Lynch International
Donaldson, Lufkin & Jenrette
----------------
BancBoston Robertson Stephens
SG Cowen
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
Item 13. Other Expenses of Issuance and Distribution.
The following table indicates the expenses to be incurred in connection
with the offering described in this Registration Statement, all of which will
be paid by iXL. All amounts are estimates, other than the registration fee, the
NASD fee, and the NASDAQ listing fee.
<TABLE>
<S> <C>
Registration fee.................................................... $23,978
NASD fee............................................................ 9,125
NASDAQ listing fee.................................................. *
Accounting fees and expenses........................................ *
Legal fees and expenses............................................. *
Director and officer insurance expenses............................. *
Printing and engraving.............................................. *
Transfer Agent fees and expenses.................................... *
Blue sky fees and expenses.......................................... *
Miscellaneous expenses.............................................. *
-------
Total............................................................. $
=======
</TABLE>
- --------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers.
iXL's Certificate of Incorporation and Bylaws provide that officers and
directors who are made a party to or are threatened to be made a party to or is
otherwise involved in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was an officer or a director of iXL or is or was serving at the request
of iXL as a director or an officer of another corporation or of a partnership,
joint venture, trust, or other enterprise, including service with respect to an
employee benefit plan (an "indemnitee"), whether the basis of such proceeding
is alleged action in an official capacity as a director or officer or in any
other capacity while serving as a director or officer, shall be indemnified and
held harmless by iXL to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits iXL
to provide broader indemnification rights than permitted prior thereto),
against all expense, liability, and loss (including, without limitation,
attorneys' fees, judgments, fines, excise taxes or penalties, and amounts paid
or to be paid in settlement) incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue with respect to an
indemnitee who has ceased to be a director or officer and shall inure to the
benefit of the indemnitee's heirs, executors and administrators; provided,
however, that iXL shall indemnify any such indemnitee in connection with a
proceeding initiated by such indemnitee only if such proceeding was authorized
by the Board of Directors. The right to indemnification includes the right to
be paid by iXL for expenses incurred in defending any such proceeding in
advance of its final disposition. Officers and directors are not entitled to
indemnification if such persons did not meet the applicable standard of conduct
set forth in the Delaware General Corporation Law for officers and directors.
Section 145 of the Delaware General Corporation Law provides, among other
things, that iXL may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than an action by or in the right of iXL) by reason
of the fact that the person is or was a director, officer, agent or employee of
iXL or is or was serving at the iXL's request as a director, officer, agent, or
employee of another corporation, partnership, joint venture, trust or other
enterprise,
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<PAGE>
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding. The power to indemnify applies if such person
is successful on the merits or otherwise in defense of any action, suit or
proceeding, or if such person acted in good faith and in a manner he reasonably
believed to be in the best interest, or not opposed to the best interest, of
iXL, and with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The power to indemnify applies to
actions brought by or in the right of iXL as well, but only to the extent of
defense expenses (including attorneys' fees but excluding amounts paid in
settlement) actually and reasonably incurred and not to any satisfaction of a
judgment or settlement of the claim itself, and with the further limitation
that in such actions no indemnification shall be made in the event of any
adjudication of negligence or misconduct in the performance of his duties to
iXL, unless the court believes that in light of all the circumstances
indemnification should apply.
The indemnification provisions contained in iXL's Certificate of
Incorporation and Bylaws are not exclusive of any other rights to which a
person may be entitled by law, agreement, vote of stockholders or disinterested
directors or otherwise. In addition, iXL maintains insurance on behalf of its
directors and executive officers insuring them against any liability asserted
against them in their capacities as directors or officers or arising out of
such status.
Item 15. Recent Sales of Unregistered Securities.
The following is a summary of transactions by iXL since its inception
involving sales of iXL's securities that were not registered under the
Securities Act of 1933.
1. On April 12, 1996, iXL issued and sold 300 shares of common stock in a
private placement to U. Bertram Ellis, Jr., James V. Sandry and James S.
Altenbach, each a founder of iXL for an aggregate of $300 in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
2. On April 30, 1996, iXL issued and sold 101,500 shares of its Class A
Convertible Preferred Stock, in a private placement to eight investors for an
aggregate of $10,150,000 in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder. The eight investors were Kelso Investment Associates
V, L.P., Kelso Equity Partners V, L.P., U. Bertram Ellis, Jr., James V. Sandry,
James S. Altenbach and three other investors.
3. On April 30, 1996, iXL issued and sold 3,959,500 shares of common
stock in a private placement to ten investors in connection with the
acquisition of iXL Interactive Excellence, Inc., Creative Video Library, Inc.,
Creative Video, Inc. and Entrepreneur Television, Inc. Each of the investors
was a stockholder of one of the acquired corporations. The issuance of common
stock was made in reliance on Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated thereunder.
4. During the period from April 30, 1996 through March 30, 1999, iXL
granted options for no consideration to purchase an aggregate of 23,994,743
shares of common stock to 1,549 employees pursuant to the IXL Holdings, Inc.
1996 Stock Option Plan in reliance on Rule 701 promulgated under the Securities
Act and under Section 4(2) of the Securities Act. Options issued for 18,567,539
shares of common stock cannot be exercised prior to the earlier of the
registration of the underlying common stock under the Securities Act or six
years from the date of issuance.
5. On September 30, 1996, iXL issued and sold 10,000 shares of its Class
A Convertible Preferred Stock for $1,000,000 in a private placement to U.
Bertram Ellis, Jr., James V. Sandry and James S. Altenbach, and 25,000 shares
of common stock for $25,000 in a private placement to one additional executive
officer of iXL, each in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder.
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<PAGE>
6. On December 16, 1996, iXL issued and sold 50,000 shares of common
stock in a private placement to one stockholder of Consumer Financial Network,
Inc. in connection with the acquisition of that corporation by iXL. This
issuance of common stock was made in reliance on Section 4(2) of the Securities
Act and Rule 506 of Regulation D promulgated thereunder.
7. On February 15, 1997, iXL issued and sold 40,000 shares of common
stock in a private placement to two members of Webbed Feet, LLC in connection
with the acquisition of that company by iXL. This issuance of common stock was
made in reliance on Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder.
8. On April 4, 1997, iXL issued and sold 454,400 shares of its common
stock in a private placement to one stockholder of The Whitley Group, Inc. in
connection with the acquisition of that corporation by iXL. This issuance of
common stock was made in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
9. From April 4, 1997 through August 29, 1997, iXL issued and sold an
aggregate of 57,760 shares of its Class A Convertible Preferred Stock for an
aggregate of $14,440,000 to 38 investors in reliance on Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated thereunder. The 38
investors were Kelso Investment Associates V, L.P., Kelso Equity Partners V,
L.P., six directors or executive officers of iXL and 30 other persons.
10. On May 31, 1997, iXL issued and sold 3,416,700 shares of common
stock, and warrants to purchase 230,900 shares of common stock in a private
placement to 11 stockholders of BoxTop Interactive, Inc. in connection with the
acquisition of that corporation by iXL. This issuance of securities was made in
reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder.
11. On July 28, 1997, iXL issued and sold 283,900 shares of common stock
in a private placement to five stockholders of Swan Interactive Media, Inc. in
connection with the acquisition of that corporation by iXL. This issuance of
common stock was made in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
12. From December 17, 1997 through December 23, 1997, iXL issued and sold
in a private placement to four investors (i) 83,075 shares of its Class B
Convertible Preferred Stock, and warrants to purchase 10,650 shares of Class B
Convertible Preferred Stock for an aggregate of $26,999,375 and (ii) 9,232
shares of its Class C Convertible Preferred Stock, for an aggregate of
$3,000,400 in reliance on Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder. The investors were Chase Venture Capital
Associates, L.P., Flatiron Partners, LLC, Greylock IX Limited Partnership and
General Electric Capital Corporation.
13. On January 23, 1998, iXL issued and sold 271,356 shares of common
stock in a private placement to two stockholders of Small World Software, Inc.
in connection with the acquisition of that corporation. This issuance of common
stock was made in reliance on Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated thereunder.
14. On February 5, 1998, iXL issued and sold 344,270 shares of common
stock in a private placement to 18 members of Green Room Productions, L.L.C. in
connection with the acquisition of that company by iXL. This issuance of common
stock was made in reliance on Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated thereunder.
15. From February 19, 1998 through February 27, 1998, iXL issued and sold
in a private placement an aggregate of (a) 3,192 shares of its Class A
Convertible Preferred Stock and (b) 15,692 shares of its Class B Convertible
Preferred Stock plus warrants to purchase 1,810 shares of Class B Convertible
Preferred Stock for
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<PAGE>
an aggregate of $6,137,300 to 13 investors in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder. The investors were Mellon Ventures II,
L.P., Thomson U.S. Inc. and 11 other persons who were either then executive
officers or employees of iXL, family members of executive officers or employees
of iXL or existing stockholders of iXL.
16. On March 27, 1998, iXL issued and sold 266,000 shares of common stock
in a private placement to Continental Communications Group, Inc. in connection
with the acquisition of certain assets of that corporation by iXL. This
issuance of common stock was made in reliance on Section 4(2) of the Securities
Act and Rule 506 of Regulation D promulgated thereunder.
17. On May 8, 1998, iXL issued and sold 155,200 shares of common stock in
a private placement to five stockholders of Spin Cycle Entertainment, Inc. in
connection with the acquisition of that corporation by iXL. This issuance of
common stock was made in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
18. On May 12, 1998, iXL issued and sold 195,834 shares of common stock
in a private placement to three stockholders of InTouch Interactive, Inc. in
connection with the acquisition of that corporation by iXL. This issuance of
common stock was made in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
19. On May 12, 1998, iXL issued and sold 359,584 shares of common stock
in a private placement to four stockholders of Digital Planet in connection
with the acquisition of that corporation by iXL. This issuance of common stock
was made in reliance on Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder.
20. On May 14, 1998, iXL issued and sold 740,000 shares of common stock
in a private placement to two stockholders of Micro Interactive, Inc. in
connection with the acquisition of that corporation by iXL. This issuance of
common stock was made in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
21. On May 20, 1998, iXL issued and sold an aggregate of 539 shares of
Class A Convertible Preferred Stock in a private placement to four investors
for an aggregate consideration of $175,175. This issuance of common stock was
made in reliance on Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder.
22. From June 29, 1998 through September 18, 1998, iXL issued and sold an
aggregate of 4,300 shares of Class A Convertible Preferred Stock in a private
placement to 53 investors, including David E. Clauson and William C. Nussey,
for an aggregate consideration of $4,300,000. This issuance was made in
reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder.
23. On July 2, 1998, iXL issued and sold 877,898 shares of common stock
in a private placement to six stockholders of CommerceWAVE, Inc. in connection
with the acquisition of that corporation by iXL. This issuance of common stock
was made in reliance on Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder.
24. On July 8, 1998, iXL issued and sold 50,000 shares of common stock in
a private placement to two stockholders of Wissing & Laurence, Inc. in
connection with the acquisition of that corporation by iXL. This issuance of
common stock was made in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
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<PAGE>
25. On July 16, 1998, iXL issued and sold 200,000 shares of common stock
in a private placement to two stockholders of 601 Design, Inc. in connection
with the acquisition by iXL of certain assets of the 601 Design business. This
issuance of common stock was made in reliance on Section 4(2) of the Securities
Act and Rule 506 of Regulation D promulgated thereunder.
26. On July 22, 1998, iXL issued and sold 378,999 shares of common stock
in a private placement to six stockholders of Image Communications, Inc. in
connection with the acquisition of that corporation by iXL. This issuance of
common stock was made in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
27. On July 28, 1998, iXL issued and sold 37,107 shares of common stock
in a private placement to two Spanish stockholders of Campana New Media, S.L.
and The Other Media, S.L. This issuance of common stock was made in reliance on
Section 4(2) of the Securities Act or, in the alternative, on the Securities
Act not being applicable to this transaction.
28. On July 30, 1998, iXL issued and sold 674,132 shares of common stock
in a private placement to two stockholders of Spinners Incorporated in
connection with the acquisition of that corporation by iXL. This issuance of
common stock was made in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
29. From August 14, 1998 through August 31, 1998, iXL issued and sold an
aggregate of 35,700 shares of Class D Nonvoting Preferred Stock, par value $.01
per share, in a private placement to 10 accredited investors for an aggregate
consideration of $35,700,000 in reliance on Section 4(2) of the Securities Act.
The investors were CB Capital Investors, LP, The Flatiron Fund 1998/99, LLC,
Friends of Flatiron, LLC, Mellon Ventures II, L.P., Thomson U.S. Inc., General
Electric Capital Corporation, Kelso Investment Associates V, L.P., Kelso Equity
Partners V, L.P., U. Bertram Ellis, Jr. and James S. Altenbach.
30. On September 4, 1998, iXL issued and sold 762,622 shares of common
stock in a private placement to two stockholders of Tekna, Inc. in connection
with the acquisition of that corporation by iXL. This issuance of common stock
was made in reliance on Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder.
31. On September 7, 1998, iXL issued and sold 321,428 shares of common
stock in a private placement to four German stockholders of LAVA Gesellschaft
fur Digitale Medien GmbH in connection with the acquisition of that corporation
by iXL. This issuance of common stock was made in reliance on Section 4(2) of
the Securities Act or, in the alternative, on the Securities Act not being
applicable to this transaction.
32. On September 9, 1998, iXL issued and sold 113,823 shares of common
stock and warrants to purchase 9,106 shares of common stock in a private
placement to four securities holders of Larry Miller Productions, Inc. in
connection with the acquisition of that corporation by iXL. This issuance of
common stock was made in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
33. On September 10, 1998, iXL issued and sold 42,852 shares of common
stock in a private placement to one British stockholder of Denovo New Media
Limited in connection with the acquisition of that corporation by iXL. This
issuance of common stock was made in reliance on Section 4(2) of the Securities
Act or in the alternative, on the Securities Act not being applicable to this
transaction.
34. On September 10, 1998, iXL issued and sold 275,000 shares of common
stock in a private placement to one stockholder of Exchange Place Solutions,
Inc. in connection with the acquisition of that corporation by iXL. This
issuance of common stock was made in reliance on Section 4(2) of the Securities
Act and Rule 506 of Regulation D promulgated thereunder.
35. On September 18, 1998, iXL issued and sold 271,787 shares of common
stock in a private placement to three stockholders of Pantheon Interactive,
Inc. in connection with the acquisition of that
II-5
<PAGE>
corporation by iXL. This issuance of common stock was made in reliance on
Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder.
36. On September 18, 1998, iXL issued and sold 269,421 shares of common
stock in a private placement to six members of Two-Way Communications, L.L.C.
in connection with the acquisition of that company by iXL. This issuance of
common stock was made in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
37. On September 22, 1998, iXL issued and sold 701,375 shares of common
stock in a private placement to one member of NetResponse, L.L.C. in connection
with the acquisition of that company by iXL. This issuance of common stock was
made in reliance on Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder.
38. On September 23, 1998, iXL issued and sold 358,551 shares of common
stock in a private placement to one stockholder of Ionix Development
Corporation in connection with the acquisition of that corporation by iXL. This
issuance of common stock was made in reliance on Section 4(2) of the Securities
Act and Rule 506 of Regulation D promulgated thereunder.
39. On September 24, 1998, iXL issued and sold 378,066 shares of common
stock in a private placement to three stockholders of Pequot Systems, Inc. in
connection with the acquisition of that corporation by iXL. This issuance of
common stock was made in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
40. On October 15, 1998, iXL issued and sold 2,000 shares of common stock
in a private placement to one investor for an aggregate consideration of
$20,000 in connection with a joint marketing relationship. This issuance of
common stock was made in reliance on Section 4(2) of the Securities Act.
41. On December 14, 1998, iXL issued for no cash consideration warrants
to purchase 500,000 shares of common stock in a private placement to General
Electric Capital Corporation in reliance on Section 4(2) of the Securities Act.
42. During the period from December 10, 1998 through March 26, 1999, iXL
granted options to purchase an aggregate of 590,464 shares of common stock to
31 non-employee directors or consultants of iXL pursuant to the iXL
Enterprises, Inc. 1998 Non-Employee Stock Option Plan in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act.
Options issued for 374,064 shares of common stock cannot be exercised prior to
the earlier of the registration of the underlying common stock under the
Securities Act or six years from the date of issuance.
43. On December 31, 1998, iXL issued for no cash consideration warrants
to purchase 500,000 shares of common stock in a private placement to Delta Air
Lines, Inc., in reliance on the exemption from registration provided by Section
4(2) of the Securities Act. These warrants were issued in connection with a
services agreement between iXL, Inc. and Delta Air Lines, Inc.
44. From January 15, 1999 through January 19, 1999, iXL issued and sold
22,825 shares of Class A Convertible Preferred Stock in a private placement to
Greystone Capital Partners I, L.P., Trigon Healthcare, Inc., Cox Technology
Investments, Inc., General Electric Capital Assurance Company and 23 other
investors, for an aggregate consideration of $22,825,000 in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder.
45. On May 3, 1999, iXL issued for no cash consideration warrants to
purchase 1,000,000 shares of common stock in a private placement to GE Capital
Equity Investments, Inc. in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder. These warrants were issued in connection with a
services agreement between iXL-New York, Inc. and General Electric Capital
Corporation.
II-6
<PAGE>
46. On the later of the closing of this offering or the second business
day after satisfaction of regulatory conditions, iXL expects to issue and sell
to affiliates of General Electric Company (1) 2,000,000 shares of common stock
for a price per share equal to the price per share in this offering, and (2)
warrants to purchase 1,500,000 shares of common stock (for no cash
consideration), each in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder.
Item 16. Exhibits and Financial Statement Schedules.
a. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of U.S. Purchase Agreement
1.2 Form of International Purchase Agreement
2.1 Exchange Agreement, dated April 30, 1996, between iXL Enterprises,
Inc., Creative Video Library, Inc. and its stockholders for the
purchase of all of the issued and outstanding capital stock of
Creative Video Library, Inc.+
2.2 Exchange Agreement, dated April 30, 1996, between iXL Enterprises,
Inc., Creative Video, Inc. and its stockholders for the purchase of
all of the issued and outstanding capital stock of Creative Video,
Inc.+
2.3 Exchange Agreement, dated April 30, 1996, between iXL Enterprises,
Inc., IXL Interactive Excellence, Inc. and its stockholders for the
purchase of all of the issued and outstanding Stock of IXL Interactive
Excellence, Inc.+
2.4 Exchange Agreement, dated April 30, 1996, between iXL Enterprises,
Inc., Entrepreneur Television, Inc. and its stockholders for the
purchase of all of the issued and outstanding capital stock of
Entrepreneur Television, Inc.+
2.5 Purchase and Sale Agreement, dated as of June 5, 1996, by and among
IXL Acquisition Corp., Memphis On Line, Inc. Southern On Line Systems,
Inc., and Southern Tel Supply, Inc.+
2.6 Agreement and Plan of Merger, dated as of December 13, 1996, by and
among IXL Merger Corp., the Registrant, Consumer Financial Network,
Inc., Mellett, Reene & Smith, LLC, Derek V. Smith, Michael W. Reene
and Edwin R. Mellett.+
2.7 Asset Purchase Agreement, dated as of February 14, 1997, by and
between iXL Enterprises, Inc., iXL, Inc., Webbed Feet, LLC, F. Blair
Schmidt-Fellner and Michael Brendon Dowdle.+
2.8 Agreement and Plan of Merger, dated as of April 4, 1997, by and
between iXL Enterprises, Inc., IXL Merger Corp. II, Inc., The Whitley
Group, Inc. and William C. Whitley.+
2.9 Agreement of Plan of Merger, dated as of May 30, 1997, by and between
iXL Enterprises, Inc., IXL Merger Corp. III, Inc., BoxTop Interactive,
Inc., and the Shareholders of Boxtop Interactive, Inc.+
2.10 Agreement and Plan of Merger, dated as of July 28, 1997, by and
between iXL Enterprises, Inc., IXL Merger Corp. IV, Inc., Mark
Swanson, N. Blake Patton, Marc Sirkin, Edwin Davis, Estate of Robert
H. Kriebel and Swan Interactive Media, Inc.+
2.11 Agreement and Plan of Merger, dated as of January 23, 1998, by and
between iXL Enterprises, Inc., iXL-New York, Inc., Small World
Software, Inc., and the Shareholders of Small World.+
2.12 Asset Purchase Agreement, dated as of February 5, 1998, by and between
iXL Enterprises, Inc., iXL-San Francisco, Inc., Green Room
Productions, L.L.C. and the Controlling Members.+
2.13 Asset Purchase Agreement, dated as of March 27, 1998, by and between
iXL Enterprises, Inc., iXL-Denver, Inc., Continental Communications
Group, Inc., d/b/a Customer Communications Group, Inc. and John R.
Klug.+
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.14 Agreement and Plan of Merger, dated as of May 4, 1998, by and between
iXL Enterprises, Inc., iXL-New York, Inc., Micro Interactive, Inc. and
the Micro Shareholders.+
2.15 Agreement and Plan of Merger, dated as of May 8, 1998, by and between
iXL Enterprises, Inc., iXL-Los Angeles, Inc., Spin Cycle Entertainment
and the SCE Shareholders.+
2.16 Agreement and Plan of Merger, dated as of May 12, 1998, by and between
iXL Enterprises, Inc., iXL-Los Angeles, Inc., Digital Planet and the
Digital Shareholders.+
2.17 Agreement and Plan of Merger, dated as of May 12, 1998, by and between
InTouch Interactive, Inc., iXL Enterprises, Inc., iXL-Charlotte, Inc.,
and the InTouch Shareholders.+
2.18 Share Sale and Purchase Agreement dated as of 11 May, 1998 between,
iXL London Limited, and Derek Scanlon.+
2.19 Agreement and Plan of Merger, dated as of July 2, 1998, by and between
CommerceWAVE, Inc., iXL Enterprises, Inc., iXL-San Diego, Inc., and
the CommerceWAVE shareholders.+
2.20 Agreement and Plan of Merger, dated as of July 8, 1998, by and between
iXL Enterprises, Inc., iXL-New York, Inc., Wissing & Laurence, Inc.
and the W&L Shareholders.+
2.21 Asset Purchase Agreement, dated as of July 16, 1998, by and among
Robert Ortiz and John Tierney, iXL Enterprises, Inc. and iXL-New York,
Inc.+
2.22 Agreement and Plan of Merger, dated as of July 22, 1998, by and
between Image Communications, Inc., iXL Enterprises, Inc., iXL-DC,
Inc., and the Image Shareholders.+
2.23 Share Purchase Agreement, dated as of July 28, 1998, by and among iXL
Enterprises, Inc., iXL-Madrid, S.A., Campana New Media, S.L, The Other
Media, S.L., the Campana Companies Beneficial Owners and the Campana
Companies Shareholders.+
2.24 Agreement and Plan of Merger, dated as of July 30, 1998, by and among
Spinners Incorporated, iXL Enterprises, Inc., iXL-Boston, Inc. and the
Spinners Shareholders.+
2.25 Agreement and Plan of Merger, dated as of September 4, 1998, by and
among iXL Enterprises, Inc., iXL-Richmond, Inc., Tekna, Inc., and the
Tekna Shareholders.+
2.26 Share Sale and Purchase Agreement, dated as of September 7, 1998, by
and between iXL Enterprises, Inc., Jens Bley, Manfred Otterbreit,
Stephan Balzerand Matthias Oelmann.+
2.27 Agreement and Plan of Merger dated as of September 9, 1998 by and
among iXL Enterprises, Inc., iXL-Boston, Inc., Larry Miller
Productions, Inc., and the LMP Principals.+
2.28 Agreement and Plan of Merger, dated as of September 10, 1998, by and
between iXL Enterprises, Inc., iXL, Inc., Exchange Place Solutions,
Inc., and the Exchange Place Shareholder.+
2.29 Agreement and Plan of Merger, dated as of September 18, 1998, by and
among iXL Enterprises, Inc., iXL-San Francisco, Inc., Pantheon
Interactive, Inc., and the Pantheon Shareholders.+
2.30 Agreement and Plan of Merger, dated as of September 18, 1998, by and
among iXL Enterprises, Inc., iXL-Chicago, Inc., Two-Way
Communications, L.L.C., and the TWC Members.+
2.31 Agreement and Plan of Merger, dated as of September 22, 1998, by and
between iXL Enterprises, Inc., iXL-DC, Inc., NetResponse, L.L.C., and
Next Century Communications Corp.+
2.32 Agreement and Plan of Merger, dated as of September 23, 1998, by and
among iXL Enterprises, Inc., iXL-Chicago, Inc., Ionix Development,
Corporation, and the Ionix Shareholder.+
2.33 Agreement and Plan of Merger, dated as of September 24, 1998, by and
between iXL Enterprises, Inc., iXL-Connecticut, Inc., Pequot Systems,
Inc. and the Pequot Shareholders.+
3.1 Form of Amended and Restated Certificate of Incorporation.+
3.2 Form of Amended and Restated Bylaws.+
4.1 Form of Common Stock Certificate.+
4.2 Form of Mandatorily Exercisable Common Stock Warrant Agreement.+
4.3 Form of Class B Convertible Preferred Stock Warrant Agreement.+
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
4.4 Form of Class A Common Stock Warrant Agreement.+
4.5 Form of Class B Common Stock Warrant Agreement.+
4.6 Investor Stockholders Agreement, dated as of April 30, 1996, as
amended.+
4.7 Form of Third Amended and Restated Stockholders' Agreement.+
5.1 Opinion of Minkin & Snyder, a Professional Corporation.*
10.1 Employment Agreement between Boxtop Interactive, Inc. and Kevin Wall,
dated as of August 1, 1996, as amended, together with related
agreements.+
10.2 Employment Agreement dated as of May 1, 1998 between iXL, Inc. and
William C. Nussey.+
10.3 Employment Agreement dated August 17, 1998 between iXL, Inc. and David
Clauson.+
10.4 Employment Agreement dated November 28, 1999 between Consumer
Financial Network, Inc. and C. Cathleen Raffaeli.
10.5 iXL Enterprises, Inc. 1996 Stock Option Plan, together with related
agreements.+
10.6 iXL Enterprises, Inc. 1998 Non-Employee Stock Option Plan, together
with related agreements.+
10.7 iXL Enterprises, Inc. 1999 Employee Stock Option Plan.+
10.8 Advisory Agreement dated as of April 30, 1996 by and between IXL
Holdings, Inc. and Kelso & Company, together with form of amendment.+
10.9 Consulting Agreement dated as of February 5, 1999 by and between iXL
Enterprises, Inc. and Kelso & Company.+
10.10 Promissory Note, dated as of January 14, 1997, made by IXL-Memphis,
Inc. in favor of First Tennessee Bank National Association, in the
original principal amount of $499,000 and agreements related thereto.+
10.11 Promissory Note, dated as of May 30, 1997, in the principal aggregate
amount of $50,000 in favor of the Registrant from Kevin Wall.+
10.12 Promissory Note, dated as of September 15, 1997, in the principal
aggregate amount of $500,000 in favor of U. Bertram Ellis from iXL
Enterprises, Inc.+
10.13 Promissory Note, dated as of September 18, 1997, in the principal
aggregate amount of $300,000 in favor of James Rocco from iXL
Enterprises, Inc.+
10.14 Promissory Note, dated as of September 29, 1997, in the principal
aggregate amount of $100,000 in favor of James S. Altenbach from iXL
Enterprises, Inc.+
10.15 Promissory Note, dated as of October 10, 1997, in the principal
aggregate amount of $1,000,000 in favor of U. Bertram Ellis, Jr. from
iXL Enterprises, Inc.+
10.16 Promissory Note, dated as of October 30, 1997, in the principal
aggregate amount of $1,000,000 in favor of U. Bertram Ellis, Jr. from
iXL Enterprises, Inc.+
10.17 Promissory Note, dated as of November 25, 1997, in the principal
aggregate amount of $1,000,000 in favor of U. Bertram Ellis, Jr. from
iXL Enterprises, Inc.+
10.18 Promissory Note, dated as of December 3, 1997, in the principal
aggregate amount of $1,300,000 in favor of U. Bertram Ellis, Jr. from
iXL Enterprises, Inc.+
10.19 Promissory Note, dated as of June 19, 1998, in the principal aggregate
amount of $4,000,000 in favor of Deborah Hicks Ellis from iXL
Enterprises, Inc. and certain of its subsidiaries and related
agreements.+
10.20 Promissory Note, dated as of July 20, 1998, in the principal aggregate
amount of $2,000,000 in favor of U. Bertram Ellis, Jr. from iXL
Enterprises, Inc.+
10.21 Credit Agreement, dated as of July 29, 1998, as amended and restated
as of November 30, 1998, among iXL Enterprises, Inc., the Lenders
party thereto and The Chase Manhattan Bank as Administrative Agent and
related agreements.+
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.22 Promissory Note, dated as of September 18, 1998, between David Clauson
(as Maker) and iXL Enterprises, Inc. together with Stock Pledge
Agreement.+
10.23 Subscription Agreement for Common Stock dated April 12, 1996 between
iXL Enterprises, Inc. and U. Bertram Ellis, Jr.+
10.24 Subscription Agreement for Common Stock dated April 12, 1996 between
iXL Enterprises, Inc. and James S. Altenbach.+
10.25 Subscription Agreement for Class A Convertible Preferred Stock dated
April 30, 1996 between iXL Enterprises, Inc. and U. Bertram Ellis,
Jr.+
10.26 Subscription Agreement for Class A Convertible Preferred Stock dated
April 30, 1996 between iXL Enterprises, Inc. and U. Bertram Ellis,
Jr., James V. Sandry and James S. Altenbach.+
10.27 Subscription Agreement for Class A Convertible Preferred Stock dated
June 3, 1996 between iXL Enterprises, Inc. and James S. Altenbach.+
10.28 Subscription Agreement for Class A Convertible Preferred Stock dated
April 4, 1997 between iXL Enterprises, Inc. and Kelso Investment
Associates V, L.P.+
10.29 Subscription Agreement for Class A Convertible Preferred Stock dated
April 4, 1997 between iXL Enterprises, Inc. and Kelso Equity Partners
V, L.P.+
10.30 Subscription Agreement for Class A Convertible Preferred Stock dated
April 4, 1997 between iXL Enterprises, Inc. and U. Bertram Ellis, Jr.+
10.31 Subscription Agreement for Class A Convertible Preferred Stock dated
April 4, 1997 between iXL Enterprises, Inc. and James S. Altenbach.+
10.32 Intentionally Omitted.
10.33 Subscription Agreement for Class A Convertible Preferred Stock dated
August 25, 1998 between iXL Enterprises, Inc. and William C. Nussey.+
10.34 Subscription Agreement for Class A Convertible Preferred Stock dated
September 18, 1998 between iXL Enterprises, Inc. and David Clauson.+
10.35 Exchange Agreement, dated April 30, 1996, between iXL Enterprises,
Inc., Creative Video Library, Inc. and its stockholders for the
purchase of all of the issued and outstanding capital stock of
Creative Video Library, Inc. (contained in Exhibit 2.1).+
10.36 Exchange Agreement, dated April 30, 1996, between iXL Enterprises,
Inc., Creative Video, Inc. and its stockholders for the purchase of
all of the issued and outstanding capital stock of Creative Video,
Inc. (contained in Exhibit 2.2).+
10.37 Exchange Agreement, dated April 30, 1996, between iXL Enterprises,
Inc., Entrepreneur Television, Inc. and its stockholders for the
purchase of all of the issued and outstanding capital stock of,
Entrepreneur Television, Inc. (contained in Exhibit 2.3).+
10.38 Agreement and Plan of Merger, dated May 30, 1997, by and among iXL
Enterprises, Inc., iXL Merger Corp. III, Inc., Boxtop Interactive,
Inc., and the Stockholders of Boxtop Interactive, Inc. (contained in
Exhibit 2.9).+
10.39 Securities Purchase Agreement, dated December 17, 1997, among iXL
Enterprises, Inc. and Chase Venture Capital Associates, L.P., Flatiron
Partners, LLC and Greylock IX Limited Partnership and related
agreement.+
10.40 Warrant Agreement, dated as of December 17, 1997, by and among iXL
Enterprises, Inc., Chase Venture Capital Associates, L.P., Flatiron
Partners, L.L.C., and Greylock IX Limited Partnership.+
10.41 Securities Purchase Agreement, dated December 23, 1997, among iXL
Enterprises, Inc. and General Electric Capital Corporation.+
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.42 Warrant Award Agreement dated as of December 23, 1997 by and between
iXL Enterprises, Inc. and General Electric Capital Corporation.+
10.43 Warrant Agreement, dated as of December 23, 1997, by and between iXL
Enterprises, Inc. and General Electric Capital Corporation.+
10.44 Warrant Award Agreement dated as of March 12, 1998 by and between iXL
Enterprises, Inc. and Chase Venture Capital Associates, L.P., and
related agreement.+
10.45 Securities Purchase Agreement, dated March 30, 1998, between iXL
Enterprises, Inc. and Kevin Wall for the purchase of shares of iXL
Enterprises, Inc.'s Common Stock.+
10.46 Securities Purchase Agreement, dated August 14, 1998, among iXL
Enterprises, Inc. and CB Capital Investors, L.P., The Flatiron Fund
1998/99, LLC, Friends of Flatiron, LLC, and Mellon Ventures II, L.P.+
10.47 Securities Purchase Agreement, dated January 15, 1999, among iXL
Enterprises, Inc. and the Purchasers listed therein for the purchase
of shares of iXL Enterprises, Inc.'s Class A Convertible Preferred
Stock.+
10.48 Stock Purchase Agreement dated November 3, 1998, between Consumer
Financial Network, Inc. and General Electric Capital Corporation for
the purchase of shares of Series A Convertible Preferred Stock, $.01
par value per share, of Consumer Financial Network, Inc.+
10.49 Warrant Agreement, dated as of November 3, 1998, among iXL
Enterprises, Inc. and General Electric Capital Corporation.+
10.50 Stockholders' Agreement dated November 3, 1999 among Consumer
Financial Network, Inc., iXL Enterprises, Inc. and General Electric
Capital Corporation.+
10.51 Guaranty of License Agreement dated April 27, 1998 between Consumer
Financial Network, Inc. and Charter Federal Savings & Loan Association
of West Point, Georgia.+
10.52 Lease Agreement dated January 8, 1997 between Park Place Emery, L.L.C.
and iXL, Inc., as amended.+
10.53 Registration Rights Agreement dated as of April 30, 1996 among iXL
Enterprises, Inc. and Kelso Investment Associates V, L.P., Kelso
Equity Partners V, L.P., Kelso Equity Partners V, L.P., and certain
other stockholders of the Registrant.+
10.54 Form of Indemnification Agreement.+
10.55 Form of Amended and Restated Registration Rights Agreement by and
among iXL Enterprises, Inc., Consumer Financial Network, Inc., GE
Capital Equity Investments, Inc., General Electric Pension Trust and
General Electric Capital Corporation.+
10.56 Master Services Agreement dated April 7, 1999 by and between iXL-New
York, Inc. and General Electric Capital Corporation.+
10.57 Warrant Agreement dated April 7, 1999 by and between iXL Enterprises,
Inc. and GE Capital Equity Investments, Inc.+
10.58 Stock Purchase Agreement dated April 7, 1999 by and between Consumer
Financial Network, Inc., GE Capital Equity Investments, Inc., and
General Electric Pension Trust.+
10.59 Securities Purchase Agreement dated April 7, 1999 by and among iXL
Enterprises, Inc., GE Capital Equity Investments, Inc., and the
General Electric Pension Trust.+
10.60 Form of Warrant Agreement by and between iXL Enterprises, Inc. and GE
Capital Equity Investments, Inc.+
10.61 Form of Investor Agreement by and between GE Capital Equity
Investments, Inc., the General Electric Pension Trust, iXL
Enterprises, Inc. and Consumer Financial Network, Inc.+
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.62 Form of Amended and Restated Stockholders' Agreement among Consumer
Financial Network, Inc., iXL Enterprises, Inc., GE Capital Equity
Investments, Inc., the General Electric Pension Trust and General
Electric Capital Corporation, as amended.+
10.63 Information Services Agreement dated June 30, 1997 among Consumer
Financial Network, Inc., CFN Agency, Inc. and Electric Insurance
Company.
10.64 Master Service Agreement dated as of December 31, 1998 by and between
iXL, Inc. and Delta Air Lines, Inc.
10.65 Warrant Agreement dated December 31, 1998 by and between iXL
Enterprises, Inc. and Delta Air Lines, Inc.
21.1 Subsidiaries of the Company.+
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Minkin & Snyder, a Professional Corporation (contained in
Exhibit 5.1).
24.1 Power of Attorney.**
27.1 Financial Data Schedule.+
99.1 Consent to be Named in Registration Statement+
</TABLE>
- --------
+ Filed previously.
* To be provided by amendment.
** With respect to Jeffrey T. Arnold included on signature pages to Amendment
No. 1 filed on April 7, 1999; with respect to all other signatures included
on the signature page to the initial filing of this Form S-1 on February 5,
1999.
b. Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the provisions described in Item 14, or otherwise,
the registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. In the event that a claim
for indemnification by the registrant against such liabilities (other than the
payment by the registrant of express incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any
action, suit, or proceeding) is asserted by such director, or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or
(4) or 497 (h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 2 to registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Atlanta, State of Georgia, on May 6, 1999.
iXL Enterprises, Inc.,
a Delaware corporation
/s/ M. Wayne Boylston
By: _________________________________
Name:M. Wayne Boylston
Title:Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to registration statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ U. Bertram Ellis, Jr.* Chief Executive Officer
______________________________________ (Principal Executive
U. Bertram Ellis, Jr. Officer)
/s/ M. Wayne Boylston Chief Financial Officer May 6, 1999
______________________________________ (Principal Financial
M. Wayne Boylston Officer)
/s/ Jeffrey T. Arnold* Director
______________________________________
Jeffrey T. Arnold
/s/ Frank K. Bynum, Jr.* Director
______________________________________
Frank K. Bynum, Jr.
/s/ Jerome D. Colonna* Director
______________________________________
Jerome D. Colonna
/s/ I. Robert Greene* Director
______________________________________
I. Robert Greene
/s/ William C. Nussey* Director
______________________________________
William C. Nussey
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James R. Rocco* Director
______________________________________
James R. Rocco
/s/ Thomas G. Rosencrants* Director
______________________________________
Thomas G. Rosencrants
/s/ Kevin M. Wall* Director
______________________________________
Kevin M. Wall
/s/ Thomas R. Wall, IV* Director
______________________________________
Thomas R. Wall, IV
/s/ M. Wayne Boylston May 6, 1999
______________________________________
*By: M. Wayne Boylston
</TABLE>
Attorney-in-Fact
II-14
<PAGE>
Schedule II--Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Balance at Charges to Deductions Balance
beginning costs and and at end
Description of period expenses Reclassifications (1) Other (2) of period
----------- ---------- ---------- --------------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts
For the year ended
December 31,
- ------------------
1998.................. $138 $1,227 $(765) $196 $796
1997.................. 150 118 (130) -- 138
1996.................. -- 134 (14) 30 150
</TABLE>
- --------
(1) Amounts represent write-offs.
(2) Amounts represent the beginning balances of the allowance for doubtful
accounts for the companies acquired during the respective periods.
S-1
<PAGE>
EXHIBIT 1.1
- --------------------------------------------------------------------------------
IXL ENTERPRISES, INC.
(a Delaware corporation)
[ ] Shares of Common Stock
U.S. PURCHASE AGREEMENT
-----------------------
- --------------------------------------------------------------------------------
Dated: [ ], 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
U.S. PURCHASE AGREEMENT.............................................................. 1
SECTION 1. Representations and Warranties..................................... 4
------------------------------
(a) Representations and Warranties by the Company....................... 4
(b) Officer's Certificates.............................................. 13
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.................... 13
-----------------------------------------------
(a) Initial Securities.................................................. 13
(b) Option Securities................................................... 13
(c) Payment............................................................. 14
(d) Denominations; Registration......................................... 15
SECTION 3. Covenants of the Company........................................... 15
------------------------
(a) Compliance with Securities Regulations and Commission Requests...... 15
(b) Filing of Amendments................................................ 15
(c) Delivery of Registration Statements................................. 15
(d) Delivery of Prospectuses............................................ 16
(e) Continued Compliance with Securities Laws........................... 16
(f) Blue Sky Qualifications............................................. 16
(g) Rule 158............................................................ 17
(h) Use of Proceeds..................................................... 17
(i) Listing............................................................. 17
(j) Restriction on Sale of Securities................................... 17
(k) Reporting Requirements.............................................. 18
(l) Compliance with NASD Rules.......................................... 18
(m) Compliance with Rule 463............................................ 18
SECTION 4. Payment of Expenses................................................ 18
-------------------
(a) Expenses............................................................ 18
(b) Termination of Agreement............................................ 19
SECTION 5. Conditions of U.S. Underwriters' Obligations....................... 19
--------------------------------------------
(a) Effectiveness of Registration Statement............................. 19
(b) Opinions of Counsel for Company..................................... 19
(c) Opinion of Counsel for U.S. Underwriters............................ 19
(d) Officers' Certificate............................................... 20
(e) Accountants' Comfort Letters........................................ 20
(f) Bring-down Comfort Letters.......................................... 20
(g) Approval of Listing................................................. 20
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(h) No Objection............................................................. 20
(i) Lock-up Agreements....................................................... 21
(j) Purchase of Initial International Securities............................. 21
(k) GE Private Placement..................................................... 21
(l) Conditions to Purchase of U.S. Option Securities......................... 21
(m) Additional Documents..................................................... 22
(n) Termination of Agreement................................................. 22
SECTION 6. Indemnification......................................................... 22
---------------
(a) Indemnification of U.S. Underwriters..................................... 22
(b) Indemnification of Company, Directors and Officers....................... 24
(c) Actions against Parties; Notification.................................... 24
(d) Settlement without Consent if Failure to Reimburse....................... 25
(e) Indemnification for Reserved Securities.................................. 25
SECTION 7. Contribution............................................................ 25
------------
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.......... 27
--------------------------------------------------------------
SECTION 9. Termination of Agreement................................................ 27
------------------------
(a) Termination; General..................................................... 27
(b) Liabilities.............................................................. 27
SECTION 10. Default by One or More of the U.S. Underwriters........................ 27
-----------------------------------------------
SECTION 11. Notices................................................................ 28
-------
SECTION 12. Parties................................................................ 28
-------
SECTION 13. GOVERNING LAW AND TIME................................................. 29
----------------------
SECTION 14. Effect of Headings..................................................... 29
------------------
SCHEDULE A........................................................................... Sch.A-1
SCHEDULE B........................................................................... Sch.B-1
SCHEDULE C........................................................................... Sch.C-1
Exhibit A-1.......................................................................... A-1-1
Exhibit A-2.......................................................................... A-2-1
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Exhibit A-3............................................................. A-3-1
Exhibit A-4............................................................. A-4-1
Exhibit A-5............................................................. A-5-1
Exhibit B............................................................... B-1
</TABLE>
iii
<PAGE>
IXL ENTERPRISES, INC.
(a Delaware corporation)
[ ] Shares of Common Stock
(Par Value $.01 Per Share)
U.S. PURCHASE AGREEMENT
-----------------------
[ ] ,1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
BancBoston Robertson Stephens Inc.
SG Cowen Securities Corporation
as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
IXL Enterprises, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other U.S. Underwriters named in
Schedule A hereto (collectively, the "U.S. Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Donaldson, Lufkin & Jenrette Securities
Corporation, Banc Boston Robertson Stephens Inc. and SG Cowen Securities
Corporation are acting as representatives (in such capacity, the "U.S.
Representatives"), with respect to the issue and sale by the Company and the
purchase by the U.S. Underwriters, acting severally and not jointly, of the
respective numbers of shares of Common Stock, par value $.01 per share, of the
Company ("Common Stock") set forth in said Schedule A, and with respect to the
grant by the Company to the U.S. Underwriters, acting severally and not jointly,
of the option described in Section 2(b) hereof to purchase all or any part of
[ ] additional shares of Common Stock to cover over-
1
<PAGE>
allotments, if any. The aforesaid [ ] shares of Common Stock (the "Initial U.S.
Securities") to be purchased by the U.S. Underwriters and all or any part of the
[ ] shares of Common Stock subject to the option described in Section 2(b)
hereof (the "U.S. Option Securities") are hereinafter called, collectively, the
"U.S. Securities".
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "International Purchase Agreement")
providing for the offering by the Company of an aggregate of [ ] shares of
Common Stock (the "Initial International Securities") through arrangements with
certain underwriters outside the United States and Canada (the "International
Managers") for which Merrill Lynch International, Donaldson, Lufkin & Jenrette
Securities Corporation, BancBoston Robertson Stephens Inc. and SG Cowen
Securities Corporation are acting as lead managers (the "Lead Managers") and the
grant by the Company to the International Managers, acting severally and not
jointly, of an option to purchase all or any part of the International Managers'
pro rata portion of up to [ ] additional shares of Common Stock solely to cover
overallotments, if any (the "International Option Securities" and, together with
the U.S. Option Securities, the "Option Securities"). The Initial International
Securities and the International Option Securities are hereinafter called the
"International Securities". It is understood that the Company is not obligated
to sell and the U.S. Underwriters are not obligated to purchase, any Initial
U.S. Securities unless all of the Initial International Securities are
contemporaneously purchased by the International Managers.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters", the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities", and the U.S. Securities, and the International Securities
are hereinafter collectively called the "Securities".
The Underwriters will concurrently enter into an Intersyndicate Agreement
of even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the direction
of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (in
such capacity, the "Global Coordinator").
The Company understands that the U.S. Underwriters propose to make a public
offering of the U.S. Securities as soon as the U.S. Representatives deem
advisable after this Agreement has been executed and delivered.
The Company and the U.S. Underwriters agree that up to [ ] shares of the
Initial U.S. Securities to be purchased by the U.S. Underwriters and that up to
[ ] shares of the Initial International Securities to be purchased by the
International Mangers (collectively, the "Reserved Securities") shall be
reserved for sale by the Underwriters to certain eligible employees and persons
having business relationships with the Company, as part of the distribution of
the Securities by the Underwriters, subject to the terms of this Agreement, the
applicable rules, regulations and interpretations of the National Association of
Securities Dealers, Inc. and all other applicable laws, rules and regulations.
To the extent that such Reserved Securities are not orally confirmed for
2
<PAGE>
purchase by such eligible employees and persons having business relationships
with the Company by the end of the first business day after the date of this
Agreement, such Reserved Securities may be offered to the public as part of the
public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-71937) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). Two
forms of prospectus are to be used in connection with the offering and sale of
the Securities: one relating to the U.S. Securities (the "Form of U.S.
Prospectus") and one relating to the International Securities (the "Form of
International Prospectus"). The Form of International Prospectus is identical to
the Form of U.S. Prospectus, except for the front cover and back cover pages and
the information under the caption "Underwriting" and the inclusion in the Form
of International Prospectus of a section under the caption "Certain United
States Tax Considerations for Non-United States Holders." The information
included in any such prospectus or in any such Term Sheet, as the case may be,
that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each Form of U.S. Prospectus and Form of
International Prospectus used before such registration statement became
effective, and any prospectus that omitted, as applicable, the Rule 430A
Information or the Rule 434 Information, that was used after such effectiveness
and prior to the execution and delivery of this Agreement, is herein called a
"preliminary prospectus." Such registration statement, including the exhibits
thereto and schedules thereto at the time it became effective and including the
Rule 430A Information and the Rule 434 Information, as applicable, is herein
called the "Registration Statement." Any registration statement filed pursuant
to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule
462(b) Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final Form
of U.S. Prospectus and the final Form of International Prospectus in the forms
first furnished to the Underwriters for use in connection with the offering of
the Securities are herein called the "U.S. Prospectus" and the "International
Prospectus," respectively, and collectively, the "Prospectuses." If Rule 434 is
relied on, the terms "U.S. Prospectus" and "International Prospectus" shall
refer to the preliminary U.S. Prospectus dated [ ], 1999 and preliminary
International Prospectus dated [ ], 1999, respectively, each together with the
applicable Term Sheet and all references in this Agreement to the date of such
Prospectuses shall mean the date of the applicable Term Sheet. For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the U.S. Prospectus, the International Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with
3
<PAGE>
the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
SECTION 1. Representations and Warranties.
------------------------------
(1) Representations and Warranties by the Company. The Company represents
and warrants to each U.S. Underwriter as of the date hereof, as of the Closing
Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if
any) referred to in Section 2(b), hereof and agrees with each U.S. Underwriter,
as follows:
(1) Compliance with Registration Requirements. Each of the
-----------------------------------------
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any U.S. Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply as to form in all material
respects with the requirements of the 1933 Act and the 1933 Act Regulations
and did not and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Prospectuses, any
preliminary prospectuses and any supplement thereto or the prospectus
wrapper relating to sales of Securities in Canada (except as it relates
specifically to matters of Canadian law) prepared in connection therewith,
at their respective times of issuance and at the Closing Time, complied and
will comply in all material respects with any applicable laws or
regulations of foreign jurisdictions in which the Prospectuses and such
preliminary prospectuses, as amended or supplemented, if applicable, are
distributed in connection with the offer and sale of Reserved Securities.
Neither of the Prospectuses nor any amendments or supplements thereto
(including the prospectus wrapper relating to sales of Securities in Canada
(except as it relates specifically to matters of Canadian law)), at the
time the Prospectuses or any amendments or supplements thereto were issued
and at the Closing Time (and, if any U.S. Option Securities are purchased,
at the Date of Delivery), included or will include an untrue statement of a
material fact or omitted or will omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. If Rule 434 is used, the
Company will comply with the requirements of Rule 434 and the Prospectuses
shall not be "materially different", as such term is used in Rule 434, from
the prospectuses included in the Registration Statement at the time it
became effective. The representations and warranties in this subsection
shall not apply to statements in or omissions from the
4
<PAGE>
Registration Statement or the U.S. Prospectus made in reliance
upon and in conformity with information furnished to the Company in writing
by any U.S. Underwriter through the U.S. Representatives expressly for use
in the Registration Statement or the U.S. Prospectus.
The Company has filed a registration statement pursuant to
Section 12(b) of the Securities Exchange Act of 1934 (the "1934 Act"), to
register the Common Stock, and such registration statement has been
declared effective.
Each preliminary prospectus and the prospectuses filed as part of
the Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied as to
form when so filed in all material respects with the 1933 Act Regulations
and each preliminary prospectus and the Prospectuses to be delivered to the
Underwriters for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the preliminary prospectus made in reliance
upon and in conformity with information furnished to the Company in writing
by any U.S. Underwriter through the U.S. Representatives expressly for use
in the preliminary prospectus.
(2) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(3) Financial Statements. The financial statements of the Company and
--------------------
its consolidated subsidiaries included in the Registration Statement and
the Prospectuses, together with the related schedules and notes, present
fairly in all material respects the financial position of the Company and
its consolidated Subsidiaries (as defined below) at the dates indicated and
the statement of operations, stockholders' equity and cash flows of the
Company and its consolidated Subsidiaries for the periods specified; said
financial statements have been prepared in conformity with generally
accepted accounting principles (GAAP) applied on a consistent basis
throughout the periods involved. The supporting schedules, if any, included
in the Registration Statement present fairly, in all material respects, in
accordance with GAAP the information required to be stated therein. The
selected consolidated financial data, the summary consolidated financial
information, and the capitalization information included in the
Prospectuses present fairly, in all material respects, the information
shown therein and have been compiled on a basis consistent with that of the
financial statements included in the Registration Statement. The pro forma
financial statements and the related notes thereto included in the
Registration Statement and the Prospectuses, other than the quarterly pro
forma information set forth in the Prospectuses under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," present fairly, in all material
5
<PAGE>
respects, the information shown therein, have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma
financial statements and have been properly compiled on the bases described
therein, and the assumptions used in the preparation thereof are reasonable
and the adjustments used therein are appropriate to give effect to the
transactions and circumstances referred to therein. No financial statements
are required to be included in the Registration Statement that have not
been so included.
(4) Subsidiary Financial Statements. The financial statements of the
-------------------------------
Company's Subsidiaries included in the Registration Statement and the
Prospectuses, together with the related schedules and notes, present fairly
in all material respects the financial position of such Subsidiaries and
their respective consolidated Subsidiaries at the dates indicated and the
statement of operations, stockholders' equity and cash flows of such
Subsidiaries and their respective consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity with
GAAP applied on a consistent basis throughout the periods involved.
(5) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
Subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its Subsidiaries considered as
one enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(6) Good Standing of the Company. The Company has been duly
----------------------------
incorporated and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectuses and to enter into and perform its
obligations under this Agreement; and the Company is duly qualified as a
foreign corporation to transact business and is in good standing in each
other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
reasonably be expected to result in a Material Adverse Effect.
(7) Good Standing of Subsidiaries. Each subsidiary of the Company
-----------------------------
(other than subsidiaries in which the Company has only a minority ownership
interest) (each such subsidiary individually a "Subsidiary" and,
collectively, the "Subsidiaries") has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease
6
<PAGE>
and operate its properties and to conduct its business as described in the
Prospectuses and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not reasonably be expected to result in a
Material Adverse Effect; except for the pledge of the Subsidiaries' stock
pursuant to the Credit Facility (as such term is defined in the
Registration Statement) or as otherwise disclosed in the Registration
Statement, all of the issued and outstanding capital stock of each such
Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through
Subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; none of the outstanding shares of
capital stock of any Subsidiary was issued in violation of the preemptive
or similar rights of any security holder of such Subsidiary or other party.
The only Subsidiaries of the Company are the Subsidiaries listed on Exhibit
21 to the Registration Statement. Except as described in the Prospectuses,
or except as would not be required to be described the Company has no
agreements, commitments, or understandings with respect to acquiring the
business, stock or material assets, except those assets acquired in the
ordinary course of business, of any other person or entity.
(8) Capitalization. The authorized, issued and outstanding capital
--------------
stock of the Company is as set forth in the Prospectuses under the caption
"Capitalization", and, after giving effect to the offering will be as set
forth as "Pro Forma As Adjusted" under the caption "Capitalization" (except
for subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectuses or pursuant to the exercise of convertible securities or
options referred to in the Prospectuses) and for 4,000,000 shares of Common
Stock registered pursuant to a shelf Registration Statement on Form S-4 for
use in future acquisitions and the number of authorized, issued and
outstanding options and other rights is set forth in the footnotes under
such caption. To the knowledge of the Company, the shares of issued and
outstanding capital stock of the Company and its subsidiary Consumer
Financial Network, Inc. have been duly authorized and validly issued and
are fully paid and non-assessable; none of the outstanding shares of
capital stock of the Company was issued in violation of the preemptive or
other similar rights of any security holder of the Company. The shares of
issued and outstanding capital stock of the Company have been issued in
compliance, in all material respects, with all federal and state securities
laws. Except as disclosed in the Prospectuses, there are no outstanding
options to purchase, or any preemptive rights or other rights to subscribe
for or to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of the Company's or its
Subsidiaries' capital stock or any such options, rights, convertible
securities or obligations. The description of the Company's stock option
and purchase plans and the options or other rights granted and exercised
thereunder set forth in the Prospectuses accurately and fairly describe, in
all material respects, the information required to be shown with respect to
such plans, arrangements, options and rights.
7
<PAGE>
(9) Authorization of Agreement. This Agreement and the International
--------------------------
Purchase Agreement have been duly authorized, executed and delivered by the
Company.
(10) Authorization and Description of Securities. The Securities to be
-------------------------------------------
purchased by the U.S. Underwriters and the International Managers from the
Company have been duly authorized for issuance and sale to the U.S.
Underwriters pursuant to this Agreement and the International Managers
pursuant to the International Purchase Agreement, respectively, and, when
issued and delivered by the Company pursuant to this Agreement and the
International Purchase Agreement, respectively, against payment of the
consideration set forth herein and the International Purchase Agreement,
respectively, will be validly issued, fully paid and non-assessable; the
Common Stock conforms in all material respects to all statements relating
thereto contained in the Prospectuses and such description conforms in all
material respects to the rights set forth in the instruments defining the
same; no holder of the Securities will be subject to personal liability by
reason of being such a holder; and the issuance of the Securities is not
subject to the preemptive rights, co-sale rights, registration rights,
right of first refusal or similar rights of any security holder of the
Company or other party and will be sold free and clear of all liens,
encumbrances, equities or claims.
(11) Absence of Defaults and Conflicts. Neither the Company nor any of
---------------------------------
its Subsidiaries is in violation of its charter or by-laws or in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which it or
any of them may be bound, or to which any of the property or assets of the
Company or any Subsidiary is subject (collectively, "Agreements and
Instruments") except for such violations or defaults that would not
reasonably be expected to result in a Material Adverse Effect; and the
execution, delivery and performance of this Agreement and the International
Purchase Agreement and the consummation of the transactions contemplated in
this Agreement, the International Purchase Agreement and in the
Registration Statement (including the issuance and sale of the Securities
and the use of the proceeds from the sale of the Securities as described in
the Prospectuses under the caption "Use of Proceeds") and compliance by the
Company with its obligations under this Agreement and the International
Purchase Agreement have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of,
or default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any Subsidiary pursuant to, the Agreements and
Instruments (except for such violations, conflicts, breaches or defaults or
liens, charges or encumbrances that would not reasonably be expected to
result in a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of the Company or any
8
<PAGE>
Subsidiary or any applicable law, statute binding upon, or, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of their assets, properties or operations,
except for such defaults, which would not reasonably be expected to result
in a Material Adverse Effect. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf) the
right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company or any Subsidiary.
(12) Absence of Labor Dispute. No labor dispute with the employees of
------------------------
the Company or any Subsidiary exists or, to the knowledge of the Company,
is imminent, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or any Subsidiary's principal
suppliers, manufacturers, customers or contractors, which, in either case,
would reasonably be expected to result in a Material Adverse Effect.
(13) Absence of Proceedings. There is no action, suit, proceeding,
----------------------
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company, threatened, against or affecting the Company or any
Subsidiary, which is required to be disclosed in the Registration Statement
(other than as disclosed therein), or which would reasonably be expected to
result in a Material Adverse Effect, or which would reasonably be expected
to materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in this Agreement and the
International Purchase Agreement or the performance by the Company of its
obligations hereunder or thereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or any Subsidiary is a party
or of which any of their respective property or assets is the subject which
are not described in the Registration Statement, including ordinary routine
litigation incidental to the business, would not reasonably be expected to
result in a Material Adverse Effect.
(14) Accuracy of Exhibits. There are no contracts or documents which
--------------------
are required to be described in the Registration Statement or the
Prospectuses or to be filed as exhibits thereto which have not been so
described and filed as required. The contracts so filed as exhibits are
accurate and complete, in all material respects; all such contracts are in
full force and effect on the date hereof, and neither the Company or any of
its Subsidiaries or, to the Company's best knowledge, any other party is in
breach of or default under any material provisions of such contracts the
result of which would reasonably be likely to result in a Material Adverse
Effect.
(15) Possession of Intellectual Property. The Company and its
-----------------------------------
Subsidiaries own or possess or have access to adequate patents, patent
rights, licenses, inventions,
9
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copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), United States trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary to
carry on the business now operated by them except as would not reasonably
be expected to have a Material Adverse Effect, and neither the Company nor
any of its Subsidiaries has received any notice or is otherwise aware of
any infringement of or conflict with asserted rights of others with respect
to any Intellectual Property or of any facts or circumstances which would
render any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of its Subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the aggregate,
would reasonably be expected to result in a Material Adverse Effect.
(16) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required to be made or obtained by the Company for the
performance by the Company of its obligations hereunder, in connection with
the offering, issuance or sale of the Securities under this Agreement and
the International Purchase Agreement or the consummation of the
transactions contemplated by this Agreement and the International Purchase
Agreement, except (i) such as have been already obtained or as may be
required under the 1933 Act or the 1933 Act Regulations and foreign or
state securities or blue sky laws, (ii) such as have been obtained under
the laws and regulations of jurisdictions outside the United States in
which the Reserved Securities are offered or (iii) such as have been
described in the Registration Statement.
(17) Possession of Licenses and Permits. The Company and its
----------------------------------
Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them; the Company and its
Subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental Licenses
or the failure of such Governmental Licenses to be in full force and effect
would not reasonably be expected to have a Material Adverse Effect; and
neither the Company nor any of its Subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would reasonably be expected to
result in a Material Adverse Effect.
(18) Title to Property. The Company and its Subsidiaries have good and
-----------------
marketable title to all real property owned by the Company and its
Subsidiaries and valid title to all other properties and assets owned by
them, in each case, free and clear of all
10
<PAGE>
mortgages, pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the
Prospectuses or (b) would not, singly or in the aggregate reasonably be
expected to have a Material Adverse Effect, the value of such property or
assets and would not reasonably be expected to interfere with the use made
and proposed to be made of such property by the Company or any of its
Subsidiaries; and all of the leases and subleases material to the business
of the Company and its Subsidiaries, considered as one enterprise, and
under which the Company or any of its Subsidiaries holds properties
described in the Prospectuses, are in full force and effect, except for
such failure to be in force as would not reasonably be expected to have a
Material Adverse Effect and neither the Company nor any Subsidiary has any
notice of any material claim of any sort that has been asserted by anyone
adverse to the rights of the Company or any Subsidiary under any of the
leases or subleases mentioned above, or affecting or questioning the rights
of the Company or such Subsidiary to the continued possession of the leased
or subleased premises under any such lease or sublease.
(19) Tax Returns and Payment of Taxes. The Company and its
--------------------------------
Subsidiaries have timely filed all Federal, state, local and foreign tax
returns that are required to be filed or have duly requested extensions
thereof and all such tax returns are true, correct and complete, except to
the extent that any failure to file or request an extension, or any
incorrectness would not reasonably be expected to result in a Material
Adverse Effect. The Company and its Subsidiaries have timely paid all taxes
shown as due on such filed tax returns (including any related assessments,
fines or penalties), except to the extent that any such taxes are being
contested in good faith and by appropriate proceedings, or to the extent
that any failure to pay would not reasonably be expected to result in a
Material Adverse Effect; and adequate charges, accruals and reserves have
been provided for in the financial statements referred to in Section
1(a)(iii) above in accordance with GAAP in respect of all Federal, state,
local and foreign taxes for all periods as to which the tax liability of
the Company or any of its Subsidiaries has not been finally determined or
remains open to examination by applicable taxing authorities. The Company
is not a "United States real property holding corporation" within the
meaning of Section 897(c)(3) of the Internal Revenue Code of 1986, as
amended.
(20) Insurance. The Company and each of its Subsidiaries are insured
---------
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as the Company believes are prudent and customary
in the businesses in which they are engaged; and neither the Company nor
any of its Subsidiaries has any reason to believe that any of them will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business except where the failure to renew or
maintain such coverage would not reasonably be expected to result in a
Material Adverse Effect. The officers and directors of the Company are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary for
officers and directors liability insurance of a public company and as would
11
<PAGE>
cover claims which could be made in connection with the issuance of the
Securities; and the Company has no reason to believe that it will not be
able to renew its existing directors and officers liability insurance
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to cover its officers and
directors.
(21) No Stabilization or Manipulation. Neither the Company nor, to the
--------------------------------
knowledge of the Company, any of its directors, officers or affiliates has
taken nor will take, directly or indirectly, any action designed to, or
that might be reasonably expected to, cause or result in stabilization or
manipulation of the price of the Securities in violation of Regulation M
under the 1934 Act.
(22) Investment Company Act. The Company is not, and upon the issuance
----------------------
and sale of the Securities as herein contemplated and the application of
the net proceeds therefrom as described in the Prospectuses will not be, an
"investment company" or an entity "controlled" by an "investment company"
as such terms are defined in the Investment Company Act of 1940, as amended
(the "1940 Act").
(23) Environmental Laws. Except as described in the Registration
------------------
Statement and except as would not, singly or in the aggregate, reasonably
be expected to result in a Material Adverse Effect, (A) neither the Company
nor any of its Subsidiaries is in violation of any federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) the Company
and its Subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance
with their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or any of its Subsidiaries and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its Subsidiaries relating to Hazardous Materials or any
Environmental Laws.
12
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(24) Registration Rights. Except as described in the Prospectuses,
-------------------
there are no persons with registration rights or other similar rights to
have any securities registered pursuant to the Registration Statement or
otherwise registered by the Company under the 1933 Act.
(25) Certain Transactions. Except as disclosed in the Prospectuses or
--------------------
except as not reasonably required to be disclosed in the Prospectuses,
there are no outstanding loans, advances, or guarantees of indebtedness by
the Company to or for the benefit of any of the executive officers or
directors of the Company or any of the members of the families of any of
them.
(26) Accounting and other Controls. The Company has established for
-----------------------------
itself and each Subsidiary and, with respect to future acquisitions, will
establish, a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions were, are or, in the case of
such future acquisitions, will be executed in accordance with management's
general or specific authorization; (ii) transactions were, are or, in the
case of such future acquisitions, will be recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii)
access to assets was, is or, in the case of such future acquisitions, will
be permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets was, is or,
in the case of such future acquisitions, will be compared with existing
assets at reasonable intervals and appropriate action was, is or, in the
case of such future acquisitions, will be taken with respect to any
differences.
(27) Regulations. The Company and CFN have not been advised, and have
-----------
no reason to believe, that either they or any of their subsidiaries is not
conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which they are conducting business,
including, without limitation, all applicable local, state and federal laws
and regulations; except where failure to be so in compliance would not
reasonably be expected to result in a Material Adverse Effect.
(2) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its Subsidiaries delivered to the Global Coordinator, the U.S.
Representatives or to counsel for the U.S. Underwriters shall be deemed a
representation and warranty by the Company to each U.S. Underwriter as to the
matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.
-----------------------------------------------
(1) Initial Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each U.S. Underwriter, severally and not jointly, and
each U.S. Underwriter, severally and not jointly, agrees to purchase from the
Company, at the price per share set forth in Schedule B,
13
<PAGE>
the number of Initial U.S. Securities set forth in Schedule A opposite the name
of such U.S. Underwriter, plus any additional number of Initial U.S. Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(2) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to each U.S. Underwriter,
severally and not jointly, to purchase up to an additional
__________________________ shares of Common Stock at the price per share set
forth in Schedule B, less an amount per share equal to any dividends or
distributions declared by the Company and payable on the Initial U.S. Securities
but not payable on the U.S. Option Securities. The option hereby granted will
expire 30 days after the date hereof and may be exercised in whole or in part
from time to time only for the purpose of covering over-allotments which may be
made in connection with the offering and distribution of the Initial U.S.
Securities upon notice by the Global Coordinator to the Company setting forth
the number of U.S. Option Securities as to which the several U.S. Underwriters
are then exercising the option and the time and date of payment and delivery for
such U.S. Option Securities. Any such time and date of delivery for the U.S.
Option Securities (a "Date of Delivery") shall be determined by the Global
Coordinator, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of the
U.S. Option Securities, each of the U.S. Underwriters, acting severally and not
jointly, will purchase that proportion of the total number of U.S. Option
Securities then being purchased which the number of Initial U.S. Securities set
forth in Schedule A opposite the name of such U.S. Underwriter bears to the
total number of Initial U.S. Securities, subject in each case to such
adjustments as the Global Coordinator in its discretion shall make to eliminate
any sales or purchases of fractional shares.
(3) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York
10022, or at such other place as shall be agreed upon by the Global Coordinator
and the Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the
pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day
after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Global Coordinator and the Company (such time and
date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the U.S. Option Securities are
purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator and the Company, on each Date of Delivery as specified in the
notice from the Global Coordinator to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the U.S. Representatives for
14
<PAGE>
the respective accounts of the U.S. Underwriters of certificates for the U.S.
Securities to be purchased by them. It is understood that each U.S. Underwriter
has authorized the U.S. Representatives, for its account, to accept delivery of,
receipt for, and make payment of the purchase price for, the Initial U.S.
Securities and the U.S. Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the U.S.
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial U.S. Securities or the U.S. Option Securities, if any, to
be purchased by any U.S. Underwriter whose funds have not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such U.S. Underwriter from its obligations hereunder.
(4) Denominations; Registration. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, will be made available
for examination and packaging by the U.S. Representatives in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each U.S.
------------------------
Underwriter as follows:
(1) Compliance with Securities Regulations and Commission Requests. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Global Coordinator immediately,
and confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectuses or any amended Prospectuses shall have been filed, (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectuses or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceedings for any of such purposes. The Company, after
consultation with the U.S. Representatives, will promptly effect the filings
necessary pursuant to Rule 424(b) and will take such steps as it deems necessary
to ascertain promptly whether the form of prospectus transmitted for filing
under Rule 424(b) was received for filing by the Commission and, in the event
that it was not, it will promptly file such prospectus. The Company, after
consultation with the U.S. Representatives, will make every reasonable effort to
prevent the issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible moment.
15
<PAGE>
(2) Filing of Amendments. The Company will give the Global Coordinator notice
of its intention to file or prepare any amendment to the Registration Statement
(including any filing under Rule 462(b)), any Term Sheet or any amendment,
supplement or revision to either the prospectus included in the Registration
Statement at the time it became effective or to the Prospectuses, will furnish
the Global Coordinator with copies of any such documents a reasonable amount of
time prior to such proposed filing or use, as the case may be, and will not file
or use any such document to which the Global Coordinator or counsel for the U.S.
Underwriters shall reasonably object.
(3) Delivery of Registration Statements. The Company has furnished or will
deliver to the U.S. Representatives and counsel for the U.S. Underwriters,
without charge, signed copies of the Registration Statement as originally filed
and of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein) and signed copies of all consents and
certificates of experts, and will also deliver to the U.S. Representatives,
without charge, a conformed copy of the Registration Statement as originally
filed and of each amendment thereto (without exhibits) for each of the U.S.
Underwriters. The copies of the Registration Statement and each amendment
thereto furnished to the U.S. Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(4) Delivery of Prospectuses. The Company has delivered to each U.S.
Underwriter, without charge, as many copies of each preliminary prospectus as
such U.S. Underwriter reasonably requested, and the Company hereby consents to
the use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each U.S. Underwriter, without charge, during the period when the
U.S. Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the U.S.
Prospectus (as amended or supplemented) as such U.S. Underwriter may reasonably
request. The U.S. Prospectus and any amendments or supplements thereto
furnished to the U.S. Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
(5) Continued Compliance with Securities Laws. The Company will comply with
the 1933 Act and the 1933 Act Regulations so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement, the
International Purchase Agreement and in the Prospectuses. If at any time when a
prospectus is required by the 1933 Act to be delivered in connection with sales
of the Securities, any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of counsel for the U.S. Underwriters or
for the Company, to amend the Registration Statement or amend or supplement any
Prospectus in order that the Prospectuses will not include any untrue statements
of a material fact or omit to state a material fact necessary in order to make
the statements therein not misleading in the light of the circumstances existing
at the time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of such counsel, at any such time to amend the Registration Statement or
amend or supplement any Prospectus in order to comply with the requirements of
the 1933 Act or the 1933
16
<PAGE>
Act Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or the
Prospectuses comply with such requirements, and the Company will furnish to the
U.S. Underwriters such number of copies of such amendment or supplement as the
U.S. Underwriters may reasonably request.
(6) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the U.S. Underwriters, to qualify the Securities for offering
and sale under the applicable securities laws of such states and other
jurisdictions (domestic or foreign) as the Global Coordinator may designate and
to maintain such qualifications in effect for a period of not less than one year
from the later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(7) Rule 158. The Company will timely file such reports pursuant to the 1934
Act as are necessary in order to make generally available to its security
holders as soon as practicable an earnings statement for the purposes of, and to
provide the benefits contemplated by, the last paragraph of Section 11(a) of the
1933 Act.
(8) Use of Proceeds. The Company will use the net proceeds received by it
from the sale of the Securities in the manner specified in the Prospectuses
under "Use of Proceeds".
(9) Listing. The Company will use its best efforts to effect and maintain
the quotation of the Securities on the Nasdaq National Market or the listing of
the Securities on the New York Stock Exchange and will file with the Nasdaq
National Market or the New York Stock Exchange, as applicable, all documents and
notices required by such exchange of companies that have securities that are
traded in the over-the-counter market and quotations for which are reported by
the Nasdaq National Market or which are listed on the New York Stock Exchange,
as the case may be. The parties understand that this covenant shall terminate
upon a "going private transaction" or the sale or merger of the Company or
similar transaction.
(10) Restriction on Sale of Securities. During a period of 180 days from the
date of the Prospectuses, the Company will not, without the prior written
consent of the Global Coordinator, (i) directly or indirectly, offer to sell,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any share of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock of
itself or any Subsidiary or file any
17
<PAGE>
registration statement under the 1933 Act with respect to any of the foregoing,
except for filing a Registration Statement on Form S-4 to register 4,000,000
shares of Common Stock for future acquisitions, and filing a Registration
Statement on Form S-8 to register shares of Common Stock for issuance under the
Company Stock Option Plans, or (ii) enter into any swap or any other agreement
or any transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of the Common Stock, whether any such swap
or transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Securities to be sold hereunder or
under the International Purchase Agreement, (B) any shares of Common Stock
issued by the Company upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof and referred to in the
Prospectuses, (C) any shares of Common Stock issued or options to purchase
Common Stock granted pursuant to existing employee benefit plans or other stock
option plans of the Company referred to in the Prospectuses, or (D) up to
4,000,000 shares of Common Stock issued by the Company pursuant to a
Registration Statement on Form S-4.
(11) Reporting Requirements. The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant to the
1934 Act within the time periods required by the 1934 Act and the rules and
regulations of the Commission thereunder.
(12) Compliance with NASD Rules. The Company hereby agrees that it will
ensure that the Reserved Securities will be restricted as required by the
National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules
from sale, transfer, assignment, pledge or hypothecation for a period of three
months following the date of this Agreement. The Underwriters will notify the
Company as to which persons will need to be so restricted. At the request of
the Underwriters, the Company will direct the transfer agent to place a stop
transfer restriction upon such securities for such period of time. Should the
Company release, or seek to release, from such restrictions any of the Reserved
Securities, the Company agrees to reimburse the Underwriters for any reasonable
expenses (including, without limitation, reasonable legal expenses) they incur
in connection with such release.
(13) Compliance with Rule 463. The Company will file with the Commission such
reports and report the use of proceeds of the sale of the Securities as may be
required pursuant to Rule 463 of the 1933 Act Regulations.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all
-------------------
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the
18
<PAGE>
Underwriters, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Securities to the
Underwriters and the transfer of the Securities between the U.S. Underwriters
and the International Managers, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectuses and any amendments or supplements thereto, (vii)
the preparation and delivery to the Underwriters of copies of the Blue Sky
Survey and any supplement thereto, (viii) the fees and expenses of any transfer
agent or registrar for the Securities, (ix) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Securities, (x) the transportation and
other expenses incurred by the Company in connection with presentations to
prospective purchasers of the Securities, (xi) the fees and expenses incurred in
connection with the inclusion of the Securities in the Nasdaq National Market
and (xii) all costs and expenses of the Underwriters, including the reasonable
fees and disbursements of counsel for the Underwriters, in connection with
matters related to the Reserved Securities which are designated by the Company
for sale to employees and others having a business relationship with the
Company.
(1) Termination of Agreement. If this Agreement is terminated by the U.S.
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the U.S. Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the U.S. Underwriters.
SECTION 5. Conditions of U.S. Underwriters' Obligations. The obligations of
--------------------------------------------
the several U.S. Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any Subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(1) Effectiveness of Registration Statement. The Registration Statement,
including any Rule 462(b) Registration Statement, has become effective and at
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the U.S. Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to
19
<PAGE>
rely upon Rule 434, a Term Sheet shall have been filed with the Commission in
accordance with Rule 424(b).
(2) Opinions of Counsel for Company. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of Closing
Time, of (i) Minkin & Snyder, a Professional Corporation, counsel for the
Company, (ii) Debevoise & Plimpton, special counsel for the Company, (iii)
Morris, Manning & Martin, L.L.P., special counsel for the Company, (iv) Hudson
Cook, LLP, special counsel for the Company and (v) Goodwin, Procter & Hoar, LLP,
special counsel for the Company, in each case in form and substance reasonably
satisfactory to counsel for the U.S. Underwriters, together with signed or
reproduced copies of each such letter for each of the other U.S. Underwriters to
the effect set forth in Exhibits A-1 to A-5 hereto and to such further effect as
counsel to the U.S. Underwriters may reasonably request.
(3) Opinion of Counsel for U.S. Underwriters. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter for each
of the other U.S. Underwriters, in customary form and covering such matters as
the U.S. Underwriters may reasonably request. In giving such opinion such
counsel may rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New York, the federal law of the United States and
the General Corporation Law of the State of Delaware, upon the opinions of
counsel satisfactory to the U.S. Representatives. Such counsel may also state
that, insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Company and its
Subsidiaries and certificates of public officials.
(4) Officers' Certificate. At Closing Time, there shall not have been, since
the date hereof or since the respective dates as of which information is given
in the Prospectuses, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its Subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, and the U.S. Representatives shall
have received a certificate of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the Company, dated as
of Closing Time, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 1(a) hereof are true
and correct with the same force and effect as though expressly made at and as of
Closing Time, (iii) the Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated by the Commission.
(5) Accountants' Comfort Letters. At the time of the execution of this
Agreement, the U.S. Representatives shall have received from
PricewaterhouseCoopers LLP a letter dated such date, in form and substance
reasonably satisfactory to the U.S. Representatives, together with
20
<PAGE>
signed or reproduced copies of such letter for each of the other U.S.
Underwriters containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectuses.
(6) Bring-down Comfort Letters. At Closing Time, the Representatives shall
have received from PricewaterhouseCoopers LLP a letter, dated as of Closing
Time, to the effect that it reaffirms the statements made in the letter
furnished pursuant to subsection (e) of this Section, except that the specified
date referred to shall be a date not more than three business days prior to
Closing Time.
(7) Approval of Listing. At Closing Time, the Securities shall have been
approved for inclusion in the Nasdaq National Market, subject only to official
notice of issuance.
(8) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(9) Lock-up Agreements. At the date of this Agreement, the U.S.
Representatives shall have received an agreement substantially in the form of
Exhibit B hereto signed by substantially all of the stockholders and option
holders of any securities of the Company and its Subsidiaries except for those
agreed to in a writing and listed on Schedule C hereto.
(10) Purchase of Initial International Securities. Contemporaneously with the
purchase by the U.S. Underwriters of the Initial U.S. Securities under this
Agreement, the International Managers shall have purchased the Initial
International Securities under the International Purchase Agreement.
(11) GE Private Placement. The sale of 2,000,000 shares of Common Stock to
certain affiliates of General Electric Corporation shall close prior to or
simultaneously with the Closing Time without any material modifications from the
terms of the forms of agreements relating thereto reviewed by the Underwriters
and their counsel and without any modification from the description of such sale
in the Prospectuses.
(12) Conditions to Purchase of U.S. Option Securities. In the event that the
U.S. Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the U.S. Option Securities, the representations
and warranties of the Company contained herein and the statements in any
certificates furnished by the Company or any Subsidiary of the Company hereunder
shall be true and correct as of each Date of Delivery and, at the relevant Date
of Delivery, the U.S. Representatives shall have received:
(1) Officers' Certificate. A certificate, dated such Date of Delivery,
---------------------
of the President or a Vice President of the Company and of the chief financial
or chief accounting officer of the Company confirming that the certificate
delivered at the Closing
21
<PAGE>
Time pursuant to Section 5(d) hereof remains true and correct as of such Date
of Delivery.
(2) Opinions of Counsel for Company. The favorable opinion of each of
-------------------------------
(a) Minkin & Snyder, a Professional Corporation, counsel for the Company, (b)
Debevoise & Plimpton, special counsel for the Company, (c) Morris, Manning &
Martin, L.L.P., special counsel for the Company, (d) Hudson Cook, LLP, special
counsel for the Company and (e) Goodwin, Procter & Hoar, LLP, special counsel
for the Company, in each case in form and substance reasonably satisfactory to
counsel for the U.S. Underwriters, dated such Date of Delivery, relating to
the U.S. Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by Section 5(b) hereof.
(3) Opinion of Counsel for U.S. Underwriters. The favorable opinion of
----------------------------------------
Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the U.S. Underwriters,
dated such Date of Delivery, relating to the U.S. Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as the
opinion required by Section 5(c) hereof.
(4) Bring-down Comfort Letters. A letter from PricewaterhouseCoopers
--------------------------
LLP in form and substance reasonably satisfactory to the U.S. Representatives
and dated such Date of Delivery, substantially in the same form and substance
as the letter furnished to the U.S. Representatives pursuant to Section 5(f)
hereof, except that the "specified date" in the letter furnished pursuant to
this paragraph shall be a date not more than five days prior to such Date of
Delivery.
(13) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the U.S. Underwriters shall have been furnished with such documents
and opinions as they may reasonably require for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be reasonably satisfactory in form and substance to
the U.S. Representatives and counsel for the U.S. Underwriters.
(14) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of U.S. Option
Securities on a Date of Delivery which is after the Closing Time, the
obligations of the several U.S. Underwriters to purchase the relevant Option
Securities, may be terminated by the U.S. Representatives by notice to the
Company at any time at or prior to Closing Time or such Date of Delivery, as the
case may be, and such termination shall be without liability of any party to
any other party except as provided in Section 4 and except that Sections 1, 6, 7
and 8 shall survive any such termination and remain in full force and effect.
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<PAGE>
SECTION 6. Indemnification.
---------------
(1) Indemnification of U.S. Underwriters. The Company agrees to indemnify
and hold harmless each U.S. Underwriter and each person, if any, who controls
any U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act as follows:
(1) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact included in any preliminary
prospectus or the Prospectuses (or any amendment or supplement thereto), or
the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(2) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of (A) the violation of any applicable
laws or regulations of foreign jurisdictions where Reserved Securities have
been offered and (B) any untrue statement or alleged untrue statement of a
material fact included in the supplement or prospectus wrapper (but only to
the extent the Company has prepared or has had the opportunity to approve any
wrapper) material distributed in Canada in connection with the reservation and
sale of the Reserved Securities to eligible employees and [ ] of the
Company or the omission or alleged omission therefrom of a material fact
necessary to make the statements therein, when considered in conjunction with
the Prospectuses or preliminary prospectuses, not misleading;
(3) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation of
the nature referred to in Section 6(a)(ii)(A) hereof; provided that (subject
to Section 6(d) below) any such settlement is effected with the written
consent of the Company; and
(4) against any and all expense whatsoever, as incurred (including the
reasonable fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission
or in connection with any violation of
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<PAGE>
the nature referred to in Section 6(a)(ii)(A) hereof, to the extent that any
such expense is not paid under (i), (ii) or (iii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
U.S. Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the U.S. Prospectus (or any amendment or supplement thereto); and
provided further that the Company will not be liable to any U.S. Underwriter
- -------- -------
with respect to any U.S. Prospectus to the extent that the Company shall sustain
the burden of proving that any such loss, liability, claim, damage or expense
resulted from the fact that such U.S. Underwriter, in contravention of a
requirement of this Agreement or applicable law, sold Securities to a person to
whom such U.S. Underwriter failed to send or give, at or prior to the Closing
Date, a copy of the Final Prospectus, as then amended or supplemented if: (i)
the Company has previously furnished copies thereof (sufficiently in advance of
the Closing Date to allow for distribution by the Closing Date) to the U.S.
Underwriter and the loss, liability, claim, damage or expense of such U.S.
Underwriter resulted from an untrue statement or omission of a material fact
contained in or omitted from the Preliminary Prospectus which was corrected in
the Final Prospectus as, if applicable, amended or supplemented prior to the
Closing Date and such Final Prospectus was required by law to be delivered at or
prior to the written confirmation of sale to such person and (ii) such failure
to give or send such Final Prospectus by the Closing Date to the party or
parties asserting such loss, liability, claim, damage or expense would have
constituted a defense to the claim asserted by such person.
Insofar as this indemnity agreement may permit indemnification for
liabilities under the 1933 Act of any person who is a partner of a U.S.
Underwriter or who controls an underwriter within the meaning of Section 15 of
1933 Act or Section 20 of the 1934 Act and who, at the date of this Agreement,
is a director or officer of the Company or controls the Company within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, such
indemnity agreement is subject to the undertaking of the Company in the
Registration Statement under Item [ ] thereof.
(2) Indemnification of Company, Directors and Officers. Each U.S. Underwriter
severally agrees to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary U.S. prospectus or the U.S.
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such U.S.
Underwriter through the U.S. Representatives expressly for use in the
Registration
24
<PAGE>
Statement (or any amendment thereto) or such preliminary prospectus or the U.S.
Prospectus (or any amendment or supplement thereto).
(3) Actions against Parties; Notification. Each indemnified party shall give
notice as promptly as reasonably practicable to each indemnifying party of any
action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(4) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(iii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement; provided that an indemnifying party shall not be liable for any such
settlement effected without its consent if such indemnifying party, prior to the
date of such settlement, (1) reimburses such indemnified party in accordance
with such request for the amount of such fees and expenses of counsel as the
indemnifying party believes in good faith to be reasonable, and (2) provides
written notice to the indemnified party that the indemnifying party disputes in
good faith the reasonableness of the unpaid balance of such fees and expenses.
25
<PAGE>
(5) Indemnification for Reserved Securities. In connection with the offer and
sale of the Reserved Securities, the Company agrees, promptly upon a request, in
writing to indemnify and hold harmless the Underwriters from and against any and
all losses, liabilities, claims, damages and expenses incurred by them as a
result of the failure of eligible employees and friends of the Company to pay
for and accept delivery of Reserved Securities which, by the end of the first
business day following the date of this Agreement, were subject to a properly
confirmed agreement to purchase.
SECTION 7. Contribution. If the indemnification provided for in Section 6
------------
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the U.S. Underwriters on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the U.S.
Underwriters on the other hand in connection with the statements or omissions,
or in connection with any violation of the nature referred to in Section
6(a)(ii)(A) hereof, which resulted in such losses, liabilities, claims, damages
or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the U.S.
Underwriters on the other hand in connection with the offering of the U.S.
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the U.S.
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the U.S.
Underwriters, in each case as set forth on the cover of the U.S. Prospectus, or,
if Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate initial public offering price of the U.S. Securities as set forth on
such cover.
The relative fault of the Company on the one hand and the U.S. Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the U.S. Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission or any violation of the nature referred to in Section
6(a)(ii)(A) hereof.
The Company and the U.S. Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the U.S. Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any
26
<PAGE>
reasonable legal or other expenses incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no U.S. Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the U.S. Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
U.S. Underwriter has otherwise been required to pay by reason of any such untrue
or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls a U.S.
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The U.S.
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the number of Initial U.S. Securities set forth
opposite their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of its Subsidiaries submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any U.S. Underwriter or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the U.S. Underwriters.
SECTION 9. Termination of Agreement.
------------------------
(1) Termination; General. The U.S. Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the U.S. Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such
27
<PAGE>
as to make it, in the judgment of the U.S. Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the Nasdaq National Market, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal or New York authorities.
(2) Liabilities. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 1, 6,
7 and 8 shall survive such termination and remain in full force and effect.
SECTION 10. Default by One or More of the U.S. Underwriters. If one or more
-----------------------------------------------
of the U.S. Underwriters shall fail at Closing Time or a Date of Delivery to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the U.S. Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting U.S. Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the U.S.
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(1) if the number of Defaulted Securities does not exceed 10% of the number of
U.S. Securities to be purchased on such date, each of the non-defaulting U.S.
Underwriters shall be obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting U.S.
Underwriters, or
(2) if the number of Defaulted Securities exceeds 10% of the number of U.S.
Securities to be purchased on such date, this Agreement or, with respect to any
Date of Delivery which occurs after the Closing Time, the obligation of the U.S.
Underwriters to purchase and of the Company to sell the Option Securities to be
purchased and sold on such Date of Delivery shall terminate without liability on
the part of any non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any defaulting U.S.
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the U.S.
Underwriters to purchase and the Company to sell the relevant U.S. Option
Securities, as the case may be, either the U.S. Representatives or the Company
shall have the right to postpone Closing Time or the relevant Date of Delivery,
as the
28
<PAGE>
case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "U.S. Underwriter" includes
any person substituted for a U.S. Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed to have been duly given if mailed or transmitted
by any standard form of telecommunication. Notices to the U.S. Underwriters
shall be directed to the U.S. Representatives at North Tower, World Financial
Center, New York, New York 10281-1201, attention of [ ] with a copy to
Gregory C. Smith, Skadden, Arps, Slate, Meagher & Flom LLP, 525 University
Avenue, Palo Alto, California, 94301; and notices to the Company shall be
directed to it at 1888 Emery Street, N.W., Atlanta, Georgia 30318, attention of
M. Wayne Boylston with copies to James S. Altenbach, Minkin & Snyder, One
Buckhead Plaza, 3060 Peachtree Road, Suite 1100, Atlanta, Georgia 30305 and
Margaret A. Davenport, Debevoise & Plimpton, 875 Third Avenue, New York, New
York 10022.
SECTION 12. Parties. This Agreement shall each inure to the benefit of and
-------
be binding upon the U.S. Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the U.S.
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the U.S. Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any U.S.
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein and
------------------
the Table of Contents are for convenience only and shall not affect the
construction hereof.
29
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the U.S. Underwriters and the Company in accordance with its terms.
Very truly yours,
IXL ENTERPRISES, INC.
By__________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
BANCBOSTON ROBERTSON STEPHENS INC.
SG COWEN SECURITIES CORPORATION
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By________________________________
Name:
Title:
For themselves and as U.S. Representatives of the
other U.S. Underwriters named in Schedule A hereto.
30
<PAGE>
SCHEDULE A
Number of
Initial
Name of Underwriter Securities
------------------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ....................................................
Donaldson, Lufkin & Jenrette Securities Corporation ..............
BancBoston Robertson Stephens Inc. ...............................
SG Cowen Securities Corporation ..................................
----------
Total ............................................................ [ ]
=========
Sch A-1
<PAGE>
SCHEDULE B
IXL ENTERPRISES, INC.
[ ] Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $[ ].
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $[ ], being an amount equal to the initial
public offering price set forth above less $[ ] per share; provided that the
purchase price per share for any Option Securities purchased upon the exercise
of the over-allotment option described in Section 2(b) shall be reduced by an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option Securities.
Sch B-1
<PAGE>
SCHEDULE C
List of persons and entities
not subject to lock-up
Sch C-1
<PAGE>
Exhibit A-1
FORM OF OPINION OF COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(1) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(2) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as presently conducted
and as described in the Prospectuses and to enter into and perform its
obligations under the Purchase Agreement.
(3) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction listed on Schedule A
attached hereto which to our knowledge is each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not reasonably be expected to result in a
Material Adverse Effect.
(4) On December 31, 1998 and Pro Forma for issuances of capital stock
occurring between January 1, 1999 and the Closing, the authorized, issued
and outstanding capital stock of the Company was and is as described in the
Prospectuses under the caption entitled "Capitalization" and, after giving
effect to the offering will be as described as Pro Forma as Adjusted under
the caption "Capitalization" (except for subsequent issuances, if any,
pursuant to the Purchase Agreements, or pursuant to reservations,
agreements or employee benefit plans referred to in the Prospectuses or
pursuant to the exercise of convertible securities or options referred to
in the Prospectuses and except for 4,000,000 shares of Common Stock
registered pursuant to a shelf Registration Statement on Form S-4 for use
in future acquisitions). The number of authorized, issued and outstanding
options and other rights to acquire capital stock is as described under
such caption. The shares of issued and outstanding capital stock of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable; and to our knowledge none of the outstanding shares of
capital stock of the Company was issued in violation of the preemptive or
other similar rights of any security holder of the Company. Except as
disclosed in the Prospectuses, to our knowledge, there are no outstanding
options to purchase, or any preemptive rights or other rights to subscribe
for or to purchase, any securities or obligations convertible into, or, any
contracts or commitments to issue or sell, shares of the Company's or its
A-1-1
<PAGE>
Subsidiaries' capital stock or any such options, rights, convertible
securities or obligations. The description of the Company's stock option
and purchase plans, and the options or other rights granted and exercised
thereunder, set forth in the Prospectuses accurately and fairly presents in
all material respects the information required to be shown with respect to
such plans, options and rights.
(5) The Securities have been duly authorized for issuance and sale to
the Underwriters pursuant to the Purchase Agreements and, when issued and
delivered by the Company pursuant to the Purchase Agreements against
payment of the consideration set forth in the Purchase Agreements, will be
validly issued and fully paid and non-assessable and no holder of the
Securities is or will be subject to personal liability by reason of being
such a holder. The Common Stock conforms in all material respects as to
legal matters to all statements relating thereto contained in the
Prospectuses and such descriptions conform to the rights set forth in the
instruments defining the same.
(6) To our knowledge, the issuance of the Securities is not subject to
preemptive rights, co-sale rights, registration rights, right of first
refusal or similar rights of any security holder of the Company and the
Securities will be sold free and clear of all liens, encumbrances, equities
or claims.
(7) Each Subsidiary has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectuses
and is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction listed on Schedule A attached hereto
which to our knowledge is each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not reasonably be expected to result in a Material
Adverse Effect; except as otherwise disclosed in the Registration
Statement, all of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and, to our knowledge, is owned by the Company, directly or
through Subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; to our knowledge none of the
outstanding shares of capital stock of any Subsidiary was issued in
violation of the preemptive or similar rights of any security holder of
such Subsidiary or other party. To our knowledge, except as described in
the Prospectuses or except as not required to be disclosed in the
Prospectuses, the Company has no written agreement, commitment or
understanding with respect to acquiring the business, stock, or material
assets, except assets acquired in the ordinary course of business, of any
other person or entity.
(8) The Purchase Agreements have been duly authorized, executed and
delivered by the Company.
A-1-2
<PAGE>
(9) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required
filing of the Prospectuses pursuant to Rule 424(b) have been made in the
manner and within the time period required by Rule 424(b); and, to our
knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under
the 1933 Act and no proceedings for that purpose have been instituted or
are pending or threatened by the Commission.
(10) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectuses and each amendment or supplement to the
Registration Statement and Prospectuses as of their respective effective or
issue dates (other than the financial statements and notes thereto, other
financial information and supporting schedules included therein or omitted
therefrom, as to which we need express no opinion) complied as to form in
all material respects with the requirements of the 1933 Act and the 1933
Act Regulations.
(11) If Rule 434 has been relied upon, the Prospectuses were not
"materially different," as such term is used in Rule 434, from the
prospectuses included in the Registration Statement at the time it became
effective.
(12) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable requirements of the General
Corporation Law of the State of Delaware, with any applicable requirements
of the charter and by-laws of the Company and the requirements of the
Nasdaq National Market.
(13) To our knowledge, other than as set forth in the Prospectuses,
there is not pending or threatened any action, suit, proceeding, inquiry or
investigation, to which the Company or any Subsidiary is a party, or to
which the property of the Company or any Subsidiary is subject, before or
brought by any court or governmental agency or body (domestic or foreign),
which might reasonably be expected to result in a Material Adverse Effect,
or which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of the transactions
contemplated in the Purchase Agreements or the performance by the Company
of its obligations thereunder.
(14) The information in the Prospectuses under (A) "Certain
Transactions," and "Management" and (B) in the Registration Statement under
Item 14, to the extent that it constitutes matters of law, summaries of
legal matters, the Company's charter and by-laws or legal proceedings, or
legal conclusions, has been reviewed by us and is correct in all material
respects.
A-1-3
<PAGE>
(15) To our knowledge, there are no statutes or regulations that are
required to be described in the Prospectuses that are not described as
required.
(16) All descriptions in the Registration Statement of contracts and
other documents to which the Company or its Subsidiaries are a party are
accurate in all material respects; to our knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than those
described or referred to therein or filed or incorporated by reference as
exhibits thereto, and the descriptions thereof or references thereto are
correct in all material respects.
(17) To our knowledge, neither the Company nor any Subsidiary is in
violation of its charter or by-laws.
(18) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any federal or Georgia
court or governmental authority or agency, (other than under the 1933 Act
and the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations
which have been obtained, or as may be required under the securities or
blue sky laws of the various states, as to which we need express no
opinion) is necessary or required to be obtained by the Company or any of
its Subsidiaries in connection with the due authorization, execution and
delivery of the Purchase Agreement or for the offering, issuance or sale of
the Securities to the Underwriters.
(19) The execution, delivery and performance of the Purchase Agreements
and the consummation of the transactions contemplated in the Purchase
Agreements and in the Registration Statement (including the issuance and
sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectuses under the caption "Use of
Proceeds") and compliance by the Company with its obligations under the
Purchase Agreements do not and will not, whether with or without the giving
of notice or lapse of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined in Section 1(a)(x) of the
Purchase Agreements) under or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or
any Subsidiary pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other agreement or
instrument listed on the Exhibit Index to the S-1 Registration Statement,
to which the Company or any Subsidiary is a party or by which it or any of
them may be bound, or to which any of the property or assets of the Company
or any Subsidiary is subject (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not reasonably be
expected to have a Material Adverse Effect), nor will such action result in
any violation of the provisions of the charter or by-laws of the Company or
any Subsidiary, or any applicable law, statute, rule, regulation, judgment,
order, writ or material decree, known
A-1-4
<PAGE>
to us, of the General Corporation Law of the State of Delaware, any Georgia
or United States federal court, government or government instrumentality
having jurisdiction over the Company or any Subsidiary or any of their
respective properties, assets or operations.
(20) To our knowledge, except as described in the Prospectuses, there
are no persons with registration rights or other similar rights to have any
securities registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
(21) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
1940 Act.
We have not ourselves checked the accuracy and completeness of, or
otherwise verified, and are not passing upon and assume no responsibility for
the accuracy or completeness of, the statements contained in the Registration
Statement or the Prospectuses, except to the limited extent stated in paragraph
4, the second sentence of paragraph 5, paragraph 14 and the first clause of
paragraph 16 above. In the course of our review and discussion of the contents
of the Registration Statement and the Prospectuses with certain officers and
employees of the Company and its independent accountants, but without
independent check or verification, no facts have come to our attention which
cause us to believe that the Registration Statement (other than the financial
statements and notes thereto, other financial information and supporting
schedules contained therein or omitted therefrom, as to which we express no
belief), at the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements contained therein not misleading, or that
the Prospectuses (other than the financial statements and notes thereto, other
financial information and supporting schedules contained therein or omitted
therefrom, as to which we express no belief), as of their dates and as of the
date hereof, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained therein, in the light
of the circumstances under which they were made, not misleading.
A-1-5
<PAGE>
Exhibit A-2
FORM OF OPINION OF DEBEVOISE & PLIMPTON
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(22) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(23) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the
Purchase Agreements.
(24) The Securities have been duly authorized for issuance and sale to
the Underwriters pursuant to the Purchase Agreements and, when issued and
delivered by the Company pursuant to the Purchase Agreements against
payment of the consideration set forth in the Purchase Agreements, will be
validly issued and fully paid and non-assessable and no holder of the
Securities is or will be subject to personal liability by reason of being
such a holder. The Common Stock conforms in all material respects as to
legal matters to the statements relating thereto contained under the
caption "Description of Capital Stock" in the Prospectuses.
(25) CFN has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, and
has the corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectuses.
(26) The Purchase Agreements have been duly authorized, executed and
delivered by the Company.
(27) The Registration Statement[, including any Rule 462(b) Registration
Statement,] has been declared effective under the 1933 Act; the
Prospectuses have been filed with the Commission pursuant to Rule
424(b)(_); and, to our knowledge, no stop order suspending the
effectiveness of the Registration Statement [or any Rule 462(b)
Registration Statement] has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or
threatened by the Commission.
(28) The Registration Statement, including [any Rule 462(b) Registration
Statement,] the Rule 430A Information [and the Rule 434 Information, as
applicable], the Prospectuses and each amendment or supplement to the
Registration Statement and
A-2-1
<PAGE>
Prospectuses as of their respective effective or issue dates (other than
the financial statements and notes thereto, other financial information and
supporting schedules included therein or omitted therefrom, as to which we
need express no opinion) complied as to form in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations.
(29) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable requirements of the General
Corporation Law of the State of Delaware, with any applicable requirements
of the charter and by-laws of the Company and the requirements of the
Nasdaq National Market.
(30) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any United States federal
or New York State court or governmental authority or agency, (other than
under the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act
Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which we need
express no opinion) is necessary or required to be made or obtained by the
Company or any of its Subsidiaries in connection with the due
authorization, execution and delivery of the Purchase Agreements or for the
offering, issuance or sale of the Securities to the Underwriters.
(31) To our knowledge, the execution, delivery and performance of the
Purchase Agreements and the consummation of the transactions contemplated
in the Purchase Agreements and compliance by the Company with its
obligations under the Purchase Agreements do not and will not, whether with
or without the giving of notice or lapse of time or both, result in any
violation of any applicable law, statute, rule, regulation, judgment,
order, writ or decree, known to us, of any, court, government or government
instrumentality of New York having jurisdiction over the Company or any
Subsidiary or any of their respective properties, assets or operations.
We have not ourselves checked the accuracy and completeness of, or
otherwise verified, and are not passing upon and assume no responsibility for
the accuracy or completeness of, the statements contained in the Registration
Statement or the Prospectuses, except to the limited extent stated in the second
sentence of paragraph 3 above. In the course of our review and discussion of
the contents of the Registration Statement and the Prospectuses with certain
officers and employees of the Company and its independent accountants, but
without independent check or verification, no facts have come to our attention
which cause us to believe that the Registration Statement (other than the
financial statements and notes thereto, other financial information and
supporting schedules contained therein or omitted therefrom, as to which we
express no belief), at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, or that the Prospectuses (other than the financial statements and
notes thereto, other financial information and supporting schedules contained
therein or omitted therefrom, as to which
A-2-2
<PAGE>
we express no belief), as of their dates and as of the date hereof, contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements contained therein, in the light of the circumstances
under which they were made, not misleading.
A-2-3
<PAGE>
Exhibit A-3
FORM OF OPINION OF MORRIS,
MANNING & MARTIN, L.L.P.
TO BE DELIVERED PURSUANT
TO SECTION 5(b)
(i) The statements made in the Prospectuses under the captions "Risk
Factors--Government Regulation and Legal Uncertainties Related to CFN
Could Adversely Affect Our Business" and "Business--Government
Regulation," only insofar as those statements constitute a summary of
principles of insurance laws or regulations applicable to the CFN
Agency, Inc. business fairly and accurately represent the material
insurance laws and regulations applicable to the operation of CFN
Agency, Inc. business and, to the best of our actual knowledge, there
are no state insurance statutes or regulations material to the
operation of CFN Agency, Inc. business that are required to be
described in the Prospectuses that are not described as required; and
(ii) Nothing has come to our attention that leads us to believe that
the statements made in the Prospectuses under the captions "Risk
Factors-Government Regulation and Legal Uncertainties Related to CFN
Could Adversely Affect Our Business" and "Business--Government
Regulation" at the time the Registration Statement became effective
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, only insofar as those statements
constitute a summary of principles of state insurance laws or
regulations to the CFN Agency, Inc. business.
A-3-1
<PAGE>
Exhibit A-4
FORM OF OPINION OF
HUDSON COOK, LLP TO BE
DELIVERED PURSUANT
TO SECTION 5(b)
(i) The statements made in the Prospectuses under the captions "Risk
Factors--Government Regulation and Legal Uncertainties Related to CFN
Could Adversely Affect Our Business" and "Business--Government
Regulation," insofar as those statements constitute a summary of
principles of auto loan broker laws or regulations applicable to the
business of CFN, fairly and accurately represent the material auto
loan broker laws and regulations applicable to the operation CFN's
business and to the best of our knowledge, there are no statutes or
regulations material to the operation of CFN's auto loan broker
business that are required to be described in the Prospectuses that
are not described as required; and
(ii) Nothing has come to our attention that leads us to believe that
the statements made in the Prospectuses under the captions "Risk
Factors--Government Regulation and Legal Uncertainties Related to CFN
Could Adversely Affect Our Business" and "Business--Government
Regulation," at the time the Registration Statement became effective
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, insofar as those statements
constitute a summary of principles of auto loan broker laws or
regulations applicable to the business of CFN.
A-4-1
<PAGE>
Exhibit A-5
FORM OF OPINION OF
GOODWIN, PROCTER & HOAR, LLP
DELIVERED PURSUANT TO
SECTION 5(b)
(i) The statements made under "Risk Factors--Risks Relating to Our CFN
Subsidiary--Government regulation and Legal Uncertainties Related to
CFN Could Adversely Affect Our Business." and "Business--Consumer
Financial Network-- Government Regulation of Insurance, Auto Finance
and Mortgages" (the "Risk Factor Information") contained in the
Prospectus regarding residential mortgage issues insofar as those
statements constitute a summary of principles of mortgage loan laws or
regulations applicable to the business of CFN, fairly and accurately
represent the material mortgage loan laws and regulations applicable
to the operation of the CFN home finance program; and
(ii) On the basis of the information that we have gained in the course
of participating in the preparation of the Risk Factor Information,
nothing has come to our attention that would lead us to believe that
the statements made regarding residential mortgage issues in the Risk
Factor Information (i) in the Registration Statement, at the time it
became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, insofar as
those statements constitute a summary of the principles of mortgage
loan laws or regulations applicable to the CFN home finance program,
or (ii) in the Prospectus, at the time the Prospectus was issued or at
the initial closing of the Offering, included or includes an untrue
statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading
insofar as those statements constitute a summary of the principles of
mortgage loan laws or regulations applicable to the CFN home finance
program. In rendering such opinion, we have relied as to matters of
fact (but not as to legal conclusions), to the extent we have deemed
proper, on certificates or affidavits of responsible officers of the
Company.
A-5-1
<PAGE>
[FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO
SECTION 5(I)]
Exhibit B
[ ], 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation
NationsBanc Montgomery Securities LLC
BancBoston Robertson Stephens
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by IXL Enterprises, Inc.
-------------------------------------------------
Dear Sirs:
The undersigned, a security holder of IXL Enterprises, Inc., a Delaware
corporation (the "Company") or none of its Subsidiaries (as such term is defined
in the Purchase Agreement (as defined herein)), understands that Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
Donaldson, Lufkin & Jenrette Securities Corporation, NationsBanc Montgomery
Securities LLC and BancBoston Robertson Stephens Inc. propose to enter into a
Purchase Agreement (the "Purchase Agreement") with the Company providing for the
public offering of shares (the "Securities") of the Company's common stock, par
value $.01 per share (the "Common Stock"). In recognition of the benefit that
such an offering will confer upon the undersigned as a security holder of the
Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the Purchase Agreement that, during a period of 180
days from the date of the Purchase Agreement, the undersigned will not, without
the prior written consent of Merrill Lynch, directly or indirectly, (i) offer to
sell, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any shares of the Company's
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock, whether now owned or hereafter acquired by the undersigned or
with respect to which the undersigned has or hereafter acquires the power of
disposition, or file or cause to be filed any registration statement under the
Securities Act of 1933, as amended, with respect to any of the foregoing or (ii)
enter into any swap
B-1
<PAGE>
or any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Common
Stock, whether any such swap transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise.
The foregoing paragraph shall not apply to (a) transactions by any
person other than the Company relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
public offering provided for in the Purchase Agreement or (b) transfers of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock to a member of the undersigned's immediate family or to a trust
of which the undersigned or an immediate family member is the beneficiary
(either one a "Transferee") provided that upon any such transfer, the Transferee
shall sign a letter substantially similar to this letter agreement agreeing not
to sell, grant any option to purchase, or otherwise transfer or dispose of any
such Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock for the remainder of the above-referenced 180-day
period.
The undersigned agrees that the provisions of this Agreement shall be
binding also upon the successors, assigns, heirs and personal representatives of
the undersigned and that any registration rights with respect to the offering of
Securities contemplated by the Purchase Agreement have been hereby waived.
Very truly yours,
Signature:_____________________________
Print Name: ___________________________
B-2
<PAGE>
EXHIBIT 1.2
- --------------------------------------------------------------------------------
IXL ENTERPRISES, INC.
(a Delaware corporation)
[ ] Shares of Common Stock
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
- --------------------------------------------------------------------------------
Dated: [ ], 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTERNATIONAL PURCHASE AGREEMENT............................................................... 1
SECTION 1. Representations and Warranties............................................... 4
------------------------------
(a) Representations and Warranties by the Company................................ 4
(b) Officer's Certificates....................................................... 13
SECTION 2. Sale and Delivery to International Managers; Closing......................... 13
----------------------------------------------------
(a) Initial Securities........................................................... 13
(b) Option Securities............................................................ 14
(c) Payment...................................................................... 14
(d) Denominations; Registration.................................................. 15
SECTION 3. Covenants of the Company..................................................... 15
------------------------
(a) Compliance with Securities Regulations and Commission Requests............... 15
(b) Filing of Amendments......................................................... 15
(c) Delivery of Registration Statements.......................................... 16
(d) Delivery of Prospectuses..................................................... 16
(e) Continued Compliance with Securities Laws.................................... 16
(f) Blue Sky Qualifications...................................................... 17
(g) Rule 158..................................................................... 17
(h) Use of Proceeds.............................................................. 17
(i) Listing...................................................................... 17
(j) Restriction on Sale of Securities............................................ 17
(k) Reporting Requirements....................................................... 18
(l) Compliance with NASD Rules................................................... 18
(m) Compliance with Rule 463..................................................... 18
SECTION 4. Payment of Expenses.......................................................... 18
-------------------
(a) Expenses..................................................................... 18
(b) Termination of Agreement..................................................... 19
SECTION 5. Conditions of International Managers' Obligations............................ 19
-------------------------------------------------
(a) Effectiveness of Registration Statement...................................... 19
(b) Opinions of Counsel for Company.............................................. 19
(c) Opinion of Counsel for International Managers................................ 20
(d) Officers' Certificate........................................................ 20
(e) Accountants' Comfort Letters................................................. 20
(f) Bring-down Comfort Letters................................................... 20
(g) Approval of Listing.......................................................... 21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(h) No Objection.......................................................... 21
(i) Lock-up Agreements.................................................... 21
(j) Purchase of Initial U.S. Securities................................... 21
(k) GE Private Placement.................................................. 21
(l) Conditions to Purchase of U.S. Option Securities...................... 21
(m) Additional Documents.................................................. 22
(n) Termination of Agreement.............................................. 22
SECTION 6. Indemnification....................................................... 22
---------------
(a) Indemnification of International Managers............................. 22
(b) Indemnification of Company, Directors and Officers.................... 24
(c) Actions against Parties; Notification................................. 24
(d) Settlement without Consent if Failure to Reimburse.................... 25
(e) Indemnification for Reserved Securities............................... 25
SECTION 7. Contribution.......................................................... 25
------------
SECTION 8. Representations, Warranties and Agreements to Survive Delivery........ 27
--------------------------------------------------------------
SECTION 9. Termination of Agreement.............................................. 27
------------------------
(a) Termination; General.................................................. 27
(b) Liabilities........................................................... 27
SECTION 10. Default by One or More of the International Managers................. 28
----------------------------------------------------
SECTION 11. Notices.............................................................. 28
-------
SECTION 12. Parties.............................................................. 29
-------
SECTION 13. GOVERNING LAW AND TIME............................................... 29
----------------------
SECTION 14. Effect of Headings................................................... 29
------------------
SCHEDULE A.......................................................................... Sch A-1
SCHEDULE B.......................................................................... Sch B-1
SCHEDULE C.......................................................................... Sch C-1
Exhibit A-1......................................................................... A-1-1
Exhibit A-2......................................................................... A-2-1
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Exhibit A-3........................................................ A-3-1
Exhibit A-4........................................................ A-4-1
Exhibit A-5........................................................ A-5-1
Exhibit B.......................................................... B-1
</TABLE>
iii
<PAGE>
IXL ENTERPRISES, INC.
(a Delaware corporation)
[ ] Shares of Common Stock
(Par Value $.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
[ ], 1999
MERRILL LYNCH INTERNATIONAL
Donaldson, Lufkin & Jenrette Securities Corporation
BancBoston Robertson Stephens Inc.
SG Cowen Securities Corporation
as Lead Managers of the several International Managers
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
iXL Enterprises, Inc., a Delaware corporation (the "Company"), confirms
its agreement with Merrill Lynch International ("Merrill Lynch") and each of the
other international underwriters named in Schedule A hereto (collectively, the
"International Managers,", which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch, Donaldson, Lufkin & Jenrette Securities Corporation, Banc Boston
Robertson Stephens Inc. and SG Cowen Securities Corporation are acting as
representatives (in such capacity, the "Lead Managers"), with respect to the
issue and sale by the Company and the purchase by the International Managers,
acting severally and not jointly, of the respective numbers of shares of Common
Stock, par value $.01 per share, of the Company ("Common Stock") set forth in
said Schedule A, and with respect to the grant by the Company to the
International Managers, acting severally and not jointly, of the option
described in Section 2(b) hereof to purchase all or any part of [ ] additional
shares of Common Stock to cover over-allotments, if any. The aforesaid [ ]
shares of Common Stock (the "Initial U.S. Securities") to be purchased by the
International Managers and all or any
1
<PAGE>
part of the [ ] shares of Common Stock subject to the option described in
Section 2(b) hereof (the "International Option Securities") are hereinafter
called, collectively, the "International Securities".
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "U.S. Purchase Agreement") providing for
the offering by the Company of an aggregate of [ ] shares of Common Stock (the
"Initial U.S. Securities") through arrangements with certain underwriters in the
United States and Canada (the "U.S. Underwriters") for which Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, BancBoston Robertson Stephens Inc. and SG Cowen Securities
Corporation are acting as representatives (the "U.S. Representatives") and the
grant by the Company to the U.S. Underwriters, acting severally and not jointly,
of an option to purchase all or any part of the U.S. Underwriters' pro rata
portion of up to [ ] additional shares of Common Stock solely to cover
overallotments, if any (the "U.S. Option Securities" and, together with the
International Option Securities, the "Option Securities"). The Initial U.S.
Securities and the U.S. Option Securities are hereinafter called the "U.S.
Securities". It is understood that the Company is not obligated to sell and the
International Managers are not obligated to purchase, any Initial International
Securities unless all of the Initial U.S. Securities are contemporaneously
purchased by the U.S. Underwriters.
The International Managers and the U.S. Underwriters are hereinafter
collectively called the "Underwriters", the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities", and the U.S. Securities, and the International Securities
are hereinafter collectively called the "Securities".
The Underwriters will concurrently enter into an Intersyndicate Agreement
of even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the direction
of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (in
such capacity, the "Global Coordinator").
The Company understands that the International Managers propose to make a
public offering of the International Securities as soon as the Lead Managers
deem advisable after this Agreement has been executed and delivered.
The Company and the International Managers agree that up to [ ] shares of
the Initial International Securities to be purchased by the International
Managers and that up to [ ] shares of the Initial U.S. Securities to be
purchased by the U.S. Underwriters (collectively, the "Reserved Securities")
shall be reserved for sale by the Underwriters to certain eligible employees and
persons having business relationships with the Company, as part of the
distribution of the Securities by the Underwriters, subject to the terms of this
Agreement, the applicable rules, regulations and interpretations of the National
Association of Securities Dealers, Inc. and all other applicable laws, rules and
regulations. To the extent that such Reserved Securities are not orally
confirmed for purchase by such eligible employees and persons having business
relationships with the Company by the end of the first business day after the
date of this Agreement, such Reserved Securities may be offered to the public as
part of the public offering contemplated hereby.
2
<PAGE>
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-[ ]) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). Two
forms of prospectus are to be used in connection with the offering and sale of
the Securities: one relating to the U.S. Securities (the "Form of International
Prospectus") and one relating to the U.S. Securities (the "Form of U.S.
Prospectus"). The Form of International Prospectus is identical to the Form of
U.S. Prospectus, except for the front cover and back cover pages and the
information under the caption "Underwriting" and the inclusion in the Form of
International Prospectus of a section under the caption "Certain United States
Tax Considerations for Non-United States Holders." The information included in
any such prospectus or in any such Term Sheet, as the case may be, that was
omitted from such registration statement at the time it became effective but
that is deemed to be part of such registration statement at the time it became
effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule
430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as
"Rule 434 Information." Each Form of International Prospectus and Form of U.S.
Prospectus used before such registration statement became effective, and any
prospectus that omitted, as applicable, the Rule 430A Information or the Rule
434 Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and
schedules thereto at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final Form of
International Prospectus and the final Form of U.S. Prospectus in the forms
first furnished to the Underwriters for use in connection with the offering of
the Securities are herein called the "International Prospectus" and the "U.S.
Prospectus," respectively, and collectively, the "Prospectuses." If Rule 434 is
relied on, the terms "International Prospectus" and "U.S. Prospectus" shall
refer to the preliminary International Prospectus dated [ ], 1999 and
preliminary U.S. Prospectus dated [ ], 1999, respectively, each together with
the applicable Term Sheet and all references in this Agreement to the date of
such Prospectuses shall mean the date of the applicable Term Sheet. For purposes
of this Agreement, all references to the Registration Statement, any preliminary
prospectus, the International Prospectus, the U.S. Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
3
<PAGE>
SECTION 1. Representations and Warranties.
-------------------------------
(1) Representations and Warranties by the Company. The Company represents
and warrants to each International Manager as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b), hereof and agrees with each International
Manager, as follows:
(1) Compliance with Registration Requirements. Each of the
-----------------------------------------
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any International Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply as to form in all material
respects with the requirements of the 1933 Act and the 1933 Act Regulations
and did not and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Prospectuses, any
preliminary prospectuses and any supplement thereto or the prospectus
wrapper relating to sales of Securities in Canada (except as it relates
specifically to matters of Canadian law) prepared in connection therewith,
at their respective times of issuance and at the Closing Time, complied and
will comply in all material respects with any applicable laws or
regulations of foreign jurisdictions in which the Prospectuses and such
preliminary prospectuses, as amended or supplemented, if applicable, are
distributed in connection with the offer and sale of Reserved Securities.
Neither of the Prospectuses nor any amendments or supplements thereto
(including the prospectus wrapper relating to sales of Securities in Canada
(except as it relates specifically to matters of Canadian law)), at the
time the Prospectuses or any amendments or supplements thereto were issued
and at the Closing Time (and, if any International Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434 is
used, the Company will comply with the requirements of Rule 434 and the
Prospectuses shall not be "materially different", as such term is used in
Rule 434, from the prospectuses included in the Registration Statement at
the time it became effective. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or the International Prospectus made in reliance
upon and in conformity with information furnished to the Company in writing
by any International
4
<PAGE>
Manager through the Lead Managers expressly for use in the Registration
Statement or the International Prospectus.
The Company has filed a registration statement pursuant to
Section 12(b) of the Securities Exchange Act of 1934 (the "1934 Act"), to
register the Common Stock, and such registration statement has been
declared effective.
Each preliminary prospectus and the prospectuses filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied as to form when so filed in all material respects with the 1933
Act Regulations and each preliminary prospectus and the Prospectuses to be
delivered to the Underwriters for use in connection with this offering was
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation
S-T. The representations and warranties in this subsection shall not apply
to statements in or omissions from the preliminary prospectus made in
reliance upon and in conformity with information furnished to the Company
in writing by any International Manager through the Lead Managers expressly
for use in the preliminary prospectus.
(2) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(3) Financial Statements. The financial statements of the
--------------------
Company and its consolidated subsidiaries included in the Registration
Statement and the Prospectuses, together with the related schedules and
notes, present fairly in all material respects the financial position of
the Company and its consolidated Subsidiaries (defined below) at the dates
indicated and the statement of operations, stockholders' equity and cash
flows of the Company and its consolidated Subsidiaries for the periods
specified; said financial statements have been prepared in conformity with
generally accepted accounting principles (GAAP) applied on a consistent
basis throughout the periods involved. The supporting schedules, if any,
included in the Registration Statement present fairly, in all material
respects, in accordance with GAAP the information required to be stated
therein. The selected consolidated financial data, the summary consolidated
financial information, and the capitalization information included in the
Prospectuses present fairly, in all material respects, the information
shown therein and have been compiled on a basis consistent with that of the
financial statements included in the Registration Statement. The pro forma
financial statements and the related notes thereto included in the
Registration Statement and the Prospectuses, other than the quarterly pro
forma information set forth in the Prospectuses under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," present fairly, in all material respects, the information
shown therein, have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements and have been
properly
5
<PAGE>
compiled on the bases described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred
to therein. No financial statements are required to be included in the
Registration Statement that have not been so included.
(4) Subsidiary Financial Statements. The financial statements of the
-------------------------------
Company's Subsidiaries included in the Registration Statement and the
Prospectuses, together with the related schedules and notes, present fairly
in all material respects the financial position of such Subsidiaries and
their respective consolidated subsidiaries at the dates indicated and the
statement of operations, stockholders' equity and cash flows of such
Subsidiaries and their respective consolidated Subsidiaries for the periods
specified; said financial statements have been prepared in conformity with
GAAP applied on a consistent basis throughout the periods involved.
(5) No Material Adverse Change in Business. Since the respective dates
--------------------------------------
as of which information is given in the Registration Statement and the
Prospectuses, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
Subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its Subsidiaries considered as
one enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(6) Good Standing of the Company. The Company has been duly
----------------------------
incorporated and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectuses and to enter into and perform its
obligations under this Agreement; and the Company is duly qualified as a
foreign corporation to transact business and is in good standing in each
other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
reasonably be expected to result in a Material Adverse Effect.
(7) Good Standing of Subsidiaries. Each subsidiary of the Company
-----------------------------
(other than subsidiaries in which the Company has only a minority ownership
interest) (each such subsidiary, individually a "Subsidiary" and
collectively, the "Subsidiaries") has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectuses and is duly qualified as a foreign
corporation to transact business and is in good standing in
6
<PAGE>
each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
reasonably be expected to result in a Material Adverse Effect; except for
the pledge of the Subsidiaries' stock pursuant to the Credit Facility (as
such term is defined in the Registration Statement) as otherwise disclosed
in the Registration Statement, all of the issued and outstanding capital
stock of each such Subsidiary has been duly authorized and validly issued,
is fully paid and non-assessable and is owned by the Company, directly or
through Subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding shares
of capital stock of any Subsidiary was issued in violation of the
preemptive or similar rights of any security holder of such Subsidiary or
other party. The only Subsidiaries of the Company are the Subsidiaries
listed on Exhibit 21 to the Registration Statement. Except as described in
the Prospectuses, or except as would not be required to be described, the
Company has no agreements, commitments, or understandings with respect to
acquiring the business, stock or material assets, except those assets
acquired in the ordinary course of business, of any other person or entity.
(8) Capitalization. The authorized, issued and outstanding capital
--------------
stock of the Company is as set forth in the Prospectuses under the caption
"Capitalization", and, after giving effect to the offering will be as set
forth as "Pro Forma As Adjusted" under the caption "Capitalization" (except
for subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectuses or pursuant to the exercise of convertible securities or
options referred to in the Prospectuses) and for 4,000,000 shares of Common
Stock registered pursuant to a shelf Registration Statement or Form S-4 for
use in future acquisitions and the number of authorized, issued and
outstanding options and other rights is set forth in the footnotes under
such caption. The shares of issued and outstanding capital stock of the
Company and its subsidiary Consumer Financial Network, Inc. have been duly
authorized and validly issued and are fully paid and non-assessable; none
of the outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any security holder
of the Company. To the knowledge of the Company, the shares of issued and
outstanding capital stock of the Company have been issued in compliance, in
all material respects, with all federal and state securities laws. Except
as disclosed in the Prospectuses, there are no outstanding options to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of the Company's or its
Subsidiaries' capital stock or any such options, rights, convertible
securities or obligations. The description of the Company's stock option
and purchase plans and the options or other rights granted and exercised
thereunder set forth in the Prospectuses accurately and fairly describe, in
all material respects, the information required to be shown with respect to
such plans, arrangements, options and rights.
7
<PAGE>
(9) Authorization of Agreement. This Agreement and the International
--------------------------
Purchase Agreement have been duly authorized, executed and delivered by the
Company.
(10) Authorization and Description of Securities. The Securities to be
-------------------------------------------
purchased by the International Managers and the U.S. Underwriters from the
Company have been duly authorized for issuance and sale to the
International Managers pursuant to this Agreement and the U.S. Underwriters
pursuant to the U.S. Purchase Agreement, respectively, and, when issued and
delivered by the Company pursuant to this Agreement and the U.S. Purchase
Agreement, respectively, against payment of the consideration set forth
herein and the U.S. Purchase Agreement, respectively, will be validly
issued, fully paid and non-assessable; the Common Stock conforms in all
material respects to all statements relating thereto contained in the
Prospectuses and such description conforms in all material respects to the
rights set forth in the instruments defining the same; no holder of the
Securities will be subject to personal liability by reason of being such a
holder; and the issuance of the Securities is not subject to the preemptive
rights, co-sale rights, registration rights, right of first refusal or
similar rights of any security holder of the Company or other party and
will be sold free and clear of all liens, encumbrances, equities or claims.
(11) Absence of Defaults and Conflicts. Neither the Company nor any of
---------------------------------
its Subsidiaries is in violation of its charter or by-laws or in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which it or
any of them may be bound, or to which any of the property or assets of the
Company or any Subsidiary is subject (collectively, "Agreements and
Instruments") except for such violations or defaults that would not
reasonably be expected to result in a Material Adverse Effect; and the
execution, delivery and performance of this Agreement and the U.S. Purchase
Agreement and the consummation of the transactions contemplated in this
Agreement, the U.S. Purchase Agreement and in the Registration Statement
(including the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described in the Prospectuses
under the caption "Use of Proceeds") and compliance by the Company with its
obligations under this Agreement and the U.S. Purchase Agreement have been
duly authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
Subsidiary pursuant to, the Agreements and Instruments (except for such
violations, conflicts, breaches or defaults or liens, charges or
encumbrances that would not reasonably be expected to result in a Material
Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any Subsidiary or
any applicable law, statute binding upon, or, rule, regulation, judgment,
order, writ or decree of any government, government
8
<PAGE>
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of their assets, properties or operations,
except for such defaults, which would not reasonably be expected to result
in a Material Adverse Effect. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf) the
right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company or any Subsidiary.
(12) Absence of Labor Dispute. No labor dispute with the employees of
------------------------
the Company or any Subsidiary exists or, to the knowledge of the Company,
is imminent, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or any Subsidiary's principal
suppliers, manufacturers, customers or contractors, which, in either case,
would reasonably be expected to result in a Material Adverse Effect.
(13) Absence of Proceedings. There is no action, suit, proceeding,
----------------------
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company, threatened, against or affecting the Company or any
Subsidiary, which is required to be disclosed in the Registration Statement
(other than as disclosed therein), or which would reasonably be expected to
result in a Material Adverse Effect, or which would reasonably be expected
to materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in this Agreement and the
U.S. Purchase Agreement or the performance by the Company of its
obligations hereunder or thereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or any Subsidiary is a party
or of which any of their respective property or assets is the subject which
are not described in the Registration Statement, including ordinary routine
litigation incidental to the business, which would not reasonably be
expected to result in a Material Adverse Effect.
(14) Accuracy of Exhibits. There are no contracts or documents which
--------------------
are required to be described in the Registration Statement or the
Prospectuses or to be filed as exhibits thereto which have not been so
described and filed as required. The contracts so filed as exhibits are
accurate and complete, in all material respects; all such contracts are in
full force and effect on the date hereof, and neither the Company or any of
its Subsidiaries or, to the Company's best knowledge, any other party is in
breach of or default under any material provisions of such contracts the
result of which would reasonably be likely to result in a Material Adverse
Effect.
(15) Possession of Intellectual Property. The Company and its
-----------------------------------
Subsidiaries own or possess or have access to adequate patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), United States trademarks,
9
<PAGE>
service marks, trade names or other intellectual property (collectively,
"Intellectual Property") necessary to carry on the business now operated by
them except as would not reasonably be expected to have a Material Adverse
Effect, and neither the Company nor any of its Subsidiaries has received
any notice or is otherwise aware of any infringement of or conflict with
asserted rights of others with respect to any Intellectual Property or of
any facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of its
Subsidiaries therein, and which infringement or conflict (if the subject of
any unfavorable decision, ruling or finding) or invalidity or inadequacy,
singly or in the aggregate, would reasonably be expected to result in a
Material Adverse Effect.
(16) Absence of Further Requirements. No filing with, or authorization,
-------------------------------
approval, consent, license, order, registration, qualification or decree
of, any court or governmental authority or agency is necessary or required
to be made or obtained by the Company for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities under this Agreement and the U.S. Purchase Agreement
or the consummation of the transactions contemplated by this Agreement and
the U.S. Purchase Agreement, except (i) such as have been already obtained
or as may be required under the 1933 Act or the 1933 Act Regulations and
foreign or state securities or blue sky laws, (ii) such as have been
obtained under the laws and regulations of jurisdictions outside the United
States in which the Reserved Securities are offered or (iii) such as have
been described in the Registration Statement.
(17) Possession of Licenses and Permits. The Company and its
----------------------------------
Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them; the Company and its
Subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental Licenses
or the failure of such Governmental Licenses to be in full force and effect
would not reasonably be expected to have a Material Adverse Effect; and
neither the Company nor any of its Subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would reasonably be expected to
result in a Material Adverse Effect.
(18) Title to Property. The Company and its Subsidiaries have good and
-----------------
marketable title to all real property owned by the Company and its
Subsidiaries and good title to all other properties and assets owned by
them, in each case, free and clear of all mortgages, pledges, liens,
security interests, claims, restrictions or encumbrances of any kind except
such as (a) are described in the Prospectuses or (b) would not, singly or
in the
10
<PAGE>
aggregate, reasonably be expected to have a Material Adverse Effect, the
value of such property or assets and would not reasonably be expected to
interfere with the use made and proposed to be made of such property by the
Company or any of its Subsidiaries; and all of the leases and subleases
material to the business of the Company and its Subsidiaries, considered as
one enterprise, and under which the Company or any of its Subsidiaries
holds properties described in the Prospectuses, are in full force and
effect, except for such failure to be in force as would not reasonably be
expected to have a Material Adverse Effect, and neither the Company nor any
Subsidiary has any notice of any material claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any Subsidiary
under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or such Subsidiary to the continued
possession of the leased or subleased premises under any such lease or
sublease.
(19) Tax Returns and Payment of Taxes. The Company and its Subsidiaries
--------------------------------
have timely filed all Federal, state, local and foreign tax returns that
are required to be filed or have duly requested extensions thereof and all
such tax returns are true, correct and complete, except to the extent that
any failure to file or request an extension, or any incorrectness would not
reasonably be expected to result in a Material Adverse Effect. The Company
and its Subsidiaries have timely paid all taxes shown as due on such filed
tax returns (including any related assessments, fines or penalties), except
to the extent that any such taxes are being contested in good faith and by
appropriate proceedings, or to the extent that any failure to pay would not
reasonably be expected to result in a Material Adverse Effect; and adequate
charges, accruals and reserves have been provided for in the financial
statements referred to in Section 1(a)(iii) above in accordance with GAAP
in respect of all Federal, state, local and foreign taxes for all periods
as to which the tax liability of the Company or any of its Subsidiaries has
not been finally determined or remains open to examination by applicable
taxing authorities. The Company is not a "United States real property
holding corporation" within the meaning of Section 897(c)(3) of the
Internal Revenue Code of 1986, as amended.
(20) Insurance. The Company and each of its Subsidiaries are insured by
---------
insurers of recognized financial responsibility against such losses and
risks and in such amounts as the Company believes are prudent and customary
in the businesses in which they are engaged; and neither the Company nor
any of its Subsidiaries has any reason to believe that any of them will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business except where the failure to renew or
maintain such coverage would not reasonably be expected to result in a
Material Adverse Effect. The officers and directors of the Company are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary for
officers and directors liability insurance of a public company and as would
cover claims which could be made in connection with the issuance of the
Securities; and the Company has no reason to believe that it will not be
able to renew its existing
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directors and officers liability insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be necessary to cover its officers and directors.
(21) No Stabilization or Manipulation. Neither the Company nor, to the
--------------------------------
knowledge of the Company, any of its directors, officers or affiliates has
taken nor will take, directly or indirectly, any action designed to, or
that might be reasonably expected to, cause or result in stabilization or
manipulation of the price of the Securities in violation of Regulation M
under the 1934 Act.
(22) Investment Company Act. The Company is not, and upon the issuance
----------------------
and sale of the Securities as herein contemplated and the application of
the net proceeds therefrom as described in the Prospectuses will not be, an
"investment company" or an entity "controlled" by an "investment company"
as such terms are defined in the Investment Company Act of 1940, as amended
(the "1940 Act").
(23) Environmental Laws. Except as described in the Registration
------------------
Statement and except as would not, singly or in the aggregate, reasonably
be expected to result in a Material Adverse Effect, (A) neither the Company
nor any of its Subsidiaries is in violation of any federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) the Company
and its Subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance
with their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or any of its Subsidiaries and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its Subsidiaries relating to Hazardous Materials or any
Environmental Laws.
(24) Registration Rights. Except as described in the Prospectuses,
-------------------
there are no persons with registration rights or other similar rights to
have any securities registered
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pursuant to the Registration Statement or otherwise registered by the
Company under the 1933 Act.
(25) Certain Transactions. Except as disclosed in the Prospectuses
--------------------
or except as not reasonably required to be disclosed in the Prospectus,
there are no outstanding loans, advances, or guarantees of indebtedness by
the Company to or for the benefit of any of the executive officers or
directors of the Company or any of the members of the families of any of
them.
(26) Accounting and other Controls. The Company has established
-----------------------------
for itself and each Subsidiary and, with respect to future acquisitions,
will establish, a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions were, are or, in the
case of such future acquisitions, will be executed in accordance with
management's general or specific authorization; (ii) transactions were, are
or, in the case of such future acquisitions, will be recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets was, is or, in the case of such future acquisitions,
will be permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets was, is or,
in the case of such future acquisitions, will be compared with existing
assets at reasonable intervals and appropriate action was, is or, in the
case of such future acquisitions, will be taken with respect to any
differences.
(27) Regulations. The Company and CFN have not been advised, and
-----------
have no reason to believe, that either they or any of their subsidiaries is
not conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which they are conducting business,
including, without limitation, all applicable local, state and federal laws
and regulations; except where failure to be so in compliance would not
reasonably be expected to result in a Material Adverse Effect.
(2) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its Subsidiaries delivered to the Global Coordinator, the Lead
Managers or to counsel for the International Managers shall be deemed a
representation and warranty by the Company to each International Manager as to
the matters covered thereby.
SECTION 2. Sale and Delivery to International Managers; Closing.
----------------------------------------------------
(1) Initial Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each International Manager, severally and not jointly,
and each International Manager, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial International Securities set forth in Schedule A opposite the name of
such International Manager, plus any additional number of Initial International
Securities
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which such International Manager may become obligated to purchase pursuant to
the provisions of Section 10 hereof.
(2) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to each International Manager,
severally and not jointly, to purchase up to an additional ___ shares of Common
Stock at the price per share set forth in Schedule B, less an amount per share
equal to any dividends or distributions declared by the Company and payable on
the Initial International Securities but not payable on the International Option
Securities. The option hereby granted will expire 30 days after the date hereof
and may be exercised in whole or in part from time to time only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial International Securities upon notice by the
Global Coordinator to the Company setting forth the number of International
Option Securities as to which the several International Managers are then
exercising the option and the time and date of payment and delivery for such
International Option Securities. Any such time and date of delivery for the
International Option Securities (a "Date of Delivery") shall be determined by
the Global Coordinator, but shall not be later than seven full business days
after the exercise of said option, nor in any event prior to the Closing Time,
as hereinafter defined. If the option is exercised as to all or any portion of
the International Option Securities, each of the International Managers, acting
severally and not jointly, will purchase that proportion of the total number of
International Option Securities then being purchased which the number of Initial
U.S. Securities set forth in Schedule A opposite the name of such International
Manager bears to the total number of Initial International Securities, subject
in each case to such adjustments as the Global Coordinator in its discretion
shall make to eliminate any sales or purchases of fractional shares.
(3) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York
10022, or at such other place as shall be agreed upon by the Global Coordinator
and the Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the
pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day
after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Global Coordinator and the Company (such time and
date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the U.S. Option Securities are
purchased by the International Managers, payment of the purchase price for, and
delivery of certificates for, such International Option Securities shall be made
at the above-mentioned offices, or at such other place as shall be agreed upon
by the Global Coordinator and the Company, on each Date of Delivery as specified
in the notice from the Global Coordinator to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Lead Managers for the respective accounts of the International Managers of
certificates for the International Securities to
14
<PAGE>
be purchased by them. It is understood that each International Manager has
authorized the Lead Managers, for its account, to accept delivery of, receipt
for, and make payment of the purchase price for, the Initial International
Securities and the International Option Securities, if any, which it has agreed
to purchase. Merrill Lynch, individually and not as representative of the
International Managers, may (but shall not be obligated to) make payment of the
purchase price for the Initial International Securities or the International
Option Securities, if any, to be purchased by any International Manager whose
funds have not been received by the Closing Time or the relevant Date of
Delivery, as the case may be, but such payment shall not relieve such
International Manager from its obligations hereunder.
(4) Denominations; Registration. Certificates for the Initial
International Securities and the International Option Securities, if any, shall
be in such denominations and registered in such names as the Lead Managers may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
International Securities and the International Option Securities, if any, will
be made available for examination and packaging by the Lead Managers in The City
of New York not later than 10:00 A.M. (Eastern time) on the business day prior
to the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
------------------------
International Manager as follows:
(1) Compliance with Securities Regulations and Commission Requests. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Global Coordinator immediately,
and confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectuses or any amended Prospectuses shall have been filed, (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectuses or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceedings for any of such purposes. The Company, in
consultation with the Lead Managers, will promptly effect the filings necessary
pursuant to Rule 424(b) and will take such steps as it deems necessary to
ascertain promptly whether the form of prospectus transmitted for filing under
Rule 424(b) was received for filing by the Commission and, in the event that it
was not, it will promptly file such prospectus. The Company, after consultation
with the Lead Managers, will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(2) Filing of Amendments. The Company will give the Global Coordinator
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing
15
<PAGE>
under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to
either the prospectus included in the Registration Statement at the time it
became effective or to the Prospectuses, will furnish the Global Coordinator
with copies of any such documents a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file or use any such
document to which the Global Coordinator or counsel for the International
Managers shall object.
(3) Delivery of Registration Statements. The Company has furnished or will
deliver to the Lead Managers and counsel for the International Managers, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Lead Managers, without charge, a conformed
copy of the Registration Statement as originally filed and of each amendment
thereto (without exhibits) for each of the International Managers. The copies of
the Registration Statement and each amendment thereto furnished to the
International Managers will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(4) Delivery of Prospectuses. The Company has delivered to each
International Manager, without charge, as many copies of each preliminary
prospectus as such International Manager reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the 1933
Act. The Company will furnish to each International Manager, without charge,
during the period when the International Prospectus is required to be delivered
under the 1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"), such
number of copies of the International Prospectus (as amended or supplemented) as
such International Manager may reasonably request. The International Prospectus
and any amendments or supplements thereto furnished to the International
Managers will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(5) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the completion of
the distribution of the Securities as contemplated in this Agreement, the U.S.
Purchase Agreement and in the Prospectuses. If at any time when a prospectus is
required by the 1933 Act to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as a result of which
it is necessary, in the opinion of counsel for the International Managers or for
the Company, to amend the Registration Statement or amend or supplement any
Prospectus in order that the Prospectuses will not include any untrue statements
of a material fact or omit to state a material fact necessary in order to make
the statements therein not misleading in the light of the circumstances existing
at the time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of such counsel, at any such time to amend the Registration Statement or
amend or supplement any Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to
16
<PAGE>
Section 3(b), such amendment or supplement as may be necessary to correct such
statement or omission or to make the Registration Statement or the Prospectuses
comply with such requirements, and the Company will furnish to the International
Managers such number of copies of such amendment or supplement as the
International Managers may reasonably request.
(6) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the International Managers, to qualify the Securities for
offering and sale under the applicable securities laws of such states and other
jurisdictions (domestic or foreign) as the Global Coordinator may designate and
to maintain such qualifications in effect for a period of not less than one year
from the later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(7) Rule 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its security
holders as soon as practicable an earnings statement for the purposes of, and to
provide the benefits contemplated by, the last paragraph of Section 11(a) of the
1933 Act.
(8) Use of Proceeds. The Company will use the net proceeds received by it
from the sale of the Securities in the manner specified in the Prospectuses
under "Use of Proceeds".
(9) Listing. The Company will use its best efforts to effect and maintain
the quotation of the Securities on the Nasdaq National Market or the listing of
the Securities on the New York Stock Exchange and will file with the Nasdaq
National Market or the New York Stock Exchange, as applicable, all documents and
notices required by such exchange of companies that have securities that are
traded in the over-the-counter market and quotations for which are reported by
the Nasdaq National Market or which are listed on the New York Stock Exchange,
as the case may be. The parties understand that this covenant shall terminate
upon a "going private transaction" or the sale or merger of the Company or
similar transaction.
(10) Restriction on Sale of Securities. During a period of 180 days from
the date of the Prospectuses, the Company will not, without the prior written
consent of the Global Coordinator, (i) directly or indirectly, offer to sell,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any share of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock of
itself or any Subsidiary or file any registration statement under the 1933 Act
with respect to any of the foregoing, except for filing
17
<PAGE>
a Registration Statement on Form S-4 to register 4,000,000 shares of Common
Stock for future acquisitions, and filing a Registration Statement on Form S-8
to register shares of Common Stock for issuance under the Company Stock Option
Plans, or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Securities to be sold hereunder or under the
U.S. Purchase Agreement, (B) any shares of Common Stock issued by the Company
upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof and referred to in the Prospectuses, (C) any
shares of Common Stock issued or options to purchase Common Stock granted
pursuant to existing employee benefit plans or other stock option plans of the
Company referred to in the Prospectuses, or (D) up to 4,000,000 shares of Common
Stock issued by the Company pursuant to a Registration Statement on Form S-4.
(11) Reporting Requirements. The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant to the
1934 Act within the time periods required by the 1934 Act and the rules and
regulations of the Commission thereunder.
(l) Compliance with NASD Rules. The Company hereby agrees that it will
ensure that the Reserved Securities will be restricted as required by the
National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules
from sale, transfer, assignment, pledge or hypothecation for a period of three
months following the date of this Agreement. The Underwriters will notify the
Company as to which persons will need to be so restricted. At the request of the
Underwriters, the Company will direct the transfer agent to place a stop
transfer restriction upon such securities for such period of time. Should the
Company release, or seek to release, from such restrictions any of the Reserved
Securities, the Company agrees to reimburse the Underwriters for any reasonable
expenses (including, without limitation, reasonable legal expenses) they incur
in connection with such release.
(12) Compliance with Rule 463. The Company will file with the Commission
such reports and report the use of proceeds of the sale of the Securities as may
be required pursuant to Rule 463 of the 1933 Act Regulations.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay
-------------------
all expenses incident to the performance of its obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the printing and delivery
to the Underwriters of this Agreement, any Agreement among Underwriters and such
other documents as may be required in connection with the offering, purchase,
sale, issuance or delivery of the Securities, (iii) the preparation, issuance
and delivery of the certificates for the Securities to the Underwriters,
including any stock or other transfer taxes and any stamp or other duties
payable
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<PAGE>
upon the sale, issuance or delivery of the Securities to the Underwriters and
the transfer of the Securities between the International Managers and the U.S.
Underwriters, (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors, (v) the qualification of the Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectuses and any amendments or supplements thereto, (vii)
the preparation and delivery to the Underwriters of copies of the Blue Sky
Survey and any supplement thereto, (viii) the fees and expenses of any transfer
agent or registrar for the Securities, (ix) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Securities, (x) the transportation and
other expenses incurred by the Company in connection with presentations to
prospective purchasers of the Securities, (xi) the fees and expenses incurred in
connection with the inclusion of the Securities in the Nasdaq National Market
and (xii) all costs and expenses of the Underwriters, including the reasonable
fees and disbursements of counsel for the Underwriters, in connection with
matters related to the Reserved Securities which are designated by the Company
for sale to employees and others having a business relationship with the
Company.
(1) Termination of Agreement. If this Agreement is terminated by the Lead
Managers in accordance with the provisions of Section 5 or Section 9(a)(i)
hereof, the Company shall reimburse the International Managers for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the International Managers.
SECTION 5. Conditions of International Managers' Obligations. The
-------------------------------------------------
obligations of the several International Managers hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or any
Subsidiary of the Company delivered pursuant to the provisions hereof, to the
performance by the Company of its covenants and other obligations hereunder, and
to the following further conditions:
(1) Effectiveness of Registration Statement. The Registration Statement,
including any Rule 462(b) Registration Statement, has become effective and at
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the International Managers. A prospectus
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to
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<PAGE>
rely upon Rule 434, a Term Sheet shall have been filed with the Commission in
accordance with Rule 424(b).
(2) Opinions of Counsel for Company. At Closing Time, the Lead Managers
shall have received the favorable opinion, dated as of Closing Time, of (i)
Minkin & Snyder, a Professional Corporation, counsel for the Company, (ii)
Debevoise & Plimpton, special counsel for the Company, (iii) Morris, Manning &
Martin, L.L.P., special counsel for the Company, (iv) Hudson Cook, LLP, special
counsel for the Company and (v) Goodwin, Procter & Hoar, LLP, special counsel
for the Company, in each case in form and substance satisfactory to counsel for
the International Managers, together with signed or reproduced copies of each
such letter for each of the other International Managers to the effect set forth
in Exhibits A-1 to A-5 hereto and to such further effect as counsel to the
International Managers may reasonably request.
(3) Opinion of Counsel for International Managers. At Closing Time, the
Lead Managers shall have received the favorable opinion, dated as of Closing
Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the International
Managers, together with signed or reproduced copies of such letter for each of
the other International Managers, in customary form and covering such matters as
the International Managers may reasonably request. In giving such opinion such
counsel may rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New York, the federal law of the United States and
the General Corporation Law of the State of Delaware, upon the opinions of
counsel satisfactory to the Lead Managers. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Company and its
Subsidiaries and certificates of public officials.
(4) Officers' Certificate. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectuses, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its Subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the Lead Managers
shall have received a certificate of the President or a Vice President of the
Company and of the chief financial or chief accounting officer of the Company,
dated as of Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1(a) hereof
are true and correct with the same force and effect as though expressly made at
and as of Closing Time, (iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or prior to
Closing Time, and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or are contemplated by the Commission.
(5) Accountants' Comfort Letters. At the time of the execution of this
Agreement, the Lead Managers shall have received from PricewaterhouseCoopers LLP
a letter dated such date, in form and substance satisfactory to the Lead
Managers, together with signed or reproduced
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copies of such letter for each of the other International Managers containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and the
Prospectuses.
(6) Bring-down Comfort Letters. At Closing Time, the Lead Managers shall
have received from PricewaterhouseCoopers LLP a letter, dated as of Closing
Time, to the effect that it reaffirms the statements made in the letter
furnished pursuant to subsection (e) of this Section, except that the specified
date referred to shall be a date not more than three business days prior to
Closing Time.
(7) Approval of Listing. At Closing Time, the Securities shall have been
approved for inclusion in the Nasdaq National Market, subject only to official
notice of issuance.
(8) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(9) Lock-up Agreements. At the date of this Agreement, the Lead Managers
shall have received an agreement substantially in the form of Exhibit B hereto
signed by substantially all of the stockholders and option holders of any
securities of the Company and its Subsidiaries except for those agreed to in a
writing and listed on Schedule C hereto.
(10) Purchase of Initial U.S. Securities. Contemporaneously with the
purchase by the International Managers of the Initial International Securities
under this Agreement, the U.S. Underwriters shall have purchased the Initial
U.S. Securities under the U.S. Purchase Agreement.
(11) GE Private Placement. The sale of 2,000,000 shares of Common Stock to
certain affiliates of General Electric Corporation shall close prior to or
simultaneously with the Closing Time without any material modifications from the
terms of the forms of agreements relating thereto reviewed by the Underwriters
and their counsel and without any modification from the description of such sale
in the Prospectuses.
(12) Conditions to Purchase of U.S. Option Securities. In the event that
the International Managers exercise their option provided in Section 2(b) hereof
to purchase all or any portion of the International Option Securities, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company or any Subsidiary of the
Company hereunder shall be true and correct as of each Date of Delivery and, at
the relevant Date of Delivery, the Lead Managers shall have received:
(1) Officers' Certificate. A certificate, dated such Date of
---------------------
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming that
the certificate delivered at the Closing Time pursuant to Section 5(d)
hereof remains true and correct as of such Date of Delivery.
21
<PAGE>
(2) Opinions of Counsel for Company. The favorable opinion of each of
-------------------------------
(a) Minkin & Snyder, a Professional Corporation, counsel for the Company,
(b) Debevoise & Plimpton, special counsel for the Company, (c) Morris,
Manning & Martin, L.L.P., special counsel for the Company, (d) Hudson Cook,
LLP, special counsel for the Company and (e) Goodwin, Procter & Hoar, LLP,
special counsel for the Company, in each case in form and substance
reasonably satisfactory to counsel for the International Managers, dated
such Date of Delivery, relating to the International Option Securities to
be purchased on such Date of Delivery and otherwise to the same effect as
the opinion required by Section 5(b) hereof.
(3) Opinion of Counsel for International Managers. The favorable
---------------------------------------------
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
International Managers, dated such Date of Delivery, relating to the
International Option Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required by Section 5(c)
hereof.
(4) Bring-down Comfort Letters. A letter from PricewaterhouseCoopers
--------------------------
LLP in form and substance satisfactory to the Lead Managers and dated such
Date of Delivery, substantially in the same form and substance as the
letter furnished to the Lead Managers pursuant to Section 5(f) hereof,
except that the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to such Date of
Delivery.
(13) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the International Managers shall have been furnished with
such documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the representations
or warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Company in connection with the issuance and
sale of the Securities as herein contemplated shall be reasonably satisfactory
in form and substance to the Lead Managers and counsel for the International
Managers.
(14) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of International
Option Securities on a Date of Delivery which is after the Closing Time, the
obligations of the several International Managers to purchase the relevant
Option Securities, may be terminated by the Lead Managers by notice to the
Company at any time at or prior to Closing Time or such Date of Delivery, as the
case may be, and such termination shall be without liability of any party to any
other party except as provided in Section 4 and except that Sections 1, 6, 7 and
8 shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
---------------
22
<PAGE>
(1) Indemnification of International Managers. The Company agrees to
indemnify and hold harmless each International Manager and each person, if any,
who controls any International Manager within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows:
(1) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectuses (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(2) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of (A) the violation of any applicable
laws or regulations of foreign jurisdictions where Reserved Securities have
been offered and (B) any untrue statement or alleged untrue statement of a
material fact included in the supplement or prospectus wrapper (but only to
the extent the Company has prepared or has had the opportunity to approve
any wrapper) material distributed in Canada in connection with the
reservation and sale of the Reserved Securities to eligible employees and
[ ] of the Company or the omission or alleged omission therefrom of a
material fact necessary to make the statements therein, when considered in
conjunction with the Prospectuses or preliminary prospectuses, not
misleading;
(3) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation of
the nature referred to in Section 6(a)(ii)(A) hereof; provided that
(subject to Section 6(d) below) any such settlement is effected with the
written consent of the Company; and
(4) against any and all expense whatsoever, as incurred (including
the reasonable fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission or in connection with any violation of the nature referred to in
Section 6(a)(ii)(A) hereof, to the extent that any such expense is not paid
under (i), (ii) or (iii) above;
23
<PAGE>
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
International Manager through the Lead Managers expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the International Prospectus (or any amendment or supplement
thereto); and provided further that the Company will not be liable to any U.S.
-------- -------
Underwriter with respect to any U.S. Prospectus to the extent that the Company
shall sustain the burden of proving that any such loss, liability, claim, damage
or expense resulted from the fact that such U.S. Underwriter, in contravention
of a requirement of this Agreement or applicable law, sold Securities to a
person to whom such U.S. Underwriter failed to send or give, at or prior to the
Closing Date, a copy of the Final Prospectus, as then amended or supplemented
if: (i) the Company has previously furnished copies thereof (sufficiently in
advance of the Closing Date to allow for distribution by the Closing Date) to
the U.S. Underwriter and the loss, liability, claim, damage or expense of such
U.S. Underwriter resulted from an untrue statement or omission of a material
fact contained in or omitted from the Preliminary Prospectus which was corrected
in the Final Prospectus as, if applicable, amended or supplemented prior to the
Closing Date and such Final Prospectus was required by law to be delivered at or
prior to the written confirmation of sale to such person and (ii) such failure
to give or send such Final Prospectus by the Closing Date to the party or
parties asserting such loss, liability, claim, damage or expense would have
constituted a defense to the claim asserted by such person.
Insofar as this indemnity agreement may permit indemnification for
liabilities under the 1933 Act of any person who is a partner of a International
Manager or who controls an underwriter within the meaning of Section 15 of 1933
Act or Section 20 of the 1934 Act and who, at the date of this Agreement, is a
director or officer of the Company or controls the Company within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, such indemnity
agreement is subject to the undertaking of the Company in the Registration
Statement under Item [ ] thereof.
(2) Indemnification of Company, Directors and Officers. Each International
Manager severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary International
prospectus or the International Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such International Manager through the Lead Managers expressly
for use in the Registration Statement (or any amendment thereto) or such
preliminary prospectus or the International Prospectus (or any amendment or
supplement thereto).
24
<PAGE>
(3) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(4) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(iii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement; provided that an indemnifying party shall not be liable for any such
settlement effected without its consent if such indemnifying party, prior to the
date of such settlement, (1) reimburses such indemnified party in accordance
with such request for the amount of such fees and expenses of counsel as the
indemnifying party believes in good faith to be reasonable, and (2) provides
written notice to the indemnified party that the indemnifying party disputes in
good faith the reasonableness of the unpaid balance of such fees and expenses.
(5) Indemnification for Reserved Securities. In connection with the offer
and sale of the Reserved Securities, the Company agrees, promptly upon a
request, in writing to indemnify and hold harmless the Underwriters from and
against any and all losses, liabilities, claims, damages and expenses incurred
by them as a result of the failure of eligible employees and friends
25
<PAGE>
of the Company to pay for and accept delivery of Reserved Securities which, by
the end of the first business day following the date of this Agreement, were
subject to a properly confirmed agreement to purchase.
SECTION 7. Contribution. If the indemnification provided for in
------------
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the International Managers on the other hand from
the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and of the International Managers on the other hand in connection with the
statements or omissions, or in connection with any violation of the nature
referred to in Section 6(a)(ii)(A) hereof, which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
International Managers on the other hand in connection with the offering of the
U.S. Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
International Securities pursuant to this Agreement (before deducting expenses)
received by the Company and the total underwriting discount received by the
International Managers, in each case as set forth on the cover of the
International Prospectus, or, if Rule 434 is used, the corresponding location on
the Term Sheet, bear to the aggregate initial public offering price of the
International Securities as set forth on such cover.
The relative fault of the Company on the one hand and the International
Managers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the International Managers and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission or any violation of the nature referred to in
Section 6(a)(ii)(A) hereof.
The Company and the International Managers agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the International Managers were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any reasonable legal or other expenses incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
26
<PAGE>
Notwithstanding the provisions of this Section 7, no International Manager
shall be required to contribute any amount in excess of the amount by which the
total price at which the International Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such International Manager has otherwise been required to pay by
reason of any such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls a
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
International Manager, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company.
The International Managers' respective obligations to contribute pursuant to
this Section 7 are several in proportion to the number of Initial International
Securities set forth opposite their respective names in Schedule A hereto and
not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- --------
Agreement or in certificates of officers of the Company or any of its
Subsidiaries submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
International Manager or controlling person, or by or on behalf of the Company,
and shall survive delivery of the Securities to the International Managers.
SECTION 9. Termination of Agreement.
------------------------
(1) Termination; General. The Lead Managers may terminate this Agreement,
by notice to the Company, at any time at or prior to Closing Time (i) if there
has been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the International Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the Lead
Managers, impracticable to market the Securities or to enforce contracts for the
sale of the Securities, or (iii) if trading in any securities of the Company has
been suspended or materially limited by the Commission or the Nasdaq National
Market, or if trading generally on the American Stock Exchange or the New York
Stock Exchange or in the Nasdaq National Market has been suspended or materially
limited, or minimum or maximum prices for trading have been
27
<PAGE>
fixed, or maximum ranges for prices have been required, by any of said exchanges
or by such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal or New York authorities.
(2) Liabilities. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 1, 6,
7 and 8 shall survive such termination and remain in full force and effect.
SECTION 10. Default by One or More of the International Managers. If
----------------------------------------------------
one or more of the International Managers shall fail at Closing Time or a Date
of Delivery to purchase the Securities which it or they are obligated to
purchase under this Agreement (the "Defaulted Securities"), the Lead Managers
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting International Managers, or any other underwriters,
to purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Lead Managers shall not have completed such arrangements within such 24-hour
period, then:
(1) if the number of Defaulted Securities does not exceed 10% of the
number of U.S. Securities to be purchased on such date, each of the non-
defaulting International Managers shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of all
non-defaulting International Managers, or
(2) if the number of Defaulted Securities exceeds 10% of the number of
International Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the International Managers to purchase and of the Company to sell
the Option Securities to be purchased and sold on such Date of Delivery shall
terminate without liability on the part of any non-defaulting International
Manager.
No action taken pursuant to this Section shall relieve any defaulting
International Manager from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the
International Managers to purchase and the Company to sell the relevant
International Option Securities, as the case may be, either the Lead Managers or
the Company shall have the right to postpone Closing Time or the relevant Date
of Delivery, as the case may be, for a period not exceeding seven days in order
to effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements. As used herein, the term "International
Manager" includes any person substituted for a International Manager under this
Section 10.
28
<PAGE>
SECTION 11. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
International Managers shall be directed to the Lead Managers at North Tower,
World Financial Center, New York, New York 10281-1201, attention of [ ] with a
copy to Gregory C. Smith, Skadden, Arps, Slate, Meagher & Flom LLP, 525
University Avenue, Palo Alto, California, 94301; and notices to the Company
shall be directed to it at 1888 Emery Street, N.W., Atlanta, Georgia 30318,
attention of M. Wayne Boylston with copies to James S. Altenbach, Minkin &
Snyder, One Buckhead Plaza, 3060 Peachtree Road, Suite 1100, Atlanta, Georgia
30305 and Margaret A. Davenport, Debevoise & Plimpton, 875 Third Avenue, New
York, New York 10022.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
-------
and be binding upon the International Managers and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the International Managers and the Company and their respective successors
and the controlling persons and officers and directors referred to in Sections 6
and 7 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the International Managers and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any International Manager shall be deemed to be a successor by reason merely of
such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
29
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the International Managers and the Company in accordance with its terms.
Very truly yours,
IXL ENTERPRISES, INC.
By__________________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
BANCBOSTON ROBERTSON STEPHENS INC.
SG COWEN SECURITIES CORPORATION
By: MERRILL LYNCH INTERNATIONAL
By__________________________________
Authorized Signatory
For themselves and as Lead Managers of the
other International Managers named in Schedule A hereto.
30
<PAGE>
SCHEDULE A
Number of
Initial International
Name of International Manager Securities
----------------------------- ----------
Merrill Lynch International.......................................
Donaldson, Lufkin & Jenrette Securities Corporation
BancBoston Robertson Stephens Inc.
SG Cowen Securities Corporation
----------
Total............................................................. [ ]
==========
Sch A-1
<PAGE>
SCHEDULE B
iXL ENTERPRISES, INC.
[ ] Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the International
Securities, determined as provided in said Section 2, shall be $[ ].
2. The purchase price per share for the International Securities to
be paid by the several International Managers shall be $[ ], being an amount
equal to the initial public offering price set forth above less $[ ] per share;
provided that the purchase price per share for any International Option
Securities purchased upon the exercise of the over-allotment option described in
Section 2(b) shall be reduced by an amount per share equal to any dividends or
distributions declared by the Company and payable on the Initial International
Securities but not payable on the International Option Securities.
Sch B-1
<PAGE>
SCHEDULE C
List of persons and entities
not subject to lock-up
Sch C-1
<PAGE>
EXHIBIT A-1
FORM OF OPINION OF COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(1) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(2) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as presently conducted
and as described in the Prospectuses and to enter into and perform its
obligations under the Purchase Agreement.
(3) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction listed on Schedule A
attached hereto which to our knowledge is each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not reasonably be expected to result in a
Material Adverse Effect.
(4) On December 31, 1998 and Pro Forma for issuances of capital stock
occurring between January 1, 1999 and the Closing, the authorized, issued
and outstanding capital stock of the Company was and is as described in the
Prospectuses under the caption entitled "Capitalization" and, after giving
effect to the offering will be as described as Pro Forma as Adjusted under
the caption "Capitalization" (except for subsequent issuances, if any,
pursuant to the Purchase Agreements, or pursuant to reservations,
agreements or employee benefit plans referred to in the Prospectuses or
pursuant to the exercise of convertible securities or options referred to
in the Prospectuses and except for 4,000,000 shares of Common Stock
registered pursuant to a shelf Registration Statement on Form S-4 for use
in future acquisitions). The number of authorized, issued and outstanding
options and other rights to acquire capital stock is as described under
such caption. The shares of issued and outstanding capital stock of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable; and to our knowledge none of the outstanding shares of
capital stock of the Company was issued in violation of the preemptive or
other similar rights of any security holder of the Company. Except as
disclosed in the Prospectuses, to our knowledge, there are no outstanding
options to purchase, or any preemptive rights or other rights to subscribe
for or to purchase, any securities or obligations convertible into, or, any
contracts or commitments to issue or sell, shares of the Company's or its
Subsidiaries' capital stock or any such options, rights, convertible
securities or
A-1-1
<PAGE>
obligations. The description of the Company's stock option and purchase
plans, and the options or other rights granted and exercised thereunder,
set forth in the Prospectuses accurately and fairly presents in all
material respects the information required to be shown with respect to such
plans, options and rights.
(5) The Securities have been duly authorized for issuance and sale to
the Underwriters pursuant to the Purchase Agreements and, when issued and
delivered by the Company pursuant to the Purchase Agreements against
payment of the consideration set forth in the Purchase Agreements, will be
validly issued and fully paid and non-assessable and no holder of the
Securities is or will be subject to personal liability by reason of being
such a holder. The Common Stock conforms in all material respects as to
legal matters to all statements relating thereto contained in the
Prospectuses and such descriptions conform to the rights set forth in the
instruments defining the same.
(6) To our knowledge, the issuance of the Securities is not subject to
preemptive rights, co-sale rights, registration rights, right of first
refusal or similar rights of any security holder of the Company and the
Securities will be sold free and clear of all liens, encumbrances, equities
or claims.
(7) Each Subsidiary has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectuses
and is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction listed on Schedule A attached hereto
which to our knowledge is each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not reasonably be expected to result in a Material
Adverse Effect; except as otherwise disclosed in the Registration
Statement, all of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and, to our knowledge, is owned by the Company, directly or
through Subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; to our knowledge none of the
outstanding shares of capital stock of any Subsidiary was issued in
violation of the preemptive or similar rights of any security holder of
such Subsidiary or other party. To our knowledge, except as described in
the Prospectuses or except as not required to be disclosed in the
Prospectuses, the Company has no written agreement, commitment or
understanding with respect to acquiring the business, stock, or material
assets, except assets acquired in the ordinary course of business, of any
other person or entity.
(8) The Purchase Agreements have been duly authorized, executed and
delivered by the Company.
A-1-2
<PAGE>
(9) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required
filing of the Prospectuses pursuant to Rule 424(b) have been made in the
manner and within the time period required by Rule 424(b); and, to our
knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under
the 1933 Act and no proceedings for that purpose have been instituted or
are pending or threatened by the Commission.
(10) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectuses and each amendment or supplement to the
Registration Statement and Prospectuses as of their respective effective or
issue dates (other than the financial statements and notes thereto, other
financial information and supporting schedules included therein or omitted
therefrom, as to which we need express no opinion) complied as to form in
all material respects with the requirements of the 1933 Act and the 1933
Act Regulations.
(11) If Rule 434 has been relied upon, the Prospectuses were not
"materially different," as such term is used in Rule 434, from the
prospectuses included in the Registration Statement at the time it became
effective.
(12) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable requirements of the General
Corporation Law of the State of Delaware, with any applicable requirements
of the charter and by-laws of the Company and the requirements of the
Nasdaq National Market.
(13) To our knowledge, other than as set forth in the Prospectuses,
there is not pending or threatened any action, suit, proceeding, inquiry or
investigation, to which the Company or any Subsidiary is a party, or to
which the property of the Company or any Subsidiary is subject, before or
brought by any court or governmental agency or body (domestic or foreign),
which might reasonably be expected to result in a Material Adverse Effect,
or which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of the transactions
contemplated in the Purchase Agreements or the performance by the Company
of its obligations thereunder.
(14) The information in the Prospectuses under (A) "Certain
Transactions," and "Management" and (B) in the Registration Statement under
Item 14, to the extent that it constitutes matters of law, summaries of
legal matters, the Company's charter and by-laws or legal proceedings, or
legal conclusions, has been reviewed by us and is correct in all material
respects.
(15) To our knowledge, there are no statutes or regulations that are
required to be described in the Prospectuses that are not described as
required.
A-1-3
<PAGE>
(16) All descriptions in the Registration Statement of contracts and
other documents to which the Company or its Subsidiaries are a party are
accurate in all material respects; to our knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than those
described or referred to therein or filed or incorporated by reference as
exhibits thereto, and the descriptions thereof or references thereto are
correct in all material respects.
(17) To our knowledge, neither the Company nor any Subsidiary is in
violation of its charter or by-laws.
(18) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any federal or Georgia
court or governmental authority or agency, (other than under the 1933 Act
and the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations
which have been obtained, or as may be required under the securities or
blue sky laws of the various states, as to which we need express no
opinion) is necessary or required to be obtained by the Company or any of
its Subsidiaries in connection with the due authorization, execution and
delivery of the Purchase Agreement or for the offering, issuance or sale of
the Securities to the Underwriters.
(19) The execution, delivery and performance of the Purchase Agreements
and the consummation of the transactions contemplated in the Purchase
Agreements and in the Registration Statement (including the issuance and
sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectuses under the caption "Use of
Proceeds") and compliance by the Company with its obligations under the
Purchase Agreements do not and will not, whether with or without the giving
of notice or lapse of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined in Section 1(a)(x) of the
Purchase Agreements) under or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or
any Subsidiary pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other agreement or
instrument listed on the Exhibit Index to the S-1 Registration Statement,
to which the Company or any Subsidiary is a party or by which it or any of
them may be bound, or to which any of the property or assets of the Company
or any Subsidiary is subject (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not reasonably be
expected to have a Material Adverse Effect), nor will such action result in
any violation of the provisions of the charter or by-laws of the Company or
any Subsidiary, or any applicable law, statute, rule, regulation, judgment,
order, writ or material decree, known to us, of the General Corporation Law
of the State of Delaware, any Georgia or United
A-1-4
<PAGE>
States federal court, government or government instrumentality having
jurisdiction over the Company or any Subsidiary or any of their respective
properties, assets or operations.
(20) To our knowledge, except as described in the Prospectuses, there
are no persons with registration rights or other similar rights to have any
securities registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
(21) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
1940 Act.
We have not ourselves checked the accuracy and completeness of, or
otherwise verified, and are not passing upon and assume no responsibility for
the accuracy or completeness of, the statements contained in the Registration
Statement or the Prospectuses, except to the limited extent stated in paragraph
4, the second sentence of paragraph 5, paragraph 14 and the first clause of
paragraph 16 above. In the course of our review and discussion of the contents
of the Registration Statement and the Prospectuses with certain officers and
employees of the Company and its independent accountants, but without
independent check or verification, no facts have come to our attention which
cause us to believe that the Registration Statement (other than the financial
statements and notes thereto, other financial information and supporting
schedules contained therein or omitted therefrom, as to which we express no
belief), at the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements contained therein not misleading, or that
the Prospectuses (other than the financial statements and notes thereto, other
financial information and supporting schedules contained therein or omitted
therefrom, as to which we express no belief), as of their dates and as of the
date hereof, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained therein, in the light
of the circumstances under which they were made, not misleading.
A-1-5
<PAGE>
EXHIBIT A-2
FORM OF OPINION OF DEBEVOISE & PLIMPTON
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(22) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(23) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the
Purchase Agreements.
(24) The Securities have been duly authorized for issuance and sale to
the Underwriters pursuant to the Purchase Agreements and, when issued and
delivered by the Company pursuant to the Purchase Agreements against
payment of the consideration set forth in the Purchase Agreements, will be
validly issued and fully paid and non-assessable and no holder of the
Securities is or will be subject to personal liability by reason of being
such a holder. The Common Stock conforms in all material respects as to
legal matters to the statements relating thereto contained under the
caption "Description of Capital Stock" in the Prospectuses.
(25) CFN has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, and
has the corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectuses.
(26) The Purchase Agreements have been duly authorized, executed and
delivered by the Company.
(27) The Registration Statement[, including any Rule 462(b) Registration
Statement,] has been declared effective under the 1933 Act; the
Prospectuses have been filed with the Commission pursuant to Rule
424(b)(_); and, to our knowledge, no stop order suspending the
effectiveness of the Registration Statement [or any Rule 462(b)
Registration Statement] has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or
threatened by the Commission.
(28) The Registration Statement, including [any Rule 462(b) Registration
Statement,] the Rule 430A Information [and the Rule 434 Information, as
applicable],
A-2-1
<PAGE>
the Prospectuses and each amendment or supplement to the Registration
Statement and Prospectuses as of their respective effective or issue dates
(other than the financial statements and notes thereto, other financial
information and supporting schedules included therein or omitted therefrom,
as to which we need express no opinion) complied as to form in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
(29) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable requirements of the General
Corporation Law of the State of Delaware, with any applicable requirements
of the charter and by-laws of the Company and the requirements of the
Nasdaq National Market.
(30) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any United States federal
or New York State court or governmental authority or agency, (other than
under the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act
Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which we need
express no opinion) is necessary or required to be made or obtained by the
Company or any of its Subsidiaries in connection with the due
authorization, execution and delivery of the Purchase Agreements or for the
offering, issuance or sale of the Securities to the Underwriters.
(31) To our knowledge, the execution, delivery and performance of the
Purchase Agreements and the consummation of the transactions contemplated
in the Purchase Agreements and compliance by the Company with its
obligations under the Purchase Agreements do not and will not, whether with
or without the giving of notice or lapse of time or both, result in any
violation of any applicable law, statute, rule, regulation, judgment,
order, writ or decree, known to us, of any, court, government or government
instrumentality of New York having jurisdiction over the Company or any
Subsidiary or any of their respective properties, assets or operations.
We have not ourselves checked the accuracy and completeness of, or
otherwise verified, and are not passing upon and assume no responsibility for
the accuracy or completeness of, the statements contained in the Registration
Statement or the Prospectuses, except to the limited extent stated in the second
sentence of paragraph 3 above. In the course of our review and discussion of the
contents of the Registration Statement and the Prospectuses with certain
officers and employees of the Company and its independent accountants, but
without independent check or verification, no facts have come to our attention
which cause us to believe that the Registration Statement (other than the
financial statements and notes thereto, other financial information and
supporting schedules contained therein or omitted therefrom, as to which we
express no belief), at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, or that the Prospectuses (other than the
A-2-2
<PAGE>
financial statements and notes thereto, other financial information and
supporting schedules contained therein or omitted therefrom, as to which we
express no belief), as of their dates and as of the date hereof, contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements contained therein, in the light of the circumstances
under which they were made, not misleading.
A-2-3
<PAGE>
EXHIBIT A-3
FORM OF OPINION OF MORRIS,
MANNING & MARTIN, L.L.P.
TO BE DELIVERED PURSUANT
TO SECTION 5(b)
(i) The statements made in the Prospectuses under the captions "Risk
Factors--Government Regulation and Legal Uncertainties Related to CFN
Could Adversely Affect Our Business" and "Business--Government
Regulation," only insofar as those statements constitute a summary of
principles of insurance laws or regulations applicable to the CFN
Agency, Inc. business fairly and accurately represent the material
insurance laws and regulations applicable to the operation of CFN
Agency, Inc. business and, to the best of our actual knowledge, there
are no state insurance statutes or regulations material to the
operation of CFN Agency, Inc. business that are required to be
described in the Prospectuses that are not described as required; and
(ii) Nothing has come to our attention that leads us to believe that
the statements made in the Prospectuses under the captions "Risk
Factors--Government Regulation and Legal Uncertainties Related to CFN
Could Adversely Affect Our Business" and "Business--Government
Regulation" at the time the Registration Statement became effective
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, only insofar as those statements
constitute a summary of principles of state insurance laws or
regulations to the CFN Agency, Inc. business.
A-3-1
<PAGE>
EXHIBIT A-4
FORM OF OPINION OF
HUDSON COOK, L.L.P. TO BE
DELIVERED PURSUANT
TO SECTION 5(b)
(i) The statements made in the Prospectuses under the captions "Risk
Factors--Government Regulation and Legal Uncertainties Related to CFN
Could Adversely Affect Our Business" and "Business--Government
Regulation," insofar as those statements constitute a summary of
principles of auto loan broker laws or regulations applicable to the
business of CFN, fairly and accurately represent the material auto
loan broker laws and regulations applicable to the operation CFN's
business and to the best of our knowledge, there are no statutes or
regulations material to the operation of CFN's auto loan broker
business that are required to be described in the Prospectuses that
are not described as required; and
(ii) Nothing has come to our attention that leads us to believe that
the statements made in the Prospectuses under the captions "Risk
Factors--Government Regulation and Legal Uncertainties Related to CFN
Could Adversely Affect Our Business" and "Business--Government
Regulation," at the time the Registration Statement became effective
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, insofar as those statements
constitute a summary of principles of auto loan broker laws or
regulations applicable to the business of CFN.
A-4-1
<PAGE>
EXHIBIT A-5
FORM OF OPINION OF
GOODWIN, PROCTER & HOAR, LLP
DELIVERED PURSUANT TO
SECTION 5(b)
(i) The statements made under "Risk Factors--Risks Relating to Our
CFN Subsidiary--Government regulation and Legal Uncertainties Related
to CFN Could Adversely Affect Our Business." and "Business--Consumer
Financial Network--Government Regulation of Insurance, Auto Finance
and Mortgages" (the "Risk Factor Information") contained in the
Prospectus regarding residential mortgage issues insofar as those
statements constitute a summary of principles of mortgage loan laws or
regulations applicable to the business of CFN, fairly and accurately
represent the material mortgage loan laws and regulations applicable
to the operation of the CFN home finance program; and
(ii) On the basis of the information that we have gained in the course
of participating in the preparation of the Risk Factor Information,
nothing has come to our attention that would lead us to believe that
the statements made regarding residential mortgage issues in the Risk
Factor Information (i) in the Registration Statement, at the time it
became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, insofar as
those statements constitute a summary of the principles of mortgage
loan laws or regulations applicable to the CFN home finance program,
or (ii) in the Prospectus, at the time the Prospectus was issued or at
the initial closing of the Offering, included or includes an untrue
statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading
insofar as those statements constitute a summary of the principles of
mortgage loan laws or regulations applicable to the CFN home finance
program. In rendering such opinion, we have relied as to matters of
fact (but not as to legal conclusions), to the extent we have deemed
proper, on certificates or affidavits of responsible officers of the
Company.
A-5-1
<PAGE>
[FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO
SECTION 5(I)]
EXHIBIT B
[ ], 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation
NationsBanc Montgomery Securities LLC
BancBoston Robertson Stephens
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by iXL Enterprises, Inc.
-------------------------------------------------
Dear Sirs:
The undersigned, a security holder of iXL Enterprises, Inc., a Delaware
corporation (the "Company") or none of its Subsidiaries (as such term is defined
in the Purchase Agreement (as defined herein)), understands that Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
Donaldson, Lufkin & Jenrette Securities Corporation, NationsBanc Montgomery
Securities LLC and BancBoston Robertson Stephens Inc. propose to enter into a
Purchase Agreement (the "Purchase Agreement") with the Company providing for the
public offering of shares (the "Securities") of the Company's common stock, par
value $.01 per share (the "Common Stock"). In recognition of the benefit that
such an offering will confer upon the undersigned as a security holder of the
Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the Purchase Agreement that, during a period of 180
days from the date of the Purchase Agreement, the undersigned will not, without
the prior written consent of Merrill Lynch, directly or indirectly, (i) offer to
sell, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any shares of the Company's
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock, whether now owned or hereafter acquired by the undersigned or
with respect to which the undersigned has or hereafter acquires the power of
disposition, or file or cause to be filed any registration statement under the
Securities Act of 1933, as amended, with respect to
B-1
<PAGE>
any of the foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any such swap
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise.
The foregoing paragraph shall not apply to (a) transactions by any
person other than the Company relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
public offering provided for in the Purchase Agreement or (b) transfers of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock to a member of the undersigned's immediate family or to a trust
of which the undersigned or an immediate family member is the beneficiary
(either one a "Transferee") provided that upon any such transfer, the Transferee
shall sign a letter substantially similar to this letter agreement agreeing not
to sell, grant any option to purchase, or otherwise transfer or dispose of any
such Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock for the remainder of the above-referenced 180-day
period.
The undersigned agrees that the provisions of this Agreement shall be
binding also upon the successors, assigns, heirs and personal representatives of
the undersigned and that any registration rights with respect to the offering of
Securities contemplated by the Purchase Agreement have been hereby waived.
Very truly yours,
Signature:_______________________________
Print Name:______________________________
B-2
<PAGE>
Exhibit 10.4
FORM OF
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of November 28, 1999, between Consumer
Financial Network, Inc., a Delaware corporation (the "Company"), and C. Cathleen
-------
Raffaeli (the "Executive"). The parties hereto agree as follows:
---------
1. Employment.
----------
(a) Agreement to Employ. Upon the terms and subject to the conditions of
-------------------
this Agreement, the Company shall hereby employ the Executive and the Executive
hereby agrees to be employed by the Company.
(b) Term of Employment. Subject to Section 6 and Section 7, the Company
------------------
shall employ the Executive pursuant to the terms hereof for the period
commencing on the date Executive begins exclusive employment with the Company
(the "Start Date"), which shall be the earliest date reasonably possible for
Executive, and ending on December 31, 2001, provided that the Executive's
--------
employment with the Company shall be deemed to be automatically renewed upon the
same terms and conditions for an additional one-year period on each of December
31, 2001 and December 31, 2002 unless either party hereto shall have given the
other party written notice that such party does not intend to renew the
Agreement as of such date at least three months in advance of the date on which
this Agreement would otherwise automatically be renewed. The period during which
the Executive is employed pursuant to this Agreement, including any renewal
thereof in accordance with this Section (1)(b), shall be referred to as the
"Employment Period."
- ------------------
2. Position and Duties.
-------------------
During the Employment Period, the Executive shall serve as President and
Chief Operating Officer of the Company and the Executive shall have the duties,
responsibilities and obligations customarily assigned to individuals serving in
the position or positions in which the Executive serves hereunder. The
Executive shall report to the Chief Executive Officer of the Company. The
Executive shall devote her full time to the services required of her hereunder,
except for vacation time and reasonable periods of absence due to sickness,
personal injury or other disability, and shall use her best efforts, judgment,
skill and energy to perform such services in a manner consonant with the duties
of her position and to improve and advance the business and interests of the
Company. The Executive shall also serve as a Director of the Company during the
Employment Period without additional compensation.
<PAGE>
3. Compensation.
------------
(a) Salary and Bonus. The Company shall pay the Executive a base salary at
----------------
an annual rate of $250,000. The Company shall pay the Executive such base
salary in equal bi-monthly installments or in such other installments as the
parties may agree. Beginning with the fiscal year ended December 31, 1999 and
continuing until the end of the Employment Period, the Company shall pay the
Executive an annual bonus (the "Bonus"). Such bonus shall be paid within 15
days after the delivery of the annual audited financial statements of the
Company and its subsidiaries by the Company's independent accountant. The
amount of any such bonus shall be based upon certain strategic and financial
goals which shall be determined by the Executive and other senior officers of
the Company and shall be determined by the Board of Directors of the Company,
with a target maximum of $50,000 per year.
(b) Stock Options. The Executive shall be granted an aggregate of 500,000
-------------
options to purchase Class B Common Stock, par value $.01 per share, of iXL
Enterprises, Inc., at an exercise price of $10 per share. Except as provided in
Section 6 and Section 7, such options shall vest over four years, with 25% of
such options vesting on the last day of the month of the first anniversary of
the Start Date, and thereafter 2.088% of such options vesting on the last day of
each of the subsequent thirty-six months. Notwithstanding such vesting
schedule, Executive shall not exercise any of such options prior to the
expiration of the Review Period (as defined in Section 6 hereof).
4. Benefits and Vacation.
---------------------
During the Employment Period, the Executive shall be eligible to
participate in the health, disability and life insurance plans sponsored or
maintained by the Company for the benefit of its senior executive corporate
officers to the extent that the Executive is eligible to participate in any such
plans under the generally applicable provisions thereof. The Company may, in
its discretion, amend or terminate any such plans in accordance with the terms
thereof. During the Employment Period, the Executive shall be entitled to three
weeks of paid vacation annually. Unused vacation days for any given calendar
year may be carried over to the subsequent year, or, at Executive's option, may
be surrendered to the Company for a cash payment equal to (a) the quotient of
the number of unused vacation days surrendered, divided by 365, times (b)
Executive's base salary for the year in which such unused vacation day was
initially accrued.
5. Residence; Corporate Apartment; Travel Expenses.
-----------------------------------------------
The Company is headquartered in Duluth, Georgia. The Executive may
continue to reside in Connecticut and utilize the facilities of iXL-New York,
Inc., an affiliate of the Company, in the course of her work. However,
Executive shall commute to the Company's headquarters as necessary for the
execution of her duties and responsibilities. The Company anticipates that the
execution of the Executive's duties and responsibilities will require the
Executive to commute to the Company's headquarters an average of four days per
week. The Company shall reimburse the Executive all reasonable travel expenses
associated with the Executive's regular commute between her residence in
Connecticut and Atlanta, Georgia, including, but not limited to, roundtrip
airfare.
- 2 -
<PAGE>
Reimbursement requests shall be submitted to the Chief Executive Officer of the
Company for approval. The Company shall maintain a two-bedroom corporate
apartment convenient to the Company's headquarters reserved for use by the
Executive.
6. First Anniversary Employment Review.
-----------------------------------
(a) Within the thirty (30) days prior to and the thirty (30) days after the
first anniversary of the Start Date (such sixty-day period is hereinafter
referred to as the "Review Period"), the Company shall have the option to
terminate Executive's employment with the Company. If the Company terminates
Executive's employment with the Company during the Review Period,
(i) at the Company's option, Executive shall be entitled to either
(A) receive severance pay equal to the base salary payable to the
Executive under Section 3(a) for the six months following such
termination (payable monthly), in which case all options, vested
or unvested, granted to Executive pursuant to Section 3(b) hereof
shall be surrendered to the Company unexercised, or (B) retain
125,000 options granted pursuant to Section 3(b) hereof which
were scheduled to vest on the last day of the month of the first
anniversary of the Start Date, in which case all other options,
vested or unvested, granted to Executive pursuant to Section 3(b)
hereof shall be surrendered to the Company unexercised; and
(ii) Section 11 hereof shall continue in full force and effect.
(b) Within the thirty (30) day period prior to the first anniversary of the
Start Date, the Executive shall have the option to terminate Executive's
employment with the Company. If the Executive so terminates her employment with
the Company,
(i) Executive shall receive no severance pay and all options, vested
or unvested, granted to Executive pursuant to Section 3(b) hereof
shall be surrendered to the Company unexercised; and
(ii) Section 11 hereof shall not apply.
7. Change of Control.
-----------------
If the Executive's employment with the Company is terminated in connection
with a sale of the Company, and if the Change of Control Vesting (as calculated
below) exceeds the number of the Executive's vested options at the time of such
termination, the vesting of the options granted to the Executive pursuant to
Section 3(b) hereof shall be immediately accelerated such that the Executive
shall have a number of vested options equal to the Change of Control Vesting as
calculated in accordance with the following formula:
Change of Control Vesting = (X - $75,000,000)(500,000)(4 / 3) / 100,000,000
- 3 -
<PAGE>
Where: X = in the case of a sale of all or substantially all of the assets
of the Company, the total sales price received by the Company upon
the sale of such assets, or, in the case of the sale of all of the
equity interests of the Company, the total sales price received by
the equity interest holders of the Company upon the sale of such
equity interests.
For example, if the Company is sold for $100,000,000:
<TABLE>
<S> <C>
Change of Control Vesting = ($100,000,000 - $75,000,000)(500,000)(4/3)/100,000,000
= (25,000,000)(666,666.67)/(100,000,000)
= 166,667
</TABLE>
Provided, however, that if the number derived from the formula above exceeds the
number of the Executive's unvested options, the vesting of all of the
Executive's options remaining unvested shall be immediately accelerated. All
options remaining unvested after such acceleration shall terminate.
8. Termination of Employment.
-------------------------
If the Executive's employment with the Company terminates earlier than upon
the expiration of the Employment Period, other than a termination pursuant to
Section 6 or Section 7 hereof, the Executive shall be entitled to receive the
following payments under the following circumstances:
(a) Death. Upon the death of the Executive, the Executive's spouse, if
-----
any, or her estate shall receive the Executive's base salary payable in the year
of her death pursuant to Section 3(a) hereof, life insurance benefits and a pro
rata portion of the Executive's Bonus that would have been payable pursuant to
Section 3(a) hereof with respect to the fiscal year in which the Executive died.
Such pro rata portion shall be determined by multiplying (i) the total Bonus
that the Executive would have received in respect of the year of her death by
(ii) the quotient of the number of days in such year prior to her death, divided
by 365. Such pro rata Bonus payment will be payable at the same time that the
full Bonus would have been payable to the Executive pursuant to Section 3(a)
hereof.
(b) Disability. Upon the Disability of the Executive, she shall receive
----------
her Earned Salary, any disability benefits payable under any disability program
in which she participates, any other benefits under any benefit plan of the
Company to which she is entitled pursuant to the terms of such plan and a
portion of the Executive's Bonus that would have been payable pursuant to
Section 3(a) hereof with respect to the fiscal year in which the Executive
became disabled. Such pro rata portion shall be determined by multiplying (i)
the total Bonus that the Executive would have received in respect of the year of
her Disability by (ii) the quotient of the number of days in such year prior to
her Disability, divided by 365. Such pro rata Bonus payment will be payable at
the same time that the full Bonus would have been payable to the Executive
pursuant to Section 3(a) hereof.
- 4 -
<PAGE>
(c) Termination for Cause or a Resignation Other than for Good Reason. If
-----------------------------------------------------------------
the Executive's employment terminates due to a Termination for Cause or a
Resignation Other than for Good Reason, the Executive shall receive her Earned
Salary and any other benefits under any benefit plan of the Company to which she
is entitled pursuant to the terms of such plan.
(d) Termination Without Cause or Resignation for Good Reason. If the
--------------------------------------------------------
Executive's employment terminates due to a Termination Without Cause or a
Resignation for Good Reason the Executive shall receive severance pay equal to
the base salary (but not the bonus) payable to the Executive under Section 3(a)
for the six months immediately following such termination or resignation.
Notwithstanding anything herein to the contrary, in no event shall the Company
be obligated to pay any amount to the Executive with respect to any period after
such six-month period.
9. Definitions.
-----------
For purposes of this Agreement, capitalized terms have the following
meanings:
"Cause" shall mean a termination by the Company due to (i) the continued
-----
failure (other than any such failure resulting from incapacity due to reasonably
documented physical or mental illness) by the Executive substantially to perform
her duties, responsibilities or obligations as an officer, director or employee
of the Company or any of its subsidiaries after having been given written notice
of such failure to perform, listing in reasonable specificity such failures, and
after having failed to improve such performance within the time period (which
shall have been a reasonable time period) specified in such notice or (ii) the
engaging by the Executive in serious misconduct which is material to the
performance by the Executive of her duties and obligations for the Company,
including, without limitation, gross negligence, dishonesty, willful
malfeasance, gross insubordination or gross misconduct or conviction of a felony
or the entering of a plea of nolo contendere to a felony.
---------------
"Disability" shall mean the Executive's inability for more than six months
----------
within any 12-month period of performing her duties, responsibilities or
obligations as an officer, director or employee of the Company on a full-time
basis because of a physical, mental or emotional incapacity resulting from
injury, sickness or disease and within 30 days after written notice of
termination has been given to the Executive, the Executive shall not have
returned to the full-time performance of her duties, responsibilities and
obligations. The date of termination in the case of a termination for
"Disability" shall be the last day of the aforementioned 30-day period.
"Earned Salary" means the base salary earned, but unpaid, for services
-------------
rendered to the Company on or prior to the date of disability, resignation or
termination of the Executive's employment, as the case may be. Earned Salary
shall be paid in a single lump sum as soon as practicable, but in no event more
than 30 days following such date.
"Resignation for Good Reason" means a resignation by the Executive as a result
---------------------------
of any of the following:
- 5 -
<PAGE>
(a) a material breach by the Company of its obligations under this Agreement
with respect to the base salary, Bonus, benefits or vacation to which the
Executive is entitled under Sections 3 and 4 hereof; or
(b) the taking of any action by the Company that would substantially diminish
the aggregate value of the benefits provided to the Executive under the
benefit plans of the Company that may be in effect at such time in which
she was participating, other than any such reduction which is (i) required
by law, (ii) implemented in connection with a general concessionary
arrangement affecting all employees or affecting the group of senior
corporate executive employees or (iii) generally applicable to all
similarly situated beneficiaries of such plans.
"Resignation Other than for Good Reason" shall be any resignation other than a
--------------------------------------
Resignation with Good Reason.
"Termination for Cause" shall be any termination of the Executive's employment
---------------------
by the Company for Cause.
"Termination Without Cause" shall be any termination of the Executive's
-------------------------
employment by the Company other than a Termination for Cause.
10. Full Discharge of Company Obligations.
-------------------------------------
The amounts payable to the Executive pursuant to Section 6, Section 7, or
Section 8 following termination of her employment shall be in full and complete
discharge of the Executive's rights under this Agreement and any other claims
she may have in respect of her employment by the Company or any of its
subsidiaries. Such amounts payable shall constitute liquidated damages with
respect to any and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged from any and all
liability to the Executive in connection with this Agreement or otherwise in
connection with the Executive's employment with the Company and its
subsidiaries.
11. Noncompetition and Confidentiality.
----------------------------------
(a) Noncompetition. If the Executive's employment with the Company terminates
--------------
during the Employment Period for any reason (other than a resignation by
Executive pursuant to Section 6(c) or due to her death or Disability),
during the six-month period following such termination or resignation of
the Executive (the "Restriction Period"), the Executive shall not become
------------------
associated with any entity, whether as a principal, partner, employee,
consultant or shareholder (other than as a holder of not in excess of 1% of
the outstanding voting shares of any publicly traded company), that is
actively engaged in the business of internet-based sales of financial
services to the corporate market.
- 6 -
<PAGE>
(b) Confidentiality. Without the prior written consent of the Company, except
---------------
for disclosures of Confidential Information (as defined below) in the
ordinary course of business that, individually and in the aggregate, are
not materially injurious to the Company or any of its subsidiaries, and
except to the extent required by an order of a court having competent
jurisdiction or under subpoena from an appropriate government agency, the
Executive shall not disclose any trade secrets, customer lists, computer
programs, drawings, designs, marketing or sales plans, management
organization information (including data and other information relating to
members of the Board or management), operating policies or manuals,
business plans, financial records or other financial, commercial, business
or technical information relating to the Company or any of its subsidiaries
or information designated as confidential or proprietary that the Company
or any of its subsidiaries may receive belonging to suppliers, customers or
others who do business with the Company or any of its subsidiaries
(collectively, "Confidential Information") to any third person unless such
------------------------
Confidential Information has been previously disclosed to the public by the
Company or is in the public domain (other than by reason of the Executive's
breach of this Section 11(b)). If the Executive receives an order of a
court or a subpoena requiring the Executive to disclose any Confidential
Information, as described above, the Executive shall promptly deliver a
copy of such order or subpoena to the Company and the Company shall use its
best efforts to assist the Executive in responding thereto.
(c) Company Property. Promptly following the Executive's termination of
----------------
employment, the Executive shall return to the Company all property of the
Company, and all copies thereof in the Executive's possession or under her
control, including, without limitation, all Confidential Information, in
whatever media.
(d) Nonsolicitation of Employees. During the Employment Period and the
----------------------------
Restriction Period, the Executive shall not directly or indirectly induce
any employee of the Company or any of its subsidiaries to terminate
employment with such entity, and will not directly or indirectly, either
individually or as owner, agent, employee, consultant or otherwise, employ
or offer employment to any person who is or was employed by the Company or
a subsidiary thereof unless such person shall have ceased to be employed by
such entity for a period of at least six months.
(e) Certain Payments to the Executive during the Restriction Period. If the
---------------------------------------------------------------
Executive's employment with the Company is terminated due to a Termination
for Cause or a Resignation Other than for Good Reason, then, as
consideration for the covenants set forth in Section 11(a) and Section
11(d), the Company shall pay the Executive, for the duration of the
Restriction Period, the salary (but not the bonus) she otherwise would have
received under Section 3(a). If the Executive's employment with the
Company is terminated due to a Termination Without Cause or a Resignation
for Good Reason, then, as consideration for the covenants set forth in
Section 11(a) and Section 11(d), the Company shall pay the Executive the
compensation set forth in Section 8(d). If the Executive's employment is
terminated pursuant to Section 6(b), then the receipt by the Executive of
the compensation elected by the Company pursuant to Section 6(c) will
constitute the consideration for the covenants set forth in Section 11(a)
and Section 11(d). If the Restriction Period extends beyond the Employment
Period, the Company shall continue to pay the Executive her then current
salary until the end of the Restriction Period for that portion of the
Restricted Period which extends beyond the Employment Period. Except in
the case of a Termination Without Cause or such Resignation for Good
Reason, the Company may elect at any time during the Restriction Period
- 7 -
<PAGE>
upon thirty (30) days prior written notice to discontinue such salary
payments, in which event the Executive shall be released from any further
obligation to comply with the provisions of Sections 11(a) and 11(d)
herein. If the Company fails to timely make any payment due under this
Section 11(e) and if such failure continues for ten (10) business days
after notice by the Executive to the Company of such failure, the Executive
shall be released from any further obligation to comply with the provisions
of Sections 11(a) and 11(d) herein.
(f) Injunctive Relief with Respect to Covenants. The Executive acknowledges and
-------------------------------------------
agrees that the covenants and obligations of the Executive with respect to
noncompetition, nonsolicitation, confidentiality and Company property
relate to special, unique and extraordinary matters and that a violation of
any of the terms of such covenants and obligations will cause the Company
and its subsidiaries irreparable injury for which adequate remedies are not
available at law. Therefore, the Executive agrees that the Company and its
subsidiaries shall be entitled to an injunction, restraining order or such
other equitable relief (without the requirement to post bond) as a court of
competent jurisdiction may deem necessary or appropriate to restrain the
Executive from committing any violation of the covenants and obligations
contained in this Section 11. These injunctive remedies are cumulative and
are in addition to any other rights and remedies the Company or its
subsidiaries may have at law or in equity.
12. Miscellaneous.
-------------
(a) Binding Effect. This Agreement shall be binding on the Company and any
--------------
person or entity which succeeds to the interest of the Company (regardless
of whether such succession occurs by operation of law, by reason of the
sale of all or a portion of the Company's stock or assets or a merger,
consolidation or reorganization involving the Company). This Agreement
shall also inure to the benefit of the Executive's heirs, executors,
administrators and legal representatives.
(b) Assignment. Except as provided under Section 12(a) above, neither this
----------
Agreement nor any of the rights or obligations hereunder shall be assigned
or delegated by either party hereto without the prior written consent of
the other party.
(c) Entire Agreement. This Agreement supersedes any and all prior agreements
----------------
between the parties hereto, and constitutes the entire agreement between
the parties hereto with respect to the matters referred to herein, and no
other agreement, oral or otherwise, shall be binding between the parties
unless it is in writing and signed by the party against whom enforcement is
sought. There are no promises, representations, inducements or statements
between the parties other than those that are expressly contained herein.
The Executive acknowledges that she is entering into this Agreement of her
own free will and accord, and with no duress, that she has read this
Agreement and that she understands it and its legal consequences. No parol
or other evidence may be admitted to alter, modify or construe this
Agreement, which may be changed only by a writing signed by the parties
hereto.
(d) Severability; Reformation. In the event that one or more of the provisions
-------------------------
of this Agreement shall become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. In the
- 8 -
<PAGE>
event any of Section 11(a), (b), (c), (d) or (e) is not enforceable in
accordance with its terms, the Executive and the Company agree that such
Section, or such portion of such Section, shall be reformed to make it
enforceable in a manner which provides the Company the maximum rights
permitted under applicable law.
(e) Waiver. Waiver by either party hereto of any breach or default by the
------
other party of any of the terms of this Agreement shall not operate as a
waiver of any other breach or default, whether similar to or different from
the breach or default waived. No waiver of any provision of this Agreement
shall be implied from any course of dealing between the parties hereto or
from any failure by either party hereto to assert their rights hereunder on
any occasion or series of occasions.
(f) Notices. Any notice required or desired to be delivered under this
-------
Agreement shall be in writing and shall be delivered personally, by courier
service, by registered mail, return receipt requested, or by telecopy and
shall be effective upon dispatch to the party to whom such notice shall be
directed, and shall be addressed as follows (or to such other address as
the party entitled to notice shall hereafter designate in accordance with
the terms hereof):
If to the Company:
Consumer Financial Network, Inc.
1888 Emery Street, NW
Atlanta, GA 30318
Fax: 404/267-3801
Attention: U. Bertram Ellis, Jr.
with a copy to:
Minkin & Snyder, P.C.
One Buckhead Plaza
3060 Peachtree Road, Suite 1100
Atlanta, Georgia 30305
Attention: James S. Altenbach, Esq.
Fax: 404/261-5064
with an additional copy to:
Kelso & Company
320 Park Avenue
24th Floor
New York, New York 10022
Attention: James J. Connors II, Esq.
Fax: 212/223-2379
- 9 -
<PAGE>
If to the Executive:
C. Cathy Raffaeli
1795 Shippan Avenue
Stamford, CT 06902
Fax: __________
with a copy to:
Sack & Sack
135 E. 57th Street
New York, NY 10022
Attn: Jonathan Sack
Fax: 212/702-9702
(g) Amendments. This Agreement may not be altered, modified or amended except
----------
by a written instrument signed by each of the parties hereto.
(h) Headings. Headings to sections in this Agreement are for the convenience
--------
of the parties only and are not intended to be part of or to affect the
meaning or interpretation hereof.
(i) Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original but both of which together shall
constitute one and the same instrument.
(j) Withholding. Any payments provided for herein shall be reduced by any
-----------
amounts required to be withheld by the Company from time to time under
applicable Federal, state or local income or employment tax laws or similar
statutes or other provisions of law then in effect.
(k) Governing Law. This Agreement shall be governed by the laws of the State
-------------
of Georgia, without reference to principles of conflicts or choice of law
under which the law of any other jurisdiction would apply.
[Signatures on Following Page]
- 10 -
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has hereunto set her hand as of
the day and year first above written.
Consumer Financial Network, Inc.
/s/ U. Bertram Ellis, Jr.
----------------------------------------
By: U. Bertram Ellis, Jr.
Title: Chief Executive Officer
The Executive:
/s/ C. Cathleen Raffaeli
----------------------------------------
C. Cathleen Raffaeli
- 11 -
<PAGE>
EXHIBIT 10.63
INFORMATION SERVICES AGREEMENT
------------------------------
THIS INFORMATION SERVICES AGREEMENT ("Agreement"), dated June__, 1997,
is by and among CONSUMER FINANCIAL NETWORK, INC., a Delaware corporation
("CFN"), CFN AGENCY, INC., a Delaware corporation ("CFN Agency") and ELECTRIC
INSURANCE COMPANY ("Provider").
RECITALS
A. CFN is an information services company that provides comparison
quotation services for financial, insurance and other consumer products and
services, and CFN Agency is an affiliate of CFN.
B. Neither CFN nor CFN Agency shall have authority to obligate Provider
or to bind coverage for any Products (as hereinafter defined) offered in the
Program (as hereinafter defined) pursuant to this agreement.
C. Provider offers auto and homeowners insurance in states as specified
hereinafter for the CFN Program.
D. For purposes of this Agreement, unless specified otherwise and as the
context so requires, CFN and CFN Agency shall be referred to as "CFN Entities".
E. CFN Entities and Provider desire to enter into an agreement whereby
CFN Entities will make information on Provider's products available to employees
of certain companies through CFN Entities' information services, as described
herein.
NOW, THEREFORE, in consideration of the mutual agreements, benefits and
covenants between the parties, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties agree
as follows:
1. Information Services. Pursuant to the terms and provisions of this
--------------------
Agreement, CFN Entities will provide participation in CFN Entities' comparison
information and purchasing assistance program (the "Information Services" or the
"Program") to Provider as set forth below. CFN Entities' services will be
provided to employees ("Employees") of certain employers ("Employers") or to
members ("members") of certain professional organizations, associations, and
affinity groups ("Affinity Groups"). The Program will include information about
and access to Provider's automobile and homeowners insurance products in all
states which are listed on Exhibit A (the "Products"), as well as other
information about and access to similar products from other such providers.
The Program is intended to be an alternative marketing and distribution
channel for the Provider and its Products. The Program is a comparison
information and purchasing assistance platform with the intended purpose of
initiating potential customer relationships on behalf of Provider through CFN
Entities. CFN intends to establish relationships with Employers or Affinity
<PAGE>
Groups whereby their Employees or Members will have access to the Program via
the Employer's Intranet or by telephone and facsimile communication. Employees
of participating Employers and Members of Affinity Groups will be able to
receive customized comparison quotes for the Products and products of competing
providers. Said quotes from Provider will be valid for thirty (30) days, subject
to limitations of applicable laws and regulations. The Program will provide (a)
specific information (e.g., rate quotes, service hours, AM Best ratings)
pertaining to the Provider's Products and the products of other participating
providers, and (b) general information about Provider and other participating
providers in the Program.
After an Employee utilizes the Program and initiates contact with the
Provider, Provider shall be solely responsible for assisting and advising the
Employee, and if appropriate, binding, closing and completing the transaction.
Provider shall be solely responsible for all aspects of its business
relationship with each such Employee, including without limitation the ongoing
servicing of each Employee's business.
CFN Agency and Provider will execute a mutually acceptable billing
services and billing systems agreement prior to the operational phase of the
Program to offer payroll deduction services through CFN Agency.
CFN Entities in their sole discretion may add additional services or
modify the existing services, features or information included in the Program at
any time; however, no changes can be made in the Provider's services by CFN
Entities without Provider's prior knowledge and consent. In the event that the
parties cannot agree on such modifications to Provider's services within sixty
(60) days' notice to Provider of such modifications, then either CFN Entities or
Provider may terminate the Agreement without recourse to either party.
It is hereby expressly agreed upon between CFN Entities and Provider
that all business written under the terms of this Agreement and all renewals
thereof shall be the sole property of Provider.
2. Agency
------
(a) CFN Agency. For the purposes of facilitating the marketing
----------
arrangements contemplated hereby, CFN shall designate CFN Agency as its
insurance agency licensed under the laws of Delaware. Provider shall appoint CFN
Agency as an agent of Provider. CFN Agency shall obtain insurance licenses in
each of the states in which Provider has agreed to provide an insurance market
to CFN Entities, for states which require that entities, such as CFN Agency, be
licensed to receive compensation based on a percentage of premium revenue. In
any state where the performance of an obligation hereunder would require CFN to
be licensed as an insurance agent, CFN shall cause CFN Agency to perform such
obligation on its behalf.
(b) Authority. Neither CFN, CFN Agency nor any of their respective
---------
employees or affiliates shall have power or authority to bind Provider with
respect to any policy of insurance or act an behalf of Provider.
2
<PAGE>
3. Compensation. In exchange for providing the Information Services and
------------
access to the Program for the purpose of acquiring customers, Provider shall
compensate CFN Agency for both new and renewal business, as set forth on Exhibit
-------
B - Commissions.
- -
4. Term. The term of this Agreement shall be from the date hereof
----
through December 31, 2000 (the "Initial Term"), which shall be subject to
------------
automatic renewals for additional terms of one (1) year each (the "Renewal
-------
Terms" and together with the Initial Term, the "Term"). Either CFN Entities or
- ----- ----
Provider may elect to not renew the Term of this Agreement for a Renewal Term by
giving written notice to the other party no more than 180 days and no less than
60 days prior to the expiration of the then-current Term.
5. Duties of Provider. Provider agrees that during the Term:
------------------
(a) Systems Integration. Provider and CFN intend to develop an automated
-------------------
method for CFN Entities to provide accurate quotes for Provider's Products and
to upload information to Provider's computer systems. For such purposes,
Provider shall cooperate in good faith with CFN to evaluate the Program's
computer system requirements. Based upon such evaluation, CFN and Provider shall
agree on a plan to implement such computer system integration, and each party
shall commit reasonable resources necessary to execute such implementation plan.
In the event that the parties cannot agree on a systems integration plan within
ninety (90) days of executing this Agreement, then either party may terminate
the Agreement without further obligation or recourse to either party.
(b) Affinity Rates. Provider shall approve CFN Agency as an authorized
--------------
representative for Provider's Products in those states listed on Exhibit A,
provided CFN Agency has proper insurance licenses as required by law or
regulation. Provider shall make available to CFN Entities and the Program rates
("Affinity Rates") which become available and which are applicable to the
-------- -----
Products available through the Program, to the extent the Program meets the
legal requirements necessary for such Affinity Rates. The Affinity Rates made
available to CFN Entities hereunder at all times during the Term of this
Agreement shall be at least as favorable as the most favorable rates Provider
makes available (a) to a specific employer or affinity group currently or
potentially participating in the Program with the exception of Provider's
program with General Electric Company, including but not limited to its
affiliates and subsidiaries, and (b) to an information service similar to CFN.
All such Affinity Rates shall be made available to CFN Entities as soon as
possible, and in all cases no later than when such rates are made available to
other parties, and such rates shall not be unreasonably withheld.
(c) Updating Information. Provider shall provide to CFN Entities and
--------------------
maintain the most current and accurate information regarding Products
("Information") for use in the Program. Provider shall immediately provide
notice to CFN Entities regarding updated information about such Products
immediately when any of such Information changes.
3
<PAGE>
(d) Product Access; Discountinuance. Provider shall offer to CFN
-------------------------------
Entities for use in the Program access to Products in all States and
jurisdictions listed on Exhibit A in which Provider is licensed and authorized
to provide such insurance. Provider shall give CFN Entities no less than sixty
(60) days written notice prior to the effective date a Product will no longer be
available in a particular State or jurisdiction or otherwise, unless otherwise
required by law.
(e) Authorizations. Provider shall acquire and maintain in effect during
--------------
the operational period of the Program all governmental regulatory
authorizations, licenses and permits of every type from every applicable
jurisdiction required: (i) for the business and operations of Provider, and (ii)
to participate in the Program.
(f) Cooperation. Provider shall cooperate in good faith in working with
-----------
CFN Entities to fully implement the Program as promptly as possible, and to
coordinate with CFN Entities in Provider's participation in the Program.
(g) Roles. Except as expressly provided for in this Agreement, Provider
-----
shall not undertake or be responsible for any activities for which CFN Entities
are responsible pursuant to Articles 1 and 6 and any exhibits hereto.
6. Duties of CFN. CFN Entities agree that during the Term of this
-------------
Agreement:
(a) Systems Integration. CFN shall cooperate in good faith with Provider
-------------------
to evaluate the Program's computer system requirements. Based upon such
evaluation, CFN and Provider shall agree on a plan to implement such computer
system integration, and each party shall commit reasonable resources necessary
to execute such implementation plan. In the event that the parties cannot agree
on a systems integration plan within ninety (90) days of executing this
Agreement, then either party may terminate the Agreement without further
obligation or recourse to either party;
(b) Updating Information. CFN Entities shall update the Information
--------------------
utilized in the Program immediately upon receipt of such updated Information
from Provider, as provided herein;
(c) Authorizations. CFN Entities shall acquire and maintain in effect
--------------
during the operational period of the Program all governmental regulatory
authorizations, licenses and permits of every type from every applicable
jurisdiction required (i) for the business and operations of CFN Entities; and
(ii) to participate in the Program. In the event CFN or CFN Agency no longer
maintains such licenses required in any jurisdiction, Provider will be notified
immediately;
(d) Cooperation. CFN Entities shall cooperate in good faith in working
-----------
with Provider to fully implement the Program as promptly as possible, and to
coordinate with Provider in its participation in the Program;
(e) Reporting. CFN Entities will report to Provider immediately any
---------
inquiries, actions taken or claims made by a administrative agency, governmental
authority, or person that could
4
<PAGE>
result in a finding of an unfair or unauthorized practice, fine, administrative
or other penalty or sanction, forfeiture, order or loss of any license or
privilege of Provider.
(f) Roles. Except as expressly provided in this Agreement, CFN Entities
-----
shall not undertake or be responsible for any activities for which Provider is
responsible pursuant to Articles 1 and 5 and any exhibits hereto.
7. Representations and Warranties of Provider. Provider represents and
------------------------------------------
warrants to CFN Entities, which representations and warranties shall be
effective throughout the Term of this Agreement, as follows:
(a) Organization. Provider is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Massachusetts.
Provider has the corporate power and authority to operate its business as and
where its business is now conducted;
(b) Authorization; Enforceability. The execution, delivery and
-----------------------------
performance of this Agreement by Provider and the consummation by Provider of
the transactions contemplated hereby are within the corporate power of Provider
and have been duly authorized by all necessary action by Provider. This
Agreement constitutes the valid and binding obligation of Provider, enforceable
against it in accordance with the terms hereof, subject only to bankruptcy,
insolvency, reorganization, moratoriums or similar laws affecting the
enforceability or rights of creditors generally;
(c) Absence of Conflicting Agreements. Neither the execution, delivery
---------------------------------
and performance of this Agreement by Provider nor any aspect hereof will:
(i) conflict with, result in a breach of, or constitute a default
under the Articles of Incorporation of Provider or any federal, state or
local law, statute, ordinance, rule or regulation applicable to
Provider, or any court or administrative order or process, or any
contract, agreement, arrangement, commitment or plan to which Provider
is a party or by which it is bound ("Provider Agreement");
(ii) require the consent of any other person or entity under any
Provider Agreement; and
(d) Regulatory Authorization. Provider is duly licensed, authorized and
------------------------
certified by all applicable governmental regulatory authorities to operate its
business as it is now conducted and to provide and sell the Products.
8. Representations and Warrants of CFN Entities.
--------------------------------------------
(a) Organization. CFN and CFN Agency are each corporations duly
------------
organized, validly existing and in good standing under the laws of the State of
Delaware. CFN Entities have the corporate power and authority to operate their
businesses as and where their business are now
5
<PAGE>
conducted
(b) Authorization; Enforceability. The execution, delivery and
-----------------------------
performance of this Agreement by CFN Entities and the consummation by CFN
Entities of the transactions contemplated hereby are within the corporate
power of CFN Entities and have been duly authorized by all necessary action by
CFN Entities. This Agreement constitutes the valid and binding obligation of CFN
Entities, enforceable against CFN and CFN Agency in accordance with the terms
hereof subject only to bankruptcy, insolvency, reorganization, moratoriums or
similar laws affecting the enforceability or rights of creditors generally.
(c) Absence of Conflicting Agreements. Neither the execution, delivery
---------------------------------
and performance of this Agreement by CFN Entities nor any aspect hereof will:
(i) conflict with, result in a breach of, or constitute a default
under the Articles of Incorporation of CFN Entities or any federal,
state or local law, statute, ordinance, rule or regulation applicable to
CFN Entities, or any court or administrative order or process, or any
contract, agreement, arrangement, commitment or plan to which CFN
Entities are a party or by which CFN or CFN Agency is bound ("CFN
Agreement");
(ii) require the consent of any other person or entity under any
CFN Agreement.
(d) Regulatory Authorization. CFN and CFN Agency are each duly licensed,
------------------------
authorized and certified by all applicable governmental regulatory authorities
to operate their business as it is now conducted. CFN Entities shall acquire and
maintain in effect during the operational period of the Program the appropriate
licenses, authorizations and certifications from all applicable governmental
regulatory authorities required of CFN Entities to operate the Program.
9. Ownership of Program; Changes. The Program and its concept, design,
-----------------------------
structure, operation, source and object code, programming, output, graphics
(other than proprietary logos or graphics provided by Provider) and content are
the sole, exclusive property of CFN, and CFN shall forever retain all rights of
ownership and copyright in such property. The quotes, policies and endorsements
generated by the Provider, proprietary quoting system, logos and graphics
provided by Provider and used in the Program are the sole, exclusive property of
Provider, and Provider shall forever retain all rights of ownership and
copyright in such property. Provider has no ownership rights or other interest
whatsoever in the Program and shall not acquire any such ownership rights or
interest as a result of this Agreement or business relationship with CFN
Entities hereunder. CFN and Provider shall agree upon format and display of
Provider's proprietary information in the Program. CFN has full, exclusive
authority over the nonproprietary information presented in the Program; and
subject to the provisions of this Agreement, CFN in its sole discretion may
change such nonproprietary content at any time; however, any material changes
that would impact Provider's information require prior notification and consent
of Provider, which shall not be unreasonably withheld, with a notice period of
at least three (3) working days.
10. Amendment of Agreement. Any amendment to this Agreement and any of
----------------------
the
6
<PAGE>
Exhibits, shall be done only in writing and signed on behalf of the parties by a
Vice President or President. Notwithstanding the foregoing, Provider may
amend Exhibit A hereto by giving written notice to CFN.
11. Relationships with Employers and Employees and Affinity Groups.
--------------------------------------------------------------
During the Term of this Agreement:
(a) CFN Agency shall be the licensed broker or agent of record for all
customer contacts developed or initiated through the Program. The Provider
retains rights to all policies generated through or as a result of the CFN
Entities Program and, in return for such ownership, grants CFN Agency rights to
compensation on certain expirations as outlined in Exhibit B -- Commissions.
(b) Except as provided below, CFN shall be solely responsible for
maintaining relationships with Employers and Affinity Groups actively
participating in the Program and for all communications to such Employers and
Affinity Groups actively participating in the Program. Notwithstanding the
above, Provider may, after providing CFN with prior notice, contact an Employer
or Affinity Group actively participating in the Program, and Provider may
respond to contacts initiated by Employers and Affinity Groups, but only if
such contacts are regarding administrative and product design, process or
procedural issues that directly pertain to Provider's Products. If contact is
initiated by an Employer or Affinity Group actively participating in the
Program, Provider shall make reasonable efforts to allow CFN to participate,
with due regard being given to the importance of the issues that are the reason
for the contact. Subject to the preceding sentence, CFN shall be entitled to
participate in all contact between Provider and an Employer or Affinity Group
actively participating in the Program, if CFN so desires. Provider agrees that
the purpose of such contacts shall be limited to such issues, and Provider shall
refrain from discussions pertaining primarily to the Program, such discussions
being reserved solely for CFN as described in the preceding paragraph; and
(c) Unless otherwise agreed to by the parties, Provider shall not
initiate any type of communication directly or indirectly with any Employer or
Affinity Group actively participating in the Program with CFN. In no event shall
Provider attempt to solicit any active Employer or Affinity Group accounts in
the Program away from CFN.
12. Termination.
-----------
(a) Termination upon Notice. During the Initial Term and any Renewal
-----------------------
Terms, this Agreement may terminate under any of the following circumstances:
(i) Upon the written mutual agreement of Provider and CFN
Entities ("the Parties");
(ii) Immediately upon written notice from one Party to the other
Party if the other Party becomes involved in any composition among
creditors, any assignment for
7
<PAGE>
the benefit of creditors, any petition for reorganization, bankruptcy or
receivership, or any attachment of a major portion of their assets, or
any material judgment rendered remaining unsatisfied for thirty (30)
days or more without having been bonded by an authorized surety company
admitted in the jurisdiction where the judgment is entered;
(iii) Upon thirty (30) days' written notice from one Party to the
other if the other Party breaches any material provision of this
Agreement and such breach is not cured within thirty (30) days, provided
--------
that if the breaching Party is making a good faith, diligent effort to
cure such breach, such 30 day period may be extended for up to 30
additional days for such cure;
(iv) Upon 30 days' written notice from one party to the other if
Provider and CFN cannot agree on a systems integration plan within 90
days of the execution of this Agreement as provided in Article 5(a) or
Article 6(a) of this Agreement; or
(v) Upon sixty (60) days written notice from one party to the
other if CFN and Provider cannot agree an any proposed modifications to
Provider's services as provided in Article 1 of this Agreement.
(b) Rights under Termination. On termination, the authority granted CFN
------------------------
and CFN Agency pursuant to this Agreement will terminate. Any termination of
this Agreement will not affect the rights and obligations of the parties hereto
as to transactions, acts, or things done by either Party prior to the effective
date of termination. Upon the termination of this Agreement, unless otherwise
instructed in writing by CFN, Provider will complete the collection of and
account to CFN for all compensation owed to CFN Agency under this Agreement
which were not accounted for at the time of termination and will continue to pay
CFN Agency all sums due CFN Agency, in the manner described in this Agreement.
After the effective date of termination, neither CFN nor CFN Agency will have
authority hereunder, either directly or through others, to advertise Provider's
Products.
13. Post Termination Rights. In the event of termination of this
-----------------------
Agreement, Provider shall have the right to offer to renew policies and renewal
policies to any customers obtained as a result of this Agreement, and CFN
Agency's right to compensation shall continue for the period outlined and as
described in Exhibit B - Commissions.
14. Indemnification.
---------------
(a) Indemnification By CFN Entities. CFN Entities shall indemnify and
-------------------------------
hold Provider and its affiliates and their respective employees, officers,
directors and stockholders (collectively, the "Provider Indemnified Parties")
harmless from and against, and agree promptly to defend Provider Indemnified
Parties from and reimburse them for any and all losses, damages, costs,
expenses, liabilities, obligations and claims of any kind (including, without
limitation, reasonable attorneys' fees and other legal costs and expenses) which
Provider Indemnified Parties may at any time suffer or incur, or become subject
to, as a result of or in connection with:
8
<PAGE>
(i) any material breach or inaccuracy of any of the
representations and warranties made by CFN Entities;
(ii) any actual or alleged material failure by CFN Entities to
carry out, perform, satisfy, and discharge any of their covenants,
agreements, undertakings, liabilities, or obligations under this
Agreement; and
(iii) any actual or alleged error or omission by CFN Entities in
connection with the provision of services by CFN Entities, including,
but not limited to payroll deduction services or billing services,
The amounts for which CFN Entities shall be liable under this Article
14(a) of this Agreement shall be net of any insurance proceeds payable to
Provider in connection with the facts giving rise to the right of
indemnification hereunder.
(b) Indemnification By Provider. Provider shall indemnify and hold CFN
---------------------------
Entities and their affiliates and their respective employees, officers,
directors and stockholders (collectively, "CFN Entities Indemnified Parties")
harmless from and against, and agree promptly to defend CFN Entities Indemnified
Parties from and reimburse them for any and all losses, damages, costs,
expenses, liabilities, obligations, and claims of any kind (including, without
limitation, reasonable attorneys' fees and other legal costs and expenses) which
CFN Entities Indemnified Parties may at any time suffer or incur, or become
subject to, as a result of or in connection with:
(i) any material breach or inaccuracy of any of the
representations and warranties made Provider in this Agreement;
(ii) any actual or alleged material failure by Provider to carry
out, perform, satisfy, and discharge any of its covenants, agreements,
undertakings, liabilities, or obligations under this Agreement; and
(iii) any actual or alleged error or omission by Provider in
connection with the Products or any aspect thereof, including without
limitation the terms or performance of the Products and/or the
performance in connection with the Products by the Provider and/or the
companies providing the Products.
The amounts for which Provider shall be liable under this Article 14(b)
of this Agreement shall be net of any insurance proceeds payable to CFN Entities
Indemnified Parties and any tax benefits received by or accruing to the CFN
Entities Indemnified Parties in connection with the facts giving rise to the
right of indemnification hereunder.
(c) Indemnification Procedure; Cooperation. A party entitled to be
--------------------------------------
indemnified pursuant to Article 14(a) or Article 14(b) (the "Indemnified Party")
hereunder shall notify the party liable for such indemnification (the
"Indemnifying Party") in writing within thirty (30) days of
9
<PAGE>
receipt of such claim(s). Subject to the right of the Indemnifying Party's
right to defend in good faith against claims asserted by third parties
(including employment of counsel), the Indemnifying Party shall respond under
this Article 14 promptly after receipt of written notice thereof from the
Indemnified Party. If any litigation, lawsuit or other proceeding ("Proceeding")
is initiated against either party by a person or entity other than the parties
in connection with the Program, both parties agree to cooperate with the other
in good faith in defending against such Proceeding.
(d) Survival. The provisions of this Article shall survive the
--------
termination of this Agreement.
15. Responsibility; No Guarantees. Provider assumes and retains full
-----------------------------
responsibility and liability for all aspects of the Products and information
provided by it regarding the Products offered through the Program, including
without limitation the rates, terms, coverages, benefits, limitations,
exceptions, errors, omissions and representations and warranties made by
Provider with respect to the Products, as well as pertaining to the company
providing the Product. CFN Entities do not guarantee and hereby expressly
disclaim any guarantee or other representations regarding the performance,
financial or otherwise, of the Program, including but not limited to the amount
of customers, sales or revenues resulting from Provider's participation in the
Program. CFN Entities will maintain adequate security measures, such as firewall
security, to ensure the Program and its data are not susceptible to outside
tampering, alterations or intervention; however, CFN Entities do not guarantee
and hereby expressly disclaim any guarantee of security of the Program and its
data against tampering, alteration and other invasions from sources outside CFN
Entities. CFN ENTITIES' SERVICES ARE PROVIDED "AS IS" WITHOUT WARRANTY AS TO THE
INFORMATION OR SERVICES, THE UNINTERRUPTED ACCESS TO THE PROGRAM OR OTHERWISE.
CFN ENTITIES EXPRESSLY DISCLAIM ANY WARRANTIES CONCERNING THE AVAILABILITY,
ACCURACY OR CONTENT OF ANY INFORMATION UTILIZED IN THE PROGRAM AND ANY WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
16. Public Announcements. CFN Entities and Provider each agree to
--------------------
consult with each other prior to any public announcement to news organizations
relating to this Agreement and/or the business relationship created herein and
will mutually approve the timing, content and method of dissemination of any
such public announcement. Notwithstanding the above, CFN Entities may disclose
the existence of this Agreement and the business relationship created herein,
including the identity of the Provider, to potential clients of CFN without
notice to or approval from Provider.
17. Trademarks. All trademarks, logos or copyrighted material to be used
----------
in advertising, marketing, and promotion of the Program by CFN Entities shall be
used only with the written consent of the party owning the rights in such
matters.
18. Provider Underwriting Standards. The parties understand and agree
-------------------------------
that all business written by or through Provider as part of the Program is
subject to such underwriting standards, guidelines and business plans of
Provider, and of Provider's designees, as may be in
10
<PAGE>
force from time to time. Provider is under no obligation to accept any business
not in compliance with such standards, guidelines and plans, subject to
applicable law.
19. Audit. (a) CFN, CFN Agency and Provider each individually reserve the
-----
right, at its own expense, to audit from time to time, and on no more than a
quarterly basis, the work performed by the other party under this Agreement. All
audits shall be made during the normal business hours and in such manner as not
to materially interfere with Provider's or CFN Entities' work, as the case may
be. A written report reflecting the findings and conclusions of the audit shall
be made available to the audited party.
(b) Subject to a standard of reasonability, the following areas may be
audited:
(i) Audit to be performed by CFN Entities
--------------------------------------
1. Rates
2. Commissions due or paid to CFN Agency
(ii) Audit to be performed by Provider
---------------------------------
1. Regulatory Compliance
2. Receipts, application and collection of policy premium and
fees
20. Relationship of the Parties. Nothing contained in this Agreement shall
---------------------------
be deemed or construed by the parties hereto, or by any third party, to create
the relationship of principal and agent or of partnership or joint venture
between the parties hereto, it being understood and agreed that neither the
method of computing compensation, nor any other provision contained in this
Agreement, nor any acts of the parties hereto shall be deemed to create any
relationship between the parties hereto other than the relationship of
independent parties contracting for services. Neither party to this Agreement
has, and shall not hold itself out as having, any authority to enter into any
agreement or create any obligation or liability on behalf of, in the name of, or
binding upon the other party to this Agreement.
21. Notices. All notices given hereunder to any party shall be in writing
-------
and shall be given by personal delivery, or certified mail, return receipt
request, or by delivery by an overnight delivery service at the following
addresses:
If to Provider:
Electric Insurance Company
152 Conant Street
Beverly, MA 01915
Attn: Steven Stronge
11
<PAGE>
If to CFN:
Consumer Financial Network, Inc.
2 Park Place
1888 Emery Street
Atlanta, GA 30318
Attn: Christopher L. Bond
If to CFN Agency;
CFN Agency, Inc.
2 Park Place
1888 Emery Street
Atlanta, GA 30318
Attn: Vince Freaney
Or, notice may be mailed to such other addresses as the intended
recipient may designate by notice given in like manner, and any such notice
shall be deemed to have been given when delivered in person or when received if
mailed as aforesaid.
22. Miscellaneous.
-------------
(a) Confidential Information. In connection with their performance
------------------------
hereunder, and related dealings, the Parties may have access to certain
confidential information of the other, including but not limited to, information
obtained through an audit as provided for in Article 19 hereof. Each Party shall
not, without the prior written consent of the other Party, disclose or use for
any purpose not required for the performance of this Agreement, either during or
after the Term of this Agreement, any information, matter, or thing of a secret,
confidential or private nature ("Confidential Information") connected with the
business of the other Party or any of its suppliers or customers, and will take
all reasonable precautions to insure that all authorized persons receiving
Confidential Information will maintain the confidentiality thereof. The
foregoing shall not apply with respect to disclosure: (i) as required by law;
(ii) to auditors and accountants in the normal course of financial reporting;
(iii) to regulators; and (iv) as expressly agreed in advance by a protected
party. All Confidential Information furnished by a Party will at all times
remain the sole property of that Party and will be surrendered immediately upon
demand and in any event upon termination of this Agreement.
(b) Renewals. Neither CFN Entities nor Provider will use or authorize
--------
anyone else to use the records of expirations to sell, service or renew any
policy or other product sold by Provider without the prior written consent of
the other Parties hereto.
(c) Waiver or Modification. Failure of any Party to enforce any
----------------------
provision of this Agreement in whole or in part against the other Party shall
not constitute a waiver of any such provision of this Agreement or of any rights
under this Agreement. The waiver of a breach of
12
<PAGE>
any provision of this Agreement shall not be held to constitute a course of
conduct or a waiver of a subsequent breach of that or any other provision.
(d) Guarantee. By its execution hereof, CFN hereby unconditionally and
---------
irrevocably guarantees all of the obligation of the CFN Agency Inc. under this
Agreement.
(e) Severability. If an applicable law is in conflict with any part of
------------
this Agreement, the Agreement will be considered modified to conform with the
law. The other provisions will not be affected by any such modification.
(f) Force Majeure. No Party is liable for, and shall not be considered
-------------
in default or breach of this Agreement on account of, any delay or failure to
perform as required by this Agreement, as a result of any causes or conditions
that are beyond such Party's reasonable control and which such Party is unable
to overcome by the exercise of reasonable diligence, provided that the affected
--------
Party shall use best efforts to resume normal performance, and provided further
-------- -------
that if such delay or failure persists more than 30 days, the other Party may
elect, upon notice, to terminate this Agreement.
(g) This Agreement: (i) shall be binding on, inure to the benefit of and
be enforceable by the Parties and their respective heirs, successors and valid
assigns; (ii) shall be governed by, construed under and enforced in accordance
with the laws of the State of Massachusetts; (iii) may be executed in multiple
counterparts and by facsimile, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument; (iv) constitutes
the entire agreement (together with all Exhibits and Schedules hereto) between
the Parties with respect to the subject matter hereof, and contains all the
terms and conditions agreed upon by the Parties hereto with respect to the
transactions contemplated hereby, and (v) may be assigned by either Party only
with the prior written consent of the other Party, which shall not be
unreasonably withheld. In the event any provision of this Agreement is held void
or unenforceable, the entire balance of this Agreement shall remain in full
force and effect. The section and subsection headings contained in this
Agreement are for reference purposes only, and shall not affect in any way the
meaning or interpretation of this Agreement.
[Signatures on following page]
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Information Services
Agreement as of the date first written above.
CONSUMER FINANCIAL NETWORK, INC.
By: /s/ Joseph F. Switzer
-----------------------------
Name: Joseph F. Switzer
---------------------------
Title: Chief Executive Officer
--------------------------
CFN AGENCY, INC.
By: /s/ Joseph F. Switzer
-----------------------------
Name: Joseph F. Switzer, Jr.
---------------------------
Title: President
--------------------------
ELECTRIC INSURANCE COMPANY
By: /s/ Steven B. Stronge
-----------------------------
Name: Steven B. Stronge
---------------------------
Title: VP - Marketing
--------------------------
14
<PAGE>
EXHIBIT A
States for which Provider offers products for the CFN Entities Program
----------------------------------------------------------------------
A) Auto Insurance
Alabama New York
Arizona Ohio
Connecticut Oklahoma
Delaware Oregon
Iowa Pennsylvania
Idaho South Dakota
Indiana Tennessee
Kansas Utah
Maine Virginia
Massachusetts Vermont
Minnesota Washington
Mississippi Wisconsin
Missouri West Virginia
North Carolina Wyoming
North Dakota
New Hampshire
New Mexico
B) Homeowners Insurance
Minnesota
New Hampshire
Ohio
Oregon
Vermont
15
<PAGE>
EXHIBIT B
Commissions
-----------
Provider agrees to compensate CFN Agency for both now and renewal business in
exchange for access to potential customers through the CFN Entities Program, in
accordance with the terms of the Agreement. Such compensation shall be owed only
if CFN Agency is licensed in the applicable state at the time the commission is
due and payable, if such license is required by law or regulation for CFN Agency
to be compensated. Such compensation to CFN Agency shall be based on policies
sold by Provider to consumers, where Provider's initial relationship with such
consumers is generated through or as a result of the Program ("the CFN
Consumers").
No aspect of this Agreement is meant to include, for purposes of payment of
commissions, any policies in force by Provider for customers who subsequently
become CFN Consumers after the inception date of the policy(ies). For purposes
of payment of commissions, any cross sell activity emanating from existing
policies would be similarly excluded, unless specifically obtained as part of
the Program. For purposes of payment of commissions, leads must originate as
part of the Program and come through the mutually agreed upon designated
channel. Subsequent to implementation of the Program, CFN Entities and Provider
agree to discuss in good faith the issue of compensation for products other than
auto and homeowners insurance cross-sold to CFN Consumers.
Compensation due to CFN Agency shall be computed as follows: (1) 5% commission
on new written policy premiums; and (2) 5% commission on renewal premiums for
those policies generated as a result of Provider's relationship with each CFN
Consumer. Each renewal premium commission shall be due to CFN Agency for a
period not to exceed five (5) annual renewals. New and renewal compensation
shall be due to CFN Agency for insurance products for which CFN Agency is
legally able to receive compensation including auto or homeowners products cross
sold to a CFN Consumer.
Commissions are due and payable to CFN Agency out of the first month's premiums,
within forty-five (45) days of the policy issuance. Provider shall notify CFN
Agency of commission adjustments due upon policy cancellations, or changes in
coverages; said refunds will be netted out of amounts due CFN Agency or paid by
CFN Agency to Provider. CFN Agency's right to compensation shall not be voided
due to temporary lapses of policies, termination of CFN Consumer's employment,
or termination of policies which are subsequently replaced by Provider within
twelve (12) months.
Notwithstanding the above, CFN Agency shall not be entitled to compensation on
policies issued to CFN Consumers who terminate any or all of the Provider's
Products for a period greater than twelve (12) months and subsequently purchase
any or all of the Provider's Products outside of the Program.
16
<PAGE>
Notwithstanding any other provisions of this Agreement, if any court, any state
or federal law or regulation, whether existing on the date of execution of this
Agreement or thereafter enacted, requires or purports to require the Provider to
return premium paid by CFN Consumers for insurance, and if such return had it
been made prior to the calculation of any amounts due from either party to the
other hereunder, would have affected such calculation, then promptly after any
such return of premium, the Provider shall prepare and provide to CFN Agency the
revised accounting of such amounts based on the actual premium that Provider
would have been allowed to retain. The difference between any amount previously
paid and the revised amount due shall be paid to the appropriate party within 45
days after CFN Agency's receipt of such accounting, provided however that
liability for any amounts due from CFN Agency to Provider shall terminate once
the payment of renewal commission to CFN Agency expires for the related
business, a period not to exceed five (5) annual renewals. The provisions of
this section shall survive the termination of this Agreement.
17
<PAGE>
EXHIBIT A
States for which Provider offers products for the CFN Entities
Program
A) Auto Insurance
All United States except Hawaii, Alaska, Nebraska, Washington D.C., Kentucky,
Michigan, Nevada, and New Jersey
B) Homeowners Insurance
Alabama Indiana New York Vermont
Arizona Kansas North Carolina Virginia
California Maryland Ohio Washington
Colorado Minnesota Oklahoma Wisconsin
Connecticut Missouri Oregon
Illinois New Hampshire Tennessee
/s/ Gerard P. McCarthy
- -------------------------------
Gerard P. McCarthy
Vice President, Marketing
Electric Insurance Company
152 Conant Street
Beverly, MA 01915
/s/ Christopher L. Bond
- -------------------------------
Christopher L. Bond
Consumer Financial Network
4450 River Green Parkway
Duluth, GA 30096
18
<PAGE>
EXHIBIT 10.64
[LOGO]
Master Service Agreement
------------------------
This iXL Master Agreement (the "Agreement") is entered into this 31st day of
December, 1998 (the "Effective Date"), by and between iXL, Inc., a Delaware
corporation with a principal place of business at 1888 Emery Street, Atlanta,
Georgia 30318 ("iXL") and Delta Air Lines, Inc., a Delaware corporation with a
principal place of business at 1030 Delta Boulevard, Atlanta, Georgia 30320
("Delta") Delta. For purposes of this Agreement, "iXL" and "Delta" shall be
deemed to include all "Affiliates" (as defined herein).
RECITALS
--------
A. iXL is a full service interactive services provider offering various
services and products including but not limited to strategic consulting,
Web development, multimedia development, custom software development,
laptop based presentation products, Web site management applications, Web
site hosting, and Web site marketing (the "iXL Services");
B. Delta is a major carrier providing scheduled air transportation services to
domestic and international destinations,
C. Delta desires to engage iXL on a non-exclusive basis to provide various of
the iXL Services on the terms provided herein.
NOW THEREFORE, in consideration of the mutual promises, covenants and agreements
set forth below and other good and valuable consideration, the sufficiency of
which is hereby admitted, the parties agree as follows:
1. The Agreement and Statement(s) of Work.
---------------------------------------
1.1. Delta hereby engages iXL to provide services or products as described
in the attached Statement of Work, which shall be implemented through
additional statements of work, which shall at a minimum include a
description of the services to be provided and the corresponding fees
(collectively, the "Statement of Work"). iXL hereby accepts such
engagement, subject to the terms and conditions of this Agreement, the
Statement of Work, and any terms and conditions attached to the
Statement of Work.
1.2. If there is any difference between the terms and conditions attached
to any Statement of Work and any other portion of this Agreement, the
terms attached to the Statement of Work shall control, with the
exception of Section 17.10 (which confirms that no joint venture,
partnership or other relationship has been created in connection with
this Agreement). In the event of a conflict between Section 17.10 of
this Agreement and any language in a Statement of Work, Section 17.10
of this Agreement shall control.
1.3 If and to the extent that iXL identifies investment opportunities for
travel related products or services, iXL shall engage in best efforts,
including good faith negotiations, to provide Delta with the
opportunity to participate in such opportunities in a manner
equivalent to that of iXL. This option shall apply to both iXL
acquisitions and new business development for travel related products
or services. To the extent any acquisition by iXL involves a payment
by iXL in the form of services, stock or other non-cash consideration,
then Delta shall be entitled to make its contribution to participate
in the business opportunity on an equivalent cash consideration basis.
2. Change Orders; Administration. Any modifications to the specifications in a
-----------------------------
Statement of Work shall require execution of a written change order by both
parties to this Agreement (a "Change Order") which shall substantially
conform with the draft form attached to this Agreement. Each Change Order
complying with this section shall be deemed to be an amendment to the
applicable Statement of Work and will become part of this Agreement.
3. Method of Performing Services and Monthly Allocation of iXL Resources. iXL
---------------------------------------------------------------------
shall determine the method, details, and means of performing the services
hereunder, subject to the standards set forth in the Statement of Work and
the prior written approval of Delta, which approval shall not be
unreasonably withheld. iXL may engage subcontractors (including but not
limited to, any iXL subsidiary, parent or related entity or any employee
thereof) to perform any of the Services provided hereunder, with Delta's
prior written approval, which approval shall not be unreasonably withheld.
At Delta's request, iXL shall engage those subcontractors and third party
entities identified by Delta to perform TPF oriented development, product
or services; provided, the use of such companies is subject to iXL's prior
written approval, which approval shall not be unreasonably withheld. iXL
shall adhere to commercially reasonable standards in using subcontractors
suggested by Delta. During the Term (defined below) and thereafter, iXL
shall retain the right to perform any and all services for other clients;
provided, that iXL shall not, directly or indirectly,
1
<PAGE>
through Affiliates or otherwise, perform services for other airlines
without Delta's prior written approval. As of the date of this Agreement,
Delta has consented to iXL performing services for Midwest Express, Trans
World Airlines, British Airways (only for the Pitchman(TM) and Pitchman
powered by Iguana(TM) products) and Virgin Atlantic (the "Grandfathered
Carriers"). Delta consents to iXL's subsidiary, Consumer Financial Network,
Inc. ("CFN"), providing services to airline companies; provided, CFN shall
not provide the iXL Services to such companies. Based upon currently
available information derived from Delta and iXL's experience in the
industry, iXL has established an Estimated Monthly Allocation of Resources,
in the Statement of Work attached to this Agreement, pertaining to the
Services to be rendered hereunder. iXL shall allocate resources for Delta
in accordance with the Estimated Monthly Allocation of Resources, to the
extent iXL determines such allocation is appropriate under the Statement(s)
of Work. In the event that the Statement(s) of Work require the allocation
of resources in excess of the amounts set forth in the Estimated Monthly
Allocation of Resources ("Excess Resources"), iXL shall allocate Excess
Resources to the Statement of Work within thirty (30) days of the date in
which iXL determines that Excess Resources are required. The Monthly
Allocation of Resources is an estimate only, and the payment amounts set
forth in Section 5 and the applicable Statement(s) of Work shall govern
payment to iXL hereunder.
4. Term and Termination.
--------------------
4.1. Term. This Agreement shall be effective when signed by both parties
----
and thereafter shall remain in effect for five (5) years unless
terminated pursuant to the provisions of this Section 4.
4.2. Termination of the Agreement.
----------------------------
4.2.1 Termination for Nonpayment. In the event that Delta defaults in
--------------------------
the payment of any amount due to iXL hereunder and does not cure
such default within thirty (30) days of the date of the invoice,
then iXL may, by issuing written notice thereof to Delta,
terminate this Agreement as of a date specified in such notice
of termination; provided, that iXL first provides Delta with
fifteen (15) days advance written notice in order to afford
Delta the opportunity to cure such failure. In the event of a
termination by Delta under this Section 4.2.1 during the initial
twelve (12) month period of this Agreement, Delta shall be
obligated to pay iXL the amount specified as Liquidated Damages
in Section 5 below.
4.2.2 Termination without cause.
-------------------------
(a) Termination without cause by Delta. Delta may terminate this
----------------------------------
Agreement at any time during the Term without cause upon sixty
(60) days' prior written notice to iXL. In the event of a
termination by Delta under this Section 4.2.2 during the initial
twelve (12) month period of this Agreement, Delta shall be
obligated to pay iXL the amount specified as Liquidated Damages
in Section 5 below.
(b) Termination without cause by iXL. iXL may terminate this
--------------------------------
Agreement at any time following the initial 12-month term without
cause upon one-hundred and twenty (120) days' prior written
notice to Delta. If iXL determines to terminate this Agreement
under Section 4.2.2(b) due to a reduction in services purchased
by Delta below Eight Hundred Thirty Four Thousand Dollars
($834,000) per month, the parties agree that, prior to iXL's
notice of termination under this Section, the parties shall first
meet to determine if they can reach a mutual agreement on an
increase in the level of services purchased by Delta hereunder.
4.2.3 Termination for Cause. Either party may terminate this
---------------------
Agreement for "cause" (as defined below) immediately upon written
notice to the other party; provided that for purposes of this
Section 4.2.3, "cause" shall mean (i) the other party files a
voluntary petition in bankruptcy, makes an assignment for the
benefit of creditors of all or substantially all of its assets,
fails to secure dismissal of any involuntary petition in
bankruptcy within sixty (60) days after the filing thereof, or
petitions for reorganization, liquidation, or dissolution under
any federal or state bankruptcy law or similar law; (ii) the
other party violates, or fails to perform or observe, any
material term or condition of this Agreement for more than thirty
(30) days after receipt of written notice that it is so violating
or failing. In addition, Delta may terminate this Agreement "for
cause" in the event of a change of control by iXL, which for the
purpose of this Agreement shall mean (x) the acquisition by any
other person or group (within the meaning of Section 13(d)(3) of
the Securities Exchange Act (except an employee group of such
party, any of its subsidiaries or a holding company of such
party)), of the beneficial ownership of securities representing
20% or more of the combined voting power of the securities
entitled to vote generally in the election of the board of
directors of iXL, but only where the acquiring party is, or is an
Affiliate of, (a) an airline, (b) a computer reservation system
vendor, or (c) a company that owns a web site that (a) collects,
stores, processes, displays or distributes through communication
networks information concerning industry alternatives for
transportation, lodging and/or other travel-related products and
services or (b) enables consumers, businesses, travel agents or
other persons or users to (i) reserve or otherwise confirm the
use of such products or services; (ii) report or receive payment
for or otherwise clear transactions regarding such products or
services; or (iii) issue tickets for the acquisition or use of
such products or services.
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4.2.4 Effect of Termination. Upon any termination of this Agreement,
---------------------
Delta shall be obligated to pay iXL for all services rendered
pursuant to any outstanding Statements of Work through the
effective date of such termination. During the initial twelve
(12) month period of this Agreement, in the event of any
termination or cancellation by Delta of the Agreement, except for
a Termination for Cause by Delta under Section 4.2.3, Delta shall
pay iXL the amount specified as Liquidated Damages in Section 5
below.
4.2.5 Survival. Termination of this Agreement by either party
--------
pursuant to the provisions of this Section 4 shall terminate each
party's obligations under this Agreement except for the
provisions of Section 5 (Guaranteed Payment and Liquidated
Damages), Section 6 (Payments to iXL), Section 7
(Confidentiality), Section 9 (Delta Representations and
Warranties) Section 9 (Intellectual Property), Section 11 (iXL
Warranties), Section 12 (Exclusion of Warranties), Section 13
(Limits of Liability), Section 14 (Non-Solicitation), Section 15
(Indemnification), Section 17.4 (Governing Law), and Section
17.10 (Non-Agency), all of which shall survive termination of
this Agreement.
4.2.6 Termination for failure to Allocate Excess Resources. In the
----------------------------------------------------
event that Delta intends at any time to terminate the Agreement
for iXL's failure to allocate Excess Resources, Delta shall
provide iXL with thirty (30) days written notice of such
intention in order to provide iXL with the opportunity to cure
such failure.
4.2.7 Termination of an Individual Statement of Work. In the event
----------------------------------------------
that either party hereto materially defaults in the performance
of any of its duties or obligations under a Statement of Work
(except for a default in payment to iXL) and does not
substantially cure such default, or commence a cure, within
forty-five (45) days after being given written notice specifying
the default, then the non-defaulting party may, by given written
notice thereof to the defaulting party, terminate the Statement
of Work as of a date specified in such notice of termination.
Upon termination of a Statement of Work, Delta shall be obligated
to pay iXL for all services rendered pursuant to the Statement of
Work through the effective date of such termination, except to
the extent that such termination was due to iXL's default in the
performance of any of its duties or obligations under such
Statement of Work. Upon payment by Delta, iXL shall deliver the
deliverables for the applicable Statement(s) of Work, including
any work in progress. Termination of a Statement of Work shall
have no effect upon the Agreement or any other Statements of Work
that may be in effect under this Agreement.
4.2.8 Effect of Termination. Termination of this Agreement for any
---------------------
reason shall not relieve either party of rights or obligations
incurred prior to the effective date of termination. The rights
of termination in this Section 4 are in addition to any other
rights or remedies the parties may have in this Agreement or
otherwise.
4.3 Renewal. Unless terminated by the parties as set forth herein, the
-------
Agreement shall be automatically renewed five (5) years from the date
of execution, for an additional term of five (5) years.
5. Guaranteed Payment and Liquidated Damages. For a period of one (1) year
-----------------------------------------
from the date of execution of this Agreement, Delta shall pay iXL on a
monthly basis an amount equal to either (i) the actual time, materials, and
------
customary and reasonable expenses incurred by iXL (under the Statement(s)
of Work (collectively "Actual Fees") minus any Credit (defined below) owed
-----
from the previous month(s); or (ii) the monthly payment amount specified in
--
Exhibit 5, attached hereto (the "Estimated Fees"), whichever amount as
between the preceding items (i) and (ii)) is greater (for purposes of this
Section 5, such amount shall be inclusive of all amounts paid to
subcontractors engaged by iXL to perform services for Delta hereunder). In
any month where the Actual Fees are less than Estimated Fees, the amount
constituting the difference between the Actual Fees and the Estimated Fees
is defined as the "Credit". During the initial twelve (12) month period of
this Agreement, in the event of any termination or cancellation by Delta of
the Agreement, except for a Termination for Cause by Delta under Section
4.2.3, Delta shall pay iXL as Liquidated damages hereunder, but not as a
penalty, ten million dollars ($10,000,000), less the aggregate amount paid
by Delta to iXL under the Agreement as of the date of termination and/or
cancellation. The parties agree that (x) the injury caused by any breach by
Delta of its obligation concerning the Guaranteed Payment hereunder would
be difficult or impossible to estimate; (y) they intend to provide for
damages for such breach rather than a penalty pursuant to this Section 5;
and (z) the sum stipulated in this Section 5 for such Liquidated Damages is
a reasonable pre-estimate of the probable loss to iXL. If, at the time of
termination of this Agreement by Delta under Section 4.2.2, the fees billed
to Delta by iXL for services rendered hereunder in the aggregate exceed ten
million dollars ($10,000,000), then Delta shall not pay the Liquidated
Damages set forth in this Section 5, but instead shall pay iXL such Actual
Fees unpaid at such time in the amount and manner set forth in the
applicable Statement of Work. At the end of eighteen (18) months from the
date of execution of this Agreement, Delta shall forfeit any remaining
Credit and iXL shall have no obligation for return of all or part of any
remaining Credit. Liquidated Damages in this Section 5 shall not apply to
services rendered by iXL to Delta after the one (1) year period immediately
following the date of execution of this Agreement.
6. Payments to iXL.
---------------
6.1 Charges. For the services provided hereunder, Delta shall pay to iXL
-------
fees in accordance with iXL's standard hourly rates in effect at the
time of performance of such services, and in the amount and manner set
forth in the Statement of Work and herein. iXL's current hourly rates
(as of the effective date of the execution of this Agreement), by
category, are presented in
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the table set forth in Exhibit 6.1, attached hereto and incorporated
by reference herein. Following the initial twelve month term of this
Agreement, such hourly rates may be subject to change in the ordinary
course of business on an annual or semi-annual basis; any other
changes in such rates shall be implemented as against Delta only upon
mutual agreement of the parties. All fees and expenses incurred by iXL
in the performance of the services will be billed to Delta on a
monthly basis.
6.2 Expense. Delta will pay or reimburse iXL for any out-of-pocket
-------
expenses, including, without limitation, travel and travel-related
expenses, incurred by iXL at the request of or with the approval of
Delta in connection with the performance of this Agreement. Reasonable
and customary expenses incurred by iXL, including without limitation
expenses incurred for travel, including local transportation, lodging,
meals, telephone, shipping and duplicating, will be billed to Delta at
actual cost. Travel expenses incurred by iXL personnel on behalf of
Delta shall be consistent with iXL travel policy as set forth in
Exhibit 6.2 attached hereto and incorporated by reference herein.
6.3 Taxes. Delta will pay all sales, use, transfer, privilege, excise or
-----
other taxes and all duties, whether international, national, state or
local, however designated, which are levied or imposed by reason of
the transactions contemplated hereby; excluding, however, income taxes
of iXL.
6.4 Time of Payment. Any sum due iXL hereunder will be due and payable
---------------
within thirty (30) days after the due date of an invoice therefor from
iXL. If Delta fails to pay any amount due within forty-five (45) days
from the date of the invoice, late charges of the lesser of 1 1/2% per
month (annual rate of eighteen percent (18%)) or the maximum allowable
under applicable law shall also become payable by Delta to iXL. In
addition, failure of Delta to pay any invoiced amount within sixty
(60) days after the date of the invoice shall be deemed a material
breach of this Agreement, justifying iXL's suspension of the
performance of the Services, and shall be sufficient cause for
termination of this Agreement by iXL, subject to the notice procedure
specified in Section 4.2. 1.. Termination under this Section shall in
no event relieve Delta of its obligations under Section 5, Guaranteed
----------
Payment and Liquidated Damages.
------------------------------
7. Confidentiality.
---------------
7.1 During the course of performance of this Agreement, each party may
disclose to the other certain confidential information as defined in
Section 7.2 below. Each party shall hold the other party's
Confidential Information in confidence and shall use its best efforts
to protect it. Each party shall not disclose the other party's
Confidential Information to any third party, and shall use it for the
sole purpose of performing under this Agreement. At the conclusion of
this Agreement, each party shall either return the other's
Confidential Information in its possession (including all copies) or
shall, at the disclosing party's direction, destroy the other party's
Confidential Information (including all copies) and certify its
destruction to the disclosing party.
7.2 "Confidential Information" means any proprietary or trade secret
information provided by either party or prepared by either party
(either oral, written, or digital) upon review of such information,
technical data, or know-how provided to either party by the other
(including any director, officer, employee, agent, or representative
of the other) or obtained by either party from the other (including
any director, officer, employee, agent, or representative of the
other) including but not limited to, that which relates to research,
product plans, products, services, Deltas, markets, software,
developments, inventions, processes, designs, drawings, engineering,
hardware configuration information, marketing or finances of the
disclosing party.
7.3 The term "Confidential Information" shall not include any information
which: (a) is in the public domain at the time of disclosure or enters
the public domain following disclosure through no fault of the
receiving party, (b) Such Confidential Information is known to the
receiving party prior to the date received from the supplying party or
thereafter is developed independently by the receiving party without
violating the terms hereof, or is subsequently disclosed to the
receiving party with no obligation of confidentiality by a third party
having the right to disclose it, (c) is independently developed by the
receiving party without reference to the disclosing party's
Confidential Information (d) such Confidential Information is
furnished by the supplying party to a third party (other than an
Affiliate of the supplying party or its directors, officers,
employees, or attorneys) without restriction except pursuant to a
legal order or legal process where such third party is obligated to
maintain the confidentiality of the data, or (e) the Confidential
Information is received after the termination of this Agreement..
7.4 Neither party will have a duty to avoid the disclosure of the other
party's Confidential Information in the event that the party receiving
the Confidential Information becomes legally compelled to disclose any
of such Confidential Information by any governmental body or court,
provided that the receiving party provides the party supplying such
Confidential Information with prompt notice so that the supplying
party may seek a protective order or other appropriate remedy and/or
waive compliance (in writing) with the provisions hereof. In the event
that such protective order or other remedy is not obtained, or the
supplying party waives (in writing) compliance with the provisions
hereof, the receiving party will furnish only that portion of such
Confidential Material which is legally required and will exercise its
reasonable efforts to obtain appropriate assurance that confidential
treatment will be accorded such Confidential Information.
7.5 Each party agrees that its obligations provided in this Section 7 are
necessary and reasonable in order to protect the disclosing
4
<PAGE>
party and its business, and each party expressly agrees that monetary
damages would be inadequate to compensate the disclosing party for any
breach by the receiving party of its covenants and agreements set
forth in this Agreement. Accordingly, each party agrees and
acknowledges that any such violation or threatened violation will
cause irreparable injury to the disclosing party and that, in addition
to any other remedies that may be available, in law, in equity or
otherwise, the disclosing party shall be entitled to obtain injunctive
relief against the threatened breach of this Agreement or the
continuation of any such breach by the receiving party, without the
necessity of proving actual damages.
7.6 Each party will take all reasonable steps necessary to ensure that the
conditions of Section 7 are satisfied. Each party agrees to be
responsible for any breach of this Section 7 by its employees or
agents.
7.7 Except as otherwise provided herein, iXL understands and agrees that
it will not at any time (a) reproduce, copy or otherwise make
available to any third party in any way Delta's Confidential
Information; (b) use Delta's Confidential Information in whole or in
part other than in conjunction with this Agreement; or (c) allow
persons to access Delta's Confidential Information except iXL
employees on a need-to-know basis; provided, iXL may make available
Delta's Confidential Information on a need to know basis to iXL
subcontractors who have signed a confidentiality agreement
substantially in the form of this Section 7.
7.8 iXL understands and agrees that Delta will make available the iXL
Confidential Information to Delta's subsidiary, Delta Technology, and
Delta agents and employees on a need-to-know basis. Delta will not
otherwise (i) reproduce, copy or otherwise make available to any third
party in any way the iXL Confidential Information, or (ii) use the iXL
Confidential Information in whole or in part other than in conjunction
with this Agreement.
7.9 Upon termination of this Agreement, and if requested by the other
party (the "Requesting Party"), each party hereto (the "Holding
Party") will immediately return all Confidential Information, any
copies thereof, and all related materials to the Requesting Party, and
will immediately permit and enable representatives of the Requesting
Party to take all reasonable measures to ensure that the Holding Party
no longer uses or is able to use the Requesting Party's Confidential
Information, any copies thereof, and any related materials. At the
Requesting Party's request, the Holding Party shall provide the
Requesting Party with a certification that all of the Requesting
Party's Confidential Information (and all copies thereof) have been
returned.
7.10 iXL agrees that, during the term of this Agreement, it shall not
acquire, maintain, or retain an ownership interest in a web site that
(a) collects, stores, processes, displays or distributes through
communication networks information concerning industry alternatives
for transportation, lodging and/or other travel-related products and
services, and (b) enables consumers, businesses, travel agents or
other persons or users to (i) reserve or otherwise confirm the use of
such products or services; (ii) report or receive payment for or
otherwise clear transactions regarding such products or services; or
(iii) issue tickets for the acquisition or use of such products or
services. Notwithstanding the foregoing, Delta consents to iXL's
current ownership in Last Minute Travel; provided, that iXL agrees
that no iXL Software or Works provided by iXL to Delta (other than iXL
Solutions Set and/or iXL branded offerings, including but not limited
to Siteman(R), Pitchman(TM), and Pitchman powered by Iguana(TM), or
any derivative works thereof) shall be provided by iXL to Last Minute
Travel or its Affiliates.
8. Advertising.
-----------
8.1 After execution of this Agreement, Delta and iXL shall announce the
strategic alliance created hereby in a mutually acceptable manner. iXL
may list Delta as a client of iXL in iXL marketing materials, and iXL
may display Delta's trademarks ("Marks") in connection with iXL's
rights under this Section; provided all use of Delta trademarks is
subject to Delta's prior written consent. Once a creative concept has
been approved by Delta for use by iXL, such concept, in its exact,
original form, may be used repeatedly without need for further
submission and approval by Delta, unless and until (i) otherwise
specifically provided at the time of the original approval, or (ii)
Delta provides written notice to iXL revoking such prior approval;
provided, if Delta revokes such approval, iXL shall have the right to
use any collateral materials printed prior to Delta's written
revocation of approval unless Delta reimburses iXL for the cost of
such materials. iXL may include either a URL or plain text link to
Delta's Web site on iXL's Web site. iXL is authorized to create screen
shots or otherwise demonstrate to third parties Delta's Web site or
other deliverables provided by iXL to Delta. All use by either party
of the other party's Marks will inure to the benefit of the party
owning the Marks. Upon termination of this Agreement, neither party
shall have any continuing right to use the other party's Marks and
each party shall immediately cease all such use of the other party's
Marks.
8.2 Before printing, publishing, displaying or distributing to third
parties any materials displaying Delta's name or a Delta trademark,
iXL shall submit to Delta, for prior review and approval, production
samples or proofs of all advertising, promotional and other materials.
All Delta trademarks must appear exactly as set forth in
specifications provided by Delta, and iXL shall include disclaimer
language provided by Delta for inclusion in promotional materials if
requested by Delta. At Delta's direction, iXL shall cause the
withholding, discontinuance, recall or cancellation, as appropriate,
of any such advertising or promotional material not approved by Delta,
that differs significantly from that approved by Delta or that is put
5
<PAGE>
to a use or used in a media not approved by Delta. Delta reserves the
right to refuse to participate in promotions or programs proposed by
iXL.
8.3 In no event shall either party alter, remove, obscure, erase or deface
or hide from view, any copyright, trademark or other proprietary
rights notice of the other party contained on or incorporated into any
deliverable developed hereunder.
9. Intellectual Property
---------------------
The following definitions apply to Section 9:
"iXL Software" shall mean all computer programming code (including,
unless otherwise specified, both object code and source-code variation
thereof), documentation (including user manual and other written
material that relate to particular code) and materials useful for
design (for example, logic manuals, flow charts and principles of
operation) provided by iXL and used in connection with or necessary
for the use or operation of the software provided by iXL to Delta
hereunder, including such materials licensed by iXL from third
parties.
"Work" or "Works" means (irrespective of whether any of the following
---- -----
are or are not copyrightable or patentable) all materials, data,
programs, products and deliverables, designs, inventions, discoveries
or improvements, works of authorship, programs and devices, software,
computer programming code (including both object code and source code
versions thereof), documentation (including user manuals and other
written materials that relate to particular code), media, materials
useful for design, or any other similar property or rights, including
the foregoing prepared by iXL in connection with this Agreement.
"Work" or "Works" shall also include such code, system documentation,
---- -----
statements of principles of operation, schematics and any pertinent
commentary or explanation that may be necessary to render any Work or
Works understandable and usable by a trained computer programmer.
9.1 iXL grants to Delta a non-exclusive, worldwide, royalty-free,
perpetual and irrevocable right and license to use, execute,
reproduce, perform, and prepare derivative works based upon the iXL
Software provided by iXL to Delta in connection with this Agreement,
and to authorize subcontractors (except as otherwise provided
hereunder) who are subject to the confidentiality provisions herein to
do some or all of the foregoing, and Delta hereby accepts such
license. Delta's use of subcontractors to prepare derivative works in
the iXL Software shall be limited to iXL Software created after the
execution of, and pursuant to, this Agreement, and such use of
subcontractors shall not extend to permit Delta to engage
subcontractors to prepare derivative works in iXL Solutions Set and/or
iXL branded offerings, including but not limited to Siteman(R),
Pitchman(TM), and Pitchman powered by Iguana(TM), or any derivative
works thereof. Unless otherwise agreed, this license does not extend
to permit Delta to sub-license the iXL Software or engage in
commercial time-sharing, service bureau usage, or rental of the iXL
Software. The parties acknowledge and agree that, as between them and
subject to the license granted hereby, the iXL Software shall be and
remain the property of iXL.
9.2 At mutually agreeable times responsive to Delta's reasonable
requirements, iXL shall deliver to Delta, a master copy of the iXL
Software, or any relevant documentation or media that evidences or
supports the iXL Software, including both object code and source code
forms of programming, any system or user documentation, and any design
or development specification pertaining thereto, as then existing, or
such portion thereof as Delta may request. It is the intent of this
section that Delta be entitled at all times to obtain and maintain a
complete set of the documentation and media that evidences or supports
the iXL Software, as appropriate to exercise its rights hereunder.
Such documentation and media shall include, to the extent the same
exist, the source code, system documentation, statements of principles
of operation, and schematics for all the iXL Software, as well as any
pertinent commentary or explanation that may be necessary to render
such documentation and media understandable and usable by a trained
computer programmer.
9.3 The parties shall mutually establish and iXL shall conform to
reasonable requirements for technical and functional documentation
with respect to the preparation and retention of any modifications to
the iXL Software for Delta.
9.4 Other than the Work which is part of the iXL Software and licensed to
Delta under Section 9.1, above, all other work performed pursuant
hereto, and all other Work developed or prepared for Delta by iXL
hereunder, shall be the property of Delta and all title and interest
therein shall vest in Delta and shall be deemed work made for hire and
made in the course of the services rendered by iXL to Delta. To the
extent that title to any such Work may not, by operation of law, vest
in Delta or any such item may not be considered works made for hire,
all right, title and interest therein are hereby irrevocably sold,
transferred and assigned to Delta without the necessity of further
compensation. All such Works shall belong exclusively to Delta, with
Delta having the right to obtain and hold in its own name copyrights,
patents, registrations or such other protection as may be appropriate
to the subject matter, and any extensions and renewals thereof.
9.5 All iXL Software obtained by iXL from third parties for use in
connection with this Agreement shall provide Delta with the license
described in Section 9.1(a). In the event that any third party refuses
to grant to Delta the license terms set forth in Section 9.1(a),
Delta, iXL and the third party shall agree in writing on the terms of
Delta's license before such materials are
6
<PAGE>
used in connection with this Agreement, and the terms of the software
license for such materials shall be signed by iXL, Delta, and such
third party. For software obtained from third parties, Delta shall
have only those rights in iXL Software obtained from iXL from third
parties as are granted to Delta in the license agreements with such
third parties approved by Delta.
9.6 iXL hereby agrees to perform all things, or execute all documents,
reasonably requested by Delta to effect the rights granted to Delta in
this Section 9.
9.7 Upon payment as provided hereunder and in the applicable Statement(s)
of Work, in the event of (i) any termination of this Agreement, or
(ii) any written notice from Delta, iXL shall within fifteen (15)
business days deliver to Delta a master copy of all Work and iXL
Software developed or prepared for Delta by iXL hereunder, or any
relevant documentation or media that supports or evidences such Work
or iXL Software (including both source and object code forms of
programming, any system documentation and any design of development
specifications pertaining thereto), or such portion thereof as Delta
may reasonably request in each case, for which iXL has been paid. It
is the intent of the parties that Delta obtain and maintain a complete
set of the documentation and media that evidences all Work developed
or prepared for Delta by iXL hereunder. Any payment made by Delta in
order to obtain materials under the terms of this Section shall be (i)
proportionate to the materials delivered by iXL under the applicable
Statement of Work, and (ii) without prejudice to any claims Delta may
have against iXL for any breach of this Agreement or obligations under
the applicable Statement of Work.
9.8 iXL makes no representation, warranties or covenants, and the
Agreement shall have no applicability to, work performed, or Works
developed, by Delta Technology. If Works provided by iXL to Delta are
subsequently modified by Delta Technology, then iXL shall retain
responsibility only for the Works provided by iXL in their unmodified
form.
10. Delta Representations and Warranties.
------------------------------------
10.1 Delta represents and warrants that Delta has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
10.2 This Agreement has been duly and validly executed and delivered by
Delta and constitutes the valid and binding agreement of Delta,
enforceable against Delta in accordance with its terms.
10.3 Delta represents and warrants that Delta owns or has the valid right
to use and provide to iXL any materials provided by Delta to iXL
hereunder ("Client Materials"), and Client Materials do not and will
not infringe upon or violate any patent, copyright, trademark, trade
secret, or other proprietary or intellectual property rights of any
third party.
11. iXL Warranties.
--------------
11.1 iXL represents and warrants that it has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
11.2 This Agreement has been duly and validly executed and delivered by
iXL and constitutes the valid and binding Agreement of iXL,
enforceable against iXL in accordance with its terms.
11.3 iXL further represent and warrants that it will perform the services
in material conformity to the specifications set forth in a Statement
of Work contemplated hereunder in a professional and workmanlike
manner.
11.4 iXL represents and warrants that it owns or has the valid right to
use and provide to Delta all software, technology, trade secrets, and
other confidential information, know how, property processes,
formulae, algorithms, models, methodology, licenses, agreements and
all other proprietary rights, in connection with the services
provided to Delta hereunder, including the right to provide Delta
with the iXL Software and Works pursuant to the terms of this
Agreement.
12. Exclusion of Warranties. APART FROM THE EXPRESS WARRANTIES SET OUT HEREIN
-----------------------
OR IN A STATEMENT OF WORK ATTACHED HERETO, ALL SERVICES AND PRODUCTS PROVIDED
UNDER THIS AGREEMENT ARE PROVIDED ON AN "AS IS" BASIS. NEITHER iXL NOR ANY OF
ITS AFFILIATES, EMPLOYEES, OFFICERS, DIRECTORS, AGENTS OR LICENSORS WARRANTS
THAT THE SERVICES OR PRODUCTS PROVIDED PURSUANT TO THIS AGREEMENT WILL BE
UNINTERRUPTED OR ERROR FREE, NOR DO THEY WARRANT THAT CERTAIN RESULTS MAY BE
OBTAINED BY CLIENT IN CONNECTION WITH iXL'S RENDERING OF SERVICES OR PROVISION
OF PRODUCTS HEREUNDER. iXL AND ITS AFFILIATES, EMPLOYEES, OFFICERS, DIRECTORS,
AGENTS AND LICENSORS MAKE NO IMPLIED WARRANTY, GUARANTEE OR REPRESENTATION
EITHER REGARDING THE MERCHANTABILITY, TITLE, OR FITNESS FOR A PARTICULAR PURPOSE
OF ANY SERVICES OR PRODUCTS PROVIDED UNDER THIS AGREEMENT. iXL DOES NOT MAKE ANY
WARRANTY OR GUARANTEE FOR ANY PRODUCTS OR SERVICES PROVIDED BY VENDORS SUGGESTED
BY iXL.
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13. Limits of Liability.
-------------------
13.1 NOTWITHSTANDING ANY TERM OR PROVISION CONTAINED IN THIS AGREEMENT
WITH THE EXCEPTION OF SECTION 5 HEREOF, IN NO EVENT WHATSOEVER (EXCEPT
AS DESCRIBED IN SECTION 5 HEREOF) SHALL EITHER PARTY BE LIABLE TO THE
OTHER OR TO ANY OTHER PERSON, FIRM OR CORPORATION, FOR ANY INDIRECT,
INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES, OR
OTHER SIMILAR TYPE OF DAMAGES, INCLUDING YET NOT LIMITED TO DAMAGES
BASED UPON LOSS OF PROFITS AND/OR LOSS OF BUSINESS ARISING OUT OF OR
IN ANY WAY RELATED TO THIS AGREEMENT, THE PERFORMANCE THEREOF, THE USE
OF THE PRODUCTS PROMISED OR SERVICES DELIVERED PURSUANT TO THIS
AGREEMENT, AND/OR ANY PARTY'S ALLEGED BREACH OF THIS AGREEMENT,
WHETHER OR NOT EITHER PARTY IS INFORMED, KNEW OR SHOULD HAVE KNOWN, OF
THE POSSIBILITY OF SUCH DAMAGES IN ADVANCE.
13.2 UNDER NO CIRCUMSTANCES WHATSOEVER SHALL EITHER PARTY BE LIABLE TO THE
OTHER OR ANY OTHER PERSON, FIRM OR CORPORATION, FOR DAMAGES OF ANY
KIND ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, THE
PERFORMANCE THEREOF, THE PRODUCTS OR SERVICES DELIVERED PURSUANT TO
THIS AGREEMENT, AND/OR ANY ALLEGED BREACH OF THIS AGREEMENT, IN ANY
AMOUNT OF MONEY WHICH SHALL EXCEED THE AMOUNT OF THE AGGREGATE FEES
BILLED BY iXL HEREUNDER.
13.3 THE LIMITATIONS ON LIABILITY SET FORTH IN THIS SECTION SHALL APPLY TO
ALL CAUSES OF ACTION, INCLUDING, YET NOT LIMITED TO, BREACH OF
CONTRACT, BREACH OF WARRANTY, STRICT LIABILITY, MISREPRESENTATION AND
OTHER TORTS, AND LIABILITY BASED UPON THE PROVISIONS OF ANY PART OF
THIS AGREEMENT AND ANY FEDERAL, STATE AND/OR LOCAL LAW AND/OR
ORDINANCE. THE LIMITATIONS ON LIABILITY REPRESENT A FUNDAMENTAL TERM
OF THIS AGREEMENT AND THE PARTIES WOULD NOT HAVE ENTERED INTO THIS
AGREEMENT WITHOUT THEIR INCLUSION.
14. Indemnification
---------------
14.l Delta will indemnify, defend, and hold harmless iXL, its directors,
officers, employees, and agents, from and against all claims,
liabilities, obligations, losses, damages, penalties, claims, actions,
suits, expenses and disbursements of whatsoever kind and nature,
including attorneys' fees and expenses (collectively, "Losses")
connected with (i) the furnishing of any services, data, Client
Materials, or software by Delta or Delta Technology pursuant to this
Agreement in connection with the Web Site (including but not limited
to actual or alleged infringement or misappropriation of any trade
name, patent, copyright, trade secret or other property right based on
any software, program, service and/or other materials furnished to iXL
by Delta), (ii) any failure by Delta to abide fully by the terms and
conditions in this Agreement; or (iii) any failure by any third party
selected or contracted with by Delta or Delta Technology on behalf of
Delta to meet any commitments to the benefit (directly or indirectly)
of Delta in connection with this Agreement; provided, the foregoing
shall not apply to claims or liabilities resulting from the gross
negligence or willful misconduct of iXL, its directors, officers,
employees or agents.
14.2 iXL will indemnify, defend, and hold harmless Delta, its directors,
officers, employees, and agents, from and against all Losses connected
with (i) the furnishing of any services or data by iXL pursuant to
this Agreement (including but not limited to actual or alleged
infringement or misappropriation of any trade name, patent, copyright,
trade secret or other property right based on any software, program,
service and/or other materials furnished to Delta by iXL hereunder,
including the iXL Software and the Works, (ii) any failure by iXL to
abide fully by the terms and conditions in this Agreement, (iii) any
breach by iXL of any representation or warranty herein, or (iv) any
failure or negligence by any third party selected or contracted with
by iXL on behalf of Delta hereunder to meet any commitments to the
benefit (directly or indirectly) of Delta; provided, the foregoing
shall not apply to claims or liabilities resulting from the gross
negligence or willful misconduct of Delta, its directors, officers,
employees or agents.
15. Non-Solicitation. During the term of this Agreement and for two (2) years
----------------
after the termination of this Agreement, a party shall not, directly or
indirectly, induce or attempt to induce any employee of the other party to
leave the employ thereof. For purposes of this Section, a party shall
include that party and any of its Affiliates. Each party acknowledges that
in the event that it breaches this obligation, the other party will suffer
irreparable harm for which no adequate remedy at law exists.
16. Notice. Any notice required or permitted to be given under this Agreement
------
shall be in writing and deemed given and effective upon delivery if sent by
personal delivery or by facsimile transmission or five (5) days after
posting if sent by certified United States mail, return receipt requested,
with postage pre-paid and addressed as follows:
If to iXL: iXL, Inc.
1888 Emery Street
Atlanta, Georgia 30318
8
<PAGE>
Fax: (404) 267-4099
Attn: T. William Alvey, III
If to Delta: Delta Air Lines, Inc.
1030 Delta Boulevard
Atlanta, Georgia 30320
Attn: EVP-Chief Financial Officer
Fax: (404) 715-3956
With a copy to: Law Department
Delta Air Lines, Inc.
1030 Delta Boulevard
Atlanta, Georgia 30320
Attn: Senior Vice President - General Counsel
Fax: (404) 715-2233
17. General.
-------
17.1 Force Majeure. Neither party shall be liable to the other for any
-------------
delay or failure to perform any of the services set forth in a
Statement of Work or obligations set forth in this Agreement due to
causes beyond its reasonable control. Performance times shall be
considered extended for a period of time equivalent to the time lost
because of such delay.
17.2 Residual Knowledge. Nothing herein shall be construed to prevent or
------------------
in any way limit either party from using general knowledge, skill, and
expertise acquired in the performance of this Agreement in any current
or subsequent endeavors.
17.3 Assignment. This Agreement may not be assigned by either party to any
----------
other person(s), firm(s), corporation(s) or other entities without the
prior express written approval of the other party.
17.4 Governing Law. This Agreement shall be governed by and construed
-------------
solely and exclusively in accordance with the laws of the State of
Georgia, without reference to its conflicts of law principles. Any and
all disputes between the parties that cannot be settled by mutual
agreement shall be resolved solely and exclusively in the local and
federal courts located within the State of Georgia, and each party
hereby consents to the jurisdiction of such courts and irrevocably
waives any objections thereto, including without limitation, on the
basis of improper venue or forum non conveniens.
17.5 Severability. If any of the provisions of this Agreement is or
------------
becomes illegal, unenforceable, or invalid (in whole or in part for
any reason), the remainder of this Agreement shall remain in full
force and effect without being impaired or invalidated in any way.
17.6 Headings. The titles and headings of the various sections and
--------
paragraphs in this Agreement are intended solely for convenience of
reference and are not intended to explain, modify or place any
construction or limitation upon any of the provisions of this
Agreement.
17.7 Entire Agreement. No representations or statements of any kind made
----------------
by either party that are not expressly stated herein or in any written
amendment hereto shall be binding on such party. The parties agree
this Agreement, its Exhibits, Attachments, and all Statements of Work
and Exhibits thereto, shall constitute the complete and exclusive
statement of the agreement between them, and supersede all prior or
contemporaneous proposals, oral or written, and all other
communications between them relating to the subject matter hereof.
17.8 No Third-Party Beneficiaries. Nothing in this Agreement is intended
----------------------------
to, or shall, create any third-party beneficiaries, whether intended
or incidental, and neither party shall make any representations to the
contrary.
17.9 No Implied Waiver. No term, provision or clause of this Agreement
-----------------
shall be deemed waived and no breach excused unless such waiver or
consent shall be in writing and executed by a duly authorized
representative of each party. Any consent by any party to, or waiver
of, a breach by the other, whether express or implied, shall not
constitute a consent to, waiver of, or excuse for any different or
subsequent breach.
17.10 Non-Agency. Nothing in this Agreement shall be construed to make the
----------
parties partners, joint venturers, representatives or agents of each
other, nor shall either party so represent to any third person. The
parties hereunder are acting in performance of this Agreement as
independent contractors engaged in the operation of their own
respective businesses. A party's employees, agents or representatives
are not employees or agents of the other party and are not entitled to
any of the other party's benefits. Neither party shall be responsible
for payment of the other party's workers' compensation, disability
benefits or unemployment insurance, nor shall it be responsible for
withholding or paying employment related taxes for the
9
<PAGE>
other party or its employees.
17.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all
of which taken together shall constitute a single agreement.
17.12 Definitions. The following definitions shall apply for purposes of
-----------
this Agreement:
"Affiliate" and "Affiliated" shall each mean, with respect to any
Person, any other Person that has a relationship with such Person
whereby either of such Persons directly or indirectly Controls or is
Controlled by or is Under Common Control with the other of such
Persons; provided the parties agree Kelso Investments Associates V,
L.P., Kelso Equity Partners V, L.P., and their respective Affiliates
shall not be considered "Affiliates" of iXL for purposes of this
Agreement.
"Controls", Controlled" and the phrase "Under Common Control" shall
-------- ---------- --------------------
each mean the possession, directly or indirectly, of the power,
whether or not exercised, to direct or cause the direction of the
management or policies of any Person, whether through ownership of
voting Securities, partnership interest, equity, by contract or
otherwise.
"Person" shall mean any individual, corporation, partnership, firm,
------
joint venture, association, joint-stock company, trust, estate,
unincorporated organization, governmental or regulatory body or other
entity.
IN WITNESS WHEREOF, this Agreement was executed by the parties as of the date
first written above.
iXL, Inc. Delta Air Lines, Inc.
By: /s/ James V. Sandy By: /s/ Warren C. Jenson
------------------------------- -----------------------------
Name: James V. Sandy Name: Warren C. Jenson
------------------------------- -----------------------------
Title: Executive Vice President Title: EVP & Chief Financial Officer
------------------------------- -----------------------------
10
<PAGE>
Exhibit 5
---------
Monthly Payment Schedule for Calendar Year 1999
-----------------------------------------------
<TABLE>
<CAPTION>
Month Estimated Fees
----- --------------
<S> <C>
January $ 200,000
February $ 300,000
March $ 400,000
April $ 500,000
May $ 600,000
June $ 1,000,000
July $ 1,000,000
August $ 1,100,000
September $ 1,100,000
October $ 1,200,000
November $ 1,200,000
December $ 1,400,000
1999 YEAR- $10,000,000
END TOTAL
</TABLE>
11
<PAGE>
Exhibit 6.1
-----------
iXL's Hourly Rates
------------------
<TABLE>
<CAPTION>
Category of Work Standard Hourly Rates
---------------- ---------------------
<S> <C>
Senior Project Manager $250
Senior Technical Project Manager $250
Project Manager $150
Project Coordinator $125
Technical Lead $225
Quality Assurance $100
Application Developer $160
Engineering/Developer $200
Technical Writer - HTML $120
Graphics Production $100
Art Director $115
Information Architect $200
Creative Lead $230
</TABLE>
12
<PAGE>
Exhibit 6.2
-----------
iXL's Travel Policy
-------------------
Copy Attached
-------------
13
<PAGE>
[LOGO]
TRAVEL POLICY AND PROCEDURES
1. STATEMENT OF PURPOSE
Many iXL employees must incur travel, entertainment, and other business
expenses in the course of performing their responsibilities. This policy
endeavors to consider the safety and comfort of the business traveler, as
well as, travel costs. Travel and entertainment represents a significant
cost of doing business for iXL, and we intend to manage travel and
entertainment costs in a manner that ensures cost-effectiveness and
efficiency.
It is the purpose of this policy to provide employees and managers with a
statement of iXL policies and procedures for the expenditures and
accounting of company funds used for business-related travel and
entertainment.
All business travelers are expected to become acquainted with, and live
within, the spirit of this policy.
2. BUSINESS MISSION
The purpose of the business travel is the accomplishment of a specific
business mission. Before undertaking any travel you should ensure that the
accomplishment of the business mission could not be accomplished
efficiently by use of other communications, such as, telephone calls, mail,
faxes, teleconferencing, or video conferencing.
When travel, entertainment and other business expenses are necessary, it is
the responsibility of each employee to incur those expenses in the most
cost-effective manner consistent with the accomplishment of the business
mission.
3. TRIP PLANNING
Business travel should be arranged as far in advance as possible to take
advantage of discounted airfares and other travel related economies by such
advance purchasing (e.g., 7, 14 or 30 day advance fares are available at a
cost savings). However, please be aware that cancellation or changes in
advanced purchased tickets can result in penalties, although this is almost
always offset by the savings.
4. TRAVEL ARRANGEMENTS
All travel arrangements should be made through the current contracted
Travel Agent.
5. POLICY EXCEPTIONS
Any exceptions to this policy should have the prior written approval by the
senior manager of the iXL local office and should be noted on the
employee's Expense Report.
6. PERSONAL PREFERENCE
Personal preference will be considered only after the criterion of cost
effectiveness has been met.
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iXL Travel Policy
Page 1
14
<PAGE>
7. MONITORING OF TRAVEL POLICY
iXL relies on its employees and managers to follow this policy. The
traveler's supervisor will be responsible for monitoring compliance. By
signing the Travel Expense Report, the supervisor certifies that the
traveler is in full compliance with this policy. In addition, the travel
agency will provide reporting of the travel activities, which will be
reviewed by management.
8. DISBURSEMENTS
ALLOWED EXPENSES:
iXL will pay for travel expenses incurred as a result of accomplishing a
business mission in accordance with this policy. Expenses incurred that are
not in accordance with the policies stated herein, and expenses incurred as
a result of not using company designated services would be reimbursed only
at the discretion of the traveler's immediate supervisor or the senior
manager of the local office. All travel expenses must be submitted via the
---------------------------------------------
iXL Expense Statement (Attached).
--------------------------------
iXL will reimburse employees for breakfast and dinner, when traveling
requires an overnight stay. Breakfast will also be reimbursed if travel
requires the associate to take a flight departing their home airport prior
to 7:00 AM. Dinner will also be reimbursed if travel requires a flight
arriving at their home airport after 7:00 PM. Lunches are reimbursable only
when business is conducted during the lunch time.
NON-REIMBURSABLE EXPENSES:
Non-reimbursable expenses fall into one of four categories: (1) unnecessary
to business purpose; (2) a personal purchase; (3) items already provided by
the company and (4) usage of other than company designated services, e.g.
limousine service.
EXAMPLES OF NON-REIMBRUSABLE EXPENSES:
Personal and travel accident insurance
Personal entertainment including movies in hotels
Spousal expenses incurred without prior approval
Personal expenses such as toiletries, cigarettes, etc.
Alcoholic beverages, other than used for business entertainment, as
described in the policy.
Souvenirs, reading materials, shoe shines, etc.
Laundry expense on any business of less than 5 consecutive days.
Traffic and parking violations
9. RECEIPTS
Receipts for any individual expenditure of $25, or more, must be submitted
with the final Expense Report. All hotel bills must be submitted to allow
proper posting of the items incurred.
10. ENTERTAINMENT EXPENSES
To be reimbursable, entertainment expenses must be directly related to the
active conduct of company business. Entertainment expenditures should be
pre-approved by the employee's supervisor.
For Entertainment expenses IRS regulations require the following
information: 1) name of guest, 2) business relationship, 3) business
purpose, 4) amount of expense, and 5) date and place.
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iXL Travel Policy
Page 2
15
<PAGE>
11. CASH ADVANCES
Cash advances are available for extended trips (more than 5 consecutive work
days) or with prior approval for international trips. Settlement of cash
advances should be made on the traveler's Expense Report, which should be
submitted within 2 weeks after completion of a trip or other business
expense.
12. AIR FARE PARAMETERS
The travel agent will provide to the traveler a list of flights for
selection. Normally we will purchase the lowest cost flight consistent with
the below listed guidelines.
1) No more than one stop or one connecting flight for each one way portion
of the flight.
2) Stop or connection will not increase travel time by more than one hour
prior to or after the requested departure or arrival time.
3) Provides the maximum cost savings for the round trip air ticket.
4) Some weekend travel expenses may be reimbursed if the cost of the
airfare is reduced for the Saturday night stay. The weekend expenses
will be reimbursed up to the amount saved by extending the flight over
the weekend.
CLASS OF SERVICES
Coach class is the normal class of service to be used. Business class fares
are allowed on International flights of seven (7) or more hours scheduled
duration or on flights from the U.S. to unusual destinations requiring long
periods of travel. Employees flying internationally are permitted to depart
one day early, flying business class and iXL will reimburse for the additional
hotel night.
ALTERNATE AIRLINES
Use of an alternate carrier is permitted only if there is no additional cost
to iXL. Changes, which would incur an additional cost, will be done at the
traveler's expense.
TICKET UPGRADES
Travelers may upgrade their class of service if they pay for the upgrade
themselves using a personal credit card prior to or at the time of issuance of
the ticket.
ELECTRONIC TICKETING
Employees are encouraged to use Electronic Ticketing wherever possible.
Electronic Ticketing is a method of documenting the sale and tracking the
usage of passenger transportation without requiring the issuance of a paper
ticket. Unlike standard airline tickets, with E ticketing you do not receive
flight coupons. Travel arrangements and seat assignments are handled in the
same manner for E Ticketing as for a reservation for a paper ticket. Receipts
for the purchase of the flight and travel itineraries can be issued in
advance.
AIR TRAVEL CREDIT
All credits and unused portions of the tickets must be turned back to the
travel administrator within five days of returning from a trip for proper
credit to the company.
LOST OR STOLEN TICKETS
All lost or stolen tickets must be reported to the travel agency and the
accounting department of iXL immediately.
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iXL Travel Policy
Page 3
16
<PAGE>
13. LODGING
Lodging arrangements should be made through the Travel Agency. If the
traveler elects not to use a recommended hotel and requests a specific hotel
costing more than the company's guidelines, the traveler will be responsible
for the difference in the rates unless an exception is pre-approved.
If business travel plans change, and a reserved room will not be used, the
traveler is responsible for calling the travel agency to ensure the
reservation is canceled. The cancellation number should be requested and
recorded by the associate for PROOF of cancellation. Direct billing from
hotels is prohibited unless approved by the senior manager of the local iXL
office.
14. GROUND TRANSPORTATION
Travelers are requested to select the most cost effective and efficient
means of ground transportation. Before selecting ground transportation,
travelers should price the alternative for shuttle, taxi, rental car and
public transportation. When visiting iXL companies the traveler should
utilize that company's resources when possible.
Shuttle service, whenever available, is usually the second most economical
form of transportation. Most hotels provide FREE shuttle service to and from
airports.
Taxi's are usually the second most economical means of transportation (all
fares over $25 require a receipt).
----------------
Limousines are to be used only when other transportation is not available or
multiple riders make limousine service a cost-effective alternative.
15. CAR RENTAL
Rental cars should be used when other means of transportation are
unavailable or impractical, or when other means of travel costs are at least
as much as the rental car. A rental car should not be used as a matter of
personal convenience.
In the event of an automobile accident, local law enforcement authorities
and the rental company must be notified immediately. Also, the accident must
be reported in writing to the Human Resources department.
Personal use of the rental car is not reimbursable. Travelers must deduct
from their Expense Statement, any cost of a rental car, e.g., (time, mileage
and gasoline), incurred for personal reasons.
The following procedures are suggestions to follow when renting a car:
1) All car rental arrangements are made through the Travel Agency.
2) The type of car should be mid-size, unless more than three people are
traveling together.
3) Insurance is carried by iXL, which enables the traveler to decline
Personal Accident Insurance and Collision Damage Waiver.
4) If possible, rental cars should be refueled before returning to avoid
excessive fuel charges by the car rental agency.
5) ALWAYS ASK AT CHECK-IN IF THERE IS A BETTER RATE AVAILABLE. THIS CAN
OFTEN BE THE CASE ON THE DAY OF ARRIVAL.
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iXL Travel Policy
Page 4
17
<PAGE>
16. PERSONAL VEHICLE USE
When an automobile is determined to be the best or most practical form of
transportation, company vehicles should be used whenever possible. When a
company automobile is not available, personal cars may be used. Mileage
incurred while on travel status is reimbursed at the rate that federal tax
regulations allow for deduction. Toll charges are reimbursable.
17. PARKING
Parking fees incurred while on travel are reimbursable. The most economical
parking facilities should be used.
18. TRAFFIC AND PARKING VIOLATIONS
Fines and other expenses incurred as a result of traffic and parking
violations while on company business must be borne by the person who
committed the violation and are not reimbursable.
19. TELEPHONE
Business calls incurred such as telephone, faxes and telexes for business
communication while on travel status are reimbursable.
Traveler will be reimbursed for a REASONABLE number of PERSONAL phone calls
to and from family while traveling on company business (normally one per
day).
In descending order, BEST to WORST, the following should be used for
guidance in making phone calls while on company business.
1) Use of toll free number when calling the iXL offices.
2) Use of company provided phone card.
3) Use of personal telephone card if the associate has not been provided
with a company card.
Try to always avoid making direct calls from hotel rooms as the added
surcharge from the hotel will make this the most expensive way to place a
call. If you are calling from your room, use your telephone card to avoid
this surcharge.
20. PERSONAL TRAVEL
Personal travel, such as, vacations or extended weekends, combined with
business travel must be borne at the traveler's expense. Some weekend travel
expenses may be reimbursed if the traveler has obtained a discounted
airfare, which exceeds the cost of the weekend expenses.
21. PERSONAL PROPERTY LOSSES
Damage, theft and loss of personal belongings while on travel status is non-
reimbursable. In many cases, some coverage is provided by major credit cards
(when travel has been booked using that card by the carrier and by the
travel agency). Check your homeowners, renters and auto policy for coverage
as well.
22. ILLNESS OR INJURY
In the event that an employee is hospitalized while on company business,
follow those procedures as spelled out in your chosen medical plan and
inform Human Resources ASAP. Ordinary medical and/or dental expenses are
non-reimbursable business travel expenses.
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iXL Travel Policy
Page 5
18
<PAGE>
23. TIPS AND GRATUITIES
Reasonable tips in relation to services rendered will be reimbursed. Tipping
at the rate of 15% in restaurants, taxi's, limousines, etc., is considered
reasonable. Tipping for bag handling of $1 per bag is considered reasonable.
24. CONVENTIONS AND SEMINARS
All registrations and fees for conventions or training seminars must be pre-
approved by the employee's supervisor.
25. EXPENSE STATEMENTS AND STATEMENTS
Expense Statements should be submitted within two weeks of completion of a
trip or other business activity requiring an Expense Report. The company may
deny reimbursement for expenses submitted later than one month from when
incurred. Expenses on corporate credit card should be submitted on a monthly
basis.
Any advance issued for expenses covered by an Expense Report should be
completely settled at the time of the submission of that report.
Any balance due to iXL is to accompany the report. Reimbursement to the
associate is to be paid by check within 10 working days after approval.
Expense reports must be approved by the employee's direct supervisor.
26. CURRENCY EXCHANGE
When traveling outside the country in which the associate is based is
required, the Expense Report should be submitted in the currency in which
the associate is normally reimbursed. The exchange rate to be used in
converting the currency is to be the actual exchange rate incurred at the
time of currency exchange.
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iXL Travel Policy
Page 6
19
<PAGE>
iXL Master Service Agreement Statement of Work
----------------------------------------------
CHANGE ORDER
------------
Change Order No.____ to Statement of Work No._____
Delta or iXL shall complete Question 1. iXL shall complete the remainder of the
Change Order, except for the approval/rejection portion, which shall be
completed by Delta in its sole discretion. Each section may be as long or short
as the circumstances require. Additional pages may be attached as necessary.
1. Describe changes, modifications, or additions to the services.
These modifications were requested by: ____ Delta ______ iXL
____________________________________ _________________
Signature of Delta Project Manager Date
____________________________________ _________________
Signature of iXL Project Manager Date
2. Modifications, clarifications or supplements by iXL or Delta to
description of desired changes or additions requested in Section 1 above, if
any.
3. Necessity, availability and assignment of requisite iXL personnel
and/or resources to make requested modification or additions.
4. Impact on Costs, delivery schedule, and other requirements.
a. Changes in Costs:
b. Changes in delivery schedule:
c. Changes to any other requirements:
Change Order Is:
_____Approved and Accepted _____Rejected
__________________________________ __________________
Signature of Delta Project Manager Date
__________________________________ __________________
Signature of iXL Project Manager Date
20
<PAGE>
- -------------------------------------------------------------------------------
EXHIBIT 10.65
WARRANT AGREEMENT
among
iXL Enterprises, Inc.
and
Delta Air Lines, Inc.
Dated as of
December 31, 1998
- -------------------------------------------------------------------------------
<PAGE>
WARRANT AGREEMENT
-----------------
This WARRANT AGREEMENT is dated as of December 31, 1998 (the "Agreement")
---------
and entered into by and among iXL Enterprises, Inc., a Delaware corporation (the
"Company"), and Delta Air Lines, Inc. ("Delta," and together with subsequent
-------
holders of the Warrants subject hereto, a "Holder").
WHEREAS, for good and valuable consideration, the Company is issuing to
Delta Warrants (the "Warrants") to purchase an aggregate of 500,000 shares
--------
(subject to adjustment as provided herein) of the Company's Class B Common
Stock, par value $.01 per share (the "Class B Common Stock") (the shares of
--------------------
Class B Common Stock issuable upon exercise of the Warrants being referred to
herein as the "Warrant Shares");
--------------
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
SECTION 1. Warrant Certificates. Simultaneously with the execution
hereof, the Company will issue and deliver to Delta a certificate or
certificates evidencing the Warrants (the "Warrant Certificates"). Such
--------------------
certificate or certificates shall be substantially in the form set forth as
Exhibit A attached hereto. Warrant Certificates shall be dated the date of
issuance by the Company.
SECTION 2. Execution of Warrant Certificates. Warrant Certificates shall
be signed on behalf of the Company by its Chairman of the Board or its Chief
Executive Officer, President or any Vice President. Each Warrant Certificate
shall also be signed on behalf of the Company by its Secretary or an Assistant
Secretary.
SECTION 3. Restrictions on Transfer; Registration of Transfers and
Exchanges. Prior to any proposed transfer of the Warrants or the Warrant
Shares, unless such transfer is made pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
--------------
the transferring Holder will deliver to the Company an opinion of counsel,
reasonably satisfactory in form and substance to the Company, to the effect that
the Warrants or Warrant Shares, as applicable, may be sold or otherwise
transferred without registration under the Securities Act. Upon original
issuance thereof, and until such time as the same shall have been registered
under the Securities Act or sold pursuant to Rule 144 promulgated thereunder (or
any similar rule or regulation) each Warrant Certificate shall bear the legend
included on the first page of Exhibit A, unless in such opinion of counsel, such
legend is no longer required by the Act.
Subject to the conditions to transfer contained in the Second Amended and
Restated Stockholders' Agreement of iXL Enterprises, Inc. dated December 17,
1997, as amended (the "Stockholders' Agreement"), which shall apply to the
Holders of the Warrants as if such Holders were "Outside Investors," as defined
in the Stockholders' Agreement, the Company shall from time to time register the
transfer of any outstanding Warrant Certificates in the Warrant Register to be
maintained by the Company upon surrender thereof accompanied by a written
instrument
-1-
<PAGE>
or instruments of transfer in form reasonably satisfactory to the Company, duly
executed by the registered Holder or Holders thereof or by the duly appointed
legal representative thereof or by a duly authorized attorney. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the
transferee Holder(s) and the surrendered Warrant Certificate shall be canceled
and disposed of by the Company. Any attempted transfer in violation of the
Stockholders Agreement shall be null and void.
SECTION 4. Warrants; Exercise of Warrants. Subject to the terms of this
Agreement, each Holder shall have the right, which may be exercised at any time
during the period commencing on the date hereof and ending at 5:00 p.m., New
York City time, on the later of (i) June 30, 2000 or (ii) the date which is one
year after the effective date of a Qualified Public Offering (as defined in the
Stockholders' Agreement (the "Expiration Date"), to receive from the Company the
---------------
number of fully paid and nonassessable Warrant Shares (and such other
consideration) which the Holder may at the time be entitled to receive on
exercise of such Warrants and payment of the Exercise Price for such Warrant
Shares. Each Warrant not exercised prior to 5:00 p.m., New York time, on the
Expiration Date shall become void and all rights thereunder and all rights in
respect thereof under this Agreement shall cease as of such time. No
adjustments as to dividends will be made upon exercise of the Warrants, except
as otherwise expressly provided herein.
The price at which each Warrant shall be exercisable (the "Exercise Price")
--------------
shall be equal to $10.00 per share of Class B Common Stock.
A Warrant may be exercised upon surrender to the Company at its office
designated for such purpose of the Warrant Certificate or Certificates to be
exercised with the form of election to purchase attached thereto duly filled in
and signed, and upon payment to the Company of the Exercise Price for the number
of Warrant Shares in respect of which such Warrants are then exercised. Payment
of the aggregate Exercise Price shall be made, at the election of the Holder,
(i) in cash, by certified or official bank check payable to the order of the
Company, (ii) by delivering for surrender and cancellation to the Company
Warrants with an aggregate Surrender Value (as hereinafter defined), as of the
date of such exercise, equal to the Exercise Price for the Warrants being
exercised, or (iii) any combination thereof. For the purposes of this
paragraph, the "Surrender Value" of any Warrant is equal to the Fair Market
Value (as defined in the Stockholders' Agreement), as of the date of such
surrender, of the Warrant Shares issuable upon the exercise of such Warrant,
minus the Exercise Price of such Warrant.
Subject to the provisions of Section 5 hereof, upon such surrender of
Warrant Certificates and payment of the Exercise Price, the Company shall issue
and cause to be delivered, as promptly as practicable, to or upon the written
order of the Holder and in such name or names as such Holder may designate a
certificate or certificates for the number of full Warrant Shares issuable upon
the exercise of such Warrants (and such other consideration as may be
deliverable upon exercise of such Warrants) together with cash for fractional
Warrant Shares as provided in Section 9. The certificate or certificates for
such Warrant Shares shall be deemed to have been issued and the person so named
therein shall be deemed to have become a holder of record of such Warrant Shares
as of the date of the surrender of such Warrants and payment of the
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<PAGE>
Exercise Price, irrespective of the date of delivery of such certificate or
certificates for Warrant Shares.
Each Warrant shall be exercisable, at the election of the Holder thereof,
either in full or from time to time in part and, in the event that a Warrant
Certificate is exercised in respect of fewer than all of the Warrant Shares
issuable on such exercise at any time prior to the date of expiration of the
Warrants, a new certificate evidencing the remaining Warrant or Warrants will be
issued and delivered pursuant to the provisions of this Section and of Section 2
hereof.
All Warrant Certificates surrendered upon exercise of Warrants shall be
canceled and disposed of by the Company. The Company shall keep copies of this
Agreement and any notices given or received hereunder available for inspection
by the Holders during normal business hours at its office.
SECTION 5. Payment of Taxes. The Company will pay all documentary stamp
taxes and other governmental charges (excluding all foreign, federal or state
income, franchise, property, estate, inheritance, gift or similar taxes) in
connection with the issuance or delivery of the Warrants hereunder, as well as
all such taxes attributable to the initial issuance or delivery of Warrant
Shares upon the exercise of Warrants and payment of the Exercise Price. The
Company shall not, however, be required to pay any tax that may be payable in
respect of any subsequent transfer of the Warrants or any transfer involved in
the issuance and delivery of Warrant Shares in a name other than that in which
the Warrants to which such issuance relates were registered, and, if any such
tax would otherwise be payable by the Company, no such issuance or delivery
shall be made unless and until the person requesting such issuance has paid to
the Company the amount of any such tax, or it is established to the reasonable
satisfaction of the Company that any such tax has been paid.
SECTION 6. Mutilated or Missing Warrant Certificates. If a mutilated
Warrant Certificate is surrendered to the Company, or if the Holder of a Warrant
Certificate claims and submits an affidavit or other evidence satisfactory to
the Company to the effect that the Warrant Certificate has been lost, destroyed
or wrongfully taken, the Company shall issue a replacement Warrant Certificate.
If reasonably required by the Company, such Holder must provide an indemnity
bond, or other form of indemnity, sufficient in the reasonable judgment of the
Company to protect the Company from any loss which it may suffer if a Warrant
Certificate is replaced. If Delta or any other institutional Holder (or nominee
thereof) is the owner of any such lost, stolen or destroyed Warrant Certificate,
then the affidavit of an authorized officer of such owner, setting forth the
fact of loss, theft or destruction and of its ownership of the Warrant
Certificate at the time of such loss, theft or destruction shall be accepted as
satisfactory evidence thereof and no further indemnity shall be required as a
condition to the execution and delivery of a new Warrant Certificate other than
the unsecured written agreement of such owner to indemnify the Company.
SECTION 7. Reservation of Warrant Shares. The Company shall at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Class B Common Stock or its authorized and issued
Class B Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon
-3-
<PAGE>
exercise of Warrants, the maximum number of shares of Class B Common Stock which
may then be deliverable upon the exercise of all outstanding Warrants.
The Company or, if appointed, any transfer agent for the Class B Common
Stock and each transfer agent for any shares of the Company's capital stock
issuable upon the exercise of any of the Warrants (collectively, the "Transfer
--------
Agent") will be irrevocably authorized and directed at all times to reserve such
- -----
number of authorized shares as shall be required for such purpose. The Company
shall keep a copy of this Agreement on file with any such Transfer Agent. The
Company will supply any such Transfer Agent with duly executed certificates for
such purposes and will provide or otherwise make available all other
consideration that may be deliverable upon exercise of the Warrants. The
Company will furnish any such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each Holder
pursuant to Section 10 hereof.
Before taking any action which would cause an adjustment pursuant to
Section 8 hereof to reduce the Exercise Price below the then par value of the
Warrant Shares, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares at the Exercise Price
as so adjusted.
The Company covenants that all Warrant Shares and other capital stock
issued upon exercise of Warrants will, upon payment of the Exercise Price
therefor and issue thereof, be validly authorized and issued, fully paid,
nonassessable, free of preemptive rights and free, subject to Section 5 hereof,
from all taxes, liens, charges and security interests with respect to the issue
thereof, but such Warrant Shares shall be subject to the applicable terms and
conditions of the Stockholders Agreement.
SECTION 8. Adjustment of Exercise Price and Warrant Number. The number of
shares of Class B Common Stock issuable upon the exercise of each Warrant (the
"Warrant Number") is initially one. The Warrant Number is subject to adjustment
- ---------------
from time to time upon the occurrence of the events enumerated in, or as
otherwise provided in, this Section 8.
(a) Adjustment for Change in Capital Stock
If the Company:
(1) pays a dividend or makes a distribution on its Class B Common
Stock in shares of its Class B Common Stock;
(2) subdivides or reclassifies its outstanding shares of Class B
Common Stock into a greater number of shares;
(3) combines or reclassifies its outstanding shares of Class B
Common Stock into a smaller number of shares; or
-4-
<PAGE>
(4) issues by reclassification of its Class B Common Stock any
shares of its capital stock (other than reclassification arising
solely as a result of a change in the par value or no par value of the
Class B Common Stock);
then the Warrant Number and the Exercise Price in effect immediately prior to
such action shall be proportionately adjusted so that the holder of any Warrant
thereafter exercised shall receive the aggregate number and kind of shares of
capital stock of the Company which it would have received immediately following
such action if such Warrant had been exercised immediately prior to such action
for the same aggregate consideration that such holder would have paid if such
Warrant had been exercised immediately prior to such action.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
Such adjustment shall be made successively whenever any event listed above
shall occur.
The Company shall not issue shares of Class B Common Stock as a dividend or
distribution on any class of capital stock other than Class B Common Stock
unless (i) the Warrant Holders also receive such dividend or distribution on a
ratable basis or (ii) the appropriate adjustment to the Warrant Number and
Exercise Price is made under this Section 8.
(b) Notice of Adjustment
--------------------
Whenever the Warrant Number is adjusted, the Company shall provide the
notices required by Section 10 hereof.
(c) Voluntary Increase
------------------
The Company from time to time may increase the Warrant Number by any amount
for any period of time (including, without limitation, permanently) if the
period is at least 20 Business Days and if the increase is irrevocable during
the period. Whenever the Warrant Number is increased, the Company shall mail to
the Holders a notice of the increase. The Company shall mail the notice at
least 15 days before the date the increased Warrant Number takes effect. The
notice shall state the increased Warrant Number and the period it will be in
effect.
An increase of the Warrant Number under this Subsection (c) (other than a
permanent increase) does not change or adjust the Warrant Number otherwise in
effect for purposes of subsection (a) of this Section 8.
(d) Reorganizations
---------------
In case of any capital reorganization, other than in the cases referred to
in Section 8(a) hereof, or the consolidation or merger of the Company with or
into another
-5-
<PAGE>
corporation (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any reclassification of the
outstanding shares of the Company's capital stock into shares of other stock or
other securities or property), or the sale of the property of the Company as an
entirety or substantially as an entirety (collectively, such actions being
hereinafter referred to as "Reorganizations"), there shall thereafter be
---------------
deliverable upon exercise of any Warrant (in lieu of the number of shares of
Class B Common Stock theretofore deliverable) the number of shares of stock or
other securities or property to which a holder of the number of shares of Class
B Common Stock that would otherwise have been deliverable upon the exercise of
such Warrant would have been entitled upon such Reorganization if such Warrant
had been exercised in full immediately prior to such Reorganization. In case of
any Reorganization, appropriate adjustment, as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
duly adopted resolution certified by the Company's Secretary or Assistant
Secretary, shall be made in the application of the provisions herein set forth
with respect to the rights and interests of Holders so that the provisions set
forth herein shall thereafter be applicable, as nearly as possible, in relation
to any shares or other property thereafter deliverable upon exercise of
Warrants.
The Company shall not effect any such Reorganization unless prior to or
simultaneously with the consummation thereof, (i) notice of such Reorganization
shall be given to each of the Holders of the Warrants, and (ii) the successor
corporation (if other than the Company) resulting from such Reorganization or
the corporation purchasing or leasing such assets or other appropriate
corporation or entity shall expressly assume, by a supplemental Warrant
Agreement or other acknowledgement executed and delivered to the Holder(s), the
obligation to deliver to each such Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such Holder may be
entitled to purchase, and all other obligations and liabilities under this
Agreement.
(e) Form of Warrants
----------------
Irrespective of any adjustments in the Exercise Price or the number or kind
of shares purchasable upon the exercise of the Warrants, Warrants theretofore or
thereafter issued may continue to express the same price and number and kind of
shares as are stated in the Warrants initially issuable pursuant to this
Agreement but shall nevertheless be exercisable for the adjusted number of
Warrant Shares at the adjusted Exercise Price.
SECTION 9. Fractional Interests. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 9,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall, pay an amount in cash equal to the fair market value (as
determined in good faith by the Board of Directors) of the Warrant Share so
issuable, multiplied by such fraction.
-6-
<PAGE>
SECTION 10. Notices to Warrant Holders. Upon any adjustment pursuant to
Section 8 hereof, the Company shall promptly thereafter (i) cause to be filed
with the Company a certificate of an officer of the Company setting forth the
Warrant Number and Exercise Price after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculations are based, and (ii) cause to be given to each of the Holders at its
address appearing on the Warrant Register written notice of such adjustments.
Where appropriate, such notice may be given in advance and included as a part of
the notice required to be mailed under the other provisions of this Section 10.
In case:
(a) The Company shall authorize the issuance to all holders of shares of
Class B Common Stock of rights, options or warrants to subscribe for or purchase
shares of Class B Common Stock or of any other subscription rights or warrants;
(b) The Company shall authorize the distribution to all holders of shares
of Class B Common Stock of assets, including cash, evidences of its
indebtedness, or other securities;
(c) of any consolidation or merger to which the Company is a party and
for which approval of any shareholders of the Company is required, or of the
conveyance or transfer of the properties and assets of the Company substantially
as an entirety, or of any reclassification or change of Class B Common Stock
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or a tender offer or exchange offer for
shares of Class B Common Stock;
(d) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company; or
(e) the Company proposes to take any action that would require an
adjustment to the Warrant Number pursuant to Section 9 hereof;
then the Company shall cause to be given to each of the Holders at its address
appearing on the Warrant Register, at least 20 days prior to the applicable
record date hereinafter specified, or the date of the event in the case of
events for which there is no record date, in accordance with the provisions of
Section 11 hereof, a written notice stating (i) the date as of which the holders
of record of shares of the capital stock of the Company to be entitled to
receive any such rights, options, warrants or distribution are to be determined,
or (ii) the initial expiration date set forth in any tender offer or exchange
offer for shares of the capital stock of the Company, or (iii) the date on which
any such consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of shares of the capital stock of
the Company shall be entitled to exchange such shares for securities or other
property, if any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up. The failure to
give the notice required by this Section 10 or any defect therein shall not
affect
-7-
<PAGE>
the legality or validity of any distribution, right, option, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up, or the vote upon any action.
Nothing contained in this Agreement or in any Warrant Certificate shall be
construed as conferring upon the Holders (prior to the exercise of such
Warrants) the right to vote or to consent or to receive notice as shareholder in
respect of the meetings of shareholders or the election of Directors of the
Company or any other matter, or any rights whatsoever as shareholders of the
Company; provided, however, that nothing in the foregoing provision is intended
to detract from any rights explicitly granted to any Holder hereunder.
SECTION 11. Notices to the Company and Warrant Holders. All notices and
other communications provided for or permitted hereunder shall be made by hand-
delivery, first-class mail, telex, telecopier, or overnight air courier
guaranteeing next day delivery:
(a) if to Delta, to the address specified on the signature page executed
by Delta; and
(b) if to the Company, iXL Enterprises, Inc., 1888 Emery Street, N.W.,
Atlanta, Georgia, 30318, Telecopy no. (404) 267-3801, Attention: James V.
Sandry, with a copy to Minkin & Snyder PC, One Buckhead Plaza, 3060 Peachtree
Road, N.E., Suite 1100, Atlanta, Georgia 30305, Telecopy No. (404) 261-5064,
Attention: James S. Altenbach, Esq., and with an additional copy to Kelso &
Company, 320 Park Avenue, Suite 2400, New York, New York 10022, Attention:
James J. Connors II, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed (so long as a
fax copy is sent and receipt acknowledged within two business days after
mailing); when answered back if telexed; when receipt acknowledged, if
telecopied; and the next business day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery. The parties may
change the addresses to which notices are to be given by giving five days' prior
written notice of such change in accordance herewith.
SECTION 12. Certain Supplements and Amendments. The Company may from time
to time supplement or amend this Agreement without the approval of any Holders
in order to cure any ambiguity or to correct or supplement any provision
contained herein which may be defective or inconsistent with any other provision
herein; provided that any such supplement or amendment shall not in any way
adversely affect the interests of the Holders.
SECTION 13. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company shall bind and inure to the benefit of its
respective successors and assigns hereunder.
SECTION 14. Termination. This Agreement shall terminate if all Warrants
have been exercised or shall have expired or been canceled pursuant to this
Agreement.
-8-
<PAGE>
SECTION 15. GOVERNING LAW; SUBMISSION TO JURISDICTION; Waiver of Jury
Trial. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF GEORGIA (PROVIDED THAT DETERMINATIONS RELATING TO
CORPORATE LAW SHALL BE CONSTRUED IN ACCORDANCE WITH THE DELAWARE GENERAL
CORPORATION LAW). THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF ANY GEORGIA STATE COURT SITTING IN FULTON COUNTY, GEORGIA OR ANY
FEDERAL COURT SITTING IN FULTON COUNTY, GEORGIA IN RESPECT OF ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE WARRANTS, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY AGREES THAT
IT WILL NOT COMMENCE ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY OTHER
JURISDICTION. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTWITHSTANDING THE FOREGOING,
NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER OF A WARRANT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION.
EACH OF THE PARTIES HERETO HEREBY WAIVES THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE OTHER DOCUMENTS, OR ANY DEALINGS BETWEEN THEM REALTING
RELATING TO THE SUBJECT MATTER OF DELTA'S INVESTMENT IN THE COMPANY CONTEMPLATED
HEREBY. THE SCOPE OF THIS JURY TRIAL WAIVER SHALL BE LIMITED TO DISPUTES
BETWEEN THE COMPANY AND DELTA AND SHALL NOT EXTEND TO DISPUTES BETWEEN THE
COMPANY AND ANY OTHER PERSON.
SECTION 16. Benefits of This Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company and the
Holders any legal or equitable right, remedy or claim under this Agreement; but
this Agreement shall be for the sole and exclusive benefit of the Company and
the Holders.
SECTION 17. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
SECTION 18. Amendments and Waivers. Subject to Section 13, the Company
agrees it will not solicit, request or negotiate for or with respect to any
proposed waiver or amendment of any of the provisions of this Agreement or any
Warrant unless each Holder (irrespective of the amount of Warrants then owned by
it) shall substantially concurrently be informed thereof by the
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<PAGE>
Company and shall be afforded the opportunity of considering the same and shall
be supplied by the Company with sufficient information (including any offer of
remuneration) to enable it to make an informed decision with respect thereto
which information shall be the same as that supplied to each other Holder. The
Company will not, directly or indirectly, pay or cause to be paid any
remuneration whether by way of supplement or additional interest fee or
otherwise, to any Holder as consideration for or as an inducement to the
entering into by any Holder of any waiver or amendment of any of the terms and
provisions of this Agreement or any Warrant unless such remunerations is
concurrently paid on the same terms, ratably to each Holder whether or not such
Holder signs such waiver or consent, provided that the foregoing is not intended
to preclude the adoption of any amendment or the giving of any waiver by the
Holders of a majority of the Warrants to the extent permitted by the other
provisions of this Section 19.
[Signature pages follow]
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed as of the day and year first above written.
iXL ENTERPRISES, INC.
By: /s/ James V. Sandry
--------------------------------
James V. Sandry
Executive Vice President
Addresses for Notices:
- ---------------------
Law Department DELTA AIR LINES, INC.
Delta Air Lines, Inc.
1030 Delta Boulevard By: Warren C. Jenson
Atlanta, Georgia 30320 -----------------------------------
ATTENTION: Senior Vice- Name: Warren C. Jenson
President, General Counsel Title: EVP and Chief Financial Officer
Telecopy No.: (404) 715-2233
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<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
DECEMBER 31, 1998, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR
OTHERWISE DISTRIBUTED EXCEPT IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE ACT, OR IN COMPLIANCE WITH RULE 144 OR
PURSUANT TO ANOTHER EXEMPTION THEREFROM. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A WARRANT AGREEMENT DATED AS OF DECEMBER 31, 1998,
AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND DELTA AIR LINES, INC.
THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN SUCH
AGREEMENT AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF THIS
CERTIFICATE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
TRANSFER. A COPY OF SUCH AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE
COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
THE SHARES ISSUABLE UPON EXERCISE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE PREFERENCES, POWERS, QUALIFICATIONS AND RIGHTS OF
EACH CLASS AND SERIES AS SET FORTH IN THE COMPANY'S CERTIFICATE OF
INCORPORATION. THE COMPANY WILL FURNISH A COPY OF THE CERTIFICATE OF
INCORPORATION TO THE HOLDER OF THIS CERTIFICATE UPON WRITTEN REQUEST.
500,000 Warrants
Warrant Certificate
iXL Enterprises, Inc.
This Warrant Certificate certifies that Delta Air Lines, Inc., or
registered assigns, is the registered holder of the number of Warrants (the
"Warrants") set forth above to purchase Class B Common Stock, par value $.01 per
- ---------
share (the "Class B Common Stock"), of iXL Enterprises, Inc., a Delaware
--------------------
corporation (the "Company"). Each Warrant entitles the Holder upon exercise to
-------
receive from the Company one fully paid and nonassessable share of Class B
Common Stock (a "Warrant Share"), at an exercise price (the "Exercise Price") of
------------- --------------
$10.00 payable in lawful money of the United States of America, upon surrender
of this Warrant Certificate and payment of the Exercise Price at the office of
the Company designated for such purpose, but only subject to the conditions set
forth herein and in the Warrant Agreement referred to hereinafter. The number
of Warrant Shares issuable upon exercise of the Warrants and the Exercise Price
are subject to adjustment upon the occurrence of certain events, as set forth in
the Warrant Agreement. Each Warrant is exercisable at any time during the
period commencing on the date hereof and ending at
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<PAGE>
5:00 p.m., New York City time, on the later of (i) June 30, 2000 or (ii) the
date which is one year after the effective date of a Qualified Public Offering.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants, and are issued or to be issued pursuant to a
Warrant Agreement dated as of December {__}, 1998 (the "Warrant Agreement"),
-----------------
duly executed and delivered by the Company, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders or holder" meaning the registered holders or registered holder) of the
- -------- ------
Warrants. A copy of the Warrant Agreement may be obtained by the holder hereof
upon written request to the Company. Capitalized terms used and not defined
herein shall have the meaning ascribed thereto in the Warrant Agreement.
The holder of Warrants evidenced by this Warrant Certificate may
exercise such Warrants under and pursuant to the terms and conditions of the
Warrant Agreement by surrendering this Warrant Certificate, with the form of
election to purchase set forth hereon (and by this reference made a part hereof)
properly completed and executed, together with payment of the Exercise Price
made, at the election of the Holder, (i) in cash, by certified or official bank
check payable to the order of the Company, (ii) by delivering for surrender and
cancellation to the Company Warrants with an aggregate Surrender Value (as
defined in Section 4 of the Warrant Agreement), as of the date of such exercise,
equal to the Exercise Price for the Warrants being exercised, or (iii) any
combination thereof. In the event that upon any exercise of Warrants evidenced
hereby the number of Warrants exercised shall be less than the total number of
Warrants evidenced hereby, there shall be issued by the Company to the holder
hereof or its registered assignee a new Warrant Certificate evidencing the
number of Warrants not exercised.
Warrant Certificates, when surrendered at the office of the Company by
the registered holder thereof in person or by legal representative or attorney
duly authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Subject to the terms and conditions of the Warrant Agreement, upon due
presentation for registration of transfer of this Warrant Certificate at the
office of the Company a new Warrant Certificate or Warrant Certificates of like
tenor and evidencing in the aggregate a like number of Warrants shall be issued
to the transferee(s) in exchange for this Warrant Certificate, subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
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<PAGE>
IN WITNESS WHEREOF, iXL Enterprises, Inc. has caused this Warrant
Certificate to be signed by its Chairman of the Board, President or Vice
President and by its Secretary or Assistant Secretary.
Dated: December 31, 1998
iXL ENTERPRISES, INC.
By:
-----------------------------------
Name: James V. Sandry
Title: Executive Vice President
By:
------------------------------------
Name: James S. Altenbach
Title: Secretary
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<PAGE>
FORM OF ELECTION TO PURCHASE
(To Be Executed Upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive __________ shares of Class B
Common Stock and herewith tenders payment for such shares to the Company in the
form of [a certified or official bank check payable to the order of the Company
in the amount of $_____, [and] Warrants to purchase __________ Warrant Shares
with an aggregate Surrender Value (as defined in Section 4 of the Warrant
Agreement) of $__________].
The undersigned requests that a certificate for such shares be
registered in the name of _______________, whose address is
_______________________________ and that such shares be delivered to
__________________, whose address is ___________________________.
If said number of shares is less than all of the shares of Class B
Common Stock purchasable hereunder, the undersigned requests that a new Warrant
Certificate representing the remaining balance of such shares be registered in
the name of ________________________, whose address is
_______________________________, and that such Warrant Certificate be delivered
to _____________________, whose address is ________________________________.
Signature(s):
--------------------------------------------------
NOTE: The above signature(s) must correspond with the
name written upon the face of this Warrant
Certificate in every particular, without
alteration or enlargement or any change whatever.
If this Warrant is held of record by two or more
joint owners, all such owners must sign.
Date: ____________
-15-
<PAGE>
FORM OF ASSIGNMENT
(To be signed only upon assignment of Warrant Certificate)
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto
_________________________ whose address is _________________________ and whose
social security number or other identifying number is _________________________,
the within Warrant Certificate, together with all right, title and interest
therein and to the Warrants represented thereby, and does hereby irrevocably
constitute and appoint _____________________, attorney, to transfer said Warrant
Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Signature(s):
----------------------------------------------
NOTE: The above signature(s) must correspond with the
name written upon the face of this Warrant
Certificate in every particular, without alteration
or enlargement or any change whatever. If this
Warrant is held of record by two or more joint
owners, all such owners must sign.
Date: ____________
-16-
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports as of the dates and relating
to the financial statements of the companies listed below.
Company Date of Report
------- --------------
iXL Enterprises, Inc. February 5, 1999
BoxTop Interactive, Inc. October 3, 1997
Green Room Productions, L.L.C. September 3, 1998
Digital Planet July 13, 1998
Micro Interactive, Inc. June 26, 1998
CommerceWAVE, Inc. August 21, 1998
Spinners Incorporated September 4, 1998
Tekna, Inc. September 24, 1998
Larry Miller Productions, Inc. November 10, 1998
We also consent to the application of our report on iXL Enterprises, Inc. to the
Financial Statement Schedules for the period from May 1, 1996 (commencement of
operations) through December 31, 1996 and the years ended December 31, 1997 and
1998 listed under Item 16(b) of this Registration Statement when such schedules
are read in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included these schedules. We also
consent to the references to us under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Atlanta, Georgia
May 6, 1999
