<PAGE>
As filed with the Securities and Exchange Commission on December 20, 1999
Registration Statement No. 333-81731
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Post-Effective Amendment No. 2
to
Form S-4
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)
----------------
1900 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.
1900 Emery St., NW
Atlanta, GA 30318
(800) 573-5544
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
JAMES S. ALTENBACH MARTIN E. FISHKIN
Minkin & Snyder Prince, Lobel & Tye LLP
One Buckhead Plaza 585 Commercial Street
3060 Peachtree Road, Suite 1100 Boston, Massachusetts 02109
Atlanta, GA 30305 (617) 367-2202
(404) 261-8000
Approximate date of commencement of proposed sale to the public: From
time to time 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. [X]
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(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. [_]
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>
TESSERA ENTERPRISE SYSTEMS, INC.
7 AUDUBON ROAD
WAKEFIELD, MASSACHUSETTS 01880
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , JANUARY , 2000
Tessera Enterprise Systems, Inc., a Massachusetts corporation, will hold
a special meeting of its stockholders on , January , 2000 at 10:00 a.m.,
local time, at the offices of Tessera Enterprise Systems, 7 Audubon Road,
Wakefield, Massachusetts 01880, to consider and vote on a proposal to approve
and adopt the Agreement and Plan of Merger, dated as of October 4, 1999, by and
among Tessera Enterprise Systems, Inc., iXL Enterprises Inc., a Delaware
corporation, and iXL-Massachusetts, Inc., a Delaware corporation and wholly
owned subsidiary of iXL Enterprises, Inc., and the transactions contemplated by
the merger agreement.
If the merger is approved by the stockholders at the special meeting and
effected by Tessera Enterprise Systems, then any stockholder (1) who files with
Tessera Enterprise Systems before the taking of the vote on the approval of
such action, written objection to the proposed action stating that he intends
to demand payment for his shares if the action is taken; and (2) whose shares
are not voted in favor of such action has or may have the right to demand in
writing from iXL-Massachusetts, the surviving corporation in the merger, within
20 days after the date of mailing to him of notice in writing that the
corporate action has become effective, payment for his shares and an appraisal
of the value thereof. Such corporation and any such stockholder shall in such
cases have the rights and duties and shall follow the procedure set forth in
Sections 88 to 98, inclusive, of the Massachusetts Business Corporation Law.
By Order of the Board of Directors,
Timothy F. Hult
Clerk, Tessera Enterprise Systems, Inc.
1
<PAGE>
Subject to Completion and Amendment
Dated December 20, 1999
4,000,000 Shares
iXL Enterprises, Inc.
Common Stock
----------------
PROXY STATEMENT/PROSPECTUS
MERGER OF TESSERA ENTERPRISE SYSTEMS, INC.
WITH AND INTO IXL-MASSACHUSETTS, INC.
MERGER PROPOSED
THE VOTE OF TESSERA ENTERPRISE SYSTEMS, INC. STOCKHOLDERS IS IMPORTANT
----------------
This prospectus relates to the issuance and sale of up to 4,000,000
shares of common stock, $0.01 par value per share, of iXL Enterprises, Inc. to
be issued in connection with the acquisition of Tessera Enterprise Systems,
Inc. The boards of directors of iXL Enterprises, Inc., a Delaware corporation,
iXL-Massachusetts, Inc., a Delaware corporation and wholly owned subsidiary of
iXL, and Tessera Enterprise Systems, Inc., a Massachusetts corporation, have
approved, and the parties have entered into, an Agreement and Plan of Merger
dated October 4, 1999 pursuant to which Tessera Enterprise Systems would merge
with and into iXL-Massachusetts. A copy of the merger agreement is attached
hereto as Annex A.
This proxy statement/prospectus is being sent to stockholders of Tessera
Enterprise Systems in connection with the solicitation of proxies by the board
of directors of Tessera Enterprise Systems for use at the special meeting of
Tessera Enterprise Systems stockholders to be held on January , 2000, to
consider and vote upon the proposed merger. After careful consideration, the
board of directors of Tessera Enterprise Systems has unanimously approved the
merger agreement and recommends that its stockholders vote in favor of adopting
and approving the merger agreement and approving the merger. It is anticipated
that the closing of the merger will occur immediately following the approval of
the Tessera Enterprise Systems stockholders.
The per share value of the common stock of iXL Enterprises, Inc. used to
calculate the number of shares of iXL common stock to be received by Tessera
Enterprise Systems stockholders upon completion of the merger is fixed at
$29.49 per share of iXL common stock. However, the total number of shares of
iXL common stock due to be issued to Tessera Enterprise Systems stockholders is
subject to adjustment through closing, based on changes in variable factors of
the conversion formula.
Stockholders of Tessera Enterprise Systems would receive the following
upon completion of the merger for each share of Tessera Enterprise Systems
capital stock surrendered:
<TABLE>
<CAPTION>
Class of Tessera Enterprise Approximate number of Approximate
Systems capital stock shares of iXL common stock Amount of Cash
--------------------------- -------------------------- --------------
<S> <C> <C>
Common Stock.................... 0.59 none
Series A Preferred Stock........ 17.7 none
Series B Preferred Stock........ none $25.13*
Series C Preferred Stock........ 17.7 $54.93
Series D Preferred Stock........ 17.7 none
</TABLE>
- --------
* The amount shown in the table above is an estimate of the cash payable per
share of Tessera Enterprise Systems Series B Preferred Stock based on the
dividends accrued through December 14, 1999. Additional dividends will
accrue thereafter until the closing of the merger, resulting in an increase
in this payment of $0.00274 per share per day after December 14, 1999.
All expenses of this offering will be paid by iXL Enterprises, Inc. No
underwriting discounts or commissions will be paid in connection with the
issuance of the common stock. Any person receiving a finder's fee may be deemed
to be an underwriter within the meaning of Section 2(11) of the Securities Act
of 1933.
The common stock is traded on the Nasdaq National Market under the symbol
"IIXL."
Investing in the common stock involves risks which are described in the
"Risk Factors" section beginning on page 12 of this prospectus.
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 date of this prospectus is .
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 12
Forward-looking Statements............................................... 22
Trademarks............................................................... 22
Information in Prospectus................................................ 22
Use of Proceeds.......................................................... 23
Dividend Policy of iXL................................................... 23
Price Range of iXL Common Stock.......................................... 23
Capitalization of iXL.................................................... 24
Pro Forma Consolidated Financial Information of iXL ..................... 26
Selected Consolidated Financial Data of iXL.............................. 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations for iXL................................................... 40
Management's Discussion and Analysis of Financial Condition and Results
of Operations for Tessera Enterprise Systems............................ 55
The Tessera Enterprise Systems, Inc. Special Meeting..................... 59
The Merger............................................................... 63
The Merger Agreement..................................................... 70
The Voting and Indemnity Agreement....................................... 79
Business of iXL.......................................................... 80
Business of Tessera Enterprise Systems................................... 99
Management of iXL........................................................ 101
Certain Transactions of iXL.............................................. 111
Principal Stockholders of iXL............................................ 115
Description of Capital Stock of iXL...................................... 118
iXL Shares Eligible for Future Sale...................................... 121
Plan of Distribution..................................................... 122
Restrictions on Resale................................................... 123
Legal Matters............................................................ 123
Experts.................................................................. 123
Additional Information................................................... 124
Index to Financial Statements............................................ F-1
</TABLE>
ANNEXES
<TABLE>
<C> <S>
Annex A: Agreement and Plan of Merger dated as of October 4, 1999 by and among
iXL Enterprises, Inc., iXL-Massachusetts, Inc., and Tessera
Enterprise Systems, Inc.
Annex B: Voting and Indemnity Agreement dated as of October 4, 1999 by and
among iXL Enterprises, Inc., iXL-Massachusetts, Inc., and certain of
the stockholders of Tessera Enterprise Systems, Inc.
Annex C: Proxy Card
Annex D: Lock-Up Letter
Annex E: Contractually Restricted Stock Letter
</TABLE>
i
<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.
THE COMPANIES
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 strategy and applications;
. enterprise relationship management;
. online learning and performance;
. digital media solutions;
. web site 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 on both a time-and-
materials and fixed price basis. Our clients include BellSouth, Chase Manhattan
Bank, Delta Air Lines, General Electric, Merrill Lynch, Sunbeam, Virgin
Atlantic Airways and WebMD.
The Internet represents a revolutionary and powerful new opportunity for
business. Forrester Research expects dramatic growth in total e-commerce
transaction volume, projecting an increase from $51 billion in 1998 to $1.4
trillion in 2003. 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 $8
billion in 1998 to $79 billion by 2003.
We have expanded rapidly since our founding in March 1996 through a
combination of acquisitions and internal growth. We have completed 35
acquisitions to gain critical mass, experienced professionals, industry
expertise, technical skills and geographic coverage. We have invested in our
management information
1
<PAGE>
systems to create a scalable organization capable of maximizing the sharing of
our knowledge base and the utilization of our staff. As of September 30, 1999,
we had approximately 1,900 employees. Our headquarters is located in Atlanta,
Georgia, and we also have 18 regional offices located throughout the United
States and in England, Germany, and Spain.
In addition to our strategic Internet services offerings, we have
developed Consumer Financial Network, Inc., which operates YouDecide.com.
YouDecide.com is a sophisticated e-commerce web site for marketing financial
services and benefits over corporate intranets and the Internet. CFN also
provides these services through a call center. CFN's equity is owned
approximately 76% by iXL, 23% by General Electric, and 1% by other
stockholders. CFN has contracted with competing providers of various financial
and other services to create a web site for comparison shopping and purchase of
these services. The YouDecide.com web site 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;
. prepaid legal services;
. financial planning;
. credit cards; and
. pet insurance.
CFN's services are currently provided to the general public via CFN's
YouDecide.com web site and to large companies and associations for distribution
as a human resources benefit to their employees or members. CFN service
providers include Nationwide Mutual Insurance Co., American Express Property
and Casualty, and BankOne. Member companies include Nextel, Ericsson, General
Electric Capital Corporation, and BellSouth. CFN receives a fee from the
service providers for each sale of their services through CFN.
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 program.
iXL is a Delaware corporation. Our principal executive offices are
located at 1900 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. 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.
2
<PAGE>
Tessera Enterprise Systems, Inc.
Tessera Enterprise Systems, Inc. is an integrated marketing, consulting
and systems integration firm. Tessera Enterprise Systems designs, builds,
integrates, deploys and maintains advanced enterprise relationship management,
or ERM, solutions. Tessera Enterprise Systems delivers solutions that allow
clients to:
. integrate customer interactions across all points of contact;
. provide information infrastructure and data management capabilities
necessary to fully understand customer behaviors across all channels;
. prioritize new business opportunities based on business objectives and
impact; and
. use customer information more effectively to generate revenue.
Since its founding in 1995, Tessera Enterprise Systems has focused
exclusively on the ERM marketplace. Tessera Enterprise Systems has delivered
over 100 ERM engagements and over 30 large scale technical implementations
primarily to Fortune 1000 clients. Headquartered in Wakefield, Massachusetts,
Tessera Enterprise Systems has approximately 130 employees and has offices in
Wakefield, Massachusetts, and San Francisco, California.
Tessera Enterprise Systems is a Massachusetts corporation. Tessera
Enterprise Systems' principal executive offices are located at 7 Audubon Road,
Wakefield, Massachusetts 01880, and its main telephone number is (781) 246-
9024. In this proxy statement/prospectus, "Tessera Enterprise Systems" refers
to Tessera Enterprise Systems, Inc. and its subsidiaries.
3
<PAGE>
THE MERGER
The merger agreement is attached to this document as Annex A. Please read
the merger agreement in its entirety. It is the legal document that governs
your rights in connection with the merger.
Conditions to Completion of the Merger
The completion of the merger depends on a number of conditions being
satisfied, including the following:
. approval of the merger by the Tessera Enterprise Systems stockholders,
which, as a result of the voting agreement by holders of at least two-
thirds of the outstanding shares of Tessera Enterprise Systems capital
stock, the amount required to approve the merger, agreeing to vote in
favor of approving the merger and adopting and approving the merger
agreement, is substantially assured;
. the expiration or termination of the waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, which has
occurred; and
. the Securities and Exchange Commission having declared effective iXL's
registration statement on Form S-4, including this proxy
statement/prospectus.
Furthermore, Tessera Enterprise Systems will not be obligated to complete
the merger unless a number of conditions have been satisfied, including the
following:
. the representations and warranties of iXL and iXL-Massachusetts in the
merger agreement shall be accurate in all material respects;
. iXL and iXL-Massachusetts shall have performed in all material
respects their respective agreements contained in the merger
agreement; and
. iXL shall have issued options to purchase 200,000 shares in aggregate
of iXL common stock to certain Tessera Enterprise Systems officers and
directors.
Finally, iXL and iXL-Massachusetts will not be obligated to complete the
merger unless a number of additional conditions have been satisfied, including
the following summary:
. the representations and warranties of Tessera Enterprise Systems in
the merger agreement shall be accurate in all material respects;
. Tessera Enterprise Systems and its stockholders shall have performed
in all material respects their respective agreements contained in the
merger agreement or the voting agreement;
. substantially all Tessera Enterprise Systems stockholders shall have
executed and delivered letters, to iXL's lead underwriters and to iXL,
agreeing to certain contractual restrictions on the offer, sale or
other disposition of iXL common stock;
. Tessera Enterprise Systems stockholders identified in the merger
agreement shall have executed and delivered an additional letter
concerning federal securities laws;
. Tessera Enterprise Systems stockholders identified in the merger
agreement shall have executed and delivered a noncompetition
agreement;
. all persons receiving options in connection with the merger shall have
executed and delivered to iXL's lead underwriters a letter agreeing to
a restricted period on any offer, sale or other disposition of iXL
common stock after exercise;
. Tessera Enterprise Systems employees identified in the merger
agreement shall have terminated their existing employment agreements
and executed and delivered new employment agreements with iXL-
Massachusetts;
. iXL shall be satisfied that the assets and properties used in the
business of Tessera Enterprise Systems are free and clear of liens
except as permitted;
. existing agreements of Tessera Enterprise Systems or its stockholders
identified in the merger agreement shall be terminated; and
4
<PAGE>
. the aggregate number of shares of Tessera Enterprise Systems
stockholders exercising appraisal rights under Massachusetts law
shall not exceed 1% of the issued and outstanding capital stock of
Tessera Enterprise Systems.
None of the parties has a present intention to waive any condition to the
merger. If the respective board of directors of iXL, iXL-Massachusetts or
Tessera Enterprise Systems determine to waive compliance with any of the
agreements or conditions, they will seek the advice of counsel with respect to
whether this proxy statement/prospectus should be revised and recirculated to
stockholders to reflect the waiver.
Termination of the Merger Agreement
iXL and Tessera Enterprise Systems may agree in writing to terminate the
merger agreement at any time without completing the merger, even after the
stockholders of Tessera Enterprise Systems have approved it. In addition,
either iXL or Tessera Enterprise Systems may decide, without the consent of the
other, to terminate the merger agreement if:
. the merger has not been completed by January 31, 2000, provided
that the terminating party is not in material breach;
. a final, nonappealable court order prohibits the merger; or
. there has been a material breach by the other of the merger
agreement or the voting agreement that cannot be cured by January
31, 2000.
Appraisal Rights
As provided in Section 87 of the Massachusetts Business Corporation Law,
if the merger is approved by the stockholders at the meeting and effected by
Tessera Enterprise Systems, then any stockholder (1) who files with Tessera
Enterprise Systems before the taking of the vote on the approval of such
action, written objection to the proposed action stating that he intends to
demand payment for his shares if the action is taken; and (2) whose shares are
not voted in favor of such action has or may have the right to demand in
writing from iXL-Massachusetts, Inc., the surviving corporation in the merger,
within 20 days after the date of mailing to him of notice in writing that the
corporate action has become effective, payment for his shares and an appraisal
of the value thereof. Such corporation and any such stockholder shall in such
cases have the rights and duties and shall follow the procedure set forth in
Sections 88 to 98, inclusive, of the Massachusetts Business Corporation Law.
Federal Income Tax Consequences of the Merger to Tessera Enterprise Systems
Stockholders
In the opinion of Palmer & Dodge LLP, special tax counsel to Tessera
Enterprise Systems in connection with the merger, for U.S. federal income tax
purposes the merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended. Accordingly,
no gain or loss will be recognized by stockholders of Tessera Enterprise
Systems by reason of their receipt of shares of iXL common stock in the merger.
A holder of Tessera Enterprise Systems Series C Preferred Stock will recognize
taxable gain, however, by reason of the receipt of cash in the merger. The
amount of gain recognized will be equal to the lesser of (i) the cash received
in the merger and (ii) the total gain realized by the holder on the exchange of
Series C Preferred Stock for cash and iXL common stock. In addition,
stockholders of Tessera Enterprise Systems who receive cash in lieu of a
fractional share of iXL common stock will recognize gain or loss as if the
fractional share were received in the merger and then redeemed by iXL.
5
<PAGE>
Voting Agreement
To induce iXL and iXL-Massachusetts to enter into the merger agreement,
certain stockholders holding at least two-thirds of the outstanding capital
stock of Tessera Enterprise Systems (the amount required to approve the merger)
entered into a Voting and Indemnity Agreement, dated as of October 4, 1999,
with iXL and iXL-Massachusetts. These stockholders agreed to vote their shares
of Tessera Enterprise Systems capital stock in favor of approval and adoption
of the merger agreement, and approval of the merger; and for these purposes
granted an irrevocable proxy to the Secretary of iXL. Because these
stockholders have agreed to vote their shares in this way, other potential
acquirors may be deterred from pursuing an acquisition of Tessera Enterprise
Systems. A copy of the voting agreement is attached to this proxy
statement/prospectus as Annex B.
6
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered........ up to approximately 3,469,548 shares to be issued in
connection with the proposed acquisition of Tessera
Enterprise Systems by iXL.
Shares outstanding after
this offering.............. 70,057,526 shares
Use of proceeds............. iXL will receive no cash proceeds from this offering. See
"Use of Proceeds."
Risk factors................ See "Risk Factors" for a discussion of factors you should
carefully consider before deciding to invest in the
shares of common stock.
Nasdaq National Market
symbol..................... "IIXL"
</TABLE>
The common stock outstanding after this offering excludes:
. 27,885,003 shares of common stock issuable upon exercise of stock
options outstanding as of November 18, 1999 at a weighted average
exercise price of $10.01 per share;
. 12,651,081 shares of common stock issuable upon exercise of stock
options reserved for grant, including 200,000 shares of common
stock subject to options to be granted to certain Tessera
Enterprise Systems officers and directors upon the closing of the
merger;
. up to approximately 536,000 shares of common stock issuable upon
exercise of stock options outstanding under the Tessera Enterprise
Systems 1995 Stock Option Plan after assumption and amendment of
such plan by iXL upon the closing of the acquisition of Tessera
Enterprise Systems by iXL;
. 3,500,000 shares of common stock issuable upon exercise of warrants
with a weighted average exercise price of $12.29 per share;
. approximately 530,452 shares of common stock registered pursuant to
a Registration Statement on Form S-4 for use in future
acquisitions; and
. 6,000,000 shares of common stock expected to be registered pursuant
to an additional Registration Statement which iXL intends to file
on Form S-4 for use in future acquisitions.
See "Capitalization of iXL."
7
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Information of iXL
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 of iXL," "Selected
Consolidated Financial Data of iXL," "Management's Discussion and Analysis of
Financial Condition and Results of Operations for iXL" 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 nine months
ended September 30, 1998 and 1999 and the consolidated balance sheet data at
September 30, 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 nine
months ended September 30, 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 and the nine months ended September 30,
1999 to arrive at the unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1998 and the nine months ended
September 30, 1999 to reflect:
. the acquisitions made during 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;
. a reduction in interest expense due to the repayment of $13.1
million of debt with the proceeds of iXL's initial public
offering;
. accretion on CFN Series B Convertible Preferred Stock as if it
were outstanding for the full year;
. elimination of accretion recorded related to iXL's preferred
stock which was reclassified into common stock upon the closing
of iXL's initial public offering as if such reclassification
occurred on January 1, 1998; and
. the proposed acquisition of Tessera Enterprise Systems as if the
acquisition occurred on January 1, 1998.
We adjust our historical condensed consolidated balance sheet as of
September 30, 1999 to arrive at the unaudited pro forma condensed consolidated
balance sheet as of September 30, 1999 as if the following events occurred on
September 30, 1999:
. the closing of our proposed acquisition of Tessera Enterprise
Systems; and
. the sale of 2,000,000 shares of common stock offered by iXL in
its November 18, 1999 registered public offering at an offering
price of $37.00 per share and the application of the resulting
net proceeds of approximately $69.5 million.
8
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September
Years Ended December 31, 30,
------------------------------ -----------------------------
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 $107,408 $ 35,507 $142,639 $160,257
Cost of revenues........ 11,343 44,242 70,812 25,613 83,291 93,063
-------- -------- -------- -------- -------- --------
Gross profit.......... 7,643 20,525 36,596 9,894 59,348 67,194
Sales and marketing
expenses............... 3,903 17,325 21,583 9,496 32,418 35,314
General and
administrative
expenses............... 9,114 30,163 43,723 15,839 50,125 54,358
Research and development
expenses............... 4,820 4,408 4,413 3,473 3,489 3,698
Depreciation............ 1,408 5,217 6,176 2,915 8,499 8,818
Amortization............ 5,191 10,590 42,823 5,992 13,013 31,810
-------- -------- -------- -------- -------- --------
Loss from operations.. (16,793) (47,178) (82,122) (27,821) (48,196) (66,804)
Other income (expense),
net.................... 116 (28) (137) 40 (183) (176)
Loss on equity
investment............. (1,443) (1,640) (1,640) (1,287) (65) (65)
Interest income......... 136 750 1,116 551 2,180 2,343
Interest expense........ (238) (770) (1,290) (322) (829) (367)
-------- -------- -------- -------- -------- --------
Loss before income
taxes................ (18,222) (48,866) (84,073) (28,839) (47,093) (65,069)
Income tax benefit
(expense).............. 2,782 -- (47) -- -- (38)
-------- -------- -------- -------- -------- --------
Net loss.............. (15,440) (48,866) (84,120) (28,839) (47,093) (65,107)
Dividends and accretion
on mandatorily
redeemable preferred
stock.................. -- (9,099) (1,808) (5,096) (20,514) (1,356)
-------- -------- -------- -------- -------- --------
Net loss available to
common stockholders.. $(15,440) $(57,965) $(85,928) $(33,935) $(67,607) $(66,463)
======== ======== ======== ======== ======== ========
Basic and diluted net
loss per common share.. $ (2.36) $ (4.92) $ (1.42) $ (3.28) $ (1.85) $ (0.98)
======== ======== ======== ======== ======== ========
Weighted average common
shares outstanding..... 6,540 11,777 60,346 10,348 36,447 67,841
</TABLE>
<TABLE>
<CAPTION>
As of September
30, 1999
------------------
Actual Pro Forma
-------- ---------
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.................................... $ 79,320 $151,144
Working capital.............................................. 147,506 222,742
Total assets................................................. 283,392 484,290
Debt, including current portion.............................. 1,881 2,064
Mandatorily redeemable preferred stock of subsidiary......... 48,503 48,503
Stockholders' equity......................................... 194,846 393,074
</TABLE>
9
<PAGE>
Summary Historical Consolidated Financial Information of Tessera Enterprise
Systems
The following summary historical and pro forma consolidated financial
information should be read in conjunction with "Selected Consolidated Financial
Data of Tessera Enterprise Systems," "Management's Discussion and Analysis of
Financial Condition and Results of Operations for Tessera Enterprise Systems"
and Tessera Enterprise Systems' 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 Tessera Enterprise Systems' audited
Consolidated Financial Statements, which appear elsewhere in this prospectus.
The consolidated statement of operations data for the nine months ended
September 30, 1998 and 1999 and the consolidated balance sheet data at
September 30, 1999 are derived from, and are qualified by reference to, Tessera
Enterprise Systems' 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 nine months ended September 30, 1999 are not necessarily indicative of
the results to be expected for the full year or for any future period.
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
December 31, September 30,
---------------- ------------------
1997 1998 1998 1999
------- ------- -------- --------
(in thousands, except per share
data)
<S> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues................................ $16,212 $20,248 $ 14,842 $ 17,618
Cost of revenues........................ 10,643 12,249 9,019 9,772
Selling, general and administrative..... 5,034 7,263 5,363 7,657
------- ------- -------- --------
Income from operations................ 535 736 460 189
Interest income......................... 37 339 259 163
Interest expense........................ (142) (135) (96) (106)
Other (expense) income, net............. (3) 1 1 7
------- ------- -------- --------
Income before income taxes............ 427 941 624 253
Provision for income taxes.............. 10 39 25 38
------- ------- -------- --------
Net income............................ $ 417 $ 902 $ 599 $ 215
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of
September 30,
1999
--- --- --- --------------
(in thousands)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data
Cash and cash equivalents........................... $ 7,004
Working capital..................................... 9,926
Total assets........................................ 14,393
Debt, including current portion..................... 1,158
Redeemable preferred stock.......................... 13,863
Stockholders' deficit............................... (3,115)
</TABLE>
10
<PAGE>
COMPARATIVE PER SHARE DATA
(unaudited)
We have summarized below the per-share information of iXL and Tessera
Enterprise Systems on a historical, pro forma combined and pro forma equivalent
basis. The information should be read in conjunction with the historical
financial statements and related notes of iXL and Tessera Enterprise Systems
that are contained in this proxy statement/prospectus.
You should be aware that this pro forma information may not be indicative
of what actual results will be in the future or what the results would have
been for the periods presented. There were no cash dividends declared by either
iXL or Tessera Enterprise Systems in the periods listed below.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Unaudited Pro forma Combined (1)
Loss per common share from continuing operations,
basic........................................... $(1.42) $(0.98)
Loss per common share from continuing operations,
diluted......................................... (1.42) (0.98)
Book value per share (2)......................... 5.05 5.61
Unaudited Tessera Enterprise Systems Pro Forma Per
Share Equivalent (3)
Loss per common share from continuing operations,
basic........................................... $(0.84) $(0.58)
Loss per common share from continuing operations,
diluted......................................... (0.84) (0.58)
Book value per share, basic...................... 2.98 3.31
Tessera Enterprise Systems Historical
Income per common share from continuing
operations, basic............................... $ 0.32 $ 0.09
Income per common share from continuing
operations, diluted............................. 0.16 0.03
Book value per share (4)......................... 1.75 1.68
iXL Historical
Loss per common share from continuing operations,
basic........................................... $(4.92) $(1.85)
Loss per common share from continuing operations,
diluted......................................... (4.92) (1.85)
Book value per share (2)......................... 1.77 3.07
</TABLE>
- --------
(1) The pro forma combined per-share data for iXL and Tessera Enterprise
Systems for the year ended December 31, 1998 and the nine months ended
September 30, 1999 has been prepared as if the merger had occurred at the
beginning of each period, except with respect to book value data, which has
been prepared as if the merger had occurred at the end of each respective
period.
(2) Book value per share as of December 31, 1998 has been calculated assuming
the conversion of iXL's mandatorily redeemable preferred stock. Such
conversion occurred upon iXL's initial public offering in June 8, 1999.
(3) The equivalent pro forma share amounts of Tessera Enterprise Systems are
calculated by multiplying pro forma net income per share of Tessera
Enterprise Systems and pro forma book value per share of Tessera Enterprise
Systems by an assumed exchange ratio of approximately .59, based upon the
number of shares of Tessera Enterprise Systems common stock outstanding on
a fully diluted basis as of September 30, 1999.
(4) Book value per share as of December 31, 1998 and September 30, 1999 has
been calculated assuming conversion of Tessera Enterprise Systems'
mandatorily redeemable preferred stock. Such conversion will occur upon
closing of the merger with iXL.
11
<PAGE>
RISK FACTORS
Your receipt of iXL common stock in the merger 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 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 vote in favor of the merger.
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. 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 for
iXL."
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
September 30, 1999, we had an accumulated deficit of approximately $113
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 web site
development and implementation of our Solution SetsTM. 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, 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 of iXL" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations for iXL."
12
<PAGE>
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 September 30, 1999, our staff increased from approximately
90 to approximately 1,900 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 completed 35 acquisitions. We anticipate
that a 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. Further, we may not be able to complete or successfully integrate
the proposed acquisition of Tessera Enterprise Systems on a timely basis, or at
all, and our inability to do so could harm our operating results.
We may not be able to keep up with the demand for services under our guaranteed
payment services agreements.
We have entered into multi-year services agreements with General Electric
and Delta Air Lines for the delivery of strategic Internet services and may
enter into comparable agreements in the future. 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 service 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 for iXL" and "Certain Transactions of iXL--Other
Transactions."
Our fixed-price contracts involve financial risk.
Most of our existing contracts are 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. If we fail to estimate
costs on fixed-
13
<PAGE>
price contracts accurately or encounter unexpected problems, our financial
performance will be adversely effected. To reduce this financial risk, we are
attempting to price most new contracts on a time-and-materials basis. We try to
price any 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
fixed-price contracts 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 for iXL."
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.
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 or technical
personnel may materially and adversely affect our business and results of
operations. Currently, our key management and technical personnel are U.
Bertram Ellis, Jr., our Chief Executive Officer, William C. Nussey, our
subsidiary iXL, Inc.'s Chief Executive Officer and President, C. Cathleen
Raffaeli, our subsidiary 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, iXL, Inc.'s Chief Operating Officer, David Clauson, iXL, Inc.'s
Executive Vice President for Worldwide Marketing, Vincent M. Copeland, iXL,
Inc.'s Executive Vice President for Worldwide Client Development, and Benjamin
Chen, iXL, Inc.'s Chief Technology Officer. 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 of iXL."
The loss of one or more of our major customers could harm our business.
The loss of one or more of our major customers, the failure to attract
new customers on a timely basis, or a reduction in revenue associated with
existing or proposed customers would harm our business and prospects. General
Electric comprised approximately 13% of our revenue in the third quarter of
1999, and may account for a larger portion of our revenue in the future.
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
14
<PAGE>
absence of long-term contracts and the need for new clients create an uncertain
revenue stream, which could negatively affect our financial condition.
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.
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. iXL believes that CFN's available
cash resources will be sufficient to meet its anticipated working capital
expenditure requirements through 1999. If CFN is unable to raise additional
capital funds, CFN may require additional funding from iXL, although iXL is
under no obligation to provide any such funding.
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
15
<PAGE>
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 for iXL--Year 2000
Risks."
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, 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. Further, because patent applications are not matters of public
record until approved and issued, we may be using technologies subject to
patent applications by other parties, and we cannot be sure that we will be
entitled to continued use of such technologies if any such third party patent
were approved and issued.
Our investments in iXL Ventures involve risk.
Through iXL Ventures, we have occasionally assisted in the development of
businesses engaged in the "new media and e-commerce" segment of the technology
industry. iXL's relationship with these businesses is typically publicized by
press releases. Accordingly, the failure of these businesses may directly or
indirectly harm our reputation. The businesses are generally unproven, involve
substantial risk and may never be profitable. See "Business of iXL--iXL
Ventures."
Our international operations and expansion involve financial and operational
risk.
Revenue from our foreign offices has been minimal to date. 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 for iXL."
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
16
<PAGE>
. 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.
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 of iXL--Competition."
Risks Related to Our CFN Subsidiary
CFN's business model is new and unproven.
CFN, our 76%-owned subsidiary, has incurred significant losses since
inception and is expected to generate significant losses for the foreseeable
future. As of September 30, 1999, CFN had an accumulated deficit of
approximately $37 million. 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 YouDecide.com web site 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.
17
<PAGE>
To date, the volume of transactions through CFN has been limited and,
accordingly, the revenue recognized by CFN has been minimal. CFN has recently
made its services available to the general public through the YouDecide.com
web site and through its call center. This expansion is in its early stages
and accordingly CFN has little experience marketing to the general public.
Also, none of the CFN services providers has a long-term contract with CFN.
The failure of CFN to successfully implement its business plan could adversely
affect our business results and financial condition. See "Business of iXL--
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 program; and
. to establish access to the CFN program for participating
companies' employees and for the general public.
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 program. We do not know if customers will find these
services more attractive than other alternatives available.
The growth of CFN's program will be heavily dependent on its online
relationships.
CFN will increasingly rely on relationships with a variety of Internet
portals, financial institutions, and other online companies to attract
consumers to CFN's web site, YouDecide.com. These relationships may not
generate a substantial amount of new traffic for YouDecide.com, or the
revenues generated by these relationships may be insufficient to justify CFN's
payment obligations. CFN's ability to increase its revenues will depend, in
part, on increased traffic to YouDecide.com that CFN expects to generate
through these online relationships. The termination, nonrenewal or renewal on
unfavorable terms of a relationship from which CFN generates significant
traffic to YouDecide.com would harm CFN's business. Additionally, an online
company's failure to maintain efficient and uninterrupted operation of its
computer and communications hardware systems would likely reduce the amount of
traffic CFN receives from YouDecide.com, harming CFN's business.
If CFN is unable to safeguard the security and privacy of consumers' and
companies' confidential data, consumers and providers may not use CFN's
services and its business may be harmed.
A significant barrier to electronic commerce and communications is the
secure transmission of personally identifiable information of Internet users
as well as other confidential information over public networks. If any
compromise or breach of security were to occur, it could harm CFN's reputation
and expose us to possible liability. A party who is able to circumvent our
security measures could misappropriate proprietary information or cause
interruptions in CFN's operations. CFN may be required to make significant
expenditures to protect against security breaches or to alleviate problems
caused by any breaches. Advances in computer capabilities, new discoveries in
the field of cryptography, or other events or developments could result in a
compromise or breach of the algorithms CFN uses to protect consumers' and
providers' confidential information.
18
<PAGE>
CFN's numerous established competitors could harm its prospects.
CFN competes with other Internet-based providers of financial and other
consumer 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 of iXL--Competition."
If CFN is unable to promote its brand and expand our brand recognition, CFN's
ability to draw consumers to its platform will be limited.
Establishing and maintaining CFN's brand, YouDecide.com, is critical to
attracting additional consumers to YouDecide.com, strengthening CFN's
relationships with its providers and attracting new providers. If the
YouDecide.com brand does not achieve positive recognition in the market, CFN's
ability to draw consumers to web sites will be limited. If CFN's marketing
efforts do not generate a corresponding increase in revenues or CFN otherwise
fails to successfully promote its brand, or if these efforts require excessive
expenditures, CFN's business will be harmed. Moreover, if visitors to
YouDecide.com do not perceive its existing services or the products and
services of CFN's providers to be of high quality, or if CFN alters or modifies
CFN's brand image, introduces new services or enters into new business ventures
that are not favorably received, the value of CFN's brand could be harmed.
Similarly, if CFN's providers do not provide consumers with high-quality
products and services, the value of CFN's brand may be harmed and the number of
consumers using CFN's services may decline.
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,
legal and administrative enforcement actions and private litigation. 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 of iXL--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 trading price of our common stock has been and is likely to continue
to be highly volatile. Our stock price could be subject to wide fluctuations in
response to factors such as the following:
. actual or anticipated variations in quarterly results of
operations;
. the addition or loss of affiliates or providers;
. our ability to hire and retain employees;
. additions or departures of key personnel;
. announcements of technological innovations, new products or
services by us or our competitors;
. changes in financial estimates or recommendations by securities
analysts;
19
<PAGE>
. conditions or trends in the Internet and online commerce
industries;
. changes in the market valuations of other Internet or online
service companies;
. our announcements of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
. sales of our common stock;
. general market conditions; and
. other events or factors, many of which are beyond our control.
In addition, the stock market in general, and the Nasdaq National Market
and the market for Internet and technology companies in particular, have
experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of these companies.
These broad market and industry factors may materially and adversely affect our
stock price, regardless of our operating performance. The trading prices of the
stocks of many technology companies are at or near historical highs and reflect
price-earnings ratios substantially above historical levels. These trading
prices and price-earnings ratios may not be sustained.
Further, the existing market for our common stock may not be sustained.
In such circumstances, it may be difficult for you to sell your shares of
common stock at a price that is attractive to you. 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.
Kelso and CB Capital Investors will continue to have significant influence over
us.
The Kelso funds, through Kelso Investment Associates V, L.P. and Kelso
Equity Partners V, L.P., and CB Capital Investors, L.P., beneficially own
approximately 23.5% and 11.9%, respectively, of the outstanding common stock.
These stockholders have entered into an agreement providing that so long as
they own at least 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 of iXL--Amended Stockholders Agreement," "Principal Stockholders of
iXL," "Certain Transactions of iXL" and "Description of Capital Stock of iXL--
Certain Antitakeover Effects of Provisions of iXL's Certificate of
Incorporation and Bylaws and Delaware Law."
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 5,000,000 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
20
<PAGE>
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 of iXL--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. In addition, we have a substantial number of outstanding options and
expect to continue to issue a substantial number of options to attract and
retain employees. Sales of a substantial number of shares of our common stock
in the public market 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 of iXL" and "iXL Shares Eligible for Future
Sale."
iXL could make claims against certain Tessera Enterprise Systems stockholders
pursuant to the Voting and Indemnity Agreement.
In connection with the merger agreement, certain Tessera Enterprise
Systems stockholders who have executed a voting and indemnity agreement have
agreed to indemnify iXL with respect to matters related to the merger, the
merger agreement, and the voting agreement. Accordingly, iXL has the right to
seek recovery from those Tessera Enterprise Systems stockholders if iXL is
damaged by breaches of the merger and voting agreements, inaccuracy of
representations and warranties set forth in the merger and voting agreements,
the failure of Tessera Enterprise Systems or its stockholders to perform their
obligations under the merger and voting agreements, or other similar matters.
Tessera Enterprise Systems officers and directors have conflicts of interest
that may influence them to support or approve the merger.
The officers and directors of Tessera Enterprise Systems participate in
arrangements that provide them with interests in the merger that are different
from or in addition to yours. For example, certain Tessera Enterprise Systems
officers and directors will receive new stock option grants from iXL upon the
closing of the merger. As a result of these different interests, Tessera
Enterprise Systems officers and directors may be more likely to approve the
merger than if they did not hold these interests. Tessera Enterprise Systems
stockholders should consider whether these interests may have influenced these
officers and directors to support or recommend the merger. See "The Merger--
Interests of Certain Persons in the Merger."
21
<PAGE>
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
iXLTM, the iXL logo, Interactive ExcellenceTM, Internet ExcellenceTM, the
CFN logo, CFNTM, Consumer Financial NetworkTM, CFN.comTM, YouDecide.comTM, the
YouDecide.com logo, Surf Less. Net More.TM, Ultimate SolutionTM, iD5TM 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 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 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.
22
<PAGE>
USE OF PROCEEDS
iXL will not receive any proceeds from this offering other than the value
of the businesses or properties acquired by iXL or one or more of its
subsidiaries in the proposed acquisitions.
DIVIDEND POLICY OF iXL
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.
PRICE RANGE OF iXL COMMON STOCK
iXL's common stock commenced trading publicly on the Nasdaq National
Market on June 3, 1999 and is traded under the symbol "IIXL." Prior to that
date, there was no public market for the common stock. The following table sets
forth for the periods indicated the high and low sales prices of the common
stock.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year Ended December 31, 1999
Second Quarter (from June 3, 1999
through June 30, 1999)................. $27.00 $13.75
Third Quarter........................... $38.38 $20.00
Fourth Quarter (through December 15,
1999).................................. $58.00 $31.63
</TABLE>
As of September 30, 1999, there were approximately 370 holders of record
of the common stock. On December 15, 1999, the last reported sale price of the
common stock on the Nasdaq National Market was $48.8125 per share. See "Risk
Factors--Risks Related to the Offering--You may encounter volatility in the
market price for our common stock."
23
<PAGE>
CAPITALIZATION OF iXL
The following table sets forth our actual capitalization as of September
30, 1999 adjusted as if the following events occurred on September 30, 1999:
. the closing of the merger, including the issuance of
approximately 3,469,548 shares of common stock by iXL to the
Tessera Enterprise Systems stockholders; and
. the sale of 2,000,000 shares of common stock in iXL's November
18, 1999 registered public offering at a public offering price
of $37.00 per share and the application of the resulting net
proceeds of approximately $69.5 million.
You should read this capitalization table together with "Selected
Consolidated Financial Data of iXL," "Pro Forma Consolidated Financial
Information of iXL" and our consolidated financial statements and notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
--------------------
Actual Pro Forma
--------- ---------
(in thousands
except share and
per share data)
<S> <C> <C>
Cash and cash equivalents................................. $ 79,320 $ 151,144
========= =========
Current portion of long-term debt......................... $ 566 $ 640
========= =========
Long-term debt............................................ $ 1,315 $ 1,424
Mandatorily redeemable preferred stock:
Series A Convertible Preferred Stock of CFN.............. 9,839 9,839
Series B Convertible Preferred Stock of CFN.............. 38,664 38,664
Stockholders' equity:
Common stock............................................. 648 703
Additional paid-in capital............................... 304,345 502,518
Accumulated deficit...................................... (105,791) (105,791)
Treasury stock........................................... (888) (888)
Note receivable from stockholder......................... (900) (900)
Unearned compensation.................................... (2,568) (2,568)
--------- ---------
Total stockholders' equity............................. 194,846 393,074
--------- ---------
Total capitalization................................... $ 244,664 $ 443,001
========= =========
</TABLE>
The following provides further information regarding iXL's securities
described in the above table:
. CFN's Series A Convertible Preferred Stock, $.01 par value,
includes: 13,333,334 shares authorized, and issued and
outstanding (Actual and Pro Forma).
. CFN's Series B Convertible Preferred Stock, $.01 per share,
includes: 16,190,475 shares authorized, and issued and
outstanding (Actual and Pro Forma).
. Common stock, $.01 par value, includes: 200,000,000 shares
authorized (Actual and Pro Forma), and 64,587,978 and 70,057,526
shares issued and outstanding (Actual and Pro Forma,
respectively). Excludes 3,500,000 shares of common stock subject
to outstanding warrants at a weighted average exercise price of
$12.29 per share, 27,885,003 shares of common stock reserved for
options granted under iXL's stock option plans as of
November 18, 1999 at a weighted average exercise price of $10.01
per share, and 12,651,081 shares of common stock reserved for
options to be granted under iXL's stock option plans as of
November 18, 1999, including 200,000 shares of common stock
24
<PAGE>
subject to options to be granted to certain Tessera Enterprise
Systems officers and directors upon the closing of the merger.
Also excludes up to approximately 536,000 shares of common
stock reserved for options granted under the Tessera Enterprise
Systems 1995 Stock Option Plan after assumption and amendment
of such plan by iXL upon the closing of the merger. Also
excludes 530,452 shares of common stock registered pursuant to
a Registration Statement on Form S-4 for use in future
acquisitions, as well as 6,000,000 shares of common stock
expected to be registered pursuant to an additional
Registration Statement on Form S-4. "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."
25
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF iXL
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 and the nine months ended September 30,
1999 to arrive at the unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1998 and the nine months ended
September 30, 1999 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;
. accretion of the CFN Series B Convertible Preferred Stock as if
it were outstanding for the full year;
. a reduction in interest expense due to the repayment of $13.1
million of debt from the proceeds from the sale of shares of
common stock in iXL's initial public offering;
. the elimination of accretion recorded related to iXL's
preferred stock which was reclassified into common stock upon
iXL's initial public offering as though it occurred on January
1, 1998; and
. the results of the merger, as if the merger occurred on
January 1, 1998.
We adjust our historical condensed consolidated balance sheet as of
September 30, 1999 to arrive at the unaudited pro forma condensed balance
sheet as of September 30, 1999 to reflect as if the following event occurred on
September 30, 1999:
. the closing of the merger; and
. the sale of 2,000,000 shares of common stock by iXL at $37.00
per share and the application of the resulting net proceeds of
approximately $69.5 million.
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 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 fair value for
accounting purposes of the common stock to be issued in connection with the
merger was determined based upon iXL's average closing stock price for the
trading period starting two days before and ending two days after the merger
was agreed to and announced.
26
<PAGE>
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 iXL's initial public offering, the reclassification of the
Class D Nonvoting Preferred Stock resulted 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.
27
<PAGE>
Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Proposed
Companies Tessera
Acquired Enterprise
Historical in Pro Forma Systems Pro Forma
Company 1998(2)(3) Adjustments Pro Forma Merger(7) Adjustments Pro Forma
---------- ---------- ----------- --------- ---------- ----------- ---------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 64,767 $ 22,393 $ -- $ 87,160 $20,248 $ -- $107,408
Cost of revenues........ 44,242 14,321 -- 58,563 12,249 -- 70,812
-------- -------- ------- -------- ------- -------- --------
Gross profit.......... 20,525 8,072 -- 28,597 7,999 -- 36,596
Sales and marketing
expenses............... 17,325 1,351 -- 18,676 2,907 -- 21,583
General and
administrative
expenses............... 30,163 9,485 -- 39,648 4,075 -- 43,723
Research and development
expenses............... 4,408 5 -- 4,413 -- -- 4,413
Depreciation............ 5,217 678 -- 5,895 281 -- 6,176
Amortization............ 10,590 -- 7,078 (4) 17,668 -- 25,155 (8) 42,823
-------- -------- ------- -------- ------- -------- --------
(Loss) income from
operations........... (47,178) (3,447) (7,078) (57,703) 736 (25,155) (82,122)
Other income (expense),
net.................... (28) (110) -- (138) 1 -- (137)
Loss on equity invest-
ment................... (1,640) -- -- (1,640) -- -- (1,640)
Interest income......... 750 27 -- 777 339 -- 1,116
Interest expense........ (770) (332) (153)(5) (1,255) (135) 100 (9) (1,290)
-------- -------- ------- -------- ------- -------- --------
(Loss) income before
income taxes......... (48,866) (3,862) (7,231) (59,959) 941 (25,055) (84,073)
Income tax expense...... -- (8) -- (8) (39) -- (47)
-------- -------- ------- -------- ------- -------- --------
Net (loss) income..... (48,866) (3,870) (7,231) (59,967) 902 (25,055) (84,120)
-------- -------- ------- -------- ------- -------- --------
Dividends and accretion
on mandatorily
redeemable preferred
stock.................. (9,099) -- 7,291 (6) (1,808) -- -- (1,808)
-------- -------- ------- -------- ------- -------- --------
Net (loss) income
available to common
stockholders......... $(57,965) $ (3,870) $ 60 $(61,775) $ 902 $(25,055) $(85,928)
======== ======== ======= ======== ======= ======== ========
Basic and diluted net
loss per common
share(1)............... $ (4.92) $ (1.09) $ (1.42)
======== ======== ========
Weighted average common
shares outstanding(1).. 11,777 56,876 60,346(18)
</TABLE>
28
<PAGE>
Pro Forma Condensed Consolidated Statement of Operations
for the Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Proposed
Tessera
Enterprise
Historical Pro Forma Systems Pro Forma
Company Adjustments Pro Forma Merger(12) Adjustments Pro Forma
---------- ----------- --------- ---------- ----------- ---------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $142,639 $ -- $142,639 $17,618 $ -- $160,257
Cost of revenues........ 83,291 -- 83,291 9,772 -- 93,063
-------- ------- -------- ------- -------- --------
Gross profit.......... 59,348 -- 59,348 7,846 -- 67,194
Sales and marketing
expenses............... 32,418 -- 32,418 2,896 -- 35,314
General and
administrative
expenses............... 50,125 -- 50,125 4,233 -- 54,358
Research and development
expenses............... 3,489 -- 3,489 209 -- 3,698
Depreciation............ 8,499 -- 8,499 319 -- 8,818
Amortization............ 13,013 -- 13,013 -- 18,797 (8) 31,810
-------- ------- -------- ------- -------- --------
(Loss) income from
operations........... (48,196) -- (48,196) 189 (18,797) (66,804)
Other (expense) income,
net.................... (183) -- (183) 7 -- (176)
Loss on equity
investment............. (65) -- (65) -- -- (65)
Interest income......... 2,180 -- 2,180 163 -- 2,343
Interest expense........ (829) 493(10) (336) (106) 75 (9) (367)
-------- ------- -------- ------- -------- --------
(Loss) income before
income taxes......... (47,093) 493 (46,600) 253 (18,722) (65,069)
Income tax expense...... -- -- -- (38) -- (38)
-------- ------- -------- ------- -------- --------
Net (loss) income..... (47,093) 493 (46,600) 215 (18,722) (65,107)
-------- ------- -------- ------- -------- --------
Dividends and accretion
on mandatorily
redeemable preferred
stock.................. (20,514) 19,158(11) (1,356) -- -- (1,356)
-------- ------- -------- ------- -------- --------
Net (loss) income
available to common
stockholders......... $(67,607) $19,651 $(47,956) $ 215 $(18,722) $(66,463)
======== ======= ======== ======= ======== ========
Basic and diluted net
loss per common
share(1)............... $ (1.85) $ (0.74) $ (0.98)
======== ======== ========
Weighted average common
shares outstanding(1).. 36,447 64,372 67,841
</TABLE>
29
<PAGE>
Pro Forma Condensed Consolidated Balance Sheet
As of September 30, 1999
<TABLE>
<CAPTION>
Proposed
Tessera
Enterprise
Historical Offering Systems Pro Forma
Company Adjustment(13) Merger(14) Adjustments Pro Forma
---------- -------------- ---------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents............ $ 79,320 $69,458 $ 7,004 $ (4,638)(15) $ 154,114
Marketable securities... 25,003 -- -- -- 25,003
Accounts receivable
(net).................. 50,022 -- 5,316 -- 55,338
Unbilled revenues....... 24,144 -- 273 -- 24,417
Prepaid expenses and
other assets........... 7,745 -- 384 -- 8,129
--------- ------- ------- -------- ---------
Total current
assets............. 186,234 69,458 12,977 (4,638) 264,031
Property and equipment,
net.................... 45,446 -- 1,383 -- 46,829
Intangible assets, net.. 49,476 -- -- 121,685 (16) 171,161
Other non-current
assets................. 2,236 -- 33 -- 2,269
--------- ------- ------- -------- ---------
Total assets........ $ 283,392 69,458 $14,393 $117,047 $ 484,290
========= ======= ======= ======== =========
Liabilities and
Stockholders' Equity:
Accounts payable........ $ 10,840 -- $ 373 $ -- $ 11,213
Deferred revenues....... 9,732 -- 183 -- 9,915
Accrued liabilities..... 17,590 -- 1,931 -- 19,521
Current portion of long-
term debt.............. 566 -- 563 (489)(17) 640
--------- ------- ------- -------- ---------
Total current
liabilities........ 38,728 -- 3,050 (489) 41,289
Long-term debt.......... 1,315 -- 595 (486)(17) 1,424
--------- ------- ------- -------- ---------
Total liabilities... 40,043 -- 3,645 (975) 42,713
Mandatorily redeemable
preferred stock of
subsidiary............. 48,503 -- 13,863 (13,863)(18) 48,503
Stockholders' equity
Common stock.......... 648 20 77 (42)(18) 703
Additional paid-in
capital.............. 304,345 69,438 -- 128,735 (18) 502,518
Accumulated deficit... (105,791) -- (674) 674 (18) (105,791)
Treasury stock at
cost................. (888) -- (2,518) 2,518 (18) (888)
Note receivable from
stockholder.......... (900) -- -- -- (900)
Unearned
compensation......... (2,568) -- -- -- (2,568)
--------- ------- ------- -------- ---------
Total stockholders'
equity............. 194,846 69,458 (3,115) 131,885 393,074
--------- ------- ------- -------- ---------
Total liabilities,
mandatorily
redeemable
preferred stock and
stockholders'
equity............. $ 283,392 $69,458 $14,393 $117,047 $ 484,290
========= ======= ======= ======== =========
</TABLE>
30
<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 ......... $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 LLC ....... 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
Two-Way 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>
31
<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 Total for all
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>
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 237,304 shares of common stock that
had not been earned
32
<PAGE>
under the terms of the acquisition agreements from the recognized purchase
price 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 have reverted
back to iXL, since the performance target was not achieved. The remaining
137,304 shares are to remain in escrow until December 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 of $43,000 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.
. A decrease in interest expense of $450,000 due to the repayment of
$13.1 million of debt with the proceeds from iXL's initial public
offering. This debt was outstanding for 153 days during the year
ended December 31, 1998. This adjustment was calculated based upon
the actual interest expense incurred by iXL on this debt during
the period noted.
(6) To record:
. accretion of $1.8 million on the CFN Series B Convertible
Preferred Stock as if it were outstanding for the full year; the
difference between the carrying value of $38.1 million and the
redemption value of $50.0 million will be accreted on a straight-
line basis up through the mandatory redemption date of
December 31, 2005; and
. elimination of accretion of $9.1 million recorded with respect to
iXL's preferred stock which was reclassified into common stock
upon iXL's initial public offering.
(7) To reflect the historical results of operations for Tessera Enterprise
Systems for the year ended December 31, 1998.
(8) To record amortization expense related to the identifiable intangible
assets and goodwill acquired in connection with the merger as though the
merger had occurred on 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.
33
<PAGE>
(9) In connection with the proposed acquisition of Tessera Enterprise Systems,
iXL expects to repay approximately $975,000 of Tessera Enterprise Systems
debt. This adjustment reflects the reversal of the interest expense
recorded by Tessera Enterprise Systems as if the repayment had occurred on
January 1, 1998 and was calculated based upon the actual interest expense
recorded by Tessera Enterprise Systems for the year ended December 31,
1998 of $100,000 and the nine months ended September 30, 1999 of $75,000.
(10) 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; and
. A decrease in interest expense due to the repayment of $13.1
million of debt upon the closing of iXL's initial public offering
and the related decrease in interest expense. The interest expense
adjustment was calculated based upon the actual interest expense
incurred by iXL. This debt bears interest at the rate of prime
plus 2% under iXL's credit agreement. This debt was outstanding
for 158 days in the nine months ended September 30, 1999.
(11) To record:
. additional accretion of $753 on the CFN Series B Convertible
Preferred Stock as if it were outstanding for the full nine-month
period ended September 30, 1999; and
. elimination of accretion of $19.9 million recorded with respect to
iXL's preferred stock which was reclassified into common stock
upon iXL's initial public offering.
(12) To reflect the unaudited historical results of operations for Tessera
Enterprise Systems for the nine months ended September 30, 1999.
(13) To reflect the sale of 2,000,000 shares of common stock by iXL at $37.00
per share and the application of the resulting net proceeds of
approximately $69.5 million.
(14) Represents the balance sheet of Tessera Enterprise Systems as of September
30, 1999.
(15) To reflect the following adjustments to cash:
. repayment of Tessera Enterprise Systems bank borrowings of
$975,000.
. payment of $1.1 million of Tessera Enterprise Systems' legal,
accounting and investment banker fees in connection with the
proposed acquisition;
. payment of transaction costs incurred by iXL of $400,000; and
. cash redemption of $2.2 million related to a portion of Tessera
Enterprise Systems preferred stock, including accrued dividends.
Tessera Enterprise Systems Series B Preferred Stock will be fully
redeemed for approximately $1.2 million including accrued
dividends. Approximately $1.0 million will be payable to holders
of Tessera Enterprise Systems Series C Preferred Stock in
connection with the exchange of Tessera Enterprise Systems
Series C Preferred Stock for iXL common stock in connection with
the merger. Tessera Enterprise Systems Series A and D Preferred
Stock will be converted into Tessera Enterprise Systems common
stock, which will be exchanged for iXL common stock upon closing
of the merger.
(16) The fair value of the net tangible assets to be acquired by iXL in the
merger approximates the net book value of such assets. The excess of
purchase price over the fair value of net assets acquired will be
allocated to assembled workforce and goodwill. Approximately $6.1 million
of the intangible assets has been allocated to assembled workforce and
will be amortized over three years. The remainder has been allocated to
goodwill and will be amortized over five years.
(17) Represents the repayment of bank borrowings of Tessera Enterprise Systems
at closing.
34
<PAGE>
(18) Represents the elimination of Tessera Enterprise Systems' stockholders
equity, the recording of the issuance of 3,469,548 shares of iXL stock in
connection with the proposed acquisition of Tessera Enterprise Systems and
the assumption of Tessera Enterprise Systems stock options by iXL. The
purchase price for Tessera Enterprise Systems was computed as follows:
<TABLE>
<S> <C>
Value of shares of common stock issued in the proposed
acquisition................................................ $113,628(a)
Value of options assumed in the proposed acquisition........ 15,141(b)
Cash paid in conjunction with acquisition................... 4,638(c)
--------
Total Purchase Price....................................... $133,407
========
</TABLE>
--------
(a) The value of the shares of iXL common stock issued in the
acquisition is based on the expected number of shares to be
issued of 3,469,548 times a share price of $32.75. The share
price used in this computation is based upon the average
closing stock price for the five day period beginning two days
before and ending two days after the terms of the transaction
were agreed to and announced (October 4, 1999).
(b) The value of the Tessera Enterprise Systems options assumed in
the acquisition is based on the number of iXL options issued
to replace the Tessera Enterprise Systems options outstanding
as of the date the transaction was announced. Such options
have been valued using the Black Scholes option pricing model.
The variables and assumptions used in computing the fair value
of options assumed are as follows: the exercise prices range
from $0.04 per option to $2.83 per option; the fair value of
the underlying stock equals $32.75; a dividend yield of 0%,
expected volatility of 85%, risk free interest rate of 5.73%
and an expected life of 3 to 4 years.
(c) See Note 15 above.
35
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF iXL
You should read the following selected Consolidated Financial Data with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations for iXL" 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 nine months ended September 30, 1998 and 1999 and the consolidated balance
sheet data at September 30, 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 nine months ended September 30, 1999 are not necessarily indicative of
the results to be expected for the full year or for any future period.
<TABLE>
<CAPTION>
Eight Months Years Ended Nine Months Ended
Ended December 31, September 30,
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 $ 35,507 $142,639
Cost of revenues.......... 3,577 11,343 44,242 25,613 83,291
------- -------- -------- -------- --------
Gross profit............ 1,802 7,643 20,525 9,894 59,348
Sales and marketing
expenses................. 812 3,903 17,325 9,496 32,418
General and administrative
expenses................. 1,247 9,114 30,163 15,839 50,125
Research and development
expenses................. -- 4,820 4,408 3,473 3,489
Depreciation.............. 372 1,408 5,217 2,915 8,499
Amortization.............. 928 5,191 10,590 5,992 13,013
------- -------- -------- -------- --------
Loss from operations.... (1,557) (16,793) (47,178) (27,821) (48,196)
Other income (expense),
net...................... 48 116 (28) 40 (183)
Loss on equity
investment............... (249) (1,443) (1,640) (1,287) (65)
Interest income........... 32 136 750 551 2,180
Interest expense.......... (30) (238) (770) (322) (829)
------- -------- -------- -------- --------
Loss before income
taxes.................. (1,756) (18,222) (48,866) (28,839) (47,093)
Income tax benefit........ 302 2,782 -- -- --
------- -------- -------- -------- --------
Net loss................ (1,454) (15,440) (48,866) (28,839) (47,093)
Dividends and accretion on
mandatorily redeemable
preferred stock.......... -- -- (9,099) (5,096) (20,514)
------- -------- -------- -------- --------
Net loss available to
common stockholders.... $(1,454) $(15,440) $(57,965) $(33,935) $(67,607)
======= ======== ======== ======== ========
Basic and diluted net loss
per common share......... $ (0.37) $ (2.36) $ (4.92) $ (3.28) $ (1.85)
======= ======== ======== ======== ========
Weighted average common
shares outstanding....... 3,972 6,540 11,777 10,348 36,447
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
------------------------- September 30,
1996 1997 1998 1999
------- -------- -------- -------------
Consolidated Balance Sheet Data: (in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents............. $ 409 $ 23,038 $ 19,259 $ 79,320
Working capital....................... 217 23,879 27,119 147,506
Total assets.......................... 16,472 57,612 142,951 283,392
Debt, including current portion....... 691 1,273 21,420 1,881
Mandatorily redeemable preferred
stock................................ -- 29,930 65,679 --
Mandatorily redeemable preferred stock
of subsidiary........................ -- -- 9,839 48,503
Stockholders' equity.................. 12,989 21,950 25,560 194,846
</TABLE>
36
<PAGE>
iXL operates in two business segments: strategic Internet services, which
includes Internet strategy consulting, Internet business solutions and solution
sets; and CFN, an e-commerce platform for marketing financial services and
employee benefits. Information concerning the results of operations in these
business segments is as follows:
<TABLE>
<CAPTION>
iXL, Inc. (iXL Enterprises, Inc., excluding Consumer
Financial Network, Inc.) Statement of Operations Data
------------------------------------------------------------
Year Ended Nine Months Ended Three Months Ended
December 31, September 30, September 30,
------------------ ------------------ --------------------
1997 1998 1998 1999 1998 1999
-------- -------- -------- -------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue (1)............. $ 19,131 $ 64,658 $ 35,534 $141,782 $ 18,172 $ 63,548
Cost of revenue (2)..... 11,343 41,530 23,710 80,810 11,927 35,661
-------- -------- -------- -------- --------- ---------
Gross profit.......... 7,788 23,128 11,824 60,972 6,245 27,887
Sales and marketing
expenses (2)........... 3,220 13,555 7,473 24,779 3,696 9,568
General and
administrative expenses
(2).................... 6,958 25,396 12,759 43,550 5,622 16,784
Research and development
expenses............... 3,282 2,720 1,933 762 935 86
Depreciation............ 1,328 4,542 2,483 7,386 1,071 2,769
Amortization............ 5,135 10,534 5,950 12,963 3,087 4,311
-------- -------- -------- -------- --------- ---------
Loss from operations.. (12,135) (33,619) (18,774) (28,468) (8,166) (5,631)
Other (expenses) income,
net.................... 116 (28) 40 (182) (13) (69)
Loss on equity
investment............. (1,443) (1,640) (1,287) (65) (384) --
Interest income......... 136 713 551 1,386 181 919
Interest expense........ (234) (750) (308) (821) (266) (133)
-------- -------- -------- -------- --------- ---------
Loss before income
taxes................ (13,560) (35,324) (19,778) (28,150) (8,648) (4,914)
Income tax expense...... -- -- -- -- -- --
-------- -------- -------- -------- --------- ---------
Net loss.............. $(13,560) $(35,324) $(19,778) $(28,150) $ (8,648) $ (4,914)
======== ======== ======== ======== ========= =========
- --------
(1) Includes intercompany revenues of $145 and $142 for the years ended
December 31, 1997 and 1998, of $124 and $159 for the three months ended
September 30, 1998 and 1999, and of $124 and $344 for the nine months ended
September 30, 1998 and 1999 earned on services performed for Consumer
Financial Network, Inc. which are eliminated in consolidation.
(2) Includes non-cash stock compensation expense as follows:
<CAPTION>
Year Ended Nine Months Ended Three Months Ended
December 31, September 30, September 30,
------------------ ------------------ --------------------
1997 1998 1998 1999 1998 1999
-------- -------- -------- -------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cost of revenue....... -- 133 -- 355 -- 290
Sales and marketing
expenses............. -- 115 -- 939 -- 464
General and
administrative
expenses............. -- 1,393 -- 1,425 -- 158
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Consumer Financial Network, Inc. Statement of
Operations Data
------------------------------------------------------------
Year Ended Nine Months Ended Three Months Ended
December 31, September 30, September 30,
----------------- ------------------- --------------------
1997 1998 1998 1999 1998 1999
------- -------- -------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $ -- $ 251 $ 97 $ 1,201 $ 75 $ 342
Cost of revenue......... -- 2,712 1,903 2,481 701 1,003
------- -------- -------- --------- --------- ---------
Gross profit.......... -- (2,461) (1,806) (1,280) (626) (661)
Sales and marketing
expenses (1)(2)........ 683 3,770 2,023 7,843 877 3,459
General and
administrative expenses
(1)(3)................. 2,301 4,767 3,080 6,586 1,399 2,307
Research and development
expenses (1)(4)........ 1,538 1,830 1,664 2,856 433 1,089
Depreciation............ 80 675 432 1,113 190 515
Amortization............ 56 56 42 50 14 18
------- -------- -------- --------- --------- ---------
Loss from operations.. (4,658) (13,559) (9,047) (19,728) (3,539) (8,049)
Other (expenses) income,
net.................... -- -- (1) -- --
Loss on equity
investment............. -- -- -- -- --
Interest income......... -- 37 -- 794 -- 528
Interest expense........ (4) (20) (14) (8) (9) (3)
------- -------- -------- --------- --------- ---------
Loss before income
taxes................ (4,662) (13,542) (9,061) (18,943) (3,548) (7,524)
Income tax expense...... -- -- -- -- -- --
------- -------- -------- --------- --------- ---------
Net loss.............. $(4,662) $(13,542) $ (9,061) $ (18,943) $ (3,548) $ (7,524)
======= ======== ======== ========= ========= =========
- --------
(1) Includes non-cash stock compensation expense as follows:
<CAPTION>
Year Ended Nine Months Ended Three Months Ended
December 31, September 30, September 30,
----------------- ------------------- --------------------
1997 1998 1998 1999 1998 1999
------- -------- -------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cost of revenue....... -- -- -- 188 -- 138
Sales and marketing
expenses............. -- -- -- 427 -- 227
General and
administrative
expenses............. -- -- -- 67 -- 8
</TABLE>
(2) Includes intercompany expenses of $145 and $142 for the years ended
December 31, 1997 and 1998, of $124 and $67 for the three months ended
September 30, 1998 and 1999 and of $124 and $204 for the nine months ended
September 30, 1998 and 1999 related to work performed for Consumer
Financial Network, Inc. by iXL, Inc. which are eliminated in consolidation.
(3) Includes intercompany expenses of $11 for the three and nine months ended
September 30, 1999 related to work performed for Consumer Financial
Network, Inc. by iXL, Inc. which are eliminated in consolidation.
(4) Includes intercompany expenses of $81 and $129 for the three and nine
months ended September 30, 1999 related to work performed for Consumer
Financial Network, Inc. by iXL, Inc. which are eliminated in consolidation.
38
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF TESSERA ENTERPRISE SYSTEMS
You should read the following selected Consolidated Financial Data with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations for Tessera Enterprise Systems" and Tessera Enterprise Systems'
audited Consolidated Financial Statements included elsewhere in this
prospectus. Tessera Enterprise Systems commenced operations effective February
15, 1995. The consolidated statement of operations data set forth below for the
years ended December 31, 1997 and 1998 and the consolidated balance sheet data
at December 31, 1997 and 1998 are derived from and qualified by reference to
Tessera Enterprise Systems' audited Consolidated Financial Statements, which
appear elsewhere in this prospectus. The consolidated statement of operations
data set forth below for the years ended December 31, 1995 and 1996 and the
consolidated balance sheet data at December 31, 1996 are derived from Tessera
Enterprise Systems' audited Consolidated Financial Statements. The consolidated
statement of operations data for the nine months ended September 30, 1998 and
1999 and the consolidated balance sheet data at September 30, 1999 are derived
from and are qualified by reference to Tessera Enterprise Systems' 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 nine months ended September
30, 1999 are not necessarily indicative of the results to be expected for the
full year or for any future period.
<TABLE>
<CAPTION>
February 15,
1995 through Years Ended Nine Months Ended
December 31, December 31, September 30,
------------ ------------------------ ------------------
1995 1996 1997 1998 1998 1999
------------ ------ ------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of
Operations Data:
Revenues................ $ 622 $6,968 $16,212 $20,248 $ 14,842 $17,618
Cost of revenues........ 970 5,770 10,643 12,249 9,019 9,772
Selling, general and
administrative......... 831 1,956 5,034 7,263 5,363 7,657
------- ------ ------- ------- -------- --------
Income (loss) from
operations........... (1,179) (758) 535 736 460 189
Interest income......... 43 34 37 339 259 163
Interest expense........ (1) (36) (142) (135) (96) (106)
Other income (expense),
net.................... -- -- (3) 1 1 7
------- ------ ------- ------- -------- --------
Income before income
taxes................ (1,137) (760) 427 941 624 253
Provision for income
taxes.................. -- -- 10 39 25 38
------- ------ ------- ------- -------- --------
Net income............ $(1,137) $ 760 $ 417 $ 902 $ 599 $ 215
======= ====== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
------------------------- September 30,
1996 1997 1998 1999
------- ------- ------- -------------
Consolidated Balance Sheet Data (in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents.............. $ 2,247 $ 8,287 $ 8,341 $ 7,004
Working capital........................ 1,891 4,592 10,368 9,926
Total assets........................... 6,169 13,377 14,861 14,393
Debt, including current portion........ 1,050 1,379 1,427 1,158
Redeemable preferred stock............. 4,640 11,889 13,526 13,863
Stockholders' deficit.................. (2,022) (1,699) (2,717) (3,115)
</TABLE>
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR iXL
You should read the following discussion of the financial condition and
results of operations of iXL with "Selected Consolidated Financial Data of
iXL," "Pro Forma Consolidated Financial Information of iXL" 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 35 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
September 30, 1999, iXL had an accumulated deficit of approximately $113
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. Historically, iXL has primarily priced 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. In
order to mitigate risks associated with fixed-price contracts, where possible
iXL is negotiating new contracts on a time-and-materials basis. iXL has
implementated 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.
Currently, less than a third of iXL's revenues are 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. However, we
derive a significant portion of our revenue from a small number of clients,
including General Electric which represented approximately 13% of our revenue
in the third quarter of 1999, and may account for a larger portion of our
revenue in the future.
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 web site development and the
implementation of iXL's Solution Sets. To
40
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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 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 Air Lines 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.
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 program to its employees and (2) the
marketing agreement among iXL and General Electric, iXL has issued warrants to
purchase 1,500,000 shares of common stock to General Electric. iXL believes the
value of these marketing services to be $1.2 million and accordingly this
marketing campaign is expected to result in $1.2 million of marketing expenses
to be recorded in the 12 month period from April 1999 through March 2000. Net
loss available to common stockholders and stockholders' equity will also be
impacted by non-cash charges related to this warrant issuance.
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 program and to establish access to the
YouDecide.com web site. In addition, CFN has expended and will continue to
expend significant resources to promote its YouDecide.com brand and web site.
Each of 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 $19.7 million for the nine months ended September 30, 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 for the
nine months ended September 30, 1999, totaling $3.4 million. iXL expects to
recognize approximately $3.7 million in 1999, $1.0 million in 2000, $780,000 in
2001, $406,000 in 2002 and $76,000 in 2003 in stock compensation expense
relating to the grant of options in 1998 and 1999.
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Acquisition Program
iXL has acquired a total of 35 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.
On October 4, 1999, we entered into an Agreement and Plan of Merger with
Tessera Enterprise Systems, Inc., a Wakefield, Massachusetts enterprise
relationship management solutions firm, for a purchase price of approximately
$120 million. The acquisition is expected to provide enterprise relationship
management expertise and expand our workforce by approximately 130 employees.
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 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. iXL expects additional acquisition-
related amortization expense as a result of its acquisition program.
We believe our historical acquisitions have contributed to our growth by
rapidly expanding our employee base, geographic coverage, client base, industry
expertise and technical skills.
iXL anticipates that a material portion of its future growth will be
accomplished by acquiring existing businesses. A significant portion 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."
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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 September December March
31, June 30, 30, 31, 31, June 30, September 30,
1998 1998 1998 1998 1999 1999 1999
------- -------- --------- -------- -------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 6,864 $ 10,520 $ 18,123 $ 29,260 $33,012 $ 45,896 $ 63,731
Cost of revenues........ 4,899 8,086 12,628 18,629 19,583 27,044 36,664
------- -------- -------- -------- -------- -------- --------
Gross profit............ 1,965 2,434 5,495 10,631 13,429 18,852 27,067
Sales and marketing
expenses............... 2,036 2,887 4,573 7,829 8,150 11,308 12,960
General and administra-
tive expenses.......... 2,956 5,862 7,021 14,324 15,725 15,320 19,080
Research and development
expenses............... 907 1,322 1,244 935 1,058 1,337 1,094
Depreciation............ 699 955 1,261 2,302 2,284 2,931 3,284
Amortization............ 1,182 1,709 3,101 4,598 4,351 4,333 4,329
------- -------- -------- -------- -------- -------- --------
Loss from operations.... $(5,815) $(10,301) $(11,705) $(19,357) $(18,139) $(16,377) $(13,680)
======= ======== ======== ======== ======== ======== ========
</TABLE>
Comparison of Nine Months Ended September 30, 1999 and September 30, 1998
Revenues. Revenues increased $107.1 million, or 302%, to $142.6 million
for the nine months ended September 30, 1999 from $35.5 million for the nine
months ended September 30, 1998. The increase was primarily attributable to a
series of acquisitions and to an aggressive hiring initiative which expanded
our client base and headcount. The growth was also due to an increase in the
number and size of client engagements and the development and growth of
industry practice groups.
Cost of revenues. Cost of revenues increased $57.7 million, or 225%, to
$83.3 million for the nine months ended September 30, 1999 from $25.6 million
for the nine months ended September 30, 1998. As a percentage of revenues, cost
of revenues decreased to 58% for the nine months ended September 30, 1999, down
from 72% for the nine months ended September 30, 1998. The dollar increase was
primarily attributable to an increase in headcount due to the integration of
the companies acquired by iXL, organic growth in billable
headcount, as well as to employee training and the development of CFN. Also
included in this increase was $543,000 of non-cash expense related to stock
compensation charges. The decrease as a percentage of revenues was primarily
attributable to increases in billing rates and improvements in revenue per
billable employee.
Sales and marketing expenses. Sales and marketing expenses increased
$22.9 million, or 241%, to $32.4 million for the nine months ended September
30, 1999 from $ 9.5 million for the nine months ended September 30, 1998. As a
percentage of revenues, sales and marketing expenses decreased to 23% for the
nine months ended September 30, 1999, down from 27% for the nine months ended
September 30, 1998. The dollar increase was primarily attributable to the
increase in headcount due to the development of iXL's sales and marketing
infrastructure and staff. Also included in this increase was $1.4 million of
non-cash expense related to stock compensation charges.
General and administrative expenses. General and administrative expenses
increased $34.3 million, or 216%, to $50.1 million for the nine months ended
September 30, 1999 from $15.8 million for the nine months ended September 30,
1998. As a percentage of revenues, general and administrative expenses
decreased
43
<PAGE>
to 35% for the nine months ended September 30, 1999, from 45% for the nine
months ended September 30, 1998. 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 expansion of management
infrastructure to support the growth in iXL's operations. Also included in this
increase was $1.5 million of non-cash expense related to stock compensation
charges.
Research and development expenses. Research and development expenses
remained constant at $3.5 million for the nine months ended September 30, 1999
from the nine months ended September 30, 1998. As a percentage of revenues,
research and development expenses decreased to 2% for the nine months ended
September 30, 1999, from 10% for the nine months ended September 30, 1998.
Depreciation. Depreciation expenses increased $5.6 million, or 192%, to
$8.5 million for the nine months ended September 30, 1999 from $2.9 million for
the nine months ended September 30, 1998. The increase primarily 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 expenses increased $7.0 million, or 117%, to
$13.0 million for the nine months ended September 30, 1999 from $6.0 million
for the nine months ended September 30, 1998. The increase was a result of the
amortization of goodwill and assembled workforce recorded in connection with
the acquisitions which took place during 1998.
Comparison of Three Months Ended September 30, 1999 and June 30, 1999
Revenues. Revenues increased $17.8 million, or 39%, to $63.7 million for
the quarter ended September 30, 1999 from $45.9 million for the quarter ended
June 30, 1999. The increase was attributable to an aggressive hiring initiative
that expanded our client base and headcount. The growth was also due to an
increase in the number and size of client engagements and the development and
growth of industry practice groups. Specifically, average annualized revenue
from our top ten clients increased from $7.1 million during the quarter ended
June 30, 1999 to $9.2 million during the quarter ended September 30, 1999. iXL
may not experience a comparable increase in revenue growth in the future.
Cost of revenues. Cost of revenues increased $9.6 million, or 36%, to
$36.7 million for the quarter ended September 30, 1999 from $27.0 million for
the quarter ended June 30, 1999. As a percentage of revenues, cost of revenues
decreased from 59% for the quarter ended June 30, 1999 to 58% for the quarter
ended September 30, 1999. The dollar increase was primarily attributable to an
increase in headcount due to organic growth in billable headcount, as well as
to employee training and the development of the CFN platform. The decrease as a
percentage of revenues was primarily attributable to increases in billing rates
and improvements in revenue per billable employee.
Sales and marketing expenses. Sales and marketing expenses increased $1.7
million, or 15%, to $13.0 million for the quarter ended September 30, 1999 from
$11.3 million for the quarter ended June 30, 1999. As a percentage of revenues,
sales and marketing expenses decreased from 25% for the quarter June 30, 1999
to 20% for the quarter ended September 30, 1999. While this decrease in percent
of revenues demonstrates the company's ability to sustain substantial growth
without a corresponding increase in expense, iXL does expect its sales and
marketing expenses to increase as it continues to grow. The dollar increase was
primarily attributable to the increase in headcount due to the development of
iXL's sales and marketing infrastructure and staff.
General and administrative expenses. General and administrative expenses
increased $3.8 million, or 25%, to $19.1 million for the quarter ended
September 30, 1999 from $15.3 million for the quarter ended June 30, 1999. As a
percentage of revenues, general and administrative expenses decreased from 33%
for the quarter ended June 30, 1999 to 30% for the quarter ended September 30,
1999. While this decrease in percent
44
<PAGE>
of revenues demonstrates the company's ability to sustain substantial growth
without a corresponding increase in expenses, iXL does expect its general and
administrative expenses to increase as it continues to grow. The dollar
increase was primarily attributable to the expansion of management
infrastructure to support the growth in iXL's operations.
Research and development expenses. Research and development expenses
decreased $243,000, or 18%, to $1.1 million for the quarter ended September 30,
1999 from $1.3 million for the quarter ended June 30, 1999. As a percentage of
revenues, research and development expenses decreased from 3% for the quarter
ended June 30, 1999 to 2% for the quarter ended September 30, 1999.
Depreciation. Depreciation expenses increased $353,000 to $3.3 million
for the quarter ended September 30, 1999 from $2.9 million for the quarter
ended June 30, 1999. The increase related to the depreciation of assets was
attributable to the investments in physical infrastructure required by iXL's
continued growth.
Amortization. Amortization expense remained at $4.3 million for the
quarter ended September 30, 1999 from the quarter ended June 30, 1999.
Comparison of Three Months Ended June 30, 1999 and March 31, 1999
Revenues. Revenues increased $12.9 million, or 39%, to $45.9 million for
the quarter ended June 30, 1999 from $33.0 million for the quarter ended March
31, 1999. This increase was primarily attributable to an increased number and
size of engagements for existing and new customers, and to a significant
increase in newly hired, billable consultants. Specifically, average annualized
revenue for our top ten clients increased from $3.6 million during the quarter
ended March 31, 1999 to $7.1 million during the quarter ended June 30, 1999,
while billable employees for the same time periods increased from 810 to 1,060.
Cost of revenues. Cost of revenues increased $7.4 million, or 38%, to
$27.0 million for the quarter ended June 30, 1999 from $19.6 million for the
quarter ended March 31, 1999. As a percentage of revenues, cost of revenues
remained at 59% for the quarter ended June 30, 1999, the same as for the
quarter ended March 31, 1999. The dollar increase was directly attributable to
a significant increase in newly hired billable consultants and number and size
of engagements.
Sales and marketing expenses. Sales and marketing expenses increased $3.2
million, or 39%, to $11.3 million for the quarter ended June 30, 1999 from $8.2
million for the quarter ended March 31, 1999. As a percentage of revenues,
sales and marketing expenses remained at 25% for the quarter ended June 30,
1999, the same as for the quarter ended March 31, 1999. A 13% increase in sales
and marketing professionals coupled with an increase in sales commissions
associated with iXL's increased revenues resulted in the increased sales and
marketing expenses for the quarter ended June 30, 1999. The quarter ended June
30, 1999 also included $500,000 non-cash marketing expense related to warrant
issuances compared to zero in the quarter ended March 31, 1999.
General and administrative expenses. General and administrative expenses
decreased $405,000, or 3%, to $15.3 million for the quarter ended June 30, 1999
from $15.7 million for the quarter ended March 31, 1999. As a percentage of
revenues, general and administrative expenses decreased from 48% for the
quarter ended March 31, 1999 to 33% for the quarter ended June 30, 1999.
Additionally, the quarter ended March 31, 1999 included a donation of $1.0
million to fund the iXL Center for Electronic Commerce in the DuPree College of
Management at Georgia Tech.
Research and development expenses. Research and development expenses
increased $279,000, or 26%, for the quarter ended June 30, 1999, to $1.3
million for the quarter ended June 30, 1999 from $1.1 million for the quarter
ended March 31, 1999. As a percentage of revenues, research and development
expenses remained relatively constant for the quarters ended June 30, 1999 and
March 31, 1999.
45
<PAGE>
Depreciation. Depreciation expenses increased $647,000, or 28%, to $2.9
million for the quarter ended June 30, 1999 from $2.3 million for the quarter
ended March 31, 1999. This increase is primarily attributable to expansion of
iXL's Atlanta, Chicago and Boston offices and CFN and the purchase of computers
and equipment to support the increased number of iXL employees.
Amortization. Amortization expense decreased slightly to $4.3 million for
the quarter ended June 30, 1999 from $4.4 million for the quarter ended March
31, 1999 related to the sale of certain intangible assets.
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.
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 $115,000 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 headcount by
over 30 professionals during the three months ended March 31, 1999. The first
quarter of 1999 included in general and administrative 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.
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<PAGE>
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 61%, 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 3 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
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.
47
<PAGE>
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.
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, including the proposed acquisition of Tessera Enterprise Systems 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 had the transactions
occurred at the beginning of the
48
<PAGE>
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 related notes included elsewhere in
this prospectus. See "Pro Forma Consolidated Financial Information of iXL."
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- ------------- ------------ --------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 20,237 $ 23,666 $ 28,839 $ 34,666 $ 38,390 $ 51,996 $ 69,871
Cost of revenues........ 13,032 16,125 19,795 21,860 22,840 30,334 39,889
-------- -------- -------- -------- -------- -------- --------
Gross profit.......... 7,205 7,541 9,044 12,806 15,550 21,662 29,982
Sales and marketing
expenses............... 3,162 4,150 5,714 8,557 9,002 12,303 14,009
General and
administrative
expenses............... 7,185 9,926 11,197 15,415 17,046 16,784 20,528
Research and development
expenses............... 907 1,327 1,244 935 1,058 1,431 1,209
Depreciation............ 1,042 1,263 1,489 2,382 2,390 3,034 3,394
Amortization............ 10,602 10,619 10,697 10,887 10,616 10,599 10,595
-------- -------- -------- -------- -------- -------- --------
Loss from operations.. $(15,711) $(19,744) $(21,297) $(25,370) $(24,562) $(22,489) $(19,753)
======== ======== ======== ======== ======== ======== ========
</TABLE>
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
of iXL."
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
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<PAGE>
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 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 $500,000 to approximately
$800,000 in 1998 primarily due to borrowings under the iXL's credit facility.
50
<PAGE>
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 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
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<PAGE>
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 $2.8 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.
Liquidity and Capital Resources
On June 8, 1999, iXL completed its initial public offering and received
net proceeds of approximately $61.7 million from the sale of 6,000,000 shares
of common stock. On June 14, 1999, the underwriters exercised their over-
allotment option resulting in the sale of 900,000 additional shares of common
stock for net proceeds of approximately $10.0 million. On June 8, 1999, CFN
received net proceeds of approximately $49.3 million from the sale of
16,190,475 shares of CFN's Series B Convertible Preferred Stock. Also on June
8, 1999, iXL received net proceeds of approximately $23.3 million from the sale
of 2,000,000 shares of common stock in a private placement. On November 24,
1999, iXL completed the public offering of 2,000,000 shares of common stock,
and received net proceeds of approximately $69.5 million. Prior to its initial
public offering, iXL financed its operations primarily through private sales of
capital stock, which totaled approximately $132.2 million in aggregate net
proceeds, and borrowings under its credit facility and other loans.
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 $20.0 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 with a
portion of the proceeds of a private placement of iXL's Series A Preferred
Stock. Additionally, in June 1999 iXL repaid all remaining amounts outstanding
under the credit facility (approximately $13.1 million) with a portion of the
net proceeds of its initial public offering. The $10 million term facility
commitment terminated upon this payment, and only the revolving commitment of
$10 million remains 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 September 30, 1999, there were no amounts outstanding under the credit
facility although letters of credit totalling approximately $3 million have
been issued under this facility, reducing the revolver availability by such
amount.
iXL is currently negotiating a new credit facility which if consummated
would replace the existing credit facility. iXL has executed a non-binding
commitment letter with Chase Manhattan Bank with respect to such credit
facility. Pursuant to this commitment letter, this new facility would provide a
syndicated $50 million revolving credit facility, including a $15 million
commitment from Chase Manhattan Bank, which
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<PAGE>
would mature three years after execution. iXL expects borrowings to accrue
interest either (a) 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, or (b) at a rate of 2.75% plus an adjusted LIBOR rate. We
cannot be sure that this credit facility will be consummated at all, or on
these terms.
At September 30, 1999, iXL had approximately $79.3 million in cash and
cash equivalents. For the period from inception to September 30, 1999, iXL used
approximately $102.2 million, $27.9 million and $53.4 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 September 30, 1999, iXL had outstanding commitments for
capital expenditures totaling approximately $4.8 million, primarily related to
the expansion and improvement of its Washington, D.C., Chicago, and Consumer
Financial Network offices. The remainder of iXL's significant commitments
consist of obligations outstanding under operating leases.
iXL is currently negotiating the lease of its new headquarters in Atlanta
which would contain approximately 300,000 square feet. iXL anticipates capital
expenditures of up to approximately $18 million related to the improvement of
this new headquarters. We cannot be sure that this lease agreement will be
executed.
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, 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. iXL believes
that CFN's available cash resources will be sufficient to meet its anticipated
working capital expenditure requirements through 1999. If CFN is unable to
raise additional capital funds prior to such period, CFN may require additional
funding from iXL, although iXL is under no obligation to provide any such
funding. 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 complete."
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
53
<PAGE>
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,
definition, design, development and deployment. Each of these phases has been
completed. 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 has conducted internal tests of such systems as part of its
Year 2000 efforts.
iXL has confirmed Year 2000 compliance of all material existing iXL
systems supplied by third party providers. 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 also 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 has not 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 finalizing 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, $146,000 of which has been incurred as of
September 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."
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. In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137, which postpones the
mandatory adoption of FAS 133 by iXL until January 1, 2001. iXL has not entered
into any derivative financial instruments.
54
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR TESSERA ENTERPRISE SYSTEMS
General
Tessera Enterprises Systems, Inc. is an integrated marketing, consulting
and systems integration firm. Tessera Enterprise Systems architects, builds,
integrates, deploys and maintains advanced enterprise relationship management,
or ERM, solutions. These solutions are comprised of significant technical
components as well as business components in the areas of marketing strategy
development, organizational consulting and training. Tessera Enterprise Systems
principally derives service revenue from delivering ERM projects and consulting
engagements.
Tessera Enterprise Systems typically enters into a multi-phase engagement
with an individual client. Tessera Enterprise Systems' initial client
engagement service offering is Early Harvest(R). In this phase, Tessera
Enterprise Systems works with the client to assess ERM opportunities and issues
and to develop actionable plans. These plans are then used as the basis for
creating additional business relationships with the client. These additional
relationships range from several hundreds of thousands to multiple millions of
dollars in size.
Tessera Enterprise Systems has derived a significant portion of its
revenue from a limited number of large clients. In 1998, Tessera Enterprise
Systems' five largest clients accounted for approximately 68% of its revenue,
with four clients each accounting for more than 10% of such revenue. From
January 1, 1999 through September 30, 1999, Tessera Enterprise Systems' five
largest clients accounted for approximately 65% of its revenue, with three
clients each accounting for more than 10% of such revenue. Historically,
Tessera Enterprise has been able to expand relationships with past clients into
new projects.
Tessera Enterprise Systems charges for its services under either fixed
price/fixed time or time-and-materials contracts. From 1995 to 1997, Tessera
Enterprise Systems' revenue was primarily from fixed price contracts.
Marketplace demands were the primary reason for using this pricing method.
Fixed price contracts carry the risk that Tessera Enterprise Systems might fail
to meet its contractual obligations in a timely manner. From 1998 through 1999
to date, Tessera Enterprise Systems has increasingly incorporated time-and-
materials based pricing into its revenue mix. However, it does not provide the
upside margin opportunities inherent in value based pricing. From January 1,
1999 through September 30, 1999, Tessera Enterprise Systems received
approximately 59% of its service revenue from time-and-materials contracts and
41% from fixed price contracts.
Tessera Enterprise Systems' primary revenue growth drivers include: (i)
the size and number of new client engagements; (ii) Tessera Enterprise Systems'
billing rate charged; (iii) the utilization rate of billable resources; (iv)
the realized billing rate, which is a product of the billing rate charged and
the utilization rate; and (v) the number of billable resources.
Tessera Enterprise Systems' principal expense categories are labor costs
associated with billable professionals, sales and marketing expenses required
to support revenue growth and general and administrative costs, including
senior management, facilities and human resource functions.
Historical Results of Operations
Comparison of Nine Months Ended September 30, 1999 and September 30, 1998
Revenues. Revenues increased $2.8 million, or 19%, to $17.6 million for
the nine months ended September 30, 1999 from $14.8 million for the nine months
ended September 30, 1998. The increase was primarily attributable to an
increase in the size of client engagements and increased billing rates.
Cost of revenues. Cost of revenues increased $750,000, or 8.0%, to $9.8
million for the nine months ended September 30, 1999 from $9.0 million for the
nine months ended September 30, 1998. As a percentage
55
<PAGE>
of revenues, cost of revenues decreased to 55% for the nine months ended
September 30, 1999, down from 61% for the nine months ended September 30, 1998.
The dollar increase was primarily attributable to an increase in billable
headcount. The decrease as a percentage of revenues was primarily attributable
to increases in billing rates and improvements in revenue per billable
employee.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $2.3 million, or 43%, to $7.7 million for the
nine months ended September 30, 1999 from $5.4 million for the nine months
ended September 30, 1998. As a percentage of revenues, selling, general and
administrative expenses increased to 43% for the nine months ended September
30, 1999, from 36% for the nine months ended September 30, 1998. The increase
was the result of the promotion of three previously-billable employees to
regional general managers and the hiring of two director level employees.
Years Ended December 31, 1998 and December 31, 1997
The following discussion relates to Tessera Enterprise Systems' actual
operating results for the periods noted.
Revenues. Revenues increased $4 million, or 25%, to $20.2 million for the
year ended December 31, 1998 from $16.2 million for the year ended December 31,
1997. This increase was primarily attributable to an increase in the size of
client engagements and increased billing rates.
Cost of revenues. Cost of revenues increased $1.6 million, or 15%, to
$12.2 million for the year ended December 31, 1998 from $10.6 million for the
year ended December 31, 1997. As a percentage of revenues, cost of revenues
decreased from 66% for the year ended December 31, 1997 to 60% for the year
ended December 31, 1998. The dollar increase was primarily attributable to an
increase in billable employees to support revenue growth. The decrease as a
percentage of revenues was primarily attributable to increases in billing rates
and improvements in revenue per billable employee.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $2.2 million, or 43%, to $7.3 million for the
year ended December 31, 1998, from $5.0 million for the year ended December 31,
1997. As a percentage of revenues, selling, general and administrative expenses
increased from 31% for the year ended December 31, 1997 to 36% for year ended
December 31, 1998. The dollar increase was primarily attributable to the
addition of three full-time salespeople in late 1997. Additionally, Tessera
Enterprise Systems implemented a selling team strategy by including billable
employees in the proposal process, allocating a portion of this billable time
to selling expenses.
Years Ended December 31, 1997 and Years Ended December 31, 1996
The following discussion relates to Tessera Enterprise Systems' actual
operating results for the periods noted.
Revenues. Revenues increased $9.2 million, or 133% to $16.2 million for
the year ended December 31, 1997 from $7.0 million for the year ended December
31, 1996. The increase is attributable to a significant increase in the number
and size of client engagements.
Cost of revenues. Cost of revenues increased $4.8 million, or 85% to
$10.6 million for the year ended December 31, 1997 from $5.8 million for the
year ended December 31, 1996. As a percentage of revenues, cost of revenues
decreased from 83% for the year ended December 31, 1996 to 66% for the year
ended December 31, 1997. The dollar increase was primarily attributable to an
increase in headcount to support revenue growth. The decrease as a percentage
of revenues was primarily attributable to increases in billing rates and
improvements in revenue per billable employee.
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<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $3.0 million, or 150% to $5.0 million for the
year ended December 31, 1997 from $2.0 million for the year ended December 31,
1996. As a percentage of revenues, selling, general and administrative expenses
increased from 28% for the year ended December 31, 1996 to 31% for the year
ended December 31, 1997. The dollar increase was primarily attributable to the
expansion of management infrastructure to support the growth in Tessera
Enterprise Systems' operations. Additionally, facility costs increased
substantially upon the lease of a new office in November 1996.
As of December 31, 1996, 1997 and 1998, Tessera Enterprise Systems had
net operating loss carryforwards for federal income tax purposes of
approximately $571,000, $530,000 and $27,000, respectively.
Liquidity and Capital Resources
Since inception, Tessera Enterprise Systems has financed its operations
primarily through private sales of capital stock, which totaled approximately
$13.6 million in aggregate net proceeds through September 30, 1999. On July 16,
1996, Tessera Enterprise Systems entered into a credit facility with Silicon
Valley Bank providing, with subsequent amendments, for borrowings up to $4.0
million. Borrowings are based on eligible accounts receivable and are
collateralized by Tessera Enterprise Systems' accounts receivable. Borrowings
bear interest at the prime rate plus .50% (9.00% at November 19, 1999). Under
the terms of the facility, Tessera Enterprise Systems is required to comply
with certain covenants, including the maintenance of certain financial ratios.
At September 30, 1999, there were no borrowings outstanding and $4.0 million
was available under this line of credit. It is expected that this line of
credit will be terminated upon the closing of the merger.
Tessera Enterprise Systems also maintains an equipment line of credit
providing up to $2.7 million of borrowings which accrue interest at the prime
rate plus 1.00% to 1.75%. As of September 30, 1999 approximately $975,000 of
borrowings were outstanding under this line of credit. It is expected that this
line of credit will be repaid and terminated upon the closing of the merger.
At September 30, 1999, Tessera Enterprise Systems had approximately $7.0
million in cash and cash equivalents. For the period from inception to
September 30, 1999 Tessera Enterprise Systems used approximately $1.7 million
and $3.1 million to fund operating activities and capital expenditures,
respectively.
Tessera's Enterprise Systems' significant commitments include obligations
outstanding under operating leases. At December 31, 1998, the approximate
future minimum lease payments for noncancelable operating leases are:
<TABLE>
<CAPTION>
Amount
Year (in thousands)
---- --------------
<S> <C>
1999....................................................... $ 530
2000....................................................... 555
2001....................................................... 555
2002....................................................... 568
2003....................................................... 583
Thereafter................................................. 1,507
------
Total.................................................... $4,298
======
</TABLE>
Tessera Enterprise Systems believes its available cash resources and
credit facilities will be sufficient to meet its anticipated working capital
and capital expenditure requirements for at least the next 12 months.
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 many not be able to distinguish between 20th Century
dates and 21st Century dates. Accordingly, many companies, including Tessera
Enterprise Systems and Tessera Enterprise Systems' customers, potential
customers, vendors and strategic partners, may need to upgrade their systems to
comply with applicable "Year 2000" requirements.
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<PAGE>
Because Tessera Enterprise Systems 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 Tessera Enterprise Systems' business, results of
operations and financial condition. Additionally, Tessera Enterprise Systems'
failure to provide Year 2000 compliant products and services to our clients
could result in financial loss, reputation harm, and legal liability.
In the latter half of 1998 Tessera Enterprise Systems began Year 2000
compliance planning project. The executive sponsor is Stephen Richards, CFO,
and the Project Leader is Larry Jones, Director MIS. The project plan was to
subdivide Year 2000 compliance into six functional areas which include (1)
software applications--risk level low--progress 90% complete (2) financial
applications--risk level low--progress 80% complete (3) desktop equipment--risk
level low--progress 95% complete (4) servers--risk level moderate--progress 85%
complete (5) network--risk level low--progress 90% complete (6) internally
controlled telecommunications--risk level moderate--progress 95% complete.
Percentages of completion are as of November 22, 1999. Compliance in each of
these areas is scheduled for completion by December 31, 1999.
Tessera Enterprise Systems is researching Year 2000 compliance of all
existing mission critical systems supplied by third party providers. Where Year
2000 compliance documentation is not publicly available, Tessera Enterprise
Systems is issuing written requests to these providers to certify Year 2000
compliance. Tessera Enterprise Systems believes its greatest potential exposure
will be presented by failure of external systems such as utilities and
telecommunications. Further, if Tessera Enterprise Systems clients experience
Year 2000 problems, Tessera Enterprise Systems may be precluded from continuing
to provide services for these clients until the problems are resolved.
Internally, Tessera Enterprise Systems believes its greatest potential exposure
would be presented by its accounting systems, although these functions can be
handled manually without material interruption to Tessera Enterprise Systems'
operations.
Tessera Enterprise Systems is developing contingency plans for mission
critical individual information technology systems and non-information
technology systems for implementation, if required, due to Year 2000 risks not
fully resolved. Tessera Enterprise Systems' management currently believes that
the Year 2000 risk will not pose significant operational problems for Tessera
Enterprise Systems' computer systems. However, the risk does exist that Year
2000 issues could result in a material adverse effect on Tessera Enterprise
Systems' operations, customer relations, or financial condition.
Tessera Enterprise Systems estimates that the total cost of its Year 2000
compliance program will be approximately $50,000. However, there is no
guarantee that the actual costs incurred will not be materially higher than
this estimate.
58
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THE TESSERA ENTERPRISE SYSTEMS, INC. SPECIAL MEETING
General
We are furnishing this proxy statement/prospectus to you in connection
with the solicitation of proxies by the Tessera Enterprise Systems, Inc. board
of directors for use at the Tessera Enterprise Systems special meeting of
stockholders. This proxy statement/prospectus, the attached notice of special
meeting of stockholders and the enclosed form of proxy are first being mailed
to stockholders of Tessera Enterprise Systems on or about December , 1999.
Matters to be Considered at the Tessera Enterprise Systems Special Meeting
At the Tessera Enterprise Systems special meeting, holders of record as
of November 19, 1999 of Tessera Enterprise Systems common, and Series A, C, and
D Preferred, stock will consider and vote on proposals to approve and adopt the
merger agreement and approve the merger.
A copy of the merger agreement is attached as Annex A to this proxy
statement/prospectus.
AFTER CAREFUL CONSIDERATION, THE TESSERA ENTERPRISE SYSTEMS BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT
HOLDERS OF TESSERA ENTERPRISE SYSTEMS CAPITAL STOCK VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
Date, Time and Place
The Tessera Enterprise Systems special meeting is scheduled to be held at
10:00 a.m., local time, on , January , 2000, at the offices of Tessera
Enterprise Systems at 7 Audubon Road, Wakefield, Massachusetts 01880.
IF YOU ARE NOT A PARTY TO THE VOTING AGREEMENT, THEN PLEASE COMPLETE THE
PROXY CARD ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX C AND SEND IT
IN THE ENCLOSED ENVELOPE TO COUNSEL FOR TESSERA ENTERPRISE SYSTEMS SO THAT
TESSERA ENTERPRISE SYSTEMS RECEIVES IT NO LATER THAN JANUARY , 2000, AT THE
FOLLOWING ADDRESS:
Prince, Lobel & Tye LLP
585 Commercial Street
Boston, Massachusetts 02109
Attention: Martin E. Fishkin, Esq.
Record Date; Voting; Revocation of Proxies
The Tessera Enterprise Systems board of directors has fixed the close of
business on November 19, 1999 as the record date for the determination of the
stockholders entitled to notice of, and to vote at, the Tessera Enterprise
Systems special meeting. On that date, Tessera Enterprise Systems had
outstanding 2,536,780 shares of common stock, 50,200 shares of Series A
Preferred Stock (representing, upon conversion, 1,506,000 shares of common
stock), 48,700 shares of Series B Preferred Stock (to be redeemed for cash),
18,204 shares of Series C Preferred Stock (representing 546,120 shares of
common stock) and 40,991 shares of Series D Preferred Stock (representing, upon
conversion, 1,229,730 shares of common stock). The holders of Series A, C and D
Preferred Stock vote together with the holders of common stock as a single
class. The holders of Series B Preferred Stock are not entitled to vote. Under
Massachusetts law, the merger agreement will be approved and adopted and the
merger approved if at least two-thirds of the outstanding shares of common
stock, and Series A, C and D Preferred Stock, so vote. A list of stockholders
entitled to vote at the special meeting will be available for inspection by any
stockholder at Tessera Enterprise Systems' executive offices between November
19, 1999 and the date of the special meeting.
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<PAGE>
To induce iXL and iXL-Massachusetts to enter into the merger agreement,
Tessera Enterprise Systems stockholders holding, in aggregate, at least two-
thirds of the outstanding capital stock (the amount required to approve the
merger) have, as of October 4, 1999, agreed, in connection with the voting
agreement and without any additional consideration being paid to them, to vote
all of their shares of Tessera Enterprise Systems capital stock in favor of
approving and adopting the merger agreement and approving the merger. Pursuant
to that voting agreement, those Tessera Enterprise Systems stockholders have
granted to the Secretary of iXL an irrevocable proxy to vote their shares in
favor of approving the merger and adopting and approving the merger agreement.
The form of the voting agreement is attached as Annex B to this proxy
statement/prospectus.
Excluding stockholders who are parties to the voting agreement, shares of
Tessera Enterprise Systems stock represented by properly executed proxies will,
unless these proxies have been properly revoked, be voted in accordance with
the instructions indicated on such proxies or, if no instructions have been
indicated, will be voted for approval and adoption of the merger agreement, and
approval of the merger, and, in the best judgment of the individuals named in
the accompanying proxy, on any other matters which may properly come before the
Tessera Enterprise Systems special meeting. Excluding stockholders who are
parties to the voting agreement, any proxy may be revoked by the stockholder
giving it, at any time prior to its being voted, by filing a notice of
revocation or a duly executed proxy bearing a later date with the counsel of
Tessera Enterprise Systems at the address given on the notice of stockholders'
meeting accompanying this proxy statement/prospectus. Excluding stockholders
who are parties to the voting agreement, any proxy may also be revoked by the
stockholder's attendance at the Tessera Enterprise Systems special meeting and
voting in person. A notice of revocation need not be on any specific form.
Abstentions may be specified with respect to the approval and adoption of the
merger agreement by properly marking the "ABSTAIN" box on the proxy for such
proposal. Abstentions and broker nonvotes will have the same effect as a vote
against the approval and adoption of the merger agreement at the Tessera
Enterprise Systems special meeting.
Solicitation of Proxies
Proxies are being solicited by and on behalf of the Tessera Enterprise
Systems board of directors. Tessera Enterprise Systems will bear the costs
relating to the solicitation of proxies. In addition to solicitation by mail,
Tessera Enterprise Systems' directors, officers and regular employees, without
additional remuneration, may solicit proxies by telephone, facsimile machine
and personal interview.
Appraisal Rights
As provided in Section 87 of the Massachusetts Business Corporation Law,
if the merger is approved by the stockholders at the meeting and effected by
Tessera, then any stockholder (1) who files with Tessera Enterprise Systems
before the taking of the vote on the approval of such action, a written
objection to the proposed action stating that he intends to demand payment for
his shares if the action is taken, and (2) whose shares are not voted in favor
of such action, has or may have the right to demand in writing from iXL-
Massachusetts, Inc., the surviving corporation in the merger, within 20 days
after the date of mailing to him of notice in writing that the corporate action
has become effective, payment for his shares and an appraisal of the value
thereof. Such corporation and any such stockholder shall in such cases have the
rights and duties and shall follow the procedure set forth in Sections 88 to
98, inclusive, of the Massachusetts Business Corporation Law. iXL and iXL-
Massachusetts will not be obligated to complete the merger if Tessera
Enterprise Systems stockholders holding in excess of 1% of capital stock
exercise and do not withdraw their appraisal rights.
The following discussion is not a complete statement of the law
pertaining to appraisal rights under the Massachusetts Business Corporation Law
and is qualified in its entirety by the full text of Sections 86 through 98 of
the Massachusetts Business Corporation Law. THIS DISCUSSION SHOULD BE REVIEWED
CAREFULLY BY ANY HOLDER OF SHARES WHO WISHES TO EXERCISE STATUTORY APPRAISAL
RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO BECAUSE FAILURE STRICTLY TO
COMPLY WITH THE PROCEDURES SET FORTH HEREIN AND THEREIN WILL RESULT IN THE LOSS
OF APPRAISAL RIGHTS. STOCKHOLDERS DEMANDING AN APPRAISAL OF THEIR SHARES ARE
ADVISED TO CONSULT LEGAL COUNSEL.
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<PAGE>
iXL-Massachusetts, as the surviving corporation in the merger, shall,
within 10 days after the effective date of the merger, notify each stockholder
who filed a written objection in accordance with Section 86 of the
Massachusetts Business Corporation Law and whose shares were not voted in favor
of the approval of the merger that the merger has become effective. The notice
shall be sent by registered or certified mail, addressed to the stockholder at
his last known address as it appears in the records of Tessera Enterprise
Systems.
If within 20 days after the date of mailing of the notice referred to in
the preceding paragraph any stockholder to whom the corporation was required to
give such notice shall demand in writing from the surviving corporation in the
merger payment for his stock, then the surviving corporation shall pay to him
the fair value of his stock within 30 days after the expiration of such 20-day
demand period.
If during the 30-day payment period referred to in the preceding
paragraph the surviving corporation and any such objecting stockholder fail to
agree as to the value of such stock, then such corporation or any such
stockholder may within four months after the expiration of such 30-day period
demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the
Massachusetts county where Tessera Enterprise Systems had its principal office.
If such bill in equity is filed by the corporation, then it shall name as
parties all stockholders who have demanded payment for their shares and with
whom it has not reached agreement as to the value thereof; if the bill is filed
by a stockholder, then he shall bring it in his own behalf as well as all other
such stockholders. Section 91 of the Massachusetts Business Corporation Law
provides for parties to suit to determine value; notice; and service.
After hearing the court shall enter a decree determining the fair value
of the stock of those stockholders who have become entitled to the valuation of
and payment for their shares, and shall order the corporation to make payment
of such value, together with any interest, to such stockholders, upon the
transfer by them to the corporation of their certificate(s). The value of the
shares shall be determined as of the day preceding the date of the vote of
stockholders approving the merger and shall be exclusive of any element of
value arising from the expectation or accomplishment of the merger. The court
in its discretion may refer the bill or any question arising thereunder to a
special master. On motion the court may order stockholder parties to such bill
to submit their stock certificate(s) to the corporation for the notation
thereon of the pendency of the bill, and may on motion dismiss the bill as to
any stockholder who fails to comply with such order.
The costs of the bill, including the reasonable compensation and expenses
of any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders shall be paid
by the corporation. Interest shall be paid upon any award from the date of the
vote of stockholders approving the merger.
Any stockholder who has demanded payment for his stock shall not
thereafter be entitled to notice of any meeting of stockholders or to vote such
stock for any purpose, and generally shall not be entitled to the payment of
dividends or other distribution on the stock, unless (i) a bill shall not be
timely filed; (ii) a bill, if filed, shall be dismissed as to such stockholder;
or (iii) such stockholder shall with the written approval of the surviving
corporation deliver to it a written withdrawal of his objections to and an
acceptance of the merger. Notwithstanding the foregoing, such stockholder shall
have only the rights of a stockholder who did not so demand payment for his
stock.
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in the Massachusetts Business Corporation Law
shall be an exclusive remedy except that it shall not exclude the right of such
stockholder to bring or maintain an appropriate proceeding to obtain relief on
the ground that such corporate action will be or is illegal or fraudulent as to
him.
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A demand for appraisal must be executed by or for the stockholder of
record, fully and correctly, as such stockholder's name appears on the stock
certificate(s). If the shares are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, then such demand must be executed by
the fiduciary in that capacity. If the shares are owned of record by more than
one person, as in a joint tenancy in common, then such demand must be executed
by all joint owners. An authorized agent, including an agent for two or more
joint owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demand, such person is acting as an agent for the
record owner.
A record owner who holds shares as nominee for others may exercise
appraisal rights with respect to the shares held for all or less than all
beneficial owners of shares as to which such person is the record owner. In
case of an exercise of appraisal rights with respect to less than all shares
held by such a record holder, the written demand must set forth the number of
shares covered by such demand. Where the number of shares is not expressly
stated, the demand will be presumed to cover all shares outstanding in the name
of such record owner.
Accounting Treatment
The merger will be accounted for using the purchase method of accounting
in accordance with generally accepted accounting principles. Under this method
of accounting, the assets and liabilities of Tessera Enterprise Systems will be
recorded at fair value on the date of acquisition. The difference between the
recorded purchase price of the acquisition and the net assets acquired will be
allocated to goodwill and intangible assets and amortized over their expected
useful lives. iXL will account for the results of operations of Tessera
Enterprise Systems commencing upon closing of the acquisition.
Transferability of iXL Common Stock
All shares of iXL common stock received by Tessera Enterprise Systems
stockholders in the merger will be freely transferable, except as follows:
. shares of iXL common stock received by persons who are deemed to
be "affiliates," as such term is defined under the Securities Act,
of Tessera Enterprise Systems prior to the merger may be resold by
them only in transactions permitted by the resale provisions of
Rule 145 promulgated under the Securities Act or as otherwise
permitted under the Securities Act. Persons who are affiliates of
Tessera Enterprise Systems generally include individuals or
entities that control, are controlled by, or are under common
control with, Tessera Enterprise Systems and may include certain
officers and directors of Tessera Enterprise Systems as well as
principal stockholders of Tessera Enterprise Systems; it is a
condition to iXL's and iXL-Massachusetts' obligation to complete
the merger that each such "affiliate" shall deliver a letter
agreement to the effect that he or she will not offer, sell or
otherwise dispose of any of the shares of iXL common stock issued
to him in the merger in violation of the Securities Act or Rule
145 thereunder;
. shares of iXL common stock received by Tessera Enterprise Systems
stockholders in the merger, or receivable by Tessera Enterprise
Systems optionholders upon exercise of their existing options or
new iXL options after the merger, may not be offered, sold or
otherwise disposed of during a period of 90 days from the
effective date of iXL's most recent registration statement on Form
S-1; it is a condition to iXL's and iXL-Massachusetts' obligation
to complete the merger that substantially all such stockholders
and optionholders shall deliver to iXL's lead underwriters a
letter agreement to that effect; and
. as to certain of the Tessera Enterprise Systems stockholders that
are parties to the voting agreement, the restricted period set
forth in the immediately preceding paragraph shall instead be 270
days, with 1/3 of such shares released therefrom after 90 days,
and an additional 1/3 so released after 180 days. Each such
stockholder shall, as applicable, deliver to iXL a letter
agreement to that effect.
62
<PAGE>
THE MERGER
Background
In June 1999, Tessera Enterprise Systems management internally reviewed
the future strategy of the company in light of the emerging marketplace
opportunities relating to e-commerce. Given the importance of ERM in the future
development of e-commerce capabilities, it was decided that an alliance with a
leading e-commerce services provider would be in the strategic best interest of
Tessera Enterprise Systems. Thus, management began discussing the idea of
merging Tessera Enterprise Systems with such a company. On July 13, 1999,
Tessera Enterprise Systems engaged ING Barings as financial advisor related to
the potential merger of the company. ING Barings was authorized to contact a
specified list of companies regarding their interest in acquiring Tessera
Enterprise Systems. This list included iXL. On July 16, 1999, the Tessera
Enterprise Systems board of directors met and actively discussed developing a
sale strategy, reviewed the list of potential acquirors and ratified the
engagement of ING Barings.
On July 15, 1999, ING Barings first contacted iXL and on July 18, 1999,
iXL executed a confidentiality agreement with Tessera Enterprise Systems with
respect to discussions of potential transactions.
Between August 23 and September 9, 1999, three meetings occurred between
iXL and Tessera Enterprise Systems management to discuss the potential
acquisition of Tessera Enterprise Systems. On September 13, 1999, iXL executed
and delivered a preliminary indication of interest to Tessera Enterprise
Systems, which included the proposed consideration for the acquisition.
During the period of September 17 through September 21, 1999, iXL and
Tessera Enterprise Systems, with the aid of their respective legal advisors and
ING Barings, conducted several telephonic conferences discussing the terms of
the proposed offer.
From September 22 to September 29, 1999, iXL and Tessera Enterprise
Systems completed their respective due diligence. From September 27, 1999
through October 4, 1999, the parties, with the assistance of their respective
legal advisors, negotiated the terms of the merger agreement.
Between September 22 and September 23, 1999, Tessera Enterprise Systems
received proposals from two other companies.
On September 24, 1999, ING Barings presented the three acquisition
proposals at the Tessera Enterprise Systems board of directors meeting and
discussed the terms of the proposals, the fit of Tessera Enterprise Systems
with each company, the market value and volatility of the common stock of each
company, and the risks of a potential merger transaction with each company. One
of the proposals was removed from consideration, due to price and other
considerations. The two remaining bidders were iXL and a privately held
company. At the close of the meeting, it was determined that Tessera Enterprise
Systems needed to further investigate the two remaining proposals.
From September 24 through September 29, 1999, Tessera Enterprise Systems
entertained discussions with both bidders. In both cases price, purchase terms
and potential integration issues were reviewed. On September 30, 1999, Tessera
Enterprise Systems accepted the iXL offer and notified the other bidder.
Acceptance of the iXL offer over that of the other bidder was principally based
upon similar strategy of the companies, cultural fit of management and
employees, competitive price, the public market for iXL's common stock, and
belief that the merger complemented both companies.
On October 4, 1999, the Tessera Enterprise Systems board of directors
approved the acceptance of the iXL offer by unanimous written consent and
Tessera Enterprise Systems and iXL executed the merger agreement.
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Reasons for the Merger
iXL's Reasons for the Merger
iXL believes the combination of Tessera Enterprise Systems' position as a
leading provider of enterprise relationship management, or ERM, solutions with
its existing ERM resources will create a more complete service offering and
allow iXL to more adequately serve its existing and prospective customer base
in the area of ERM. Additionally, iXL believes that the addition of Tessera
Enterprise Systems' existing customers into its own customer base will provide
for both short and long term revenue opportunities as those customers are
introduced to iXL's broad service offering. Finally, the merger provides for
the addition of significant management and general personnel in two of iXL's
key markets, Boston and San Francisco.
Tessera Enterprise Systems' Reasons for the Merger
After careful consideration, the Tessera Enterprise Systems board of
directors has determined that the terms of the merger agreement and the merger
are fair from a financial point of view to, and are in the best interests of,
Tessera Enterprise Systems and its stockholders. Accordingly, the Tessera
Enterprise Systems board of directors has unanimously approved and adopted the
merger agreement and recommends approval and adoption of the merger agreement,
and approval of the merger, by Tessera Enterprise Systems' stockholders. In
making its decision to approve the merger agreement and the merger, and its
determination that the merger is in the best interests of Tessera Enterprise
Systems and its stockholders, the board of directors of Tessera Enterprise
Systems consulted with ING Barings, its financial advisors, regarding the
financial aspects of the proposed transaction and with Prince, Lobel & Tye LLP,
its legal advisors, regarding the legal terms of the transaction, as well as
with management of Tessera Enterprise Systems. Tessera Enterprise Systems did
not request that its financial advisor render a written fairness opinion with
respect to the merger. Nevertheless, ING Barings made presentations to the
board of directors of Tessera Enterprise Systems with respect to the financial
aspects of the proposed merger with iXL-Massachusetts. The board of directors
also considered the following factors, to which relative weights were not
assigned:
. A review by the Tessera Enterprise Systems board of directors of the
business, operations, financial condition and earnings of iXL on a
historical basis, and current industry, economic and market
conditions. The board of directors also considered the historical and
prospective stock price performance of iXL common stock, including the
anticipated impact of the merger on the price of iXL common stock over
both the short and long term.
. The compatibility of the respective businesses, operating philosophies
and strategic objectives of iXL and Tessera Enterprise Systems.
. The economic terms of the merger agreement and the merger, including
the exchange ratio. The Tessera Enterprise Systems board of directors
considered that the exchange ratio had been determined through arms-
length negotiations.
. Possible strategic alternatives to the merger for enhancing long-term
stockholder value, including transactions with other potential
strategic merger partners.
. The likelihood that the merger with iXL would be consummated compared
to Tessera Enterprise Systems' other strategic alternatives.
. The familiarity of the Tessera Enterprise Systems board of directors
with and review of Tessera Enterprise Systems' business, operations,
financial condition and earnings on a historical and a prospective
basis.
. The advice of ING Barings as Tessera Enterprise Systems' financial
advisor and the involvement of ING Barings throughout the merger
discussions and negotiations.
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<PAGE>
. The expectation that the merger will be tax-free for federal income
tax purposes to Tessera Enterprise Systems and its continuing
stockholders, except for cash to be paid in lieu of fractional shares
or in connection with the exchange of Tessera Enterprise Systems
Series C Preferred Stock.
. The general favorable impact that the merger could be expected to have
on the constituencies served by Tessera Enterprise Systems, including
its customers and employees.
THE TESSERA ENTERPRISE SYSTEMS BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT THE TESSERA ENTERPRISE
SYSTEMS STOCKHOLDERS VOTE FOR ADOPTION AND APPROVAL OF THE MERGER AGREEMENT
AND APPROVAL OF THE MERGER.
Interests of Certain Persons in the Merger
In considering the recommendations of the members of the Tessera
Enterprise Systems board of directors with respect to the merger agreement and
the transactions contemplated by the merger agreement, stockholders of Tessera
Enterprise Systems should be aware that members of the management and the
board of directors of Tessera Enterprise Systems have particular interests in
the merger that are different from, or in addition to, the interests of
stockholders of Tessera Enterprise Systems generally:
. The merger agreement provides that, at the time of the merger, iXL
will, subject to the merger agreement, assume Tessera Enterprise
Systems' obligations under its existing stock option plan, such
that each outstanding option to purchase shares of Tessera
Enterprise Systems common stock will be converted into an option
to purchase shares of iXL common stock, based upon the exchange
ratio determined as of the time of the merger. Certain officers
and directors of Tessera Enterprise Systems are optionholders.
. Certain officers of Tessera Enterprise Systems have agreed to
terminate their existing employment agreements and to enter into
new employment agreements with iXL-Massachusetts.
. Certain officers and directors of Tessera Enterprise Systems will,
upon completion of the merger, receive new options from iXL.
. Officers or directors of Tessera Enterprise Systems may be deemed
"affiliates" of Tessera Enterprise Systems and, therefore, be
required under the merger agreement to execute and deliver a
letter agreement to iXL concerning Rule 145 under the Securities
Act.
. Certain officers or directors of Tessera Enterprise Systems are
required under the merger agreement to execute and deliver letter
agreements to iXL providing for a period of restriction on the
offer, sale or other disposition of iXL common stock received in
the merger which is longer than the period applicable generally to
Tessera Enterprise Systems stockholders.
. Certain officers and directors of Tessera Enterprise Systems are
required under the merger agreement to execute and deliver
noncompetition agreements with iXL.
Comparative Rights of Stockholders of iXL and Tessera Enterprise Systems
Upon approval of the merger by the stockholders of Tessera Enterprise
Systems, at the time of the merger, the holders of Tessera Enterprise Systems
common stock will become holders of iXL common stock. The rights of iXL
stockholders are governed generally by iXL's restated certificate of
incorporation, its bylaws, as amended and restated, and Delaware law,
including the Delaware General Corporation Law. The rights of Tessera
Enterprise Systems stockholders are governed generally by its restated
articles of organization, its bylaws and Massachusetts law, including the
Massachusetts Business Corporation Law.
The following is a summary of the material differences between the
rights of the holders of Tessera Enterprise Systems common stock and the
rights of holders of iXL common stock. Because iXL is a Delaware corporation
while Tessera Enterprise Systems is a Massachusetts corporation, these
differences arise primarily from differences between the Delaware and
Massachusetts corporate laws, as well as differences in the provisions of
iXL's restated certificate of incorporation and Tessera Enterprise Systems'
restated articles of organization and the differences between iXL's bylaws and
Tessera Enterprise Systems' bylaws.
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The following summary does not purport to be a complete statement of the
rights of iXL stockholders under iXL's restated certificate of incorporation,
iXL's bylaws and the Delaware General Corporation Law as compared with the
rights of the Tessera Enterprise Systems stockholders under Tessera Enterprise
Systems' restated articles of organization, Tessera Enterprise Systems' bylaws
and the Massachusetts Business Corporation Law, and does not purport to be a
complete description of the specific provisions referred to below. The
identification of specific differences is not meant to indicate that other
equally or more significant differences do not exist. This summary is qualified
in its entirety by reference to the governing corporate instruments of iXL
incorporated by reference to the registration statement of which this proxy
statement/prospectus is a part, to which stockholders are referred. The terms
of iXL common stock are described under "Description of Capital Stock of iXL".
Authorized Capital Stock
The authorized capital stock of Tessera Enterprise Systems consists of
7,500,000 shares of common stock, no par value; 58,700 shares of Series A
Preferred Stock, $0.01 par value; 48,700 shares of Series B Preferred Stock,
$0.01 par value; 18,204 shares of Series C Preferred Stock, $0.01 par value;
and 43,831 shares of Series D Preferred Stock, $0.01 par value.
The authorized capital stock of iXL consists of 200,000,000 shares of
common stock, $0.01 par value; and 5,000,000 shares of preferred stock, $0.01
par value.
Stockholder Action by Written Consent
Under the Massachusetts Business Corporation Law, stockholders of
Massachusetts corporations are permitted to act by written consent in lieu of a
meeting of stockholders unless the articles of organization prohibits
stockholder action by written consent. Tessera Enterprise Systems' articles of
organization do not prohibit its stockholders from acting by written consent in
lieu of a meeting of stockholders and its bylaws expressly authorize such
action by unanimous written consent filed with the records of stockholders'
meetings.
Under the Delaware General Corporation Law, stockholders of Delaware
corporations are permitted to act by written consent in lieu of a meeting of
stockholders unless the certificate of incorporation prohibits stockholder
action by written consent; however, iXL's restated certificate of incorporation
does prohibit stockholder action by written consent. This provision of iXL's
restated certificate of incorporation may have antitakeover effects because iXL
stockholders can only act at meetings of stockholders called in accordance with
the restated certificate of incorporation, bylaws and Delaware General
Corporation Law.
Special Meetings of Stockholders
Tessera Enterprise Systems' bylaws provide that special meetings of the
stockholders may be called by the president or board of directors, and shall be
called by the clerk at the request in writing of one or more stockholders
holding at least 10% of the capital stock entitled to vote thereat. iXL's
amended and restated bylaws provide that special meetings of the stockholders
may be called by the chairman or CEO, and shall be called by the CEO or
secretary (i) pursuant to a resolution adopted by a majority of the entire
board; (ii) at the request in writing sent by registered mail of stockholders
holding at least 20% of the outstanding shares entitled to vote thereat; or
(iii) by certain parties to iXL's stockholders' agreement, for the purpose of
voting on directors designated for election pursuant to that agreement.
Appraisal Rights
As provided in Section 87 of the Massachusetts Business Corporation Law,
if the action proposed is approved by the stockholders at the meeting and
effected by Tessera Enterprise Systems, then any stockholder (1) who files with
the corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken; and (2) whose shares are not
voted in favor of such action has or may have the right to demand in writing
from the surviving corporation, within 20 days after the date of mailing to him
of notice in writing that the corporate action has become effective, payment
for his shares and an appraisal of the value thereof. Such corporation and any
such stockholder shall in such cases have the rights and duties and shall
follow the procedure set forth in Sections 88 to 98, inclusive, of the
Massachusetts Business Corporation Law.
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Under the Delaware General Corporation Law, stockholders of Delaware
corporations have appraisal rights in connection with the merger or
consolidation of the corporation. However, no such rights are available to any
class or series of stock that is either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc., or is
held of record by more than 2,000 stockholders. Because iXL common stock is
traded on the Nasdaq National Market the outstanding shares of iXL common stock
do not have, and the shares of iXL common stock that will be issued in the
merger will not have, appraisal rights under the Delaware General Corporation
Law.
Material Federal Income Tax Consequences
The following discussion is a summary of the material anticipated U.S.
federal income tax consequences to the Tessera Enterprise Systems stockholders
of the conversion of Tessera Enterprise Systems Series A and D Preferred Stock
into Tessera Enterprise Systems common stock and of the merger. The discussion
is based on laws, regulations, rulings and decisions in effect on the date
hereof, all of which are subject to change, possibly with retroactive effect,
and to differing interpretations. This discussion does not address all aspects
of U.S. federal income taxation that may be relevant to particular stockholders
in light of their personal circumstances or to stockholders subject to special
treatment under the Internal Revenue Code of 1986, as amended, including,
without limitation, banks, tax-exempt organizations, insurance companies,
dealers in securities or foreign currency, stockholders whose shares of Tessera
Enterprise Systems preferred or common stock are not held as "capital assets"
within the meaning of Section 1221 of the Internal Revenue Code, stockholders
who received their Tessera Enterprise Systems common stock through the exercise
of employee stock options or otherwise as compensation and stockholders who are
not U.S. persons (as defined in Section 7701(a)(30) of the Internal Revenue
Code). In addition, the discussion does not address any state, local or foreign
tax consequences of the merger.
WE URGE YOU TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE PARTICULAR
TAX CONSEQUENCES OF THE MERGER TO YOU.
Federal Income Tax Consequences of Conversion of Preferred Stock to Common
Stock
For federal income tax purposes, no gain or loss will be recognized by
the holders of Tessera Enterprise Systems Series A and D Preferred Stock upon
conversion of their shares of preferred stock into shares of common stock
immediately prior to the merger. Shares of Tessera Enterprise Systems common
stock received by a stockholder upon conversion of Tessera Enterprise Systems
preferred stock will have the same tax basis as the stockholder's basis in the
shares of Tessera Enterprise Systems Series A and D Preferred Stock that were
converted, and the holding period of the shares of Tessera Enterprise Systems
common stock received upon conversion of a stockholder's Tessera Enterprise
Systems Series A and D Preferred Stock will include the holding period of the
shares of Tessera Enterprise Systems Series A and D Preferred Stock that were
converted.
Federal Income Tax Consequences of the Merger to Tessera Enterprise Systems
Stockholders
In connection with the registration statement of which this proxy
statement/prospectus is a part, Palmer & Dodge LLP, special tax counsel to
Tessera Enterprise Systems in connection with the merger, will deliver an
opinion to Tessera Enterprise Systems that, subject to the assumptions,
limitations, qualifications and other considerations described below under
"Certain Considerations with Respect to Tax Opinion," the merger will be
treated for U.S. federal income tax purposes as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code and the U.S. federal
income tax consequences of the merger will be that:
. no gain or loss will be recognized by the holders of Tessera
Enterprise Systems common stock (including holders who acquired their
shares of Tessera Enterprise Systems common stock upon conversion of
their shares of Tessera Enterprise Systems Series A and Series D
Preferred Stock) upon the exchange in the merger of all of their
shares of Tessera Enterprise Systems common stock solely for shares of
iXL common stock, except with respect to cash, if any, received in
lieu of fractional shares of iXL common stock;
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. the aggregate tax basis of the shares of iXL common stock received by
a holder of Tessera Enterprise Systems common stock in the merger will
be the same as the aggregate tax basis of the shares of Tessera
Enterprise systems common stock surrendered in exchange therefor,
reduced by any amount allocable to a fractional share of iXL common
stock for which cash is received;
. except with respect to the receipt of cash in lieu of fractional
shares, holders of Tessera Enterprise Systems Series C Preferred Stock
will recognize gain, but not loss on the exchange of their Series C
Preferred Stock for cash (other than cash in lieu of fractional
shares) and iXL common stock in the merger; the gain, if any, that a
holder will recognize will equal the lesser of (i) the amount of cash
received and (ii) the amount of gain that the holder realizes in the
exchange; the amount of gain that the holder realizes in the exchange
will equal the excess of (x) the sum of the cash plus the fair market
value of the iXL common stock received in the exchange (including any
fractional shares of iXL common stock deemed received, as described
below) over (y) the tax basis of the Tessera Enterprise Systems Series
C Preferred Stock surrendered; the aggregate tax basis of the iXL
common stock received will be equal to the aggregate tax basis of the
Tessera Enterprise Systems Series C Preferred Stock surrendered in the
exchange, decreased by the amount of cash received and increased by
the amount of gain recognized and further reduced by any amount
allocable to a fractional share of iXL common stock for which cash is
received;
. holders of Tessera Enterprise Systems common stock or Series C
Preferred Stock who receive cash in lieu of fractional shares of iXL
common stock will be treated as having received those fractional
shares in the merger and then as having exchanged the fractional
shares for cash in a redemption by iXL; a holder will recognize gain
or loss on this deemed redemption in an amount equal to the difference
between the amount of cash received in lieu of the fractional share
and the portion of the tax basis of the holder's Tessera Enterprise
Systems common stock or Series C Preferred Stock surrendered in the
merger that is allocated to the fractional share; and
. the holding period of the shares of iXL common stock received in the
merger by a holder of Tessera Enterprise Systems common stock or
Tessera Enterprise Systems Series C Preferred Stock, including a
fractional share of iXL common stock deemed to have been received and
then exchanged for cash, will include the holding period of the shares
of Tessera Enterprise Systems common stock or Series C Preferred Stock
surrendered in exchange therefor.
Treatment of Gain Recognized by Holders of Tessera Enterprise Systems Series C
Preferred Stock
The gain recognized by a holder of Tessera Enterprise Systems Series C
Preferred Stock by reason of the holder's receipt of cash (other than cash in
lieu of a fractional share) in exchange for the holder's Series C Preferred
Stock will be capital gain, unless the receipt of the cash has the effect of
the distribution of a dividend. If the receipt of the cash has the effect of a
distribution of a dividend, the gain recognized by the holder as a result of
the receipt of the cash will be treated first as a dividend to the extent of
the holder's allocable share of the accumulated earnings and profits of Tessera
Enterprise Systems and thereafter as capital gain. For purposes of determining
whether the receipt of the cash has the effect of a distribution of a dividend,
a holder of Series C Preferred Stock will be treated as if the holder exchanged
all of the Series C Preferred Stock solely for iXL common stock in the merger
and then iXL immediately redeemed a number of shares of iXL common stock equal
in value to the cash the holder actually received. If this hypothetical
redemption satisfies the requirements for non-dividend treatment under Section
302 of the Internal Revenue Code, the receipt of the cash will not have the
effect of a distribution of a dividend.
Generally, the requirements for non-dividend treatment under Section 302
will be satisfied if (i) the holder's percentage ownership of iXL voting stock
immediately after the deemed redemption is less than 80% of the holder's
percentage ownership of such stock immediately before the deemed redemption and
the holder owns less than 50% of iXL voting stock after the redemption or (ii)
the redemption is "not essentially equivalent to a dividend" under Section
302(b)(1). The redemption should satisfy the "not essentially equivalent to a
dividend" test if the holder's percentage ownership interest in iXL is minimal,
the holder
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exercises no control over the affairs of iXL, and the redemption results in
some reduction in the holder's percentage ownership of iXL stock. In
determining whether any of these tests is satisfied, holders must generally
take into account not only the stock they own or are deemed to own directly,
but also stock that they are treated as owning constructively by reason of
certain attribution rules under Section 318 of the Internal Revenue Code,
including, generally, stock owned by certain family members, stock issuable
upon the exercise of options, stock owned by certain estates and trusts of
which the holder is a beneficiary, and stock owned by certain affiliated
entities.
Because the outcome of the above-described tests depends upon each
stockholder's particular circumstances and the price of iXL common stock at the
time of the merger, holders of Tessera Enterprise Systems Series C Preferred
Stock are urged to consult their own tax advisors regarding the treatment of
the gain they recognize by reason of their receipt of cash in the merger in
exchange for their Series C Preferred Stock.
Appraisal Rights
A holder of Tessera Enterprise Systems common stock who exercises
appraisal rights will generally recognize gain or loss for federal income tax
purposes, measured by the difference between the amount of cash received and
the basis of the Tessera Enterprise Systems common stock surrendered. The gain
or loss will be capital gain or loss provided that the shares of Tessera
Enterprise Systems common stock were held as capital assets and will be long-
term capital gain or loss if the Tessera Enterprise Systems common stock had
been held for more than one year at the time of the merger.
Federal Income Tax Consequences of the Merger to the Companies
The merger will not result in taxable income for any of iXL, iXL-
Massachusetts or Tessera Enterprise Systems.
Certain Considerations with Respect to Tax Opinion
The tax opinion of Palmer & Dodge LLP and the foregoing summary of the
anticipated U.S. federal income tax consequences of the merger are based upon
and are subject to certain assumptions, limitations and qualifications,
including certain representations made by Tessera Enterprise Systems and iXL.
If any of these representations or assumptions is inconsistent with the actual
facts, the U.S. federal income tax treatment of the merger could be adversely
affected. In addition, no ruling from the Internal Revenue Service with respect
to the tax consequences of the merger has been, or will be, requested. The tax
opinion is not binding on the Internal Revenue Service or the courts, and it is
possible that the Internal Revenue Service could assert a contrary position and
that a court could sustain that position.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the Agreement
and Plan of Merger, dated as of October 4, 1999, among Tessera Enterprise
Systems, Inc., iXL Enterprises, Inc. and iXL-Massachusetts, Inc., a copy of
which is attached as Annex A to this proxy statement/prospectus and
incorporated by reference. The following summary is qualified in its entirety
by reference to the text of the merger agreement, which we encourage you to
read.
General
The merger agreement provides that, following the approval and adoption
of the merger agreement and approval of the merger by the stockholders of
Tessera Enterprise Systems and the satisfaction or waiver of the other
conditions to the merger:
. Tessera Enterprise Systems will merge with and into iXL-Massachusetts;
and
. Tessera Enterprise Systems will cease to exist and iXL-Massachusetts
will continue as the surviving corporation following the merger; as a
result of the merger, as of the effective time of the merger, iXL-
Massachusetts will succeed to and assume all rights and obligations of
Tessera Enterprise Systems, in accordance with the Delaware General
Corporation Law.
Effective Time
The merger agreement provides that, subject to the requisite approval of
the stockholders of Tessera Enterprise Systems and the satisfaction or waiver
of other conditions, the merger will be consummated by the filing of an
appropriate certificate of merger and any other appropriate documents, in
accordance with the relevant provisions of the Delaware General Corporation
Law, with the Secretary of State of the State of Delaware; and by the filing of
appropriate articles of merger and any other appropriate documents, in
accordance with the relevant provisions of the Massachusetts Business
Corporation Law, with the Secretary of State of the Commonwealth of
Massachusetts.
Conversion Of Shares
At the closing of the merger, Tessera Enterprise Systems stockholders
shall surrender their Tessera Enterprise Systems capital stock, other than
Series B Preferred Stock, to be exchanged for shares of iXL common stock. In
accordance with the merger agreement, the value per share of iXL common stock
has been fixed at $29.49, which is the average price per share of iXL common
stock for the 30 business days prior to the date of the merger agreement based
on the average of the daily closing price thereof, for purposes of determining
the exchange ratio used to compute the number of shares of iXL common stock
issuable upon surrender of shares of Tessera Enterprise Systems capital stock.
However, the actual number of shares of iXL common stock to be received upon
surrender of each share of Tessera Enterprise Systems capital stock will not be
determined at the time when Tessera Enterprise Systems stockholders vote on the
proposed merger, due to the variable nature of other components of the exchange
ratio.
Holders of Tessera Enterprise Systems common stock shall receive shares
of iXL common stock upon surrender of their shares of Tessera Enterprise
Systems common stock in accordance with the conversion formula set forth in the
merger agreement. This formula dictates that each share of Tessera Enterprise
Systems common stock shall be entitled to receive the number of shares of iXL
common stock as is determined in accordance with the following:
. The total aggregate purchase price of $120 million will be reduced by:
. the total outstanding amount, including principal and accrued
interest, of Tessera Enterprise Systems' debt for borrowed money as
of three days prior to the closing date, less an allowance of
$732,000;
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. the total amount of any investment banking, legal, accounting,
broker, finder or other fees and expenses incurred by Tessera
Enterprise Systems in connection with the merger; and
. the aggregate amount of cash required to redeem all shares of
Tessera Enterprise Systems Series B Preferred Stock outstanding at
the closing of the merger plus the aggregate amount of cash required
to be paid to holders of Tessera Enterprise Systems Series C
Preferred Stock outstanding at the closing of the merger.
. The resulting amount will then be divided by the product of:
. $29.49; and
. the total number of shares of Tessera Enterprise Systems common
stock which would be outstanding on the date of closing of the
merger if all the outstanding shares of Tessera Enterprise Systems
Series A, C and D Preferred Stock were converted into Tessera
Enterprise Systems common stock immediately prior to the merger;
plus 803,768, representing the total number of options to purchase
Tessera Enterprise Systems common stock outstanding as of the date
of the merger agreement.
Based on current estimates of the variable factors, it is anticipated
that each share of Tessera Enterprise Systems common stock will be exchanged
for approximately 0.59 shares of iXL common stock.
With respect to the exchange of certificates for iXL common stock, the
following provisions shall apply:
. If any certificate has been lost, stolen or destroyed, then iXL's
policies generally concerning lost, stolen or destroyed certificates
of iXL common stock, which may include requirements of affidavits,
bonds and indemnities, shall apply.
. No fractional shares of iXL common stock shall be issued; in lieu
thereof, a stockholder of Tessera Enterprise Systems will receive a
check representing the value of the fractional share, based on the
exchange ratio.
. iXL certificates shall not be issued in a name other than that in
which the certificates surrendered in exchange therefor are registered
absent compliance with iXL's policies concerning proper endorsements
and evidence of payment of applicable transfer or other taxes.
Each issued and outstanding share of common stock of iXL-Massachusetts
shall, by virtue of the merger and without any action on the part of any
stockholder, officer or director of Tessera Enterprise Systems or iXL-
Massachusetts, be converted into and become one fully paid and nonassessable
share of common stock of iXL-Massachusetts as the surviving corporation.
Treatment of Preferred Stock
It is anticipated that (a) holders of Tessera Enterprise Systems Series A
and D Preferred Stock will convert all outstanding shares into Tessera
Enterprise Systems common stock prior to the merger, and, as provided in the
merger agreement, these converted shares will be converted into iXL common
stock at the time of the merger; (b) holders of Tessera Enterprise Systems
Series C Preferred Stock will exchange their shares for iXL common stock and
$54.93 per share, payable in cash; and (c) holders of Tessera Enterprise
Systems Series B Preferred Stock will, prior to the merger, have all of their
shares redeemed.
Treatment of Stock Options
At or after the time of the merger, subject to various conditions and
limitations, each outstanding option to purchase shares of Tessera Enterprise
Systems common stock will be assumed by iXL and converted into an option to
purchase the number of shares of iXL common stock equal to the number of shares
of Tessera
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Enterprise Systems common stock subject to the original option multiplied by
the exchange ratio. The exercise price per share of iXL common stock under the
converted option will be equal to the former exercise price per share of
Tessera Enterprise Systems common stock immediately prior to the time of the
merger divided by the exchange ratio. The other terms of the option, including
the vesting schedule, will remain unchanged.
Directors and Officers
The merger agreement provides that the board of directors of the
surviving corporation from and after the time of the merger will consist of the
directors of iXL-Massachusetts immediately prior to the time of the merger. The
merger agreement further provides that the officers of the surviving
corporation from and after the time of the merger will be the officers of iXL-
Massachusetts immediately prior to the time of the merger.
Each director and officer will hold office from the time of the merger
until his respective successor is duly elected or appointed and qualified in
the manner provided in the certificate of incorporation or bylaws of the
surviving corporation, or otherwise provided by applicable law.
Certificate of Incorporation and Bylaws
The merger agreement provides that:
. the certificate of incorporation of iXL-Massachusetts in effect
immediately prior to the time of the merger will be the certificate of
incorporation of the surviving corporation until thereafter amended in
accordance with its terms or as provided by applicable law; and
. the bylaws of iXL-Massachusetts in effect immediately prior to the
time of the merger will be the bylaws of the surviving corporation
until thereafter amended in accordance with its terms or as provided
by applicable law.
Representations and Warranties
. The merger agreement contains various customary representations and
warranties of Tessera Enterprise Systems relating to, among other
things:
(1) its organization, qualification and similar corporate matters;
(2) authorization, execution, delivery, performance and
enforceability of the merger agreement;
(3) its capital structure, including capital stock, options,
warrants and other stock rights;
(4) its subsidiaries;
(5) absence of any necessary governmental or third party consents or
approvals other than those specified; absence of conflict with
articles of organization or bylaws, applicable law, or any
contract or lease, or creation of any lien;
(6) delivery of financial statements and their GAAP compliance;
absence of material changes or events, except as otherwise
provided in the merger agreement;
(7) absence of material changes in business since June 30, 1999;
(8) absence of undisclosed liabilities;
(9) title to properties;
(10) equipment;
(11) intellectual property; year 2000 matters;
(12) real property;
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(13) leases;
(14) material contracts;
(15) directors and officers;
(16) payroll information;
(17) absence of any pending or threatened litigation, except as
otherwise disclosed;
(18) employee benefit plans and labor relations;
(19) ERISA;
(20) tax matters;
(21) compliance with applicable laws; governmental permits;
(22) board of directors consent, and the board's recommendation that
stockholders adopt and approve the merger agreement and approve
the merger;
(23) absence of any broker's, finder's or investment banker's fees
owed in connection with the transactions contemplated by the
merger agreement, other than amounts owed to ING Barings;
(24) environmental matters;
(25) interest in customers, suppliers and competitors;
(26) accounts receivable;
(27) accounts payable;
(28) insurance matters;
(29) absence of bankruptcy;
(30) acknowledgement of receipt of iXL's SEC filings/public
information;
(31) absence of any untrue statement of a material fact or omission
of any material fact necessary to make statements in the merger
agreement not misleading; and
(32) corresponding representation/warranty regarding information
supplied by Tessera Enterprise Systems for inclusion in the
registration statement filed with the SEC and this proxy
statement/prospectus; compliance of proxy materials with
applicable law.
. The merger agreement also contains various representations and
warranties of iXL and iXL-Massachusetts relating to, among other
things:
(1)their organization, qualification and similar corporate matters;
(2)authorization, execution, delivery, performance and
enforceability of the merger agreement;
(3) absence of any necessary governmental or third party consents or
approvals other than those specified; absence of conflict with
certificate of incorporation or bylaws, applicable law, or any
contract or lease, or creation of any lien;
(4) absence of litigation that would have a material adverse effect
on iXL and its subsidiaries as a whole, except as disclosed in
the merger agreement or in iXL's public information;
(5) absence of any broker's, finder's or investment banker's fees
owed in connection with the transactions contemplated by the
merger agreement;
(6) iXL common stock to be issued to Tessera Enterprise Systems
stockholders in the merger;
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(7) consents of iXL and iXL-Massachusetts respective board of
directors; iXL-Massachusetts' stockholder's consent;
(8) absence of any untrue statements of material facts or omission
to state material facts required to be stated or necessary to
make statements in iXL's public information not misleading, and
material compliance of such filings with federal securities
laws;
(9) absence of any untrue statements of material facts or omission
to state material facts required to be stated or necessary to
make statements in iXL's registration statement on Form S-4 not
misleading, excluding information supplied by Tessera Enterprise
Systems; and
(10) absence of certain changes since iXL's most recent public
filing.
Covenants
During the period from the date of the merger agreement until the
effective time of the merger, Tessera Enterprise Systems has agreed to:
. carry on its business in the ordinary and usual course in
substantially the same manner as conducted before the merger
agreement; and
. use commercially reasonable efforts to:
(1) preserve intact its current business organization;
(2) keep available the service of its employees; and
(3) preserve its relationships with customers, suppliers, licensors,
licensees, distributors and others having business dealings with
it.
Further, Tessera Enterprise Systems has agreed that, among other things
and subject to various conditions and exceptions, it will not and will cause
its subsidiaries not to, without the prior written consent of iXL:
(1) declare, set aside, or pay any dividend on, or make any other
distribution in respect of, any of its capital stock; split,
combine or reclassify any of its capital stock, or issue or
authorize the issuance of any other securities in respect of, in
lieu of or in substitution for, shares of its capital stock; or
purchase, redeem or otherwise acquire, any share of capital stock
of Tessera Enterprise Systems or any other equity security
thereof or any right, warrant, or option to acquire any such
share or other security, or waive any right to do any of the
foregoing;
(2) other than in accordance with the merger agreement, issue,
deliver, sell, pledge or otherwise encumber any share of its
capital stock, any other voting security issued by Tessera
Enterprise Systems or any security convertible into, or any
right, warrant or option to acquire any such share or voting
security, grant any option, warrant or other stock right, or
alter or allow the acceleration of vesting or exercise of any
outstanding option, warrant or such right;
(3) amend its articles of organization, bylaws or other comparable
organizational documents;
(4) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any
other manner, any business or any entity or division thereof, or
any assets that are material, individually or in the aggregate,
to Tessera Enterprise Systems;
(5) subject to a lien or sell, lease or otherwise dispose of any of
its properties or material assets, or license or transfer any
Tessera Enterprise Systems intellectual property right (except
for non-exclusive licenses in the ordinary course of business
consistent with past practices), or
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revalue any assets or (except as required by GAAP) make any change
in accounting methods, principles or practices;
(6) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person or entity or issue or sell any
debt security of Tessera Enterprise Systems, guarantee any debt
security of another person or entity or enter into any "keep
well" or other agreement to maintain the financial condition of
another person or entity, make any loan, advance (excluding
advances to employees, not exceeding $5,000, in the ordinary
course of Tessera Enterprise Systems' business consistent with
past practices) or capital contribution to, or investment in, any
other person or entity, or settle or compromise any material
claim or litigation;
(7) pay any bonus to any employee, officer or director on or after
the date hereof other than to the Tessera Enterprise Systems
stockholders, other than in the ordinary course of Tessera
Enterprise Systems' business consistent with past practices;
(8) enter into any "golden parachute" or other severance arrangement
with any employee, officer or director, or increase or otherwise
change the rate or nature of the compensation (including wages,
salaries, benefits and bonuses) payable to any employee, officer
or director, except pursuant to existing compensation and fringe
benefit plans, practices and arrangements that have been
disclosed in writing to iXL, or enter into, renew, or allow the
renewal of, any employment, consulting or other similar agreement
with any employee, officer or director, or amend or modify any
Tessera Enterprise Systems benefit plan in any material respect
or adopt any other such plan;
(9) enter into any new contract or agreement (other than a customer
agreement entered into in the ordinary course of business
consistent with past practices), or lease, involving an
obligation in excess of $25,000, or amend, waive any material
default under, terminate (except for such as terminate by their
own terms) or modify in any material respect any Tessera
Enterprise Systems contract or lease; or
(10) authorize any of, or commit or agree to take any of, the
foregoing actions.
Conditions to the Merger
. The respective obligations of iXL-Massachusetts, iXL and Tessera
Enterprise Systems to consummate the merger are subject to the
satisfaction or waiver of certain conditions, including that:
(1) the merger agreement shall have been approved and adopted, and
the merger approved, by the stockholders of Tessera Enterprise
Systems;
(2) the waiting period, including any extensions thereof, under the
Hart-Scott-Rodino Antitrust Act shall have expired or been
terminated, and there shall have been no adverse change to the
merger required in order to obtain approval under the Hart-Scott-
Rodino Antitrust Act;
(3) this registration statement shall have been declared effective by
the Securities and Exchange Commission; and
(4) the new iXL options shall have been executed and delivered.
. The obligations of iXL and iXL-Massachusetts to effect the merger are
further subject to satisfaction of the following conditions:
(1) Tessera Enterprise Systems and its stockholders shall have
performed in all material respects their respective agreements
contained in the merger agreement or in the voting agreement
required to be performed at or prior to the effective time of
the merger, and the representations and warranties of Tessera
Enterprise Systems and the Tessera Enterprise Systems
stockholders who are parties to the voting agreement, contained
in the merger
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agreement or in the voting agreement, shall be true in all
material respects when made and (except for representations and
warranties made as of a specified date, which need only be true as
of such date) at and as of the effective time of the merger as if
made at and as of such time, except as contemplated by the merger
agreement;
(2) the appropriate officers of Tessera Enterprise Systems shall
have executed and delivered a closing certificate;
(3) Tessera Enterprise Systems shall have obtained certain requisite
consents;
(4) there shall have been no materially adverse requirement imposed
on them in order to obtain approval under the Hart-Scott-Rodino
Antitrust Act;
(5) they shall have received (a) from substantially all of Tessera
Enterprise Systems stockholders, a lock-up letter and a
contractually restricted stock letter; (b) from each stockholder
of Tessera Enterprise Systems who is an "affiliate" of Tessera
Enterprise Systems for purposes of Rule 145 under the Securities
Act, a Rule 145 letter; (c) from certain specified individuals,
noncompetition agreements; and (d) from each new option
recipient, a "lock-up letter";
(6) they shall have received certain corporate documents of Tessera
Enterprise Systems;
(7) they shall have received an opinion of Tessera Enterprise
Systems' counsel;
(8) the aggregate number of shares owned by dissenting Tessera
Enterprise Systems stockholders shall not exceed 1% of Tessera
Enterprise Systems' capital stock;
(9) certain specified agreements shall have been terminated;
(10) iXL shall have been satisfied that the assets and properties
used in Tessera Enterprise Systems' business are free and clear
of all liens except as permitted; and
(11) certain individuals shall have terminated their existing
employment agreements with Tessera Enterprise Systems and
entered into new employment agreements.
. The obligations of Tessera Enterprise Systems to effect the merger are
further subject to the following conditions:
(1) iXL and iXL-Massachusetts shall have performed in all material
respects their respective agreements required to be performed at
or prior to the effective time of the merger, and their
representations and warranties contained in the merger agreement
shall be true in all material respects when made and (except for
representations and warranties made as of a specified date, which
need only be true as of such date) at and as of the effective
time of the merger as if made at and as of such time, except as
contemplated by the merger agreement;
(2) the appropriate officers of iXL and iXL-Massachusetts shall have
executed and delivered closing certificates;
(3) iXL shall have obtained certain requisite consents;
(4) it shall have received certain corporate documents of iXL and
iXL-Massachusetts; and
(5) it shall have received an opinion of counsel to iXL and iXL-
Massachusetts.
Additional Covenants
As detailed in the merger agreement, each of iXL, iXL-Massachusetts and
Tessera Enterprise Systems has also agreed, among other things and subject to
various conditions and exceptions, to additional covenants regarding the
following matters:
. access to books and records of Tessera Enterprise Systems; maintaining
confidentiality of information disclosed;
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. Tessera Enterprise Systems furnishing copies of all governmental
filings, and consulting with iXL before settling or compromising any
material income tax liability;
. except as required by law, deferring public disclosure of the
transactions contemplated by the merger agreement until the merger;
any such disclosure shall be coordinated by iXL;
. at the effective time of the merger, all of the Tessera Enterprise
Systems stock rights shall, except as otherwise provided, have been
properly canceled and all rights and obligations thereunder shall have
been terminated;
. at or prior to the closing of the merger, Tessera Enterprise Systems
shall grant incentive stock options in an amount not to exceed the
balance of options authorized but remaining available for issuance
under the Tessera Enterprise Systems, Inc. 1995 Stock Option Plan and
at the effective time of the merger, iXL will assume Tessera
Enterprise Systems' obligations under such plan;
. at the effective time of the merger, iXL will issue options to
purchase 200,000 shares in aggregate of its common stock (provided,
however, that such stock underlying such options shall not have been
registered under the Securities Act or any other securities laws), to
certain officers and directors of Tessera Enterprise Systems; in such
respective amounts, at such exercise prices and subject to such
vesting schedules, as specified;
. at or prior to the closing of the merger, Tessera Enterprise Systems
shall use its best efforts to cause all of its outstanding Series A
and D Preferred Stock to have been converted into Tessera Enterprise
Systems common stock in accordance with the terms thereof, such that
the holders are entitled to the consideration provided in the merger
agreement;
. Tessera Enterprise Systems shall use commercially reasonable efforts
(immediately upon adoption and approval of the merger agreement and
approval of the merger by its stockholders) to cause each of its
optionholders to execute and deliver, at the closing of the merger, a
"lock-up" letter, acknowledging that the iXL common stock receivable
by him upon exercise of his option, subject to the merger agreement,
is subject to temporary restrictions on any offer, sale or other
disposition;
. at or prior to the closing of the merger, Tessera Enterprise Systems
shall make the payment to the holder of its Series B Preferred Stock
required by Article IV, Section C.2.c of its articles of organization,
in cash, thereby causing a redemption of the Series B Preferred Stock;
. each of iXL and Tessera Enterprise Systems will file under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended;
. the preparation and filing by iXL of the registration statement and
the prompt mailing of the proxy materials by Tessera Enterprise
Systems to its stockholders;
. the taking of actions by the Tessera Enterprise Systems board of
directors to convene a special meeting of stockholders and use its
commercially reasonable efforts to solicit from its stockholders
approval of the merger agreement, all in accordance with applicable
law;
. the recommendation by the Tessera Enterprise Systems board of
directors that Tessera Enterprise Systems' stockholders vote in favor
of the merger agreement and the merger;
. prior to the closing of the merger, Tessera Enterprise Systems shall
use its best efforts to cause:
(a) each stockholder of Tessera Enterprise Systems to execute and
deliver a lock-up letter, acknowledging that the iXL common stock to
be received by him pursuant to the merger is subject to temporary
restrictions on any offer, sale or other disposition;
(b) each stockholder of Tessera Enterprise Systems to execute and
deliver a contractually restricted stock letter, addressed to iXL,
acknowledging that the iXL common stock to be received by him pursuant
to the merger is subject to certain contractual restrictions on any
offer, sale or other disposition;
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(c) each stockholder of Tessera Enterprise Systems who is an
"affiliate" of Tessera Enterprise Systems for purposes of Rule 145
under the Securities Act to execute and deliver a Rule 145 letter,
addressed to iXL, acknowledging that the iXL common stock to be
received by him pursuant to the merger is subject to certain
restrictions on any offer, sale or other disposition under Rule 145;
and
(d) certain stockholders of Tessera Enterprise Systems to execute and
deliver a noncompetition and non-solicitation agreement with iXL; and
. Tessera Enterprise Systems has also further agreed, on behalf of
itself and each of its stockholders, officers, directors and
employees, that, until such time as the merger agreement has been
terminated, it and each of them shall forebear directly or indirectly
negotiating, soliciting or accepting any offer with any other person
or entity to purchase, acquire, option, or merge or combine with, as
applicable, Tessera Enterprise Systems, any of the Tessera Enterprise
Systems common stock, or the Tessera Enterprise Systems business, or
any interest in any of the foregoing.
Termination
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time of the merger:
. by mutual written consent of Tessera Enterprise Systems and iXL;
. by either Tessera Enterprise Systems or iXL:
(1) if any court of competent jurisdiction shall have issued,
enacted, entered, promulgated or enforced any order, judgment,
decree, injunction or ruling which restrains, enjoins or
otherwise prohibits the merger and such order, judgment, decree,
injunction or ruling shall have become final and nonappealable;
or
(2) if the merger shall not have been consummated on or before
January 31, 2000 (provided the terminating party is not
otherwise in material breach of its representations, warranties
or obligations under the merger agreement);
. by Tessera Enterprise Systems, upon a material breach hereof or of the
voting agreement on the part of iXL or iXL-Massachusetts which has not
been cured and which would cause any condition to Tessera Enterprise
Systems obligation to complete the merger to be incapable of being
satisfied by January 31, 2000; or
. by iXL, upon a material breach hereof or of the voting agreement on
the part of Tessera Enterprise Systems or any of its stockholders
which has not been cured and which would cause any condition to iXL or
iXL-Massachusetts' obligation to complete the merger to be incapable
of being satisfied by January 31, 2000.
Amendment
The merger agreement may be amended by the mutual agreement of iXL, iXL-
Massachusetts and Tessera Enterprise Systems at any time before or after
approval and adoption hereof and approval of the merger by the stockholders of
Tessera Enterprise Systems; provided, however, that (a) after such approval, no
amendment shall be made which (i) changes the form or decreases the amount of
the consideration to be received in the merger, (ii) in any way materially
adversely affects the rights of the stockholders of Tessera Enterprise Systems,
or (iii) under applicable law would require approval of the stockholders of
Tessera Enterprise Systems, in any such case referred to in clauses (i), (ii)
and (iii), without the further approval of the stockholders of Tessera
Enterprise Systems; and (b) after the effective time of the merger, any such
amendment must be approved by the former holders of a majority of the Tessera
Enterprise Systems capital stock. The merger agreement may not be amended
except by an instrument in writing signed on behalf of the parties hereto.
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Extension and Waiver
At any time prior to the effective time of the merger, the parties may,
to the extent permitted by applicable law, (i) extend the time for the
performance of any of the obligations or other acts of any other party to the
merger agreement, (ii) waive any inaccuracies in the representations and
warranties by any other party contained in the merger agreement or in any
documents delivered by any other party pursuant thereto and (iii) waive
compliance with any of the agreements of any other party or with any conditions
to its own obligations contained therein. Any agreement on the part of a party
thereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
THE VOTING AND INDEMNITY AGREEMENT
The following description of certain terms of the voting agreement is
only a summary of the material provisions of the described agreement and does
not purport to be complete. The form of the voting agreement is attached to
this proxy statement/prospectus as Annex B.
Voting and Proxies; Prohibited Actions
In order to induce iXL and iXL-Massachusetts to enter into the merger
agreement, certain Tessera Enterprise Systems stockholders entered into a
Voting and Indemnity Agreement with iXL and iXL-Massachusetts, dated as of
October 4, 1999. Those stockholders who signed the voting agreement have agreed
to vote all of their shares of Tessera Enterprise Systems capital stock,
representing at least two-thirds of the total outstanding shares of Tessera
Enterprise Systems capital stock (the amount required to approve the merger),
in favor of approving the merger and adopting and approving the merger
agreement. Toward this end, each such stockholder granted the Secretary of iXL
an irrevocable proxy to so vote such stockholder's shares.
Each stockholder party to the voting agreement also agreed not to enter
into any voting agreement or grant a proxy or power of attorney with respect to
Tessera Enterprise Systems capital stock in any manner inconsistent with that
stockholder's obligations under the voting agreement. Each such stockholder
further agreed not to offer, sell or otherwise dispose of any Tessera
Enterprise Systems securities without iXL's consent.
Representations and Warranties
The voting agreement contains certain representations and warranties of
the parties. Among these, the stockholders make representations consistent with
securities laws; and that, except as disclosed or provided, there are no liens
on their stock. Furthermore, they acknowledge that the iXL common stock to be
received in the merger is subject to restrictions on any offer, sale or other
disposition, pursuant to lock-up letters with iXL's lead underwriter;
contractually restricted stock letters with iXL; and, as applicable, Rule 145
under the Securities Act.
Indemnification
Each of iXL and the stockholders party to the voting agreement has agreed
to indemnify the other against, among other things, any breach of the merger
agreement or voting agreement. Indemnification obligations are subject to a
specified "basket" and, in general, a "cap," and except as otherwise specified
last for 18 months after the effective time of the merger.
Other Provisions
Each stockholder party to the voting agreement has consented to
jurisdiction of the state or federal courts in Massachusetts in any matter
concerning the merger or voting agreement. The voting agreement terminates upon
the termination of the merger agreement.
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BUSINESS OF iXL
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 complementary 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 complementary 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 and benefits 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 web sites 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. Forrester Research expects
dramatic growth in total e-commerce transaction volume, projecting an increase
from $51 billion in 1998 to $1.4 trillion in 2003.
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 solutions require the successful integration of strategy
consulting, creative design and systems engineering
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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, web sites
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 $8
billion in 1998 to $79 billion in 2003. 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. 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, Oracle
and Broadvision. 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 September 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 and Raleigh, 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 & Technology, Healthcare and Retail
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.
. Expand Geographic Coverage. Since our inception, we have expanded
our geographic presence aggressively through a combination of
acquisitions and internal growth. iXL has 19 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 industry practice groups, which are in
varying stages of development and staffing, in the Banking & Financial
Services, Media & Entertainment, Travel, Telecommunications & Technology,
Healthcare and Retail industries. We also employ strategy consultants with
general business and Internet expertise. As of September 30, 1999, we employed
approximately 170 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 management services, and web site development and
hosting services.
. E-Commerce Strategy and Applications. We design, develop and
deploy sophisticated e-commerce applications for bringing buyers
and sellers together via the Internet. We have created a broad
range of 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, and Broadvision 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, and NetGravity which have developed
more general applications for conducting different aspects of
e-commerce ranging from security to online transaction payments
processing.
. Enterprise Relationship Management. 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 web
sites 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 Enterprise Relationship Management
capability, we develop intranets and extranets which enable our
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clients to communicate with employees, customers, suppliers and
vendors, as well as track and store critical business data and
other information.
. Online Learning and Performance. 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 Solutions. 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.
. Web Sites and Hosting. To provide complete Internet solutions, we
offer development of traditional web sites and state-of-the-art
web site 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 web site 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, News Corporation and Trigon.
. Siteman(TM). Siteman is a state-of-the-art browser-based system
for creating and managing up to thousands of web sites 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
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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 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.
iXL Industry Practice Groups
iXL has established practice groups in the Banking & Financial Services,
Media & Entertainment, Travel, Telecommunications & Technology, Healthcare and
Retail industries. These practice groups are in varying stages of development,
staffing and activity. 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 our
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
General Electric
Merrill Lynch
Media & Entertainment........................ Warner Brothers
21e Web Network
Travel....................................... Budget Rent a Car
Delta Air Lines
Virgin Atlantic Airways
Telecommunications & Technology.............. BellSouth
Diamond Multimedia RioPort
Healthcare................................... DuPont
HBOC
Trigon Blue Cross/Blue Shield
WebMD
Retail....................................... Shop At Home
Wherehouse.com
</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 web site, and also engineers and
oversees central marketing and communications programs for use by each of our
local offices. Regional marketing representatives are responsible for building
brand awareness within each geographic region. These representatives report to
the Executive Vice President for Worldwide Marketing of iXL, Inc.
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. This campaign is expected to emphasize General
Electric's relationships with iXL and CFN and to improve awareness of iXL and
CFN's services.
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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 is split into two units, one which deals with
generation of new clients, and the other which focuses on sales to existing
clients. Existing clients are managed by local project managers who report to
the general managers of the local offices, which then report to the Regional
Vice Presidents for Operations on sales- and client development-related issues.
The Regional Vice Presidents then report to the Executive Vice President for
Worldwide Client Development of iXL, Inc. New clients are targeted by iXL's
business development staff which operates regionally, reporting to the Regional
Vice Presidents for Operations, which in turn report to the Executive Vice
President for Worldwide Client Development of iXL, Inc.
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.
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' 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 have registered 4,000,000 shares of common stock pursuant to a
"shelf" Registration Statement on Form S-4 for this purpose, and expect to
register 6,000,000 shares of common stock pursuant to an additional
Registration Statement on Form S-4. By maximizing the use of stock as
acquisition consideration, we believe that each acquired companies' management
has a greater incentive to focus on iXL's long-term growth through the
appreciation of its stock
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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 and CFN has acquired one complementary
business. 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
other than CFN acquisitions, listed in chronological order. This information
includes 137,304 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 15 283,900
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 31 259,584
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 Broadvision. 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 strategic alliance with Broadvision, which
specializes in personalized electronic commerce software applications for
businesses and consumers, we have gained access to Broadvision software,
maintenance, support, and training on a preferred basis. We are also engaging
in joint marketing, sales, and development efforts with Broadvision.
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 facilitates the integration of 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 operates YouDecide.com, which is
a sophisticated e-commerce web site for marketing financial services and
benefits over corporate intranets and the Internet. CFN also offers its
services through a call center. CFN's equity is owned 76% by iXL, 23% by
General Electric, and 1% by other stockholders. 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. The CFN
Program is provided to the general public via its YouDecide.com web site and 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 Benefits
------------------ --------
<S> <C>
Auto Insurance Long-Term Care
Homeowners and Renters Insurance Individual Life Insurance
Mortgages Vision Services
Home Equity Loans Legal Services
Auto Finance Pet Insurance
Financial Planning
Credit Cards
</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 YouDecide.com is an attractive offering for consumers because
it 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 the general public and 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 certain products for its
customers. Consumers can access CFN online, by telephone or by fax.
We believe YouDecide.com is attractive to services providers, because it
is designed to:
. provide directed access through corporate intranets to employed
consumers, a highly desirable customer market segment, as well as
to the general public;
. 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 access to the general public and
the participation of large employers and associations;
. allow providers to expand geographically; and
. allow providers to utilize Internet-enabled payments and automatic
payroll deduction to secure payment for services sold.
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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 call
center. Currently, a significant portion of consumer inquiries to CFN for
services offered by CFN's providers are made through CFN's call 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 call 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 web sites. Expenses and 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 CFN enables employers
to offer to their employees, at no cost to the employer, access to a wide range
of financial services and employee benefits at generally discounted rates.
Initially, CFN has chosen to provide its program to large companies and
associations as a no cost human resources benefit for their employees or
members. Current CFN member companies include:
<TABLE>
<S> <C>
Advantica Ryder Corporation
Amerigas Society for Human Resource Management
BellSouth Texas A&M University
Ericsson Thomson Corporation
General Williams Companies
Electric
Capital
Corporation
Nextel
</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 offerings includes property and casualty insurance, home finance,
automobile finance, legal services, long-term care, term life insurance and
vision plans. Providers available through CFN include:
. Allied Insurance Company, American Express Property Casualty
companies, Amica Mutual Insurance Company, Chubb Group of
Insurance Cos., Electric Insurance Company, and Nationwide Mutual
Insurance Co. in property and casualty insurance;
. BankOne, Countrywide, First Union National Bank, GMAC Mortgage
Corporation, 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;
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. Empire General Life in life insurance;
. Vision Care Advantage in vision services;
. Ernst & Young in Financial Planning;
. First USA in credit card services; and
. Premier Pet Insurance in pet insurance.
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 access to mortgages through one of its appropriately licensed
providers.
Market Expansion
CFN has expanded its business to make its program available to the
general public over the Internet via its YouDecide.com web site and through
its call center. This expansion has been effected to date primarily by
entering into agreements with selected Internet retail and informational sites
to expand awareness of the YouDecide.com web site, including agreements with
Hoover's Online, Earthlink, and smartmoney.com. This expansion into the
general public arena is intended to broaden the prospective customer base for
both CFN and its services providers. The service offerings and the
corresponding prices offered to the general public are sometimes 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 program consists of three component layers. The first,
or top, layer is the YouDecide.com Internet web site accessed by the consumer
which gathers and displays information. The second component layer is decision
software which takes the consumer information and chooses applicable services
from the provider information maintained in this second layer. The third
component layer stores consumer information and integrates with CFN providers'
systems. CFN expanded its technology resources by its acquisition of iExpert,
Inc. in October 1999. iExpert is one of the leading providers of knowledge-
based human resource software solutions for large corporations. CFN's
acquisition of iExpert enhances CFN's product offering to corporate human
resources departments and CFN's ability to gain access to large corporate
employee populations.
The e-commerce technology developed by CFN, for which CFN has multiple
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
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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 49 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 49 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 engaging in its insurance agency business in that state.
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 in a given
state cannot be paid to, or received by, a person or entity that is not
licensed as an insurance agent or agency in such state, 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 and the general public
regarding the insurance products described on YouDecide.com. 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 resident in such state about insurance products on YouDecide.com,
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
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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
and auto finance program in those states which require licenses. CFN Finance's
residential mortgage and auto finance programs are being offered in states
where no licenses are required. 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 and auto finance program
licensing agreements will be renewed upon its expiration date of December 31,
1999, or that either agreement will not be terminated sooner and that CFN
Finance will have acquired the appropriate license or 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 iXL's core business, iXL assists in the development of
other Internet-related businesses. Through its subsidiary iXL Ventures, Inc.,
iXL lends its management experience to early stage and developing Internet-
related businesses. iXL Ventures relationships frequently include many of the
following facets:
. executive-level introductions of the developing business to other
businesses in the same market;
. advising the developing business with respect to the development
of its business plan;
. inclusion of the developing business in preferred provider
programs for executive search services; and
. designation by iXL of one member of the developing business' board
of directors.
In return for its assistance, iXL receives a minority equity interest in the
developing business. iXL has not recognized any revenue related to these
activities because of the difficulty in valuing such services. In addition,
because of the high degree of uncertainty surrounding these businesses, any
equity interests acquired by iXL in connection with this program to date are
recorded at no value in the Financial Statements.
In some circumstances, these developing businesses are created from
existing non-core iXL business units that are beyond the scope of iXL's
principal business. In such circumstances, iXL seeks strategic investors to
assist in the full development of these projects into viable stand-alone
businesses, while retaining an equity interest in the project. CFN was the
first major stand-alone business to emerge from this process.
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Current iXL Ventures companies include:
. Student Advantage, Inc., which maintains a series of commercial
Internet sites for leading colleges and universities;
. Kinzan, Inc., a software and services company that develops,
distributes and hosts Siteman; and
. eCandy.com, an online retailer of confections.
iXL's policy is to not make cash investments in third party companies or
to guarantee any obligations of third party companies. However, participants in
the iXL Ventures program are often referred to Mercury Investors, LLC or
NeoCarta Ventures, L.P. as a potential source for cash investments. Our Chief
Executive Officer and certain directors of iXL are investors in Mercury, which
in turn is expected to invest in NeoCarta.
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.
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 iXL target market or
prevent iXL's penetration into their client accounts. We believe that our
primary competitors currently are International Business Machines Corporation,
Proxicom, Inc., Sapient Corporation, Scient Corp., USWeb Corporation, Viant
Corp., and smaller professional Internet services firms.
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.
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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 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."
The success of CFN will be highly dependent upon CFN's services becoming
available to a large number of consumers. 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 Answer
Financial, Rewards Plus, Quicken, Insuremarket, Quicken Mortgage, InsWeb, E-
Loan, iOwn, CarFinance.com, People First, and Giggo.com. 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 September 30, 1999, iXL had approximately 1,900 employees,
including approximately 170 strategy consultants, 410 engineers and 270
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 web site. 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. iXL has executed a lease for its new headquarters in Atlanta, which
will contain approximately 300,000 square feet. iXL will not occupy this space
until after March 2000. 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 and Raleigh, NC; Richmond, VA; Denver, CO; Norwalk, CT; Hamburg and
Berlin, Germany; London, England; and Madrid, Spain. CFN leases space for its
executive offices in Atlanta, Georgia and its operations 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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BUSINESS OF TESSERA ENTERPRISE SYSTEMS
Tessera Enterprise Systems, Inc. is an integrated marketing, consulting
and systems integration firm. Tessera Enterprise Systems architects, builds,
integrates, deploys and maintains advanced enterprise relationship management,
or ERM, solutions. Tessera Enterprise Systems delivers solutions that allow
clients to (i) integrate customer interactions across all points of contact;
(ii) provide information infrastructure and data management capabilities
necessary to fully understand customer behaviors across all channels; (iii)
prioritize new business opportunities based on business objectives and impact;
and (iv) use customer information more effectively to generate revenue.
Since its founding in 1995, Tessera Enterprise Systems has focused
exclusively on the ERM marketplace. Tessera Enterprise Systems has delivered
over 100 ERM engagements and over 30 large scale technical implementations
primarily to Fortune 1000 clients. Headquartered in Wakefield, Massachusetts,
Tessera Enterprise Systems has approximately 130 employees and has offices in
Wakefield, Massachusetts, and San Francisco, California.
Tessera Enterprise Systems is one of a small number of companies that
combine customer relationship management skills, marketing knowledge, industry
experience, technology expertise and project management skills to tightly link
a client's ERM strategies to its information technology, organizational ability
and business processes. Tessera Enterprise Systems provides integrated
solutions that incorporate management consulting, marketing strategy
integration, the construction of large-scale ERM technology systems,
quantitative analysis, predictive modeling and project management. Client
engagements may incorporate all or portions of the following core services:
. Management Consulting: Strategic ERM planning, organizational
adoption, project coordination, change management, opportunity
identification and quantification. Increasing focus in areas of
organizational design, organizational skills assessment and business
process design and implementation.
. Marketing Strategy Integration: Marketing strategy articulation, best
practices assessment, marketing strategy review and validation, and
marketing strategy enabler articulation.
. Large Scale ERM Technology Systems: Full lifecycle capabilities in
all phases of ERM systems deployment including data assets analysis;
data migration, enhancement and management; the construction of large
scale enterprise class data warehouses; integration of data
enhancement tools such as merge/purge; the Relationship Modeling
Environment; selection, implementation and customization of third
party campaign management, decision support, data mining and
reporting tools; data mart design, development and implementation;
integration of data marts and warehouses with customer touchpoints;
web site integration; web site personalization; and email management
software solutions.
. Quantitative Analysis and Predictive Modeling: Opportunity
identification via data mining, ROI analysis and retrospective
modeling tests; lifetime value prediction; customer profiling;
segment identification; and customer acquisition, cross sell, upgrade
and defection propensity modeling using a wide range of statistical
tools and techniques.
. Project Management: Comprehensive project management and coordination
across Tessera Enterprise Systems, client organizations and multiple
vendors. Project change management and scope control, project
communications and coordination across multiple organizations.
Tessera Enterprise Systems has developed a core enterprise technology
architecture called the ERM hub. The ERM hub provides the mechanism for sharing
customer information and ERM metrics among all participants in the customer
management process. The ERM hub enables an integrated ERM solution that
encompasses data, information, strategy, planning, execution and measurement
across all customer interaction points.
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Tessera Enterprise Systems targets clients within six high growth
industries including: financial services; insurance; retail; direct marketing;
communications; and utilities. Tessera Enterprise Systems expects an increasing
number of its clients to be "brick and mortar" companies seeking to integrate
ERM capabilities on the Internet and the emerging class of e-business firms.
Competition
Tessera Enterprise Systems' target market is rapidly evolving and is
subject to continuous technological change. As a result, Tessera Enterprise
Systems' 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 Tessera Enterprise Systems' business, results of operations and
financial condition. Tessera Enterprise Systems competes on a number of
factors, including the attractiveness of the ERM services offered, the breadth
and quality of these services, technical expertise and innovation, pricing, and
understanding client strategies and needs. Many of these factors are beyond
Tessera Enterprise Systems' control.
Tessera Enterprise Systems' competitors can be classified into several
groups which include:
.Large information technology solutions providers;
. Computer Hardware and Software service vendors; and
. Marketing Service Bureaus.
Employees
As of September 30, 1999, Tessera Enterprise Systems had approximately
130 employees, including 49 technology consultants, 18 marketing strategy and
information consultants, and 30 project/solutions delivery consultants. None of
Tessera Enterprise Systems' employees is represented by a labor union. Tessera
Enterprise Systems has experienced no prior work stoppages and believes its
relationship with employees is good.
Properties and Facilities
Tessera Enterprise Systems' executive offices are located in Wakefield,
Massachusetts, consisting of approximately 48,000 square feet of leased space,
the lease for which expires in December 2006. In addition, Tessera Enterprise
Systems leases space for its San Francisco office.
Legal Proceedings
Tessera Enterprise Systems from time to time is involved in litigation
incidental to the conduct of its business. Tessera Enterprise Systems is not
currently involved in any litigation with any of its customers. Tessera
Enterprise Systems is not a party to any lawsuit or proceeding that, in the
opinion of the management of Tessera Enterprise Systems, is likely to have a
material adverse effect on Tessera Enterprise Systems.
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MANAGEMENT OF iXL
Executive Officers and Directors
Certain information regarding the executive officers and directors of iXL
as of September 30, 1999 is set forth below:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
U. Bertram Ellis, Jr.(1) 46 Chief Executive Officer and Chairman of the
Board of Directors
Kevin M. Wall(2) 46 Vice Chairman and Director
James R. Rocco 45 Vice Chairman
William C. Nussey 33 Chief Executive Officer and President of iXL,
Inc. and Director
C. Cathleen Raffaeli 42 President and Chief Operating Officer of CFN
Barry T. Sikes 46 Chief Operating Officer 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.
Vincent M. Copeland 40 Executive Vice President for Worldwide Client
Development of iXL, Inc.
Thomas R. Wall, IV(3) 40 Director
Frank K. Bynum, Jr.(1)(3)(4) 36 Director
Jerome D. Colonna 36 Director
Thomas G. Rosencrants(4) 50 Director
Jeffrey T. Arnold 29 Director
Gary C. Wendt 57 Director
Jeffrey C. Walker(1)(3) 44 Director
</TABLE>
- --------
(1) Member of the Executive Committee.
(2) Mr. Wall has resigned as an officer and director of iXL effective November
17, 1999 but will remain employed by iXL through January 1, 2000.
(3) Member of the Compensation Committee.
(4) Member of the Audit Committee.
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.
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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.
William C. Nussey has served as a Director of iXL since December 1997, as
Chief Executive Officer of iXL, Inc. since July 1999, and as the President of
iXL, Inc. since joining iXL in May 1998. Mr. Nussey also previously served as
Chief Operating Officer of iXL, Inc. since joining iXL in May 1998 until July
1999. 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 Chief Operating Officer of iXL, Inc. since
July 1999 and 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.
Vincent M. Copeland has served as the Executive Vice President for
Worldwide Client Development of iXL, Inc. since July 1999. From 1984 to 1999,
Mr. Copeland served in positions of increasing responsibility with Gartner
Group, Inc. Most recently, from 1997 to 1999 Mr. Copeland served as Senior Vice
President for North American Sales for Gartner Group and from 1994 to 1997
managed Gartner Group's Asia Pacific and Latin American Operations. Mr.
Copeland received a Bachelor of Arts degree in economics from Tufts University.
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
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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 CDT Holdings plc, 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.
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 also a director
of CompuCredit Corporation and several private companies. 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 has served as a Director since June 1999. From 1986 to
1998, Mr. Wendt served as Chairman, Chief Executive Officer and President of
General Electric Capital Services, Inc. and served as a consultant through July
1999. Currently, Mr. Wendt is involved in investments. Mr Wendt is a director
of Sanchez Computer Associates. Mr. Wendt received a Bachelor of Science degree
from the University of Wisconsin and an MBA from Harvard Business School.
Jeffrey C. Walker has served as a Director since July 1999. Mr. Walker
has been Managing Partner of Chase Capital Partners, the private equity
investment arm of The Chase Manhattan Corporation, since 1988, and a General
Partner thereof since 1984. Mr. Walker is a director of 1-800 Flowers, Guitar
Center, House of Blues, Doane Pet Care Products, Metakote and other private
companies. Mr. Walker received a Bachelor of Science degree from the University
of Virginia and an MBA from the 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."
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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. Walker, 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. Walker, administers iXL's stock option plans,
including approval of all options granted. The Audit Committee, consisting of
Mr. Bynum and Mr. Rosencrants, recommends the selection of independent public
accountants to the Board of Directors, reviews the scope and results of the
audit and other services provided by iXL's independent accountants, and reviews
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 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
at least 5% 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 of iXL" 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, and was further amended
effective November 17, 1999. The employment term of this agreement expires
January 1, 2000. Under this agreement, Mr. Kevin Wall's base annual salary was
$302,500 for the period from August 1, 1998 through July 31, 1999, and $332,750
for the period from August 1, 1999 through January 1, 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 after such termination or
resignation or earlier if Mr. Nussey begins employment with any other company,
continue to pay 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
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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;
. 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.
iXL has obtained 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.
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<PAGE>
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 25,000 297,900
1996 105,600 -- --
William C. Nussey......................... 1998 166,500 50,000 1,844,276
Chief Executive Officer and President 1997 -- -- --
of iXL, Inc. 1996 -- -- --
Barry T. Sikes............................ 1998 163,300 45,000 140,500
Chief Operating Officer 1997 137,700 25,000 165,000
of iXL, Inc. 1996 103,600 -- 255,000
</TABLE>
The above table excludes certain executive officers of iXL whose 1998
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 1996 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.
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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
Chief Executive Officer
and 389,100 2.9% 4.00 05/01/08 1,612,614 3,489,726
President 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
Chief Operating Officer 100,000 .8% 3.50 02/26/08 293,413 674,528
of iXL, Inc. 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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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
Chief Executive
Officer and President
of iXL, Inc.
Barry T. Sikes............. 252,000 308,500 1,203,000 1,205,250
Chief Operating Officer
of iXL, Inc.
</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. Walker. The Compensation Committee may
delegate administrative functions to individuals who are officers or employees
of iXL.
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
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<PAGE>
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.
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, which 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 shares, as such number may be adjusted to reflect
changes in iXL's capitalization.
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<PAGE>
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.
1999B Employee Stock Option Plan
The Board of Directors of iXL has adopted the 1999B iXL Enterprises, Inc.
Stock Option Plan. This plan will be presented to iXL's stockholders for
ratification at the next annual stockholder meeting. This plan is identical to
the 1999 Stock Option Plan, except that directors, executive officers and
certain other officers will not be eligible for grants of options thereunder
until such plan is ratified by the stockholders. If this plan is not ratified
by the stockholders, grants under this plan will not be eligible to be
incentive stock options. Options to purchase no more than 10 million shares of
common stock may be granted under this plan.
Tessera Enterprise Systems' 1995 Stock Option Plan
iXL will assume Tessera Enterprise Systems' 1995 Stock Option Plan upon
the closing of the merger. This plan will be amended, as appropriate, to adjust
for this assumption, including adjustment of exercise prices and the number of
shares subject to the plan and to each option. Upon such amendment, each option
to purchase one share of Tessera Enterprise Systems common stock will be
converted into an option to purchase approximately .59 of a share of iXL common
stock. No future grants will be made under this plan. After the merger, as
options which have been granted lapse or terminate without exercise, shares
underlying such lapsed or terminated options shall be retired and shall not be
authorized for future issuance under this plan.
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<PAGE>
CERTAIN TRANSACTIONS OF iXL
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 since January 1, 1998:
<TABLE>
<CAPTION>
Aggregate
Date of Purchase
Purchaser Transaction Securities Purchased Price
--------- ----------- -------------------- ---------
<S> <C> <C> <C>
CB Capital Investors, August 14, 1998 9,000 shares of Class D Nonvoting $9,000,000
L.P.
Preferred Stock
General Electric Capital August 31, 1998 2,500 shares of Class D Nonvoting 2,500,000
Corporation Preferred Stock
General Electric Capital January 15, 1999 5,000 shares of Class A Convertible 5,000,000
Assurance Company Preferred Stock
GE Capital Equity June 8, 1999 1,500,000 shares of common stock 18,000,000
Investments,
Inc.
General Electric Pension June 8, 1999 500,000 shares of common stock 6,000,000
Trust
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, August 14, 1998 1,000 shares of Class D Nonvoting 1,000,000
L.P.
(affiliate of Kelso Preferred Stock
Investment
Associates V, L.P.)
Kelso Investment August 14, 1998 9,000 shares of Class D Nonvoting 9,000,000
Associates V,
L.P. Preferred Stock
David E. Clauson September 18, 1998 1,000 shares of Class A Convertible 1,000,000
Preferred Stock
U. Bertram Ellis, Jr. 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. In the
case of the sales of common stock to GE Capital Equity Investments, Inc. and
General Electric Pension Trust, the purchase occurred simultaneous with the
closing of iXL's initial public offering at a purchase price equal to the
initial public offering price of $12.00 per share. 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
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<PAGE>
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.
In connection with iXL's initial public offering, certain executive
officers and directors of iXL purchased shares of iXL's common stock in such
offering through iXL's directed share program. Certain of these purchases
exceeded $60,000. All such purchases were made at the initial public offering
price of $12.00 per share.
CFN Equity Investments
On November 3, 1998, General Electric Capital Corporation 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 Capital Corporation 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 Capital Corporation and CFN. 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. 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.
On June 8, 1999, GE Capital Equity Investments, Inc. purchased 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 executed 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 was 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations for iXL--Overview."
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
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<PAGE>
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 on an arm's length basis.
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 for iXL--Liquidity and Capital Resources."
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 1998 totaled approximately $85,000 and through September 30, 1999
totaled approximately $30,000 for 1999. 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.
On June 8, 1999 Kelso & Company terminated its annual financial services
agreement, other than with respect to such indemnification and expenses
provisions, In connection with consulting services regarding iXL's initial
public offering, on June 8, 1999, iXL paid Kelso & Company a fee equal to
$750,000. This fee was paid in 62,500 shares of common stock (based on the
gross offering price of $12.00 per share prior to underwriting and other
selling discounts). The business purpose of these transactions was to secure
the advisory services of Kelso & Company.
On April 7, 1999, iXL 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.
On June 8, 1999, iXL issued 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 of $12.00 per share. These
warrants were 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 marketing
campaign is governed by a marketing agreement which provides for the delivery
by General Electric of marketing services expected to advertise General
Electric's relationships with iXL and CFN and to improve awareness of iXL's and
CFN's services. iXL believes these services to be valued at $1.2 million. 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.
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 $134,000 per month, and the
lease expires December 31, 2008. In 1998, iXL paid total annual rent of
approximately $628,000. In 1999 iXL has paid approximately $1 million in rental
payments through September 30, 1999. 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 $15.50 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
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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.
Each of iXL and CFN provides services in the ordinary course of business
to Healtheon WebMD Corporation, 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 $1.4 million from CB Capital Investors,
L.P. or its affiliates, as well as approximately $8.4 million from such
companies for 1999 through September 1999. In 1998, iXL recognized revenues of
approximately $200,000 from General Electric Capital Corporation or its
affiliates, as well as approximately $10.9 million of revenues from such
companies for 1999 through September 1999. In 1998, iXL recognized revenues of
approximately $5.5 million from WebMD, Inc., as well as approximately $2.5
million of revenues from WebMD, Inc. for 1999 through September 1999. In 1998,
iXL recognized revenues of approximately $300,000 from Kelso & Company or its
affiliates.
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.
iXL has entered into a Stockholders' Agreement with some of its
stockholders. iXL has also entered into a Registration Rights Agreement with
some of 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 OF iXL
The following table sets forth certain information known to iXL with
respect to the beneficial ownership of the common stock as of September 30,
1999 and after giving effect to iXL's November 18, 1999 registered public
offering, 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
Common Stock Ownership
Beneficially Prior to the
Stockholder Owned Offering
----------- ------------ ------------
<S> <C> <C>
Kelso Investment Associates V, L.P. and
Kelso Equity Partners V, L.P. ...................... 15,656,096 23.5%
Joseph S. Schuchert................................ 15,656,096 23.5%
Frank T. Nickell................................... 15,661,061 23.5%
Thomas R. Wall, IV................................. 15,918,276 23.9%
George E. Matelich................................. 15,713,046 23.6%
Michael B. Goldberg................................ 15,660,261 23.5%
David I. Wahrhaftig................................ 15,667,786 23.5%
Frank K. Bynum, Jr. ............................... 15,683,096 23.5%
Philip E. Berney................................... 15,678,596 23.6%
c/o Kelso & Company
320 Park Avenue
24th Floor
New York, NY 10022
CB Capital Investors, L.P. .......................... 7,939,427 11.9%
CB Capital Investors, Inc.......................... -- --
Jeffrey C. Walker.................................. -- --
380 Madison Avenue
12th Floor
New York, NY 10017-2591
General Electric Capital Corporation, General
Electric Capital Assurance Company, GE Capital
Equity Investments, Inc. and General Electric
Pension Trust ...................................... 4,511,571 6.7%
120 Long Ridge Road
Stamford, CT
U. Bertram Ellis, Jr. ............................... 2,929,486 4.3%
Kevin M. Wall........................................ 1,789,182 2.7%
James R. Rocco....................................... 904,821 1.4%
William C. Nussey.................................... 853,759 1.3%
Barry T. Sikes....................................... 361,732 *
Thomas G. Rosencrants................................ 1,000,000 1.5%
Jerome D. Colonna.................................... 882,169 1.3%
Gary Wendt........................................... 5,000 *
All Directors and Executive Officers as a Group
(11 persons)........................................ 32,985,300 47.0%
</TABLE>
- --------
* Less than 1% of the outstanding shares of the class of common stock.
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
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<PAGE>
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 September 30, 1999. Percentage of beneficial ownership is based on
66,587,978 shares of common stock outstanding as of September 30, 1999 after
giving effect to iXL's November 18, 1999 registered public offering.
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 14,673,227 shares held by Kelso Investment Associates
V, L.P. and 982,869 shares held by Kelso Equity Partners V, L.P. 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.
Information for Mr. Nickell includes 4,965 shares of common stock owned
by trusts of which he is the trustee; Mr. Nickell disclaims beneficial
ownership of such securities. Information for Mr. Goldberg includes 4,165
shares of common stock that are owned directly by him. Information for Mr.
Matelich includes 56,950 shares of common stock that are owned directly by him.
Information for Mr. Bynum includes 27,000 shares of common stock that are owned
directly by him. Information for Mr. Thomas Wall includes 42,410 shares of
common stock that are owned directly by him and 219,770 shares of common stock
owned by trusts of which he is the trustee; Mr. Wall disclaims beneficial
ownership of such trust shares. Information for Mr. Wahrhaftig includes 11,690
shares of common stock that are owned directly by him. Information for
Mr. Berney includes 22,500 shares of common stock that are owned directly by
him.
CB Capital Investors, Inc. is the general partner of CB Capital
Investors, L.P., and accordingly may be deemed to beneficially own the shares
owned by CB Capital Investors, L.P. Mr. Walker is a general partner of Chase
Capital Partners, a New York general partnership, which is the sole limited
partner and investment advisor of CB Capital Investors, L.P. Accordingly, Mr.
Walker could be deemed to beneficially own the shares beneficially owned by CB
Capital Investors, L.P. However, Mr. Walker disclaims beneficial ownership of
all common stock owned by CB Capital Investors, L.P., except an indeterminate
number thereof in which he has a continuing pecuniary interest as a current
general partner of Chase Capital Partners. The Chase Manhattan Bank is the sole
stockholder of CB Capital Investors, Inc., and accordingly may be deemed to
beneficially own the shares owned by CB Capital Investors, L.P. However, The
Chase Manhattan Bank disclaims this beneficial ownership. The Chase Manhattan
Corporation is the sole stockholder of The Chase Manhattan Bank, and
accordingly may be deemed to beneficially own the shares owned by CB Capital
Investors, L.P. However, The Chase Manhattan Corporation disclaims this
beneficial ownership.
Information for General Electric Capital Corporation, General Electric
Capital Assurance Company, GE Capital Equity Investments, Inc. and General
Electric Pension Trust includes (a) for General Electric Capital Corporation:
2,204,159 shares of common stock currently held and 500,000 shares of common
stock issuable upon the exercise of warrants exercisable within 60 days of
September 30, 1999, (b) for General Electric Capital Assurance Company: 500,000
shares of common stock currently held, (c) for GE Capital Equity Investments,
Inc.: 1,500,000 shares of common stock currently held, and (d) for General
Electric Pension Trust: 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 of
September 30, 1999.
Information for U. Bertram Ellis, Jr. includes 1,330,000 shares of common
stock issuable upon exercise of options exercisable within 60 days of September
30, 1999. Excludes 2,058,889 shares of common stock issuable upon exercise of
options which are not exercisable within 60 days of September 30, 1999.
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<PAGE>
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 of September 30,
1999. Excludes 296,260 shares of common stock issuable upon exercise of options
which are not exercisable within 60 days of September 30, 1999.
Information for William C. Nussey includes 746,934 shares of common stock
issuable upon exercise of options exercisable within 60 days of September 30,
1999. Excludes 1,097,342 shares of common stock issuable upon exercise of
options which are not exercisable within 60 days of September 30, 1999.
Information for Barry T. Sikes includes 252,000 shares of common stock
issuable upon exercise of options exercisable within 60 days of September 30,
1999. Excludes 333,500 shares of common stock issuable upon exercise of options
which are not exercisable within 60 days of September 30, 1999.
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.
Jerome D. Colonna is a partner in Flatiron Partners, LLC, which
beneficially owns 195,769 shares of common stock held by Flatiron Fund 1998/99,
LLC and 686,400 shares of common stock held by Flatiron Fund, LLC. Mr. Colonna
disclaims beneficial ownership of such shares.
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<PAGE>
DESCRIPTION OF iXL 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.
The authorized capital stock of iXL is 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 September 30, 1999, there were 64,587,978 shares of common stock
outstanding.
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.
Blank Check Preferred Stock
The Board of Directors has 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 are
currently outstanding. 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
iXL's initial public offering are parties to an Amended and Restated
Registration Rights Agreement, dated as of October 28, 1999, as amended on
November 2, 1999. All shares of common stock outstanding prior to iXL's initial
public offering, as well as (1) all shares of common stock issued upon exercise
of warrants outstanding prior to iXL's initial public offering, (2) all shares
of common stock issued upon the reclassification of the iXL's preferred stock
upon the closing of iXL's initial public offering, and (3) all shares of common
stock to be held by Kelso Equity Partners V, L.P. that were issued in
connection with the fee paid to Kelso & Company upon the closing of iXL's
initial public offering, are subject to the Registration Rights Agreement. The
Registration Rights Agreement provides that, at any time and from time to time,
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 who are parties to the Registration
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<PAGE>
Rights Agreement may include their shares in that 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 other than underwriting commissions will be paid by iXL.
Additionally, pursuant to the Registration Rights Agreement, all stockholders
who purchased iXL's capital stock prior to iXL's initial public offering have
agreed not to effect any public sale or distribution of their unregistered
stock during the 90 days after the closing of any registered public offering of
iXL common stock. For a description of the fee payable to Kelso & Company
described above, see "Certain Transactions of iXL."
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
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<PAGE>
. 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.
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 prohibits stockholders from taking action by written consent in
lieu of an annual or special meeting, and thus stockholders are only able to
take action at an annual or special meeting called in accordance with the
Bylaws.
Transfer Agent and Registrar
SunTrust Bank, Atlanta acts as transfer agent and registrar for the
common stock.
Listing
The common stock is quoted on the Nasdaq National Market under the
trading symbol "IIXL."
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<PAGE>
iXL SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that the market sales
of shares or the availability of 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 our ability to raise additional
capital.
Upon completion of the offering, iXL will have outstanding an aggregate
of 70,057,526 shares of common stock, assuming no exercise of outstanding
options. Of these shares, all of the shares sold in this offering
(approximately 3,469,548 shares) will, subject to the restrictions described in
"The Merger Agreement" and in "The Tessera Enterprise Systems, Inc. Special
Meeting--Transferability of iXL Common Stock," be freely tradeable, and the
shares sold in iXL's registered public offerings (13,900,000 shares) 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 52,687,978 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
promulgated under the Securities Act.
The holders of approximately 52,528,100 shares of common stock and the
holders of outstanding options and warrants to purchase approximately
21,034,999 shares of common stock, including all executive officers and
directors of iXL, have agreed with iXL that for a period of 90 days after iXL's
November 18, 1999 public offering (until February 17, 1999) 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. In addition to the lock-ups with iXL, holders of
approximately 48,061,097 shares of common stock and holders of options and
warrants to purchase approximately 15,519,230 shares of common stock are also
subject to a similar lock-up agreement in favor of Merrill Lynch. Each of
Merrill Lynch and iXL may, in its sole discretion, release shares from its
respective lock-up agreements, in whole or in part, at any time without notice.
As a result of the 90-day lock-ups described above and the provisions of
Rule 144, Rule 144(k) and Rule 701, additional shares will be available for
sale in the public market as follows:
<TABLE>
<CAPTION>
Approximate
Date of Availability for Sale Number of Shares
----------------------------- ----------------
<S> <C>
As of the date of this prospectus......................... 754,578
February 17, 2000......................................... 52,528,100
At various times afterwards upon expiration of applicable
holding periods.......................................... 1,370,374
</TABLE>
In addition, there are outstanding warrants to purchase 3,500,000 shares
of common stock. Of these, 3,000,000 shares are subject to the 90-day lock-ups
described above, while the remaining 500,000 shares could be available for sale
at any time, assuming expiration of the applicable holding periods.
As of September 30, 1999, options to purchase approximately 28,152,302
shares of common stock were outstanding under iXL's stock option plans. Of
these, options to purchase approximately 20,044,218 shares of common stock
cannot be exercised until iXL registers the shares of common stock subject to
such options. iXL may file a registration statement under the Securities Act to
register shares of common stock reserved for issuance under its stock option
plans at any time after November 29, 1999, thus permitting the resale of such
shares by non-affiliates in the public market without restriction under the
Securities Act to the extent vested and not otherwise subject to lock-up
agreements. See "Management of iXL--Stock Option Plans." Such registration
statement would become effective immediately upon filing. Assuming the filing
of such a registration statement on November 30, 1999, the earliest time
allowed by iXL's existing lock-up
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<PAGE>
agreement with Merrill Lynch, and as a result of the 90-day lock-ups described
above, additional option shares will be available for sale in the public market
as follows:
<TABLE>
<CAPTION>
Approximate
Number of Shares
Subject to
Date of Availability for Sale Vested Options
----------------------------- ----------------
<S> <C>
As of November 30, 1999................................... 6,732,010
Shares subject to options vesting from December 1, 1999
through January 31, 2000................................. 1,979,888
February 17, 2000......................................... 4,270,023
At various times afterwards upon further vesting.......... 15,170,381
</TABLE>
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 of iXL, or 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.
Following the expiration of the lock-up periods, certain shares issued
upon exercise of options granted by iXL prior to the date of this prospectus
will also be available for sale in the public market pursuant to Rule 701 under
the Securities Act. Rule 701 permits resales of such shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirement, imposed under Rule 144.
iXL expects to register 6,000,000 shares pursuant to an additional
Registration Statement on Form S-4. After issuance, these shares could be sold
in the public markets, although it is anticipated that these shares acquired
within 90 days of iXL's November 18, 1999 public offering would be subject to
the 90-day lock-up agreements discussed above.
The holders of approximately 52,528,100 shares of common stock, as well
as approximately 14,383,335 shares of common stock issuable upon exercise of
outstanding options and warrants, are entitled to certain rights with respect
to the registration of such shares under the Securities Act. See "Description
of iXL Capital Stock--Registration Rights Agreement."
PLAN OF DISTRIBUTION
iXL will issue the common stock from time to time in connection with the
acquisition by iXL of other businesses, assets or securities. It is expected
that the terms of the acquisitions involving the issuance of securities covered
by this prospectus will be determined by direct negotiations with the owners or
controlling
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persons of the businesses, assets or securities to be acquired by iXL. No
underwriting discounts or commissions will be paid in connection with the
issuance of the common stock by iXL, although finder's fees may be paid from
time to time with respect to specific mergers or acquisitions. Any person
receiving such fees may be deemed to be an underwriter within the meaning of
the Securities Act of 1933.
RESTRICTIONS ON RESALE
The common stock offered hereby is registered under the Securities Act of
1933, but this registration does not cover resale or distribution by the
persons who receive common stock issued by iXL in its acquisitions. Affiliates
of entities acquired by iXL who do not become affiliates of iXL may not resell
common stock registered under the Registration Statement to which this
prospectus relates except pursuant to an effective registration statement under
the Securities Act covering such shares, or in compliance with Rule 145
promulgated under the Securities Act or another applicable exemption from the
registration requirements of the Securities Act. Generally, Rule 145 permits
such affiliates to sell such shares immediately following the acquisition in
compliance with certain volume limitations and manner of sale requirements.
Under Rule 145, sales by such affiliates during any three-month period cannot
exceed the greater of (1) 1% of the shares of common stock of iXL outstanding
and (2) the average weekly reported volume of trading of such shares of common
stock on all national securities exchanges during the four calendar weeks
preceding the proposed sale. These restrictions will cease to apply under most
other circumstances if the affiliate has held the common stock for at least two
years, provided that the person or entity is not then an affiliate of iXL.
Individuals who are not affiliates of the entity being acquired and do not
become affiliates of iXL will not be subject to resale restrictions under Rule
145 and, unless otherwise contractually restricted, may resell common stock
immediately following the acquisition without an effective registration
statement under the Securities Act. The ability of affiliates to resell shares
of the common stock under Rule 145 will be subject to iXL having satisfied its
reporting requirements under the Securities Exchange Act of 1934, as amended,
for specified periods prior to the time of sale.
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. As of November 19, 1999,
attorneys employed by Minkin & Snyder held 126,778 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.
An opinion with respect to material United States federal income tax
consequences of the merger on holders of shares of Tessera Enterprise Systems
common stock will be rendered by Palmer & Dodge LLP, Boston, Massachusetts.
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.
123
<PAGE>
ADDITIONAL INFORMATION
iXL has filed with the Securities and Exchange Commission a Registration
Statement on Form S-4 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.
124
<PAGE>
iXL ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
iXL ENTERPRISES, INC.
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet................................................. F-3
Consolidated Statement of Operations....................................... F-4
Consolidated Statement of Changes in Stockholders' Equity.................. F-5
Consolidated Statement of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements................................. F-7
BOXTOP INTERACTIVE, INC.
Report of Independent Accountants.......................................... F-30
Balance Sheet.............................................................. F-31
Statement of Operations.................................................... F-32
Statement of Shareholders' Deficit......................................... F-33
Statement of Cash Flows.................................................... F-34
Notes to Financial Statements.............................................. F-35
TESSERA ENTERPRISE SYSTEMS, INC.
Report of Independent Accountants.......................................... F-42
Consolidated Balance Sheets................................................ F-43
Consolidated Statement of Operations....................................... F-44
Consolidated Statement of Changes in Stockholders' Deficit................. F-45
Consolidated Statement of Cash Flows....................................... F-46
Notes to Consolidated Financial Statements................................. F-47
</TABLE>
F-1
<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-2
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, September 30,
----------------- -------------
1997 1998 1999
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................... $23,038 $ 19,259 $79,320
Marketable securities....................... -- -- 25,003
Accounts receivable less allowance for
doubtful accounts of $138, $796, and
$2,155..................................... 3,259 17,737 50,022
Unbilled revenues........................... 1,858 8,089 24,144
Prepaid expenses and other assets........... 616 3,355 7,745
------- -------- --------
Total current assets...................... 28,771 48,440 186,234
Property and equipment, net................. 9,178 27,975 45,446
Intangible assets, net...................... 18,205 64,217 49,476
Equity investment in affiliate, net......... 1,115 -- --
Other non-current assets.................... 343 2,319 2,236
------- -------- --------
Total assets.............................. $57,612 $142,951 $283,392
======= ======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable............................ $ 2,242 $ 6,438 $ 10,840
Deferred revenues........................... 471 6,072 9,732
Accrued liabilities......................... 1,746 7,943 17,590
Current portion of long-term debt........... 433 868 566
------- -------- --------
Total current liabilities................. 4,892 21,321 38,728
Long-term debt................................ 840 20,552 1,315
------- -------- --------
Total liabilities........................... 5,732 41,873 40,043
------- -------- --------
Mandatorily redeemable preferred stock........ 29,930 65,679 --
Mandatorily redeemable preferred stock of
subsidiary................................... -- 9,839 48,503
------- -------- --------
29,930 75,518 48,503
------- -------- --------
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,
and 0; aggregate liquidation preference of
$25,590, $31,103, and $0................... 2 2
Class A Common Stock, par value $.01,
75,000,000 shares authorized; issued and
outstanding 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 and
64,840,394 (including 0, 252,416, and
252,416 shares held in treasury)........... 82 163 648
Additional paid-in capital.................. 38,760 94,820 304,345
Accumulated deficit......................... (16,894) (65,760) (112,853)
Accumulated other comprehensive income...... -- (10) 7,062
Note receivable from stockholder............ -- (900) (900)
Unearned compensation....................... -- (1,867) (2,568)
Treasury stock at cost; 0, 252,416, and
252,416 shares............................. -- (888) (888)
------- -------- --------
Total stockholders' equity................ 21,950 25,560 194,846
------- -------- --------
Total liabilities, mandatorily redeemable
preferred stock and
stockholders' equity..................... $57,612 $142,951 $283,392
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the period
May 1, 1996 Years ended Nine Months ended
through December 31, September 30,
December 31, ------------------ ------------------
1996 1997 1998 1998 1999
-------------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 5,379 $ 18,986 $ 64,767 $ 35,507 $142,639
Cost of revenues........ 3,577 11,343 44,242 25,613 83,291
------- -------- -------- -------- --------
Gross profit.......... 1,802 7,643 20,525 9,894 59,348
Sales and marketing
expenses............... 812 3,903 17,325 9,496 32,418
General and
administrative
expenses............... 1,247 9,114 30,163 15,839 50,125
Research and development
expenses............... -- 4,820 4,408 3,473 3,489
Depreciation............ 372 1,408 5,217 2,915 8,499
Amortization............ 928 5,191 10,590 5,992 13,013
------- -------- -------- -------- --------
Loss from operations.. (1,557) (16,793) (47,178) (27,821) (48,196)
Other income (expense),
net.................... 48 116 (28) 40 (183)
Loss on equity
investment............. (249) (1,443) (1,640) (1,287) (65)
Interest income......... 32 136 750 551 2,180
Interest expense........ (30) (238) (770) (322) (829)
------- -------- -------- -------- --------
Loss before income
taxes................ (1,756) (18,222) (48,866) (28,839) (47,093)
Income tax benefit...... 302 2,782 -- -- --
------- -------- -------- -------- --------
Net loss.............. (1,454) (15,440) (48,866) (28,839) (47,093)
Dividends and accretion
on mandatorily
redeemable preferred
stock.................. -- -- (9,099) (5,096) (20,514)
------- -------- -------- -------- --------
Net loss available to
common stockholders.. $(1,454) $(15,440) $(57,965) $(33,935) $(67,607)
======= ======== ======== ======== ========
Basic and diluted net
loss per common
share................ $ (0.37) $ (2.36) $ (4.92) $ (3.28) $ (1.85)
======= ======== ======== ======== ========
Weighted average
common shares
outstanding.......... 3,972 6,540 11,777 10,348 36,447
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<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
Preferred Stock Common Stock Capital Deficit Income Income Stockholder
------------------- ----------------- ---------- ----------- ------------- ------------- -----------
Shares Value Shares Value
---------- ------- ---------- -----
<S> <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 -- -- -- --
Stock compensa-
tion and warrant
expenses......... -- -- -- -- 813 -- -- -- --
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)
---------- ----- ---------- ---- -------- --------- ------- ------ ------
Stock issuance
(unaudited)...... (177,291) (2) 41,518,870 415 170,573 -- -- -- --
Conversion and
accretion of
mandatorily re-
deemable pre-
ferred stock (un-
audited)......... -- -- 6,986,619 70 18,159 -- -- -- --
Issuance of stock
options (unau-
dited)........... -- -- -- -- 4,102 -- -- -- --
Stock compensa-
tion and warrant
expenses (unau-
dited)........... -- -- -- -- 16,691 -- -- -- --
Comprehensive in-
come:
Net loss (unau-
dited).......... -- -- -- -- -- (47,093) (47,093) -- --
Foreign currency
translation ad-
justment (unau-
dited).......... -- -- -- -- -- -- (65) (65) --
Unrealized gain
on marketable
securities (un-
audited)........ -- -- -- -- -- -- 7,137 7,137 --
-------
Other comprehen-
sive income (un-
audited)........ -- -- -- -- -- -- 7,072 -- --
-------
Comprehensive in-
come (unau-
dited)........... -- -- -- -- -- -- (40,021) -- --
---------- ----- ---------- ---- -------- --------- ------- ------ ------
Balance, Septem-
ber 30, 1999 (un-
audited)......... -- -- 64,587,978 $648 $304,345 $(112,853) $7,062 $(900)
========== ===== ========== ==== ======== ========= ====== ======
<CAPTION>
Total
Unearned Treasury Stockholders'
Compensation Stock Equity
------------ -------- -------------
<S> <C> <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............ (3,508) -- --
Stock compensa-
tion and warrant
expenses......... 1,641 -- 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......... (1,867) (888) 25,560
------------ -------- -------------
Stock issuance
(unaudited)...... -- -- 170,986
Conversion and
accretion of
mandatorily re-
deemable pre-
ferred stock (un-
audited)......... -- -- 18,229
Issuance of stock
options (unau-
dited)........... (4,102) -- --
Stock compensa-
tion and warrant
expenses (unau-
dited)........... 3,401 -- 20,092
Comprehensive in-
come:
Net loss (unau-
dited).......... -- -- (47,093)
Foreign currency
translation ad-
justment (unau-
dited).......... -- -- (65)
Unrealized gain
on marketable
securities (un-
audited)........ -- -- 7,137
Other comprehen-
sive income (un-
audited)........ -- -- --
Comprehensive in-
come (unau-
dited)...........
------------ -------- -------------
Balance, Septem-
ber 30, 1999 (un-
audited)......... $(2,568) $(888) $194,846
============ ======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the period
May 1, 1996 Years ended Nine Months ended
through December 31, September 30,
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) $(28,839) $(47,093)
Adjustments to reconcile
net loss to net cash
used in operating
activities
Depreciation ......... 372 1,408 5,217 2,915 8,499
Amortization.......... 928 5,191 10,590 5,992 13,013
Provision for bad
debts................ 134 118 1,227 665 2,571
Acquired in-process
technology........... -- 2,400 -- -- --
Deferred income tax-
es................... (344) (2,782) -- -- --
Non-cash investment
and losses in equity
affiliate and
amortization......... (168) 807 1,365 1,012 65
Stock option and war-
rant expense......... -- -- 2,454 -- 8,292
Changes in assets and
liabilities, net of
effects from purchase
of subsidiaries
Accounts receiv-
able............... (249) (1,538) (9,840) (6,016) (34,856)
Unbilled revenues... (112) (1,597) (5,328) (3,476) (16,055)
Prepaid expenses and
other assets....... (5) (684) (4,669) (3,871) (5,579)
Accounts payable and
accrued liabili-
ties............... (332) 1,534 5,523 3,393 14,527
Deferred revenues... 195 (156) 4,888 2,515 3,660
------- -------- -------- -------- --------
Net cash used in op-
erating activi-
ties............... (1,035) (10,739) (37,439) (25,710) (52,956)
------- -------- -------- -------- --------
Cash flows from invest-
ing activities
Purchases of property
and equipment........ (666) (6,704) (20,304) (13,693) (25,733)
Purchases of subsidi-
aries, net of cash
acquired............. (7,833) (3,433) (16,602) (16,611) --
Purchases of commer-
cial paper........... -- -- -- -- (17,704)
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) (30,304) (41,545)
------- -------- -------- -------- --------
Cash flows from financ-
ing activities
Proceeds from
borrowings........... 250 6,849 23,428 14,000 --
Repayment of
borrowings........... (119) (6,259) (6,729) (6,276) (19,946)
Proceeds from issuance
of mandatorily
redeemable preferred
stock................ -- 29,930 40,314 40,560 --
Proceeds from issuance
of stock............. 10,941 13,860 4,612 4,613 125,312
Proceeds from issuance
of mandatorily
redeemable preferred
stock of subsidiary.. -- -- 9,839 -- 49,261
Acquisition of trea-
sury stock........... -- -- (888) (888) --
------- -------- -------- -------- --------
Net cash provided by
financing activi-
ties 11,072 44,380 70,576 52,009 154,627
------- -------- -------- -------- --------
Effect of exchange rate
changes on cash and
cash
equivalents............ -- -- (10) -- (65)
Net increase (de-
crease) in cash and
cash
equivalents........ 409 22,629 (3,779) (4,005) 60,061
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 $ 19,033 $ 79,320
======= ======== ======== ======== ========
Supplemental disclosure
of cash flow informa-
tion
Cash paid for inter-
est.................. $ 29 $ 168 $ 797 $ 377 $ 871
======= ======== ======== ======== ========
Non-cash investing and
financing activities
Acquisition of
equipment through
capital leases....... $ 112 $ 289 $ 569 $ 382 $ 407
Unrealized gain on
marketable
securities........... -- -- -- -- $ 7,137
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<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-7
<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-8
<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-9
<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 nine months ended
September 30, 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.
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. In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137, which postpones the
mandatory adoption of FAS 133 by the Company until January 1, 2001. The Company
has not entered into any significant derivative financial instrument
transactions.
F-10
<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-11
<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
Fair Value Shares of Cash Used for Tangible
of iXL Common Warrants/ Acquisitions, Total Assets
Date Common Stock Options Net of Cash Purchase (Liabilities) Assembled Other
Acquired Stock Issued Issued(1) Acquired Price Acquired Workforce Intangibles (2)
Business Acquired -------------- ---------- --------- --------- ------------- -------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BoxTop
Interactive,
Inc.-- Los
Angeles, CA(4).. May 1997 $2.10 3,416,700 1,236,800 $ 1,182 $10,044 $(1,635) $ 1,946 $3,562
Other
Acquisitions
(aggregated
1997)........... Various 778,300 179,800 2,251 2,804 (447) 1,213 --
============== ===== ========= ========= ======= ======= ======= ======= ======
Total of 1997
Acquisitions... 4,195,000 1,416,600 $ 3,433 $12,848 $(2,082) $ 3,159 $3,562
============== ===== ========= ========= ======= ======= ======= ======= ======
Digital Planet,
Inc.--
Los Angeles,
CA(4)(5)........ May 1998 5.50 259,584 -- $ 1,962 $ 3,550 $ (39) $ 1,012 --
Micro
Interactive,
Inc.--
New York,
NY(3)........... May 1998 5.50 740,000 19,500 1,718 5,809 281 999 --
CommerceWAVE,
Inc.-- San
Diego, CA(7).... July 1998 5.82 877,898 64,434 117 5,459 (1,037) 662 700
Image
Communications,
Inc.--
Vienna, VA(4)... July 1998 5.82 378,999 125,054 753 3,324 381 1,213 --
Spinners
Incorporated--
Boston,
MA(4)(5)(9)..... July 1998 5.82 674,132 66,495 1,383 5,543 499 1,129 --
Tekna, Inc.--
Richmond,
VA(4)(5)........ September 1998 4.50 712,622 125,757 611 4,758 527 820 --
Larry Miller
Productions,
Inc.--
Boston, MA(4)... September 1998 4.50 113,823 248,135 1,812 3,490 (143) 963 --
NetResponse--
Arlington,
VA(4)(5)(11).... September 1998 4.50 701,375 73,625 1,719 5,307 1,312 1,168 --
Ionix Development
Corp.
-- Chicago,
IL(5)........... September 1998 4.50 358,551 -- 1,059 3,013 231 778 --
Pequot Systems,
Inc.--
Norwalk,
CT(5)(9)........ September 1998 4.50 378,066 -- 792 2,501 154 357 --
TwoWay
Communications
LLC--Chicago,
IL(4)(10) September 1998 4.50 269,421 -- 1,246 2,469 335 713 --
Other
Acquisitions
(aggregated
1998)........... Various 2,295,530 57,215 3,430 14,188 795 6,075 --
-------------- ----- --------- --------- ------- ------- ------- ------- ------
Total of 1998
acquisitions... 7,760,001 780,215 $16,602 $59,411 $ 3,296 $15,889 $ 700
============== ===== ========= ========= ======= ======= ======= ======= ======
<CAPTION>
Excess of
Cost Over
Fair Value of
Net Assets
Acquired
Business Acquired -------------
<S> <C>
BoxTop
Interactive,
Inc.-- Los
Angeles, CA(4).. 6,171
Other
Acquisitions
(aggregated
1997)........... 2,038
=============
Total of 1997
Acquisitions... $ 8,209
=============
Digital Planet,
Inc.--
Los Angeles,
CA(4)(5)........ $ 2,577
Micro
Interactive,
Inc.--
New York,
NY(3)........... 4,529
CommerceWAVE,
Inc.-- San
Diego, CA(7).... 5,134
Image
Communications,
Inc.--
Vienna, VA(4)... 1,730
Spinners
Incorporated--
Boston,
MA(4)(5)(9)..... 3,915
Tekna, Inc.--
Richmond,
VA(4)(5)........ 3,411
Larry Miller
Productions,
Inc.--
Boston, MA(4)... 2,670
NetResponse--
Arlington,
VA(4)(5)(11).... 2,827
Ionix Development
Corp.
-- Chicago,
IL(5)........... 2,004
Pequot Systems,
Inc.--
Norwalk,
CT(5)(9)........ 1,990
TwoWay
Communications
LLC--Chicago,
IL(4)(10) 1,421
Other
Acquisitions
(aggregated
1998)........... 7,318
-------------
Total of 1998
acquisitions... $39,526
=============
</TABLE>
- --------
(1) Amounts equal the number of Class B Common Stock shares to be issued upon
exercise of the warrants and options.
(2) Other intangibles include in-process research and development at BoxTop,
the BoxTop brandname and non-compete agreements.
Primary capabilities: (3)Interactive multimedia; (4)Creative design;
(5)Software engineering; (6)Travel expertise; (7)E-Commerce; (8)Video
production; (9)Financial Services Consulting; (10)Healthcare expertise;
(11)Strategy consulting.
F-12
<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-13
<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 1997 and 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 5.00% 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-14
<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-15
<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-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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 less than
fair market value -- -- $ 2.13 $0.90 $ 3.49 $2.10
</TABLE>
F-25
<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-26
<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.
<TABLE>
<CAPTION>
Strategic
Internet
1998 Services CFN Eliminations Total
---- --------- ------- ------------ -------
<S> <C> <C> <C> <C>
Revenues.......................... $64,658 $ 251 (142) $64,767
Loss from operations.............. (33,619) (13,559) -- (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> <C>
Revenues.......................... $19,131 $ -- (145) $18,986
Loss from operations.............. (12,135) (4,658) -- (16,793)
Loss on equity investment......... (1,443) -- -- (1,443)
Interest income................... 136 -- -- 136
Interest expense.................. 234 4 -- 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 $347 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-27
<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 approved an amendment to the Company's Certificate of
Incorporation which took 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 was reclassified as
common stock. This reclassification precluded the automatic conversion feature
of the Class A, Class B and Class C Convertible Preferred Stock.
The Class D Preferred Stockholders, as a result of the reclassification,
received 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 Events (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 $20,000 of services from the Company
F-28
<PAGE>
iXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
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) implementing a
mutually acceptable marketing campaign 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.
All the warrants issued in connection with the April 1999 transactions
with GE are 100% vested on the date of grant, nonforfeitable, and are
exercisable after one year subsequent to the date of grant. The fair value of
the warrants to purchase 1 million shares of common stock issued in connection
with the $20 million services agreement is $4.8 million. The related charge
will be recorded as contra-revenue as the services are provided to GE. The fair
value of the warrants was determined using the Black-Scholes option pricing
model. The assumptions utilized in determining the fair value are as follows:
life of warrant=three years; expected volatility=85%; dividend yield=0%; risk
free rate=5%; fair market value of underlying stock on date of grant=$10.00.
The fair value of the warrants to purchase 1.5 million shares of common
stock of $12.6 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=$12.00 (based on the assumed initial public offering price); exercise
price=$12.00.
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.
On June 8, 1999, the Company completed its initial public offering and
received net proceeds of approximately $61.7 million from the sale of 6,000,000
shares of common stock. Also on June 8, 1999, the Company received net proceeds
of approximately $23.5 million from the sale of 2,000,000 shares of common
stock in the private placement with GE. On June 14, 1999, the underwriters
exercised their overallotment option resulting in the sale of 900,000
additional shares of common stock for net proceeds of approximately $10.0
million. On June 8, 1999, CFN received net proceeds of approximately $49.3
million from the sale of 16,190,475 shares of CFN's Series B Convertible
Preferred Stock.
In November 1999, the Company completed a secondary public offering and
received net proceeds of approximately $69.5 million from the sale of 2,000,000
shares of common stock.
F-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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> <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-40
<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-41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Tessera Enterprise Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of stockholders' deficit and of
cash flows present fairly, in all material respects, the financial position of
Tessera Enterprise Systems, Inc. and its subsidiary at December 31, 1998 and
1997, and the results of their operations and their cash flows for 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
Boston, Massachusetts
May 4, 1999
F-42
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
----------- ----------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 8,287,200 $ 8,341,400 $ 7,004,300
Accounts receivable................... 2,755,900 3,877,000 5,315,600
Costs and estimated earnings in excess
of billings on uncompleted
contracts............................ 671,800 845,100 273,000
Prepaid expenses and other current
assets............................... 153,400 217,700 384,100
----------- ----------- -----------
Total current assets............... 11,868,300 13,281,200 12,977,000
Fixed assets, net...................... 1,476,600 1,547,300 1,382,700
Other assets........................... 32,500 32,100 32,800
----------- ----------- -----------
Total assets....................... $13,377,400 $14,860,600 $14,392,500
=========== =========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of capital lease
obligations.......................... $ 218,800 $ 85,900 $ 74,500
Current portion of long-term debt..... 248,400 502,000 488,700
Accounts payable...................... 182,500 470,900 373,200
Accrued expenses...................... 945,600 1,747,200 1,931,500
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................ 680,600 107,000 182,900
----------- ----------- -----------
Total current liabilities.......... 2,275,900 2,913,000 3,050,800
Capital lease obligations.............. 267,600 165,300 108,500
Long-term debt......................... 644,300 673,500 486,000
----------- ----------- -----------
Total liabilities.................. 3,187,800 3,751,800 3,645,300
----------- ----------- -----------
Commitments and contingencies
(Note 12)............................. -- -- --
Redeemable preferred stock:
Redeemable preferred stock, $.01 par
value; 158,077 shares authorized,
149,577 shares issued and outstanding
at December 31, 1997; 169,435 shares
authorized, 158,095 shares issued and
outstanding at December 31, 1998 and
September 30, 1999 (unaudited);
stated at issuance price plus accrued
dividends (liquidation preference of
$13,796,700 and $13,833,300 at
December 31, 1998 and September 30,
1999 (unaudited), respectively)...... 11,888,800 13,826,100 13,862,600
----------- ----------- -----------
Stockholders' deficit:
Common stock, no par value; 7,500,000
shares authorized; 2,984,841 shares
issued and outstanding at
December 31, 1997; 3,055,391 shares
issued and 2,602,466 shares
outstanding at December 31, 1998;
3,119,504 shares issued and 2,512,991
shares outstanding at September 30,
1999 (unaudited)..................... 5,400 28,300 76,700
Accumulated other comprehensive income
(loss)............................... (10,700) (4,200) 500
Accumulated deficit................... (1,693,900) (852,700) (674,300)
Cost of 452,925 and 603,900 shares of
common stock held in treasury at
December 31, 1998 and September 30,
1999 (unaudited), respectively....... -- (1,888,700) (2,518,300)
----------- ----------- -----------
Total stockholders' deficit........ (1,699,200) (2,717,300) (3,115,400)
----------- ----------- -----------
Total liabilities, redeemable
preferred stock and stockholders'
deficit........................... $13,377,400 $14,860,600 $14,392,500
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Revenue.................... $16,212,400 $20,248,100 $14,842,400 $17,618,300
----------- ----------- ----------- -----------
Costs and expenses:
Cost of revenue........... 10,642,800 12,249,200 9,019,000 9,772,600
Selling, general and
administrative........... 5,033,700 7,262,900 5,363,300 7,657,200
----------- ----------- ----------- -----------
15,676,500 19,512,100 14,382,300 17,429,800
----------- ----------- ----------- -----------
Income from
operations............ 535,900 736,000 460,100 188,500
----------- ----------- ----------- -----------
Other income (expense):
Interest income........... 36,500 339,000 259,100 163,000
Interest expense.......... (141,900) (135,100) (96,300) (105,600)
Other income (expense),
net...................... (3,200) 800 800 7,200
----------- ----------- ----------- -----------
(108,600) 204,700 163,600 64,600
----------- ----------- ----------- -----------
Income before income
taxes................. 427,300 940,700 623,700 253,100
Provision for income
taxes..................... 10,000 38,900 25,200 38,200
----------- ----------- ----------- -----------
Net income............. $ 417,300 $ 901,800 $ 598,500 $ 214,900
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Treasury Stock
----------------- Accumulated ---------------------
Other Number Total
Number of Comprehensive Accumulated Comprehensive of Stockholders'
Shares Amount Income (Loss) Deficit Income (Loss) Shares Cost Deficit
--------- ------- ------------- ----------- ------------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996...... 2,951,460 $ 1,000 $ -- $(2,023,000) -- $ -- $(2,022,000)
Issuance costs of Series
D preferred stock...... (39,500) (39,500)
Issuance of common stock
pursuant to exercise of
stock options.......... 33,381 4,400 4,400
Accrual of cumulative
dividends on redeemable
preferred stock........ (48,700) (48,700)
Comprehensive income:
Net income............. 417,300 $417,300 417,300
Foreign currency
translation
adjustment............ (10,700) (10,700) (10,700)
--------
Comprehensive income... 406,600
--------- ------- -------- ----------- ======== -------- ----------- -----------
Balance at
December 31, 1997...... 2,984,841 5,400 (10,700) (1,693,900) -- -- (1,699,200)
Repurchase of common
stock.................. (452,925) (1,888,700) (1,888,700)
Issuance costs of Series
D preferred stock...... (11,900) (11,900)
Issuance of common stock
pursuant to exercise of
stock options.......... 70,550 22,900 22,900
Accrual of cumulative
dividends on redeemable
preferred stock........ (48,700) (48,700)
Comprehensive income:
Net income............. 901,800 901,800 901,800
Foreign currency
translation
adjustment............ 6,500 6,500 6,500
--------
Comprehensive income... 908,300
--------- ------- -------- ----------- ======== -------- ----------- -----------
Balance at
December 31, 1998...... 3,055,391 28,300 (4,200) (852,700) (452,925) (1,888,700) (2,717,300)
Repurchase of common
stock (unaudited)...... (150,975) (629,600) (629,600)
Issuance of common stock
pursuant to exercise of
stock options
(unaudited)............ 64,113 48,400 48,400
Accrual of cumulative
dividends on redeemable
preferred stock
(unaudited)............ (36,500) (36,500)
Comprehensive income:
Net income
(unaudited)........... 214,900 214,900 214,900
Foreign currency
translation adjustment
(unaudited)........... 4,700 4,700 4,700
--------
Comprehensive income
(unaudited)........... $219,600
--------- ------- -------- ----------- ======== -------- ----------- -----------
Balance at September 30,
1999 (unaudited)....... 3,119,504 $76,700 $ 500 $ (674,300) (603,900) $(2,518,300) $(3,115,400)
========= ======= ======== =========== ======== =========== ===========
</TABLE>
F-45
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Increase (Decrease) in
Cash and Cash Equivalents
Cash flows from operating
activities:
Net income............... $ 417,300 $ 901,800 $ 598,500 $ 214,900
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and
amortization.......... 547,400 767,300 552,700 634,500
Amortization of gain on
sale leaseback
transactions.......... (17,400) (10,300) (8,200) (800)
Changes in assets and
liabilities:
Accounts receivable... (273,500) (1,121,100) (1,850,000) (1,438,600)
Costs and estimated
earnings in excess of
billings on
uncompleted
contracts............ (555,000) (173,300) (171,400) 572,100
Prepaid expenses and
other current
assets............... (117,900) (64,300) (54,600) (166,400)
Advances to
affiliate............ 72,100 -- -- --
Other assets.......... (4,400) 400 -- (700)
Accounts payable...... (135,200) 288,400 345,500 (97,700)
Accrued expenses...... 559,600 798,600 456,400 184,300
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts............ (1,116,100) (573,600) (302,800) 75,900
----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities.......... (623,100) 813,900 (433,900) (22,500)
----------- ----------- ----------- -----------
Cash flows from investing
activities:
Purchases of fixed
assets.................. (819,100) (827,700) (667,100) (459,700)
----------- ----------- ----------- -----------
Net cash used in
investing
activities.......... (819,100) (827,700) (667,100) (459,700)
----------- ----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from line of
credit.................. 975,000 -- -- --
Payments on line of
credit.................. (1,275,000) -- -- --
Payments on capital lease
obligations............. (264,000) (235,200) (191,900) (68,200)
Proceeds from issuance of
long-term debt.......... 934,300 553,600 542,800 167,200
Payments on long-term
debt.................... (41,600) (270,800) (218,000) (368,000)
Proceeds from issuance of
preferred stock, net of
issuance costs.......... 7,160,400 1,876,700 1,876,700 --
Proceeds from issuance of
common stock............ 4,400 22,900 11,000 48,400
Repurchase of common
stock................... -- (1,888,700) (1,888,700) (629,600)
----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities.......... 7,493,500 58,500 131,900 (850,200)
----------- ----------- ----------- -----------
Effect of exchange rate
changes on cash and cash
equivalents.............. (10,700) 9,500 (3,800) (4,700)
----------- ----------- ----------- -----------
Net increase (decrease) in
cash and cash
equivalents.............. 6,040,600 54,200 (972,900) (1,337,100)
Cash and cash equivalents
at beginning of period... 2,246,600 8,287,200 8,287,200 8,341,400
----------- ----------- ----------- -----------
Cash and cash equivalents
at end of period......... $ 8,287,200 $ 8,341,400 $ 7,314,300 $ 7,004,300
=========== =========== =========== ===========
Supplemental disclosure of
cash flow information:
Cash paid for interest... $ 141,900 $ 135,100 $ 96,300 $ 105,600
Cash paid for income
taxes................... $ -- $ 28,400 $ 25,200 $ 28,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-46
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Formation and Operations of the Company
Tessera Enterprise Systems, Inc. (the "Company") was incorporated in
Massachusetts on February 15, 1995. The Company provides design, delivery,
implementation and operation of large scale marketing information systems
primarily for financial services organizations, telecommunications companies
and direct marketers throughout the United States and Europe.
2. Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned German subsidiary, Tessera, GmbH. All intercompany
balances and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
invests its excess cash in money market funds of major financial institutions
that are subject to minimal credit and market risk. At December 31, 1997 and
1998, the Company held cash equivalents totaling $7,285,200 and $6,960,700,
respectively, which are classified as available-for-sale and carried at
amortized cost which approximates fair market value.
Revenue Recognition
Revenue from fixed-fee contracts is recognized using the percentage-of-
completion method, measured by the percentage of labor hours incurred to date
to estimated total labor hours for each contract, provided that collection of
the related receivable is probable. Adjustments to contract cost estimates are
made in periods in which the facts which require such revisions become known.
When the estimate indicates a loss, such loss is provided for currently in its
entirety. Costs and estimated earnings in excess of billings on uncompleted
contracts represent revenue recognized in excess of amounts billed. Billings in
excess of costs and estimated earnings on uncompleted contracts represent
billings in excess of revenue recognized. Revenue from contracts based on time
and materials is recognized as the services are performed.
Concentration of Credit Risk and Major Customers
Financial instruments which potentially expose the Company to
concentrations of credit risk include trade accounts receivable and costs and
estimated earnings in excess of billings on uncompleted contracts. Management
believes its credit policies are prudent and reflect normal industry terms and
business risk. The Company does not anticipate nonperformance by the
counterparties and, accordingly, does not require collateral.
At December 31, 1997 and 1998, approximately $1,982,000 and $2,275,500,
respectively, of the Company's accounts receivable are from five customers. At
December 31, 1997 and 1998, approximately $653,000 and $825,200, respectively,
of the Company's costs and estimated earnings in excess of billings on
uncompleted contracts are from four and two customers, respectively.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Fixed assets held under capital
leases are initially recorded at the lower of the fair market value of the
related asset or the present value of the minimum lease payments at the
inception of the lease and are amortized on a straight-line basis over the
shorter of the life of the related asset or the lease term.
F-47
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign Currency
Assets and liabilities of the Company's foreign subsidiary are translated
into U.S. dollars at exchange rates in effect at the balance sheet date. Income
and expense items are translated at average exchange rates for the period.
Cumulative translation adjustments are included as a component of stockholders'
equity.
Accounting for Stock-Based Compensation
The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense is recorded for options
issued to employees in fixed amounts and with exercise prices equal to the fair
market value of the Company's common stock at the date of grant. The Company
has adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," through disclosure
only (Note 9).
Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in
1998. SFAS No. 130 requires that a full set of general purpose financial
statements be expanded to include the reporting of "comprehensive income."
Comprehensive income is comprised of two components, net income and other
comprehensive income. Other comprehensive income includes certain changes in
equity that are excluded from net income, such as foreign currency translation
adjustments and unrealized holding gains and losses on available-for-sale
marketable securities and certain derivative instruments. The individual
components of comprehensive income are reflected in the Consolidated Statement
of Stockholders' Deficit. At December 31, 1997 and 1998, accumulated other
comprehensive income was comprised solely of cumulative foreign currency
translation adjustments.
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. Areas particularly subject to estimation include the
allowance for doubtful accounts, revenue recognition under the percentage-of-
completion method, the deferred tax valuation allowance and the fair values of
equity instruments issued by the Company. Actual results could differ from
these estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation. Such reclassifications had no effect on the
Company's results of operations.
Unaudited Interim Financial Statements
The financial statements and related notes as of September 30, 1999 and
for the nine months ended September 30, 1998 and 1999 are unaudited. In the
opinion of the Company's management, the unaudited interim financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for these interim periods. The results of
F-48
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
operations for the nine months ended September 30, 1999 are not necessarily
indicative of the results of operations for the year ended December 31, 1999 or
any other future period.
3. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31,
Useful life ---------------------
in years 1997 1998
----------- ---------- ----------
<S> <C> <C> <C>
Computers and equipment................ 3-5 $1,824,600 $2,164,000
Furniture and fixtures................. 5 204,000 400,300
Leasehold improvements................. 10 173,600 217,200
---------- ----------
2,202,200 2,781,500
Less--Accumulated depreciation and
amortization.......................... 725,600 1,234,200
---------- ----------
$1,476,600 $1,547,300
========== ==========
</TABLE>
During 1995 and 1996, the Company sold certain equipment with a total net
book value of $473,100 to a leasing company for cash of $516,500 and then
leased the same equipment back under the terms of a lease line of credit. The
gains on these sale leaseback transactions were deferred and amortized over the
related lease lives of 2.5 years. At December 31, 1997 and 1998, computers and
equipment held under capital lease totaled $894,400 and $635,200, respectively.
Amortization expense on computers and equipment held under capital lease
totaled, $282,200 and $237,100 during, 1997 and 1998, respectively. Accumulated
amortization on computers and equipment held under capital lease totaled
$418,000 and $396,000 at December 31, 1997 and 1998, respectively.
4. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
-------- ----------
<S> <C> <C>
Employee compensation and benefits.................... $651,400 $1,280,400
Commissions........................................... 211,800 204,200
Other................................................. 82,400 262,600
-------- ----------
$945,600 $1,747,200
======== ==========
</TABLE>
5. Borrowings
Revolving Line of Credit
In July 1996, the Company entered into an agreement with a bank to
establish a revolving line of credit. The line of credit agreement, as amended,
allows for total borrowings up to $4,000,000 for working capital purposes and
expires in July 1999. Borrowings are based on eligible accounts receivable, as
defined by the agreement, and are collateralized by the Company's accounts
receivable. Borrowings bear interest at the prime rate plus 0.50% (8.25% at
December 31, 1998). Under the terms of the facility, the Company is required to
comply with certain covenants, including the maintenance of certain financial
ratios. At December 31, 1998, no borrowings were outstanding and $4,000,000 was
available under this line of credit.
F-49
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-Term Debt
During 1997, the Company amended its equipment line of credit agreement
to allow for additional borrowings of up to $1,750,000 for equipment purchase
purposes. During 1998, the Company further amended the agreement to allow for
additional borrowings of up to $2,000,000 in addition to the original
$1,750,000. Borrowings outstanding for equipment purchases bear interest at
the prime rate plus 1.00% to 1.75% (8.75% to 9.50% at December 31, 1998).
After a nine-month draw down period, borrowings outstanding are converted into
term loans payable in 36 equal monthly principal installments. Availability
under the 1997 amendment expired in April 1998. Availability under the 1998
amendment expired in February 1999. Borrowings outstanding under the equipment
line of credit totaled $1,175,500 and $1,529,200 remained available at
December 31, 1998.
At December 31, 1998, future aggregate principal payments due on long-
term debt are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 502,000
2000............................................................ 454,300
2001............................................................ 206,100
2002............................................................ 13,100
----------
$1,175,500
==========
</TABLE>
6. Income Taxes
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
1997 1998
-------- --------
<S> <C> <C>
Domestic................................................. $405,000 $854,200
Foreign.................................................. 22,300 86,500
-------- --------
$427,300 $940,700
======== ========
</TABLE>
F-50
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December
31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Current:
Federal................................................. $ -- $ --
State................................................... -- --
Foreign................................................. 10,000 38,900
--------- ---------
10,000 38,900
--------- ---------
Deferred:
Federal................................................. 95,800 276,500
State................................................... 87,400 40,700
Foreign................................................. -- --
--------- ---------
183,200 317,200
Change in deferred tax asset valuation allowance.......... (183,200) (317,200)
--------- ---------
-- --
--------- ---------
$ 10,000 $ 38,900
========= =========
No current federal or state income taxes were payable in the year ended
December 31, 1998 due to the utilization of net operating loss carryforwards.
No current federal or state income taxes were payable in the year ended
December 31, 1997 as a result of taxable losses incurred.
Deferred tax assets are comprised of the following:
<CAPTION>
December 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Net operating loss carryforwards.......................... $ 529,700 $ 27,200
Accrued expenses.......................................... 17,200 197,600
Other..................................................... 3,500 8,400
--------- ---------
Deferred tax assets....................................... 550,400 233,200
Less: valuation allowance................................. (550,400) (233,200)
--------- ---------
$ -- $ --
========= =========
</TABLE>
The Company has provided a valuation allowance for the full amount of its
net deferred tax assets since realization of these future benefits is not
sufficiently assured. Realization is dependent primarily on generating
sufficient taxable income in future periods to offset the deductions underlying
the deferred tax assets when they reverse.
F-51
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation between the amounts of reported income tax expense and
the amounts computed using the U.S. federal statutory rate of 35% are as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Income tax expense at statutory rates............... $ 149,600 $ 299,000
State taxes, net of federal income tax benefit...... 57,700 26,900
Foreign income taxed at different rates............. 2,500 9,500
Permanent differences............................... 18,300 8,700
Other............................................... (34,900) 12,000
Increase (decrease) in deferred tax valuation
allowance.......................................... (183,200) (317,200)
----------- -----------
$ 10,000 $ 38,900
=========== ===========
</TABLE>
At December 31, 1998, the Company has federal and state net operating
loss carryforwards of approximately $68,000 and $62,000, respectively,
available to reduce future taxable income. If not used, these carryforwards
will expire at various dates between 2002 and 2012.
Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may limit the amount of net operating loss
carryforwards which could be utilized annually to offset future taxable income.
The amount of any annual limitation would be determined, in part, based upon
the Company's value prior to an ownership change.
7. Redeemable Preferred Stock
The Company's redeemable preferred stock is comprised of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
----------- -----------
<S> <C> <C>
Series B redeemable preferred stock, $.01 par value;
48,700 shares authorized, issued and outstanding at
December 31, 1997 and 1998; stated at issuance price
plus accrued dividends (liquidation preference of
$1,177,600 at December 31, 1998)..................... $ 1,128,900 $ 1,177,600
Series A redeemable convertible preferred stock, $.01
par value; 58,700 shares authorized, 50,200 shares
issued and outstanding at December 31, 1997 and 1998;
stated at issuance price (liquidation preference of
$1,030,600 at December 31, 1998)..................... 1,060,000 1,060,000
Series C redeemable convertible preferred stock, $.01
par value; 18,204 shares authorized, issued and
outstanding at December 31, 1997 and 1998; stated at
issuance price (liquidation preference of $2,500,000
at December 31, 1998)................................ 2,500,000 2,500,000
Series D redeemable convertible preferred stock, $.01
par value; 32,473 and 43,831 shares authorized at
December 31, 1997 and 1998, respectively; 32,473 and
40,991 shares issued and outstanding at December 31,
1997 and 1998, respectively; stated at issuance price
(liquidation preference of $9,088,500 at December 31,
1998)................................................ 7,199,900 9,088,500
----------- -----------
$11,888,800 $13,826,100
=========== ===========
</TABLE>
F-52
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1998, the redeemable preferred stock has the following
characteristics:
Voting Rights
Holders of Series A, Series C and Series D preferred stock are each
entitled to one vote for each share of common stock into which the Series A,
Series C and Series D preferred stock is convertible. Holders of Series B
preferred stock are not entitled to voting rights.
Dividend Rights
Series A, Series C and Series D preferred stockholders are not entitled
to receive dividends unless declared by the Board of Directors; however, no
dividends may be declared or paid on the common stock without first declaring a
preferential dividend on the Series A, Series C and Series D preferred stock.
Holders of Series B preferred stock are entitled to a dividend of $1 per share
per annum (subject to adjustment for stock splits) payable when, as and if
declared by the Board of Directors. These dividends are cumulative and accrue
on a daily basis from the date of issuance whether or not declared. Cumulative
and unpaid dividends on Series B preferred stock have been charged to
accumulated deficit and are included in the carrying value of the Series B
preferred stock.
The Company shall not declare or pay any distributions on shares of
common stock until the holders of Series B preferred stock have first received
a distribution.
Liquidation Rights
In the event of dissolution, liquidation, sale or winding up of the
Company, holders of Series A, Series B, Series C and Series D preferred stock
are entitled to receive, prior to and in preference to holders of common stock,
an amount equal to $20.53, $20.53, $137.33 and $221.72 per share, respectively,
plus any accrued but unpaid dividends.
In the event of any merger, consolidation or sale of the Company deemed
to be a liquidation, the holders of the Series C preferred stock shall be
entitled to be paid, after preferential payments to the holders of the Series B
preferred stock, an amount per share equal to the greater of the Series C
liquidation preference of $137.33 or the sum of (i) 40% of the Series C
liquidation preference and (ii) the amount that would have been payable upon
such liquidation assuming conversion of each share of Series C preferred stock
into thirty shares of common stock.
Conversion Rights
Holders of Series B preferred stock are not entitled to conversion
rights. Each share of Series A, Series C and Series D preferred stock may be
converted at any time, at the option of the stockholder, into common shares
currently at a ratio of thirty shares of common stock for each share of Series
A, Series C and Series D preferred stock, subject to certain anti-dilution
adjustments.
The Series A and Series C preferred stock is automatically convertible
into common stock upon the closing of an initial public stock offering in which
net proceeds equal or exceed $7,500,000, and in which the price per common
share to the public is at least $2.74 and $9.15 per share, respectively. The
Series D preferred stock is automatically convertible into common stock upon
the closing of an initial public stock offering in which net proceeds equal or
exceed $15,000,000, and in which the price per common share to the public is at
least $14.78 per share. If mandatory conversion occurs due to the closing of a
qualified initial public offering,
F-53
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the holders of the Series C preferred stock are also entitled to receive
additional common shares, the number of which shall be calculated as 40% of the
Series C liquidation preference in effect at that time divided by the initial
public offering price.
Redemption Rights
On September 30, 2001, each holder of the Series A, Series C and Series D
preferred stock shall have the right to cause the Company to redeem up to half
of the shares of their respective series of preferred stock outstanding and, on
the first anniversary thereof, redeem the remaining shares at a price equal to
$20.53, $137.33 and $221.72, respectively, plus any declared but unpaid
dividends. On September 30, 2001, each holder of shares of Series B preferred
stock shall have the right to cause the Company to redeem half of the shares of
Series B preferred stock outstanding and, on the first anniversary thereof,
redeem the remaining shares at a price equal to $20.53, plus all accrued but
unpaid dividends.
Right of First Refusal
During 1995, the preferred stockholders entered into a stockholder
agreement with the holders of the Company's common stock under which the
Company first, the common stockholders second and the preferred stockholders
third, retain the right of first refusal to purchase any such shares of common
stock offered for sale. These rights terminate upon (1) the liquidation or
dissolution of the Company, or (2) a public offering of the Company's common
stock.
Warrants
In connection with a lease agreement entered into during 1995, the
Company issued warrants to purchase 653 shares of Series A preferred stock at
an exercise price of $65 per share. These warrants were fully exercisable upon
issuance and expire on November 30, 2002. The value ascribed to these warrants
was not significant.
8. Common Stock
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are
entitled to receive dividends, if any, as may be declared by the Board of
Directors, subject to any preferential dividend rights of the preferred
stockholders.
Stock Split
In February 1998, the Company authorized a three-for-one stock split
whereby three shares of common stock were exchanged for each share of common
stock outstanding. All share and per share data appearing in the financial
statements and notes thereto have been retroactively restated to reflect this
stock split.
Repurchase of Common Stock
During 1998, the Company repurchased 452,925 shares of common stock from
a shareholder for $1,888,700 and obtained a six-month option to repurchase an
additional 150,975 shares at a price equal to the lower of $4.17 per share or
the fair market value as determined at the time the option is exercised. This
option was exercised in March 1999 at the $4.17 per share price. At December
31, 1998, the shares repurchased by the Company during 1998 are held in
treasury and carried at cost.
F-54
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reserved Shares
At December 31, 1998, the Company had 4,369,440 shares of its common
stock reserved for issuance upon conversion of the Series A, Series C and D
preferred stock, the exercise and conversion of the Series A preferred stock
warrant and the exercise of outstanding stock options.
9. 1995 Stock Option Plan
During 1995, the Board of Directors adopted the 1995 Stock Option Plan
(the "Option Plan"). The Option Plan provides for the grant of incentive stock
options ("ISOs") as well as non-statutory options. The Board of Directors
administers the Option Plan and has sole discretion to grant options to
purchase shares of the Company's common stock. The Board of Directors
determines the term of each option, option price, number of shares for which
each option is granted, whether restrictions will be imposed on the shares
subject to options, and the rate at which each option is exercisable. The
exercise price for options granted will be determined by the Board of
Directors, except that for ISOs the exercise price shall not be less than the
fair market value per share of the underlying common stock on the date granted
(110% of fair market value for ISOs granted to holders of more than 10% of the
voting stock of the Company). The term of the options shall be set forth in
the applicable option agreement, except that in the case of ISOs the option
term shall not exceed ten years (five years for ISOs granted to holders of
more than 10% of the voting stock of the Company). A maximum of 1,068,000
shares of common stock have been reserved for issuance upon the exercise of
options granted under the Option Plan.
Activity under the Option Plan during the years ended December 31, 1997
and 1998 was as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1997 1998
------------------------- -------------------------
Weighted-average Weighted-average
Shares exercise price Shares exercise price
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year.................. 428,100 $0.13 645,330 $0.93
Granted................. 319,420 $1.81 184,660 $4.25
Exercised............... (33,381) $0.14 (70,550) $0.33
Canceled................ (68,809) $0.39 (87,000) $2.10
------- -------
Outstanding at end of
year..................... 645,330 $0.93 672,440 $1.76
======= =======
Options exercisable at
year end................. 179,760 279,790
======= =======
Weighted-average fair
value of options granted
during the period........ $ 0.33 $ 0.91
======= =======
</TABLE>
At December 31, 1998, an aggregate of 291,629 options were available for
future grant under the Option Plan.
F-55
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Weighted-average
remaining
Range of Number Weighted-average contractual life Number Weighted-average
exercise prices outstanding exercise price (in years) exercisable exercise price
- --------------- ----------- ---------------- ---------------- ----------- ---------------- ---
<S> <C> <C> <C> <C> <C> <C>
$0.07 160,500 $0.07 7.1 133,250 $0.07
$0.20-$0.33 139,080 $0.24 7.9 77,840 $0.23
$1.67-$2.17 204,240 $2.06 8.6 68,080 $2.06
$3.33 1,860 $3.33 8.8 620 $3.33
$4.17-$4.75 166,760 $4.25 9.3 -- $ --
------- -------
672,440 $1.76 8.3 279,790 $0.61
======= =======
</TABLE>
No compensation expense was recognized under APB Opinion No. 25 for
grants made to employees under the Option Plan during 1997 or 1998. Had
compensation cost been determined based on the fair value of the options
granted to employees at the grant date consistent with the provisions of SFAS
No. 123, the Company's net income for 1997 and 1998 would have been as
follows:
<TABLE>
<CAPTION>
Year ended
December 31
-----------------
1997 1998
-------- --------
<S> <C> <C>
Net income:
As reported................................................. $417,300 $901,800
Pro forma................................................... 400,300 837,300
</TABLE>
The fair value of each option grant under SFAS No. 123 was estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions for grants during the applicable period.
<TABLE>
<CAPTION>
Year
ended
December
31,
----------
1997 1998
---- ----
<S> <C> <C>
Dividend yield...................................................... 0.0% 0.0%
Risk free interest rate............................................. 5.9% 5.1%
Expected term (years)............................................... 3.5 5.0
Volatility.......................................................... 0.0% 0.0%
</TABLE>
10. Defined Contribution Plan
The Company sponsors a defined contribution retirement savings plan (the
"Savings Plan") under Section 401(k) of the Internal Revenue Code. The Savings
Plan covers substantially all employees and allows participants to defer a
portion of their annual compensation on a pre-tax basis. The Company may make
discretionary contributions to the Savings Plan. The Company has made no
contributions to the Savings Plan through December 31, 1998.
11. Segment Information and Significant Customers
The Company operates and reports internally in one business segment:
information systems design and implementation. For each of the three years in
the period ended December 31, 1998, substantially all revenues from
unaffiliated customers were generated in the United States and there were no
revenues from affiliated customers. As of December 31, 1997 and 1998,
substantially all long-lived assets were held in the United States.
F-56
<PAGE>
TESSERA ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenues from four customers represented 18%, 14%, 11% and 11%,
respectively, of total revenues during the year ended December 31, 1997.
Revenues from four customers represented 19%, 14%, 14% and 12%, respectively,
of total revenues during the year ended December 31, 1998.
12. Commitments and Contingencies
Leases
The Company leases its office space and certain office equipment under
noncancelable operating leases which expire at various times through July 2006.
Rent expense under these leases was $618,000 and $715,200 during the years
ended December 31, 1997 and 1998, respectively. In addition, the Company leases
certain computer and office equipment under capital leases which expire at
various times through November 2001.
Future minimum lease payments as of December 31, 1998 are summarized as
follows:
<TABLE>
<CAPTION>
Operating Capital
Year Ending December 31, Leases Leases
------------------------ ---------- --------
<S> <C> <C>
1999..................................................... $ 530,000 $118,800
2000..................................................... 554,800 91,100
2001..................................................... 554,800 76,700
2002..................................................... 568,300 800
2003..................................................... 583,300 --
Thereafter............................................... 1,507,400 --
---------- --------
Total minimum lease payments............................. $4,298,600 287,400
==========
Less: Amount representing interest....................... 36,200
--------
Present value of minimum lease payments.................. $251,200
========
</TABLE>
Letter of Credit
In September 1996, the Company entered into an irrevocable letter of
credit with a bank which serves as the security deposit on leased office space.
This letter of credit, in the amount of $66,300, expires on October 31, 1999
and is automatically renewable at the option of the bank over the term of the
lease, which expires in the year 2006.
F-57
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
iXL ENTERPRISES, INC.,
iXL-MASSACHUSETTS, INC.,
AND
TESSERA ENTERPRISE SYSTEMS, INC.
Dated as of October 4, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is entered into as of this 4th day of
October, 1999, by and among Tessera Enterprise Systems, Inc., a Massachusetts
corporation ("Tessera"), iXL Enterprises, Inc., a Delaware corporation
("Parent"), and iXL-Massachusetts, Inc., a Delaware corporation, or its
successors or assigns ("Sub").
R E C I T A L S:
A. Tessera is engaged in the business of furnishing Internet consulting
and solutions integration, including customer relations management and data
warehousing (the "Tessera Business").
B. Tessera and Sub each desire to merge their respective companies and
business operations, all on the terms and subject to the conditions set forth
herein (the "Merger").
C. Contemporaneously herewith, and as a condition and inducement to
Parent's and Sub's willingness to enter into this Agreement, certain of the
stockholders of Tessera as listed on the signature page thereto (collectively,
the "Tessera Stockholders") have entered into a Voting and Indemnity Agreement
with Parent and Sub (the "Voting and Indemnity Agreement").
D. Of the issued and outstanding capital stock of Tessera (the "Tessera
Stock"), a majority is owned by the Tessera Stockholders.
E. The respective Boards of Directors of Parent, Sub and Tessera, and the
stockholder of Sub, have approved the Merger, upon the terms and subject to the
conditions set forth herein. The Board of Directors of Tessera has determined
to recommend that the stockholders of Tessera adopt and approve this Agreement
and approve the Merger.
F. The parties hereto intend for the Merger to qualify, for federal
income tax purposes, as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual covenants,
representations, conditions and agreements set forth herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof, at
the Effective Time (as defined in Section 1.3), (a) Tessera shall be merged
with and into Sub, (b) the separate existence of Tessera shall cease, and (c)
Sub shall continue as the surviving corporation in the Merger under the laws of
the State of Delaware under the name iXL-Massachusetts, Inc. For purposes of
this Agreement, Sub shall be referred to, from and after the Effective Time, as
the "Surviving Corporation."
1.2 Closing and Closing Date. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 8.1, and subject to the satisfaction or waiver of the
conditions set forth in Article VII, the closing of the Merger (the "Closing")
will take place as promptly as practicable (and in any event within five
business days after satisfaction of the conditions set forth in Sections 7.1
and 7.2) (the "Closing Date") at the offices of Minkin & Snyder, a Professional
Corporation, One Buckhead Plaza, 3060 Peachtree Rd., Ste. 1100, Atlanta, GA
30305, unless another date or place is agreed to by the parties.
A-1
<PAGE>
1.3 Effective Time of the Merger. At the Closing, the parties hereto
shall cause (a) a certificate of merger (the "Delaware Certificate of Merger")
to be filed with the office of the Secretary of State of Delaware in accordance
with the provisions of the Delaware General Corporation Law, as amended (the
"DGCL"); and (b) Articles of Merger (the "Massachusetts Articles of Merger";
collectively with the Delaware Certificate of Merger, the "Certificate of
Merger") to be filed with the office of the Secretary of the Commonwealth of
Massachusetts in accordance with the provisions of the Massachusetts Business
Corporation Law (the "MBCL"). When used herein, the term "Effective Time" shall
mean the time when the Certificate of Merger has been accepted for filing both
by the Secretary of State of Delaware and by the Secretary of the Commonwealth
of Massachusetts, respectively, or such time as otherwise specified therein.
1.4 Effect of the Merger. The Merger shall, from and after the Effective
Time, have all of the effects provided by the DGCL and the MBCL. If at any time
after the Effective Time, any further action is deemed necessary or desirable
to carry out the purposes hereof, then the Surviving Corporation and its proper
officers and directors shall be authorized to take, and shall take, any and all
such action.
ARTICLE II
THE SURVIVING CORPORATION
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Sub, a form of which is attached to a Closing and incumbency certificate,
substantially in the form of Exhibit "A" ("Sub's Closing Certificate"), shall
be the Certificate of Incorporation of the Surviving Corporation from and after
the Effective Time, until thereafter changed or amended as provided therein or
by applicable law.
2.2 Bylaws. The Bylaws of Sub as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, until
thereafter changed or amended as provided therein or by applicable law. A copy
of the Bylaws of Sub is attached to Sub's Closing Certificate.
2.3 Board of Directors; Officers. The Board of Directors and officers of
Sub immediately prior to the Effective Time shall be the Board of Directors and
officers, respectively, of the Surviving Corporation, until the earlier of
their respective resignations or the time that their respective successors are
duly elected or appointed and qualified.
A-2
<PAGE>
ARTICLE III
CONVERSION OF SHARES
3.1 Merger Consideration. As of the Effective Time:
(a) All shares of Tessera Stock owned by Tessera shall, by virtue of the
Merger and without any action on the part of any stockholder, officer or
director of Tessera or Sub, be canceled and retired and shall cease to
exist, and no consideration shall be delivered in exchange therefor.
(b) Each issued and outstanding share of Tessera common stock owned by the
stockholders of Tessera other than Tessera (including all outstanding
shares of Tessera Series A and Series D Preferred Stock, which shall have
been converted into Tessera common stock in accordance with Section 6.6(d))
shall, upon surrender to Sub (or Parent's designated transfer agent), at
the Closing, of the underlying share certificates ("Certificates"), be
converted into, and become exchangeable for, a number of shares of validly
issued, fully paid and nonassessable Common Stock of Parent, $.01 par value
("Parent Stock") based on the following equation:
PS = $120 million -- [(D--$732,000) +
F + B + C]
__________________________________
PSV x (S + O)
where: PS = the number of shares of Parent Stock for which each share
of Tessera Stock owned by a stockholder of Tessera other
than Tessera shall be exchanged pursuant to the Merger;
D = any debt for borrowed money of Tessera and accrued
interest thereon (the "Tessera Debt"), to be determined
as of three business days prior to the Closing Date;
F = any banker's, legal, accounting, broker's, finder's or
other agency or advisory fees and expenses of Tessera
related to the Merger, to be paid off by Parent at the
Closing;
B = the aggregate amount of cash, including accrued
dividends, required to redeem all of Tessera's
outstanding Series B Preferred Stock immediately prior to
Closing in accordance with the provisions of Article IV,
Section C.2.c of Tessera's Articles of Organization;
C = the aggregate amount of cash required to be paid to the
holder of Tessera's outstanding Series C Preferred Stock
at the Closing in accordance with the provisions of
Articles IV, Section D.2.c.ii.A of Tessera's Articles of
Organization;
PSV = $29.49, the price per share of Parent Stock, based on the
average of the daily closing price thereof, as reflected
in The Wall Street Journal for the 30 business days prior
to the date hereof;
S = the total number of shares of Tessera common stock which
would be issued and outstanding on the Closing Date if
all the outstanding shares of Tessera Series A, Series C
and Series D Preferred Stock were converted into Tessera
common stock immediately prior thereto but excluding any
shares of Series B Preferred Stock; and
O = 803,768, representing the total number of options to
purchase Tessera Stock outstanding on the date hereof,
pursuant to Tessera's stock option plan(s) which, subject
to Sections 6.1 and 6.6(b), will be assumed by Parent at
the Effective Time.
A-3
<PAGE>
(c) Each issued and outstanding share of Series C Preferred Stock shall,
upon surrender to Sub (or Parent's designated transfer agent), at the
Closing, of the Certificates therefor, be converted into, and become
exchangeable for (i) a number of shares of validly issued, fully paid and
nonassessable Parent Stock equal to PS multiplied by the number of shares
of Tessera common stock issuable upon conversion of such Series C Preferred
Stock, plus (ii) the amount payable as item "C" under Section 3.1(b) above.
(d) With respect to the exchange of Certificates for Parent Stock, the
following provisions shall apply:
(i) If any Certificate has been lost, stolen or destroyed, then
Parent's policies generally concerning lost, stolen or destroyed
certificates of Parent Stock, which may include requirements of
affidavits, bonds and indemnities, shall apply.
(ii) No fractional shares of Parent Stock shall be issued; in lieu
thereof, a stockholder of Tessera will receive an amount of cash equal
to the product of (x) such fraction, multiplied by (y) PSV.
(iii) Parent Stock certificates shall not be issued in a name other
than that in which the Certificates surrendered in exchange therefor
are registered absent compliance with Parent's policies concerning
proper endorsements and evidence of payment of applicable transfer or
other taxes.
(e) Each issued and outstanding share of common stock of Sub shall, by
virtue of the Merger and without any action on the part of any stockholder,
officer or director of Tessera or Sub, be converted into and become one
fully paid and nonassessable share of common stock of the Surviving
Corporation.
3.2 Dissenting Shares. Subject to Section 7.2(k), but notwithstanding
any other provision hereof to the contrary, any shares of Tessera Stock held
by a Dissenting Stockholder (as hereinafter defined) shall not be converted as
described in Section 3.1(b), but instead shall be converted into the right to
receive the consideration due a Dissenting Stockholder pursuant to the DGCL or
MBCL, as applicable, provided, however, that if a Dissenting Stockholder shall
fail to perfect his demand, withdraw his demand or otherwise lose his right
for appraisal under the terms of the DGCL or MBCL, as applicable, then the
Tessera Stock held by such Dissenting Stockholder (the "Dissenting Shares")
shall be deemed to be converted as of the Effective Time in accordance with
the provisions of Section 3.1. Tessera shall not voluntarily make any payment
with respect to, settle, or offer to settle or otherwise negotiate, any such
demands. All amounts paid to Dissenting Stockholders shall be paid without
interest thereon (to the extent permitted by applicable law) by the Surviving
Corporation. For purposes hereof, the term "Dissenting Stockholder" shall mean
a stockholder of Tessera who (a) objects to the Merger; and (b) complies with
the applicable provisions of the DGCL or MBCL concerning dissenter's rights.
3.3 No Further Rights. From and after the Effective Time, holders of
certificates theretofore evidencing Tessera Stock shall cease to have any
rights as stockholders of Tessera, except as provided herein or by applicable
law.
3.4 Closing of Tessera's Transfer Books. At the Effective Time, the
stock transfer books of Tessera shall be closed and no transfer of Tessera
Stock shall be made thereafter. If after the Effective Time, certificates for
Tessera Stock are presented to Parent or the Surviving Corporation, then they
shall be canceled and exchanged for a consideration as set forth in Section
3.1, subject to applicable law in the case of Dissenting Stockholders.
A-4
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TESSERA
Tessera represents and warrants to Parent and Sub as follows, which
representations and warranties shall survive the Closing in accordance with
Section 9.1.
4.1 Organization and Qualification. Tessera is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. Tessera has the requisite corporate power and
authority to carry on the Tessera Business as it is now being conducted and is
duly qualified or licensed to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease
or the nature of its activities makes such qualification necessary, except
where the failure so to qualify could not have a material adverse effect on
the Tessera Business or on Tessera's properties or assets. Set forth on
Schedule 4.1 is a list of any states in which Tessera is qualified to do
business. Complete and correct copies of the Articles of Organization and
Bylaws of Tessera as in effect on the date hereof are attached to a Closing
and incumbency certificate, substantially in the form of Exhibit "B"
("Tessera's Closing Certificate"). The minute book of Tessera, a correct and
complete copy of which has been delivered to Parent, (a) accurately reflects
all action taken by the directors and stockholders of Tessera at meetings of
Tessera's Board of Directors or stockholders, as the case may be; and (b)
contains correct and complete copies, or originals, of the respective minutes
of all meetings or consent actions of the directors or stockholders.
4.2 Authority. Tessera has the necessary corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery hereof and the consummation of
the transactions contemplated hereby by Tessera have been duly and validly
authorized and approved by Tessera's Board of Directors and, and, except for
approval and adoption hereof and approval of the Merger by the stockholders of
Tessera, no other corporate or stockholder proceedings on the part of Tessera,
its Board of Directors or the stockholders of Tessera is necessary to
authorize or approve this Agreement or to consummate the transactions
contemplated hereby (including the Merger). Tessera's Board of Directors has
determined to recommend that the stockholders of Tessera approve and adopt
this Agreement and approve the Merger. This Agreement has been duly executed
and delivered by Tessera, and assuming the due authorization, execution and
delivery by Parent and Sub, constitutes the valid and binding obligation of
Tessera, enforceable against Tessera in accordance with its terms, subject, in
each case, to bankruptcy, insolvency, reorganization, moratorium and similar
laws of general application relating to or affecting creditors' rights and to
general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing.
4.3 Capitalization.
(a) The authorized capital stock of Tessera consists of (i) 7,500,000
shares of common stock, no par value, of which 2,515,604 shares are validly
issued and outstanding, fully paid and nonassessable, (ii) 58,700 shares of
Series A preferred stock, $0.01 par value, of which 50,200 shares are
validly issued and outstanding, fully paid and nonassessable, (iii) 48,700
shares of Series B preferred stock, $0.01 par value, of which 48,700 shares
are validly issued and outstanding, fully paid and nonassessable (iv)
18,204 shares of Series C preferred stock, $0.01 par value, of which 18,204
shares are validly issued and outstanding, fully paid and nonassessable,
and (v) 43,831 shares of Series D preferred stock, $0.01 par value, of
which 40,991 shares are validly issued and outstanding, fully paid and
nonassessable. All outstanding capital stock of Tessera was issued in
accordance with applicable federal and state securities laws. Except as set
forth on Schedule 4.3(a), there are no options, warrants, calls,
convertible notes, agreements, commitments or other rights outstanding at
present that would obligate Tessera or any of its stockholders to issue,
deliver or sell shares of its or their capital stock, or to grant, extend
or enter into any such option, warrant, call, convertible note, agreement,
commitment or other right. In addition to the foregoing, as of the date
hereof, Tessera has no bond, debenture, note or other indebtedness issued
or outstanding that has voting rights in Tessera. Schedule 4.3(a) sets
forth a list of (i) all holders of record of (A) Tessera Stock, and (B)
options, warrants,
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convertible notes or other rights to purchase capital stock of Tessera
(collectively, "Tessera Stock Rights"); (ii) the number of shares held by
each stockholder of Tessera and the number of shares of capital stock of
Tessera represented by the Tessera Stock Rights; (iii) the exercise price
for each Tessera Stock Right; and (iv) the number of authorized but
unissued options remaining under Tessera's stock option plan(s). As of the
Closing, all Tessera warrants shall have been exercised, and any exercise
price thereunder paid in exchange for Tessera Stock, such that all rights
of the holder(s) thereunder shall have been extinguished.
(b) All of the issued and outstanding shares of capital stock of Tessera
are validly issued, fully paid and nonassessable.
(c) Except as set forth on Schedule 4.3(c), the Tessera Stock held by any
stockholder of Tessera other than the Tessera Stockholders is free and
clear of any lien, charge, security interest, pledge, option, right of
first refusal, voting proxy or other voting agreement, or encumbrance of
any kind or nature other than restrictions on transfer imposed by federal
and state securities laws (any of the foregoing, a "Lien").
4.4 Subsidiaries. Except as set forth on Schedule 4.4, Tessera has no
subsidiaries and does not otherwise own or control, directly or indirectly,
any equity interest, or any security convertible into an equity interest, in
any corporation, partnership, limited liability company, joint venture,
association or other business entity (any of the foregoing, an "Entity").
4.5 No Conflicts, Required Filings and Consents. Except as set forth on
Schedule 4.5, none of (i) the execution and delivery hereof by Tessera, (ii)
the consummation by Tessera or the stockholders of Tessera of the transactions
contemplated hereby (including the Merger) or (iii) compliance by Tessera with
any of the provisions hereof will:
(a) conflict with or violate the Articles of Organization or Bylaws of
Tessera;
(b) result in a violation of any statute, ordinance, rule, regulation,
order, judgment or decree applicable to Tessera or any of the stockholders
of Tessera, or by which Tessera or any of its properties or assets may be
bound or affected;
(c) result in a violation or material breach of, or constitute a material
default (or an event that, with notice or lapse of time or both, would
become a material default) under, or give to any other party any material
right of termination, amendment, acceleration or cancellation of, any note,
bond, mortgage or indenture, or any material contract, agreement,
arrangement, lease, license, permit, judgment, decree, franchise or other
instrument or obligation, to which Tessera is a party or by which Tessera
or any of its properties or assets may be bound or affected;
(d) result in the creation of any Lien on any of the property or assets of
Tessera; or
(e) require any material consent, waiver, license, approval, authorization,
order, permit, registration or filing with, or notification to (any of the
foregoing being a "Consent") (i) any government or subdivision thereof,
whether domestic or foreign, or any administrative, governmental or
regulatory authority, agency, commission, court, tribunal or body, whether
domestic, foreign or multinational (any of the foregoing, a "Governmental
Entity"), except for (x) the filing of the Certificate of Merger pursuant
to the DGCL and the MBCL, (y) the filing under the HSR Act (as defined in
Section 6.7) and (z) the filing of the Registration Statement (as defined
in Section 5.3(e)) with the Securities and Exchange Commission ("SEC"); or
(ii) any other individual or Entity (collectively, a "Person").
4.6 Financial Statements. Tessera has heretofore furnished Parent with a
correct and complete copy of (a) the audited financial statements of Tessera
for the period from February 15, 1995 through December 31, 1995 and for the
years ended December 31, 1996, 1997 and 1998; (b) the financial statements of
Tessera, as reviewed by PricewaterhouseCoopers LLP, for the six month periods
ended June 30, 1998 and 1999; and (c) the unaudited financial statements of
Tessera for each of the months of July and August, 1999 (all of the foregoing
collectively herein referred to as the "Tessera Financial Statements"). Except
as disclosed therein, the Tessera Financial Statements have been prepared in
accordance with generally accepted accounting
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principles ("GAAP") (except for the absence of footnotes and normal year end
adjustments in the case of the Tessera Financial Statements for the periods
ended June 30, 1998 and 1999 and for the months of July and August, 1999)
consistently followed throughout the period indicated, and present fairly, in
all material respects, the financial position and operating results of Tessera
as of the dates, and during the periods, indicated therein.
4.7 Absence of Changes. Except as provided in Schedule 4.7 and except as
contemplated hereby, since June 30, 1999 (a) Tessera has not entered into any
material transaction that was not in the ordinary course of business; (b)
except for sales of services and licenses of software in the ordinary course of
business of Tessera, there has been no sale, assignment, transfer, mortgage,
pledge, encumbrance or lease of any material asset or property of Tessera; (c)
there has been (i) no declaration or payment of a dividend, or any other
declaration, payment or distribution of any type or nature to any stockholder
of Tessera in respect of his stock, whether in cash or property, and (ii) no
purchase or redemption of any share of the capital stock of Tessera; (d) there
has been no declaration, payment, or commitment for the payment, by Tessera, of
a bonus or other additional salary, compensation, severance or benefit to any
employee or consultant of Tessera that was not in the ordinary course of
business; (e) there has been no material release, compromise, waiver or
cancellation of any debt to or claim by Tessera, or waiver of any material
right of Tessera; (f) there have been no capital expenditures in excess of
$25,000 for any single item, or $100,000 in the aggregate; (g) there has been
no change in accounting methods or practices or revaluation of any asset of
Tessera (other than Tessera Accounts Receivable (as defined in Section 4.26)
written down in the ordinary course of business not in excess of $5,000 for any
single Tessera Accounts Receivable, or $25,000 in the aggregate); (h) there has
been no material damage or destruction to, or loss of, physical property
(whether or not covered by insurance) adversely affecting the Tessera Business
or the operations of Tessera; (i) there has been no loan by Tessera, or
guaranty by Tessera of any loan, to any employee of Tessera in excess of $5,000
other than travel advances made in the ordinary course of Tessera's business
consistent with past practices; (j) Tessera has not ceased to transact business
with any customer that, as of the date of such cessation, represented more than
5% of the annual gross revenues of Tessera; (k) there has been no termination
or resignation of any key employee or officer of Tessera, and to the knowledge
of Tessera, no such termination or resignation is threatened; (l) there has
been no amendment or termination of any material oral or written contract,
agreement or license related to the Tessera Business, to which Tessera is or
was a party or by which it is or was bound, except in the ordinary course of
business or as expressly contemplated hereby; (m) Tessera has not in any
material manner failed to satisfy any of its debts, obligations or liabilities
related to the Tessera Business or the assets of Tessera as the same become due
and owing (except for Tessera Accounts Payable (as defined in Section 4.27)
payable in accordance with past practices and in the ordinary course of
business); (n) there has been no agreement or commitment by Tessera to do any
of the foregoing; and (o) there has been no other event or condition of any
character pertaining to and materially and adversely affecting the assets,
business or financial condition of Tessera.
4.8 Undisclosed Liabilities. Except as set forth on Schedule 4.8, Tessera
has no debt, liability or obligation of any kind, whether accrued, absolute or
otherwise, including any liability or obligation on account of taxes or any
governmental charge or penalty, interest or fine, except (a) liabilities
incurred in the ordinary course of business after June 30, 1999, that would
not, whether individually or in the aggregate, have a material adverse impact
on the business or financial condition of Tessera; (b) liabilities reflected on
the Tessera Financial Statements; and (c) liabilities incurred as a result of
the transactions contemplated hereby.
4.9 Title to Properties. Except as set forth on Schedule 4.9, Tessera has
good and marketable title to all tangible property and assets used in the
Tessera Business, and good and valid title to its leasehold interests, in each
case, free and clear of any and all Liens other than Permitted Liens (as
defined in Section 9.9).
4.10 Equipment. Tessera has heretofore furnished Parent with a correct
and complete list, in all material respects, of all items of tangible personal
property (including computer hardware) necessary for or used in the operation
of the Tessera Business in the manner in which it has been and is now operated
by
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Tessera ("the Tessera Equipment"), except for personal property having a net
book value of less than $5,000. Except as set forth on Schedule 4.10, each
material item of Tessera Equipment is in good condition and repair, ordinary
wear and tear excepted.
4.11 Intellectual Property; Year 2000 Compliance.
(a) Set forth on Schedule 4.11(a) is a correct and complete list, in all
material respects, of all material proprietary technology, patents, patent
rights, trademarks, trademark rights, trade names, trade name rights,
service marks, service mark rights, and copyrights (and all pending
applications or current registrations for any of the foregoing) used by
Tessera in the conduct of the Tessera Business (together with trade secrets
and know how used in the conduct of the Tessera Business, the "Tessera
Intellectual Property Rights"). Tessera owns, or is validly licensed or
otherwise has the right to use or exploit, as currently used or exploited,
all of the Tessera Intellectual Property Rights, free of any Lien or any
obligation to make any payment (whether of a royalty, license fee,
compensation or otherwise). Except as set forth on Schedule 4.11(a), no
claims are pending or, to the knowledge of Tessera, threatened, that
Tessera is infringing or otherwise adversely affecting the rights of any
Person with regard to any Tessera Intellectual Property Right or that any
Tessera Intellectual Property Right is invalid or unenforceable. No Person
is infringing the rights of Tessera with respect to any Tessera
Intellectual Property Right; nor, to Tessera's knowledge, has any Person
threatened to do so. Neither Tessera nor, to the knowledge of Tessera, any
employee, agent or independent contractor of Tessera, in connection with
the performance of such Person's services with Tessera, has used,
appropriated or disclosed, directly or indirectly, any trade secret or
other proprietary or confidential information or right of any other Person,
or otherwise violated any confidential relationship with any other Person.
(b) Set forth on Schedule 4.11(b) is a correct and complete list, in all
material respects, of all material computer software used by Tessera in the
conduct of the Tessera Business (the "Tessera Software"). Tessera currently
owns, licenses or otherwise has the legal right to use all of the Tessera
Software (including any upgrade, alteration or enhancement with respect
thereto), and all of the Tessera Software is being used in compliance with
any applicable license or other agreement.
(c) Set forth on Schedule 4.11(c) is a correct and complete list, in all
material respects, of all domain names (i) registered to or used by
Tessera, (ii) the registration fees for which are paid by Tessera or
(iii) registered to any employee of Tessera relating to the Tessera
Business (collectively, "Domain Names"). Tessera owns and has registered,
or is validly licensed or otherwise has the right to use, the Domain Names.
(d) Except as set forth on Schedule 4.11(d):
(i) All former and current consultants or contractors of Tessera have
executed and delivered valid written instruments with Tessera that
assign to Tessera all rights to any inventions, improvements,
discoveries or information developed by them for Tessera. All employees
of Tessera who participated in the creation or contributed to the
development of Tessera Intellectual Property Rights or Domain Names
were employees of Tessera at the time of rendering such services and
such services were within the scope of their employment or such
employees have otherwise validly assigned such Intellectual Property
Rights or Domain Names to Tessera; and
(ii) Tessera has taken reasonable security measures, including entering
into appropriate confidentiality and nondisclosure agreements with all
of its employees, consultants and contractors, and any other Persons
with access to Tessera's trade secrets or know how, to protect the
secrecy, confidentiality and value of all such trade secrets or know
how. To the knowledge of Tessera, there has not been any breach by any
party to any such agreement.
(e) All material software, hardware and other computer and information
technology (collectively, "Information Technology") of Tessera is or, prior
to December 31, 1999, will be Year 2000 Compliant as that term is
hereinafter defined. "Year 2000 Compliant" means that any and all of the
Information
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Technology has the ability (i) to accept input and furnish output of data
involving dates or portions of dates correctly and without ambiguity as to
the 20th or 21st Centuries; (ii) to manage, store, manipulate, sort,
sequence and perform calculations with respect to (collectively, "process")
data involving dates or portions of dates before, during and after January
1, 2000 (including single century or multi-century date formulae) without
malfunction and (iii) to process correctly leap years, including the year
2000, provided that all other products (e.g., software or hardware) used
with the Information Technology properly exchange date data with it.
4.12 Real Property. Except as set forth on Schedule 4.12:
(a) Tessera has a marketable and insurable fee simple absolute interest, or
good and valid leasehold interest, in all real property (including all
buildings, improvements and fixtures thereon) used in the operation of the
Tessera Business (the "Tessera Real Property"). Except for Permitted Liens,
and for the items set forth on Schedule 4.12, there are no Liens on
Tessera's interest in any of the Tessera Real Property. Schedule 4.12 lists
each county and state where any Tessera Real Property is located. Tessera
has heretofore furnished Parent with an accurate metes and bounds
description of all Tessera Real Property.
(b) There are no parties in possession of any portion of the Tessera Real
Property other than Tessera, whether as sublessees, subtenants at will or
trespassers.
(c) To the knowledge of Tessera, there is no law, ordinance, order,
regulation or requirement now in existence or under active consideration by
any Governmental Entity that would require, under the provisions of any of
the Tessera Leases (as defined in Section 4.13) or otherwise, any material
expenditure by Tessera to modify or improve any of the Tessera Real
Property to bring it into compliance therewith.
4.13 Leases. Schedule 4.13 sets forth a list of all leases pursuant to
which Tessera leases, as lessor or lessee, real or personal property used in
operating the Tessera Business or otherwise (the "Tessera Leases"). Copies of
the Tessera Leases, all of which have previously been provided to Parent, are
correct and complete copies thereof. All of the Tessera Leases are in full
force and effect, unimpaired by any act or omission of Tessera, and are valid,
binding and enforceable against Tessera and, to the knowledge of Tessera,
against the other parties thereto, in accordance with their respective terms,
and there is not under any such Tessera Lease any existing default by Tessera,
or, to the knowledge of Tessera, by any other party thereto, or any condition
or event that, with notice or lapse of time or both, would constitute a
default. Tessera has not received notice that the lessor of any of the Tessera
Leases intends to cancel, suspend or terminate such Tessera Lease or to
exercise or not exercise any option thereunder.
4.14 Contracts. Schedule 4.14 sets forth a correct and complete list of
all contracts, agreements and commitments (whether written or oral) to which
Tessera is, directly or indirectly, a party (in its own name or as a successor
in interest), or by which it or any of its properties or assets is otherwise
bound, including any service agreements, customer agreements, supplier
agreements, agreements to lend or borrow money, stockholder agreements,
employment agreements, confidentiality agreements, noncompetition or non-
solicitation agreements, agreements relating to Tessera Intellectual Property
Rights and the like (collectively, the "Tessera Contracts"); excepting only
those Tessera Contracts which involve less than $25,000 and are cancelable,
without penalty, on no more than 90 days' notice. The aggregate value of all
payment obligations and rights to receive payments, under agreements,
contracts and commitments (whether oral or in writing) to which Tessera is a
party or by which it or any of its properties or assets is otherwise bound,
and that are not listed on Schedule 4.14, is less than $150,000 (calculating
such value by adding together the value of rights and obligations, and not by
determining the net amount thereof).
Except as set forth on Schedule 4.14, correct and complete copies of all
Tessera Contracts (or a correct and complete narrative description of any oral
Tessera Contract) have previously been provided to Parent. Neither Tessera
nor, to the knowledge of Tessera, any other party to any of the Tessera
Contracts (i) is in default under (nor does there exist any condition that,
with notice or lapse of time or both, would cause such a
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default under) any of the Tessera Contracts, or (ii) has waived any right it
may have under any of the Tessera Contracts, the waiver of which would have a
material adverse effect on the business, assets or financial condition or
prospects of Tessera. All of the Tessera Contracts constitute the valid and
binding obligations of Tessera, enforceable in accordance with their
respective terms, and, to the knowledge of Tessera, of the other parties
thereto. Those Tessera Contracts marked with an asterisk on Schedule 4.14 are
customer contracts under which customer's payment obligations and Tessera's
performance obligations (other than confidentiality covenants and Y2K
warranties) have been fully satisfied and no such Tessera Contracts provide
for any exclusivity provisions which remain in effect.
4.15 Directors and Officers. Schedule 4.15 sets forth an accurate list
of the name of each director and officer of Tessera and the position(s) held
by each.
4.16 Payroll Information. Tessera has previously provided Parent with a
correct and complete copy, in all material respects, of the payroll report of
Tessera dated September 20, 1999, showing all current employees of Tessera and
their current levels of compensation, other than bonuses and other
extraordinary compensation, all of which bonuses and other extraordinary
compensation are set forth in Schedule 4.16. Tessera has paid all compensation
required to be paid to its employees on or prior to the date hereof other than
compensation (and bonuses pursuant to arrangements described in Schedule 4.16)
accrued in the current pay period.
4.17 Litigation. Except as set forth on Schedule 4.17, there is no suit,
action, claim, investigation or proceeding pending or, to the knowledge of
Tessera, threatened against or affecting Tessera or the Tessera Business, nor
is there any judgment, decree, injunction or order of any applicable
Governmental Entity or arbitrator outstanding against Tessera.
4.18 Employee Benefit Plans/Labor Relations.
(a) Except as disclosed in Schedule 4.18, there are no employee benefit
plans, agreements or arrangements maintained by Tessera, including (i)
"employee benefit plans" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"); (ii) current
or deferred compensation, pension, profit sharing, vacation or severance
plans or programs; or (iii) medical, hospital, accident, disability or
death benefit plans (collectively, "Tessera Benefit Plans"). All Tessera
Benefit Plans are administered in accordance with, and are in material
compliance with, all applicable laws and regulations. No default exists
with respect to the obligations of Tessera under any Tessera Benefit Plan.
(b) Tessera is not a party to any collective bargaining agreement; no
collective bargaining agent has been certified as a representative of any
of the employees of Tessera; no representation campaign or election is now
in progress with respect to any employee of Tessera; and there are no labor
disputes, grievances, controversies, strikes or requests for union
representation pending, or, to the knowledge of Tessera, threatened,
relating to or affecting the Tessera Business. To the knowledge of Tessera,
no event has occurred that could give rise to any such dispute,
controversy, strike or request for representation.
4.19 ERISA.
(a) All Tessera Benefit Plans that are subject to ERISA have been
administered in accordance with, and are in material compliance with, the
applicable provisions of ERISA. Each of the Tessera Benefit Plans that is
intended to meet the requirements of Section 401(a) of the Code has been
determined by the Internal Revenue Service to meet such requirements within
the meaning of such provision. No Tessera Benefit Plan is subject to Title
IV of ERISA or Section 412 of the Code. Tessera has not engaged in any
nonexempt "prohibited transactions," as such term is defined in Section
4975 of the Code or Section 406 of ERISA, involving Tessera Benefit Plans
that would subject Tessera to the penalty or tax imposed under Section
502(i) of ERISA or Section 4975 of the Code. Tessera has not engaged in any
transaction described in Section 4069 of ERISA within the last five years.
Except as disclosed in Schedule 4.19 or
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pursuant to the terms of the Tessera Benefit Plans, neither the execution
and delivery hereof nor the consummation of the transactions contemplated
hereby will (i) result in any payment (including severance, unemployment
compensation or golden parachute) becoming due to any director or other
employee of Tessera, (ii) increase any benefit otherwise payable under any
Tessera Benefit Plan or (iii) result in the acceleration of the time of
payment or vesting of any such benefit to any extent.
(b) No notice of a "reportable event," within the meaning of Section 4043
of ERISA, for which the 30-day reporting requirement has not been waived,
has been required to be filed for any Tessera Benefit Plan that is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
and that is intended to meet the requirements of Section 401(a) of the
Code, or by any entity that is considered one employer with Tessera under
Section 4001 of ERISA or Section 414 of the Code, within the 12-month
period ending on the Closing Date. Tessera has not incurred any liability
to the Pension Benefit Guaranty Corporation in respect of any Tessera
Benefit Plan that remains unpaid.
4.20 Taxes. Except as set forth on Schedule 4.20:
(a) Tessera has duly and timely filed all federal, state and local income,
franchise, excise, real and personal property and other tax returns and
reports, including extensions, required to have been filed by Tessera on or
prior to the Closing Date. Tessera has duly and timely paid all taxes and
other governmental charges, and all interest and penalties with respect
thereto, required to be paid by Tessera (whether by way of withholding or
otherwise) to any federal, state, local or other taxing authority (except
to the extent the same are being contested in good faith, and adequate
reserves therefor have been provided in the Tessera Financial Statements).
As of the Closing Date, all deficiencies proposed as a result of any audit
have been paid or settled.
(b) Tessera is not a party to, or bound by, or otherwise in any way
obligated under, any tax sharing or similar agreement.
(c) Tessera has not consented to have the provisions of Section 341(f)(2)
of the Code (or comparable state law provisions) apply to it, and Tessera
has not agreed or been requested to make any adjustment under Section
481(c) of the Code by reason of a change in accounting method or otherwise.
4.21 Compliance with Applicable Laws. Tessera holds all material
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary to own, lease or operate all of the assets and
properties of Tessera, as appropriate, and to carry on the Tessera Business as
now conducted (the "Tessera Permits"). To the knowledge of Tessera, Tessera is
in material compliance with all applicable laws, ordinances and regulations
and the terms of the Tessera Permits. Except as set forth on Schedule 4.21,
all of the Tessera Permits are fully assignable by Tessera in connection with
the Merger. Schedule 4.21 sets forth a correct and complete list of all
Tessera Permits, correct and complete copies of which have previously been
provided to Parent.
4.22 Board of Directors/Stockholders Consent. The Board of Directors of
Tessera has (a) adopted and approved this Agreement and the transactions
contemplated hereby (including the Merger); and (b) determined to recommend
that the stockholders of Tessera approve and adopt this Agreement and approve
the Merger.
4.23 Brokers. Except as set forth on Schedule 4.23, no broker or finder
is entitled to any broker's, banker's or finder's fee or other commission in
connection with the transactions contemplated hereby as a result of
arrangements made by or on behalf of Tessera.
4.24 Environmental Matters.
(a) To the knowledge of Tessera, no real property currently or formerly
owned or operated by Tessera is contaminated with any Hazardous Substance
(as hereinafter defined).
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(b) Tessera is not a party to any litigation or administrative proceeding
nor, to the knowledge of Tessera, is any litigation or administrative
proceeding threatened against it, that, in either case, asserts or alleges
that Tessera (i) violated any Environmental Law (as hereinafter defined);
(ii) is required to clean up, remove or take remedial or other responsive
action due to the disposal, deposit, discharge, leak or other release of
any Hazardous Substance; or (iii) is required to pay all or a portion of
the cost of any past, present or future cleanup, removal or remedial or
other action that arises out of or is related to the disposal, deposit,
discharge, leak or other release of any Hazardous Substance.
(c) To the knowledge of Tessera, there are not now nor have there
previously been tanks or other facilities on, under, or at any real
property owned, leased, used or occupied by Tessera containing materials
that, if known to be present in soil or ground water, would require
cleanup, removal or other remedial action under Environmental Law.
(d) Tessera is not subject to any judgment, order or citation related to or
arising out of any Environmental Law and, to the knowledge of Tessera, has
not been named or listed as a potentially responsible party by any
Governmental Entity in a matter related to or arising out of any
Environmental Law.
(e) For purposes hereof, (i) the term "Environmental Law" means any
federal, state or local law (including statutes, regulations, ordinances,
codes, rules, judicial opinions and other governmental restrictions and
requirements) relating to the discharge of air pollutants, water
pollutants, noise, odors or process waste water, or otherwise relating to
the environment or hazardous or toxic substances; and (ii) the term
"Hazardous Substance" means any toxic or hazardous substance that is
regulated by or under authority of any Environmental Law, including any
petroleum products, asbestos or polychlorinated biphenyls.
4.25 Interest in Customers, Suppliers and Competitors. Except as
provided in Schedule 4.25, no officer, director, stockholder or employee of
Tessera and no family member (including a spouse, parent, sibling or lineal
descendent of any of the foregoing), has any direct or indirect material
interest in any material customer, supplier or competitor of Tessera, or in
any Person from whom or to whom Tessera leases any real or personal property,
or in any other Person with whom Tessera is doing business whether directly or
indirectly (including as a debtor or creditor), whether in existence as of the
Closing Date or proposed, other than the ownership of stock of publicly traded
corporations.
4.26 Accounts Receivable. All accounts, notes, contracts and other
receivables of Tessera (collectively, "Tessera Accounts Receivable") were
acquired by Tessera in the ordinary course of business arising from bona fide
transactions. There are no set-offs, counterclaims or disputes asserted with
respect to any Tessera Accounts Receivable that would result in claims in
excess of the reserve for bad debts set forth on the Tessera Financial
Statements and, subject to such reserve, all Tessera Accounts Receivable are
collectible in full. Tessera has previously furnished Parent with a correct
and complete aging report, prepared as of August 31, 1999, showing the time
elapsed since invoice date for all Tessera Accounts Receivable as of such
date.
4.27 Accounts Payable. All material accounts, notes, contracts and other
amounts payable of Tessera (collectively, "Tessera Accounts Payable") are
currently within their respective terms, and are neither in default nor
otherwise past due by more than 90 days. Tessera has previously furnished
Parent with a correct and complete aging report, prepared as of August 31,
1999, showing the time elapsed since invoice date for all Tessera Accounts
Payable as of such date.
4.28 Insurance. Tessera currently maintains, in full force and effect,
all insurance policies that are required or appropriate to be maintained for
the conduct of the Tessera Business or the ownership of Tessera's property
(both real and personal) (collectively, the "Tessera Insurance Policies"). The
Tessera Insurance Policies are listed on Schedule 4.28, and correct and
complete copies of all Tessera Insurance Policies have previously been
provided to Parent. Tessera (a) is not in default regarding the provisions of
any Tessera Insurance Policy; (b) has paid all premiums due thereunder; and
(c) has not failed to present any notice or material claim thereunder in a due
and timely fashion.
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4.29 Bankruptcy. Tessera has not filed a petition or request for
reorganization or protection or relief under the bankruptcy laws of the United
States or any state or territory thereof, made any general assignment for the
benefit of creditors, or consented to the appointment of a receiver or trustee,
including a custodian under the United States bankruptcy laws, whether such
receiver or trustee is appointed in a voluntary or involuntary proceeding.
4.30 Tessera Acknowledgement. Tessera acknowledges that each of the
Tessera Stockholders has received Parent's Prospectus, dated June 2, 1999 with
respect to its registration statement on Form S-1, its Prospectus, dated July
26, 1999, with respect to its registration statement on Form S-4, and its Form
10-Q dated August 16, 1999 (collectively, "Parent's Public Information").
4.31 Statements; Proxy Materials. The information supplied by Tessera for
inclusion in the Registration Statement shall not at the time the Registration
Statement is filed with the SEC or at the time it becomes effective under the
Securities Act of 1933, as amended (the "Securities Act") contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The proxy
materials that Tessera shall send to is stockholders in connection herewith and
with the Merger (the "Proxy Materials") will comply in all material respects
with the provisions of applicable law. If at any time prior to the Effective
Time any event relating to Tessera or any of its affiliates, officers or
directors should be discovered by Tessera which is required to be set forth in
an amendment to the Registration Statement, then Tessera shall promptly notify
Parent. Notwithstanding the foregoing, Tessera makes no representation or
warranty with respect to any information supplied by Parent or Sub which is
contained in any of the foregoing documents.
4.32 Disclosure. No statement of fact by Tessera contained herein and no
written statement of fact furnished by Tessera to Parent or Sub in connection
herewith contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements herein or therein
contained, in light of the circumstances in which they were made, not
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Each of Parent and Sub jointly and severally represents and warrants to
Tessera as follows, which representations and warranties shall survive the
Closing in accordance with Section 9.1:
5.1 Organization and Qualification. Each of Parent and its Subsidiaries
is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation. Each of Parent and its Subsidiaries
has the requisite corporate power and authority to carry on its business as it
is now being conducted and is duly qualified or licensed to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned or held under lease or the nature of its activities makes such
qualification necessary, except where the failure so to qualify could not have
a material adverse effect on the business, properties or assets of Parent and
its Subsidiaries, taken as a whole. Complete and correct copies of the
Certificates of Incorporation and Bylaws of Parent and Sub as in effect on the
date hereof are attached, respectively, to a Closing and incumbency
certificate, substantially in the form of Exhibit "C" ("Parent's Closing
Certificate"), and to Sub's Closing Certificate.
5.2 Authority. Each of Parent and Sub has the necessary corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery hereof and the
consummation of the transactions contemplated hereby by each of Parent and Sub
have been duly and validly authorized and approved by their respective board of
directors and by Parent, in its capacity as Sub's sole stockholder, and no
other corporate or stockholder proceedings on the part of either
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Parent or Sub, or their respective board of directors or stockholders, are
necessary to authorize or approve this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of Parent and Sub, and assuming the due authorization,
execution and delivery hereof by Tessera, constitutes the valid and binding
obligation of each of Parent and Sub, enforceable against each of Parent and
Sub in accordance with its terms, subject, in each case, to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general application
relating to or affecting creditors' rights and to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing.
5.3 No Conflicts, Required Filings and Consents. Except as set forth on
Schedule 5.3, none of the execution and delivery of this Agreement by Parent
or Sub, the consummation by Parent and Sub of the transactions contemplated
hereby, or compliance by Parent and Sub with any of the provisions hereof,
will:
(a) conflict with or violate the Certificate of Incorporation or Bylaws of
Parent or Sub, or the organizational documents of any other Subsidiaries;
(b) result in a violation of any statute, ordinance, rule, regulation,
order, judgment or decree applicable to Parent or its Subsidiaries, or by
which Parent, any of its Subsidiaries, or their respective properties or
assets may be bound or affected;
(c) result in a violation or material breach of, or constitute a material
default (or an event that, with notice or lapse of time or both, would
become a material default) under, or give to any other party any material
rights of termination, amendment, acceleration or cancellation of, any
note, bond, mortgage, indenture, or any material contract, agreement,
arrangement, lease, license, permit, judgment, decree, franchise or other
instrument or obligation to which Parent or any of its Subsidiaries is a
party or by which Parent, any of its Subsidiaries or their respective
properties may be bound or affected;
(d) result in the creation of any Lien on any of the property or assets of
Parent or any of its Subsidiaries; or
(e) require any material Consent of (i) any Governmental Entity (except for
(x) compliance with any applicable requirements of any applicable
securities laws, including the filing of a registration statement on Form
S-4 (the "Registration Statement") with the SEC in accordance with the
Securities Act, (y) the filing of the Certificate of Merger pursuant to the
DGCL and the MBCL, and (z) the filing under the HSR Act); or (ii) any other
Person.
5.4 Litigation. Except as set forth on Schedule 5.4 or in Parent's
Public Information, there is no suit, action, claim, investigation or
proceeding pending or, to the knowledge of Parent, threatened against or
affecting Parent or its Subsidiaries, nor is there any judgment, decree,
injunction or order of any applicable Governmental Entity or arbitrator
outstanding against Parent or its Subsidiaries that, either individually or in
the aggregate, would have a material adverse effect on the assets, business or
financial condition of Parent and its Subsidiaries, taken as a whole.
5.5 Brokers. Except as disclosed on Schedule 5.5, no broker or finder is
entitled to any broker's or finder's fee in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of Parent or
Sub.
5.6 Parent Stock.
(a) The Parent Stock to be issued to the stockholders of Tessera in the
Merger will be registered on the Registration Statement, subject, however,
to contractual and other restrictions on any offer, transfer, sale, pledge,
hypothecation or other disposition (any of the foregoing, a "Transfer")
thereof, including resale, as provided in Sections 1.4 and 3.2(a) of the
Voting and Indemnity Agreement.
(b) When delivered to the stockholders of Tessera in accordance with the
terms hereof, the Parent Stock will be (i) duly authorized, fully paid and
nonassessable, and (ii) free and clear of all Liens other than restrictions
imposed in accordance herewith (including the provisions of Exhibits "E,"
"F" and "G" to the extent applicable) or with the Voting and Indemnity
Agreement, or by federal and state securities laws or by Parent's insider
trading policy with respect to employees.
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5.7 Board of Directors/Stockholder's Consent. The board of directors of
Parent, and both the board of directors and stockholder of Sub, have, by
unanimous written consent or other action, adopted and approved this Agreement
and the Voting and Indemnity Agreement and the transactions contemplated
hereby and thereby (including the Merger).
5.8 Parent's Public Information. As of their respective filings dates
with the SEC, Parent's Public Information (a) did not contain any untrue
statements of material facts or omit to state material facts required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and (b) complied in
all material respects with the applicable requirements of the Securities Act
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations promulgated thereunder.
5.9 Statements. The information supplied by Parent for inclusion in the
Registration Statement shall not at the time the Registration Statement is
filed with the SEC and at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. If at any time prior to the Effective Time, any event relating
to Parent or any of its affiliates, officers or directors should be discovered
by Parent which is required to be set forth in an amendment to the
Registration Statement, then Parent shall promptly inform Tessera.
Notwithstanding the foregoing, Parent makes no representation or warranty with
respect to any information supplied by Tessera which is contained in any of
the foregoing documents.
5.10 Absence of Changes. Since Parent's most recent filing under the
Exchange Act, there have been no changes in the operations, earning, assets,
properties, business or financial condition of Parent or its Subsidiaries,
which changes could reasonably be expected to have a Material Adverse Effect
on Parent and its Subsidiaries, taken as a whole; except, however, for any
such change that Parent discloses to Tessera in accordance herewith. For the
purpose of this provision "Material Adverse Effect" excludes any such change
that is attributable to or results from (i) the public announcement of the
transactions contemplated hereby; (ii) changes in general economic conditions
or changes affecting the industry in which Parent operates, or capital
markets, generally; (iii) any public announcement of Parent's intention to
file a registration statement on Form S-1 under the Securities Act; (iv) the
filing of the Registration Statement; (v) the possible adoption by Parent of a
new employee stock option plan; or (vi) changes in the trading prices of
Parent Stock not caused primarily by material changes in the operations,
earnings, assets, properties, business or financial condition of Parent or its
Subsidiaries.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Conduct of Business by Tessera Pending the Merger. From and after
the date hereof, prior to the Effective Time, except as contemplated hereby,
unless Parent shall otherwise agree in advance in writing, Tessera shall carry
on its business in the usual and ordinary course in substantially the same
manner as heretofore conducted, use commercially reasonable efforts to
preserve intact its present business organization, keep available the services
of its employees and preserve its relationships with customers, suppliers,
licensors, licensees, distributors and others having business dealings with
Tessera to the end that its goodwill and on-going businesses shall not be
impaired in any material respect at the Effective Time. Without limiting the
generality of the foregoing, and except as contemplated hereby, unless Parent
shall otherwise agree in advance in writing, prior to the Effective Time,
Tessera shall not, directly or indirectly:
(a) (i) declare, set aside, or pay any dividend on, or make any other
distribution in respect of, any of its capital stock, (ii) split, combine
or reclassify any of its capital stock, or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for,
shares of its capital stock, or (iii) purchase, redeem or otherwise
acquire, any share of capital stock of Tessera or any other equity security
thereof or any right, warrant, or option to acquire any such share or other
security, or waive any right to do any of the foregoing;
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(b) other than in accordance with Section 6.6(b), issue, deliver, sell,
pledge or otherwise encumber any share of its capital stock, any other
voting security issued by Tessera or any security convertible into, or any
right, warrant or option to acquire any such share or voting security,
grant any option, warrant or other stock right, or alter or allow the
acceleration of vesting or exercise of any outstanding option, warrant or
such right;
(c) amend its Articles of Organization, Bylaws or other comparable
organizational documents;
(d) acquire or agree to acquire (i) by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner,
any business or any Entity or division thereof, or (ii) any assets that are
material, individually or in the aggregate, to Tessera;
(e) subject to a Lien or sell, lease or otherwise dispose of any of its
properties or material assets, or license or transfer any Tessera
Intellectual Property Right (except for non-exclusive licenses in the
ordinary course of business consistent with past practices), or revalue any
assets or (except as required by GAAP) make any change in accounting
methods, principles or practices;
(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another Person or issue or sell any debt security of
Tessera, guarantee any debt security of another Person or enter into any
"keep well" or other agreement to maintain the financial condition of
another Person, make any loan, advance (excluding advances to employees,
not exceeding $5,000, in the ordinary course of Tessera's business
consistent with past practices) or capital contribution to, or investment
in, any other Person, or settle or compromise any material claim or
litigation;
(g) pay any bonus to any employee, officer or director on or after the date
hereof other than to the Tessera Stockholders, other than in the ordinary
course of Tessera's business consistent with past practices;
(h) enter into any "golden parachute" or other severance arrangement with
any employee, officer or director, or increase or otherwise change the rate
or nature of the compensation (including wages, salaries, benefits and
bonuses) payable to any employee, officer or director, except pursuant to
existing compensation and fringe benefit plans, practices and arrangements
that have been disclosed in writing to Parent, or enter into, renew, or
allow the renewal of, any employment, consulting or other similar agreement
with any employee, officer or director, or amend or modify any Tessera
Benefit Plan in any material respect or adopt any other such plan;
(i) enter into any new contract or agreement (other than a customer
agreement entered into in the ordinary course of business consistent with
past practices), or lease, involving an obligation in excess of $25,000, or
amend, waive any material default under, terminate (except for such as
terminate by their own terms) or modify in any material respect any Tessera
Contract or Lease; or
(j) authorize any of, or commit or agree to take any of, the foregoing
actions.
6.2 Access to Information. From the date hereof through the Effective
Time, Tessera shall afford to Parent and Parent's accountants, counsel and
other representatives reasonable access during normal business hours (and at
such other times as the parties may mutually agree) upon reasonable prior
notice and approval of Tessera, which shall not be unreasonably withheld, to
its properties, books, contracts, commitments, records and personnel and,
during such period, shall furnish promptly to Parent all information
concerning its business, properties and personnel as Parent may reasonably
request. Parent and its accountants, counsel and other representatives shall,
in the exercise of the rights described in this Section 6.2, not unduly
interfere with the operation of the business of Tessera. Parent and its agents
shall maintain the confidentiality of all information produced or disclosed
pursuant to this Section 6.2, on the terms and conditions of any non-
disclosure agreement between Parent and Tessera, and subject to applicable
law, including securities laws or NASDAQ rules.
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6.3 Filings; Tax Elections. Tessera shall promptly provide Parent with
copies of all filings made by Tessera with any Governmental Entity in
connection herewith and the transactions contemplated hereby. Tessera shall,
before settling or compromising any material income tax liability of Tessera,
consult with Parent and its advisors as to the positions and elections that
will be taken or made with respect to such matter.
6.4 Public Announcements. The parties agree that, except as may
otherwise be required to comply with applicable laws and regulations
(including applicable securities laws or the NASDAQ rules) or to obtain
consents required hereunder (including approval and adoption hereof, and
approval of the Merger, by the stockholders of Tessera), public disclosure of
the transactions contemplated hereby shall be made only upon or after the
consummation of the Merger. Any such disclosure shall be coordinated by
Parent, and Tessera shall not directly or indirectly make any such disclosure
without the prior written consent of Parent.
6.5 Transfer and Gains Taxes and Certain Other Taxes and
Expenses. Parent agrees that, to the extent it is legally able to do so and
except as otherwise provided herein, the Surviving Corporation will pay all
real property transfer, gains and other similar taxes and all documentary
stamps, filing fees, recording fees and sales and use taxes, if any, and any
penalties or interest with respect thereto, payable in connection with
consummation of the Merger.
6.6 Options; Warrants; Preferred Stock.
(a) Tessera hereby covenants and agrees that at the Effective Time, all of
the Tessera Stock Rights (all of which are either set forth on Schedule
4.3(a) or shall be awarded and granted in accordance with Section 6.6(b))
shall, except as provided in Section 6.6(b), have been properly canceled
and all rights and obligations thereunder shall have been terminated.
(b) Tessera hereby covenants and agrees that, at or prior to the Closing,
it shall grant and award to those employees of Tessera listed on Schedule
6.6(b), or to such other employees as the parties may agree, incentive
stock options, with vesting schedules consistent with past practices, in an
aggregate amount not to exceed the balance of options authorized but
remaining available for issuance under the Tessera, Inc. 1995 Stock Option
Plan (the "Plan"). Subject to Section 6.1, Parent will at the Effective
Time assume Tessera's obligations under Tessera's stock option plan(s),
with the shares underlying such options becoming Parent Stock instead of
Tessera Stock, and the exercise price being adjusted inversely, in each
case based on the same conversion ratio as provided hereunder for Tessera
Stock; provided, however, that the Parent Stock underlying such options
shall not have been registered under the Securities Act or any other
securities laws. Tessera shall, in accordance with Section 16(a)(i) of the
Plan, take all actions necessary to effectuate the provisions of this
Section 6.6(b). Parent shall use commercially reasonable efforts to file
with the SEC, and have become effective within one year of the Effective
Time, a registration statement on Form S-8 with respect to the Parent Stock
underlying the options provided for in this Section 6.6(b), it being
understood that such shares of Parent Stock underlying these options are to
be included in the first Form S-8 that is filed by Parent.
(c) Parent hereby covenants and agrees that, at the Effective Time, it will
issue options to purchase 200,000 shares in aggregate of validly issued,
fully paid and nonassessable Parent Stock (provided, however, that the
Parent Stock underlying such options shall not have been registered under
the Securities Act or any other securities laws), to such employees or
officers of Tessera who will continue as employees of Surviving
Corporation, and in such respective amounts, at such exercise prices and
subject to such vesting schedules, as set forth on Schedule 6.6(c). Such
options will be issued subject to Parent's 1996 Stock Option Plan, as
amended, and pursuant to option award agreements substantially in the forms
of Exhibit "D" to the extent allowed under the Code or Exhibit "D-1"
("Options"). Parent shall use commercially reasonable efforts to file with
the SEC, and have become effective within one year of the Effective Time, a
registration statement on Form S-8 with respect to the Parent Stock
underlying the options provided for in this Section 6.6(c), it being
understood that such shares of Parent Stock underlying these options are to
be included in the first Form S-8 that is filed by Parent.
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(d) Tessera hereby covenants and agrees that, at or prior to the Closing,
it shall use its best efforts to cause all of the outstanding Series A and
Series D Preferred Stock to have been converted into Tessera common stock
in accordance with the terms thereof, such that the holders thereof are
entitled at the Closing to the Merger consideration provided in Section
3.1(b).
(e) Tessera shall use commercially reasonable efforts (immediately upon
adoption and approval hereof and approval of the Merger by the stockholders
of Tessera) to cause each of its optionholders to execute and deliver, at
the Closing, a "lock-up" letter, substantially in the form of Exhibit "E"
("Lock-up Letter), acknowledging that the Parent Stock receivable by him
upon exercise of his option in accordance with the terms thereof, subject
to Section 6.6(b), is subject to temporary restrictions on Transfer,
(f) Tessera hereby covenants and agrees that, at or prior to the Closing,
it shall make the payment to the holder of the Series B Preferred Stock
required by Article IV, Section C.2.c of Tessera's Articles of
Organization, in cash, thereby causing a redemption of the Series B
Preferred Stock.
6.7 Hart-Scott-Rodino Notification. Parent and Tessera agree that as
soon as practicable, but in no event later than seven days after the execution
hereof, each will complete and file the "Antitrust Improvements Act
Notification and Report Form for Certain Mergers and Acquisitions" as, and if,
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and will promptly complete and file responses to all
requests for additional data and information which may be made under the HSR
Act. If it is determined that the HSR Act is inapplicable to the transactions
contemplated hereby, then Parent and Tessera shall each furnish the other with
a certificate setting forth the basis for such determination.
6.8 Further Assurances. From time to time after the Effective Time, upon
the reasonable request of any party hereto, the other party or parties hereto
shall execute and deliver or cause to be executed and delivered such further
instruments, and take such further action, as the requesting party may
reasonably request in order to effectuate fully the purposes, terms and
conditions hereof, at the sole cost of the requesting party, except as
otherwise provided in Article VIII.
6.9 Exclusivity. Tessera, on behalf of itself and each of its
stockholders, officers, directors and employees covenants and agrees that,
until such time as this Agreement has been terminated in accordance with
Section 8.1, it and each of them shall forebear directly or indirectly
negotiating, soliciting or accepting any offer with any other Person to
purchase, acquire, option, or merge or combine with, as applicable, Tessera,
any of the Tessera Stock, or the Tessera Business, or any interest in any of
the foregoing. Without limiting the generality of the foregoing:
(a) From and after the date hereof until the Effective Time or termination
of this Agreement pursuant to Section 8.1, Tessera shall not, nor will they
authorize or permit any of its officers, directors, affiliates,
stockholders or employees or any investment banker, attorney or other
advisor or representative retained by any of them to, directly or
indirectly, (i) solicit, initiate, encourage or induce the making,
submission or announcement of any Acquisition Proposal (as hereinafter
defined), (ii) participate in any discussions or negotiations regarding ,
or furnish to any person any non-public information with respect to, or
take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to, any
Acquisition Proposal, (iii) engage in discussions with any person with
respect to any Acquisition Proposal, except as to the existence of these
provisions, (iv) approve, endorse or recommend any Acquisition Proposal or
(v) enter into any letter of intent or similar document or any contract,
agreement or commitment contemplating or otherwise relating to any
Acquisition Transaction. Tessera shall immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set
forth in the preceding two sentences by any officer, director or employee
of Tessera or any of its subsidiaries or any investment banker, attorney or
other advisor or representative of Tessera or any of its subsidiaries shall
be deemed to be a breach of this Section 6.9 by Tessera.
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For purposes of this Agreement, "Acquisition Proposal" shall mean any
bona fide offer or proposal (other than an offer or proposal by Parent)
relating to any Acquisition Transaction. For the purposes of this Agreement,
"Acquisition Transaction" shall mean any transaction or series of related
transactions other than the transactions contemplated by this Agreement
involving: (A) any acquisition or purchase from Tessera by any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a 15% interest in the total outstanding
voting securities of Tessera or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 15% or more of the total outstanding voting
securities of Tessera or any of its subsidiaries or any merger, consolidation,
business combination or similar transaction involving Tessera pursuant to
which the stockholders of Tessera immediately preceding such transaction hold
less than 85% of the equity interests in the surviving or resulting entity of
such transaction; (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 50% of the assets of
Tessera; or (C) any liquidation or dissolution of Tessera.
6.10 Registration Statement. As promptly as practicable after the
execution of this Agreement, Parent will prepare and file with the SEC the
Registration Statement. Tessera shall cause PricewaterhouseCoopers LLC to
deliver as promptly as possible after the date hereof, and in any event within
three days hereafter, reviewed Tessera Financial Statements for the six month
periods ended June 30, 1998 and 1999. Each of Tessera and Parent will respond
to any comments of the SEC, will use its respective commercially reasonable
efforts to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing and Tessera shall
cause the Proxy Materials, which shall be in accordance with applicable law,
to be mailed to its stockholders at the earliest practicable time after the
Registration Statement is declared effective by the SEC, and in any event
within three business days thereafter. As promptly as practicable after the
date of this Agreement, each of Tessera and Parent will prepare and file any
other filings required to be filed by it under the Exchange Act, the
Securities Act or any other Federal, foreign or Blue Sky or related laws
relating to the Merger and the transactions contemplated by this Agreement
(the "Other Filings"). Each of Tessera and Parent will, on a continuing basis,
cooperate with the other (including by making its officers and directors or
accountants and other advisors reasonably available to respond to questions)
and furnish and update, or cause to be furnished and updated, all information,
including financial statements, necessary or desirable for inclusion in the
Registration Statement or the other's Other Filings. Each of Tessera and
Parent will notify the other promptly upon the receipt of any comments from
the SEC or its staff or any other government officials and of any request by
the SEC or it staff or any other governmental officials for amendments or
supplements to the Registration Statement or any Other Filing or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC or its staff or any other government officials, on the other
hand, with respect to the Registration Statement, the Merger or any Other
Filing. Each of Tessera and Parent will cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under this
Section 6.10 to comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Registration Statement or any Other Filing, Tessera or
Parent, as the case may be, will promptly inform the other of such occurrence
and cooperate in filing with the SEC or its staff or any other government
officials, and/or mailing to stockholders of Tessera, such amendment or
supplement.
6.11 Meeting of stockholders of Tessera.
(a) At the earliest practicable time after the Registration Statement is
declared effective by the SEC, and in any event within three business days
thereafter, Tessera shall take all action necessary in accordance with the
applicable law and its Articles of Organization and Bylaws to convene a
meeting of the stockholders of Tessera (the "Stockholders' Meeting") to be
held as promptly as practicable after the declaration of effectiveness of
the Registration Statement, for the purpose of voting upon this Agreement
and the Merger. Tessera will use its commercially reasonable efforts to
solicit from its stockholders proxies in favor of the adoption and approval
of this Agreement and the approval of the Merger and will take all other
action necessary or advisable to secure the vote or consent of its
stockholders required by applicable law to obtain
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such approvals. Tessera shall ensure that the Stockholders' Meeting is
called, noticed, convened, held and conducted, and that all proxies
solicited by Tessera in connection with the stockholders' Meeting are
solicited, in compliance with applicable law and its Articles of
Organization and Bylaws. Tessera's obligations to call, give notice of,
convene and hold the Stockholders' Meeting in accordance with this Section
6.11(a) shall not be limited to or otherwise affected by the commencement,
disclosure, announcement or submission to Tessera of any Acquisition
Proposal, or by any withdrawal, amendment or modification of the
recommendation of the Board of Directors of Tessera with respect to the
Merger.
(b) Tessera covenants and agrees that: (i) the Board of Directors of
Tessera shall recommend that Tessera's stockholders vote in favor of and
adopt and approve this Agreement and the Merger at the Stockholders'
Meeting; (ii) the Proxy Materials shall include a statement to the effect
that the Board of Directors of Tessera has recommended that Tessera's
stockholders vote in favor of and adopt and approve this Agreement and the
Merger at the Stockholders' Meeting; and (iii) neither the Board of
Directors of Tessera nor any committee thereof shall withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify in a manner
adverse to Parent, the recommendation of the Board of Directors of Tessera
that Tessera's stockholders vote in favor of and adopt and approve this
Agreement and the Merger.
6.12 Contractual Restrictions. Prior to the Closing, Tessera shall use
its best efforts to cause:
(a) each stockholder of Tessera to execute and deliver a Lock-up Letter,
acknowledging that the Parent Stock to be received by him pursuant to the
Merger is subject to temporary restrictions on Transfer;
(b) each stockholder of Tessera to execute and deliver a letter, in the
form of Exhibit "F" ("Contractually Restricted Stock Letter"), addressed to
Parent, acknowledging that the Parent Stock to be received by him pursuant
to the Merger is subject to certain contractual restrictions on Transfer;
(c) each stockholder of Tessera who is an "affiliate" of Tessera for
purposes of Rule 145 under the Securities Act ("Rule 145") to execute and
deliver a letter, in the form of Exhibit "G" ("Rule 145 Letter"), addressed
to Parent, acknowledging that the Parent Stock to be received by him
pursuant to the Merger is subject to certain restrictions on Transfer under
Rule 145; and
(d) all stockholders of Tessera listed on Schedule 6.12(d) (which
corresponds with Schedule 3.2(b) to the Voting and Indemnity Agreement) to
execute and deliver the noncompetition and non-solicitation agreement with
Parent, in the form of Exhibit "H".
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Obligations of Tessera to Effect the Merger. The
obligations of Tessera to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions:
(a) Parent and Sub shall have performed in all material respects their
respective agreements contained herein required to be performed at or prior
to the Effective Time, and the representations and warranties of Parent and
Sub contained herein shall be true in all material respects when made and
(except for representations and warranties made as of a specified date,
which need only be true as of such date) at and as of the Effective Time as
if made at and as of such time, except as contemplated hereby;
(b) (i) the appropriate officers of Parent shall have executed and
delivered to Tessera at the Closing, Parent's Closing Certificate, and (ii)
the appropriate officers of Sub shall have executed and delivered to
Tessera at the Closing, Sub's Closing Certificate;
(c) Parent shall have obtained all of the Consents, if any, listed on
Schedule 7.1(c);
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(d) Tessera shall have received corporate certificates of good standing for
Parent and Sub, and a copy of the Certificate of Incorporation for Parent
and Sub, respectively, as certified by the Secretary of State of Delaware;
(e) Tessera shall have received, at the Closing, a duly executed opinion of
counsel to Parent and Sub, substantially in the form of Exhibit "I";
(f) the waiting period, including any extensions thereof, under the HSR Act
shall have expired or been terminated, and there shall have been no adverse
change to the Merger required in order to obtain approval under the HSR
Act;
(g) Tessera shall have received from Parent and Sub such other documents as
Tessera's counsel shall have reasonably requested, in form and substance
reasonably satisfactory to Tessera's counsel;
(h) Parent shall have executed and delivered at the Closing the Options, in
accordance with Section 6.6(c);
(i) This Agreement shall have been approved and adopted, and the Merger
shall have been duly approved, by the requisite vote, under applicable law,
of the stockholders of Tessera; and
(j) the Registration Statement shall have been declared effective by the
SEC.
7.2 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be
subject to the fulfillment, at or prior to the Effective Time, of the
following conditions:
(a) Tessera, the Tessera Stockholders and any other stockholders of Tessera
shall have performed in all material respects their respective agreements
contained herein or in the Voting and Indemnity Agreement required to be
performed at or prior to the Effective Time, and the representations and
warranties of Tessera and the Tessera Stockholders contained herein or in
the Voting and Indemnity Agreement shall be true in all material respects
when made and (except for representations and warranties made as of a
specified date, which need only be true as of such date) at and as of the
Effective Time as if made at and as of such time, except as contemplated
hereby;
(b) the appropriate officers of Tessera shall have executed and delivered
to Parent at the Closing, Tessera's Closing Certificate.
(c) Tessera shall have obtained or caused to be obtained all of the
Consents, if any, listed on Schedule 7.2(c);
(d) there shall have been delivered to Parent at the Closing, duly
executed, (i) by each stockholder of Tessera excluding stockholders of
Tessera (other than the Tessera Stockholders) holding in the aggregate
100,000 or fewer shares of Tessera Stock, a Lock-up Letter and a
Contractually Restricted Stock Letter; (ii) by each stockholder of Tessera
who is an "affiliate" of Tessera for purposes of Rule 145, a Rule 145
Letter; (iii) by all stockholders of Tessera listed on Schedule 6.12(d),
the Noncompetition Agreement; (iv) the Options; (v) by each Option
recipient, a Lock-up Letter; and (vi) by each of the Tessera Stockholders
listed on Schedule 7.2(d), the Employee Agreement in the form of Exhibit
"J" attached hereto (the "Employee Agreement").
(e) Parent shall have received a corporate certificate of good standing for
Tessera, and a copy of the Articles of Organization of Tessera, both as
certified by the Secretary of State of Tessera's state of incorporation;
(f) Parent shall have received, at the Closing, a duly executed opinion of
counsel to Tessera and the Tessera Stockholders, substantially in the form
of Exhibit "K";
(g) the waiting period, including any extensions thereof, under the HSR Act
shall have expired or been terminated, and there shall have been no adverse
change to the Merger required, and no materially adverse requirement
imposed on Parent or Sub, in order to obtain approval under the HSR Act;
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(h) Parent shall have received evidence reasonably satisfactory to it that
at the Closing the assets and properties used in the Tessera Business are
free and clear of all Liens other than Permitted Liens;
(i) This Agreement shall have been approved and adopted, and the Merger
shall have been duly approved, by the requisite vote, under applicable law,
of the stockholders of Tessera;
(j) Parent shall have received from Tessera or the stockholders of Tessera,
as the case may be, such other documents as Parent's counsel shall have
reasonably requested, in form and substance reasonably satisfactory to
Parent's counsel;
(k) the aggregate number of shares owned by Dissenting Stockholders shall
not exceed 1% of Tessera Stock;
(l) the Registration Statement shall have been declared effective by the
SEC;
(m) each Tessera Stockholder under an existing employment agreement with
Tessera, as identified on Schedule 3.5 to the Voting and Indemnity
Agreement, shall have terminated such agreement in accordance with Section
3.5 of the Voting and Indemnity Agreement; and
(n) hose agreements listed on Schedule 7.2(n) shall have been terminated.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time:
(a) by mutual written consent of Parent and Tessera;
(b) by Tessera, upon a material breach hereof or of the Voting and
Indemnity Agreement on the part of Parent or Sub which has not been cured
and which would cause any condition set forth in Section 7.1 to be
incapable of being satisfied by January 31, 2000;
(c) by Parent, upon a material breach hereof or of the Voting and Indemnity
Agreement on the part of Tessera or any of the stockholders of Tessera
which has not been cured and which would cause any condition set forth in
Section 7.2 to be incapable of being satisfied by January 31, 2000;
(d) by Parent or Tessera if any court of competent jurisdiction shall have
issued, enacted, entered, promulgated or enforced any order, judgment,
decree, injunction or ruling which restrains, enjoins or otherwise
prohibits the Merger and such order, judgment, decree, injunction or ruling
shall have become final and nonappealable; or
(e) by either Parent or Tessera if the Merger shall not have been
consummated on or before January 31, 2000 (provided the terminating party
is not otherwise in material breach of its representations, warranties or
obligations hereunder).
8.2 Fees and Expenses; Remedies.
(a) If the Merger is consummated, then all costs and expenses incurred in
connection herewith and the transactions contemplated hereby shall be paid
by the Surviving Corporation.
(b) If the Merger is not consummated for a reason other than the material
breach hereof or of the Voting and Indemnity Agreement by a party, then all
further obligations of the parties hereunder or pursuant hereto shall
immediately terminate without further liability of any party, and all fees
and expenses incurred in connection herewith and the transactions
contemplated hereby shall be paid by the party incurring such fees or
expenses; provided, however, that the fees for the filings under the HSR
Act will be paid by Parent.
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(c) If the Merger is not consummated because of a material breach hereof or
of the Voting and Indemnity Agreement by any party, then the nonbreaching
party or parties shall be entitled to pursue all legal or equitable
remedies against the breaching party for such breach, including (as to
Parent and Sub, and in addition to their remedies at law or otherwise in
equity) specific performance, and all fees and expenses incurred by the
nonbreaching party or parties in connection with enforcing its or their
rights hereunder with respect to such breach shall be paid by the breaching
party.
(d) Tessera hereby acknowledges that Tessera, its Business and assets, and
the Tessera Stock are unique, and that Parent and Sub have no adequate
remedy at law if Tessera or the stockholders of Tessera materially breach
this Agreement or the Voting and Indemnity Agreement; and Parent and Sub
are therefore entitled to bring an action for specific performance hereof
or thereof, and Tessera agrees that it shall not contest any such action on
the grounds that Parent and Sub have an adequate remedy at law.
8.3 Amendment. This Agreement may be amended by the mutual agreement of
Parent, Sub and Tessera at any time before or after approval and adoption
hereof and approval of the Merger by the stockholders of Tessera; provided,
however, that (a) after such approval, no amendment shall be made which
(i) changes the form or decreases the amount of the consideration to be
received in the Merger, (ii) in any way materially adversely affects the
rights of the stockholders of Tessera, or (iii) under applicable law would
require approval of the stockholders of Tessera, in any such case referred to
in clauses (i), (ii) and (iii), without the further approval of the
stockholders of Tessera; and (b) after the Effective Time, any such amendment
must be approved by the former holders of a majority of the Tessera Stock.
This Agreement may not be amended except by an instrument in writing signed on
behalf of the parties hereto.
8.4 Waiver. At any time prior to the Effective Time, the parties hereto
may, to the extent permitted by applicable law, (i) extend the time for the
performance of any of the obligations or other acts of any other party hereto,
(ii) waive any inaccuracies in the representations and warranties by any other
party contained herein or in any documents delivered by any other party
pursuant hereto and (iii) waive compliance with any of the agreements of any
other party or with any conditions to its own obligations contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Survival; Recourse. None of the agreements contained herein shall
survive the Merger, except that (i) the agreements contained in Article III
and the covenants contained in Article VI shall survive the Merger
indefinitely (except to the extent a shorter period of time is explicitly
specified therein); and (ii) the representations and warranties made in
Articles IV and V shall survive the Merger, and shall survive any independent
investigation by the parties, and any dissolution, merger or consolidation of
Tessera or Parent, and shall bind the legal representatives, assigns and
successors of Tessera and Parent, and, to the extent provided in the Voting
and Indemnity Agreement, the Tessera Stockholders, for a period of 18 months
after the Effective Time (other than the representations and warranties
contained in Sections 4.18, 4.19, 4.20 or 4.24, which shall survive for the
applicable statute of limitations).
9.2 Notices. All notices or other communications hereunder shall be in
writing and shall be given (and shall be deemed to have been duly given upon
receipt) by delivery in Person, by facsimile (with confirmation of receipt),
or by registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to Tessera: Tessera Enterprise Systems, Inc.
7 Audubon Rd.
Wakefield, MA 01880
Attention: Mr. Tim Hult, President
Telephone: (781) 246-9024
Fax: (781) 246-1958
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With a copy to: Prince, Lobel & Tye LLP
585 Commercial St.
Boston, MA 02109
Attention: Martin E. Fishkin, Esq.
Telephone: (617) 367-2202
Fax: (617) 523-0977
If to Parent or Sub: iXL Enterprises, Inc.
1900 Emery St., 2nd Floor
Atlanta, GA 30318
Attention: M. Wayne Boylston, Exec. V. P.
Fax: 404/267-3801
Telephone: 404/267-3800
With copies to: Minkin & Snyder, A Professional Corporation
One Buckhead Plaza
3060 Peachtree Rd., Ste. 1100
Atlanta, GA 30305
Attention: James S. Altenbach, Esq.
Fax: 404/233-5824
Telephone: 404/261-8000
and to: Kelso & Company
320 Park Ave., 24th Floor
New York, NY 10032
Attention: James J. Connors II, Esq.
Fax: 212/223-2379
Telephone: 212/751-3939
or to such other address as any party may have furnished to the other parties
in writing in accordance with this Section.
9.3 Entire Agreement. The Exhibits and Schedules hereto are incorporated
herein by reference. This Agreement, the Voting and Indemnity Agreement and the
documents, schedules and instruments referred to herein or therein and to be
delivered pursuant hereto or thereto constitute the entire agreement between
the parties pertaining to the subject matter hereof, and supersede all other
prior agreements and understandings, both written and oral, among the parties,
or between any of them, with respect to the subject matter hereof, except for
the non-disclosure letter agreement between Parent and Tessera dated as of
[July 26], 1999. There are no other representations or warranties, whether
written or oral, between the parties in connection the subject matter hereof,
except as expressly set forth herein or in the Voting and Indemnity Agreement.
9.4 Assignments; Parties in Interest. Neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties (and any assignment otherwise shall be
void), except that the rights, interests, and obligations of Sub hereunder may
be assigned to any direct wholly owned Delaware subsidiary of Parent without
such prior consent. Subject to the preceding sentence, this Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
herein, express or implied, is intended to or shall confer upon any Person not
a party hereto any right, benefit or remedy of any nature whatsoever under or
by reason hereof, except as otherwise provided herein and except for the
obligations of Parent under the last sentence of Sections 6.6(b) and 6.6(c)
which shall inure to the benefit of the holders of options assumed by the
Parent pursuant to Section 6.6(b) and the holders of the Options pursuant to
Section 6.6(c).
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9.5 Governing Law. This Agreement, except to the extent that the DGCL or
the MBCL is mandatorily applicable to the Merger, or to the rights of the
stockholders of Tessera or the parties hereto with respect to the Merger,
shall be governed in all respects by the laws of the State of Georgia (without
giving effect to the provisions thereof relating to conflicts of law).
9.6 Headings; Interpretation; Incorporation. The descriptive headings
herein are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation hereof. Words such as
"herein," "hereof," "hereto," "hereunder" or the like shall refer to this
Agreement as a whole. The words "include" or "including" shall be by way of
example rather than by limitation. The words "or," "either" or "any" shall not
be exclusive. Any pronoun used herein shall include the corresponding
masculine, feminine or neuter forms. The parties hereto have participated
jointly in the negotiation and drafting hereof; accordingly, no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship hereof. References to Sections, Articles, Schedules or Exhibits
shall, unless the context otherwise requires, be to Sections, Schedules or
Exhibits hereof. The Schedules and Exhibits hereto are incorporated herein by
reference.
9.7 Counterparts. This Agreement may be executed in two or more
counterparts, including by facsimile, each of which shall be deemed an
original but all of which taken together shall constitute a single agreement.
9.8 Severability. If any term or other provision hereof is invalid,
illegal or incapable of being enforced by any rule of law or public policy,
all other conditions and provisions hereof shall nevertheless remain in full
force and effect provided that the economics or legal substance of the
transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon determination by a court of competent jurisdiction
that any term or other provision hereof is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely
as possible to the fullest extent permitted by applicable law in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the extent possible.
9.9 Certain Definitions. As used herein:
(a) the term "Permitted Liens" shall mean (a) Liens for taxes, assessments
or other governmental charges or levies not yet due; (b) statutory Liens of
landlords and Liens of carriers, warehousemen, mechanics, materialmen and
other Liens imposed by law created in the ordinary course of business for
amounts not yet due; (c) Liens (other than any Lien imposed by ERISA)
incurred or deposits made in the ordinary course of business in connection
with worker's compensation, unemployment insurance or other types of social
security; (d) minor defects of title, easements, rights-of-way,
restrictions and other similar charges or encumbrances not materially
detracting from the value of the Tessera Real Property or interfering with
the ordinary conduct of any of the Tessera Business; and (e) those Liens
listed on Schedule 9.9;
(b) (i) any representation or warranty stated to be made "to the knowledge"
of a party shall refer to such party's knowledge following reasonable
inquiry as to the matter in question; and (ii) any representation or
warranty stated to be made "to the knowledge of Tessera" shall refer also
to the knowledge, subject to clause (i) above, of any of the stockholders
of Tessera; and
(c) the term "Subsidiary" or "Subsidiaries" means any Entity of which
Parent (either alone or through or together with any other Subsidiary)
owns, directly or indirectly, stock or other equity interests the holders
of which are entitled to more than 50% of the vote for the election of the
board of directors or other governing body of such Entity (including Sub);
provided, however, that with respect to the Parent, the terms "Subsidiary"
and "Subsidiaries" shall not include Tessera.
SIGNATURES ON THE FOLLOWING PAGE
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IN WITNESS WHEREOF, Parent, Sub and Tessera have caused this Agreement to
be signed and delivered by their respective duly authorized officers as of the
date first written above.
"Tessera"
Tessera Enterprise Systems, Inc., a
Massachusetts corporation
/s/ Timothy F. Hult
By: ________________________________________
President/CEO
Title: _____________________________________
"Parent"
iXL Enterprises, Inc., a Delaware
corporation
/s/ M. Wayne Boylston
By: ________________________________________
Executive Vice President
Title: _____________________________________
"Sub"
iXL-Massachusetts, Inc., a Delaware
corporation
/s/ M. Wayne Boylston
By: ________________________________________
Executive Vice President
Title: _____________________________________
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ANNEX B
VOTING AND INDEMNITY AGREEMENT
BY AND AMONG
iXL ENTERPRISES, INC.,
iXL-MASSACHUSETTS, INC.,
AND
THE TESSERA STOCKHOLDERS
Dated as of October 4, 1999
<PAGE>
AGREEMENT
THIS VOTING AND INDEMNITY AGREEMENT is entered into as of this 4th day of
October, 1999, by and among iXL Enterprises, Inc., a Delaware corporation
("Parent"), iXL-Massachusetts, Inc., a Delaware corporation, or its successors
or assigns ("Sub"), and certain of the stockholders of Tessera Enterprise
Systems, Inc., a Massachusetts corporation ("Tessera"), as listed on the
signature page hereto (collectively, the "Tessera Stockholders").
RECITALS:
A. Contemporaneously herewith, Tessera, Parent and Sub have entered into
an Agreement and Plan of Merger (the "Merger Agreement"), providing for Tessera
to merge with and into Sub (the "Merger").
B. Of the issued and outstanding capital stock of Tessera (the "Tessera
Stock"), a majority is owned by the Tessera Stockholders.
C. The respective Boards of Directors of Parent, Sub and Tessera, and the
stockholder of Sub, have approved the Merger, upon the terms and subject to the
conditions set forth in the Merger Agreement and herein.
D. The Board of Directors of Tessera has determined to recommend that the
stockholders of Tessera adopt and approve the Merger Agreement and approve the
Merger.
E. It is a condition and inducement to Parent's and Sub's willingness to
enter into the Merger Agreement that the Tessera Stockholders enter into this
Agreement; and it is a condition to Tessera's, Parent's and Sub's obligations
to complete the Merger (the "Closing"), that the stockholders of Tessera adopt
and approve the Merger Agreement and approve the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, conditions and agreements set forth herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF THE TESSERA STOCKHOLDERS
Each of the Tessera Stockholders severally represents and warrants to
Parent and Sub as follows, which representations and warranties shall survive
the Closing in accordance with Section 6.1.
1.1 Authority. This Agreement has been duly executed and delivered by
each Tessera Stockholder, and assuming the due authorization, execution and
delivery by Parent and Sub, constitutes the valid and binding obligation of
each Tessera Stockholder, enforceable against each Tessera Stockholder in
accordance with its terms, subject, in each case, to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general application relating to
or affecting creditors' rights and to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing.
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<PAGE>
1.2 No Conflicts, Required Filings and Consents. Except as set forth on
Schedule 1.2, none of (i) the execution and delivery hereof by the Tessera
Stockholders, (ii) the consummation by the stockholders of Tessera of the
transactions contemplated hereby or by the Merger Agreement (including the
Merger) or (iii) compliance by the Tessera Stockholders with any of the
provisions hereof will:
(a) as to any Tessera Stockholder that is a corporation, partnership,
limited liability company, joint venture, association or other entity (any
of the foregoing, an "Entity"), conflict with or violate its governing
documents; or
(b) as to any Tessera Stockholder, result in a material violation or
material breach of, or constitute a material default (or an event that,
with notice or lapse of time or both, would become a material default)
under, or give to any other Person (as defined in the Merger Agreement) any
material right of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or encumbrance on any Tessera Stock or
other Tessera securities pursuant to, any note, bond, mortgage or
indenture, or any material contract, agreement, arrangement, lease,
license, permit, judgment, decree, franchise or other instrument or
obligation, to which he is a party or by which he or any of his properties
or assets may be bound or affected.
1.3 Accredited Investors; Investment Purpose. Each Tessera Stockholder
represents that he (a) is an "accredited investor" as such term is defined in
Rule 501 of Regulation D promulgated by the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "Securities
Act"); and (b) will not, directly or indirectly, offer, transfer, sell,
pledge, hypothecate or otherwise dispose of (any of the foregoing, a
"Transfer") any Parent Stock (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of any such shares) except in compliance
with the Securities Act and the rules and regulations thereunder, other
applicable laws, rules and regulations.
1.4 Restrictions on Transfer. Each Tessera Stockholder acknowledges that
(a) the Parent Stock to be received by him pursuant to the Merger (i) will be
subject to temporary restrictions on Transfer pursuant to a "lock-up" letter,
substantially in the form of Exhibit "E" to the Merger Agreement ("Lock-up
Letter"), and that he shall enter into a Lock-up Letter at the Closing; (ii)
is subject to contractual restrictions on Transfer as provided in Section
3.2(a) and pursuant to a letter, in the form of Exhibit "F" to the Merger
Agreement ("Contractually Restricted Stock Letter"), that he shall enter into
a Contractually Restricted Stock Letter at the Closing, and that he must
continue to bear the economic risk of the investment in Parent Stock for the
period of time provided therein; and (iii) may be subject to certain further
restrictions on resale pursuant to Rule 145 under the Securities Act ("Rule
145"), that he understands the requirements of Rule 145 as they apply to him,
and that he shall at the Closing enter into a letter concerning Rule 145, in
the form of Exhibit "G" to the Merger Agreement ("Rule 145 Letter"); (b)
restrictive legends shall be placed on the certificates representing Parent
Stock; (c) any Transfer of Parent Stock may only be made in accordance with
the requirements of the Securities Act and any other applicable securities
laws; and (d) appropriate stop-transfer instructions will be issued to the
Parent's transfer agent with respect to Parent Stock.
1.5 No Proxy. No Tessera Stockholder has appointed or granted any proxy,
which appointment or grant remains effective, with respect to any Tessera
Stock other than pursuant hereto.
1.6 Documents Received. Each Tessera Stockholder acknowledges receipt of
copies of the Merger Agreement, including all schedules and exhibits thereto,
and of Parent's Public Information (as defined in the Merger Agreement).
1.7 No Liens on Tessera Stock of the Tessera Stockholders. Each Tessera
Stockholder represents that, except as set forth on Schedule 1.7, the Tessera
Stock held by him is free and clear of any lien, charge, security interest,
pledge, option, right of first refusal, voting proxy or other voting
agreement, or encumbrance of any kind or nature other than restrictions on
transfer imposed by federal and state securities laws.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Each of Parent and Sub jointly and severally represents and warrants to
the Tessera Stockholders as follows, which representation and warranties shall
survive the Closing in accordance with Section 6.1: Each of Parent and Sub has
the necessary corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery hereof and the consummation of the transactions
contemplated hereby by each of Parent and Sub have been duly and validly
authorized and approved by their respective board of directors and by Parent,
in its capacity as Sub's sole stockholder, and no other corporate or
stockholder proceedings on the part of either Parent or Sub, or their
respective board of directors or stockholders, are necessary to authorize or
approve this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by each of Parent and Sub,
and assuming the due authorization, execution and delivery hereof by the
Tessera Stockholders, constitutes the valid and binding obligation of each of
Parent and Sub, enforceable against each of Parent and Sub in accordance with
its terms, subject, in each case, to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general application relating to or affecting
creditors' rights and to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing.
ARTICLE III
ADDITIONAL AGREEMENTS
3.1 Public Announcements. The parties agree that, except as may
otherwise be required to comply with applicable laws and regulations
(including applicable securities laws or the NASDAQ rules) or to obtain
consents required hereunder, public disclosure of the transactions
contemplated hereby shall be made only upon or after the consummation of the
Merger. Any such disclosure shall be coordinated by Parent, and none of the
Tessera Stockholders shall directly or indirectly make any such disclosure
without the prior written consent of Parent.
3.2 Contractual Restrictions on Tessera Stockholders.
(a) Each Tessera Stockholder covenants and agrees that, notwithstanding
that the Parent Stock to be issued to him pursuant to the Merger shall be
registered under the Securities Act on Parent's Registration Statement on Form
S-4, he shall not Transfer any such Parent Stock (except in the event of his
death) for a period (the "Initial Period") of 90 days after the date hereof
(the "Relevant Date"); provided, however, that if Parent has filed or files
with the SEC a registration statement on Form S-1 with respect to the
registration of any of Parent's Common Stock, and such registration statement
is declared effective no later than January 31, 2000, then the Initial Period
shall be extended through the period of 90 days after the effective date of
such registration statement, and the Relevant Date shall instead be such
effective date.
(i) After the Initial Period, each Tessera Stockholder (other than such
Tessera Stockholders listed on Schedule 3.2(a)(i)) may Transfer all the
shares of Parent Stock received by such Tessera Stockholder in the Merger.
Each Tessera Stockholder listed on Schedule 3.2(a)(i) may Transfer up to
1/3 of the shares of Parent Stock received by such Tessera Stockholder in
the Merger upon the expiration of a further period of 90 days (for a total
of 180 days after the Relevant Date); and such Tessera Stockholder may
Transfer an additional 1/3 of such shares upon the expiration of a still
further period of 90 days (for a total of 270 days after the Relevant
Date), so that 100% of such shares may be transferred after a total of 270
days after the Relevant Date.
(ii) The Parent Stock issued to a Tessera Stockholder pursuant to the
Merger shall, accordingly, be legended as follows: "THE SALE OR OTHER
TRANSFER OF THE SHARES EVIDENCED HEREBY HAS BEEN CONTRACTUALLY RESTRICTED.
THE HOLDER AGREES THAT SUCH SHARES
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<PAGE>
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT
OF THE ISSUER, iXL ENTERPRISES, INC., UNTIL THE EXPIRATION OF [90 OR 270
DAYS, AS APPLICABLE,] AFTER THE LATER OF (A) THE DATE OF ISSUANCE HEREOF;
OR (B) IF NO LATER THAN JANUARY 31, 2000, THEN THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT WITH RESPECT TO A SECONDARY PUBLIC OFFERING OF
PARENT'S COMMON STOCK. THE SHARES EVIDENCED HEREBY HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY ONLY BE SOLD OR
OTHERWISE TRANSFERRED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS,
INCLUDING THE RESALE LIMITATIONS THEREUNDER."
(iii) Upon the expiration of the Initial Period, a Tessera Stockholder may,
as to all of such shares (or, instead, in the case of any Tessera
Stockholder listed on Schedule 3.2(a)(i), as to 1/3 of such shares),
exchange his stock certificate(s) for new certificate(s) not so legended;
and, in the case of each Tessera Stockholder listed on Schedule 3.2(a)(i),
he may do so again (as to 1/3 of his shares) upon the expiration of each of
two further 90-day periods in accordance with Section 3.2(a)(i); and
(b) All Tessera Stockholders listed on Schedule 3.2(b) (which
corresponds with Schedule 6.12(d) to the Merger Agreement) covenant and agree
that they shall, in connection with the Closing, enter into the noncompetition
and non-solicitation agreement with Parent, in the form of Exhibit "H" to the
Merger Agreement.
3.3 Vote of Stockholders; Voting Proxy.
(a) Each of the Tessera Stockholders covenants and agrees (i) to appear
for the purpose of obtaining a quorum at any meeting of stockholders of
Tessera, or adjournment thereof, at which matters relating to the Merger are
considered; and (b) to vote, in person or by proxy (or, if applicable, execute
written consent in accordance with applicable law with respect to), all of his
shares of Tessera Stock (now owned or hereafter acquired or over which he has
voting control), at any meeting of, or in any action taken under applicable
law (including written consent) by, the stockholders of Tessera with respect
to the Merger, in favor of adopting and approving the Merger Agreement and
approving the Merger, in accordance with the terms and provisions of the
Merger Agreement.
(b) In order to effectuate Section 3.3(a), each Tessera Stockholder
hereby grants to the Secretary of Parent an irrevocable proxy, pursuant to the
Massachusetts Business Corporation Law ("MBCL") or other applicable law,
coupled with an interest, solely for the purposes of demanding that the
Secretary of Tessera call a special meeting of stockholders to consider
matters related to the Merger, and of voting (or signing his name on any
written consent in accordance with applicable law with respect to) all of the
shares of Tessera Stock owned (now or hereafter acquired or over which he has
voting control) by the grantor of the proxy in favor of adopting and approving
the Merger Agreement and approving the Merger, in accordance with the terms
and provisions of the Merger Agreement.
(c) Each Tessera Stockholder shall perform such further acts and execute
such further instruments as required to vest in Parent and Sub the power to
carry out and give effect to the provisions hereof.
(d) Each Tessera Stockholder covenants and agrees that he shall not
hereafter enter into any voting agreement, or grant any other proxy or any
power of attorney, inconsistent herewith.
(e) Each Tessera Stockholder covenants and agrees that he shall not
Transfer his Tessera Stock, or any other Tessera securities, or any interest
therein, without Parent's prior written consent.
3.4 Tessera Stockholders Receiving Options. Each Tessera Stockholder
receiving Options, as defined in the Merger Agreement, pursuant to Section
6.6(c) thereof, covenants and agrees to execute and deliver, at the Closing, a
Lock-up Letter, acknowledging that the Parent Stock receivable by him upon
exercise of his Option in accordance with the terms thereof is subject to
temporary restrictions on Transfer.
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3.5 Tessera Stockholders Under Employment Agreements. Each Tessera
Stockholder under an existing employment agreement with Tessera, as identified
on Schedule 3.5, shall at or prior to the Closing terminate such employment
agreement, and such action shall not create or accelerate any right of such
Stockholder thereunder.
3.6 Tessera Stockholders Owning Tessera Preferred Stock. Each Tessera
Stockholder owning any Tessera Series A or Series D Preferred stock shall, at
or prior to the Closing, convert all shares of Preferred Stock, in accordance
with the terms thereof, into Tessera common stock. Each Tessera Stockholder
owning any Tessera Series B Preferred stock shall, at or prior to the Closing,
have accepted the payment required by Article IV, Section C.2.c of Tessera's
Articles of Organization in full redemption of such shares.
3.7 Employee Agreements. Each Tessera Stockholder listed on Schedule
3.2(a)(i) shall at the Closing enter into an "Employee Agreement" (as defined
in the Merger Agreement).
ARTICLE IV
INDEMNIFICATION
Upon the Closing, the following provisions shall apply:
4.1 Indemnification by Parent.
(a) Parent shall indemnify and hold the Tessera Stockholders
(collectively, the "Tessera Indemnified Parties") harmless from and against,
and agrees promptly to defend each of the Tessera Indemnified Parties from and
reimburse each of the Tessera Indemnified Parties for, any and all losses,
damages, costs, expenses, liabilities, obligations and claims of any kind
(including reasonable attorneys' fees and other legal costs and expenses)
(collectively, a "Tessera Loss") that any of the Tessera Indemnified Parties
may at any time suffer or incur, or become subject to, as a result of or in
connection with:
(i) any breach or inaccuracy of any of the representations and warranties
made by Parent or Sub in or pursuant hereto or in or pursuant to the Merger
Agreement, or in any instrument, certificate or affidavit delivered by
Parent or Sub at the Closing in accordance with the provisions hereof or of
the Merger Agreement;
(ii) any failure by Parent or Sub to carry out, perform, satisfy and
discharge any of its respective covenants, agreements, undertakings,
liabilities or obligations hereunder or under any of the documents and
materials delivered by Parent pursuant hereto or to the Merger Agreement;
and
(iii) any suit, action or other proceeding arising out of, or in any way
related to, any of the matters referred to in this Section 4.1(a).
(b) Notwithstanding any other provision hereof to the contrary, Parent
shall not have any liability under Section 4.1(a)(i) (or Section 4.1(a) (iii),
to the extent arising from or based upon matters subject to Section 4.1 (a)
(i)) (i) unless the aggregate of all Tessera Losses for which Parent would be
liable but for this sentence exceeds, on a cumulative basis, an amount equal
to $500,000 ("Basket"), and then only to the extent of such excess, (ii)
absent fraud, for Tessera Losses in excess of $12.5 million ("Cap") in the
aggregate, and (iii) unless the Tessera Stockholders has asserted a claim with
respect to the matters set forth in Section 4.1(a)(i), or 4.1(a)(iii) to the
extent applicable to Section 4.1(a)(i), within 18 months of the Effective Time
(as defined in the Merger Agreement). Notwithstanding any implication to the
contrary contained herein, the parties acknowledge and agree that a decrease
in the value of Parent Stock would not, by itself, constitute a Tessera Loss,
unless and then only to the extent a decrease in the value of Parent Stock has
been demonstrated to be as a result of any event described in Sections
4.1(a)(i), (ii) or (iii).
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<PAGE>
4.2 Indemnification by the Tessera Stockholders.
(a) The Tessera Stockholders, severally (in proportion to their
respective ownership percentages of Tessera Stock owned by the Tessera
Stockholders on an as-converted basis immediately prior to the Closing), shall
indemnify and hold Parent, Sub, Surviving Corporation (as defined in the
Merger Agreement) and their respective stockholders, directors, officers and
employees (collectively, the "Parent Indemnified Parties") harmless from and
against, and agree to defend promptly each of the Parent Indemnified Parties
from and reimburse each of the Parent Indemnified Parties for, any and all
losses, damages, costs, expenses, liabilities, obligations and claims of any
kind (including reasonable attorneys' fees and other legal costs and expenses)
(collectively, a "Parent Loss") that any of the Parent Indemnified Parties may
at any time suffer or incur, or become subject to, as a result of or in
connection with:
(i) any breach or inaccuracy of any of the representations and warranties
made by Tessera or any of the Tessera Stockholders in or pursuant hereto or
in or pursuant to the Merger Agreement, or in any instrument certificate or
affidavit delivered by any of the same at the Closing in accordance with
the provisions hereof or of the Merger Agreement;
(ii) any failure by Tessera or any of the stockholders of Tessera to carry
out, perform, satisfy and discharge any of their respective covenants,
agreements, undertakings, liabilities or obligations hereunder or under any
of the documents and materials delivered by any of the same pursuant hereto
or to the Merger Agreement; and
(iii) any suit, action or other proceeding arising out of, or in any way
related to, any of the matters referred to in this Section 4.2.
(b) Notwithstanding the above, the Tessera Stockholders shall not have
any liability under Section 4.2(a)(i) (or Section 4.2(a)(iii), to the extent
arising from or based upon matters subject to Section 4.2(a)(i)) (i) unless
the aggregate of all Parent Losses for which the Tessera Stockholders would be
liable but for this sentence exceeds, on a cumulative basis, an amount equal
to the Basket, and then only to the extent of such excess, (ii) absent fraud,
for Parent Losses in excess of the Cap in the aggregate, and (iii) unless
Parent has asserted a claim with respect to the matters set forth in Sections
4.2(a)(i), or 4.2(a)(iii) to the extent applicable to Section 4.2(a)(i),
within 18 months of the Effective Time, except with respect to the matters
arising under Sections 4.18, 4.19, 4.20 or 4.24 of the Merger Agreement, in
which event Parent must have asserted a claim within the applicable statute of
limitations. Notwithstanding any implication to the contrary contained herein,
the parties acknowledge and agree that a decrease in the value of Parent Stock
would not, by itself, constitute a Parent Loss, unless and then only to the
extent a decrease in the value of Parent Stock has been demonstrated to be as
a result of any event described in Sections 4.2(a)(i), (ii) or (iii).
Notwithstanding anything to the contrary contained herein, no Tessera
Stockholder shall be liable for a breach of any other Tessera Stockholder of
any representation or warranty made in or pursuant hereto. In addition, absent
fraud, the Tessera Stockholders shall each be liable for Parent Losses only up
to the Cap multiplied by a fraction, the numerator of which is the number of
shares of Tessera Stock owned by such Tessera Stockholder and the denominator
of which is the total number of shares of Tessera Stock owned by all of the
Tessera Stockholders, all as determined on an as-converted basis immediately
prior to the Closing.
4.3 Notification of Claims; Election to Defend
(a) A party entitled to be indemnified pursuant to Section 4.1 or 4.2,
as the case may be (the "Indemnified Party"), shall notify the party liable
for such indemnification (the "Indemnifying Party") in writing of any claim or
demand (a "Claim") that the Indemnified Party has determined has given or
could give rise to a right of indemnification hereunder. Subject to the
Indemnifying Party's right to defend in good faith third party claims as
hereinafter provided, the Indemnifying Party shall satisfy its obligations
under this Article VIII within 30 days after the receipt of written notice
thereof from the Indemnified Party. Any amounts paid thereafter shall include
interest thereon for the period commencing at the end of such 30-day period
and ending on the actual date of payment, at a rate of 15% per annum, or, if
lower, at the highest rate of interest permitted by applicable law at the time
of such payment.
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<PAGE>
(b) If the Indemnified Party shall notify the Indemnifying Party of any
Claim pursuant to Section 4.3(a), and if such Claim relates to a Claim asserted
by a third party against the Indemnified Party that the Indemnifying Party
acknowledges is a Claim for which it must indemnify or hold harmless the
Indemnified Party under Section 4.1 or 4.2, as the case may be, then the
Indemnifying Party shall have the right, at its sole cost and expense, to
employ counsel reasonably acceptable to the Indemnified Party to defend any
such Claim asserted against the Indemnified Party. Notwithstanding anything to
the contrary in the preceding sentence, if the Indemnified Party (i) reasonably
believes that its interests with respect to a Claim (or any material portion
thereof) are in conflict with the interests of the Indemnifying Party with
respect to such Claim (or portion thereof) and (ii) promptly notifies the
Indemnifying Party, in writing, of the nature of such conflict, then the
Indemnified Party shall be entitled to choose, at the sole cost and expense of
the Indemnifying Party, independent counsel to defend such Claim (or the
conflicting portion thereof). The Indemnified Party shall have the right to
participate in the defense of any Claim, at its own expense (except to the
extent provided in the preceding sentence), but the Indemnifying Party shall
retain control over such litigation (except as provided in the preceding
sentence). The Indemnifying Party shall notify the Indemnified Party in
writing, as promptly as possible (but in any case before the due date for the
answer or response to a Claim) after receipt of the notice of Claim given by
the Indemnified Party to the Indemnifying Party under Section 4.3(a), of its
election to defend in good faith any such third party Claim. For so long as the
Indemnifying Party is defending in good faith any such Claim asserted by a
third party against the Indemnified Party, the Indemnified Party shall not
settle or compromise such Claim without the prior written consent of the
Indemnifying Party. The Indemnified Party shall cooperate with the Indemnifying
Party in connection with any such defense and shall make available to the
Indemnifying Party or its agents all records and other materials in the
Indemnified Party's possession reasonably required by the Indemnifying Party
for its use in contesting any third party Claim; provided, however, that the
Indemnifying Party shall have agreed, in writing, to keep such records and
other materials confidential except (i) to the extent required for defense of
the relevant Claim or (ii) as required by law, rule or regulation or court
order. Whether or not the Indemnifying Party elects to defend any such Claim,
the Indemnified Party shall have no obligation to do so. Within 30 days after a
final determination (including a settlement) has been reached with respect to
any Claim contested pursuant to this Section 4.3(b), the Indemnifying Party
shall satisfy its obligations hereunder with respect thereto. Any amount paid
thereafter shall include interest thereon for the period commencing at the end
of such 30-day period and ending on the actual date of payment, at a rate of
15% per annum, or, if lower, at the highest rate of interest permitted by
applicable law at the time of such payment.
4.4 Determination of Loss and Amount. For purposes of determining whether
any Loss has occurred, or the amount of any such Loss, the representations,
warranties, covenants and agreements of the parties set forth herein or in the
Merger Agreement or in any other instrument, certificate or affidavit delivered
in connection herewith or therewith shall be considered without regard to any
materiality qualification set forth herein or therein.
4.5 Payment. A Tessera Stockholder, as the Indemnifying Party, may, at
his discretion, pay all or part of any amount due under this Article IV by
delivery of shares of Parent Stock having a value equal to the amount due (to
the extent that such Indemnifying Party owns sufficient shares of Parent
Stock); provided, however, that such Tessera Stockholders may do so only to the
extent and during the period that their Parent Stock may not be resold pursuant
to the Lock-up Letter, the Rule 145 Letter and Section 3.2(a). For the purpose
of this provision, the value of Parent Stock shall be deemed to be the then
current market value of Parent Stock, as determined based on the average of the
daily closing price thereof, as reflected in The Wall Street Journal for the 10
business days prior to the date on which such payment is made.
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<PAGE>
ARTICLE V
TERMINATION, AMENDMENT AND WAIVER
5.1 Termination. This Agreement shall terminate upon termination of the
Merger Agreement in accordance with Section 8.1 thereof.
5.2 Amendment. This Agreement may be amended by the mutual agreement of
Parent, Sub and the Tessera Stockholders at any time before or after approval
of the Merger by the stockholders of Tessera; provided, however, that after
such approval, no amendment shall be made which (i) changes the form or
decreases the amount of the consideration to be received in the Merger, (ii) in
any way materially adversely affects the rights of the stockholders of Tessera,
or (iii) under applicable law would require approval of the stockholders of
Tessera, in any such case referred to in clauses (i), (ii) and (iii), without
the further approval of the stockholders of Tessera. This Agreement may not be
amended except by an instrument in writing signed on behalf of the parties
hereto, provided that after the Effective Time (as defined in the Merger
Agreement), any such amendment must be signed by the former holders of a
majority of the Tessera Stock.
5.3 Waiver. At any time prior to the Effective Time, the parties hereto
may, to the extent permitted by applicable law, (i) extend the time for the
performance of any of the obligations or other acts of any other party hereto,
(ii) waive any inaccuracies in the representations and warranties by any other
party contained herein or in any documents delivered by any other party
pursuant hereto and (iii) waive compliance with any of the agreements of any
other party or with any conditions to its own obligations contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE VI
GENERAL PROVISIONS
6.1 Survival; Recourse. None of the agreements contained herein shall
survive the Merger, except that (i) the covenants contained in Article III and
the obligations to indemnify contained in Article IV shall survive the Merger
indefinitely (except to the extent a shorter period of time is explicitly
specified therein); and (ii) the representations and warranties made in
Articles I and II shall survive the Merger, and shall survive any independent
investigation by the parties, and any dissolution, merger or consolidation of
Parent, and shall bind the legal representatives, assigns and successors of the
Tessera Stockholders and Parent, for a period of 18 months after the Effective
Time.
6.2 Notices. All notices or other communications under this Agreement
shall be in writing and shall be given (and shall be deemed to have been duly
given upon receipt) by delivery in person, by facsimile (with confirmation of
receipt), or by registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
<TABLE>
<C> <S>
If to the Tessera To the address listed under the signature
Stockholders: line of the applicable Tessera Stockholder
With copies to: Tessera Enterprise Systems, Inc.
7 Audubon Rd.
Wakefield, MA 01880
Attention: Mr. Tim Hult, President
Telephone: (781) 246-9024
Fax: (781) 246-1958
</TABLE>
B-8
<PAGE>
<TABLE>
<C> <S>
and to: Prince, Lobel & Tye LLP
585 Commercial St.
Boston, MA 02109
Attention: Martin E. Fishkin, Esq.
Telephone: (617)
367-2202
Fax: (617) 523-0977
If to Parent or Sub: iXL Enterprises, Inc.
1900 Emery St., 2nd Floor
Atlanta, GA 30318
Attention: M. Wayne Boylston, Exec. V. P.
Fax: 404/267-3801
Telephone: 404/267-3800
With copies to: Minkin & Snyder, A Professional Corporation
One Buckhead Plaza
3060 Peachtree Rd., Ste. 1100
Atlanta, GA 30305
Attention:
James S. Altenbach, Esq.
Fax: 404/233-5824
Telephone: 404/261-8000
and to: Kelso & Company
320 Park Ave., 24th Floor
New York, NY 10032
Attention: James J. Connors II, Esq.
Fax: 212/223-2379
Telephone: 212/751-3939
</TABLE>
or to such other address as any party may have furnished to the other parties
in writing in accordance with this Section.
6.3 Entire Agreement. The schedules hereto are incorporated herein by
reference. This Agreement, the Merger Agreement and the documents, schedules
and instruments referred to herein or therein and to be delivered pursuant
hereto or thereto constitute the entire agreement between the parties
pertaining to the subject matter hereof, and supersede all other prior
agreements and understandings, both written and oral, among the parties, or
between any of them, with respect to the subject matter hereof. There are no
other representations or warranties, whether written or oral, between the
parties in connection the subject matter hereof, except as expressly set forth
herein or in the Merger Agreement.
6.4 Assignments; Parties in Interest. Neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties (and any assignment otherwise shall be
void), except that the rights, interests, and obligations of Sub hereunder may
be assigned to any direct wholly owned Delaware subsidiary of Parent without
such prior consent. Subject to the preceding sentence, this Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
herein, express or implied, is intended to or shall confer upon any individual
or Entity not a party hereto any right, benefit or remedy of any nature
whatsoever under or by reason hereof, except as otherwise provided herein.
6.5 Governing Law. This Agreement, except to the extent that the Delaware
General Corporation Law or the MBCL is mandatorily applicable to the Merger, or
to the rights of the Tessera Stockholders or the other
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<PAGE>
parties hereto with respect to the Merger, shall be governed in all respects by
the laws of the State of Georgia (without giving effect to the provisions
thereof relating to conflicts of law).
6.6 Headings; Interpretation; Incorporation. The descriptive headings
herein are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation hereof. Words such as
"herein," "hereof," "hereto," "hereunder" or the like shall refer to this
Agreement as a whole. The words "include" or "including" shall be by way of
example rather than by limitation. The words "or," "either" or "any" shall not
be exclusive. Any pronoun used herein shall include the corresponding
masculine, feminine or neuter forms. The parties hereto have participated
jointly in the negotiation and drafting hereof; accordingly, no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship hereof. References to Sections, Articles, Schedules or Exhibits
shall, unless the context otherwise requires, be to Sections, Schedules or
Exhibits hereof. The Schedules and Exhibits hereto are incorporated herein by
reference.
6.7 Counterparts. This Agreement may be executed in two or more
counterparts, including by facsimile, each of which shall be deemed an original
but all of which taken together shall constitute a single agreement.
6.8 Severability. If any term or other provision hereof is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions hereof shall nevertheless remain in full force
and effect provided that the economics or legal substance of the transactions
contemplated hereby are not affected in any manner materially adverse to any
party. Upon determination by a court of competent jurisdiction that any term or
other provision hereof is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
6.9 Jurisdiction; Consent to Service of Process. Each of the Tessera
Stockholders:
(a) HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR HIMSELF AND HIS
PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THE SUPERIOR COURT LOCATED IN
SUFFOLK COUNTY, MASSACHUSETTS, OR THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF MASSACHUSETTS, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING HERETO OR TO THE MERGER
AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH
MASSACHUSETTS OR, TO THE EXTENT PERMITTED BY LAW, FEDERAL COURTS. EACH OF THE
PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING HEREIN OR IN THE
MERGER AGREEMENT SHALL AFFECT ANY RIGHT THAT PARENT OR SUB MAY OTHERWISE HAVE
TO BRING ANY ACTION OR PROCEEDING RELATING HERETO OR TO THE MERGER AGREEMENT
AGAINST ANY TESSERA STOCKHOLDER OR HIS PROPERTY IN THE COURTS OF ANY
JURISDICTION;
(b) HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
THAT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING HERETO OR TO THE MERGER AGREEMENT IN ANY COURT REFERRED TO
IN THE PRECEDING PARAGRAPH. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
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<PAGE>
(c) EACH TESSERA STOCKHOLDER, AS WELL AS PARENT AND SUB, HEREBY
IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES
IN SECTION 9.2. NOTHING HEREIN OR IN THE MERGER AGREEMENT SHALL AFFECT THE
RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PROVIDED BY LAW.
SIGNATURES ON THE FOLLOWING PAGES
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<PAGE>
IN WITNESS WHEREOF, Parent and Sub have caused this Agreement to be
signed and delivered by their respective duly authorized officers, and each
Tessera Stockholder has signed and delivered this Agreement, all as of the date
first written above.
"Parent"
iXL Enterprises, Inc., a Delaware
corporation
By: /s/ M. Wayne Boylston_______
Title: Executive Vice President_
"Sub"
iXL-Massachusetts, Inc., a Delaware
corporation
By: /s/ M. Wayne Boylsto________n
Title: Executive Vice Presiden__t
"Tessera Stockholders"
HIGHLAND CAPITAL PARTNERS III
LIMITED PARTNERSHIP
By: Highland Management Partners III
Limited Partnership, its General
Partner
By: /s/ Paul A. Maede___________r
Address: Two International Place
Boston, Massachusetts 02110
HIGHLAND ENTREPRENEURS' FUND III
LIMITED PARTNERSHIP
By: HEF III LLC, its General
Partner
By: /s/ Paul A. Maede___________r
Address: Two International Place
Boston, Massachusetts 02110
B-12
<PAGE>
MATRIX PARTNERS IV, L.P.
By: Matrix IV Management Co., L.P.,
its General Partner
/s/ W. Michael Humphreys
By: _____________________________
Address: Bay Colony Corporate Center
1000 Winter Street, Suite
4500
Waltham, Massachusetts
02154
MATRIX IV ENTREPRENEURS FUND L.P.
By: Matrix IV Management Co., L.P.,
its General Partner
/s/ W. Michael Humphreys
By: _____________________________
Address: Bay Colony Corporate Center
1000 Winter Street, Suite
4500
Waltham, Massachusetts
02154
GREYLOCK EQUITY LIMITED PARTNERSHIP
By: GREYLOCK EQUITY GP LIMITED
PARTNERSHIP, its General
Partner
/s/ William W. Helman
By: _____________________________
Address: ________________________
________________________________
________________________________
Paul S. Barth
7 Taylor Lane
Address: ________________________
Lexington, MA 08489
--------------------------
781-246-1958
Facsimile: ______________________
B-13
<PAGE>
/s/ Christopher W. Geiger
________________________________
Christopher W. Geiger:
17 Moonpenny Drive
Address: ________________________
Boston, MA 01921
_________________________
_________________________
781-246-1958
Facsimile: ______________________
/s/ Timothy F. Hult
________________________________
Timothy F. Hult
20 Audubon Lane
Address: ________________________
Carlisle, MA 0174
_________________________
_________________________
1-781-246-1958
Facsimile: ______________________
/s/ Thomas L. Tague
________________________________
Thomas L. Tague
36 Juniper Street
Address: ________________________
Concord, MA 01742
_________________________
_________________________
781-246-1958
Facsimile: ______________________
BARTH IRREVOCABLE TRUST
By: /s/ Katherine Knight
---------------------------------
Katherine Knight, Trustee
7 Taylor Lane
Address: ________________________
Lexington, MA 02420
_________________________
B-14
<PAGE>
ANNEX C
TESSERA ENTERPRISE SYSTEMS, INC.
PROXY CARD--COMMON, AND SERIES A, C AND D PREFERRED, STOCK
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS ON DECEMBER , 1999
The undersigned hereby appoints Timothy F. Hult and Stephen M. Richards,
and each of them, Proxies, with full power of substitution and resubstitution,
for and in the name of the undersigned, to vote all shares of stock of Tessera
Enterprise Systems, Inc. which the undersigned would be entitled to vote if
personally present at the Special Meeting of Stockholders to be held on
, December , 1999, beginning at 10:00 a.m. local time at the
offices of Tessera Enterprise Systems, Inc. at 7 Audubon Road, Wakefield,
Massachusetts 01880, and at any adjournment or postponement thereof, upon the
matters described in the accompanying Notice of Special Meeting of
Stockholders and Proxy Statement, receipt of which is hereby acknowledged, and
upon any other business that may properly come before the meeting or any
adjournment thereof. Said Proxies are directed to vote on the matters
described in the Notice of Special Meeting and Proxy Statement as follows, and
otherwise in their discretion upon such other business as may properly come
before the special meeting or any adjournment thereof.
Proposal No. 1. To approve and adopt the Agreement and Plan of Merger among
Tessera Enterprise Systems, Inc., iXL Enterprises, Inc. and iXL-
Massachusetts, Inc., a wholly owned subsidiary of iXL
Enterprises, Inc., and the transactions contemplated thereby.
[_] FOR [_] AGAINST [_] ABSTAIN
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the special meeting.
(PLEASE SIGN ON REVERSE SIDE)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THEN THIS PROXY WILL
BE VOTED "FOR" ALL PROPOSALS. IF ANY OTHER MATTERS ARE PROPERLY PRESENTED AT
THE SPECIAL MEETING FOR ACTION TO BE TAKEN THEREAT, THEN THIS PROXY WILL BE
VOTED ON SUCH MATTERS BY THE PERSONS NAMED AS PROXIES HEREIN IN ACCORDANCE
WITH THEIR BEST JUDGMENT.
Date: , 1999
_________________________________________________
(Signature)
_________________________________________________
(Name)
Please sign exactly as your name appears hereon.
When signing in a fiduciary or representative
capacity, please give full title. If this Proxy
is submitted by a corporation, limited liability
company or partnership, then it should be
executed in the full entity name by a duly
authorized officer, member or partner, as the
case may be.
IF YOU ARE NOT A PARTY TO THE VOTING AND INDEMNITY AGREEMENT WITH iXL
ENTERPRISES, INC. AND iXL-MASSACHUSETTS, INC. THEN PLEASE COMPLETE, DATE AND
SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND THE SPECIAL MEETING,
THEN YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED
THIS PROXY. IF YOU ARE A PARTY TO THE VOTING AGREEMENT, THEN YOU HAVE ALREADY
GRANTED THEREIN AN IRREVOCABLE PROXY IN FAVOR OF iXL ENTERPRISES, INC.'S
SECRETARY TO VOTE "FOR" THE ABOVE PROPOSAL.
C-1
<PAGE>
ANNEX D
LOCK-UP LETTER
, 1999
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
as Representative of the several U.S. Underwriters
Merrill Lynch International,
As Lead Manager for the several International managers
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, NY 10281-1201
Re: Public Offering by iXL Enterprises, Inc.
Ladies and Gentlemen:
The undersigned, a prospective security holder of iXL Enterprises, Inc.,
a Delaware corporation (the "Company") or one 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 certain other underwriters have entered into or propose
to enter into a Purchase Agreement (the "Purchase Agreement") with the Company
and the Selling Shareholders referred to therein 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
named or to be named in the Purchase Agreement that, during a period of 90 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 (excluding securities of Tessera Enterprise Systems, Inc.
("Tessera") to be exchanged for Common Stock pursuant to the Agreement and Plan
of Merger among the Company, Tessera and iXL-Massachusetts, Inc.), 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 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 registered shares of Common Stock or other
securities acquired in open market transactions 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 90 day
period.
D-1
<PAGE>
Notwithstanding anything to the contrary contained herein, this Agreement
shall not be effective unless the registration statement with respect to the
Securities has become effective on or before January 31, 2000.
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,
TESSERA STOCKHOLDER*:
If Individual:
Print Name __________________________
Signature ___________________________
If Corporation, Partnership or
Trust:
_____________________________________
Print or Type Name of Entity
By: _________________________________
(sign here)
_____________________________________
Print Name of Authorized Signatory
_____________________________________
Print Title of Authorized Signatory
* A separate page must be executed by each separate stockholder. The signature
of the stockholder and the corresponding name should be exactly as it
appears on the applicable stock certificate. When signing as attorney,
executor, administrator, trustee or guardian, fill in the full title. If
your securities are registered in the name of a corporation, sign the full
corporate name, followed by the signature and title of the authorized
signatory. If your securities are registered in the name of a partnership,
sign the partnership name followed by the signature of the authorized
signatory.
D-2
<PAGE>
ANNEX E
CONTRACTUALLY RESTRICTED STOCK LETTER
, 1999
iXL Enterprises, Inc.
1900 Emery Street
Atlanta, Georgia 30318
Ladies and Gentlemen:
The undersigned, a holder of shares of common stock, no par value
("Tessera Stock"), of Tessera Enterprise Systems, Inc., a Massachusetts
corporation ("Tessera"), is entitled to receive in connection with the merger
(the "Merger") of Tessera with and into iXL-Massachusetts, Inc., a Delaware
corporation ("Sub"), common stock, par value $.01 per share ("Parent Stock") of
iXL Enterprises, Inc., a Delaware corporation ("Parent"). As a condition and
inducement to Parent's and Sub's willingness to close under the Agreement and
Plan of Merger, dated as of October 4, 1999, with Tessera (the "Merger
Agreement") and to complete the Merger, the undersigned stockholder of Tessera
acknowledges, covenants and agrees as follows:
The undersigned covenants and agrees that, notwithstanding that the
Parent Stock to be issued to him pursuant to the Merger shall be registered
under the Securities Act of 1933, as amended, on Parent's Registration
Statement on Form S-4, he shall not, directly or indirectly, offer, transfer,
sell, pledge, hypothecate or otherwise dispose of, 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 Parent Stock or any securities
convertible into or exchangeable or exercisable for Parent Stock (excluding
Tessera Stock to be exchanged for Parent Stock pursuant to the Merger
Agreement), 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 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 Parent Stock, whether any such swap transaction is
to be settled by delivery of Parent Stock or other securities, in cash or
otherwise (any of the foregoing, a "Transfer") any such Parent Stock (except in
the event of his death) prior to February 17, 2000, which is 90 days after the
effective date of a secondary offering by Parent on November 18, 1999.
The Parent Stock issued to the undersigned pursuant to the Merger shall,
accordingly, be legended as follows: "THE SALE OR OTHER TRANSFER OF THE SHARES
EVIDENCED HEREBY HAS BEEN CONTRACTUALLY RESTRICTED. THE HOLDER AGREES THAT SUCH
SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR WRITTEN
CONSENT OF THE ISSUER, iXL ENTERPRISES, INC., UNTIL FEBRUARY 17, 2000. THE
SHARES EVIDENCED HEREBY HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IN COMPLIANCE WITH
APPLICABLE SECURITIES LAWS, INCLUDING THE RESALE LIMITATIONS THEREUNDER."
E-1
<PAGE>
Upon the expiration of the Initial Period, the undersigned may exchange
his stock certificate(s) for new certificate(s) not so legended.
Very truly yours,
TESSERA STOCKHOLDER*:
If Individual:
Print Name __________________________
Signature ___________________________
If Corporation, Partnership or
Trust:
_____________________________________
Print or Type Name of Entity
By: _________________________________
(sign here)
_____________________________________
Print Name of Authorized Signatory
_____________________________________
Print Title of Authorized Signatory
* A separate page must be executed by each separate stockholder. The signature
of the stockholder and the corresponding name should be exactly as it
appears on the applicable stock certificate. When signing as attorney,
executor, administrator, trustee or guardian, fill in the full title. If
your securities are registered in the name of a corporation, sign the full
corporate name, followed by the signature and title of the authorized
signatory. If your securities are registered in the name of a partnership,
sign the partnership name followed by the signature of the authorized
signatory.
E-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO OF IXL ENTERPRISES, INC.]
iXL ENTERPRISES, INC.
----------------
PROSPECTUS
----------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
Item 20. 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, 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.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
a. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
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.+
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.+
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
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.+
2.34 Agreement and Plan of Merger, dated as of October 4, 1999, by and
between iXL Enterprises, Inc., iXL-Massachusetts, Inc., and Tessera
Enterprise Systems, Inc.++
3.1 Amended and Restated Certificate of Incorporation.*
3.2 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.+
4.4 Form of Class A Common Stock Warrant Agreement.+
4.5 Form of Class B Common Stock Warrant Agreement.+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
4.6 Investor Stockholders Agreement, dated as of April 30, 1996, as
amended.+
4.7 Third Amended and Restated Stockholders' Agreement.*
5.1 Opinion of Minkin & Snyder, a Professional Corporation.*
8.1 Opinion of Palmer & Dodge LLP.*
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-4
<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-5
<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 Amended and Restated Registration Rights Agreement dated as of October
28, 1999 among iXL Enterprises, Inc. and Kelso Investment Associates
V, L.P., Kelso Equity Partners V, L.P., and certain other stockholders
of iXL Enterprises, Inc., together with the First Amendment to such
agreement, dated November 2, 1999.+++
10.54 Indemnification Agreement dated June 8, 1999 by and among iXL
Enterprises, Inc. and the Indemnitees named therein.*
10.55 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 Warrant Agreement dated June 8, 1999 by and between iXL Enterprises,
Inc. and GE Capital Equity Investments, Inc.*
10.61 Investor Agreement dated June 8, 1999 by and between GE Capital Equity
Investments, Inc., the General Electric Pension Trust, iXL
Enterprises, Inc. and Consumer Financial Network, Inc.*
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.62 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.+
10.66 Letter Agreement for Marketing Services dated May 11, 1999 by and
between iXL Enterprises, Inc. and GE Capital Equity Investments, Inc.+
10.67 U.S. Purchase Agreement dated as of June 2, 1999 by and among iXL
Enterprises, Inc. and the underwriters listed therein.*
10.68 International Purchase Agreement dated as of June 2, 1999 by and among
iXL Enterprises, Inc. and the underwriters listed therein.*
10.69 iXL Enterprises, Inc. 1999B Employee Stock Option Plan.+++
10.70 U.S. Purchase Agreement dated as of November 18, 1999 by and among iXL
Enterprises, Inc. and the underwriters listed therein.*
10.71 International Purchase Agreement dated as of November 18, 1999 by and
among iXL Enterprises, Inc. and the underwriters listed therein.*
21.1 Subsidiaries of the Company.+
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Minkin & Snyder, a Professional Corporation (contained in
Exhibit 5.1).
24.1 Power of Attorney.**
27.1 Financial Data Schedule.*
</TABLE>
- --------
+Incorporated by reference from iXL's Registration Statement on Form S-1 (No.
333-71937).
++Incorporated by reference to IXL's Form 8-K, dated October 12, 1999.
+++Incorporated by reference to iXL's Registration Statement on Form S-1 (No.
333-88847).
* Filed previously.
** Included on signature pages to Registration Statement No. 333-81731 on Form
S-4 filed June 28, 1999.
b. Financial Statement Schedules
Not applicable.
Item 22. Undertakings.
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.
II-7
<PAGE>
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424 (b) if, in the aggregate, the
changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed 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;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b) 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Post-Effective 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 December 20, 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 Post-
Effective 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 December 20, 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/ William C. Nussey* Director
______________________________________
William C. Nussey
/s/ Thomas G. Rosencrants* Director
______________________________________
Thomas G. Rosencrants
/s/ Thomas R. Wall, IV* Director
______________________________________
Thomas R. Wall, IV
/s/ Gary C. Wendt* Director
______________________________________
Gary C. Wendt
</TABLE>
/s/ M. Wayne Boylston
*By: ____________________________ December 20,
M. Wayne Boylston 1999
Attorney-in-Fact
II-9
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the use in this Post-Effective Amendment No. 2 to the
Registration Statement on Form S-4 of iXL Enterprises, Inc. 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
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 Registration
Statement.
PricewaterhouseCoopers LLP
Atlanta, Georgia
December 17, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Post-Effective Amendment No. 2 to the
Registration Statement on Form S-1 of our report dated May 4, 1999, relating to
the financial statements of Tessera Enterprise Systems, Inc., which appears in
such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 17, 1999
