<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
BREAKAWAY SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7389 04-3285165
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD (IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
------------------------
50 ROWES WHARF
BOSTON, MASSACHUSETTS 02110
(617) 960-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GORDON BROOKS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BREAKAWAY SOLUTIONS, INC.
50 ROWES WHARF
BOSTON, MASSACHUSETTS 02110
(617) 960-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID E. REDLICK, ESQ. KEITH F. HIGGINS, ESQ.
THOMAS L. BARRETTE, JR., ESQ. ROPES & GRAY
HALE AND DORR LLP ONE INTERNATIONAL PLACE
60 STATE STREET BOSTON, MASSACHUSETTS 02110
BOSTON, MASSACHUSETTS 02109 TELEPHONE: (617) 951-7000
TELEPHONE: (617) 526-6000 TELECOPY: (617) 951-7050
TELECOPY: (617) 526-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE (2)
<S> <C> <C>
Common Stock, $0.0001 par value per share $40,250,000 $11,190
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended.
(2) Calculated pursuant to Rule 457(o) based on an estimate of the proposed
maximum aggregate offering price.
------------------------------
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1999
SHARES
[BREAKAWAY SOLUTIONS, INC., LOGO]
COMMON STOCK
---------------------
BREAKAWAY SOLUTIONS, INC. IS OFFERING SHARES OF ITS COMMON STOCK.
THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR
OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$ AND $ PER SHARE.
------------------------
WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "BWAY."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
---------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS BREAKAWAY
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL.............................................. $ $ $
</TABLE>
------------------------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
BREAKAWAY HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL
SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO.
INCORPORATED EXPECTS TO DELIVER THE SHARES OF COMMON STOCK TO PURCHASERS ON
, 1999.
-------------------
MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS
ADAMS, HARKNESS & HILL, INC.
----------------
INTERNET DISTRIBUTION OFFERED BY
DISCOVER BROKERAGE DIRECT
JULY , 1999
<PAGE>
[Narrative description of graphical material omitted in "electronically"
filed document
"BreakAWAY" is written in the top right corner of the first graphical page.
"Breakaway Solutions" is written across the middle of the page, and is
underlined with a thin white line.
The bottom half of the page includes a large semicircle.
The text "is a full service provider or FSP of e-business solutions that
allow growing enterprises to capitalize on the power of the Internet to reach
and support customers and markets" is written under Breakaway Solutions, and
is justified to line up with the first "s" in Solutions.
Description of the two page graphical foldout:
The following text is written across the top of the two page foldout: "FULL
SERVICE PROVIDER."
There is a box at the top of the first page, in which there is a three
dimensional picture of a pyramid, a number of imprints of squares and the
imprint of the triangle. To the right of this box is the following text:
"Growing enterprise clients often face significant obstacles in capitalizing on
e-business opportunity because of technological complexity, cost of
implementation and support and scarcity of qualified professionals. We enable
our growing enterprise clients to overcome these obstacles by combining high
quality, cost effective Internet professional services with application hosting
to deliver sophisticated e-business solutions that otherwise might be
unavailable to them."
Below the box and this text are four columns of text, which have the following
headings: Breakaway Solution Centers, Breakaway Application Hosting, Breakaway
Knowledge Innovation Team and Breakaway People.
- Below the Breakaway Solution Centers heading is the
following text: "We provide our high quality Internet and
eCRM solutions services to our clients from centralized
Breakaway Solution Centers. We believe that by concentrating
resources in sites where highly skilled and experienced
information technology professionals collaborate on projects,
we greatly facilitate sharing of knowledge and implementation
of best practices while reducing the costs and inefficiencies
associated with travel to client sites."
- Below the Breakaway Application Hosting heading is the
following text: "We provide application hosting from ten
global application hosting facilities for both packaged and
custom e-business solutions. Breakaway Application Hosting
provides our clients secure, high quality hosting and 24/7
application level support services. Our application hosting
capabilities allow us to help our clients implement and
operate solutions quickly, cost effectively, and without
incurring substantial initial capital costs."
- Below the Breakaway Knowledge Innovation Team heading is the
following text: "We have created a dedicated team, staffed
with senior professionals, to disseminate our intellectual
capital throughout Breakaway Solutions and across client
engagements. This team monitors all of our client projects
on an ongoing basis to identify and collect best practices
and innovative solutions, then disseminates it to our
professionals."
- Below the Breakaway people heading is the following
text: "Attracting and retaining outstanding professionals are
essential to our growth. Our business model allows us to
greatly limit the travel required of our professionals. In
addition, our employees participate in a unique culture that
is entrepreneurial, dynamic, collaborative and which promotes
enterprisewide knowledge sharing. We believe that the
combination of our low travel requirements and unique culture
helps us to attract and retain top professionals."
At the right hand side of the bottom of the first page is the underlined text
"Breakaway Difference." The underline begins at the left side of the page and
runs through the end of the text.
<PAGE>
There is a large circle in the middle of the second page (right hand side of the
foldout). The circle is superimposed over a rectangle which covers most of the
left side of the page. The circle is divided into three sections by different
shades of color. The three sections are labeled, respectively: THINK IT, BUILD
IT, and OPERATE IT. Under THINK IT, in a smaller font, is the text "Breakaway
Strategy Solutions." Under BUILD IT, in a smaller font, is the text "Breakaway
Internet and eCRM Solutions." Under OPERATE IT, in a smaller font, is the text
"Breakaway Application Hosting Solutions."
Around the immediate circumference of the circle are a number of verbs, which
line up with the three sections of the circle.
There is an arrow after each verb, which points to the next verb in the string.
- The verbs surrounding the THINK IT section are "assess, plan
roadmap, monitor."
- The verbs surrounding the BUILD IT section are "scope,
visualize, design, develop, implement, monitor"
- The verbs surrounding the OPERATE IT section are "define,
engineer, deploy, test, 24/7 support, monitor"
Above the sphere is the text "Breakaway Approach." Breakaway Approach is
underlined with a line that runs from the beginning of this side of the
foldout.
The bottom right hand corner of the page is comprised of one paragraph of
text. The heading of the text is "BREAKAWAY APPROACH," which is followed by
the following text: "Our proprietary Breakthrough methodology enables us to
develop rapid, cost-effective high quality e-business solutions designed to
maximize return on technology investments and provide the client with a
competitive advantage.]
<PAGE>
[PICTURES AND CAPTIONS FOR INSIDE FRONT COVER.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY........................... 4
RISK FACTORS................................. 7
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS................................. 14
USE OF PROCEEDS.............................. 15
DIVIDEND POLICY.............................. 15
CAPITALIZATION............................... 16
DILUTION..................................... 17
SELECTED FINANCIAL DATA...................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................. 19
BUSINESS..................................... 27
<CAPTION>
PAGE
---------
<S> <C>
MANAGEMENT................................... 38
CERTAIN TRANSACTIONS......................... 47
PRINCIPAL STOCKHOLDERS....................... 51
DESCRIPTION OF CAPITAL STOCK................. 53
SHARES ELIGIBLE FOR FUTURE SALE.............. 56
UNDERWRITERS................................. 58
VALIDITY OF COMMON STOCK..................... 60
INTERESTS OF COUNSEL......................... 60
EXPERTS...................................... 60
CHANGES IN INDEPENDENT AUDITORS.............. 60
WHERE YOU CAN FIND MORE
INFORMATION................................ 61
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS... F-1
</TABLE>
------------------------
Breakaway Solutions, Inc. is a Delaware corporation. We incorporated in
Massachusetts under the name The Counsell Group, Inc. in 1992, and
reincorporated in Delaware in August 1995. In October 1998, we changed our name
to Breakaway Solutions, Inc. Our principal executive offices are located at 50
Rowes Wharf, 6(th) Floor, Boston, Massachusetts 02110 and our telephone number
is (617) 960-3400. Our World Wide Web site address is www.breakaway.com. The
information in the Web site is not incorporated by reference into this
prospectus.
We have applied to register our trademark for Breakaway Solutions. In
addition, we use the trademarks Breakthrough, Breakaway Solution Centers and
Breakaway Knowledge Innovation Team. This prospectus also contains trademarks
and trade names of other companies.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO
YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES, BEFORE MAKING AN INVESTMENT DECISION.
BREAKAWAY SOLUTIONS
Breakaway is a full service provider of e-business solutions that allow
growing enterprises to capitalize on the power of the Internet to reach and
support customers and markets. We have designed our services specifically for
growing enterprises. These are businesses which generally fit within two broad
categories:
- Companies or divisions of larger companies that have sales of up to $1
billion per year; and
- New and emerging Internet-based businesses.
Growing enterprises often face significant obstacles in capitalizing on the
opportunity to do business on the Internet, known as e-business. These obstacles
include technological complexity, costs of implementation and support and the
scarcity of qualified professionals. We enable our growing enterprise clients to
overcome these obstacles by combining high quality, cost effective Internet
professional services with our ability to host software applications installed
on our servers, known as application hosting. This combination allows us to
deliver sophisticated e-business solutions that otherwise might be unavailable
to our clients.
The four services which we offer to our clients are:
- Breakaway strategy solutions;
- Breakaway Internet solutions;
- Breakaway customer relationship management solutions for the Internet,
referred to as eCRM solutions; and
- Dedicated Breakaway application hosting.
We believe that growing enterprises demand high quality e-business solutions
which can be delivered rapidly and cost-effectively. We address these
requirements through our innovative approach, which has five key elements:
- We use our proprietary Breakthrough methodology to maintain quality and
deliver consistent results;
- We concentrate project development at centralized Breakaway Solution
Centers;
- We maintain close contact with our clients by delivering the solutions
which we develop through small groups of senior personnel based at
regional offices;
- We capture and disseminate our intellectual capital through the use of our
Breakaway Knowledge Innovation Team; and
- We provide global application hosting as part of our full service
offering, in contrast to most providers of e-business solutions who do not
have this capability.
We employ over 160 service professionals. We offer our services through
seven regional offices in the United States, we have three Breakaway Solution
Centers in the United States and we provide application hosting through
facilities in North America, Europe, Asia and Australia.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............................................... shares
Common stock to be outstanding after the offering.................. shares
Use of proceeds.................................................... Working capital and
other general
corporate purposes,
including possible
acquisitions
Proposed Nasdaq National Market symbol............................. BWAY
</TABLE>
The number of shares of our common stock that will be outstanding after this
offering is based on the number outstanding on June 30, 1999. However, this
number excludes 8,946,672 shares subject to outstanding options under our 1998
stock plan at a weighted average exercise price of $1.43 per share and 370,074
additional shares available for issuance under that plan. It also excludes
92,341 shares issuable upon the exercise of an outstanding warrant at an
exercise price of $6.50 per share.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or any sale of the common stock.
EXCEPT AS SET FORTH IN THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED
NOTES OR AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS:
- Assumes no exercise of the underwriters' over-allotment option;
- Reflects a -for-one stock split to be effected prior to the
offering;
- Reflects the conversion of all outstanding shares of our convertible
preferred stock into shares of common stock; and
- Reflects the filing, as of the closing of the offering, of our amended and
restated certificate of incorporation and the adoption of our amended and
restated by-laws implementing certain provisions described below under
"Description of Capital Stock--Delaware Law and Certain Charter and By-Law
Provisions; Anti-Takeover Effects."
5
<PAGE>
SUMMARY FINANCIAL DATA
The following summary historical and pro forma financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our audited financial statements and related
notes included elsewhere in this prospectus. The summary pro forma data do not
purport to represent what our results would have been if the events below had
occurred at the dates indicated.
From its inception until December 31, 1998 Breakaway was an S corporation
and, accordingly, was not subject to federal and state income taxes, except for
certain Massachusetts income taxes on S corporations with annual revenues in
excess of $6 million. The pro forma net income (loss) and pro forma net income
(loss) per share--basic and diluted information presented below have been
computed as if Breakaway were subject to Federal and all applicable state
corporate income taxes since 1996, based on statutory tax rates and the tax laws
then in effect.
The summary pro forma statement of operations data for the year ended
December 31, 1998 and the three months ended March 31, 1998 and 1999 give effect
to: (1) the acquisitions of Applica Corporation, WPL Laboratories, Inc. and Web
Yes, Inc., (2) pro forma adjustments to the historical financial statements, and
(3) the issuance of our Series B Preferred Stock as if they had occurred on
January 1, 1998. The summary pro forma balance sheet data as of March 31, 1999
gives effect to: (1) the acquisitions of WPL and Web Yes, and (2) the issuance
of our Series B Preferred Stock as if they had occurred on March 31, 1999. The
summary pro forma as adjusted balance sheet data as of March 31, 1999 gives
effect to the automatic conversion of all outstanding convertible preferred
stock upon completion of this offering and the sale of shares of our common
stock in this offering.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------- ---------------------------------
1998 PRO 1998 PRO
1996 1997 1998 FORMA(1) 1998 FORMA(1) 1999
--------- --------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 3,462 $ 6,118 $ 10,018 $ 12,957 $ 2,124 $ 2,613 $ 3,111
Income (loss) from operations............... 664 1,016 (700) (3,946) 153 (564) (246)
Net income (loss)........................... 618 1,074 (575) (3,829) 157 (562) (235)
Net income (loss)
per share--basic and diluted.............. $ 0.07 $ 0.13 $ (0.07) $ (0.34) $ 0.02 $ (0.05) $ (0.05)
Weighted average
shares outstanding........................ 8,302 8,016 8,001 11,197 8,016 11,197 4,698
Pro forma net income (loss)................. 371 644 (380) (2,527) 94 (371) (155)
----------- ----------- ---------
Pro forma net income (loss) per share--basic
and diluted............................... $ 0.04 $ 0.08 $ (0.05) $ (0.23) $ 0.01 $ (0.03) $ (0.03)
----------- ---------
<CAPTION>
1999 PRO
FORMA(1)
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 4,341
Income (loss) from operations............... (670)
Net income (loss)........................... (665)
Net income (loss)
per share--basic and diluted.............. $ (0.09)
Weighted average
shares outstanding........................ 7,809
Pro forma net income (loss)................. (439)
Pro forma net income (loss) per share--basic
and diluted............................... $ (0.06)
-----------
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
---------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -------------
BALANCE SHEET DATA:
Cash and cash equivalents..................................................... $ 3,206 20,180
Total assets.................................................................. 8,440 39,019
Total long-term liabilities................................................... 122 2,034
Stockholders' equity.......................................................... 6,018 33,613
</TABLE>
- ------------------------------
(1) The pro forma weighted average shares outstanding for the year ended
December 31, 1998 and the three months ended March 31, 1998 and 1999 reflect
3,180,934 shares issued in connection with the acquisitions of Applica, WPL
and Web Yes. The pro forma weighted average shares outstanding for the three
months ended March 31, 1999 reflect 2,276,310 shares issued in connection
with the acquisitions of WPL and Web Yes.
6
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND RELATED NOTES, BEFORE
DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK. WHILE THESE ARE THE RISKS AND
UNCERTAINTIES WE BELIEVE ARE MOST IMPORTANT FOR YOU TO CONSIDER, YOU SHOULD KNOW
THAT THEY ARE NOT THE ONLY RISKS OR UNCERTAINTIES FACING US OR WHICH MAY
ADVERSELY AFFECT OUR BUSINESS. IF ANY OF THE FOLLOWING RISKS OR UNCERTAINTIES
ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS WOULD
LIKELY SUFFER. IN THAT EVENT, THE MARKET PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU COULD LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON
STOCK.
RISKS RELATED TO OUR BUSINESS
OUR FUTURE SUCCESS IS UNCERTAIN BECAUSE WE HAVE SIGNIFICANTLY CHANGED OUR
BUSINESS
Prior to 1999, we primarily provided traditional systems integration
services along with limited strategic planning and Internet systems integration
services. In 1999, we added application hosting to our service offerings and
substantially increased our capacity to provide strategic planning and Internet
systems integration services through three acquisitions and significant hiring
of professionals. Due to these recent significant changes, we are subject to the
risk that we will fail to implement our business model and strategy. This risk
is heightened because we are operating in the new and rapidly evolving
e-business solutions market. Our historical results of operations do not reflect
our new service offerings. The pro forma financial information included in this
prospectus is based on the separate pre-acquisition financial reports of the
companies we acquired in 1999. Consequently, our historical operating results
and pro forma financial information may not give you an accurate indication of
how we will perform in the future.
THE SUCCESS OF OUR BUSINESS DEPENDS ON CLIENT ACCEPTANCE OF APPLICATION
HOSTING SERVICES
Our ability to increase revenues and achieve profitability depends on the
adoption and acceptance of third-party application hosting services by our
target market of growing enterprises. Information technology service providers,
including Breakaway Solutions, only recently have begun to offer third-party
application hosting services. The market for these services has only recently
begun to develop and is evolving rapidly.
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE ACCEPTANCE OF E-BUSINESS
SOLUTIONS BY GROWING ENTERPRISES
Our ability to increase revenues and achieve profitability depends on the
widespread acceptance of e-business solutions by commercial users, particularly
growing enterprises. The market for e-business solutions is relatively new and
is undergoing significant change. The acceptance and growth of e-business
solutions will be limited if the Internet does not prove to be a viable
commercial market.
WE HAVE A HISTORY OF OPERATING LOSSES, EXPECT TO INCUR LOSSES IN THE FUTURE
AND WILL NOT BE SUCCESSFUL UNLESS WE CAN REVERSE THIS TREND
We expect to continue to incur increasing sales and marketing,
infrastructure development and general and administrative expenses. As a result,
we will need to generate significant revenues to achieve profitability. We
cannot be certain whether or when this will occur because of the significant
uncertainties with respect to our business model. We experienced a net loss of
$575,175 for the fiscal year ended December 31, 1998 and of $235,513 for the
fiscal quarter ended March 31, 1999. We expect to continue to incur significant
operating losses in the near term. If we do achieve profitability, we may not be
able to sustain or increase profitability on a quarterly or annual basis in the
future.
7
<PAGE>
WE PLAN TO EXPAND RAPIDLY; IF WE CANNOT MANAGE OUR GROWTH SUCCESSFULLY, OUR
GROWTH MAY SLOW OR STOP
Since November 1998, we have rapidly expanded our operations. Our growth has
placed, and will continue to place, a significant strain on our management,
operating and financial systems, and sales, marketing and administrative
resources. If we cannot manage our expanding operations, we may not be able to
continue to grow or we may grow at a slower pace. Furthermore, our operating
costs may escalate faster than planned. In order to manage our growth
successfully we must:
- Improve our management, financial and information systems and controls;
- Expand, train and manage our employee base effectively; and
- Enlarge our infrastructure for application hosting services.
WE RELY ON A SMALL NUMBER OF CLIENTS FOR MOST OF OUR REVENUES; OUR REVENUES
WILL DECLINE SIGNIFICANTLY IF WE CANNOT KEEP OR REPLACE THESE CLIENTS
In 1998, revenues from a single client accounted for 26.9% of our total
revenues, and revenues from our five largest clients accounted for 54.0% of
total revenues. During the three months ended March 31, 1999, revenues from a
single client accounted for 25.7% of total revenues and revenues from our five
largest clients accounted for 63.7% of total revenues. If these clients do not
need or want to engage us to perform additional services for them and we are not
able to sell our services to new clients at comparable or greater levels, our
revenues will decline.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE LIKELY TO VARY WHICH MAY
CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE
Our quarterly revenues and operating results are volatile and difficult to
predict. Our quarterly operating results have varied in the past and are likely
to vary significantly from quarter to quarter in the future. It is likely that
in some future quarter or quarters our operating results will be below the
expectations of public market analysts or investors. If so, the market price of
our common stock may decline significantly.
Factors that may cause our results to fluctuate include:
- The amount and timing of demand by our clients for e-business solution
services;
- Our ability to obtain new and follow-on client engagements;
- The number, size and scope of our projects;
- Cancellations or reductions in the scope of major consulting and systems
integration projects;
- Our ability to enter into multiyear contracts with application hosting
clients;
- Cancellations of month-to-month application hosting contracts;
- The length of the sales cycle associated with our service offerings;
- The introduction of new services by us or our competitors;
- Changes in our pricing policies or those of our competitors;
- Our ability to attract, train and retain skilled personnel in all areas of
our business;
- Our ability to manage costs, including personnel costs and support
services costs; and
- The timing and cost of anticipated openings or expansions of new regional
offices and new Solution Centers.
8
<PAGE>
We derive a substantial portion of our revenues from providing professional
services. We generally recognize revenues as we provide services. Personnel and
related costs constitute the substantial majority of our operating expenses.
Because we establish the levels of these expenses in advance of any particular
quarter, underutilization of our professional services employees may cause
significant reductions in our operating results for a particular quarter.
OUR GROWTH COULD BE LIMITED IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL
We believe that our success depends largely on our ability to attract and
retain highly skilled technical, consulting, managerial, sales and marketing
personnel. We may not be able to hire or retain the necessary personnel to
implement our business strategy. In addition, we may need to pay higher
compensation for employees than we currently expect. Individuals with e-business
solutions skills, particularly those with the significant experience which we
generally require, are in very short supply. Competition to hire from this
limited pool is intense.
WE MAY LOSE MONEY ON FIXED-FEE CONTRACTS AND PERFORMANCE-BASED CONTRACTS
We derive a portion of our revenues from fixed-fee contracts. We also have
begun a program in some client engagements to make a portion of our fees
contingent on meeting performance objectives. If we misjudge the time and
resources necessary to complete a project, or if a client does not achieve the
agreed upon performance objectives, we may incur a loss in connection with the
project. This risk is heightened because we work with complex technologies in
compressed time frames.
WE NEED TO OPEN NEW REGIONAL OFFICES TO IMPLEMENT OUR GROWTH STRATEGY
A key component of our growth strategy is to open regional offices in new
geographic locations. If we do not implement this strategy successfully we will
not grow. We devote substantial financial and management resources to launch
these offices. We may not select appropriate locations for these regional
offices. We also may not be able to open these offices efficiently or manage
them profitably.
IF OUR EFFORTS TO DEVELOP BRAND AWARENESS ARE NOT SUCCESSFUL WE WILL NOT
INCREASE REVENUES AS PLANNED
An important element of our business strategy is to develop and maintain
widespread awareness of the Breakaway Solutions name in our target market. To
promote our name, we plan to increase our marketing expenses, which may cause
our operating margins to decline. If our initial efforts are not successful, we
will not experience any increase in revenues to offset the increase in marketing
expenses. We may nonetheless continue to incur these expenses, possibly at
higher levels. Moreover, our name may be closely associated with the business
difficulties of some of our clients, many of whom are pursuing unproven business
models in competitive markets. As a result, the difficulties or failure of one
of our clients could damage our name.
OUR FAILURE TO MEET CLIENT EXPECTATIONS OR DELIVER ERROR-FREE SERVICES COULD
RESULT IN LOSSES AND NEGATIVE PUBLICITY
Many of our engagements involve information technology solutions that are
critical to our clients' businesses. Any defects or errors in these solutions or
failure to meet clients' specifications or expectations could result in:
- Delayed or lost revenues due to adverse client reaction;
- Requirements to provide additional services to a client at no charge;
- Refunds of monthly application hosting fees for failure to meet service
level obligations;
9
<PAGE>
- Negative publicity about us and our services, which could adversely affect
our ability to attract or retain clients; and
- Claims for substantial damages against us, regardless of our
responsibility for such failure, which may not be covered by our insurance
policies and which may not be limited by the contractual terms of our
engagement.
WE GENERATE A SIGNIFICANT PORTION OF OUR REVENUES FROM SERVICES RELATED TO
PACKAGED SOFTWARE APPLICATIONS OF A LIMITED NUMBER OF VENDORS; WE WOULD
EXPERIENCE A REDUCTION IN REVENUES IF ANY OF THOSE VENDORS CEASED DOING
BUSINESS WITH US
We derive a significant portion of our revenues from projects in which we
customize, implement or host packaged software applications developed by third
parties. We do not have contractual arrangements with these software vendors. As
a result, they can cease making their products available to us at their
discretion. In addition, they may choose to compete against us in providing
strategic consulting, systems integration or application hosting services.
Moreover, our success is dependent upon the continued popularity of the product
offerings of these vendors and on our ability to establish relationships with
new vendors in the future. If we are unable to obtain packaged applications from
these or comparable vendors or, if our vendors choose to compete with us or the
popularity of their products declines, our business may be adversely affected.
WE WILL NOT SUCCEED UNLESS WE CAN COMPETE IN OUR MARKET
The markets in which we offer our services are highly competitive. We will
not succeed if we cannot compete effectively in those markets. Many of our
competitors are substantially larger than we are and have substantially greater
financial, infrastructure and personnel resources than we have. Furthermore,
many of our competitors have well established, large and experienced marketing
and sales capabilities and greater name recognition than we have. As a result,
our competitors may be in a stronger position to respond quickly to new or
emerging technologies and changes in client requirements. They may also develop
and promote their services more effectively than we do. Barriers to entry,
particularly in the strategic consulting and systems integration markets, are
low. Therefore, we expect additional competitors to enter these markets.
IF WE ARE UNABLE TO REUSE SOFTWARE CODE AND METHODOLOGIES, WE MAY NOT BE
ABLE TO DELIVER OUR SERVICES RAPIDLY AND COST-EFFECTIVELY
Our business model depends to a significant extent on our ability to reuse
software code and methodologies that we develop in the course of client
engagements. If we generally are unable to negotiate contracts to permit us to
reuse code and methodologies, we may be unable to provide services to our
growing enterprise clients at a cost and within time frames that these clients
find acceptable. Our clients may prohibit us from such reuse or may severely
limit reuse.
WE DEPEND ON A LIMITED NUMBER OF KEY PERSONNEL WHO HAVE RECENTLY JOINED US
AND WHO WE MAY NOT BE ABLE TO RETAIN
All of our senior management joined Breakaway Solutions in 1998 and 1999.
Many of these individuals have not previously worked together and are becoming
integrated as a management team. As a result, our senior managers may not work
together effectively as a team. In addition, due to the competitive nature of
our industry, we may not be able to retain all of our senior managers.
10
<PAGE>
WE MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE TO US, AND WHICH,
IF RAISED, MAY DILUTE YOUR OWNERSHIP INTEREST IN US
We may need to raise additional funds through public or private equity or
debt financings in order to:
- Support additional capital expenditures;
- Take advantage of acquisition or expansion opportunities;
- Develop new services; or
- Address additional working capital needs.
If we cannot obtain financing on terms acceptable to us or at all, we may be
forced to curtail some or all of these activities. As a result, we could grow
more slowly or stop growing. Any additional capital raised through the sale of
equity will dilute your ownership interest in us and may be on terms that are
unfavorable to holders of our common stock.
WE MAY UNDERTAKE ADDITIONAL ACQUISITIONS WHICH POSE RISKS TO OUR BUSINESS
Since March 1999, we have acquired three companies. We may undertake
additional acquisitions in the future. Acquisitions involve a number of risks,
including:
- Diversion of management attention;
- Amortization of substantial goodwill, adversely affecting our reported
results of operations;
- Inability to retain the management, key personnel and other employees of
the acquired business;
- Inability to establish uniform standards, controls, procedures and
policies;
- Inability to retain the acquired company's customers; and
- Exposure to legal claims for activities of the acquired business prior to
acquisition.
Client satisfaction or performance problems with an acquired business also could
affect our reputation as a whole. In addition, any acquired business could
significantly underperform relative to our expectations.
WE MAY NOT BE ABLE TO DELIVER OUR APPLICATION HOSTING SERVICES IF THIRD
PARTIES DO NOT PROVIDE US WITH KEY COMPONENTS OF OUR HOSTING INFRASTRUCTURE
We depend on other companies to supply key components of the computer and
telecommunications equipment and the telecommunications services which we use to
provide our application hosting services. Some of these components are available
only from sole or limited sources in the quantities and quality we demand.
Although we lease redundant capacity from multiple suppliers, a disruption in
our ability to provide hosting services could prevent us from maintaining the
required standards of service, which would cause us to incur contractual
penalties.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST US, EVEN WITHOUT MERIT,
COULD COST A SIGNIFICANT AMOUNT OF MONEY TO DEFEND AND DIVERT MANAGEMENT'S
ATTENTION
As the number of e-business applications in our target market increases and
the functionality of these applications overlaps, we may become subject to
infringement claims. We cannot be certain that our services, the solutions that
we deliver or the software used in our solutions do not or will not infringe
valid patents, copyrights or other intellectual property rights held by third
parties. If there is infringement, we could be liable for substantial damages.
Any infringement claims, even if without merit, can be time consuming and
expensive to defend. They may divert management's attention and
11
<PAGE>
resources and could cause service implementation delays. They also could require
us to enter into costly royalty or licensing agreements.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS
If third parties infringe or misappropriate our trade secrets, copyrights,
trademarks or other proprietary information, our business could be seriously
harmed. The steps that we have taken to protect our proprietary rights may not
be adequate to deter misappropriation of our intellectual property. In addition,
we may not be able to detect unauthorized use of our intellectual property and
take appropriate steps to enforce our rights. Also, protection of intellectual
property in many foreign countries is weaker and less reliable than in the
United States. Accordingly, if our business expands into foreign countries,
risks associated with protecting our intellectual property will increase.
FAILURE OF COMPUTER SYSTEMS AND SOFTWARE TO BE YEAR 2000 COMPLIANT COULD
INCREASE OUR COSTS, DISRUPT OUR SERVICE AND REDUCE DEMAND FROM OUR CLIENTS
We confront the year 2000 problem in three contexts.
OUR CLIENTS. The failure of our clients to ensure that their operations are
year 2000 compliant could have an adverse effect on them, which in turn could
limit their ability to retain third party service providers such as Breakaway.
In addition, clients or potential clients may delay purchasing software and
related products and services including those of Breakaway, due to concerns
related to the Year 2000 problem.
OUR SUPPLIERS. Our business could be adversely affected if we cannot obtain
products, services or systems that are year 2000 compliant when we need them.
OUR SERVICES. The solutions which we provide to our clients integrate
software and other technology from different providers. If there is a year 2000
problem with respect to a solution provided by us, it may be difficult to
determine whether the problem relates to services which we have performed or is
due to the software, technology or services of other providers. Furthermore, in
the past, the Company entered into a number of our contracts, including
contracts with some of our largest clients, which have express or implied
warranties with respect to year 2000 readiness without limitation as to our
liability. As a result, we may be subjected to year 2000-related lawsuits,
whether or not the services that we have performed are year 2000 compliant. We
cannot be certain what the outcomes of these types of lawsuits may be.
INCREASING GOVERNMENT REGULATION OF THE INTERNET COULD AFFECT OUR BUSINESS
We are subject not only to regulations applicable to businesses generally,
but also laws and regulations directly applicable to the Internet. Companies may
decide in the future not to use our services if regulation dampens the growth of
the Internet. State, federal and foreign governments may adopt laws and
regulations or interpret existing laws to apply to the Internet. Any such
legislation, regulation or interpretation could dampen the growth of the
Internet and decrease its acceptance as a communications and commercial medium.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE COULD BE VOLATILE
The trading price of our common stock is likely to be volatile. The stock
market in general, and the market for technology and Internet-related companies
in particular, has experienced extreme volatility. This volatility has often
been unrelated to the operating performance of particular companies. We cannot
be sure that an active public market for our common stock will develop or
continue after
12
<PAGE>
this offering. Investors may not be able to sell their common stock at or above
our initial public offering price. Prices for the common stock will be
determined in the marketplace and may be influenced by many factors, including
variations in our financial results, changes in earnings estimates by industry
research analysts, investors' perceptions of us and general economic, industry
and market conditions.
OUR EXISTING PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS WILL
CONTINUE TO CONTROL BREAKAWAY SOLUTIONS AFTER THIS OFFERING
When this offering is completed, our executive officers, directors and
stockholders who own more than 5% of our stock will, in the aggregate, own
shares representing approximately % of our outstanding capital stock. As a
result, these persons, acting together, will be able to control all matters
submitted to our stockholders for approval and to control our management and
affairs. For example, these persons, acting together, will control the election
and removal of directors and any merger, consolidation or sale of all or
substantially all of our assets.
WE WILL HAVE BROAD DISCRETION TO ALLOCATE THE PROCEEDS OF THIS OFFERING
Our management will retain broad discretion to allocate the proceeds of this
offering. Management's failure to apply these funds effectively could have an
adverse effect on our ability to implement our strategy.
THE MARKET PRICE OF OUR COMMON STOCK COULD BE AFFECTED BY THE SUBSTANTIAL
NUMBER OF SHARES THAT ARE ELIGIBLE FOR FUTURE SALE
The availability of a large number of shares of our common stock for sale
could result in the need for sellers to accept lower prices in order to complete
a sale. This situation would result in a lower market price of our common stock.
After this offering, there will be outstanding shares of our common stock,
or shares if the underwriters' overallotment option is exercised in full.
Of these shares, the shares sold in this offering will be freely
tradeable, except for any shares purchased by our "affiliates" as defined in
Rule 144 under the Securities Act. All of the remaining shares of
common stock held by existing stockholders are subject to 180-day lock-up
agreements. Subject to the provisions of Rules 144, 144(k) and 701, at least
2,025,211 shares will be available for sale in the public market 180 days after
the date of this prospectus, subject in the case of shares held by affiliates to
compliance with applicable volume restrictions.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED
STOCK PRICE VOLATILITY
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. Securities litigation could result in substantial costs and divert
management's attention and resources. Due to the potential volatility of our
stock price, we may be the target of securities litigation in the future.
PURCHASERS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION
OF THEIR INVESTMENT
Purchasers of common stock in this offering will pay a price per share which
substantially exceeds the per share value of our assets after subtracting our
liabilities. In addition, purchasers of common stock in this offering will have
contributed approximately % of the aggregate price paid by all purchasers of
our stock but will own only approximately % of our common stock outstanding
after this offering. See "Dilution."
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<PAGE>
WE DO NOT EXPECT TO PAY DIVIDENDS
We do not expect to pay any cash dividends on our common stock in the
foreseeable future. It is our present policy to retain earnings, if any, for use
in the operation of our business.
WE HAVE ANTITAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND
COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK
Provisions of our certificate of incorporation and bylaws and provisions of
Delaware law could delay, defer or prevent an acquisition or change of control
of Breakaway Solutions or otherwise adversely affect the price of our common
stock. For example, our board of directors is staggered in three classes, so
that only one-third of the directors can be replaced at any annual meeting.
Additionally, our bylaws limit the ability of stockholders to call a special
meeting. Our certificate of incorporation also permits our board to issue shares
of preferred stock without stockholder approval. In addition to delaying or
preventing an acquisition, the issuance of a substantial number of preferred
shares could adversely affect the price of the common stock. Please refer to
"Description of Capital Stock" for a more detailed discussion of these
provisions.
THE RELIABILITY OF MARKET DATA INCLUDED IN THIS PROSPECTUS IS UNCERTAIN
Since we operate in a new and rapidly changing market, we have included
market data from industry publications in this prospectus. The reliability of
these data cannot be assured. Market data used in this prospectus were obtained
from industry publications. Industry publications generally state that the
information contained in these publications has been obtained from sources
believed to be reliable, but that its accuracy and completeness is not
guaranteed. Although we believe market data used in this prospectus to be
reliable, we have not independently verified it.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. In some cases you can identify these statements by
forward-looking words such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "should," "will," and "would" or similar words. You
should read statements that contain these words carefully because they discuss
our future expectations, contain projections of our future results of operations
or of our financial position or state other "forward-looking" information. We
believe that it is important to communicate our future expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or control. The factors listed above in the section captioned
"Risk Factors," as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of the events described in these risk factors and elsewhere in this
prospectus could have an adverse effect on our business, results of operations
and financial position.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of shares of common
stock will be approximately $ , assuming an initial public
offering price of $ per share and after deducting estimated underwriting
discounts and our estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $ .
The principal purposes of this offering are:
- To enhance our ability to use our common stock as a means of attracting
and retaining key employees;
- To increase our visibility and strengthen our reputation in the
marketplace;
- To enhance our ability to use our common stock as consideration for
acquisitions;
- To increase our equity capital;
- To facilitate our future access to public capital markets; and
- To provide liquidity to our existing stockholders.
We expect to use the net proceeds received from this offering for working
capital and other general corporate purposes, including possible acquisitions of
businesses, products and technologies. From time to time we engage in
discussions with potential acquisition candidates. However, we have no current
plans, commitments or agreements with respect to any acquisitions, and we may
not make any acquisitions.
Except as described above, we have not identified specific uses for the net
proceeds of this offering, and we will have discretion over their use and
investment. Pending use of the net proceeds, we intend to invest these proceeds
in short-term, investment grade, interest-bearing instruments.
DIVIDEND POLICY
We intend to retain future earnings, if any, to finance our growth strategy.
We do not anticipate paying cash dividends on our common stock in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of our Board of Directors after taking into account various factors,
including:
- Our financial condition;
- Our operating results;
- Our current and anticipated cash needs;
- Restrictions in our financing agreements; and
- Our plans for expansion.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
- On an actual basis;
- On a pro forma basis to give effect to our acquisitions of WPL and Web Yes
and the issuance of our Series B Preferred Stock; and
- On a pro forma basis as adjusted to reflect the filing of a certificate of
amendment of our certificate of incorporation, before the closing of this
offering, authorizing 100,000,000 shares of common stock, the automatic
conversion of all shares of our preferred stock, on the closing of this
offering, and our issuance and sale of shares of common stock in this
offering at an assumed initial public offering price of $
per share and the receipt of the net proceeds, after deducting the
estimated underwriting discounts and our estimated offering expenses.
The number of shares outstanding is based on the number of shares of our
common stock outstanding on March 31, 1999. It excludes 9,006,966 shares subject
to options outstanding under our 1998 stock plan at a weighted average exercise
price of $1.17 per share and 1,059,879 additional shares available for issuance
under that plan. It also excludes 92,341 shares issuable upon the exercise of an
outstanding warrant at an exercise price of $6.50 per share. You should read
this table together with our financial statements and the notes to those
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
------------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- ------------
Short-term debt, including capital lease obligations--current
portion............................................................ $ 134,299 $ 154,250 $ 154,250
Capital lease obligations--long-term portion......................... 121,665 159,009 159,009
Stockholders' equity:
Series A Preferred Stock, $0.0001 par value per share; 5,853,000
shares authorized, actual and pro forma; no shares authorized,
pro forma as adjusted; 5,853,000 issued and outstanding, actual
and pro forma; no shares issued and outstanding, pro forma as
adjusted......................................................... 585 585 --
Series B Preferred Stock, $0.0001 par value per share, no shares
authorized, actual, 3,078,065 shares authorized, pro forma and no
shares authorized, pro forma as adjusted; no shares issued and
outstanding actual, 2,931,849 shares issued and outstanding pro
forma and no shares issued and outstanding, pro forma as
adjusted......................................................... -- 293
Common stock, $0.0001 par value per share, 22,100,000 authorized,
actual, 22,100,000 shares authorized, pro forma and 100,000,000,
pro forma as adjusted; 7,420,711 issued and 5,476,711
outstanding, actual, 9,697,021 issued and 7,753,021 outstanding,
pro forma, issued and outstanding, pro forma as
adjusted......................................................... 742 970
Additional paid-in-capital........................................... 6,252,488 33,847,175
Less: Treasury stock................................................. (32) (32)
Retained earnings (deficit).......................................... (235,513) (235,513)
------------- ------------- ------------
Total stockholders' equity..................................... 6,018,270 33,613,478
------------- ------------- ------------
Total capitalization........................................... $ 6,139,925 $ 33,772,487 $
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
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<PAGE>
DILUTION
Our pro forma net tangible book value at March 31, 1999, was approximately
$20.2 million, or $2.61 per share of common stock. Pro forma net tangible book
value per share represents the amount of our total tangible assets (total assets
less intangible assets) reduced by our total liabilities, divided by the number
of shares of common stock outstanding, after giving effect to our acquisitions
of WPL and Web Yes and our sale of our Series B Preferred Stock. After giving
effect to our sale of shares of common stock in this offering at an
assumed initial public offering price of $ per share and our
receipt of the net proceeds (after deducting the estimated underwriting
discounts and our estimated offering expenses), and after giving effect to the
automatic conversion of our preferred stock upon closing of this offering, our
pro forma net tangible book value as of March 31, 1999 would have been
approximately $ , or $ per share. This represents an
immediate increase in pro forma net tangible book value of $ per share
to existing stockholders and an immediate dilution in pro forma net tangible
book value of $ per share to new investors purchasing shares in
this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... $
Net tangible book value per share as of March 31,
1999................................................ $ 0.84
Pro forma net tangible book value per share before
this offering....................................... 2.61
Increase per share attributable to this offering......
---------
Pro forma net tangible book value per share after this
offering............................................
---------
Dilution per share to new investors................... $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
the total number of shares of common stock purchased from us, the total
consideration paid and the average consideration paid per share by our existing
stockholders and by the new investors (at an assumed initial public offering
price of $ per share for shares purchased in this offering, before
deducting underwriting discounts and estimated our offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 16,537,870 % $32,937,099 % $ 1.99
New investors......................
----- ------- ----------- -------
Total.......................... 100.0% $ 100.0% $
----- ------- ----------- -------
----- ------- ----------- -------
</TABLE>
------------------------
The table above assumes no exercise of outstanding stock options and
excludes 8,946,672 shares of common stock subject to options outstanding under
our 1998 stock plan at a weighted average exercise price of $1.33 per share and
370,074 additional shares of common stock available for issuance under that
plan.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected historical and pro forma financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our audited financial statements and
related notes thereto included elsewhere in this prospectus.
The selected historical financial data presented below as of December 31,
1996, 1997 and 1998 and for the years then ended are derived from the financial
statements of Breakaway Solutions, which financial statements have been audited
by KPMG LLP, independent certified public accountants. The selected financial
data as of December 31, 1994 and 1995 and for each of the years then ended and
as of March 31, 1998 and 1999 and for each of the three months then ended are
derived from the unaudited financial statements of Breakaway Solutions. In the
opinion of management, the unaudited financial statements have been prepared on
the same basis as the audited financial statements and include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the financial condition and results of operations for such
periods. The selected financial data for the three months ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999 or any other future period.
From its inception until December 31, 1998 Breakaway was an S corporation
and, accordingly, was not subject to federal and state income taxes, except for
certain Massachusetts income taxes on S corporations with annual revenues in
excess of $6 million. The pro forma net income (loss) and pro forma net income
(loss) per share-- basic and diluted information presented below have been
computed as if Breakaway were subject to Federal and all applicable state
corporate income taxes since 1994, based on the statutory tax rates and the tax
laws then in effect.
In addition, the following selected unaudited pro forma statement of
operations data for the year ended December 31, 1998 and the three months ended
March 31, 1998 and 1999 give effect to: (1) the acquisitions of Applica
Corporation, WPL Laboratories, Inc., and Web Yes, Inc., (2) pro forma
adjustments to the historical financial statements, and (3) the issuance of our
Series B Preferred Stock as if these items had occurred on January 1, 1998. The
selected unaudited pro forma balance sheet data as of March 31, 1999 gives
effect to: (1) the acquisitions of WPL and Web Yes and (2) the issuance of our
Series B Preferred Stock as if they had occurred on March 31, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1998
1994 1995 1996 1997 1998 PRO FORMA 1998 PRO FORMA
--------- --------- --------- --------- --------- ---------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues........................... $959 $1,896 $3,462 $6,118 $10,018 $12,957 $2,124 $2,613
Operating expenses:
Project personnel costs.......... 343 967 1,430 2,543 5,904 8,455 1,180 1,654
Direct project and other direct
costs.......................... -- -- -- -- -- 150 -- 32
Sales and marketing.............. -- -- 3 14 50 88 9 12
General and administrative....... 468 740 1,365 2,545 4,764 8,210 782 1,479
--------- --------- --------- --------- --------- ---------- --------- ----------
Total Operating Expenses....... 811 1,707 2,798 5,102 10,718 16,903 1,971 3,177
Income (loss) from operations...... 148 189 664 1,016 (700) (3,946) 153 (564)
Interest income (expense), net..... 1 8 (25) 60 (32) (40) 7 5
Other income (expense)............. (1) -- (21) (2) 157 157 (3) (3)
--------- --------- --------- --------- --------- ---------- --------- ----------
Net Income (loss).................. $148 $197 $618 $1,074 $(575) $(3,829) $157 $(562)
--------- --------- --------- --------- --------- ---------- --------- ----------
--------- --------- --------- --------- --------- ---------- --------- ----------
Net income (loss) per share--
basic and diluted................ $0.02 $0.02 $0.07 $0.13 $(0.07) $(0.34) $0.02 $(0.05)
Weighted average shares
outstanding...................... 9,600 9,600 8,302 8,016 8,001 11,197 8,016 11,197
Pro forma net income (loss)........ $89 $118 $371 $644 $(380) $(2,527) $94 $(371)
--------- --------- --------- --------- --------- ---------- --------- ----------
--------- --------- --------- --------- --------- ---------- --------- ----------
Pro forma net income (loss) per
share--basic and diluted......... $0.01 $0.01 $0.04 $0.08 $(0.05) $(0.23) $0.01 $(0.03)
<CAPTION>
<S> <C> <C>
1999
1999 PRO FORMA
---------- ----------
STATEMENT OF OPERATIONS DATA:
Revenues........................... $3,111 $4,341
Operating expenses:
Project personnel costs.......... 1,553 2,174
Direct project and other direct
costs.......................... -- 52
Sales and marketing.............. 114 125
General and administrative....... 1,690 2,660
---------- ----------
Total Operating Expenses....... 3,357 5,011
Income (loss) from operations...... (246) (670)
Interest income (expense), net..... 18 12
Other income (expense)............. (7) (7)
---------- ----------
Net Income (loss).................. $(235) $(665)
---------- ----------
---------- ----------
Net income (loss) per share--
basic and diluted................ $(0.05) $(0.09)
Weighted average shares
outstanding...................... 4,698 7,809
Pro forma net income (loss)........ $(155) $(439)
---------- ----------
---------- ----------
Pro forma net income (loss) per
share--basic and diluted......... $(0.03) $(0.06)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 17 $ 94 $ 84 $ 879 $ 17
Total assets................................................... 325 740 1,120 2,533 2,742
Total long term liabilities.................................... -- 69 55 84 67
Stockholders' equity........................................... 149 332 948 1,492 913
<CAPTION>
MARCH 31, 1999
---------------------
<S> <C> <C> <C> <C>
ACTUAL PRO FORMA
---------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $3,206 $20,180
Total assets................................................... 8,440 39,019
Total long term liabilities.................................... 122 2,034
Stockholders' equity........................................... 6,018 33,613
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN
FORWARD-LOOKING STATEMENTS. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS."
OVERVIEW
Breakaway Solutions is a full service provider of e-business solutions that
allow growing enterprises to capitalize on the power of the Internet to reach
and support customers and markets. Our services consist of Breakaway strategy
consulting, Breakaway Internet solutions, Breakaway eCRM solutions and Breakaway
application hosting. From our inception in 1992 through 1998, our operating
activities primarily consisted of providing strategy consulting and systems
integration services. Prior to our acquisition of Applica, we derived no
revenues from application hosting. We believe, however, that application hosting
will account for a significantly greater portion of our total revenues in the
future.
Historically, we have offered our services to clients primarily under time
and materials contracts. For these projects, we recognize revenues based on the
number of hours worked by consultants at a rate per hour agreed upon with our
clients. We have also performed some services under fixed-fee contracts. We
recognize revenues from fixed-fee contracts on a percentage of completion method
based on project hours worked. We expect that the portion of our revenues
attributable to fixed-fee contracts will increase for 1999 and in the future.
Due to our use of fixed-fee contracts, our operating results may be affected
adversely by inaccurate estimates of costs required to complete projects.
Therefore, we employ a series of project review processes designed to help
provide accurate project cost and completion estimates, including a detailed
review at the end of each specified reporting period to determine project
percentage of completion to date.
We generally derive our initial pricing for a contract from our internal
cost and fixed-fee pricing model. This model helps our professionals estimate
pricing based on the scope of work and materials required. The model also takes
into account project complexity and technical risks.
We seek to mitigate our risks under fixed-fee contracts by providing fixed-
fee quotes for discrete phases of each project. Using this approach, we are able
to price more accurately the next phase of the engagement by virtue of having
greater knowledge of the client's needs and the project's complexity. We reflect
any losses on projects in process in the period in which they become known.
We typically receive an advance payment from our strategy consulting
services clients upon contract signing, with additional payments required upon
our attainment of project milestones. Deferred revenues consist principally of
these advance payments. We recognize those payments upon performance of
services.
We price our application hosting contracts on a fixed-fee basis. We
recognize revenues from these contracts as services are completed each month. In
addition, we charge our application hosting clients a one time set-up fee, which
we recognize when set-up is complete. Pricing varies for each client based on
the prospective application to be hosted. Factors which determine pricing
generally include telecommunications bandwidth required, physical space
requirements in our leased hosting facilities and the technological complexity
of supporting the hosted application.
To date, we have depended upon a few clients for the majority of our
revenues. This dependence on a small number of clients is primarily attributable
to the relatively limited range of services that we offered during 1998 and the
first three months of 1999. We expect our reliance on a small number of
19
<PAGE>
clients to decrease due to our addition of application hosting capabilities, the
overall increase in our service capabilities from our recent acquisitions, and
the recent increase in our sales and marketing efforts.
Our expense items include project personnel costs, sales and marketing
expenses and general and administrative expenses:
- Project personnel costs consist of payroll and payroll-related expenses
for personnel dedicated to client assignments;
- Sales and marketing expenses consist primarily of salaries (including
sales commissions), consulting fees, trade show expenses, advertising and
the cost of marketing literature; and
- General and administrative expenses consist primarily of administrative
salaries, salaries for employees on the Breakaway Knowledge Innovation
Team, fees for professional services, and other operating costs, such as
rent.
ACQUISITIONS
We completed three acquisitions in the first six months of 1999. These
acquisitions enabled us to become a full service provider by substantially
expanding our capabilities in providing systems integration services for
e-business and by adding the capability to host applications. The three
acquisitions were:
- APPLICA. In March 1999 we acquired all of the outstanding shares of
Applica Corporation, a New York-based application hosting service
provider. We acquired Applica for 904,624 shares of our common stock.
- WPL. In May 1999 we acquired WPL Laboratories, Inc., a Philadelphia,
Pennsylvania-based Web development company. WPL focused primarily on
enabling companies to conduct business using the Internet as a
distribution channel. The total acquisition consideration paid consisted
of approximately $5.0 million in cash to be paid over a four-year period
and 1,705,175 shares of our common stock. Each WPL stockholder received
50% of his cash consideration at closing and will receive the remainder
incrementally over a four-year period so long as the stockholder does not
resign and is not terminated for cause. Of the shares of common stock
issued to the former WPL stockholders, approximately 50% are subject to
our right, which lapses incrementally over a four-year period, to
repurchase the shares of the stockholder, at their value at the time of
the acquisition, upon the stockholder's resignation or our termination of
the stockholder for cause. Also, as a part of the acquisition, we assumed
all outstanding WPL stock options, which became exercisable for 393,506
shares of our common stock at an exercise price of $2.38 per share with a
four-year vesting period.
- WEB YES. In June 1999 we acquired Web Yes, Inc., a Cambridge,
Massachusetts-based application hosting service provider. This acquisition
strengthens our application hosting capabilities, providing us with
additional domestic and international hosting facilities. We acquired Web
Yes for 571,135 shares of Breakaway's common stock. Of the shares of our
common stock issued to the former Web Yes stockholders, 428,351 are
subject to our right, which lapses incrementally over a four-year period,
to repurchase the shares of a particular stockholder upon the termination
of his employment with Breakaway. The repurchase price will be either at
the share value at the time of the acquisition if the stockholder
terminates employment or we terminate for cause, or at their fair market
value if we terminate the stockholder's employment without cause.
All acquisitions were accounted for using the purchase method of accounting,
resulting in $13.5 million of goodwill. Goodwill will be amortized over a
five-year period from the date of each acquisition.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items included in the our Statement
of Operations as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED
DECEMBER 31, MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
Revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Project personnel costs...................... 41.3% 41.6% 58.9% 55.5% 49.9%
Sales and marketing costs.................... --% --% 1.0% 0.4% 3.7%
General and administrative................... 39.5% 41.8% 47.1% 36.8% 54.3%
Operating income (loss)...................... 19.2% 16.6% (7.0%) 7.3% (7.9%)
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUES. Revenues for the three months ended March 31, 1999 increased by
$1.0 million, or 47.6%, to $3.1 million from $2.1 million for the three months
ended March 31, 1998. The increase was due primarily to increased market demand
for Internet professional services and eCRMS solutions. We were in a better
position to meet that demand due to increased hiring for all of our service
offerings and our additional ability to provide eCRMS solutions using Clarify
software.
PROJECT PERSONNEL COSTS. Project personnel costs for the three months ended
March 31, 1999 increased by $373,000, or 31.6%, to $1.6 million from $1.2
million for the three months ended March 31, 1998. Project personnel costs
represented 49.9% of revenues for the three months ended March 31, 1999, as
compared to 55.5% of revenues for the three months ended March 31, 1998. The
increase in absolute dollars was due primarily to an increase in the number of
employees hired to perform the client services delivered. Project personnel
costs decreased as a percentage of revenues for the three months ended March 31,
1999 due primarily to an increase in the average hourly billable rate of our
professionals over the comparable period in 1998 and, to a lesser extent, due to
an increase in average employee utilization rate.
SALES AND MARKETING EXPENSES. Sales and marketing expense increased by
$105,000 to $114,000 from $9,000 for the three months ended March 31, 1998.
Sales and marketing expenses represented 3.7% of revenues for the three months
ended March 31, 1999, as compared to less than 1.0% for the three months ended
March 31, 1998. The increase was due to the hiring of dedicated sales and
marketing employees during the three months ended March 31, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the three months ended March 31, 1999 increased by $908,000, or 116.1%, to
$1.7 million from $782,000 for the three months ended March 31, 1998. As a
percentage of revenues, general and administrative expenses increased from 36.8%
in the 1998 period to 54.3% in the 1999 period. The increase in 1999 was due
primarily to increases in personnel-related expenses to support increased
administrative employees, outside professional fees for recruiting and the
recruiting and hiring of a senior executive management team.
INTEREST INCOME, NET. Interest income, net, for the three months ended
March 31, 1999 increased by $11,000, to $18,000 from $7,000 for the three months
ended March 31, 1998. The increase in 1999 was due to interest income earned on
the invested portion of proceeds from our preferred stock financing in January
1999.
21
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues for 1998 increased by $3.9 million, or 63.9%, to $10.0
million from $6.1 million for 1997. The increase in revenues was attributable
primarily to a significant increase in our average revenue per client. This
increase occurred because our typical client project in 1998 was larger and more
complex than the typical client project in 1997. We attribute this change
primarily to two factors, the increased demand of businesses for sophisticated
e-business solutions and our ability to address that demand by increasing the
number of our service professionals.
PROJECT PERSONNEL COSTS. Project personnel costs for 1998 increased by $3.4
million, or 136.0%, to $5.9 million from $2.5 million for 1997. Project
personnel costs represented 58.9% of revenues for 1998 as compared to 41.6% of
revenues in 1997. The increase, as a percentage of revenues, for 1998 was due
primarily to a decrease in average employee utilization rates from 1997 to 1998.
The utilization rate decreased because we hired a number of new professionals in
1998. Typically, utilization rates are lower at the beginning of a
professional's employment.
SALES AND MARKETING EXPENSES. Sales and marketing expenses for 1998
increased by $37,000, or 264.3%, to $51,000 from $14,000 for 1997. These
expenses remained less than 1% of revenues in both 1998 and 1997. The majority
of our sales and marketing expenses in these years were for trade show expenses.
We did not have a direct sales or marketing staff in either year.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for 1998 increased by $2.2 million, or 92.0%, to $4.8 million from $2.5 million
for 1997. As a percentage of revenues, general and administrative expenses
increased from 41.8% in 1997 to 47.1% in 1998. The increase was due primarily to
increased payroll to support additional administrative employees, outside
professional fees for recruiting and management consultants and rent for the
establishment of new office locations in Chicago, Illinois and San Mateo,
California. Additionally, we incurred moving expenses in 1998 due to the
relocation of the Boston office.
INTEREST INCOME (EXPENSE), NET. Interest expense, net, for 1998 was $32,000
as compared to interest income, net, of $60,000 in 1997. Net interest expense in
1998 is a result of increased borrowings under our line of credit to fund
growth. Positive cash flow in 1997 allowed us to make interest-bearing
investments, resulting in net interest income for that year.
OTHER INCOME. Other income in 1998 consists primarily of a payment received
in connection with the early termination of our previously leased Boston office
space. We do not expect other income to be significant in future periods.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES. Revenues for 1997 increased by $2.7 million, or 77.1%, to $6.1
million from $3.5 million for 1996. The increase was due primarily to factors
very similar to those which led to increased revenue again in 1998, a
significant increase in average revenue per client due to larger and more
complex projects. The most important single factor in the increase was the
initiation of a large project for Partners Health Care. A significant factor in
our being retained for many large and complex projects was our improved ability
to provide eCRMS solutions due to our alliance with Onyx.
PROJECT PERSONNEL COSTS. Project personnel costs for 1997 increased by $1.1
million, or 78.6%, to $2.5 million from $1.4 million for 1996. Project personnel
costs represented 41.6% of revenues for 1997 as compared to 41.3% of revenues in
1996. These costs remained relatively stable as a percentage of revenues because
employee utilization rates and billable rates remained the same in both years.
SALES AND MARKETING EXPENSES. Sales and marketing expenses for 1997
increased by $11,000, or 366.7%, to $14,000 from $3,000 for 1996. These expenses
were less than 1% of revenues in both 1997
22
<PAGE>
and 1996. The majority of our sales and marketing expenses for these years was
for trade show expenses. We did not have a direct sales or marketing staff in
either year.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for 1997 increased by $1.2 million, or 85.7%, to $2.6 million from $1.4 million
for 1996. As a percentage of revenues, general and administrative expenses
increased only slightly from 39.5% in 1996 to 41.8% in 1997. We retained the
same internal support infrastructure and operated from the same location in both
years. These expenses increased in absolute dollars because we increased our use
of outside consultants and other professionals to support our growth in 1997.
INTEREST INCOME (EXPENSE), NET. Interest income, net, for 1997 was $60,000,
as compared to interest expense, net, of $25,000 in 1996. The increase in
interest income, net, was due primarily to the substantial increase in cash flow
from operations, resulting in higher interest-bearing investments in 1997. Cash
flow in 1996, however, was substantially less than in 1997, resulting in lower
interest-bearing investments in 1996.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth a summary of our unaudited quarterly
operating results for each of the five quarters ended March 31, 1999 both in
absolute dollars and as a percentage of our revenues in each quarter. These data
have been derived from our unaudited interim financial statements which, in our
opinion, have been prepared on substantially the same basis as the audited
financial statements contained elsewhere in this prospectus and include all
normal recurring adjustments necessary for a fair presentation of the financial
information for the periods presented. These unaudited quarterly results should
be read in conjunction with our financial statements and notes thereto included
elsewhere in this prospectus. The operating results in any quarter are not
necessarily indicative of the results that may be expected for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
--------------------------------------------------------------------------------------
SEPTEMBER 30,
MARCH 31, 1998 JUNE 30, DECEMBER 31, 1999
1998 1998
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ 2,124 100.0% $ 2,605 100.0% $ 2,749 100.0% $ 2,540 100.0%
Operating Expenses:
Project personnel costs............. 1,180 55.5 1,415 54.3 1,481 53.8 1,828 72.0
Sales and marketing costs........... 9 0.4 9 .3 16 0.6 16 0.6
General and administrative
expenses.......................... 782 36.8 978 37.5 1,541 56.0 1,463 57.6
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses.......... 1,971 92.7 2,402 92.1 3,038 110.4 3,307 130.2
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations..... 153 7.3 203 7.9 (289) (10.4) (767) (30.2)
--------- --------- --------- --------- --------- --------- --------- ---------
Other income (expense)............ 4 0.2 (2) (0.1) 155 5.6 (32) (1.3)
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)................. $ 157 7.5% $ 201 7.8% $ (134) (4.8)% $ (799) (31.5)%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
MARCH 31, 1999
--------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ 3,111 100.0%
Operating Expenses:
Project personnel costs............. 1,553 49.9
Sales and marketing costs........... 114 3.7
General and administrative
expenses.......................... 1,690 54.3
--------- ---------
Total operating expenses.......... 3,357 107.9
--------- ---------
Income (loss) from operations..... (246) (7.9)
--------- ---------
Other income (expense)............ 11 0.3
--------- ---------
Net income (loss)................. $ (236) (7.6)%
--------- ---------
--------- ---------
</TABLE>
Throughout 1998, we derived most of our revenues through an alliance with
one software vendor. We experienced a decrease in revenues in the quarter ended
December 31, 1998 because the vendor changed its business practices with respect
to third party service providers. In response, we modified our business strategy
to add additional service offerings and hired additional senior management. Our
revenues increased in the quarter ended March 31, 1999 due to increased demand
for Internet professional services.
Project personnel costs for the quarter ended December 31, 1998 increased in
absolute dollars and as a percentage of revenues as we continued to hire
professional services personnel while our revenues
23
<PAGE>
declined in that quarter. Other than in the quarter ended December 31, 1998,
project personnel costs as a percentage of revenues remained relatively stable.
Sales and marketing and general and administrative expenses increased both
in absolute dollars and as a percentage of revenues in the quarter ended
September 30, 1998 as a result of additional costs of outside professional
services that we incurred to support our recruitment program. For the third and
fourth quarters of 1998, our sales and marketing and general and administrative
expenses remained relatively stable as a percentage of revenues. In the quarter
ended March 31, 1999 sales and marketing expenses increased due to the hiring of
dedicated sales and marketing employees during recent periods.
The operating results for any quarter are not necessarily indicative of the
results that may be expected for any future period.
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1998, we funded our operations primarily
through cash provided by operations and a line of credit. In 1999 we have funded
our operations through the issuance of preferred stock and, to a lesser extent,
through a line of credit and equipment leases.
At year end, our cash balances were $84,000 in 1996, $879,000 in 1997,
$17,000 in 1998. Our cash balance was $3.2 million at March 31, 1999. Our
working capital was $786,000 in 1996, $1.1 million in 1997, $385,000 in 1998. It
was $3.7 million at March 31, 1999.
Our operating activities provided cash of $175,000 in 1996 and $1.2 million
in 1997. They used cash of $278,000 in 1998 and $1.1 million in the first three
months of 1999. The increase in cash used in 1998 primarily resulted from costs
we incurred in connection with hiring a new management team and implementing a
new business model. In addition, we experienced an increase in our receivables
resulting from both increased days outstanding and the extended payment terms of
fixed-fee contracts which we entered into on a limited basis. The continued
increase in cash used for the three months ended March 31, 1999 resulted from
costs associated with our preferred stock financings and our acquisitions, as
well as continued recruiting and hiring costs. In addition, we experienced an
increase in receivables primarily due to one large client and the continuation
of fixed-fee contracts with extended payment terms. We also used proceeds from
our Series A Preferred Stock financing to bring our accounts payable current.
We used cash for capital expenditures of $19,000 in 1996, $133,000 in 1997,
$502,000 in 1998 and $72,000 in the first three months of 1999. These
expenditures were primarily for computer equipment, telecommunications equipment
and furniture and fixtures to support our growth. We expect our capital
expenditures to continue to increase significantly, particularly as we expand
our application hosting capabilities.
We have various equipment lease financing facilities. The terms of these
equipment lease financings average two years. The annual interest rates on
borrowings ranged from 5.4% or 15.7%.
In January 1999, we issued 5,853,000 of Series A Preferred Stock for $8.3
million. We used the proceeds to purchase common stock from an existing
stockholder and to fund operations. In July 1999, we issued 2,931,849 shares of
Series B Preferred Stock for approximately $19 million. We intend to use the
proceeds for working capital and other general corporate purposes.
We believe that the proceeds of this offering and funds that are available
under our line of credit will be sufficient to finance our capital requirements
for at least the next 12 months. There can be no assurance, however, that our
actual needs will not exceed expectations or that we will be able to fund our
operations in the absence of other sources. There also can be no assurance that
any additional required financing will be available through additional bank
borrowings, debt or equity offerings or otherwise, or that if such financing is
available, that it will be available on terms acceptable to us.
24
<PAGE>
MARKET RISK
To date, we have not utilized derivative financial instruments or derivative
commodity instruments. We invest our cash in money market funds, which are
subject to minimal credit and market risk. We believe the market risks
associated with these financial instruments are immaterial.
YEAR 2000 COMPLIANCE
YEAR 2000 ISSUE. The year 2000 issue is a result of computer programs or
systems which store or process date-related information using only the last two
digits to refer to a year. These programs or systems may not be able to
distinguish properly between a year in the 1900's and a year in the 2000's.
Failure of these programs or systems to distinguish between the two centuries
could cause the programs or systems to create erroneous results or even to fail.
OUR STATE OF READINESS. We have established a year 2000 readiness team to
carry out a program for the assessment of our vulnerability to the year 2000
issue and remediation of identified problems. The team consists of senior
information technology and business professionals and meets on a regular basis.
An outside consultant is also working with the readiness team on a temporary
basis to assist them in carrying out their tasks.
The readiness team has begun a program with the following key phases to
assess our state of year 2000 readiness:
- Develop a complete inventory of our hardware and software, and assess
whether that equipment and software is year 2000 ready;
- Test our internal equipment and software to ensure that it is year 2000
ready;
- Upgrade, remediate or replace any internal equipment or software that is
not year 2000 ready; and
- Develop a business continuity plan to address possible year 2000
consequences which we cannot control directly or which we have not been
able to test or remediate; and
We have completed a number of the tasks which our program requires, as
follows:
- We have substantially completed the inventory of hardware and software at
all of our locations;
- We have made an initial determination that all of the mission-critical
equipment, hardware and software inventoried is year 2000 ready or can be
made ready with minor changes, based on vendor statements;
- We have implemented internal policies to require that a senior information
technology professional approves as year 2000 ready any hardware or
software that we plan to purchase;
- We have developed a list of all critical vendors from whom we believe we
need to obtain further information or assurances with respect to the year
2000 readiness of products or services which we purchase from those
vendors; and
- We have completed an internal review to determine what commitments we may
have made to our customers with respect to the year 2000 readiness of
solutions which we have provided to those customers;
- We have formulated a business continuity plan in the event of the failure
of any of our systems due to the year 2000 issue.
25
<PAGE>
We have a number of tasks to complete with respect to our year 2000 program,
including;
- Completion of our review of the year 2000 readiness of our facilities,
including our ability to gain access to our offices and application
hosting facilities and the availability of utilities in those offices and
facilities;
- Preparation and circulation of questionnaires regarding year 2000
readiness to our critical vendors;
- Testing of our internal hardware and software to confirm its year 2000
readiness; and
- Implementation of any necessary changes, identified as a result of
testing, to our internal software and hardware.
COSTS. To date, we have not incurred material expenses in connection with
our year 2000 readiness program. We may need to purchase replacement products,
hire additional consultants or other third parties to assist us, although we do
not currently expect that we will need to take such steps. We currently estimate
that the cost of our year 2000 readiness program will be approximately $100,000.
This amount includes internal labor costs, legal and outside consulting costs
and additional hardware and software purchases. We expect that we will refine
this estimate as we complete the final phase of our year 2000 readiness program.
RISKS. If we fail to solve a year 2000 problem with respect to any of our
systems, we could experience a significant interruption of our normal business
operations. We believe that the most reasonably likely worst case scenarios
related to the year 2000 issue for our business are as follows:
- If a solution which we provided to a client causes damage or injury to
that client because the solution was not year 2000 compliant, we could be
liable to the client for breach of warranty. In a number of cases, our
contracts with clients do not limit our liability for this type of breach;
- If there is a significant and protracted interruption of telecommunication
services to our main office, we would be unable to conduct business
because of our reliance on telecommunication systems to support daily
operations, such as internal communications through e-mail; and
- If there is a significant and protracted interruption of electrical power
or telecommunications services to our application hosting facilities, we
would be unable to provide our application hosting services. This failure
could significantly slow the growth of our application hosting business
which is an important part of our strategic plan. We have sought to locate
our application hosting facilities in leased space in co-location
facilities which have back-up power systems and redundant
telecommunications services. Our year 2000 readiness team, however, has
not completed its review of those facilities for year 2000 readiness.
26
<PAGE>
BUSINESS
OVERVIEW
Breakaway is a full service provider of e-business solutions that allow
growing enterprises to capitalize on the power of the Internet to reach and
support customers and markets. Growing enterprise clients often face significant
obstacles in capitalizing on this opportunity because of technological
complexity, costs of implementation and support and scarcity of qualified
professionals. We enable our growing enterprise clients to overcome these
obstacles by combining high quality, cost effective Internet professional
services with application hosting to deliver sophisticated e-business solutions
that otherwise might be unavailable to them.
There are five key elements of the Breakaway approach to delivering
e-business solutions:
- Our proprietary Breakthrough methodology enables us to develop rapid,
cost-effective, high quality e-business solutions that we design to
maximize the client's return on its technology investments and provide the
client with a competitive advantage;
- We concentrate development of our e-business solutions at centralized
Breakaway Solution Centers where our highly skilled information technology
professionals collaborate to develop solutions more rapidly and cost
effectively than would be possible if they were geographically dispersed;
- In order to maintain close contact with our clients, we deliver the
solutions developed at our Breakaway Solution Centers through small groups
of senior personnel at our regional offices located strategically
throughout the United States;
- We have a dedicated group of professionals, whom we call our Breakaway
Knowledge Innovation Team, that captures and disseminates our intellectual
capital throughout our organization and across client engagements; and
- We offer global application hosting capabilities for both packaged and
custom e-business solutions, allowing us to provide complementary, high
quality hosting and application level support services as part of our full
service offering.
We employ over 160 professionals who provide strategy solutions, Internet
solutions, eCRM solutions and application hosting services. We offer our
services through seven regional offices located in Boston, Chicago, Dallas, New
York, Orlando, Philadelphia and San Mateo. Our three Breakaway Solution Centers
are located in Boston, Philadelphia and San Mateo. We provide e-business
application hosting solutions through facilities in North America, Europe, Asia
and Australia. Our clients include Commonwealth Financial Network,
FoodService.com, Giga Information Group, Information Builders, iTurf, Kemper,
Partners HealthCare System, Plan Sponsor Exchange, Portal Software, Sun
Microsystems and VerticalNet.
INDUSTRY BACKGROUND
OVERVIEW
Businesses today are using the Internet to create new revenue opportunities
by enhancing their interactions with new and existing customers. Businesses are
also using the Internet to increase efficiency in their operations through
improved communications, both internally and with suppliers and other business
partners. This emerging business use of the Internet encompasses both
business-to-business and business-to-consumer communications and transactions.
The projected growth of these markets over the next five years is dramatic,
particularly in business-to-business e-commerce. Forrester Research, an
independent research firm, projects that the market for business-to-business
e-commerce will grow from $43 billion in 1998 to $1.3 trillion in 2003. In
comparison, Forrester Research projects that the market for business-to-consumer
e-commerce will
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grow from $8 billion to $108 billion over the same period. In order to
capitalize fully on the new opportunities presented by the Internet, businesses
demand Internet-based applications that process transactions and deliver
information far more effectively than static Web pages.
CHALLENGES FOR GROWING ENTERPRISES
The extensive reach of the Internet can enable growing enterprises to
compete effectively with larger competitors. However, growing enterprises face
significant challenges in their efforts to capitalize on the opportunities that
the Internet offers, including:
- The need to develop a comprehensive strategic understanding of how
Internet technologies can help a growing enterprise create an e-business;
- The need to implement and stay abreast of new and rapidly changing
technologies, frequently without the benefit of a substantial internal
information technology staff;
- Significant integration and interoperability issues caused by the
patchwork of legacy systems that businesses often implemented without a
focused information technology strategy;
- Greater budgetary constraints than large enterprises, making purchase
price, total cost of ownership and technological obsolescence key issues;
and
- The need to maintain significant technological infrastructure and to
support e-business applications 24 hours a day, seven days a week.
We believe that the needs of growing enterprises will make them a
significant factor in the overall market for Internet services. International
Data Corporation, an independent research firm, defines Internet services as the
consulting, design, systems integration, support, management and outsourcing
services associated with the development, deployment and management of Internet
sites. International Data Corporation expects the worldwide market for these
services, which includes both growing and all other enterprises, to grow at a
five year compounded annual growth rate of 58.7% from $7.8 billion in 1998 to
$78.6 billion in 2003.
Traditional information technology service providers have primarily focused
their service offerings on large enterprises, such as Fortune 500 companies,
while largely ignoring growing enterprises and their unique needs. These
traditional service providers generally operate by deploying large numbers of
personnel to the client's site to conduct lengthy studies before proposing a
solution. We believe that this approach does not yield effective solutions
within the time and budgetary constraints of growing enterprises.
Many boutique information technology service providers that direct their
offerings to growing enterprises do not offer a comprehensive suite of services.
They also frequently lack the financial resources and employees to take on full
service projects or to provide follow-up support and training. Moreover,
resource limitations often prevent small service providers from investing in
internal training and research and development, which we believe are critical to
the development of innovative solutions and for the cost-effective provision of
services.
Growing enterprises need to get to market very quickly and often lack
internal information technology resources. Accordingly, they increasingly demand
a single source provider of strategy, systems integration, hosting and support
that is focused on their specific needs. We believe that neither traditional
information technology service providers nor boutique providers currently meet
this demand.
THE BREAKAWAY SOLUTION
We have specifically tailored our service offerings for growing enterprises
seeking rapid delivery of cost-effective, high value-added, comprehensive
solutions for their e-business initiatives. Our services consist of strategy
solutions, Internet solutions, eCRM solutions and application hosting. By
offering a
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seamless integration of these services, we are a full service provider of
e-business solutions for growing enterprises. We deliver our services using five
innovative business processes:
- BREAKAWAY BREAKTHROUGH METHODOLOGY. This methodology divides each client
engagement into discrete phases. In the first phase, we work closely with
the client to define measurable business objectives and develop a strategy
to achieve these objectives. We then determine how the client can use
information technology solutions to implement this strategy. Based on this
determination, we define the scope of the solution and help the client to
visualize the proposed solution by creating a prototype that incorporates
the elements of the solution for the client's customers to see and use. In
the next phase, we identify milestones for the project and establish how
the client can best measure whether the project has met its objectives.
After we define the scope of the project and identify milestones, we
design, develop and implement the solution. We then assist the client in
employee training and in assimilating the changes created by the solution.
Finally, we maintain our client relationships by monitoring and
reassessing their needs on an ongoing basis.
- BREAKAWAY SOLUTION CENTERS. We develop our Internet solutions and eCRM
solutions services at centralized facilities in Boston, Philadelphia and
San Mateo. We call these sites Breakaway Solution Centers. We believe that
by concentrating resources at a few sites where highly skilled and
experienced information technology professionals work together, we greatly
facilitate sharing of knowledge and implementation of best practices. We
typically perform development work at our Solution Centers, which
substantially reduces the costs and inefficiencies associated with travel
to client sites. This approach also reduces the disruption of the client's
business that frequently occurs when a large number of consultants are at
the client's site.
- BREAKAWAY REGIONAL DELIVERY. We deliver the solutions which we develop at
our Breakaway Solution Centers through regional offices located
strategically throughout the United States. We staff these offices with
small groups of senior delivery personnel who establish close working
relationships with clients in the region. Using this approach we are able
to place senior professionals near our clients while still providing the
client with the efficiencies of centralized solution development.
- BREAKAWAY KNOWLEDGE INNOVATION TEAM. We have created a team, staffed with
senior information technology professionals, that develops and deploys
intellectual capital throughout Breakaway Solutions and across client
engagements. The Knowledge Innovation team monitors all of our client
projects on an ongoing basis to identify best practices and innovative
solutions. This team collects and refines this knowledge, then
disseminates it to our professionals through our proprietary intranet
portal, employee training and ongoing communications. We believe that our
Knowledge Innovation Team allows us to provide our clients with high
quality services quickly and cost effectively.
- BREAKAWAY INTEGRATED APPLICATION HOSTING. Unlike most providers of
information technology consulting and systems integration services, we
also offer application hosting services for e-business solutions. We
believe that this capability allows us to help our clients implement and
operate solutions more quickly and cost effectively than service providers
who do not offer application hosting services.
We believe our solutions provide our clients with a range of significant
benefits, including:
- BREAKAWAY SPEED. Time to market is a critical factor to the success of an
e-business initiative. We believe that Breakaway's approach delivers
solutions to clients significantly more rapidly than traditional
approaches.
- BREAKAWAY QUALITY. The solutions that we offer are critically important to
our clients' businesses. We have designed our business processes to
deliver to growing enterprises solutions that we
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believe are of equal or superior quality to solutions which could be
obtained from traditional service providers.
- BREAKAWAY VALUE. Because growing enterprises often have limited financial
resources, we seek to deliver our services in as cost effective a manner
as possible. The core focus of our Breakthrough methodology is the
creation of measurable value for our clients. In certain cases we link a
portion of our fees to our success in providing measurable value.
STRATEGY
Our objective is to become the leading full service provider of
business-to-business e-business solutions that enable growing enterprises to
increase their revenues and market share. Our strategy for achieving this
objective is as follows:
FURTHER PENETRATE THE UNDERSERVED GROWING ENTERPRISE MARKET. The growing
enterprise market for e-business solutions is already a large part of the
overall market for these solutions and is expanding rapidly. We believe that the
companies in the growing enterprise market have different requirements from
larger enterprises, particularly because of their often limited internal
information technology staffs and resources. We believe this market is
underserved and is best addressed by a full service provider. We intend to
continue to focus on the growing enterprise market as a full service provider of
strategy solutions, Internet solutions, eCRM solutions and application hosting
services.
AGGRESSIVELY PROMOTE THE BREAKAWAY SOLUTIONS BRAND. Growing enterprises are
a large, fragmented and geographically dispersed market. To leverage our direct
selling efforts and reach this market effectively, we believe it is important to
build awareness of the Breakaway Solutions brand. To promote our brand, we
intend to expand our corporate marketing and advertising efforts, with the
specific objective of targeting senior executives of growing enterprises. Our
goal is to create national recognition of Breakaway Solutions as the leading
full service provider of e-business solutions that address the specific needs of
growing enterprises.
ATTRACT, TRAIN AND RETAIN HIGH QUALITY INFORMATION TECHNOLOGY
PROFESSIONALS. We believe that attracting and retaining outstanding
professionals is essential to our growth. We perform the majority of our
development work in our Solution Centers, which greatly limits the travel
required of our professionals. We believe that extensive travel is one of the
primary causes of employee turnover in our industry. Through our Solution
Centers and regional offices, our employees participate in a unique culture that
is entrepreneurial and promotes enterprise-wide, collaborative knowledge
sharing. We believe that the combination of our lower travel requirement and
unique culture helps us to attract and retain highly skilled, experienced senior
information technology professionals.
EXPAND ALLIANCES. We have established a number of working alliances with
independent software vendors and Internet technology providers. These
relationships provide a range of benefits, including new sales leads,
co-marketing and co-branding opportunities and preferred pricing discounts on
software licenses. In addition, our alliances allow us to gain access to
training, product support and technology developed by the companies with which
we have alliances. These relationships also provide an accelerated path to
developing expertise regarding hardware, software and applications. We plan to
pursue alliances with both large market leading companies as well as emerging
companies. In all cases, we will seek alliances which provide us with the
opportunity both to use applications in our solutions and to host these
applications.
EXPAND CENTRALIZED DEVELOPMENT/REGIONAL DELIVERY MODEL. Our regional office
strategy enables us to place senior service delivery personnel near our clients
and to better address the particular demands of local markets with field sales
and field marketing professionals. Senior delivery professionals in each
regional office participate in the sales process for each client and play a
significant role in the design, architecting and program management of the
solution for that client. We believe that we improve our
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responsiveness and client satisfaction by providing a single point of contact
throughout our relationship with the client. We intend to open additional
regional offices in the Southeast, Midwest and Southwest United States in 2000.
We also expect to add additional Solution Centers to support our growth. Our
centralized Solution Center model, complemented by our regional office network,
enables us to operate more effectively and efficiently than service providers
with a less centralized approach.
PROVIDE APPLICATION HOSTING THROUGH STRATEGICALLY LOCATED LEASED
FACILITIES. We lease space at third party facilities, known as co-location
facilities, for the equipment which we use for our application hosting services.
We currently lease space from multiple providers at ten co-location facilities
worldwide. We believe that leasing space and related commodity services, such as
uninterrupted power supplies and high speed telecommunications access, permits
us to expand quickly into new markets while reducing the capital investment
required for expansion. We intend to continue to pursue this approach because
geographic distribution of our hosting facilities provides our clients with
improved, lower cost telecommunications access as a result of the clients'
proximity to the facility, reduces our network costs and increases reliability
through increased diversity and redundancy.
BREAKAWAY SERVICES
As a full service provider, we offer the following services:
- Strategy solutions;
- Internet solutions;
- Customer relationship management solutions; and
- Application hosting.
We deliver these services using business processes that we have designed to
provide rapid, high quality and cost-effective solutions. These business
processes include our Breakthrough methodology, our Breakaway Solution Centers,
our Breakaway Knowledge Innovation Team and our sophisticated Breakaway
application hosting capabilities. We believe that we provide our clients with
the greatest value when they use all of our services on an integrated basis.
Clients that engage us initially only to provide consulting services frequently
request that we develop and implement the solution which we have designed in our
consulting engagement. We believe that we can provide our clients with
particularly significant time and cost savings if we host an application that we
have designed and developed for the client because of our knowledge of the
client and the solution.
The following table is a brief summary of the services which we offer in our
four service categories.
DESCRIPTION OF GRAPHIC APPEARING IN TEXT
[Depiction of an arrow divided into three parts. The first part is labeled
"Think IT" and is centered over the heading Breakaway Strategy Solutions. This
leads into the second part of the arrow, which is labeled "Build IT" and is
evenly centered over the headings Breakaway Internet Solutions and
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Breakaway eCRM Solutions. The third part of the arrow is labeled "Operate IT"
and is centered over the heading Breakaway Application Hosting.]
<TABLE>
<CAPTION>
BREAKAWAY STRATEGY BREAKAWAY INTERNET BREAKAWAY APPLICATION
SOLUTIONS SOLUTIONS BREAKAWAY ECRM SOLUTIONS HOSTING
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
- - e-business strategy - Electronic commerce - Sales force automation - Packaged and custom
- - Business and technology transactions systems - Marketing automation application hosting
alignment - Community aggregation - Customer service - Complex Web site
- - Chief Information Officer applications - Customer self-service management
outsourcing - Interactive marketing - Order management - High availability hosting
- - Application portfolio - Content generation tools facilities
management - Site traffic analysis and - Application performance
- - Industry and competitive reporting optimization and
reviews reporting
- Security services
- Application maintenance
and support services 24
hours per day
</TABLE>
BREAKAWAY STRATEGY SOLUTIONS
We advise our customers on the use of e-business solutions to reach and
support customers and markets. The goal of these solutions is typically the
achievement of a quantifiable, sustainable competitive advantage within a short
time frame. Our strategy services include analyzing the client's market,
business processes and existing technology infrastructure, evaluating both
packaged and custom alternative solutions and formulating recommendations for a
solution or strategy. We provide a road map that our clients can implement
immediately, as opposed to the type of high level advice that requires
additional strategy planning prior to being implementable.
BREAKAWAY INTERNET SOLUTIONS
We develop and implement e-business applications for high transaction volume
revenue generation activities. We both develop custom applications and tailor
packaged applications. We design our e-business applications to be flexible and
easily scalable. Clients require flexibility so that they can easily integrate
our solutions with their existing systems, upgrade solutions for technological
changes and respond to developments in how business is conducted on the
Internet. Scalability is critical to our clients because they often experience
very significant increases in transaction volume within a short time period. In
many cases, we base our development work on strategy and designs that we have
developed for the client in a strategy planning engagement.
BREAKAWAY ECRM SOLUTIONS
We implement and customize software applications that our clients use to
identify, acquire and retain customers. Most of our eCRM solutions are based on
packaged software applications. These packaged applications often provide a
level of functionality that satisfies a significant portion of our clients'
requirements. Thus, we can provide a complete solution with only minimal
customization.
BREAKAWAY APPLICATION HOSTING
We host a variety of custom and packaged applications, including customer
relationship management applications, database applications, corporate Web sites
and complex transaction intensive e-business applications. Our application
hosting service enables clients to rent applications through payment of a
monthly service fee instead of incurring a large one-time, initial investment.
Our application hosting operations team provides active monitoring and
application level support for Internet-based applications 24 hours a day, seven
days a week. These support capabilities often reduce the client's need for a
large information technology staff.
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To provide our application hosting services, we operate a high availability
global service delivery infrastructure with multiple hosting centers in key
geographic locations. Our service delivery infrastructure is designed to provide
our clients with a fast response time, reliability, scalability and security.
CLIENTS
We focus our marketing and sales activity on growing enterprises. These
businesses generally fit within two broad categories:
- Companies or divisions of larger companies that have sales of up to $1
billion per year; and
- New and emerging Internet-based businesses.
The functionality of many of our solutions is applicable across a variety of
industries. Accordingly, we provide our services to a number of types of
businesses. Our clients' industries include high technology, financial services,
health care and telecommunications.
A representative list of our clients includes:
Advent Software
Citizens Financial Group
Commonwealth Financial Network
Enterprise Risk Solutions
Fidelity & Guaranty Life Insurance
FoodService.com
Giga Information Group
Information Builders
iTurf
Kemper
Open Systems Solutions
Partners HealthCare System
Plan Sponsor Exchange
Portal Software
Primavera
SEI Investments
Summit Partners
Sun Microsystems
VerticalNet
Zymark
During 1998, Partners HealthCare accounted for approximately 27% of our
total revenues. During the first three months of 1999, Partners HealthCare
accounted for approximately 26%, Commonwealth Financial Network accounted for
10% and Giga Information Group accounted for 10% of our revenues. In addition,
during the first three months of 1999, one additional client accounted for 11%
of our revenues.
We offer our strategy solutions, Internet solutions and eCRM solutions
services on either a time and materials basis or a fixed price basis. We have
initiated a program to make a percentage of our fee contingent on the client
achieving agreed upon performance objectives. We call this program Breakaway
Value Assurance. We are offering this option only in situations in which we and
the client have agreed on a clear set of measurable values and we have provided
a sufficiently broad range of services to influence the project's success. We
believe that our willingness to tie our compensation to performance objectives
is an important sales tool because it demonstrates our commitment to provide
services that have measurable value to our clients.
We provide our application hosting services for an initial set-up fee plus a
monthly service fee. The monthly service fee is subject to maintaining stated
service levels. Our hosting fees vary depending upon the scope of the client's
requirements.
REPRESENTATIVE CLIENT ENGAGEMENTS
The following examples are representative of our client engagements.
PARTNERS HEALTHCARE SYSTEM, INC. Partners HealthCare is an integrated
health care delivery network, including two founding members, The Massachusetts
General Hospital and Brigham and
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Women's Hospital. In 1999, Partners HealthCare expects to receive a total of
approximately $400 million in sponsored research awards. In addition, Dana
Farber/Partners CancerCare, a collaboration between the Dana Farber Cancer
Institute and the institutions comprising Partners HealthCare, needed to
integrate research management information to provide investigators and
management comprehensive access to information and to streamline operations.
Partners HealthCare engaged us to design a solution to meet these objectives
without substantially increasing its administrative staff. Our Internet strategy
solutions group began this project by working with Partners HealthCare to
understand the details and complexities of the problem. Based on the work of
that group, we developed a solution at one of our Solution Centers that
integrated into a single database all aspects of all Partners HealthCare's
research projects from 17 databases in multiple locations. The solution deploys
the database and its user interface across an intranet, which permits
approximately 2,000 researchers and administrators easy, rapid and standardized
access. This solution achieved the following client goals:
- It decreases the average time for internal approval of research protocols
which, according to Partners HealthCare, has shortened from 90 to 14 days;
- It permits researchers to spend more time performing research and less
time handling administrative issues and responding to information
requests; and
- It makes research administration faster and easier.
VERTICALNET, INC. VerticalNet is a leading creator and operator of Web
sites known as vertical trade communities. These tightly focused sites attract
buyers and sellers from around the world by providing editorial content, forums
for the exchange of ideas and the ability to conduct business transactions to
similarly interested professionals. VerticalNet also offers Web site design,
management and hosting services for businesses and trade organizations.
VerticalNet retained us to assist it in developing a number of different
solutions to realize revenues from business transactions on its Web sites,
increase sales leads, enhance customer services and improve internal work flow.
We began this assignment by having our Internet solutions group design a
sales lead generation system that enables VerticalNet to monitor inquiries about
businesses requesting information from VerticalNet or its advertisers. We then
developed and implemented a virtual store at one of our Solution Centers to
enable VerticalNet to convey its ability to engage in electronic commerce. The
store displays saleable items to VerticalNet's more than 40 trading communities
based on the particular affiliation of the customer. We designed, developed and
implemented this solution within eight weeks after VerticalNet retained us.
Our eCRMS Solutions group also designed, developed and implemented other
additional significant solutions, including:
- A set of tools which permit both advertisers and VerticalNet's internal
sales force to access and use the data stored in the sales lead generation
system; and
- A comprehensive internal system for the management of customer calls,
advertising inventory, personnel scheduling and administrative oversight
functions.
We continue to work closely with VerticalNet to expand and refine these
applications.
PLAN SPONSOR EXCHANGE, INC. Plan Sponsor Exchange wanted to create a Web
site, to be called PlanSponsorExchange.com, that would facilitate communications
and transactions between money managers, consultants and their pension fund
clients. The company engaged us for assistance in developing a strategic
technical plan to deploy the concept on the Internet.
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We began this project by having our strategy solutions professionals work
with the founder to create an information technology strategy, development plan
and budget. We then began production of an Internet prototype at one of our
Solution Centers. The engagement proceeded as follows:
- 14 days after our initial meeting with the client, we had developed a
functioning Internet prototype;
- 90 days after our initial meeting, we delivered a functioning beta
Internet test site on time and on budget; and
- 135 days after our initial meeting, the client had fully deployed its
PlanSponsorExchange.com site.
Because of its desire to focus on its core business, time to market
considerations and cost considerations, Plan Sponsor Exchange also contracted
with us to provide application hosting services. We believe that our full
service provider and rapid deployment capabilities played a key role in enabling
Plan Sponsor Exchange to realize the first-to-market advantage critical to
success as institutional investment managers increase their use of the Internet.
PROFESSIONAL ENVIRONMENT
Our success depends in substantial part upon our ability to recruit and
retain professionals with the high level of information technology skills and
experience needed to provide our sophisticated services. We believe that the
combination of professional support, intellectual challenge, reduced travel,
corporate culture and compensation we offer will continue to be attractive to
these information technology professionals.
RECRUITING. Our recruitment department conducts its own direct recruiting
efforts and coordinates informal and search firm referrals. We believe that our
business model, which results in decreased travel, more interesting work,
greater opportunities for professional development and a dynamic corporate
culture, enhances our ability to attract top professionals.
PROFESSIONAL DEVELOPMENT. We believe that providing our professionals with
a wide variety of challenging projects and the opportunity to demonstrate
ability and achieve professional advancement are keys to their retention. We
create a professional development plan for each of our information technology
professionals that identifies the individual's training and education
objectives. We encourage all of our strategy and systems integration
professionals to rotate through our strategy services, eCRM solutions, Internet
solutions and Knowledge Innovation Team groups in order to achieve exposure to
the breadth of our service offerings. This policy creates a high level of
intellectual challenge for our professionals and provides them with the
opportunity to display their capabilities across a range of disciplines. In
addition, our clients benefit from the resulting broad service experience of our
professionals. We also believe that the working relationships which develop in
our Solution Centers foster valuable formal and informal mentoring and knowledge
sharing.
CULTURE. Our culture is critically important to hiring and retaining
information technology professionals. Our culture reflects the entrepreneurial
spirit that pervades the Internet industry. Our compensation plan ties a
significant portion of compensation to the achievement of both individual
performance goals, team goals and company financial performance goals. We grant
stock options to all of our employees upon hiring and when we promote them.
MARKETING AND SALES
MARKETING. Our marketing goal is to generate sales opportunities by
increasing the awareness among growing enterprises of the Breakaway Solutions
value proposition and the Breakaway Solutions brand. As one of our core
initiatives in 1999, we plan to expand our corporate marketing and
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advertising campaign. Our direct marketing activities include direct mail,
targeted e-mail and seminars for senior executives of growing enterprises and
other persons who make decisions about information technology investments. In
addition, to heighten our public profile, we seek opportunities for our
professionals to publish articles and give speeches in their areas of expertise.
SALES. Our direct sales professionals employ a consultative sales approach,
working with the prospective client's senior executives to identify the client's
service requirements. The service delivery professionals who are located with
our sales professionals in our regional offices also participate in the sales
process. Once the client has engaged Breakaway Solutions, our sales
professionals maintain their relationships with the client by working
collaboratively with our service professionals who are assigned to the client.
ALLIANCES. As part of our sales and marketing effort, we have established
working relationships with a number of companies, including Applix, Broadvision,
Cisco Systems, Clarify, Customer Analytics, Firstwave, Market Touch, Onyx,
Rubric, Sun Microsystems and Veritas. These alliances generally entail sharing
sales leads, making joint presentations, negotiating discounts on license fees
or other charges and conducting similar activities. We believe we have been
successful in establishing alliances with a strong group of companies who are
either industry leaders or well-regarded new entrants.
COMPETITION
Our service offerings consist of strategy consulting, systems integration
and application hosting. We face a high level of competition in all of these
service offerings. Our competitors include consulting companies, Internet
professional services firms, systems integration firms, application hosting
firms and web hosting firms. Barriers to entry in the strategy consulting and
systems integration markets are low. Therefore, we expect additional competitors
to enter these markets.
STRATEGY CONSULTING. We believe that the principal competitive factors in
the strategy consulting market are quality of services, technical and strategic
expertise and ability to provide services in a timely and cost-effective manner.
We believe that we compete successfully as to all of these competitive factors
because of the strong experience and expertise of our professionals and our
focus on Internet solutions. We also believe that our ability to provide
consulting services in combination with systems integration and hosting provides
us with a competitive advantage.
SYSTEMS INTEGRATION. In the systems integration market, we believe that the
principal competitive factors are the ability to implement high quality
solutions rapidly and cost-effectively in terms of both implementation and
ongoing costs. Through the use of our Breakthrough methodology, Solution Centers
and the Knowledge Innovation Team, we believe that we are able to provide high
quality systems integration of e-business solutions on a rapid, cost-effective
basis. We believe our ability to offer application hosting to systems
integration clients also is a distinct competitive advantage.
APPLICATION HOSTING. We believe that the principal competitive factors in
the application hosting market are quality and reliability of service and cost.
We believe that we compete effectively as to all of these factors because of:
- The high level of expertise of our application hosting service
professionals;
- The quality, security and reliability of our application hosting
infrastructure;
- Our relationships with application vendors which allow our clients to have
access to packaged applications on a cost-effective basis; and
- Our ability to host both complex custom applications and packaged
applications; and
- Our ability to provide application hosting in combination with our
sophisticated strategy consulting and systems integration services.
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INTELLECTUAL PROPERTY
We have developed proprietary methodologies, tools, processes and software
in connection with delivering our services. We rely on a combination of trade
secret, copyright and trademark laws to protect our proprietary rights and the
proprietary rights of third parties from whom we license intellectual property.
In particular, we require each of our employees to sign an invention and
non-disclosure agreement which provides that they must maintain the
confidentiality of our intellectual property and that any intellectual property
which they develop while employed by us is the property of Breakaway Solutions.
We are also in the process of registering the trademark "Breakaway
Solutions" with the United States Patent and Trademark Office. We intend to make
such other state and federal filings as we believe are appropriate to protect
our intellectual property rights.
EMPLOYEES
As of June 30, 1999, we had a total of 210 employees, including 163 in
consulting, systems integration and application hosting, 13 in sales and
marketing and 34 in finance, administration and support. Our continued success
depends on our ability to recruit, train and retain highly qualified technical,
sales and managerial professionals. The competition for these professionals is
intense. None of our employees is represented by a labor union, and we consider
our employee relations to be good.
FACILITIES
The Breakaway Solutions principal executive offices are located in Boston,
Massachusetts. We perform professional services at this location and at six
other offices in the United States. These facilities contain approximately
40,000 square feet in the aggregate. In addition, we support and host e-business
solutions through facilities at six locations in the United States and four
locations abroad. We lease all of these facilities. The leases are either from
month to month or have remaining terms through November 2002.
Due to our growth, we are examining alternatives for increasing our space in
Boston. We believe that we will be able to locate facilities to meet this need.
Outside of Boston, we believe that our facilities meet our current needs in the
regions where we have offices.
LEGAL PROCEEDINGS
From time to time we are involved in litigation that arises in the normal
course of business operations. As of the date of this prospectus, we believe
that the litigation to which we are party will not have a material adverse
effect on our business or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, and their respective ages and
positions as of June 30, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Gordon Brooks...................... 41 President, Chief Executive Officer and Director
Kevin Comerford.................... 34 Vice President, Administration, Chief Financial Officer, Treasurer and
Secretary
Babak Farzami...................... 31 Vice President, Corporate Development
Christopher Harding................ 34 Vice President, Field Operations
Dev Ittycheria..................... 32 Vice President, Application Hosting Services
William Loftus..................... 35 Vice President, Internet Solutions
Wayne B. Saunders.................. 53 Vice President, eCRM Solutions
Janet S. Tremlett.................. 43 Vice President, Strategy Solutions
Christopher H. Greendale........... 47 Chairman of the Board of Directors
Frank Selldorff.................... 37 Director
Walter W. Buckley, III............. 39 Director
</TABLE>
GORDON BROOKS has served as our President and Chief Executive Officer since
October 1998 and as a member of our Board of Directors since January 1999. From
June 1991 to September 1998, Mr. Brooks served as Senior Vice President, Sales,
Field Marketing and Operations of Cambridge Technology Partners (Massachusetts),
Inc., an international management consulting and systems integration company.
KEVIN COMERFORD has served as our Vice President, Administration, Chief
Financial Officer, Treasurer and Secretary since June 1998. From April 1998
through May 1998, Mr. Comerford was engaged as an independent management
consultant. In March 1993, Mr. Comerford co-founded Boston Sales Automation,
Inc., an enterprise resource planning systems integrator where he served in
various capacities through March 1998. Mr. Comerford is a Certified Public
Accountant.
BABAK FARZAMI has served as our Vice President, Corporate Development since
our acquisition of Applica in March 1999. From December 1998 through March 1999,
Mr. Farzami served as Chairman of the Board of Directors of Applica. Mr. Farzami
served as Director of Technology, Data Communications of AT&T Local Services, a
telecommunications enterprise, from July 1998 through November 1998. From 1993
to June 1998, Mr. Farzami served in various capacities at Teleport
Communications Group, a telecommunications services provider, most recently as
Director of Technology, Data Services.
CHRISTOPHER HARDING has served as our Vice President, Field Operations since
March 1999. From 1992 to February 1999, Mr. Harding served in various capacities
at Cambridge Technology Partners, most recently as Vice President of Sales and
Field Marketing.
DEV ITTYCHERIA has served as our Vice President, Application Hosting
Services since our acquisition of Applica in March 1999. From December 1998
through March 1999, Mr. Ittycheria served as President and Chief Executive
Officer of Applica. From July 1998 through November 1998 and from
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1989 through July 1995, Mr. Ittycheria served in various capacities at AT&T
Corp., most recently as Product Director, AT&T Data Services. From August 1995
through June 1998, Mr. Ittycheria served in various capacities, most recently as
Director, Marketing, TCG CERFnet, at Teleport Communications Group.
WILLIAM LOFTUS has served as our Vice President, Internet Solutions since
our acquisition of WPL in May 1999. From 1990 through April 1999, Mr. Loftus
served as President and Chief Executive Officer of WPL.
WAYNE B. SAUNDERS has served as our Vice President, eCRM Solutions since
March 1999. From June 1997 through February 1999, Mr. Saunders served as Vice
President, the Bentley Group of Technology Solutions Company, a consulting and
systems integration company. Mr. Saunders served as Vice President, Central
Region of the Bentley Company, a consulting and systems integration company,
from 1993 through May 1997.
JANET S. TREMLETT has served as our Vice President, Strategy Solutions since
January 1999. From July 1997 through December 1998, Ms. Tremlett served as
President at KSJ Technovations, a strategy consulting firm which she founded.
From August 1996 through June 1997, Ms. Tremlett served as Director, Consulting
Services, at The Net Collaborative, Inc., a technology consulting firm, and from
1992 through July 1996, Ms. Tremlett served in various capacities, most recently
as Vice President, Electronic Commerce, at Work/Family Directions, Inc., a
consulting firm specializing in the work-life field.
CHRISTOPHER H. GREENDALE has served as Chairman of our Board of Directors
since January 1999. Also since January 1999, Mr. Greendale has served as a
Managing Director of Internet Capital Group, Inc., a business-to-business
e-commerce company and our affiliate. From January 1998 to December 1998, Mr.
Greendale was engaged as an independent management consultant. In 1991, Mr.
Greendale co-founded Cambridge Technology Partners, where he served in various
capacities from 1991 through December 1997, most recently as Executive Vice
President, Marketing.
WALTER W. BUCKLEY, III, has served as one of our directors since January
1999. Mr. Buckley is a co-founder, and has served as President and Chief
Executive Officer and a director, of Internet Capital Group, since March 1996.
From 1991 to February 1996, Mr. Buckley served as Vice President of Acquisitions
of Safeguard Scientifics, Inc., a developer and operator of emerging growth
information technology companies. Mr. Buckley serves as a director of
VerticalNet, Inc. and Who? Vision Systems, Inc.
FRANK SELLDORFF, one of our directors, founded The Counsell Group, now
Breakaway Solutions, in 1992 and served as Chairman of our Board of Directors
and our Chief Executive Officer from 1992 through October 1998. From November
1998 through March 1999, Mr. Selldorff served as our Executive Vice President,
Strategic Development, and from November 1998 through June 1999 he served as our
Co-Chairman of the Board of Directors. Mr. Selldorff is currently co-founder and
managing partner of Reach Venture Partners, LLP, a venture fund focused on
seed-stage, business-to-business Internet enterprises.
EXECUTIVE OFFICERS
Each officer serves at the discretion of our Board of Directors and holds
office until his successor is elected and qualified or until his earlier
resignation or removal. There are no family relationships among any of our
directors or executive officers.
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ELECTION OF DIRECTORS
Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Messrs. Greendale and Brooks will serve in the class whose term expires in 2000,
Mr. Selldorff will serve in the class whose term expires in 2001 and Mr. Buckley
will serve in the class whose term expires in 2002. At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring.
COMPENSATION OF DIRECTORS
We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors and any meetings of its committees.
We may, in our discretion, grant stock options and other equity awards to our
non-employee directors from time to time under our stock incentive plans. We
have granted the following options to Christopher H. Greendale under our 1998
Stock Plan:
- An option to purchase 105,000 shares of common stock at an exercise price
(as adjusted for subsequent stock splits) of $0.54 on July 1, 1998 which
vested in full on January 1, 1999; and
- An option to purchase 693,000 shares of common stock at an exercise price
of $1.42 on February 18, 1999, 173,232 shares of which will vest in
February 2000. Beginning in March 2000, the remaining shares will vest in
14,438 shares increments each month thereafter.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1998 to our:
- President and Chief Executive Officer;
- Former President and Chief Executive Officer; and
- One former executive officer who received total compensation in excess of
$100,000 but was not serving as an executive officer on December 31, 1998.
We refer to all of these officers collectively as our Named Executive Officers.
No other executive officer of Breakaway earned an aggregate of salary and bonus
in excess of $100,000 for the year ended December 31, 1998.
In accordance with the rules of the Securities and Exchange Commission the
compensation set forth in the table below does not include medical, group life
or other benefits which are available to all of our salaried employees, and
perquisites and other benefits, securities or property which do not exceed the
lesser of $50,000 or 10% of the person's salary and bonus shown in the table. In
the table
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below, columns required by the regulations of the Securities and Exchange
Commission have been omitted where no information was required to be disclosed
under those columns.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
ANNUAL COMPENSATION ------------------------------
--------------------- SHARES OF COMMON STOCK
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS
- ---------------------------------------------------------- ---------- --------- ------------------------------
<S> <C> <C> <C>
Gordon Brooks............................................. $ 21,795 $ 125 3,058,500
President and Chief Executive Officer
Frank Selldorff........................................... $ 172,375 $ 25,294 1,500,000
Former President and Chief Executive Officer
Patricia Purcell.......................................... $ 108,769 $ 5,550 --
Former Vice President, Marketing and Sales
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
On June 30, 1998, we adopted our 1998 Stock Plan and began granting options
to purchase our common stock under this plan. See "Benefit Plans--1998 Stock
Plan." The following table contains information concerning the stock option
grants made to each of the Named Executive Officers in 1998. The per share
exercise price of all options granted to our Named Executive Officers represents
the fair market value of our common stock on the grant date.
Amounts described in the following table under the heading "Potential
Realizable Value at Assumed Rates of Stock Price Appreciation for Option Term"
represent hypothetical gains that could be achieved for the options if exercised
at the end of the option term. These gains are based on assumed rates of stock
appreciation of 5% and 10% compounded annually from the date the options were
granted at their expiration date. Actual gains, if any, on stock option
exercises will depend on the future performance of the common stock and the date
on which the options are exercised. No gain to the optionees is possible without
an appreciation in stock price, which will benefit all stockholders
commensurately.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
PERCENT OF OF STOCK PRICE
NUMBER OF TOTAL OPTIONS APPRECIATION
SHARES OF COMMON GRANTED TO EXERCISE FOR OPTION TERM
STOCK UNDERLYING EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ---------------------------------- ----------------- --------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gordon Brooks..................... 3,058,500(1) 50.0% $ 1.42 12/23/08 $ 2,724,988 $ 6,905,647
Frank Selldorff................... 1,500,000 24.5% 0.54 7/1/08 512,235 1,298,103
Patricia Purcell.................. -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The options to purchase an aggregate of 3,058,500 shares of common stock
which we granted to Mr. Brooks are either vested or will vest on the closing
of this offering.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option holdings
through December 31, 1998 by each of the Named Executive Officers. Amounts
described in the following table under the heading
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<PAGE>
"Value of In-the-Money Options at Year End" are based upon the fair market value
of the common stock as of December 31, 1998, which was $1.42, as determined by
the Board of Directors.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR END OPTIONS AT YEAR END
------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- ---------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Gordon Brooks................................ 764,625 2,293,875 $ 0 $ 0
Frank Selldorff.............................. 1,500,000 0 1,310,550 0
Patricia Purcell............................. -- -- -- --
</TABLE>
BENEFIT PLANS
1998 STOCK PLAN. Our 1998 stock plan was adopted by our Board of Directors
and approved by our stockholders in June 1998. As amended, the 1998 plan
authorizes the issuance of up to 10,150,335 shares of our common stock pursuant
to stock options and other awards. As of June 30, 1999, options to purchase an
aggregate of 8,946,672 shares of our common stock at a weighted average exercise
price of $1.43 per share were outstanding under the 1998 plan. Upon the closing
of this offering, no additional grants of stock options or other awards will be
made under the 1998 plan.
1999 STOCK INCENTIVE PLAN. Our 1999 Stock Incentive Plan was adopted by our
Board of Directors and approved by our stockholders in July 1999. The 1999 plan
is intended to replace our 1998 plan. Up to 6,000,000 shares of our common stock
(subject to adjustment in the event of stock splits and other similar events)
may be issued pursuant to awards granted under the 1999 plan.
The 1999 plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code, nonstatutory stock
options, restricted stock awards and other stock-based awards.
Our officers, employees, directors, consultants and advisors and those of
our subsidiaries are eligible to receive awards under the 1999 plan. Under
present law, however, incentive stock options may only be granted to employees.
No participant may receive any award for more than 800,000 shares in any
calendar year.
Optionees receive the right to purchase a specified number of shares of our
common stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. We may grant
options at an exercise price less than, equal to or greater than the fair market
value of our common stock on the date of grant. Under present law, incentive
stock options and options intended to qualify as performance-based compensation
under Section 162(m) of the Internal Revenue Code may not be granted at an
exercise price less than the fair market value of the common stock on the date
of grant or less than 110% of the fair market value in the case of incentive
stock options granted to optionees holding more than 10% of the voting power of
Breakaway. The 1999 plan permits our Board of Directors to determine how
optionees may pay the exercise price of their options, including by cash, check
or in connection with a "cashless exercise" through a broker, by surrender to us
of shares of common stock, by delivery to us of a promissory note, or by any
combination of the permitted forms of payment.
As of June 30, 1999, approximately 215 persons would have been eligible to
receive awards under the 1999 plan, including eight executive officers and three
non-employee directors. The granting of awards under the 1999 plan is
discretionary.
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Our Board of Directors administers the 1999 plan. Our Board of Directors has
the authority to adopt, amend and repeal the administrative rules, guidelines
and practices relating to the plan and to interpret its provisions. It may
delegate authority under the 1999 plan to one or more committees of the Board of
Directors and, subject to certain limitations, to one or more of our executive
officers. Subject to any applicable limitations contained in the 1999 plan, our
Board of Directors or a committee of the Board of Directors or executive officer
to whom our Board of Directors delegates authority, as the case may be, selects
the recipients of awards and determines:
- The number of shares of common stock covered by options and the dates upon
which such options become exercisable;
- The exercise price of options;
- The duration of options; and
- The number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including the conditions for repurchase, issue price and repurchase price.
In the event of a merger, liquidation or other acquisition event, our Board
of Directors is authorized to provide for outstanding options or other
stock-based awards to be assumed or substituted for by the acquiror. If the
acquiror refuses to assume or substitute for outstanding options, they will
accelerate, becoming fully exercisable and free of restrictions, prior to
consummation of the acquisition event. In addition, following an acquisition
event, under some circumstances, an assumed or substituted award will accelerate
if the employment of its holder with the acquiror is terminated within one year
of the acquisition event.
No award may be granted under the 1999 plan after July 19, 2009, but the
vesting and effectiveness of awards previously granted may extend beyond that
date. Our Board of Directors may at any time amend, suspend or terminate the
1999 plan, except that no award granted after an amendment of the 1999 plan and
designated as subject to Section 162(m) of the Internal Revenue Code by our
Board of Directors shall become exercisable, realizable or vested, to the extent
the amendment was required to grant the award, unless and until the amendment is
approved by our stockholders.
1999 EMPLOYEE STOCK PURCHASE PLAN. Our 1999 Employee Stock Purchase Plan
was adopted by our Board of Directors and approved by our stockholders in July
1999. The purchase plan authorizes the issuance of up to a total of 500,000
shares of our common stock to participating employees.
The following employees, including our directors who are employees and
employees of any participating subsidiaries, are eligible to participate in the
purchase plan:
- Employees who are customarily employed for more than 20 hours per week and
for more than five months per year; and
- Employees employed for at least three months prior to enrolling in the
purchase plan.
Employees who would immediately after the grant own 5% or more of the total
combined voting power or value of our stock or any subsidiary are not eligible
to participate. As of June 30, 1999, approximately 92 of our employees would
have been eligible to participate in the purchase plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), we will grant to each eligible employee who has elected to participate
in the purchase plan an option to purchase shares of our common stock as
follows: the employee may authorize between 1% to 10% of his or her base pay to
be deducted by us from his or her base pay during the Offering Period. On the
last day of the Offering Period, the employee is deemed to have exercised the
option, at the option exercise price, to the extent of accumulated payroll
deductions. Under the terms of the purchase plan, the option
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<PAGE>
price is an amount equal to 85% of the per share closing price of our common
stock on either the first
day or the last day of the Offering Period, whichever is lower. In no event may
an employee purchase under the purchase plan in any year a number of shares
which exceeds the number of shares determined by dividing $25,000 by the average
market price of a share of common stock on the commencement date of the Offering
Period.
The first Offering Period under the purchase plan will commence on the date
on which trading of our common stock commences on the Nasdaq National Market,
and will terminate six months later. The Board of Directors will choose the
timing and length of subsequent Offering Periods.
An employee who is not a participant on the last day of the Offering Period
is not entitled to exercise any option, and the employee's accumulated payroll
deductions will be refunded. An employee's rights under the purchase plan
terminate upon voluntary withdrawal from the purchase plan at any time, or when
the employee ceases employment for any reason.
EMPLOYMENT AGREEMENTS
On November 13, 1998 we entered into an employment agreement with Mr.
Brooks. Under the terms of his agreement, Mr. Brooks' employment will continue
until November 30, 2000 unless sooner terminated by us for cause. Mr. Brooks
receives a base salary of $20,833 per month and he is eligible to receive an
annual performance bonus of up to $100,000. If Mr. Brooks' employment is
terminated by us without cause, he will continue to receive his base salary for
a period of either six months, if the termination is prior to the first
anniversary of his employment by Breakaway, or twelve months, if the termination
is after the first anniversary of his employment by Breakaway.
On April 29, 1999, pursuant to the terms of a separation agreement of the
same date, Mr. Selldorff resigned as an officer of Breakaway. Under the terms of
the separation agreement, Mr. Selldorff agreed to continue to serve as a
director of Breakaway and agreed to waive his right to receive severance
payments equal to one year's salary to which he was entitled under his
employment agreement, dated December 11, 1998. In connection with Mr.
Selldorff's resignation, his employment agreement terminated.
On February 11, 1999 we entered into a one year employment agreement with
Ms. Tremlett which will automatically renew itself for successive one year
periods unless we terminate her employment. Under the terms of her agreement,
Ms. Tremlett receives a base salary of $14,833 per month. She will also be
eligible to receive a performance bonus of up to 30% of her annual salary,
subject to meeting specified performance targets. If Ms. Tremlett is terminated
by us without cause, she will continue to receive her salary for an additional
seven and one-half months. Ms. Tremlett's employment agreement also entitles her
to receive, subject to board approval, an option to purchase 90,000 shares of
our common stock at a per share exercise price of $1.42.
In February 1999 we entered into an employment agreement with Mr. Harding.
Under the terms of his agreement, Mr. Harding's employment shall continue until
March 2001 and the agreement will renew itself for a successive two year term
expiring March 2003 unless sooner terminated. Mr. Harding received a bonus of
$50,000 on his starting date and currently receives a base salary of $18,333 per
month. In addition, he is eligible to receive a target bonus equal to 30% of his
base salary based on Breakaway's profitability. If Mr. Harding is terminated by
us without cause or if Mr. Harding terminates his employment for good reason, he
will be entitled to receive payments in an amount up to one year's salary. Also,
upon the occurrence of:
- A public offering of our common stock;
- A sale of all or substantially all of our assets or shares of our capital
stock;
- A merger or consolidation; or
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<PAGE>
- A liquidation or dissolution of Breakaway,
any unvested options to purchase our common stock held by Mr. Harding will vest
in full. Mr. Harding's employment agreement also provides for a grant of a stock
option to purchase 757,813 shares of our common stock, subject to board
approval.
On March 2, 1999 we entered into an employment agreement with Mr. Saunders.
Under the terms of his employment agreement, Mr. Saunders receives a base salary
of $17,500 per month and he is eligible for a performance bonus of up to 30% of
his annual salary. In addition, Mr. Saunders will receive, subject to board
approval, stock options to purchase 220,000 shares of our common stock.
On March 25, 1999 we entered into an employment agreement with Mr. Farzami.
Under the terms of his agreement, Mr. Farzami will receive a base salary of
$15,833 per month. He will also be eligible to receive a bonus of up to 30% of
his annual salary, subject to meeting specified performance targets. If Mr.
Farzami's employment is terminated by us without cause, he will be entitled to:
- Payments equal to six months of his base salary;
- Payments equal to his most recent cash bonus; and
- Acceleration of vesting with respect to shares of our common stock and
options to purchase our common stock held by Mr. Farzami at the time of
his termination as if his employment with us had continued uninterrupted
for an additional 12 months.
On March 25, 1999 we entered into an employment agreement with Mr.
Ittycheria. Under the terms of his agreement, Mr. Ittycheria receives a base
salary of $15,833 per month. He will also be eligible to receive a bonus of up
to 30% of his annual salary, subject to meeting specified performance targets.
If Mr. Ittycheria's employment is terminated by us without cause, he will be
entitled to:
- Payments equal to six months of his base salary;
- A payment equal to his most recent cash bonus; and
- Acceleration of vesting with respect to shares of our common stock and
options to purchase our common stock held by Mr. Ittycheria at the time of
his termination as if his employment with us had continued uninterrupted
for an additional twelve months.
On May 17, 1999, we entered into an employment agreement with Mr. Loftus.
Under the terms of his agreement, Mr. Loftus receives a base salary of $16,667
per month. He will also be eligible to receive a bonus of up to 30% of his
annual salary, subject to meeting specified performance targets. Upon the
occurrence of a change of control of Breakaway, any options granted to Mr.
Loftus to purchase our common stock will automatically vest in full. If Mr.
Loftus' employment is terminated by us without cause or if his compensation and
benefits are materially reduced, he will be entitled to:
- Payments equal to nine months of his base salary;
- Payments equal to the pro rated amount of his quarterly profit sharing
payment; and
- Acceleration of vesting of options to purchase our common stock held by
Mr. Loftus at the time of his termination as if his employment with us had
continued uninterrupted for an additional 12 months.
On May 29, 1998 we entered into an employment agreement with Mr. Comerford.
Under the terms of his agreement, Mr. Comerford receives a monthly salary of
$10,416 and he is eligible to receive a bonus of up to 20% of his base salary.
The agreement further provides that, subject to board approval, he may receive
stock options to purchase up to 45,000 shares of our common stock.
On November 13, 1998 we accepted the resignation of Ms. Purcell, our former
Vice President of Sales and Marketing. Under the terms of a letter agreement
with Ms. Purcell, she received salary
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continuation payments for a period of ten weeks after her resignation. In
addition, the agreement provides that, for a period of ten months, Ms. Purcell
will provide assistance to us with respect to matters within her knowledge while
she was employed by us.
401(K) PLAN. In September 1995, we adopted an employee savings and
retirement plan qualified under Section 401 of the Internal Revenue Code and
covering all of our employees. Pursuant to the 401(k) plan, employees may elect
to reduce their current compensation by up to the statutorily prescribed annual
limit and have the amount of such reduction contributed to the 401(k) plan. We
may make matching or additional contributions to the 401(k) plan in amounts to
be determined annually by our Board of Directors. For 1999, the Board has
determined that Breakaway will contribute up to 25% of our employee's initial 6%
of eligible contributions. Prior to 1999, Breakaway did not match or contribute
to employee's 401(k) plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Breakaway does not have a compensation committee of its Board of Directors.
During 1998, our entire Board of Directors, including our present and former
Chief Executive Officers, who are also directors, determined the compensation of
our executive officers.
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CERTAIN TRANSACTIONS
INTERNET CAPITAL GROUP
Internet Capital Group currently owns 49.7% of our common stock, assuming
the exercise in full of the outstanding common stock purchase warrant held by
Internet Capital Group and the conversion of all shares of our preferred stock
to common stock. After this offering, Internet Capital Group will own % of our
common stock. Our Chairman of the Board of Directors, Christopher H. Greendale,
serves as a Managing Director of Operations of Internet Capital Group and our
director, Walter W. Buckley, is a co-founder and serves as President, Chief
Executive Officer and a director of Internet Capital Group. Internet Capital
Group held approximately 13.5% of the outstanding capital stock of Applica,
immediately prior to our acquisition of Applica and received 121,212 shares of
Breakaway common stock in exchange for its Applica stock. See
"Acquisitions--Applica Corporation."
On May 13, 1999, we borrowed $4,000,000 from Internet Capital Group and
issued Internet Capital Group a promissory note for $4,000,000 bearing interest
at the prime interest rate plus one percent. This promissory note was
convertible, at Internet Capital Group's option, into convertible preferred
stock of Breakaway issued in Breakaway's next round of equity financing of
greater than $8,000,000. Internet Capital Group converted this note in our
Series B Preferred Stock financing. See "Preferred Stock Issuances--Series B
Preferred Stock." In connection with this transaction, we issued Internet
Capital Group a warrant to purchase 92,341 shares of our common stock. The
shares issuable upon exercise of this warrant are subject to antidilution
protection, including for issuances of Breakaway securities at a per share price
below the warrant's exercise price. Shares issued on exercise of the warrant
have the benefit of the registration rights agreement between Breakaway, ICG and
other investors. See "Preferred Stock Issuances--Series A Preferred Stock" and
"--Series B Preferred Stock."
We provide our services to Internet Capital Group and some of its affiliated
entities. During the first three months of 1999, our total pro forma revenues
derived from engagements with Internet Capital Group and its affiliates were
$320,951.
PREFERRED STOCK ISSUANCES
SERIES A PREFERRED STOCK. On January 4, 1999, we issued 5,853,000 shares of
our Series A Preferred Stock to Internet Capital Group at $1.42 per share.
Immediately before the closing of this transaction, Internet Capital Group was
not affiliated with Breakaway.
In connection with this transaction, we entered into an Investor Rights
Agreement pursuant to which Internet Capital Group is entitled to both
registration rights under the Securities Act with respect to the Series A shares
and a right of first offer on Internet Capital Group's pro rata share of
specified new issuances of securities by Breakaway. The right of first offer
terminates upon the closing of this offering and is not applicable to shares
issued in this offering.
Also in connection with this transaction, we entered into a Stockholder
Agreement with Internet Capital Group and our director, Frank Selldorff. This
Agreement provides that if Mr. Selldorff proposes to transfer any of our equity
securities, Breakaway shall have a first right and Internet Capital Group shall
have a second right of first refusal to acquire the securities on the proposed
terms. The agreement also provides that Internet Capital Group will have co-sale
rights if Mr. Selldorff proposes to transfer any of our securities. Internet
Capital Group has the right to participate pro rata in the proposed transfer.
This agreement terminates upon the closing of this offering.
SERIES B PREFERRED STOCK. On July 2 and July 12, 1999, we issued an
aggregate of 2,931,849 shares of our Series B Preferred Stock to 13 investors at
$6.50 per share. Internet Capital Group purchased 769,514 Series B Shares in the
transaction for consideration in the aggregate of $4,999,994, $4,053,425 of
which was paid by conversion of its convertible promissory note issued by
Breakaway on May 13,
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1999. Other major investors in this transaction included GE Equity, Intel
Corporation, entities affiliated with Omega Venture Partners and entities
affiliated with Morgan Stanley.
In connection with this transaction, we amended and restated the Investor
Rights Agreement entered into for the Series A transaction to add that all
investors in the Series B transaction be entitled to both registration rights
under the Securities Act with respect to the Series B shares and a right of
first offer on their pro rata share of specified new issuances of securities by
Breakaway. The rights of first offer terminate upon the closing of this offering
and are not applicable to shares issued in this offering.
Also in connection with this transaction, we amended and restated the
Stockholder Agreement entered into for the Series A transaction to add the
Series B investors and our President, Chief Executive Officer and director,
Gordon Brooks, as parties. This Agreement provides that if Mr. Selldorff
proposes to transfer any of our equity securities, Breakaway shall have a first
right and each Series B investor, on a pro rata basis, shall have a second right
of first refusal to acquire the securities on the proposed terms. The agreement
also provides that the Series B investors will have co-sale rights if any of the
Series B investors, Mr. Brooks or Mr. Selldorff proposes to transfer any of our
securities. This agreement terminates upon the closing of this offering.
ACQUISITIONS
APPLICA CORPORATION. On March 25, 1999, we entered into an Agreement and
Plan of Reorganization with Applica Corporation pursuant to which Applica merged
with and into Breakaway. Under the terms of the agreement, we issued an
aggregate of 904,624 shares of our common stock to the former stockholders of
Applica, including:
- 121,202 shares to Internet Capital Group;
- 207,019 shares to our Vice President, Corporate Development, Babak
Farzami; and
- 155,265 shares to our Vice President, Application Hosting Services, Dev
Ittycheria.
45,231 shares of our common stock are being held in escrow to secure
indemnification obligations to Breakaway Solutions under the agreement.
Immediately before the closing of this transaction, neither Mr. Farzami nor
Mr. Ittycheria was affiliated with Breakaway Solutions.
In connection with this transaction, each of Mr. Farzami and Mr. Ittycheria
entered into Stockholder Agreements with Breakaway and Internet Capital Group
pursuant to which if either proposes to transfer any of Breakaway's equity
securities, Breakaway will have a first right and Internet Capital Group shall
have a second right of first refusal to acquire the securities on the proposed
terms. Each agreement also provides that Internet Capital Group will have
co-sale rights with respect to transfers of our securities by Mr. Farzami or Mr.
Ittycheria. These agreements terminate upon the closing of this offering.
WPL LABORATORIES, INC. On May 17, 1999, we entered into an Agreement and
Plan of Reorganization with WPL Laboratories, Inc., Celtic Acquisition Corp.,
William Loftus, John Loftus, David Perme and Kevin Sheehan pursuant to which WPL
merged with and into Celtic Acquisition. Celtic Acquisition is a wholly owned
subsidiary of Breakaway formed for the purpose of acquiring WPL. William Loftus
is our Vice President, Internet Solutions. John Loftus is a member of William
Loftus' immediate family. Immediately before the closing of this transaction,
William Loftus was not affiliated with Breakaway.
Under the terms of the agreement with WPL stockholders, our purchase price
consisted of cash in the aggregate amount of $4,999,860 and 1,705,175 shares of
our common stock, of which $3,399,905 in
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<PAGE>
cash and 1,159,520 shares were issued to William Loftus and $999,972 in cash and
341,035 shares were issued to John Loftus. One-half of the aggregate cash
consideration was paid at the closing of the acquisition. Twenty-five percent of
the cash consideration will be paid pro rata to the stockholders on May 17, 2000
and the remaining 75% will be paid pro rata to the stockholders in equal monthly
installments over the next 36 months for as long as the recipient does not
voluntarily terminate his employment with Breakaway and is not terminated by
Breakaway for cause.
In connection with our acquisition of WPL, each of William Loftus and John
Loftus entered into Stockholder Agreements with Breakaway and Internet Capital
Group pursuant to which if either proposes to transfer any of Breakaway's equity
securities, Breakaway will have a first right and Internet Capital Group shall
have a second right of first refusal to acquire the securities on the proposed
terms. Each agreement also provides that Internet Capital Group will have
co-sale rights with respect to transfers of our securities by William Loftus or
John Loftus. These agreements terminate upon the closing of this offering.
445,968 of the shares of common stock issued to William Loftus and 131,167
of the shares of common stock issued to John Loftus are subject to the terms of
Stock Restriction Agreements, granting Breakaway a repurchase right for these
shares in the event William Loftus' or John Loftus' employment at Breakaway is
terminated voluntarily by William Loftus or John Loftus, as appropriate, or for
cause by Breakaway. Breakaway's right of repurchase expires as to 25% of the
shares subject to each agreement on May 14, 2000 and as to the remaining 75% of
the shares ratably over the ensuing 36 months. Breakaway's repurchase rights
under these agreements terminate upon a change in control of Breakaway or if
William Loftus or John Loftus, as appropriate, is terminated by Breakaway for
reasons other than for cause.
We agreed to loan $346,678 to William Loftus and $104,809 to John Loftus at
the prime interest rate plus one percent in order to fund their tax liabilities
associated with this transaction. Each of William Loftus and John Loftus issued
to Breakaway a promissory note secured by a pledge of 428,130 shares of our
common stock, in the case of William Loftus, and 125,921 shares of our common
stock, in the case of John Loftus, to document and serve as security for these
loans.
Pursuant to our acquisition of WPL, we assumed WPL options held by Daniel
Loftus, John Loftus, Sr. and Veena Loftus, each of whom are members of William
Loftus' immediate family. These options will become exercisable pursuant to
their terms in the following amounts:
- Daniel Loftus' option became exercisable for 5,283 shares of our common
stock at a per share exercise price of $2.38;
- John Loftus, Sr.'s option became exercisable for 5,283 shares of our
common stock at a per share exercise price of $2.38; and
- Veena Loftus' option became exercisable for 10,566 shares of our common
stock at a per share exercise price of $2.38.
FRANK SELLDORFF
Frank Selldorff is our founder, a former Chairman of our Board of Directors,
a former Chief Executive Officer and executive officer of Breakaway, and
presently serves as one of our directors. He currently owns 18.0% of our common
stock, assuming the conversion of all shares of our preferred stock to common
stock.
On May 26, 1999, Mr. Selldorff exercised a stock option to purchase 750,000
shares of common stock at a per share purchase price of $0.54 per share.
On January 4, 1999, Breakaway changed its federal income tax status from an
S corporation to a C corporation. In connection with this change, we entered
into an agreement with Mr. Selldorff to
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<PAGE>
facilitate Breakaway's change in tax status. Pursuant to this agreement, Mr.
Selldorff agreed to indemnify Breakaway for all income tax liability prior to
January 4, 1999 related to Breakaway's failure to qualify as an S corporation,
up to a maximum of $365,000.
On December 23, 1998, Breakaway entered into a Redemption Agreement with
Frank Selldorff, John Selldorff and two other stockholders of Breakaway.
Pursuant to this agreement, Breakaway repurchased an aggregate of 3,154,500
shares of our common stock at a per share repurchase price of $1.4167, including
2,848,500 shares from Frank Selldorff and 150,000 shares from John Selldorff for
an aggregate amount of $4,468,980. John Selldorff is a member of Frank
Selldorff's immediate family.
GORDON BROOKS
Gordon Brooks, our President and Chief Executive Officer and a director,
presently beneficially owns 5.2% of our common stock, assuming the conversion of
all shares of our preferred stock to common stock. On March 5, 1999, Mr. Brooks
exercised a stock option to purchase 70,587 shares of common stock at a per
share purchase price of $1.42.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with many of our executive
officers. See "Executive Compensation--Employment Agreements."
STOCK OPTIONS
Since our adoption of the 1998 Stock Plan, we have issued options to
purchase an aggregate of 7,344,582 shares of our common stock to our directors
and executive officers at a per share weighted average exercise price of $1.23.
In addition, we have issued the following stock options:
- Effective March 19, 1999 we issued to Thomas Harding, a member of
Christopher Harding's immediate family, an option to purchase 15,000
shares of common stock at a per share exercise price of $1.57;
- Effective March 25, 1999 we issued to Babak Farzami, our Vice President,
Corporate Development, an option to purchase 423,011 shares of common
stock at a per share exercise price of $1.57; and
- Effective March 25, 1999 we issued to Dev Ittycheria, our Vice President,
Field Operations, an option to purchase 317,258 shares of common stock at
a per share exercise price of $1.57.
We have adopted a policy providing that all material transactions between us
and our officers, directors and other affiliates must be:
- Approved by a majority of the members of our Board of Directors and by a
majority of the disinterested members of our Board of Directors; and
- On terms no less favorable to us than could be obtained from unaffiliated
third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of July 15, 1999, and as adjusted to reflect
the sale of the shares of common stock in this offering, by:
- Each person we know to own beneficially more than 5% of our common stock;
- Each of our directors;
- Each of the Named Executive Officers; and
- All directors and executive officers as a group.
Except as indicated below, none of these persons has a relationship with us.
Unless otherwise indicated, each person named in the table has sole voting power
and investment power, or shares such power with his or her spouse, with respect
to all shares of capital stock listed as owned by such person. The address of
each of our officers and directors is c/o Breakaway Solutions, Inc., 50 Rowes
Wharf, Boston, Massachusetts 02110.
The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission and assumes
the underwriters do not exercise their over-allotment option. The information is
not necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares as to which the individual
has sole or shared voting power or investment power and any shares as to which
the individual has the right to acquire beneficial ownership within 60 days
after July 15, 1999 through the exercise of any stock option, warrant or other
right. The inclusion in the following table of those shares, however, does not
constitute an admission that the named stockholder is a direct or indirect
beneficial owner of those shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
STOCK OUTSTANDING
-------------------
<S> <C> <C> <C>
NUMBER OF SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------------------------------------------ ------------------ -------- --------
5% STOCKHOLDERS
Christopher H. Greendale(1)................................. 8,771,067 50.0% %(2)
Internet Capital Group, Inc.(3) ............................ 8,666,067 49.7
Walter W. Buckley, III(4)................................... 8,666,067 49.7
Frank Selldorff(5).......................................... 3,871,500 21.4
Gordon Brooks(6)............................................ 955,781 5.2 (7)
OTHER DIRECTORS AND EXECUTIVE OFFICERS:
Patricia Purcell............................................ 0.0 0.0
All executive officers and directors as a group (12 persons,
including one former executive officer)(8)................ 15,577,167 79.4
</TABLE>
- ------------------------
* Less than 1%
(1) Consists of 105,000 shares subject to outstanding stock options which are
exercisable within the 60-day period following June 30, 1999 and 8,666,067
shares held by Internet Capital Group. Mr. Greendale is a Managing Director
of Internet Capital Group. Mr. Greendale disclaims beneficial ownership of
all shares held by Internet Capital Group.
(2) Includes 693,000 shares subject to outstanding stock options which vest in
full upon the closing of this offering.
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<PAGE>
(3) Includes 92,341 shares issuable upon the exercise of a warrant.
(4) Consists of 8,666,067 shares held by Internet Capital Group. Mr. Buckley is
President, Chief Executive Officer and a director of Internet Capital Group.
Mr. Buckley disclaims beneficial ownership of all shares held by Internet
Capital Group.
(5) Includes 750,000 shares subject to outstanding stock options which are
exercisable within the 60-day period following June 30, 1999.
(6) Includes 885,194 shares subject to outstanding stock options which are
exercisable within the 60-day period following June 30, 1999.
(7) Includes 2,102,719 shares subject to outstanding stock options which vest in
full upon the closing of this offering.
(8) Includes 2,197,209 shares subject to outstanding options which are
exercisable within the 60-day period following June 30, 1999. Also includes
92,341 shares issuable upon the exercise of a warrant held by Internet
Capital Group and 8,666,067 shares held by Internet Capital Group, all of
which are attributable to two of our directors.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
After this offering, the authorized capital stock of Breakaway will consist
of 100,000,000 shares of common stock, $0.0001 par value per share, and
5,000,000 shares of preferred stock, $0.001 par value per share. As of June 30,
1999, we had outstanding:
- 8,547,499 shares of common stock held by 50 stockholders of record; and
- options to purchase an aggregate of 8,946,672 shares of our common stock
with a weighted average strike price of $1.43.
The following summary of certain provisions of our common stock, preferred
stock, certificate of incorporation and by-laws is not intended to be complete.
It is qualified by reference to the provisions of applicable law and to our
certificate of incorporation and by-laws included as exhibits to the
registration statement of which this prospectus is a part. See "Where Can You
Find More Information."
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any dividends as may be declared by our Board of Directors,
subject to any preferential dividend rights of outstanding preferred stock. Upon
our liquidation, dissolution or winding up, the holders of common stock are
entitled to receive proportionately our net assets available after the payment
of all debts and other liabilities and subject to the prior rights of any
outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. Our outstanding shares of common
stock are, and the shares offered by us in this offering will be, when issued
and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which we may designate and issue in the future.
PREFERRED STOCK
Under the terms of our certificate of incorporation, our Board of Directors
is authorized to issue shares of preferred stock in one or more series without
stockholder approval. Our Board of Directors has the discretion to determine the
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock.
The purpose of authorizing our Board of Directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or could discourage a third party from acquiring, a
majority of our outstanding voting stock. We have no present plans to issue any
shares of preferred stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the
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interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the prior three years did own, 15% or more of the corporation's voting
stock.
Our certificate of incorporation divides our Board of Directors into three
classes with staggered three-year terms. See "Management." In addition, our
certificate of incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of two-thirds of our shares of
capital stock entitled to vote. Under our certificate of incorporation, any
vacancy on our Board of Directors, including a vacancy resulting from an
enlargement of our Board of Directors, may only be filled by vote of a majority
of our directors then in office. The classification of our Board of Directors
and the limitations on the removal of directors and filling of vacancies could
make it more difficult for a third party to acquire, or discourage a third party
from acquiring, control of Breakaway.
Our certificate of incorporation also provides that any action required or
permitted to be taken by our stockholders at an annual meeting or special
meeting of stockholders may only be taken if it is properly brought before such
meeting and may not be taken by written action in lieu of a meeting. Our
certificate of incorporation further provides that special meetings of the
stockholders may only be called by our Chairman of the Board, President or Board
of Directors. Under our by-laws, in order for any matter to be considered
"properly brought" before a meeting, a stockholder must comply with certain
advance notice requirements. These provisions could have the effect of delaying
until the next stockholders' meeting stockholder actions which are favored by
the holders of a majority of our outstanding voting securities. These provisions
may also discourage a third party from making a tender offer for our common
stock, because even if it acquired a majority of our outstanding voting
securities, the third party would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly called
stockholders' meeting, and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Our certificate of incorporation and by-laws
require the affirmative vote of the holders of at least 75% of the shares of our
capital stock issued and outstanding and entitled to vote to amend or repeal any
of the provisions described in the prior two paragraphs.
Our certificate of incorporation contains certain provisions permitted under
the General Corporation Law of Delaware relating to the liability of directors.
The provisions eliminate a director's liability for monetary damages for a
breach of fiduciary duty, except in certain circumstances involving wrongful
acts, such as the breach of a director's duty of loyalty or acts or omissions
that involve intentional misconduct or a knowing violation of law. Further, our
certificate of incorporation contains provisions to indemnify our directors and
officers to the fullest extent permitted by the General Corporation Law of
Delaware. We believe that these provisions will assist us in attracting and
retaining qualified individuals to serve as directors.
REGISTRATION RIGHTS
After this offering, the holders of approximately 8,877,190 shares of common
stock and rights to acquire common stock will be entitled to rights with respect
to the registration of those shares under the Securities Act. Under the terms of
the agreement between Breakaway and the holders of those registrable shares, if
we propose to register any of our securities under the Securities Act, either
for our own account or for the account of other security holders exercising
registration rights, those holders are entitled to notice of and to include
shares of common stock in the registration. Additionally, the holders are also
entitled to specified demand registration rights pursuant to which they may
require us on up to two occasions to file a registration statement under the
Securities Act at our expense with respect to our shares of common stock, and we
are required to use our best efforts to
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<PAGE>
effect that registration. Further, holders may require us to file an unlimited
number of additional registration statements on Form S-3 at our expense. All of
these registration rights are subject to various conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in a registration and our right not to effect a requested
registration more than once in any one year period or within 180 days of this
offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is BankBoston, N.A.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our securities.
After we complete this offering, based upon the number of shares outstanding at
March 31, 1999, there will be shares of our common stock outstanding
(assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options to purchase common stock). Of these outstanding shares,
the shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act of 1933, except
that any shares purchased by our "affiliates", as that term is defined in Rule
144 under the Securities Act, may generally only be sold in compliance with the
limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining shares of common stock outstanding after this offering
are deemed "restricted securities" under Rule 144. All of these shares are
subject to lock-up agreements with representatives of the underwriters which
expire 180 days after the date of this prospectus. Upon expiration of the
lock-up agreements approximately 2,025,211 shares of our common stock will be
eligible for sale in the public market subject to the provisions of Rule 144 or
Rule 701 under the Securities Act.
Our officers and directors and stockholders, who in the aggregate hold
approximately 15,577,167 shares, or 79.4%, of our common stock (including
2,289,550 shares of common stock that may be acquired pursuant to the exercise
of options held by them) on the date of this prospectus, have agreed that, for a
period of 180 days after the date of this prospectus, they will not sell,
consent to sell or otherwise dispose of any shares of our common stock, or any
shares convertible into or exchangeable for shares of our common stock, owned
directly by such persons or with respect to which they have the power of
disposition, without the prior written consent of Morgan Stanley & Co.
Incorporated, acting on behalf of the representatives of the underwriters.
In general, under Rule 144 a stockholder, including one of our affiliates,
who has beneficially owned his or her restricted securities for at least one
year is entitled to sell, within any three-month period commencing 90 days after
the date of this prospectus, a number of shares that does not exceed the greater
of 1% of the then outstanding shares of our common stock (approximately
shares immediately after this offering) or the average weekly trading volume in
our common stock during the four calendar weeks preceding the date on which
notice of such sale was filed under Rule 144, provided certain requirements
concerning availability of public information, manner of sale and notice of sale
are satisfied. In addition, a stockholder that is not one of our affiliates at
any time during the three months preceding a sale and who has beneficially owned
the shares proposed to be sold for at least two years is entitled to sell the
shares immediately under Rule 144(k) without compliance with the above described
requirements under Rule 144.
Securities issued in reliance on Rule 701 (such as shares of our common
stock acquired pursuant to the exercise of certain options granted under our
stock plans) are also restricted securities and, beginning 90 days after the
date of this prospectus, may be sold by stockholders other than our affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year holding period requirement.
STOCK OPTIONS
We intend to file registration statements on Form S-8 under the Securities
Act to register all shares of common stock issuable under the 1998 plan, the
1999 plan and the purchase plan. We intend to file registration statements on
Form S-8 with respect to the aggregate of 500,000 shares of common stock
issuable under the purchase plan promptly following the consummation of this
offering and intend to file registration statements on Form S-8 relating to the
aggregate of 16,150,335 shares of
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<PAGE>
common stock issuable under the 1998 plan and the 1999 plan following the 180th
day after the date of this prospectus. Shares issued upon the exercise of stock
options after the effective date of the Form S-8 registration statements will be
eligible for resale in the public market without restriction, subject to Rule
144 limitations applicable to affiliates and the lock-up agreements noted above,
if applicable.
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for our common
stock, and no prediction can be made as to the effect, if any, that market sales
of shares of common stock or the availability of shares for sale will have on
the market price of our common stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of our common stock in the public market
could adversely affect the market price of the common stock and could impair our
future ability to raise capital through an offering of our equity securities.
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<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement, the underwriters named below, for whom Morgan Stanley & Co.
Incorporated, Lehman Brothers Inc. and Adams, Harkness & Hill, Inc. are acting
as representatives, have severally agreed to purchase, and we have agreed to
sell to them, the respective number of shares of common stock set forth opposite
the names of the underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------------------- -----------
<S> <C>
Morgan Stanley & Co. Incorporated......................................................................
Lehman Brothers Inc....................................................................................
Adams, Harkness & Hill, Inc............................................................................
-----------
Total................................................................................................
-----------
-----------
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered in this offering are
subject to the approval of various legal matters by their counsel and to other
delineated conditions. The underwriters are obligated to take and pay for all of
the shares of common stock offered in this offering, other than those covered by
the over-allotment option described below, if any shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to dealers at a price that represents a
concession not in excess of $ a share under the public offering
price. Any underwriters may allow, and the dealers may reallow, a concession not
in excess of $ a share to other underwriters or to other dealers.
After the initial offering of the shares of common stock, the offering price and
other selling terms may from time to time be varied by the representatives of
the underwriters.
Breakaway has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price set forth on the
cover page of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered in this offering. To the extent such option is exercised,
each underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of common
stock as the number set forth next to such underwriter's name in the preceding
table bears to the total number of shares of common stock set forth next to the
names of all underwriters in the preceding table. If the underwriter's
over-allotment option is exercised in full, the total price to public would be
$ , the total underwriters' discounts and commissions would be
$ , and the total proceeds to us would be $ .
We estimate expenses payable by us in connection with this offering, other
than the estimated underwriting discounts and commissions referred to above,
will be approximately $1.0 million.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to five percent of the shares of common stock offered
in this offering for our directors, officers, employees and related persons. The
number of shares of common stock available for sale to the general public will
be reduced to the extent such individuals purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered hereby.
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Breakaway Solutions, our directors and executive officers and certain other
of our stockholders and option holders have each agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, during the period ending 180 days after the date of this
prospectus, he, she or it will not, subject to limited exceptions, directly or
indirectly:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock (whether such shares
or any such securities are then owned by such person or are thereafter
acquired directly from us); or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have applied to list our common stock on the Nasdaq National Market under
the symbol "BWAY."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases the previously
distributed shares of common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
On July 2 and July 12, 1999, we sold shares of our Series B Preferred Stock
in a private placement. In this private placement, four entities affiliated with
Morgan Stanley & Co. Incorporated purchased an aggregate of 153,903 shares of
Series B Preferred Stock, which are convertible into an aggregate of 153,903
shares of common stock, for approximately $1,000,000, or $6.50 per share. These
entities purchased these shares on the same terms as the other investors in the
private placement.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the initial public offering price for the shares of
common stock will be determined by negotiations between Breakaway and the
representatives of the underwriters. Among the factors to be considered in
determining the initial public offering price will be:
- our record of operations, our current financial position and future
prospects;
- the experience of our management;
- sales, earnings and certain of our other financial and operating
information in recent periods; and
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<PAGE>
- the price-earnings ratios, price-sales ratios, market prices of securities
and certain financial and operating information of companies engaged in
activities similar to ours.
The estimated initial public offering price range set forth on the cover
page of this preliminary prospectus is subject to change as a result of market
conditions and other factors.
VALIDITY OF COMMON STOCK
The validity of the shares of common stock we are offering will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts and for the underwriters
by Ropes & Gray, Boston, Massachusetts.
INTERESTS OF COUNSEL
An affiliate of Hale and Dorr LLP owns 7,695 shares of Breakaway's Series B
Preferred Stock which it acquired in Breakaway's Series B financing in July 1999
for a per share purchase price of $6.50.
EXPERTS
The financial statements of Breakaway Solutions, Inc. as of December 31,
1997 and 1998 and for each of the years in the three year period ended December
31, 1998, have been included herein in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
authority of said firm as experts in auditing and accounting.
The financial statements of Applica Corporation as of December 31, 1998 and
from September 24, 1998 (inception) through December 31, 1998, have been
included herein in reliance upon the report of KPMG LLP, independent certified
public accountants, appearing elsewhere herein, and upon authority of said firm
as experts in auditing and accounting.
The financial statements of WPL Laboratories, Inc. as of December 31, 1997
and 1998, and for each of the years then ended, have been included herein in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Web Yes, Inc. and subsidiary as of
December 31, 1997 and 1998 and for each of the years then ended, have been
included herein in reliance upon the report of KPMG LLP, independent certified
public accountants, appearing elsewhere herein, and upon authority of said firm
as experts in auditing and accounting.
CHANGES IN INDEPENDENT AUDITORS
We retained our current independent auditors, KPMG LLP, and replaced Brown &
Brown, LLP in May 1999. Brown & Brown had been retained to audit our financial
statements as of and for the year ended December 31, 1998. In January 1999, we
retained Brown & Brown as our independent auditors, replacing Arthur Andersen
LLP. Arthur Andersen LLP had been retained to audit our financial statements as
of and for the year ended December 31, 1997. Our Board of Directors approved
each of the changes in our independent auditors. KPMG LLP has reaudited our
financial statements as of and for the years ended December 31, 1998 and
December 31, 1997.
During the years in which we retained Brown & Brown and Arthur Andersen LLP
and through the periods prior to each of their replacement, we had no
disagreements with either of Brown & Brown or Arthur Andersen LLP on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Brown & Brown or Arthur Andersen LLP, as appropriate, would have
caused either of them to make reference thereto in their report on the financial
statements for such years. The reports
60
<PAGE>
on our financial statements of Brown & Brown, as of December 31, 1998 and for
the year then ended, and of Arthur Andersen LLP, as of December 31, 1997 and for
the year then ended, did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the stock we are offering by this prospectus. This
prospectus does not include all of the information contained in the registration
statement. You should refer to the registration statement and its exhibits for
additional information. Whenever we make reference in this prospectus to any of
our contracts, agreements or other documents, the references are not necessarily
complete and you should refer to the exhibits attached to the registration
statement for copies of the actual contract, agreement or other document. When
we complete this offering, we will also be required to file annual, quarterly
and special reports, proxy statements and other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at HTTP://WWW.SEC.GOV. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade Center, Suite
1300, New York, New York 10048; and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. You may also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
facilities. Our SEC filings are also available at the office of the Nasdaq
National Market. For further information on obtaining copies of our public
filings at the Nasdaq National Market, you should call (212) 656-5060.
61
<PAGE>
BREAKAWAY SOLUTIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FINANCIAL STATEMENTS OF BREAKAWAY SOLUTIONS, INC.
Independent Auditors' Report............................................................................... F-2
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (unaudited)............................. F-3
Statements of Operations for the years ended December 31, 1996, 1997 and 1998 and for the three months F-4
ended March 31, 1998 and 1999 (unaudited)................................................................
Statements of Stockholders' Equity for the years ended December 31, 1996, 1997 and 1998 and for the three F-5
months ended March 31, 1999 (unaudited)..................................................................
Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 and for the three months F-6
ended March 31, 1998 and 1999 (unaudited)................................................................
Notes to Financial Statements.............................................................................. F-7
FINANCIAL STATEMENTS OF APPLICA CORPORATION
Independent Auditors' Report............................................................................... F-17
Balance Sheet as of December 31, 1998...................................................................... F-18
Statement of Operations from September 24, 1998 (inception) through December 31, 1998...................... F-19
Statement of Stockholders' Equity from September 24, 1998 (inception) through December 31, 1998............ F-20
Statement of Cash Flows from September 24, 1998 (inception) through December 31, 1998...................... F-21
Notes to Financial Statements.............................................................................. F-22
FINANCIAL STATEMENTS OF WPL LABORATORIES, INC.
Independent Auditors' Report............................................................................... F-25
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (unaudited)............................. F-26
Statements of Income for the years ended December 31, 1997 and 1998 and for the three months ended March F-27
31, 1998 and 1999 (unaudited)............................................................................
Statements of Stockholders' Equity for the years ended December 31, 1997 and 1998 and for the three months F-28
ended March 31, 1999 (unaudited).........................................................................
Statements of Cash Flows for the years ended December 31, 1997 and 1998 and for the three months ended F-29
March 31, 1998 and 1999 (unaudited)......................................................................
Notes to Financial Statements.............................................................................. F-30
FINANCIAL STATEMENTS OF WEB YES, INC.
Independent Auditors' Report............................................................................... F-35
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (unaudited)................ F-36
Consolidated Statements of Income for the years ended December 31, 1997 and 1998 and for the three months F-37
ended March 31, 1998 and 1999 (unaudited)................................................................
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997 and 1998 and for the F-38
three months ended March 31, 1999 (unaudited)............................................................
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1998 and for the three F-39
months ended March 31, 1998 and 1999 (unaudited).........................................................
Notes to Consolidated Financial Statements................................................................. F-40
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS FOR BREAKAWAY SOLUTIONS, INC.
Basis of Presentation...................................................................................... F-45
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1999........................................ F-46
Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 1998 and for the F-47
three months ended March 31, 1999........................................................................
Notes to Unaudited Pro Forma Consolidated Financial Statements............................................. F-49
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Breakaway Solutions, Inc.:
We have audited the accompanying balance sheets of Breakaway Solutions, Inc.
as of December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Breakaway Solutions, Inc. as
of December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
June 30, 1999, except for note 11
which is as of July 12, 1999
F-2
<PAGE>
BREAKAWAY SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 879,136 $ 16,954 $3,205,752
Accounts receivable, net of allowance for doubtful accounts of $65,000,
$131,000 and $142,560 in 1997, 1998 and 1999, respectively............. 960,830 1,445,994 1,911,534
Unbilled revenues on contracts........................................... 232,258 625,609 799,791
Prepaid expenses......................................................... 27,858 46,211 72,381
Advances to employees.................................................... -- 13,273 7,855
----------- ----------- -----------
Total current assets................................................... 2,100,082 2,148,041 5,997,313
----------- ----------- -----------
Property and equipment, net................................................ 397,102 553,566 911,487
Intangible assets.......................................................... -- -- 1,437,974
Cash surrender value of life insurance..................................... -- -- 62,441
Deposits................................................................... 35,726 40,877 30,528
----------- ----------- -----------
Total assets........................................................... $ 2,532,910 $ 2,742,484 $8,439,743
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit........................................................... $ -- $ 425,743 $1,001,991
Notes payable............................................................ -- -- 141,629
Long-term debt--current portion.......................................... 10,417 -- --
Capital lease obligation--current portion................................ 181,042 148,391 134,299
Accounts payable......................................................... 246,060 814,074 298,347
Accrued compensation and related benefits................................ 84,349 178,191 397,210
Accrued expenses......................................................... -- -- 68,111
Accrued acquisition costs................................................ -- -- 159,159
Deferred revenue on contracts............................................ -- 196,225 99,062
Stockholder distributions payable........................................ 434,843 -- --
----------- ----------- -----------
Total current liabilities.............................................. 956,711 1,762,624 2,299,808
----------- ----------- -----------
Capital lease obligation--long-term portion................................ 84,368 67,040 121,665
----------- ----------- -----------
Total long-term liabilities............................................ 84,368 67,040 121,665
----------- ----------- -----------
Total liabilities...................................................... 1,041,079 1,829,664 2,421,473
----------- ----------- -----------
Commitments and contingencies
Stockholders' equity:
Series A preferred stock $.0001 par value, 5,853,000 shares authorized at
December 31, 1998 and March 31, 1999, none issued and outstanding in
1997 and 1998, 5,853,000 shares issued and outstanding in 1999
(liquidation preference of $8,291,945)................................. -- -- 585
Common stock $.0001 par value, 22,100,000 shares authorized, 9,600,000
shares issued in 1997 and 1998 and 7,420,711 shares issued in 1999,
8,016,000, 7,656,000 and 5,476,711 shares outstanding in 1997, 1998 and
1999, respectively..................................................... 960 960 742
Additional paid-in capital............................................... -- -- 6,252,488
Less: Treasury stock, at cost............................................ (26) (32) (32)
Retained earnings (deficit).............................................. 1,490,897 911,892 (235,513)
----------- ----------- -----------
Total stockholders' equity............................................. 1,491,831 912,820 6,018,270
----------- ----------- -----------
Total liabilities and stockholders' equity............................. $ 2,532,910 $ 2,742,484 $8,439,743
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
BREAKAWAY SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------------ ------------ ------------- ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................. $ 3,462,134 $ 6,118,058 $ 10,017,947 $ 2,124,132 $ 3,111,035
------------ ------------ ------------- ------------ ------------
Operating expenses:
Project personnel costs................. 1,429,952 2,543,147 5,903,843 1,180,419 1,553,329
Sales and marketing costs 3,225 13,748 50,631 9,665 114,415
General and administrative expenses..... 1,364,895 2,545,580 4,763,657 780,620 1,689,580
------------ ------------ ------------- ------------ ------------
Total operating expenses.............. 2,798,072 5,102,475 10,718,131 1,970,704 3,357,324
------------ ------------ ------------- ------------ ------------
Income (loss) from operations......... 664,062 1,015,583 (700,184) 153,428 (246,289)
------------ ------------ ------------- ------------ ------------
Other income (expense):
Other income (expense).................. -- -- 160,000 (3,021) (6,994)
Interest income......................... 3,684 92,823 11,191 7,711 31,526
Interest expense........................ (28,557) (32,725) (43,127) (1,348) (13,756)
Loss on disposal of equipment........... (20,780) (2,030) (3,055) -- --
------------ ------------ ------------- ------------ ------------
Total other income (expense).......... (45,653) 58,068 125,009 3,342 10,776
------------ ------------ ------------- ------------ ------------
Net income (loss)..................... $ 618,409 $ 1,073,651 $ (575,175) $ 156,770 $ (235,513)
------------ ------------ ------------- ------------ ------------
------------ ------------ ------------- ------------ ------------
Net income (loss) per share--basic and
diluted................................. $ 0.07 $ 0.13 $ (0.07) $ 0.02 $ (0.05)
Weighted average common shares
outstanding............................. 8,301,633 8,016,000 8,000,877 8,016,000 4,698,186
Pro forma information (unaudited)
(note 9):
Income (loss) before taxes, as
reported.............................. $ 618,409 $ 1,073,651 $ (575,175) $ 156,770 $ (235,513)
Pro forma income taxes (benefit)........ 247,364 429,460 (195,560) 62,708 (80,074)
------------ ------------ ------------- ------------ ------------
Pro forma net income (loss)........... $ 371,045 $ 644,191 $ (379,615) $ 94,062 $ (155,439)
------------ ------------ ------------- ------------ ------------
------------ ------------ ------------- ------------ ------------
Pro forma net income (loss) per
share--basic and diluted................ $ 0.04 $ 0.08 $ (0.05) $ 0.01 $ (0.03)
Pro forma weighted average shares
outstanding............................. 8,301,633 8,016,000 8,000,877 8,016,000 4,698,186
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
BREAKAWAY SOLUTIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK ADDITIONAL TREASURY STOCK RETAINED TOTAL
----------------- ------------------ PAID-IN ------------------ EARNINGS STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT (DEFICIT) EQUITY
--------- ------ ---------- ------ ----------- ---------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995... -- $ -- 9,600,000 $960 $ -- -- $ -- $ 330,815 $ 331,775
Purchase of treasury
stock.................... -- -- -- -- -- (1,584,000) (26) -- (26)
Distributions to
stockholders............. -- -- -- -- -- -- -- (1,841) (1,841)
Net income................. -- -- -- -- -- -- -- 618,409 618,409
--------- ------ ---------- ------ ----------- ---------- ------ ---------- -------------
Balance, December 31, 1996... -- -- 9,600,000 960 -- (1,584,000) (26) 947,383 948,317
Distributions to
stockholders............. -- -- -- -- -- -- -- (530,137) (530,137)
Net income................. -- -- -- -- -- -- -- 1,073,651 1,073,651
--------- ------ ---------- ------ ----------- ---------- ------ ---------- -------------
Balance, December 31, 1997... -- -- 9,600,000 960 -- (1,584,000) (26) 1,490,897 1,491,831
Purchase of treasury
stock.................... -- -- -- -- -- (360,000) (6) -- (6)
Distributions to
stockholders............. -- -- -- -- -- -- -- (3,830) (3,830)
Net loss................... -- -- -- -- -- -- -- (575,175) (575,175)
--------- ------ ---------- ------ ----------- ---------- ------ ---------- -------------
Balance, December 31, 1998... -- -- 9,600,000 960 -- (1,944,000) (32) 911,892 912,820
S Corporation
termination.............. -- -- -- -- 911,892 -- -- (911,892) --
Issuance of preferred
stock.................... 5,853,000 585 -- -- 8,291,360 -- -- -- 8,291,945
Repurchase and retirement
of common stock.......... -- -- (3,154,500) (315) (4,468,665) -- -- -- (4,468,980)
Issuance of common stock
for acquired business.... -- -- 904,624 90 1,417,908 -- -- -- 1,417,998
Exercise of stock
options.................. -- -- 70,587 7 99,993 -- -- -- 100,000
Net loss................... -- -- -- -- -- -- -- (235,513) (235,513)
--------- ------ ---------- ------ ----------- ---------- ------ ---------- -------------
Balance, March 31, 1999
(Unaudited)................ 5,853,000 $585 7,420,711 $742 $ 6,252,488 (1,944,000) $(32) $ (235,513) $ 6,018,270
--------- ------ ---------- ------ ----------- ---------- ------ ---------- -------------
--------- ------ ---------- ------ ----------- ---------- ------ ---------- -------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
BREAKAWAY SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)........................................ $ 618,409 $1,073,651 $(575,175) $ 156,770 $(235,513)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 46,484 254,217 332,994 56,609 104,780
Loss on disposal of fixed assets....................... 20,780 2,030 3,055 -- --
Changes in operating assets and liabilities, net of
impact of acquisition of business:
Accounts receivable.................................. (361,107) (471,676) (485,164) (726,282) (499,219)
Unbilled revenues on contracts....................... -- -- (393,351) -- (174,182)
Inventory............................................ 12,831 -- -- -- --
Prepaid and other assets............................. (47,046) 69,096 (18,353) (43,679) (5,741)
Accounts payable..................................... (39,707) 222,239 568,014 84,707 (666,829)
Accrued compensation and related benefits............ -- 63,387 93,842 (83,478) 366,441
Accrued expenses..................................... 1,500 -- -- -- 68,111
Deferred revenue on contracts........................ (77,070) -- 196,225 -- (97,163)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities....................................... 175,074 1,212,944 (277,913) (555,353) (1,139,315)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment.................. (18,950) (132,937) (502,461) (97,100) (72,442)
Proceeds from disposal of fixed assets............... -- 13,200 9,948 -- --
Increase in cash surrender value of life insurance... -- -- -- -- (62,441)
--------- --------- --------- --------- ---------
Net cash used in investing activities.............. (18,950) (119,737) (492,513) (97,100) (134,883)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of preferred stock.............. -- -- -- -- 8,291,945
Proceeds from exercise of stock options................ -- -- -- -- 100,000
Repurchase and retirement of common stock.............. -- -- -- -- (4,468,980)
Advances to employees.................................. -- -- (13,273) -- --
Repayments of advances to employees.................... 163 -- -- -- 5,418
Payments on current portion of long-term debt.......... -- -- (10,417) (3,125) --
Proceeds from (repayments of) credit line.............. (125,000) -- 425,743 -- 576,248
(Increase) decrease in deposits........................ (216) (18,211) (5,151) (3,102) 17,681
Distributions to stockholders.......................... (1,841) (95,750) (438,673) -- --
Repurchase of treasury stock........................... (26) -- (6) -- --
Payments of capital lease obligations.................. (38,813) (184,224) (49,979) (6,522) (59,316)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities....................................... (165,733) (298,185) (91,756) (12,749) 4,462,996
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents...................................... (9,609) 795,022 (862,182) (665,202) 3,188,798
Cash and cash equivalents at beginning of period......... 93,723 84,114 879,136 879,136 16,954
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period............... $ 84,114 $ 879,136 $ 16,954 $ 213,934 $3,205,752
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest................................. $ 28,557 $ 32,725 $ 43,127 $ 1,348 $ 13,756
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosures of non-cash investing and
financing activities:
Capital lease obligations............................ $ 42,742 $ 331,511 $ 13,720 $ -- $ 99,849
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Distributions payable to stockholders................ $ -- $ 434,843 $ -- $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Issuance of common stock in connection with acquisition
of business.......................................... $ -- $ -- $ -- $ -- $1,417,998
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Acquisition of business:
Assets acquired........................................ $ -- $ -- $ -- $ -- $1,903,567
Liabilities assumed and issued......................... -- -- -- -- (485,569)
Common stock issued.................................... -- -- -- -- (1,417,998)
--------- --------- --------- --------- ---------
Net cash paid for acquisition of business.......... $ -- $ -- $ -- $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
1. NATURE OF BUSINESS
Breakaway Solutions, Inc. (the "Company"), formerly The Counsell Group,
Inc., was established in 1992 to provide information technology consulting
services to businesses. The Company specializes in designing, developing and
implementing applications and business solutions for growing enterprises
throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, accounts
receivable, and debt instruments.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral on accounts receivable. The Company
maintains allowances for potential credit losses and such losses have been
within management's expectations. Write-offs of accounts receivable have not
been material for any of the periods presented. The Company's customers are
headquartered primarily in North America. At December 31, 1997 and 1998, amounts
due from three customers represented $503,750 or 40% and $683,149 or 33%,
respectively, of total accounts receivable.
The fair market values of cash and cash equivalents, accounts receivable and
debt instruments at both December 31, 1997 and 1998 approximate their carrying
amounts.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is recorded on the
straight-line basis over the estimated useful life of the related assets which
range from three to six years. Equipment held under capital leases is stated at
the present value of minimum lease payments at the inception of the lease and
amortized using the straight-line method over the lease term. Maintenance and
repairs are charged to operations when incurred.
F-7
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets relate to the Company's purchase of its wholly owned
subsidiary, Applica Corporation, in March 1999 (see Note 11). Such costs are
being amortized on a straight-line basis over five years, the period expected to
be benefited.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
REVENUE RECOGNITION
Revenues pursuant to fixed-price contracts are recognized as services are
rendered on the percentage-of-completion method of accounting (based on the
ratio of costs incurred to total estimated costs). Revenues pursuant to time and
material contracts are recognized as services are provided. Unbilled revenues on
contracts are comprised of costs plus earnings. Billings in excess of costs plus
earnings are classified as deferred revenues.
Provisions for estimated losses on uncompleted contracts are made on a
contract-by-contract basis and are recognized in the period in which such losses
are determined.
PROJECT PERSONNEL COST
Project personnel costs consist of payroll and payroll-related expenses for
personnel dedicated to client assignments.
INCOME TAXES
The Company was taxed under the provisions of Subchapter S of the Internal
Revenue Code, whereby the corporate income is taxed to the individual
shareholders based on their proportionate share of the Company's taxable income.
Massachusetts taxes profits on S corporations with receipts exceeding
$6,000,000.
Effective January 1, 1999, the Company terminated its S Corporation election
and is subject to corporate-level federal and certain additional state income
taxes. Accordingly, the accompanying statements of operations include a pro
forma income tax adjustment (see Note 9) for the income taxes that would have
been recorded if the Company had been a C Corporation for all periods presented.
STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS 123"), ACCOUNTING FOR STOCK-BASED COMPENSATION. As permitted by SFAS 123,
the Company measures compensation costs in accordance with Accounting Principles
Board Opinion No. 25 ("APB No. 25"), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,
and related interpretations. Accordingly, no accounting
F-8
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recognition is given to stock options issued to employees that are granted at
fair market value until they are exercised. Stock options issued to
non-employees are recorded at the fair value of the stock at the date of grant.
Upon exercise, net proceeds, including income tax benefits realized, are
credited to equity. Therefore, the adoption of SFAS 123 was not material to the
Company's financial condition or results of operations; however, the pro forma
impact on income (loss) per share has been disclosed in the notes to the
financial statements as required by SFAS 123 (see Note 4).
NET INCOME (LOSS) PER SHARE
In 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), EARNINGS PER SHARE. SFAS 128 requires
the presentation of basic and diluted net income (loss) per share for all
periods presented. There are no common stock equivalents outstanding in 1996 and
1997. As the Company has been in a net loss position for the year ended December
31, 1998, and the three months ended March 31, 1999, common stock equivalents of
674,474 for the year ended December 31, 1998 and 5,084,692 for the three months
ended March 31, 1999 were excluded from the diluted loss per share calculation
as they would be antidilutive. As a result, diluted loss per share is the same
as basic loss per share, and has not been presented separately.
Pursuant to SEC Staff Accounting Bulletin No. 98, common stock and
convertible preferred stock issued for nominal consideration, prior to the
anticipated effective date of an IPO, are required to be included in the
calculation of basic and diluted net income per share as if they were
outstanding for all periods presented. To date, the Company has not had any
issuances or grants for nominal consideration.
REPORTING COMPREHENSIVE INCOME
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), REPORTING COMPREHENSIVE INCOME. This
statement requires that all components of comprehensive income be reported in
the financial statements in the period in which they are recognized. For each
year reported, comprehensive income (loss) under SFAS 130 was equivalent to the
Company's net income (loss) reported in the accompanying statements of
operations.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial statements as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 are unaudited; however, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the financial statements for the interim periods have been
included. Results of operations for the interim periods presented are not
necessarily indicative of the results that may be expected for the full fiscal
year or any future periods.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on its results of operations,
financial position or cash flows.
F-9
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Computer equipment.................................................. $ 578,724 $ 1,116,829
Office equipment.................................................... -- 11,756
Furniture and fixtures.............................................. 134,490 70,481
---------- ------------
713,214 1,199,066
Less: Accumulated depreciation and amortization..................... (316,112) (645,500)
---------- ------------
$ 397,102 $ 553,566
---------- ------------
---------- ------------
</TABLE>
The cost and related accumulated amortization of property and equipment held
under capital leases is as follows at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Cost................................................................. $ 400,297 $ 394,637
Less: Accumulated amortization....................................... (157,593) (332,053)
---------- -----------
$ 242,704 $ 62,584
---------- -----------
---------- -----------
</TABLE>
4. CAPITAL STOCK
PREFERRED STOCK
In October 1998, the Company's stockholders authorized 5,853,000 shares of
Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock
is entitled to receive dividends at a rate of $.1136 per share, as and if
declared. The Series A Convertible Preferred Stock is voting and is convertible
into shares of common stock on a share-for-share basis, subject to certain
adjustments. In the event of any liquidation, dissolution or winding up of the
Company, the Series A Convertible Preferred Stock has a liquidation preference
of $1.41667 per share. The Series A Convertible Preferred Stock is convertible
into common stock immediately at the option of the holder, and automatically
converts into common stock upon the completion of a qualifying initial public
offering (see Note 11).
STOCK SPLITS
In June and December 1998, the Board of Directors approved a 2-for-1 and
3-for-1 stock split of the Company's common stock, respectively. All prior
periods have been restated to reflect these stock splits effected as a
recapitalization.
STOCK PLAN
The Company's 1998 Stock Plan (the "Stock Plan") authorizes the Company to
grant options to purchase common stock, to make awards of restricted common
stock, and to issue certain other equity-related awards to employees and
directors of, and consultants to, the Company. The total number of shares of
common stock which may be issued under the Stock Plan is 9,000,000 shares. The
Stock Plan
F-10
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
4. CAPITAL STOCK (CONTINUED)
is administered by the Board of Directors, which selects the persons to whom
stock options and other awards are granted and determines the number of shares,
the exercise or purchase prices, the vesting terms and the expiration date.
Non-qualified stock options may be granted at exercise prices which are above,
equal to, or below the grant date fair market value of the common stock. The
exercise price of options qualifying as incentive stock options may not be less
than the grant date fair market value of the common stock.
Stock options granted under the Stock Plan are nontransferable, generally
become exercisable over a four-year period, and expire ten years after the date
of grant (subject to earlier termination in the event of the termination of the
optionee's employment or other relationship with the Company).
A summary of the status of the Company's Stock Plan is presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
-------------------
YEAR ENDED
DECEMBER 31, 1998
------------------- (UNAUDITED)
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE
- ------------------------------------------------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period..................... -- $ -- 5,992,794 1.00
Granted.............................................. 6,120,879 .99 3,168,042 1.48
Exercised............................................ -- -- (70,587) 1.42
Forfeited............................................ (128,085) .61 (83,283) .54
--------- ---------
Outstanding at end of period........................... 5,992,794 1.00 9,006,966 1.17
--------- ---------
--------- ---------
Options exercisable at period end...................... 2,610,630 3,064,927
--------- ---------
--------- ---------
</TABLE>
The following table summarizes information about the Company's stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------- OPTIONS EXERCISABLE
WEIGHTED -----------------------
AVERAGE WEIGHTED
REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL NUMBER EXERCISE
PRICES OUTSTANDING LIFE EXERCISABLE PRICE
- -------------- ----------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
$ .54 2,776,494 9.5 years 1,825,005 .54
.81 129,900 9.75 years 21,000 .81
1.42 3,086,400 10 years 764,625 1.42
----------- ----------
5,992,794 9.76 years 2,610,630 .80
----------- ----------
----------- ----------
</TABLE>
The Company applies APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, in accounting for its Stock Plan, and, accordingly, compensation cost
is recognized in the financial statements for stock options granted to employees
only when the fair value on the grant date exceeds the exercise price. The
Company granted no stock options during 1996 and 1997. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under
F-11
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
4. CAPITAL STOCK (CONTINUED)
SFAS No. 123 for 1998 and 1999 grants, its net loss would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
YEAR ENDED -------------------
DECEMBER 31, 1998
----------------- (UNAUDITED)
<S> <C> <C>
Net loss:
As reported......................................... $ (575,175) $ (235,513)
Pro forma........................................... $ (686,864) $ (361,257)
Loss per share:
As reported......................................... $ (0.07) $ (0.05)
Pro forma........................................... $ (0.09) $ (0.08)
</TABLE>
The per share weighted-average fair value of stock options granted during
1998 and 1999 was $0.50 and $0.75, respectively, on the date of grant, using the
minimum value option-pricing model with the following weighted average
assumptions used: no expected dividend yield, risk free interest rate of 7%, and
expected life of ten years.
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities under various operating leases expiring in
2002. Such leases include provisions that may require the Company to pay its
proportionate share of operating costs, which exceed specific thresholds. Rent
expense for the years ended December 31, 1996, 1997 and 1998 was $144,499,
$203,511 and $576,509, respectively, and $62,758 and $139,981 for the three
months ended March 31, 1998 and 1999, respectively.
Other income in 1998 consists primarily of a payment received by the Company
in connection with the early termination of its existing office lease.
CAPITAL LEASES
The Company leases certain of its computer and office equipment under
capital leases. Substantially all of such leases are for two years, with annual
interest at rates ranging from 5.4% to 15.68%. The leased equipment secures all
leases.
F-12
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The following is a schedule of future minimum rental payments required under
the above leases as of December 31, 1998:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------------ ----------
<S> <C> <C>
1999................................................................ $ 770,762 $ 168,253
2000................................................................ 702,665 72,118
2001................................................................ 720,518 --
2002................................................................ 488,280 --
------------ ----------
$ 2,682,225 $ 240,371
------------ ----------
------------ ----------
Less: amount representing interest................................................ (24,940)
----------
Net present value of minimum lease payments..................................... 215,431
Less: current portion of capital lease obligations................................ (148,391)
----------
Capital lease obligations, net of current portion............................... $ 67,040
----------
----------
</TABLE>
6. LINE OF CREDIT
The Company had a $750,000 bank revolving line of credit (increased to
$1,300,000 in February 1999) at prime plus 1/2% (8.25% at December 31, 1998)
which terminated in 1999. At December 31, 1997 and 1998, the Company borrowed $0
and $425,743, respectively under this line of credit.
7. SIGNIFICANT CUSTOMERS
The following table summarizes revenues from major customers (revenues in
excess of 10% for the year) as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE
MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH
31,
------------------------------------- -----------
<S> <C> <C> <C> <C>
1996 1997 1998 1998
----- ----- ----- -----
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A..................................................................... -- 19% 27% 30%
Customer B..................................................................... 13% 10 -- --
Customer C..................................................................... 18 13 -- --
Customer D..................................................................... -- -- -- 16
Customer E..................................................................... -- -- -- --
Customer F..................................................................... -- -- -- --
Customer G..................................................................... -- -- -- --
<CAPTION>
<S> <C>
1999
-----
<S> <C>
Customer A..................................................................... 26%
Customer B..................................................................... --
Customer C..................................................................... --
Customer D..................................................................... --
Customer E..................................................................... 11
Customer F..................................................................... 10
Customer G..................................................................... 10
</TABLE>
F-13
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
8. DEFERRED COMPENSATION PLAN
The Company sponsors a qualified 401(k) deferred compensation plan (the
"Plan"), which covers substantially all of its employees. Participants are
permitted, in accordance with the provisions of Section 401(k) of the Internal
Revenue Code, to contribute up to 15% of their earnings into the Plan. The
Company may make matching contributions at its discretion. The Company elected
not to contribute to the Plan for the years ended December 31, 1996, 1997 and
1998.
9. INCOME TAXES (UNAUDITED)
As discussed in note 2, effective January 1, 1999, the Company terminated
its S Corporation election and will be subject to corporate-level federal and
certain state income taxes. Upon termination of the S Corporation status,
deferred income taxes are recorded for the tax effect of cumulative temporary
differences between the financial reporting and tax bases of certain assets and
liabilities, primarily deferred revenue that must be recognized currently for
tax purposes, accrued expenses that are not currently deductible, cumulative
differences between tax depreciation and financial reporting allowances, and the
impact of the conversion from the cash method to the accrual method of reporting
for tax purposes.
Pro forma income tax expense (benefit), assuming the Company had been a C
Corporation and applying the tax laws in effect during the periods presented,
for each of the three years in the period ended December 31, 1998 would have
been as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
---------- ---------- ----------- --------- ----------
(UNAUDITED)
Federal tax.......................................... $ 210,259 $ 365,042 $ (195,560) $ 25,629 $ (80,074)
State taxes, net of federal.......................... 37,105 64,418 -- 4,523 --
---------- ---------- ----------- --------- ----------
$ 247,364 $ 429,460 $ (195,560) $ 30,152 $ (80,074)
---------- ---------- ----------- --------- ----------
---------- ---------- ----------- --------- ----------
</TABLE>
The Company has recorded a full valuation allowance against its deferred tax
assets since management believes that, after considering all the available
objective evidence, it is more likely than not that these assets will not be
realized.
10. OPERATING SEGMENTS
Historically, the Company has operated in a single segment. With the
acquisition of Applica Corporation, the Company expanded its operations to
include a second segment, application hosting. To date, Applica Corporation, a
development-stage company, has generated no revenues. Total assets relating to
the application hosting business of Applica Corporation are $1,903,567 as of
March 31, 1999.
F-14
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
11. SUBSEQUENT EVENTS
SERIES A CONVERTIBLE PREFERRED STOCK FINANCING
In January 1999, the Company issued 5,853,000 shares of Series A Convertible
Preferred Stock, $.0001 par value, for $1.41667 per share (see Note 4).
LITIGATION
On March 2, 1999 the Company and its Chief Executive Officer ("CEO") became
parties to a civil action filed by Cambridge Technology Partners, Inc. ("CTP").
The suit alleges violation of employment and severance agreements by the CEO who
is a former CTP employee. CTP is seeking monetary damages against the Company
for interference with the former employee's contractual relations with CTP.
Management of the Company believes that the suit is without merit and intends to
vigorously defend against the action. In the opinion of management, the amount
of ultimate liability with respect to this action will not materially affect the
financial position or results of operations of the Company.
ACQUISITIONS
Subsequent to December 31, 1998, the Company entered into the following
acquisitions, which will be accounted for under the purchase method of
accounting:
- APPLICA CORPORATION
On March 25, 1999, the Company entered into an agreement to acquire all
the outstanding stock of Applica Corporation, a provider of application
hosting services. The purchase price was comprised of: 904,624 shares of
common stock.
- WPL LABORATORIES, INC.
On May 17, 1999, the Company entered into an agreement to acquire all the
outstanding stock of WPL Laboratories, Inc., a provider of advanced
software development services. The purchase price was comprised of: $5
million in cash, 1,705,175 shares of common stock and the assumption of
all outstanding WPL stock options, which became exercisable for 393,506
shares of the Company's common stock at an exercise price of $2.38 per
share with a four-year vesting period. The WPL stockholders received one
half of their cash consideration at closing and will receive the
remainder incrementally over a four-year period so long as the
stockholder does not voluntarily terminate his employment and is not
terminated for cause. Of the shares of common stock issued to the former
WPL stockholders, approximately fifty-percent are subject to the
Company's right, which lapses incrementally over a four-year period, to
repurchase the shares of a particular stockholder, at their value at the
time of the acquisition, upon the stockholder's resignation or the
Company's termination of the stockholder for cause. In connection with
the stock issuance, the Company provided approximately $1,200,000 in
loans to stockholders. The loans which bear interest at prime plus 1% are
due at the earlier of the sale of stock or four years.
F-15
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
11. SUBSEQUENT EVENTS (CONTINUED)
- WEB YES, INC.
On June 10, 1999, the Company entered into an agreement to acquire all
the outstanding stock of Web Yes, Inc., a provider of web hosting
services. The purchase price was comprised of 571,135 shares of common
stock. Of the shares of common stock issued to the former Web Yes
stockholders, 428,351 are subject to the Company's right, which lapses
incrementally over a four-year period, to repurchase the shares of the
particular stockholder upon the termination of his employment with
Breakaway. The repurchase price shall be either at the share value at the
time of the acquisition if the stockholder terminates employment or is
terminated for cause, or at the fair market value if the stockholder's
employment is terminated without cause.
RELATED PARTY ADVANCES
In May 1999, Internet Capital Group, holder of the Company's Series A
Convertible Preferred Stock, provided $4,000,000 in advances which were
converted into equity in July, 1999. In connection with this transaction, the
Company issued Internet Capital Group a warrant to purchase 92,341 shares of
common stock at an exercise price of $6.50 per share.
SERIES B CONVERTIBLE PREFERRED STOCK
In July 1999, the Company issued 2,931,849 shares of Series B Convertible
Preferred Stock, $.0001 par value, for $6.50 per share. The Series B Convertible
Preferred Stock is entitled to receive dividends at a rate of $.1136 per share
as and if declared. The Series B Convertible Preferred Stock is voting and is
convertible into shares of common stock on a share-per-share basis, subject to
certain adjustments. In the event of any liquidation, dissolution or winding up
of the Company, the Series B Convertible Preferred Stock has a liquidation
preference of $6.50 per share. The Series B Convertible Preferred Stock is
convertible into common stock immediately at the option of the holder, and
automatically converts into common stock upon the completion of a qualifying
initial public offering.
1999 STOCK INCENTIVE PLAN
The 1999 Stock Incentive Plan was adopted in July 1999. The 1999 plan is
intended to replace the 1998 plan. Up to 6,000,000 shares of common stock
(subject to adjustment in the event of stock splits and other similar events)
may be issued pursuant to awards granted under the 1999 plan.
The 1999 plan provides for the grant of incentive stock options,
nonstatutory stock options, restricted stock awards and other stock-based
awards.
1999 EMPLOYEE STOCK PURCHASE PLAN
The 1999 Employee Stock Purchase Plan was adopted in July 1999. The purchase
plan authorizes the issuance of up to a total of 500,000 shares of common stock
to participating employees.
F-16
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
11. SUBSEQUENT EVENTS (CONTINUED)
The following employees, including directors who are employees and employees
of any participating subsidiaries, are eligible to participate in the purchase
plan:
- Employees who are customarily employed for more than 20 hours per week and
for more than five months per year; and
- Employees employed for at least three months prior to enrolling in the
purchase plan.
Employees who would immediately after the grant own 5% or more of the total
combined voting power or value of the Company's stock or any subsidiary are not
eligible to participate.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Applica Corporation:
We have audited the accompanying balance sheet of Applica Corporation (the
"Company"), a development-stage company, as of December 31, 1998, and the
related statements of operations, stockholders' equity, and cash flows from
September 24, 1998 (inception) through December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Applica Corporation at
December 31, 1998 and the results of its operations and its cash flows from
September 24, 1998 (inception) through December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
June 30, 1999
F-17
<PAGE>
APPLICA CORPORATION
(A DEVELOPMENT-STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................ $ 474,205
Subscriptions receivable........................................................ 3,000
---------
Total current assets.......................................................... 477,205
---------
Property and equipment, net....................................................... 43,259
Deposits.......................................................................... 7,332
---------
Total assets.................................................................. $ 527,796
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................................................................. $ 61,775
---------
Total liabilities............................................................. 61,775
---------
Commitments and contingencies
Stockholders' equity:
Preferred stock $.001 par value, 5,000,000 shares authorized, 500,000 shares
issued and outstanding (liquidation preference of $500,000)................... 500,000
Common stock $.001 par value, 10,000,000 shares authorized, 3,000,000 shares
issued and outstanding........................................................ 3,000
Deficit accumulated during development stage.................................... (36,979)
---------
Total stockholders' equity.................................................... 466,021
---------
Total liabilities and stockholders' equity.................................... $ 527,796
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
APPLICA CORPORATION
(A DEVELOPMENT-STAGE COMPANY)
STATEMENT OF OPERATIONS
FROM SEPTEMBER 24, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998
<TABLE>
<S> <C>
Operating expenses:
Organization costs............................................................. $ 25,911
Occupancy...................................................................... 7,331
Depreciation................................................................... 1,483
Other.......................................................................... 2,254
---------
Total operating expenses..................................................... 36,979
---------
Net loss..................................................................... $ (36,979)
---------
---------
Net loss per share--basic and diluted............................................ $ (0.01)
Weighted average shares outstanding.............................................. 3,000,000
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
APPLICA CORPORATION
(A DEVELOPMENT-STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK DURING TOTAL
--------------------- --------------------- DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT STAGE EQUITY
--------- ---------- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 24, 1998............. -- $ -- -- $ -- $ -- $ --
Subscription of common stock.......... -- -- 3,000,000 3,000 -- 3,000
Issuance of preferred stock........... 500,000 500,000 -- -- -- 500,000
Net loss.............................. -- -- -- -- (36,979) (36,979)
--------- ---------- ---------- --------- ----------- ------------
Balance, December 31, 1998.............. 500,000 $ 500,000 3,000,000 $ 3,000 $ (36,979) $ 466,021
--------- ---------- ---------- --------- ----------- ------------
--------- ---------- ---------- --------- ----------- ------------
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
APPLICA CORPORATION
(A DEVELOPMENT-STAGE COMPANY)
STATEMENT OF CASH FLOWS
FROM SEPTEMBER 24, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................................ $ (36,979)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation.................................................................. 1,483
Changes in operating assets and liabilities:
Accounts payable............................................................ 61,775
Deposits.................................................................... (7,332)
---------
Net cash provided by operating activities................................. 18,947
---------
Cash flows from investing activities:
Additions to property and equipment............................................. (44,742)
---------
Net cash used in investing activities..................................... (44,742)
---------
Cash flows from financing activities:
Issuance of preferred stock..................................................... 500,000
---------
Net cash provided by financing activities................................. 500,000
---------
Net increase in cash...................................................... 474,205
Cash at beginning of period....................................................... --
---------
Cash at end of period............................................................. $ 474,205
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
APPLICA CORPORATION
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. THE COMPANY
Applica Corporation (the "Company") was founded in September 1998 and
provides application hosting services. The Company has experienced losses since
inception and is subject to those risks associated with development-stage
companies. Activities since inception have consisted of development of a
business plan. Since inception and through December 31, 1998, the Company
operated with no salaried employees. Therefore, recurring operating expenses,
such as salaries and fringe benefits, are not reflected in the accompanying
financial statements. Financial statements in subsequent periods will reflect
salaries and fringe benefits.
On March 25, 1999, the Company was acquired by Breakaway Solutions, Inc.
(see Note 7).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets,
which range from five to seven years.
Equipment under capital leases is stated at the net present value of minimum
lease payments. Equipment held under capital leases and leasehold improvements
are amortized straight-line over the shorter of the lease term or estimated
useful life of the asset.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-22
<PAGE>
APPLICA CORPORATION
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER SHARE
In 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), EARNINGS PER SHARE. SFAS 128 requires
the presentation of basic and diluted net loss per share for all periods
presented. Basic loss per share is based on the weighted average number of
shares outstanding during the period. Diluted net loss per share reflects the
per-share effect of dilutive stock options and other dilutive common stock
equivalents. As the Company is in a net loss position for the period ended
December 31, 1998, common stock equivalents of 500,000 for the period ended
December 31, 1998 were excluded from the diluted loss per share calculation as
they would be antidilutive. As a result, diluted loss per share is the same as
basic loss per share and has not been presented separately.
REPORTING COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting Standards No.
130 ("SFAS 130"), REPORTING COMPREHENSIVE INCOME. This statement requires that
all components of comprehensive loss be reported in the financial statements in
the period in which they are recognized. For the period presented, comprehensive
loss under SFAS 130 was equivalent to the Company's net loss reported in the
accompanying statement of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on its results of operations,
financial condition or cash flows.
3. PROPERTY AND EQUIPMENT
At December 31, 1998, property and equipment consists of the following:
<TABLE>
<S> <C>
Office equipment................................................... $ 41,683
Computer equipment................................................. 3,059
---------
44,742
Less: accumulated depreciation..................................... (1,483)
---------
Property and equipment, net.................................... $ 43,259
---------
---------
</TABLE>
4. PREFERRED STOCK
The Company's stockholders have authorized 5,000,000 shares of Series A
preferred stock. The Series A preferred stock is entitled to receive dividends
at a rate of $.05 per share per annum. The Series A preferred stock is voting
and is convertible into shares of common stock on a share-for-share basis,
subject to certain adjustments. In the event of any liquidation, dissolution or
winding up of the Company, the Series A preferred stock has a liquidation
preference of $1.00 per share. The Series A
F-23
<PAGE>
APPLICA CORPORATION
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. PREFERRED STOCK (CONTINUED)
preferred stock is convertible into common stock immediately at the option of
the holder, and automatically converts into common stock upon the completion of
a qualified public offering.
5. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Intangible assets, principally due to differences in amortization................. $ 5,372
Net operating loss carryforward................................................... 195
---------
Total gross deferred tax assets................................................. 5,567
---------
---------
Valuation allowance................................................................. (5,567)
---------
Net deferred tax assets......................................................... $ --
---------
---------
</TABLE>
The Company has recorded a full valuation allowance against its deferred tax
assets since management believes that, after considering all the available
objective evidence, it is more likely than not that these assets will not be
realized.
6. COMMITMENTS AND CONTINGENCIES
The Company has entered into an operating lease for its office space which
expires in August 1999. Future minimum rental commitments under the lease in
1999 are $36,000. The Company is currently exploring alternatives for new space.
7. SUBSEQUENT EVENTS
LOAN AGREEMENT
On March 15, 1999, the Company entered into a Loan and Security Agreement
with a bank for a $150,000 equipment credit line which expires on June 15, 2002.
This agreement terminated upon the purchase of the Company (see Note 7).
AGREEMENT AND PLAN OF REORGANIZATION
On March 25, 1999, the Company entered into an Agreement and Plan of
Reorganization with Breakaway Solutions, Inc. ("Breakaway"), a provider of
information technology consulting services. Under the agreement, Breakaway
acquired all the outstanding stock of the Company in a transaction accounted for
under the purchase method of accounting. The purchase price was comprised of
904,624 shares of Breakaway common stock issued in exchange for all of the
outstanding shares of the Company's common stock.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
WPL Laboratories, Inc.:
We have audited the accompanying balance sheets of WPL Laboratories, Inc. as
of December 31, 1997 and 1998, and the related statements of income,
stockholders' equity and cash flows for each of the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WPL Laboratories, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the years then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
June 30, 1999
F-25
<PAGE>
WPL LABORATORIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
---------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash.................................................................... $ 81,232 $ 240,310 $ 415,368
Accounts receivable..................................................... 371,869 746,982 983,462
Employee advances....................................................... -- 103,300 103,300
---------- ------------ ------------
Total current assets.................................................. 453,101 1,090,592 1,502,130
---------- ------------ ------------
Property and equipment
Office and computer equipment........................................... 103,703 169,668 203,230
Software................................................................ 5,000 9,512 10,334
Automobile.............................................................. 7,500 -- --
---------- ------------ ------------
116,203 179,180 213,564
Less: Accumulated depreciation and amortization......................... (64,556) (83,737) (94,647)
---------- ------------ ------------
Net property and equipment............................................ 51,647 95,443 118,917
---------- ------------ ------------
Other assets.............................................................. 1,915 103,909 244,503
---------- ------------ ------------
$ 506,663 $ 1,289,944 $ 1,865,550
---------- ------------ ------------
---------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Related-party advance and accrued interest.............................. $ 23,333 $ 25,000 $ --
Accounts payable........................................................ 10,947 8,278 11,862
Accrued compensation and related benefits............................... 68,341 206,192 266,689
Other accrued expenses.................................................. 19,469 23,052 12,500
---------- ------------ ------------
Total current liabilities............................................. 122,090 262,522 291,051
---------- ------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock $.01 par value, 10,000,000 shares authorized, 1,248,980
shares issued and outstanding in 1997 and 1,800,000 shares issued and
outstanding in 1998 and 1999.......................................... 12,490 18,000 18,000
Additional paid-in capital.............................................. 99 242,589 242,589
Retained earnings....................................................... 371,984 766,833 1,313,910
---------- ------------ ------------
Total stockholders' equity............................................ 384,573 1,027,422 1,574,499
---------- ------------ ------------
Total liabilities and stockholders' equity............................ $ 506,663 $ 1,289,944 $ 1,865,550
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
WPL LABORATORIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................................. $ 1,611,284 $ 2,650,415 $ 434,585 $ 1,087,678
Operating expenses:
Project personnel costs................................ 1,191,193 1,719,664 193,316 446,109
Sales and marketing.................................... 45,579 37,092 12,271 10,768
General and administrative............................. 186,461 497,143 52,333 84,650
------------ ------------ ------------ ------------
Total operating expenses............................. 1,423,233 2,253,899 257,920 541,527
------------ ------------ ------------ ------------
Operating income..................................... 188,051 396,516 176,665 546,151
------------ ------------ ------------ ------------
Other income (expense):
Interest expense....................................... (2,250) (1,667) -- --
Interest income........................................ -- -- -- 926
Other income........................................... -- -- -- --
------------ ------------ ------------ ------------
Total other income (expense)......................... (2,250) (1,667) -- 926
------------ ------------ ------------ ------------
Net income............................................... $ 185,801 $ 394,849 $ 176,665 $ 547,077
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per share--basic.............................. $ 0.15 $ 0.24 $ 0.14 $ 0.30
Net income per share--diluted............................ $ 0.15 $ 0.24 $ 0.14 $ 0.29
Weighted average common shares outstanding............... 1,248,980 1,664,132 1,248,980 1,800,000
Weighted average common stock equivalents................ -- -- -- 66,415
------------ ------------ ------------ ------------
Weighted average common shares outstanding and common
stock equivalents...................................... 1,248,980 1,664,132 1,248,980 1,866,415
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
WPL LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997......................... 1,248,980 $ 12,490 $ 99 $ 267,993 $ 280,582
Stockholders' distributions.................... -- -- -- (81,810) (81,810)
Net income..................................... -- -- -- 185,801 185,801
---------- --------- ---------- ------------ ------------
Balance, December 31, 1997....................... 1,248,980 12,490 99 371,984 384,573
Common stock issued to employees for services
rendered..................................... 551,020 5,510 242,490 -- 248,000
Net income..................................... -- -- -- 394,849 394,849
---------- --------- ---------- ------------ ------------
Balance, December 31, 1998....................... 1,800,000 18,000 242,589 766,833 1,027,422
Net income..................................... -- -- -- 547,077 547,077
---------- --------- ---------- ------------ ------------
Balance, March 31, 1999 (Unaudited).............. 1,800,000 $ 18,000 $ 242,589 $ 1,313,910 $1,574,499
---------- --------- ---------- ------------ ------------
---------- --------- ---------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
WPL LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------- -----------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
---------- ----------- ---------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:
Net income................................................... $ 185,801 $ 394,849 $ 176,665 $ 547,077
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 14,300 26,681 6,671 10,910
Common stock issued to employees for services rendered..... -- 248,000 -- --
Changes in operating assets and liabilities:
Accounts receivable...................................... (68,745) (375,113) 30,936 (236,480)
Employee advances........................................ -- (103,300) -- --
Accounts payable......................................... (2,902) (2,669) 868 3,584
Accrued compensation and related benefits................ 59,033 137,851 (87,810) 60,497
Accrued expenses......................................... -- 3,583 -- (10,552)
---------- ----------- ---------- -----------
Net cash provided by operating activities.............. 187,487 329,882 127,330 375,036
---------- ----------- ---------- -----------
Cash flows from investing activities:
Purchases of property and equipment.......................... (41,106) (70,477) (1,025) (34,384)
Increase in other assets..................................... (1,240) (101,994) (1,119) (140,594)
---------- ----------- ---------- -----------
Net cash used in operating activities.................. (42,346) (172,471) (2,144) (174,978)
---------- ----------- ---------- -----------
Cash flows from financing activities:
Proceeds from (repayment of) related party advance........... -- 1,667 -- (25,000)
Stockholders' distribution................................... (81,810) -- -- --
---------- ----------- ---------- -----------
Net cash provided by (used in) financing activities.... (81,810) 1,667 -- (25,000)
---------- ----------- ---------- -----------
Net increase in cash................................... 63,331 159,078 125,186 175,058
Cash at beginning of period.................................... 17,901 81,232 81,232 240,310
---------- ----------- ---------- -----------
Cash at end of period.......................................... $ 81,232 $ 240,310 $ 206,418 $ 415,368
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest......................................... $ 584 $ -- $ -- $ --
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
WPL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
1. THE COMPANY
WPL Laboratories, Inc. (the "Company") provides advanced software
development services to businesses. The Company's projects include sales force
automation, distribution, management, personnel management, e-commerce
application development, product analysis and Internet enabling applications.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and accounts receivable.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral on accounts receivable. The Company
maintains allowances for potential credit losses and such losses have been
within management's expectations. Write-offs of accounts receivable have not
been material for any of the periods presented. The Company operates in one
industry segment and its customers are headquartered primarily in North America.
The fair market values of cash and accounts receivable at both December 31,
1997 and 1998 approximate their carrying amounts.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over three years for office and computer equipment and
software and five years for the automobile.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
STOCKHOLDERS' EQUITY
On April 1, 1998, the Company amended its articles of incorporation to
change the par value of its common stock from $1.00 to $.01 and adjust the
number of authorized shares. In addition, the Company approved a stock dividend
of 1,248,880 shares. All related share information for all periods presented has
been restated to reflect this amendment.
F-30
<PAGE>
WPL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company generally recognizes revenue on projects as work is performed
based on hourly billable rates. In addition, a limited number of projects are
performed under fixed-price contracts. Revenue from these contracts is
recognized on the percentage of completion method based on the percentage that
incurred costs to date bear to the most recently estimated total costs. Amounts
billed to clients in excess of revenue recognized are classified as deferred
revenue. Anticipated losses on uncompleted contracts, if any, are recognized in
full when determined.
PROJECT PERSONNEL COSTS
Project personnel costs consist of payroll and payroll-related expenses for
personnel dedicated to client assignments.
INCOME TAXES
The Company has elected to be taxed under the provisions of subchapter S of
the Internal Revenue Code, whereby the corporate income is taxed to the
individual shareholders based on their proportionate share of the Company's
taxable income.
STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS 123"), ACCOUNTING FOR STOCK-BASED COMPENSATION. As permitted by SFAS 123,
the Company measures compensation costs in accordance with Accounting Principles
Board Opinion No. 25 ("APB No. 25"), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,
and related interpretations. Accordingly, no accounting recognition is given to
stock options issued to employees that are granted at fair market value until
they are exercised. Stock options issued to non-employees are recorded at the
fair value of the stock at the date of grant. Upon exercise, net proceeds,
including income tax benefits realized, are credited to equity. Therefore, the
adoption of SFAS 123 was not material to the Company's financial condition or
results of operations.
NET INCOME PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), EARNINGS PER SHARE during 1997. This
statement requires the presentation of basic and diluted net income per share
for all periods presented. Under SFAS 128, the Company presents both basic net
income per share and diluted net income per share. Basic net income per share is
calculated based on weighted average common shares outstanding. Diluted net
income per share reflects the per-share effect of dilutive stock options and
other dilutive common stock equivalents.
REPORTING COMPREHENSIVE INCOME
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), REPORTING COMPREHENSIVE INCOME. This
statement requires that all components of comprehensive income be reported in
the financial statements in the period in which they are
F-31
<PAGE>
WPL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recognized. For each period reported, comprehensive income under SFAS 130 was
equivalent to the Company's net income reported in the accompanying statements
of income.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial statements as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 are unaudited; however, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the financial statements for the interim periods have been
included. Results of operations for the interim periods presented are not
necessarily indicative of the results that may be expected for the full fiscal
year or any future periods.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on its results of operations,
financial condition or cash flows.
3. RELATED-PARTY ADVANCE AND ACCRUED INTEREST
In 1996, the Company received a working capital advance of $20,000, with no
defined terms, from a relative of its major stockholder. The advance has been
accruing interest at 8.3% per year. Interest expense on the advance was $2,250
and $1,667 for the years ended December 31, 1997 and 1998, respectively, and
$417 and $0 for the three months ended March 31, 1998 and 1999, respectively.
4. COMMON STOCK
In April 1998, the Company awarded 551,020 shares of common stock to certain
employees for services rendered. Accordingly, the Company recorded compensation
expense of $248,000, which represented the estimated fair value of the common
stock issued. In connection with the award, the Company advanced $103,300 to the
employees to pay certain personal income taxes. These advances are outstanding
as of December 31, 1998.
5. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution plan in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. The plan covers all
full-time employees of the Company. Participants may contribute up to the
greater of 15% of their total compensation or $10,000 to the plan, with the
Company matching on a discretionary basis. For the years ended December 31, 1997
and 1998, the Company did not contribute to the plan.
F-32
<PAGE>
WPL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
6. SIGNIFICANT CUSTOMERS
The following table summarizes revenues from significant customers (revenues
in excess of 10% for the year) as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31,
31,
------------------------ ------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
----- ----- ----- -----
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A.................................................. 52% 38% 53% 32%
Customer B.................................................. -- 18 31 --
Customer C.................................................. -- 15 -- 22
Customer D.................................................. 25 -- -- --
Customer E.................................................. -- -- -- 12
Customer F.................................................. -- -- -- 12
</TABLE>
7. LEASE COMMITMENTS
The Company has entered into operating leases for its office facility and
equipment that expire through July 2000. Rent expense for the years ended
December 31, 1997 and 1998 was $43,613, and $43,893, respectively. Future
minimum lease payments under the operating leases as of December 31, 1998 are
$119,054 in 1999, $167,064 in 2000, $164,664 in 2001 and $41,166 in 2002.
8. SUBSEQUENT EVENTS
STOCK OPTION PLAN
On January 1, 1999, the Company instituted the WPL Laboratories, Inc. 1999
Stock Option Plan (the "Plan") which authorizes the Company to grant options to
purchase common stock, to make awards of restricted common stock, and to issue
certain other equity-related awards to employees and directors of, and
consultants to, the Company. The total number of shares of common stock which
may be issued under the Plan is 200,000 shares. The Plan is administered by the
Board of Directors, which selects the persons to whom stock options and other
awards are granted and determines the number of shares, the exercise or purchase
prices, the vesting terms and the expiration date. Non-qualified stock options
may be granted at exercise prices which are above, equal to, or below the grant
date fair market value of the common stock. The exercise price of options
qualifying as incentive stock options may not be less than the grant date fair
market value of the common stock. Stock options granted under the Plan are
nontransferable, generally become exercisable over a four-year period, and
expire ten years after the date of grant (subject to earlier termination in the
event of the termination of the optionee's employment or other relationship with
the Company). Subsequent to December 31, 1998 and through May 14, 1999, the
Company granted 186,208 options under the Plan to purchase common stock at $4.00
per share.
LINE OF CREDIT
On February 22, 1999, the Company entered into a line of credit agreement
with a commercial bank under which it may borrow up to $750,000 at the bank's
prime rate plus .5%. Borrowings under
F-33
<PAGE>
WPL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
8. SUBSEQUENT EVENTS (CONTINUED)
the line are secured by substantially all assets of the Company and are subject
to certain financial and nonfinancial covenants which include, among other
things, maintenance of a ratio of debt to cash flow, minimum tangible net worth
and a ratio of current assets to current liabilities. The line of credit expires
on April 15, 2000. This agreement terminated upon the purchase of the Company
(see Note 8).
CONSULTING AGREEMENT
On March 17, 1999, the Company signed a consulting agreement with
Plansponsor.com, Inc. ("PlanSponsor"). The agreement calls for the Company to
provide 3,000 hours of services, including work previously performed for
PlanSponsor in exchange for shares of common stock in PlanSponsor. As of
December 31, 1998, the Company had performed $100,875 of services based on the
agreement's contractual rates. This amount is included in other assets on the
accompanying balance sheets and will ultimately be settled by issuance of shares
of PlanSponsor common stock. In May 1999, the Company declared a dividend of the
PlanSponsor stock to the stockholders of the Company.
REORGANIZATION AGREEMENT
On May 17, 1999, the Company entered into a Reorganization Agreement with
Breakaway Solutions, Inc. ("Breakaway"), a provider of information technology
consulting services. Under the agreement, Breakaway acquired all the outstanding
stock of the Company in a transaction accounted for under the purchase method of
accounting. The purchase price was comprised of $5 million in cash, 1,705,175
shares of common stock and the assumption of all outstanding WPL stock options,
which became exercisable for 393,506 shares of the Company's common stock at an
exercise price of $2.38 per share with a four-year vesting period. The WPL
stockholders received one half of their cash consideration at closing and will
receive the remainder incrementally over a four-year period so long as the
stockholder does not voluntarily terminate his employment and is not terminated
for cause. Of the shares of common stock issued to the former WPL stockholders,
approximately fifty-percent are subject to our right, which lapses incrementally
over a four-year period, to repurchase the shares of a particular stockholder at
their value at the time of the acquisition upon the stockholder's resignation or
our termination of the stockholder for cause.
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Web Yes, Inc.:
We have audited the accompanying consolidated balance sheets of Web Yes,
Inc. and subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Web Yes,
Inc. and subsidiary as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
June 30, 1999
F-35
<PAGE>
WEB YES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
--------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash....................................................................... $ 4,729 $ 10,204 $ 1,480
Accounts receivable........................................................ 15,415 13,899 31,764
--------- ---------- -----------
Total current assets................................................... 20,144 24,103 33,244
--------- ---------- -----------
Computer equipment........................................................... 56,509 190,948 221,142
Less: Accumulated depreciation and amortization.............................. 6,667 26,095 37,601
--------- ---------- -----------
Net computer equipment................................................. 49,842 164,853 183,541
--------- ---------- -----------
Deposits..................................................................... 100 2,281 2,281
--------- ---------- -----------
Total assets........................................................... $ 70,086 $ 191,237 $ 219,066
--------- ---------- -----------
--------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations............................... $ 4,782 $ 18,633 $ 19,951
Loans and advances payable to stockholders................................. 45,007 29,251 42,296
Accounts payable........................................................... 12,652 49,414 30,563
Accrued expenses........................................................... 2,010 14,925 28,134
--------- ---------- -----------
Total current liabilities.............................................. 64,451 112,223 120,944
Capital lease obligations, net of current portion............................ 13,652 43,056 37,344
--------- ---------- -----------
Total liabilities...................................................... 78,103 155,279 158,288
--------- ---------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, 200,000 shares authorized, none issued and
outstanding in 1997 and 70,000 shares issued and outstanding (liquidation
preference of $1 per share) in 1998 and 1999............................. -- 70,000 70,000
Common stock, no par value, 1,000,000 shares authorized, 13,395 shares
issued and outstanding in 1997 and 691,897 shares issued and outstanding
in 1998 and 1999......................................................... 134 6,919 6,919
Additional paid in capital................................................. -- 55,985 55,985
Accumulated deficit........................................................ (8,151) (90,726) (65,906)
Less: Subscriptions receivable............................................. -- (6,220) (6,220)
--------- ---------- -----------
Total stockholders' equity............................................. (8,017) 35,958 60,778
--------- ---------- -----------
Total liabilities and stockholders' equity............................. $ 70,086 $ 191,237 $ 219,066
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
WEB YES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------- ---------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
---------- ---------- --------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.......................................................... $ 108,669 $ 288,512 $ 54,464 $ 141,828
---------- ---------- --------- ----------
Operating expenses:
Direct personnel costs.......................................... -- 38,750 -- 37,067
Other direct costs.............................................. 39,163 111,650 9,529 15,051
Selling, general and administrative expenses.................... 70,894 214,238 23,375 57,953
---------- ---------- --------- ----------
Total operating expenses...................................... 110,057 364,638 32,904 110,071
---------- ---------- --------- ----------
Income (loss) from operations................................. (1,388) (76,126) 21,560 31,757
Interest expense................................................ (4,182) (6,449) (916) (6,937)
---------- ---------- --------- ----------
Net income (loss)............................................. $ (5,570) $ (82,575) $ 20,644 $ 24,820
---------- ---------- --------- ----------
---------- ---------- --------- ----------
Net income (loss) per share--basic and diluted.................... $ (.42) $ (.37) $ 1.52 $ .04
Weighted average shares outstanding............................... 13,395 223,452 13,595 691,897
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
WEB YES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
---------------------- ------------------------ PAID IN ACCUMULATED SUBSCRIPTIONS
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE
--------- ----------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997......... 13,395 $ 134 -- $ -- $ -- $ (2,581) $ --
Net loss....................... -- -- -- -- -- (5,570) --
--------- ----------- ----------- ----------- ----------- ------------ -------------
Balance, December 31, 1997....... 13,395 134 -- -- -- (8,151) --
Issuance of common stock to
founders..................... 621,952 6,220 -- -- -- -- (6,220)
Issuance of common shares in
exchange for services
rendered..................... 56,550 565 -- -- 55,985 -- --
Issuance of preferred shares... -- -- 70,000 70,000 -- -- --
Net loss....................... -- -- -- -- -- (82,575) --
--------- ----------- ----------- ----------- ----------- ------------ -------------
Balance, December 31, 1998....... 691,897 6,919 70,000 70,000 55,985 (90,726) (6,220)
Net income (Unaudited)......... -- -- -- -- -- 24,820 --
--------- ----------- ----------- ----------- ----------- ------------ -------------
Balance, March 31, 1999
(Unaudited).................... 691,897 $ 6,919 70,000 $ 70,000 $ 55,985 $ (65,906) $ (6,220)
--------- ----------- ----------- ----------- ----------- ------------ -------------
--------- ----------- ----------- ----------- ----------- ------------ -------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, January 1, 1997......... $ (2,447)
Net loss....................... (5,570)
-------------
Balance, December 31, 1997....... (8,017)
Issuance of common stock to
founders..................... --
Issuance of common shares in
exchange for services
rendered..................... 56,550
Issuance of preferred shares... 70,000
Net loss....................... (82,575)
-------------
Balance, December 31, 1998....... 35,958
Net income (Unaudited)......... 24,820
-------------
Balance, March 31, 1999
(Unaudited).................... $ 60,778
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
WEB YES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
--------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ (5,570) $ (82,575) $ 20,644 $ 24,820
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization.................................. 6,018 20,023 3,000 11,507
Common stock issued to employees for services rendered......... -- 56,550 -- --
Changes in operating assets and liabilities:
Accounts receivable.......................................... (14,552) 1,516 1,634 (17,865)
Accounts payable............................................. 11,346 36,762 (9,426) (18,851)
Accrued expenses............................................. 1,716 12,915 500 13,209
--------- ---------- ---------- ----------
Net cash provided by (used in) operating activities........ (1,042) 45,191 16,352 12,820
--------- ---------- ---------- ----------
Cash flows from investing activity:
Purchase of computer equipment................................... (19,724) (78,286) (6,147) (30,195)
--------- ---------- ---------- ----------
Net cash used in investing activity........................ (19,724) (78,286) (6,147) (30,195)
--------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock........................ -- 55,000 5,000 --
Increase in deposits............................................. (100) (2,181) -- --
Proceeds from loans and advances payable to stockholders......... 37,007 15,033 22,543 8,651
Repayment of capital lease obligations........................... (750) (8,967) -- --
Proceeds (repayment) of loans payable............................ (11,008) (20,315) (30,007) --
--------- ---------- ---------- ----------
Net cash provided by financing activities.................. 25,149 38,570 (2,464) 8,651
--------- ---------- ---------- ----------
Increase (decrease) in cash........................................ 4,383 5,475 7,741 (8,724)
Cash, beginning of period.......................................... 346 4,729 4,729 10,204
--------- ---------- ---------- ----------
Cash, end of period................................................ $ 4,729 $ 10,204 $ 12,470 $ 1,480
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Supplemental disclosure of cash flow information:
Cash paid for interest........................................... $ 2,466 $ 8,460 $ 916 $ 1,796
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Supplemental disclosures of non-cash investing and financing
activities:
Issuance of preferred stock in exchange for advances from
stockholders................................................... $ -- $ 15,000 $ -- $ --
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Capital lease obligations........................................ $ 19,150 $ 56,748 $ -- $ --
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE>
WEB YES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
1. THE COMPANY
Web Yes, Inc. (the "Company"), which was incorporated in July 1996, provides
application hosting services. Since inception and through September 1998, the
Company operated with no salaried employees. Therefore, recurring operating
expenses, such as salaries and fringe benefits, are not reflected in the
accompanying financial statements during the applicable periods. Financial
statements for periods subsequent to September 30, 1998 reflect salaries and
fringe benefits.
Web Developers Network, Inc., a wholly owned subsidiary of the Company, has
been inactive since inception.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Web Developers Network, Inc. All
significant intercompany transactions have been eliminated in consolidation.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of contingent
assets and liabilities to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
COMPUTER EQUIPMENT
Computer equipment is recorded at cost. Depreciation is recorded on the
straight-line basis over the estimated useful life of the related assets (three
to five years). Equipment held under capital leases is stated at the net present
value of minimum lease payments at the inception of the lease and amortized
using the straight-line method over the lease term. Maintenance and repairs are
charged to operations when incurred.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, accounts receivable and debt
instruments.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral on accounts receivable. The Company
maintains allowances for potential credit losses and such losses have been
within management's expectations. Write-offs of accounts receivable have not
been material for any of the periods presented. The Company operates in one
industry segment and its customers are headquartered primarily in North America.
The fair market values of cash, accounts receivable and debt instruments at
both December 31, 1997 and 1998 approximate their carrying amounts.
F-40
<PAGE>
WEB YES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
REVENUE RECOGNITION
Revenues pursuant to time and materials contracts are recognized as services
are provided. Revenues from application hosting agreements are recognized
ratably over the terms of the agreements.
DIRECT PERSONNEL COSTS AND OTHER DIRECT COSTS
Direct personnel costs consist of payroll and payroll-related expenses for
personnel dedicated to client assignments. Other direct costs consist of
hardware.
INCOME TAXES
The Company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective income
tax bases, operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share were calculated based on the weighted
average common shares outstanding. There were no common stock equivalents
outstanding for any of the periods presented; accordingly, basic and fully
diluted net income (loss) per share are the same. As the Company has been in a
net loss position for the years ended December 31, 1997 and 1998, common stock
equivalents of zero and 200,000 were excluded from the diluted loss per share
calculation as they would be antidilutive. As a result, diluted loss per share
is the same as basic loss per share, and has not been presented separately.
REPORTING COMPREHENSIVE INCOME
Effective July 1, 1996, the Company adopted SFAS No. 130 ("SFAS 130)",
REPORTING COMPREHENSIVE INCOME. This statement requires that all components of
comprehensive income (loss) be reported in the consolidated financial statements
in the period in which they are recognized. For each period presented,
comprehensive income (loss) under SFAS 130 was equivalent to the Company's net
loss reported in the accompanying consolidated statements of operations.
F-41
<PAGE>
WEB YES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated financial statements as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 are unaudited; however, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial statements for
the interim periods have been included. Results of operations for the interim
periods presented are not necessarily indicative of the results that may be
expected for the full fiscal year or any other future periods.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on its results of operations,
financial condition or cash flows.
3. LOANS AND ADVANCES PAYABLE TO STOCKHOLDERS
The Company has various loans and advances payable to stockholders for
working capital purposes. The loans, which accrue interest at 8%, have no
definitive repayment terms.
4. STOCKHOLDERS' EQUITY
COMMON STOCK
In September 1998, the Company amended its articles of incorporation to
adjust the number of authorized shares of common stock from 20,000 shares to
1,000,000 shares. The Company then issued 621,952 shares of common stock at $.01
per share to the founders of the Company in order to adjust the equity ownership
to planned percentages. Subsequent to their issuance the founders began to draw
salaries.
During 1998 the Company issued shares of common stock to non-employees in
exchange for services rendered. The Company recorded expense of $56,550 for the
fair value of the stock issued.
PREFERRED STOCK
In September 1998, the Company authorized 200,000 shares of preferred stock
and issued an 70,000 shares of preferred stock at $1.00 per share. The preferred
stock is voting and is convertible into one share of common stock immediately at
the option of the holder, and automatically converts into common stock upon the
completion of a qualifying initial public offering. The preferred stock has a $1
per share liquidation preference.
5. CAPITAL LEASES
The Company leases certain of its computer and office equipment under
capital leases. Substantially all of such leases are for four years, with
interest rates ranging from 12.9% to 21.6%. The leased equipment secures all
leases.
F-42
<PAGE>
WEB YES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
5. CAPITAL LEASES (CONTINUED)
The following is a schedule by year of future minimum lease payments due
under the capitalized leases, and the net present value of the minimum lease
payments as of December 31, 1998:
<TABLE>
<S> <C>
1999............................................................. $ 27,184
2000............................................................. 26,228
2001............................................................. 17,146
2002............................................................. 7,459
---------
Total minimum lease payments................................... 78,017
Less: amount representing interest................................. 16,328
---------
Net present value of minimum lease payments.................... 61,689
Less: current portion of capital lease obligations................. 18,633
---------
Capital lease obligations, net of current portion.............. $ 43,056
---------
---------
</TABLE>
6. SIGNIFICANT CUSTOMERS
The following table summarizes revenues from major customers (revenues in
excess of 10% for the year) as a percentage of total revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH
31,
------------------------ ------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
----- ----- ----- -----
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A............................................ 29% 24% 22% 49%
Customer B............................................ -- 35 10 22
</TABLE>
7. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets at December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accrued expenses....................................................... $ 492 $ 978
Net operating loss carryforwards....................................... 714 3,735
--------- ---------
Total gross deferred tax assets.................................... 1,206 4,713
Valuation allowance...................................................... (1,206) (4,713)
--------- ---------
Net deferred tax assets............................................ $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company has recorded a full valuation allowance against its deferred tax
assets since management believes that, after considering all the available
objective evidence, it is more likely than not that these assets will not be
realized.
F-43
<PAGE>
WEB YES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND MARCH 31, 1999 (UNAUDITED)
8. SUBSEQUENT EVENT
On June 10, 1999, the Company entered into an Agreement and Plan of
Reorganization with Breakaway Solutions, Inc. ("Breakaway"), a provider of
information technology consulting services. Under the agreement, Breakaway
acquired all the outstanding capital stock of the Company in a transaction
accounted for under the purchase method of accounting. The total purchase price
was comprised of 571,135 shares of common stock of Breakaway. Of the shares of
common stock issued to the former Web Yes stockholders, 428,351 are subject to
the Company's right, which lapses incrementally over a four-year period, to
repurchase the shares of the particular stockholder upon the termination of his
employment with Breakaway. The repurchase price shall be either at the share
value at the time of the acquisition if the stockholder terminates employment or
is terminated for cause, or at their fair market value if stockholder's
employment is terminated without cause.
F-44
<PAGE>
BREAKAWAY SOLUTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated financial statements give effect
to the acquisition by Breakaway Solutions, Inc. (the "Company") of all of the
stock of Applica Corporation on March 25, 1999, (ii) all of the stock of WPL
Laboratories, Inc. on May 17, 1999, and (iii) all of the stock of Web Yes, Inc.
on June 10, 1999 (together the Acquired Companies). The unaudited pro forma
consolidated statements of operations give effect to the acquisitions of the
Acquired Companies as if they had occurred on January 1, 1998. The unaudited pro
forma consolidated balance sheet gives effect to the acquisitions of WPL and Web
Yes and the issuance of the Company's Series B Convertible Preferred Stock as if
they had occurred on March 31, 1999. These statements are based on the
historical financial statements of the Company and the Acquired Companies, and
the estimates and assumptions set forth below and in the notes to the unaudited
pro forma consolidated financial statements.
The effects of the acquisitions have been presented using the purchase method of
accounting and accordingly, the purchase price was allocated to the assets and
liabilities assumed based upon management's best preliminary estimate of fair
value with any excess purchase price being allocated to goodwill or other
identifiable intangible assets. The preliminary allocation of the purchase price
will be subject to further adjustments, which are not anticipated to be
material, as the Company finalizes the allocations of the purchase price in
accordance with generally accepted accounting principles. The pro forma
adjustments related to the purchase price allocation of the acquisitions
represent management's best estimate of the effects of the acquisitions.
The pro forma adjustments are based upon estimates, currently available
information and certain assumptions that management deems appropriate. The
unaudited pro forma consolidated financial data presented herein are not
necessarily indicative of the results the Company would have obtained had such
events occurred on January 1, 1998, as assumed, or the future results of the
Company. The unaudited pro forma consolidated financial statements should be
read in conjunction with the audited financial statements and notes thereto
included elsewhere in this Prospectus.
F-45
<PAGE>
BREAKAWAY SOLUTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
BREAKAWAY PRO FORMA SERIES B
SOLUTIONS, ACQUISITION FINANCING PRO FORMA
INC. WPL WEB YES ADJUSTMENTS (1) ADJUSTMENT (1) CONSOLIDATED
------------- --------- --------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........... $ 3,205,752 $ 415,368 $ 1,480 $(2,500,000)(b) $ 19,057,019(d) $20,179,619
Accounts receivable, net............ 1,911,534 983,462 31,764 -- -- 2,926,760
Unbilled revenues on contracts...... 799,791 -- -- -- -- 799,791
Prepaid expenses.................... 72,381 -- -- -- -- 72,381
Advances to employees............... 7,855 103,300 -- -- -- 111,155
------------- --------- --------- --------------- -------------- ------------
Total current assets.............. 5,997,313 1,502,130 33,244 (2,500,000) 19,057,019 24,089,706
------------- --------- --------- --------------- -------------- ------------
Property and equipment, net........... 911,487 118,917 183,541 -- 1,213,945
Intangible assets..................... 1,437,974 -- -- 8,286,336(b) -- 13,375,910
3,651,600(c) --
Cash surrender value of life
insurance........................... 62,441 -- -- -- -- 62,441
Deposits and other assets............. 30,528 244,503 2,281 -- -- 277,312
------------- --------- --------- --------------- -------------- ------------
Total assets...................... $ 8,439,743 $1,865,550 $ 219,066 $9,437,936 $ 19,057,019 $39,019,314
------------- --------- --------- --------------- -------------- ------------
------------- --------- --------- --------------- -------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit...................... $ 1,001,991 $ -- $ -- $ -- $ -- $1,001,991
Notes payable....................... 141,629 -- -- -- -- 141,629
Capital lease obligation--current
portion........................... 134,299 -- 19,951 -- -- 154,250
Accounts payable.................... 298,347 11,862 30,563 -- -- 340,772
Accrued compensation and related
benefits.......................... 397,210 266,689 -- -- -- 663,899
Accrued expenses.................... 68,111 12,500 28,134 625,000(b) -- 733,745
Accrued acquisition costs........... 159,159 -- -- 35,024(b) -- 194,183
Loans and advances payable to
stockholders...................... -- -- 42,296 -- -- 42,296
Deferred revenue on contracts....... 99,062 -- -- -- -- 99,062
------------- --------- --------- --------------- -------------- ------------
Total current liabilities......... 2,299,808 291,051 120,944 660,024 -- 3,371,827
Capital lease obligation--long-term
portion............................. 121,665 -- 37,344 -- -- 159,009
Other long-term liabilities........... -- -- -- 1,875,000 -- 1,875,000
------------- --------- --------- --------------- -------------- ------------
Total long-term liabilities....... 121,665 -- 37,344 1,875,000 -- 2,034,009
Total liabilities................. 2,421,473 291,051 158,288 2,535,024 -- 5,405,836
------------- --------- --------- --------------- -------------- ------------
Commitments and contingencies
Stockholders' equity:
Series A preferred stock............ 585 -- 70,000 (70,000)(a) -- 585
Series B preferred stock............ 293(d) 293
Common stock........................ 742 18,000 6,919 (24,919)(a) -- 970
171(b)
57(c)
Additional paid-in-capital.......... 6,252,488 242,589 55,985 (298,574)(a) 19,056,726(d) 33,847,175
4,825,640(b) -- --
3,712,321(c) -- --
Less: Treasury stock................ (32) -- -- -- -- (32)
Subscription receivable............. (6,220) 6,220(a) -- --
Retained earnings (deficit)......... (235,513) 1,313,910 (65,906) (1,248,004)(a) -- (235,513)
------------- --------- --------- --------------- -------------- ------------
Total stockholders' equity........ 6,018,270 1,574,499 60,778 6,902,912 19,057,019 33,613,478
------------- --------- --------- --------------- -------------- ------------
Total liabilities and
stockholders' equity............ $ 8,439,743 $1,865,550 $ 219,066 $9,437,936 $ 19,057,019 $39,019,314
------------- --------- --------- --------------- -------------- ------------
------------- --------- --------- --------------- -------------- ------------
</TABLE>
- ------------------------------
(1) See Note 1 to unaudited pro forma consolidated financial statements.
F-46
<PAGE>
BREAKAWAY SOLUTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
BREAKAWAY
SOLUTIONS, PRO FORMA PRO FORMA
INC. APPLICA WPL WEB YES ADJUSTMENTS (1) CONSOLIDATED
------------- ------------ ------------ ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 3,111,035 $ 400 $ 1,087,678 $ 141,828 $ -- $4,340,941
------------- ------------ ------------ ----------- ---------------- ------------
Operating expenses:
Project personnel costs........ 1,553,329 175,000 446,109 -- -- 2,174,438
Direct project costs........... -- -- -- 37,067 -- 37,067
Other direct costs............. -- -- -- 15,051 -- 15,051
Sales and marketing............ 114,415 -- 10,768 -- -- 125,183
Selling, general and admin
expenses..................... 1,689,580 152,238 84,650 57,953 674,406(a) 2,658,827
------------- ------------ ------------ ----------- ---------------- ------------
Total operating expenses..... 3,357,324 327,238 541,527 110,071 674,406 5,010,566
------------- ------------ ------------ ----------- ---------------- ------------
Income (loss) from operations.... (246,289) (326,838) 546,151 31,757 (674,406) (669,625)
------------- ------------ ------------ ----------- ---------------- ------------
Other income (expense):
Other income (expense)......... (6,994) -- -- -- -- (6,994)
Interest income................ 31,526 -- 926 -- -- 32,452
Interest expense............... (13,756) -- -- (6,937) -- (20,693)
------------- ------------ ------------ ----------- ---------------- ------------
10,776 -- 926 (6,937) -- 4,765
------------- ------------ ------------ ----------- ---------------- ------------
Net income (loss)................ $ (235,513) $ (326,838) $ 547,077 $ 24,820 $ (674,406) $ (664,860)
------------- ------------ ------------ ----------- ---------------- ------------
------------- ------------ ------------ ----------- ---------------- ------------
Net income (loss)
per share--basic
and diluted.................... (0.05) (0.09)
Weighted average shares
outstanding.................... 4,698,186 7,808,760
Pro forma income information:
Income (loss) before taxes..... $ (235,513) $ (664,860)
Income taxes(benefits)......... (80,074) (226,052)
------------- ---------------- ------------
Net Income................... $ (155,439) $ (438,808)
------------- ------------
------------- ------------
Net loss per share............... $ (0.03) $ (0.06)
</TABLE>
- ------------------------
(1) See Note 2 to unaudited pro forma consolidated financial statements.
F-47
<PAGE>
BREAKAWAY SOLUTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BREAKAWAY
SOLUTIONS, PRO FORMA PRO FORMA
INC. APPLICA WPL WEB YES ADJUSTMENTS (1) CONSOLIDATED
------------- ---------- ------------ ---------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $10,017,947 $ -- $ 2,650,415 $ 288,512 $ -- $ 12,956,874
------------- ---------- ------------ ---------- ------------------ ---------------
Operating expenses:
Project personnel costs....... 5,903,843 -- 1,719,664 -- 831,170(b) 8,454,677
Direct project costs.......... -- -- -- 38,750 -- 38,750
Other direct costs............ -- -- -- 111,650 -- 111,650
Sales and marketing costs..... 50,631 -- 37,092 -- -- 87,723
Selling, general and admin
expenses.................... 4,763,657 36,979 497,143 214,238 2,697,629(a) 8,209,646
------------- ---------- ------------ ---------- ------------------ ---------------
Total operating expenses.... 10,718,131 36,979 2,253,899 364,638 3,528,799 16,902,446
------------- ---------- ------------ ---------- ------------------ ---------------
Income (loss) from operations... (700,184) (36,979) 396,516 (76,126) (3,528,799) (3,945,572)
------------- ---------- ------------ ---------- ------------------ ---------------
Other income (expense):
Other income.................. 160,000 -- -- -- -- 160,000
Interest income............... 11,191 -- -- -- -- 11,191
Interest expense.............. (43,127) -- (1,667) (6,449) -- (51,243)
Loss on disposal of
equipment................... (3,055) -- -- -- -- (3,055)
------------- ---------- ------------ ---------- ------------------ ---------------
125,009 -- (1,667) (6,449) -- 116,893
------------- ---------- ------------ ---------- ------------------ ---------------
Net income (loss)........... $ (575,175) $ (36,979) $ 394,849 $ (82,575) $ (3,528,799) $ (3,828,679)
------------- ---------- ------------ ---------- ------------------ ---------------
------------- ---------- ------------ ---------- ------------------ ---------------
Net income (loss) per
share--basic and diluted...... (0.07) (0.34)
Weighted average shares
outstanding................... 8,000,877 11,196,934
Pro forma income information:
Income (loss) before taxes.... $ (575,175) $ (3,828,679)
Income taxes (benefit)........ (195,560) (1,301,751)
------------- ---------------
Net income.................. $ (379,615) $ (2,526,928)
------------- ---------------
------------- ---------------
Net loss per share.............. $ (0.05) $ (0.23)
</TABLE>
- ------------------------
(1) See Note 2 to unaudited pro forma consolidated financial statements.
F-48
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
The pro forma balance sheet adjustments as of March 31, 1999 consist of the
following:
(a) Represents the elimination of historical equity balances of WPL and Web Yes.
(b) The excess of the total purchase price for WPL over the allocation of fair
value to the net assets will be recorded as intangible assets, which is
calculated based on the following assumptions:
<TABLE>
<S> <C>
Purchase consideration:
Cash...................................................................... $5,000,000
Issuance of common Stock.................................................. 4,825,811
---------
Total purchase consideration.............................................. 9,825,811
Direct costs of acquisition................................................. 35,024
---------
Total purchase price........................................................ 9,860,835
Less: Tangible assets and liabilities:
Cash and cash equivalents................................................. 415,368
Accounts receivable....................................................... 983,462
Other current assets...................................................... 103,300
Property and equipment.................................................... 118,917
Other assets.............................................................. 244,503
Accounts payable.......................................................... (11,862)
Accrued expenses.......................................................... (279,189)
---------
Intangible assets........................................................... $8,286,336
---------
---------
</TABLE>
Intangible assets are expected to include goodwill and assembled
workforce, which will be amortized over their useful lives. The useful lives
that are currently being used by the Company relating to intangible assets
for similar acquisitions made by the Company are five years for both
goodwill and assembled workforce. The Company is in the process of
completing a full valuation of the tangible and intangible assets. In
management's opinion, the preliminary estimates regarding allocation of the
purchase price and amortization periods are not expected to differ
materially from the final allocation.
The cash consideration of $5.0 million will be paid over a four-year
period. Each former WPL stockholder will receive half of his share of the
$5.0 million at closing. The remaining half of the cash consideration
payable to each stockholder is paid over four years as long as the
stockholder does not voluntarily terminate his employment and is not
terminated for cause.
F-49
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS (CONTINUED)
(c) The excess of the total purchase price for Web Yes over the allocation of
fair value to the net assets will be recorded as intangible assets, which is
calculated based on the following assumptions:
<TABLE>
<S> <C>
Purchase consideration (issuance of common stock)........................... $3,712,378
Less: Tangible assets and liabilities:
Cash and cash equivalents................................................. 1,480
Accounts receivable....................................................... 31,764
Property and equipment.................................................... 183,541
Other assets.............................................................. 2,281
Accounts payable.......................................................... (30,563)
Accrued expenses.......................................................... (28,134)
Loans and advances to stockholders........................................ (42,296)
Capital lease obligations................................................. (57,295)
---------
Intangible assets........................................................... $3,651,600
---------
---------
</TABLE>
Intangible assets are expected to include goodwill and assembled
workforce, which will be amortized over their useful lives. The useful lives
that are currently being used by the Company relating to intangible assets
for similar acquisitions made by the Company are five years for both
goodwill and assembled workforce. The Company is in the process of
completing a full valuation of the tangible and intangible assets subsequent
to the acquisition of Web Yes. In management's opinion, the preliminary
estimates regarding allocation of the purchase price and amortization
periods are not expected to differ materially from the final allocation.
(d) Represents the issuance of 2,931,849 shares of Series B Preferred Stock,
$.0001 par value, for $6.50 per share. The Series B Preferred Stock is
entitled to receive dividends at a rate of $.1136 per share as and if
declared. The Series B Preferred Stock is convertible into shares of common
stock on a share-per-share basis, subject to certain adjustments. In the
event of any liquidation, dissolution or winding up of the Company, the
Series B Preferred Stock has a liquidation preference of $6.50 per share.
The Series B Preferred Stock is convertible into common stock immediately at
the option of the holder, and automatically converts into common stock upon
the completion of a qualifying initial public offering.
2. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS
The pro forma statement of operations adjustments for the year ended
December 31, 1998, and for the three months ended March 31, 1999, consist of the
following:
(a) General and administrative expense has been adjusted to reflect the
amortization of goodwill and intangible assets associated with the
acquisition of Applica Corporation, WPL Laboratories, Inc. and Web Yes, Inc.
over an estimated useful life of five years.
(b) During 1998, certain Acquired Companies operated with no salaried employees.
Compensation expense has been adjusted to reflect the difference between
historical compensation and benefits of officers and employees of the
Acquired Companies and the compensation and benefits specified in the
employment contracts entered into at the date of acquisition.
F-50
<PAGE>
[Narrative description of graphic material omitted in electronically filed
document:
There is a rectangle which covers the upper left hand corner of the page and
extends for approximately half the area of the page.
The heading "Breakaway Results" is located near the top of the rectangle. The
heading is underlined with a line beginning at the far left of the page.
There are three paragraphs on the left side of the page, titled "BREAKAWAY
SPEED," BREAKAWAY QUALITY," and "BREAKAWAY VALUE."
Under Breakaway Speed, in a smaller font, is the following text: "Time to
market may be the most critical factor to the success of an e-business
initiative. We believe that Breakaway's approach delivers solutions to
clients significantly more rapidly than traditional approaches."
Under Breakaway Quality, in a smaller font, is the following text: "The
solutions that we offer are critically important to our clients' businesses.
We have designed our business processes to deliver to growing enterprises,
solutions that are of equal or superior quality to solutions which much
larger enterprises obtain from traditional service providers."
Under Breakaway Value in a smaller font, is the following text: "The core
focus of our Breakaway Breakthrough methodology is the creation of measurable
value for our clients. In some cases we link a portion of our fees to our
success in providing measurable value."
To the right of the these three paragraphs is a snapshot of a web page from
Partners HealthCare System, under which is the following text: "Partners
HealthCare System engaged Breakaway Solutions to design a solution to
consolidate, implement and deploy their research system, comprised of 17
databases in multiple locations, and provide, a web-based user-interface
across an intranet/extranet, permitting approximately 2,000 researchers and
administrators easy, rapid, low-cost and standardized access."
Below these three paragraphs is a snapshot of a web page from VerticalNet,
under which is the following text: "VerticalNet engaged Breakaway Solutions
to design, develop and implement a number of different solutions to realize
revenues from business transactions on its Web sites, increase sales leads,
enhance customer services and improve work flow.
To the right of this page is a snapshot of a web page from Plan Sponsor
Exchange, under which is the following text: "Plan Sponsor Exchange engaged
Breakaway Solutions to provide the Breakaway full service offering from
strategy solutions, to design and development, to application hosting
services in order to deploy their robust e-business model on the Internet."]
<PAGE>
[BREAKAWAY SOLUTIONS, INC. LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 11,190
NASD filing fee................................................. 4,525
Nasdaq National Market listing fee.............................. 95,000
Blue Sky fees and expenses...................................... 10,000
Transfer Agent and Registrar fees............................... 15,000
Accounting fees and expenses.................................... 500,000
Legal fees and expenses......................................... 400,000
Printing and mailing expenses................................... 150,000
Miscellaneous................................................... 64,285
---------
Total $1,250,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article SEVENTH of the Registrant's Certificate of Incorporation provides
that no director of the Registrant shall be personally liable for any monetary
damages for any breach of fiduciary duty as a director, except to the extent
that the Delaware General Corporation Law prohibits the elimination or
limitation of liability of directors for breach of fiduciary duty.
Article EIGHTH of the Registrant's Certificate of Incorporation provides
that a director or officer of the Registrant:
(a) shall be indemnified by the Registrant against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
incurred in connection with any litigation or other legal proceeding
(other than an action by or in the right of the Registrant) brought
against him by virtue of his position as a director or officer of the
Registrant if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful and
(b) shall be indemnified by the Registrant against all expenses (including
attorneys' fees) and amounts paid in settlement incurred in connection
with any action by or in the right of the Registrant brought against him
by virtue of his position as a director or officer of the Registrant if
he acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Registrant, except that no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to the Registrant, unless a
court determines that, despite such adjudication but in view of all of
the circumstances, he is entitled to indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, he is required to be indemnified by
the Registrant against all expenses (including attorneys' fees) incurred in
connection therewith. Expenses shall be advanced to a director or officer at his
request, provided that
II-1
<PAGE>
he undertakes to repay the amount advanced if it is ultimately determined that
he is not entitled to indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article EIGHTH of the Registrant's Certificate of Incorporation further
provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the fullest extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 8 of the Underwriting Agreement, the underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
STOCK SPLITS. The Registrant has effected and will effect the following splits
of its common stock.
1. On June 30, 1998, the Registrant effected a 2-for-1 stock split of its
common stock in the form of a stock dividend of one share of common stock
paid on each share of common stock outstanding as of June 29, 1998. In
connection with such stock split, the Registrant issued to its stockholders
of record as of June 29, 1998 an aggregate of 1,336,000 shares of common
stock.
2. On December 22, 1998, the Registrant effected a 3-for-1 stock split of its
common stock in the form of a stock dividend of two shares of common stock
paid on each share of common stock outstanding as of December 21, 1998. In
connection with such stock split, the Registrant issued to its stockholders
of record as of December 21, 1998 an aggregate of 5,104,000 shares of common
stock.
3. Prior to the consummation of this offering, the Registrant will effect a
-for-1 stock split of its common stock in the form of a stock dividend
of shares of common stock to be paid on each share of common stock
outstanding as of July , 1999. In connection with such stock split
II-2
<PAGE>
the Registrant will issue to its stockholders of record as of July , 1999
an aggregate of shares of common stock.
CERTAIN SALES OF SECURITIES. Since July 1996, the Registrant has issued the
following securities that were not registered under the Securities Act, as
summarized below.
(a) Issuances of capital stock.
1. On January 6, 1999, the Registrant issued and sold 5,853,000 shares
of its Series A Preferred Stock, $0.0001 par value per share, to
Internet Capital Group, LLC for an aggregate purchase price of
$8,291,750 pursuant to a Series A Preferred Stock Purchase Agreement.
2. On March 5, 1999, the Registrant issued and sold 70,587 shares of its
common stock to Gordon Brooks for an aggregate purchase price of
$100,000 pursuant to the exercise, in part, of a stock option.
3. On March 25, 1999, the Registrant issued and sold an aggregate of
904,624 shares of its common stock to the former stockholders of
Applica Corporation as consideration for the merger of Applica
Corporation with and into the Registrant pursuant to an Agreement and
Plan of Merger. 45,231 of these shares are held by an escrow agent
pursuant to an Escrow Agreement.
4. On May 14, 1999, the Registrant issued and sold an aggregate of
1,705,175 shares of its common stock to the former stockholders of
WPL Laboratories, Inc. as consideration for the merger of WPL
Laboratories, Inc. into a wholly owned subsidiary of the Registrant
pursuant to an Agreement and Plan of Merger.
5. On May 26, 1999, the Registrant issued and sold 750,000 shares of its
common stock to Frank Selldorff for an aggregate purchase price of
$407,250 pursuant to the exercise, in part, of a stock option.
6. On June 10, 1999, the Registrant issued and sold an aggregate of
615,613 shares of its common stock to the former stockholders of Web
Yes, Inc. as consideration for the merger of Web Yes, Inc. into a
wholly owned subsidiary of the Registrant pursuant to an Agreement
and Plan of Merger. 54,146 of these shares are held by an escrow
agent pursuant to an Escrow Agreement.
7. On July 2, 1999 and July 12, 1999, the Registrant issued and sold an
aggregate of 2,931,849 shares of its Series B Preferred Stock,
$0.0001 par value per share, to a group of investors for an aggregate
purchase price of approximately $19,049,982 pursuant to a Series B
Preferred Stock Purchase Agreement. Approximately $4,053,427 of such
purchase price was paid by conversion of a convertible promissory
note issued by the Registrant on May 13, 1999.
(b) Stock option grants.
1. The Registrant has issued the following stock options to its
executive officers and directors:
(a) Effective July 1, 1998 the Registrant issued to Kevin Comerford
options to purchase up to 90,000 shares of its common stock at a
per share exercise price of $0.54.
(b) Effective July 1, 1998 the Registrant issued to Christopher H.
Greendale options to purchase up to 105,000 shares of its common
stock at a per share exercise price of $0.54.
II-3
<PAGE>
(c) Effective July 1, 1998 the Registrant issued to Frank Selldorff
options to purchase up to 1,500,000 shares of its common stock at
a per share exercise price of $0.54.
(d) Effective July 1, 1998 the Registrant issued to Janet Tremlett
options to purchase up to 45,000 shares of its common stock at a
per share exercise price of $0.54.
(e) Effective October 1, 1998 the Registrant issued to Kevin
Comerford options to purchase up to 45,000 shares of its common
stock at a per share exercise price of $1.42.
(f) Effective December 23, 1998 the Registrant issued to Gordon
Brooks options to purchase up to 764,625 shares of its common
stock at a per share exercise price of $1.42.
(g) Effective January 22, 1999 the Registrant issued to Janet
Tremlett options to purchase up to 22,500 shares of its common
stock at a per share exercise price of $1.42.
(h) Effective February 18, 1999 the Registrant issued to Christopher
H. Greendale options to purchase up to 693,000 shares of its
common stock at a per share exercise price of $1.42.
(i) Effective February 18, 1999 the Registrant issued to Christopher
Harding options to purchase up to 378,949 shares of its common
stock at a per share exercise price of $1.42.
(j) Effective March 25, 1999 the Registrant issued to Babak Farzami
options to purchase up to 423,011 shares of its common stock at a
per share exercise price of $1.56.
(k) Effective March 25, 1999 the Registrant issued to Dev Ittycheria
options to purchase up to 317,258 shares of its common stock at a
per share exercise price of $1.56.
2. From the adoption of our 1998 Stock Plan on June 30, 1998 through
June 30, 1999, the Registrant granted options to purchase an
aggregate of 5,382,646 shares of its common stock, net of
cancellations of 202,116 options, exercises of 12,903 options and the
options described in paragraph (b)2 above, at a per share weighted
average exercise price of $1.58 to employees of the Registrant.
(c) Grants of other securities.
1. On May 13, 1999, the Registrant issued to Internet Capital Group,
Inc. a Convertible Promissory Note in the principal amount of
$4,000,000 bearing interest at an adjustable rate of the prime
interest rate plus one percent and convertible into convertible
preferred stock.
2. On May 13, 1999, the Registrant issued to Internet Capital Group,
Inc. a Stock Purchase Warrant which, upon the Registrant's Series B
financing in July 1999, was established as a right to purchase 92,341
shares of common stock at a per share purchase price of $6.50.
No underwriters were involved in any of the foregoing sales of securities.
Such sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder, or, in the case of the options to purchase common stock
described in paragraph (b)2 above, Rule 701 of the Securities Act. All of the
foregoing securities are deemed restricted securities for the purposes of the
Securities Act.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Second Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
3.3 Form of Third Amended and Restated Certificate of Incorporation of the Registrant.
3.4 Form of Amended and Restated Bylaws of the Registrant.
4.1* Specimen certificate for shares of the Registrant's common stock.
5.1* Opinion of Hale and Dorr LLP.
10.1 1998 Stock Incentive Plan.
10.2 1999 Stock Incentive Plan.
10.3 1999 Employee Stock Purchase Plan.
10.4 Letter Agreement, dated October 23, 1998, by and between the Registrant and Patti Purcell.
10.5 Employment Agreement, dated November 13, 1998, by and between the Registrant and Gordon Brooks.
10.6 Employment Agreement, dated December 11, 1998, by and between the Registrant and Frank Selldorff.
10.7 Employment Agreement, dated February 11, 1999, by and between the Registrant and Janet Tremlett.
10.8 Employment Agreement, dated March 25, 1999, by and between the Registrant and Babak Farzami.
10.9 Employment Agreement, dated March 25, 1999, by and between the Registrant and Dev Ittycheria.
10.10 Employment Agreement, February 17, 1999, by and between the Registrant and Christopher Harding.
10.11 Employment Agreement, dated March 2, 1999, by and between the Registrant and Wayne Saunders.
10.12 Employment Agreement, dated May 29, 1998, by and between the Registrant and Kevin Comerford.
10.13 Reserved
10.14 Separation Agreement, dated as of April 28, 1999, by and between the Registrant and Frank Selldorff.
10.15 Employment Agreement, dated May 14, 1999, by and between the Registrant and William Loftus.
10.16 Option Agreement, by and between the Registrant and Frank Selldorff, effective July 1, 1998.
10.17 Option Agreement, by and between the Registrant and Kevin Comerford, effective July 1, 1998.
10.18 Option Agreement, by and between the Registrant and Christopher Greendale, effective July 1, 1998.
10.19 Option Agreement, by and between the Registrant and Janet Tremlett, effective July 1, 1998.
10.20 Amendment No. 1 to the Option Agreement, by and between Janet Tremlett and the Registrant, dated January
22, 1999.
10.21 Option Agreement, by and between the Registrant and Kevin Comerford, effective October 1, 1998.
10.22 Option Agreement, by and between the Registrant and Gordon Brooks, effective December 23, 1998.
10.23 Option Agreement, by and between the Registrant and Gordon Brooks, effective December 23, 1998.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.24 Option Agreement, by and between the Registrant and Gordon Brooks, effective December 23, 1998.
10.25 Option Agreement, by and between the Registrant and Gordon Brooks, effective December 23, 1998.
10.26 Option Agreement, by and between the Registrant and Gordon Brooks, effective December 23, 1998.
10.27 Option Agreement, by and between the Registrant and Janet Tremlett, effective January 22, 1999.
10.28 Option Agreement, by and between the Registrant and Christopher Greendale, effective February 18, 1999.
10.29 Option Agreement, by and between the Registrant and Christopher Harding, effective February 18, 1999.
10.30 Option Agreement, by and between the Registrant and Christopher Harding, effective February 18, 1999.
10.31 Option Agreement, by and between the Registrant and Babak Farzami, effective March 25, 1999.
10.32 Option Agreement, by and between the Registrant and Dev Ittycheria, effective March 25, 1999.
10.33 Option Agreement, by and between the Registrant and Wayne Saunders, effective March 19, 1999.
10.34 Option Agreement, by and between the Registrant and Wayne Saunders, effective March 19, 1999.
10.35 Lease Agreement dated as of July 22, 1998, by and between the Registrant and Equity Office Properties
Trust.
10.36 S Corporation Termination, Tax Allocation and Indemnification Agreement, dated December 23, 1998, by and
between the Registrant and Frank Selldorff.
10.37 Warrant to purchase the Registrant's common stock, dated May 13, 1999, issued by the Registrant to
Internet Capital Group.
10.38 Stock Pledge Agreement, dated as of May 14, 1999, by and between the Registrant and William Loftus.
10.39 Stock Restriction Agreement, dated as of May 14, 1999, by and between the Registrant and William Loftus.
10.40 Amended and Restated Investors' Rights Agreement, dated as of July 2, 1999, by and between the Registrant
and the investors named therein.
21.1 Schedule of subsidiaries of the Registrant.
23.1* Consent of Hale and Dorr LLP (contained in exhibit 5.1).
23.2 Consent of KPMG LLP regarding Breakaway Solutions, Inc.
23.3 Consent of KPMG LLP regarding Applica Corporation
23.4 Consent of KPMG LLP regarding WPL Laboratories, Inc.
23.5 Consent of KPMG LLP regarding Web Yes, Inc.
24.1 Powers of Attorney (included on page II-8).
27.1 Financial Data Schedule.
99.1 Letter of Arthur Andersen LLP
99.2 Letter of Brown & Brown LLP
</TABLE>
- ------------------------
* To be filed by amendment.
(B) Financial Statement Schedules
All other schedules have been omitted because they are not required or
because the required information is given in the Registrant's consolidated
financial statements or notes to those statements.
II-6
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised 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 against such liabilities (other than
the payment by the Registrant of expenses 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, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Boston, Massachusetts,
on this 21st day of July, 1999.
BREAKAWAY SOLUTIONS, INC.
By: /s/ GORDON BROOKS
-----------------------------------------
Gordon Brooks
President and Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Breakaway Solutions, Inc.,
hereby severally constitute and appoint Gordon Brooks, Kevin Comerford and
Thomas L. Barrette, Jr., and each of them singly, our true and lawful attorneys
with full power to them, and each of them singly, to sign for us and in our
names in the capacities indicated below, the Registration Statement on Form S-1
filed herewith and any and all pre-effective and post-effective amendments to
said Registration Statement, and any subsequent Registration Statement for the
same offering which may be filed under Rule 462(b), and generally to do all such
things in our names and on our behalf in our capacities as officers and
directors to enable Breakaway Solutions, Inc. to comply with the provisions of
the Securities Act of 1933, as amended, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, to said Registration
Statement and any and all amendments thereto or to any subsequent Registration
Statement for the same offering which may be filed under Rule 462(b).
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Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President and Chief
/s/ GORDON BROOKS Executive Officer
- ------------------------------ (Principal Executive July 21, 1999
Gordon Brooks Officer) and Director
Vice President,
Administration, Chief
/s/ KEVIN COMERFORD Financial Officer,
- ------------------------------ Treasurer and Secretary July 21, 1999
Kevin Comerford (Principal Financial
Officer and Principal
Accounting Officer)
/s/ CHRISTOPHER H. GREENDALE Chairman of the Board of
- ------------------------------ Directors July 21, 1999
Christopher H. Greendale
/s/ FRANK SELLDORFF Director
- ------------------------------ July 21, 1999
Frank Selldorff
Director
- ------------------------------ July 21, 1999
Walter W. Buckley, III
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EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
BREAKAWAY SOLUTIONS, INC.
Breakaway Solutions, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of Delaware (the "CORPORATION")
does hereby certify as follows:
FIRST: The original Certificate of Incorporation of the Corporation was
filed under the name "The Counsell Group, Inc." with the Delaware Secretary of
State (the "SECRETARY") on August 17, 1995.
SECOND: This Amended and Restated Certificate of Incorporation has been
duly adopted by the Board of Directors of the Corporation in accordance with the
provisions of Section 242 and 245 of the General Corporation Law of the State of
Delaware.
THIRD: This Amended and Restated Certificate of Incorporation was
approved by the written consent of stockholders pursuant to Section 228 of the
General Corporation Law of the State of Delaware.
FOURTH: The Certificate of Incorporation of this Corporation is amended
and restated in its entirety to read as follows:
ARTICLE I
The name of the corporation is Breakaway Solutions, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
<PAGE>
ARTICLE IV
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, Common Stock ("Common Stock") and Preferred Stock
("Preferred Stock"). The total number of shares of capital stock that this
Corporation is authorized to issue is thirty-seven million nine hundred
thirty-one thousand sixty-five (37,931,065). The total number of shares of
Common Stock that this Corporation is authorized to issue is twenty-nine million
(29,000,000). The total number of shares of Preferred Stock that this
Corporation has authority to issue is eight million, nine hundred thirty-one
thousand sixty-five (8,931,065), five million, eight hundred fifty-three
thousand (5,853,000) of which are designated as Series A Preferred Stock
("SERIES A PREFERRED") and three million, seventy-eight thousand, sixty-five
(3,078,065) of which are designated as Series B Preferred Stock ("SERIES B
PREFERRED"). The Common Stock and the Preferred Stock shall each have a par
value of $.0001 per share.
B. The rights, preferences, privileges and restrictions granted to or
imposed on the Common Stock and Preferred Stock are as follows:
1. DIVIDENDS. The holders of the Preferred Stock shall be entitled to
receive dividends at the rate of (a) $0.5198 per share on Series B Preferred (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) per annum, payable in preference and priority to any payment or
declaration of any dividend on Series A Preferred and the Common Stock, and (b)
$0.1136 per share on Series A Preferred (as adjusted for any stock dividends,
combinations or splits with respect to such shares) per annum, each payable out
of any assets legally available therefor. Dividends shall be payable only when,
as, and if declared by the Board of Directors. Dividends on the Series A
Preferred shall be noncumulative. Dividends on the Series B Preferred shall be
cumulative.
No dividends (other than those payable solely in the Common Stock of the
Corporation) shall be paid or declared on any Common Stock of the Corporation
during any fiscal year of the Corporation until dividends in the total amount of
$0.1136 and $0.5198 per share (as adjusted for any stock dividends, combinations
or splits with respect to such shares) on the Series A and B Preferred,
respectively, shall have been paid or declared and set apart during that fiscal
year and no dividends shall be paid on any share of Common Stock unless a
dividend (including the amount of any dividends paid pursuant to the above
provisions of this Section B.1) is paid with respect to all outstanding shares
of Series A Preferred and Series B Preferred in an amount for each such share of
Series A Preferred and Series B Preferred equal to or greater than the aggregate
amount of such dividends for all shares of Common Stock into which each such
share of Series A Preferred and Series B Preferred could then be converted.
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2. LIQUIDATION PREFERENCE.
(a) SERIES B PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntarily or
involuntarily (a "LIQUIDATION EVENT"), the holders of the Series B Preferred
shall be entitled to receive prior and in preference to any distribution of any
of the assets or surplus funds of the Corporation to the holders of Series A
Preferred and the holders of Common Stock of the Corporation, an amount equal to
$6.4976 per share for each share of Series B Preferred then so held, (as
adjusted for any stock dividends, combinations or splits with respect to such
shares), plus a further amount equal to all accumulated but unpaid dividends in
respect of each share at the annual dividend rate fixed for Series B Preferred,
whether or not such dividends were declared by the Board of Directors.
All of the preferential amounts to be paid to the holders of the Series B
Preferred under this Section 2 shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the distribution of
any assets of this Corporation to, the holders of the Series A Preferred and
holders of Common Stock in connection with such liquidation, dissolution or
winding up.
If, upon a Liquidation Event, the assets of the Corporation are
insufficient to provide for the payment of the full aforesaid preferential
amount to the holders of the Series B Preferred, such assets and funds as are
available shall be distributed ratably among the holders of the Series B
Preferred in proportion to the full preferential amount each such holder is
otherwise entitled to receive.
(b) SERIES A PREFERENCE. In the event of a Liquidation Event and
after payment has been made to the holders of Series B Preferred of the full
preferential amounts set forth in Section 2(a) above, the holders of the Series
A Preferred shall be entitled to receive prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of Common Stock of the Corporation, an amount equal to $1.41667 per
share for each share of Series A Preferred then so held, in each case as
adjusted for any stock dividends, combinations or splits with respect to such
shares, plus a further amount equal to all declared but unpaid dividends on such
shares.
All of the preferential amounts to be paid to the holders of the Series A
Preferred under this Section 2 shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the distribution of
any assets of this Corporation to, the holders of the Common Stock in connection
with such liquidation, dissolution or winding up.
If, upon a Liquidation Event, the assets of the Corporation are
insufficient to provide for the payment of the full aforesaid preferential
amount to the holders of the Series A Preferred, such assets and funds as are
available shall be distributed ratably among the holders of the Series A
Preferred in proportion to the full preferential amount each such holder is
otherwise entitled to receive. After the payment or the setting apart of payment
of the full preferential
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<PAGE>
amounts to the holders of the Series A Preferred and Series B Preferred, the
holders of the Common Stock shall be entitled to receive all remaining assets
and funds of the Corporation ratably on a per-share basis.
(c) DEEMED LIQUIDATION. A merger, consolidation or sale of all or
substantially all of the assets of the Corporation which will result in the
Corporation's stockholders immediately prior to such transaction not holding (by
virtue of such shares or securities issued solely with respect thereto) at least
50% of the voting power of the surviving, continuing or purchasing entity, or
the occurrence of a transaction or series of transactions to which the Company
is a party which results in the Company issuing shares of voting securities
representing 50% or more of the voting securities of the Corporation to a group
of persons or entities (as such term is used in Section 13(d) of the Securities
Exchange Act of 1934) who are not holders of the Corporation's securities or
affiliates of such holders immediately prior to the transaction shall be deemed
to be a Liquidation Event for the purposes of Section 2(a) hereof.
(d) NONCASH DISTRIBUTIONS. If any of the assets of the
Corporation are to be distributed other than in cash under this Section 2 or for
any purpose, then the Board of Directors of the Corporation shall promptly
engage independent competent appraisers to determine the value of the assets to
be distributed to the holders of the Series A Preferred, Series B Preferred or
Common Stock. The Corporation shall, upon receipt of such appraiser's valuation,
give prompt written notice to each holder of shares of the Series A Preferred,
Series B Preferred or Common Stock of the appraiser's valuation. Notwithstanding
the above, any securities to be distributed to the stockholders shall be valued
as follows:
(i) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) business days prior to the
distribution;
(ii) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the 30-day period ending
three (3) business days prior to the distribution; and
(iii) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the Corporation and
the holders of not less than a majority of the outstanding shares of the Series
B Preferred Stock, provided that if the Corporation and the holders of a
majority of the outstanding shares of the Series B Preferred Stock are unable to
reach agreement, then by independent appraisal by an investment banker hired and
paid by the Corporation, but acceptable to the holders of a majority of the
outstanding shares of the Series B Preferred Stock.
3. VOTING RIGHTS.
(a) GENERAL. Except as set forth herein or as otherwise required
by law, each holder of shares of Common Stock issued and outstanding shall have
one vote for each share of Common Stock held by such holder, and each holder of
shares of Preferred Stock shall be entitled to the number of votes equal to the
number of shares of Common Stock into which
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<PAGE>
such shares of Preferred Stock could be converted at the record date for
determination of the stockholders entitled to vote on such matters, or, if no
such record date is established, at the date such vote is taken or any written
consent of stockholders is solicited, such votes to be counted together with all
other shares of stock of the Corporation having general voting power and not
counted separately as a class. Holders of Common Stock and Preferred Stock shall
be entitled to notice of any stockholders' meeting in accordance with the Bylaws
of the Corporation.
(b) BOARD OF DIRECTORS. The holders of a majority of the shares
of the Preferred Stock, voting together as a single class, shall be entitled to
elect two directors. The holders of Common Stock, voting together as a single
class, shall be entitled to elect two directors. Any remaining directors shall
be elected by a plurality vote of the holders of the Common Stock and the
Preferred Stock, voting together as a class. Any vacancies on the Board of
Directors shall be filled by vote of the holders of that class or series of
stock originally entitled to elect the director whose absence or resignation
created such vacancy.
(c) CHANGES IN AUTHORIZED SHARES. The number of authorized shares
of Common Stock may be increased or decreased (but not below the number of
shares of common stock then outstanding plus the number of shares of common
stock reserved for issuance upon conversion of the Series A Preferred and Series
B Preferred) by: (i) the affirmative vote of the holders of a majority of the
outstanding capital stock of the Corporation entitled to vote thereon, voting
together as a single class, notwithstanding any provision of Section 242(b)(2)
of the Delaware General Corporation Law to the contrary and (ii) the affirmative
vote of the holders of a majority of the outstanding shares of Series A and B
Preferred, voting together as a single class.
4. CONVERSION OF PREFERRED STOCK. The holders of the Preferred Stock
have conversion rights as follows (the "CONVERSION RIGHTS"):
(a) RIGHT TO CONVERT. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for the Preferred Stock into such number of fully paid and nonassessable shares
of Common Stock as is determined (a) in the case of the Series A Preferred, by
dividing $1.41667 by the Series A Conversion Price, as hereinafter provided, in
effect at the time of the conversion, and (b) in the case of Series B Preferred,
by dividing $6.4976 by the Series B Conversion Price, as hereinafter provided,
in effect at the time of the conversion. The price at which shares of Common
Stock shall be deliverable upon conversion of the Series A Preferred (the
"SERIES A CONVERSION PRICE") shall initially be $1.41667 per share of Common
Stock. The price at which shares of Common Stock shall be deliverable upon
conversion of the Series B Preferred (the "SERIES B CONVERSION PRICE") shall
initially be $6.4976 per share of Common Stock. Such initial Series A Conversion
Price and Series B Conversion Price shall be subject to adjustment as
hereinafter provided.
(b) AUTOMATIC CONVERSION OF SERIES A PREFERRED. Each share of
Series A Preferred shall automatically be converted into shares of Common Stock
at the then
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<PAGE>
effective Series A Conversion Price, upon the earlier to occur, of (i)
immediately prior to the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Corporation to the public at a price per share of Common Stock of
not less than $9.75 (as adjusted for any stock dividends, combinations or splits
with respect to such shares) and an aggregate offering price of not less than
Twenty Million Dollars ($20,000,000) or (ii) the election of holders of at least
two-thirds of the outstanding shares of the Series A Preferred to convert such
shares into Common Stock.
(c) AUTOMATIC CONVERSION OF SERIES B PREFERRED. Each share of
Series B Preferred shall automatically be converted into shares of Common Stock
at the then effective Series B Conversion Price, upon the earlier to occur, of
(i) immediately prior to the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Corporation to the public ("IPO") at a price per share of Common
Stock of not less than $9.75 (as adjusted for any stock dividends, combinations
or splits with respect to such shares) and an aggregate offering price of not
less than Twenty Million Dollars ($20,000,000) or (ii) the election of holders
of at least two-thirds of the outstanding shares of the Series B Preferred to
convert such shares into Common Stock.
(d) MECHANICS OF CONVERSION. No fractional shares of Common Stock
shall be issued upon conversion of Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then effective Conversion
Price. Before any holder of Preferred Stock shall be entitled to convert the
same into full shares of Common Stock and to receive certificates for such
Common Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Preferred Stock and shall give written notice to the Corporation at such office
that he elects to convert the same; PROVIDED, HOWEVER that upon any automatic
conversion pursuant to paragraph 4(b) and prior to surrender of certificates
representing shares of Preferred Stock, such certificates shall be deemed to
represent the shares of Common Stock to which the holder of Preferred Stock is
entitled. The Corporation shall, as soon as practicable thereafter, issue and
deliver to such holder of Preferred Stock, a certificate or certificates for the
number of shares of Common Stock to which he shall be entitled as aforesaid and
a check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into fractional shares of Common Stock. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of such surrender of the shares of Preferred Stock, to be converted,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date. If the number of
shares of Preferred Stock represented by the certificates for the Preferred
Stock submitted for conversion shall be greater than the number of shares of
Preferred Stock being converted, the Corporation shall, when delivering the
shares of Common Stock upon any such conversion, issue and deliver to the holder
thereof a new certificate representing the number of shares of Preferred Stock
which shall not have been converted.
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<PAGE>
(e) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, this Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
5. ADJUSTMENTS TO CONVERSION PRICE.
(a) SPECIAL DEFINITIONS. For purposes of this Section 5, the
following definitions shall apply:
(i) "OPTIONS" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(ii) "ORIGINAL ISSUE DATE" for the Series A Preferred and
Series B Preferred shall mean the date on which the first share of Series A
Preferred or Series B Preferred, respectively, was issued.
(iii) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares of capital stock (other than the Preferred Stock) or other
securities directly or indirectly convertible into or exchangeable for Common
Stock.
(iv) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to subsection 5(c), deemed to be
issued) by the Corporation after the Original Issue Date, other than:
(A) shares of the Corporation's Common Stock issued
upon conversion of the Preferred Stock;
(B) options to purchase shares of Common Stock issued
to officers, directors, employees of and consultants to the Corporation pursuant
to stock option plans approved by a majority of the members of the Board of
Directors PROVIDED, HOWEVER, that the maximum aggregate number of shares so
issued may not exceed 1,894,534 shares (as adjusted for any stock dividends,
combinations or splits with respect to the Common Stock) plus such additional
number of options as may again become issuable under any such plan due to
termination of options previously issued;
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<PAGE>
(C) shares of Common Stock issued upon exercise of
options outstanding at the date of this Certificate or options listed under
5(a)(iv)(B);
(D) as a dividend or distribution on Preferred Stock or
any event for which adjustment is made pursuant to subsection 5(f) or 5(g)
hereof; or
(E) to any bank, equipment or real property lessor or
other similar institution if and to the extent that the transaction in which
such issuance is to be made is approved by the Corporation's Board of Directors
and is for purposes other than equity financing.
(b) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
Conversion Price for a series of Preferred Stock shall be made in respect of the
issuance of Additional Shares of Common Stock unless the consideration per share
for an Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Conversion Price for such series of
Preferred Stock in effect on the date of and immediately prior to such issue.
(c) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number that
would result in an adjustment pursuant to clause (ii) below) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to subsection 5(g) hereof) of such Additional
Shares of Common Stock would be less than the applicable Conversion Price of any
series of Preferred Stock in effect on the date of and immediately prior to such
issue, or such record date and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(i) no further adjustment in the Series A or B Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(ii) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or increase or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Series A or B Conversion Price computed upon
the original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
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<PAGE>
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(iii) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Series A or B Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if:
(A) in the case of Convertible Securities or Options
for Common Stock, the only Additional Shares of Common Stock issued were shares
of Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities, whether or not actually converted or exchanged,
plus the additional consideration, if any, actually received by the Corporation
upon such conversion or exchange, and
(B) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the consideration
received by the Corporation for the Additional Shares of Common Stock deemed to
have been then issued was the consideration actually received by the Corporation
for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Corporation upon the issue of
the Convertible Securities with respect to which such Options were actually
exercised;
(iv) in the case of any Options which expire by their terms
not more than 30 days after the date of issue thereof, no adjustment of the
Series A or B Conversion Price shall be made until the expiration or exercise of
all such Options, whereupon such adjustment shall be made in the manner provided
in clause (iii) above.
(d) ADJUSTMENT OF CONVERSION PRICE OF PREFERRED STOCK UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event that after the
Original Issue Date the Corporation shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to subsection 5(c)) without consideration or for a consideration per share less
than the Conversion Price with respect to any series of Preferred Stock in
effect on the date of and immediately prior to such issue, then and in such
event, such Conversion Price for such series of Preferred Stock shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of Common Stock which
the aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price; and the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such
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<PAGE>
issue plus the number of such Additional Shares of Common Stock so issued; and
provided that, for the purposes of this subsection (d), all shares of Common
Stock issuable upon conversion of outstanding Preferred Stock and outstanding
Convertible Securities or exercise of outstanding Options shall be deemed to be
outstanding, and immediately after any Additional Shares of Common Stock are
deemed issued pursuant to subsection 5(c), such Additional Shares of Common
Stock shall be deemed to be outstanding.
(e) DETERMINATION OF CONSIDERATION. For purposes of this Section
5, the consideration received by the Corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(i) Cash and Property: Except as provided in clause (ii)
below, such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
in good faith by the Board; PROVIDED, HOWEVER, that no value shall be attributed
to any services performed by any employee, officer or director of the
Corporation; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received with respect to such Additional Shares of Common
Stock, computed as provided in clauses (A) and (B) above, as determined in good
faith by the Board.
(ii) Options and Convertible Securities: The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 5(c), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
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(f) ADJUSTMENTS FOR STOCK DIVIDENDS, SUBDIVISIONS, COMBINATIONS
OR CONSOLIDATIONS OF COMMON STOCK. In the event the outstanding shares of Common
Stock shall be subdivided (by stock dividend, stock split, or otherwise), into a
greater number of shares of Common Stock, the Series A and B Conversion Price
then in effect shall, concurrently with the effectiveness of such subdivision,
be proportionately decreased. In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Common Stock, the Series A and B Conversion Price
then in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(g) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the event the
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in securities or assets of the Corporation other than
shares of Common Stock then and in each such event provision shall be made so
that the holders of Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities or assets of the Corporation which they would have received
had their Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the date of conversion, retained such securities or assets
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 5 with respect to
the rights of the holders of the Preferred Stock.
(h) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.
If the Common Stock issuable upon conversion of the Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for
above), then and in each such event the holder of each share of Preferred Stock
shall have the right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable upon such
reorganization or reclassification or other change by holders of the number of
shares of Common Stock that would have been subject to receipt by the holders
upon conversion of the Preferred Stock immediately before that change, all
subject to further adjustment as provided herein.
(i) NO IMPAIRMENT. Without the prior written consent of the
holders of a majority of the Series B Preferred Stock, the Corporation will not,
by amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation but will at all times in good faith assist in the carrying out of
all the provisions of Section 5 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Preferred Stock against impairment.
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(j) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to Section 5, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
the affected series of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of such Preferred Stock, furnish or cause to
be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price for such series of
Preferred Stock at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of such Preferred Stock.
6. NOTICES OF RECORD DATE. In the event that the Corporation shall
propose at any time:
(a) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(b) to offer for subscription PRO RATA to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
(c) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or
(d) to merge or consolidate with or into any other Corporation,
or sell, lease or convey all or substantially all its property or business, or
to liquidate, dissolve or wind up, then, in connection with each such event, the
Corporation shall send to the holders of the Preferred Stock;
(i) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote in respect of the matters
referred to in (c) and (d) above; and
(ii) in the case of the matters referred to in (c) and (d)
above, at least 20 days' prior written notice of the date when the same shall
take place (and specifying the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Preferred Stock at
the address for each such holder as shown on the books of this Corporation.
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7. PROTECTIVE PROVISIONS.
In addition to any other rights provided by law, so long as the Preferred
Stock shall be outstanding, the Corporation shall not:
(a) without first obtaining the affirmative vote or written
consent of the holders of not less than fifty percent (50%) of such outstanding
shares of Preferred Stock, voting together as a single class:
(i) amend or repeal any provision of this Certificate of
Incorporation;
(ii) sell, convey, liquidate, or otherwise dispose of or
encumber all or substantially all of its property or business or merge into or
consolidate with any other Corporation (other than a wholly owned subsidiary
Corporation) or effect any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Corporation is
disposed of; or
(iii) change the number of authorized directors to more than
five (5);
(b) without first obtaining the affirmative vote or written
consent of the holders of (i) a majority of the outstanding shares of the Series
A Preferred; and, (ii) a majority of the outstanding shares of the Series B
Preferred:
(i) increase the authorized number of shares of Preferred
Stock (other than Series A Preferred or Series B Preferred);
(ii) authorize or issue shares of any class of stock having
any preference or priority as to dividends or assets superior to, or on a parity
with, the Series B Preferred Stock; or
(iii) redeem, repurchase, retire or otherwise acquire any
shares of Preferred Stock of the Corporation or other securities of the
Corporation held by any holder of Preferred Stock.
(c) without first obtaining the affirmative vote or written
consent of the holders of eighty percent (80%) of the shares of Series B
Preferred Stock, alter or change the liquidation seniority over the Series A
Preferred and Common Stock, dividend, voting or conversion rights of Series B
Preferred or increase the authorized number of shares of Series A Preferred or
Series B Preferred.
Notwithstanding any provision in this Section 7, the affirmative vote or
written consent of the holders of the majority of the shares of Series A
Preferred and the holders of the majority of
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the shares of the Series B Preferred shall be required to change or amend
paragraph 7(b) and the affirmative vote or written consent of the holders of
eighty percent (80%) of shares of the Series B Preferred shall be required to
change or amend paragraph 7(c).
8. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Preferred
Stock acquired by the Corporation by reason of redemption, purchase, conversion
or otherwise shall be reissued, and all such shares shall be cancelled, retired
and eliminated from the shares which the Corporation shall be authorized to
issue.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
ARTICLE VII
The election of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
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ARTICLE IX
1. To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
2. The Corporation shall indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil administrative or investigative, by reason of the fact
that he or she, or his or her testator or intestate is or was a director or
officer of the Corporation or any predecessor of the Corporation or serves or
served at any other enterprise as a director, officer or employee at the request
of the Corporation or any predecessor to the Corporation.
3. Neither any amendment nor repeal of this Article, nor the adoption
of any provision of this Corporation's Certificate of Incorporation inconsistent
with this Article, shall eliminate or reduce the effect of this Article in
respect of any matter occurring, or any action or proceeding accruing or arising
or that, but for this Article, would accrue or arise, prior to such amendment,
repeal or adoption of an inconsistent provision.
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IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by Gordon Brooks, the President of the Corporation. The signature below
shall constitute the affirmation or acknowledgment, under penalties of perjury,
that the facts herein stated are true.
Dated: July 2, 1999
BREAKAWAY SOLUTIONS, INC.
/S/GORDON BROOKS
---------------------------------------
Gordon Brooks
President
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EXHIBIT 3.2
BYLAWS FOR THE REGULATION OF
BREAKAWAY SOLUTIONS, INC.
Incorporated under the Laws of the State of Delaware
ARTICLE I
OFFICES
The registered office of the Corporation in Delaware shall be at Corporation
Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle in
the State of Delaware, and The Corporation Trust Company shall be the resident
agent of this Corporation in charge thereof. The Corporation may also have other
offices at other places, within or without the State of Delaware, as the Board
of Directors may from time to time designate or the business of the Corporation
may require.
ARTICLE II
STOCKHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and the transaction of any other business shall be held on
the second Monday of the fifth month following the close of the corporation's
fiscal year, or as soon thereafter as may be practicable at the place or places
within or without the State of Delaware and at the times as may be designated by
the Board of Directors, and set forth in the notice of that meeting. If such day
be a legal holiday, the annual meeting shall be held on the next succeeding
business day. At the annual meeting any business may be transacted and any
corporate action may be taken, whether stated in the notice of meeting or not,
except as otherwise expressly provided by statute or the Certificate of
Incorporation.
Section 2. SPECIAL MEETINGS. Special meetings of the stockholders for
any purpose may be called at any time by the Board of Directors, or by the
President, and shall be called by the President at the request of the holders of
a majority of the outstanding shares of capital stock entitled to vote. Special
meetings shall be held at the place or places within or without the State of
Delaware and at the times as shall from time to time be designated by the Board
of Directors and stated in the notice of the meeting. At a special meeting no
business shall be transacted and no corporate action shall be taken other than
that stated in the notice of the meeting.
Section 3. NOTICE OF MEETING. Written notice of the time and place of
any stockholder's meeting, whether annual or special, shall be given to each
stockholder entitled to vote thereat, by personal delivery or by mailing the
notice to that stockholder at that stockholder's address as it appears upon the
records of the Corporation at least ten (10) days but not more than sixty (60)
days before the day of
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the meeting. Notice of any adjourned meeting need not be given other than by
announcement at the meeting so adjourned, unless otherwise ordered in connection
with the adjournment. Further notice, if any, shall be given as may be required
by law.
Section 4. QUORUM. Any number of stockholders, together holding at
least a majority of the capital stock of the Corporation issued and outstanding
and entitled to vote, who shall be present in person or represented by proxy at
any meeting duly called, shall constitute a quorum for the transaction of all
business, except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws.
Section 5. ADJOURNMENT OF MEETINGS. If less than a quorum shall attend
at the time for which a meeting shall have been called, the meeting may adjourn
from time to time by a majority vote of the stockholders present or represented
by proxy and entitled to vote without notice other than by announcement at the
meeting until a quorum shall attend. Any meeting at which a quorum is present
may also be adjourned in like manner and for that time or upon the call as may
be determined by a majority vote of the stockholders present or represented by
proxy and entitled to vote. At any adjourned meeting at which a quorum shall be
present, any business may be transacted and any corporate action may be taken
which might have been transacted at the meeting as originally called.
Section 6. VOTING LIST. The Secretary shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote, arranged in alphabetical order and showing the
address of each stockholder and the number of shares of each stockholder. That
list shall be open at the place where the election is to be held for these ten
(10) days, to the examination of any stockholder, and shall be produced and kept
at the time and place of election during the whole time thereof, and subject to
the inspection of any stockholder who may be present.
Section 7. VOTING. Each stockholder entitled to vote at any meeting may
vote either in person or by proxy, but no proxy shall be voted on or after three
years from its date, unless that proxy provides for a longer period. Each
stockholder entitled to vote shall at every meeting of the stockholders be
entitled to one vote for each share of stock registered in his name on the
record of stockholders. At all meetings of stockholders all matters, except as
otherwise provided by statute, shall be determined by the affirmative vote of
the majority of shares present in person or by proxy and entitled to vote on the
subject matter. Voting at meetings of stockholders need not be by written
ballot.
Section 8. RECORD DATE OF STOCKHOLDERS. The Board of Directors is
authorized to fix in advance a date not exceeding sixty (60) days nor less than
ten (10) days preceding the date of any meeting of stockholders, or the date for
the payment of any
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dividend, or the date for the allotment of rights, or the date when any change
or conversion or exchange of capital stock shall go into effect, or a date in
connection with obtaining the consent of stockholders for any purposes, as a
record date for the determination of the stockholders entitled to notice of; and
to vote at, any meeting, and any adjournment thereof, or entitled to receive
payment of any dividend, or to any allotment of rights, or to exercise the
rights in respect of any change, conversion or exchange of capital stock, or to
give consent, and, in that case, those stockholders and only those stockholders
as shall be stockholders of record on the date so fixed shall be entitled to
notice of, and to vote at, that meeting, and any adjournment thereof, or to
receive payment of a dividend, or to receive that allotment of rights, or to
exercise those rights, or to give that consent, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation, after
that recorded date fixed as aforesaid.
Section 9. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take that action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation s registered office shall be by hand
or by certified or registered mail, return receipt requested. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE III
DIRECTORS
Section 1. NUMBER AND QUALIFICATIONS. The Board of Directors shall
consist initially of one (1) Director. Thereafter, the Board of Directors shall
consist of that number as may be fixed from time to time by resolution of the
Board. The directors need not be stockholders.
Section 2. ELECTION OF DIRECTORS. The directors shall be elected by the
stockholders at the annual meeting of stockholders.
Section 3. DURATION OF OFFICE. The directors chosen at any annual
meeting shall, except as herein provided, hold office until the next annual
election and until their successors are elected and qualify.
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Section 4. REMOVAL AND RESIGNATION OF DIRECTORS. Any director may be
removed from the Board of Directors, with or without cause, by the holders of a
majority of the shares of capital stock entitled to vote, either by written
consent or at any special meeting of the stockholders called for that purpose,
and the office of the director shall forthwith become vacant.
Any director may resign at any time. That director's resignation shall
take effect at the time specified therein, and if no time be specified, at the
time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless so specified
therein.
Section 5. FILLING VACANCIES. Any vacancy among the directors,
occurring from any cause whatsoever, may be filled by a majority of the
remaining directors, though less than a quorum, provided however, that the
stockholders removing any director may at the same meeting fill the vacancy
caused by the removal, and provided further, that if the directors fail to fill
any vacancy, the stockholders may at any special meeting called for that purpose
fill that vacancy. In case of any increase in the number of directors, the
additional directors may be elected by the directors in office prior to that
increase. Any person elected to fill a vacancy shall hold office, subject to the
right of removal as hereinbefore provided, until the next annual election and
until his successor is elected and qualifies.
Section 6. REGULAR MEETINGS. The Board of Directors shall hold an
annual meeting for the purpose of organization and the transaction of any
business immediately after the annual meeting of the stockholders, provided a
quorum is present. Other regular meetings may be held at those times as may be
determined from time to time by resolution of the Board of Directors.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board of Directors or by the President.
Section 8. NOTICE AND PLACE OF MEETINGS. Meetings of the Board of
Directors may be held at the principal office of the Corporation, or at that
place as shall be determined in the notice of that meeting. Notice of any
special meeting, and, except as the Board of Directors may otherwise determine
by resolution, notice of any regular meeting also, shall be mailed to each
director addressed to him at his residence or usual place of business at least
two days before the day on which the meeting is to be held, or if sent to him at
that place by telegraph or cable, or delivered personally or by telephone, not
later than the day before the day on which the meeting is to be held. No notice
of the annual meeting of the Board of Directors shall be required if it is held
immediately after the annual meeting of the stockholders and if a quorum is
present.
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Section 9. BUSINESS TRANSACTED AT MEETINGS, ETC. Any business may be
transacted and any corporate action may be taken at any regular or special
meeting of the Board of Directors at which a quorum shall be present, whether
that business or proposed action be stated in the notice of that meeting or not,
unless special notice of that business or proposed action shall be required by
statute.
Section 10. QUORUM. A majority of the Board of Directors at any time in
office shall constitute a quorum. At any meeting at which a quorum is present,
the vote of a majority of the members present shall be the act of the Board of
Directors unless the act of a greater number is specifically required by law or
by the Certificate of Incorporation or these By-Laws.
Section 11. COMPENSATION. The directors shall not receive any stated
salary for their services as directors, but by resolution of the Board of
Directors a fixed fee and expenses of attendance may be allowed for attendance
at each meeting. Nothing herein contained shall preclude any director from
serving the Corporation in any other capacity, as an officer, agent or
otherwise, and receiving compensation therefor.
Section 12. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee.
Section 13. MEETINGS THROUGH USE OF COMMUNICATIONS EQUIPMENT. Members
of the Board of Directors, or any committee designated by the Board of
Directors, shall, except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, have the power to participate in a meeting of the
Board of Directors, or any committee, by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and that participation shall constitute
presence in person at the meeting.
ARTICLE IV
COMMITTEES
Section 1. EXECUTIVE COMMITTEE. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more of
their number to constitute an Executive Committee to hold office at the pleasure
of the Board, which Committee shall, during the intervals between meetings of
the Board of Directors, have and exercise all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation,
subject only to those restrictions or limitations as the Board of Directors may
from time to time specify, or as limited by the Delaware Corporation Law, and
shall have power to authorize the seal of the Corporation to be affixed to all
papers which may require it.
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Any member of the Executive Committee may be removed at any time, with
or without cause, by a resolution of a majority of the whole Board of Directors.
Any person ceasing to be a director shall ipso facto cease to be a
member of the Executive Committee.
Any vacancy in the Executive Committee occurring from any cause
whatsoever may be filled from among the directors by a resolution of a majority
of the whole Board of Directors.
Section 2. OTHER COMMITTEES. Other committees, whose members need not
be directors, may be appointed by the Board of Directors or the Executive
Committee, which committees shall hold office for that time and have those
powers and perform those duties as may from time to time be assigned to them by
the Board of Directors or the Executive Committee.
Any member of a committee may be removed at any time, with or without
cause, by the Board of Directors or the Executive Committee. Any vacancy in a
committee occurring from any cause whatsoever may be filled by the Board of
Directors or the Executive Committee.
Section 3. RESIGNATION. Any member of a committee may resign at any
time. A resignation shall be made in writing and shall take effect at the time
specified therein, or, if no time be specified, at the time of its receipt by
the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective unless so specified therein.
Section 4. QUORUM. A majority of the members of a committee shall
constitute a quorum. The act of a majority of the members of a committee present
at any meeting at which a quorum is present shall be the act of that committee.
The members of a committee shall act only as a committee, and the individual
members thereof shall have no powers as such.
Section 5. RECORD OF PROCEEDINGS, ETC. Each committee shall keep a
record of its acts and proceedings, and shall report the same to the Board of
Directors when and as required by the Board of Directors.
Section 6. ORGANIZATION, MEETINGS, NOTICES, ETC. A committee may hold
its meetings at the principal office of the Corporation, or at any other place
which a majority of the committee may at any time agree upon. Each committee may
make rules as it may deem expedient for the regulation and carrying on of its
meetings and proceedings. Unless otherwise ordered by the Executive Committee,
any notice of a meeting of a committee may be given by the Secretary of the
Corporation or by the
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chairman of the committee and shall be sufficiently given if mailed to each
member at Ms residence or usual place of business at least two days before the
day on which the meeting is to be held, or if sent to the member at that place
by telegraph or cable, or delivered personally or by telephone not later than 24
hours prior to the time at which the meeting is to be held.
Section 7. COMPENSATION. The members of any committee shall be entitled
to compensation as may be allowed them by resolution of the Board of Directors.
ARTICLE V
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be a
President, a Secretary, a Treasurer, (or a combined Secretary-Treasurer), and
other officers as may be appointed in accordance with the provisions of Section
3 of this Article V. The Board of Directors in its discretion may also elect a
Chairman of the Board of Directors.
Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The officers,
except as provided in Section 3 of this Article V, shall be chosen annually by
the Board of Directors. Each officer shall, except as herein otherwise provided,
hold office until his successor shall have been chosen and shall qualify. Except
as otherwise provided by law, any number of offices may be held by the same
person.
Section 3. OTHER OFFICERS. Other officers, including one or more
additional vice presidents, assistant secretaries or assistant treasurers, may
from time to time be appointed by the Board of Directors, which other officers
shall have powers and perform duties as may be assigned to them by the Board of
Directors or the officer or committee appointing them.
Section 4. REMOVAL OF OFFICERS. Any officer of the Corporation may be
removed from office, with or without cause, by a vote of a majority of the Board
of Directors.
Section 5. RESIGNATION. Any officer of the Corporation may resign at
any time. That resignation shall be in writing and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the President or Secretary. The acceptance of a resignation shall not be
necessary in order to make it effective, unless so specified therein.
Section 6. FILLING OF VACANCIES. A vacancy in any office shall be
filled by the Board of Directors or by the authority appointing the predecessor
in that office.
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Section 7. COMPENSATION. The compensation of the officers shall be
fixed by the Board of Directors, or by any committee upon whom power in that
regard may be conferred by the Board of Directors.
Section 8. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors shall be a director and shall preside at all meetings of the
Board of Directors at which he shall be present, and shall have the power and
perform those duties as may from time to time be assigned to him by the Board of
Directors.
Section 9. PRESIDENT. The President shall, when present, preside at all
meetings of the stockholders, and, in the absence of the Chairman of the Board
of Directors, at meetings of the Board of Directors. He shall have power to call
special meetings of the stockholders or of the Board of Directors or of the
Executive Committee at any time. He shall be the chief executive officer of the
Corporation, and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the general direction of the
business, affairs and property of the Corporation, and of its several officers,
and shall have and exercise all powers and discharge the duties as usually
pertain to the office of the President.
Section 10. VICE PRESIDENTS. The Vice Presidents, or any of them,
shall, subject to the direction of the Board of Directors, at the request of the
President or in his absence, or in case of his inability to perform his duties
from any cause, perform the duties of the President, and, when so acting, shall
have all the powers of; and be subject to all restrictions upon, the President.
The Vice Presidents shall also perform those other duties as may be assigned to
them by the Board of Directors, and the Board of Directors may determine the
order of priority among them.
Section 11. SECRETARY. The Secretary shall perform those duties as are
incident to the office of Secretary, or as may from time to time be assigned to
him by the Board of Directors or as are prescribed by these Bylaws.
Section 12. TREASURER. The Treasurer shall perform those duties and
have powers as are usually incident to the office of Treasurer or which may be
assigned to him by the Board of Directors.
ARTICLE VI
CAPITAL STOCK
Section 1. ISSUE OF CERTIFICATES OF STOCK. Certificates of capital
stock shall be in the form to be approved by the Board of Directors. They shall
be numbered in the order of their issue and shall be signed by the (1) the
Chairman of the Board of Directors, the President or one of the Vice Presidents,
and (2) the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, and the seal of the Corporation or a facsimile thereof shall be
impressed or affixed or reproduced
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thereon, provided, however, that where the certificates are signed by a transfer
agent or an assistant transfer agent or by a transfer clerk acting on behalf of
the Corporation and a registrar, the signature of the Chairman of the Board of
Directors, President, Vice President, Secretary, Assistant Secretary, Treasurer
or Assistant Treasurer may be facsimile. In case any officer or officers who
shall have signed, or whose facsimile signature or signatures shall have been
used on any stock certificate or certificates shall cease to hold that office or
those offices of the Corporation, whether because of death, resignation or
otherwise, before the certificate or certificates shall have been delivered by
the Corporation, the certificate or certificates may nevertheless be adopted by
the Corporation and be issued and delivered as though the person or persons who
signed the certificate or certificates, or whose facsimile signature or
signatures shall have been used thereon have not ceased to hold that office or
those offices of the Corporation.
Section 2. REGISTRATION AND TRANSFER OF SHARES. The name of each person
owning a share of the capital stock of the Corporation shall be entered on the
books of the Corporation together with the number of shares held by him, the
numbers of the certificates covering those shares and the dates of issue of the
certificates. The shares of stock of the Corporation shall be transferable on
the books of the Corporation by the holders thereof in person, or by their duly
authorized attorneys or legal representatives, on surrender and cancellation of
certificates for a like number of shares, accompanied by an assignment or power
of transfer endorsed thereon or attached thereto, duly executed and with proof
of the authenticity of the signature as the Corporation or its agents may
reasonably require. A record shall be made of each transfer.
Board of Directors may make other and further rules and regulations
concerning the transfer and registration of certificates for stock and may
appoint a transfer agent or registrar or both and may require all certificates
of stock to bear the signature of either or both.
Section 3. LOST DESTROYED AND MUTILATED CERTIFICATES. The holder of any
stock of the Corporation shall immediately notify the Corporation of any loss,
theft, destruction or mutilation of the certificate therefor. The Corporation
may issue a new certificate of stock in the place of any certificate theretofore
issued by it alleged to have been lost, stolen or destroyed, and the Board of
Directors may, in its discretion, require the owner of the lost, stolen or
destroyed certificate, or his legal representatives, to give the Corporation a
bond, in a sum not exceeding double the value of the stock and with a surety or
sureties as they may require, to indemnify it against any claim that may be made
against it by reason of the issue of the new certificate and against all other
liability in the premises, or may remit the owner to the remedy or remedies as
he may have under the laws of the State of Delaware.
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ARTICLE VII
DIVIDENDS, SURPLUS, ETC.
Section 1. GENERAL DISCRETION OF DIRECTORS. The Board of Directors
shall have power to fix and vary the amount to be set aside or reserved as
working capital of the Corporation, or as reserves, or for other proper purposes
of the Corporation, and, subject to the requirements of the Certificate of
Incorporation, to determine whether any, if any, part of the surplus or net
profits of the Corporation shall be declared as dividends and paid to the
stockholders, and to fix the date or dates for the payment of dividends.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 1. GENERAL DISCRETION OF DIRECTORS. The fiscal year of the
Corporation shall be determined by decision of the Board of Directors.
Section 2. CORPORATE SEAL. The corporate seal shall be in the form
approved by the Board of Directors and may be altered at their pleasure. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or reproduced or otherwise.
Section 3. NOTICES. Except as otherwise expressly provided, any notice
required by these By-Laws to be given shall be sufficient if given by depositing
the notice in a post office or letter box in a sealed postpaid wrapper addressed
to the person entitled thereto at his address, as that address appears upon the
books of the Corporation, or by electronic transmission, receipt acknowledged,
to that person at his address; and the notice shall be deemed to be given at the
time it is mailed or electronically transmitted
Section 4. WAIVER OF NOTICE. Any stockholder or director may at any
time, by writing or by electronic transmission, waive any notice required to be
given under these Bylaws, and if any stockholder or director shall be present at
any meeting his presence shall constitute a waiver of notice.
Section 5. CHECKS, DRAFTS ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
NAME of the Corporation, shall be signed by the officer or officers, agent or
agents of the Corporation, and in the manner, as shall from time to time be
designated by resolution of the Board of Directors.
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Section 6. DEPOSITS. All funds of the Corporation shall be deposited
from time to time to the credit of the Corporation in the bank or banks, trust
companies or other depositories as the Board of Directors may select, and, for
the purpose of deposit, checks, drafts, warrants and other orders for the
payment of money which are payable to the order of the Corporation, may be
endorsed for deposit, assigned and delivered by any officer of the Corporation,
or by the agents of the Corporation as the Board of Directors or the President
may authorize for that purpose.
Section 7. VOTING STOCK OF OTHER CORPORATIONS. Except as otherwise
ordered by the Board of Directors or the Executive Committee, the President or
the Treasurer shall have full power and authority on behalf of the Corporation
to attend and to act and to vote at any meeting of the stockholders of any
corporation of which the Corporation is a stockholder and to execute a proxy to
any other person to represent the Corporation at that meeting, and at that
meeting the President or the Treasurer or the holder of the proxy, as the case
may be, shall possess and may exercise any and all rights and powers incident to
ownership of the stock and which, as owner thereof; the Corporation might have
possessed and exercised if present. The Board of Directors or the Executive
Committee may from time to time confer like powers upon any other person or
persons.
Section 8. INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Corporation
shall indemnify any and all of its directors or officers, including former
directors or officers, and any employee, who shall serve as an officer or
director of any corporation at the request of this Corporation, to the fullest
extent permitted under and in accordance with the laws of the State of Delaware.
ARTICLE IX
AMENDMENTS
The Board of Directors shall have the power to make, rescind, alter,
amend and repeal these Bylaws, provided, however, that the stockholders shall
have power to rescind, alter, amend or repeal any bylaws made by the Board of
Directors, and to enact bylaws which if so expressed shall not be rescinded,
altered, amended or repealed by the Board of Directors. No change of the time or
place for the annual meeting of the stockholders shall be made except in
accordance with the laws of the State of Delaware.
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EXHIBIT 3.3
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BREAKAWAY SOLUTIONS, INC.
Breakaway Solutions, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of State of the State of Delaware (the "Delaware Secretary") on
August 17, 1995, under the name The Counsell Group, Inc. The Corporation's
original Certificate of Incorporation was amended and restated as follows: (i)
by a Certificate of Amendment of Certificate of Incorporation filed with the
Delaware Secretary on September 1, 1995; (ii) by a Certificate of Agreement of
Merger filed with the Delaware Secretary on September 7, 1995; (iii) by a
Certificate of Amendment of Certificate of Incorporation filed with the Delaware
Secretary on October 15, 1998; (iv) by an Amended and Restated Certificate of
Incorporation filed with the Delaware Secretary on January 4, 1999; (v) by a
Certificate of Correction filed with the Delaware Secretary on January 21, 1999;
(vi) by a Certificate of Merger filed with the Delaware Secretary on March 25,
1999; (vii) by a Certificate of Amendment of Amended and Restated Certificate of
Incorporation filed with the Delaware Secretary on June 10, 1999; and (viii) by
an Amended and Restated Certificate of Incorporation filed with the Delaware
Secretary on July 2, 1999.
2. At a duly called meeting of the Board of Directors of the Corporation
at which a quorum was present at all times, a resolution was duly adopted,
pursuant to Sections 242 and 245 of the General Corporation Law of the State of
Delaware, setting forth a Third Amended and Restated Certificate of
Incorporation of the Corporation and declaring said Third Amended and Restated
Certificate of Incorporation advisable. The stockholders of the Corporation duly
approved said proposed Third Amended and Restated Certificate of Incorporation
by written consent in accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware, and written notice of such consent has
been given to all stockholders who have not consented in writing to said
restatement. The resolution setting forth the Third Amended and Restated
Certificate of Incorporation is as follows:
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RESOLVED: That the Amended and Restated Certificate of Incorporation of the
Corporation, be and hereby is amended and restated in its
entirety so that the same shall read as follows:
FIRST. The name of the Corporation is:
Breakaway Solutions, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 105,000,000 shares, consisting of
(i) 100,000,000 shares of Common Stock, $0.0001 par value per share ("Common
Stock"), and (ii) 5,000,000 shares of Preferred Stock, $0.0001 par value per
share ("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of the State of Delaware.
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3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of the State of Delaware.
Without limiting the generality of the foregoing, the resolutions providing for
issuance of any series of Preferred Stock may provide that such series shall be
superior or rank equally or be junior to the Preferred Stock of any other series
to the extent permitted by law. Except as otherwise provided in this Certificate
of Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions of
this Certificate of Incorporation, the right to have such vote being expressly
waived by all present and future holders of the capital stock of the
Corporation.
FIFTH. The Corporation shall have a perpetual existence.
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SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided that the Board of Directors is expressly
authorized to adopt, amend or repeal the by-laws of the Corporation.
SEVENTH. Except to the extent that the General Corporation Law of the State
of Delaware prohibits the elimination or limitation of liability of directors
for breaches of fiduciary duty, no director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
EIGHTH. 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF
THE CORPORATION. The Corporation shall indemnify each 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, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. Notwithstanding anything to the contrary in this Article, the
Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund
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such indemnification payments to the Corporation to the extent of such insurance
reimbursement.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which
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indemnity will or could be sought. With respect to any action, suit, proceeding
or investigation of which the Corporation is so notified, the Corporation will
be entitled to participate therein at its own expense and/or to assume the
defense thereof at its own expense, with legal counsel reasonably acceptable to
the Indemnitee. After notice from the Corporation to the Indemnitee of its
election so to assume such defense, the Corporation shall not be liable to the
Indemnitee for any legal or other expenses subsequently incurred by the
Indemnitee in connection with such claim, other than as provided below in this
Section 4. The Indemnitee shall have the right to employ his own counsel in
connection with such claim, but the fees and expenses of such counsel incurred
after notice from the Corporation of its assumption of the defense thereof shall
be at the expense of the Indemnitee unless (i) the employment of counsel by the
Indemnitee has been authorized by the Corporation, (ii) counsel to the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel for the Indemnitee shall be
at the expense of the Corporation, except as otherwise expressly provided by
this Article. The Corporation shall not be entitled, without the consent of the
Indemnitee, to assume the defense of any claim brought by or in the right of the
Corporation or as to which counsel for the Indemnitee shall have reasonably made
the conclusion provided for in clause (ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below, in
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter; provided,
however, that the payment of such expenses incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking shall be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any
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event within 60 days after receipt by the Corporation of the written request of
the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority vote
of the directors of the Corporation consisting of persons who are not at that
time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (d) independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Corporation), or (e) a court of competent jurisdiction.
7. REMEDIES. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of the
State of Delaware or any other applicable laws shall affect or diminish in any
way the rights of any Indemnitee to indemnification under the provisions hereof
with respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to
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action in any other capacity while holding office for the Corporation, and shall
continue as to an Indemnitee who has ceased to be a director or officer, and
shall inure to the benefit of the estate, heirs, executors and administrators of
the Indemnitee. Nothing contained in this Article shall be deemed to prohibit,
and the Corporation is specifically authorized to enter into, agreements with
officers and directors providing indemnification rights and procedures different
from those set forth in this Article. In addition, the Corporation may, to the
extent authorized from time to time by its Board of Directors, grant
indemnification rights to other employees or agents of the Corporation or other
persons serving the Corporation and such rights may be equivalent to, or greater
or less than, those set forth in this Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation Law
of the State of Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
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14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of the State of Delaware shall
have the respective meanings assigned to such terms in such Section 145(h) and
Section 145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of the State of
Delaware is amended after adoption of this Article to expand further the
indemnification permitted to Indemnitees, then the Corporation shall indemnify
such persons to the fullest extent permitted by the General Corporation Law of
the State of Delaware, as so amended.
NINTH. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
TENTH. This Article is inserted for the management of the business and for
the conduct of the affairs of the Corporation.
1. NUMBER OF DIRECTORS. The number of directors of the Corporation shall
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or in
the manner provided in, the Corporation's by-laws.
2. CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
3. ELECTION OF DIRECTORS. Elections of directors need not be by written
ballot except as and to the extent provided in the by-laws of the Corporation.
4. TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 2000; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 2001; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in 2002; and provided further, that the
term of each director shall be subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
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5. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. QUORUM; ACTION AT MEETING. A majority of the directors at any time in
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done or
made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the by-laws of the Corporation or by
this Certificate of Incorporation.
7. REMOVAL. Directors of the Corporation may be removed only for cause by
the affirmative vote of the holders of at least two-thirds of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote.
8. VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the size of the Board of
Directors, shall be filled only by a vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office, and a director chosen to fill a position resulting from
an increase in the number of directors shall hold office until the next election
of the class for which such director shall have been chosen, subject to the
election and qualification of his successor and to his earlier death,
resignation or removal.
9. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the by-laws of the Corporation.
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10. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law,
this Certificate of Incorporation or the by-laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article TENTH.
ELEVENTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, this Certificate of Incorporation or the by-laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article ELEVENTH.
TWELFTH. Special meetings of stockholders may be called at any time by only
the Chairman of the Board of Directors, the President or the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
Notwithstanding any other provision of law, this Certificate of Incorporation or
the by-laws of the Corporation, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least seventy-five percent (75%) of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
TWELFTH.
* * * * *
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EXECUTED by the undersigned on this day of , 1999.
BREAKAWAY SOLUTIONS, INC.
By:__________________________________
Gordon Brooks
President and Chief Executive Officer
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
BY-LAWS
OF
BREAKAWAY SOLUTIONS, INC.
ARTICLE 1 -- STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors, the Chairman of the Board or the
President or, if not so designated, at the registered office of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors, the Chairman of the Board or the President (which date shall not be a
legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Board of Directors, the Chairman of the Board or the
President and stated in the notice of the meeting. If no annual meeting is held
in accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as convenient. If no annual meeting is
held in accordance with the foregoing provisions, a special meeting may be held
in lieu of the annual meeting, and any action taken at that special meeting
shall have the same effect as if it had been taken at the annual meeting, and in
such case all references in these By-Laws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called at
any time only by the Chairman of the Board of Directors, the President or the
Board of Directors. Business transacted at any special meeting of stockholders
shall be limited to matters relating to the purpose or purposes stated in the
notice of meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than ten nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in
<PAGE>
the United States mail, postage prepaid, directed to the stockholder at the
stockholder's address as it appears on the records of the corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, at a place within the city where the meeting is
to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law, the Certificate of Incorporation or these By-Laws. Each stockholder of
record entitled to vote at a meeting of stockholders, or to express consent or
dissent to corporate action in writing without a meeting, may vote or express
such consent or dissent in person or may authorize another person or persons to
vote or act for him by proxy executed in writing (or in such other manner
permitted by the General Corporation Law of the State of Delaware) by the
stockholder or his authorized agent and delivered to the Secretary of the
corporation. No such proxy shall be voted or acted upon after three years from
the date of its execution, unless the proxy expressly provides for a longer
period.
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1.9 ACTION AT MEETING. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election by stockholders shall be determined
by a plurality of the votes cast by the stockholders entitled to vote at the
election.
1.10 NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the corporation
at a meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
1.10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by timely notice in writing to the Secretary of the
corporation. To be timely, a stockholder's notice must be delivered to, or
mailed and received by, the Secretary at the principal executive offices of the
corporation not less than 70 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that (i)
in the event that the date of the annual meeting is advanced by more than 20
days, or delayed by more than 70 days, from such anniversary date, notice by the
stockholder to be timely must be so delivered or received not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or the
tenth day following the day on which notice of the date of such annual meeting
was mailed or public disclosure of the date of such annual meeting was made,
whichever first occurs, and (ii) with respect to the annual meeting of
stockholders of the corporation to be held in the year 2000, to be timely, a
stockholder's notice must be so received not earlier than the ninetieth day
prior to such annual meeting and not later than the close of business on the
later of (A) the sixtieth day prior to such annual meeting and (B) the tenth day
following the day on which notice of the date of such annual meeting was mailed
or public disclosure of the date of such annual meeting was made, whichever
first occurs. A stockholder's notice to the Secretary shall set forth (a) as to
each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. In addition, to be
effective, the stockholder's notice must be accompanied by the written consent
of the
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proposed nominee to serve as a director if elected. The corporation may require
any proposed nominee to furnish such other information as may reasonably be
required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
1.11 NOTICE OF BUSINESS AT ANNUAL MEETINGS. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
brought before the meeting by or at the direction of the Board of Directors, or
(c) otherwise properly brought before an annual meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, if
such business relates to the election of directors of the corporation, the
procedures in Section 1.10 must be complied with. If such business relates to
any other matter, the stockholder must have given timely notice thereof in
writing to the Secretary. To be timely, a stockholder's notice must be delivered
to, or mailed and received by, the Secretary at the principal executive offices
of the corporation not less than 70 days nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that (i) in the event that the date of the annual meeting is advanced by more
than 20 days, or delayed by more than 70 days, from such anniversary date,
notice by the stockholder to be timely must be so delivered or received not
earlier than the ninetieth day prior to such annual meeting and not later than
the close of business on the later of the seventieth day prior to such annual
meeting or the tenth day following the day on which notice of the date of such
annual meeting was mailed or public disclosure of the date of such annual
meeting was made, whichever first occurs, and (ii) with respect to the annual
meeting of stockholders of the corporation to be held in the year 2000, to be
timely, a stockholder's notice must be so received not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of (A) the sixtieth day prior to such annual meeting and
(B) the tenth day following the day on which notice of the date of such annual
meeting was mailed or public disclosure of the date of such annual meeting was
made, whichever first occurs. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in these By-Laws to the contrary, no business shall be
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conducted at any annual meeting except in accordance with the procedures set
forth in this Section 1.11 and except that any stockholder proposal which
complies with Rule 14a-8 of the proxy rules (or any successor provision)
promulgated under the Securities Exchange Act of 1934, as amended, and is to be
included in the corporation's proxy statement for an annual meeting of
stockholders shall be deemed to comply with the requirements of this Section
1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
1.12 ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation, any action required or permitted to be taken by
stockholders for or in connection with any corporate action may be taken without
a meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
corporation by delivery to its registered office in Delaware by hand or
certified or registered mail, return receipt requested, to its principal place
of business or to an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Each such
written consent shall bear the date of signature of each stockholder who signs
the consent. No written consent shall be effective to take the corporate action
referred to therein unless written consents signed by a number of stockholders
sufficient to take such action are delivered to the corporation in the manner
specified in this paragraph within sixty days of the earliest dated consent so
delivered.
If action is taken by consent of stockholders and in accordance with
the foregoing, there shall be filed with the records of the meetings of
stockholders the writing or writings comprising such consent.
If action is taken by less than unanimous consent of stockholders,
prompt notice of the taking of such action without a meeting shall be given to
those who have not consented in writing and a certificate signed and attested to
by the Secretary of the corporation that such notice was given shall be filed
with the records of the meetings of stockholders.
In the event that the action which is consented to is such as would
have required the filing of a certificate under any provision of the General
Corporation Law of the State of Delaware, if such action had been voted upon by
the stockholders at a meeting thereof, the certificate filed under such
provision shall state, in lieu of any statement
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<PAGE>
required by such provision concerning a vote of stockholders, that written
consent has been given under Section 228 of said General Corporation Law and
that written notice has been given as provided in such Section 228.
Notwithstanding the foregoing, if at any time the corporation shall
have a class of stock registered pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, for so long as such class is registered, any
action by the stockholders of such class must be taken at an annual or special
meeting of stockholders and may not be taken by written consent.
1.13 ORGANIZATION. The Chairman of the Board, or in his absence the
Vice Chairman of the Board designated by the Chairman of the Board, or the
President, in the order named, shall call meetings of the stockholders to order,
and shall act as chairman of such meeting; provided, however, that the Board of
Directors may appoint any stockholder to act as chairman of any meeting in the
absence of the Chairman of the Board. The Secretary of the corporation shall act
as secretary at all meetings of the stockholders; but in the absence of the
Secretary at any meeting of the stockholders, the presiding officer may appoint
any person to act as secretary of the meeting.
ARTICLE 2 -- DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 CLASSES OF DIRECTORS. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class I, and if such fraction is
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two-thirds, one of the extra directors shall be a member of Class I and one of
the extra directors shall be a member of Class II, unless otherwise provided
from time to time by resolution adopted by the Board of Directors.
2.4 TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
2000; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2001; and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2002; and provided further, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
2.5 ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member and (ii) the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the Board of Directors among
the three classes of directors so as to ensure that no one class has more than
one director more than any other class. To the extent possible, consistent with
the foregoing rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
2.6 VACANCIES. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the size of the
Board, shall be filled only by vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office, and a director chosen to fill a position resulting from
an increase in the number of directors shall hold office until the next election
of the class for which such director shall have been chosen, subject to the
election and qualification of his successor and to his earlier death,
resignation or removal.
2.7 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
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2.8 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.9 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.10 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy,
telex or electronic mail message, or delivering written notice by hand, to his
last known business or home address at least 24 hours in advance of the meeting,
(iii) by depositing written notice with a nationally-recognized courier for
overnight delivery to his last known business or home address at least 48 hours
in advance of the meeting or (iv) by mailing written notice to his last known
business or home address at least 72 hours in advance of the meeting. A notice
or waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
2.11 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.12 QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.13 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
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2.14 ACTION BY CONSENT. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.15 REMOVAL. Directors of the corporation may be removed only for
cause by the affirmative vote of the holders of at least two-thirds of the
shares of the capital stock of the corporation issued and outstanding and
entitled to vote.
2.16 COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these By-laws for the Board of Directors.
2.17 COMPENSATION OF DIRECTORS. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 -- OFFICERS
3.1 ENUMERATION. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the
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Board, and one or more Vice Presidents, Assistant Treasurers and Assistant
Secretaries. The Board of Directors may appoint such other officers as it may
deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
or her written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE CHAIRMAN OF THE BOARD. The Board of
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. Unless otherwise
provided by the Board of Directors, he shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and
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exercise the powers of the Chairman of the Board and shall perform such other
duties and possess such other powers as may from time to time be vested in him
by the Board of Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless the Board of Directors has designated the Chairman of the
Board or another officer as Chief Executive Officer, the President shall be the
Chief Executive Officer of the corporation. The President shall perform such
other duties and shall have such other powers as the Board of Directors may from
time to time prescribe.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him or her by the Board of Directors or the President. In addition, the
Treasurer shall perform such
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<PAGE>
duties and have such powers as are incident to the office of treasurer,
including without limitation the duty and power to keep and be responsible for
all funds and securities of the corporation, to deposit funds of the corporation
in depositories selected in accordance with these By-Laws, to disburse such
funds as ordered by the Board of Directors, to make proper accounts of such
funds, and to render as required by the Board of Directors statements of all
such transactions and of the financial condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 -- CAPITAL STOCK
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him or her in the corporation. Each such certificate shall be signed
by, or in the name of the corporation by, the Chairman or Vice Chairman, if any,
of the Board of Directors, or the President or a Vice President, and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the
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<PAGE>
corporation shall have conspicuously noted on the face or back of the
certificate either the full text of the restriction or a statement of the
existence of such restriction.
4.3 TRANSFERS. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than ten days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
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ARTICLE 5 -- GENERAL PROVISIONS
5.1 FISCAL YEAR. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 VOTING OF SECURITIES. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 CERTIFICATE OF INCORPORATION. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the
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<PAGE>
committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be
less than a quorum;
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.8 SEVERABILITY. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 PRONOUNS. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 6 -- AMENDMENTS
6.1 BY THE BOARD OF DIRECTORS. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 BY THE STOCKHOLDERS. Except as otherwise provided in Section 6.3,
these By-Laws may be altered, amended or repealed or new by-laws may be adopted
by the affirmative vote of the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
any regular or special meeting of stockholders, provided notice of such
alteration, amendment, repeal or adoption of new by-laws shall have been stated
in the notice of such regular or special meeting.
6.3 CERTAIN PROVISIONS. Notwithstanding any other provision of law, the
Certificate of Incorporation or these By-Laws, and notwithstanding the fact that
a lesser percentage may be specified by law, the affirmative vote of the holders
of at least
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<PAGE>
seventy-five percent (75%) of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote shall be required to amend or
repeal, or to adopt any provision inconsistent with Section 1.3, Section 1.10,
Section 1.11, Section 1.12, Section 1.13, Article 2 or Article 6 of these
By-Laws.
Approved and adopted by the
Board of Directors on July ____, 1999
Ratified and approved by the Stockholders
on ______________, 1999
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<PAGE>
Exhibit 10.1
BREAKAWAY SOLUTIONS, INC.
1998 STOCK PLAN
1. PURPOSE. The purpose of Breakaway Solutions, Inc.'s 1998 Stock Plan (the
"Plan") is to encourage key employees of Breakaway Solutions, Inc. (the
"Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered by
the Board of Directors of the Company (the "Board") or, subject to
paragraph 2(D) (relating to compliance with Section 162(m) of the
Code), by a committee appointed by the Board (the "Committee").
Hereinafter, all references in this Plan to the "Committee" shall mean
the Board if no Committee has been appointed. Subject to ratification
of the grant or authorization of each Stock Right by the Board (if so
required by applicable state law), and subject to the terms of the
Plan, the Committee shall have the authority to (i) determine to whom
(from among the class of employees eligible under paragraph 3 to
receive ISOs) ISOs shall be granted, and to whom (from among the class
of individuals and entities eligible under paragraph 3 to receive
Non-Qualified Options and Awards and to make Purchases) Non-Qualified
Options, Awards and authorizations to make Purchases may be granted;
(ii) determine the time or times at which Options or Awards shall be
granted or Purchases made; (iii) determine the purchase price of shares
subject to each Option or Purchase, which prices shall not be less than
the minimum price specified in paragraph 6; (iv) determine whether each
Option granted shall be an ISO or a Non-Qualified Option; (v) determine
(subject to paragraphs 7 and 8) the time or times when each Option
shall become exercisable and the duration of the exercise period; (vi)
extend the period during which outstanding Options may be exercised;
(vii) determine whether restrictions such as repurchase options are to
be imposed on shares subject to Options, Awards and Purchases and the
nature of such restrictions, if any, and (viii) interpret the Plan and
prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take
whatever actions it deems necessary, under Section 422 of the Code and
the regulations promulgated thereunder, to ensure that such Option is
not treated as an ISO. The interpretation and construction by the
Committee of any provisions of the Plan or of any Stock Right granted
under it shall be final unless otherwise determined by the Board. The
Committee may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem advisable. No member of the Board
or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Stock Right granted under
it.
Breakaway Solutions Confidential Page 1 of 8
<PAGE>
B. COMMITTEE ACTIONS. The Committee may select one of its members as
its chairman, and shall hold meetings at such time and places as it may
determine. A majority of the Committee shall constitute a quorum and
acts of a majority of the members of the Committee at a meeting at
which a quorum is present, or acts reduced to or approved in writing by
all the members of the Committee (if consistent with applicable state
law), shall be the valid acts of the Committee. From time to time the
Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies however caused, or
remove all members of the Committee and thereafter directly administer
the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights may be granted
to members of the Board. All grants of Stock Rights to members of the
Board shall in all respects be made in accordance with the provisions
of this Plan applicable to other eligible persons. Members of the Board
who either (i) are eligible to receive grants of Stock Rights pursuant
to the Plan or (ii) have been granted Stock Rights may vote on any
matters affecting the administration of the Plan or the grant of any
Stock Rights pursuant to the Plan, except that no such member shall act
upon the granting to himself or herself of Stock Rights, but any such
member may be counted in determining the existence of a quorum at any
meeting of the Board during which action is taken with respect to the
granting to such member of Stock Rights.
D. PERFORMANCE-BASED COMPENSATION. The Board, in its discretion, may
take such action as may be necessary to ensure that Stock Rights
granted under the Plan qualify as "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code and
applicable regulations promulgated thereunder ("Performance-Based
Compensation"). Such action may include, in the Board's discretion,
some or all of the following (i) if the Board determines that Stock
Rights granted under the Plan generally shall constitute
Performance-Based Compensation, the Plan shall be administered, to the
extent required for such Stock Rights to constitute Performance-Based
Compensation, by a Committee consisting solely of two or more "outside
directors" (as defined in applicable regulations promulgated under
Section 162(m) of the Code), (ii) if any Non-Qualified Options with an
exercise price less than the fair market value per share of Common
Stock are granted under the Plan and the Board determines that such
Options should constitute Performance-Based Compensation, such options
shall be made exercisable only upon the attainment of a
pre-established, objective performance goal established by the
Committee, and such grant shall be submitted for, and shall be
contingent upon shareholder approval and (iii) Stock Rights granted
under the Plan may be subject to such other terms and conditions as are
necessary for compensation recognized in connection with the exercise
or disposition of such Stock Right or the disposition of Common Stock
acquired pursuant to such Stock Right, to constitute Performance-Based
Compensation.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to employees of the
Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Stock Rights.
4. STOCK. The stock subject to Stock Rights shall be authorized but unissued
shares of Common Stock of the Company, par value $.001 per share (the "Common
Stock"), or shares of Common Stock reacquired by the Company in any manner. The
aggregate number of shares which may be issued pursuant to the Plan is 3,000,000
subject to adjustment as provided in paragraph 13. If any Option granted under
the Plan shall expire or terminate for any reason without having been exercised
in full or shall cease for any reason to be exercisable in whole or in part or
shall be repurchased by the Company,
Breakaway Solutions Confidential Page 2 of 8
<PAGE>
the unpurchased shares of Common Stock subject to such Option shall again be
available for grants of Stock Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 3,000,000 shares of Common Stock
under the Plan during any fiscal year of the Company. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part or shall be repurchased by the Company, the shares subject to such Option
shall be included in the determination of the aggregate number of shares of
Common Stock deemed to have been granted to such employee under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan at any
time on or after July 1, 1998 and prior to July 1, 2008. The date of grant of a
Stock Right under the Plan will be the date specified by the Committee at the
time it grants the Stock Right; provided, however, that such date shall not be
prior to the date on which the Committee acts to approve the grant.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND PURCHASES. Subject to
paragraph 2(D) (relating to compliance with Section 162(m) of the
Code), the exercise price per share specified in the agreement relating
to each Non-Qualified Option granted, and the purchase price per share
of stock granted in any Award or authorized as a Purchase, under the
Plan may be less than the fair market value of the Common Stock of the
Company on the date of grant; provided that, in no event shall such
exercise price or such purchase price be less than the minimum legal
consideration required therefor under the laws of any jurisdiction in
which the Company or its successors in interest may be organized.
B. PRICE FOR ISOS. The exercise price per share specified in the agreement
relating to each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such grant.
In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Related
Corporation, the price per share specified in the agreement relating to
such ISO shall not be less than one hundred ten percent (110%) of the
fair market value per share of Common Stock on the date of grant. For
purposes of determining stock ownership under this paragraph, the rules
of Section 424(d) of the Code shall apply.
C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each eligible employee may
be granted Options treated as ISOs only to the extent that, in the
aggregate under this Plan and all incentive stock option plans of the
Company and any Related Corporation, ISOs do not become exercisable for
the first time by such employee during any calendar year with respect
to stock having a fair market value (determined at the time the ISOs
were granted) in excess of $100,000. The Company intends to designate
any Options granted in excess of such limitation as Non-Qualified
Options, and the Company shall issue separate certificates to the
optionee with respect to Options that are Non-Qualified Options and
Options that are ISOs.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the date of grant or, if
the prices or quotes discussed in this sentence are unavailable for
such date, the last business day for which such prices or quotes are
available prior to the date of grant and shall mean (i) the average (on
that date) of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common Stock is
traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the
Common Stock on the Nasdaq National Market, if the Common Stock is not
then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if
Breakaway Solutions Confidential Page 3 of 8
<PAGE>
the Common Stock is not reported on the Nasdaq National Market. If the
Common Stock is not publicly traded at the time an Option is granted
under the Plan, "fair market value" shall mean the fair value of the
Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including,
without limitation, recent sale and offer prices of the Common Stock in
private transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in paragraphs 9
and 10 or in the agreement relating to such Option, each Option shall expire on
the date specified by the Committee, but not more than (i) ten years from the
date of grant in the case of Options generally and (ii) five years from the date
of grant in the case of ISOs granted to an employee owning stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Related Corporation, as determined under paragraph
6(B). Subject to earlier termination as provided in paragraphs 9 and 10, the
term of each ISO shall be the term set forth in the original instrument granting
such ISO, except with respect to any part of such ISO that is converted into a
Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through 12,
each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as
the Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable, it shall remain exercisable until expiration or
termination of the Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date that any installment of any Option becomes
exercisable; provided that the Committee shall not, without the consent
of an optionee, accelerate the permitted exercise date of any
installment of any Option granted to any employee as an ISO (and not
previously converted into a Non-Qualified Option pursuant to paragraph
16) if such acceleration would violate the annual vesting limitation
contained in Section 422(d) of the Code, as described in paragraph
6(C).
9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the agreement
relating to such ISO, if an ISO optionee ceases to be employed by the Company
and all Related Corporations other than by reason of death or disability as
defined in paragraph 10, no further installments of his or her ISOs shall become
exercisable, and his or her ISOs shall terminate on the earlier of (a) thirty
(30) days after the date of termination of his or her employment, or (b) their
specified expiration dates, except to the extent that such ISOs (or unexercised
installments thereof) have been converted into Non-Qualified Options pursuant to
paragraph 16; provided that the Board may specify a termination date of not
later than three months in any individual ISO Optionee's option agreement at its
discretion. For purposes of this paragraph 9, employment shall be considered as
continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 30 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute or
by contract. A bona fide leave of absence with the written approval of the
Committee shall not be considered an interruption of employment under this
paragraph 9, provided that such written approval contractually obligates the
Company or any Related Corporation to continue the employment of the optionee
after the approved period of absence. ISOs granted under the Plan shall not be
affected by any change of employment within or among the Company and Related
Corporations, so long as the optionee continues to be an employee of the Company
or any Related Corporation. Nothing in the Plan shall be deemed to give any
grantee of any
Breakaway Solutions Confidential Page 4 of 8
<PAGE>
Stock Right the right to be retained in employment or other service by the
Company or any Related Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the Company and
all Related Corporations by reason of his or her death, any ISO owned
by such optionee may be exercised, to the extent otherwise exercisable
on the date of death, by the estate, personal representative or
beneficiary who has acquired the ISO by will or by the laws of descent
and distribution, until the earlier of (i) the specified expiration
date of the ISO or (ii) 30 days from the date of the optionee's death;
provided that the Board may specify a termination date of not later
than 180 days in any individual ISO Optionee's option agreement at its
discretion.
B. DISABILITY. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his or her disability, such
optionee shall have the right to exercise any ISO held by him or her on
the date of termination of employment, for the number of shares for
which he or she could have exercised it on that date, until the earlier
of (i) the specified expiration date of the ISO or (ii) 30 days from
the date of the termination of the optionee's employment. For the
purposes of the Plan, the term "disability" shall mean "permanent and
total disability" as defined in Section 22(e)(3) of the Code or any
successor statute; provided that the Board may specify a termination
date of not later than 180 days in any individual ISO Optionee's option
agreement at its discretion.
11. ASSIGNABILITY. No ISO shall be assignable or transferable by the optionee
except by will or by the laws of descent and distribution, and during the
lifetime of the optionee shall be exercisable only by such optionee. Stock
Rights other than ISOs shall be transferable to the extent set forth in the
agreement relating to such Stock Right.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by instruments
(which need not be identical) in such forms as the Committee may from time to
time approve. Such instruments shall conform to the terms and conditions set
forth in paragraphs 6 through 11 hereof and may contain such other provisions as
the Committee deems advisable which are not inconsistent with the Plan,
including restrictions applicable to shares of Common Stock issuable upon
exercise of Options. The Committee may specify that any Non-Qualified Option
shall be subject to the restrictions set forth herein with respect to ISOs, or
to such other termination and cancellation provisions as the Committee may
determine. The Committee may from time to time confer authority and
responsibility on one or more of its own members and/or one or more officers of
the Company to execute and deliver such instruments. The proper officers of the
Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee
hereunder shall be adjusted as hereinafter provided, unless otherwise
specifically provided in the written agreement between the optionee and the
Company relating to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of
shares or if the Company shall issue any shares of Common Stock as a
stock dividend on its outstanding Common Stock, the number of shares of
Common Stock deliverable upon the exercise of Options shall be
appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect
such subdivision, combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with
or acquired by another entity in a merger or other reorganization in
which the holders of the outstanding voting
Breakaway Solutions Confidential Page 5of 8
<PAGE>
stock of the Company immediately preceding the consummation of such
event, shall, immediately following such event, hold, as a group, less
than a majority of the voting securities of the surviving or successor
entity, or in the event of a sale of all or substantially all of the
Company's assets or otherwise (each, an "Acquisition"), the Committee
or the board of directors of any entity assuming the obligations of the
Company hereunder (the "Successor Board"), shall, as to outstanding
Options, either (i) make appropriate provision for the continuation of
such Options by substituting on an equitable basis for the shares then
subject to such Options either (a) the consideration payable with
respect to the outstanding shares of Common Stock in connection with
the Acquisition, (b) shares of stock of the surviving or successor
corporation or (c) such other securities as the Successor Board deems
appropriate, the fair market value of which shall not materially exceed
the fair market value of the shares of Common Stock subject to such
Options immediately preceding the Acquisition; or (ii) upon written
notice to the optionees, provide that all Options must be exercised, to
the extent then exercisable or to be exercisable as a result of the
Acquisition, within a specified number of days of the date of such
notice, at the end of which period the Options shall terminate; or
(iii) terminate all Options in exchange for a cash payment equal to the
excess of the fair market value of the shares subject to such Options
(to the extent then exercisable or to be exercisable as a result of the
Acquisition) over the exercise price thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in subparagraph B above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon
exercising an Option shall be entitled to receive for the purchase
price paid upon such exercise the securities he or she would have
received if he or she had exercised such Option prior to such
recapitalization or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any adjustments
made pursuant to subparagraphs A, B or C with respect to ISOs shall be
made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of
the Code) or would cause any adverse tax consequences for the holders
of such ISOs. If the Committee determines that such adjustments made
with respect to ISOs would constitute a modification of such ISOs or
would cause adverse tax consequences to the holders, it may refrain
from making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, each Option will terminate immediately
prior to the consummation of such proposed action or at such other time
and subject to such other conditions as shall be determined by the
Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number
or price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the
Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued under the
Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events described in
subparagraphs A, B or C above, the class and aggregate number of shares
set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan
shall also be appropriately adjusted to reflect the events described in
such subparagraphs. The Committee or the Successor Board shall
determine the specific adjustments to be made under this paragraph 13
and, subject to paragraph 2, its determination shall be conclusive.
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14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment thereof)
shall be exercised by giving written notice to the Company at its principal
office address, or to such transfer agent as the Company shall designate. Such
notice shall identify the Option being exercised and specify the number of
shares as to which such Option is being exercised, accompanied by full payment
of the purchase price therefor either (a) in United States dollars in cash or by
check, (b) at the discretion of the Committee, through delivery of shares of
Common Stock having a fair market value equal as of the date of the exercise to
the cash exercise price of the Option, (c) at the discretion of the Committee,
by delivery of the grantee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the lowest applicable Federal rate,
as defined in Section 1274(d) of the Code, (d) at the discretion of the
Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on June 30,
1998, subject, with respect to the validation of ISOs granted under the Plan, to
approval of the Plan by the stockholders of the Company at the next Meeting of
Stockholders or, in lieu thereof, by written consent. If the approval of
stockholders is not obtained prior to June 30, 1999, any grants of ISOs under
the Plan made prior to that date will be rescinded. The Plan shall expire at the
end of the day on June 30, 2008 (except as to Options outstanding on that date).
Subject to the provisions of paragraph 5 above, Options may be granted under the
Plan prior to the date of stockholder approval of the Plan. The Board may
terminate or amend the Plan in any respect at any time, except that, without the
approval of the stockholders obtained within 12 months before or after the Board
adopts a resolution authorizing any of the following actions: (a) the total
number of shares that may be issued under the Plan may not be increased (except
by adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); and (d) the expiration date of the Plan may not be extended. Except as
otherwise provided in this paragraph 15, in no event may action of the Board or
stockholders alter or impair the rights of a grantee, without such grantee's
consent, under any Stock Right previously granted to such grantee.
16. MODIFICATIONS OF ISOS; CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS.
Subject to paragraph 13(D), without the prior written consent of the holder of
an ISO, the Committee shall not alter the terms of such ISO (including the means
of exercising such ISO) if such alteration would constitute a modification
(within the meaning of Section 424(h)(3) of the Code). The Committee, at the
written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but shall not be limited to, extending the exercise
period or reducing the exercise price of the appropriate installments of such
ISOs. At the time of such conversion, the Committee (with the consent of the
optionee) may impose such conditions on the exercise of the resulting
Non-Qualified Options as the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with this Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such optionee's ISOs
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Committee takes appropriate
Breakaway Solutions Confidential Page 7 of 8
<PAGE>
action. Upon the taking of such action, the Company shall issue separate
certificates to the optionee with respect to Options that are Non-Qualified
Options and Options that are ISOs.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the sale of
shares pursuant to Options granted and Purchases authorized under the Plan shall
be used for general corporate purposes.
18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO granted
under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a Non-Qualified
Option, the transfer of a Non-Qualified Stock Option pursuant to an arm's-length
transaction, the grant of an Award, the making of a Purchase of Common Stock for
less than its fair market value, the making of a Disqualifying Disposition (as
defined in paragraph 18), the vesting or transfer of restricted stock or
securities acquired on the exercise of an Option hereunder, or the making of a
distribution or other payment with respect to such stock or securities, the
Company may withhold taxes in respect of amounts that constitute compensation
includible in gross income. The Committee in its discretion may condition (i)
the exercise of an Option, (ii) the transfer of a Non-Qualified Stock Option,
(iii) the grant of an Award, (iv) the making of a Purchase of Common Stock for
less than its fair market value, or (v) the vesting or transferability of
restricted stock or securities acquired by exercising an Option, on the
grantee's making satisfactory arrangement for such withholding. Such arrangement
may include payment by the grantee in cash or by check of the amount of the
withholding taxes or, at the discretion of the Committee, by the grantee's
delivery of previously held shares of Common Stock or the withholding from the
shares of Common Stock otherwise deliverable upon exercise of a Option shares
having an aggregate fair market value equal to the amount of such withholding
taxes.
20. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver shares
of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
Government regulations may impose reporting or other obligations on the Company
with respect to the Plan. For example, the Company may be required to send tax
information statements to employees and former employees that exercise ISOs
under the Plan, and the Company may be required to file tax information returns
reporting the income received by grantees of Options in connection with the
Plan.
21. GOVERNING LAW. The validity and construction of the Plan and the instruments
evidencing Stock Rights shall be governed by the laws of the Commonwealth of
Massachusetts, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
DATE APPROVED BY THE BOARD OF DIRECTORS: JUNE 30, 1998
DATE APPROVED BY THE STOCKHOLDERS OF THE COMPANY: JUNE 30, 1998
Breakaway Solutions Confidential Page 8 of 8
<PAGE>
EXHIBIT 10.2
BREAKAWAY SOLUTIONS, INC.
1999 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of this 1999 Stock Incentive Plan (the "Plan") of Breakaway
Solutions, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any of the Company's present or future subsidiary corporations as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code").
2. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant".
3. ADMINISTRATION, DELEGATION
(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the
<PAGE>
power to make Awards and exercise such other powers under the Plan as the Board
may determine, provided that the Board shall fix the maximum number of shares
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
(c) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). All references in
the Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. STOCK AVAILABLE FOR AWARDS
(a) NUMBER OF SHARES. Subject to adjustment under Section 8, Awards may
be made under the Plan for up to 6,000,000 shares (prior to giving effect to
the stock split approved by the Board in July 1999) of common stock, $0.0001 par
value per share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section 8, for
Awards granted after the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares of
Common Stock with respect to which an Award may be granted to any Participant
under the Plan shall be 800,000 per calendar year. The per-Participant limit
described in this Section 4(b) shall be construed and applied consistently with
Section 162(m) of the Code ("Section 162(m)").
5. STOCK OPTIONS
(a) GENERAL. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
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<PAGE>
(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) EXERCISE PRICE. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) DURATION OF OPTIONS. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) EXERCISE OF OPTION. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (ii) delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price;
(3) when the Common Stock is registered under the Exchange
Act, by delivery of shares of Common Stock owned by the Participant valued at
their fair market value as determined by (or in a manner approved by) the Board
in good faith ("Fair Market Value"), provided (i) such method of payment is then
permitted under applicable law and (ii) such Common Stock was owned by the
Participant at least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole
discretion by (i) delivery of a promissory note of the Participant to the
Company on terms determined by the Board, or (ii) payment of such other lawful
consideration as the Board may determine; or
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(5) by any combination of the above permitted forms of
payment.
6. RESTRICTED STOCK
(a) GRANTS. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. OTHER STOCK-BASED AWARDS
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
8. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS
(a) CHANGES IN CAPITALIZATION. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding
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Award shall be appropriately adjusted by the Company (or substituted Awards may
be made, if applicable) to the extent the Board shall determine, in good faith,
that such an adjustment (or substitution) is necessary and appropriate. If this
Section 8(a) applies and Section 8(c) also applies to any event, Section 8(c)
shall be applicable to such event, and this Section 8(a) shall not be
applicable.
(b) LIQUIDATION OR DISSOLUTION. In the event of a proposed liquidation
or dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) ACQUISITION EVENTS
(1) DEFINITION. An "Acquisition Event" shall mean: (a) any
merger or consolidation of the Company with or into another entity as a result
of which the Common Stock is converted into or exchanged for the right to
receive cash, securities or other property or (b) any exchange of shares of the
Company for cash, securities or other property pursuant to a statutory share
exchange transaction.
(2) CONSEQUENCES OF AN ACQUISITION EVENT ON OPTIONS. Upon the
occurrence of an Acquisition Event, or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall provide that all
outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed if,
following consummation of the Acquisition Event, the Option confers the right to
purchase, for each share of Common Stock subject to the Option immediately prior
to the consummation of the Acquisition Event, the consideration (whether cash,
securities or other property) received as a result of the Acquisition Event by
holders of Common Stock for each share of Common Stock held immediately prior to
the consummation of the Acquisition Event (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding shares of Common Stock); provided, however, that if the
consideration received as a result of the Acquisition Event is not solely common
stock of the acquiring or succeeding corporation (or an affiliate thereof), the
Company may, with the consent of the acquiring or succeeding corporation,
provide for the consideration to be received upon the exercise of Options to
consist solely of common stock of the acquiring or succeeding corporation (or an
affiliate thereof) equivalent in fair market value to the per share
consideration received by holders of outstanding shares of Common Stock as a
result of the Acquisition Event.
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<PAGE>
Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or substitute
for, such Options, then the Board shall, upon written notice to the
Participants, provide that all then unexercised Options will become exercisable
in full as of a specified time prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the Participants before the consummation of such Acquisition
Event; provided, however, that in the event of an Acquisition Event under the
terms of which holders of Common Stock will receive upon consummation thereof a
cash payment for each share of Common Stock surrendered pursuant to such
Acquisition Event (the "Acquisition Price"), then the Board may instead provide
that all outstanding Options shall terminate upon consummation of such
Acquisition Event and that each Participant shall receive, in exchange therefor,
a cash payment equal to the amount (if any) by which (A) the Acquisition Price
multiplied by the number of shares of Common Stock subject to such outstanding
Options (whether or not then exercisable), exceeds (B) the aggregate exercise
price of such Options.
(3) CONSEQUENCES OF AN ACQUISITION EVENT ON RESTRICTED STOCK
AWARDS. Upon the occurrence of an Acquisition Event, the repurchase and other
rights of the Company under each outstanding Restricted Stock Award shall be
assumed or substituted by and shall inure to the benefit of the Company's
successor and shall apply to the cash, securities or other property which the
Common Stock was converted into or exchanged for pursuant to such Acquisition
Event in the same manner and to the same extent as they applied to the Common
Stock subject to such Restricted Stock Award.
(4) CONSEQUENCES OF AN ACQUISITION EVENT ON OTHER AWARDS. The
Board shall specify the effect of an Acquisition Event on any other Award
granted under the Plan at the time of the grant of such Award.
(5) CONSEQUENCES OF CERTAIN TERMINATIONS AFTER AN ACQUISITION
EVENT. Each Option, Restricted Stock Award or other Award assumed or substituted
pursuant to this Section 8(c) shall include a provision to the effect that such
Option, Restricted Stock Award or other Award shall become immediately
exercisable (or vested) in full if, on or prior to the first anniversary of the
Acquisition Event, the Participant terminates his or her employment for Good
Reason or is terminated without Cause by the surviving or acquiring corporation.
"Good Reason" shall mean any significant diminution in the Participant's title,
authority or responsibilities from and after such Acquisition Event or any
reduction in the annual cash compensation payable to the Participant from and
after such Acquisition Event. "Cause" shall mean any willful misconduct by the
Participant which affects the business reputation of the Company or willful
failure by the Participant to perform his or her material responsibilities to
the Company (including, without limitation, breach by the
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Participant of any provision of any employment, consulting, advisory,
nondisclosure, non-competition or other similar agreement between the
Participant and the Company). The Participant shall be considered to have been
discharged for "Cause" if the Company determines, within 30 days after the
Participant's resignation, that discharge for Cause was warranted.
9. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) DOCUMENTATION. Each Award shall be evidenced by a written
instrument in such form as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan.
(c) BOARD DISCRETION. Except as otherwise provided by the Plan, each
Award may be made alone or in addition or in relation to any other Award. The
terms of each Award need not be identical, and the Board need not treat
Participants uniformly.
(d) TERMINATION OF STATUS. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may, to the extent then permitted under applicable law, satisfy
such tax obligations in whole or in part by delivery of shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
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(f) AMENDMENT OF AWARD. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) ACCELERATION. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of restrictions in full or in part or that any other
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
10. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the
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<PAGE>
distribution date for such stock dividend shall be entitled to receive, on the
distribution date, the stock dividend with respect to the shares of Common Stock
acquired upon such Option exercise, notwithstanding the fact that such shares
were not outstanding as of the close of business on the record date for such
stock dividend.
(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant that is intended to comply with Section 162(m) shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders to the extent
stockholder approval is required by Section 162(m) in the manner required under
Section 162(m) (including the vote required under Section 162(m)). No Awards
shall be granted under the Plan after the completion of ten years from the
earlier of (i) the date on which the Plan was adopted by the Board or (ii) the
date the Plan was approved by the Company's stockholders, but Awards previously
granted may extend beyond that date.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that to the extent required by
Section 162(m), no Award granted to a Participant that is intended to comply
with Section 162(m) after the date of such amendment shall become exercisable,
realizable or vested, as applicable to such Award, unless and until such
amendment shall have been approved by the Company's stockholders as required by
Section 162(m) (including the vote required under Section 162(m)).
(e) GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
Approved by the Board of Directors
on July ____, 1999
Approved by the Stockholders
on ___________, 1999
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<PAGE>
A-1
<PAGE>
EXHIBIT 10.3
BREAKAWAY SOLUTIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Breakaway
Solutions, Inc., a Delaware corporation (the "Company"), and certain of its
subsidiaries with opportunities to purchase shares of the Company's common
stock, $0.0001 par value per share (the "Common Stock"). Five Hundred Thousand
(500,000) shares of Common Stock (prior to giving effect to the stock split
approved by the Company's Board of Directors (the "Board") in July 1999) in the
aggregate have been approved for this purpose. This Plan is intended to qualify
as an "employee stock purchase plan" as defined in Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated
thereunder, and shall be interpreted consistent therewith.
1. ADMINISTRATION. The Plan will be administered by the Board or by a
Committee appointed by the Board (the "Committee"). The Board or the Committee
has authority to make rules and regulations for the administration of the Plan
and its interpretation and decisions with regard thereto shall be final and
conclusive.
2. ELIGIBILITY. All employees of the Company, including Directors who
are employees, and all employees of any subsidiary of the Company (as defined in
Section 424(f) of the Code) designated by the Board or the Committee from time
to time (a "Designated Subsidiary"), are eligible to participate in any one or
more of the offerings of Options (as defined in Section 9) to purchase Common
Stock under the Plan provided that:
(a) they are customarily employed by the Company or a
Designated Subsidiary for more than 20 hours a week and for more than
five months in a calendar year; and
(b) they have been employed by the Company or a Designated
Subsidiary for at least three months prior to enrolling in the Plan;
and
(c) they are employees of the Company or a Designated
Subsidiary on the first day of the applicable Plan Period (as defined
below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the
<PAGE>
employee has a contractual right to purchase shall be treated as stock owned by
the employee.
3. OFFERINGS. The Company will make one or more offerings ("Offerings")
to employees to purchase stock under this Plan. Offerings will begin on such
date or dates as may be established by the Board or the Committee from time to
time (the "Offering Commencement Dates"); PROVIDED, THAT, the first Offering
Commencement Date shall be the date on which trading of the Common Stock
commences on the Nasdaq National Market in connection with an initial public
offering of Common Stock pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "Securities Act"). Each Offering
Commencement Date will begin a six month period (a "Plan Period") during which
payroll deductions will be made and held for the purchase of Common Stock at the
end of the Plan Period. The Board or the Committee may, at its discretion,
choose a different Plan Period of twelve (12) months or less for subsequent
Offerings.
4. PARTICIPATION. An employee eligible on the Offering Commencement
Date of any Offering may participate in such Offering by completing and
forwarding a payroll deduction authorization form to the employee's appropriate
payroll office at least 14 days prior to the applicable Offering Commencement
Date. The form will authorize a regular payroll deduction from the Compensation
received by the employee during the Plan Period. Unless an employee files a new
form or withdraws from the Plan, his deductions and purchases will continue at
the same rate for future Offerings under the Plan as long as the Plan remains in
effect. The term "Compensation" means the amount of money reportable on the
employee's Federal Income Tax Withholding Statement, excluding overtime, shift
premium, incentive or bonus awards, allowances and reimbursements for expenses
such as relocation allowances for travel expenses, income or gains on the
exercise of Company stock options or stock appreciation rights, and similar
items, whether or not shown on the employee's Federal Income Tax Withholding
Statement, but including, in the case of salespersons, sales commissions to the
extent determined by the Board or the Committee.
5. DEDUCTIONS. The Company will maintain payroll deduction accounts for
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction, as set forth below, from the
Compensation he or she receives during the Plan Period or such shorter period
during which deductions from payroll are made. Payroll deductions may be at the
rate of 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9% or 10% of Compensation with any
change in compensation during the Plan Period to result in an automatic
corresponding change in the dollar amount withheld.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other
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<PAGE>
employee stock purchase plan (as defined in Section 423(b) of the Code) of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
6. DEDUCTION CHANGES. An employee may decrease or discontinue his
payroll deduction once during any Plan Period, by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. INTEREST. Interest will not be paid on any employee accounts, except
to the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. WITHDRAWAL OF FUNDS. An employee may at any time prior to the close
of business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Plan Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the Committee.
9. PURCHASE OF SHARES. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, the largest number of whole shares of Common Stock of the Company
as does not exceed the number of shares determined by multiplying $2,083 by the
number of full months in the Offering Period and dividing the result by the
closing price (as defined below) on the Offering Commencement Date of such Plan
Period.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price of the Common Stock on
the Nasdaq National Market or (c) the average of the closing bid and asked
prices in the over-the-counter-market, whichever is applicable, as published in
THE WALL STREET JOURNAL. If no sales of Common Stock were made on such a day,
the price of the Common Stock for
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<PAGE>
purposes of clauses (a) and (b) above shall be the reported price for the next
preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the
Exercise Date shall be deemed to have exercised his Option at the Option Price
on such date and shall be deemed to have purchased from the Company the number
of full shares of Common Stock reserved for the purpose of the Plan that his
accumulated payroll deductions on such date will pay for, but not in excess of
the maximum number determined in the manner set forth above.
Any balance remaining in an employee's payroll deduction account at the
end of a Plan Period will be automatically refunded to the employee, except that
any balance which is less than the purchase price of one share of Common Stock
will be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of
Common Stock purchased under the Plan may be issued only in the name of the
employee, in the name of the employee and another person of legal age as joint
tenants with rights of survivorship, or (in the Company's sole discretion) in
the name of a brokerage firm, bank or other nominee holder designated by the
employee. The Company may, in its sole discretion and in compliance with
applicable laws, authorize the use of book entry registration of shares in lieu
of issuing stock certificates.
11. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the
event of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
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<PAGE>
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not
transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during the employee's lifetime
only by the employee.
14. APPLICATION OF FUNDS. All funds received or held by the Company
under this Plan may be combined with other corporate funds and may be used for
any corporate purpose.
15. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event
of a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. MERGER. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger or consolidation, and the Board or the Committee
shall take such steps in connection with such merger or consolidation as the
Board or the Committee shall deem necessary to assure that the provisions of
Section 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (a) subject to the provisions of
clauses (b) and (c), after the effective date of such transaction, each holder
of an outstanding Option shall be entitled, upon exercise of such Option, to
receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (b) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of any such
transaction and all payroll deductions shall be paid out to the
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<PAGE>
participating employees; or (c) all outstanding Options may be cancelled by the
Board or the Committee as of the effective date of any such transaction,
provided that notice of such cancellation shall be given to each holder of an
Option, and each holder of an Option shall have the right to exercise such
Option in full based on payroll deductions then credited to his account as of a
date determined by the Board or the Committee, which date shall not be less than
ten (10) days preceding the effective date of such transaction.
17. AMENDMENT OF THE PLAN. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
18. INSUFFICIENT SHARES. In the event that the total number of shares
of Common Stock specified in elections to be purchased under any Offering plus
the number of shares purchased under previous Offerings under this Plan exceeds
the maximum number of shares issuable under this Plan, the Board or the
Committee will allot the shares then available on a pro rata basis.
19. TERMINATION OF THE PLAN. This Plan may be terminated at any time by
the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and
deliver Common Stock under this Plan is subject to listing on a national stock
exchange or quotation on the Nasdaq National Market (to the extent the Common
Stock is then so listed or quoted) and the approval of all governmental
authorities required in connection with the authorization, issuance or sale of
such stock.
21. GOVERNING LAW. The Plan shall be governed by Delaware law except to
the extent that such law is preempted by federal law.
22. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
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<PAGE>
23. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
24. EFFECTIVE DATE AND APPROVAL OF SHAREHOLDERS. The Plan shall take
effect upon the effectiveness of the Company's registration statement under the
Securities Act relating to the Company's initial public offering of Common
Stock, subject to approval by the stockholders of the Company as required by
Section 423 of the Code, which approval must occur within twelve months of the
adoption of the Plan by the Board.
Adopted by the Board of Directors
on July , 1999
----
Approved by the stockholders
on , 1999
-----------
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<PAGE>
EXHIBIT 10.4
THE COUNSELL GROUP
INFORMATION TECHNOLOGY CONSULTING
October 23, 1998
BY HAND
PERSONAL AND CONFIDENTIAL
Ms. Patti Purcell
15 Mill Pond Lane
Duxbury, Massachusetts 02332
Dear Patti:
I am writing to set forth and confirm the understanding between you and
Breakaway Solutions, Inc., formerly The Counsell Group (hereafter the
"Company"), relating to your resignation of your employment with the Company.
1. RESIGNATION. You hereby resign from the position of Vice President of
Sales and Marketing for the Company, effective as of the close of business on
November 13, 1998 (the "Resignation Date"), on which date you will submit your
letter of resignation to the Company. From the close of business on October 23,
1998, through the close of business on November 13, 1998, you will be on paid
leave from your employment with the Company. Your resignation shall be effective
regardless of the continued effectiveness of this letter agreement.
2. SEVERANCE PAY AND ASSOCIATED BENEFITS UPON RESIGNATION.
(a) REGULAR SALARY AND SEVERANCE PAY. From October 23, 1998, through
the Resignation Date, the Company will continue to pay you your regular salary,
less withholdings or deductions, in accordance with the payment schedule now
being employed for payment of officers at the Company, and will continue to
provide your regular benefits to whatever extent it currently provides them. You
understand and agree that you will not thereafter accrue additional regular
salary or be eligible to continue to be provided regular benefits from the
Company. After the
<PAGE>
Resignation Date, the Company will continue to make salary continuation payments
to you for a period of ten (10) weeks (I.E., from November 14, 1998 through
January 22, 1999 (the "Severance Pay Period"), contingent upon your having
executed and returned to the Company this letter agreement and the General
Releases and Waivers Of All Claims that are attached hereto as Exhibits A and B.
Such payments will also be made in accordance with the payment schedule now
being employed for payment of officers at the Company and (except as otherwise
provided in this paragraph 2(a)) will be made at the weekly rate of $2,692.31,
less withholdings or deductions. In this regard, the Company represents and
warrants that it is a going concern able to meet its financial commitments
through the Severance Pay Period and further affirms, in accordance with
paragraph 7 of this letter agreement, that the provisions of this paragraph 2(a)
are binding upon the Company's successors. During such time as you are receiving
salary continuation payments under this paragraph 2(a), you shall not accrue or
be entitled to any vacation benefits, any bonus, or any other payments other
than those specifically provided for in this letter agreement. The Company may
deduct from any payments otherwise due to you under this letter agreement such
withholding taxes and similar governmental payments and charges as may be
required.
(b) MEDICAL INSURANCE. The Company will continue to provide you with
your existing health and dental benefits during the Severance Pay Period. Your
rights under the so-called COBRA statute (which gives you the right to continue
participating in the Company's group medical insurance plans for a period of
time at your own expense) shall become effective as of the end of the Severance
Pay Period.
(c) PENSION PLANS. For purposes of the Company's 401-k Plan, you will
cease to be an active employee as of the Resignation Date.
(d) INSURANCE. Your coverage under the group long and short-term life
insurance and disability insurance policies and under the accidental death and
dismemberment policy maintained by the Company for employees will be terminated
as of the Resignation Date.
(e) VACATION PAY. You will continue to accrue vacation benefits
through the Resignation Date, at which time you will have accrued 40 hours of
vacation for which you will be paid. Thereafter, you shall not accrue or be
entitled to any additional vacation benefits.
(f) ACCESS TO VOICEMAIL AND EMAIL. To facilitate your search for a
new position, the Company will provide you with continued access to voicemail
and email during the Severance Pay Period, provided, however, that you agree
immediately to (i) inform the Company (and in no case no later than the same day
on which you retrieve them, which retrieval you agree to make at least once
every 48 hours) of messages left on either your voicemail or email that in any
way concern
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<PAGE>
the Company or its business, and (ii) inform the Company (and in no case no
later than 48-hours after you accept a new position) when you have accepted a
new position of any kind or nature whatsoever, at which time your continued
access to Company voicemail and email will immediately cease.
(g) EXPENSE REIMBURSEMENT. You have agreed to repay to the Company,
or to secure the repayment of, $8,959.50 in expenses erroneously paid out by the
Company on your behalf. You represent and warrant that you have delivered to the
Company with your executed copy of this letter agreement, and of the General
Releases and Waivers Of All Claims that are attached hereto as Exhibits A and B,
a personal check for $959.50 of the aforementioned amount. You further represent
and warrant that you will secure repayment of the remaining $8,000.00 of this
amount by December 15, 1998. In addition, you agree to pay to the Company also
by December 15, 1998, (i) one-half of the value of an airline ticket valued at
$1,249.00, i.e., to pay $624.50, if the Company has been unable to secure a
refund or credit for the full value of the ticket from United Airlines by that
date, which refund or credit the Company represents and warrants it is
diligently seeking (said efforts to be documented to you upon request) or,
alternatively, (ii) one-half of the service charge of $75.00, i.e., $37.50, that
will be imposed by United Airlines should it grant the refund or credit being
sought by the Company. If the Company has not received the $8,000.00 repayment
and, as appropriate, either the $624.50 or $37.50 repayment for the airline
ticket, by December 15, 1998, you understand and agree that the Company will
setoff the total amount due and owing against the gross amount of the salary
continuation payments you would otherwise have received from that date through
January 22, 1998 (thereby also terminating its continuing provision of your
health and dental benefits). The Company agrees that you may submit a final
request for expense reimbursement for the period through and including October
21, 1998 (said request also to include a request for reimbursement for the cost
of telephone calls made by you from your residence to the Company through
October 23, 1998), and further agrees to reimburse legitimate expenses thus
submitted, as determined by the Company in accordance with its usual and
ordinary practices regarding reimbursement. Nothing in this paragraph 2(f) shall
be construed as an agreement by the Company to reimburse you for any amounts
owed by you to American Express on your account number 3785-236569-9200, which
debt you acknowledge is your sole responsibility to pay. Should American
Express, its successors or assigns everseek payment from the Company of any
amounts due and owing by you on said account number 3785-236569-9200, you agree
to indemnify the Company and pay to American Express on behalf of the Company
any such amounts sought from the Company by American Express, its successors or
assigns.
(h) NO OTHER BENEFITS. You acknowledge that, except as set forth in
paragraphs 2(a)-2(f) above, the Company has previously paid all amounts payable
to you under all other compensation or reimbursement arrangements, if any. From
and after the date of this letter agreement you shall have no right to
compensation,
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<PAGE>
benefits or any other thing of value, including without limitation Company stock
options, beyond those specifically provided for in this letter agreement.
(i) RETURN OF COMPANY PROPERTY AND RETRIEVAL OF PERSONAL EFFECTS. You
represent and warrant that you have submitted for inspection by the Company all
containers of any kind, including but not limited to boxes, tote bags, back
packs or hand bags, removed by you from the Company's premises in connection
with your leaving active employment on October 23, 1998. You further represent
and warrant that you have returned to the Company as of the Resignation Date all
property of the Company, including any keys, pager, all computer hardware,
Company notes, documents and files (including without limitation all marketing
materials submitted to the Company by The Written Word), and computer disks or
files in your possession, custody or control, except that the Company will
permit you to retain the laptop computer in your possession until December 1,
1998. You acknowledge that you have retrieved from the Company as of the
Resignation Date all of your personal effects and have not commingle with those
effects any property of the Company.
3. RELEASE. In return for the benefits provided to you as set forth in
paragraph 2 above, YOU AGREE TO EXECUTE A FINAL AND BINDING GENERAL RELEASE AND
WAIVER OF ALL CLAIMS AGAINST THE COMPANY, ITS OFFICERS, DIRECTORS, ATTORNEYS,
EMPLOYEES, AGENTS, SERVANTS, REPRESENTATIVES, INSURERS, SUCCESSORS AND ASSIGNS
IN THE FORM ATTACHED HERETO AS EXHIBIT A. IN ADDITION, YOU AND FRANK SELLDORFF,
AND EACH OF YOUR HEIRS, ESTATES, EXECUTORS, AGENTS, SERVANTS, REPRESENTATIVES,
INSURERS, ATTORNEYS AND ASSIGNS, AGREE TO EXCHANGE GENERAL RELEASES AND WAIVERS
OF ALL CLAIMS AGAINST EACH OTHER IN THE FORMS ATTACHED HERETO AS EXHIBITS B AND
C. EACH OF EXHIBITS A THROUGH C SHALL INCLUDE ALL CLAIMS ARISING OUT OF OR
RELATING TO YOUR HIRING, EMPLOYMENT, OR TERMINATION OF EMPLOYMENT.
4. NON-DISCLOSURER CONFIDENTIALITY AND COOPERATION.
(a) You acknowledge and reaffirm that you remain bound by the terms
and conditions of The TCG Employee Proprietary Rights, Confidentiality and
Non-Competition Agreement (the "Non-Competition Agreement") executed by you on
March 25, 1998, which is attached hereto as Exhibit D, and that said
Non-Competition Agreement remains in full force and effect and is incorporated
herein by reference, provided, however, that the Company agrees that paragraphs
5c) and 5d) of the Non-Competition Agreement shall be amended and enforced as
set forth immediately below and that the predecessor versions of only said
paragraphs 5c) and 5d) contained in the document executed by you on March 25,
1998, shall have no further force and effect:
5) RESTRICTIONS ON COMPETITION:
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<PAGE>
* * * * *
c) WHILE EMPLOYED BY TCG AND FOR A PERIOD OF TWO (2) YEARS THEREAFTER, I
WILL NOT DIRECTLY, BY MYSELF OR WITH OTHERS, OR INDIRECTLY THROUGH
ASSISTANCE TO OTHERS, SOLICIT, SERVICE, OBTAIN OR ACCEPT BUSINESS
FROM, OR OTHERWISE PERFORM ANY ACT WHICH MAY DIVERT FROM TCG ANY TRADE
OR BUSINESS FROM:
> ANY CUSTOMER OF TCG WITH WHOM I HAVE HAD ANY CONTACT OR
ASSOCIATION DURING THE PERIOD OF MY EMPLOYMENT WITH TCG, OR ANY
PARTY WHOSE IDENTITY OR POTENTIAL AS A TCG CUSTOMER WAS
CONFIDENTIAL AND KNOWN BY ME DURING THE PERIOD OF MY EMPLOYMENT
WITH TCG; OR
> THE FOLLOWING BUSINESS PARTNERS OF TCG: ONYX AND EASTMAN
CONSULTING.
d) WHILE EMPLOYED BY TCG, AND FOR A PERIOD OF TWO YEARS THEREAFTER, I
WILL NOT COMPETE DIRECTLY OR INDIRECTLY WITH TCG. AS USED HERE,
"COMPETE" SHALL INCLUDE, BUT NOT BE LIMITED TO:
> ENGAGING IN ANY ACTIVITY ALONE OR WITH OTHERS, AS AN OWNER,
PARTNER, EMPLOYEE, CONSULTANT, INDEPENDENT CONTRACTOR, AGENT,
TRUSTEE, OFFICER, DIRECTOR, STOCKHOLDER OR OTHERWISE, WHICH IS IN
COMPETITION WITH TCG'S BUSINESS, INCLUDING WITH LIMITATION
PROVIDING CONSULTING SERVICES, COMPUTER SYSTEMS OR SOFTWARE,
EXCEPT THAT NOTHING IN THIS PROVISION IS INTENDED TO OR DOES BAR
ME FROM WORKING FOR ANOTHER IT CONSULTING FIRM OR FOR ANOTHER
COMPANY WITH AN IT CONSULTING DIVISION, SO LONG AS ANY SUCH IT
CONSULTING FIRM OR DIVISION FOR WHICH I MAY WORK HAS ANNUAL
REVENUES OF GREATER THAN FIFTY MILLION DOLLARS; PROVIDED,
HOWEVER, THAT NOTHING IN THIS PROVISION IS INTENDED TO OR DOES
BAR YOU FROM OWNING STOCK AS A PASSIVE INVESTOR OF UP TO 1% OF
THE EQUITY SECURITIES OF AN IT CONSULTING FIRM OR A COMPANY WITH
AN IT CONSULTING DIVISION WITH ANNUAL REVENUES OF LESS THAN OR
EQUAL TO FIFTY MILLION. NOTWITHSTANDING THE FOREGOING, YOU WILL
NOT BE DEEMED TO BE IN VIOLATION OF THIS PROVISION IF YOU ARE
WORKING FOR ANOTHER IT CONSULTING FIRM OR FOR ANOTHER COMPANY
WITH AN IT CONSULTING DIVISION WITH ANNUAL REVENUES OF GREATER
THAN FIFTY MILLION DOLLARS AT THE TIME THAT ANY SUCH COMPANY
ACQUIRES, IS ACQUIRED BY OR MERGES INTO AN IT CONSULTING FIRM OR
A COMPANY WITH AN IT CONSULTING DIVISION WITH ANNUAL REVENUES OF
LESS THAN OR EQUAL TO FIFTY MILLION DOLLARS, PROVIDED, HOWEVER,
THAT, FOLLOWING ANY SUCH MERGER OR
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ACQUISITION, YOU DO NOT ENGAGE, DIRECTLY OR INDIRECTLY, IN
COMPETITION AS DEFINED BY THIS PROVISION ON BEHALF OF THE
SURVIVING ENTITY OR ANY IT CONSULTING DIVISION OF THE SURVIVING
ENTITY.
* * * * *
(b) Neither you, your attorney, nor anyone acting at your behest or
on your behalf (all of whose conduct you shall be responsible for) shall
disclose the fact, any or all of the terms, existence or amount of this letter
agreement to any person, organization or agency, except as required by legal
process and then only after notice is given by you to the Company such that,
where feasible, the Company will have a reasonable opportunity to oppose
disclosure. The foregoing is not intended to preclude you from disclosing the
fact, terms, existence or amount hereof to your attorney or your accountant or
tax advisors. You warrant and confirm that you have not at any time through and
including the date of the execution by you of this letter agreement disclosed
the fact, terms, existence or amount of said letter agreement to anyone, that
you have not at any time charged anyone to act at your behest or on your behalf
to disclose what you are barred from disclosing by this Agreement and that you
will never so charge anyone. You specifically further agree that you will not
publish the fact, terms, existence or amount of this letter agreement in any
newspaper, magazine or other media outlet, nor communicate said fact, terms,
existence or amount by any means, whether by document, electronic mail,
electronic bulletin board, via the internet, orally or otherwise.
(c) You agree not to reveal or use any confidential information about
the Company or any of its customers, officers, directors, attorneys, employees,
or agents, or its operations or financial condition. The foregoing is not
intended to preclude you from making confidential disclosures made on a need to
know basis to your attorney, accountant or tax advisors.
(d) Except as otherwise provided in this paragraph below, you
represent and warrant that you have never commenced or filed, and, to the extent
permitted by law, covenant and agree never to commence, file, aid, solicit or in
any way prosecute or cause to be commenced or prosecuted against the Releasees
(as defined in the Release and Waiver) the bringing of any legal proceeding or
the making of any legal claim against the Company by any state or federal agency
or by any applicant for employment, employee or former employee of the Company
("third party action"), and further you shall not reveal any information about
the Company to be used for, and shall not testify in, any third party action
except as required to do so by properly issued subpoena and then only after
giving the Company a reasonable opportunity to review any such subpoena and
oppose the giving of any such testimony. To the extent you would become eligible
for relief pursuant to a third
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<PAGE>
party action, regardless of compliance with this subparagraph, you will refuse
any such relief or, at the Company's option, pay such monetary relief to the
Company.
(e) Neither you, nor your attorneys, nor anyone acting at your behest
or on your behalf, all of whose conduct you shall be responsible for, shall
criticize, disparage, defame or in any way comment negatively to anyone --
including without limitation its employees (including put not limited to the
employees listed in Exhibit E hereto), applicants for employment (including but
not limited to Mike Gersten and Ann Price), consultants (including but not
limited to Janie Tremlat and Chris Greendale), business partners (including but
not limited to ONYX, Rubric, Clarify, Aurum and Microsoft) and vendors
(including but not limited to Black Bean and Written Word) -- about the Company,
its business (including its employment) policies or practices, or any of its
current, former or future directors, officers, employees, representatives,
servants, agents or attorneys.
(f) The Company shall not criticize, disparage, defame or in any way
comment negatively to anyone about you, your employment or the termination of
your employment with the Company.
(g) For a period of ten (10) months following the Resignation Date,
you will provide reasonable assistance to the Company with respect to matters as
to which you have knowledge, including without limitation by providing any
computer file access codes required by the Company. In this regard, you will
respond to questions which your successor or other Company officer, employees,
consultants or directors may have as to matters which were within your area of
responsibility while an officer or employee or director of the Company, and you
will cooperate with the Company and, as may be requested, testify on behalf of
the Company in any proceeding in which the Company is a party. In particular,
you agree to support and assist the Company in connection with complaints made
by Company employee Michelle Feldman and further agree not to speak privately
with Feldman about any such matters until her complaints have been fully and
finally resolved in all applicable federal, state or local fora.
(h) You affirm the continuing validity of the provisions set forth in
this paragraph 4 above and your continuing obligation to abide by its terms.
Nothing in this letter agreement is intended to prejudice or compromise the
Company's right to enforce this paragraph 4 should it become known in the future
that you, your attorney, or anyone acting at your behest or on your behalf has
disclosed or disseminated information subject to paragraph 4 to others, or has
in any other way breached said paragraph. You understand that your affirmation
of the continuing validity of this paragraph 4 is a material inducement for the
making of this letter agreement and that, for every breach of paragraph 4 after
the signing of this letter agreement, the Company shall be entitled to seek
damages and/or an order enjoining future violations, and to the extent you or
anyone for whom you are
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<PAGE>
responsible hereunder receives money or things of value from any person in
exchange for any such conduct, shall order the breaching party to pay over to
the Company all such money or things of value. No alleged or actual breach by
the Company of any obligation imposed on the Company by this letter agreement
shall in any way give rise to any right on your part to rescind or breach this
confidentiality provision.
(i) Nothing in this paragraph 4 shall prevent you from (1) complying
with compulsory legal process, provided, however, that, to the extent possible,
notice of such process is promptly given to the Company such that the Company
has the opportunity to oppose disclosure; (2) making such disclosures necessary
to obtaining legal advice, provided that such disclosure is conditioned upon you
advising your legal advisor of this paragraph 4; (3) making such disclosures as
are required by federal, state or local governmental authority; or (4) making
disclosures which by law are required or cannot be prohibited.
(j) Nothing in this paragraph 4 shall prevent the Company from (1)
complying with compulsory legal process, provided however, that, to the extent
possible, notice of such process is promptly given to you such that you have the
opportunity to oppose disclosure; (2) making such disclosures necessary to
obtaining legal advice, provided that such disclosure is conditioned upon the
Company advising its or their legal advisor of this paragraph 4; (3) making such
disclosures as are required by federal, state or local governmental authority;
or (4) making disclosures which by law are required or cannot be prohibited.
5. EMPLOYMENT INQUIRIES. The Company will provide a letter of reference,
signed by Mr. Samuel B. Spector, the Company's Director of Human Resources, a
true copy of which is attached at Exhibit F. The Company will respond to
inquiries regarding your employment by providing only the letter of reference
and will make no further comment. You will direct that all requests for
information regarding your employment be sent to Mr. Spector or his successor or
designee, and the Company will not be responsible for violations of this
paragraph 5 by any other person, including without limitation any current,
former or future employees of the Company to whom you direct requests for
personal references. Nothing in this paragraph is intended to or shall prevent
the Company from responding to information you publish, whether orally, in
writing or by any other means, to any other person regarding the Company, its
employment policies and practices, your hiring, your employment, the
circumstances leading up to your resignation from the Company or your
supervisors, colleagues or co-workers at the Company.
6. UNEMPLOYMENT COMPENSATION. The Company agrees that it will not contest
any application you make for unemployment benefits in connection with your
resignation from the Company.
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7. SUCCESSORS AND ASSIGNS. This letter agreement shall be binding upon
and inure to the benefit of the respective legal representatives, heirs,
successors, assigns and present and former employees, agents and servants of the
parties hereto to the extent permitted by law.
8. NON-ASSIGNMENT. You warrant and represent to the Company that you have
not heretofore assigned or transferred or attempted to assign or transfer to any
person any claim or matter recited in the Release and Waiver or any part or
portion thereof, and agree to indemnify and hold harmless the Releasees from and
against any claim, demand, damage, debt, liability, account, reckoning,
obligation, cost, expense (including the payment of attorney's fees and costs
actually incurred whether or not litigation be commenced), lien, action, and
cause of action, based on, in connection with, or arising out of any such
assignment or transfer or attempted assignment or transfer.
9. ATTORNEY'S FEES. Each party shall bear his or its own attorney's fees
and expenses.
10. NON-ADMISSION. Each party expressly disclaims any wrongdoing to the
other and each agrees that by entering into this letter agreement neither admits
any wrongdoing.
11. REPRESENTATIONS AND RECITALS. You represent that:
(a) THE COMPANY ADVISES YOU TO CONSULT WITH AN ATTORNEY OF YOUR
CHOOSING CONCERNING THE RIGHTS WAIVED IN THIS LETTER AGREEMENT AND YOU HAVE DONE
SO. YOU HAVE CAREFULLY READ AND FULLY UNDERSTAND THIS LETTER AGREEMENT, AND ARE
VOLUNTARILY ENTERING INTO THIS LETTER AGREEMENT AND PROVIDING THE RELEASE AND
WAIVER OF CLAIMS.
(b) YOU UNDERSTAND THAT YOU HAVE TWENTY-ONE (21) DAYS TO REVIEW THIS
LETTER AGREEMENT AND THE RELEASES AND WAIVERS OF CLAIMS PRIOR TO THEIR
EXECUTION. IF AT ANY TIME PRIOR TO THE END OF THE TWENTY-ONE (21) DAY PERIOD YOU
EXECUTE THIS LETTER AGREEMENT, YOU ACKNOWLEDGE THAT SUCH EARLY EXECUTION IS A
KNOWING AND VOLUNTARY WAIVER OF YOUR RIGHT TO CONSIDER THIS LETTER AGREEMENT
TWENTY-ONE (21) DAYS AND IS DUE TO YOUR BELIEF THAT YOU HAVE HAD AMPLE TIME IN
WHICH TO CONSIDER AND UNDERSTAND THIS LETTER AGREEMENT AND IN WHICH TO REVIEW
THIS LETTER AGREEMENT WITH AN ATTORNEY. SHOULD YOU EXECUTE THIS LETTER AGREEMENT
EARLY, YOUR PERIOD OF PAID LEAVE WILL END ON THE DATE OF EXECUTION AND THE
BALANCE OF THE TIME REMAINING TO THE PAID LEAVE PERIOD WILL BE ADDED TO THE
SEVERANCE PAY PERIOD, FOR WHICH YOU WILL RECEIVE SEVERANCE PAY IN ACCORDANCE
WITH THE TERMS AND PROVISIONS OF THIS LETTER AGREEMENT.
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<PAGE>
(c) YOU UNDERSTAND THAT FOR A PERIOD OF SEVEN (7) DAYS AFTER YOU
EXECUTE THIS LETTER AGREEMENT AND THE RELEASES AND WAIVERS OF CLAIMS, YOU MAY
REVOKE THE AGREEMENT AND THE RELEASES AND WAIVERS OF CLAIMS BY GIVING NOTICE IN
WRITING OF SUCH REVOCATION TO THE COMPANY, C/O SAMUEL B. SPECTOR, DIRECTOR OF
HUMAN RESOURCES, OR HIS SUCCESSOR OR DESIGNEE, AT THE COMPANY'S HEADQUARTERS,
WITH A COPY TO MICHELE A. WHITHAM, FOLEY, HOAG & ELIOT, ONE POST OFFICE SQUARE,
BOSTON, MASSACHUSETTS 02109. IF AT ANY TIME AFTER THE END OF THE SEVEN (7) DAY
PERIOD YOU ACCEPT ANY OF THE CONSIDERATION OR OTHER BENEFITS AND AGREEMENTS
PROVIDED BY THE COMPANY, AS DESCRIBED IN PARAGRAPHS 2, 4, 5 AND 6 OF THIS LETTER
AGREEMENT, SUCH ACCEPTANCE WILL CONSTITUTE AN ADMISSION BY YOU THAT YOU DID NOT
REVOKE THIS AGREEMENT DURING THE REVOCATION PERIOD AND WILL FURTHER CONSTITUTE
AN ADMISSION BY YOU THAT THIS LETTER AGREEMENT HAS BECOME EFFECTIVE AND
ENFORCEABLE.
(d) YOU UNDERSTAND THE EFFECT OF YOUR WAIVER AND THAT YOU GIVE UP ANY
RIGHTS YOU MAY HAVE, IN PARTICULAR BUT WITHOUT LIMITATION, UNDER THE FEDERAL AGE
DISCRIMINATION IN EMPLOYMENT ACT AND THE MASSACHUSETTS LAW AGAINST
DISCRIMINATION (MASS. GEN. L. C. 151B).
(e) YOU UNDERSTAND THAT YOU WOULD NOT BE ENTITLED TO THE BENEFITS
DESCRIBED IN PARAGRAPHS 2, 4, 5 AND 6 HEREOF IF YOU DID NOT ENTER INTO THIS
AGREEMENT.
12. CHALLENGE TO VALIDITY OF AGREEMENT. After the revocation period of
seven (7) days described in Paragraph 11(c) of this letter agreement has
expired, this letter agreement and the Releases and Waivers shall be forever
binding. You acknowledge that you may hereafter discover facts not now known to
you relating to your hire, employment or cessation of employment, and agree that
this letter agreement and your Releases and Waivers shall remain in effect
notwithstanding any such discovery of any such facts. You shall never bring a
proceeding to challenge the validity of this letter agreement and the Releases
and Waivers. Should you do so notwithstanding this paragraph, you will first be
required to pay back to the Company the consideration set forth in paragraph 2
hereof.
13. PARTIAL INVALIDITY. Each term, condition or provision of this
Agreement shall constitute an independent clause or provision severable from the
remainder of the terms, conditions or provisions. In the event any provision
hereof is determined to be contrary to, prohibited by or invalid upon applicable
law or regulation, or otherwise deemed unenforceable, for any reason whatsoever,
such provision shall be inapplicable and deemed omitted to the extent so
contrary, prohibited or invalid, but the remainder hereof shall remain fully
valid and binding and shall be given full force and effect so far as possible;
provided however, that should any of the Releases which are Exhibits A and B
hereto, or any portion thereof, be found to be invalid, the parties shall
attempt to negotiate in good faith substitute Releases and, if such
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<PAGE>
Releases are not negotiated, the Company may, at its option, rescind this
Agreement and you shall return the consideration set forth in paragraph 2
hereof.
14. GOVERNING LAW. This letter agreement shall be interpreted in
accordance with Massachusetts law.
15. COMPLETE AGREEMENT; MODIFICATION. This letter agreement recites the
full terms of the understanding between us, and supersedes any prior oral or
written understanding except as otherwise provided herein. It may be modified
only in a writing signed by both parties. Notwithstanding the foregoing, nothing
in this letter agreement is intended to annul the TCG Employee Proprietary
Rights, Confidentiality and Non-Competition Agreement, as amended pursuant to
paragraph 4(a) above, or the cardholder agreement that governs the terms of your
American Express account number 3785-236569-9200.
16. EXECUTION. This letter agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
and all such counterparts together shall constitute but one and the same
instrument.
Please note that you have twenty-one (21) days to accept the offer set
forth herein, and may revoke your acceptance within seven days of signing, in
which case this letter agreement (other than the provisions of Paragraph 1 and
Paragraph 4 hereof) and the Releases and Waivers shall be void.
****
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<PAGE>
If you agree to the foregoing, please execute and return to the undersigned
the enclosed copy of this letter agreement and the Releases and Waivers. Your
signing of this letter agreement and the Releases and Waivers will result in the
formation of a binding contract between you and the Company under seal, subject
to your right to revoke your acceptance of this letter agreement and the
Releases and Waivers within seven (7) days of signing.
BREAKAWAY SOLUTIONS, INC.,
aka THE COUNSELL GROUP
By:/s/ FRANK SELLDORFF
------------------------------------
Title: CEO
---------------------------------
I HAVE BEEN ADVISED BY MY COUNSEL OF THE RIGHTS WAIVED HEREIN. I HAVE THOROUGHLY
DISCUSSED ALL ASPECTS OF THIS LETTER AGREEMENT WITH MY ATTORNEY, I HAVE
CAREFULLY READ AND FULLY UNDERSTAND IT, AND I AM VOLUNTARILY ENTERING INTO THE
LETTER AGREEMENT AND PROVIDING THE RELEASES AND WAIVERS OF CLAIMS.
Date: November 24, 1998 /s/ PATTI PURCELL
---------------------------------------
Patti Purcell
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<PAGE>
Exhibit A
GENERAL RELEASE AND WAIVER OF ALL CLAIMS
In consideration of the payments, benefits and other agreements set forth
in the letter agreement dated October 23, 1998, between Breakaway Solutions,
Inc., aka The Counsell Group, ("the Company") and myself (to which this General
Release and Waiver Of All Claims is attached), I, Patti Purcell, on behalf of
myself and my heirs, executors, administrators, estates, insurers,
representatives, attorneys, successors and assigns, hereby voluntarily,
irrevocably and unconditionally release, acquit and forever discharge, to the
full extent permitted by law, the Company and its subsidiaries (direct and
indirect), affiliates, related companies, divisions, and predecessor and
successor companies, and each of its and their present, former and future
shareholders, officers, directors, employees, agents, servants, representatives,
attorneys, insurers, successors and assigns (collectively, the "Releasees") from
all actions, causes of action, suits, debts, sums of money, accounts, covenants,
contracts, agreements, promises, damages, judgments, demands and claims of any
kind or nature whatsoever, whether known or unknown, in law or equity, whether
statutory or common law, whether federal, state, local or otherwise, and all
other claims which I ever had, or now have, or hereafter can, shall or may have,
against the Releasees, for, upon or by reason of any matter or cause whatsoever
arising from the beginning of the world to the date of the execution of this
Release, including without limitation claims arising out of or in any way
related to my hiring or employment by the Company, or the termination of that
employment, or any related matters, including but not limited to claims arising
under the Civil Rights Act of 1866, Title VII of the Civil Rights Act of 1964,
as amended, the Civil Rights Act of 1991, as amended, the Age Discrimination in
Employment Act of 1967, as amended, the Older Workers Benefit Protection Act,
the Americans With Disabilities Act of 1990, as amended, the Family and Medical
Leave Act of 1993, the Immigration Reform and Control Act of 1986, the
Massachusetts Law Against Discrimination (Mass. Gen. L. c. 151B), the common law
of Massachusetts, and any claims under any other federal, state or local laws,
statutes, regulations, executive orders, rules or ordinances.
Date: November 24, 1998 /s/ PATTI PURCELL
---------------------------------------
Patti Purcell
Signed and sealed in the presence of:
/s/ KELLY M. BONNERI
- ----------------------------------
Notary Public
My commission expires: 10/08/02
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<PAGE>
Exhibit B
GENERAL RELEASE AND WAIVER OF ALL CLAIMS
In consideration of the payments, benefits and other agreements set forth
in the letter agreement dated October 23, 1998, I, Patti Purcell, on behalf of
myself and my heirs, executors, administrators, estates, insurers,
representatives, attorneys, successors and assigns, hereby voluntarily,
irrevocably and unconditionally release, acquit and forever discharge, to the
full extent permitted by law, Frank Selldorff, his heirs, estates, executors,
agents, servants, representatives, insurers, attorneys, successors and assigns
(the "Releasees") from all actions, causes of action, suits, debts, sums of
money, accounts, covenants, contracts, agreements, promises, damages, judgments,
demands and claims of any kind or nature whatsoever, whether known or unknown,
in law or equity, whether statutory or common law, whether federal, state, local
or otherwise, and all other claims which I ever had, or now have, or hereafter
can, shall or may have, against the Releasees, for, upon or by reason of any
matter or cause whatsoever arising from the beginning of the world to the date
of the execution of this Release, including without limitation claims arising
out of or in any way related to my hiring or employment by the Company, or the
termination of that employment, or any related matters, including but not
limited to claims arising under the Civil Rights Act of 1866, Title VII of the
Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, as amended,
the Age Discrimination in Employment Act of 1967, as amended, the Older Workers
Benefit Protection Act, the Americans With Disabilities Act of 1990, as amended,
the Family and Medical Leave Act of 1993, the Immigration Reform and Control Act
of 1986, the Massachusetts Law Against Discrimination (Mass. Gen. L. c. 151B),
the common law of Massachusetts, and any claims under any other federal, state
or local laws, statutes, regulations, executive orders, rules or ordinances.
Date: November 24, 1998 /s/ PATTI PURCELL
---------------------------------------
Patti Purcell
Signed and sealed in the presence of:
/s/ KELLY M. BONNERI
- ----------------------------------
Notary Public
My commission expires: 10/08/02
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Exhibit C
GENERAL RELEASE AND WAIVER OF ALL CLAIMS
In consideration of the payments, benefits and other agreements set forth
in the letter agreement dated October 23, 1998, I, Frank Selldorff, on behalf of
myself and my heirs, executors, administrators, estates, insurers,
representatives, attorneys, successors and assigns, hereby voluntarily,
irrevocably and unconditionally release, acquit and forever discharge, to the
full extent permitted by law, Patti Purcell, her heirs, estates, executors,
agents, servants, representatives, insurers, attorneys, successors and assigns
(he "Releasees") from all actions, causes of action, suits, debts, sums of
money, accounts, covenants, contracts, agreements, promises, damages, judgments,
demands and claims of any kind or nature whatsoever, whether known or unknown,
in law or equity, whether statutory or common law, whether federal, state, local
or otherwise, and all other claims which I ever had, or now have, or hereafter
can, shall or may have, against the Releasees, for, upon or by reason of any
matter or cause whatsoever arising from the beginning of the world to the date
of the execution of this Release, including without limitation claims arising
out of or in any way related to my hiring or employment by the Company, or the
termination of that employment, or any related matters, including but not
limited to claims arising under the Civil Rights Act of 1866, Title VII of the
Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, as amended,
the Age Discrimination in Employment Act of 1967, as amended, the Older Workers
Benefit Protection Act, the Americans With Disabilities Act of 1990, as amended,
the Family and Medical Leave Act of 1993, the Immigration Reform and Control Act
of 1986, the Massachusetts Law Against Discrimination (Mass. Gen. L. c. 151B),
the common law of Massachusetts, and any claims under any other federal, state
or local laws, statutes, regulations, executive orders, rules or ordinances.
Date: November 24, 1998 /s/ FRANK SELLDORFF
---------------------------------------
Frank Selldorff
Signed and sealed in the presence of:
/s/ CYNTHIA S. RAMBALDO
- ----------------------------------
Notary Public
My commission expires: AUGUST 2003
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EXHIBIT 10.5
BREAKAWAY SOLUTIONS, INC.
November 13, 1998
Mr. Gordon Brooks
20 Gilson Road
Wellesley, Massachusetts 02481
Dear Gordon:
BreakAway Solutions, Inc. (the "Company") is pleased to offer you the
positions of President and Chief Executive Officer of the Company (collectively,
the "Position") subject to the terms and conditions set forth in this letter
agreement ("Agreement"). In consideration of the mutual agreements set forth
below, you and the Company agree to the following:
1. EFFECTIVE DATE; TERM; EFFECT OF TERMINATION OF THIS AGREEMENT.
(a) EFFECTIVE DATE. This Agreement shall be effective upon the
Company's receipt of a copy of this Agreement originally executed by you (such
date being referred to as the "Effective Date") until November 30, 2000 unless
sooner terminated by you for any reason or by the Company for "cause" as defined
in Section 5. In connection with your execution of this Agreement you agree that
upon request of the Company you shall provide proof of your legal right to work
in the United States as required by the U.S. Immigration and Naturalization
Service. If you are not a U.S. citizen or U.S. permanent resident, you will be
required either to sign an assurance regarding obligations not to export
technical data or software to certain countries, or comply with the requirements
of subsection 6(a) below to the extent applicable to you.
(b) EFFECT OF TERMINATION OF THIS AGREEMENT. Termination of your
employment with the Company shall terminate this Agreement. Following
termination of this Agreement, this Agreement shall become null and void and no
party hereto (or any of their respective directors, officers or employees) shall
have any liability or further obligation to any other party hereto under this
Agreement, except as provided in Sections 3, 4, 5 or 6 of this Agreement, or as
provided in the Option Agreements referenced in Section 3. Nothing contained in
this Section 1 shall relieve any party from liability for any breach of this
Agreement occurring prior to any termination.
2. POSITION, DUTIES AND DURATION OF ASSIGNMENT. You will serve in the
Position with such duties and responsibilities that exist as of the Effective
Date, and/or as
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may later be reasonably assigned by Frank Selldorff and Christopher Greendale as
Co-Chairmen of the Board of Directors of the Company (or the then current
Co-Chairmen or Chairman of the Board of Directors of the Company), and as are
commensurate with the duties and responsibilities of Chief Executive Officers of
companies that are of comparable size and in comparable industries to the
Company. You will report to the Co-Chairmen. You will devote all of your
business time, skill, attention and best efforts to the Company's business and
to discharge and fulfill the responsibilities assigned to you by the Company
during your employment. You shall not render services to any other person or
entity without the prior written consent of the Company, and you shall not
engage in any activity which conflicts or interferes with the performance of the
duties and responsibilities of the Position.
3. COMPENSATION AND BENEFITS.
(a) SALARY. During your employment and commencing with your first day
of work for the Company (which we agree shall be on or before November 30,
1998), you will receive a base salary of $20,833.33 per month paid in accordance
with the Company's normal payroll practice. The Company will make such
deductions, withholdings and other payments from sums payable pursuant to this
Agreement which are required by law for taxes and other charges, or which you
request pursuant to payroll deductions chosen by you. In the event of your
death, the Company will make all salary payments which are accrued and not yet
paid as of the date of your death to your legal representative. All dollar
amounts stated in this and all other Sections of this Agreement refer to United
States currency.
(b) BONUS. At the end of the first year of your employment, you will
be eligible to receive a bonus of up to $100,000 based on performance milestones
established by the Co-Chairmen of the Company's Board of Directors and the
Company's Compensation Committee as and when such committee is established. The
Company is currently projecting to generate during the 1999 calendar year at
least $20,000,000 in gross revenues with a 10% pre-tax net income (which is an
increase of 100% over the prior year). In order for you to receive any portion
of the bonus, the Company will have to achieve at least 50% of the increase in
projected revenue and income goals (as determined by the Co-Chairmen or the
Compensation Committee and you). After your initial twelve months of employment
annual bonuses and reasonable target milestones will be established by the
Co-Chairmen and the Compensation Committee and you.
(c) STOCK OPTIONS. You will be granted the following incentive stock
options under the Company's 1998 Stock Option Plan (the "Stock Option Plan")
pursuant to one or more incentive stock option agreements substantially in the
form attached hereto as Exhibit A with such changes as you and the Company
mutually agree upon in accordance with Section 6(m) below (provided, however,
that to the extent any provision of such exhibit is inconsistent with an express
provision
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contained in this Agreement, this Agreement shall prevail and the form of option
agreement shall be appropriately revised). Notwithstanding the foregoing, if
applicable tax laws or regulations limit the number of options which may be
granted as incentive stock options, then the balance of such options shall be
granted as "non-qualified stock options" and the Company shall issue to you one
or more separate non-qualified stock option agreements substantially in the form
attached hereto as Exhibit B with respect to such options, with such changes as
you and the Company mutually agree upon in accordance with Section 6(m) below
(provided, however, that to the extent any provision of such exhibit is
inconsistent with a express provision contained in this Agreement, this
Agreement shall prevail and the form of option agreement shall be appropriately
revised).
(i) Upon and subject to the closing of an equity financing in
which at least $5,000,000 is invested in the Company or otherwise applied to the
purchase of shares of the Company's capital stock, and the pre-money valuation
of the Company in connection with such financing is at least $20,000,000, and
provided that (x) such financing closes on or before 2/28/99; (y) in connection
with such financing Frank Selldorff is offered the opportunity to sell shares of
his capital stock in the Company, based on the above-referenced pre-money
valuation, equal to a minimum of fifty percent (50%) of the amount of such
financing, and (z) such financing is subject to the removal of any personal
guarantees of Frank Selldorff or any other individual guarantors of Company
indebtedness (a financing in accordance with such terms shall be referred to as
the "Financing"), you will be granted a fully-vested option to purchase 254,875
shares of the Company's common stock, $.001 par value per share ("Common
Stock")(which number of shares is equal to 4% of the outstanding shares of stock
on the date of this Agreement) at an exercise price equal to $4.25.
(ii) Promptly following your execution of this Agreement, but in
no event later than 12/2/98, you will be granted an option to purchase 382,312
shares of the Company's Common Stock (as appropriately adjusted to reflect any
stock splits, stock dividends or other similar events which may occur after the
date hereof and prior to the date of grant) (which number of shares is equal to
6% of the outstanding shares of stock on the date of this Agreement), at an
exercise price equal to $4.25. The vesting of such option shall be as follows:
(1) 95,578 shares will vest on the first anniversary of
your initial employment date, with the balance vesting in equal monthly
installments over a period of three years after such first anniversary date; and
(2) all unvested shares shall immediately become vested
in full upon the occurrence of a Triggering Event (as defined below).
"Triggering Event" means immediately prior to the
occurrence of any of the following events: (a) a public offering by the Company
of shares of its
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Common Stock, (b) a sale of all or substantially all of the Company's assets or
all or substantially all of the shares of its capital stock, (c) a consolidation
or merger of the Company in which a majority of outstanding shares of the
Company's capital stock are exchanged for securities, cash or other property of
any other corporation or business entity, (d) a consolidation or merger
involving the Company as a result of which the stockholders of the Company
immediately prior to such event do not own, immediately following the occurrence
of such event, at least a majority of the common stock and voting power of the
entity resulting from such consolidation or surviving such merger or (e) the
liquidation or dissolution of the Company. In addition, if the Company or
stockholders of the Company enter into an agreement with respect to an event
described in (b) through (e) of the preceding sentence, then upon the
consummation of such event a Triggering Event shall be deemed to have occurred
upon the date of such agreement and, regardless of whether the option remains
outstanding on the date of consummation of the Triggering Event, you will be
entitled to exercise the option to the extent you would have been eligible to do
so if the Triggering Event was deemed to have occurred on the date the agreement
was entered into (and in any event, for a period of at least 30 days after the
consummation of such event).
(iii) Promptly following your execution of this Agreement, but in
on event later than 12/2/98, you will be granted an option to purchase 382,313
shares of the Company's Common Stock (as appropriately adjusted to reflect any
stock splits, stock dividends or other similar events which may occur after the
date hereof and prior to the date of grant) (which number of shares is equal to
6% of the outstanding shares of stock on the date of this Agreement), at an
exercise price equal to $4.25. The vesting of such option shall be as follows:
(1) 95,578 shares shall become vested upon the Company
obtaining a Valuation (as defined below) of $100,000,000;
(2) an additional 95,579 shares shall become vested upon
the Company obtaining a Valuation of $150,000,000;
(3) an additional 95,578 shares shall become vested upon
the Company obtaining a Valuation of $200,000,000;
(4) an additional 95,579 shares shall become vested upon
the Company obtaining a Valuation of $250,000,000 (the Valuation amounts listed
in subclauses (1) through (4) are each referred to as a "Target Amount");
(5) all unvested shares shall become vested on the
seventh anniversary of the date of grant;
(6) if a Triggering Event (other than a Triggering Event
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<PAGE>
specified in clause (a) of the definition of Triggering Event) occurs within 12
months of the date of grant, 52,500 unvested shares shall immediately become
vested;
(7) if a Triggering Event (other than a Triggering Event
specified in clause (a) of the definition of Triggering Event) occurs between 12
months and 24 months of the date of grant, 191,157 unvested shares shall
immediately become vested;
(8) if a Triggering Event (other than a Triggering Event
specified in clause (a) of the definition of Triggering Event) occurs between 24
months and 36 months of the date of grant, 286,735 unvested shares shall
immediately become vested; and
(9) if a Triggering Event (other than a Triggering Event
specified in clause (a) of the definition of Triggering Event) occurs 36 months
or later after the date of grant, all unvested shares shall immediately become
vested.
Any increase in the value of the Company (and which increase is reflected in a
Valuation) which is directly caused by or related to an investment in the
Company or the merger into the Company, or acquisition by the Company, of
another business entity shall cause an increase in each Target Amount which has
not yet been achieved as of the date of such investment, merger or acquisition
equal to the increase in value caused by such investment, merger or acquisition.
A determination as to the current Valuation of the Company shall be made (i) on
an annual basis within 90 days after the end of the Company's fiscal year, (ii)
effective upon the consummation by the Company of any future financing and (iii)
promptly following any other event which involves the obtaining by the Company
of an independent valuation of the Company. "Valuation" means (1) in the case of
clause (i) of the preceding sentence, a valuation mutually agreed upon by you
and the Board of Directors, or if a mutually agreement cannot be reached, a
written determination of the valuation of the Company prepared by an independent
investment banking firm or appraisal company which is of national or regional
reputation and which is mutually acceptable to the Company and to you and which
valuation is prepared on a basis consistent with valuation methods typically
used by venture capitalists for investment bankers to value a business in the
same industry and state of development as the Company (it being agreed that such
valuation shall not be based on book value or liquidation value), (2) with
respect to clause (ii) of the preceding sentence, the valuation of the Company
in connection with such financing and (3) with respect to clause (iii) of the
preceding sentence, the independently prepared valuation referred to therein.
(iv) For avoidance of doubt, the parties expressly acknowledge
that the option grants referred to in (ii) and (iii) are not conditioned upon
the
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<PAGE>
consummation of a Financing.
(v) Each of the options granted pursuant to this section shall
provide that vesting will continue during the first 60 days following the
termination of your employment by the Company.
(d) BENEFITS. You will be entitled to participate in or receive such
benefits under the Company's employee benefit plans and policies as in effect
from time to time and as are provided to senior management of the Company, as
well as the Weston financial retainer (up to a maximum of $10,000 per year) and
the Hancock split life policies (in the current policy amounts) which you
currently hold. The Company may change, amend, modify or completely eliminate
any benefit plan from time to time.
(e) BUSINESS EXPENSES. You will be entitled to reimbursement for
necessary and reasonable business expenses incurred by you in your employment
with the Company in accordance with accounting procedures as the Company shall
adopt from time to time.
(f) VACATION/HOLIDAYS. During your employment under this Agreement you
will be entitled to four weeks paid vacation, accrued in accordance with Company
policies, and Company holidays in accordance with the Company's holiday
policies, as they may be amended from time to time.
(g) RECEIPT OF DOCUMENTATION. You acknowledge that you have received
from the Company copies of the Stock Plan and the Company's benefit plans. You
understand and agree that the Company has reserved the right and option, in its
sole discretion, to change, interpret or modify these and all other plans or
policies at any time in accordance with the terms of the respective plans or
policies.
4. RESTRICTIONS AND CONDITIONS.
As an express condition of this Agreement and your continued employment
with the Company, you agree to comply with the agreements and other conditions
in this Section.
(a) AGREEMENT NOT TO DISCLOSE CONFIDENTIAL INFORMATION. While employed
by the Company and thereafter, you shall not, directly or indirectly, use any
Confidential Information (as hereinafter defined) other than pursuant to you
employment by and for the benefit of the Company, or disclose to anyone outside
of the Company any such Confidential Information. The term "Confidential
Information" as used throughout this Agreement shall mean all trade secrets,
proprietary information, inventions and developments, including customer lists,
business plans, and all other data or information (and any tangible evidence,
record
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<PAGE>
or representation thereof), whether prepared, conceived or developed by an
employee of the Company (including you) or received by the Company from an
outside source, which is in the possession of the Company and which is
maintained in confidence by the Company or which might permit the Company or its
clients or customers (hereinafter collectively referred to as "Clients") to
obtain a competitive advantage over competitors who do not have access to such
trade secrets, proprietary information, or other data or information. This
provision does not apply to any Confidential Information that the Company has
voluntarily disclosed to the public or that has otherwise legally entered the
public domain. You understand that the Company from time to time has in its
possession information which is claimed by others to be proprietary and which
the Company has agreed to keep confidential. You agree that all such information
shall be Confidential Information for purposes of this Agreement.
(b) ASSIGNMENT OF DEVELOPMENTS. You agree that all Confidential
Information and all other discoveries, inventions, ideas, designs, concepts,
processes, methods and improvements or parts thereof, conceived or otherwise
made by you during the period of your employment by the Company, alone or
jointly with others and in any way relating to the Company's present or proposed
products or services or to tasks assigned to you during the course of your
employment, whether or not made during your regular working hours or on the
Company's premises (hereinafter collectively referred to as "Developments"),
together with all products or services which embody such Developments, shall be
the sole property of the Company. You agree to, and hereby do, assign to the
Company all your right, title and interest throughout the world in and to all
Developments and to anything tangible which evidences or constitutes any such
Development. You agree that all such Developments shall constitute works made
for hire under the copyright laws of the United States and hereby assign and, to
the extent any such assignment cannot be made at present, you hereby agree to
assign to the Company all copyrights, patents, reproductions and other
proprietary rights you may have in any such Development, together with the right
to file for and/or own wholly without restriction United States and foreign
patents, trademarks, and copyrights with respect thereto.
(c) EXCEPTIONS TO THIS AGREEMENT. You hereby certify that you have
informed the Company in writing of any and all continuing obligations which you
have to any previous employer and all Confidential Information or Developments
which you claim as your own or otherwise intend to exclude from this Agreement.
(d) EMPLOYEE'S OBLIGATION TO COOPERATE. You will, at any time during
your employment, or after it terminates, on request of the Company, execute all
documents and perform all lawful acts which the Company considers necessary or
advisable to secure its rights hereunder and to carry out the intent of this
Agreement.
(e) RETURN OF PROPERTY. At any time on request of the Company, you
shall
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<PAGE>
return promptly all documents and other property belonging to the Company or its
Clients or business partners.
(f) RESTRICTIONS ON CERTAIN POST-EMPLOYMENT ACTIVITIES.
(i) As long as you are employed by the Company and for a period
of two years after the termination of your employment for any reason, you shall
not solicit, or induce to resign any employee of the Company (or anyone who was
an employee of the Company during the period beginning six months prior to your
termination of employment with the Company), or assist in such hiring by any
other person or business entity or encourage any such employee to terminate his
or her employment with the Company.
(ii) As long as you are employed by the Company, and (x) if you
are entitled to receive payments upon termination of your employment with the
Company under Section 5 below, then for a period of time following termination
of your employment equal to the period during which you receive such payments,
or (y) if you are not entitled to receive payments upon termination of your
employment with the Company under Section 5 below, then for a period of one year
following termination of your employment, you shall not either directly or
indirectly (a) solicit, divert or attempt to divert from the Company to yourself
or to any other person or business entity the business or patronage of any of
the Clients, prospective clients or business partners of the Company; or (b)
provide services, whether on your own behalf or as an owner, manager,
consultant, director, officer, partner or employee of any other person or
business entity, to any of the Clients, prospective clients of the Company;
provided, however that clause (b) shall not prohibit you from accepting
employment as a direct employee of Clients or business partners. You agree to
inform the Company of any activities that violate or may violate the terms of
this Section. In the event that you breach any of the terms of this Section, the
prohibitions set forth in this Section will remain in effect for one year from
the discovery of such breach by an officer of the Company.
(g) NO OTHER AGREEMENT. You warrant that you are not subject to any
agreement or obligation with any other party which would or could in any way
conflict with your obligations under this Agreement. You agree to indemnify and
hold harmless the Company from any claims, actions or damages arising from or
relating to a breach or alleged breach of this subsection.
(h) EQUITABLE REMEDIES; SURVIVAL. You and the Company agree that upon
a breach or violation of any provision of this Section 4, the Company, in
addition to all other remedies which might be available to it, shall be entitled
as a matter of right to equitable relief in any court of competent jurisdiction,
including the right to obtain injunctive relief or specific performance. You and
the Company agree that the remedies at law for any such breach or violation are
not fully adequate and that the
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<PAGE>
injuries to the Company as a result of the continuation of any breach or
violation are incapable of full calculation in monetary terms and, therefore,
constitute irreparable harm. The provisions of this Section 4 shall survive
termination of this Agreement.
5. COMPENSATION AND BENEFITS UPON TERMINATION OF EMPLOYMENT.
Upon termination of your employment (such date of termination being
referred to as the "Termination Date"), the Company will pay you the
compensation and benefits as described in this Section 5.
(a) The Company will pay you on or about the Termination Date all
salary and vacation pay, if any, that has been earned or accrued through the
date of your termination from the Company and has not yet been paid.
(b) If your employment terminates at any time after the Effective Date
for any reasons other than:
(i) by the Company for embezzlement, fraud or conviction of a
felony,
or
(ii) by you for any reason;
the Company will pay you your Base Salary for a period of (x) six months
following your Termination Date if such termination is prior to your first
anniversary of employment; and (y) twelve months following your Termination Date
if such termination is after your first anniversary of employment.
(c) You may be entitled to continuation of applicable life insurance,
accidental death and disability or other benefits provided that you make an
appropriate conversion and comply with the requirements of the applicable
benefit plans.
(d) You will not be entitled to receive any other compensation or
benefits provided by, through or on behalf of the Company, other than benefits
that are vested as of the date of termination and that are payable in accordance
with the terms of any applicable benefit plan.
(e) For purposes of this Section 5, "cause" shall mean that you are
terminated for one or more of the following reasons:
(i) your substantial and continuing failure, after notice
thereof, to render services to the Company in accordance with the terms of this
Agreement;
(ii) your disloyalty, gross negligence, willful misconduct,
dishonesty
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<PAGE>
or breach of fiduciary duty to the Company; or
(iii) your commission of any act of embezzlement or fraud; or
(iv) your deliberate disregard of material rules or material
policies of the Company which results in direct or indirect loss, damage or
injury to the Company; or (v) your breach or violation of this Agreement,
including without limitation your unauthorized disclosure of any Confidential
Information of the Company; or
(vi) your commission of an act which constitutes unfair
competition with the Company or which induces any customer or supplier to breach
a contract with the Company; or
(vii) you have been convicted of a felony, or
(viii) you have been engaged in the abuse of alcohol, illegal
drugs or controlled substances; or
(ix) your failure or inability to perform or execute tasks
assigned by the Board of Directors, including without limitation, your failure
or inability to achieve performance targets or goals, or which are within the
scope of the responsibilities of the Position and which are similar to the tasks
performed by individuals holding similar positions in companies which are of
comparable size and in which are in the technologies services field.
(f) You acknowledge and agree that the compensation and benefits
provided above have been negotiated with the Company and shall be deemed to
fully satisfy any notice requirements which may be required by any jurisdiction.
This Section 6 constitutes your only rights to compensation, benefits, damages,
or other remedies arising out of the termination of your employment.
(g) The provisions of this Section 5 shall survive termination of this
Agreement.
6. GENERAL.
(a) EMPLOYMENT ELIGIBILITY. From time to time after your first day of
employment, you may be asked to provide proof of your identity as well as your
legal right to work in the United States. If for any reason you are unable to
provide proof of your identity as well as your legal right to work in the United
States, the Company may not be able to employ you in the Position and may
terminate your employment. If you are a citizen of a restricted country (as
identified by the U.S.
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<PAGE>
Department of Commerce) you must receive a validated license from the Office of
Export Licensing. This license must be obtained within a time limit established
by the Company.
(b) GOVERNING LAW. The validity, interpretation, effect, and
enforcement of this Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to choice of law rules.
(c) ENTIRE AGREEMENT. In making your decision whether or not to accept
this offer, you agree that you have not relied upon any promises or
representations made by the Company, other than those made in this letter. This
Agreement and the agreements referred to herein or to be executed pursuant to
the provisions herein set forth the entire Agreement and understanding between
you and the Company, and supersede any other negotiations, agreements,
understandings, oral agreements, representations or past or future practices,
whether written or oral, with, by or of the Company.
Each Company plan or policy referred to herein directly or by implication
is incorporated herein only insofar as it does not contradict this Agreement. If
any inconsistencies between this Agreement and any such plan or policy or future
plan or policy exist, the most recent applicable plan document or official
policy shall control.
(d) MODIFICATION. This Agreement may not be amended, modified, changed
or discharged in any respect except as agreed in writing and signed by you and
the Co-Chairmen or Chairman of the Board of Directors of the Company.
(e) SEVERABILITY AND INTERPRETATION. In the event that any provision
or any portion of this Agreement is held invalid or unenforceable by a court of
competent jurisdiction, such provision or portion thereof shall be considered
separate and apart from the remainder of this Agreement and the other provisions
shall remain fully valid and enforceable. In the event that any provision is
held to be overly broad as written, such provision shall be deemed amended to
narrow its application to the extent necessary to make the provision enforceable
according to applicable law and enforced as amended.
(f) NOTICES. All notices required by this Agreement shall be given in
writing either by personal delivery or by first class mail, return receipt
requested. Notices given to the Company shall be addressed to the Company at its
address set forth on the first page of this Agreement, or at such later address
where the Company's principal offices are located. Notice to you shall be to the
last known address as set forth in your personnel file. Notice given by personal
delivery shall be deemed given when delivered. Notice given by mail shall be
deemed given five (5) days following the date of mailing.
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<PAGE>
(g) MISCELLANEOUS. The rights of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the present and future
subsidiaries of the Company, any and all subsidiaries of a subsidiary, and
successors and assigns of the Company. No assignment of this Agreement by the
Company will relieve the Company of its obligations hereunder. You shall not
assign any of your rights and/or obligations under this Agreement and any such
attempted assignment will be void. This Agreement shall be binding upon your
heirs, executors, administrators or other legal representatives and their legal
assigns.
(h) WAIVER. A waiver by either party of any of the terms or conditions
of this Agreement in any instance shall not be deemed or construed to be a
waiver of such term or condition for the future, or of any subsequent breach
thereof. All remedies, rights, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and note of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party.
(i) SURVIVAL. The provisions of this Section 6 shall survive
termination of this Agreement.
(j) DIRECTORS AND OFFICERS LIABILITY INSURANCE. During the term of
this Agreement, the Company agrees to maintain Directors and Officers Liability
Insurance in amounts and with scope(s) of coverage deemed reasonable and
appropriate by the Board of Directors.
(k) ALLOCATION OF OPTIONS FOR NEW HIRES. The Company agrees that it
has reserved or that it shall reserve for issuance to directors, employees and
others a number of shares of Common Stock which shall be equal to 10% of the
Company's issued and outstanding capital stock following the close of the
Financing (and you acknowledge that the Company may reduce the number of shares
available under its 1998 Stock Plan so that the available shares under such plan
are equal to such 10% amount); provided, however, that if the Financing does not
occur, the number of reserved shares shall be equal to 10% of the Company's
issued and outstanding capital stock as of the date of this Agreement. The
parties agree that such shares shall be the only shares which the Company
intends to reserve and allocate for issuance to employees, directors, advisors
or to any other third party (except in connection with a financing) for a period
of two (2) years commencing on the Effective Date. The issuance of such shares,
including without limitation, the form in which such shares are issued (i.e.,
options, restricted stock or otherwise), the number of shares issued, the
recipients of such shares and terms and conditions relating to such issuances
shall be at the sole discretion of the Company's Board of Directors.
(l) CTP INDEMNIFICATION. The Company agrees to indemnify you and hold
you harmless for any claims, costs, liabilities and expenses incurred by you in
connection with the defense of any threatened or actual litigation brought by
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Cambridge Technology Partners, Inc. against you or the Company arising from or
related to your employment by the Company; provided, however, that in no event
shall the Company be obligated to provide the foregoing in connection with any
claim based on any act of embezzlement, fraud or the commission of a felony.
(m) EXECUTION OF OPTION AGREEMENTS. Promptly following execution of
this Agreement, the Company and you will enter in to option agreements in
accordance with Sections 3(c)(ii) and 3(c)(iii) above (and with respect to the
options referenced in Section 3(c)(i) will agree upon the form of option
agreement(s)) for the options referenced therein, which agreements shall contain
terms and conditions mutually agreed upon by both parties. If the parties are
unable to enter in to such agreements or otherwise agree upon the terms and
conditions thereof by December 2, 1998 (or such later date that the parties
agree upon) then as of such date this Agreement shall be null and void and of no
further force or effect.
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If you agree with the foregoing, please sign below and return the
original to me. You may keep the enclosed copy for your records.
Sincerely,
BreakAway Solutions, Inc.
/S/FRANK SELLDORFF
---------------------------
Frank Selldorff, President
Agreed to this 11th day of December, 1998
Employee: /S/ GORDON BROOKS
----------------------------
Gordon Brooks
<PAGE>
EXHIBIT 10.6
BREAKAWAY SOLUTIONS, INC.
December 11, 1998
Mr. Frank Selldorff
20 Rowes Wharf
Boston, Massachusetts 02110
Dear Frank:
BreakAway Solutions, Inc. (the "Company") is pleased to offer you the
positions of EVP [INSERT TITLE] of the Company (the "Position") subject to the
terms and conditions set forth in this letter agreement ("Agreement"). In
consideration of the mutual agreements set forth below, you and the Company
agree to the following:
1. EFFECTIVE DATE; TERM; EFFECT OF TERMINATION OF THIS AGREEMENT.
(a) EFFECTIVE DATE. This Agreement shall be effective upon the
Company's receipt of a copy of this Agreement originally executed by you (such
date being referred to as the "Effective Date") and shall continue until your
employment with the Company is terminated. In connection with your execution of
this Agreement you agree that upon request of the Company you shall provide
proof of your legal right to work in the United States as required by the U.S.
Immigration and Naturalization Service. If you are not a U.S. citizen or U.S.
permanent resident, you will be required either to sign an assurance regarding
obligations not to export technical data or software to certain countries, or
comply with the requirements of subsection 6(a) below to the extent applicable
to you.
(b) EFFECT OF TERMINATION OF THIS AGREEMENT. Termination of your
employment with the Company shall terminate this Agreement. Following
termination of this Agreement, this Agreement shall become null and void and no
party hereto (or any of their respective directors, officers or employees) shall
have any liability or further obligation to any other party hereto under this
Agreement, except as provided in Sections 3, 4, 5 and 6 of this Agreement, each
of which provisions shall survive termination of this Agreement. Nothing
contained in this Section 1 shall relieve any party from liability for any
breach of this Agreement occurring prior to any termination.
2. POSITION, DUTIES AND DURATION OF ASSIGNMENT. You will serve in the
Position with such duties and responsibilities that exist as of the Effective
Date, and/or as may later be reasonably assigned by the Chief Executive
Officer, and as are commensurate with the duties and responsibilities of EVP
[INSERT POSITION] of companies that are of comparable size and in comparable
industries to the Company.
<PAGE>
You will report to the Chief Executive Officer. You will devote all of your
business time, skill, attention and best efforts to the Company's business
and to discharge and fulfill the responsibilities assigned to you by the
Company during your employment. You shall not render services to any other
person or entity without the prior written consent of the Company, and you
shall not engage in any activity which conflicts or interferes with the
performance of the duties and responsibilities of the Position.
3. COMPENSATION AND BENEFITS.
(a) SALARY. During your employment you will receive a base salary of
$16,666.70 per month paid in accordance with the Company's normal payroll
practice. The Company will make such deductions, withholdings and other payments
from sums payable pursuant to this Agreement which are required by law for taxes
and other charges, or which you request pursuant to payroll deductions chosen by
you. In the event of your death, the Company will make all salary payments which
are accrued and not yet paid as of the date of your death to your legal
representative. All dollar amounts stated in this and all other Sections of this
Agreement refer to United States currency.
(b) BONUS. At the end of the first year of your employment, you will
be eligible to receive a bonus of up to $100,000 based on performance milestones
established by the Chief Executive Officer. Additional bonuses may be
established by the Chief Executive Officer.
(c) BENEFITS. You will be entitled to participate in or receive such
benefits under the Company's employee benefit plans and policies and such other
benefits which may be made available as in effect from time to time and as are
provided to officers of the Company. The Company may change, amend, modify or
completely eliminate any benefit plan from time to time.
(d) BUSINESS EXPENSES. You will be entitled to reimbursement for
necessary and reasonable business expenses incurred by you in your employment
with the Company in accordance with accounting procedures as the Company shall
adopt from time to time.
(e) VACATION/HOLIDAYS. During your employment under this Agreement you
will be entitled to four weeks paid vacation, accrued in accordance with Company
policies, and Company holidays in accordance with the Company's holiday
policies, as they may be amended from time to time.
(f) RECEIPT OF DOCUMENTATION. You acknowledge that you have received
from the Company copies of the Company's benefits plans. You understand and
agree that the Company has reserved the right and option, in its sole
discretion, to
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change, interpret or modify these and all other plans or policies
at any time in accordance with the terms of the respective plans or policies.
4. RESTRICTIONS AND CONDITIONS.
As an express condition of this Agreement and your continued employment
with the Company, you agree to comply with the agreements and other conditions
in this Section.
(a) AGREEMENT NOT TO DISCLOSE CONFIDENTIAL INFORMATION. While employed
by the Company and thereafter, you shall not, directly or indirectly, use any
Confidential Information (as hereinafter defined) other than pursuant to your
employment by and for the benefit of the Company, or disclose to anyone outside
of the Company any such Confidential Information. The term "Confidential
Information" as used throughout this Agreement shall mean all trade secrets,
proprietary information, inventions and developments, including customer lists,
business plans, and all other data or information (and any tangible evidence,
record or representation thereof), whether prepared, conceived or developed by
an employee of the Company (including you) or received by the Company from an
outside source, which is in the possession of the Company and which is
maintained in confidence by the Company or which might permit the Company or its
clients or customers (hereinafter collectively referred to as "Clients") to
obtain a competitive advantage over competitors who do not have access to such
trade secrets, proprietary information, or other data or information. This
provision does not apply to any Confidential Information that the Company has
voluntarily disclosed to the public or that has otherwise legally entered the
public domain. You understand that the Company from time to time has in its
possession information which is claimed by others to be proprietary and which
the Company has agreed to keep confidential. You agree that all such information
shall be Confidential Information for purposes of this Agreement.
(b) ASSIGNMENT OF DEVELOPMENTS. You agree that all Confidential
Information and all other discoveries, inventions, ideas, designs, concepts,
processes, methods and improvements or parts thereof, conceived or otherwise
made by you during the period of your employment by the Company, alone or
jointly with others and in any way relating to the Company's present or proposed
products or services or to tasks assigned to you during the course of your
employment, whether or not made during your regular working hours or on the
Company's premises (hereinafter collectively referred to as "Developments"),
together with all products or services which embody such Developments, shall be
the sole property of the Company. You agree to, and hereby do, assign to the
Company all your right, title and interest throughout the world in and to all
Developments and to anything tangible which evidences or constitutes any such
Development. You agree that all such Developments shall constitute works made
for hire under the copyright laws of the
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<PAGE>
United States and hereby assign and, to the extent any such assignment cannot be
made at present, you hereby agree to assign to the Company all copyrights,
patents, reproductions and other proprietary rights you may have in any such
Development, together with the right to file for and/or own wholly without
restriction United States and foreign patents, trademarks, and copyrights with
respect thereto.
(c) EXCEPTIONS TO THIS AGREEMENT. You hereby certify that you have
informed the Company in writing of any and all continuing obligations which you
have to any previous employer and all Confidential Information or Developments
which you claim as your own or otherwise intend to exclude from this Agreement.
(d) EMPLOYEE'S OBLIGATION TO COOPERATE. You will, at any time during
your employment, or after it terminates, on request of the Company, execute all
documents and perform all lawful acts which the Company considers necessary or
advisable to secure its rights hereunder and to carry out the intent of this
Agreement.
(e) RETURN OF PROPERTY. At any time on request of the Company, you
shall return promptly all documents and other property belonging to the Company
or its Clients or business partners.
(f) RESTRICTIONS ON CERTAIN POST-EMPLOYMENT ACTIVITIES.
(i) As long as you are employed by the Company and for a period
of two years after the termination of your employment for any reason, you shall
not solicit, or induce to resign any employee of the Company (or anyone who was
an employee of the Company during the period beginning six months prior to your
termination of employment with the Company), or assist in such hiring by any
other person or business entity or encourage any such employee to terminate his
or her employment with the Company.
(ii) As long as you are employed by the Company, and for a
period of one year following termination of your employment, you shall not
either directly or indirectly (a) solicit, divert or attempt to divert from the
Company to yourself or to any other person or business entity the business or
patronage of any of the Clients, prospective clients or business partners of the
Company; or (b) provide services, whether on your own behalf or as an owner,
manager, consultant, director, officer, partner or employee of any other person
or business entity, to any of the Clients or prospective clients of the Company;
provided, however, that clause (b) shall not prohibit you from accepting
employment as a direct employee of Clients or business partners. You agree to
inform the Company of any activities that violate or may violate the terms of
this Section. In the event that you breach any of the terms of this Section, the
prohibitions set forth in this Section will remain in effect for one year from
the discovery of such breach by an officer of the Company.
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<PAGE>
(g) NO OTHER AGREEMENT. You warrant that you are not subject to any
agreement or obligation with any other party which would or could in any way
conflict with your obligations under this Agreement. You agree to indemnify and
hold harmless the Company from any claims, actions or damages arising from or
relating to a breach or alleged breach of this subsection.
(h) EQUITABLE REMEDIES; SURVIVAL. You and the Company agree that upon
a breach or violation of any provision of this Section 4, the Company, in
addition to all other remedies which might be available to it, shall be entitled
as a matter of right to equitable relief in any court of competent jurisdiction,
including the right to obtain injunctive relief or specific performance. You and
the Company agree that the remedies at law for any such breach or violation are
not fully adequate and that the injuries to the Company as a result of the
continuation of any breach or violation are incapable of full calculation in
monetary terms and, therefore, constitute irreparable harm. The provisions of
this Section 4 shall survive termination of this Agreement.
5. COMPENSATION AND BENEFITS UPON TERMINATION OF EMPLOYMENT.
Upon termination of your employment (such date of termination being
referred to as the "Termination Date"), regardless of when such termination
occurs, the Company will pay you the compensation and benefits as described in
this Section 5.
(a) The Company will pay you on or about the Termination Date all
salary and vacation pay, if any, that has been earned or accrued through the
date of your termination from the Company and has not yet been paid.
(b) If your employment terminates at any time after the Effective Date
for any reason other than (x) by the Company for embezzlement, fraud or
conviction of a felony, or (y) by you voluntarily prior to the sixtieth (60th)
day following the Effective Date, the Company will pay you your Base Salary for
a period of twelve (12) months following your Termination Date (the "Severance
Payment"). Without limiting the foregoing, it is agreed that if you are entitled
to receive the Severance Payment based on a termination of your employment
within twelve (12) months of the Effective Date, the Company may pay the
Severance Payment in equal installments over a period of eighteen (18) months.
(c) You may be entitled to continuation of applicable life insurance,
accidental death and disability or other benefits provided that you make an
appropriate conversion and comply with the requirements of the applicable
benefit plans.
(d) You will not be entitled to receive any other compensation or
benefits provided by, through or on behalf of the Company, under this Agreement
other than
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<PAGE>
benefits that are vested as of the date of termination and that are payable in
accordance with the terms of any applicable benefit plan.
(e) You acknowledge and agree that the compensation and benefits
provided above have been negotiated with the Company and shall be deemed to
fully satisfy any notice requirements which may be required by any jurisdiction.
This Section 5 constitutes your only rights to compensation, benefits, damages,
or other remedies arising out of the termination of your employment.
(f) The provisions of this Section 5 shall survive termination of this
Agreement.
6. GENERAL.
(a) EMPLOYMENT ELIGIBILITY. From time to time after your first day of
employment, you may be asked to provide proof of your identity as well as your
legal right to work in the United States. If for any reason you are unable to
provide proof of your identity as well as your legal right to work in the United
States, the Company may not be able to employ you in the Position and may
terminate your employment. If you are a citizen of a restricted country (as
identified by the U.S. Department of Commerce) you must receive a validated
license from the Office of Export Licensing. This license must be obtained
within a time limit established by the Company.
(b) GOVERNING LAW. The validity, interpretation, effect, and
enforcement of this Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to choice of law rules.
(c) ENTIRE AGREEMENT. In making your decision whether or not to accept
this offer, you agree that you have not relied upon any promises or
representations made by the Company, other than those made in this letter. This
Agreement and the agreements referred to herein or to be executed pursuant to
the provisions herein set forth the entire Agreement and understanding between
you and the Company, and supersede any other negotiations, agreements,
understandings, oral agreements, representations or past or future practices,
whether written or oral, with, by or of the Company.
Each Company plan or policy referred to herein directly or by implication
is incorporated herein only insofar as it does not contradict this Agreement. If
any inconsistencies between this Agreement and any such plan or policy or future
plan or policy exist, the most recent applicable plan document or official
policy shall control.
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<PAGE>
(d) MODIFICATION. This Agreement may not be amended, modified, changed
or discharged in any respect except as agreed in writing and signed by you and
the Chairman or a Co-Chairman of the Board of Directors of the Company.
(e) SEVERABILITY AND INTERPRETATION. In the event that any provision
or any portion of this Agreement is held invalid or unenforceable by a court of
competent jurisdiction, such provision or portion thereof shall be considered
separate and apart from the remainder of this Agreement and the other provisions
shall remain fully valid and enforceable. In the event that any provision is
held to be overly broad as written, such provision shall be deemed amended to
narrow its application to the extent necessary to make the provision enforceable
according to applicable law and enforced as amended.
(f) NOTICES. All notices required by this Agreement shall be given in
writing either by personal delivery or by first class mail, return receipt
requested. Notices given to the Company shall be addressed to the Company at its
address set forth on the first page of this Agreement, or at such later address
where the Company's principal offices are located. Notice to you shall be to the
last known address as set forth in your personnel file. Notice given by personal
delivery shall be deemed given when delivered. Notice given by mail shall be
deemed given five (5) days following the date of mailing.
(g) MISCELLANEOUS. The rights of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the present and future
subsidiaries of the Company, any and all subsidiaries of a subsidiary, and
successors and assigns of the Company. No assignment of this Agreement by the
Company will relieve the Company of its obligations hereunder. You shall not
assign any of your rights and/or obligations under this Agreement and any such
attempted assignment will be void. This Agreement shall be binding upon your
heirs, executors, administrators or other legal representatives and their legal
assigns.
(h) WAIVER. A waiver by either party of any of the terms or conditions
of this Agreement in any instance shall not be deemed or construed to be a
waiver of such term or condition for the future, or of any subsequent breach
thereof. All remedies, rights, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party.
(i) SURVIVAL. The provisions of this Section 6 shall survive
termination of this Agreement.
(j) DIRECTORS AND OFFICERS LIABILITY INSURANCE. During the term of
this Agreement, the Company agrees to maintain Directors and Officers Liability
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<PAGE>
Insurance in amounts and with scope(s) of coverage deemed reasonable and
appropriate by the Board of Directors.
If you agree with the foregoing, please sign below and return the
original to me. You may keep the enclosed copy for your records.
Sincerely,
BreakAway Solutions, Inc.
/S/ GORDON BROOKS
----------------------------------
Gordon Brooks, President
Agreed to this 11th day of December, 1998
Employee: /S/ FRANK SELLDORFF
--------------------------
Frank Selldorff
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<PAGE>
EXHIBIT 10.7
[BREAKAWAY LOGO]
February 11, 1999
Ms. Janet Tremlett
13 Rocky Lane
Medfield, MA 02052
Dear Ms. Tremlett:
Breakaway Solutions Inc. (the "Company") is pleased to offer to employ
you, effective January 1, 1999, as the Vice President of Strategic Services. As
the Vice President of Strategic Services, you are to undertake the duties and
responsibilities inherent in the position and such other duties and
responsibilities as the Company's Board of Directors or its designee shall from
time to time reasonably assign to you. In addition, you agree to devote your
entire business time, attention and energies to the business and interests of
the Company during your employment, subject to the following: (a) You will be
working a four-day work week (Monday through Thursday), which has been reflected
in the salary set out below. (b) You are free to accept positions on Boards of
Directors or Boards of Advisors of other companies (which may on occasion
require attending meetings during the Monday through Thursday time frame)
without having to get approval from the Company, so long as you give prior
notice to the Company about each position you accept.
You are to abide by the rules, regulations, instructions, personnel
practices and policies of the Company (as amended from time to time in the
Company's sole discretion).
Your salary for this position will be paid at the rate of $7,416.67 per
pay period (which is equivalent to an annual base salary of $178,000 paid out
over 24 pay periods per year), in accordance with the semi-monthly payment
schedule now being employed by the Company. This rate is 80% of a full-time
salary, to account for the four-day workweek (Monday through Thursday) discussed
above.
In addition, at such time as the Company (in its sole discretion)
implements an Executive Bonus plan, you will participate in the plan on the same
basis as other executives at your level. The company has put a plan into effect
that would make you and all other such executives eligible for an annual bonus
of 30% of annual salary at the specified profit target. This percentage will not
be reduced to reflect your 4-day workweek, as that is already reflected in your
salary. The actual bonus dollar amounts will thus be tied to the Company's
performance.
Your salary will be reviewed at least once every 12 months and you will
be considered for an increase at that time, in accordance with the Company's
procedures in place from time to time. In addition to any stock options for
which you may be
<PAGE>
Ms. Janie Tremlett
January 1, 1999
Page 2 of 6
eligible under the Company's option plans in place from time to time, the
Company will consider requests by you to take a smaller raise in return for
additional options or stock awards.
In your capacity as a consultant performing services as an independent
contractor to the Company, you were issued non-qualified options for 45,000
shares of the Common Stock of the Company on July 1, 1998. Those options have an
exercise price of $.543 per share, with a four year vesting schedule (25% per
year), as more fully set out in the Non-Qualified Stock Option Agreement dated
July 1, 1999 between you and the Company (the "NQSO Agreement"). Promptly upon
your acceptance of this letter, the Company will provide you with a modification
of the NQSO Agreement so that your options will continue to vest while you are
employed as an employee commencing January 1, 1999.
For all benefits, you will be treated as if you became an employee on
April 1, 1998, except in cases where the third-party insurance carrier's rules
and policy terms do not permit and except as set forth in the preceding
paragraph with respect to Non-Qualified Stock Options.
It has been recommended to the Company's Board of Directors that you be
granted incentive stock options to acquire 90,000 shares of the Company's common
stock. The stock options will be granted at the fair market value of $1.42 per
share determined by the Board of Directors on the date of the grant and will be
subject to a four year vesting schedule, with 25% vesting after 12 months of
employment and with the remainder vesting in 25% increments on April 1, 2000,
April 1, 2001 and April 1, 2002. The specific provisions of this grant,
including vesting, exercise and rights upon the termination of your employment
will be governed by the terms of the Company's 1998 Stock Plan. However, the
vesting schedule will be implemented so that you will be partially vested on the
date of grant, as if the grant had been on April 1, 1998 and you had been
continuously employed from and after that date.
Upon the fulfillment of the necessary eligibility requirements, you will
be eligible to participate in the employee benefit programs that the Company
offers to its employees, including without limitation the 401(k) plan and health
coverage. For the purpose of enrolling you in the Company's group insurance
plans, the Company will recognize your past service and make reasonable efforts
to cause its carriers to enroll you in those plans as of January 1, 1999 but
with benefits and vesting calculated as if you had been fully employed
continuously since April 1, 1998. For the purpose of the 401(k) plan, you will
be treated for all purposes as having been employed since April 1, 1998, except
that you cannot make a contribution for 1998. The Company has confirmed with its
401(k) administrator that this will be done. A summary of the
<PAGE>
Ms. Janie Tremlett
January 1, 1999
Page 3 of 6
Company's benefit plans is included with this letter. Full descriptions of the
benefit plans currently being offered are available in our Human Resources
Department. These plans may, from time to time, be amended or terminated by the
Company in its sole discretion with or without prior notice.
In addition, the Company will provide to you parking adjacent to the
Company's office where you work at, at the Company's expense. You will be
reimbursed in accordance with standard company policy for expenses incurred in
the performance of your work, including without limitation portable phone
charges, gas and mileage incurred on company business, and travel and
subsistence on business trips.
The Company will maintain professional liability insurance, covering you
individually as well as the Company, against claims made based on your
performance of services as an employee of the Company. This insurance shall be
an "occurrence" policy.
Attached for your review, as Attachment A, is the Breakaway Solutions
Inc. Non-Disclosure, Non-Competition, Non-Solicitation and Assignment Agreement
(the "Non-Compete Agreement"). This offer of employment is conditioned on your
signing that agreement and your continuing to abide thereafter by its terms. In
making this offer, you have expressly represented and warranted to the Company,
and the Company understands, that you are not under any obligation to any former
employee or any person, firm, or corporation which would prevent, limit, or
impair in any way the performance by you of your duties as an employee of the
Company.
You agree to assign, upon the commencement of your employment, all of
your existing consulting engagements as listed on Attachment B to the Company,
and to carry out all work that you perform for such engagements on behalf of the
Company while you are employed by the Company.
The term of this Agreement is one (1) year, commencing January 1, 1999.
It shall automatically renew for successive one (1) year periods unless it is
terminated during or as of the end of any one (1) year period by your
resignation, or by mutual decision, or by the Company with or without "Cause" as
set out below. The Company and you intend to endeavor to make any termination a
mutual decision; however, this is not intended to limit your rights if the
Company does not fulfill an obligation or commitment under this Agreement.
Without limitation, you may at your election resign your position, by
mutual agreement or unilaterally by you, and treat the resignation as
termination by the Company without Cause for the purpose of this agreement and
the Noncompete
<PAGE>
Ms. Janie Tremlett
January 1, 1999
Page 4 of 6
agreement, upon any of the following: (a) A material change in your duties or
responsibilities. (b) The Company's attempt to materially reduce your salary or
your bonus eligibility. (c) A change in control of the Company, or the sale of
all or substantially all of the Company's assets. (d) Failure by the Company to
support your Monday through Thursday work schedule. (e) Failure by the Board of
Directors to grant your stock options as described above and of the Company to
provide you with a Stock Option agreement implementing those options on or
before February 15, 1999. (f) A move of the Company's principal office outside
of a 50 mile radius of Medfield, MA or a demand that you work at an office at
such a location. In addition, termination of your employment by the Company
within six (6) months of any of the foregoing events shall be conclusively
deemed to have been termination without Cause.
TERMINATION BY COMPANY WITHOUT "CAUSE"; TERMINATION BY MUTUAL DECISION;
TERMINATION FOR DEATH OR DISABILITY: If your employment is terminated by the
Company without a "Cause" as defined below, or if it is terminated by mutual
agreement or by your resignation with your election to treat the resignation as
termination without Cause as provided above, or if it is terminated by the
Company in the event of your death, (a) your obligations under this Agreement
and the Noncompete agreement will terminate except for those provisions which
expressly survive by their terms, (b) you will continue to be paid your salary
that is in effect immediately prior to the termination date, for 7.5 months, (c)
you will receive any bonus payable under any plan in which you were
participating or for which you were eligible immediately prior to the
termination date, but to the extent that any period for the calculation of a
bonus ends after the termination date, your bonus shall be pro-rated
accordingly, (d) you will be paid any accrued vacation pay and any salary or
other benefits accrued as of the termination date but not yet paid, and (e) you
will be eligible to continue to receive any benefits under any plans then in
effect, according to the terms of such plans, which may require that continuance
be done at your own expense after termination.
TERMINATION BY THE COMPANY WITH "CAUSE": The Company may terminate your
employment for "Cause" as defined below, if it first gives you written notice of
the alleged "Cause" and if you have not remedied the Cause within thirty (30)
days after such notice. If your employment is terminated for Cause, (a) your
obligations under this Agreement and the Noncompete agreement will terminate
except for those provisions which expressly survive by their terms, (b) you will
be paid any accrued vacation pay and any salary or other benefits accrued as of
the termination date but not yet paid, and (c) you will be eligible to continue
to receive any benefits under any plans then in effect, according to the terms
of such plans, which may require that continuance be done at your own expense
after termination. For the purpose of this Agreement, "Cause" means: (1) your
substantial and continuing failure to perform your duties and responsibilities
as an employee of the Company other than due to death or disability; (2) your
<PAGE>
Ms. Janie Tremlett
January 1, 1999
Page 5 of 6
disloyalty, gross negligence, willful misconduct, dishonesty or breach of
fiduciary duty to the Company; (3) your deliberate disregard of material rules,
regulations, instructions, personnel practices and policies of the Company (as
amended from time to time in the Company's sole discretion) which results in
direct or indirect loss, damage or injury to the Company; (4) your material
breach of the Noncompete Agreement; or (5) your conviction of any crime which
constitutes a felony in the jurisdiction involved.
The Immigration Reform and Control Act requires employers to verify the
employment eligibility and identity of new employees. Enclosed is a copy of the
Form I-9 that you will be required to complete. Please bring the appropriate
documents listed on that form with you when you report for work. We will not be
able to employ you if you fail to comply with this requirement.
The Company reserves the right to review the compensation (including
salary and bonus) and benefits it offers to you and to adjust them from time to
time in its sole discretion, but subject to certain adjustments being deemed
termination and/or giving rise to other rights or benefits as set out in this
agreement, and provided that other than the amount of salary, no express term of
this agreement may be so adjusted. It is understood that you are not being
offered employment for a definite period of time and that either you or the
Company may terminate the employment relationship at any time, but subject to
the notice provisions set out above regarding "Cause" and subject to the
provisions above regarding the parties' desire that any termination be a mutual
decision. Nothing in the Company's offer to you of compensation (including
salary or bonus), stock options or benefits should be interpreted as creating
anything other than an at-will employment relationship. This agreement and the
Noncompete Agreement are executed as instruments "under seal" under
Massachusetts law and they and your employment relationship with the Company are
governed by the laws of the Commonwealth of Massachusetts. You expressly consent
to submit to jurisdiction and venue in the Massachusetts state or federal
courts, where any matters arising related to your employment shall be litigated.
This letter and the Noncompete Agreement constitute the entire agreement
between you and the Company with respect to your employment, and supersede and
terminate all prior and contemporaneous offers, conversations and agreements
with respect to employment, other than the NQSO agreement. In the event of any
conflict between those documents and the rules, regulations, instructions,
personnel practices and policies of the Company (as amended from time to time in
the Company's sole discretion), this letter and the Noncompete agreement shall
control, and in the event of any conflict between the terms of this letter and
the Noncompete Agreement, the terms of this letter shall control.
<PAGE>
Ms. Janie Tremlett
January 1, 1999
Page 6 of 6
Please indicate your acceptance of this offer by signing and dating the
enclosed copy of this letter and returning it in the enclosed envelope. However,
your employment will be deemed to have commenced on January 1, 1999.
We look forward to your joining the Company and are pleased that you will
be working with us.
Very truly yours,
/S/ GORDON BROOKS
- ---------------------------------------
Gordon Brooks
President and Chief Executive Officer
Agreed: /S/ JANIE TREMLETT 2-11-99
------------------------- -----------
Janie Tremlett Date
<PAGE>
EXHIBIT 10.8
BREAKAWAY SOLUTIONS, INC.
March 25, 1999
Babak R. Farzami
90 Park Avenue, Suite 1600
New York, NY 10016
Dear Bob:
Breakaway Solutions, Inc. (the "Company") is pleased to offer you the
position of Vice President, Corporate Development of the Company (the
"Position") subject to the terms and conditions set forth in this letter
agreement ("Agreement"). In consideration of the mutual agreements set forth
below, you and the Company agree to the following:
1. EFFECTIVE DATE; TERM; EFFECT OF TERMINATION OF THIS AGREEMENT.
(a) EFFECTIVE DATE. This Agreement shall be effective on the date set
forth above (such date being referred to as the "Effective Date") and shall
continue until your employment with the Company is terminated. In connection
with your execution of this Agreement you agree that upon request of the Company
you shall provide proof of your legal right to work in the United States as
required by the U.S. Immigration and Naturalization Service. If you are not a
U.S. citizen or U.S. permanent resident, you will be required either to sign an
assurance regarding obligations not to export technical data or software to
certain countries, or comply with the requirements of subsection 6(a) below to
the extent applicable to you.
(b) EFFECT OF TERMINATION OF THIS AGREEMENT. Termination of your
employment with the Company shall terminate this Agreement. Following
termination of this Agreement, this Agreement shall become null and void and no
party hereto (or any of their respective directors, officers or employees) shall
have any liability or further obligation to any other party hereto under this
Agreement, except as provided in Sections 3, 4, 5 and 6 of this Agreement, each
of which provisions shall survive termination of this Agreement. Nothing
contained in this Section 1 shall relieve any party from liability for any
breach of this Agreement occurring prior to any termination.
2. POSITION, DUTIES AND DURATION OF ASSIGNMENT. You will serve in the
Position with such duties and responsibilities that exist as of the Effective
Date, and/or as may later be reasonably assigned by the Chief Executive Officer,
and as are commensurate with the duties and responsibilities of Vice President,
Corporate
<PAGE>
Development of companies that are of comparable size and in comparable
industries to the Company. You will report to the Chief Executive Officer. You
will devote all of your business time, skill, attention and best efforts to the
Company's business and to discharge and fulfill the responsibilities assigned to
you by the Company during your employment. You shall not render services to any
other person or entity without the prior written consent of the Company, and you
shall not engage in any activity which conflicts or interferes with the
performance of the duties and responsibilities of the Position.
3. COMPENSATION AND BENEFITS.
(a) SALARY. During your employment you will receive a base salary of
$15,833.33 per month paid in accordance with the Company's normal payroll
practice. The Company will make such deductions, withholdings and other payments
from sums payable pursuant to this Agreement which are required by law for taxes
and other charges, or which you request pursuant to payroll deductions chosen by
you. In the event of your death, the Company will make all salary payments which
are accrued and not yet paid as of the date of your death to your legal
representative. All dollar amounts stated in this and all other Sections of this
Agreement refer to United States currency.
(b) BONUS. At the end of the fiscal year, you will be eligible to
receive a bonus of up to 30% of annual salary contingent on the Company
achieving specified profit targets. Additional bonuses may be established by the
Chief Executive Officer.
(c) BENEFITS. You will be entitled to participate in or receive such
benefits under the Company's employee benefit plans and policies and such other
benefits which may be made available as in effect from time to time and as are
provided to officers of the Company. The Company may change, amend, modify or
completely eliminate any benefit plan from time to time.
(d) BUSINESS EXPENSES. You will be entitled to reimbursement for
necessary and reasonable business expenses incurred by you in your employment
with the Company in accordance with accounting procedures as the Company shall
adopt from time to time.
(e) VACATION/HOLIDAYS. During your employment under this Agreement you
will be entitled to four weeks paid vacation, accrued in accordance with Company
policies, and Company holidays in accordance with the Company's holiday
policies, as they may be amended from time to time.
(f) RECEIPT OF DOCUMENTATION. You acknowledge that you have received
from the Company copies of the Company's benefits plans. You understand and
agree that the Company has reserved the right and option, in its sole
discretion, to
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<PAGE>
change, interpret or modify these and all other plans or policies at any time in
accordance with the terms of the respective plans or policies.
4. RESTRICTIONS AND CONDITIONS.
As an express condition of this Agreement and your continued employment
with the Company, you agree to comply with the agreements and other conditions
in this Section.
(a) AGREEMENT NOT TO DISCLOSE CONFIDENTIAL INFORMATION. While employed
by the Company and thereafter, you shall not, directly or indirectly, use any
Confidential Information (as hereinafter defined) other than pursuant to your
employment by and for the benefit of the Company, or disclose to anyone outside
of the Company any such Confidential Information. The term "Confidential
Information" as used throughout this Agreement shall mean all trade secrets,
proprietary information, inventions and developments, including customer lists,
business plans, and all other data or information (and any tangible evidence,
record or representation thereof), whether prepared, conceived or developed by
an employee of the Company (including you) or received by the Company from an
outside source, which is in the possession of the Company and which is
maintained in confidence by the Company or which might permit the Company or its
clients or customers (hereinafter collectively referred to as "Clients") to
obtain a competitive advantage over competitors who do not have access to such
trade secrets, proprietary information, or other data or information. This
provision does not apply to any Confidential Information that the Company has
voluntarily disclosed to the public or that has otherwise legally entered the
public domain. You understand that the Company from time to time has in its
possession information which is claimed by others to be proprietary and which
the Company has agreed to keep confidential. You agree that all such information
shall be Confidential Information for purposes of this Agreement.
(b) ASSIGNMENT OF DEVELOPMENTS. You agree that all Confidential
Information and all other discoveries, inventions, ideas, designs, concepts,
processes, methods and improvements or parts thereof, conceived or otherwise
made by you during the period of your employment by the Company, alone or
jointly with others and in any way relating to the Company's present or proposed
products or services or to tasks assigned to you during the course of your
employment, whether or not made during your regular working hours or on the
Company's premises (hereinafter collectively referred to as "Developments"),
together with all products or services which embody such Developments, shall be
the sole property of the Company. You agree to, and hereby do, assign to the
Company all your right, title and interest throughout the world in and to all
Developments and to anything tangible which evidences or constitutes any such
Development. You agree that all such Developments shall constitute works made
for hire under the copyright laws of the
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<PAGE>
United States and hereby assign and, to the extent any such assignment cannot be
made at present, you hereby agree to assign to the Company all copyrights,
patents, reproductions and other proprietary rights you may have in any such
Development, together with the right to file for and/or own wholly without
restriction United States and foreign patents, trademarks, and copyrights with
respect thereto.
(c) EXCEPTIONS TO THIS AGREEMENT. You hereby certify that you have
informed the Company in writing of any and all continuing obligations which you
have to any previous employer and all Confidential Information or Developments
which you claim as your own or otherwise intend to exclude from this Agreement.
(d) EMPLOYEE'S OBLIGATION TO COOPERATE. You will, at any time during
your employment, on request of the Company, execute all documents and perform
all lawful acts which the Company considers necessary or advisable to secure its
rights hereunder and to carry out the intent of this Agreement.
(e) RETURN OF PROPERTY. At any time on request of the Company, you
shall return promptly all documents and other property belonging to the Company
or its Clients or business partners.
(f) RESTRICTIONS ON CERTAIN POST-EMPLOYMENT ACTIVITIES.
(i) As long as you are employed by the Company and for a period
of one year after the termination of your employment for any reason (except in
conjunction with a general solicitation for employees), you shall not solicit,
or induce to resign any employee of the Company (or anyone who was an employee
of the Company during the period beginning six months prior to your termination
of employment with the Company), or assist in such hiring by any other person or
business entity or encourage any such employee to terminate his or her
employment with the Company.
(ii) As long as you are employed by the Company, and for a
period of one year following termination of your employment, you shall not
either directly or indirectly (a) solicit, divert or attempt to divert from the
Company to yourself or to any other person or business entity the business or
patronage of any of the Clients or business partners of the Company; or (b)
provide services, whether on your own behalf or as an owner, manager,
consultant, director, officer, partner or employee of any other person or
business entity, to any of the Clients of the Company; provided, however, that
clause (b) shall not prohibit you from accepting employment as a direct employee
of Clients or business partners. In the event that you breach any of the terms
of this Section, the prohibitions set forth in this Section will remain in
effect for one year from the discovery of such breach by an officer of the
Company.
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<PAGE>
(g) NO OTHER AGREEMENT. You warrant that you are not subject to any
agreement or obligation with any other party which would or could in any way
conflict with your obligations under this Agreement. You agree to indemnify and
hold harmless the Company from any claims, actions or damages arising from or
relating to a breach or alleged breach of this subsection.
(h) EQUITABLE REMEDIES; SURVIVAL. You and the Company agree that upon
a breach or violation of any provision of this Section 4, the Company, in
addition to all other remedies which might be available to it, shall be entitled
as a matter of right to equitable relief in any court of competent jurisdiction,
including the right to obtain injunctive relief or specific performance. You and
the Company agree that the remedies at law for any such breach or violation are
not fully adequate and that the injuries to the Company as a result of the
continuation of any breach or violation are incapable of full calculation in
monetary terms and, therefore, constitute irreparable harm. The provisions of
this Section 4 shall survive termination of this Agreement.
5. COMPENSATION AND BENEFITS UPON TERMINATION OF EMPLOYMENT.
Upon termination of your employment (such date of termination being
referred to as the "Termination Date"), regardless of when such termination
occurs, the Company will pay you the compensation and benefits as described in
this Section 5.
(a) The Company will pay you on or about the Termination Date all
salary and vacation pay, if any, that has been earned or accrued
through the date of your termination from the Company and has not
yet been paid.
(b) You may be entitled to continuation of applicable life insurance,
accidental death and disability or other benefits for one (1)
year, provided that you make an appropriate conversion and comply
with the requirements of the applicable benefit plans.
(c) You will not be entitled to receive any other compensation or
benefits provided by, through or on behalf of the Company, under
this Agreement other than benefits that are vested as of the date
of termination and that are payable in accordance with the terms
of any applicable benefit plan.
(d) You acknowledge and agree that the compensation and benefits
provided above have been negotiated with the Company and shall be
deemed to fully satisfy any notice requirements which may be
required by any jurisdiction. This Section 5 constitutes your only
rights to compensation, benefits, damages, or other remedies
arising out of the termination of your employment.
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<PAGE>
(e) The provisions of this Section 5 shall survive termination of this
Agreement.
6. SEVERANCE BENEFITS.
(a) In the event that the Company terminates your employment other
than for cause (as defined below), you shall be entitled to the following
severance benefits: (i) a payment, within thirty (30) days of such termination,
in the amount of six (6) months salary then in effect, less standard deductions
and withholdings, (ii) a payment, within thirty (30) days of such termination,
in the amount of the cash bonus most recently paid by the Company to you, less
standard deductions and withholdings, (iii) the acceleration of vesting with
respect to shares of Common Stock of the Company and options to purchase Common
Stock of the Company held by you at the time of such termination as if your
employment with the Company had continued uninterrupted for an additional twelve
(12) months, and (iv) the continuation for a period of one (1) year following
such termination of your right to participate in or enjoy benefits under any
benefit plan of the Company in which you are participating at the time of such
termination, so long as such benefit plan remains generally available to
similarly situated employees of the Company. You agree that nothing in this
Agreement obligates the Company to maintain any such benefit plans or prevents
the Company from modifying or eliminating the rights of all participants under
such benefit plans from time to time, in the sole discretion of the Board.
(b) The Company's termination of your employment with the Company
shall be without "cause" if the Company terminates your employment with the
Company for any reason other than: (i) the substantial and continuing failure,
after notice thereof, to render services to the Company or any subsidiary of the
Company in accordance with the terms or requirements of your position and
duties; (ii) gross negligence, willful misconduct, dishonesty or breach of
fiduciary duty to the Company or any subsidiary of the Company; (iii) the
commission of an act of embezzlement or fraud; (iv) deliberate disregard of the
written rules or policies of the Company or any subsidiary of the Company which
results in direct or indirect loss, damage or injury to the Company or any
subsidiary of the Company; or (v) the unauthorized disclosure of any trade
secret or confidential information of the Company or any subsidiary of the
Company.
7. GENERAL.
(a) EMPLOYMENT ELIGIBILITY. From time to time after your first day of
employment, you may be asked to provide proof of your identity as well as your
legal right to work in the United States. If for any reason you are unable to
provide proof of your identity as well as your legal right to work in the United
States, the Company may not be able to employ you in the Position and may
terminate your
-6-
<PAGE>
employment. If you are a citizen of a restricted country (as identified by the
U.S. Department of Commerce) you must receive a validated license from the
Office of Export Licensing. This license must be obtained within a time limit
established by the Company.
(b) GOVERNING LAW. The validity, interpretation, effect, and
enforcement of this Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to choice of law rules.
(c) ENTIRE AGREEMENT. In making your decision whether or not to accept
this offer, you agree that you have not relied upon any promises or
representations made by the Company, other than those made in this letter. This
Agreement and the Non-Disclosure, Non-Competition, Non-Solicitation & Assignment
Agreement referred to herein or to be executed pursuant to the provisions herein
set forth the entire Agreement and understanding between you and the Company,
and supersede any other negotiations, agreements, understandings, oral
agreements, representations or past or future practices, whether written or
oral, with, by or of the Company.
Each Company plan or policy referred to herein directly or by implication
is incorporated herein only insofar as it does not contradict this Agreement. If
any inconsistencies between this Agreement and any such plan or policy or future
plan or policy exist, the most recent applicable plan document or official
policy shall control.
(d) MODIFICATION. This Agreement may not be amended, modified, changed
or discharged in any respect except as agreed in writing and signed by you and
the Chief Executive Officer of the Company.
(e) SEVERABILITY AND INTERPRETATION. In the event that any provision
or any portion of this Agreement is held invalid or unenforceable by a court of
competent jurisdiction, such provision or portion thereof shall be considered
separate and apart from the remainder of this Agreement and the other provisions
shall remain fully valid and enforceable. In the event that any provision is
held to be overly broad as written, such provision shall be deemed amended to
narrow its application to the extent necessary to make the provision enforceable
according to applicable law and enforced as amended.
(f) NOTICES. All notices required by this Agreement shall be given in
writing either by personal delivery or by first class mail, return receipt
requested. Notices given to the Company shall be addressed to the Company at its
address set forth on the first page of this Agreement, or at such later address
where the Company's principal offices are located. Notice to you shall be to the
last known address as set forth in your personnel file. Notice given by personal
delivery shall be deemed given when delivered. Notice given by mail shall be
deemed given five (5) days following the date of mailing.
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<PAGE>
(g) MISCELLANEOUS. The rights of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the present and future
subsidiaries of the Company, any and all subsidiaries of a subsidiary, and
successors and assigns of the Company. No assignment of this Agreement by the
Company will relieve the Company of its obligations hereunder. You shall not
assign any of your rights and/or obligations under this Agreement and any such
attempted assignment will be void. This Agreement shall be binding upon your
heirs, executors, administrators or other legal representatives and their legal
assigns.
(h) WAIVER. A waiver by either party of any of the terms or conditions
of this Agreement in any instance shall not be deemed or construed to be a
waiver of such term or condition for the future, or of any subsequent breach
thereof. All remedies, rights, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party.
(i) SURVIVAL. The provisions of this Section 6 shall survive
termination of this Agreement.
-8-
<PAGE>
If you agree with the foregoing, please sign below and return the
original to me. You may keep the enclosed copy for your records.
Sincerely,
Breakaway Solutions, Inc.
By:/S/ GORDON BROOKS
-------------------------------
Gordon Brooks, President
Agreed to this 18th day of March, 1999
Employee:/S/ BABAK R. FARZAMI
------------------------------
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<PAGE>
EXHIBIT 10.9
BREAKAWAY SOLUTIONS, INC.
March 25, 1999
Dev Ittycheria
90 Park Avenue, Suite 1600
New York, NY 10016
Dear Dev:
Breakaway Solutions, Inc. (the "Company") is pleased to offer you the
position of Vice President and General Manager of the Company's ASP Service Line
(the "Position") subject to the terms and conditions set forth in this letter
agreement ("Agreement"). In consideration of the mutual agreements set forth
below, you and the Company agree to the following:
1. EFFECTIVE DATE; TERM: EFFECT OF TERMINATION OF THIS AGREEMENT.
a. EFFECTIVE DATE. This Agreement shall be effective on the date set
forth above (such date being referred to as the "Effective Date") and shall
continue until your employment with the Company is terminated. In connection
with your execution of this Agreement you agree that upon request of the Company
you shall provide proof of your legal right to work in the United States as
required by the U.S. Immigration and Naturalization Service. If you are not a
U.S. citizen or U.S. permanent resident, you will be required either to sign an
assurance regarding obligations not to export technical data or software to
certain countries, or comply with the requirements of subsection 6(a) below to
the extent applicable to you.
b. EFFECT OF TERMINATION OF THIS AGREEMENT. Termination of your
employment with the Company shall terminate this Agreement. Following
termination of this Agreement, this Agreement shall become null and void and no
party hereto (or any of their respective directors, officers or employees) shall
have any liability or further obligation to any other party hereto under this
Agreement, except as provided in Sections 3, 4, 5 and 6 of this Agreement, each
of which provisions shall survive termination of this Agreement. Nothing
contained in this Section 1 shall relieve any party from liability for any
breach of this Agreement occurring prior to any termination.
2. POSITION, DUTIES AND DURATION OF ASSIGNMENT. You will serve in the
Position with such duties and responsibilities that exist as of the Effective
Date, and/or as may later be reasonably assigned by the Chief Executive Officer,
and as are commensurate with the duties and responsibilities of Vice President
and General Manager of product lines
<PAGE>
of companies that are of comparable size and in comparable industries to the
Company. You will report to the Chief Executive Officer. You will devote all of
your business time, skill, attention and best efforts to the Company's business
and to discharge and fulfill the responsibilities assigned to you by the Company
during your employment. You shall not render services to any other person or
entity without the prior written consent of the Company, and you shall not
engage in any activity which conflicts or interferes with the performance of the
duties and responsibilities of the Position.
3. COMPENSATION AND BENEFITS.
a. SALARY. During your employment you will receive a base salary of
$15,833.33 per month paid in accordance with the Company's normal payroll
practice. The Company will make such deductions, withholdings and other payments
from sums payable pursuant to this Agreement which are required by law for taxes
and other charges, or which you request pursuant to payroll deductions chosen by
you. In the event of your death, the Company will make all salary payments which
are accrued and not yet paid as of the date of your death to your legal
representative. All dollar amounts stated in this and all other Sections of this
Agreement refer to United States currency.
b. BONUS. At the end of the fiscal year, you will be eligible to
receive a bonus of up to 30% of annual salary contingent on the Company
achieving specified profit targets. Additional bonuses may be established by the
Chief Executive Officer.
c. BENEFITS. You will be entitled to participate in or receive such
benefits under the Company's employee benefit plans and policies and such other
benefits which may be made available as in effect from time to time and as are
provided to officers of the Company. The Company may change, amend, modify or
completely eliminate any benefit plan from time to time.
d. BUSINESS EXPENSES. You will be entitled to reimbursement for
necessary and reasonable business expenses incurred by you in your employment
with the Company in accordance with accounting procedures as the Company shall
adopt from time to time.
e. VACATION/HOLIDAYS. During your employment under this Agreement you
will be entitled to four weeks paid vacation, accrued in accordance with Company
policies, and Company holidays in accordance with the Company's holiday
policies, as they may be amended from time to time.
f. RECEIPT OF DOCUMENTATION. You acknowledge that you have received
from the Company copies of the Company's benefits plans. You understand and
agree that the Company has reserved the right and option, in its sole
discretion, to change,
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<PAGE>
interpret or modify these and all other plans or policies at any time in
accordance with the terms of the respective plans or policies.
4. RESTRICTIONS AND CONDITIONS.
As an express condition of this Agreement and your continued employment
with the Company, you agree to comply with the agreements and other conditions
in this Section.
a. AGREEMENT NOT TO DISCLOSE CONFIDENTIAL INFORMATION. While employed
by the Company and thereafter, you shall not, directly or indirectly, use any
Confidential Information (as hereinafter defined) other than pursuant to your
employment by and for the benefit of the Company, or disclose to anyone outside
of the Company any such Confidential Information. The term "Confidential
Information" as used throughout this Agreement shall mean all trade secrets,
proprietary information, inventions and developments, including customer lists,
business plans, and all other data or information (and any tangible evidence,
record or representation thereof), whether prepared, conceived or developed by
an employee of the Company (including you) or received by the Company from an
outside source, which is in the possession of the Company and which is
maintained in confidence by the Company or which might permit the Company or its
clients or customers (hereinafter collectively referred to as "Clients") to
obtain a competitive advantage over competitors who do not have access to such
trade secrets, proprietary information, or other data or information. This
provision does not apply to any Confidential Information that the Company has
voluntarily disclosed to the public or that has otherwise legally entered the
public domain. You understand that the Company from time to time has in its
possession information which is claimed by others to be proprietary and which
the Company has agreed to keep confidential. You agree that all such information
shall be Confidential Information for purposes of this Agreement.
b. ASSIGNMENT OF DEVELOPMENTS. You agree that all Confidential
Information and all other discoveries, inventions, ideas, designs, concepts,
processes, methods and improvements or parts thereof, conceived or otherwise
made by you during the period of your employment by the Company, alone or
jointly with others and in any way relating to the Company's present or proposed
products or services or to tasks assigned to you during the course of your
employment, whether or not made during your regular working hours or on the
Company's premises (hereinafter collectively referred to as "Developments"),
together with all products or services which embody such Developments, shall be
the sole property of the Company. You agree to, and hereby do, assign to the
Company all your right, title and interest throughout the world in and to all
Developments and to anything tangible which evidences or constitutes any such
Development. You agree that all such Developments shall constitute works made
for hire under the copyright laws of the United States and hereby assign and, to
the extent any such assignment cannot be made at present, you hereby agree to
assign to the
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<PAGE>
Company all copyrights, patents, reproductions and other proprietary rights you
may have in any such Development, together with the right to file for and/or own
wholly without restriction United States and foreign patents, trademarks, and
copyrights with respect thereto.
c. EXCEPTIONS TO THIS AGREEMENT. You hereby certify that you have
informed the Company in writing of any and all continuing obligations which you
have to any previous employer and all Confidential Information or Developments
which you claim as your own or otherwise intend to exclude from this Agreement.
d. EMPLOYEE'S OBLIGATION TO COOPERATE. You will, at any time during
your employment, on request of the Company, execute all documents and perform
all lawful acts which the Company considers necessary or advisable to secure its
rights hereunder and to carry out the intent of this Agreement.
e. RETURN OF PROPERTY. At any time on request of the Company, you
shall return promptly all documents and other property belonging to the Company
or its Clients or business partners.
f. RESTRICTIONS ON CERTAIN POST-EMPLOYMENT ACTIVITIES.
(1) As long as you are employed by the Company and for a period
of one year after the termination of your employment for any reason (except in
conjunction with a general solicitation for employees), you shall not solicit,
or induce to resign any employee of the Company (or anyone who was an employee
of the Company during the period beginning six months prior to your termination
of employment with the Company), or assist in such hiring by any other person or
business entity or encourage any such employee to terminate his or her
employment with the Company.
(2) As long as you are employed by the Company, and for a
period of one year following termination of your employment, you shall not
either directly or indirectly (a) solicit, divert or attempt to divert from the
Company to yourself or to any other person or business entity the business or
patronage of any of the Clients or business partners of the Company; or (b)
provide services, whether on your own behalf or as an owner, manager,
consultant, director, officer, partner or employee of any other person or
business entity, to any of the Clients of the Company; provided, however, that
clause (b) shall not prohibit you from accepting employment as a direct employee
of Clients or business partners. In the event that you breach any of the terms
of this Section, the prohibitions set forth in this Section will remain in
effect for one year from the discovery of such breach by an officer of the
Company.
g. NO OTHER AGREEMENT. You warrant that you are not subject to any
agreement or obligation with any other party which would or could in any way
conflict with your obligations under this Agreement. You agree to indemnify and
hold harmless
-4-
<PAGE>
the Company from any claims, actions or damages arising from or relating to a
breach or alleged breach of this subsection.
h. EQUITABLE REMEDIES; SURVIVAL. You and the Company agree that upon
a breach or violation of any provision of this Section 4, the Company, in
addition to all other remedies which might be available to it, shall be entitled
as a matter of right to equitable relief in any court of competent jurisdiction,
including the right to obtain injunctive relief or specific performance. You and
the Company agree that the remedies at law for any such breach or violation are
not fully adequate and that the injuries to the Company as a result of the
continuation of any breach or violation are incapable of full calculation in
monetary terms and, therefore, constitute irreparable harm. The provisions of
this Section 4 shall survive termination of this Agreement.
5. COMPENSATION AND BENEFITS UPON TERMINATION OF EMPLOYMENT.
Upon termination of your employment (such date of termination being
referred to as the "Termination Date"), regardless of when such termination
occurs, the Company will pay you the compensation and benefits as described in
this Section 5.
i. The Company will pay you on or about the Termination Date all
salary and vacation pay, if any, that has been earned or accrued
through the date of your termination from the Company and has not
yet been paid.
ii. You may be entitled to continuation of applicable life insurance,
accidental death and disability or other benefits for one (1)
year, provided that you make an appropriate conversion and comply
with the requirements of the applicable benefit plans.
iii. You will not be entitled to receive any other compensation or
benefits provided by, through or on behalf of the Company, under
this Agreement other than benefits that are vested as of the date
of termination and that are payable in accordance with the terms
of any applicable benefit plan.
iv. You acknowledge and agree that the compensation and benefits
provided above have been negotiated with the Company and shall be
deemed to fully satisfy any notice requirements which may be
required by any jurisdiction. This Section 5 constitutes your only
rights to compensation, benefits, damages, or other remedies
arising out of the termination of your employment.
v. The provisions of this Section 5 shall survive termination of this
Agreement.
-5-
<PAGE>
6. SEVERANCE BENEFITS.
a. In the event that the Company terminates your employment other
than for cause (as defined below), you shall be entitled to the following
severance benefits: (i) a payment, within thirty (30) days of such termination,
in the amount of six (6) months salary then in effect, less standard deductions
and withholdings, (ii) a payment, within thirty (30) days of such termination,
in the amount of the cash bonus most recently paid by the Company to you, less
standard deductions and withholdings, (iii) the acceleration of vesting with
respect to shares of Common Stock of the Company and options to purchase Common
Stock of the Company held by you at the time of such termination as if your
employment with the Company had continued uninterrupted for an additional twelve
(12) months, and (iv) the continuation for a period of one (1) year following
such termination of your right to participate in or enjoy benefits under any
benefit plan of the Company in which you are participating at the time of such
termination, so long as such benefit plan remains generally available to
similarly situated employees of the Company. You agree that nothing in this
Agreement obligates the Company to maintain any such benefit plans or prevents
the Company from modifying or eliminating the rights of all participants under
such benefit plans from time to time, in the sole discretion of the Board.
b. The Company's termination of your employment with the Company
shall be without "cause" if the Company terminates your employment with the
Company for any reason other than: (i) the substantial and continuing failure,
after notice thereof, to render services to the Company or any subsidiary of the
Company in accordance with the terms or requirements of your position and
duties; (ii) gross negligence, willful misconduct, dishonesty or breach of
fiduciary duty to the Company or any subsidiary of the Company; (iii) the
commission of an act of embezzlement or fraud; (iv) deliberate disregard of the
written rules or policies of the Company or any subsidiary of the Company which
results in direct or indirect loss, damage or injury to the Company or any
subsidiary of the Company; or (v) the unauthorized disclosure of any trade
secret or confidential information of the Company or any subsidiary of the
Company.
7. GENERAL.
a. EMPLOYMENT ELIGIBILITY. From time to time after your first day of
employment, you may be asked to provide proof of your identity as well as your
legal right to work in the United States. If for any reason you are unable to
provide proof of your identity as well as your legal right to work in the United
States, the Company may not be able to employ you in the Position and may
terminate your employment. If you are a citizen of a restricted country (as
identified by the U.S. Department of Commerce) you must receive a validated
license from the Office of Export Licensing. This license must be obtained
within a time limit established by the Company.
-6-
<PAGE>
b. GOVERNING LAW. The validity, interpretation, effect, and
enforcement of this Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to choice of law rules.
c. ENTIRE AGREEMENT. In making your decision whether or not to accept
this offer, you agree that you have not relied upon any promises or
representations made by the Company, other than those made in this letter. This
Agreement and the Non-Disclosure, Non-Competition, Non-Solicitation & Assignment
Agreement referred to herein or to be executed pursuant to the provisions herein
set forth the entire Agreement and understanding between you and the Company,
and supersede any other negotiations, agreements, understandings, oral
agreements, representations or past or future practices, whether written or
oral, with, by or of the Company.
Each Company plan or policy referred to herein directly or by implication
is incorporated herein only insofar as it does not contradict this Agreement. If
any inconsistencies between this Agreement and any such plan or policy or future
plan or policy exist, the most recent applicable plan document or official
policy shall control.
d. MODIFICATION. This Agreement may not be amended, modified, changed
or discharged in any respect except as agreed in writing and signed by you and
the Chief Executive Officer of the Company.
e. SEVERABILITY AND INTERPRETATION. In the event that any provision
or any portion of this Agreement is held invalid or unenforceable by a court of
competent jurisdiction, such provision or portion thereof shall be considered
separate and apart from the remainder of this Agreement and the other provisions
shall remain fully valid and enforceable. In the event that any provision is
held to be overly broad as written, such provision shall be deemed amended to
narrow its application to the extent necessary to make the provision enforceable
according to applicable law and enforced as amended.
f. NOTICES. All notices required by this Agreement shall be given in
writing either by personal delivery or by first class mail, return receipt
requested. Notices given to the Company shall be addressed to the Company at its
address set forth on the first page of this Agreement, or at such later address
where the Company's principal offices are located. Notice to you shall be to the
last known address as set forth in your personnel file. Notice given by personal
delivery shall be deemed given when delivered. Notice given by mail shall be
deemed given five (5) days following the date of mailing.
g. MISCELLANEOUS. The rights of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the present and future
subsidiaries of the Company, any and all subsidiaries of a subsidiary, and
successors and assigns of the Company. No assignment of this Agreement by the
Company will relieve the Company of its obligations hereunder. You shall not
assign any of your rights and/or obligations
-7-
<PAGE>
under this Agreement and any such attempted assignment will be void. This
Agreement shall be binding upon your heirs, executors, administrators or other
legal representatives and their legal assigns.
h. WAIVER. A waiver by either party of any of the terms or conditions
of this Agreement in any instance shall not be deemed or construed to be a
waiver of such term or condition for the future, or of any subsequent breach
thereof. All remedies, rights, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party.
i. SURVIVAL. The provisions of this Section 6 shall survive
termination of this Agreement.
If you agree with the foregoing, please sign below and return the
original to me. You may keep the enclosed copy for your records.
Sincerely,
Breakaway Solutions, Inc.
By:/S/ GORDON BROOKS
-------------------------------
Gordon Brooks, President
Agreed to this 22nd day of March, 1999
Employee: /S/ DEV ITTYCHERIA
-----------------------------
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<PAGE>
EXHIBIT 10.10
BREAKAWAY SOLUTIONS, INC.
February 17, 1999
Mr. Christopher Harding
901 Stonington Road
Shavertown, PA 18708
Dear Christopher:
BreakAway Solutions, Inc. (the "Company") is pleased to offer you the
position of Senior Vice President - Sales and Field Marketing of the Company
(the "Position") subject to the terms and conditions set forth in this letter
agreement ("Agreement"). In consideration of the mutual agreements set forth
below, you and the Company agree to the following:
1. EFFECTIVE DATE; TERM; EFFECT OF TERMINATION OF THIS AGREEMENT,
(a) EFFECTIVE DATE. This Agreement shall be effective upon the
Company's receipt of a copy of this Agreement originally executed by you
(such date being referred to as the "Effective Date") until March 1, 2001
(the "Employment Period") unless sooner terminated by you or the Company in
accordance with this Agreement. This Agreement shall automatically renew for
a successive two year term expiring March 1, 2003. unless wither party
provides written notice of noon-renewal to the other party on or prior to
February 1, 2001. In connection with your execution of this Agreement, you
agree that, upon request of the Company, you shall provide proof of your
legal right to work in the United States as required by the U.S. Immigration
and Naturalization Service. If you are not a U.S. citizen or U.S. permanent
resident, you will be required either to sign an assurance regarding
obligations not to export technical data or software to certain countries, or
to comply with the requirements of subsection 6(a) below to the extent
applicable to you.
(b) EFFECT OF TERMINATION OF THIS AGREEMENT. Termination of your
employment with the Company shall terminate this Agreement. Following
termination of this Agreement, this Agreement shall become null and void and
no party hereto (or any of their respective directors, officers or
employees) shall have any liability or further obligation to any other party
under this Agreement, except as provided in this Section 1(b) and Sections
3, 4, 5 or 6 of this Agreement, or as provided in the Option Agreement
referenced in Section 3. Nothing contained in this Section 1 shall relieve any
party from liability for any breach of this Agreement occurring prior to any
termination.
Page 1 of 14
<PAGE>
2. POSITION, DUTIES AND DURATION OF ASSIGNMENT. You will serve in the
Position with such duties and responsibilities that exist as of the Effective
Date, and/or as may later be reasonably assigned by the President of the
Company, provided the duties are commensurate with the duties and
responsibilities of Senior Vice President-Sales and Field Marketing of
companies that are of comparable size and in comparable industries to the
Company. You will report directly to the President. You will devote all of
your business time, skill, attention and best efforts to the Company's
business and to discharge and fulfill the responsibilities assigned to you by
the COmpany during your employment. You shall not render services to any
other person or entity without the prior written consent of the Company, and
you shall not engage in any activity which conflicts or interferes with the
performance of the duties and responsibilities of the Position.
3. COMPENSATION AND BENEFITS
(a) SALARY. During your employment and commencing with your first day
of work for the Company (which we agree shall be on or before March 1, 1999;
the "Start Date"), you will receive a base salary of $9,1667.67 per pay
period (which is equivalent to an annual base salary of $220,000 paid out
over 24 pay periods per year) ("Base Salary"), in accordance with the
semi-monthly payment schedule now being employed by the COmpany. During the
Employment Period, the Base Salary shall be reviewed at least annually by the
Company' Board of Directors after consultation with you and may from time to
time be increased as determined by the Board of Directors. Effective as of
the date of any such increase, the Base Salary as so increased shall be
considered the new Base Salary for all purposes of this Agreement and may not
thereafter be reduced. Any increase in Base Salary shall not limit or reduce
any other obligation of the Company to you under this Agreement. The Company
will make such deductions, withholdings, and other payments from sums payable
pursuant to this Agreement which are required by law for taxes and other
charges, or which you request pursuant to payroll deductions chose by you. In
the even of your death, the Company will make all salary payments which are
accrued and not yet paid as of the date of your death to your legal
representative. All dollar amounts stated in this and all other Sections of
this Agreement refer to United States currency.
(b) BONUSES. You will receive a bonus of $50,000 payable on the Start
Date (the "Starting Bonus"). In addition, at the end of the first year of
your employment, you will be eligible to receive a target bonus of 30% of
your base salary based on Company profitability, as determined in accordance
with the COmpany's Profit Sharing Plan.
(c) STOCK OPTION. Subject to approval by the Board of Directors, you
will be granted, as of your Start Date, an incentive stock option under the
COmpany's 1998 Stock Option Plan (the "Stock Option Plan") to purchase up to
757,813 shares of the Company's common stock, $.0001 par value per share (the
"Common Stock") (or such greater amount, if any, which shall be equal to four
percent (4%) of the common stock of the Company outstanding on the Start
Date), at an exercise price equal to the then current
Page 2 of 14
<PAGE>
fair market value per share of the Common Stock as determined by the Board of
Directors, pursuant to a separate stock option agreement substantially in the
form attached hereto as Exhibit A, with such changes as you and the Company
mutually agree upon (provided, however, that to the extent any provision of
such exhibit is inconsistent with an express provision contained in this
Agreement, this Agreement shall prevail and the form of option agreement
shall be appropriately revised). Notwithstanding the foregoing, if applicable
tax laws or regulations limit the number of options which may be granted as
incentive stock options, then the balance of such options shall be granted as
"non-qualified stock options" and the company shall issue to you one or more
separate non-qualified stock option agreements substantially in the form
attached hereto as Exhibit B with respect to such options, with such changes
as you and the company mutually agree upon (provided, however, that to the
extent any provision of such exhibit is inconsistent with a express provision
contained in this Agreement, this Agreement shall prevail and the form of
option agreement shall be appropriately revised). Although the company and you
intend that the stock options described above be in lieu of normal or other
option grants through the end of March, 2001, the Board of Directors may at
any time in its discretion consider you for possible future annual or other
grants of options and commencing April, 2001, shall at least once during each
year consider you for a grant of additional options.
(ii) the stock option agreement shall provide that, subject to
Section 5(b) below, (A) 378,907 shares will be vested on the Start Date, (B)
the remaining shares will vest in 36 equal monthly installments commencing on
the first anniversary of the Start Date, over a period of three years after
such first anniversary date, and (C) all unvested shares shall immediately
become vested in full upon the occurrence of a Triggering Event (as defined
below).
"Triggering Event" means immediately prior to the occurrence
of any of the following events: (a) a public offering by the Company of
shares of its common stock, (b) a sale of all or substantially all of the
Company's assets or all or substantially all of the shares of its capital
stock, (c) a consolidation or merger of the Company in which a majority of
outstanding shares of the Company's capital stock are exchanged for
securities, cash or other property of any other corporation or business
entity, (d) a consolidation or merger involving the Company as a result of
which the the stockholders of the Company immediately prior to such event do
not own immediately following the occurrence of such event, at least a
majority of the common stock and voting power of the entity resulting from
such consolidation or surviving such merger, or (e) the liquidation or
dissolution of the Company. In addition, if the Company or stockholders of
the Company enter into an agreement with respect to an event described in (b)
thorough (e) of the preceding sentence, then upon the consummation of such
event a Triggering Event shall be deemed to have occurred upon the date of
such agreement.
(iii) The stock option agreement shall also contain a right of first
refusal and a repurchase obligation in favor of the company upon termination
of your employment. Upon termination of your employment. Upon termination of
your employment, the Company shall repurchase all your Company stock and
vested options at the fair market value as of the date of
Page 3 of 14
<PAGE>
termination. If the Company stock is not then publicly traded on a recognized
stock exchange, the fair market value shall be determined in good faith by
the Company's Board of Directors, and the Company shall notify you in writing
of such valuation. If you dispute the fair market value so determined, you
shall notify the Company in writing within 5 days after the Company's notice.
You and the Company agree in good faith to choose, within 10 days after your
notice, a mutually acceptable appraiser to determine the fair market value.
If you and the Company cannot agree on such appraiser, the appraiser shall be
appointed by the American Arbitration Association in Boston and shall have
expertise in valuing technology companies. Within 30 days after the
appointment, the appraiser shall determine the fair market value of the stock
and deliver a written report to the parties as to such appraisal. The
appraiser's determination of fair market value of the stock shall be final
and binding upon all parties. The costs of the appraiser shall be borne
equally by you and the Company. The consideration paid by the Company for
the exercise of its right of first refusal or its repurchase upon termination
of your employment may include an interest-bearing promissory note from the
Company having a term of no greater than five years.
(d) BENEFITS. You will be entitled to participate in or receive all
benefits under the Company's employee benefit plans and policies as in effect
from time to time and as are provided to senior management of the Company.
The Company may change, amend, modify or completely eliminate any benefit
plan from time to time.
(e) BUSINESS EXPENSES. You will be entitled to reimbursement for
necessary and reasonable business expenses incurred by you in your employment
with the Company in accordance with accounting procedures as the Company shall
adopt from time to time, including but not limited to business class or first
class air travel.
(f) RELOCATION EXPENSES. The Company will pay reasonable expenses
incurred by you in order to relocate from New Jersey/Pennsylvania to work for
the Company pursuant to the this Agreement, in an amount not to exceed
$50,000. The Company agrees to gross-up such relocation expenses to cover
taxes imposed upon you in respect of the non-qualified portion of such
expenses.
(g) VACATION/HOLIDAYS. During your employment under this Agreement you
will be entitled to no less than four weeks paid vacation, accrued in
accordance with Company policies applicable to senior management, and
Company holidays in accordance with the Company's holiday policies, as they
may be amended from time to time.
(h) RECEIPT OF DOCUMENTATION. You acknowledge that you have received
from the Company copies of the Stock Plan and the Company's benefit plans.
You understand and agree that the Company has reserved the right and option,
in its sole discretion, to change, interpret or modify these and all other
plans or policies at any time in accordance with the terms of the respective
plans or policies.
Page 4 of 14
<PAGE>
4. Restrictions and Conditions
As an express condition of this Agreement and your continued employment
with the Company, you agree to comply with the agreements and other
conditions in this Section.
(a) AGREEMENT NOT TO DISCLOSE CONFIDENTIAL INFORMATION. While employed
by the Company and thereafter, you shall not, directly or indirectly, use any
Confidential Information (as hereinafter defined) other than pursuant to your
employment by and for the benefit of the Company, or disclose to anyone
outside of the Company any such Confidential Information, without (i) the
prior written consent of the Company or (ii) as may be otherwise required by
law or legal process, provided however that before making any such disclosure
pursuant to clause (ii) you first give written notice of the intended
disclosure to the Company within a reasonable time prior to the time when
disclosure is to be made, and exercise best efforts, in cooperation with the
Company, to obtain confidential treatment for such Confidential Information.
The term "Confidential Information" as used throughout this Agreement shall
mean all trade secrets, proprietary information, inventions and developments,
including customer lists, business plans, and all other data or information
(and any tangible evidence, record or representation thereof), whether
prepared, conceived or developed by an employee of the Company (including
you) or received by the Company from an outside source, which is in the
possession of the Company and which is maintained in confidence by the
Company or which might permit the Company or its clients or customers
(hereinafter collectively referred to as ""Clients'') to obtain a competitive
advantage over competitors who do not have access to such trade secrets,
proprietary information, or other data or information. This provision does
not apply to any Confidential Information that the Company has voluntarily
disclosed to the public or that has otherwise legally entered the public
domain. You understand that the Company from time to time has in its
possession information which is claimed by others to be proprietary and which
the Company has agreed to keep confidential. You agree that all such
information shall be Confidential Information for purposes of this Agreement.
(b) ASSIGNMENT OF DEVELOPMENTS. You agree that all Confidential
Information and all other discoveries, inventions, ideas, designs, concepts,
processes, methods and improvements or parts thereof, conceived or otherwise
made by you during the period of your employment by the Company, alone or
jointly with others and in any way relating to the Company's present or
proposed products or services or to tasks assigned to you during the course
of your employment, whether or not made during your regular working hours or
on the Company's premises (hereinafter collectively referred to as
"Developments"), together with all products or services which embody such
Developments, shall be the sole property of the Company. You agree to, and
hereby do, assign to the Company all your right, title and interest
throughout the world in and to all Developments and to anything tangible
which evidences or constitutes any such Development. You agree that all such
Developments shall constitute works made for hire under the copyright laws of
the United States and hereby assign and, to the extent any such assignment
cannot be made at present, you hereby agree to assign to the Company all
Page 5 of 14
<PAGE>
copyrights, patents, reproductions and other proprietary rights you may have
in any such Development, together with the right to file for and/or own
wholly without restriction United States and foreign patents, trademarks, and
copyrights with respect thereto.
(c) EXCEPTIONS TO THIS AGREEMENT. You hereby certify that you have
informed the Company in writing of any and all continuing obligations which
you have to any previous employer and all Confidential Information or
Developments which you claim as your own or otherwise intend to exclude from
this Agreement.
(d) EMPLOYEE'S OBLIGATION TO COOPERATE. You will, at any time during
your employment, or after it terminates, on request of the Company, execute
all reasonable documents and perform all lawful and reasonable acts which the
Company considers necessary or advisable to secure its rights under this
section of this Agreement and to carry out the intent of this section of the
Agreement.
(e) RETURN OF PROPERTY. At any time on written request of the
Company, you shall return promptly all documents and other property belonging
to the Company or its Clients or business partners.
(f) RESTRICTIONS ON CERTAIN POST-EMPLOYMENT ACTIVITIES.
(i) As long as you are employed by the Company and for a period
of one year after the termination of your employment for any reason, you
shall not solicit, or induce to resign any employee of the Company (or anyone
who was an employee of the Company during the period beginning six months
prior to your termination of employment with the Company), or assist in such
hiring by any person or business entity or encourage any such employee to
terminate his or her employment with the Company.
(ii) As long as you are employed by the Company and for a period
of one year following termination of your employment, you shall not either
directly or indirectly (a) solicit, divert, or attempt to divert from the
Company to yourself or to any other person or business entity the business or
patronage of any Clients, prospective clients or business partners of the
Company; or (b) provide services, whether on your own behalf or as an owner,
manager, consultant, director, officer, partner or employee of any other
person or business entity, to any of the Clients or prospective clients of
the Company contacted by the Company or you; provided, however, that clause
(b) shall not prohibit you from accepting employment as a direct employee
of Clients or business partners. You agree to inform the Company of any
activities that violate or may violate the terms of this Section. In the
event that you breach any of the terms of this Section, the prohibitions
set forth in this Section will remain in effect for one year from the
discovery of such a breach by an officer of the Company.
(g) NO OTHER AGREEMENT. You warrant that you are not subject to any
agreement or obligation with any other party which would or could in any way
conflict with your obligations under this Agreement, except any agreement or
obligation that may
Page 6 of 14
<PAGE>
exist with Cambridge Technology Partners, Inc. You warrant that, to the best
of your knowledge, you have provided the Company with accurate and complete
copies of all such agreements and written summaries of all such unwritten
obligations with Cambridge Technology Partners, inc. You agree to indemnify
and hold harmless the Company from any claims, actions or damages arising from
or relating to breach of this subsection.
(h) EQUITABLE REMEDIES; SURVIVAL You and the Company agree that upon
a breach or violation of any provision of this Section 4, the Company, in
addition to all other remedies which might be available to it, shall be
entitled as a matter of right to equitable relief in any court of
competent jurisdiction, including the right to obtain injunctive relief or
specific performance. You and the Company agree that the remedies at law for
any such breach or violation are not fully adequate and that the injuries to
the Company as a result of the continuation of any breach or violation are
incapable of full calculation in monetary terms and, therefore, constitute
irreparable harm. The provisions of this Section 4 shall survive termination
of this Agreement.
5. COMPENSATION AND BENEFITS UPON TERMINATION OF EMPLOYMENT.
Upon termination of your employment (such date of termination being
referred to as the "Termination Date"), the Company will pay you the
compensation and benefits as described in this Section 5.
(a) The Company will pay you on or about the Termination Date all
salary and vacation pay, if any, that has been earned or accrued through the
date of your termination from the Company and has not yet been paid.
(b) If your employment terminates at any time after the Start Date (i)
by the Company other than for "cause" as defined below, or (ii) by your for
"good reason":
then following your Termination Date, in addition to the consideration
described in Section 5(a):
(A) subject to subsection (B) below, the Company will continue to
pay your Base Salary at the times and in the amounts set forth in
Section 3(a) until the first anniversary of the Termination Date.
(B) Notwithstanding the foregoing subsection (A),if your employment
terminates in connection with any prohibition by a court of law on
your providing services to the Company (a "Prohibition"), (I) the
Company will continue to pay you your Base Salary at the times and
in the amounts set forth in Section 3(a) only until the earliest to
occur of: (aa) the first anniversary of the effective date of the
Prohibition or (bb) such time as you have commenced employment
with another employer at a base salary at least equal to the Base
Salary; PROVIDED, that if you are employed by
Page 7 of 14
<PAGE>
another employer at a base salary less than the Base Salary, the
amount so payable by the Company under clause (aa) shall be reduced
by the amount of base salary earned at the new employment position
and (II) if such Prohibition occurs (aa) during the 180 day period
commencing on the Start Date, all sock options referred to in
Section 3(c) shall immediately and automatically terminate, the
Company shall refund to you the exercise price, if any, previously
paid by you upon exercise of such option and the shares issued upon
such exercise shall be automatically cancelled, or (bb) during the
period commencing on the 181st day after the Start Date and ending
on the 365th day after the Start Date, the stock option referred to
in Section 3(c) shall immediately and automatically terminate as to
such number of shares equal to the product of (x) the difference
between 365 and the actual number of days that have elapsed from the
Start Date until the Termination Date, multiplied by (y) a fraction,
the numerator of which is 378,907 and the denominator of which is
365, the Company shall refund to you the exercise price, if any,
previously paid by you upon exercise of such option and the shares
issued upon such exercise shall be automatically cancelled.
Termination for "good reason" shall mean termination of employment by you
for any of the following reasons: (i) any material breach of this agreement
by the Company, including, without limitation, causing or requiring you to
report to anyone other than the President of the Company or the Board of
Directors, (ii) the failure of a successor to the Company to assume and agree
to be bound by this Agreement, or (iii) requiring you to be principally based
at any location more than 50 miles from the current offices of the Company in
boston, Massachusetts, or (iv) termination by you for any reason or no reason
during the 30 day period commencing nine months after a Triggering
Event described in subsection (b), (c) or (d) of the definition of "Triggering
Event" contained in Section 3(c)(ii).
(c) If the Company terminates your employment for "cause" or you
terminate your employment other than for "good reason";
(i) within the thirty (30) day period after your Start Date, you
agree to reimburse the Company on your Termination Date in an amount equal to
the product of (A) the difference between 30 and the actual number of days
that have elapsed from the Start Date until the Termination Date, multiplied,
by, (B) a fraction, the numerator of which is the aggregate amount of the
Starting Bonus paid by the Company and the denominator of which is 30; or
(ii) prior to March 1, 2000, you agree to reimburse the Company on
your Termination Date for a portion of such expenses in an amount equal to
the product of (A) the difference between 365 and the actual number of days
that have elapsed from the Start Date until the Termination Date, multiplied
by (B) a fraction, the numerator of which is
Page 8 of 14
<PAGE>
the aggregate amount of relocation expenses paid by the Company, and the
denominator of which is 365.
(d) You may be entitled to continuation of applicable life insurance,
accidental death and disability or other benefits provided that you make an
appropriate conversion and comply with the requirements of the applicable
benefit plans.
(e) You will not be entitled to receive any other compensation or
benefits provided by, through or on behalf of the Company, other than
benefits that are vested as of the date of termination and that are payable
in accordance with the terms of any applicable benefit plan.
(f) For purposes of this Section 5, "cause" shall mean that you are
terminated for one or more of the following reasons:
(i) your substantial, material and continuing failure, after
written notice thereof, to render services to the Company in accordance with
the terms of this Agreement, which shall materially and adversely affect the
Company;
(ii) your gross negligence, willful misconduct, dishonesty or
breach of fiduciary duty to the Company; or
(iii) your commission of any act of embezzlement or fraud; or
(iv) your deliberate disregard of material rules or material
policies of the Company which results in direct or indirect loss, damage or
injury to the Company; or
(v) your willful or intentional material breach or violation of
this Agreement, including without limitation your unauthorized disclosure of
any Confidential Information of the Company; or
(vi) your willful or intentional material breach or violation of
this Agreement, including without limitation your unauthorized disclosure of
any Confidential Information of the Company; or
(vii) you have been convicted of a felony, or
(g) "cause" shall not include any act or omission of which the
President or any member of the Board of Directors has had actual knowledge
for at least 6 months.
(h) You acknowledge and agree that (i) the Company shall be under no
obligation to provide any compensation or benefits under this Section 5
unless and until
Page 9 of 14
<PAGE>
your payment obligations to the Company pursuant to Section 5(c) have been
satisfied in full, and (ii) the Company, in its sole discretion, may offset
your payment obligations under Section 5(c) against its payment obligations
under this Section 5. You further acknowledge and agree that the compensation
and benefits provided above have been negotiated with the Company and shall
be deemed to fully satisfy any notice requirements which may be required by
an jurisdiction. This Section 5 constitutes your only rights to compensation,
benefits, damages, or other remedies arising out of the termination of your
employment.
(i) The provisions of this Section 5 shall survive termination of this
Agreement.
6. GENERAL.
(a) EMPLOYMENT ELIGIBILITY. From time to time after your first day of
employment, you may be asked to provide proof of your identity as well as
your legal right to work in the United States. If for any reason you are
unable to provide proof of your identity as well as your legal right to work
in the United States, the Company may not be able to employ you in the
Position and may terminate your employment. If you are a citizen of a
restricted country (as identified by the U.S. Department of Commerce) you
must receive a validated license from the Office of Export Licensing. This
license must be obtained within a time limit established by the Company.
(b) GOVERNING LAW. The validity, interpretation, effect, and enforcement
of this Agreement shall be governed by the internal laws of the Commonwealth
of Massachusetts, without regard to choice of law rules.
(c) ENTIRE AGREEMENT. In making your decision whether or not to accept
this offer, you agree that you have not relied upon any promises or
representations made by the Company, other than those made in this letter.
This Agreement and the agreements referred to herein or to be executed
pursuant to the provisions herein set forth the entire Agreement and
understanding between you and the Company, and supersede any other
negotiations, agreements, understandings, oral agreements, representations
or past or future practices, whether written or oral, with, by or of the
Company.
Each Company plan or policy referred to herein directly or by implication
is incorporated herein only insofar as it does not contradict this Agreement.
If any inconsistencies between this Agreement and any such plan or policy or
future plan or policy exist, the most recent applicable plan document or
official policy shall control.
(d) MODIFICATION. This Agreement may not be amended, modified, changed or
discharged in any respect except as agreed in writing and signed by you and
the Present of the Company.
Page 10 of 14
<PAGE>
(e) SEVERABILITY AND INTERPRETATION. In the event that any provision or
any portion of this Agreement is held invalid or unenforceable by a court of
competent jurisdiction, such provision or portion thereof shall be considered
separate and apart from the remainder of this Agreement and the other
provisions shall remain fully valid and enforceable. In the event that any
provision is held to be overly broad as written, such provision shall be
deemed amended to narrow its application to the extent necessary to make the
provision enforceable according to applicable law and enforced as amended.
(f) NOTICES. All notices required by this Agreement shall be given in
writing either by personal delivery or by first class mail, return receipt
requested. Notices given to the Company shall be addressed to the Company at
its address set forth on the first page of this Agreement, or at such later
address when the Company's principal offices are located. Notice to you shall
be to the last known address as set forth in your personnel file. Notice
given by personal delivery shall be deemed given when delivered. Notice given
by mail shall be deemed given five (5) days following the date of mailing. A
copy of all notices to you shall be delivered to Joseph D. McGlinchey, II,
Esq., The Pilot House, Lewis Whart, Boston, MA 02110.
(g) MISCELLANEOUS. The rights of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the present and
future subsidiaries of the Company, any and all subsidiaries of a subsidiary,
and successors and assigns of the Company. No assignment of this Agreement by
the Company will relieve the Company of its obligations hereunder. You shall
not assign any of your rights and/or obligations under this Agreement and any
such attempted assignment will be void. This Agreement shall be binding upon
your heirs, executors, administrators or other legal representatives and
their legal assigns.
(h) WAIVER. A waiver by either party of any of the terms or conditions
of this Agreement in any instance shall not be deemed or construed to be a
waiver of such term or condition for the future, or of any subsequent breach
thereof. All remedies, rights, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement
of either party.
(i) SURVIVAL. The provision of this Section 6 shall survive
termination of this Agreement.
(j) DIRECTORS AND OFFICERS LIABILITY INSURANCE. During the term of
this Agreement, the Company agrees to maintain Directors and Officers
Liability Insurance in amounts and with scope(s) of coverage deemed
reasonable and appropriate by the Board of Directors.
Page 11 of 14
<PAGE>
If you agree with the foregoing, please sign below and return the
original to me. You may keep the enclosed copy for your records.
Sincerely,
BreakAway Solutions, Inc.
--------------------------
Gordon Brooks, President
Agreed to this ---- day of ------, 1999
Employee: ---------------------------
Christopher Harding
Page 12 of 14
<PAGE>
EXHIBIT A
[See standard incentive stock option agreement form attached]
Page 13 of 14
<PAGE>
EXHIBIT B
[See standard non-qualified stock option agreement form attached]
Page 14 of 14
<PAGE>
EXHIBIT 10.11
March 2, 1999
Mr. Wayne Saunders
40 Birchmont Street
Tingsboro, MA 01879
Dear Wayne:
Breakaway Solutions Inc. (the "Company") is pleased to offer to employ
you, effective March 29, 1999 as the Vice President of the CMS Service Line. You
will undertake the duties and responsibilities inherent in the position and such
other duties and responsibilities as the Company's Board of Directors or its
designee shall from time to time reasonably assign to you. In addition, you
agree to devote your entire business time, attention and energies to the
business and interests of the Company during your employment.
You are to abide by the rules, regulations, instructions, personnel
practices and policies of the Company (as amended from time to time in the
Company's sole discretion).
Your salary for this position will be paid at the rate of $8,750.00 per
pay period (which is equivalent to an annual base salary of $210,000 paid out
over 24 pay periods per year), in accordance with the semi-monthly payment
schedule now being employed by the Company.
In addition, you will participate in the Breakaway Profit Sharing Plan
on the same basis as other executives at your level. The company has put a plan
into effect that would make you and all other such executives eligible for an
annual bonus of 30% of annual salary at the specified profit target. The actual
bonus dollar amounts will thus be tied to the Company's performance.
It has been recommended to the Company's Board of Directors that you be
granted incentive stock options and non-qualified stock options to acquire
220,000 shares of the Company's common stock. The stock options will be granted
at the fair market value determined by the Board of Directors on the date of the
grant and will be subject to a four year vesting schedule, with 25% vesting
after 12 months from the date of grant. The remaining shares will vest on a
monthly over 3 years commencing one year from the date of grant. The specific
provisions of this grant, including vesting, exercise and rights upon the
termination of your employment will be governed by the terms of the Company's
1998 Stock Plan.
Upon fulfillment of the necessary eligibility requirements, you will be
eligible to participate in the employee benefit programs that the Company offers
to its employees.
<PAGE>
A summary of the Company's benefit plans is included with this letter. Full
descriptions of the benefit plans currently being offered are available in our
Human Resources Department. These plans may, from time to time, be amended or
terminated by the Company in its sole discretion with or without prior notice.
In addition, the Company will provide to your parking adjacent to the
Company's office where you work at, at the Company's expense. You will be
reimbursed in accordance with standard company policy for expenses incurred in
the performance of your work, including without limitation portable phone
charges, gas mileage incurred on company business, and travel and subsistence on
business trips.
Attached for your review, as Attachment A, is the Breakaway Solutions,
Inc. Non-Disclosur, Non-Competition, Non-Solicitation and Assignment Agreement
(the "Non-Compete Agreement"). This offer of employment is conditioned on your
signing that agreement and your continuing to abide thereafter by its terms. In
making this offer, you have expressly represented and warranted to the Company,
and the Company understands, that your are not under any obligation to any
former employer or any person, firm, or corporation which would prevent, limit,
or impair in any way the performance by you of your duites as an amployee of the
Company.
The Immigration Reform and Control Act requires employers to verify the
employment eligibility and identity of new employees. Enclosed is a copy of the
Form I-9 that you will be required to complete. Please bring the appropriate
documents listed on that form with you when you report for work. We will not be
able to employ you if you fail to comply with this requirement.
The Company reserves the right to review the compensation (including
salary and bonus) and benefits it offers to you and to adjust them from time to
time in its sole discretion. It is understood that you are not being offered
employment for a definite period of time and that either you or the Company may
terminate the employment relationship at any time. Nothing in the Company's
offer to you of compensation (including salary or bonus), stock options or
benefits should be interpreted as creating anything other than an at-will
employment relationship. This agreement and the Noncompete Agreement are
executed as instruments "under seal" under Massachusetts law and they and your
employment relationship with the Company are governed by the laws of the
Commonwealth of Massachusetts. You expressly consent to submit to jurisdiction
and venue in the Massachusetts state or federal courts, where any matters
arising related to your employment shall be litigated.
This letter and the Noncompete Agreement constitute the entire
agreement between you and the Company with respect to your employment. In the
event of any conflict between those documents and the rules, regulations,
instructions, personnel practices and policies of the Company (as amended from
time to time in the Company's sole discretion), this letter and the Noncompete
agreement shall control, and in the event of any conflict between the terms of
this letter and the Noncompete Agreement,
<PAGE>
the terms of this letter shall control.
Please indicate your acceptance of this offer by signing and dating the
enclosed copy of this letter and returning it in the enclosed envelope.
We look forward to your joining the Company and are pleased that you
will be working with us.
Very truly yours,
/s/ Gordon Brooks
- ------------------------------
Gordon Brooks
President and Chief Executive Offer
Agreed: /s/ Wayne Saunders March 8, 1999
--------------------- ---------------------
Wayne Saunders Date
<PAGE>
EXHIBIT 10.12
May 29, 1998
Mr. Kevin Comerford
Via Fax #501-312-2453
Dear Kevin,
I am pleased to offer you the position of Vice President of Finance &
Administration for The Counsell Group, Inc. (the "Company"). Should you
accept this offer, you will be paid a semi-monthly salary of $5,208.33 with
an anticipated start date of June 15, 1998. You shall also be entitled to
Company benefits which include paid vacation, group insurance, and other
fringe benefits to the extent such benefits are made available to employees.
As an addendum to your compensation plan you are eligible to participate in
an incentive plan which provides the opportunity to earn up to an additional
20% of base pay.
Upon the implementation by the Company of a stock option plan (to be approved
by the Board of Directors and the shareholders) the Company will grant to you
options to purchase 15,000 shares of the common stock of the Company, par
value $.0001 per share, at the fair market value as of the date of the grant.
The options will be subject to vesting under the conditions provided in the
stock option plan for a period of five years.
By accepting this offer, you agree to use your best efforts to promote the
Company's business and to devote your full time and efforts to the Company's
business. You acknowledge that you are being hired for an indefinite term and
that either you or the Company may terminate your employment relationship at
any time, with or without prior notice.
Please note that this offer of employment is contingent upon your ability to
provide, within three (3) business days after commencement of employment, the
completed 1-9 form, and acceptable original documents that will establish
your employment authorization and identity in compliance with the Immigration
and Control Act of 1986. Furthermore, you will be required to enter into a
Non-Compete, Non-Disclosure and Non-Solicitation agreement with the Company.
This offer shall remain open for five (5) days and is contingent upon the
Company's receipt of the enclosed document, signed by you. If you wish to
accept this offer of employment, please contact me at the number below.
I am looking forward to having your career grow along with the Company. If
you have any questions about this offer, or would like to discuss it further,
please give me a call.
Very truly yours, Accepted: Kevin Comerford
/s/ Frank Selldorff
Frank Selldorff /s/ Kevin Comerford
CEO & President -------------------
The Counsell Group, Inc.
<PAGE>
EXHIBIT 10.14
CONFIDENTIAL
SEPARATION AGREEMENT
This Separation Agreement ("Agreement"), dated as of April 28, 1999, is by
and between Frank Selldorff, an individual ("Selldorff"), and Breakaway
Solutions, Inc., a Delaware corporation ("Company").
WHEREAS, Selldorff has been affiliated with the Company as a member of the
Board of Directors of the Company and its Executive Vice President, and
WHEREAS, Selldorff's employment relationship with the Company is currently
governed by the terms of an employment agreement dated December 11, 1999 between
Selldorff and the Company (the "Employment Agreement"), and
WHEREAS, Selldorff and the Company desire to amend certain provisions of
the Employment Agreement, and
WHEREAS, Selldorff desires to resign from all his positions with the
Company on the terms set forth below.
NOW, THEREFORE, in consideration of the mutual promises made herein, the
Company and Selldorff (collectively referred to as "the Parties") hereby agree
as follows:
1. AMENDMENT OF EMPLOYMENT AGREEMENT; WAIVER OF SEVERANCE PAYMENT. In
consideration of the mutual releases granted herein and other good and valuable
consideration received, section 5(b) of the Employment Agreement is hereby
amended by striking the phrase "sixtieth (60th) day" which appears in the third
line thereof and inserting in lieu thereof the phrase "one hundred eightieth
(180th) day." Selldorff acknowledges and agrees that the foregoing amendment to
the Employment Agreement shall have the effect of Selldorff waiving the
Severance Payment (as defined in the Employment Agreement) to which he would
otherwise be entitled upon his voluntary termination of employment with the
Company. Selldorff shall return to the Company all physical Company property in
his possession, custody or control at a mutually agreed to date but shall make
an accounting of such property in writing within 14 days of his execution of
this Agreement.
2. RESIGNATION. Selldorff hereby resigns from his positions with the
Company as an officer and employee (but not as a director), effective as of the
execution of this Agreement. Selldorff acknowledges and agrees that his
resignation is his voluntary act for all purposes, including, without
limitation, for purposes of the Employment Agreement.
3. NON-SOLICITATION AND NON-COMPETITION. The Parties agree that,
notwithstanding any other provision of this Agreement or the Employment
<PAGE>
Agreement to the contrary, the provisions of Section 4 of the Employment
Agreement shall survive the execution of this Agreement and shall continue in
full force and effect. The Company agrees and acknowledges that Selldorff's
operation of The Orion Companies (and its affiliates) will not constitute a
breach of the provisions of section 4.
4. CONFIDENTIAL INFORMATION. Selldorff shall continue to maintain the
confidentiality of all confidential and proprietary information of the Company,
including, but not limited to, non-public information regarding the Company's
business, marketing strategies, personnel, and finances. Selldorff shall return
all Company property and confidential and proprietary information in his
possession to the Company by May 15, 1999. This Agreement shall be confidential
unless otherwise required by law.
5. RELEASE OF CLAIMS. Selldorff agrees that this Agreement represents
settlement in full of all outstanding obligations owed to Selldorff by Company.
Selldorff and the Company, on behalf of themselves, and their respective heirs,
executors, officer, directors, employees, agents, investors, shareholder,
administrators, predecessor and successor corporations, and assigns, hereby
fully and forever release each other and their respective heirs, executors,
officers, directors, employees, agents, investors, shareholders, administrators,
predecessor and successor corporations, and assigns, of and from any claim,
duty, obligation or cause of action relating to any matters of any kind, whether
presently known or unknown, suspected or unsuspected, that any of them may
possess arising from any omissions, acts or facts that have occurred including,
without limitation:
a. any and all claims relating to or arising from Selldorffs
positions, termination or resignation as provided above.
b. any and all claims relating to, or arising from, Selldorffs right
to purchase, or actual purchase of shares of stock of the Company, provided,
however, that any vested options to purchase Company Common Stock shall be
exercisable in accordance with their terms and, if not exercised by the dates
provided for therein, shall terminate thereafter and shall become null and void,
and this Agreement shall not in any way amend or modify any option agreements
between Selldorff and The Company.
c. any and all claims for wrongful discharge of employment; breach of
contract, both express and implied; breach of a covenant of good faith and fair
dealing, both express and implied; negligent or intentional infliction of
emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage; and
defamation;
-2-
<PAGE>
d. any and all claims for violation of any federal, state or municipal
statute, including, but not limited to, Title VII of the Civil Rights Act of
1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of
1967, the Americans with Disabilities Act of 1990, and M.G.L.C. 151B;
e. any and all claims arising out of any other laws and regulations
relating to employment or employment discrimination; and
f. any and all claims for attorneys' fees and costs.
The Company and Selldorff agree that the release set forth in this section shall
be and remain in effect in all respects as a complete general release as to the
matters released. This release does not extend to any obligations incurred under
this Agreement
6. CONFIDENTIALITY. The Parties hereto each agree to use its best efforts
to maintain in confidence the existence of this Agreement, the contents and
terms of this Agreement, and the consideration for this Agreement (hereinafter
collectively referred to as "Settlement Information"). Each party hereto agrees
to take every reasonable precaution to prevent disclosure of any Settlement
Information to third parties, and each agrees that there will be no publicity,
directly or indirectly, concerning any Settlement Information unless mutually
agreed to by both Parties or required to comply with governmental orders, laws
or regulations (including Proxy Statement, financial and similar information
requirements). The Parties hereto agree to take every precaution to disclose
Settlement Information only to those employees, officers, directors, attorneys,
accountants, governmental entities, and family members who have a reasonable
need to know of such Settlement Information.
7. NON-DISPARAGEMENT. Each party agrees to refrain from any disparagement,
criticism, defamation, slander of the other, or tortuous interference with the
contracts and relationships of the other.
8. INDEMNIFICATION. The Company shall indemnify Selldorff to the maximum
extent permitted under the Company's By-laws, the Delaware General Corporation
Law, directors' and officers' liability insurance and any indemnification
agreement between the Company and Selldorff. The provisions of this Section
shall inure to the benefit of Selldorff's estate, executor, administrator,
heirs, legatees or devisees. Nothing in this Agreement shall release the Company
from any such duty to indemnify Selldorff for any and all actions, decisions or
conduct by Selldorff in his role as a director of the Company.
9. TAX CONSEQUENCES. The Company makes no representations or warranties
with respect to the tax consequences of this Agreement. Selldorff agrees and
understands that he is responsible for payment, if any, of local, state and/or
-3-
<PAGE>
federal income taxes on any sums paid by the Company and any penalties or
assessments thereon. Selldorff further agrees to indemnify and hold the Company
harmless from any claims, demands, deficiencies, penalties, assessments,
executions, judgments, or recoveries by any government agency against the
Company for any amounts claimed due on account of Selldorff's failure to pay
federal or state income taxes or damages sustained by the Company by reason of
any such claims, including reasonable attorneys' fees.
10. COSTS. The Parties shall each bear their own costs, expert fees,
attorneys' fees and other fees incurred in connection with this Agreement.
11. AUTHORITY. The Company represents and warrants that it has the
authority to enter into this Agreement. Selldorff represents and warrants that
he has the capacity to act on his own behalf and on behalf of all who might
claim through him to bind them to the terms and conditions of this Agreement.
Each Party represents and warrants that there are no liens or claims of lien or
assignments in law or equity or otherwise on or against any of the claims or
causes of action released herein.
12. NO REPRESENTATIONS. Each party represents that it has had the
opportunity to consult with an attorney, and has carefully read and understands
the scope and effect of the provisions of this Agreement. Neither party has
relied upon any representations or statements made by the other party hereto
which are not specifically set forth in this Agreement.
13. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
14. ENTIRE AGREEMENT. This Agreement, the Employment Agreement (as amended
by this Agreement) and any option agreements between Selldorff and The Company
represent the entire agreement and understanding between the Company and
Selldorff concerning Selldorff's separation from the Company, and supersedes and
replaces any and all prior agreements and understandings concerning Selldorff's
relationship with the Company and his compensation by the Company.
15. NO ORAL MODIFICATION. This Agreement may only be amended in writing
signed by Selldorff and the Chairman of the Board of the Company.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts. The parties consent to jurisdiction of any
dispute arising under this Agreement or the matters referred to herein of the
courts located in Suffolk County, Massachusetts. This agreement is effective
when executed by both Parties.
-4-
<PAGE>
17. COUNTERPARTS. This Agreement may be executed in counterparts, and each
counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the pan of each of the
undersigned.
18. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed
voluntarily and without any duress or undue influence on the part of or on
behalf of the Parties hereto, with the full intent of releasing all claims. The
Parties acknowledge that:
a. They have read this Agreement;
b. They have been represented in the preparation, negotiation, and
execution of this Agreement by legal counsel of their own choice or that they
have voluntarily declined to seek such counsel;
c. They understand the terms and consequences of this Agreement and of
the releases it contains;
d. They are fully aware of the legal and binding effect of this
Agreement.
19. SUCCESSORS. This Agreement, and the respective rights and obligations
of the Parties hereunder, shall inure to the benefit of, and be binding upon,
their respective successors, assigns and legal representatives. This provision
with respect Selldorff's right of successorship shall, however, inure only to
the benefit of Selldorff's estate, executor, administrator, heirs, legatees or
devisees.
-5-
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.
BREAKAWAY SOLUTIONS, INC.,
a Delaware corporation
Dated: 5/13/99 By:/S/ GORDON BROOKS
----------------------- -------------------------------
Gordon Brooks
CEO
FRANK SELLDORFF, an individual
Dated: 5/13/99 By:/S/ FRANK SELLDORFF
----------------------- -------------------------------
-6-
<PAGE>
EXHIBIT 10.15
BREAKAWAY SOLUTIONS, INC.
May 14, 1999
William P. Loftus
216 Wynne Lane
Haverford, PA 19041
Dear Bill:
Breakaway Solutions, Inc. (the "Company") is pleased to offer you the
position of Vice President, Chief Technology Officer and General Manager of the
Company's Internet Solutions Service Line (the "Position") subject to the terms
and conditions set forth in this letter agreement ("Agreement"). In
consideration of the mutual agreements set forth below, you and the Company
agree to the following:
1. EFFECTIVE DATE; TERM; EFFECT OF TERMINATION OF THIS AGREEMENT.
(a) EFFECTIVE DATE. This Agreement shall be effective on the date set
forth above (such date being referred to as the "Effective Date") and shall
continue until your employment with the Company is terminated. In connection
with your execution of this Agreement you agree that upon request of the Company
you shall provide proof of your legal right to work in the United States as
required by the U.S. Immigration and Naturalization Service.
(b) EFFECT OF TERMINATION OF THIS AGREEMENT. Termination of your
employment with the Company shall terminate this Agreement. Following
termination of this Agreement, this Agreement shall become null and void and no
party hereto (or any of their respective directors, officers or employees) shall
have any liability or further obligation to any other party hereto under this
Agreement, except as provided in Sections 3, 4, 5, 6 and 7 of this Agreement,
each of which provisions shall survive termination of this Agreement. Nothing
contained in this Section 1 shall relieve any party from liability for any
breach of this Agreement occurring prior to any termination.
2. POSITION, DUTIES AND DURATION OF ASSIGNMENT. You will serve in the Position
with such duties and responsibilities as may be reasonably assigned by the Chief
Executive Officer and as are commensurate with the duties and responsibilities
of chief technology officers of companies that are of comparable size and in
comparable industries to the Company. You will report to the Chief Executive
Officer. You will devote all of your business time, skill, attention and best
efforts to the Company's business and to discharge
<PAGE>
and fulfill the responsibilities assigned to you by the Company during your
employment, it being understood that your devotion of a reasonable amount of
time to update the Java language text of which you are co-author shall be deemed
for purposes of this paragraph to be the Company's business. You shall not
render services to any other person or entity without the prior written consent
of the Company, and you shall not engage in any activity which conflicts or
interferes with the performance of the duties and responsibilities of the
Position. You acknowledge that your employment with the Company is "at will" and
is subject to termination by either the Company or you at any time, with or
without cause. You will perform the duties and responsibilities of the Position
principally from Haverford, Pennsylvania, or the vicinity thereof, except for
reasonable periodic travel that may be necessary in connection with the
performance of the duties and responsibilities of the Position.
3. COMPENSATION AND BENEFITS.
(a) SALARY. During your employment you will receive a base salary of
$200,000 per annum paid in accordance with the Company's normal payroll
practice. The Company will make such deductions, withholdings and other payments
from sums payable pursuant to this Agreement which are required by law for taxes
and other charges, or which you request pursuant to payroll deductions chosen by
you. In the event of your death, the Company will make all salary payments,
profit sharing payments and expense reimbursements which are accrued and not yet
paid as of the date of your death to your legal representative. All dollar
amounts stated in this and all other Sections of this Agreement refer to United
States currency.
(b) PROFIT SHARING. For each fiscal year, you will be eligible to
receive profit sharing distributions of up to an aggregate of 30% of annual
salary for such fiscal year contingent on the Company achieving specified profit
targets as specified by the Company's Board of Directors, such distributions to
be made at times and in the percentage amounts as set forth in the Company's
profit sharing plan.
(c) BENEFITS. You will be entitled to participate in or receive such
benefits under the Company's employee benefit plans and policies and such other
benefits which may be made available as in effect from time to time and as are
provided to officers of the Company. The Company may change, amend, modify or
completely eliminate any benefit plan from time to time.
(d) BUSINESS EXPENSES. You will be entitled to reimbursement for
necessary and reasonable business expenses incurred by you in your employment
with the Company in accordance with accounting procedures as the Company shall
adopt from time to time.
(e) VACATION/HOLIDAYS. During your employment under this Agreement you
will be entitled to four weeks paid vacation, accrued in accordance with Company
policies, and Company holidays in accordance with the Company's holiday
policies, as they may be amended from time to time.
<PAGE>
(f) RECEIPT OF DOCUMENTATION. You acknowledge that you have received
from the Company copies of the Company's benefits plans. You understand and
agree that the Company has reserved the right and option, in its sole
discretion, to change, interpret or modify these and all other plans or policies
at any time in accordance with the terms of the respective plans or policies.
4. RESTRICTIONS AND CONDITIONS.
As an express condition of this Agreement and your continued employment
with the Company, you agree to comply with the agreements and other conditions
in this Section.
(a) AGREEMENT NOT TO DISCLOSE CONFIDENTIAL INFORMATION. While employed
by the Company and thereafter, you shall not, directly or indirectly, use any
Confidential Information (as hereinafter defined) other than pursuant to your
employment by, and for the benefit of, the Company, or disclose to anyone
outside of the Company any such Confidential Information. The term "Confidential
Information" as used throughout this Agreement shall mean all trade secrets,
proprietary information, inventions and developments, including customer lists,
business plans, and all other data or information (and any tangible evidence,
record or representation thereof), whether prepared, conceived or developed by
an employee of the Company (including you) or received by the Company from an
outside source, which is in the possession of the Company and which is
maintained in confidence by the Company or which might permit the Company or its
clients or customers (hereinafter collectively referred to as "Clients") to
obtain a competitive advantage over competitors who do not have access to such
trade secrets, proprietary information, or other data or information. This
provision does not apply to any Confidential Information that the Company has
voluntarily disclosed to the public that you are required by law, court order or
otherwise to disclose, or that has otherwise entered the public domain through
no fault of yours. You understand that the Company from time to time has in its
possession information which is claimed by others to be proprietary and which
the Company has agreed to keep confidential. You agree that all such information
shall be Confidential Information for purposes of this Agreement.
(b) ASSIGNMENT OF DEVELOPMENTS. You agree that all Confidential
Information and all other discoveries, inventions, ideas, designs, concepts,
processes, methods and improvements or parts thereof, conceived or otherwise
made by you during the period of your employment by the Company, alone or
jointly with others and in any way relating to the Company's present or proposed
products or services or to tasks assigned to you during the course of your
employment, whether or not made during your regular working hours or on the
Company's premises (hereinafter collectively referred to as "Developments"),
together with all products or services which embody such Developments, shall be
the sole property of the Company. You agree to, and hereby do, assign to the
Company all your right, title and interest throughout the world in and to all
<PAGE>
Developments and to anything tangible which evidences or constitutes any such
Development. You agree that all such Developments shall constitute works made
for hire under the copyright laws of the United States and hereby assign and, to
the extent any such assignment cannot be made at present, you hereby agree to
assign to the Company all copyrights, patents, reproductions and other
proprietary rights you may have in any such Development, together with the right
to file for and/or own wholly without restriction United States and foreign
patents, trademarks, and copyrights with respect thereto.
(c) EXCEPTIONS TO THIS AGREEMENT. You hereby certify that you have
informed Company in writing of any and all continuing obligations which you have
to any previous employer and all Confidential Information or Developments which
you claim as your own or otherwise intend to exclude from this Agreement.
(d) EMPLOYEE'S OBLIGATION TO COOPERATE. You will, at any time during
your employment, on request of the Company, execute all documents and perform
all lawful acts which the Company considers necessary or advisable to secure its
rights hereunder and to carry out the intent of this Agreement.
(e) RETURN OF PROPERTY. At any time on request of the Company, you
shall return promptly all documents and other property belonging to the Company
or its Clients or business partners.
(f) RESTRICTIONS ON CERTAIN POST-EMPLOYMENT ACTIVITIES.
(i) As long as you are employed by the Company and for a
period of nine months after the termination of your employment for any reason
(except in conjunction with a general solicitation for employees), you shall not
solicit, or induce to resign any employee of the Company (or anyone who was an
employee of the Company during the period beginning six months prior to your
termination of employment with the Company), or assist in such hiring by any
other person or business entity or encourage any such employee to terminate his
or her employment with the Company.
(ii) As long as you are employed by the Company, and for a
period of nine months following termination of your employment, you shall not
either directly or indirectly (a) solicit, divert or attempt to divert from the
Company to yourself or to any other person or business entity the business or
patronage of any of the Clients or business partners of the Company; or (b)
provide services, whether on your own behalf or as an owner, manager,
consultant, director, officer, partner or employee of any other person or
business entity, to any of the Clients of the Company; provided, however, that
clause (b) shall not prohibit you from accepting employment as a direct employee
of Clients or business partners. In the event that you breach any of the terms
of this Section, the prohibitions set forth in this Section will remain in
effect for nine months from the discovery of such breach by an officer of the
Company.
<PAGE>
(g) NO OTHER AGREEMENT. You warrant that you are not subject to any
agreement or obligation with any other party which would or could in any way
conflict with your obligations under this Agreement. You agree to indemnify and
hold harmless the Company from any claims, actions or damages arising from or
relating to a breach or alleged breach of this subsection.
(h) EQUITABLE REMEDIES; SURVIVAL. You and the Company agree that upon a
breach or violation of any provision of this Section 4, the Company, in addition
to all other remedies which might be available to it, shall be entitled as a
matter of right to equitable relief in any court of competent jurisdiction,
including the right to obtain injunctive relief or specific performance. You and
the Company agree that the remedies at law for any such breach or violation are
not fully adequate and that the injuries to the Company as a result of the
continuation of any breach or violation are incapable of full calculation in
monetary terms and, therefore, constitute irreparable harm. The provisions of
this Section 4 shall survive termination of this Agreement.
5. COMPENSATION AND BENEFITS UPON TERMINATION OF EMPLOYMENT.
Upon termination of your employment (such date of termination being
referred to as the "Termination Date"), regardless of when such termination
occurs, the Company will pay you the compensation and benefits as described in
this Section 5.
(a) The Company will pay you on or about the Termination Date all
salary, profit sharing and vacation pay, if any, that has been
earned (or, in the case of profit sharing payments, that would
have been earned) or accrued through the date of your
termination from the Company and has not yet been paid (in the
case of profit sharing payments, such amounts to be prorated
based on the Termination Date).
(b) You may be entitled to continuation of applicable life
insurance, accidental death and disability or other benefits
for one (1) year, provided that you make an appropriate
conversion and comply with the requirements of the applicable
benefit plans.
(c) You will not be entitled to receive any other compensation or
benefits provided by, through or on behalf of the Company,
under this Agreement other than benefits that are vested as of
the date of termination and that are payable in accordance
with the terms of any applicable benefit plan.
(d) You acknowledge and agree that the compensation and benefits
provided above have been negotiated with the Company and shall
be deemed to fully satisfy any notice requirements which may
be required by any jurisdiction. This Section 5 constitutes
your only rights to compensation, benefits, damages, or other
remedies arising out of the termination of your employment.
<PAGE>
(e) The provisions of this Section 5 shall survive termination of
this Agreement.
6. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control, the vesting of any options
granted to you to purchase shares of Company Common Stock, if any, shall
automatically vest in full. For purpose of this Section 6, "Change of Control"
shall mean the occurrence of any of the following events:
(i) the approval by shareholders of the Company of a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than fifty percent (50%) of the
total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after
such merger or consolidation;
(ii) any approval by the shareholders of the Company of a plan or
proposal for the liquidation or dissolution of the Company or
an agreement or agreements for the sale, lease, exchange,
disposition or other transfer (in one transaction or a series
of transactions) by the Company of all or substantially all of
the assets of the Company; or
(iii) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) becoming
the "beneficial owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company
representing 50% or more of the total voting power represented
by the Company's then outstanding voting securities; PROVIDED
HOWEVER, that this section shall not apply to any person or
persons who, either individually or jointly, on the date of
this Agreement beneficially owned securities of the Company
representing 50% or more of the total voting power
represented by the Company's then outstanding voting
securities.
7. SEVERANCE BENEFITS.
(a) In the event that the Company terminates your employment other than
for cause (as defined below) or materially reduces your compensation and
benefits, you shall be entitled to the following severance benefits: (i) a
payment, within thirty (30) days of such termination, in the amount of nine (9)
months salary then in effect, less standard deductions and withholdings, (ii) a
payment, within thirty (30) days after the close of the quarter in which your
employment was terminated, for the pro rated amount of the quarterly profit
sharing payment paid by the Company to which you would have been
<PAGE>
entitled had you been employed by the Company at the close of such quarter, less
standard deductions and withholdings, (iii) the acceleration of vesting with
respect to options to purchase Common Stock of the Company held by you at the
time of such termination as if your employment with the Company had continued
uninterrupted for an additional twelve (12) months, and (iv) the continuation
for a period of one (1) year following such termination of your right to
participate in or enjoy benefits under any benefit plan of the Company in which
you are participating at the time of such termination, so long as such benefit
plan remains generally available to similarly situated employees of the Company.
You agree that nothing in this Agreement obligates the Company to maintain any
such benefit plans or prevents the Company from modifying or eliminating the
rights of all participants under such benefit plans from time to time, in the
sole discretion of the Board.
(b) The Company's termination of your employment with the Company shall
be without "cause" if the Company terminates your employment with the Company
for any reason other than: (i) the substantial and continuing failure, after
thirty (30) days' notice thereof, to render services to the Company or any
subsidiary of the Company in accordance with the terms or requirements of your
position and duties; (ii) gross negligence or willful misconduct in the
performance of your duties or a breach of fiduciary duty to the Company or any
subsidiary of the Company; (iii) the commission of an act of embezzlement or
fraud; (iv) deliberate disregard of the written rules or policies of the Company
or any subsidiary of the Company which results in direct or indirect loss,
damage or injury to the Company or any subsidiary of the Company; (v) the
intentional unauthorized disclosure of any trade secret or confidential
information of the Company or any subsidiary of the Company; or (vi) the
conviction of a felony.
8. GENERAL.
(a) EMPLOYMENT ELIGIBILITY. From time to time after your first day of
employment, you may be asked to provide proof of your identity as well as your
legal right to work in the United States. If for any reason you are unable to
provide proof of your identity as well as your legal right to work in the United
States, the Company may not be able to employ you in the Position and may
terminate your employment. If you are a citizen of a restricted country (as
identified by the U.S. Department of Commerce) you must receive a validated
license from the Office of Export Licensing. This license must be obtained
within a time limit established by the Company.
(b) GOVERNING LAW. The validity, interpretation, effect, and
enforcement of this Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to choice of law rules.
(c) ENTIRE AGREEMENT. In making your decision whether or not to accept
this offer, you agree that you have not relied upon any promises or
representations made by the Company, other than those made in this letter. This
Agreement sets forth the entire agreement and understanding between you and the
Company with respect to your employment by the Company, and supersede any other
negotiations, agreements,
<PAGE>
understandings, oral agreements, representations or past or future practices,
whether written or oral, with, by or of the Company.
Each Company plan or policy referred to herein directly or by
implication is incorporated herein only insofar as it does not contradict this
Agreement. If any inconsistencies between this Agreement and any such plan or
policy or future plan or policy exist, the most recent applicable plan document
or official policy shall control.
(d) MODIFICATION. This Agreement may not be amended, modified, changed
or discharged in any respect except as agreed in writing and signed by you and
the Chief Executive Officer of the Company.
(e) SEVERABILITY AND INTERPRETATION. In the event that any provision or
any portion of this Agreement is held invalid or unenforceable by a court of
competent jurisdiction, such provision or portion thereof shall be considered
separate and apart from the remainder of this Agreement and the other provisions
shall remain fully valid and enforceable. In the event that any provision is
held to be overly broad as written, such provision shall be deemed amended to
narrow its application to the extent necessary to make the provision enforceable
according to applicable law and enforced as amended.
(f) NOTICES. All notices required by this Agreement shall be given in
writing either by personal delivery or by first class mail, return receipt
requested. Notices given to the Company shall be addressed to the Company at its
address set forth on the first page of this Agreement, or at such later address
where the Company's principal offices are located. Notice to you shall be to the
last known address as set forth in your personnel file. Notice given by personal
delivery shall be deemed given when delivered. Notice given by mail shall be
deemed given five (5) days following the date of mailing.
(g) MISCELLANEOUS. The rights of the Company under this Agreement shall
inure to the benefit of and shall be binding upon the present and future
subsidiaries of the Company, any and all subsidiaries of a subsidiary, and
successors and assigns of the Company. No assignment of this Agreement by the
Company will relieve the Company of its obligations hereunder. You shall not
assign any of your rights and/or obligations under this Agreement and any such
attempted assignment will be void. This Agreement shall be binding upon your
heirs, executors, administrators or other legal representatives and their legal
assigns.
(h) WAIVER. A waiver by either party of any of the terms or conditions
of this Agreement in any instance shall not be deemed or construed to be a
waiver of such term or condition for the future, or of any subsequent breach
thereof. All remedies, rights, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party.
<PAGE>
(i) SURVIVAL. The provisions of this Section 8 shall survive
termination of this Agreement.
<PAGE>
If you agree with the foregoing, please sign below and return the
original to me. You may keep the enclosed copy for your records.
Sincerely,
Breakaway Solutions, Inc.
By:/s/ Gordon Brooks
-----------------------------
Gordon Brooks, President
Agreed to this day of , 1999
---- -----
Employee:
--------------------------
"EMPLOYMENT AGREEMENT"
<PAGE>
If you agree with the foregoing, please sign below and return the
original to me. You may keep the enclosed copy for your records.
Sincerely,
Breakaway Solutions, Inc.
By:
-----------------------------
Gordon Brooks, President
Agreed to this 16th day of May, 1999
---- ---
Employee:/s/ William P. Loftus
-------------------------
"EMPLOYMENT AGREEMENT"
<PAGE>
EXHIBIT 10.16
THE COUNSELL GROUP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
1. GRANT UNDER 1998 STOCK PLAN. This option is granted pursuant to and
is governed by the Company's 1998 Stock Plan (the "Plan") and, unless the
context otherwise requires, terms used herein shall have the same meaning as in
the Plan. Determinations made in connection with this option pursuant to the
Plan shall be governed by the Plan as it exists on this date.
2. GRANT AS NON-QUALIFIED OPTION; OTHER OPTIONS. This option shall be
treated for federal income tax purposes as a Non-Qualified Option (rather than
an incentive stock option). This option is in addition to any other options
heretofore or hereafter granted to the Optionee by the Company or any Related
Corporation (as defined in the Plan), but a duplicate original of this
instrument shall not effect the grant of another option.
3. VESTING OF OPTION. The option granted hereunder shall be for five
hundred thousand (500,000) shares of common stock, par value $.0001 per share
("Option Shares"), shall be granted as of July 1, 1998, and shall be fully
vested as of July 1, 1998. This option may be immediately exercised on or before
the date which is ten (10) years from the date this option is granted (the
"Expiration Date") subject to Sections 4 and 5, as appropriate.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE. If the Optionee ceases
to be employed by the Company and all Related Corporations, other than by reason
of death or disability as defined in Section 5, this option shall terminate on
the Expiration Date. In such a case, the Optionee's only rights hereunder shall
be those which are properly exercised before the termination of this option.
(b) TERMINATION FOR CAUSE. If the Optionee is terminated for
Cause (as defined in Section 4(c)), this option shall terminate upon the date of
such removal and shall thereafter not be exercisable to any extent whatsoever.
(c) DEFINITION OF CAUSE. "Cause" shall mean conduct involving
one or more of the following: (i) the substantial and continuing failure of the
Optionee, after notice thereof, to render services to the Company or a Related
Corporation in accordance with the terms or requirements of his employment; (ii)
disloyalty, gross negligence, willful misconduct, dishonesty or breach of
fiduciary duty to the Company or a Related Corporation; (iii) the commission of
an act of embezzlement or fraud; (iv) deliberate disregard of the rules or
policies of the Company or a Related Corporation which results in direct or
indirect loss, damage or injury to the Company or a Related Corporation; (v) the
unauthorized disclosure of any trade secret or confidential information of the
Company or a Related Corporation; or (vi) the commission of an act which
constitutes unfair competition with the Company or a Related Corporation or
which induces any customer or supplier to breach a contract with the Company or
a Related Corporation.
<PAGE>
-2-
5. DEATH; DISABILITY.
(a) DEATH. If the Optionee dies while an employee of the
Company, this option may be exercised by the estate, personal representative or
beneficiary who has acquired this option by will or by the laws of descent and
distribution, until the Expiration Date.
(b) DISABILITY. If the Optionee is no longer employed by the
Company due to his disability (as defined in Paragraph 10(B) of the Plan), the
Optionee shall have the right to exercise this option on the date of his
resignation or removal until the Expiration Date.
(c) EFFECT OF TERMINATION. At the expiration Date, this option
shall terminate and the only rights hereunder shall be those as to which the
option was properly exercised before such date.
6. PARTIAL EXERCISE. The Optionee may exercise this option in part at
any time and from time to time within the above limits, except that the Optionee
may not exercise this option for a fraction of a share unless such exercise is
with respect to the final installment of stock subject to this option and cash
in lieu of a fractional share must be paid, in accordance with Paragraph 13(G)
of the Plan, to permit the Optionee to exercise completely such final
installment. Any fractional share with respect to which an installment of this
option cannot be exercised because of the limitation contained in the preceding
sentence shall remain subject to this option and shall be available for later
purchase by the Optionee in accordance with the terms hereof.
7. [INTENTIONALLY OMITTED.]
8. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of
this Agreement, this option may be exercised by written notice to the Company at
its principal executive office, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this option and the
number of Option Shares for which it is being exercised and shall be signed by
the person or persons exercising this option. Such notice shall be accompanied
by payment of the full purchase price of such shares, either (a) in United
States dollars in cash or by check, (b) through delivery of shares of Common
Stock having a fair market value equal as of the date of the exercise to the
cash exercise price of this option, (c) consistent with applicable law, by
delivery of the Optionee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the lowest applicable Federal rate,
as defined in Section 1274(d) of the code, (d) consistent with applicable law,
through the delivery of an assignment to the Company of a sufficient amount of
the proceeds from the sale of the Common Stock acquired upon exercise of this
option and an authorization to the broker or selling agent to pay that amount to
the Company, which sale shall be at the participant's direction at the time of
exercise, or (e) by any combination of (a), (b), (c) and (d) above. The Company
shall deliver a certificate or certificates representing such shares as soon as
practicable after the notice shall be received. Such certificate or certificates
shall be registered in the name of the person or persons so exercising this
option (or, if this option is exercised by the Optionee and if the Optionee
requests in the notice exercising this option, shall be registered in the name
of the Optionee and another person jointly, with right of survivorship). In the
event this option is exercised, pursuant
<PAGE>
-3-
to Section 5 hereof, by any person or persons other than the Optionee, such
notice shall be accompanied by appropriate proof of the right of such person or
persons to exercise this option.
9. OPTION NOT TRANSFERABLE. This option is not transferable or
assignable except by will or by the laws of descent and distribution. During the
Optionee's lifetime only the Optionee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this
option imposes no obligation on the Optionee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT. Neither the Plan, this
Agreement, nor the grant of this option imposes any obligation on the Company or
any Related Corporation to continue the Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Optionee shall have no
rights as a stockholder with respect to the Option Shares until the date of
issuance of a stock certificate to the Optionee. Except as is expressly provided
in the Plan with respect to certain changes in the capitalization and stock
dividends of the Company, no adjustment shall be made for dividends or similar
rights for which the record date is before the date such stock certificate is
issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. The Plan contains
provisions covering the treatment of options in a number of contingencies such
as stock splits and mergers. Provisions in the Plan for adjustment with respect
to stock subject to options and the related provisions with respect to
successors to the business of the Company are hereby made applicable hereunder
and are incorporated herein by reference.
14 LEGENDS. The Company may place a legend or legends on any stock
certificate delivered to any holder of Option Shares reflecting the restrictions
on transfer provided in this Agreement.
15. WITHHOLDING TAXES. If the Company or any Related Corporation in its
discretion determines that it is obligated to withhold any tax in connection
with the exercise of this option, the vesting or transfer of Option Shares
acquired on the exercise of this option, or the making of a distribution or
other payment with respect to the Option Shares, the Optionee hereby agrees that
the Company or any Related Corporation may withhold from the Optionee's wages or
other remuneration the appropriate amount of tax. At the discretion of the
Company or Related Corporation, the amount required to be withheld may be
withheld in cash from such wages or other remuneration or in kind from the
Common Stock or other property otherwise deliverable to the Optionee on exercise
of this option. The Optionee further agrees that, if the Company or any Related
Corporation does not withhold an amount from the Optionee's wages or other
remuneration sufficient to satisfy the withholding obligation of the Company or
Related Corporation, the Optionee will make reimbursement on demand, in cash,
for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
<PAGE>
-4-
(a) EXERCISE OF RIGHT. If the Optionee (or successor and
assigns) or his or her legal representative (the "Transferor") desires to
transfer all or any part of the Option Shares to any person other than the
Company (an "Offeror"), the Transferor shall: (i) obtain in writing an
irrevocable and unconditional bona fide offer (the "Offer") for the purchase
thereof from the Offeror; and (ii) give written notice (the "Option Notice") to
the Company setting forth the Transferor's desire to transfer such shares, which
Option Notice shall be accompanied by a photocopy of the Offer and shall set
forth at least the name and address of the Offeror and the price and terms of
the bona fide offer. Upon receipt of the Option Notice, the Company shall have
an assignable option to purchase any or all of such shares (the "Company Option
Shares") specified in the Option Notice, such option to be exercisable by
giving, within 90 days after receipt of the Option Notice, a written
counter-notice to the Transferor (the "Counter-Notice"). If the Company elects
to purchase any or all of such Company Option Shares, it shall be obligated to
purchase, and the Transferor shall be obligated to sell to the Company, such
Company Option Shares that the Company elects to purchase as set forth in the
Counter-Notice at a per share price equal to the lesser of (i) the per share
price (and on the same terms) indicated in the Offer; or (ii) the Fair Market
value (as defined in Section 17(b) and using the date of the Option Notice as
the date of determination of Fair Market Value) of such shares as determined
under Section 17(b), in any case within 30 days of the date of delivery by the
Company of the Counter-Notice. If the Company elects to purchase any or all of
such Company Option Shares, it may, in its sole discretion, pay the purchase
price for such Company option shares in accordance with the terms of a
promissory note, such terms to be determined solely by the Company; provided,
however, that the payment term of such promissory note shall not exceed ten (10)
years.
(b) SALE OF OPTION SHARES TO OFFEROR. The Transferor may, for
60 days after the expiration of the 90-day period during which the Company may
give the Counter-Notice, sell, pursuant to the terms of the Offer, any or all of
such Company Option Shares not purchased or agreed to be purchased by the
Company or its assignee; PROVIDED, HOWEVER, that the Transferor shall not sell
such Company Option Shares to the Offeror if the Offeror is a competitor of the
Company and the Company gives a written notice to the Transferor, within 90 days
of its receipt of the Option Notice, stating that the Transferor shall not sell
such Company Option Shares to such Offeror; and PROVIDED, FURTHER, that prior to
the sale of such Company Option Shares to the Offeror, the Offeror shall execute
an agreement with the Company pursuant to which the Offeror agrees to be subject
to the restrictions set forth in Sections 16, 17 and 18 hereof. If any or all of
such Company Option Shares are not sold pursuant to an Offer within the time
permitted above, the unsold Company Option Shares shall remain subject to the
terms of this Section 16 and any future proposed transfer must again comply with
the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination or exchange of shares, or the like, the restrictions contained in
this Section 16 shall apply with equal force to additional and/or substitute
securities, if any, received by the Optionee in exchange for, or by virtue of
his or her ownership of, Option Shares.
<PAGE>
-5-
(d) FAILURE TO DELIVER COMPANY OPTION SHARES. If the
Transferor fails or refuses to deliver on a timely basis duly endorsed
certificates representing Company Option Shares to be sold to the Company or its
assignee pursuant to this Section 16, the Company shall have the right to
deposit the purchase price for such Company Option Shares in a special account
with any bank or trust company in the Commonwealth of Massachusetts, giving
notice of such deposit to the Transferor, whereupon such Company Option Shares
shall be deemed to have been purchased by the Company. All such moneys shall be
held by the bank or trust company for the benefit of the Transferor. All moneys
deposited with the bank or trust company remaining unclaimed for two years after
the date of deposit shall be repaid by the bank or trust company to the Company
on demand, and the Transferor shall thereafter look only to the Company for
payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first
refusal rights of the Company set forth in this Section 16 shall remain in
effect until such time, if ever, as an underwritten public offering is made of
shares of the Company's Common Stock pursuant to a registration statement filed
under the Securities Act of 1933 or a successor statute, at which time this
Section 16 and the right of first refusal set forth herein will automatically
expire.
17. [INTENTIONALLY OMITTED.]
18. LOCK-UP AGREEMENT. The Optionee agrees that in connection with an
underwritten public offering of Common Stock, upon the request of the Company or
the managing or lead underwriter for such public offering, this option and the
Option Shares may not be sold, offered for sale or otherwise disposed of without
the prior written consent of the Company or such underwriter, as the case may
be, for at least 180 days after the effectiveness of the registration statement
filed in connection with such offering, or such longer period of time as the
Board of Directors may determine if all of the Company's directors and officers
agree to be similarly bound. The lock-up agreement established pursuant to this
Section 18 shall have perpetual duration.
19. PROVISION OF DOCUMENTATION TO OPTIONEE. By signing this Agreement
the Optionee acknowledges receipt of a copy of this Agreement and a copy of the
Plan.
20. [INTENTIONALLY OMITTED.]
21. MISCELLANEOUS.
(a) NOTICES. All notices hereunder shall be in writing and
shall be deemed given when sent by certified or registered mail, postage
prepaid, return receipt requested, to the address set forth below. The addresses
for such notices may be changed from time to time by written notice given in the
manner provided for herein.
(b) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes
the entire agreement between the parties relative to the subject matter hereof,
and supersedes all proposals, written or oral, and all other communications
between the parties relating to the subject matter of
<PAGE>
-6-
this Agreement. This Agreement may be modified, amended or rescinded only by a
written agreement executed by both parties.
(c) SEVERABILITY. The invalidity, illegality or
unenforceability of any provision of this Agreement shall in no way affect the
validity, legality or enforceability of any other provision.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, subject to the limitations set forth in Sections 9 and
16 hereof.
(e) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to the principles of the conflicts of laws thereof.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-7-
IN WITNESS WHEREOF, the Company and the Optionee have caused this
instrument to be executed as of the date first above written.
The Counsell Group, Inc.
Exchange Place
53 State Street
Boston, MA 02109
- -------------------------
Optionee
FRANK SELLDORFF By:
- ------------------------- -------------------------
Print Name of Optionee Name:
Title:
- -------------------------
Street Address
- -------------------------
City State Zip Code
<PAGE>
Exhibit 10.17
THE COUNSELL GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's
1998 Stock Plan (the "Plan") and, unless the context otherwise
requires, terms used herein shall have the same meaning as in the Plan.
Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on this date.
2. GRANT AS INCENTIVE STOCK OPTION; OTHER OPTIONS.
This option is intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). This option is in addition to any other options heretofore or
hereafter granted to the Employee by the Company or any Related
Corporation (as defined in the Plan), but a duplicate original of this
instrument shall not effect the grant of another option.
3. VESTING OF OPTION IF EMPLOYMENT CONTINUES.
If the Employee has continued to be employed by the Company or any
Related Corporation on the following dates, the Employee may exercise
this option for the number of shares of Common Stock set opposite the
applicable date: (attached as Schedule A.) Notwithstanding the
foregoing, in accordance with and subject to the provisions of the
Plan, the Committee may, in its discretion, accelerate the date that
any installment of this Option becomes exercisable. The foregoing
rights are cumulative and, while the Employee continues to be employed
by the Company or any Related Corporation, may be exercised on or
before the date which is ten (10) years from the date this option is
granted. All of the foregoing rights are subject to Sections 4 and 5,
as appropriate, if the Employee ceases to be employed by the Company
and all Related Corporations.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company and all
Related Corporations, other than by reason of death or
disability as defined in
<PAGE>
Section 5 or termination for Cause as defined in Section 4(c),
no further installments of this option shall become
exercisable, and this option shall terminate on the earlier of
(i) thirty (30) days after the date of termination of the
Employee's employment, or (ii) the scheduled expiration date
of this option. In such a case, the Employee's only rights
hereunder shall be those which are properly exercised before
the termination of this option.
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as
defined in Section 4(c)), this option shall terminate upon the
Employee's receipt of written notice of such termination and
shall thereafter not be exercisable to any extent whatsoever.
(c) DEFINITION OF CAUSE.
"Cause" shall mean conduct involving one or more of the
following: (i) the substantial and continuing failure of the
Employee, after notice thereof, to render services to the
Company or Related Corporation in accordance with the terms or
requirements of his or her employment; (ii) disloyalty, gross
negligence, willful misconduct, dishonesty or breach of
fiduciary duty to the Company or Related Corporation; (iii)
the commission of an act of embezzlement or fraud; (iv)
deliberate disregard of the rules or policies of the Company
or Related Corporation which results in direct or indirect
loss, damage or injury to the Company or Related Corporation;
(v) the unauthorized disclosure of any trade secret or
confidential information of the Company or Related
Corporation; or (vi) the commission of an act which
constitutes unfair competition with the Company or Related
Corporation or which induces any customer or supplier to
breach a contract with the Company or Related Corporation.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all
Related Corporations by reason of his or her death, this
option may be exercised, to the extent otherwise exercisable
on the date of death, by the estate, personal representative
or beneficiary who has acquired this option by will or by the
laws of descent and distribution, until the earlier of (i) the
specified expiration date of this option or (ii) thirty (30)
days from the date of the Employee's death.
-2-
<PAGE>
(b) DISABILITY.
If the Employee ceases to be employed by the Company and all
Related Corporations by reason of his or her disability (as
defined in Paragraph 10(B) of the Plan), the Employee shall
have the right to exercise this option on the date of
termination of employment, for the number of shares for which
he or she could have exercised it on that date, until the
earlier of (i) the specified expiration date of this option or
(ii) thirty (30) days from the date of the termination of the
Employee's employment.
(c) EFFECT OF TERMINATION.
At the expiration of the thirty (30) day period provided in
paragraph (a) or (b) of this Section 5 or the scheduled
expiration date, whichever is the earlier, this option shall
terminate and the only rights hereunder shall be those as to
which the option was properly exercised before such
termination.
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and from time
to time within the above limits, except that the Employee may not
exercise this option for a fraction of a share unless such exercise is
with respect to the final installment of stock subject to this option
and cash in lieu of a fractional share must be paid, in accordance with
Paragraph 13(G) of the Plan, to permit the Employee to exercise
completely such final installment. Any fractional share with respect to
which an installment of this option cannot be exercised because of the
limitation contained in the preceding sentence shall remain subject to
this option and shall be available for later purchase by the Employee
in accordance with the terms hereof.
7. PAYMENT OF PRICE.
The option price shall be paid in United States dollars in cash or by
check.
8. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, this option may
be exercised by written notice to the Company at its principal
executive office, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this option
and the number of Option Shares for which it is being exercised and
shall be signed by the person or persons exercising this option. Such
notice shall be accompanied by payment of the full purchase price of
such shares, and the Company shall deliver a certificate or
certificates
-3-
<PAGE>
representing such shares as soon as practicable after the notice shall
be received. Such certificate or certificates shall be registered in
the name of the person or persons so exercising this option (or, if
this option is exercised by the Employee and if the Employee requests
in the notice exercising this option, shall be registered in the name
of the Employee and another person jointly, with right of
survivorship). In the event this option is exercised, pursuant to
Section 5 hereof, by any person or persons other than the Employee,
such notice shall be accompanied by appropriate proof of the right of
such person or persons to exercise this option.
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Employee's lifetime only
the Employee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION.
The grant and acceptance of this option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option imposes
any obligation on the Company or any Related Corporation to continue
the Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
The Employee shall have no rights as a stockholder with respect to the
Option Shares until the date of issuance of a stock certificate to the
Employee. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization and stock dividends of the
Company, no adjustment shall be made for dividends or similar rights
for which the record date is before the date such stock certificate is
issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options in a
number of contingencies such as stock splits and mergers. Provisions in
the Plan for adjustment with respect to stock subject to options and
the related provisions with respect to successors to the business of
the Company are hereby made applicable hereunder and are incorporated
herein by reference.
-4-
<PAGE>
14. EARLY DISPOSITION.
The Employee agrees to notify the Company in writing immediately after
the Employee transfers any Option Shares, if such transfer occurs on or
before the later of (a) the date two years after the Grant Date or (b)
the date one year after the date the Employee acquired such Option
Shares. The Employee also agrees to provide the Company with any
information concerning any such transfer required by the Company for
tax purposes.
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion determines
that it is obligated to withhold any tax in connection with the
exercise of this option, the making of a Disqualifying Disposition (as
defined in Paragraph 18 of the Plan), the vesting or transfer of Option
Shares acquired on the exercise of this option, or the making of a
distribution or other payment with respect to the Option Shares, the
Employee hereby agrees that the Company or any Related Corporation may
withhold from the Employee's wages or other remuneration the
appropriate amount of tax. At the discretion of the Company or Related
Corporation, the amount required to be withheld may be withheld in cash
from such wages or other remuneration or in kind from the Common Stock
or other property otherwise deliverable to the Employee on exercise of
this option. The Employee further agrees that, if the Company or any
Related Corporation does not withhold an amount from the Employee's
wages or other remuneration sufficient to satisfy the withholding
obligation of the Company or Related Corporation, the Employee will
make reimbursement on demand, in cash, for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or her legal
representative (the "Transferor") desires to transfer all or
any part of the Option Shares to any person other than the
Company (an "Offeror"), the Transferor shall: (i) obtain in
writing an irrevocable and unconditional bona fide offer (the
"Offer") for the purchase thereof from the Offeror; and (ii)
give written notice (the "Option Notice") to the Company
setting forth the Transferor's desire to transfer such shares,
which Option Notice shall be accompanied by a photocopy of the
Offer and shall set forth at least the name and address of the
Offeror and the price and terms of the bona fide offer. Upon
receipt of the Option Notice, the Company shall have an
assignable option to purchase any or all of such shares (the
"Company Option Shams") specified in the Option Notice,
-5-
<PAGE>
such option to be exercisable by giving, within 90 days after
receipt of the Option Notice, a written counter-notice to the
Transferor (the "Counter-Notice"). If the Company elects to
purchase any or all of such Company Option Shares, it shall be
obligated to purchase, and the Transferor shall be obligated
to sell to the Company, such Company Option Shares that the
Company elects to purchase as set forth in the Counter-Notice
at a per share price equal to the lesser of (i) the per share
price (and on the same terms) indicated in the Offer; or (ii)
the Fair Market Value (as defined in Section 17(b) and using
the date of the Option Notice as the date of determination of
Fair Market Value) of such shares as determined under Section
17(b), in any case within 30 days of the date of delivery by
the Company of the Counter-Notice. If the Company elects to
purchase any or all of such Company Option Shares, it may, in
its sole discretion, pay the purchase price for such Company
Option Shares in accordance with the terms of a promissory
note, such terms to be determined solely by the Company;
provided, however that the payment term of such promissory
note shall not exceed ten (10) years.
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for 60 days after the expiration of the
90-day period during which the Company may give the
Counter-Notice, sell, pursuant to the terms of the Offer, any
or all of such Company Option Shares not purchased or agreed
to be purchased by the Company or its assignee; PROVIDED,
HOWEVER, that the Transferor shall not sell such Company
Option Shares to the Offeror if the Offeror is a competitor
of; the Company and the Company gives a written notice to the
Transferor, within 90 days of its receipt of the Option
Notice, stating that the Transferor shall not sell such
Company Option Shares to such Offeror; and PROVIDED, FURTHER,
that prior to the sale of such Company Option Shares to the
Offeror, the Offeror shall execute an agreement with the
Company pursuant to which the Offeror agrees to be subject to
the restrictions set forth in Sections 16, 17, 18 and 20
hereof. If any or all of such Company Option Shares are not
sold pursuant to an Offer within the time permitted above, the
unsold Company Option Shares shall remain subject to the terms
of this Section 16 and any future proposed transfer must again
comply with the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the
Company through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination or
exchange of shares, or the like, the
-6-
<PAGE>
restrictions contained in this Section 16 shall apply with
equal force to additional and/or substitute securities, if
any, received by the Employee in exchange for, or by virtue of
his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refuses to deliver on a timely
basis duly endorsed certificates representing Company Option
Shares to be sold to the Company or its assignee pursuant to
this Section 16, the Company shall have the right to deposit
the purchase price for such Company Option Shares in a special
account with any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the
Transferor, whereupon such Company Option Shares shall be
deemed to have been purchased by the Company. All such moneys
shall be held by the bank or trust company for the benefit of
the Transferor. All moneys deposited with the bank or trust
company remaining unclaimed for two years after the date of
deposit shall be repaid by the bank or trust company to the
Company on demand, and the Transferor shall thereafter look
only to the Company for payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL.
The first refusal rights of the Company set forth in this
Section 16 shall remain in effect until such time, if ever, as
an underwritten public offering is made of shares of the
Company's Common Stock pursuant to a registration statement
filed under the Securities Act of 1933 or a successor statute,
at which time this Section 16 and the right of first refusal
set forth herein will automatically expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE.
The Company shall have the right (the "Repurchase Right") to
repurchase from the holder of any Option Shares (each a
"Holder") any or all of the Option Shares then owned by such
Holder at any time by giving such Holder a written notice (the
"Repurchase Notice") at least 30 days prior to the date of
repurchase. The Repurchase Notice shall set forth the number
of Option Shares to be repurchased (the "Repurchase Shares"),
the Fair Market Value per share (determined in accordance with
Section 17(b) below as of the date of the Repurchase Notice)
of the Repurchase Shares and the date (the "Repurchase Date")
on which such Repurchase Shares are to be repurchased by the
Company (such date not to be more than 120 nor less than 30
days after the date of the
-7-
<PAGE>
Repurchase Notice). On the Repurchase Date, the Company shall
tender to the Holder an amount equal to the number of
Repurchase Shares multiplied by the Fair Market Value per
share; provided, however, that the Company may pay the
repurchase amount, in its sole discretion, in accordance with
the terms of a promissory note, such terms to be determined
solely by the Company (provided further that the payment term
of such promissory note shall not exceed ten (10) years). The
Company may assign the Repurchase Right to one or more persons
and may utilize a promissory note to effect its Repurchase
Right. Upon timely exercise of the Repurchase Right in the
manner provided in this Section 17(a), the Holder shall
deliver to the Company the stock certificate or certificates
representing the Repurchase Shares, duly endorsed and free and
clear of any and all liens, charges and encumbrances.
(b) FAIR MARKET VALUE.
For purposes of this Agreement, the Fair Market Value of an
Option Share shall be determined in good faith by the Board of
Directors of the Company after taking into account all
relevant factors including, without limitation, the absence of
an active trading market for the shares of Common Stock, the
restrictions on transfer of Option Shares set forth herein and
the valuation attached to other recent issuances of securities
by the Company. The determination by the Board of Directors of
Fair Market Value shall be conclusive and binding.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the
Company through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination or
exchange of shares, or the like, the restrictions contained in
this Section 17 shall apply with equal force to additional
and/or substitute securities, if any, received by the Employee
in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES.
If the Holder fails or refuses to deliver on a timely basis
duly endorsed certificates representing the Repurchase Shares
to be repurchased by the Company or its assignee pursuant to
this Section 17, the Company shall have the right to deposit
the repurchase price for such Repurchase Shares in a special
account with any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the Holder,
whereupon such Repurchase Shares shall be deemed to have
-8-
<PAGE>
been purchased by the Company. All such moneys shall be held
by the bank or trust company for the benefit of the Holder.
All moneys deposited with the bank or trust company remaining
unclaimed for two years after the date of deposit shall be
repaid by the bank or trust company to the Company on demand,
and the Holder shall thereafter look only to the Company for
payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT.
The Repurchase Right of the Company set forth in this Section
17 shall remain in effect until such time, if ever, as an
underwritten public offering is made of shares of the
Company's Common Stock pursuant to a registration statement
filed under the Securities Act or any successor statute, at
which time this Section 17 and the Repurchase Right set forth
herein will automatically terminate.
18. LOCK-UP AGREEMENT.
The Employee agrees that in connection with an underwritten public
offering of Common Stock, upon the request of the Company or the
managing or lead underwriter for such public offering, this option and
the Option Shares may not be sold, offered for sale or otherwise
disposed of without the prior written consent of the Company or such
underwriter, as the case may be, for at least 180 days after the
effectiveness of the registration statement filed in connection with
such offering, or such longer period of time as the Board of Directors
may determine if all of the Company's directors and officers agree to
be similarly bound. The lock-up agreement established pursuant to this
Section 18 shall have perpetual duration.
19. PROVISION OF DOCUMENTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of a copy
of this Agreement and a copy of the Plan.
20. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall be deemed
given when sent by certified or registered mail, postage
prepaid, return receipt requested, to the address set forth
below. The addresses for such notices may be changed from time
to time by written notice given in the manner provided for
herein.
-9-
<PAGE>
(b) ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the entire agreement between the
parties relative to the subject matter hereof, and supersedes
all proposals, written or oral, and all other communications
between the parties relating to the subject matter of this
Agreement. This Agreement may be modified, amended or
rescinded only by a written agreement executed by both
parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any
provision of this Agreement shall in no way affect the
validity, legality or enforceability of any other provision.
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and
assigns, subject to the limitations set forth in Sections 9,
16, 17, and 20 hereof.
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to the principles of the conflicts of
laws thereof.
(f) LEGENDS.
The Company may place a legend or legends on any stock
certificate delivered to the any holder of Option Shares
reflecting the restrictions on transfer provided in this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
-10-
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
The Counsel Group, Inc.
Exchange Place
53 State Street
Boston, MA 02109
- ------------------------
Employee
- ------------------------ By: ---------------------------
Print Name of Employee Name:
Title:
- -----------------------
Street Address
- -----------------------
City State Zip Code
-11-
<PAGE>
Schedule A
The Counsell Group, Inc., a Delaware corporation (the "Company"), hereby grants
as of July 1, 1998 (the "Grant Date") to KEVIN COMERFORD (the "Employee"), an
option to purchase a maximum of 30,000 shares (the "Option Shares") of its
Common Stock, par value $.001 per share ("Common Stock"), at the price of $1.63
per share, on the following terms and conditions:
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------
7/1/1999 7500 Shares
- -------------------------------------------------------------------------------
7/1/2000 7500 Shares
- -------------------------------------------------------------------------------
7/1/2001 7500 Shares
- -------------------------------------------------------------------------------
7/1/2002 7500 Shares
- -------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
_______________________________________________________________________________
THE COUNSELL GROUP
NOTICE OF GRANT OF STOCK OPTIONS ID: 04-3285165
AND OPTION AGREEMENT 50 Rowes Wharf
6th Floor
Boston, MA 02110
_______________________________________________________________________________
KEVIN T. COMERFORD OPTION NUMBER: 00000105
36 WINDSOR LANE PLAN: 98
NORTH ANDOVER, MA 01845 ID: 1137
_______________________________________________________________________________
Effective 7/1/98, you have been granted a(n) Incentive Stock Option to buy
30,000 shares of The Counsell Group (the Company) stock at $1.6300 per share.
The total option price of the shares granted is $48,900.00
Shares in each period will become fully vested on the date shown.
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
---------- ------------ --------- ----------
<S> <C> <C> <C>
7,500 On Vest Date 7/1/99 7/1/08
7,500 On Vest Date 7/1/00 7/1/08
7,500 On Vest Date 7/1/01 7/1/08
7,500 On Vest Date 7/1/02 7/1/08
</TABLE>
_______________________________________________________________________________
By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan as amended and the Option Agreement, all of
which are attached and made a part of this document.
_______________________________________________________________________________
- ------------------------------- --------------------------
The Counsell Group Date
- ------------------------------- ---------------------------
Kevin T. Comerford Date
-13-
<PAGE>
EXHIBIT 10.18
BREAKAWAY SOLUTIONS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
Breakaway Solutions, Inc., a Delaware corporation (the "Company"),
hereby grants as of July 1, 1998 (the "Grant Date") to Christopher Greendale
(the "Optionee"), an option to purchase a maximum of 105,000 shares (the "Option
Shares") of its Common Stock, par value $.0001 per share ("Common Stock"), at
the price of $.54 per share, on the following terms and conditions:
1. GRANT UNDER 1998 STOCK PLAN. This option is granted pursuant to and
is governed by the Company's 1998 Stock Plan (the "Plan") and, unless the
context otherwise requires, terms used herein shall have the same meaning as in
the Plan. Determinations made in connection with this option pursuant to the
Plan shall be governed by the Plan as it exists on this date.
2. GRANT AS NON-QUALIFIED OPTION; OTHER OPTIONS. This option shall be
treated for federal income tax purposes as a Non-Qualified Option (rather than
an incentive stock option). This option is in addition to any other options
heretofore or hereafter granted to the Optionee by the Company or any Related
Corporation (as defined in the Plan), but a duplicate original of this
instrument shall not effect the grant of another option.
3. VESTING OF OPTION IF BUSINESS RELATIONSHIP CONTINUES. If the
Optionee continues to serve the Company as a director, the Optionee may exercise
this option for the for 105,000 shares of Common Stock on January 1, 1999.
The foregoing rights are cumulative and, so long as Optionee is a
director, may be exercised on or before the date which is ten (10) years from
the date this option is granted. All of the foregoing rights are subject to
Sections 4 and 5, as appropriate, if Optionee is no longer a director.
4. RESIGNATION OR REMOVAL AS MEMBER OF THE BOARD OF DIRECTORS.
(a) RESIGNATION OR REMOVAL. If the Optionee resigns, is not
re-elected to the Board of Directors or is removed from the Board of Directors
by a vote (or written consent in lieu thereof) of the stockholders, other than
by reason of death or disability as defined in Section 5, no further
installments of this option shall become exercisable, and this option shall
terminate on the earlier of (i) thirty (30) days after the resignation,
election, or removal vote, or (ii) the scheduled expiration date of this option.
In such a case, the Optionee's only rights hereunder shall be those which are
properly exercised before the termination of this option.
(b) TERMINATION FOR CAUSE. If the Optionee is removed from the
Board of Directors for Cause (as defined in Section 4(c)), this option shall
terminate upon the date of such removal and shall thereafter not be exercisable
to any extent whatsoever.
<PAGE>
-2-
(c) DEFINITION OF CAUSE. "Cause" shall mean conduct involving one
or more of the following: (i) the substantial and continuing failure of the
Optionee, after notice thereof, to attend meetings of the Board of Directors and
render services to the Company as requested by the Board of Directors; (ii)
disloyalty, gross negligence, willful misconduct, dishonesty or breach of
fiduciary duty to the Company or Related Corporation; (iii) the commission of an
act of embezzlement or fraud; (iv) deliberate disregard of the rules or policies
of the Company or Related Corporation which results in direct or indirect loss,
damage or injury to the Company or Related Corporation; (v) the unauthorized
disclosure of any trade secret or confidential information of the Company or
Related Corporation; or (vi) the commission of an act which constitutes unfair
competition with the Company or Related Corporation or which induces any
customer or supplier to breach a contract with the Company or Related
Corporation.
5. DEATH; DISABILITY.
(a) DEATH. If the Optionee dies while a director of the Company,
this option may be exercised, to the extent otherwise exercisable on the date of
death, by the estate, personal representative or beneficiary who has acquired
this option by will or by the laws of descent and distribution, until the
earlier of (i) the specified expiration date of this option or (ii) thirty (30)
days from the date of the Optionee's death.
(b) DISABILITY. If the Optionee is no longer able to serve as a
director of the Company due to his or her disability (as defined in Paragraph
10(B) of the Plan), the Optionee shall have the right to exercise this option on
the date of his resignation or removal, for the number of shares for which he or
she could have exercised it on that date, until the earlier of (i) the specified
expiration date of this option or (ii) thirty (30) days from the date of his
resignation or removal.
(c) EFFECT OF TERMINATION. At the expiration of the thirty (30) day
period provided in paragraph (a) or (b) of this Section 5 or the scheduled
expiration date, whichever is the earlier, this option shall terminate and the
only rights hereunder shall be those as to which the option was properly
exercised before such termination.
6. PARTIAL EXERCISE. The Optionee may exercise this option in part at
any time and from time to time within the above limits, except that the Optionee
may not exercise this option for a fraction of a share unless such exercise is
with respect to the final installment of stock subject to this option and cash
in lieu of a fractional share must be paid, in accordance with Paragraph 13(G)
of the Plan, to permit the Optionee to exercise completely such final
installment. Any fractional share with respect to which an installment of this
option cannot be exercised because of the limitation contained in the preceding
sentence shall remain subject to this option and shall be available for later
purchase by the Optionee in accordance with the terms hereof.
7. PAYMENT OF PRICE. The option price shall be paid in United States
dollars in cash or by check.
8. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of
this Agreement, this option may be exercised by written notice to the Company at
its principal
<PAGE>
-3-
executive office, or to such transfer agent as the Company shall designate. Such
notice shall state the election to exercise this option and the number of Option
Shares for which it is being exercised and shall be signed by the person or
persons exercising this option. Such notice shall be accompanied by payment of
the full purchase price of such shares, and the Company shall deliver a
certificate or certificates representing such shares as soon as practicable
after the notice shall be received. Such certificate or certificates shall be
registered in the name of the person or persons so exercising this option (or,
if this option is exercised by the Optionee and if the Optionee requests in the
notice exercising this option, shall be registered in the name of the Optionee
and another person jointly, with right of survivorship). In the event this
option is exercised, pursuant to Section 5 hereof, by any person or persons
other than the Optionee, such notice shall be accompanied by appropriate proof
of the right of such person or persons to exercise this option.
9. OPTION NOT TRANSFERABLE. This option is not transferable or
assignable except by will or by the laws of descent and distribution. During the
Optionee's lifetime only the Optionee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this
option imposes no obligation on the Optionee to exercise it.
11. NO OBLIGATION ON STOCKHOLDER. Neither the Plan, this Agreement, nor
the grant of this option imposes any obligation on the stockholders of the
Company to maintain Optionee as a director.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Optionee shall have no
rights as a stockholder with respect to the Option Shares until the date of
issuance of a stock certificate to the Optionee. Except as is expressly provided
in the Plan with respect to certain changes in the capitalization and stock
dividends of the Company, no adjustment shall be made for dividends or similar
rights for which the record date is before the date such stock certificate is
issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. The Plan contains
provisions covering the treatment of options in a number of contingencies such
as stock splits and mergers. Provisions in the Plan for adjustment with respect
to stock subject to options and the related provisions with respect to
successors to the business of the Company are hereby made applicable hereunder
and are incorporated herein by reference.
14 LEGENDS. The Company may place a legend or legends on any stock
certificate delivered to any holder of Option Shares reflecting the restrictions
on transfer provided in this Agreement.
15. WITHHOLDING TAXES. If the Company or any Related Corporation in its
discretion determines that it is obligated to withhold any tax in connection
with the exercise of this option, the vesting or transfer of Option Shares
acquired on the exercise of this option, or the making of a distribution or
other payment with respect to the Option Shares, the Optionee hereby agrees that
the Company or any Related Corporation may withhold from the Optionee's wages or
other remuneration the appropriate amount of tax. At the discretion of the
Company or Related Corporation, the amount required to be withheld may be
withheld in cash from such wages or
<PAGE>
-4-
other remuneration or in kind from the Common Stock or other property otherwise
deliverable to the Optionee on exercise of this option. The Optionee further
agrees that, if the Company or any Related Corporation does not withhold an
amount from the Optionee's wages or other remuneration sufficient to satisfy the
withholding obligation of the Company or Related Corporation, the Optionee will
make reimbursement on demand, in cash, for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT. If the Optionee (or successor and assigns)
or his or her legal representative (the "Transferor") desires to transfer all or
any part of the Option Shares to any person other than the Company (an
"Offeror"), the Transferor shall: (i) obtain in writing an irrevocable and
unconditional bona fide offer (the "Offer") for the purchase thereof from the
Offeror; and (ii) give written notice (the "Option Notice") to the Company
setting forth the Transferor's desire to transfer such shares, which Option
Notice shall be accompanied by a photocopy of the Offer and shall set forth at
least the name and address of the Offeror and the price and terms of the bona
fide offer. Upon receipt of the Option Notice, the Company shall have an
assignable option to purchase any or all of such shares (the "Company Option
Shares") specified in the Option Notice, such option to be exercisable by
giving, within 90 days after receipt of the Option Notice, a written
counter-notice to the Transferor (the "Counter-Notice"). If the Company elects
to purchase any or all of such Company Option Shares, it shall be obligated to
purchase, and the Transferor shall be obligated to sell to the Company, such
Company Option Shares that the Company elects to purchase as set forth in the
Counter-Notice at a per share price equal to the lesser of (i) the per share
price (and on the same terms) indicated in the Offer; or (ii) the Fair Market
value (as defined in Section 17(b) and using the date of the Option Notice as
the date of determination of Fair Market Value) of such shares as determined
under Section 17(b), in any case within 30 days of the date of delivery by the
Company of the Counter-Notice. If the Company elects to purchase any or all of
such Company Option Shares, it may, in its sole discretion, pay the purchase
price for such Company option shares in accordance with the terms of a
promissory note, such terms to be determined solely by the Company; provided,
however, that the payment term of such promissory note shall not exceed ten (10)
years.
(b) SALE OF OPTION SHARES TO OFFEROR. The Transferor may, for 60
days after the expiration of the 90-day period during which the Company may give
the Counter-Notice, sell, pursuant to the terms of the Offer, any or all of such
Company Option Shares not purchased or agreed to be purchased by the Company or
its assignee; PROVIDED, HOWEVER, that the Transferor shall not sell such Company
Option Shares to the Offeror if the Offeror is a competitor of the Company and
the Company gives a written notice to the Transferor, within 90 days of its
receipt of the Option Notice, stating that the Transferor shall not sell such
Company Option Shares to such Offeror; and PROVIDED, FURTHER, that prior to the
sale of such Company Option Shares to the Offeror, the Offeror shall execute an
agreement with the Company pursuant to which the Offeror agrees to be subject to
the restrictions set forth in Sections 16, 17 and 18 hereof. If any or all of
such Company Option Shares are not sold pursuant to an Offer within the time
permitted above, the unsold Company Option Shares shall remain subject to the
terms of this Section 16 and any future proposed transfer must again comply with
the provisions set forth herein.
<PAGE>
-5-
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. If there shall
be any change in the Common Stock of the Company through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, combination or
exchange of shares, or the like, the restrictions contained in this Section 16
shall apply with equal force to additional and/or substitute securities, if any,
received by the Optionee in exchange for, or by virtue of his or her ownership
of, Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES. If the Transferor
fails or refuses to deliver on a timely basis duly endorsed certificates
representing Company Option Shares to be sold to the Company or its assignee
pursuant to this Section 16, the Company shall have the right to deposit the
purchase price for such Company Option Shares in a special account with any bank
or trust company in the Commonwealth of Massachusetts, giving notice of such
deposit to the Transferor, whereupon such Company Option Shares shall be deemed
to have been purchased by the Company. All such moneys shall be held by the bank
or trust company for the benefit of the Transferor. All moneys deposited with
the bank or trust company remaining unclaimed for two years after the date of
deposit shall be repaid by the bank or trust company to the Company on demand,
and the Transferor shall thereafter look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first
refusal rights of the Company set forth in this Section 16 shall remain in
effect until such time, if ever, as an underwritten public offering is made of
shares of the Company's Common Stock pursuant to a registration statement filed
under the Securities Act of 1933 or a successor statute, at which time this
Section 16 and the right of first refusal set forth herein will automatically
expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE. The Company shall have the right (the
"Repurchase Right") to repurchase from the holder of any Option Shares (each a
"Holder") any or all of the Option Shares then owned by such Holder at any time
by giving such Holder a written notice (the "Repurchase Notice") at least 30
days prior to the date of repurchase. The Repurchase Notice shall set forth the
number of Option Shares to be repurchased (the "Repurchase Shares"), the Fair
Market Value per share (determined in accordance with Section 17(b) below as of
the date of the Repurchase Notice) of the Repurchase Shares and the date (the
"Repurchase Date") on which such Repurchase Shares are to be repurchased by the
Company (such date not to be more than 120 nor less than 30 days after the date
of the Repurchase Notice). On the Repurchase Date, the Company shall tender to
the Holder an amount equal to the number of Repurchase Shares multiplied by the
Fair Market Value per share; provided, however, that the Company may pay the
repurchase amount, in its sole discretion, in accordance with the terms of a
promissory note, such terms to be determined solely by the Company (provided
further that the payment term of such promissory note shall not exceed ten (10)
years). The Company may assign the Repurchase Right to one or more persons and
may utilize a promissory note to effect its Repurchase right. Upon timely
exercise of the Repurchase Right in the manner provided in this Section 17(a),
the Holder shall deliver to the Company the stock certificate or certificates
representing the Repurchase Shares, duly endorsed and free and clear of any and
all liens, charges and encumbrances.
<PAGE>
-6-
(b) FAIR MARKET VALUE. For purposes of this Agreement, the Fair
Market Value of an Option Share shall be determined in good faith by the Board
of Directors of the Company after taking into account all relevant factors
including, without limitation, the absence of an active trading market for the
shares of Common Stock, the restrictions on transfer of Option Shares set forth
herein and the valuation attached to other recent issuances of securities by the
Company. The determination by the Board of Directors of Fair Market value shall
be conclusive and binding.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. If there shall
be any change in the Common Stock of the Company through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, combination or
exchange of shares, or the like, the restrictions contained in this Section 17
shall apply with equal force to additional and/or substitute securities, if any,
received by the Optionee in exchange for, or by virtue of his or her ownership
of, Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES. If the Holder fails or
refuses to deliver on a timely basis duly endorsed certificates representing the
Repurchase Shares to be repurchased by the Company or its assignee pursuant to
this Section 17, the Company shall have the right to deposit the repurchase
price for such Repurchase Shares in a special account with any bank or trust
company in the Commonwealth of Massachusetts, giving notice of such deposit to
the Holder, whereupon such Repurchase Shares shall be deemed to have been
purchased by the Company. All such moneys shall be held by the bank or trust
company for the benefit of the Holder. All moneys deposited with the bank or
trust company remaining unclaimed for two years after the date of deposit shall
be repaid by the bank or trust company to the Company on demand, and the Holder
shall thereafter look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT. The Repurchase Right
of the Company set forth in this Section 17 shall remain in effect until such
time, if ever, as an underwritten public offering is made of shares of the
Company's Common Stock pursuant to a registration statement filed under the
Securities Act or any successor statute, at which time this Section 17 and the
Repurchase Right set forth herein will automatically terminate.
18. LOCK-UP AGREEMENT. The Optionee agrees that in connection with an
underwritten public offering of Common Stock, upon the request of the Company or
the managing or lead underwriter for such public offering, this option and the
Option Shares may not be sold, offered for sale or otherwise disposed of without
the prior written consent of the Company or such underwriter, as the case may
be, for at least 180 days after the effectiveness of the registration statement
filed in connection with such offering, or such longer period of time as the
Board of Directors may determine if all of the Company's directors and officers
agree to be similarly bound. The lock-up agreement established pursuant to this
Section 18 shall have perpetual duration.
19. PROVISION OF DOCUMENTATION TO OPTIONEE. By signing this Agreement
the Optionee acknowledges receipt of a copy of this Agreement and a copy of the
Plan.
<PAGE>
-7-
20. GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to the principles of the conflicts of laws thereof.
21. MISCELLANEOUS.
(a) NOTICES. All notices hereunder shall be in writing and shall
be deemed given when sent by certified or registered mail, postage prepaid,
return receipt requested, to the address set forth below. The addresses for such
notices may be changed from time to time by written notice given in the manner
provided for herein.
(b) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the
entire agreement between the parties relative to the subject matter hereof, and
supersedes all proposals, written or oral, and all other communications between
the parties relating to the subject matter of this Agreement. This Agreement may
be modified, amended or rescinded only by a written agreement executed by both
parties.
(c) SEVERABILITY. The invalidity, illegality or unenforceability
of any provision of this Agreement shall in no way affect the validity, legality
or enforceability of any other provision.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, subject to the limitations set forth in Sections 9, 16, 17 and 20
hereof.
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have caused this
instrument to be executed as of the date first above written.
Breakaway Solutions, Inc.
50 Rowes Wharf
6th Floor
Boston, MA 02109
/s/ Christopher Greendale
- -------------------------
Optionee
CHRISTOPHER GREENDALE By: /s/ Gordon Brooks
- ------------------------- -------------------------
Print Name of Optionee Name: Gordon Brooks
Title:
- -------------------------
Street Address
- -------------------------
City State Zip Code
<PAGE>
EXHIBIT 10.19
THE COUNSELL GROUP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
1. GRANT UNDER 1998 STOCK PLAN. This option is granted pursuant to and
is governed by the Company's 1998 Stock Plan (the "Plan") and, unless the
context otherwise requires, terms used herein shall have the same meaning as in
the Plan. Determinations made in connection with this option pursuant to the
Plan shall be governed by the Plan as it exists on this date.
2. GRANT AS NON-QUALIFIED OPTION; OTHER OPTIONS. This option shall be
treated for federal income tax purposes as a Non-Qualified Option (rather than
an incentive stock option). This option is in addition to any other options
heretofore or hereafter granted to the Optionee by the Company or any Related
Corporation (as defined in the Plan), but a duplicate original of this
instrument shall not effect the grant of another option.
3. VESTING OF OPTION IF BUSINESS RELATIONSHIP CONTINUES UNMODIFIED. If
the Optionee has continued to serve the Company or any Related Corporation in
the capacity as set forth in the terms on the term attached hereto as SCHEDULE B
(such service is defined herein as maintaining the "Business Relationship" with
the Company), on the following dates, the Optionee may exercise this option for
the number of shares of Common Stock set opposite the applicable date: (attached
as Schedule A)
Notwithstanding the foregoing, in accordance with and subject to the
provisions of the Plan, the Committee may, in its discretion, accelerate the
date that any installment of this Option becomes exercisable.
The foregoing rights are cumulative and, during the term of the
Business Relationship, may be exercised on or before the date which is ten (10)
years from the date this option is granted. All of the foregoing rights are
subject to Sections 4 and 5, as appropriate, if the Business Relationship is
terminated.
4. TERMINATION OF BUSINESS RELATIONSHIP.
(a) TERMINATION OTHER THAN FOR CAUSE. If the Optionee's
Business Relationship terminates or the terms of the Consulting arrangement set
forth on Exhibit B are otherwise modified, other than by reason of death or
disability as defined in Section 5 or termination for Cause as defined in
Section 4(c), no further installments of this option shall become exercisable,
and this option shall terminate on the earlier of (i) thirty (30) days after the
date of termination of the Business Relationship, or (ii) the scheduled
expiration date of this option. In such a case, the Optionee's only rights
hereunder shall be those which are properly exercised before the termination of
this option.
(b) TERMINATION FOR CAUSE. If the Business Relationship is
terminated for Cause (as defined in Section 4(c)), this option shall terminate
upon the Optionee's receipt of
<PAGE>
-2-
written notice of such termination and shall thereafter not be exercisable to
any extent whatsoever.
(c) DEFINITION OF CAUSE. "Cause" shall mean conduct involving
one or more of the following: (i) the substantial and continuing failure of the
Optionee, after notice thereof, to render services to the Company or Related
Corporation in accordance with the terms or requirements of his or her Business
Relationship; (ii) disloyalty, gross negligence, willful misconduct, dishonesty
or breach of fiduciary duty to the Company or Related Corporation; (iii) the
commission of an act of embezzlement or fraud; (iv) deliberate disregard of the
rules or policies of the Company or Related Corporation which results in direct
or indirect loss, damage or injury to the Company or Related Corporation; (v)
the unauthorized disclosure of any trade secret or confidential information of
the Company or Related Corporation; or (vi) the commission of an act which
constitutes unfair competition with the Company or Related Corporation or which
induces any customer or supplier to breach a contract with the Company or
Related Corporation.
5. DEATH; DISABILITY; DISSOLUTION.
(a) DEATH. If the Optionee is a natural person who dies while
involved in a Business Relationship with the Company, this option may be
exercised, to the extent otherwise exercisable on the date of death, by the
estate, personal representative or beneficiary who has acquired this option by
will or by the laws of descent and distribution, until the earlier of (i) the
specified expiration date of this option or (ii) thirty (30) days from the date
of the Optionee's death.
(b) DISABILITY. If the Optionee is a natural person whose
Business Relationship with the Company is terminated by reason of his or her
disability (as defined in Paragraph 10(B) of the Plan), the Optionee shall have
the right to exercise this option on the date of termination of the Business
Relationship, for the number of shares for which he or she could have exercised
it on that date, until the earlier of (i) the specified expiration date of this
option or (ii) thirty (30) days from the date of the termination of the
Optionee's Business Relationship.
(c) EFFECT OF TERMINATION. At the expiration of the thirty
(30) day period provided in paragraph (a) or (b) of this Section 5 or the
scheduled expiration date, whichever is the earlier, this option shall terminate
and the only rights hereunder shall be those as to which the option was properly
exercised before such termination.
(d) DISSOLUTION. If the Optionee is a corporation,
partnership, trust or other entity that is dissolved, is liquidated, becomes
insolvent or enters into a merger or acquisition with respect to which the
Optionee is not the surviving entity, at a time when the Optionee is involved in
a Business Relationship with the Company, this option shall immediately
terminate as of the date of such event (and shall thereafter not be exercisable
to any extent whatsoever), and the only rights hereunder shall be those as to
which this option was properly exercised before such dissolution or other event.
<PAGE>
-3-
6. PARTIAL EXERCISE. The Optionee may exercise this option in part at
any time and from time to time within the above limits, except that the Optionee
may not exercise this option for a fraction of a share unless such exercise is
with respect to the final installment of stock subject to this option and cash
in lieu of a fractional share must be paid, in accordance with Paragraph 13(G)
of the Plan, to permit the Optionee to exercise completely such final
installment. Any fractional share with respect to which an installment of this
option cannot be exercised because of the limitation contained in the preceding
sentence shall remain subject to this option and shall be available for later
purchase by the Optionee in accordance with the terms hereof.
7. PAYMENT OF PRICE. The option price shall be paid in United States
dollars in cash or by check.
8. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of
this Agreement, this option may be exercised by written notice to the Company at
its principal executive office, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this option and the
number of Option Shares for which it is being exercised and shall be signed by
the person or persons exercising this option. Such notice shall be accompanied
by payment of the full purchase price of such shares, and the Company shall
deliver a certificate or certificates representing such shares as soon as
practicable after the notice shall be received. Such certificate or certificates
shall be registered in the name of the person or persons so exercising this
option (or, if this option is exercised by the Optionee and if the Optionee
requests in the notice exercising this option, shall be registered in the name
of the Optionee and another person jointly, with right of survivorship). In the
event this option is exercised, pursuant to Section 5 hereof, by any person or
persons other than the Optionee, such notice shall be accompanied by appropriate
proof of the right of such person or persons to exercise this option.
9. OPTION NOT TRANSFERABLE. This option is not transferable or
assignable except by will or by the laws of descent and distribution. During the
Optionee's lifetime only the Optionee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this
option imposes no obligation on the Optionee to exercise it.
11. NO OBLIGATION TO CONTINUE BUSINESS RELATIONSHIP. Neither the Plan,
this Agreement, nor the grant of this option imposes any obligation on the
Company or any Related Corporation to continue the Business Relationship with
the Optionee.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Optionee shall have no
rights as a stockholder with respect to the Option Shares until the date of
issuance of a stock certificate to the Optionee. Except as is expressly provided
in the Plan with respect to certain changes in the capitalization and stock
dividends of the Company, no adjustment shall be made for dividends or similar
rights for which the record date is before the date such stock certificate is
issued.
<PAGE>
-4-
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. The Plan contains
provisions covering the treatment of options in a number of contingencies such
as stock splits and mergers. Provisions in the Plan for adjustment with respect
to stock subject to options and the related provisions with respect to
successors to the business of the Company are hereby made applicable hereunder
and are incorporated herein by reference.
14 LEGENDS. The Company may place a legend or legends on any stock
certificate delivered to any holder of Option Shares reflecting the restrictions
on transfer provided in this Agreement.
15. WITHHOLDING TAXES. If the Company or any Related Corporation in its
discretion determines that it is obligated to withhold any tax in connection
with the exercise of this option, the vesting or transfer of Option Shares
acquired on the exercise of this option, or the making of a distribution or
other payment with respect to the Option Shares, the Optionee hereby agrees that
the Company or any Related Corporation may withhold from the Optionee's wages or
other remuneration the appropriate amount of tax. At the discretion of the
Company or Related Corporation, the amount required to be withheld may be
withheld in cash from such wages or other remuneration or in kind from the
Common Stock or other property otherwise deliverable to the Optionee on exercise
of this option. The Optionee further agrees that, if the Company or any Related
Corporation does not withhold an amount from the Optionee's wages or other
remuneration sufficient to satisfy the withholding obligation of the Company or
Related Corporation, the Optionee will make reimbursement on demand, in cash,
for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT. If the Optionee (or successor and
assigns) or his or her legal representative (the "Transferor") desires to
transfer all or any part of the Option Shares to any person other than the
Company (an "Offeror"), the Transferor shall: (i) obtain in writing an
irrevocable and unconditional bona fide offer (the "Offer") for the purchase
thereof from the Offeror; and (ii) give written notice (the "Option Notice") to
the Company setting forth the Transferor's desire to transfer such shares, which
Option Notice shall be accompanied by a photocopy of the Offer and shall set
forth at least the name and address of the Offeror and the price and terms of
the bona fide offer. Upon receipt of the Option Notice, the Company shall have
an assignable option to purchase any or all of such shares (the "Company Option
Shares") specified in the Option Notice, such option to be exercisable by
giving, within 90 days after receipt of the Option Notice, a written
counter-notice to the Transferor (the "Counter-Notice"). If the Company elects
to purchase any or all of such Company Option Shares, it shall be obligated to
purchase, and the Transferor shall be obligated to sell to the Company, such
Company Option Shares that the Company elects to purchase as set forth in the
Counter-Notice at a per share price equal to the lesser of (i) the per share
price (and on the same terms) indicated in the Offer; or (ii) the Fair Market
value (as defined in Section 17(b) and using the date of the Option Notice as
the date of determination of Fair Market Value) of such shares as determined
under Section 17(b), in any case within 30 days of the date of delivery by the
Company of the Counter-Notice. If the Company elects to purchase any or all of
such Company Option Shares, it may, in its sole discretion, pay the purchase
price for such Company option shares in accordance
<PAGE>
-5-
with the terms of a promissory note, such terms to be determined solely by the
Company; provided, however, that the payment term of such promissory note shall
not exceed ten (10) years.
(b) SALE OF OPTION SHARES TO OFFEROR. The Transferor may, for
60 days after the expiration of the 90-day period during which the Company may
give the Counter-Notice, sell, pursuant to the terms of the Offer, any or all of
such Company Option Shares not purchased or agreed to be purchased by the
Company or its assignee; PROVIDED, HOWEVER, that the Transferor shall not sell
such Company Option Shares to the Offeror if the Offeror is a competitor of the
Company and the Company gives a written notice to the Transferor, within 90 days
of its receipt of the Option Notice, stating that the Transferor shall not sell
such Company Option Shares to such Offeror; and PROVIDED, FURTHER, that prior to
the sale of such Company Option Shares to the Offeror, the Offeror shall execute
an agreement with the Company pursuant to which the Offeror agrees to be subject
to the restrictions set forth in Sections 16, 17 and 18 hereof. If any or all of
such Company Option Shares are not sold pursuant to an Offer within the time
permitted above, the unsold Company Option Shares shall remain subject to the
terms of this Section 16 and any future proposed transfer must again comply with
the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination or exchange of shares, or the like, the restrictions contained in
this Section 16 shall apply with equal force to additional and/or substitute
securities, if any, received by the Optionee in exchange for, or by virtue of
his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES. If the
Transferor fails or refuses to deliver on a timely basis duly endorsed
certificates representing Company Option Shares to be sold to the Company or its
assignee pursuant to this Section 16, the Company shall have the right to
deposit the purchase price for such Company Option Shares in a special account
with any bank or trust company in the Commonwealth of Massachusetts, giving
notice of such deposit to the Transferor, whereupon such Company Option Shares
shall be deemed to have been purchased by the Company. All such moneys shall be
held by the bank or trust company for the benefit of the Transferor. All moneys
deposited with the bank or trust company remaining unclaimed for two years after
the date of deposit shall be repaid by the bank or trust company to the Company
on demand, and the Transferor shall thereafter look only to the Company for
payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first
refusal rights of the Company set forth in this Section 16 shall remain in
effect until such time, if ever, as an underwritten public offering is made of
shares of the Company's Common Stock pursuant to a registration statement filed
under the Securities Act of 1933 or a successor statute, at which time this
Section 16 and the right of first refusal set forth herein will automatically
expire.
<PAGE>
-6-
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE. The Company shall have the right (the
"Repurchase Right") to repurchase from the holder of any Option Shares (each a
"Holder") any or all of the Option Shares then owned by such Holder at any time
by giving such Holder a written notice (the "Repurchase Notice") at least 30
days prior to the date of repurchase. The Repurchase Notice shall set forth the
number of Option Shares to be repurchased (the "Repurchase Shares"), the Fair
Market Value per share (determined in accordance with Section 17(b) below as of
the date of the Repurchase Notice) of the Repurchase Shares and the date (the
"Repurchase Date") on which such Repurchase Shares are to be repurchased by the
Company (such date not to be more than 120 nor less than 30 days after the date
of the Repurchase Notice). On the Repurchase Date, the Company shall tender to
the Holder an amount equal to the number of Repurchase Shares multiplied by the
Fair Market Value per share; provided, however, that the Company may pay the
repurchase amount, in its sole discretion, in accordance with the terms of a
promissory note, such terms to be determined solely by the Company (provided
further that the payment term of such promissory note shall not exceed ten (10)
years). The Company may assign the Repurchase Right to one or more persons and
may utilize a promissory note to effect its Repurchase right. Upon timely
exercise of the Repurchase Right in the manner provided in this Section 17(a),
the Holder shall deliver to the Company the stock certificate or certificates
representing the Repurchase Shares, duly endorsed and free and clear of any and
all liens, charges and encumbrances.
(b) FAIR MARKET VALUE. For purposes of this Agreement, the
Fair Market Value of an Option Share shall be determined in good faith by the
Board of Directors of the Company after taking into account all relevant factors
including, without limitation, the absence of an active trading market for the
shares of Common Stock, the restrictions on transfer of Option Shares set forth
herein and the valuation attached to other recent issuances of securities by the
Company. The determination by the Board of Directors of Fair Market value shall
be conclusive and binding.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination or exchange of shares, or the like, the restrictions contained in
this Section 17 shall apply with equal force to additional and/or substitute
securities, if any, received by the Optionee in exchange for, or by virtue of
his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES. If the Holder fails
or refuses to deliver on a timely basis duly endorsed certificates representing
the Repurchase Shares to be repurchased by the Company or its assignee pursuant
to this Section 17, the Company shall have the right to deposit the repurchase
price for such Repurchase Shares in a special account with any bank or trust
company in the Commonwealth of Massachusetts, giving notice of such deposit to
the Holder, whereupon such Repurchase Shares shall be deemed to have been
purchased by the Company. All such moneys shall be held by the bank or trust
company for the benefit of the
<PAGE>
-7-
Holder. All moneys deposited with the bank or trust company remaining unclaimed
for two years after the date of deposit shall be repaid by the bank or trust
company to the Company on demand, and the Holder shall thereafter look only to
the Company for payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT. The Repurchase
Right of the Company set forth in this Section 17 shall remain in effect until
such time, if ever, as an underwritten public offering is made of shares of the
Company's Common Stock pursuant to a registration statement filed under the
Securities Act or any successor statute, at which time this Section 17 and the
Repurchase Right set forth herein will automatically terminate.
18. LOCK-UP AGREEMENT. The Optionee agrees that in connection with an
underwritten public offering of Common Stock, upon the request of the Company or
the managing or lead underwriter for such public offering, this option and the
Option Shares may not be sold, offered for sale or otherwise disposed of without
the prior written consent of the Company or such underwriter, as the case may
be, for at least 180 days after the effectiveness of the registration statement
filed in connection with such offering, or such longer period of time as the
Board of Directors may determine if all of the Company's directors and officers
agree to be similarly bound. The lock-up agreement established pursuant to this
Section 18 shall have perpetual duration.
19. PROVISION OF DOCUMENTATION TO OPTIONEE. By signing this Agreement
the Optionee acknowledges receipt of a copy of this Agreement and a copy of the
Plan.
20. SUBCHAPTER S RESTRICTIONS. Anything in this Agreement to the
contrary notwithstanding, including, without limitation, Sections 9, 16 and 17
hereof, the Optionee shall not exercise this option or sell, assign, transfer or
convey or otherwise dispose of any Option Shares, whether by will, by the laws
of descent and distribution, by operation of law or otherwise, including,
without limitation, under Sections 16 or 17 hereof, to any person or entity, if
such exercise or transfer will or may reasonably be expected to result in a
termination of the Company's subchapter S election under Section 1362 of the
Code (pursuant to Sections 1361 and 1362 of the Code or any successor provision
thereto). Any exercise of this option or transfer of Option Shares in violation
of the restrictions on exercise and transfer contained herein or resulting in
termination of the Company's subchapter S election in violation of the terms of
this Agreement shall be null and void and of no effect whatsoever and shall not
entitle the Optionee or any proposed transferee, assignee or other person to
have any Option Shares issued to them or transferred upon the books of the
Company. Furthermore, the Optionee will not take any other action which would
result in the termination of the Company's subchapter S election. For purposes
of this section 20, the term Optionee includes any successor transferee of the
Option Shares. The provisions of this Section 20 shall remain in effect until
such time, if ever, as an underwritten public offering is made of shares of the
Company's Common Stock pursuant to a registration statement filed under the
Securities Act or any successor statute, at which time this Section 20 and the
restrictions set forth herein will automatically terminate.
<PAGE>
-8-
21. MISCELLANEOUS.
(a) NOTICES. All notices hereunder shall be in writing and
shall be deemed given when sent by certified or registered mail, postage
prepaid, return receipt requested, to the address set forth below. The addresses
for such notices may be changed from time to time by written notice given in the
manner provided for herein.
(b) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes
the entire agreement between the parties relative to the subject matter hereof,
and supersedes all proposals, written or oral, and all other communications
between the parties relating to the subject matter of this Agreement. This
Agreement may be modified, amended or rescinded only by a written agreement
executed by both parties.
(c) SEVERABILITY. The invalidity, illegality or
unenforceability of any provision of this Agreement shall in no way affect the
validity, legality or enforceability of any other provision.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, subject to the limitations set forth in Sections 9, 16,
17 and 20 hereof.
(e) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to the principles of the conflicts of laws thereof.
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have caused this
instrument to be executed as of the date first above written.
The Counsell Group, Inc.
Exchange Place
53 State Street
Boston, MA 02109
/s/ Janie Tremlett
- -----------------------------------
Optionee
Janie Tremlett By: /s/ Sam Spector
- ----------------------------------- ----------------------------------
Print Name of Optionee Name: Sam Spector
Title: Director of Human Resources
- -----------------------------------
Street Address
- -----------------------------------
City State Zip Code
<PAGE>
SCHEDULE A
The Counsell Group, Inc., a Delaware corporation (the "Company"),
hereby grants as of July 1, 1998 (the "Grant Date") to Janie Tremlett (the
"Optionee"), an option to purchase a maximum of 15,000 shares (the "Option
Shares") of its Common Stock, par value $.0001 per share ("Common Stock"), at
the price of $1.63 per share, on the following terms and conditions:
<TABLE>
<S> <C>
July 1, 1999 3,750
July 1, 2000 3,750
July 1, 2001 3,750
July 1, 2002 3,750
</TABLE>
<PAGE>
-11-
SCHEDULE B
Terms of the consulting arrangement between The Counsell Group and Janie
Tremlett:
- - That Janie Tremlett will provide 20 hours of professional services per week
of which one full day will be spent on location.
- - The Counsell Group will pay Ms. Tremlett for these services at the rate of
$2,000 per week.
<PAGE>
EXHIBIT 10.20
AMENDMENT NO. 1 TO NON-QUALIFIED STOCK OPTION AGREEMENT
AMENDMENT NO. 1 made as of this 22nd day of January, 1999, by and
between Breakaway Solutions, Inc., a Delaware corporation (the "Company") and
Janie Tremlett (the "Optionee"), to the Non-Qualified Stock Option Agreement
between the parties hereto effective as of August 5, 1997 (the "Stock Option
Agreement").
WHEREAS, in consideration of Optionee's commitment and service to the
Company and her acceptance of employment with the Company, the Company wishes to
amend the Stock Option Agreement to remove the provision for expiration of the
unexercised Options within thirty days of any change in the Optionee's Business
Relationship with the Company;
NOW, THEREFORE, in consideration of the premises and other mutual
covenants contained herein, and in furtherance of the parties' agreement to
amend the Stock Option Agreement, it is hereby agreed between the parties as
follows:
1. Sections 3, 4 and 5 of the Stock Option Agreement are amended
and now reads as follows:
"3. VESTING OF OPTION IF BUSINESS RELATIONSHIP CONTINUES.
If the Optionee has continued to serve the Company or any Related
Corporation in the capacity as set forth in the terms of the Consulting
Agreement attached hereto as SCHEDULE B or as an employee (such service
is defined herein as maintaining the "Business Relationship" with the
Company), on the following dates, the Optionee may exercise this option
for the number of shares of Common Stock set opposite the applicable
date: (attached as Schedule A)
Notwithstanding the foregoing, in accordance with and subject
to the provisions of the Plan, the Committee may, in its discretion,
accelerate the date that any installment of this Option becomes
exercisable.
The foregoing rights are cumulative and, during the term of
the Business Relationship, may be exercised on or before the date which
is ten (10) years from the date this option is granted. All of the
foregoing rights are subject to Sections 4 and 5, as appropriate, if
the Business Relationship is terminated.
4. TERMINATION OF BUSINESS RELATIONSHIP.
<PAGE>
(A) TERMINATION OTHER THAN FOR CAUSE. If the
Optionee's Business Relationship terminates, other than by reason of
death or disability as defined in Section 5 or termination for Cause as
defined in Section 4(c), no further installments of this option shall
become exercisable, and this option shall terminate on the earlier of
(i) ninety (90) days after the date of termination of the Business
Relationship, or (ii) the scheduled expiration date of this option. In
such a case, the Optionee's only rights hereunder shall be those which
are properly exercised before the termination of this option.
(B) TERMINATION FOR CAUSE. If the Business
Relationship is terminated for Cause (as defined in Section 4(c)), this
option shall terminate upon the Optionee's receipt of written notice of
such termination and shall thereafter not be exercisable to any extent
whatsoever.
(C) DEFINITION OF CAUSE. For the purpose of this
Agreement, "Cause" means: (1) Optionee's substantial and continuing
failure to perform Optionee's duties and responsibilities as an
employee of the Company other than due to death or disability; (2)
Optionee's disloyalty, gross negligence, willful misconduct, dishonesty
or breach of fiduciary duty to the Company; (3) Optionee's deliberate
disregard of material rules, regulations, instructions, personnel
practices and policies of the Company (as amended from time to time in
the Company's sole discretion) which results in direct or indirect
loss, damage or injury to the Company; (4) Optionee's material breach
of any agreement not to compete with the Company or solicit its
customers, employees or contractors; or (5) Optionee's conviction of
any crime which constitutes a felony in the jurisdiction involved.
5. DEATH; DISABILITY; DISSOLUTION.
(A) DEATH. If the Optionee dies while involved in a Business
Relationship with the Company, this option may be exercised, to the
extent otherwise exercisable on the date of death, by the estate,
personal representative or beneficiary who has acquired this option by
will or by the laws of descent and distribution, until the earlier of
(i) the specified expiration date of this option or (ii) one hundred
eighty (180) days from the date of the Optionee's death.
(B) DISABILITY. If the Optionee's Business Relationship with
the Company is terminated by reason of his or her disability (as
defined in Paragraph 10(B) of the Plan), the Optionee shall have the
right to exercise this option on the date of termination of the
Business Relationship, for the number of shares for which he or she
could have exercised it on that date, until the earlier of (i) the
specified expiration date of this option or (ii) one hundred eighty
(180) days from the date of the termination of the Optionee's Business
Relationship.
(C) EFFECT OF TERMINATION. At the expiration of the one
hundred eighty (180) day period provided in paragraph (a) or (b) of
this Section 5 or the scheduled expiration date, whichever is the
earlier, this option shall terminate and the only rights hereunder
shall be those as to which the option was properly exercised before
such termination."
2
<PAGE>
2. RIGHT OF FIRST REFUSAL. The right of first refusal of the Company as
set forth in Section 16 of the Stock Option Agreement shall be amended such that
the Company must purchase all of the Company Option Shares and no portion less
than all of the Company Option Shares if it elects to exercise its option to
purchase Company Option Shares.
3. NOTE. If the Company elects to repurchase any Option Shares pursuant
to Sections 16 or 17 of the Stock Option Agreement and the Company, in its sole
discretion, elects to pay the repurchase amount in accordance with the terms of
a promissory note, the promissory note shall be substantially in the form
attached hereto as Exhibit A.
4. AMENDMENT. The Stock Option Agreement is hereby deemed to be amended
to the extent necessary to carry out the terms of this Amendment No. 1. Except
as provided herein, each of the provisions of the Stock Option Agreement shall
remain in full force and effect, and this Amendment No. 1 shall not constitute a
modification, acceptance or waiver of any other provision of such Stock Option
Agreement except as set forth herein. This Amendment No. 1 shall be governed by
and construed in accordance with the terms of the Stock Option Agreement. The
Stock Option Agreement remains governed by the terms and conditions of the 1998
Stock Plan of Breakaway Solutions, Inc.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
/S/ JANIE TREMLET
------------------------------------
Janie Tremlett
BREAKAWAY SOLUTIONS, INC.
By: /S/ SAM SPECTOR
------------------------------------
Sam Spector
3
<PAGE>
EXHIBIT A
FORM OF
PROMISSORY NOTE
$ , 199
------------- --------- -- -
For value received, the undersigned, Breakaway Solutions, Inc., a
Delaware corporation ("Obligor"), hereby promises to pay to the order of Janie
Tremlett ("Lender") at such place as may be designated from time to time in
writing by Lender, the principal sum of ___________ Dollars and ______ Cents
($_________), together with interest in arrears from and including the date
hereof on the unpaid principal balance hereunder, calculated daily, at the rate
of: ____ percent (___%) per annum [the prime rate in effect on the date hereof
for major banks as published in the Wall Street Journal], payable as set forth
below. At the option of Lender and to the extent permitted by applicable law,
the rate of interest on any unpaid principal or interest not paid when due and
payable hereunder shall be two percent (2%) per annum above the rate of interest
set forth in the immediately preceding sentence. Interest shall be calculated on
the basis of actual number of days elapsed over a year of 360 days.
Notwithstanding any other provision of this Promissory Note, Lender does not
intend to charge and Obligor shall not be required to pay any interest or other
fees or charges in excess of the maximum permitted by applicable law; any
payments in excess of such maximum shall be refunded to Obligor or credited to
reduce principal hereunder. All payments received by Lender hereunder will be
applied first to costs of collection, if any, then to interest and the balance
to principal. Principal and interest shall be payable in lawful money of the
United States of America.
Principal shall be paid in sixty (60) equal monthly installments of
________________ Dollars and ______ Cents ($______) each, commencing on
________, 199_, and continuing on the same day of each successive month
thereafter with a final payment of all unpaid principal on ______, 199_;
interest shall be paid monthly commencing on ________, 199_, and continuing on
the same day of each successive month thereafter with a final payment of all
unpaid interest at the time of payment of the principal.
If any day on which a payment is due pursuant to the terms of this
Promissory Note is not a day on which banks in the Commonwealth of Massachusetts
are generally open (a "Business Day"), such payment shall be due on the next
Business Day following.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part, all such prepayments to be applied upon
installments of most remote maturity. Any prepayment of principal shall be
accompanied by a payment of accrued interest in respect of the principal being
prepaid.
This Promissory Note shall, at the option of the holder hereof, become
due and payable without notice or demand, upon the happening of any one of the
following specified events: (1) failure to pay any amount as herein set forth;
(2) default in the performance of any other obligation to Lender, which default
is not cured within thirty (30) days after written notice of such default from
Lender; (3) insolvency (however evidenced) or the commission of any act of
insolvency; (4) the making of a general assignment for the benefit of creditors;
(5) the filing of any
4
<PAGE>
petition or the commencement of any proceeding by Obligor or any endorser or
guarantor of this Promissory Note for any relief under any bankruptcy or
insolvency laws, or any laws relating to the relief of debtors, readjustment of
indebtedness, reorganizations, compositions, or extensions; (6) the filing of
any petition or the commencement of any proceeding against Obligor or any
endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions,
which proceeding is not dismissed within sixty (60) days; (7) suspension of the
transaction of the usual business of Obligor; or (8) the past or future making
of a false representation or warranty by Obligor in connection with any loan or
loans by Lender.
If this Promissory Note is not paid in accordance with its terms,
Obligor shall pay to Lender, in addition to principal and accrued interest
thereon, all costs of collection of the principal and accrued interest,
including, but not limited to, reasonable attorneys' fees, court costs and other
costs for the enforcement of payment of this Promissory Note.
No waiver of any obligation of Obligor under this Promissory Note shall
be effective unless it is in a writing signed by Lender. A waiver by Lender of
any right or remedy under this Promissory Note on any occasion shall not be a
bar to exercise of the same right or remedy on any subsequent occasion or of any
other right or remedy at any time.
Any notice required or permitted under this Promissory Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
personally delivered to the party to whom notice is to be given, or on the fifth
business day after mailing, if mailed to the party to whom notice is to be
given, by certified mail, return receipt requested, postage prepaid, and
addressed to the addressee at the address of the addressee set forth herein, or
to the most recent address, specified by written notice, given to the sender
pursuant to this paragraph.
This Promissory Note is delivered in and shall be enforceable in
accordance with the laws of the Commonwealth of Massachusetts, and shall be
construed in accordance therewith, and shall have the effect of a sealed
instrument.
Obligor hereby expressly waives presentment, demand, and protest,
notice of demand, dishonor and nonpayment of this Promissory Note, and all other
notices or demands of any kind in connection with the delivery, acceptance,
performance, default or enforcement hereof, and hereby consents to any delays,
extensions of time, renewals, waivers or modifications that may be granted or
consented to by the holder hereof with respect to the time of payment or any
other provision hereof .
In the event any one or more of the provisions of this Promissory Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
5
<PAGE>
OBLIGOR:
By:
--------------------------
Name:
------------------------
Title:
------------------------
Attested:
---------------------
By:
--------------------------
Name:
-------------------------
Title:
------------------------
6
<PAGE>
<PAGE>
EXHIBIT 10.21
BREAKAWAY SOLUTIONS, INC.
INCENTIVE STOCK OPTION AGREEMENT
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's
1998 Stock Plan (the "Plan") and, unless the context otherwise
requires, terms used herein shall have the same meaning as in the Plan.
Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on this date.
2. GRANT AS INCENTIVE STOCK OPTION; OTHER OPTIONS.
This option is intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). This option is in addition to any other options heretofore or
hereafter granted to the Employee by the Company or any Related
Corporation (as defined in the Plan), but a duplicate original of this
instrument shall not effect the grant of another option.
3. VESTING OF OPTION IF EMPLOYMENT CONTINUES.
If the Employee has continued to be employed by the Company or any
Related Corporation on the following dates, the Employee may exercise
this option for the number of shares of Common Stock set opposite the
applicable date: (attached as NOTICE OF GRANT OF STOCK OPTIONS AND
OPTION AGREEMENT). Notwithstanding the foregoing, in accordance with
and subject to the provisions of the Plan, the Committee may, in its
discretion, accelerate the date that any installment of this Option
becomes exercisable. The foregoing rights are cumulative and, while the
Employee continues to be employed by the Company or any Related
Corporation, may be exercised on or before the date which is ten (10)
years from the date this option is granted. All of the foregoing rights
are subject to Sections 4 and 5, as appropriate, if the Employee ceases
to be employed by the Company and all Related Corporations.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company and all
Related Corporations, other than by reason of death or
disability as defined in Section 5 or termination for Cause as
defined in Section 4(c), no further installments of this
option shall become exercisable, and this option shall
terminate on the earlier of (i) thirty (30) days after the
date of termination of the Employee's employment, or (ii) the
scheduled expiration date of this option. In such a case, the
Employee's only rights hereunder shall be those which are
properly exercised before the termination of this option.
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as
defined in Section 4(c)), this option shall terminate upon the
Employee's receipt of written notice of such termination and
shall thereafter not be exercisable to any extent whatsoever.
Page 1 of 8
<PAGE>
(c) DEFINITION OF CAUSE.
"Cause" shall mean conduct involving one or more of the
following: (i) the substantial and continuing failure of the
Employee, after notice thereof, to render services to the
Company or Related Corporation in accordance with the terms or
requirements of his or her employment; (ii) disloyalty, gross
negligence, willful misconduct, dishonesty or breach of
fiduciary duty to the Company or Related Corporation; (iii)
the commission of an act of embezzlement or fraud; (iv)
deliberate disregard of the rules or policies of the Company
or Related Corporation which results in direct or indirect
loss, damage or injury to the Company or Related Corporation;
(v) the unauthorized disclosure of any trade secret or
confidential information of the Company or Related
Corporation; or (vi) the commission of an act which
constitutes unfair competition with the Company or Related
Corporation or which induces any customer or supplier to
breach a contract with the Company or Related Corporation.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all
Related Corporations by reason of his or her death, this
option may be exercised, to the extent otherwise exercisable
on the date of death, by the estate, personal representative
or beneficiary who has acquired this option by will or by the
laws of descent and distribution, until the earlier of (i) the
specified expiration date of this option or (ii) thirty (30)
days from the date of the Employee's death.
(b) DISABILITY.
If the Employee ceases to be employed by the Company and all
Related Corporations by reason of his or her disability (as
defined in Paragraph 10(B) of the Plan), the Employee shall
have the right to exercise this option on the date of
termination of employment, for the number of shares for which
he or she could have exercised it on that date, until the
earlier of (i) the specified expiration date of this option or
(ii) thirty (30) days from the date of the termination of the
Employee's employment.
(c) EFFECT OF TERMINATION.
At the expiration of the thirty (30) day period provided in
paragraph (a) or (b) of this Section 5 or the scheduled
expiration date, whichever is the earlier, this option shall
terminate and the only rights hereunder shall be those as to
which the option was properly exercised before such
termination.
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and from time
to time within the above limits, except that the Employee may not
exercise this option for a fraction of a share unless such exercise is
with respect to the final installment of stock subject to this option
and cash in lieu of a fractional share must be paid, in accordance with
Paragraph 13(G) of the Plan, to permit the Employee to exercise
completely such final installment. Any fractional share with respect to
which an installment of this option cannot be exercised because of the
limitation contained in the preceding sentence shall remain subject to
this option and shall be available for later purchase by the Employee
in accordance with the terms hereof.
7. PAYMENT OF PRICE.
The option price shall be paid in United States dollars in cash or by
check.
Page 2 of 8
<PAGE>
8. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, this option may
be exercised by written notice to the Company at its principal
executive office, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this option
and the number of Option Shares for which it is being exercised and
shall be signed by the person or persons exercising this option. Such
notice shall be accompanied by payment of the full purchase price of
such shares, and the Company shall deliver a certificate or
certificates representing such shares as soon as practicable after the
notice shall be received. Such certificate or certificates shall be
registered in the name of the person or persons so exercising this
option (or, if this option is exercised by the Employee and if the
Employee requests in the notice exercising this option, shall be
registered in the name of the Employee and another person jointly, with
right of survivorship). In the event this option is exercised, pursuant
to Section 5 hereof, by any person or persons other than the Employee,
such notice shall be accompanied by appropriate proof of the right of
such person or persons to exercise this option.
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Employee's lifetime only
the Employee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION.
The grant and acceptance of this option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option imposes
any obligation on the Company or any Related Corporation to continue
the Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
The Employee shall have no rights as a stockholder with respect to the
Option Shares until the date of issuance of a stock certificate to the
Employee. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization and stock dividends of the
Company, no adjustment shall be made for dividends or similar rights
for which the record date is before the date such stock certificate is
issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options in a
number of contingencies such as stock splits and mergers. Provisions in
the Plan for adjustment with respect to stock subject to options and
the related provisions with respect to successors to the business of
the Company are hereby made applicable hereunder and are incorporated
herein by reference.
14. EARLY DISPOSITION.
The Employee agrees to notify the Company in writing immediately after
the Employee transfers any Option Shares, if such transfer occurs on or
before the later of (a) the date two years after the Grant Date or (b)
the date one year after the date the Employee acquired such Option
Shares. The Employee also agrees to provide the Company with any
information concerning any such transfer required by the Company for
tax purposes.
Page 3 of 8
<PAGE>
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion determines
that it is obligated to withhold any tax in connection with the
exercise of this option, the making of a Disqualifying Disposition (as
defined in Paragraph 18 of the Plan), the vesting or transfer of Option
Shares acquired on the exercise of this option, or the making of a
distribution or other payment with respect to the Option Shares, the
Employee hereby agrees that the Company or any Related Corporation may
withhold from the Employee's wages or other remuneration the
appropriate amount of tax. At the discretion of the Company or Related
Corporation, the amount required to be withheld may be withheld in cash
from such wages or other remuneration or in kind from the Common Stock
or other property otherwise deliverable to the Employee on exercise of
this option. The Employee further agrees that, if the Company or any
Related Corporation does not withhold an amount from the Employee's
wages or other remuneration sufficient to satisfy the withholding
obligation of the Company or Related Corporation, the Employee will
make reimbursement on demand, in cash, for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or her legal
representative (the "Transferor") desires to transfer all or
any part of the Option Shares to any person other than the
Company (an "Offeror"), the Transferor shall: (I) obtain in
writing an irrevocable and unconditional bona fide offer (the
"Offer") for the purchase thereof from the Offeror; and (II)
give written notice (the "Option Notice") to the Company
setting forth the Transferor's desire to transfer such shares,
which Option Notice shall be accompanied by a photocopy of the
Offer and shall set forth at least the name and address of the
Offeror and the price and terms of the bona fide offer. Upon
receipt of the Option Notice, the Company shall have an
assignable option to purchase any or all of such shares (the
"Company Option Shares") specified in the Option Notice, such
option to be exercisable by giving, within 90 days after
receipt of the Option Notice, a written counter-notice to the
Transferor (the "Counter-Notice"). If the Company elects to
purchase any or all of such Company Option Shares, it shall be
obligated to purchase, and the Transferor shall be obligated
to sell to the Company, such Company Option Shares that the
Company elects to purchase as set forth in the Counter-Notice
at a per share price equal to the lesser of (i) the per share
price (and on the same terms) indicated in the Offer; or (ii)
the Fair Market Value (as defined in Section 17(b) and using
the date of the Option Notice as the date of determination of
Fair Market Value) of such shares as determined under Section
17(b), in any case within 30 days of the date of delivery by
the Company of the Counter-Notice. If the Company elects to
purchase any or all of such Company Option Shares, it may, in
its sole discretion, pay the purchase price for such Company
Option Shares in accordance with the terms of a promissory
note, such terms to be determined solely by the Company;
provided, however, that the payment term of such promissory
note shall not exceed ten (10) years.
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for 60 days after the expiration of the
90-day period during which the Company may give the
Counter-Notice, sell, pursuant to the terms of the Offer, any
or all of such Company Option Shares not purchased or agreed
to be purchased by the Company or its assignee; PROVIDED,
HOWEVER, that the Transferor shall not sell such Company
Option Shares to the Offeror if the Offeror is a competitor of
the Company and the Company gives a written notice to the
Transferor, within 90 days of its receipt of the Option
Notice, stating that the Transferor shall not sell such
Company Option Shares to such Offeror; and PROVIDED, FURTHER,
that prior to the sale of such Company Option Shares to the
Offeror, the Offeror shall execute an agreement with the
Company pursuant to which the Offeror agrees to be subject to
the restrictions set forth in Sections 16, 17, 18 and 20
hereof. If any or all of such Company Option Shares are not
sold pursuant to an Offer within the time permitted above, the
unsold Company Option Shares shall
Page 4 of 8
<PAGE>
remain subject to the terms of this Section 16 and any future
proposed transfer must again comply with the provisions set
forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the
Company through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination or
exchange of shares, or the like, the restrictions contained in
this Section 16 shall apply with equal force to additional
and/or substitute securities, if any, received by the Employee
in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refuses to deliver on a timely
basis duly endorsed certificates representing Company Option
Shares to be sold to the Company or its assignee pursuant to
this Section 16, the Company shall have the right to deposit
the purchase price for such Company Option Shares in a special
account with any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the
Transferor, whereupon such Company Option Shares shall be
deemed to have been purchased by the Company. All such moneys
shall be held by the bank or trust company for the benefit of
the Transferor. All moneys deposited with the bank or trust
company remaining unclaimed for two years after the date of
deposit shall be repaid by the bank or trust company to the
Company on demand, and the Transferor shall thereafter look
only to the Company for payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The
first refusal rights of the Company set forth in this Section
Section 16 shall remain in effect until such time, if ever, as
an underwritten public offering is made of shares of the
Company's Common Stock pursuant to a registration statement
filed under the Securities Act of 1933 or a successor statute,
at which time this Section 16 and the right of first refusal
set forth herein will automatically expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE.
The Company shall have the right (the "Repurchase Right") to
repurchase from the holder of any Option Shares (each a
"Holder") any or all of the Option Shares then owned by such
Holder at any time by giving such Holder a written notice (the
"Repurchase Notice") at least 30 days prior to the date of
repurchase. The Repurchase notice shall set forth the number
of Option Shares to be repurchased (the "Repurchase Shares"),
the Fair Market Value per share (determined in accordance with
Section 17(b) below as of the date of the Repurchase Notice)
of the Repurchase Shares and the date (the "Repurchase Date")
on which such Repurchase Shares are to be repurchased by the
Company (such date not to be more than 120 nor less than 30
days after the date of the Repurchase Notice). On the
Repurchase Date, the Company shall tender to the Holder an
amount equal to the number of Repurchase Shares multiplied by
the Fair Market Value per share; provided, however, that the
Company may pay the repurchase amount, in its sole discretion,
in accordance with the terms of a promissory note, such terms
to be determined solely by the Company (provided further that
the payment term of such promissory note shall not exceed ten
(10) years). The Company may assign the Repurchase Right to
one or more persons and may utilize a promissory note to
effect its Repurchase Right. Upon timely exercise of the
Repurchase Right in the manner provided in this Section 17(a),
the Holder shall deliver to the Company the stock certificate
or certificates representing the Repurchase Shares, duly
endorsed and free and clear of any and all liens, charges and
encumbrances.
(b) FAIR MARKET VALUE.
Page 5 of 8
<PAGE>
For purposes of this Agreement, the Fair Market Value of an
Option Share shall be determined in good faith by the Board of
Directors of the Company after taking into account all
relevant factors including, without limitation, the absence of
an active trading market for the shares of Common Stock, the
restrictions on transfer of Option Shares set forth herein and
the valuation attached to other recent issuances of securities
by the Company. The determination by the Board of Directors of
Fair Market Value shall be conclusive and binding.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the
Company through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination or
exchange of shares, or the like, the restrictions contained in
this Section 17 shall apply with equal force to additional
and/or substitute securities, if any, received by the Employee
in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES.
If the Holder fails or refuses to deliver on a timely basis
duly endorsed certificates representing the Repurchase Shares
to be repurchased by the Company or its assignee pursuant to
this Section 17, the Company shall have the right to deposit
the repurchase price for such Repurchase Shares in a special
account with any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the Holder,
whereupon such Repurchase Shares shall be deemed to have been
purchased by the Company. All such moneys shall be held by the
bank or trust company for the benefit of the Holder. All
moneys deposited with the bank or trust company remaining
unclaimed for two years after the date of deposit shall be
repaid by the bank or trust company to the Company on demand,
and the Holder shall thereafter look only to the Company for
payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT.
The Repurchase Right of the Company set forth in this Section
17 shall remain in effect until such time, if ever, as an
underwritten public offering is made of shares of the
Company's Common Stock pursuant to a registration statement
filed under the Securities Act or any successor statute, at
which time this Section 17 and the Repurchase Right set forth
herein will automatically terminate.
18. LOCK-UP AGREEMENT.
The Employee agrees that in connection with an underwritten public
offering of Common Stock, upon the request of the Company or the
managing or lead underwriter for such public offering, this option and
the Option Shares may not be sold, offered for sale or otherwise
disposed of without the prior written consent of the Company or such
underwriter, as the case may be, for at least 180 days after the
effectiveness of the registration statement filed in connection with
such offering, or such longer period of time as the Board of Directors
may determine if all of the Company's directors and officers agree to
be similarly bound. The lock-up agreement established pursuant to this
Section 18 shall have perpetual duration.
19. PROVISION OF DOCUMENTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of a copy
of this Agreement and a copy of the Plan.
Page 6 of 8
<PAGE>
20. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall be deemed
given when sent by certified or registered mail, postage
prepaid, return receipt requested, to the address set forth
below. The addresses for such notices may be changed from time
to time by written notice given in the manner provided for
herein.
(b) ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the entire agreement between the
parties relative to the subject matter hereof, and supersedes
all proposals, written or oral, and all other communications
between the parties relating to the subject matter of this
Agreement. This Agreement may be modified, amended or
rescinded only by a written agreement executed by both
parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any
provision of this Agreement shall in no way affect the
validity, legality or enforceability of any other provision.
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and
assigns, subject to the limitations set forth in Sections 9,
16, 17, and 20 hereof.
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to the principles of the conflicts of
laws thereof.
(f) LEGENDS.
The Company may place a legend or legends on any stock
certificate delivered to the any holder of Option Shares
reflecting the restrictions on transfer provided in this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Page 7 of 8
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
Breakaway Solutions, Inc.
50 Rowes Wharf
Boston, MA 02110
/s/ Kevin Comerford
- -------------------------------------
Employee Signature
Kevin Comerford By: /s/ Sam Spector
- ------------------------------------- --------------------------------
Print Name of Employee Name: Sam Spector
Title: Director HR
30 Windsor LN
- -------------------------------------
Street Address
NO. Andover, MA 01845
- -------------------------------------
City State Zip Code
Page 8 of 8
<PAGE>
THE COUNSELL GROUP
NOTICE OF GRANT OF STOCK OPTIONS ID: 04-3285165
AND OPTION AGREEMENT 50 Rowes Wharf
6th Floor
Boston, MA 02110
- ----------------------------------------------------------------------------
KEVIN T. COMERFORD OPTION NUMBER: 00000190
36 WINDSOR LANE PLAN: 98
NORTH ANDOVER, MA 01845 ID: 1137
- ----------------------------------------------------------------------------
Effective 10/1/98, you have been granted a(n) Incentive Stock Option to buy
15,000 shares of The Counsell Group (the Company) stock at $2.4400 per share.
The total option price of the shares granted is $36,600.00
Shares in each period will become fully vested on the date shown.
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
--------------- ---------------------- ------------------ ----------------
<S> <C> <C> <C>
3,750 On Vest Date 10/1/99 10/1/08
3,750 On Vest Date 10/1/00 10/1/08
3,750 On Vest Date 10/1/01 10/1/08
3,750 On Vest Date 10/1/02 10/1/08
--------------------------------------------------------------------------
</TABLE>
By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan as amended and the Option Agreement, all of
which are attached and made a part of this document.
- --------------------------------------------------------------------------------
/s/ Sam Spector 12/01/98
- ------------------------------------- ---------------------------
The Counsell Group Date
/s/ Kevin T. Comerford 12/01/98
- ------------------------------------- ---------------------------
Kevin T. Comerford Date
<PAGE>
EXHIBIT 10.22
BREAKAWAY SOLUTIONS, INC.
INCENTIVE STOCK OPTION AGREEMENT
BREAKAWAY SOLUTIONS, INC. (the "Company") hereby grants this 11th day of
December, 1998 (the "Grant Date") to Gordon Brooks (the "Employee"), an option
to purchase a maximum of ninety four thousand one hundred sixteen (94,116)
shares (the "Option Shares") of the Company's Common Stock, par value $.0001 per
share ("Common Stock") at the price of four dollars and twenty-five cents
($4.25) per share, on the following terms and conditions:
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's 1998
Stock Plan (the "Plan"), the terms and conditions of which are
incorporated herein by reference, and, unless the context otherwise
requires, terms used herein shall have the same meaning as in the Plan.
Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on the Grant Date.
2. GRANT AS INCENTIVE STOCK OPTION; OTHER OPTIONS.
This option is intended to qualify as an incentive stock option ("ISO")
under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). However, the foregoing shall not be construed as invalidating
this option to any extent in the event all or part of it fails, for any
reason, to so qualify, and to the extent it does not so qualify this
option shall be treated for all purposes as a Non-Qualified Option under
the Plan. This option is in addition to any other options heretofore or
hereafter granted to the Employee by the Company or any Related
Corporation (as defined in the Plan), but a duplicate original of this
instrument shall not effect the grant of another option.
3. VESTING OF OPTION.
Except as otherwise provided in this Agreement, and subject to all other
terms and conditions of this Agreement, this option may be exercised
prior to the tenth (10th) anniversary of the Grant Date (the "Expiration
Date") in installments for not more than the number of Option Shares
which are vested as hereinbelow provided:
(a) CONTINUED EMPLOYMENT FOR ONE TO FOUR YEARS.
Twenty three thousand five hundred twenty nine (23,529) shares will vest
on the first anniversary of the Grant Date, and the balance of the Option
Shares will vest in equal monthly installments of one thousand nine
hundred sixty and three quarters (1,960.75) shares, each, over the
three-year period immediately following such first anniversary date.
(b) TRIGGERING EVENT.
All unvested shares shall immediately become vested in full upon the
occurrence of any of the following events (each, a "Triggering Event"):
(a) a public offering by the Company of shares of its Common Stock, (b) a
sale of all or substantially all of the Company's assets or all or
substantially all of the shares of its capital stock, (c) a consolidation
or merger of the Company in which a majority of outstanding shares of the
Company's capital stock are exchanged for securities, cash or other
property of any
<PAGE>
other corporation or business entity, (d) a consolidation or merger
involving the Company as a result of which the stockholders of the
Company immediately prior to such event do not own, immediately following
the occurrence of such event, at least a majority of the common stock and
voting power of the entity resulting from such consolidation or surviving
such merger or (e) the liquidation or dissolution of the Company. In
addition, if the Company or stockholders of the Company enter into an
agreement with respect to an event described in (b) thorough (e) of the
preceding sentence, then upon the consummation of such event a Triggering
Event shall be deemed to have occurred upon the date of such agreement
and, regardless of whether the option remains outstanding on the date of
consummation of the Triggering Event, the Employee will be entitled to
exercise the option to the extent the Employee would have been eligible
to do so if a Triggering Event had occurred on the date the agreement was
entered into (and in any event, for a period of at least 30 days after
the consummation of such event).
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company or any Related
Corporation, other than by reason of death or disability as defined in
Section 5 or termination for Cause as defined in Section 4(c), this
option will continue to vest as set forth in Section 3 for sixty (60)
days from the date Employee ceases employment with the Company or any
Related Corporation. This option shall terminate on the earlier of (i)
ninety (90) days after the date of termination of the Employee's
employment, or (ii) the Expiration Date. In such a case, the Employee's
only rights hereunder shall be those which are properly exercised before
the termination of this option.
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as defined in
Section 4(c)), this option shall terminate upon the Employee's receipt of
written notice of such termination and shall thereafter not be
exercisable to any extent whatsoever.
(c) DEFINITION OF CAUSE.
"Cause" shall mean that the Employee is terminated for one or more of the
following reasons: (i) the Employee's commission of any act of
embezzlement or fraud; or (ii) the Employee's conviction of a felony.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his death, this option may be exercised, to the
extent otherwise exercisable on the date which is sixty (60) days after
the date of death, by the estate, personal representative or beneficiary
who has acquired this option by will or by the
<PAGE>
laws of descent and distribution, until the earlier of (i) the Expiration
Date or (ii) one hundred eighty (180) days from the date of the
Employee's death.
(b) DISABILITY.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his or her disability (as defined in Paragraph
10(B) of the Plan), the Employee shall have the right to exercise this
option, to the extent otherwise exercisable on the date which is sixty
(60) days from the date of termination of employment, until the earlier
of (i) the Expiration Date or (ii) one hundred eighty (180) days from the
date of the termination of the Employee's employment.
(c) EFFECT OF TERMINATION.
At the expiration of the one hundred eighty (180) day period provided in
paragraph (a) or (b) of this Section 5, or the Expiration Date, whichever
is the earlier, this option shall terminate and the only rights hereunder
shall be those as to which the option was properly exercised before such
termination.
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and from time
to time within the above limits, except that the Employee may not
exercise this option for a fraction of a share unless such exercise is
with respect to the final installment of stock subject to this option and
cash in lieu of a fractional share must be paid, in accordance with
Paragraph 13(G) of the Plan, to permit the Employee to exercise
completely such final installment. Any fractional share with respect to
which an installment of this option cannot be exercised because of the
limitation contained in the preceding sentence shall remain subject to
this option and shall be available for later purchase by the Employee in
accordance with the terms hereof.
7. PAYMENT OF PRICE.
(a) PAYMENT. The option price shall be paid in the following manner:
(i) in cash or by check;
(ii) subject to Section 7(b) below, by delivery of shares of the
Company's Common Stock having a fair market value (as
determined by the Committee) equal as of the date of
exercise to the option price;
(iii) by delivery of an assignment satisfactory in form and
substance to the Company of a sufficient amount of the
proceeds from the sale of the Option Shares and an
instruction to the broker or selling agent to pay that
amount to the Company;
(v) by any combination of the foregoing.
<PAGE>
(b) LIMITATIONS ON PAYMENT BY DELIVERY OF COMMON STOCK. If the Employee
delivers Common Stock held by the Employee ("Old Stock") to the Company
in full or partial payment of the option price, and the Old Stock so
delivered is subject to restrictions or limitations imposed by agreement
between the Employee and the Company, an equivalent number of Option
Shares shall be subject to all restrictions and limitations applicable to
the Old Stock to the extent that the Employee paid for the Option Shares
by delivery of Old Stock, in addition to any restrictions or limitations
imposed by this Agreement. Notwithstanding the foregoing, the Employee
may not pay any part of the exercise price hereof by transferring Common
Stock to the Company unless such Common Stock has been owned by the
Employee free of any substantial risk of forfeiture for at least six
months.
8. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, this option may be
exercised by written notice to the Company at its principal executive
office, or to such transfer agent as the Company shall designate. Such
notice shall state the election to exercise this option and the number of
Option Shares for which it is being exercised and shall be signed by the
person or persons exercising this option. Such notice shall be
accompanied by payment of the full purchase price of such shares, and the
Company shall deliver a certificate or certificates representing such
shares as soon as practicable after the notice shall be received. Such
certificate or certificates shall be registered in the name of the person
or persons so exercising this option (or, if this option is exercised by
the Employee and if the Employee requests in the notice exercising this
option, shall be registered in the name of the Employee and another
person jointly, with right of survivorship). In the event this option is
exercised, pursuant to Section 5 hereof, by any person or persons other
than the Employee, such notice shall be accompanied by appropriate proof
of the right of such person or persons to exercise this option.
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Employee's lifetime only the
Employee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION.
The grant and acceptance of this option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option imposes
any obligation on the Company or any Related Corporation to continue the
Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
The Employee shall have no rights as a stockholder with respect to the
Option Shares until the date of issuance of a stock certificate to the
Employee. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization and stock dividends of the Company,
no adjustment shall be made for dividends or similar rights for which the
record date is before the date such stock certificate is issued.
<PAGE>
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options in a
number of contingencies such as stock splits and mergers. Provisions in
the Plan for adjustment with respect to stock subject to options and the
related provisions with respect to successors to the business of the
Company are hereby made applicable hereunder and are incorporated herein
by reference.
14. EARLY DISPOSITION.
The Employee agrees to notify the Company in writing immediately after
the Employee transfers any Option Shares, if such transfer occurs on or
before the later of (a) the date two years after the Grant Date or (b)
the date one year after the date the Employee acquired such Option
Shares. The Employee also agrees to provide the Company with any
information concerning any such transfer required by the Company for tax
purposes.
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion determines
that it is obligated to withhold any tax in connection with the exercise
of this option, the making of a Disqualifying Disposition (as defined in
Paragraph 18 of the Plan), the vesting or transfer of Option Shares
acquired on the exercise of this option, or the making of a distribution
or other payment with respect to the Option Shares, the Employee hereby
agrees that the Company or any Related Corporation may withhold from the
Employee's wages or other remuneration the appropriate amount of tax. At
the discretion of the Company or Related Corporation, the amount required
to be withheld may be withheld in cash from such wages or other
remuneration or in kind from the Common Stock or other property otherwise
deliverable to the Employee on exercise of this option. The Employee
further agrees that, if the Company or any Related Corporation does not
withhold an amount from the Employee's wages or other remuneration
sufficient to satisfy the withholding obligation of the Company or
Related Corporation, the Employee will make reimbursement on demand, in
cash, for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or her legal
representative (the "Transferor") desires to transfer all or any part of
the Option Shares to any person other than the Company (an "Offeror"),
the Transferor shall: (i) obtain in writing a bona fide offer (the
"Offer") for the purchase thereof from the Offeror; and (ii) give written
notice (the "Option Notice") to the Company setting forth the
Transferor's desire to transfer such shares, which Option Notice shall be
accompanied by a photocopy of the Offer and shall set forth at least the
name and address of the Offeror and the price and terms of the bona fide
offer. Upon receipt of the Option Notice, the Company shall have an
assignable option to purchase all of such shares (the "Company Option
Shares") specified in the Option Notice, such option to be exercisable by
giving, within thirty (30) days after receipt of the Option Notice, a
written counter-notice to the Transferor (the "Counter-Notice"). If the
Company elects to purchase all of such Company Option Shares, it shall be
obligated to purchase, and the Transferor shall be obligated to sell to
the Company, such Company Option Shares that the Company
<PAGE>
elects to purchase as set forth in the Counter-Notice at a per share
price equal to the per share price (and, except as set forth below, on
the same terms) indicated in the Offer, within thirty (30) days of the
date of delivery by the Company of the Counter-Notice. If the Company
elects to purchase all of such Company Option Shares, it may, in its sole
discretion, pay the purchase price for such Company option shares in
accordance with the terms of a promissory note, in the form attached
hereto as Exhibit A.
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for sixty (60) days after the expiration of the
thirty (30)-day period during which the Company may give the
Counter-Notice, sell, pursuant to the terms of the Offer, any or all of
such Company Option Shares not purchased or agreed to be purchased by the
Company or its assignee; PROVIDED, HOWEVER, that the Transferor shall not
sell such Company Option Shares to the Offeror if the Offeror is a
competitor of the Company and the Company gives a written notice to the
Transferor, within thirty (30) days of its receipt of the Option Notice,
stating that the Offeror is a competitor and therefore Transferor shall
not sell such Company Option Shares to such Offeror; and PROVIDED,
FURTHER, that prior to the sale of such Company Option Shares to the
Offeror, the Offeror shall execute an agreement with the Company pursuant
to which the Offeror agrees to be subject to the restrictions set forth
in Sections 16, 17, 18 and 20 hereof. If any or all of such Company
Option Shares are not sold pursuant to an Offer within the time permitted
above, the unsold Company Option Shares shall remain subject to the terms
of this Section 16 and any future proposed transfer must again comply
with the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, combination or exchange of shares, or the like, the
restrictions contained in this Section 16 shall apply with equal force to
additional and/or substitute securities, if any, received by the Employee
in exchange for, or by virtue of his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refuses to deliver on a timely basis duly
endorsed certificates representing Company Option Shares to be sold to
the Company or its assignee pursuant to this Section 16, the Company
shall have the right to deposit the purchase price for such Company
Option Shares in a special account with any bank or trust company in the
Commonwealth of Massachusetts, giving notice of such deposit to the
Transferor, whereupon such Company Option Shares shall be deemed to have
been purchased by the Company. All such moneys shall be held by the bank
or trust company for the benefit of the Transferor. All moneys deposited
with the bank or trust company remaining unclaimed for two years after
the date of deposit shall be repaid by the bank or trust company to the
Company on demand, and the Transferor shall thereafter look only to the
Company for payment.
<PAGE>
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first refusal
rights of the Company set forth in this Section 16 shall remain in effect
until such time, if ever, as an underwritten public offering is made of
shares of the Company's Common Stock pursuant to a registration statement
filed under the Securities Act of 1933 or a successor statute or the
closing of an Acquisition as defined in the Plan, at which time this
Section 16 and the right of first refusal set forth herein will
automatically expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE.
The Company shall have the right (the "Repurchase Right") to repurchase
from the holder of any Option Shares (each a "Holder") any or all of the
Option Shares then owned by such Holder at any time by giving such Holder
a written notice (the "Repurchase Notice") at least 30 days prior to the
date of repurchase. The Repurchase Notice shall set forth the number of
Option Shares to be repurchased (the "Repurchase Shares"), the Fair
Market Value per share (determined in accordance with Section 17(b) below
as of the date of the Repurchase Notice) of the Repurchase Shares and the
date (the "Repurchase Date") on which such Repurchase Shares are to be
repurchased by the Company (such date not to be more than 120 nor less
than 30 days after the date of the Repurchase Notice). On the Repurchase
Date, the Company shall tender to the Holder an amount equal to the
number of Repurchase Shares multiplied by the Fair Market Value per
share; provided, however, that the Company may pay the repurchase amount,
in its sole discretion, in accordance with the terms of a promissory note
in the form attached hereto as EXHIBIT A. The Company may assign the
Repurchase Right to one or more persons and may utilize a promissory note
to effect its Repurchase right. Upon timely exercise of the Repurchase
Right in the manner provided in this Section 17(a), the Holder shall
deliver to the Company the stock certificate or certificates representing
the Repurchase Shares, duly endorsed and free and clear of any and all
liens, charges and encumbrances.
(b) FAIR MARKET VALUE.
A determination as to the current valuation of the Company shall be made
(i) on an annual basis within 90 days after the end of the Company's
fiscal year, (ii) effective upon the consummation by the Company of any
future financing and (iii) promptly following any other event which
involves the obtaining by the Company of an independent valuation of the
Company. "Valuation" means (1) in the case of clause (I) of the preceding
sentence, a valuation mutually agreed upon by Employee and the Board of
Directors, or if a mutual agreement cannot be reached, a written
determination of the valuation of the Company prepared by an independent
investment banking firm or appraisal company which is of national or
regional reputation and which is mutually acceptable to the Company and
to you and which valuation is prepared on a basis consistent with
valuation methods typically used by venture capitalists or investment
bankers to value a business in the same industry and stage of development
as the Company (it being agreed that such valuation shall not be based on
book value or liquidation value), (2) with respect to clause (ii) of the
preceding sentence, the valuation of the Company in connection with such
financing and (3) with respect to clause (iii) of the preceding sentence,
the independently prepared valuation referred to therein. "Fair
<PAGE>
Market Value per Option Share" shall mean the valuation of the Company
divided by the number of shares of Common Stock equivalents (including,
without limitation, preferred stock convertible into common stock,
warrants to purchase common stock and vested options) then outstanding.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, combination or exchange of shares, or the like, the
restrictions contained in this Section 17 shall apply with equal force to
additional and/or substitute securities, if any, received by the Employee
in exchange for, or by virtue of his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES.
If the Holder fails or refuses to deliver on a timely basis duly endorsed
certificates representing the Repurchase Shares to be repurchased by the
Company or its assignee pursuant to this Section 17, the Company shall
have the right to deposit the repurchase price for such Repurchase Shares
in a special account with any bank or trust company in the Commonwealth
of Massachusetts, giving notice of such deposit to the Holder, whereupon
such Repurchase Shares shall be deemed to have been purchased by the
Company. All such moneys shall be held by the bank or trust company for
the benefit of the Holder. All moneys deposited with the bank or trust
company remaining unclaimed for two years after the date of deposit shall
be repaid by the bank or trust company to the Company on demand, and the
Holder shall thereafter look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT.
The Repurchase Right of the Company set forth in this Section 17 shall
remain in effect until such time, if ever, as an underwritten public
offering is made of shares of the Company's Common Stock pursuant to a
registration statement filed under the Securities Act or any successor
statute or the closing of an Acquisition as defined in the Plan, at which
time this Section 17 and the Repurchase Right set forth herein will
automatically terminate.
(f) TRANSFERS EXCLUDED FROM FIRST REFUSAL RIGHTS.
The foregoing first refusal rights of the Company shall not apply to a
transfer by the Employee of all or any part of the Option Shares to the
Employee's spouse, children or grandchildren, or to a trust for the
benefit of any such individuals; provided, however, that prior to any
such transfer each transferee shall execute an agreement with the Company
pursuant to which the transferee agrees to be subject to the restrictions
set forth in Sections 16, 17, 18 and 20 hereof.
18. LOCK-UP AGREEMENT.
The Employee agrees that in connection with the Company's first
underwritten public offering of Common Stock, upon the request of the
Company or the managing or lead
<PAGE>
underwriter for such public offering, the Option Shares may not be sold,
offered for sale or otherwise disposed of without the prior written
consent of the Company or such underwriter, as the case may be, for at
least 180 days after the effectiveness of the registration statement
filed in connection with such offering, or such longer period of time as
the Board of Directors may determine if all of the Company's directors
and officers agree to be similarly bound (but in no event, longer than
270 days). The lock-up agreement established pursuant to this Section 18
shall have perpetual duration.
19. PROVISION OF DOCUMeNTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of a copy of
this Agreement and a copy of the Plan.
20. SUBCHAPTER S RESTRICTIONS.
Anything in this Agreement to the contrary notwithstanding, including,
without limitation, Sections 16 and 17 hereof, the Employee shall not
exercise this option or sell, assign, transfer or convey or otherwise
dispose of any Option Shares, whether by will, by the laws of descent and
distribution, by operation of law or otherwise, including, without
limitation, under Sections 16 or 17 hereof, to any person or entity, if
such exercise or transfer will or may reasonably be expected to result in
a termination of the Company's subchapter S election under Section 1362
of the Code (pursuant to Sections 1361 and 1362 of the Code or any
successor provision thereto). Any exercise of this option or transfer of
Option Shares in violation of the restrictions on exercise and transfer
contained herein or resulting in termination of the Company's subchapter
S election in violation of the terms of this Agreement shall be null and
void and of no effect whatsoever and shall not entitle the Employee or
any proposed transferee, assignee or other person to have any Option
Shares issued to them or transferred upon the books of the Company.
Furthermore, the Employee will not take any other action which would
result in the termination of the Company's subchapter S election. For
purposes of this section 20, the term Employee includes any successor
transferee of the Option Shares. The provisions of this Section 20 shall
remain in effect until such time, if ever, as an underwritten public
offering is made of shares of the Company's Common Stock pursuant to a
registration statement filed under the Securities Act or any successor
statute or the termination of the Company's status as an S-Corp, at which
time this Section 20 and the restrictions set forth herein will
automatically terminate.
21. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall be deemed given when
sent by certified or registered mail, postage prepaid, return receipt
requested, to the address set forth below. The addresses for such notices
may be changed from time to time by written notice given in the manner
provided for herein.
<PAGE>
(b) ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the entire agreement between the parties
relative to the subject matter hereof, and supersedes all proposals,
written or oral, and all other communications between the parties
relating to the subject matter of this Agreement. This Agreement may be
modified, amended or rescinded only by a written agreement executed by
both parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any provision of this
Agreement shall in no way affect the validity, legality or enforceability
of any other provision.
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, subject to
the limitations set forth in Sections 9, 16, 17, and 20 hereof.
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to
the principles of the conflicts of laws thereof.
(f) LEGENDS.
The Company may place a legend or legends on any stock certificate
delivered to the any holder of Option Shares reflecting the restrictions
on transfer, rights of first refusal and repurchase rights provided in
this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
Breakaway Solutions, Inc.
50 Rowes Wharf
6th Floor
Boston, MA 02110
/s/ GORDON BROOKS
- ------------------------------------
Employee
GORDON BROOKS By: /s/ FRANK SELLDORFF
- ------------------------------------ ------------------------------
Print Name of Employee Name: Frank Sellfdorff
Title: Founder
20 GILSON ROAD
- ------------------------------------
Street Address
WELLESLEY, MA 02481
- ------------------------------------
City State Zip Code
Attest: SAM SPECTOR
---------------------
<PAGE>
EXHIBIT A
FORM OF
PROMISSORY NOTE
$_____________ _________ __, 199_
For value received, the undersigned, Breakaway Solutions, Inc., a
Delaware corporation ("Obligor"), hereby promises to pay to the order of Gordon
Brooks ("Lender") at such place as may be designated from time to time in
writing by Lender, the principal sum of ___________ Dollars and ______ Cents
($_________) : ____ percent (___%) per annum [the prime rate in effect on the
date hereof for major banks as published in the Wall Street Journal], payable as
set forth below. At the option of Lender and to the extent permitted by
applicable law, the rate of interest on any unpaid principal or interest not
paid when due and payable hereunder shall be two percent (2%) per annum above
the rate of interest set forth in the immediately preceding sentence. Interest
shall be calculated on the basis of actual number of days elapsed over a year of
360 days. Notwithstanding any other provision of this Promissory Note, Lender
does not intend to charge and Obligor shall not be required to pay any interest
or other fees or charges in excess of the maximum permitted by applicable law;
any payments in excess of such maximum shall be refunded to Obligor or credited
to reduce principal hereunder. All payments received by Lender hereunder will be
applied first to costs of collection, if any, then to interest and the balance
to principal. Principal and interest shall be payable in lawful money of the
United States of America.
Principal shall be paid in sixty (60) equal monthly installments of
________________ Dollars and ______ Cents ($______) each, commencing on
________, 199_, and continuing on the same day of each successive month
thereafter with a final payment of all unpaid principal on ______, 199_;
interest shall be paid monthly commencing on ________, 199_, and continuing on
the same day of each successive month thereafter with a final payment of all
unpaid interest at the time of payment of the principal.
If any day on which a payment is due pursuant to the terms of this
Promissory Note is not a day on which banks in the Commonwealth of Massachusetts
are generally open (a "Business Day"), such payment shall be due on the next
Business Day following.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part, all such prepayments to be applied upon
installments of most remote maturity. Any prepayment of principal shall be
accompanied by a payment of accrued interest in respect of the principal being
prepaid.
This Promissory Note shall, at the option of the holder hereof, become
due and payable without notice or demand, upon the happening of any one of the
following specified events: (1) failure to pay any amount as herein set forth;
(2) default in the performance of any other obligation to Lender, which default
is not cured within thirty (30) days after written notice of such default from
Lender; (3) insolvency (however evidenced) or the commission of any act of
insolvency; (4) the making of a general assignment for the benefit of creditors;
(5) the filing of any petition or the commencement of any proceeding by Obligor
or any endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions; (6)
the filing of any petition or the commencement of any proceeding against Obligor
or any endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions,
which proceeding is not dismissed within sixty (60) days; (7) suspension of the
transaction of the usual business of Obligor; or (8) the past or future making
of a false representation or warranty by Obligor in connection with any loan or
loans by Lender.]
<PAGE>
If this Promissory Note is not paid in accordance with its terms, Obligor
shall pay to Lender, in addition to principal and accrued interest thereon, all
costs of collection of the principal and accrued interest, including, but not
limited to, reasonable attorneys' fees, court costs and other costs for the
enforcement of payment of this Promissory Note.
No waiver of any obligation of Obligor under this Promissory Note shall
be effective unless it is in a writing signed by Lender. A waiver by Lender of
any right or remedy under this Promissory Note on any occasion shall not be a
bar to exercise of the same right or remedy on any subsequent occasion or of any
other right or remedy at any time.
Any notice required or permitted under this Promissory Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
personally delivered to the party to whom notice is to be given, or on the fifth
business day after mailing, if mailed to the party to whom notice is to be
given, by certified mail, return receipt requested, postage prepaid, and
addressed to the addressee at the address of the addressee set forth herein, or
to the most recent address, specified by written notice, given to the sender
pursuant to this paragraph.
This Promissory Note is delivered in and shall be enforceable in
accordance with the laws of the Commonwealth of Massachusetts, and shall be
construed in accordance therewith, and shall have the effect of a sealed
instrument.
Obligor hereby expressly waives presentment, demand, and protest, notice
of demand, dishonor and nonpayment of this Promissory Note, and all other
notices or demands of any kind in connection with the delivery, acceptance,
performance, default or enforcement hereof, and hereby consents to any delays,
extensions of time, renewals, waivers or modifications that may be granted or
consented to by the holder hereof with respect to the time of payment or any
other provision hereof .
In the event any one or more of the provisions of this Promissory Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
OBLIGOR:
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
Attested:
-------------------------
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
-2-
<PAGE>
EXHIBIT 10.23
BREAKAWAY SOLUTIONS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
BREAKAWAY SOLUTIONS, INC. (the "Company") hereby grants this 11th day of
December, 1998 (the "Grant Date") to Gordon Brooks (the "Employee"), an option
to purchase a maximum of two hundred eighty eight thousand one hundred ninety
six (288,196) shares (the "Option Shares") of the Company's Common Stock, par
value $.0001 per share ("Common Stock") at the price of four dollars and
twenty-five cents ($4.25) per share, on the following terms and conditions:
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's 1998
Stock Plan (the "Plan"), the terms and conditions of which are incorporated
herein by reference, and, unless the context otherwise requires, terms used
herein shall have the same meaning as in the Plan. Determinations made in
connection with this option pursuant to the Plan shall be governed by the
Plan as it exists on the Grant Date.
2. GRANT AS NON-QUALIFIED STOCK OPTION; OTHER OPTIONS.
This option shall be treated for federal income tax purposes as a
Non-Qualified Option (rather than incentive stock option under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code")). This option
is in addition to any other options heretofore or hereafter granted to the
Employee by the Company or any Related Corporation (as defined in the
Plan), but a duplicate original of this instrument shall not effect the
grant of another option.
3. VESTING OF OPTION.
Except as otherwise provided in this Agreement, and subject to all other
terms and conditions of this Agreement, this option may be exercised prior
to the tenth (10th) anniversary of the Grant Date (the "Expiration Date")
in installments for not more than the number of Option Shares which are
vested as hereinbelow provided:
(a) CONTINUED EMPLOYMENT FOR ONE TO FOUR YEARS.
Seventy two thousand and forty nine (72,049) shares will vest on the first
anniversary of the Grant Date, and the balance of the Option Shares will
vest in equal monthly installments of six thousand and four (6,004) shares,
each, over the three-year period immediately following such first
anniversary date.
(b) TRIGGERING EVENT.
All unvested shares shall immediately become vested in full upon the
occurrence of any of the following events (each, a "Triggering Event"): (a)
a public offering by the Company of shares of its Common Stock, (b) a sale
of all or substantially all of the Company's assets or all or substantially
all of the shares of its capital stock, (c) a consolidation or merger of
the Company in which a majority of outstanding shares of the Company's
capital stock are exchanged for securities, cash or other property of any
<PAGE>
other corporation or business entity, (d) a consolidation or merger
involving the Company as a result of which the stockholders of the Company
immediately prior to such event do not own, immediately following the
occurrence of such event, at least a majority of the common stock and
voting power of the entity resulting from such consolidation or surviving
such merger or (e) the liquidation or dissolution of the Company. In
addition, if the Company or stockholders of the Company enter into an
agreement with respect to an event described in (b) thorough (e) of the
preceding sentence, then upon the consummation of such event a Triggering
Event shall be deemed to have occurred upon the date of such agreement and,
regardless of whether the option remains outstanding on the date of
consummation of the Triggering Event, the Employee will be entitled to
exercise the option to the extent the Employee would have been eligible to
do so if a Triggering Event had occurred on the date the agreement was
entered into (and in any event, for a period of at least 30 days after the
consummation of such event).
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company or any Related
Corporation, other than by reason of death or disability as defined in
Section 5 or termination for Cause as defined in Section 4(c) this option
will continue to vest as set forth in Section 3 for sixty (60) days from
the date Employee ceases to be employed by the Company or any Related
Corporation. This option shall terminate on the earlier of (i) ninety (90)
days after the date of termination of the Employee's employment, or (ii)
the Expiration Date. In such a case, the Employee's only rights hereunder
shall be those which are properly exercised before the termination of this
option.
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as defined in
Section 4(c)), this option shall terminate upon the Employee's receipt of
written notice of such termination and shall thereafter not be exercisable
to any extent whatsoever.
(c) DEFINITION OF CAUSE.
"Cause" shall mean that the Employee is terminated for one or more of the
following reasons: (i) the Employee's commission of any act of embezzlement
or fraud; or (ii) the Employee's conviction of a felony.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his death, this option may be exercised, to the
extent otherwise exercisable on the date which is sixty (60) days after the
date of death, by the estate, personal representative or beneficiary who
has acquired this option by will or by the
<PAGE>
laws of descent and distribution, until the earlier of (i) the Expiration
Date or (ii) two hundred seventy (270) days from the date of the Employee's
death.
(b) DISABILITY.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his or her disability (as defined in Paragraph
10(B) of the Plan), the Employee shall have the right to exercise this
option, to the extent otherwise exercisable on the date which is sixty (60)
days from the date of termination of employment, until the earlier of (i)
the Expiration Date or (ii) two hundred seventy (270) days from the date of
the termination of the Employee's employment.
(c) EFFECT OF TERMINATION.
At the expiration of the two hundred seventy (270) day period provided in
paragraph (a) or (b) of this Section 5, or the Expiration Date, whichever
is the earlier, this option shall terminate and the only rights hereunder
shall be those as to which the option was properly exercised before such
termination.
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and from time to
time within the above limits, except that the Employee may not exercise
this option for a fraction of a share unless such exercise is with respect
to the final installment of stock subject to this option and cash in lieu
of a fractional share must be paid, in accordance with Paragraph 13(G) of
the Plan, to permit the Employee to exercise completely such final
installment. Any fractional share with respect to which an installment of
this option cannot be exercised because of the limitation contained in the
preceding sentence shall remain subject to this option and shall be
available for later purchase by the Employee in accordance with the terms
hereof.
7. PAYMENT OF PRICE. (a) The option price shall be paid in the following
manner:
(i) in cash or by check;
(ii) subject to Section 7(b) below, by delivery of shares of the
Company's Common Stock having a fair market value (as determined
by the Committee) equal as of the date of exercise to the option
price;
(iii) by delivery of an assignment satisfactory in form and
substance to the Company of a sufficient amount of the proceeds
from the sale of the Option Shares and an instruction to the
broker or selling agent to pay that amount to the Company;
(iv) by any combination of the foregoing.
<PAGE>
(b) LIMITATIONS ON PAYMENT BY DELIVERY OF COMMON STOCK. If the Employee
delivers Common Stock held by the Employee ("Old Stock") to the
Company in full or partial payment of the option price, and the Old
Stock so delivered is subject to restrictions or limitations imposed
by agreement between the Employee and the Company, an equivalent
number of Option Shares shall be subject to all restrictions and
limitations applicable to the Old Stock to the extent that the
Employee paid for the Option Shares by delivery of Old Stock, in
addition to any restrictions or limitations imposed by this
Agreement. Notwithstanding the foregoing, the Employee may not pay
any part of the exercise price hereof by transferring Common Stock
to the Company unless such Common Stock has been owned by the
Employee free of any substantial risk of forfeiture for at least six
months.
8. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, this option may be
exercised by written notice to the Company at its principal executive
office, or to such transfer agent as the Company shall designate. Such
notice shall state the election to exercise this option and the number of
Option Shares for which it is being exercised and shall be signed by the
person or persons exercising this option. Such notice shall be accompanied
by payment of the full purchase price of such shares, and the Company shall
deliver a certificate or certificates representing such shares as soon as
practicable after the notice shall be received. Such certificate or
certificates shall be registered in the name of the person or persons so
exercising this option (or, if this option is exercised by the Employee and
if the Employee requests in the notice exercising this option, shall be
registered in the name of the Employee and another person jointly, with
right of survivorship). In the event this option is exercised, pursuant to
Section 5 hereof, by any person or persons other than the Employee, such
notice shall be accompanied by appropriate proof of the right of such
person or persons to exercise this option.
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will or by the laws
of descent and distribution. During the Employee's lifetime only the
Employee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION.
The grant and acceptance of this option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option imposes any
obligation on the Company or any Related Corporation to continue the
Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
The Employee shall have no rights as a stockholder with respect to the
Option Shares until the date of issuance of a stock certificate to the
Employee. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization and stock dividends of the Company,
no adjustment shall be made for dividends or similar rights for which the
record date is before the date such stock certificate is issued.
<PAGE>
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options in a number
of contingencies such as stock splits and mergers. Provisions in the Plan
for adjustment with respect to stock subject to options and the related
provisions with respect to successors to the business of the Company are
hereby made applicable hereunder and are incorporated herein by reference.
14. RESTRICTIONS ON TRANSFER; LEGENDS.
Option Shares will be deemed "restricted securities" for purposes of the
Securities Act of 1933, as amended (the "Securities Act"). Accordingly,
such shares must be sold in accordance with the registration requirement of
the Securities Act and any State "Blue Sky" laws or an exemption therefrom.
Employee acknowledges that the Company may put a legend on the certificate
or certificates representing the Option Shares stating that the shares
represented thereby have restrictions on transfer and are subject to rights
of first refusal and repurchase by the Company.
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion determines that
it is obligated to withhold any tax in connection with the exercise of this
option, the making of a Disqualifying Disposition (as defined in Paragraph
18 of the Plan), the vesting or transfer of Option Shares acquired on the
exercise of this option, or the making of a distribution or other payment
with respect to the Option Shares, the Employee hereby agrees that the
Company or any Related Corporation may withhold from the Employee's wages
or other remuneration the appropriate amount of tax. At the discretion of
the Company or Related Corporation, the amount required to be withheld may
be withheld in cash from such wages or other remuneration or in kind from
the Common Stock or other property otherwise deliverable to the Employee on
exercise of this option. The Employee further agrees that, if the Company
or any Related Corporation does not withhold an amount from the Employee's
wages or other remuneration sufficient to satisfy the withholding
obligation of the Company or Related Corporation, the Employee will make
reimbursement on demand, in cash, for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or her legal
representative (the "Transferor") desires to transfer all or any part of
the Option Shares to any person other than the Company (an "Offeror"), the
Transferor shall: (i) obtain in writing a bona fide offer (the "Offer") for
the purchase thereof from the Offeror; and (ii) give written notice (the
"Option Notice") to the Company setting forth the Transferor's desire to
transfer such shares, which Option Notice shall be accompanied by a
photocopy of the Offer and shall set forth at least the name and address of
the Offeror and the price and terms of the bona fide offer. Upon receipt of
the Option Notice, the Company shall have an assignable option to purchase
all of such shares (the "Company Option Shares") specified in the Option
Notice, such option to be exercisable by giving, within thirty (30) days
after receipt of the Option Notice, a written counter-notice to the
Transferor (the "Counter-Notice"). If the Company elects to purchase all of
such Company Option Shares, it shall be obligated to purchase, and the
Transferor shall be obligated to sell to
<PAGE>
the Company, such Company Option Shares that the Company elects to purchase
as set forth in the Counter-Notice at a per share price equal to the per
share price (and, except as set forth below, on the same terms) indicated
in the Offer, within thirty (30) days of the date of delivery by the
Company of the Counter-Notice. If the Company elects to purchase all of
such Company Option Shares, it may, in its sole discretion, pay the
purchase price for such Company option shares in accordance with the terms
of a promissory note, in the form attached hereto as Exhibit A.
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for sixty (60) days after the expiration of the thirty
(30)-day period during which the Company may give the Counter-Notice, sell,
pursuant to the terms of the Offer, any or all of such Company Option
Shares not purchased or agreed to be purchased by the Company or its
assignee; PROVIDED, HOWEVER, that the Transferor shall not sell such
Company Option Shares to the Offeror if the Offeror is a competitor of the
Company and the Company gives a written notice to the Transferor, within
thirty (30) days of its receipt of the Option Notice, stating that the
Offeror is a competitor and therefore Transferor shall not sell such
Company Option Shares to such Offeror; and PROVIDED, FURTHER, that prior to
the sale of such Company Option Shares to the Offeror, the Offeror shall
execute an agreement with the Company pursuant to which the Offeror agrees
to be subject to the restrictions set forth in Sections 16, 17, 18 and 20
hereof. If any or all of such Company Option Shares are not sold pursuant
to an Offer within the time permitted above, the unsold Company Option
Shares shall remain subject to the terms of this Section 16 and any future
proposed transfer must again comply with the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, combination or exchange of shares, or the like, the
restrictions contained in this Section 16 shall apply with equal force to
additional and/or substitute securities, if any, received by the Employee
in exchange for, or by virtue of his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refuses to deliver on a timely basis duly
endorsed certificates representing Company Option Shares to be sold to the
Company or its assignee pursuant to this Section 16, the Company shall have
the right to deposit the purchase price for such Company Option Shares in a
special account with any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the Transferor, whereupon
such Company Option Shares shall be deemed to have been purchased by the
Company. All such moneys shall be held by the bank or trust company for the
benefit of the Transferor. All moneys deposited with the bank or trust
company remaining unclaimed for two years after the date of deposit shall
be repaid by the bank or trust company to the Company on demand, and the
Transferor shall thereafter look only to the Company for payment.
<PAGE>
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first refusal
rights of the Company set forth in this Section 16 shall remain in effect
until such time, if ever, as an underwritten public offering is made of
shares of the Company's Common Stock pursuant to a registration statement
filed under the Securities Act of 1933 or a successor statute or the
closing of an Acquisition as defined in the Plan, at which time this
Section 16 and the right of first refusal set forth herein will
automatically expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE.
The Company shall have the right (the "Repurchase Right") to repurchase
from the holder of any Option Shares (each a "Holder") any or all of the
Option Shares then owned by such Holder at any time by giving such Holder a
written notice (the "Repurchase Notice") at least 30 days prior to the date
of repurchase. The Repurchase Notice shall set forth the number of Option
Shares to be repurchased (the "Repurchase Shares"), the Fair Market Value
per share (determined in accordance with Section 17(b) below as of the date
of the Repurchase Notice) of the Repurchase Shares and the date (the
"Repurchase Date") on which such Repurchase Shares are to be repurchased by
the Company (such date not to be more than 120 nor less than 30 days after
the date of the Repurchase Notice). On the Repurchase Date, the Company
shall tender to the Holder an amount equal to the number of Repurchase
Shares multiplied by the Fair Market Value per share; provided, however,
that the Company may pay the repurchase amount, in its sole discretion, in
accordance with the terms of a promissory note in the form attached hereto
as EXHIBIT A. The Company may assign the Repurchase Right to one or more
persons and may utilize a promissory note to effect its Repurchase right.
Upon timely exercise of the Repurchase Right in the manner provided in this
Section 17(a), the Holder shall deliver to the Company the stock
certificate or certificates representing the Repurchase Shares, duly
endorsed and free and clear of any and all liens, charges and encumbrances.
(b) FAIR MARKET VALUE.
A determination as to the current valuation of the Company shall be made
(i) on an annual basis within 90 days after the end of the Company's fiscal
year, (ii) effective upon the consummation by the Company of any future
financing and (iii) promptly following any other event which involves the
obtaining by the Company of an independent valuation of the Company.
"Valuation" means (1) in the case of clause (I) of the preceding sentence,
a valuation mutually agreed upon by Employee and the Board of Directors, or
if a mutual agreement cannot be reached, a written determination of the
valuation of the Company prepared by an independent investment banking firm
or appraisal company which is of national or regional reputation and which
is mutually acceptable to the Company and to you and which valuation is
prepared on a basis consistent with valuation methods typically used by
venture capitalists or investment bankers to value a business in the same
industry and stage of development as the Company (it being agreed that such
valuation shall not be based on book value or liquidation value), (2) with
respect to clause (ii) of the preceding sentence, the valuation of the
Company in connection with such financing and (3) with respect to clause
(iii) of the preceding sentence, the independently prepared valuation
referred to therein. "Fair
<PAGE>
Market Value per Option Share" shall mean the valuation of the Company
divided by the number of shares of Common Stock equivalents (including,
without limitation, preferred stock convertible into common stock, warrants
to purchase common stock and vested options) then outstanding.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, combination or exchange of shares, or the like, the
restrictions contained in this Section 17 shall apply with equal force to
additional and/or substitute securities, if any, received by the Employee
in exchange for, or by virtue of his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES.
If the Holder fails or refuses to deliver on a timely basis duly endorsed
certificates representing the Repurchase Shares to be repurchased by the
Company or its assignee pursuant to this Section 17, the Company shall have
the right to deposit the repurchase price for such Repurchase Shares in a
special account with any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the Holder, whereupon such
Repurchase Shares shall be deemed to have been purchased by the Company.
All such moneys shall be held by the bank or trust company for the benefit
of the Holder. All moneys deposited with the bank or trust company
remaining unclaimed for two years after the date of deposit shall be repaid
by the bank or trust company to the Company on demand, and the Holder shall
thereafter look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT.
The Repurchase Right of the Company set forth in this Section 17 shall
remain in effect until such time, if ever, as an underwritten public
offering is made of shares of the Company's Common Stock pursuant to a
registration statement filed under the Securities Act or any successor
statute or the closing of an Acquisition as defined in the Plan, at which
time this Section 17 and the Repurchase Right set forth herein will
automatically terminate.
(f) TRANSFERS EXCLUDED FROM FIRST REFUSAL RIGHTS.
The foregoing first refusal rights of the Company shall not apply to a
transfer by the Employee of all or any part of the Option Shares to the
Employee's spouse, children or grandchildren, or to a trust for the benefit
of any such individuals; provided, however, that prior to any such transfer
each transferee shall execute an agreement with the Company pursuant to
which the transferee agrees to be subject to the restrictions set forth in
Sections 16, 17, 18 and 20 hereof.
18. LOCK-UP AGREEMENT.
The Employee agrees that in connection with the Company's first
underwritten public offering of Common Stock, upon the request of the
Company or the managing or lead
<PAGE>
underwriter for such public offering, the Option Shares may not be sold,
offered for sale or otherwise disposed of without the prior written consent
of the Company or such underwriter, as the case may be, for at least 180
days after the effectiveness of the registration statement filed in
connection with such offering, or such longer period of time as the Board
of Directors may determine if all of the Company's directors and officers
agree to be similarly bound (but in no event, longer than 270 days). The
lock-up agreement established pursuant to this Section 18 shall have
perpetual duration.
19. PROVISION OF DOCUMeNTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of a copy of
this Agreement and a copy of the Plan.
20. SUBCHAPTER S RESTRICTIONS.
Anything in this Agreement to the contrary notwithstanding, including,
without limitation, Sections 16 and 17 hereof, the Employee shall not
exercise this option or sell, assign, transfer or convey or otherwise
dispose of any Option Shares, whether by will, by the laws of descent and
distribution, by operation of law or otherwise, including, without
limitation, under Sections 16 or 17 hereof, to any person or entity, if
such exercise or transfer will or may reasonably be expected to result in a
termination of the Company's subchapter S election under Section 1362 of
the Code (pursuant to Sections 1361 and 1362 of the Code or any successor
provision thereto). Any exercise of this option or transfer of Option
Shares in violation of the restrictions on exercise and transfer contained
herein or resulting in termination of the Company's subchapter S election
in violation of the terms of this Agreement shall be null and void and of
no effect whatsoever and shall not entitle the Employee or any proposed
transferee, assignee or other person to have any Option Shares issued to
them or transferred upon the books of the Company. Furthermore, the
Employee will not take any other action which would result in the
termination of the Company's subchapter S election. For purposes of this
section 20, the term Employee includes any successor transferee of the
Option Shares. The provisions of this Section 20 shall remain in effect
until such time, if ever, as an underwritten public offering is made of
shares of the Company's Common Stock pursuant to a registration statement
filed under the Securities Act or any successor statute or the termination
of the Company's status as an S-Corp, at which time this Section 20 and the
restrictions set forth herein will automatically terminate.
21. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall be deemed given when
sent by certified or registered mail, postage prepaid, return receipt
requested, to the address set forth below. The addresses for such notices
may be changed from time to time by written notice given in the manner
provided for herein.
<PAGE>
(b) ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the entire agreement between the parties
relative to the subject matter hereof, and supersedes all proposals,
written or oral, and all other communications between the parties relating
to the subject matter of this Agreement. This Agreement may be modified,
amended or rescinded only by a written agreement executed by both parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any provision of this
Agreement shall in no way affect the validity, legality or enforceability
of any other provision.
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, subject to the
limitations set forth in Sections 9, 16, 17, and 20 hereof.
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted in accordance with the
laws of the Commonwealth of Massachusetts, without giving effect to the
principles of the conflicts of laws thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
Breakaway Solutions, Inc.
50 Rowes Wharf
6th Floor
Boston, MA 02110
/S/ GORDON BROOKS
- ----------------------------
Employee
GORDON BROOKS By: /S/ FRANK SELLDORFF
- ---------------------------- --------------------------------
Print Name of Employee Name: Frank Sellfdorff
Title: Founder
20 GILSON ROAD
- ----------------------------
Street Address
WELLESLEY, MA 02481
- --------------------------------
City State Zip Code
Attest: /S/ SAM SPECTOR
--------------------------
<PAGE>
EXHIBIT A
FORM OF
PROMISSORY NOTE
$_____________ _________ __, 199_
For value received, the undersigned, Breakaway Solutions, Inc., a
Delaware corporation ("Obligor"), hereby promises to pay to the order of Gordon
Brooks ("Lender") at such place as may be designated from time to time in
writing by Lender, the principal sum of ___________ Dollars and ______ Cents
($_________) : ____ percent (___%) per annum [the prime rate in effect on the
date hereof for major banks as published in the Wall Street Journal], payable as
set forth below. At the option of Lender and to the extent permitted by
applicable law, the rate of interest on any unpaid principal or interest not
paid when due and payable hereunder shall be two percent (2%) per annum above
the rate of interest set forth in the immediately preceding sentence. Interest
shall be calculated on the basis of actual number of days elapsed over a year of
360 days. Notwithstanding any other provision of this Promissory Note, Lender
does not intend to charge and Obligor shall not be required to pay any interest
or other fees or charges in excess of the maximum permitted by applicable law;
any payments in excess of such maximum shall be refunded to Obligor or credited
to reduce principal hereunder. All payments received by Lender hereunder will be
applied first to costs of collection, if any, then to interest and the balance
to principal. Principal and interest shall be payable in lawful money of the
United States of America.
Principal shall be paid in sixty (60) equal monthly installments of
________________ Dollars and ______ Cents ($______) each, commencing on
________, 199_, and continuing on the same day of each successive month
thereafter with a final payment of all unpaid principal on ______, 199_;
interest shall be paid monthly commencing on ________, 199_, and continuing on
the same day of each successive month thereafter with a final payment of all
unpaid interest at the time of payment of the principal.
If any day on which a payment is due pursuant to the terms of this
Promissory Note is not a day on which banks in the Commonwealth of Massachusetts
are generally open (a "Business Day"), such payment shall be due on the next
Business Day following.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part, all such prepayments to be applied upon
installments of most remote maturity. Any prepayment of principal shall be
accompanied by a payment of accrued interest in respect of the principal being
prepaid.
This Promissory Note shall, at the option of the holder hereof, become
due and payable without notice or demand, upon the happening of any one of the
following specified events: (1) failure to pay any amount as herein set forth;
(2) default in the performance of any other obligation to Lender, which default
is not cured within thirty (30) days after written notice of such default from
Lender; (3) insolvency (however evidenced) or the commission of any act of
insolvency; (4) the making of a general assignment for the benefit of creditors;
(5) the filing of any petition or the commencement of any proceeding by Obligor
or any endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions; (6)
the filing of any petition or the commencement of any proceeding against Obligor
or any endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions,
which proceeding is not dismissed within sixty (60) days; (7) suspension of the
transaction of the usual business of Obligor; or (8) the past or future making
of a false representation or warranty by Obligor in connection with any loan or
loans by Lender.]
<PAGE>
If this Promissory Note is not paid in accordance with its terms,
Obligor shall pay to Lender, in addition to principal and accrued interest
thereon, all costs of collection of the principal and accrued interest,
including, but not limited to, reasonable attorneys' fees, court costs and other
costs for the enforcement of payment of this Promissory Note.
No waiver of any obligation of Obligor under this Promissory Note shall
be effective unless it is in a writing signed by Lender. A waiver by Lender of
any right or remedy under this Promissory Note on any occasion shall not be a
bar to exercise of the same right or remedy on any subsequent occasion or of any
other right or remedy at any time.
Any notice required or permitted under this Promissory Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
personally delivered to the party to whom notice is to be given, or on the fifth
business day after mailing, if mailed to the party to whom notice is to be
given, by certified mail, return receipt requested, postage prepaid, and
addressed to the addressee at the address of the addressee set forth herein, or
to the most recent address, specified by written notice, given to the sender
pursuant to this paragraph.
This Promissory Note is delivered in and shall be enforceable in
accordance with the laws of the Commonwealth of Massachusetts, and shall be
construed in accordance therewith, and shall have the effect of a sealed
instrument.
Obligor hereby expressly waives presentment, demand, and protest,
notice of demand, dishonor and nonpayment of this Promissory Note, and all other
notices or demands of any kind in connection with the delivery, acceptance,
performance, default or enforcement hereof, and hereby consents to any delays,
extensions of time, renewals, waivers or modifications that may be granted or
consented to by the holder hereof with respect to the time of payment or any
other provision hereof .
In the event any one or more of the provisions of this Promissory Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
OBLIGOR:
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Attested:
----------------------------
By:
---------------------------------
Name:
--------------------------------
Title:
-------------------------------
-2-
<PAGE>
EXHIBIT 10.24
BREAKAWAY SOLUTIONS, INC.
INCENTIVE STOCK OPTION AGREEMENT
BREAKAWAY SOLUTIONS, INC. (the "Company") hereby grants this 12th day
of , December, 1998 [SEE SECTION 3(C)(I) OF EMPLOYMENT AGREEMENT)] (the "Grant
Date") to Gordon Brooks (the "Employee"), an option to purchase a maximum of
twenty three thousand, five hundred twenty nine (23,529) shares (the "Option
Shares") of the Company's Common Stock, par value $.0001 per share ("Common
Stock") at the price of four dollars and twenty-five cents ($4.25) per share, on
the following terms and conditions:
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's
1998 Stock Plan (the "Plan"), the terms and conditions of which are
incorporated herein by reference, and, unless the context otherwise
requires, terms used herein shall have the same meaning as in the Plan.
Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on the Grant Date.
2. GRANT AS INCENTIVE STOCK OPTION; OTHER OPTIONS.
This option is intended to qualify as an incentive stock option ("ISO")
under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). However, the foregoing shall not be construed as invalidating
this option to any extent in the event all or part of it fails, for any
reason, to so qualify, and to the extent it does not so qualify this
option shall be treated for all purposes as a Non-Qualified Option
under the Plan. This option is in addition to any other options
heretofore or hereafter granted to the Employee by the Company or any
Related Corporation (as defined in the Plan), but a duplicate original
of this instrument shall not effect the grant of another option.
3. VESTING OF OPTION.
Subject to all other terms and conditions of this Agreement, the
Employee may exercise this option for any or all of the Option Shares
as of the Grant Date. The foregoing rights are cumulative and, subject
to Sections 4 and 5 hereof, may be exercised prior to the tenth (10th)
anniversary of the Grant Date (the "Expiration Date").
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company or any Related
Corporation, other than by reason of death or disability as defined in
Section 5 or termination for Cause as defined in Section 4(c), this
option shall terminate on the earlier of (i) ninety (90) days after the
date of termination of the Employee's employment, or (ii) the
Expiration Date. In such a case, the Employee's only rights hereunder
shall be those which are properly exercised before the termination of
this option.
<PAGE>
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as defined
in Section 4(c)), this option shall terminate upon the Employee's
receipt of written notice of such termination and shall thereafter not
be exercisable to any extent whatsoever.
(c) DEFINITION OF CAUSE.
"Cause" shall mean that the Employee is terminated for one or more of
the following reasons: (i) the Employee's commission of any act of
embezzlement or fraud; or (ii) the Employee's conviction of a felony.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his death, this option may be exercised, to
the extent otherwise exercisable on the date which is sixty (60) days
after the date of death, by the estate, personal representative or
beneficiary who has acquired this option by will or by the laws of
descent and distribution, until the earlier of (i) the Expiration Date
or (ii) one hundred eighty (180) days from the date of the Employee's
death.
(b) DISABILITY.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his or her disability (as defined in
Paragraph 10(B) of the Plan), the Employee shall have the right to
exercise this option, to the extent otherwise exercisable on the date
which is sixty (60) days from the date of termination of employment,
until the earlier of (i) the Expiration Date or (ii) one hundred eighty
(180) days from the date of the termination of the Employee's
employment.
(c) EFFECT OF TERMINATION.
At the expiration of the one hundred eighty (180) day period provided
in paragraph (a) or (b) of this Section 5, or the Expiration Date,
whichever is the earlier, this option shall terminate and the only
rights hereunder shall be those as to which the option was properly
exercised before such termination.
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and from time
to time within the above limits, except that the Employee may not
exercise this option for a fraction of a share unless such exercise is
with respect to the final installment of stock subject to this option
and cash in lieu of a fractional share must be paid, in accordance with
Paragraph 13(G) of the Plan, to permit the Employee to exercise
completely such final installment. Any fractional share with respect to
which an installment of this option cannot be exercised because of the
limitation contained in the preceding sentence shall remain subject to
this option and shall be available for later purchase by the Employee
in accordance with the terms hereof.
<PAGE>
7. PAYMENT OF PRICE.
(a) PAYMENT. The option price shall be paid in the following manner:
(i) in cash or by check;
(ii) subject to Section 7(b) below, by delivery of shares of
the Company's Common Stock having a fair market value (as
determined by the Committee) equal as of the date of
exercise to the option price;
(iii) by delivery of an assignment satisfactory in form and
substance to the Company of a sufficient amount of the
proceeds from the sale of the Option Shares and an
instruction to the broker or selling agent to pay that
amount to the Company;
(v) by any combination of the foregoing.
(b) LIMITATIONS ON PAYMENT BY DELIVERY OF COMMON STOCK. If the
Employee delivers Common Stock held - by the Employee ("Old
Stock") to the Company in full or partial payment of the option
price, and the Old Stock so delivered is subject to restrictions
or limitations imposed by agreement between the Employee and the
Company, an equivalent number of Option Shares shall be subject
to all restrictions and limitations applicable to the Old Stock
to the extent that the Employee paid for the Option Shares by
delivery of Old Stock, in addition to any restrictions or
limitations imposed by this Agreement. Notwithstanding the
foregoing, the Employee may not pay any part of the exercise
price hereof by transferring Common Stock to the Company unless
such Common Stock has been owned by the Employee free of any
substantial risk of forfeiture for at least six months.
8. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, this option may
be exercised by written notice to the Company at its principal
executive office, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this option
and the number of Option Shares for which it is being exercised and
shall be signed by the person or persons exercising this option. Such
notice shall be accompanied by payment of the full purchase price of
such shares, and the Company shall deliver a certificate or
certificates representing such shares as soon as practicable after the
notice shall be received. Such certificate or certificates shall be
registered in the name of the person or persons so exercising this
option (or, if this option is exercised by the Employee and if the
Employee requests in the notice exercising this option, shall be
registered in the name of the Employee and another person jointly, with
right of survivorship). In the event this option is exercised, pursuant
to Section 5 hereof, by any person or persons other than the Employee,
such notice shall be accompanied by appropriate proof of the right of
such person or persons to exercise this option.
<PAGE>
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Employee's lifetime only
the Employee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION.
The grant and acceptance of this option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option imposes
any obligation on the Company or any Related Corporation to continue
the Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
The Employee shall have no rights as a stockholder with respect to the
Option Shares until the date of issuance of a stock certificate to the
Employee. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization and stock dividends of the
Company, no adjustment shall be made for dividends or similar rights
for which the record date is before the date such stock certificate is
issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options in a
number of contingencies such as stock splits and mergers. Provisions in
the Plan for adjustment with respect to stock subject to options and
the related provisions with respect to successors to the business of
the Company are hereby made applicable hereunder and are incorporated
herein by reference.
14. EARLY DISPOSITION.
The Employee agrees to notify the Company in writing immediately after
the Employee transfers any Option Shares, if such transfer occurs on or
before the later of (a) the date two years after the Grant Date or (b)
the date one year after the date the Employee acquired such Option
Shares. The Employee also agrees to provide the Company with any
information concerning any such transfer required by the Company for
tax purposes.
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion determines
that it is obligated to withhold any tax in connection with the
exercise of this option, the making of a Disqualifying Disposition (as
defined in Paragraph 18 of the Plan), the vesting or transfer of Option
Shares acquired on the exercise of this option, or the making of a
distribution or other payment with respect to the Option Shares, the
Employee hereby agrees that the Company or any Related Corporation may
withhold from the Employee's wages or other remuneration the
appropriate amount of tax. At the discretion of the Company or Related
Corporation, the amount required to be withheld may be withheld in cash
from such wages or other remuneration or in kind from the Common Stock
or other property otherwise deliverable to the Employee on exercise of
this option. The Employee further agrees that, if the Company or any
Related Corporation does not withhold an amount from the Employee's
wages or other remuneration sufficient to satisfy the withholding
obligation of the Company or Related
<PAGE>
Corporation, the Employee will make reimbursement on demand, in cash,
for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or her legal
representative (the "Transferor") desires to transfer all or any part
of the Option Shares to any person other than the Company (an
"Offeror"), the Transferor shall: (i) obtain in writing a bona fide
offer (the "Offer") for the purchase thereof from the Offeror; and (ii)
give written notice (the "Option Notice") to the Company setting forth
the Transferor's desire to transfer such shares, which Option Notice
shall be accompanied by a photocopy of the Offer and shall set forth at
least the name and address of the Offeror and the price and terms of
the bona fide offer. Upon receipt of the Option Notice, the Company
shall have an assignable option to purchase all of such shares (the
"Company Option Shares") specified in the Option Notice, such option to
be exercisable by giving, within thirty (30) days after receipt of the
Option Notice, a written counter-notice to the Transferor (the
"Counter-Notice"). If the Company elects to purchase all of such
Company Option Shares, it shall be obligated to purchase, and the
Transferor shall be obligated to sell to the Company, such Company
Option Shares that the Company elects to purchase as set forth in the
Counter-Notice at a per share price equal to the per share price (and,
except as set forth below, on the same terms) indicated in the Offer,
within thirty (30) days of the date of delivery by the Company of the
Counter-Notice. If the Company elects to purchase all of such Company
Option Shares, it may, in its sole discretion, pay the purchase price
for such Company option shares in accordance with the terms of a
promissory note, in the form attached hereto as Exhibit A.
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for sixty (60) days after the expiration of the
thirty (30)-day period during which the Company may give the
Counter-Notice, sell, pursuant to the terms of the Offer, any or all of
such Company Option Shares not purchased or agreed to be purchased by
the Company or its assignee; PROVIDED, HOWEVER, that the Transferor
shall not sell such Company Option Shares to the Offeror if the Offeror
is a competitor of the Company and the Company gives a written notice
to the Transferor, within thirty (30) days of its receipt of the Option
Notice, stating that the Offeror is a competitor and therefore
Transferor shall not sell such Company Option Shares to such Offeror;
and PROVIDED, FURTHER, that prior to the sale of such Company Option
Shares to the Offeror, the Offeror shall execute an agreement with the
Company pursuant to which the Offeror agrees to be subject to the
restrictions set forth in Sections 16, 17, 18 and 20 hereof. If any or
all of such Company Option Shares are not sold pursuant to an Offer
within the time permitted above, the unsold Company Option Shares shall
remain subject to the terms of this Section 16 and any future proposed
transfer must again comply with the provisions set forth herein.
<PAGE>
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination or exchange of shares, or the like,
the restrictions contained in this Section 16 shall apply with equal
force to additional and/or substitute securities, if any, received by
the Employee in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refuses to deliver on a timely basis duly
endorsed certificates representing Company Option Shares to be sold to
the Company or its assignee pursuant to this Section 16, the Company
shall have the right to deposit the purchase price for such Company
Option Shares in a special account with any bank or trust company in
the Commonwealth of Massachusetts, giving notice of such deposit to the
Transferor, whereupon such Company Option Shares shall be deemed to
have been purchased by the Company. All such moneys shall be held by
the bank or trust company for the benefit of the Transferor. All moneys
deposited with the bank or trust company remaining unclaimed for two
years after the date of deposit shall be repaid by the bank or trust
company to the Company on demand, and the Transferor shall thereafter
look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first refusal
rights of the Company set forth in this Section 16 shall remain in
effect until such time, if ever, as an underwritten public offering is
made of shares of the Company's Common Stock pursuant to a registration
statement filed under the Securities Act of 1933 or a successor statute
or the closing of an Acquisition as defined in the Plan, at which time
this Section 16 and the right of first refusal set forth herein will
automatically expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE.
The Company shall have the right (the "Repurchase Right") to repurchase
from the holder of any Option Shares (each a "Holder") any or all of
the Option Shares then owned by such Holder at any time by giving such
Holder a written notice (the "Repurchase Notice") at least 30 days
prior to the date of repurchase. The Repurchase Notice shall set forth
the number of Option Shares to be repurchased (the "Repurchase
Shares"), the Fair Market Value per share (determined in accordance
with Section 17(b) below as of the date of the Repurchase Notice) of
the Repurchase Shares and the date (the "Repurchase Date") on which
such Repurchase Shares are to be repurchased by the Company (such date
not to be more than 120 nor less than 30 days after the date of the
Repurchase Notice). On the Repurchase Date, the Company shall tender to
the Holder an amount equal to the number of Repurchase Shares
multiplied by the Fair Market Value per share; provided, however, that
the Company may pay the repurchase amount, in its sole discretion, in
accordance with the terms of a promissory note in the form attached
hereto as EXHIBIT A. The Company may assign the Repurchase Right to one
or more persons and may utilize a promissory note to effect its
Repurchase right. Upon timely exercise of the Repurchase Right in the
manner provided in this
<PAGE>
Section 17(a), the Holder shall deliver to the Company the stock
certificate or certificates representing the Repurchase Shares, duly
endorsed and free and clear of any and all liens, charges and
encumbrances.
(b) FAIR MARKET VALUE.
A determination as to the current valuation of the Company shall be
made (i) on an annual basis within 90 days after the end of the
Company's fiscal year, (ii) effective upon the consummation by the
Company of any future financing and (iii) promptly following any other
event which involves the obtaining by the Company of an independent
valuation of the Company. "Valuation" means (1) in the case of clause
(I) of the preceding sentence, a valuation mutually agreed upon by
Employee and the Board of Directors, or if a mutual agreement cannot be
reached, a written determination of the valuation of the Company
prepared by an independent investment banking firm or appraisal company
which is of national or regional reputation and which is mutually
acceptable to the Company and to you and which valuation is prepared on
a basis consistent with valuation methods typically used by venture
capitalists or investment bankers to value a business in the same
industry and stage of development as the Company (it being agreed that
such valuation shall not be based on book value or liquidation value),
(2) with respect to clause (ii) of the preceding sentence, the
valuation of the Company in connection with such financing and (3) with
respect to clause (iii) of the preceding sentence, the independently
prepared valuation referred to therein. "Fair Market Value per Option
Share" shall mean the valuation of the Company divided by the number of
shares of Common Stock equivalents (including, without limitation,
preferred stock convertible into common stock, warrants to purchase
common stock and vested options) then outstanding.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination or exchange of shares, or the like,
the restrictions contained in this Section 17 shall apply with equal
force to additional and/or substitute securities, if any, received by
the Employee in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES.
If the Holder fails or refuses to deliver on a timely basis duly
endorsed certificates representing the Repurchase Shares to be
repurchased by the Company or its assignee pursuant to this Section 17,
the Company shall have the right to deposit the repurchase price for
such Repurchase Shares in a special account with any bank or trust
company in the Commonwealth of Massachusetts, giving notice of such
deposit to the Holder, whereupon such Repurchase Shares shall be deemed
to have been purchased by the Company. All such moneys shall be held by
the bank or trust company for the benefit of the Holder. All moneys
deposited with the bank or trust company remaining unclaimed for two
years after the date of deposit shall be repaid by the bank or trust
company to the Company on demand, and the Holder shall thereafter look
only to the Company for payment.
<PAGE>
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT.
The Repurchase Right of the Company set forth in this Section 17 shall
remain in effect until such time, if ever, as an underwritten public
offering is made of shares of the Company's Common Stock pursuant to a
registration statement filed under the Securities Act or any successor
statute or the closing of an Acquisition as defined in the Plan, at
which time this Section 17 and the Repurchase Right set forth herein
will automatically terminate.
(f) TRANSFERS EXCLUDED FROM FIRST REFUSAL RIGHTS.
The foregoing first refusal rights of the Company shall not apply to a
transfer by the Employee of all or any part of the Option Shares to the
Employee's spouse, children or grandchildren, or to a trust for the
benefit of any such individuals; provided, however, that prior to any
such transfer each transferee shall execute an agreement with the
Company pursuant to which the transferee agrees to be subject to the
restrictions set forth in Sections 16, 17, 18 and 20 hereof.
18. LOCK-UP AGREEMENT.
The Employee agrees that in connection with the Company's first
underwritten public offering of Common Stock, upon the request of the
Company or the managing or lead underwriter for such public offering,
the Option Shares may not be sold, offered for sale or otherwise
disposed of without the prior written consent of the Company or such
underwriter, as the case may be, for at least 180 days after the
effectiveness of the registration statement filed in connection with
such offering, or such longer period of time as the Board of Directors
may determine if all of the Company's directors and officers agree to
be similarly bound (but in no event, longer than 270 days). The lock-up
agreement established pursuant to this Section 18 shall have perpetual
duration.
19. PROVISION OF DOCUMENTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of a copy
of this Agreement and a copy of the Plan.
20. SUBCHAPTER S RESTRICTIONS.
Anything in this Agreement to the contrary notwithstanding, including,
without limitation, Sections 16 and 17 hereof, the Employee shall not
exercise this option or sell, assign, transfer or convey or otherwise
dispose of any Option Shares, whether by will, by the laws of descent
and distribution, by operation of law or otherwise, including, without
limitation, under Sections 16 or 17 hereof, to any person or entity, if
such exercise or transfer will or may reasonably be expected to result
in a termination of the Company's subchapter S election under Section
1362 of the Code (pursuant to Sections 1361 and 1362 of the Code or any
successor provision thereto). Any exercise of this option or transfer
of Option Shares in violation of the restrictions on exercise and
transfer contained herein or resulting in termination of the Company's
subchapter S election in violation of the terms of this Agreement shall
be null and void and of no effect whatsoever and shall not entitle the
Employee or any proposed transferee, assignee or
<PAGE>
other person to have any Option Shares issued to them or transferred
upon the books of the Company. Furthermore, the Employee will not take
any other action which would result in the termination of the
Company's subchapter S election. For purposes of this section 20, the
term Employee includes any successor transferee of the Option Shares.
The provisions of this Section 20 shall remain in effect until such
time, if ever, as an underwritten public offering is made of shares of
the Company's Common Stock pursuant to a registration statement filed
under the Securities Act or any successor statute or the termination
of the Company's status as an S-Corp, at which time this Section 20
and the restrictions set forth herein will automatically terminate.
21. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall be deemed given
when sent by certified or registered mail, postage prepaid, return
receipt requested, to the address set forth below. The addresses for
such notices may be changed from time to time by written notice given
in the manner provided for herein.
(b) ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the entire agreement between the parties
relative to the subject matter hereof, and supersedes all proposals,
written or oral, and all other communications between the parties
relating to the subject matter of this Agreement. This Agreement may be
modified, amended or rescinded only by a written agreement executed by
both parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any provision of this
Agreement shall in no way affect the validity, legality or
enforceability of any other provision.
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, subject to
the limitations set forth in Sections 9, 16, 17, and 20 hereof.
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to
the principles of the conflicts of laws thereof.
(f) LEGENDS.
The Company may place a legend or legends on any stock certificate
delivered to the any holder of Option Shares reflecting the
restrictions on transfer, rights of first refusal and repurchase rights
provided in this Agreement.
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
Breakaway Solutions, Inc.
50 Rowes Wharf
6th Floor
Boston, MA 02110
/s/ GORDON BROOKS
- -------------------------
Employee
GORDON BROOKS By: /s/ FRANK SELLDORFF
- ------------------------- -------------------------
Print Name of Employee Name: Frank Sellfdorff
Title: Founder
20 GILSON ROAD
- -------------------------
Street Address
WELLESLEY, MA 02481
- -------------------------
City State Zip Code
Attest: /s/ Sam Spector
- -------------------------
<PAGE>
EXHIBIT A
FORM OF
PROMISSORY NOTE
$_____________ _________ __, 199_
For value received, the undersigned, Breakaway Solutions, Inc., a
Delaware corporation ("Obligor"), hereby promises to pay to the order of Gordon
Brooks ("Lender") at such place as may be designated from time to time in
writing by Lender, the principal sum of ___________ Dollars and ______ Cents
($_________) : ____ percent (___%) per annum [the prime rate in effect on the
date hereof for major banks as published in the Wall Street Journal], payable as
set forth below. At the option of Lender and to the extent permitted by
applicable law, the rate of interest on any unpaid principal or interest not
paid when due and payable hereunder shall be two percent (2%) per annum above
the rate of interest set forth in the immediately preceding sentence. Interest
shall be calculated on the basis of actual number of days elapsed over a year of
360 days. Notwithstanding any other provision of this Promissory Note, Lender
does not intend to charge and Obligor shall not be required to pay any interest
or other fees or charges in excess of the maximum permitted by applicable law;
any payments in excess of such maximum shall be refunded to Obligor or credited
to reduce principal hereunder. All payments received by Lender hereunder will be
applied first to costs of collection, if any, then to interest and the balance
to principal. Principal and interest shall be payable in lawful money of the
United States of America.
Principal shall be paid in sixty (60) equal monthly installments of
________________ Dollars and ______ Cents ($______) each, commencing on
________, 199_, and continuing on the same day of each successive month
thereafter with a final payment of all unpaid principal on ______, 199_;
interest shall be paid monthly commencing on ________, 199_, and continuing on
the same day of each successive month thereafter with a final payment of all
unpaid interest at the time of payment of the principal.
If any day on which a payment is due pursuant to the terms of this
Promissory Note is not a day on which banks in the Commonwealth of Massachusetts
are generally open (a "Business Day"), such payment shall be due on the next
Business Day following.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part, all such prepayments to be applied upon
installments of most remote maturity. Any prepayment of principal shall be
accompanied by a payment of accrued interest in respect of the principal being
prepaid.
This Promissory Note shall, at the option of the holder hereof, become
due and payable without notice or demand, upon the happening of any one of the
following specified events: (1) failure to pay any amount as herein set forth;
(2) default in the performance of any other obligation to Lender, which default
is not cured within thirty (30) days after written notice of such default from
Lender; (3) insolvency (however evidenced) or the commission of any act of
insolvency; (4) the making of a general assignment for the benefit of creditors;
(5) the filing of any petition or the commencement of any proceeding by Obligor
or any endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions; (6)
the filing of any petition or the commencement of any proceeding against Obligor
or any endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions,
which proceeding is not dismissed within sixty (60) days; (7) suspension of the
transaction of the usual business of Obligor; or (8) the past or future making
of a false representation or warranty by Obligor in connection with any loan or
loans by Lender.]
<PAGE>
If this Promissory Note is not paid in accordance with its terms,
Obligor shall pay to Lender, in addition to principal and accrued interest
thereon, all costs of collection of the principal and accrued interest,
including, but not limited to, reasonable attorneys' fees, court costs and other
costs for the enforcement of payment of this Promissory Note.
No waiver of any obligation of Obligor under this Promissory Note shall
be effective unless it is in a writing signed by Lender. A waiver by Lender of
any right or remedy under this Promissory Note on any occasion shall not be a
bar to exercise of the same right or remedy on any subsequent occasion or of any
other right or remedy at any time.
Any notice required or permitted under this Promissory Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
personally delivered to the party to whom notice is to be given, or on the fifth
business day after mailing, if mailed to the party to whom notice is to be
given, by certified mail, return receipt requested, postage prepaid, and
addressed to the addressee at the address of the addressee set forth herein, or
to the most recent address, specified by written notice, given to the sender
pursuant to this paragraph.
This Promissory Note is delivered in and shall be enforceable in
accordance with the laws of the Commonwealth of Massachusetts, and shall be
construed in accordance therewith, and shall have the effect of a sealed
instrument.
Obligor hereby expressly waives presentment, demand, and protest,
notice of demand, dishonor and nonpayment of this Promissory Note, and all other
notices or demands of any kind in connection with the delivery, acceptance,
performance, default or enforcement hereof, and hereby consents to any delays,
extensions of time, renewals, waivers or modifications that may be granted or
consented to by the holder hereof with respect to the time of payment or any
other provision hereof .
In the event any one or more of the provisions of this Promissory Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
OBLIGOR:
By: __________________________
Name: __________________________
Title: __________________________
Attested: _____________________
By: ___________________________
Name: ___________________________
Title: ___________________________
-2-
<PAGE>
EXHIBIT 10.25
BREAKAWAY SOLUTIONS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
BREAKAWAY SOLUTIONS, INC. (the "Company") hereby grants this 12th day
of December 1998___ [SEE SECTION 3(c)(i) OF EMPLOYMENT AGREEMENT)] (the "Grant
Date") to Gordon Brooks (the "Employee"), an option to purchase a maximum of two
hundred thirty one thousand three hundred and forty six (231,346) shares (the
"Option Shares") of the Company's Common Stock, par value $.0001 per share
("Common Stock") at the price of four dollars and twenty-five cents ($4.25) per
share, on the following terms and conditions:
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's 1998
Stock Plan (the "Plan"), the terms and conditions of which are incorporated
herein by reference, and, unless the context otherwise requires, terms used
herein shall have the same meaning as in the Plan. Determinations made in
connection with this option pursuant to the Plan shall be governed by the
Plan as it exists on the Grant Date.
2. GRANT AS NON-QUALIFIED STOCK OPTION; OTHER OPTIONS.
This option shall be treated for federal income tax purposes as a
Non-Qualified Option (rather than incentive stock option under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code")). This option
is in addition to any other options heretofore or hereafter granted to the
Employee by the Company or any Related Corporation (as defined in the
Plan), but a duplicate original of this instrument shall not effect the
grant of another option.
3. VESTING OF OPTION.
Subject to all other terms and conditions of this Agreement, the Employee
may exercise this option for any or all of the Option Shares as of the
Grant Date. The foregoing rights are cumulative and, subject to Sections 4
and 5 hereof, may be exercised prior to the tenth (10th) anniversary of the
Grant Date (the "Expiration Date").
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company or any Related
Corporation, other than by reason of death or disability as defined in
Section 5 or termination for Cause as defined in Section 4(c), this
option shall terminate on the earlier of (i) ninety (90) days after the
date of termination of the Employee's employment, or (ii) the
Expiration Date. In such a case, the Employee's only rights hereunder
shall be those which are properly exercised before the termination of
this option.
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as defined
in Section 4(c)), this option shall terminate upon the Employee's
receipt of written notice of such termination and shall thereafter not
be exercisable to any extent whatsoever.
<PAGE>
(c) DEFINITION OF CAUSE.
"Cause" shall mean that the Employee is terminated for one or more of the
following reasons: (i) the Employee's commission of any act of embezzlement
or fraud; or (ii) the Employee's conviction of a felony.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his death, this option may be exercised, to
the extent otherwise exercisable on the date which is sixty (60) days
after the date of death, by the estate, personal representative or
beneficiary who has acquired this option by will or by the laws of
descent and distribution, until the earlier of (i) the Expiration Date
or (ii) two hundred seventy (270) days from the date of the Employee's
death.
(b) DISABILITY.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his or her disability (as defined in
Paragraph 10(B) of the Plan), the Employee shall have the right to
exercise this option, to the extent otherwise exercisable on the date
which is sixty (60) days from the date of termination of employment,
until the earlier of (i) the Expiration Date or (ii) two hundred
seventy (270) days from the date of the termination of the Employee's
employment.
(c) EFFECT OF TERMINATION.
At the expiration of the two hundred seventy (270) day period provided
in paragraph (a) or (b) of this Section 5, or the Expiration Date,
whichever is the earlier, this option shall terminate and the only
rights hereunder shall be those as to which the option was properly
exercised before such termination.
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and from time to
time within the above limits, except that the Employee may not exercise
this option for a fraction of a share unless such exercise is with respect
to the final installment of stock subject to this option and cash in lieu
of a fractional share must be paid, in accordance with Paragraph 13(G) of
the Plan, to permit the Employee to exercise completely such final
installment. Any fractional share with respect to which an installment of
this option cannot be exercised because of the limitation contained in the
preceding sentence shall remain subject to this option and shall be
available for later purchase by the Employee in accordance with the terms
hereof.
7. PAYMENT OF PRICE. (a) The option price shall be paid in the following
manner:
(i) in cash or by check;
<PAGE>
(ii) subject to Section 7(b) below, by delivery of shares of
the Company's Common Stock having a fair market value (as
determined by the Committee) equal as of the date of exercise to
the option price;
(iii) by delivery of an assignment satisfactory in form and
substance to the Company of a sufficient amount of the proceeds
from the sale of the Option Shares and an instruction to the
broker or selling agent to pay that amount to the Company;
(iv) by any combination of the foregoing.
(b) LIMITATIONS ON PAYMENT BY DELIVERY OF COMMON STOCK. If the Employee
delivers Common Stock held by the Employee ("Old Stock") to the Company
in full or partial payment of the option price, and the Old Stock so
delivered is subject to restrictions or limitations imposed by
agreement between the Employee and the Company, an equivalent number of
Option Shares shall be subject to all restrictions and limitations
applicable to the Old Stock to the extent that the Employee paid for
the Option Shares by delivery of Old Stock, in addition to any
restrictions or limitations imposed by this Agreement. Notwithstanding
the foregoing, the Employee may not pay any part of the exercise price
hereof by transferring Common Stock to the Company unless such Common
Stock has been owned by the Employee free of any substantial risk of
forfeiture for at least six months.
8. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, this option may be
exercised by written notice to the Company at its principal executive
office, or to such transfer agent as the Company shall designate. Such
notice shall state the election to exercise this option and the number of
Option Shares for which it is being exercised and shall be signed by the
person or persons exercising this option. Such notice shall be accompanied
by payment of the full purchase price of such shares, and the Company shall
deliver a certificate or certificates representing such shares as soon as
practicable after the notice shall be received. Such certificate or
certificates shall be registered in the name of the person or persons so
exercising this option (or, if this option is exercised by the Employee and
if the Employee requests in the notice exercising this option, shall be
registered in the name of the Employee and another person jointly, with
right of survivorship). In the event this option is exercised, pursuant to
Section 5 hereof, by any person or persons other than the Employee, such
notice shall be accompanied by appropriate proof of the right of such
person or persons to exercise this option.
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will or by the laws
of descent and distribution. During the Employee's lifetime only the
Employee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION.
The grant and acceptance of this option imposes no obligation on the
Employee to exercise it.
<PAGE>
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option imposes any
obligation on the Company or any Related Corporation to continue the
Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
The Employee shall have no rights as a stockholder with respect to the
Option Shares until the date of issuance of a stock certificate to the
Employee. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization and stock dividends of the Company,
no adjustment shall be made for dividends or similar rights for which the
record date is before the date such stock certificate is issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options in a number
of contingencies such as stock splits and mergers. Provisions in the Plan
for adjustment with respect to stock subject to options and the related
provisions with respect to successors to the business of the Company are
hereby made applicable hereunder and are incorporated herein by reference.
14. RESTRICTIONS ON TRANSFER; LEGENDS.
Option Shares will be deemed "restricted securities" for purposes of the
Securities Act of 1933, as amended (the "Securities Act"). Accordingly,
such shares must be sold in accordance with the registration requirement of
the Securities Act and any State "Blue Sky" laws or an exemption therefrom.
Employee acknowledges that the Company may put a legend on the certificate
or certificates representing the Option Shares stating that the shares
represented thereby have restrictions on transfer and are subject to rights
of first refusal and repurchase by the Company.
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion determines that
it is obligated to withhold any tax in connection with the exercise of this
option, the making of a Disqualifying Disposition (as defined in Paragraph
18 of the Plan), the vesting or transfer of Option Shares acquired on the
exercise of this option, or the making of a distribution or other payment
with respect to the Option Shares, the Employee hereby agrees that the
Company or any Related Corporation may withhold from the Employee's wages
or other remuneration the appropriate amount of tax. At the discretion of
the Company or Related Corporation, the amount required to be withheld may
be withheld in cash from such wages or other remuneration or in kind from
the Common Stock or other property otherwise deliverable to the Employee on
exercise of this option. The Employee further agrees that, if the Company
or any Related Corporation does not withhold an amount from the Employee's
wages or other remuneration sufficient to satisfy the withholding
obligation of the Company or Related Corporation, the Employee will make
reimbursement on demand, in cash, for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or her legal
representative (the "Transferor") desires to transfer all or any part
of the Option Shares to any person other
<PAGE>
than the Company (an "Offeror"), the Transferor shall: (i) obtain in
writing a bona fide offer (the "Offer") for the purchase thereof from
the Offeror; and (ii) give written notice (the "Option Notice") to the
Company setting forth the Transferor's desire to transfer such shares,
which Option Notice shall be accompanied by a photocopy of the Offer
and shall set forth at least the name and address of the Offeror and
the price and terms of the bona fide offer. Upon receipt of the Option
Notice, the Company shall have an assignable option to purchase all of
such shares (the "Company Option Shares") specified in the Option
Notice, such option to be exercisable by giving, within thirty (30)
days after receipt of the Option Notice, a written counter-notice to
the Transferor (the "Counter-Notice"). If the Company elects to
purchase all of such Company Option Shares, it shall be obligated to
purchase, and the Transferor shall be obligated to sell to the Company,
such Company Option Shares that the Company elects to purchase as set
forth in the Counter-Notice at a per share price equal to the per share
price (and, except as set forth below, on the same terms) indicated in
the Offer, within thirty (30) days of the date of delivery by the
Company of the Counter-Notice. If the Company elects to purchase all of
such Company Option Shares, it may, in its sole discretion, pay the
purchase price for such Company option shares in accordance with the
terms of a promissory note, in the form attached hereto as Exhibit A.
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for sixty (60) days after the expiration of the
thirty (30)-day period during which the Company may give the
Counter-Notice, sell, pursuant to the terms of the Offer, any or all of
such Company Option Shares not purchased or agreed to be purchased by
the Company or its assignee; PROVIDED, HOWEVER, that the Transferor
shall not sell such Company Option Shares to the Offeror if the Offeror
is a competitor of the Company and the Company gives a written notice
to the Transferor, within thirty (30) days of its receipt of the Option
Notice, stating that the Offeror is a competitor and therefore
Transferor shall not sell such Company Option Shares to such Offeror;
and PROVIDED, FURTHER, that prior to the sale of such Company Option
Shares to the Offeror, the Offeror shall execute an agreement with the
Company pursuant to which the Offeror agrees to be subject to the
restrictions set forth in Sections 16, 17, 18 and 20 hereof. If any or
all of such Company Option Shares are not sold pursuant to an Offer
within the time permitted above, the unsold Company Option Shares shall
remain subject to the terms of this Section 16 and any future proposed
transfer must again comply with the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination or exchange of shares, or the like,
the restrictions contained in this Section 16 shall apply with equal
force to additional and/or substitute securities, if any, received by
the Employee in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refuses to deliver on a timely basis duly
endorsed certificates representing Company Option Shares to be sold to
the Company or its assignee
<PAGE>
pursuant to this Section 16, the Company shall have the right to
deposit the purchase price for such Company Option Shares in a special
account with any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the Transferor,
whereupon such Company Option Shares shall be deemed to have been
purchased by the Company. All such moneys shall be held by the bank or
trust company for the benefit of the Transferor. All moneys deposited
with the bank or trust company remaining unclaimed for two years after
the date of deposit shall be repaid by the bank or trust company to the
Company on demand, and the Transferor shall thereafter look only to the
Company for payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first refusal
rights of the Company set forth in this Section 16 shall remain in
effect until such time, if ever, as an underwritten public offering is
made of shares of the Company's Common Stock pursuant to a registration
statement filed under the Securities Act of 1933 or a successor statute
or the closing of an Acquisition as defined in the Plan, at which time
this Section 16 and the right of first refusal set forth herein will
automatically expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE.
The Company shall have the right (the "Repurchase Right") to repurchase
from the holder of any Option Shares (each a "Holder") any or all of
the Option Shares then owned by such Holder at any time by giving such
Holder a written notice (the "Repurchase Notice") at least 30 days
prior to the date of repurchase. The Repurchase Notice shall set forth
the number of Option Shares to be repurchased (the "Repurchase
Shares"), the Fair Market Value per share (determined in accordance
with Section 17(b) below as of the date of the Repurchase Notice) of
the Repurchase Shares and the date (the "Repurchase Date") on which
such Repurchase Shares are to be repurchased by the Company (such date
not to be more than 120 nor less than 30 days after the date of the
Repurchase Notice). On the Repurchase Date, the Company shall tender to
the Holder an amount equal to the number of Repurchase Shares
multiplied by the Fair Market Value per share; provided, however, that
the Company may pay the repurchase amount, in its sole discretion, in
accordance with the terms of a promissory note in the form attached
hereto as EXHIBIT A. The Company may assign the Repurchase Right to one
or more persons and may utilize a promissory note to effect its
Repurchase right. Upon timely exercise of the Repurchase Right in the
manner provided in this Section 17(a), the Holder shall deliver to the
Company the stock certificate or certificates representing the
Repurchase Shares, duly endorsed and free and clear of any and all
liens, charges and encumbrances.
(b) FAIR MARKET VALUE.
A determination as to the current valuation of the Company shall be
made (i) on an annual basis within 90 days after the end of the
Company's fiscal year, (ii) effective upon the consummation by the
Company of any future financing and (iii) promptly following any other
event which involves the obtaining by the Company of an independent
valuation of the Company. "Valuation" means (1) in the case of clause
(I) of the preceding sentence, a valuation mutually agreed upon by
Employee and the
<PAGE>
Board of Directors, or if a mutual agreement cannot be reached, a
written determination of the valuation of the Company prepared by an
independent investment banking firm or appraisal company which is of
national or regional reputation and which is mutually acceptable to the
Company and to you and which valuation is prepared on a basis
consistent with valuation methods typically used by venture capitalists
or investment bankers to value a business in the same industry and
stage of development as the Company (it being agreed that such
valuation shall not be based on book value or liquidation value), (2)
with respect to clause (ii) of the preceding sentence, the valuation of
the Company in connection with such financing and (3) with respect to
clause (iii) of the preceding sentence, the independently prepared
valuation referred to therein. "Fair Market Value per Option Share"
shall mean the valuation of the Company divided by the number of shares
of Common Stock equivalents (including, without limitation, preferred
stock convertible into common stock, warrants to purchase common stock
and vested options) then outstanding.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination or exchange of shares, or the like,
the restrictions contained in this Section 17 shall apply with equal
force to additional and/or substitute securities, if any, received by
the Employee in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES.
If the Holder fails or refuses to deliver on a timely basis duly
endorsed certificates representing the Repurchase Shares to be
repurchased by the Company or its assignee pursuant to this Section 17,
the Company shall have the right to deposit the repurchase price for
such Repurchase Shares in a special account with any bank or trust
company in the Commonwealth of Massachusetts, giving notice of such
deposit to the Holder, whereupon such Repurchase Shares shall be deemed
to have been purchased by the Company. All such moneys shall be held by
the bank or trust company for the benefit of the Holder. All moneys
deposited with the bank or trust company remaining unclaimed for two
years after the date of deposit shall be repaid by the bank or trust
company to the Company on demand, and the Holder shall thereafter look
only to the Company for payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT.
The Repurchase Right of the Company set forth in this Section 17 shall
remain in effect until such time, if ever, as an underwritten public
offering is made of shares of the Company's Common Stock pursuant to a
registration statement filed under the Securities Act or any successor
statute or the closing of an Acquisition as defined in the Plan, at
which time this Section 17 and the Repurchase Right set forth herein
will automatically terminate.
<PAGE>
(f) TRANSFERS EXCLUDED FROM FIRST REFUSAL RIGHTS.
The foregoing first refusal rights of the Company shall not apply to a
transfer by the Employee of all or any part of the Option Shares to the
Employee's spouse, children or grandchildren, or to a trust for the
benefit of any such individuals; provided, however, that prior to any
such transfer each transferee shall execute an agreement with the
Company pursuant to which the transferee agrees to be subject to the
restrictions set forth in Sections 16, 17, 18 and 20 hereof.
18. LOCK-UP AGREEMENT.
The Employee agrees that in connection with the Company's first
underwritten public offering of Common Stock, upon the request of the
Company or the managing or lead underwriter for such public offering, the
Option Shares may not be sold, offered for sale or otherwise disposed of
without the prior written consent of the Company or such underwriter, as
the case may be, for at least 180 days after the effectiveness of the
registration statement filed in connection with such offering, or such
longer period of time as the Board of Directors may determine if all of the
Company's directors and officers agree to be similarly bound (but in no
event, longer than 270 days). The lock-up agreement established pursuant to
this Section 18 shall have perpetual duration.
19. PROVISION OF DOCUMENTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of a copy of
this Agreement and a copy of the Plan.
20. SUBCHAPTER S RESTRICTIONS.
Anything in this Agreement to the contrary notwithstanding, including,
without limitation, Sections 16 and 17 hereof, the Employee shall not
exercise this option or sell, assign, transfer or convey or otherwise
dispose of any Option Shares, whether by will, by the laws of descent and
distribution, by operation of law or otherwise, including, without
limitation, under Sections 16 or 17 hereof, to any person or entity, if
such exercise or transfer will or may reasonably be expected to result in a
termination of the Company's subchapter S election under Section 1362 of
the Code (pursuant to Sections 1361 and 1362 of the Code or any successor
provision thereto). Any exercise of this option or transfer of Option
Shares in violation of the restrictions on exercise and transfer contained
herein or resulting in termination of the Company's subchapter S election
in violation of the terms of this Agreement shall be null and void and of
no effect whatsoever and shall not entitle the Employee or any proposed
transferee, assignee or other person to have any Option Shares issued to
them or transferred upon the books of the Company. Furthermore, the
Employee will not take any other action which would result in the
termination of the Company's subchapter S election. For purposes of this
section 20, the term Employee includes any successor transferee of the
Option Shares. The provisions of this Section 20 shall remain in effect
until such time, if ever, as an underwritten public offering is made of
shares of the Company's Common Stock pursuant to a registration statement
filed under the Securities Act or any successor statute or the termination
of the Company's status as an S-Corp, at which time this Section 20 and the
restrictions set forth herein will automatically terminate.
<PAGE>
21. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall be deemed given
when sent by certified or registered mail, postage prepaid, return
receipt requested, to the address set forth below. The addresses for
such notices may be changed from time to time by written notice given
in the manner provided for herein.
(b) ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the entire agreement between the parties
relative to the subject matter hereof, and supersedes all proposals,
written or oral, and all other communications between the parties
relating to the subject matter of this Agreement. This Agreement may be
modified, amended or rescinded only by a written agreement executed by
both parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any provision of this
Agreement shall in no way affect the validity, legality or
enforceability of any other provision.
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, subject to
the limitations set forth in Sections 9, 16, 17, and 20 hereof.
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to
the principles of the conflicts of laws thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
Breakaway Solutions, Inc.
50 Rowes Wharf
6th Floor
Boston, MA 02110
/S/ GORDON BROOKS
- -----------------------------
Employee
GORDON BROOKS By: /S/ FRANK SELLDORFF
- ----------------------------- -----------------------------
Print Name of Employee Name: Frank Sellfdorff
Title: Founder
20 GILSON ROAD
- -----------------------------
Street Address
WELLESLEY, MA 02481
- -------------------------------------
City State Zip Code
Attest /S/ SAM SPECTOR
- -----------------------------
<PAGE>
EXHIBIT A
FORM OF
PROMISSORY NOTE
$_____________ _________ __, 199_
For value received, the undersigned, Breakaway Solutions, Inc., a
Delaware corporation ("Obligor"), hereby promises to pay to the order of Gordon
Brooks ("Lender") at such place as may be designated from time to time in
writing by Lender, the principal sum of ___________ Dollars and ______ Cents
($_________) : ____ percent (___%) per annum [the prime rate in effect on the
date hereof for major banks as published in the Wall Street Journal], payable as
set forth below. At the option of Lender and to the extent permitted by
applicable law, the rate of interest on any unpaid principal or interest not
paid when due and payable hereunder shall be two percent (2%) per annum above
the rate of interest set forth in the immediately preceding sentence. Interest
shall be calculated on the basis of actual number of days elapsed over a year of
360 days. Notwithstanding any other provision of this Promissory Note, Lender
does not intend to charge and Obligor shall not be required to pay any interest
or other fees or charges in excess of the maximum permitted by applicable law;
any payments in excess of such maximum shall be refunded to Obligor or credited
to reduce principal hereunder. All payments received by Lender hereunder will be
applied first to costs of collection, if any, then to interest and the balance
to principal. Principal and interest shall be payable in lawful money of the
United States of America.
Principal shall be paid in sixty (60) equal monthly installments of
________________ Dollars and ______ Cents ($______) each, commencing on
________, 199_, and continuing on the same day of each successive month
thereafter with a final payment of all unpaid principal on ______, 199_;
interest shall be paid monthly commencing on ________, 199_, and continuing on
the same day of each successive month thereafter with a final payment of all
unpaid interest at the time of payment of the principal.
If any day on which a payment is due pursuant to the terms of this
Promissory Note is not a day on which banks in the Commonwealth of Massachusetts
are generally open (a "Business Day"), such payment shall be due on the next
Business Day following.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part, all such prepayments to be applied upon
installments of most remote maturity. Any prepayment of principal shall be
accompanied by a payment of accrued interest in respect of the principal being
prepaid.
This Promissory Note shall, at the option of the holder hereof, become
due and payable without notice or demand, upon the happening of any one of the
following specified events: (1) failure to pay any amount as herein set forth;
(2) default in the performance of any other obligation to Lender, which default
is not cured within thirty (30) days after written notice of such default from
Lender; (3) insolvency (however evidenced) or the commission of any act of
insolvency; (4) the making of a general assignment for the benefit of creditors;
(5) the filing of any petition or the commencement of any proceeding by Obligor
or any endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions; (6)
the filing of any petition or the commencement of any proceeding against Obligor
or any endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions,
which proceeding is not dismissed within sixty (60) days; (7) suspension of the
transaction of the usual business of Obligor; or (8) the past or future making
of a false representation or warranty by Obligor in connection with any loan or
loans by Lender.]
<PAGE>
If this Promissory Note is not paid in accordance with its terms,
Obligor shall pay to Lender, in addition to principal and accrued interest
thereon, all costs of collection of the principal and accrued interest,
including, but not limited to, reasonable attorneys' fees, court costs and other
costs for the enforcement of payment of this Promissory Note.
No waiver of any obligation of Obligor under this Promissory Note shall
be effective unless it is in a writing signed by Lender. A waiver by Lender of
any right or remedy under this Promissory Note on any occasion shall not be a
bar to exercise of the same right or remedy on any subsequent occasion or of any
other right or remedy at any time.
Any notice required or permitted under this Promissory Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
personally delivered to the party to whom notice is to be given, or on the fifth
business day after mailing, if mailed to the party to whom notice is to be
given, by certified mail, return receipt requested, postage prepaid, and
addressed to the addressee at the address of the addressee set forth herein, or
to the most recent address, specified by written notice, given to the sender
pursuant to this paragraph.
This Promissory Note is delivered in and shall be enforceable in
accordance with the laws of the Commonwealth of Massachusetts, and shall be
construed in accordance therewith, and shall have the effect of a sealed
instrument.
Obligor hereby expressly waives presentment, demand, and protest,
notice of demand, dishonor and nonpayment of this Promissory Note, and all other
notices or demands of any kind in connection with the delivery, acceptance,
performance, default or enforcement hereof, and hereby consents to any delays,
extensions of time, renewals, waivers or modifications that may be granted or
consented to by the holder hereof with respect to the time of payment or any
other provision hereof .
In the event any one or more of the provisions of this Promissory Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
OBLIGOR:
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Attested:
---------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-2-
<PAGE>
EXHIBIT 10.26
BREAKAWAY SOLUTIONS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
BREAKAWAY SOLUTIONS, INC. (the "Company") hereby grants this 11th day of
December, 1998 (the "Grant Date") to Gordon Brooks (the "Employee"), an option
to purchase a maximum of three hundred eighty two thousand three hundred
thirteen (382,313) shares (the "Option Shares") of the Company's Common Stock,
par value $.0001 per share ("Common Stock") at the price of four dollars and
twenty-five cents ($4.25) per share, on the following terms and conditions:
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's 1998
Stock Plan (the "Plan"), the terms and conditions of which are incorporated
herein by reference, and, unless the context otherwise requires, terms used
herein shall have the same meaning as in the Plan. Determinations made in
connection with this option pursuant to the Plan shall be governed by the
Plan as it exists on the Grant Date.
2. GRANT AS NON-QUALIFIED STOCK OPTION; OTHER OPTIONS.
This option shall be treated for federal income tax purposes as a
Non-Qualified Option (rather than incentive stock option under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code")). This option
is in addition to any other options heretofore or hereafter granted to the
Employee by the Company or any Related Corporation (as defined in the
Plan), but a duplicate original of this instrument shall not effect the
grant of another option.
3. VESTING OF OPTION.
Except as otherwise provided in this Agreement, and subject to all other
terms and conditions of this Agreement, this option may be exercised prior
to the tenth (10th) anniversary of the Grant Date (the "Expiration Date")
in installments for not more than the number of Option Shares which are
vested as hereinbelow provided:
(a) ACHIEVING TARGET AMOUNTS.
(1) Ninety five thousand five hundred seventy eight (95,578) shares shall
become vested upon the Company obtaining a Valuation (as defined below) of
one hundred million dollars ($100,000,000), or such higher Target Amount
(as defined below) as may be required pursuant to the provisions set forth
below;
(2) An additional ninety five thousand five hundred seventy eight (95,578)
shares shall become vested upon the Company obtaining a Valuation of one
hundred fifty million dollars ($150,000,000), or such higher Target Amount
(as defined below) as may be required pursuant to the provisions set forth
below;
(3) An additional ninety five thousand five hundred seventy eight (95,578)
shares shall become vested upon the Company obtaining a Valuation of two
hundred million dollars ($200,000,000), or such higher Target Amount (as
defined below) as may be required pursuant to the provisions set forth
below;
<PAGE>
(4) An additional ninety five thousand five hundred seventy eight (95,578)
shares shall become vested upon the Company obtaining a Valuation of two
hundred fifty million dollars ($250,000,000), or such higher Target Amount
(as defined below) as may be required pursuant to the provisions set forth
below.
Each of the foregoing Valuation amounts in Paragraphs (1) through (4) of
this Subsection (a) are referred to for purposes hereof as a "Target
Amount." Any increase in the value of the Company (and which increase is
reflected in a Valuation, as hereinbelow provided) which is directly caused
by or related to an investment in the Company or the merger into the
Company, or acquisition by the Company of another business entity shall
cause an increase in each Target Amount which has not yet been achieved as
of the date of such investment, merger or acquisition equal to the increase
in value caused by such investment, merger or acquisition.
A determination as to the current Valuation of the Company shall be made
(i) on an annual basis within ninety (90) days after the end of the
Company's fiscal year, (ii) effective upon the consummation by the Company
of any future financing and (iii) promptly following any other event which
involves the obtaining by the Company of an independent valuation of the
Company. "Valuation" means (1) in the case of clause (i) of the preceding
sentence, a valuation mutually agreed upon by the Employee and the Board of
Directors, or if a mutually agreement cannot be reached, a written
determination of the valuation of the Company prepared by an independent
investment banking firm or appraisal company which is of national or
regional reputation and which is mutually acceptable to the Company and to
the Employee and which valuation is prepared on a basis consistent with
valuation methods typically used by venture capitalists or investment
bankers to value a business in the same industry and stage of development
as the Company (it being agreed that such valuation shall not be based on
book value or liquidation value), (2) with respect to clause (ii) of the
preceding sentence, the valuation of the Company in connection with such
financing and (3) with respect to clause (iii) of the preceding sentence,
the independently prepared valuation referred to therein.
(b) TRIGGERING EVENT.
If a Triggering Event, as defined below:
(1) Occurs within twelve (12) months of the Grant Date, ninety five
thousand five hundred seventy eight (95,578) unvested shares (or, if fewer,
all unvested shares) shall immediately become vested;
(2) Occurs between twelve (12) months and twenty-four (24) months of the
Grant Date, one hundred ninety one thousand one hundred fifty six (191,156)
unvested shares (or, if fewer, all unvested shares) shall immediately
become vested;
(3) Occurs between twenty-four (24) months and thirty-six (36) months of
the Grant Date, two hundred eighty six thousand seven hundred thirty five
(286,735) unvested shares (or, if fewer, all unvested shares) shall
immediately become vested; and
(4) Occurs thirty-six (36) months or later after the Grant Date, all
unvested shares shall
<PAGE>
immediately become vested.
For purposes hereof, a "Triggering Event" is the occurrence of any of the
following events: (a) a sale of all or substantially all of the Company's
assets or all or substantially all of the shares of its capital stock, (b)
a consolidation or merger of the Company in which a majority of outstanding
shares of the Company's capital stock are exchanged for securities, cash or
other property of any other corporation or business entity, (c) a
consolidation or merger involving the Company as a result of which the
stockholders of the Company immediately prior to such event do not own,
immediately following the occurrence of such event, at least a majority of
the common stock and voting power of the entity resulting from such
consolidation or surviving such merger or (d) the liquidation or
dissolution of the Company. In addition, if the Company or stockholders of
the Company enter into an agreement with respect to any of the foregoing
events, then upon the consummation of such event a Triggering Event shall
be deemed to have occurred upon the date of such agreement and, regardless
of whether the option remains outstanding on the date of consummation of
the Triggering Event, the Employee will be entitled to exercise the option
to the extent the Employee would have been eligible to do so if a
Triggering Event had occurred on the date the agreement was entered into
(and in any event, for a period of at least 30 days after the consummation
of such event).
(c) CONTINUED EMPLOYMENT FOR SEVEN YEARS.
All unvested Option Shares shall become vested on the seventh (7th)
anniversary of the Grant Date.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company or any Related
Corporation, other than by reason of death or disability as defined in
Section 5 or termination for Cause as defined in Section 4(c), this option
shall continue to vest as set forth in Section 3 for sixty (60) days after
the date Employee ceases to be employed by the Company or any Related
Corporation. This option shall terminate on the earlier of (i) ninety (90)
days after the date of termination of the Employee's employment, or (ii)
the Expiration Date. In such a case, the Employee's only rights hereunder
shall be those which are properly exercised before the termination of this
option.
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as defined in
Section 4(c)), this option shall terminate upon the Employee's receipt of
written notice of such termination and shall thereafter not be exercisable
to any extent whatsoever.
<PAGE>
(c) DEFINITION OF CAUSE.
"Cause" shall mean that the Employee is terminated for one or more of the
following reasons: (i) the Employee's commission of any act of embezzlement
or fraud; or (ii) the Employee's conviction of a felony.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his death, this option may be exercised, to the
extent otherwise exercisable on the date which is sixty (60) days after the
date of death, by the estate, personal representative or beneficiary who
has acquired this option by will or by the laws of descent and
distribution, until the earlier of (i) the Expiration Date or (ii) two
hundred seventy (270) days from the date of the Employee's death.
(b) DISABILITY.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his or her disability (as defined in Paragraph
10(B) of the Plan), the Employee shall have the right to exercise this
option, to the extent otherwise exercisable on the date which is sixty (60)
days from the date of termination of employment, until the earlier of (i)
the Expiration Date or (ii) two hundred seventy (270) days from the date of
the termination of the Employee's employment.
(c) EFFECT OF TERMINATION.
At the expiration of the two hundred seventy (270) day period provided in
paragraph (a) or (b) of this Section 5, or the Expiration Date, whichever
is the earlier, this option shall terminate and the only rights hereunder
shall be those as to which the option was properly exercised before such
termination.
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and from time to
time within the above limits, except that the Employee may not exercise
this option for a fraction of a share unless such exercise is with respect
to the final installment of stock subject to this option and cash in lieu
of a fractional share must be paid, in accordance with Paragraph 13(G) of
the Plan, to permit the Employee to exercise completely such final
installment. Any fractional share with respect to which an installment of
this option cannot be exercised because of the limitation contained in the
preceding sentence shall remain subject to this option and shall be
available for later purchase by the Employee in accordance with the terms
hereof.
7. PAYMENT OF PRICE. (a) The option price shall be paid in the following
manner:
(i) in cash or by check;
<PAGE>
(ii) subject to Section 7(b) below, by delivery of shares of the
Company's Common Stock having a fair market value (as determined by
the Committee) equal as of the date of exercise to the option
price;
(iii) by delivery of an assignment satisfactory in form and substance to
the Company of a sufficient amount of the proceeds from the sale of
the Option Shares and an instruction to the broker or selling agent
to pay that amount to the Company;
(iv) by any combination of the foregoing.
(B) LIMITATIONS ON PAYMENT BY DELIVERY OF COMMON STOCK. If the Employee
delivers Common Stock held by the Employee ("Old Stock") to the Company
in full or partial payment of the option price, and the Old Stock so
delivered is subject to restrictions or limitations imposed by
agreement between the Employee and the Company, an equivalent number of
Option Shares shall be subject to all restrictions and limitations
applicable to the Old Stock to the extent that the Employee paid for
the Option Shares by delivery of Old Stock, in addition to any
restrictions or limitations imposed by this Agreement. Notwithstanding
the foregoing, the Employee may not pay any part of the exercise price
hereof by transferring Common Stock to the Company unless such Common
Stock has been owned by the Employee free of any substantial risk of
forfeiture for at least six months.
8. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, this option may be
exercised by written notice to the Company at its principal executive
office, or to such transfer agent as the Company shall designate. Such
notice shall state the election to exercise this option and the number of
Option Shares for which it is being exercised and shall be signed by the
person or persons exercising this option. Such notice shall be accompanied
by payment of the full purchase price of such shares, and the Company shall
deliver a certificate or certificates representing such shares as soon as
practicable after the notice shall be received. Such certificate or
certificates shall be registered in the name of the person or persons so
exercising this option (or, if this option is exercised by the Employee and
if the Employee requests in the notice exercising this option, shall be
registered in the name of the Employee and another person jointly, with
right of survivorship). In the event this option is exercised, pursuant to
Section 5 hereof, by any person or persons other than the Employee, such
notice shall be accompanied by appropriate proof of the right of such
person or persons to exercise this option.
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will or by the laws
of descent and distribution. During the Employee's lifetime only the
Employee can exercise this option.
<PAGE>
10. NO OBLIGATION TO EXERCISE OPTION.
The grant and acceptance of this option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option imposes any
obligation on the Company or any Related Corporation to continue the
Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
The Employee shall have no rights as a stockholder with respect to the
Option Shares until the date of issuance of a stock certificate to the
Employee. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization and stock dividends of the Company,
no adjustment shall be made for dividends or similar rights for which the
record date is before the date such stock certificate is issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options in a number
of contingencies such as stock splits and mergers. Provisions in the Plan
for adjustment with respect to stock subject to options and the related
provisions with respect to successors to the business of the Company are
hereby made applicable hereunder and are incorporated herein by reference.
14. RESTRICTIONS ON TRANSFER; LEGENDS.
Option Shares will be deemed "restricted securities" for purposes of the
Securities Act of 1933, as amended (the "Securities Act"). Accordingly,
such shares must be sold in accordance with the registration requirement of
the Securities Act and any State "Blue Sky" laws or an exemption therefrom.
Employee acknowledges that the Company may put a legend on the certificate
or certificates representing the Option Shares stating that the shares
represented thereby have restrictions on transfer and are subject to rights
of first refusal and repurchase by the Company.
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion determines that
it is obligated to withhold any tax in connection with the exercise of this
option, the making of a Disqualifying Disposition (as defined in Paragraph
18 of the Plan), the vesting or transfer of Option Shares acquired on the
exercise of this option, or the making of a distribution or other payment
with respect to the Option Shares, the Employee hereby agrees that the
Company or any Related Corporation may withhold from the Employee's wages
or other remuneration the appropriate amount of tax. At the discretion of
the Company or Related Corporation, the amount required to be withheld may
be withheld in cash from such wages or other remuneration or in kind from
the Common Stock or other property otherwise deliverable to the Employee on
exercise of this option. The Employee further agrees that, if the Company
or any Related Corporation does not withhold an amount from the Employee's
wages or other remuneration sufficient to satisfy the withholding
obligation of the Company or Related Corporation, the Employee will make
reimbursement on demand, in cash, for the amount underwithheld.
<PAGE>
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or her legal
representative (the "Transferor") desires to transfer all or any part of
the Option Shares to any person other than the Company (an "Offeror"), the
Transferor shall: (i) obtain in writing a bona fide offer (the "Offer") for
the purchase thereof from the Offeror; and (ii) give written notice (the
"Option Notice") to the Company setting forth the Transferor's desire to
transfer such shares, which Option Notice shall be accompanied by a
photocopy of the Offer and shall set forth at least the name and address of
the Offeror and the price and terms of the bona fide offer. Upon receipt of
the Option Notice, the Company shall have an assignable option to purchase
all of such shares (the "Company Option Shares") specified in the Option
Notice, such option to be exercisable by giving, within thirty (30) days
after receipt of the Option Notice, a written counter-notice to the
Transferor (the "Counter-Notice"). If the Company elects to purchase all of
such Company Option Shares, it shall be obligated to purchase, and the
Transferor shall be obligated to sell to the Company, such Company Option
Shares that the Company elects to purchase as set forth in the
Counter-Notice at a per share price equal to the per share price (and,
except as set forth below, on the same terms) indicated in the Offer,
within thirty (30) days of the date of delivery by the Company of the
Counter-Notice. If the Company elects to purchase all of such Company
Option Shares, it may, in its sole discretion, pay the purchase price for
such Company option shares in accordance with the terms of a promissory
note, in the form attached hereto as Exhibit A.
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for sixty (60) days after the expiration of the thirty
(30)-day period during which the Company may give the Counter-Notice, sell,
pursuant to the terms of the Offer, any or all of such Company Option
Shares not purchased or agreed to be purchased by the Company or its
assignee; PROVIDED, HOWEVER, that the Transferor shall not sell such
Company Option Shares to the Offeror if the Offeror is a competitor of the
Company and the Company gives a written notice to the Transferor, within
thirty (30) days of its receipt of the Option Notice, stating that the
Offeror is a competitor and therefore Transferor shall not sell such
Company Option Shares to such Offeror; and PROVIDED, FURTHER, that prior to
the sale of such Company Option Shares to the Offeror, the Offeror shall
execute an agreement with the Company pursuant to which the Offeror agrees
to be subject to the restrictions set forth in Sections 16, 17, 18 and 20
hereof. If any or all of such Company Option Shares are not sold pursuant
to an Offer within the time permitted above, the unsold Company Option
Shares shall remain subject to the terms of this Section 16 and any future
proposed transfer must again comply with the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, combination or exchange of shares, or the like, the
restrictions contained in this Section 16 shall
<PAGE>
apply with equal force to additional and/or substitute securities, if any,
received by the Employee in exchange for, or by virtue of his or her
ownership of, Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refuses to deliver on a timely basis duly
endorsed certificates representing Company Option Shares to be sold to the
Company or its assignee pursuant to this Section 16, the Company shall have
the right to deposit the purchase price for such Company Option Shares in a
special account with any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the Transferor, whereupon
such Company Option Shares shall be deemed to have been purchased by the
Company. All such moneys shall be held by the bank or trust company for the
benefit of the Transferor. All moneys deposited with the bank or trust
company remaining unclaimed for two years after the date of deposit shall
be repaid by the bank or trust company to the Company on demand, and the
Transferor shall thereafter look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first refusal
rights of the Company set forth in this Section 16 shall remain in effect
until such time, if ever, as an underwritten public offering is made of
shares of the Company's Common Stock pursuant to a registration statement
filed under the Securities Act of 1933 or a successor statute or the
closing of an Acquisition as defined in the Plan, at which time this
Section 16 and the right of first refusal set forth herein will
automatically expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE.
The Company shall have the right (the "Repurchase Right") to repurchase
from the holder of any Option Shares (each a "Holder") any or all of the
Option Shares then owned by such Holder at any time by giving such Holder a
written notice (the "Repurchase Notice") at least 30 days prior to the date
of repurchase. The Repurchase Notice shall set forth the number of Option
Shares to be repurchased (the "Repurchase Shares"), the Fair Market Value
per share (determined in accordance with Section 17(b) below as of the date
of the Repurchase Notice) of the Repurchase Shares and the date (the
"Repurchase Date") on which such Repurchase Shares are to be repurchased by
the Company (such date not to be more than 120 nor less than 30 days after
the date of the Repurchase Notice). On the Repurchase Date, the Company
shall tender to the Holder an amount equal to the number of Repurchase
Shares multiplied by the Fair Market Value per share; provided, however,
that the Company may pay the repurchase amount, in its sole discretion, in
accordance with the terms of a promissory note in the form attached hereto
as EXHIBIT A. The Company may assign the Repurchase Right to one or more
persons and may utilize a promissory note to effect its Repurchase right.
Upon timely exercise of the Repurchase Right in the manner provided in this
Section 17(a), the Holder shall deliver to the Company the stock
certificate or certificates representing the Repurchase Shares, duly
endorsed and free and clear of any and all liens, charges and encumbrances.
<PAGE>
(b) FAIR MARKET VALUE.
"Fair Market Value per Option Share" shall mean the Valuation of the
Company (as defined in Section 3(a)) divided by the number of shares of
Common Stock equivalents (including, without limitation, preferred stock
convertible into common stock, warrants to purchase common stock and vested
options) then outstanding.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, combination or exchange of shares, or the like, the
restrictions contained in this Section 17 shall apply with equal force to
additional and/or substitute securities, if any, received by the Employee
in exchange for, or by virtue of his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES.
If the Holder fails or refuses to deliver on a timely basis duly endorsed
certificates representing the Repurchase Shares to be repurchased by the
Company or its assignee pursuant to this Section 17, the Company shall have
the right to deposit the repurchase price for such Repurchase Shares in a
special account with any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the Holder, whereupon such
Repurchase Shares shall be deemed to have been purchased by the Company.
All such moneys shall be held by the bank or trust company for the benefit
of the Holder. All moneys deposited with the bank or trust company
remaining unclaimed for two years after the date of deposit shall be repaid
by the bank or trust company to the Company on demand, and the Holder shall
thereafter look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT.
The Repurchase Right of the Company set forth in this Section 17 shall
remain in effect until such time, if ever, as an underwritten public
offering is made of shares of the Company's Common Stock pursuant to a
registration statement filed under the Securities Act or any successor
statute or the closing of an Acquisition as defined in the Plan, at which
time this Section 17 and the Repurchase Right set forth herein will
automatically terminate.
(f) TRANSFERS EXCLUDED FROM FIRST REFUSAL RIGHTS.
The foregoing first refusal rights of the Company shall not apply to a
transfer by the Employee of all or any part of the Option Shares to the
Employee's spouse, children or grandchildren, or to a trust for the benefit
of any such individuals; provided, however, that prior to any such transfer
each transferee shall execute an agreement with the Company pursuant to
which the transferee agrees to be subject to the restrictions set forth in
Sections 16, 17, 18 and 20 hereof.
<PAGE>
18. LOCK-UP AGREEMENT.
The Employee agrees that in connection with the Company's first
underwritten public offering of Common Stock, upon the request of the
Company or the managing or lead underwriter for such public offering, the
Option Shares may not be sold, offered for sale or otherwise disposed of
without the prior written consent of the Company or such underwriter, as
the case may be, for at least 180 days after the effectiveness of the
registration statement filed in connection with such offering, or such
longer period of time as the Board of Directors may determine if all of the
Company's directors and officers agree to be similarly bound (but in no
event, longer than 270 days). The lock-up agreement established pursuant to
this Section 18 shall have perpetual duration.
19. PROVISION OF DOCUMENTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of a copy of
this Agreement and a copy of the Plan.
20. SUBCHAPTER S RESTRICTIONS.
Anything in this Agreement to the contrary notwithstanding, including,
without limitation, Sections 16 and 17 hereof, the Employee shall not
exercise this option or sell, assign, transfer or convey or otherwise
dispose of any Option Shares, whether by will, by the laws of descent and
distribution, by operation of law or otherwise, including, without
limitation, under Sections 16 or 17 hereof, to any person or entity, if
such exercise or transfer will or may reasonably be expected to result in a
termination of the Company's subchapter S election under Section 1362 of
the Code (pursuant to Sections 1361 and 1362 of the Code or any successor
provision thereto). Any exercise of this option or transfer of Option
Shares in violation of the restrictions on exercise and transfer contained
herein or resulting in termination of the Company's subchapter S election
in violation of the terms of this Agreement shall be null and void and of
no effect whatsoever and shall not entitle the Employee or any proposed
transferee, assignee or other person to have any Option Shares issued to
them or transferred upon the books of the Company. Furthermore, the
Employee will not take any other action which would result in the
termination of the Company's subchapter S election. For purposes of this
section 20, the term Employee includes any successor transferee of the
Option Shares. The provisions of this Section 20 shall remain in effect
until such time, if ever, as an underwritten public offering is made of
shares of the Company's Common Stock pursuant to a registration statement
filed under the Securities Act or any successor statute or the termination
of the Company's status as an S-Corp, at which time this Section 20 and the
restrictions set forth herein will automatically terminate.
21. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall be deemed given when
sent by certified or registered mail, postage prepaid, return receipt
requested, to the address set forth below. The addresses for such notices
may be changed from time to time by written notice given in the manner
provided for herein.
<PAGE>
(b) ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the entire agreement between the parties
relative to the subject matter hereof, and supersedes all proposals,
written or oral, and all other communications between the parties relating
to the subject matter of this Agreement. This Agreement may be modified,
amended or rescinded only by a written agreement executed by both parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any provision of this
Agreement shall in no way affect the validity, legality or enforceability
of any other provision.
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, subject to the
limitations set forth in Sections 9, 16, 17, and 20 hereof.
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted in accordance with the
laws of the Commonwealth of Massachusetts, without giving effect to the
principles of the conflicts of laws thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
Breakaway Solutions, Inc.
50 Rowes Wharf
6th Floor
Boston, MA 02110
/S/ GORDON BROOKS
- ---------------------------
Employee
GORDON BROOKS By: /S/ SAM SPECTOR
- --------------------------- --------------------------------
Print Name of Employee Name: Sam Spector
Title: Director of Human Resources
20 GILSON ROAD
- ---------------------------
Street Address
WELLESLEY, MA 02481
- ---------------------------------
City State Zip Code
Attest: /S/ SAM SPECTOR
--------------------------
<PAGE>
EXHIBIT A
FORM OF
PROMISSORY NOTE
$_____________ _________ __, 199_
For value received, the undersigned, Breakaway Solutions, Inc., a
Delaware corporation ("Obligor"), hereby promises to pay to the order of Gordon
Brooks ("Lender") at such place as may be designated from time to time in
writing by Lender, the principal sum of ___________ Dollars and ______ Cents
($_________) : ____ percent (___%) per annum [the prime rate in effect on the
date hereof for major banks as published in the Wall Street Journal], payable as
set forth below. At the option of Lender and to the extent permitted by
applicable law, the rate of interest on any unpaid principal or interest not
paid when due and payable hereunder shall be two percent (2%) per annum above
the rate of interest set forth in the immediately preceding sentence. Interest
shall be calculated on the basis of actual number of days elapsed over a year of
360 days. Notwithstanding any other provision of this Promissory Note, Lender
does not intend to charge and Obligor shall not be required to pay any interest
or other fees or charges in excess of the maximum permitted by applicable law;
any payments in excess of such maximum shall be refunded to Obligor or credited
to reduce principal hereunder. All payments received by Lender hereunder will be
applied first to costs of collection, if any, then to interest and the balance
to principal. Principal and interest shall be payable in lawful money of the
United States of America.
Principal shall be paid in sixty (60) equal monthly installments of
________________ Dollars and ______ Cents ($______) each, commencing on
________, 199_, and continuing on the same day of each successive month
thereafter with a final payment of all unpaid principal on ______, 199_;
interest shall be paid monthly commencing on ________, 199_, and continuing on
the same day of each successive month thereafter with a final payment of all
unpaid interest at the time of payment of the principal.
If any day on which a payment is due pursuant to the terms of this
Promissory Note is not a day on which banks in the Commonwealth of Massachusetts
are generally open (a "Business Day"), such payment shall be due on the next
Business Day following.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part, all such prepayments to be applied upon
installments of most remote maturity. Any prepayment of principal shall be
accompanied by a payment of accrued interest in respect of the principal being
prepaid.
This Promissory Note shall, at the option of the holder hereof, become
due and payable without notice or demand, upon the happening of any one of the
following specified events: (1) failure to pay any amount as herein set forth;
(2) default in the performance of any other obligation to Lender, which default
is not cured within thirty (30) days after written notice of such default from
Lender; (3) insolvency (however evidenced) or the commission of any act of
insolvency; (4) the making of a general assignment for the benefit of creditors;
(5) the filing of any petition or the commencement of any proceeding by Obligor
or any endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions; (6)
the filing of any petition or the commencement of any proceeding against Obligor
or any endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions,
which proceeding is not dismissed within sixty (60) days; (7) suspension of the
transaction of the usual business of Obligor; or (8) the past or future making
of a false representation or warranty by Obligor in connection with any loan or
loans by Lender.]
<PAGE>
If this Promissory Note is not paid in accordance with its terms,
Obligor shall pay to Lender, in addition to principal and accrued interest
thereon, all costs of collection of the principal and accrued interest,
including, but not limited to, reasonable attorneys' fees, court costs and other
costs for the enforcement of payment of this Promissory Note.
No waiver of any obligation of Obligor under this Promissory Note shall
be effective unless it is in a writing signed by Lender. A waiver by Lender of
any right or remedy under this Promissory Note on any occasion shall not be a
bar to exercise of the same right or remedy on any subsequent occasion or of any
other right or remedy at any time.
Any notice required or permitted under this Promissory Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
personally delivered to the party to whom notice is to be given, or on the fifth
business day after mailing, if mailed to the party to whom notice is to be
given, by certified mail, return receipt requested, postage prepaid, and
addressed to the addressee at the address of the addressee set forth herein, or
to the most recent address, specified by written notice, given to the sender
pursuant to this paragraph.
This Promissory Note is delivered in and shall be enforceable in
accordance with the laws of the Commonwealth of Massachusetts, and shall be
construed in accordance therewith, and shall have the effect of a sealed
instrument.
Obligor hereby expressly waives presentment, demand, and protest,
notice of demand, dishonor and nonpayment of this Promissory Note, and all other
notices or demands of any kind in connection with the delivery, acceptance,
performance, default or enforcement hereof, and hereby consents to any delays,
extensions of time, renewals, waivers or modifications that may be granted or
consented to by the holder hereof with respect to the time of payment or any
other provision hereof .
In the event any one or more of the provisions of this Promissory Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
OBLIGOR:
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Attested:
----------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
-2-
<PAGE>
EXHIBIT 10.27
BREAKAWAY SOLUTIONS, INC.
INCENTIVE STOCK OPTION AGREEMENT
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's 1998
Stock Plan (the "Plan") and, unless the context otherwise requires, terms
used herein shall have the same meaning as in the Plan. Determinations made
in connection with this option pursuant to the Plan shall be governed by
the Plan as it exists on this date.
2. GRANT AS INCENTIVE STOCK OPTION; OTHER OPTIONS.
This option is intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
This option is in addition to any other options heretofore or hereafter
granted to the Employee by the Company or any Related Corporation (as
defined in the Plan), but a duplicate original of this instrument shall not
effect the grant of another option.
3. VESTING OF OPTION IF EMPLOYMENT CONTINUES.
If the Employee has continued to be employed by the Company or any Related
Corporation on the following dates, the Employee may exercise this option
for the number of shares of Common Stock set opposite the applicable date:
(attached as NOTICE OF GRANT OF STOCK OPTIONS AND OPTION AGREEMENT).
Notwithstanding the foregoing, in accordance with and subject to the
provisions of the Plan, the Committee may, in its discretion, accelerate
the date that any installment of this Option becomes exercisable. The
foregoing rights are cumulative and, while the Employee continues to be
employed by the Company or any Related Corporation, may be exercised on or
before the date which is ten (10) years from the date this option is
granted. All of the foregoing rights are subject to Sections 4 and 5, as
appropriate, if the Employee ceases to be employed by the Company and all
Related Corporations.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company and all
Related Corporations, other than by reason of death or disability
as defined in Section 5 or termination for Cause as defined in
Section 4(c), no further installments of this option shall become
exercisable, and this option shall terminate on the earlier of (i)
ninety (90) days after the date of termination of the Employee's
employment, or (ii) the scheduled expiration date of this option.
In such a case, the Employee's only rights hereunder shall be
those which are properly exercised before the termination of this
option.
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as
defined in Section 4(c)), this option shall terminate upon the
Employee's receipt of written notice of such termination and shall
thereafter not be exercisable to any extent whatsoever.
Page 1 of 11
<PAGE>
(c) DEFINITION OF CAUSE.
For the purpose of this Agreement, "Cause" means: (1) Optionee's
substantial and continuing failure to perform Optionee's duties
and responsibilities as an employee of the company other than due
to death or disability; (2) Optionee's disloyalty, gross
negligence, willful misconduct, dishonesty or breach of fiduciary
duty to the Company; (3) Optionee's deliberate disregard of
material rules, regulations, instructions, personnel practices
and policies of the Company (as amended from time to time in the
Company's sole discretion) which results in direct or indirect
loss, damage or injury to the Company; (4) Optionee's material
breach of any agreement not to compete with the Company or
solicit its customers, employees or contractors; or (5)
Optionee's conviction of any crime which constitutes a felony in
the jurisdiction involved.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all
Related Corporations by reason of his or her death, this option
may be exercised, to the extent otherwise exercisable on the date
of death, by the estate, personal representative or beneficiary
who has acquired this option by will or by the laws of descent
and distribution, until the earlier of (i) the specified
expiration date of this option or (ii) \one hundred eighty (180)
days from the date of the Employee's death.
(b) DISABILITY.
If the Employee ceases to be employed by the Company and all
Related Corporations by reason of his or her disability (as
defined in Paragraph 10(B) of the Plan), the Employee shall have
the right to exercise this option on the date of termination of
employment, for the number of shares for which he or she could
have exercised it on that date, until the earlier of (i) the
specified expiration date of this option or (ii) one hundred
eighty (180) days from the date of the termination of the
Employee's employment.
(c) EFFECT OF TERMINATION.
At the expiration of the one hundred eighty (180) day period
provided in paragraph (a) or (b) of this Section 5 or the
scheduled expiration date, whichever is the earlier, this option
shall terminate and the only rights hereunder shall be those as
to which the option was properly exercised before such
termination.
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and from time to
time within the above limits, except that the Employee may not exercise
this option for a fraction of a share unless such exercise is with respect
to the final installment of stock subject to this option and cash in lieu
of a fractional share must be paid, in accordance with Paragraph 13(G) of
the Plan, to permit the Employee to exercise completely such final
installment. Any fractional share with respect to which an installment of
this option cannot be exercised because of the limitation contained in the
preceding sentence shall remain subject to this option and shall be
available for later purchase by the Employee in accordance with the terms
hereof.
7. PAYMENT OF PRICE.
The option price shall be paid in United States dollars in cash or by
check.
8. METHOD OF EXERCISING OPTION.
Page 2 of 11
<PAGE>
Subject to the terms and conditions of this Agreement, this option may be
exercised by written notice to the Company at its principal executive
office, or to such transfer agent as the Company shall designate. Such
notice shall state the election to exercise this option and the number of
Option Shares for which it is being exercised and shall be signed by the
person or persons exercising this option. Such notice shall be accompanied
by payment of the full purchase price of such shares, and the Company shall
deliver a certificate or certificates representing such shares as soon as
practicable after the notice shall be received. Such certificate or
certificates shall be registered in the name of the person or persons so
exercising this option (or, if this option is exercised by the Employee and
if the Employee requests in the notice exercising this option, shall be
registered in the name of the Employee and another person jointly, with
right of survivorship). In the event this option is exercised, pursuant to
Section 5 hereof, by any person or persons other than the Employee, such
notice shall be accompanied by appropriate proof of the right of such
person or persons to exercise this option.
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will or by the laws
of descent and distribution. During the Employee's lifetime only the
Employee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION.
The grant and acceptance of this option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option imposes any
obligation on the Company or any Related Corporation to continue the
Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
The Employee shall have no rights as a stockholder with respect to the
Option Shares until the date of issuance of a stock certificate to the
Employee. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization and stock dividends of the Company,
no adjustment shall be made for dividends or similar rights for which the
record date is before the date such stock certificate is issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options in a number
of contingencies such as stock splits and mergers. Provisions in the Plan
for adjustment with respect to stock subject to options and the related
provisions with respect to successors to the business of the Company are
hereby made applicable hereunder and are incorporated herein by reference.
14. EARLY DISPOSITION.
The Employee agrees to notify the Company in writing immediately after the
Employee transfers any Option Shares, if such transfer occurs on or before
the later of (a) the date two years after the Grant Date or (b) the date
one year after the date the Employee acquired such Option Shares. The
Employee also agrees to provide the Company with any information concerning
any such transfer required by the Company for tax purposes.
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion determines
that it is obligated to withhold any tax in connection with the exercise of
this option, the making of a Disqualifying Disposition (as
Page 3 of 11
<PAGE>
defined in Paragraph 18 of the Plan), the vesting or transfer of Option
Shares acquired on the exercise of this option, or the making of a
distribution or other payment with respect to the Option Shares, the
Employee hereby agrees that the Company or any Related Corporation may
withhold from the Employee's wages or other remuneration the appropriate
amount of tax. At the discretion of the Company or Related Corporation, the
amount required to be withheld may be withheld in cash from such wages or
other remuneration or in kind from the Common Stock or other property
otherwise deliverable to the Employee on exercise of this option. The
Employee further agrees that, if the Company or any Related Corporation
does not withhold an amount from the Employee's wages or other remuneration
sufficient to satisfy the withholding obligation of the Company or Related
Corporation, the Employee will make reimbursement on demand, in cash, for
the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or her legal
representative (the "Transferor") desires to transfer all or any
part of the Option Shares to any person other than the Company
(an "Offeror"), the Transferor shall: (i) obtain in writing an
irrevocable and unconditional bona fide offer (the "Offer") for
the purchase thereof from the Offeror; and (ii) give written
notice (the "Option Notice") to the Company setting forth the
Transferor's desire to transfer such shares, which Option Notice
shall be accompanied by a photocopy of the Offer and shall set
forth at least the name and address of the Offeror and the price
and terms of the bona fide offer. Upon receipt of the Option
Notice, the Company shall have an assignable option to purchase
all of such shares (the "Company Option Shares") specified in the
Option Notice, such option to be exercisable by giving, within 90
days after receipt of the Option Notice, a written counter-notice
to the Transferor (the "Counter-Notice"). If the Company elects
to purchase all of such Company Option Shares, it shall be
obligated to purchase, and the Transferor shall be obligated to
sell to the Company, such Company Option Shares that the Company
elects to purchase as set forth in the Counter-Notice at a per
share price equal to the lesser of (i) the per share price (and
on the same terms) indicated in the Offer; or (ii) the Fair
Market value (as defined in Section 17(b) and using the date of
the Option Notice as the date of determination of Fair Market
Value) of such shares as determined under Section 17(b), in any
case within 30 days of the date of delivery by the Company of the
Counter-Notice. If the Company elects to purchase all of such
Company Option Shares, it may, in its sole discretion, pay the
purchase price for such Company option shares in accordance with
the terms of a promissory note in the form attached as Exhibit A
hereto.
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for 60 days after the expiration of the
90-day period during which the Company may give the
Counter-Notice, sell, pursuant to the terms of the Offer, any or
all of such Company Option Shares not purchased or agreed to be
purchased by the Company or its assignee; PROVIDED, HOWEVER, that
the Transferor shall not sell such Company Option Shares to the
Offeror if the Offeror is a competitor of the Company and the
Company gives a written notice to the Transferor, within 90 days
of its receipt of the Option Notice, stating that the Transferor
shall not sell such Company Option Shares to such Offeror; and
PROVIDED, FURTHER, that prior to the sale of such Company Option
Shares to the Offeror, the Offeror shall execute an agreement
with the Company pursuant to which the Offeror agrees to be
subject to the restrictions set forth in Sections 16, 17, 18 and
20 hereof. If any or all of such Company Option Shares are not
sold pursuant to an Offer within the time permitted above, the
unsold Company Option Shares shall remain subject to the terms of
this Section 16 and any future proposed transfer must again
comply with the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
Page 4 of 11
<PAGE>
If there shall be any change in the Common Stock of the Company
through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, combination or exchange of shares,
or the like, the restrictions contained in this Section 16 shall
apply with equal force to additional and/or substitute
securities, if any, received by the Employee in exchange for, or
by virtue of his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refuses to deliver on a timely basis
duly endorsed certificates representing Company Option Shares to
be sold to the Company or its assignee pursuant to this Section
16, the Company shall have the right to deposit the purchase
price for such Company Option Shares in a special account with
any bank or trust company in the Commonwealth of Massachusetts,
giving notice of such deposit to the Transferor, whereupon such
Company Option Shares shall be deemed to have been purchased by
the Company. All such moneys shall be held by the bank or trust
company for the benefit of the Transferor. All moneys deposited
with the bank or trust company remaining unclaimed for two years
after the date of deposit shall be repaid by the bank or trust
company to the Company on demand, and the Transferor shall
thereafter look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL.
The first refusal rights of the Company set forth in this Section
16 shall remain in effect until such time, if ever, as an
underwritten public offering is made of shares of the Company's
Common Stock pursuant to a registration statement filed under the
Securities Act of 1933 or a successor statute, at which time this
Section 16 and the right of first refusal set forth herein will
automatically expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE.
The Company shall have the right (the "Repurchase Right") to
repurchase from the holder of any Option Shares (each a "Holder")
any or all of the Option Shares then owned by such Holder at any
time by giving such Holder a written notice (the "Repurchase
Notice") at least 30 days prior to the date of repurchase. The
Repurchase Notice shall set forth the number of Option Shares to
be repurchased (the "Repurchase Shares"), the Fair Market Value
per share (determined in accordance with Section 17(b) below as
of the date of the Repurchase Notice) of the Repurchase Shares
and the date (the "Repurchase Date") on which such Repurchase
Shares are to be repurchased by the Company (such date not to be
more than 120 nor less than 30 days after the date of the
Repurchase Notice). On the Repurchase Date, the Company shall
tender to the Holder an amount equal to the number of Repurchase
Shares multiplied by the Fair Market Value per share; provided,
however, that the Company may pay the repurchase amount, in its
sole discretion, in accordance with the terms of a promissory
note in the form attached hereto as EXHIBIT A.. The Company may
assign the Repurchase Right to one or more persons and may
utilize a promissory note to effect its Repurchase right. Upon
timely exercise of the Repurchase Right in the manner provided in
this Section 17(a), the Holder shall deliver to the Company the
stock certificate or certificates representing the Repurchase
Shares, duly endorsed and free and clear of any and all liens,
charges and encumbrances.
(b) FAIR MARKET VALUE.
For purposes of this Agreement, the Fair Market Value of an
Option Share shall be determined in good faith by the Board of
Directors of the Company after taking into account all relevant
factors including, without limitation, the absence of an active
trading market for the shares of Common Stock, the restrictions
on transfer of Option Shares set forth herein and the valuation
attached to other recent issuances of securities by the Company.
The determination by the Board of Directors of Fair Market value
shall be conclusive and binding.
Page 5 of 11
<PAGE>
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company
through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, combination or exchange of shares,
or the like, the restrictions contained in this Section 17 shall
apply with equal force to additional and/or substitute
securities, if any, received by the Employee in exchange for, or
by virtue of his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES.
If the Holder fails or refuses to deliver on a timely basis duly
endorsed certificates representing the Repurchase Shares to be
repurchased by the Company or its assignee pursuant to this
Section 17, the Company shall have the right to deposit the
repurchase price for such Repurchase Shares in a special account
with any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the Holder,
whereupon such Repurchase Shares shall be deemed to have been
purchased by the Company. All such moneys shall be held by the
bank or trust company for the benefit of the Holder. All moneys
deposited with the bank or trust company remaining unclaimed for
two years after the date of deposit shall be repaid by the bank
or trust company to the Company on demand, and the Holder shall
thereafter look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT.
The Repurchase Right of the Company set forth in this Section 17
shall remain in effect until such time, if ever, as an
underwritten public offering is made of shares of the Company's
Common Stock pursuant to a registration statement filed under the
Securities Act or any successor statute, at which time this
Section 17 and the Repurchase Right set forth herein will
automatically terminate.
18. LOCK-UP AGREEMENT.
The Employee agrees that in connection with an underwritten public offering
of Common Stock, upon the request of the Company or the managing or lead
underwriter for such public offering, this option and the Option Shares may
not be sold, offered for sale or otherwise disposed of without the prior
written consent of the Company or such underwriter, as the case may be, for
at least 180 days after the effectiveness of the registration statement
filed in connection with such offering, or such longer period of time as
the Board of Directors may determine if all of the Company's directors and
officers agree to be similarly bound. The lock-up agreement established
pursuant to this Section 18 shall have perpetual duration.
19. PROVISION OF DOCUMENTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of a copy of
this Agreement and a copy of the Plan.
20. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall be deemed
given when sent by certified or registered mail, postage prepaid,
return receipt requested, to the address set forth below. The
addresses for such notices may be changed from time to time by
written notice given in the manner provided for herein.
Page 6 of 11
<PAGE>
(b) ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the entire agreement between the
parties relative to the subject matter hereof, and supersedes all
proposals, written or oral, and all other communications between
the parties relating to the subject matter of this Agreement.
This Agreement may be modified, amended or rescinded only by a
written agreement executed by both parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any provision
of this Agreement shall in no way affect the validity, legality
or enforceability of any other provision.
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns,
subject to the limitations set forth in Sections 9, 16, 17, and
20 hereof.
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Massachusetts, without
giving effect to the principles of the conflicts of laws thereof.
(f) LEGENDS.
The Company may place a legend or legends on any stock
certificate delivered to the any holder of Option Shares
reflecting the restrictions on transfer provided in this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Page 7 of 11
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
Breakaway Solutions, Inc.
50 Rowes Wharf
Boston, MA 02110
/s/ JANIE TREMLETT
- -------------------------
Employee Signature
JANET TREMELTT By: SAM SPECTOR
- ------------------------- -------------------------
Print Name of Employee Name: Sam Spector
Title: Director of Humar [sic] Resources
- -------------------------
Street Address
- -------------------------
City State Zip Code
Page 8 of 11
<PAGE>
EXHIBIT A
FORM OF
PROMISSORY NOTE
$_____________ _________ __, 199_
For value received, the undersigned, Breakaway Solutions, Inc., a
Delaware corporation ("Obligor"), hereby promises to pay to the order of Janie
Tremlett ("Lender") at such place as may be designated from time to time in
writing by Lender, the principal sum of ___________ Dollars and ______ Cents
($_________), together with interest in arrears from and including the date
hereof on the unpaid principal balance hereunder, calculated daily, at the rate
of: ____ percent (___%) per annum [the prime rate in effect on the date hereof
for major banks as published in the Wall Street Journal], payable as set forth
below. At the option of Lender and to the extent permitted by applicable law,
the rate of interest on any unpaid principal or interest not paid when due and
payable hereunder shall be two percent (2%) per annum above the rate of interest
set forth in the immediately preceding sentence. Interest shall be calculated on
the basis of actual number of days elapsed over a year of 360 days.
Notwithstanding any other provision of this Promissory Note, Lender does not
intend to charge and Obligor shall not be required to pay any interest or other
fees or charges in excess of the maximum permitted by applicable law; any
payments in excess of such maximum shall be refunded to Obligor or credited to
reduce principal hereunder. All payments received by Lender hereunder will be
applied first to costs of collection, if any, then to interest and the balance
to principal. Principal and interest shall be payable in lawful money of the
United States of America.
Principal shall be paid in sixty (60) equal monthly installments of
________________ Dollars and ______ Cents ($______) each, commencing on
________, 199_, and continuing on the same day of each successive month
thereafter with a final payment of all unpaid principal on ______, 199_;
interest shall be paid monthly commencing on ________, 199_, and continuing on
the same day of each successive month thereafter with a final payment of all
unpaid interest at the time of payment of the principal.
If any day on which a payment is due pursuant to the terms of this
Promissory Note is not a day on which banks in the Commonwealth of Massachusetts
are generally open (a "Business Day"), such payment shall be due on the next
Business Day following.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part, all such prepayments to be applied upon
installments of most remote maturity. Any prepayment of principal shall be
accompanied by a payment of accrued interest in respect of the principal being
prepaid.
This Promissory Note shall, at the option of the holder hereof, become
due and payable without notice or demand, upon the happening of any one of the
following specified events: (1) failure to pay any amount as herein set forth;
(2) default in the performance of any other obligation to Lender, which default
is not cured within thirty (30) days after written notice of such default from
Lender; (3) insolvency (however evidenced) or the commission of any act of
insolvency; (4) the making of a general assignment for the benefit of creditors;
(5) the filing of any petition or the commencement of any proceeding by Obligor
or any endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions; (6)
the filing of any petition or the commencement of any proceeding against Obligor
or any endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions,
which proceeding is not dismissed within sixty (60) days; (7) suspension of the
transaction of the usual business of Obligor; or (8) the past or future making
of a false representation or warranty by Obligor in connection with any loan or
loans by Lender.
<PAGE>
If this Promissory Note is not paid in accordance with its terms,
Obligor shall pay to Lender, in addition to principal and accrued interest
thereon, all costs of collection of the principal and accrued interest,
including, but not limited to, reasonable attorneys' fees, court costs and other
costs for the enforcement of payment of this Promissory Note.
No waiver of any obligation of Obligor under this Promissory Note shall
be effective unless it is in a writing signed by Lender. A waiver by Lender of
any right or remedy under this Promissory Note on any occasion shall not be a
bar to exercise of the same right or remedy on any subsequent occasion or of any
other right or remedy at any time.
Any notice required or permitted under this Promissory Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
personally delivered to the party to whom notice is to be given, or on the fifth
business day after mailing, if mailed to the party to whom notice is to be
given, by certified mail, return receipt requested, postage prepaid, and
addressed to the addressee at the address of the addressee set forth herein, or
to the most recent address, specified by written notice, given to the sender
pursuant to this paragraph.
This Promissory Note is delivered in and shall be enforceable in
accordance with the laws of the Commonwealth of Massachusetts, and shall be
construed in accordance therewith, and shall have the effect of a sealed
instrument.
Obligor hereby expressly waives presentment, demand, and protest,
notice of demand, dishonor and nonpayment of this Promissory Note, and all other
notices or demands of any kind in connection with the delivery, acceptance,
performance, default or enforcement hereof, and hereby consents to any delays,
extensions of time, renewals, waivers or modifications that may be granted or
consented to by the holder hereof with respect to the time of payment or any
other provision hereof .
In the event any one or more of the provisions of this Promissory Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
OBLIGOR:
By: _______________________
Name: _______________________
Title: _______________________
Attested: _____________________
By: ________________________
Name: ________________________
Title: ________________________
<PAGE>
NOTICE OF GRANT OF STOCK OPTIONS
AND OPTION AGREEMENT
Breakaway Solutions, Inc.
ID: 04-3285165
50 Rowes Wharf
Boston, MA 02110
Janie Tremlett Option Number: 00000224
13 Rocky Lane Plan: 98
Medfield, MA 02052 ID: 9990
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
<S> <C> <C> <C>
22,500 On Vest Date 4/1/99 1/22/09
22,500 On Vest Date 4/1/00 1/22/09
22,500 On Vest Date 4/1/01 1/22/09
22,500 On Vest Date 4/1/02 1/22/09
</TABLE>
<PAGE>
EXHIBIT 10.28
BREAKAWAY SOLUTIONS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
Breakaway Solutions, Inc., a Delaware corporation (the "Company"),
hereby grants as of February 18, 1999 (the "Grant Date") to Christopher
Greendale (the "Optionee"), an option to purchase a maximum of 693,000 shares
(the "Option Shares") of its Common Stock, par value $.0001 per share ("Common
Stock"), at the price of $1.42 per share, on the following terms and conditions:
1. GRANT UNDER 1998 STOCK PLAN. This option is granted pursuant to and
is governed by the Company's 1998 Stock Plan (the "Plan") and, unless the
context otherwise requires, terms used herein shall have the same meaning as in
the Plan. Determinations made in connection with this option pursuant to the
Plan shall be governed by the Plan as it exists on this date.
2. GRANT AS NON-QUALIFIED OPTION; OTHER OPTIONS. This option shall be
treated for federal income tax purposes as a Non-Qualified Option (rather than
an incentive stock option). This option is in addition to any other options
heretofore or hereafter granted to the Optionee by the Company or any Related
Corporation (as defined in the Plan), but a duplicate original of this
instrument shall not effect the grant of another option.
3. VESTING OF OPTION IF BUSINESS RELATIONSHIP CONTINUES. If the
Optionee has continued to serve the Company as a director on the following
dates, the Optionee may exercise this option for the number of shares of Common
Stock set opposite the applicable date:
<TABLE>
<S> <C> <C> <C>
On February 18, 2000 - 173,232 shares
On March 18, 2000 and each monthly - an additional 14,438 shares
anniversay thereafter
</TABLE>
If the Optionee is a director of the Company upon the occurrence of any
of the following events (each, a "Triggering Event"): (a) the closing of a
public offering by the Company of shares of its Common Stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
(b) a sale of all or substantially all of the Company's assets or all or
substantially all of the shares of its capital stock, (c) a consolidation or
merger of the Company in which a majority of outstanding shares of the Company's
capital stock are exchanged for securities, cash or other property of any other
corporation or business entity, (d) a consolidation or merger involving the
Company as a result of which the stockholders of the Company immediately prior
to such event do not own, immediately following the occurrence of such event, at
least a majority of the common stock and voting power of the entity resulting
from such consolidation or surviving such merger or (e) the liquidation or
dissolution of the Company, then the Optionee may, at that time or thereafter
(subject to the expiration or termination hereof) exercise this option with
respect to the maximum number of shares exercisable hereunder.
<PAGE>
-2-
Notwithstanding the foregoing, in accordance with and subject to the
provisions of the Plan, the Committee may, in its discretion, accelerate the
date that any installment of this Option becomes exercisable.
The foregoing rights are cumulative and, so long as Optionee is a
director, may be exercised on or before the date which is ten (10) years from
the date this option is granted. All of the foregoing rights are subject to
Sections 4 and 5, as appropriate, if Optionee is no longer a director.
4. RESIGNATION OR REMOVAL AS MEMBER OF THE BOARD OF DIRECTORS.
(a) RESIGNATION OR REMOVAL. If the Optionee resigns, is not
re-elected to the Board of Directors or is removed from the Board of Directors
by a vote (or written consent in lieu thereof) of the stockholders, other than
by reason of death or disability as defined in Section 5, no further
installments of this option shall become exercisable, and this option shall
terminate on the earlier of (i) thirty (30) days after the resignation,
election, or removal vote, or (ii) the scheduled expiration date of this option.
In such a case, the Optionee's only rights hereunder shall be those which are
properly exercised before the termination of this option.
(b) TERMINATION FOR CAUSE. If the Optionee is removed from the
Board of Directors for Cause (as defined in Section 4(c)), this option shall
terminate upon the date of such removal and shall thereafter not be exercisable
to any extent whatsoever.
(c) DEFINITION OF CAUSE. "Cause" shall mean conduct involving
one or more of the following: (i) the substantial and continuing failure of the
Optionee, after notice thereof, to attend meetings of the Board of Directors and
render services to the Company as requested by the Board of Directors; (ii)
disloyalty, gross negligence, willful misconduct, dishonesty or breach of
fiduciary duty to the Company or Related Corporation; (iii) the commission of an
act of embezzlement or fraud; (iv) deliberate disregard of the rules or policies
of the Company or Related Corporation which results in direct or indirect loss,
damage or injury to the Company or Related Corporation; (v) the unauthorized
disclosure of any trade secret or confidential information of the Company or
Related Corporation; or (vi) the commission of an act which constitutes unfair
competition with the Company or Related Corporation or which induces any
customer or supplier to breach a contract with the Company or Related
Corporation.
5. DEATH; DISABILITY.
(a) DEATH. If the Optionee dies while a director of the
Company, this option may be exercised, to the extent otherwise exercisable on
the date of death, by the estate, personal representative or beneficiary who has
acquired this option by will or by the laws of descent and distribution, until
the earlier of (i) the specified expiration date of this option or (ii) thirty
(30) days from the date of the Optionee's death.
(b) DISABILITY. If the Optionee is no longer able to serve as
a director of the Company due to his or her disability (as defined in Paragraph
10(B) of the Plan), the Optionee shall have the right to exercise this option on
the date of his resignation or removal, for
<PAGE>
-3-
the number of shares for which he or she could have exercised it on that date,
until the earlier of (i) the specified expiration date of this option or (ii)
thirty (30) days from the date of his resignation or removal.
(c) EFFECT OF TERMINATION. At the expiration of the thirty
(30) day period provided in paragraph (a) or (b) of this Section 5 or the
scheduled expiration date, whichever is the earlier, this option shall terminate
and the only rights hereunder shall be those as to which the option was properly
exercised before such termination.
6. PARTIAL EXERCISE. The Optionee may exercise this option in part at
any time and from time to time within the above limits, except that the Optionee
may not exercise this option for a fraction of a share unless such exercise is
with respect to the final installment of stock subject to this option and cash
in lieu of a fractional share must be paid, in accordance with Paragraph 13(G)
of the Plan, to permit the Optionee to exercise completely such final
installment. Any fractional share with respect to which an installment of this
option cannot be exercised because of the limitation contained in the preceding
sentence shall remain subject to this option and shall be available for later
purchase by the Optionee in accordance with the terms hereof.
7. PAYMENT OF PRICE. The option price shall be paid in United States
dollars in cash or by check.
8. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of
this Agreement, this option may be exercised by written notice to the Company at
its principal executive office, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this option and the
number of Option Shares for which it is being exercised and shall be signed by
the person or persons exercising this option. Such notice shall be accompanied
by payment of the full purchase price of such shares, and the Company shall
deliver a certificate or certificates representing such shares as soon as
practicable after the notice shall be received. Such certificate or certificates
shall be registered in the name of the person or persons so exercising this
option (or, if this option is exercised by the Optionee and if the Optionee
requests in the notice exercising this option, shall be registered in the name
of the Optionee and another person jointly, with right of survivorship). In the
event this option is exercised, pursuant to Section 5 hereof, by any person or
persons other than the Optionee, such notice shall be accompanied by appropriate
proof of the right of such person or persons to exercise this option.
9. OPTION NOT TRANSFERABLE. This option is not transferable or
assignable except by will or by the laws of descent and distribution. During the
Optionee's lifetime only the Optionee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this
option imposes no obligation on the Optionee to exercise it.
11. NO OBLIGATION ON STOCKHOLDER. Neither the Plan, this Agreement, nor
the grant of this option imposes any obligation on the stockholders of the
Company to maintain Optionee as a director.
<PAGE>
-4-
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Optionee shall have no
rights as a stockholder with respect to the Option Shares until the date of
issuance of a stock certificate to the Optionee. Except as is expressly provided
in the Plan with respect to certain changes in the capitalization and stock
dividends of the Company, no adjustment shall be made for dividends or similar
rights for which the record date is before the date such stock certificate is
issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. The Plan contains
provisions covering the treatment of options in a number of contingencies such
as stock splits and mergers. Provisions in the Plan for adjustment with respect
to stock subject to options and the related provisions with respect to
successors to the business of the Company are hereby made applicable hereunder
and are incorporated herein by reference.
14 LEGENDS. The Company may place a legend or legends on any stock
certificate delivered to any holder of Option Shares reflecting the restrictions
on transfer provided in this Agreement.
15. WITHHOLDING TAXES. If the Company or any Related Corporation in its
discretion determines that it is obligated to withhold any tax in connection
with the exercise of this option, the vesting or transfer of Option Shares
acquired on the exercise of this option, or the making of a distribution or
other payment with respect to the Option Shares, the Optionee hereby agrees that
the Company or any Related Corporation may withhold from the Optionee's wages or
other remuneration the appropriate amount of tax. At the discretion of the
Company or Related Corporation, the amount required to be withheld may be
withheld in cash from such wages or other remuneration or in kind from the
Common Stock or other property otherwise deliverable to the Optionee on exercise
of this option. The Optionee further agrees that, if the Company or any Related
Corporation does not withhold an amount from the Optionee's wages or other
remuneration sufficient to satisfy the withholding obligation of the Company or
Related Corporation, the Optionee will make reimbursement on demand, in cash,
for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT. If the Optionee (or successor and
assigns) or his or her legal representative (the "Transferor") desires to
transfer all or any part of the Option Shares to any person other than the
Company (an "Offeror"), the Transferor shall: (i) obtain in writing an
irrevocable and unconditional bona fide offer (the "Offer") for the purchase
thereof from the Offeror; and (ii) give written notice (the "Option Notice") to
the Company setting forth the Transferor's desire to transfer such shares, which
Option Notice shall be accompanied by a photocopy of the Offer and shall set
forth at least the name and address of the Offeror and the price and terms of
the bona fide offer. Upon receipt of the Option Notice, the Company shall have
an assignable option to purchase any or all of such shares (the "Company Option
Shares") specified in the Option Notice, such option to be exercisable by
giving, within 90 days after receipt of the Option Notice, a written
counter-notice to the Transferor (the "Counter-Notice"). If the Company elects
to purchase any or all of such Company Option Shares, it shall be obligated to
purchase, and the Transferor shall be obligated to sell to the Company, such
Company Option Shares that the Company elects to purchase as set forth in the
Counter-Notice at a per share price
<PAGE>
-5-
equal to the lesser of (i) the per share price (and on the same terms) indicated
in the Offer; or (ii) the Fair Market value (as defined in Section 17(b) and
using the date of the Option Notice as the date of determination of Fair Market
Value) of such shares as determined under Section 17(b), in any case within 30
days of the date of delivery by the Company of the Counter-Notice. If the
Company elects to purchase any or all of such Company Option Shares, it may, in
its sole discretion, pay the purchase price for such Company option shares in
accordance with the terms of a promissory note, such terms to be determined
solely by the Company; provided, however, that the payment term of such
promissory note shall not exceed ten (10) years.
(b) SALE OF OPTION SHARES TO OFFEROR. The Transferor may, for
60 days after the expiration of the 90-day period during which the Company may
give the Counter-Notice, sell, pursuant to the terms of the Offer, any or all of
such Company Option Shares not purchased or agreed to be purchased by the
Company or its assignee; PROVIDED, HOWEVER, that the Transferor shall not sell
such Company Option Shares to the Offeror if the Offeror is a competitor of the
Company and the Company gives a written notice to the Transferor, within 90 days
of its receipt of the Option Notice, stating that the Transferor shall not sell
such Company Option Shares to such Offeror; and PROVIDED, FURTHER, that prior to
the sale of such Company Option Shares to the Offeror, the Offeror shall execute
an agreement with the Company pursuant to which the Offeror agrees to be subject
to the restrictions set forth in Sections 16, 17 and 18 hereof. If any or all of
such Company Option Shares are not sold pursuant to an Offer within the time
permitted above, the unsold Company Option Shares shall remain subject to the
terms of this Section 16 and any future proposed transfer must again comply with
the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination or exchange of shares, or the like, the restrictions contained in
this Section 16 shall apply with equal force to additional and/or substitute
securities, if any, received by the Optionee in exchange for, or by virtue of
his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES. If the
Transferor fails or refuses to deliver on a timely basis duly endorsed
certificates representing Company Option Shares to be sold to the Company or its
assignee pursuant to this Section 16, the Company shall have the right to
deposit the purchase price for such Company Option Shares in a special account
with any bank or trust company in the Commonwealth of Massachusetts, giving
notice of such deposit to the Transferor, whereupon such Company Option Shares
shall be deemed to have been purchased by the Company. All such moneys shall be
held by the bank or trust company for the benefit of the Transferor. All moneys
deposited with the bank or trust company remaining unclaimed for two years after
the date of deposit shall be repaid by the bank or trust company to the Company
on demand, and the Transferor shall thereafter look only to the Company for
payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first
refusal rights of the Company set forth in this Section 16 shall remain in
effect until such time, if ever, as an underwritten public offering is made of
shares of the Company's Common Stock pursuant to a
<PAGE>
-6-
registration statement filed under the Securities Act of 1933 or a successor
statute, at which time this Section 16 and the right of first refusal set forth
herein will automatically expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE. The Company shall have the right (the
"Repurchase Right") to repurchase from the holder of any Option Shares (each a
"Holder") any or all of the Option Shares then owned by such Holder at any time
by giving such Holder a written notice (the "Repurchase Notice") at least 30
days prior to the date of repurchase. The Repurchase Notice shall set forth the
number of Option Shares to be repurchased (the "Repurchase Shares"), the Fair
Market Value per share (determined in accordance with Section 17(b) below as of
the date of the Repurchase Notice) of the Repurchase Shares and the date (the
"Repurchase Date") on which such Repurchase Shares are to be repurchased by the
Company (such date not to be more than 120 nor less than 30 days after the date
of the Repurchase Notice). On the Repurchase Date, the Company shall tender to
the Holder an amount equal to the number of Repurchase Shares multiplied by the
Fair Market Value per share; provided, however, that the Company may pay the
repurchase amount, in its sole discretion, in accordance with the terms of a
promissory note, such terms to be determined solely by the Company (provided
further that the payment term of such promissory note shall not exceed ten (10)
years). The Company may assign the Repurchase Right to one or more persons and
may utilize a promissory note to effect its Repurchase right. Upon timely
exercise of the Repurchase Right in the manner provided in this Section 17(a),
the Holder shall deliver to the Company the stock certificate or certificates
representing the Repurchase Shares, duly endorsed and free and clear of any and
all liens, charges and encumbrances.
(b) FAIR MARKET VALUE. For purposes of this Agreement, the
Fair Market Value of an Option Share shall be determined in good faith by the
Board of Directors of the Company after taking into account all relevant factors
including, without limitation, the absence of an active trading market for the
shares of Common Stock, the restrictions on transfer of Option Shares set forth
herein and the valuation attached to other recent issuances of securities by the
Company. The determination by the Board of Directors of Fair Market value shall
be conclusive and binding.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination or exchange of shares, or the like, the restrictions contained in
this Section 17 shall apply with equal force to additional and/or substitute
securities, if any, received by the Optionee in exchange for, or by virtue of
his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES. If the Holder fails
or refuses to deliver on a timely basis duly endorsed certificates representing
the Repurchase Shares to be repurchased by the Company or its assignee pursuant
to this Section 17, the Company shall have the right to deposit the repurchase
price for such Repurchase Shares in a special account with any bank or trust
company in the Commonwealth of Massachusetts, giving notice of such deposit to
the Holder, whereupon such Repurchase Shares shall be deemed to have been
purchased by the Company. All such moneys shall be held by the bank or trust
company for the benefit of the
<PAGE>
-7-
Holder. All moneys deposited with the bank or trust company remaining unclaimed
for two years after the date of deposit shall be repaid by the bank or trust
company to the Company on demand, and the Holder shall thereafter look only to
the Company for payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT. The Repurchase
Right of the Company set forth in this Section 17 shall remain in effect until
such time, if ever, as an underwritten public offering is made of shares of the
Company's Common Stock pursuant to a registration statement filed under the
Securities Act or any successor statute, at which time this Section 17 and the
Repurchase Right set forth herein will automatically terminate.
18. LOCK-UP AGREEMENT. The Optionee agrees that in connection with an
underwritten public offering of Common Stock, upon the request of the Company or
the managing or lead underwriter for such public offering, this option and the
Option Shares may not be sold, offered for sale or otherwise disposed of without
the prior written consent of the Company or such underwriter, as the case may
be, for at least 180 days after the effectiveness of the registration statement
filed in connection with such offering, or such longer period of time as the
Board of Directors may determine if all of the Company's directors and officers
agree to be similarly bound. The lock-up agreement established pursuant to this
Section 18 shall have perpetual duration.
19. PROVISION OF DOCUMENTATION TO OPTIONEE. By signing this Agreement
the Optionee acknowledges receipt of a copy of this Agreement and a copy of the
Plan.
20. GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to the principles of the conflicts of laws thereof.
21. MISCELLANEOUS.
(a) NOTICES. All notices hereunder shall be in writing and
shall be deemed given when sent by certified or registered mail, postage
prepaid, return receipt requested, to the address set forth below. The addresses
for such notices may be changed from time to time by written notice given in the
manner provided for herein.
(b) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes
the entire agreement between the parties relative to the subject matter hereof,
and supersedes all proposals, written or oral, and all other communications
between the parties relating to the subject matter of this Agreement. This
Agreement may be modified, amended or rescinded only by a written agreement
executed by both parties.
(c) SEVERABILITY. The invalidity, illegality or
unenforceability of any provision of this Agreement shall in no way affect the
validity, legality or enforceability of any other provision.
<PAGE>
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(d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, subject to the limitations set forth in Sections 9, 16,
17 and 20 hereof.
<PAGE>
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IN WITNESS WHEREOF, the Company and the Optionee have caused this
instrument to be executed as of the date first above written.
Breakaway Solutions, Inc.
50 Rowes Wharf
6th Floor
Boston, MA 02109
/s/ CHRISTOPHER GREENDALE
- -------------------------
Optionee
CHRISTOPHER GREENDALE By: /s/ GORDON BROOKS
- ------------------------- -------------------------
Print Name of Optionee Name:
Title:
- -------------------------
Street Address
- -------------------------
City State Zip Code
<PAGE>
-10-
SCHEDULE A
<PAGE>
EXHIBIT 10.29
BREAKAWAY SOLUTIONS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
BREAKAWAY SOLUTIONS, INC. (the "Company") hereby grants this 18th day
of February, 1999 (the "Grant Date") to Christopher Harding (the "Employee"), an
option to purchase a maximum of four hundred seventy-six thousand one hundred
forty-three (476,143) shares (the "Option Shares") of the Company's Common
Stock, par value $.0001 per share ("Common Stock") at the price of one dollar
and forty-two cents ($1.42) per share, on the following terms and conditions.
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's
1998 Stock Plan (the "Plan"), the terms and conditions of which are
incorporated herein by reference, and, unless the context otherwise
requires, terms used herein shall have the same meaning as in the Plan.
Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plana s it exists on the Grant Date.
2. GRANT AS NON-QUALIFIED STOCK OPTION; OTHER OPTIONS.
This option shall be treated for federal income tax purposes as a
Non-Qualified Option (rather than incentive stock option under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code")).
This option is in addition to any other options heretofore or hereafter
granted to the Employee by the Company or any Related Corporation (as
defined in the Plan), but a duplicate original of this instrument shall
not effect the grant of another option.
3. VESTING OF OPTION.
Except as otherwise provided in this Agreement, and subject to all
other terms and conditions of this Agreement, this option may be
exercised prior to the tenth (10th) anniversary of the Grant Date (the
"Expiration Date") in installments for not more than the number of
Option Shares which are vested as herein below provided.
(a) CONTINUED EMPLOYMENT FOR ONE TO FOUR YEARS.
Three Hundred Eight Thousand Five Hundred Twenty-Seven (308,527) shares
will vest on the Grant Date, and the balance of the Option Shares will
est in equal monthly installments of four thousand six hundred
fifty-six (4,656) shares, each, over the three-year period immediately
following the first anniversary of the date.
<PAGE>
(b) TRIGGERING EVENT.
All unvested shares shall immediately become vested in full upon the
occurrence of any of the following events (each, a "Triggering Event"):
(a) the closing of a public offering by the Company of shares of its
Common Stock, (b) a sale of all or substantially all of the Company's
assets or all or substantially all of the shares of its capital stock,
(c) a consolidation or merger of the Company in which a majority of
outstanding shares of the Company's capital stock are exchanged for
securities, cash or other property of any other corporation or business
entity, (d) a consolidation or merger involving the Company as a result
of which the stockholders of the Company immediately prior to such
event do not own, immediately following the occurrence of such event,
at least a majority of the common stock and voting power of the entity
resulting from such consolidation or surviving such merger or (e) the
liquidation or dissolution of the Company. In addition, if the Company
or stockholders of the Company enter into an agreement with respect to
an event described in (b) through (e) of the preceding sentence, then
upon the consummation of such event a Triggering Event shall be deemed
to have occurred upon the date of such agreement.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company or any Related
Corporation, other than by reason of death or disability as defined in
Section 5 of termination for cause as defined in Section 4(c) or
termination related to a prohibition by a court of law as set forth in
Section 4(d), no further installments of this option shall vest after
the date Employee ceases to be employed by the Company or any Related
Corporation and, the Company shall exercise its right pursuant to
Section 17 hereof to purchase any Option Shares held by Employee after
the termination of this option pursuant to this Section 4(a). This
option shall terminate on the earlier of (i) thirty (30) days after the
date of termination of the Employee's employment, or (ii) the
Expiration Date. In such a case, the Employee's only rights hereunder
shall be those which are properly exercised before the termination of
this option.
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as defined
in Section 4(c)), the unvested portion of this option shall terminate
upon the Employee's receipt of written notice of such termination and
shall thereafter not be exercisable to any extent whatsoever.
-2-
<PAGE>
(c) DEFINITION OF CAUSE.
"Cause" shall mean that the Employee is terminated for one or more of
the following reasons:
(i) substantial, material and continuing failure, after written
notice thereof, to render services to the Company in
accordance with the terms of Employee's Employment Agreement;
(ii) Gross negligence, willful misconduct, dishonesty or breach of
fiduciary duty to the Company; or
(iii) commission of any act of embezzlement or fraud; or
(iv) deliberate disregard of material rules or material policies of
the Company which results in direct or indirect loss, damage
or injury to the Company; or
(v) willful or intentional material breach or violation of
Employee's Employment Agreement, including without limitation
unauthorized disclosure of any Confidential Information of the
Company; or
(vi) willful or intentional commission of an act which constitutes
unfair competition with the Company or which intentionally
induces any customer or supplier to breach a contract with the
Company; or
(vii) Employee has been convicted of a felony; or
(viii) Employee has been engaged in the abuse of alcohol, illegal
drugs or controlled substances.
"Cause" shall not include any act or omission of which the President or
any member of the Board of Directors has had actual knowledge for at
least 6 months.
(d) LEGAL PROHIBITION.
If Employee's employment terminates in connection with any prohibition
by a court of law on Employee providing services to the Company (a
"Prohibition"), and if such Prohibition occurs (i) during the 180 day
period commencing on the Grant Date, this option shall immediately and
automatically terminate, the Company shall refund to Employee the
exercise price, if any, previously paid by Employee upon exercise of
any installment of this option and the Option Shares issued upon such
exercise shall be automatically cancelled, or (ii)
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<PAGE>
during the period commencing on the 181st day after the Grant Date and
ending the 365th day after the Grant Date, this option shall
immediately and automatically terminate as to such number of shares
equal to the product of (A) the difference between 365 and the actual
number of days that have elapsed from the Grant Date until the date of
termination of Employee's employment, multiplied by (B) a fraction, the
numerator of which is 308,527 and the denominator of which is 365, the
Company shall refund to Employee the exercise price, if any, previously
paid by employee upon exercise of any installment of this option and
the Option Shares issued upon such exercise shall be automatically
cancelled.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his death, this option may be exercised, to
the extent otherwise exercisable on the date of death, by the estate,
personal representative or beneficiary who has acquired this option by
will or by the laws of descent and distribution, until the earlier of
(i) the Expiration Date or (ii) ninety (90) days from the date of the
Employee's death.
(b) DISABILITY.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his or her disability (as defined in
Paragraph 10(B) of the Plan), the Employee shall have the right to
exercise this option, to the extent otherwise exercisable on the date
of termination of employment, until the earlier of (i) the Expiration
Date or (ii) ninety (90) days from the date of the termination of the
Employee's employment.
(c) EFFECT OF TERMINATION.
At the expiration of the ninety (90) day period provided in paragraph
(a) or (b) of this Section 5, or the Expiration Date, whichever is the
earlier, this option shall terminate and the only rights hereunder
shall be those as to which the option was properly exercised before
such termination.
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and from time
to time within the above limits, except that the Employee may not
exercise this option for a fraction of a share unless such exercise is
with respect to the final installment of stock subject to this option
and cash in lieu of a fractional share
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<PAGE>
must be paid, in accordance with Paragraph 13(g) of the Plan, to permit
the Employee to exercise completely such final installment. Any
fractional share with respect to which an installment of this option
cannot be exercised because of the limitation contained in the
preceding sentence shall remain subject to this option and shall be
available for later purchase by the Employee in accordance with the
terms hereof.
7. PAYMENT OF PRICE.
(a) The option price shall be paid in the following manner:
(i) in cash or by check;
(ii) subject to Section 7(b) below, by delivery of shares of the
Company's Common Stock having a fair market value (as
determined by the Committee) equal as of the date of exercise
to the option price;
(iii) by delivery of an assignment satisfactory in form and
substance to the Company of a sufficient amount of the
proceeds from the dale of the Option Shares and an instruction
to the broker or selling agent to pay that amount to the
Company;
(iv) by any combination of the foregoing.
(b) LIMITATIONS ON PAYMENT BY DELIVERY OF COMMON STOCK. If the
Employee delivers Common Stock held by the Employee ("Old
Stock") to the Company in full or partial payment of the
option price, and the Old Stock so delivered is subject to
restrictions or limitations imposed by agreement between the
Employee and the Company, an equivalent number of Option
Shares shall be subject to all restrictions and limitations
applicable to the Old Stock to the extent that the Employee
paid for the Option Shares by delivery of Old Stock, in
addition to any restrictions or limitations imposed by this
Agreement. Notwithstanding the foregoing, the Employee may not
pay any party of the exercise price hereof by transferring
Common Stock to the Company unless such Common Stock has been
owned by the Employee free of any substantial risk of
forfeiture for at least six months.
8. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, this option may
be exercised by written notice to the Company at its principal
executive officer, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this option
and the number of Option Shares for which
-5-
<PAGE>
it is being exercised and shall be signed by the person or persons
exercising this option. Such notice shall be accompanied by payment of
the full purchase price of such shares, and the Company shall deliver a
certificate or certificates representing such shares as soon as
practicable after the notice shall be received. Such certificate or
certificates shall be registered in the name of the person or persons
so exercising this option (or, if this option is exercised by the
Employee and if the Employee requests in the notice exercising this
option, shall be registered in the name of the Employee and another
person jointly, with right of survivorship). In the event this option
is exercised, pursuant to Section 5 hereof, by any person or persons
other than the Employee, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise
this option.
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Employee's lifetime only
the Employee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION.
The grant and acceptance of this option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option imposes
any obligation on the Company or any Related Corporation to continue
the Employee in employment.
12. NO RIGHT AS STOCKHOLDER UNTIL EXERCISE.
The Employee shall have no rights as a stockholder with respect to the
Option Shares until the date of issuance of a stock certificate to the
Employee. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization and stock dividends of the
Company, no adjustment shall be made for dividends or similar rights
for which the record date is before the date such stock certificate is
issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options in a
number of contingencies such as stock splits and mergers. Provisions in
the Plan for adjustment with respect to stock subject to options and
the related provisions
-6-
<PAGE>
with respect to successors to the business of the Company are hereby
made applicable hereunder and are incorporated herein by reference.
14. RESTRICTIONS ON TRANSFER; LEGENDS.
Option Shares will be deemed "restricted securities" for purposes of
the Securities Act of 1933, as amended (the Securities Act").
Accordingly, such shares must be sold in accordance with the
registration requirement of the Securities Act and any State "Blue Sky"
laws or an exemption therefrom. Employee acknowledges that the Company
may put a legend on the certificate or certificates representing the
Option Shares stating that the shares represented thereby have
restrictions on transfer and are subject to rights of first refusal and
repurchase by the Company.
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion determines
that it is obligated to withhold any tax in connection with the
exercise of this option, the vesting or transfer of Option Shares
acquired on the exercise of this option, or the making of a
distribution or other payment with respect to the Option Shares, the
Employee hereby agrees that the Company or any Related Corporation may
withhold from the Employee's wages or other remuneration the
appropriate amount of tax. At the discretion of the Company or Related
Corporation, the amount required to be withheld may be withheld in cash
from such wages or other remuneration or in kind from the Common Stock
or other property otherwise deliverable to the Employee on exercise of
this option. The Employee further agrees that, if the Company or any
Related Corporation does not withhold an amount from the Employee's
wages or other remuneration sufficient to satisfy the withholding
obligation of the Company or Related Corporation, the Employee will
make reimbursement on demand, in cash, for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or her legal
representative (the "Transferor") desires to transfer all or any part
of the Option Shares to any person other than the Company (an
"Offeror"), the Transferor shall: (i) obtain in writing a bona fide
offer (the "Offer") for the purchase thereof from the Offeror; and (ii)
give written notice (the "Option Notice") to the Company setting froth
the Transferor's desire to transfer such shares, which Option Notice
shall be accompanied by a photocopy of the Offer and shall set forth at
least the name and address of the Offeror and the price and terms of
the bona
-7-
<PAGE>
fide offer. Upon receipt of the Option Notice, the Company shall have
an assignable option to purchase all of such shares (the "Company
Option Shares") specified in the Option Notice, such option to be
exercisable by giving, within ninety (90) days after receipt of the
Option Notice, a written counter-notice to the Transferor (the
"Counter-Notice"). If the Company elects to purchase any or all of such
Company Option Shares, it shall be obligated to purchase, and the
Transferor shall be obligated to sell to the Company, such Company
Option Shares that the Company elects to purchase as set forth in the
Counter-Notice at a per share price equal to the lesser of (i) the per
share price (and, except as set forth below, on the same terms)
indicated in the Offer; or two, the Fair Market Value as defined in
Section 17(b) and using the date of the Option Notice as the date of
determination, within thirty (30) days of the date of delivery by the
Company of the Counter-Notice. If the Company elects to purchase any or
all of such Company Option Shares, it may, in its sole discretion, pay
the purchase price for such Company Option Shares in accordance with
the terms of a promissory note, in the form attached hereto as Exhibit
A.
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for sixty (60) days after the expiration of the
ninety (90) day period during which the Company may give the
Counter-Notice, sell, pursuant to the terms of the Offer, any or all of
such Company Option Shares not purchased or agreed to be purchased by
the Company or its assignee; PROVIDED, HOWEVER, that the Transferor
shall not sell such Company Option Shares to the Offeror if the Offeror
is a competitor of the Company and the Company gives a written notice
to the transferor, within ninety (90) days of its receipt of the Option
Notice, stating that the Offeror is a competitor and therefore
Transferor shall not sell such Company Option Shares to such Offeror;
and PROVIDED, FURTHER, that prior to the sale of such Company Option
Shares to the Offeror, the Offeror shall execute an agreement with the
Company pursuant to which the Offeror agrees to be subject to the
restrictions set forth in Sections 16, 17, and 18 hereof. If any or all
of such Company Option Shares are not sold pursuant to an Offer within
the time permitted above, the unsold Company Option Shares shall remain
subject to the terms of this Section 16 and any future proposed
transfer must again comply with the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination or exchange of shares, or the like,
the restrictions contained in this Section 16 shall apply with equal
force to additional and/or substitute
-8-
<PAGE>
securities, if any, received by the Employee in exchange for, or by
virtue of his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refuses to deliver on a timely basis duly
endorsed certificates representing Company Option Shares to be sold to
the Company or its assignee pursuant to this Section 16, the Company
shall have the right to deposit the purchase price for such Company
Option Shares in a special account with any bank or trust company in
the Commonwealth of Massachusetts, giving notice of such deposit to the
Transferor, whereupon such Company Option Shares shall be deemed to
have been purchased by the Company. All such moneys shall be held by
the bank or trust company for the benefit of the Transferor. All moneys
deposited with the bank or trust company remaining unclaimed for two
years after the date of deposit shall be repaid by the bank or trust
company to the Company on demand, and the Transferor shall thereafter
look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL.
The first refusal rights of the Company set forth in this Section 16
shall remain in effect until such time, if ever, as an underwritten
public offering is made of shares of the Company's Common Stock
pursuant to a registration statement filed under the Securities Act of
1933 or a successor statute, at which time this Section 16 and the
right of first refusal set forth herein will automatically expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE.
The Company shall have the right (the "Repurchase Right") to repurchase
from the holder of an Option Shares (each a "Holder") any or all of the
Option Shares then owned by such Holder at any time by giving such
Holder a written notice (the "Repurchase Notice") at least 30 days
prior to the date of repurchase. The Repurchase Notice shall set forth
the number of Option Shares to be repurchased (the "Repurchase
Shares"), the Fair Market Value per share (determined in accordance
with Section 17(b) below as of the date of the Repurchase Notice) of
the Repurchase Shares and the date (the "Repurchase Date") on which
such Repurchase Shares are to be repurchased by the Company (such date
not to be more than 120 nor less than 30 days after the date of the
Repurchase Notice). On the Repurchase Date, the Company shall tender to
the Holder an amount equal to the number of Repurchase Shares
multiplied by the Fair Market Value per share; provided, however, that
the
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<PAGE>
Company may pay the repurchase amount, in its sole discretion, in
accordance with the terms of a promissory note in the form attached
hereto as EXHIBIT A. The Company may assign the Repurchase Right to one
or more persons and may utilize a promissory note to effect its
Repurchase Right. Upon timely exercise of the Repurchase Right in the
manner provided in this Section 17(a), the Holder shall deliver to the
Company the stock certificate or certificates representing the
Repurchase Shares, duly endorsed and free and clear of any and all
liens, charges and encumbrances.
(b) FAIR MARKET VALUE.
For purposes of this Agreement, the Fair Market Value of an Option
Share shall be determined in good faith by the Board of Directors of
the Company after taking into account all factors including, without
limitation, the absence of an active trading market for shares of the
Common Stock, restrictions on transfer of Option Shares set forth
herein and the valuation attached to other recent issuances of
securities of the Company. If Employee disputes the Fair Market Value
so determined, Employee shall notify the Company in writing within 5
days after the Company's notice that it intends to repurchase Option
Shares under Section 16 or 17 hereof. In such event, Employee and the
Company shall in good faith choose, within 10 days after Employee's
notice, a mutually acceptable appraiser to determine the Fair Market
Value. If Employee and the Company cannot agree on such appraiser, the
appraiser shall be appointed by the American Arbitration Association in
Boston, and shall have expertise in valuing technology companies.
Within 30 days after the appointment, the appraiser shall determine the
Fair Market Value of an Option Share and deliver a written report to
the parties as to such appraisal. The appraiser's determination of Fair
Market Value of an Option Share shall be final and binding upon all
parties. The costs of the appraiser shall be borne equally by Employee
and the Company.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination or exchange of shares, or the like,
the restrictions contained in this Section 17 shall apply with equal
force to additional and/or substitute securities, if any, received by
the Employee in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES.
If the Holder fails or refuses to deliver on a timely basis duly
endorsed certificates representing the Repurchase Shares to be
repurchased by the
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<PAGE>
Company or its assignee pursuant to this Section 17, the Company shall
have the right to deposit the repurchase price for such Repurchase
Shares in a special account with any bank or trust company in the
Commonwealth of Massachusetts, giving notice of such deposit to the
Holder, whereupon such Repurchase Shares shall be deemed to have been
purchased by the Company. All such moneys shall be held by the bank or
trust company for the benefit of the Holder. All moneys deposited with
the bank or trust company remaining unclaimed for two years after the
date of deposit shall be repaid by the bank or trust company to the
Company on demand, and the Holder shall thereafter look only to the
Company for payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT.
The Repurchase Right of the Company set forth in this Section 17 shall
remain in effect until such time, if ever, as an underwritten public
offering is made of shares of the Company's Common Stock pursuant to a
registration statement filed under the Securities Act or any successor
statute or the closing of an Acquisition as defined in the Plan, at
which time this Section 17 and the Repurchase Right set forth herein
will automatically terminate.
(f) TRANSFEREES EXCLUDED FROM FIRST REFUSAL RIGHTS.
The foregoing first refusal rights of the Company shall not apply to a
transfer by the Employee of all or any part of the Option Shares to the
Employee's spouse, children or grandchildren, or to a trust for the
benefit of any such individuals; provided, however, that prior to any
such transfer each transferee shall execute an agreement with the
Company pursuant to which the transferee agrees to be subject to the
restrictions set forth in Section 16, 17, and 18 hereof.
18. LOCK-UP AGREEMENT.
The Employee agrees that in connection with an underwritten public
offering of Common Stock, upon the request of the Company or the
managing or lead underwritten for such public offering, the Option
Shares may not be sold, offered for sale or otherwise disposed of
without the prior written consent of the Company or such underwriter,
as the case may be, for at least 180 days after the effectiveness of
the registration statement filed in connection with such offering, or
such longer period of time as the Board of Directors may determine if
all of the Company's directors and officers agree to be similarly bound
(but in no event, longer than 270 days). The lock-up agreement
established pursuant to this Section 18 shall have perpetual duration.
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<PAGE>
19. PROVISION OF DOCUMENTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of a copy
of this Agreement and a copy of the Plan.
20. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall be deemed given
when sent by certified or registered mail, postage prepaid, return
receipt requested, to the address set forth below. The addresses for
such notices may be changed from time to time by written notice given
in the manner provided for herein.
(b) ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the entire agreement between the parties
relative to the subject matter hereof, and supersedes all proposals,
written or oral, and all other communications between the parties
relating to the subject matter of this Agreement. This Agreement may be
modified, amended or rescinded only by a written agreement executed y
both parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any provision of this
Agreement shall in no way affect the validity, legality or
enforceability of any other provision.
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, subject to
the limitations set forth in Sections 9, 16, and 17 hereof.
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to
the principles of the conflicts of laws thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
Breakaway Solutions, Inc.
50 Rowes Wharf
6th Floor
Boston, MA 02110
Christopher Harding By:
- ------------------------------------------- Name:
Title:
Print Name of Employee
Street Address
City State Zip Code
Attest:
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<PAGE>
EXHIBIT A
FORM OF
PROMISSORY NOTE
$ , 199_
For value received, the undersigned, Breakaway Solutions, Inc., a
Delaware corporation ("Obligor"), hereby promises to pay to the order of
Christopher Harding ("Lender") at such place as may be designated from time to
time in writing by Lender, the principal sum of ____________________ Dollars and
________ Cents ($___________________, together with interest in arrears from and
including the date hereof on the unpaid principal balance hereunder, calculated
daily, at the rate of __ percent (____%) per annum [the prime rate in effect on
the date hereof for major banks as published in the Wall Street Journal],
payable as set forth below. At the option of Lender and to the extent permitted
by applicable law, the rate of interest on any unpaid principal or interest not
paid when due and payable hereunder shall be two percent (2%) per annum above
the rate of interest set forth in the immediately preceding sentence. Interest
shall be calculated on the basis of actual number of days elapsed over a year of
360 days. Notwithstanding any other provision of this Promissory Note, Lender
does not intend to charge and Obligor shall not be required to pay any interest
or other fees or charges in excess of the maximum permitted by applicable law;
any payments in excess of such maximum shall be refunded to Obligor or credited
to reduce principal hereunder. All payments received by Lender hereunder will be
applied first to costs of collection, if any, then to interest and the balance
to principal. Principal and interest shall be payable in lawful money of the
United States of America.
Principal shall be paid in sixty (60) equal monthly installments of
__________________ Dollars and _______________ Cents ($________________) each,
commencing on ______________, 199__, and continuing on the same day of each
successive month thereafter with a final payment of all unpaid principal on
______, 199_; interest shall be paid monthly commencing on _______________,
199_, and continuing on the same day of each successive month thereafter with a
final payment of all unpaid interest at the time of payment of the principal.
If any day on which a payment is due pursuant to the terms of this
Promissory Note is not a day on which banks in the Commonwealth of Massachusetts
are generally open (a "Business Day"), such payment shall be due on the next
Business Day following.
This Promissory Note shall, at the option of the holder hereof, become
due and payable without notice or demand, upon the happening of any one of the
following specified events: (1) failure to pay any amount as herein set forth;
(2) default in the
-14-
<PAGE>
performance of any other obligation to Lender, which default is not cured within
thirty (30) days after written notice of such default from Lender; (3)
insolvency (however evidenced) or the commission of any act of insolvency; (4)
the making of a general assignment for the benefit of creditors; (5) the filing
of any petition or the commencement of any proceeding by Obligor or any endorser
or guarantor of this Promissory Note for any relief under any bankruptcy or
insolvency laws, or any laws relating to the relief of debtors, readjustment of
indebtedness, reorganizations, compositions, or extensions; (6) the filing of
any petition or the commencement of any proceeding against Obligor or any
endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions,
which proceeding is not dismissed within sixty (60) days; (7) suspension of the
transaction of the usual business of Obligor; or (8) the past or future making
of a false representation or warranty by Obligor in connection with any loan or
loans by Lender.
If this Promissory Note is not paid in accordance with its terms,
Obligor shall pay to Lender, in addition to principal and accrued interest
thereon, all costs of collection of the principal and accrued interest,
including, but not limited to, reasonable attorneys' fees, court costs and other
costs for the enforcement of payment of this Promissory Note.
No waiver of any obligation of Obligor under this Promissory Note shall
be effective unless it is in a writing signed by Lender. A waiver by Lender of
any right or remedy under this Promissory Note on any occasion shall not be a
bar to exercise of the same right or remedy on any subsequent occasion or of any
other right or remedy at any time.
Any notice required or permitted under this Promissory Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
personally delivered to the party to whom notice is to be given, or on the fifth
business day after mailing, if mailed to the party to whom notice is to be
given, by certified mail, return receipt requested, postage prepaid, and
addressed to the addressee at the address of the addressee set forth herein, or
to the most recent address, specified by written notice, given to the sender
pursuant to this paragraph.
This Promissory Note is delivered in and shall be enforceable in
accordance with the laws of the Commonwealth of Massachusetts, and shall be
construed in accordance therewith, and shall have the effect of a sealed
instrument.
Obligor hereby expressly waives presentment, demand, and protest,
notice of demand, dishonor and nonpayment of this Promissory Note, and all other
notices or demands of any kind in connection with the delivery, acceptance,
performance, default or enforcement hereof, and hereby consents to any delays,
extensions of time,
-15-
<PAGE>
renewals, waivers or modifications that may be granted or consented to by the
holder hereof with respect to the time of payment or any other provision hereof.
In the event any one or more of the provisions of this Promissory Notes
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
OBLIGOR:
By:
---------------------------------
Name:
---------------------------------
Title:
--------------------------------
Attested:
By:
-------------------------------
Name:
------------------------------
Title:
-----------------------------
-16-
<PAGE>
- --------------------------------------------------------------------------------
Notice of Grant of Stock Options and Breakaway Solutions, Inc.
Option Agreement ID: 04-3285165
50 Rowes Wharf
6th Floor
Boston, MA 02110
- --------------------------------------------------------------------------------
Chris Harding Option Number: 00000238
50 Rowes Wharf Plan: 98
Boston, MA 02110 ID: 1185
- --------------------------------------------------------------------------------
Effective 2/18/99 (the "Grant Date"), you (the "Employee") have been granted
a(n) Non-Qualified Stock Option 308,527 shares (the "Option Shares") of common
stock, par value $.0001 per share, of Breakaway Solution (the "Company"), at
$1.4167 per share.
The total option price of the shares granted is $437,090.20.
Shares in each period will become fully vested on the date shown.
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
- --------------------- -------------------- ----------------- --------------
<S> <C> <C> <C>
308,527 On Vest Date 2/18/99 2/18/09
</TABLE>
- --------------------------------------------------------------------------------
By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan as amended and the Option Agreement, all of
which are attached and made a part of this document.
- --------------------------------------------------------------------------------
- ------------------------------------- ---------------------------------
Breakaway Solutions, Inc. Date
- ------------------------------------- ---------------------------------
Chris Harding Date
-17-
<PAGE>
- --------------------------------------------------------------------------------
Notice of Grant of Stock Options and Breakaway Solutions, Inc.
Option Agreement ID: 04-3285165
50 Rowes Wharf
6th Floor
Boston, MA 02110
- --------------------------------------------------------------------------------
Chris Harding Option Number: 00000238
50 Rowes Wharf Plan: 98
Boston, MA 02110 ID: 1185
- --------------------------------------------------------------------------------
Effective 2/18/99 (the "Grant Date"), you (the "Employee") have been granted
a(n) Non-Qualified Stock Option 167,616 shares (the "Option Shares") of common
stock, par value $.0001 per share, of Breakaway Solution (the "Company"), at
$1.4167 per share.
The total option price of the shares granted is $237,461.59.
Shares in each period will become fully vested on the date shown.
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
- ------------------- -------------------- ---------------- -----------------
<S> <C> <C> <C>
0 On Vest Date 2/18/00 2/18/09
167,616 Monthly 2/18/03 2/18/09
- --------------------------------------------------------------------------------
</TABLE>
By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan as amended and the Option Agreement, all of
which are attached and made a part of this document.
- --------------------------------------------------------------------------------
- ----------------------------------- ------------------------------------
Breakaway Solutions, Inc. Date
- ----------------------------------- ------------------------------------
Chris Harding Date
-18-
<PAGE>
EXHIBIT 10.30
BREAKAWAY SOLUTIONS, INC.
Incentive Stock Option Agreement
BREAKAWAY SOLUTIONS, INC. (the "Company") hereby grants the 18th day of
February, 1999 (the "Grant Date") to Christopher Harding (the "Employee"), an
option to purchase aa maximum of two hundred eighty one thousand six hundred and
seventy (281,670) shares (the "Option Shares") of the Company's Common Stock,
par value $.0001 per share ("Common Stock") at the price of one dollar and
forty-two cents ($1.42) per share, on the following terms and conditions:
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's
1998 Stock Plan (the "Plan"), the terms and conditions of which are
incorporated herein by reference, and, unless the context otherwise
requires, terms used herein shall have the same meaning as in the Plan.
Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on the Grant Date.
2. GRANT AS INCENTIVE STOCK OPTION; OTHER OPTIONS.
This option is intended to qualify as an incentive stock option ("ISO")
under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). However, the foregoing shall not be construed as invalidating
this option to any extent in the event all or part of its falls, for
any reason, to so qualify, and to the extent it does not so qualify
this option shall be treated for all purposes as a Non-Qualified Option
under the Plan. This option is in addition to any other options
heretofore or hereafter granted to the Employee by the Company or any
Related Corporation (as defined in the Plan) but a duplicate original
of this instrument shall not effect the grant of another option.
3. VESTING OF OPTION.
Except as otherwise provided in this Agreement, and subject to all
other terms and conditions of this Agreement, this option may be
exercised prior to the tenth (10th) anniversary of the Grant Date (the
"Expiration Date") in installments for not more than the number of
Option Shares which are vested as herein below provided:
(a) CONTINUED EMPLOYMENT FOR ONE TO FOUR YEARS.
Seventy thousand four hundred and twenty-two (70,422) shares will vest
on the Grant Date, and the balance of the Option Shares will vest in
equal monthly installments of five thousand eight hundred and
sixty-eight (5,868)
<PAGE>
shares, each, over the three-year period immediately following the
first anniversary of the grant date.
(b) TRIGGERING EVENT.
All unvested shares shall immediately become vested in full portion
upon the occurrence of any of the following events (each, a "Triggering
Event"): (a) the closing of a public offering by the Company of shares
of its Common Stock, (b) a sale of all or substantially all of the
Company's assets or all or substantially all of the shares of its
capital stock, (c) a consolidation or merger of the Company in which a
majority of outstanding shares of the Company's capital stock are
exchanged for securities, cash or other property of any other
corporation or business entity, (d) a consolidation or merger involving
the Company as a result of which the stockholders of the Company
immediately prior to such event do not own, immediately following the
occurrence of such event, at least a majority of the common stock and
voting power of the entity resulting from such consolidation or
surviving such merger or (e) the liquidation or dissolution of the
Company. In addition, if the Company or stockholders of the Company
enter into an agreement with respect to an event described in (b)
through (e) of the preceding sentence, then upon the consummation of
such event a Triggering Event shall be deemed to have occurred upon the
date of such agreement.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company or any Related
Corporation, other than by reason of death or disability as defined in
Section 5 or termination for Cause as defined in Section 4(c) or
termination related to a prohibition by a court of law as set forth in
Section 4(d), no further installments of this option shall vest after
the date Employee ceases employment with the Company or any Related
Corporation and, the Company shall exercise its right pursuant to
Section 17 hereof to purchase any Option Shares held by Employee after
the termination of this option pursuant to this Section 4(a). This
option shall terminate on the earlier of (i) ninety (90) days after the
date of termination of the Employee's employment, or (ii) the
Expiration Date. In such a case, the Employee's only rights hereunder
shall be those which are properly exercised before the termination of
this option.
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as defined
in Section 4(c)), the unvested portion of this option shall terminate
upon the
- 2 -
<PAGE>
Employee's receipt of written notice of such termination and shall
thereafter not be exercisable to any extent whatsoever.
(c) DEFINITION OF CAUSE.
"Cause" shall mean that the Employee is terminated for one or more of
the following reasons:
(i) substantial, material and continuing failure, after
written notice thereof, to render services to the
Company in accordance with the terms of Employee's
Employment Agreement;
(ii) gross negligence, willful misconduct, dishonesty or
breach of fiduciary duty to the Company; or
(iii) commission of any act of embezzlement or fraud; or
(iv) deliberate disregard of material rules or material
policies of the Company which results in direct or
indirect loss, damage or injury to the Company; or
(v) wilful or intentional material breach or violation of
Employee's Employment Agreement, including without
unauthorized disclosure of any Confidential
Information of the Company; or
(vi) willful or intentional commission of an act which
constitutes unfair competition with the Company or
which intentionally induces any customer or supplier
to breach a contract with the Company; or
(vii) Employee has been convicted of a felony, or
(viii) Employee has been engaged in the abuse of alcohol,
illegal drugs or controlled substances.
"Cause" shall not include any act or omission of which the President or
any member of the Board of Directors has had actual knowledge for at
least 6 months.
(d) LEGAL PROHIBITION.
If Employee's employment terminates in connection with any prohibition
by a court of law on Employee providing services to the Company (a
"Prohibition"), and if such Prohibition occurs (i) during the 180 day
period commencing on
- 3 -
<PAGE>
the Grant Date, this option shall immediately and automatically
terminate, the Company shall refund to Employee the exercise price, if
any, previously paid by Employee upon exercise of any installment of
this option and the Option Shares issued upon such exercise shall be
automatically cancelled, or (ii) during the period commencing on the
181st day after the Grant Date and ending on the 365th day after the
Grant Date, this option shall immediately and automatically terminate
as to such number of shares equal to the product of (A) the difference
between 365 and the actual number of days that have elapsed from the
Grant Date until the date of termination of Employee's employment,
multiplied by (B) a fraction, the numerator of which is 70,422 and the
denominator of which is 365, the Company shall refund to Employee the
exercise price, if any, previously paid by employee upon exercise of
any installment of this option and the Option Shares issued upon such
exercise shall be automatically cancelled.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his death, this option may be exercised, to
the extent otherwise exercisable on the date of death, by the estate,
personal representative or beneficiary who has acquires this option by
will or by the laws of descent and distribution, until the earlier of
(i) the Expiration Date or (ii) ninety (90) days from the date of the
Employee's death.
(b) DISABILITY.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his or her disability (as defined in
Paragraph 10(B) of the Plan), the Employee shall have the right to
exercise this option from the date of termination of employment through
the earlier of (i) the Expiration Date or (ii) ninety (90) days from
the date of the termination of the Employee's employment.
(c) EFFECT OF TERMINATION.
At the expiration of the ninety (90) day period provided in paragraph
(a) or (b) of this Section 5, or the Expiration Date, whichever is
earlier, this option shall terminate and the only rights hereunder
shall be those as to which the option was properly exercised before
such termination.
- 4 -
<PAGE>
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and from time
to time within the above limits, except that the Employee may not
exercise this option for a fraction of a share unless such exercise is
with respect to the final installment of stock subject to this option
and cash in lieu of a fractional share must be paid, in accordance with
Paragraph 13(G) of the Plan, to permit the Employee to exercise
completely such final installment. Any fractional share with respect to
which a installment of this option cannot be exercised because of the
limitation contained in the preceding sentence shall remain subject to
this option and shall be available for later purchase by the Employee
in accordance with the terms hereof.
7. PAYMENT OF PRICE
(a) PAYMENT. The option price shall be paid in the following
manner:
(i) in cash or by check;
(ii) subject to Section 7(b) below, by delivery of shares
of the Company's Common Stock having a fair market
value (as determined by the Committee) equal as of
the date of exercise to the option price;
(iii) by delivery of an assignment satisfactory in form and
substance to the Company of a sufficient amount of
the proceeds from the sale of the Option Shares and
an instruction to the broker or selling agent to pay
that amount to the Company;
(iv) by any combination of the foregoing.
(b) LIMITATIONS ON PAYMENT BY DELIVERY OF COMMON STOCK.
If the Employee delivers Common Stock held by the Employee ("Old
Stock") to the Company in full or partial payment of the option price,
and the Old Stock so delivered is subject to restrictions or
limitations imposed by agreement between the Employee and the Company,
an equivalent number of Option Shares shall be subject to all
restrictions and limitations applicable to the Old Stock to the extent
that the Employee paid for the Option Shares by delivery of Old Stock,
in addition to any restrictions or limitations imposed by this
Agreement. Notwithstanding the foregoing, the Employee may not pay any
part of the exercise price hereof by transferring Common Stock to the
Company unless such Common Stock has been owned by the Employee free of
any substantial risk of forfeiture for at least six months.
- 5 -
<PAGE>
8. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, this option may
be exercised by written notice to the Company at is principal executive
office, or to such transfer agent as the Company shall designate. Such
notice shall state the election to exercise this option and the number
of Option Shares for which it is being exercised and shall be signed by
the person or persons exercising this option. Such notice shall be
accompanied by payment of the full purchase price of such shares, and
the Company shall deliver a certificate or certificates representing
such shares as soon as practicable after the notice shall be received.
Such certificate or certificates shall be registered in the name of the
person or persons so exercising this option (or, if this option is
exercised by the Employee and if the Employee requests in the notice
exercising this option, shall be registered in the name of the Employee
and another person jointly, with right of survivorship). In the event
this option is exercised, pursuant to Section 5 hereof, by any person
or persons other than the Employee, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise
this option.
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Employee's lifetime only
the Employee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION.
The grant and acceptance of this option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option imposes
any obligation on the Company or any Related Corporation to continue
the Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
The Employee shall have no rights as a stockholder with respect to the
Option Shares until the date of issuance of a stock certificate to the
Employee. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization and stock dividends of the
Company, no adjustment shall be made for dividends or similar rights
for which the record date is before the date such stock certificate is
issued.
- 6 -
<PAGE>
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options in a
number of contingencies such as stock splits and mergers. Provisions in
the Plan for adjustment with respect to stock subject to options and
the related provisions with respect to successors to the business of
the Company are hereby made applicable hereunder and are incorporated
herein by reference.
14. EARLY DISPOSITION.
The Employee agrees to notify the Company in writing immediately after
the Employee transfers any Option Shares, if such transfer occurs on or
before the late of (a) the date two years after the Grant Date or (b)
the date one year after the date the Employee acquired such Option
Shares. The Employee also agrees to provide the Company with any
information concerning any such transfer required by the Company for
tax purposes.
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion determines
that it is obligated to withhold any tax in connection with the
exercise of this option, the making of a Disqualifying Disposition (as
defined in Paragraph 18 of the Plan), the vesting or transfer of Option
Shares acquired on the exercise of this option, or the making of a
distribution or other payment with respect to the Option Shares, the
Employee hereby agrees that the Company or any Related Corporation may
withhold from the Employee's wages or other remuneration the
appropriate amount of tax. At the discretion of the Company or Related
Corporation, the amount required to be withheld may be withheld in cash
from such wages or other remuneration or in kind from the Common Stock
or other property otherwise deliverable to the Employee one exercise of
this option. The Employee further agrees that, if the Company or any
Related Corporation does not withhold an amount from the Employee's
wages or other remuneration sufficient to satisfy the withholding
obligation of the Company or Related Corporation, the Employee will
make reimbursement on demand, in cash, for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or her legal
representative (the "Transferor") desires to transfer all or any part
of the Option Shares to any person other than the Company (an
"Offeror"), the Transferor shall: (i) obtain in writing a bona fide
offer (the "Offer") for the purchase thereof from the
- 7 -
<PAGE>
Offeror; and (ii) give written notice (the "Option Notice") to the
Company setting forth the Transferor's desire to transfer such shares,
which Option Notice shall be accompanied by a photocopy of the Offer
and shall set forth at least the name and address of the Offeror and
the price and terms of the bona fide offer. Upon receipt of the Option
Notice, the Company shall have an assignable option to purchase any or
all of such shares (the "Company Option Shares") specified in the
Option Notice, such option to be exercisable by giving, within ninety
(90) days after receipt of the Option Notice, a written counter-notice
to the Transferor (the "Counter-Notice"). If the Company elects to
purchase any or all of such Company Option Shares, it shall be
obligated to purchase, and the Transferor shall be obligated to sell to
the Company, such Company Option Shares that the Company elects to
purchase as set forth in the Counter-Notice at a per share price equal
to the lesser of (i) the per share price (and, except as set forth
below, on the same terms) indicated in the Offer; or (ii) the Fair
Market Value as defined in section 17(b) and using the date of the
Option Notice as the date of determination, within thirty (30) days of
the date of delivery by the Company of the Counter-Notice. If the
Company elects to purchase any or all of such Company Option Shares, it
may, in its sole discretion, pay the purchase price for such Company
Option Shares in accordance with the terms of a promissory note, in the
form attached hereto as Exhibit A.
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for sixty (60) days after the expiration of the
ninety (90)- day period during which the Company may give the
Counter-Notice, sell, pursuant to the terms of the Offer, any or all of
such Company Option Shares not purchased or agreed to be purchased by
the Company or its assignee; PROVIDED, HOWEVER, that the Transferor
shall not sell such Company Option Shares to the Offeror if the Offeror
is a competitor of the Company and the Company gives a written notice
to the Transferor, within ninety (90) days of its receipt of the Option
Notice, stating that the Offeror is a competitor and therefore
Transferor shall not sell such Company Option Shares to such Offeror;
and PROVIDED, FURTHER, that prior to the sale of such Company Option
Shares to the Offeror, the Offeror shall execute an agreement with the
Company pursuant to which the Offeror agrees to be subject to the
restrictions set forth in Sections 16, 17, and 18 hereof. If any or all
of such Company Option Shares are not sold pursuant to an Offer within
the time permitted above, the unsold Company Option Shares shall remain
subject to the terms of this Section 16 and any future proposed
transfer must again comply with the provisions set forth herein.
- 8 -
<PAGE>
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination or exchange of shares, or the like,
the restrictions contained in this Section 16 shall apply with equal
force to additional and/or substitute securities, if any, received by
the Employee in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refused to deliver on a timely basis duly
endorsed certificates representing Company Option Shares to be sold to
the Company or its assignee pursuant to this Section 16, the Company
shall have the right to deposit the purchase price for such Company
Option Shares in a special account with any bank or trust company in
the Commonwealth of Massachusetts, giving notice of such deposit to the
Transferor, whereupon such Company Option Shares shall be deemed to
have been purchased by the Company. All such moneys shall be held by
the bank or trust company for the benefit of the Transferor. All moneys
deposited with the bank or trust company remaining unclaimed for two
years after the date of deposit shall be repaid by the bank or trust
company to the Company on demand, and the Transferor shall thereafter
look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL.
The first refusal rights of the Company set forth in this Section 16
shall remain in effect until such time, if ever, as an underwritten
public offering is made of shares of the Company's Common Stock
pursuant to a registration statement filed under the Securities Act of
1933 or a successor statute or the closing of an Acquisition as defined
in the Plan, at which time this Section 16 and the right of first
refusal set forth herein will automatically expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE.
The Company shall have the right (the "Repurchase Right") to repurchase
from the holder of any Option Shares (each a "Holder") any or all of
the Option Shares then owned by such Holder at any time by giving such
Holder a written notice (the "Repurchase Notice") at least 30 days
prior to the date of repurchase. The Repurchase Notice shall set forth
the number of Option Shares to be repurchased (the "Repurchase
Shares"), the Fair Market Value per share (determined in accordance
with Section 17(b) below as of the date of the
- 9 -
<PAGE>
Repurchase Notice) of the Repurchase Shares and the date (the
"Repurchase Date") on which such Repurchase Shares are to be
repurchased by the Company (such date not to be more than 120 nor less
than 30 days after the date of the Repurchase Notice). On the
Repurchase Date, the Company shall tender to the Holder an amount equal
tot he number of Repurchase Shares multiplied by the Fair Market Value
per share; provided, however, that the Company may pay the repurchase
amount, in its sole discretion, in accordance with the terms of a
promissory notice in the form attached hereto as EXHIBIT A. The Company
may assign the Repurchase Right to one or more persons and may utilize
a promissory note to effect its Repurchase Right. Upon timely exerciser
of the Repurchase Right in the manner provided in this Section 17(a),
the Holder shall deliver to the Company the stock certificate or
certificates representing the Repurchase Shares, duly endorsed and free
and clear of any and all liens, charges and encumbrances.
(b) FAIR MARKET VALUE.
For purposes of this Agreement, the Fair Market Value of an Option
Shares shall be determined in good faith by the Board of Directors of
the Company after taking into account all factors including, without
limitation, the absence of an active trading market for shares of the
Common Stock, restrictions on transfer of Option Shares set forth
herein and the valuation attached to other recent issuances of
securities of the Company. If Employee disputes the Fair Market Value
so determined, Employee shall notify the Company in writing within 5
days after the Company's notice that it intends to repurchase Option
Shares under Section 16 or 17 hereof. In such event, Employee and the
Company shall in good faith choose, within 10 days after Employee's
notice, a mutually acceptable appraiser to determine the Fair Market
Value. If Employee and the Company cannot agree on such appraiser, the
appraiser shall be appointed by the American Arbitration Association in
Boston and shall have expertise in valuing technology companies. Within
30 days after the appointment, the appraiser shall determine the Fair
Market Value of an Option Share and deliver a written report to the
parties as to such appraisal. The appraiser's determination of Fair
Market Value of an Option Share shall be final and binding upon all
parties. The costs of the appraiser shall be borne equally by Employee
and the Company.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination or exchange of shares, or the like,
the restrictions contained in this Section 17 shall apply with equal
force to additional and/or substitute
- 10 -
<PAGE>
securities, if any, received by the Employee in exchange for, or by
virtue of his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES.
If the Holder fails or refuses to deliver on a timely basis duly
endorsed certificates representing the Repurchase Shares to be
repurchased by the Company or its assignee pursuant to this Section 17,
the Company shall have the right to deposit the repurchase price for
such Repurchase Shares in a special account with any bank or trust
company in the Commonwealth of Massachusetts, giving notice of such
deposit to the Holder, whereupon such Repurchase Shares shall be deemed
to have been purchased by the Company. All such moneys shall be held by
the bank or trust company for the benefit of the Holder. All moneys
deposited with the bank or trust company remaining unclaimed for two
years after the date of deposit shall be repaid by the bank or trust
company to the Company on demand, and the Holder shall thereafter look
only to the Company for payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT.
The Repurchase Right of the Company set forth in this Section 17 shall
remain in effect until such time, if ever, as an underwritten public
offering is made of shares of the Company's Common Stock pursuant to a
registration statement filed under the Securities Act or any successor
statute, at which time this Section 17 and the Repurchase Right set
forth herein will automatically terminate.
(f) TRANSFERS EXCLUDED FROM FIRST REFUSAL RIGHTS.
The foregoing first refusal rights of the Company shall not apply to a
transfer by the Employee of all or any part of the Option Shares to the
Employee's spouse, children or grandchildren, or to a trust for the
benefit of any such individuals provided, however, that prior to any
such transfer each transferee shall execute an agreement with the
Company pursuant to which the transferee agrees to be subject to the
restrictions set forth in Sections 16, 17 and 18 hereof.
18. LOCK-UP AGREEMENT.
The Employee agrees that in connection with an underwritten public
offering of Common Stock, upon the request of the Company or the
managing or lead underwriter for such public offering, the Option
Shares may not be sold, offered for sale or otherwise disposed of
without the prior written consent of the Company or such underwriter,
as the case may be, for at least 180 days
- 11 -
<PAGE>
after the effectiveness of the registration statement filed in
connection with such offering, or such longer period of time as the
Board of Directors may determine if all of the Company's directors and
officers agree to be similarly bound (but in no event, longer than 270
days). The lock-up agreement established pursuant to this Section 18
shall have perpetual duration.
19. PROVISION OF DOCUMENTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of a copy
of this Agreement and a copy of the Plan.
20. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall be deemed given
when sent by certified or registered mail, postage prepaid, return
receipt requested, to the address set forth below. The addresses for
such notices may be changed from time to time by written notice given
in the manner provided for herein.
(b) ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the entire agreement between the parties
relative to the subject matter hereof, and supersedes all proposals,
written or oral, and all other communications between the parties
relating to the subject matter of this Agreement. This Agreement may be
modified, amended or rescinded only by a written agreement executed by
both parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any provision of this
Agreement shall in no way affect the validity, legality or
enforceability of any other provision.
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, subject to
the limitations set forth in Sections 9, 16 and 17 hereof.
- 12 -
<PAGE>
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to
the principles of the conflicts of laws thereof.
(f) LEGENDS.
The Company may place a legend or legends on any stock certificate
delivered to any holder of Option Shares reflecting the restrictions on
transfer, rights of first refusal and repurchase rights provided in
this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 13 -
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
Breakaway Solutions, Inc.
50 Rowes Wharf
6th Floor
Boston, MA 02110
- ---------------------------------
Employee
Christopher Harding By:
- --------------------------------- -----------------------------
Print Name of Employee Name:
Title:
- ---------------------------------
Street Address
- ---------------------------------
City State Zip Code
Attest:
--------------------------
- 14 -
<PAGE>
EXHIBIT A
FORM OF
PROMISSORY NOTE
$________________ _____________, 19__
For value received, the undersigned, Breakaway Solutions, Inc., a
Delaware corporation ("Obligor"), hereby promises to pay to the order of
Christopher Harding ("Lender") at such place as may be designated from time to
time in writing by Lender, the principal sum of _____________ Dollars and ____
Centers ($__________) together with interest in arrears from and including the
date hereof on the unpaid principal balance hereunder, calculated daily, at the
rate of ___ percent (___%) per annum [the prime rate in effect on the date
hereof for major banks as published in the Wall Street Journal], payable as set
forth below. At the option of Lender and to the extent permitted by applicable
law, the rate of interest on any unpaid principal or interest not paid when due
and payable hereunder shall be two percent (2%) per annum above the rate of
interest set forth in the immediately proceeding sentence. Interest shall be
calculated on the basis of actual number of days elapsed over a year of 360
days. Notwithstanding any other provision of this Promissory Note, Lender does
not intend to change and Obligor shall not be required to pay any interest or
other fees or charges in excess of the maximum permitted by applicable law; any
payments in excess of such maximum shall be refunded to Obligor or credited to
reduce principal hereunder. All payments received by lender hereunder will be
applied first to costs of collection, if any, then to interest and the balance
to principal. Principal and interest shall be payable in lawful money of the
United States of America.
Principal shall be paid in sixty (60) equal monthly installments of
__________ Dollars and _____ Cents ($_____) each, commencing on ____________,
199__, and continuing on the same day of each successive month thereafter with a
final payment of all unpaid principal on ___________, 199__; interest shall be
paid monthly commencing on __________, 199__, and continuing on the same day of
each successive month thereafter with a final payment of all unpaid interest at
the time of payment of the principal.
If any day on which a payment is due pursuant to the terms of this
Promissory Note is not a day on which banks in the Commonwealth of Massachusetts
are generally open (a "Business Day"), such payment shall be due on the next
Business Day following.
- 15 -
<PAGE>
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part, all such prepayments to be applied upon
installments of most remote maturity. Any prepayment of principal shall be
accompanied by a payment of accrued interest in respect of the principal being
prepaid.
This Promissory Note shall, at the option of the holder hereof, become
due and payable without notice or demand, upon the happening of any one of the
following specified events: (1) failure to pay any amount as herein set forth;
(2) default in the performance of any other obligation to Lender, which default
is not cured within thirty (30) days after written notice of such default from
Lender; (3) insolvency (however evidenced) or the commission of any act of
insolvency; (4) the making of a general assignment for the benefit of creditors;
(5) the filing of any petition or the commencement of any proceeding by Obligor
or any endorse or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions; (6)
the filing of any petition or the commencement of any proceeding against Obligor
or any endorser or guarantor of this Promissory Note for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions, or extensions,
which proceeding is not dismissed within sixty (60) days; (7) suspension of the
transaction of the usual business of Obligor; or (8) the past or future making
of a false representations or warranty by Obligor in connection with any loan or
loans by Lender.
If this Promissory Note is not paid in accordance with its terms,
Obligor shall pay to Lender, in addition to principal and accrued interest
thereon, all costs of collection of the principal and accrued interest,
including, but not limited to, reasonable attorneys' fees, court costs and other
costs for the enforcement of payment of this Promissory Note.
No waiver of any obligation of Obligor under this Promissory Note shall
be effective unless it is in a writing signed by Lender. A waiver by Lender of
any right or remedy under this Promissory Note on any occasion shall not be a
bar to exercise of the same right or remedy on any subsequent occasion or of any
other right or remedy at any time.
Any notice required or permitted under this Promissory Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
personally delivered t the party to whom notice is to be given, or on the fifty
business day after mailing, if mailed to the party to whom notice is to be
given, by certified mail, return receipt requested, postage prepaid, and
addressed to the addressee at the address of the addressee set forth herein, or
to the most recent address, specified by written notice, given to the sender
pursuant to this paragraph.
- 16 -
<PAGE>
This Promissory Note is delivered in and shall be enforceable in
accordance with the laws of the Commonwealth of Massachusetts, and shall be
construed in accordance therewith, and shall have the effect of a sealed
instrument.
Obligor hereby expressly waives presentment, demand, and protest,
notice of demand, dishonor and nonpayment of this Promissory Note, and all other
notices or demands of any kind in connection with the delivery, acceptance,
performance, default or enforcement hereof, and hereby consents to any delays,
extensions of time, renewals, waivers or modifications that may be granted or
consented to by the holder with respect with the time of payment or any other
provision hereof.
In the event any one or more of the provisions of this Promissory Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that only one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or distributed thereby.
OBLIGOR:
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Attested:
---------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
- 17 -
<PAGE>
- --------------------------------------------------------------------------------
Breakaway Solutions, Inc.
Notice of Grant of Stock Options ID: 04-3285165
and Option Agreement 50 Rowes Wharf
8th Floor
Boston, MA 02110
- --------------------------------------------------------------------------------
Chris Harding Option Number: 00000237
50 Rowes Wharf Plan 98
Boston, MA 02110 ID: 1185
- --------------------------------------------------------------------------------
Effective 2/18/99 (the "Grant Date"), you (the "Employee") have been granted
a(n) Incentive Stock Option to 211,248 shares (the "Option Shares") of common
stock, par value $.0001 per share, of Breakaway Solution (the "Company"), at
$1.4167 per share.
The total option price of the shares granted is $299,275.04.
Shares in each period will become fully vested on the date shown.
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
- ----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
0 On Vest Date 2/18/00 2/18/09
211,248 Monthly 2/18/03 2/18/09
- ------------------------------------------------------------------------------
</TABLE>
By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan as amended and the Option Agreement, all of
which are attached and made a part of this document.
- --------------------------------------------------------------------------------
- -------------------------------------- -----------------------------------
Breakaway Solutions, Inc. Date
- -------------------------------------- -----------------------------------
Chris Harding Date
- 18 -
<PAGE>
- --------------------------------------------------------------------------------
Breakaway Solutions, Inc.
Notice of Grant of Stock Options ID: 04-3285165
and Option Agreement 50 Rowes Wharf
8th Floor
Boston, MA 02110
- --------------------------------------------------------------------------------
Chris Harding Option Number: 00000236
50 Rowes Wharf Plan 98
Boston, MA 02110 ID: 1185
- --------------------------------------------------------------------------------
Effective 2/18/99 (the "Grant Date"), you (the "Employee") have been granted
a(n) Incentive Stock Option to 211,248 shares (the "Option Shares") of common
stock, par value $.0001 per share, of Breakaway Solution (the "Company"), at
$1.4167 per share.
The total option price of the shares granted is $99,766.85.
Shares in each period will become fully vested on the date shown.
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
- ----------------- ------------------- ------------------ ---------------------
<S> <C> <C> <C>
70,422 On Vest Date 2/18/99 2/18/09
</TABLE>
- --------------------------------------------------------------------------------
By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan as amended and the Option Agreement, all of
which are attached and made a part of this document.
- --------------------------------------------------------------------------------
- -------------------------------- ---------------------------------
Breakaway Solutions, Inc. Date
- -------------------------------- ---------------------------------
Chris Harding Date
- 19 -
<PAGE>
EXHIBIT 10.31
BREAKAWAY SOLUTIONS, INC.
INCENTIVE STOCK OPTION AGREEMENT
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's
1998 Stock Plan (the "Plan") and, unless the context otherwise
requires, terms used herein shall have the same meaning as in the Plan.
Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on this date.
2. GRANT AS INCENTIVE STOCK OPTION; OTHER OPTIONS.
This option is intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). This option is in addition to any other options heretofore or
hereafter granted to the Employee by the Company or any Related
Corporation (as defined in the Plan), but a duplicate original of this
instrument shall not effect the grant of another option.
3. VESTING OF OPTION IF EMPLOYMENT CONTINUES.
If the Employee has continued to be employed by the Company or any
Related Corporation on the following dates, the Employee may exercise
this option for the number of shares of Common Stock set opposite the
applicable date: (attached as NOTICE OF GRANT OF STOCK OPTIONS AND
AGREEMENT). Notwithstanding the foregoing, in accordance with and
subject to the provisions of the Plan, the Committee may, in its
discretion, accelerate the date that any installment of this Option
becomes exercisable. The foregoing rights are cumulative and, while the
Employee continues to be employed by the Company or any Related
Corporation, may be exercised on or before the date which is ten (10)
years from the date this option is granted. All of the foregoing rights
are subject to Sections 4 and 5, as appropriate, if the Employee ceases
to be employed by the Company and all Related Corporations.
OPTION ACCELERATION UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the vesting and
exerciseability of this option shall automatically accelerate in full.
For purpose of this Section 3, "Change of Control" shall mean the
occurrence of any of the following events:
(i) the approval by shareholders of the Company of a
merger or consolidation of the Company with any other
corporation, other than a merger or consolidation
which would result in the voting securities of the
Company outstanding immediately prior thereto
<PAGE>
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity) more than fifty
percent (50%) of the total voting power represented
by the voting securities of the Company or such
surviving entity outstanding immediately after such
merger or consolidation;
(ii) any approval by the shareholders of the Company of a
plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company
of all or substantially all of the Company; or
(iii) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as
amended) becoming the "beneficial owner" (as defined
in Rule 13d-3 under said Act), directly or
indirectly, or securities of the Company representing
50% or more of the total voting power represented by
the Company's then outstanding voting securities;
PROVIDED, HOWEVER, that this section shall not apply
to any person or persons who, either individually or
jointly, on the date of this Agreement beneficially
owned securities of the Company representing 50% or
more of the total voting power represented by the
Company's then outstanding voting securities.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company and all
Related Corporations, other than by reason of death or
disability as defined in Section 5 or termination for Cause as
defined in Section 4(c), no further installments of this
option shall become exercisable, and this option shall
terminate on the earlier of (i) thirty (30) days after the
date of termination of the Employee's employment, or (ii) the
scheduled expiration date of this option. In such a case, the
Employee's only rights hereunder shall be those which are
properly exercised before the termination of this option.
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as
defined in Section 4(c)), this option shall terminate upon the
Employee's receipt of written notice of such termination and
shall thereafter not be exercisable to any extent whatsoever.
-2-
<PAGE>
(c) DEFINITION OF CAUSE.
"Cause" shall mean conduct involving one or more of the
following: (i) the substantial and continuing failure of the
Employee, after notice thereof, to render services to the
Company or Related Corporation in accordance with the terms or
requirements of his or her employment; (ii) gross negligence,
willful misconduct, dishonesty or breach of fiduciary duty to
the Company or Related Corporation; (iii) the commission of an
act of embezzlement or fraud; (iv) deliberate disregard of the
written rules or policies of the Company or Related
Corporation which results in direct or indirect loss, damage
or injury to the Company or Related Corporation; or (v) the
unauthorized disclosure of any trade secret or confidential
information of the Company or Related Corporation.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all
Related Corporations by reason of his or her death, this
option may be exercised, to the extent otherwise exercisable
on the date of death, by the estate, personal representative
or beneficiary who has acquired this option by will or by the
laws of descent and distribution, until the earlier of (i) the
specified expiration date of this option or (ii) thirty (30)
days from the date of the Employee's death.
(b) DISABILITY.
If the Employee ceases to be employed by the Company and all
Related Corporations by reason of his or her disability (as
defined in Paragraph 10(B) of the Plan), the Employee shall
have the right to exercise this option on the date of
termination of employment, for the number of shares for which
he or she could have exercised it on that date, until the
earlier of (i) the specified expiration date of this option or
(ii) thirty (30) days from the date of the termination of the
Employee's employment.
(c) EFFECT OF TERMINATION.
At the expiration of the thirty (30) day period provided in
paragraph (a) or (b) of this Section 5 or the scheduled
expiration date, whichever is the earlier, this option shall
terminate and the only rights hereunder shall be those as to
which the option was properly exercised before such
termination.
-3-
<PAGE>
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and from time
to time within the above limits, except that the Employee may not
exercise this option for a fraction of a share unless such exercise is
with respect to the final installment of stock subject to this option
and cash in lieu of a fractional share must be paid, in accordance with
Paragraph 13(G) of the Plan, to permit the Employee to exercise
completely such final installment. Any fractional share with respect to
which an installment of this option cannot be exercised because of the
limitation contained in the preceding sentence shall remain subject to
this option and shall be available for later purchase by the Employee
in accordance with the terms hereof.
7. PAYMENT OF PRICE.
The option price shall be paid in United States dollars in cash or by
check.
8. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, this option may
be exercised by written notice to the Company at its principal
executive office, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this option
and the number of Option Shares for which it is being exercised and
shall be signed by the person or persons exercising this option. Such
notice shall be accompanied by payment of the full purchase price of
such shares, and the Company shall deliver a certificate or
certificates representing such shares as soon as practicable after the
notice shall be received. Such certificate or certificates shall be
registered in the name of the person or persons so exercising this
option (or, if this option is exercised by the Employee and if the
Employee requests in the notice exercising this option, shall be
registered in the name of the Employee and another person jointly, with
right of survivorship). In the event this option is exercised, pursuant
to Section 5 hereof, by any person or persons other than the Employee,
such notice shall be accompanied by appropriate proof of the right of
such person or persons to exercise this option.
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Employee's lifetime only
the Employee can exercise this option.
-4-
<PAGE>
10. NO OBLIGATION TO EXERCISE OPTION.
The grant and acceptance of this option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option imposes
any obligation on the Company or any Related Corporation to continue
the Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
The Employee shall have no rights as a stockholder with respect to the
Option Shares until the date of issuance of a stock certificate to the
Employee. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization and stock dividends of the
Company, no adjustment shall be made for dividends or similar rights
for which the record date is before the date such stock certificate is
issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options in a
number of contingencies such as stock splits and mergers. Provisions in
the Plan for adjustment with respect to stock subject to options and
the related provisions with respect to successors to the business of
the Company are hereby made applicable hereunder and are incorporated
herein by reference.
14. EARLY DISPOSITION.
The Employee agrees to notify the Company in writing immediately after
the Employee transfers any Option Shares, if such transfer occurs on or
before the later of (a) the date two years after the Grant Date or (b)
the date one year after the date the Employee acquired such Option
Shares. The Employee also agrees to provide the Company with any
information concerning any such transfer required by the Company for
tax purposes.
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion determines
that it is obligated to withhold any tax in connection with the
exercise of this option, the making of a Disqualifying Disposition (as
defined in Paragraph 18 of the Plan), the vesting or transfer of Option
Shares acquired on the exercise of this option, or the making of a
distribution or other payment with respect to the
-5-
<PAGE>
Option Shares, the Employee hereby agrees that the Company or any
Related Corporation may withhold from the Employee's wages or other
remuneration the appropriate amount of tax. At the discretion of the
Company or Related Corporation, the amount required to be withheld may
be withheld in cash from such wages or other remuneration or in kind
from the Common Stock or other property otherwise deliverable to the
Employee on exercise of this option. The Employee further agrees that,
if the Company or any Related Corporation does not withhold an amount
from the Employee's wages or other remuneration sufficient to satisfy
the withholding obligation of the Company or Related Corporation, the
Employee will make reimbursement on demand, in cash, for the amount
underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or her legal
representative (the "Transferor") desires to transfer all or
any part of the Option Shares to any person other than the
Company (an "Offeror"), the Transferor shall: (i) obtain in
writing an irrevocable and unconditional bona fide offer (the
"Offer") for the purchase thereof from the Offeror; and (ii)
give written notice (the "Option Notice") to the Company
setting forth the Transferor's desire to transfer such shares,
which Option Notice shall be accompanied by a photocopy of the
Offer and shall set forth at least the name and address of the
Offeror and the price and terms of the bona fide offer. Upon
receipt of the Option Notice, the Company shall have an
assignable option to purchase any or all of such shares (the
"Company Option Shares") specified in the Option Notice, such
option to be exercisable by giving, within 90 days after
receipt of the Option Notice, a written counter-notice to the
Transferor (the "Counter-Notice"). If the Company elects to
purchase any or all of such Company Option Shares, it shall be
obligated to purchase, and the Transferor shall be obligated
to sell to the Company, such Company Option Shares that the
Company elects to purchase as set forth in the Counter-Notice
at a per share price equal to the lesser of (i) the per share
price (and on the same terms) indicated in the Offer; or (ii)
the Fair Market Value (as defined below and using the date of
the Option Notice as the date of determination of Fair Market
Value) of such shares as determined under Section 17(b), in
any case within 30 days of the date of delivery by the Company
of the Counter-Notice. If the Company elects to purchase any
or all of such Company Option Shares, it shall pay the
purchase price for such Company Option Shares in cash in
immediately available funds.
-6-
<PAGE>
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for 60 days after the expiration of the
90-day period during which the Company may give the
Counter-Notice, sell, pursuant to the terms of the Offer, any
or all of such Company Option Shares not purchased or agreed
to be purchased by the Company or its assignee; PROVIDED,
HOWEVER, that the Transferor shall not sell such Company
Option Shares to the Offeror if the Offeror is a competitor of
the Company and the Company gives a written notice to the
Transferor, within 90 days of its receipt of the Option
Notice, stating that the Transferor shall not sell such
Company Option Shares to such Offeror; and PROVIDED, FURTHER,
that prior to the sale of such Company Option Shares to the
Offeror, the Offeror shall execute an agreement with the
Company pursuant to which the Offeror agrees to be subject to
the restrictions set forth in Sections 16, 17, 18 and 20
hereof. If any or all of such Company Option Shares are not
sold pursuant to an Offer within the time permitted above, the
unsold Company Option Shares shall remain subject to the terms
of this Section 16 and any future proposed transfer must again
comply with the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the
Company through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination or
exchange of shares, or the like, the restrictions contained in
this Section 16 shall apply with equal force to additional
and/or substitute securities, if any, received by the Employee
in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refuses to deliver on a timely
basis duly endorsed certificates representing Company Option
Shares to be sold to the Company or its assignee pursuant to
this Section 16, the Company shall have the right to deposit
the purchase price for such Company Option Shares in a special
account with any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the
Transferor, whereupon such Company Option Shares shall be
deemed to have been purchased by the Company. All such moneys
shall be held by the bank or trust company for the benefit of
the Transferor. All moneys deposited with the bank or trust
company remaining unclaimed for two years after the date of
deposit shall be repaid by the bank or trust company to the
Company on demand, and the Transferor shall thereafter look
only to the Company for payment.
-7-
<PAGE>
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL.
The first refusal rights of the Company set forth in this
Section 16 shall remain in effect until such time, if ever, as
an underwritten public offering is made of shares of the
Company's Common Stock pursuant to a registration statement
filed under the Securities Act of 1933 or a successor statute,
at which time this Section 16 and the right of first refusal
set forth herein will automatically expire.
(f) FAIR MARKET VALUE.
For purposes of this Agreement, the Fair Market Value of an
Option Share shall be determined in good faith by the Board of
Directors of the Company after taking into account all
relevant factors including, without limitation, the absence of
an active trading market for the shares of Common Stock, the
restrictions on transfer of Option Shares set forth herein and
the valuation attached to other recent issuances of securities
by the Company. The determination by the Board of Directors of
Fair Market Value shall be conclusive and binding.
17. LOCK-UP AGREEMENT.
The Employee agrees that in connection with an underwritten public
offering of Common Stock, upon the request of the Company or the
managing or lead underwriter for such public offering, this option and
the Option Shares may not be sold, offered for sale or otherwise
disposed of without the prior written consent of the Company or such
underwriter, as the case may be, for at least 180 days after the
effectiveness of the registration statement filed in connection with
such offering, or such longer period of time as the Board of Directors
may determine if all of the Company's directors and officers agree to
be similarly bound. The lock-up agreement established pursuant to this
Section 17 shall have perpetual duration.
18. PROVISION OF DOCUMENTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of a copy
of this Agreement and a copy of the Plan.
19. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall be deemed
given when sent by certified or registered mail, "postage
prepaid, return
-8-
<PAGE>
receipt requested, to the address set forth below. The
addresses for such notices may be changed from time to time by
written notice given in the manner provided for herein.
(b) ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the entire agreement between the
parties relative to the subject matter hereof, and supersedes
all proposals, written or oral, and all other communications
between the parties relating to the subject matter of this
Agreement. This Agreement may be modified, amended or
rescinded only by a written agreement executed by both
parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any
provision of this Agreement shall in no way affect the
validity, legality or enforceability of any other provision.
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and
assigns, subject to the limitations set forth in Sections 9,
16, 17, and 20 hereof.
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to the principles of the conflicts of
laws thereof.
(f) LEGENDS.
The Company may place a legend or legends on any stock
certificate delivered to the any holder of Option Shares
reflecting the restrictions on transfer provided in this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-9-
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
BREAKAWAY SOLUTIONS, INC.
50 ROWES WHARF
BOSTON, MA 02110
/s/ Babak Farazami
- -------------------------------------
Employee Signature
Babak Farazami
- -------------------------------------
Print Name of Employee By:/s/ Gordon Brooks
95 Horation Street ---------------------------
Name: Gordon Brooks
- ------------------------------------- Title:
Street Address
New York, NY 10014
- -------------------------------------
City State Zip Code
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE OF GRANT OF STOCK OPTIONS BREAKAWAY SOLUTIONS, INC.
AND OPTION AGREEMENT ID: 04-3285165
50 Rowes Wharf
6th Floor
Boston, MA 02110
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BABAK FARZAMI OPTION NUMBER: 00000255
PLAN: 98
, NY ID: 1190
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Effective 4/1/99 (the 'Grant Date'), you (the 'Employee') have been granted a(n)
Incentive Stock Option to buy 318,975 shares (the 'Option Shares') of common
stock, par value $.0001 per share, of Breakaway Solutions, Inc. (the 'Company'),
at $1.5675 per share.
The total option price of the shares granted is $499,993.31.
Shares in each period will become fully vested on the date shown.
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
------ --------- --------- ----------
<S> <C> <C> <C> <C>
63,795 On Vest Date 12/17/99 4/1/09
63,795 Monthly 12/17/00 4/1/09
63,795 Monthly 12/17/01 4/1/09
63,795 Monthly 12/17/02 4/1/09
63,795 Monthly 12/17/03 4/1/09
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan as amended and the Option Agreement, all of
which are attached and made a part of this document.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------- ----------------------------------
Breakaway Solutions, Inc. Date
- -------------------------------------- ----------------------------------
Babak Farzami Date
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE OF GRANT OF STOCK OPTIONS BREAKAWAY SOLUTIONS, INC.
AND OPTION AGREEMENT ID: 04-3285165
50 Rowes Wharf
6th Floor
Boston, MA 02110
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BABAK FARZAMI OPTION NUMBER: 00000256
PLAN: 98
, NY ID: 1190
- --------------------------------------------------------------------------------
Effective 3/25/99 (the 'Grant Date'), you (the 'Employee') have been granted
a(n) Non-Qualified Stock Option to buy 104,036 shares (the 'Option Shares') of
common stock, par value $.000167 per share, of Breakaway Solutions, Inc. (the
'Company'), at $1.5675 per share.
The total option price of the shares granted is $163,076.43.
Shares in each period will become fully vested on the date shown.
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
------ --------- --------- ----------
<S> <C> <C> <C> <C>
26,009 On Vest Date 12/17/99 3/25/09
19,507 Monthly 12/17/00 3/25/09
19,507 Monthly 12/17/01 3/25/09
19,507 Monthly 12/17/02 3/25/09
19,506 Monthly 12/17/03 3/25/09
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan as amended and the Option Agreement, all of
which are attached and made a part of this document.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------- -------------------------------------
Breakaway Solutions, Inc. Date
- -------------------------------------- -------------------------------------
Babak Farzami Date
<PAGE>
EXHIBIT 10.32
BREAKAWAY SOLUTIONS, INC.
INCENTIVE STOCK OPTION AGREEMENT
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's
1998 Stock Plan (the "Plan") and, unless the context otherwise
requires, terms used herein shall have the same meaning as in the Plan.
Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on this date.
2. GRANT AS INCENTIVE STOCK OPTION; OTHER OPTIONS.
This option is intended to quality as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). This option is in addition to any other options heretofore or
hereafter granted to the Employee by the Company or any Related
Corporation (as defined in the Plan), but a duplicate original of this
instrument shall not effect the grant of another option.
3. VESTING OF OPTION IF EMPLOYMENT CONTINUES.
If the Employee has continued to be employed by the Company or any
Related Corporation on the following dates, the Employee may exercise
this option for the number of shares of Common Stock set opposite the
applicable date: (attached as NOTICE OF GRANT OF STOCK OPTIONS AND
OPTION AGREEMENT). Notwithstanding the foregoing, in accordance with
and subject to the provisions of the Plan, the Committee may, in its
discretion, accelerate the date that any installment of this Option
becomes exercisable. The foregoing rights are cumulative and, while the
Employee continues to be employed by the Company or any Related
Corporation, may be exercised on or before the date which is ten (10)
years from the date this option is granted. All of the foregoing rights
are subject to Sections 4 and 5, as appropriate, if the Employee ceases
to be employed by the Company and all Related Corporations.
OPTION ACCELERATION UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the vesting and
exerciseability of this option shall automatically accelerate in full.
For purpose of this Section 3. "Change of Control" shall mean the
occurrence of any of the following events:
(i) the approval by shareholders of the Company of a
merger or consolidation of the Company with any other
corporation, other than a merger or consolidation
which would result in the voting securities of the
Company outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity) more than fifty
percent (50%) of the total voting power represented
by the voting securities of the Company or such
surviving entity outstanding immediately after such
merger or consolidation;
(ii) any approval by the shareholders of the Company of a
plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company
of all or substantially all of the Company; or
(iii) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as
amended) becoming the "beneficial owner" (as defined
in Rule 13d-3 under said Act), directly or
indirectly, or securities of the Company
representing
Page 1 of 8
<PAGE>
50% or more of the total voting power
represented by the Company's then outstanding voting
securities; PROVIDED, HOWEVER, that this section
shall not apply to any person or persons who, either
individually or jointly, on the date of this
Agreement beneficially owned securities of the
Company representing 50% or more of the total voting
power represented by the Company's then outstanding
voting securities.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company and all
Related Corporations, other than by reason of death or
disability as defined in Section 5 or termination for Cause as
defined in Section 4(c), no further installments of this
option shall become exercisable, and this option shall
terminate on the earlier of (i) thirty (30) days after the
date of termination of the Employee's employment, or (ii) the
scheduled expiration date of this option. In such a case, the
Employee's only rights hereunder shall be those which are
properly exercised before the termination of this option.
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as
defined in Section 4(c)), this option shall terminate upon the
Employee's receipt of written notice of such termination and
shall thereafter not be exercisable to any extent whatsoever.
(c) DEFINITION OF CAUSE.
"Cause" shall mean conduct involving one or more of the
following: (i) the substantial and continuing failure of the
Employee, after notice thereof, to render services to the
Company or Related Corporation in accordance with the terms or
requirements of his or her employment; (ii) gross negligence,
willful misconduct, dishonesty or breach of fiduciary duty to
the Company or Related Corporation; (iii) the commission of an
act of embezzlement or fraud; (iv) deliberate disregard of the
written rules or policies of the Company or Related
Corporation which results in direct or indirect loss, damage
or injury to the Company or Related Corporation; or (v) the
unauthorized disclosure of any trade secret or confidential
information of the Company or Related Corporation.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all
Related Corporations by reason of his or her death, this
option may be exercised, to the extent otherwise exercisable
on the date of death, by the estate, personal representative
or beneficiary who has acquired this option by will or by the
laws of descent and distribution, until the earlier of (i) the
specified expiration date of this option or (ii) thirty (30)
days from the date of the Employee's death.
(b) DISABILITY.
If the Employee ceases to be employed by the Company and all
Related Corporations by reason of his or her disability (as
defined in Paragraph 10(B) of the Plan), the Employee shall
have the right to exercise this option on the date of
termination of employment, for the number of shares for which
he or she could have exercised it on that date, until the
earlier of (i) the specified expiration date of this option or
(ii) thirty (30) days from the date of the termination of the
Employee's employment.
Page 2 of 8
<PAGE>
(c) EFFECT OF TERMINATION.
At the expiration of the thirty (30) day period provided in
paragraph (a) or (b) of this Section 5 or the scheduled
expiration date, whichever is the earlier, this option shall
terminate and the only rights hereunder shall be those as to
which the option was properly exercised before such
termination.
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and from time
to time within the above limits, except that the Employee may not
exercise this option for a fraction of a share unless such exercise is
with respect to the final installment of stock subject to this option
and cash in lieu of a fractional share must be paid, in accordance with
Paragraph 13(G) of the Plan, to permit the Employee to exercise
completely such final installment. Any fractional share with respect to
which an installment of this option cannot be exercised because of the
limitation contained in the preceding sentence shall remain subject to
this option and shall be available for later purchase by the Employee
in accordance with the terms hereof.
7. PAYMENT OF PRICE.
The option price shall be paid in United States dollars in cash or by
check.
8. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, this option may
be exercised by written notice to the Company at its principal
executive office, or to such transfer agent as the Company shall
designate. Such notice shall state the election to exercise this option
and the number of Option Shares for which it is being exercised and
shall be signed by the person or persons exercising this option. Such
notice shall be accompanied by payment of the full purchase price of
such shares, and the Company shall deliver a certificate or
certificates representing such shares as soon as practicable after the
notice shall be received. Such certificate or certificates shall be
registered in the name of the person or persons so exercising this
option (or, if this option is exercised by the Employee and if the
Employee requests in the notice exercising this option, shall be
registered in the name of the Employee and another person jointly, with
right of survivorship). In the event this option is exercised, pursuant
to Section 5 hereof, by any person or persons other than the Employee,
such notice shall be accompanied by appropriate proof of the right of
such person or persons to exercise this option.
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will or by the
laws of descent and distribution. During the Employee's lifetime only
the Employee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION.
The grant and acceptance of this option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option imposes
any obligation on the Company or any Related Corporation to continue
the Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
Page 3 of 8
<PAGE>
The Employee shall have no rights as a stockholder with respect to the
Option Shares until the date of issuance of a stock certificate to the
Employee. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization and stock dividends of the
Company, no adjustment shall be made for dividends or similar rights
for which the record date is before the date such stock certificate is
issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options in a
number of contingencies such as stock splits and mergers. Provisions in
the Plan for adjustment with respect to stock subject to options and
the related provisions with respect to successors to the business of
the Company are hereby made applicable hereunder and are incorporated
herein by reference.
14. EARLY DISPOSITION.
The Employee agrees to notify the Company in writing immediately after
the Employee transfers any Option Shares, if such transfer occurs on or
before the later of (a) the date two years after the Grant Date or (b)
the date one year after the date the Employee acquired such Option
Shares. The Employee also agrees to provide the Company with any
information concerning any such transfer required by the Company for
tax purposes.
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion determines
that it is obligated to withhold any tax in connection with the
exercise of this option, the making of a Disqualifying Disposition (as
defined in Paragraph 18 of the Plan), the vesting or transfer of Option
Shares acquired on the exercise of this option, or the making of a
distribution or other payment with respect to the Option Shares, the
Employee hereby agrees that the Company or any Related Corporation may
withhold from the Employee's wages or other remuneration the
appropriate amount of tax. At the discretion of the Company or Related
Corporation, the amount required to be withheld may be withheld in cash
from such wages or other remuneration or in kind from the Common Stock
or other property otherwise deliverable to the Employee on exercise of
this option. The Employee further agrees that, if the Company or any
Related Corporation does not withhold an amount from the Employee's
wages or other remuneration sufficient to satisfy the withholding
obligation of the Company or Related Corporation, the Employee will
make reimbursement on demand, in cash, for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or her legal
representative (the "Transferor") desires to transfer all or
any part of the Option Shares to any person other than the
Company (an "Offeror"), the Transferor shall: (i) obtain in
writing an irrevocable and unconditional bona fide offer (the
"Offer") for the purchase thereof from the Offeror; and (ii)
give written notice (the "Option Notice") to the Company
setting forth the Transferor's desire to transfer such shares,
which Option Notice shall be accompanied by a photocopy of the
Offer and shall set forth at least the name and address of the
Offeror and the price and terms of the bona fide offer. Upon
receipt of the Option Notice, the Company shall have an
assignable option to purchase any or all of such shares (the
"Company Option Shares") specified in the Option Notice, such
option to be exercisable by giving, within 90 days after
receipt of the Option Notice, a written counter-notice to the
Transferor (the "Counter-Notice"). If the Company elects to
purchase any or all of such Company Option Shares, it shall be
obligated to purchase, and the Transferor shall be obligated
to sell to the Company, such Company Option Shares that the
Company elects to purchase as set forth in the Counter-Notice
at a per share price equal to the lesser of (i) the per share
price
Page 4 of 8
<PAGE>
(and on the same terms) indicated in the Offer; or (ii) the Fair Market
Value (as defined below and using the date of the Option Notice as the
date of determination of Fair Market Value) of such shares as
determined under Section 17(b), in any case within 30 days of the date
of delivery by the Company of the Counter-Notice. If the Company elects
to purchase any or all of such Company Option Shares, it shall pay the
purchase price for such Company Option Shares in cash in immediately
available funds.
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for 60 days after the expiration of the
90-day period during which the Company may give the
Counter-Notice, sell, pursuant to the terms of the Offer, any
or all of such Company Option Shares not purchased or agreed
to be purchased by the Company or its assignee; PROVIDED,
HOWEVER, that the Transferor shall not sell such Company
Option Shares to the Offeror if the Offeror is a competitor of
the Company and the Company gives a written notice to the
Transferor, within 90 days of its receipt of the Option
Notice, stating that the Transferor shall not sell such
Company Option Shares to such Offeror; and PROVIDED, FURTHER,
that prior to the sale of such Company Option Shares to the
Offeror, the Offeror shall execute an agreement with the
Company pursuant to which the Offeror agrees to be subject to
the restrictions set forth in Sections 16, 17, 8 and 20
hereof. If any or all of such Company Option Shares are not
sold pursuant to an Offer within the time permitted above, the
unsold Company Option Shares shall remain subject to the terms
of this Section 16 and any future proposed transfer must again
comply with the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the
Company through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination or
exchange of shares, or the like, the restrictions contained in
this Section 16 shall apply with equal force to additional
and/or substitute securities, if any, received by the Employee
in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refuses to deliver on a timely
basis duly endorsed certificates representing Company Option
Shares to be sold to the Company or its assignee pursuant to
this Section 16, the Company shall have the right to deposit
the purchase price for such Company Option Shares in a special
account with any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the
Transferor, whereupon such Company Option Shares shall be
deemed to have been purchased by the Company. All such moneys
shall be held by the bank or trust company for the benefit of
the Transferor. All moneys deposited with the bank or trust
company remaining unclaimed for two years after the date of
deposit shall be repaid by the bank or trust company to the
Company on demand, and the Transferor shall thereafter look
only to the Company for payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL.
The first refusal rights of the Company set forth in this
Section 16 shall remain in effect until such time, if ever, as
an underwritten public offering is made of shares of the
Company's Common Stock pursuant to a registration statement
filed under the Securities Act of 1933 or a successor statute,
at which time this Section 16 and the right of first refusal
set forth herein will automatically expire.
(f) FAIR MARKET VALUE.
Page 5 of 8
<PAGE>
For purposes of this Agreement, the Fair Market Value of an
Option Share shall be determined in good faith by the Board of
Directors of the Company after taking into account all
relevant factors including, without limitation, the absence of
an active trading market for the shares of Common Stock, the
restrictions on transfer of Option Shares set forth herein and
the valuation attached to other recent issuances of securities
by the Company. The determination by the Board of Directors of
Fair Market Value shall be conclusive and binding.
17. LOCK-UP AGREEMENT.
The Employee agrees that in connection with an underwritten public
offering of Common Stock, upon the request of the Company or the
managing or lead underwriter for such public offering, this option and
the Option Shares may not be sold, offered for sale or otherwise
disposed of without the prior written consent of the Company or such
underwriter, as the case may be, for at least 180 days after the
effectiveness of the registration statement filed in connection with
such offering, or such longer period of time as the Board of Directors
may determine if all of the Company's directors and officers agree to
be similarly bound. The lock-up agreement established pursuant to this
Section 17 shall have perpetual duration.
18. PROVISION OF DOCUMENTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of a copy
of this Agreement and a copy of the Plan.
19. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall be deemed
given when sent by certified or registered mail, postage
prepaid, return receipt requested, to the address set forth
below. The addresses for such notices may be changed from
time to time by written notice given in the manner provided
for herein.
(b) ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the entire agreement between the
parties relative to the subject matter hereof, and supersedes
all proposals, written or oral, and all other communications
between the parties relating to the subject matter of this
Agreement. This Agreement may be modified, amended or
rescinded only by a written agreement executed by both
parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any
provision of this Agreement shall in no way affect the
validity, legality or enforceability of any other provision.
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and
assigns, subject to the limitations set forth in Sections 9,
16, 17, and 20 hereof.
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to the principles of the conflicts of
laws thereof.
Page 6 of 8
<PAGE>
(f) LEGENDS.
The Company may place a legend or legends on any stock
certificate delivered to the holder of Option Shares
reflecting the restrictions on transfer provided in this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
BREAKAWAY SOLUTIONS, INC.
50 ROWES WHARF
BOSTON, MA 02110
/s/ Dev Ittchycheria
- -----------------------------------
Employee Signature
Dev Ittchycheria
- -----------------------------------
Print Name of Employee By:
Name:
Title:
- -----------------------------------
Street Address
- -----------------------------------
City State Zip Code
<PAGE>
NOTICE OF GRANT OF STOCK OPTIONS AND OPTION AGREEMENT
Name: Dev Ittycheria
Number of shares for which this 317,258 shares of Common Stock
option is exercisable:
Exercise Price: $1.5675 per share
Vesting Schedule: One-fourth (1/4) of the shares underlying
this option shall vest and become
exercisable on December 17, 1999, with
the remainder to vest at the rate of
one-forty eighth (1/48) per month
thereafter.
<PAGE>
EXHIBIT 10.33
BREAKAWAY SOLUTIONS INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's
1998 Stock Plan (the "Plan") and, unless the context otherwise
requires, terms used herein shall have the same meaning as in the Plan.
Determinations made in connection with this option pursuant to the Plan
shall be governed by the Plan as it exists on this date.
2. GRANT AS NON-QUALIFIED OPTION; OTHER OPTIONS.
This option shall be treated for federal income tax purposes as a
Non-Qualified Option (rather than an incentive stock option). This
option is in addition to any other options heretofore or hereafter
granted to the Employee by the Company or any Related Corporation (as
defined in the Plan), but a duplicate original of this instrument shall
not effect the grant of another option.
3. VESTING OF OPTION IF EMPLOYMENT CONTINUES.
If the Employee has continued to be employed by the Company or any
Related Corporation on the following dates, the Employee may exercise
this option for the number of shares of Common Stock set opposite the
applicable date: (attached as NOTICE OF GRANT OF STOCK OPTIONS AND
OPTION AGREEMENT). Notwithstanding the foregoing, in accordance with
and subject to the provisions of the Plan, the Committee may, in its
discretion, accelerate the date that any installment of this Option
becomes exercisable. The foregoing rights are cumulative and, while the
Employee continues to be employed by the Company or any Related
Corporation, may be exercised on or before the date which is ten (10)
years from the date this option is granted. All of the foregoing rights
are subject to Sections 4 and 5, as appropriate, if the Employee ceases
to be employed by the Company and all Related Corporations.
OPTION ACCELERATION UPON A CHANGE OF CONTROL
If, within twelve (12) months after a Change of Control, the Company
terminates Employee's employment other than for Cause (as defined in
Section 4 below) or materially reduces the Employee's duties or
responsibilities, then the vesting and excercisability of this option
shall automatically accelerate in full. For purposes of this section 3,
"Change of Control" shall mean the occurrence of any of the following
events:
(i) the approval by shareholders of the Company of a
merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent
(50%) of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation;
(ii) any approval by the shareholders of the Company
of a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company; or
Page of 9
<PAGE>
(iii) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as
amended) becoming the "beneficial owner" (as defined in Rule
13d-3 under said Act), directly or indirectly, or securities
of the Company representing 50% or more of the total voting
power represented by the Company's then outstanding voting
securities; PROVIDED HOWEVER that this section shall not apply
to any person or persons who, either individually or jointly,
on the date of this Agreement beneficially owned securities of
the Company representing 50% or more of the total voting power
represented by the Company's then outstanding voting
securities.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company and all
Related Corporations other than by reason of death or
disability as defined in Section 5 or termination for Cause as
defined in Section 4(c), no further installments of this
option shall become exercisable, and this option shall
terminate on the earlier of (i) ninety (90) days after the
date of termination of the Employee's employment, or (ii) the
scheduled expiration date of this option. In such a case, the
Employee's only rights hereunder shall be those which are
properly exercised before the termination of this option.
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as
defined in Section 4(c)), this option shall terminate upon the
Employee's receipt of written notice of such termination and
shall thereafter not be exercisable to any extent whatsoever.
DEFINITION OF CAUSE.
For the purpose of this Agreement, "Cause" means: (1)
Optionee's substantial and continuing failure to perform
Optionee's duties and responsibilities as an employee of the
company other than due to death or disability; (2) Optionee's
disloyalty, gross negligence, willful misconduct, dishonesty
or breach of fiduciary duty to the Company; (3) Optionee's
deliberate disregard of material rules, regulations,
instructions, personnel practices and policies of the Company
(as amended from time to time in the Company's sole
discretion) which results in direct or indirect loss, damage
or injury to the Company; (4) Optionee's material breach of
any agreement not to compete with the Company or solicit its
customers, employees or contractors; or (5) Optionee's
conviction of any crime which constitutes a felony in the
jurisdiction involved.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all
Related Corporations by reason of his or her death, this
option may be exercised, to the extent otherwise exercisable
on the date of death, by the estate, personal representative
or beneficiary who has acquired this option by will or by the
laws of descent and distribution, until the earlier of (i) the
specified expiration date of this option or (ii) \one hundred
eighty (180) days from the date of the Employee's death.
(b) DISABILITY.
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If the Employee ceases to be employed by the Company and all
Related Corporations by reason of his or her disability (as
defined in Paragraph 10(B) of the Plan), the Employee shall
have the right to exercise this option on the date of
termination of employment, for the number of shares for which
he or she could have exercised it on that date, until the
earlier of (i) the specified expiration date of this option or
(ii) one hundred eighty (180) days from the date of the
termination of the Employee's employment.
(c) EFFECT OF TERMINATION.
At the expiration of the one hundred eighty (180) day period
provided in paragraph (a) or (b) of this Section 5 or the
scheduled expiration date, whichever is the earlier, this
option shall terminate and the only rights hereunder shall be
those as to which the option was properly exercised before
such termination.
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and
from time to time within the above limits, except that the
Optionee may not exercise this option for a fraction of a
share unless such exercise is with respect to the final
installment of stock subject to this option and cash in lieu
of a fractional share must be paid, in accordance with
Paragraph 13(G) of the Plan, to permit the Employee to
exercise completely such final installment. Any fractional
share with respect to which an installment of this option
cannot be exercised because of the limitation contained in the
preceding sentence shall remain subject to this option and
shall be available for later purchase by the Employee in
accordance with the terms hereof.
7. PAYMENT OF PRICE.
The option price shall be paid in United States dollars in
cash or by check.
8. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, this
option may be exercised by written notice to the Company at
its principal executive office, or to such transfer agent as
the Company shall designate. Such notice shall state the
election to exercise this option and the number of Option
Shares for which it is being exercised and shall be signed by
the person or persons exercising this option. Such notice
shall be accompanied by payment of the full purchase price of
such shares, and the Company shall deliver a certificate or
certificates representing such shares as soon as practicable
after the notice shall be received. Such certificate or
certificates shall be registered in the name of the person or
persons so exercising this option (or, if this option is
exercised by the Employee and if the Employee requests in the
notice exercising this option, shall be registered in the name
of the Employee and another person jointly, with right of
survivorship). In the event this option is exercised, pursuant
to Section 5 hereof, by any person or persons other than the
Employee, such notice shall be accompanied by appropriate
proof of the right of such person or persons to exercise this
option.
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will
or by the laws of descent and distribution. During the
Employee's lifetime only the Employee can exercise this
option.
10. NO OBLIGATION TO EXERCISE OPTION.
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The grant and acceptance of this option imposes no obligation
on the Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option
imposes any obligation on the Company or any Related
Corporation to continue the Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
The Employee shall have no rights as a stockholder with
respect to the Option Shares until the date of issuance of a
stock certificate to the Employee. Except as is expressly
provided in the Plan with respect to certain changes in the
capitalization and stock dividends of the Company, no
adjustment shall be made for dividends or similar rights for
which the record date is before the date such stock
certificate is issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options
in a number of contingencies such as stock splits and mergers.
Provisions in the Plan for adjustment with respect to stock
subject to options and the related provisions with respect to
successors to the business of the Company are hereby made
applicable hereunder and are incorporated herein by reference.
14. EARLY DISPOSITION.
The Employee agrees to notify the Company in writing
immediately after the Employee transfers any Option Shares, if
such transfer occurs on or before the later of (a) the date
two years after the Grant Date or (b) the date one year after
the date the Employee acquired such Option Shares. The
Employee also agrees to provide the Company with any
information concerning any such transfer required by the
Company for tax purposes.
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion
determines that it is obligated to withhold any tax in
connection with the exercise of this option, the vesting or
transfer of Option Shares acquired on the exercise of this
option, or the making of a distribution or other payment with
respect to the Option Shares, the Employee hereby agrees that
the Company or any Related Corporation may withhold from the
Employee's wages or other remuneration the appropriate amount
of tax. At the discretion of the Company or Related
Corporation, the amount required to be withheld may be
withheld in cash from such wages or other remuneration or in
kind from the Common Stock or other property otherwise
deliverable to the Employee on exercise of this option. The
Employee further agrees that, if the Company or any Related
Corporation does not withhold an amount from the Employee's
wages or other remuneration sufficient to satisfy the
withholding obligation of the Company or Related Corporation,
the Employee will make reimbursement on demand, in cash, for
the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or
her legal representative (the "Transferor") desires
to transfer all or any part of the Option Shares to
any person other than the Company (an "Offeror"), the
Transferor shall: (i) obtain in
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writing an irrevocable and unconditional bona fide
offer (the "Offer") for the purchase thereof from the
Offeror; and (ii) give written notice (the "Option
Notice") to the Company setting forth the
Transferor's desire to transfer such shares, which
Option Notice shall be accompanied by a photocopy of
the Offer and shall set forth at least the name and
address of the Offeror and the price and terms of the
bona fide offer. Upon receipt of the Option Notice,
the Company shall have an assignable option to
purchase any or all of such shares (the "Company
Option Shares") specified in the Option Notice, such
option to be exercisable by giving, within 90 days
after receipt of the Option Notice, a written
counter-notice to the Transferor (the
"Counter-Notice"). If the Company elects to purchase
any or all of such Company Option Shares, it shall be
obligated to purchase, and the Transferor shall be
obligated to sell to the Company, such Company Option
Shares that the Company elects to purchase as set
forth in the Counter-Notice at a per share price
equal to the lesser of (i) the per share price (and
on the same terms) indicated in the Offer; or (ii)
the Fair Market value (as defined in Section 17(b)
and using the date of the Option Notice as the date
of determination of Fair Market Value) of such shares
as determined under Section 17(b), in any case within
30 days of the date of delivery by the Company of the
Counter-Notice. If the Company elects to purchase any
or all of such Company Option Shares, it may, in its
sole discretion, pay the purchase price for such
Company option shares in accordance with the terms of
a promissory note, such terms to be determined solely
by the Company; provided, however, that the payment
term of such promissory note shall not exceed ten
(10) years.
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for 60 days after the expiration
of the 90-day period during which the Company may
give the Counter-Notice, sell, pursuant to the terms
of the Offer, any or all of such Company Option
Shares not purchased or agreed to be purchased by the
Company or its assignee; PROVIDED, HOWEVER, that the
Transferor shall not sell such Company Option Shares
to the Offeror if the Offeror is a competitor of the
Company and the Company gives a written notice to the
Transferor, within 90 days of its receipt of the
Option Notice, stating that the Transferor shall not
sell such Company Option Shares to such Offeror; and
PROVIDED, FURTHER, that prior to the sale of such
Company Option Shares to the Offeror, the Offeror
shall execute an agreement with the Company pursuant
to which the Offeror agrees to be subject to the
restrictions set forth in Sections 16, 17 and 18
hereof. If any or all of such Company Option Shares
are not sold pursuant to an Offer within the time
permitted above, the unsold Company Option Shares
shall remain subject to the terms of this Section 16
and any future proposed transfer must again comply
with the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of
the Company through merger, consolidation,
reorganization, recapitalization, stock dividend,
stock split, combination or exchange of shares, or
the like, the restrictions contained in this Section
16 shall apply with equal force to additional and/or
substitute securities, if any, received by the
Employee in exchange for, or by virtue of his or her
ownership of, Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refuses to deliver on a
timely basis duly endorsed certificates representing
Company Option Shares to be sold to the Company or
its assignee pursuant to this Section 16, the Company
shall have the right to
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deposit the purchase price for such Company Option
Shares in a special account with any bank or trust
company in the Commonwealth of Massachusetts, giving
notice of such deposit to the Transferor, whereupon
such Company Option Shares shall be deemed to have
been purchased by the Company. All such moneys shall
be held by the bank or trust company for the benefit
of the Transferor. All moneys deposited with the bank
or trust company remaining unclaimed for two years
after the date of deposit shall be repaid by the bank
or trust company to the Company on demand, and the
Transferor shall thereafter look only to the Company
for payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL.
The first refusal rights of the Company set forth in
this Section 16 shall remain in effect until such
time, if ever, as an underwritten public offering is
made of shares of the Company's Common Stock pursuant
to a registration statement filed under the
Securities Act of 1933 or a successor statute, at
which time this Section 16 and the right of first
refusal set forth herein will automatically expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE.
The Company shall have the right (the "Repurchase
Right") to repurchase from the holder of any Option
Shares (each a "Holder") any or all of the Option
Shares then owned by such Holder at any time by
giving such Holder a written notice (the "Repurchase
Notice") at least 30 days prior to the date of
repurchase. The Repurchase Notice shall set forth the
number of Option Shares to be repurchased (the
"Repurchase Shares"), the Fair Market Value per share
(determined in accordance with Section 17(b) below as
of the date of the Repurchase Notice) of the
Repurchase Shares and the date (the "Repurchase
Date") on which such Repurchase Shares are to be
repurchased by the Company (such date not to be more
than 120 nor less than 30 days after the date of the
Repurchase Notice). On the Repurchase Date, the
Company shall tender to the Holder an amount equal to
the number of Repurchase Shares multiplied by the
Fair Market Value per share; provided, however, that
the Company may pay the repurchase amount, in its
sole discretion, in accordance with the terms of a
promissory note, such terms to be determined solely
by the Company (provided further that the payment
term of such promissory note shall not exceed ten
(10) years). The Company may assign the Repurchase
Right to one or more persons and may utilize a
promissory note to effect its Repurchase right. Upon
timely exercise of the Repurchase Right in the manner
provided in this Section 17(a), the Holder shall
deliver to the Company the stock certificate or
certificates representing the Repurchase Shares, duly
endorsed and free and clear of any and all liens,
charges and encumbrances.
(b) FAIR MARKET VALUE.
For purposes of this Agreement, the Fair Market Value
of an Option Share shall be determined in good faith
by the Board of Directors of the Company after taking
into account all relevant factors including, without
limitation, the absence of an active trading market
for the shares of Common Stock, the restrictions on
transfer of Option Shares set forth herein and the
valuation attached to other recent issuances of
securities by the Company. The determination by the
Board of Directors of Fair Market value shall be
conclusive and binding.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of
the Company through
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<PAGE>
merger, consolidation, reorganization,
recapitalization, stock dividend, stock split,
combination or exchange of shares, or the like, the
restrictions contained in this Section 17 shall apply
with equal force to additional and/or substitute
securities, if any, received by the Employee in
exchange for, or by virtue of his or her ownership
of, Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES.
If the Holder fails or refuses to deliver on a timely
basis duly endorsed certificates representing the
Repurchase Shares to be repurchased by the Company or
its assignee pursuant to this Section 17, the Company
shall have the right to deposit the repurchase price
for such Repurchase Shares in a special account with
any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the
Holder, whereupon such Repurchase Shares shall be
deemed to have been purchased by the Company. All
such moneys shall be held by the bank or trust
company for the benefit of the Holder. All moneys
deposited with the bank or trust company remaining
unclaimed for two years after the date of deposit
shall be repaid by the bank or trust company to the
Company on demand, and the Holder shall thereafter
look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT.
The Repurchase Right of the Company set forth in this
Section 17 shall remain in effect until such time, if
ever, as an underwritten public offering is made of
shares of the Company's Common Stock pursuant to a
registration statement filed under the Securities Act
or any successor statute, at which time this Section
17 and the Repurchase Right set forth herein will
automatically terminate.
18. LOCK-UP AGREEMENT.
The Employee agrees that in connection with an underwritten
public offering of Common Stock, upon the request of the
Company or the managing or lead underwriter for such public
offering, this option and the Option Shares may not be sold,
offered for sale or otherwise disposed of without the prior
written consent of the Company or such underwriter, as the
case may be, for at least 180 days after the effectiveness of
the registration statement filed in connection with such
offering, or such longer period of time as the Board of
Directors may determine if all of the Company's directors and
officers agree to be similarly bound. The lock-up agreement
established pursuant to this Section 18 shall have perpetual
duration.
19. PROVISION OF DOCUMENTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of
a copy of this Agreement and a copy of the Plan.
20. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall
be deemed given when sent by certified or registered
mail, postage prepaid, return receipt requested, to
the address set forth below. The addresses for such
notices may be changed from time to time by written
notice given in the manner provided for herein.
(b) ENTIRE AGREEMENT; MODIFICATION.
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<PAGE>
This Agreement constitutes the entire agreement
between the parties relative to the subject matter
hereof, and supersedes all proposals, written or
oral, and all other communications between the
parties relating to the subject matter of this
Agreement. This Agreement may be modified, amended or
rescinded only by a written agreement executed by
both parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any
provision of this Agreement shall in no way affect
the validity, legality or enforceability of any other
provision.
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective
successors and assigns, subject to the limitations
set forth in Sections 9, 16 and 17 hereof.
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted
in accordance with the laws of the Commonwealth of
Massachusetts, without giving effect to the
principles of the conflicts of laws thereof.
(f) LEGENDS.
The Company may place a legend or legends on any
stock certificate delivered to the any holder of
Option Shares reflecting the restrictions on transfer
provided in this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
Breakaway Solutions Inc.
50 Rowes Wharf
Boston, MA 02110
/s/ Wayne Saunders
Employee Signature
By: /s/ Sam Spector
Print Name of Employee Name:
Title:
Street Address
City State Zip Code
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<PAGE>
- -------------------------------------------------------------------------------
BREAKAWAY SOLUTIONS, INC.
NOTICE OF GRANT OF STOCK OPTIONS ID: 04-3285165
AND OPTION AGREEMENT 50 Rowes Wharf
6th Floor
Boston, MA 02110
- -------------------------------------------------------------------------------
WAYNE B. SAUNDERS OPTION NUMBER: 00000252
40 BIRCHMONT STREET PLAN: 98
TYNGSBORO, MA 01879 ID: 9996
- -------------------------------------------------------------------------------
Effective 3/19/99 (the "Grant Date"), you (the "Employee") have been granted
a(n) Non-Qualified Stock Option 32,455 shares (the "Option Shares") of common
stock, par value $.0001 per share, of Breakaway Solutions (the "Company"), at
$1.5675 per share.
The total option price of the shares granted is $50,873.21.
Shares in each period will become fully vested on the date shown.
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
- ------------- -------------- ------------- -------------
<S> <C> <C> <C>
18,546 On Vest Date 3/19/00 3/19/09
13,909 Monthly 12/19/00 3/19/09
</TABLE>
- -------------------------------------------------------------------------------
By your signature and the Company's signature below, you and the Company
agree that these options are granted under the governed by the terms and
conditions of the Company's Stock Option Plan as amended and the Option
Agreement, all of which are attached and made a part of this document.
- -------------------------------------------------------------------------------
/s/ Sam Spector 4/1/99
- --------------------------------------- -------------------------------------
Breakaway Solutions, Inc. Date
/s/ Wayne B. Saunders 4/1/99
- --------------------------------------- -------------------------------------
Wayne B. Saunders Date
Date: 4/1/99
Time: 12:04:21 PM
<PAGE>
EXHIBIT 10.34
BREAKAWAY SOLUTIONS, INC.
INCENTIVE STOCK OPTION AGREEMENT
1. GRANT UNDER 1998 STOCK PLAN.
This option is granted pursuant to and is governed by the Company's 1998
Stock Plan (the "Plan") and, unless the context otherwise requires, terms
used herein shall have the same meaning as in the Plan. Determinations made
in connection with this option pursuant to the Plan shall be governed by
the Plan as it exists on this date.
2. GRANT AS INCENTIVE STOCK OPTION; OTHER OPTIONS.
This option is intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
This option is in addition to any other options heretofore or hereafter
granted to the Employee by the Company or any Related Corporation (as
defined in the Plan), but a duplicate original of this instrument shall not
effect the grant of another option.
3. VESTING OF OPTION IF EMPLOYMENT CONTINUES.
If the Employee has continued to be employed by the Company or any Related
Corporation on the following dates, the Employee may exercise this option
for the number of shares of Common Stock set opposite the applicable date:
(attached as NOTICE OF GRANT OF STOCK OPTIONS AND OPTION AGREEMENT).
Notwithstanding the foregoing, in accordance with and subject to the
provisions of the Plan, the Committee may, in its discretion, accelerate
the date that any installment of this Option becomes exercisable. The
foregoing rights are cumulative and, while the Employee continues to be
employed by the Company or any Related Corporation, may be exercised on or
before the date which is ten (10) years from the date this option is
granted. All of the foregoing rights are subject to Sections 4 and 5, as
appropriate, if the Employee ceases to be employed by the Company and all
Related Corporations.
OPTION ACCELERATION UPON A CHANGE OF CONTROL
If, within twelve (12) months after a Change of Control, the Company
terminates Employee's employment other than for Cause (as defined in
Section 4 below) or materially reduces the Employee's duties or
responsibilities, then the vesting and excercisability of this option shall
automatically accelerate in full. For purposes of this section 3, "Change
of Control" shall mean the occurrence of any of the following events:
(i) the approval by shareholders of the Company of a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation;
(ii) any approval by the shareholders of the Company of a plan of
complete liquidation of the Company or an agreement for the sale
or disposition by the Company of all or substantially all of the
Company; or
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(iii) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) becoming the
"beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, or securities of the Company representing
50% or more of the total voting power represented by the
Company's then outstanding voting securities; PROVIDED HOWEVER
that this section shall not apply to any person or persons who,
either individually or jointly, on the date of this Agreement
beneficially owned securities of the Company representing 50% or
more of the total voting power represented by the Company's then
outstanding voting securities.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OTHER THAN FOR CAUSE.
If the Employee ceases to be employed by the Company and all
Related Corporations, other than by reason of death or disability
as defined in Section 5 or termination for Cause as defined in
Section 4(c), no further installments of this option shall become
exercisable, and this option shall terminate on the earlier of (i)
ninety (90) days after the date of termination of the Employee's
employment, or (ii) the scheduled expiration date of this option.
In such a case, the Employee's only rights hereunder shall be
those which are properly exercised before the termination of this
option.
(b) TERMINATION FOR CAUSE.
If the employment of the Employee is terminated for Cause (as
defined in Section 4(c)), this option shall terminate upon the
Employee's receipt of written notice of such termination and shall
thereafter not be exercisable to any extent whatsoever.
(c) DEFINITION OF CAUSE.
For the purpose of this Agreement, "Cause" means: (1) Optionee's
substantial and continuing failure to perform Optionee's duties and
responsibilities as an employee of the company other than due to death
or disability; (2) Optionee's disloyalty, gross negligence, willful
misconduct, dishonesty or breach of fiduciary duty to the Company; (3)
Optionee's deliberate disregard of material rules, regulations,
instructions, personnel practices and policies of the Company (as
amended from time to time in the Company's sole discretion) which
results in direct or indirect loss, damage or injury to the Company;
(4) Optionee's material breach of any agreement not to compete with the
Company or solicit its customers, employees or contractors; or (5)
Optionee's conviction of any crime which constitutes a felony in the
jurisdiction involved.
5. DEATH; DISABILITY.
(a) DEATH.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his or her death, this option may be
exercised, to the extent otherwise exercisable on the date of death, by
the estate, personal representative or beneficiary who has acquired
this option by will or by the laws of descent and distribution, until
the earlier of (i) the specified expiration date of this option or (ii)
\one hundred eighty (180) days from the date of the Employee's death.
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<PAGE>
(b) DISABILITY.
If the Employee ceases to be employed by the Company and all Related
Corporations by reason of his or her disability (as defined in
Paragraph 10(B) of the Plan), the Employee shall have the right to
exercise this option on the date of termination of employment, for the
number of shares for which he or she could have exercised it on that
date, until the earlier of (i) the specified expiration date of this
option or (ii) one hundred eighty (180) days from the date of the
termination of the Employee's employment.
(c) EFFECT OF TERMINATION.
At the expiration of the one hundred eighty (180) day period provided
in paragraph (a) or (b) of this Section 5 or the scheduled expiration
date, whichever is the earlier, this option shall terminate and the
only rights hereunder shall be those as to which the option was
properly exercised before such termination.
6. PARTIAL EXERCISE.
The Employee may exercise this option in part at any time and from time to
time within the above limits, except that the Employee may not exercise
this option for a fraction of a share unless such exercise is with respect
to the final installment of stock subject to this option and cash in lieu
of a fractional share must be paid, in accordance with Paragraph 13(G) of
the Plan, to permit the Employee to exercise completely such final
installment. Any fractional share with respect to which an installment of
this option cannot be exercised because of the limitation contained in the
preceding sentence shall remain subject to this option and shall be
available for later purchase by the Employee in accordance with the terms
hereof.
7. PAYMENT OF PRICE.
The option price shall be paid in United States dollars in cash or by
check.
8. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, this option may be
exercised by written notice to the Company at its principal executive
office, or to such transfer agent as the Company shall designate. Such
notice shall state the election to exercise this option and the number of
Option Shares for which it is being exercised and shall be signed by the
person or persons exercising this option. Such notice shall be accompanied
by payment of the full purchase price of such shares, and the Company shall
deliver a certificate or certificates representing such shares as soon as
practicable after the notice shall be received. Such certificate or
certificates shall be registered in the name of the person or persons so
exercising this option (or, if this option is exercised by the Employee and
if the Employee requests in the notice exercising this option, shall be
registered in the name of the Employee and another person jointly, with
right of survivorship). In the event this option is exercised, pursuant to
Section 5 hereof, by any person or persons other than the Employee, such
notice shall be accompanied by appropriate proof of the right of such
person or persons to exercise this option.
9. OPTION NOT TRANSFERABLE.
This option is not transferable or assignable except by will or by the laws
of descent and distribution. During the Employee's lifetime only the
Employee can exercise this option.
10. NO OBLIGATION TO EXERCISE OPTION.
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The grant and acceptance of this option imposes no obligation on the
Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT.
Neither the Plan, this Agreement, nor the grant of this option imposes any
obligation on the Company or any Related Corporation to continue the
Employee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
The Employee shall have no rights as a stockholder with respect to the
Option Shares until the date of issuance of a stock certificate to the
Employee. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization and stock dividends of the Company,
no adjustment shall be made for dividends or similar rights for which the
record date is before the date such stock certificate is issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of options in a number
of contingencies such as stock splits and mergers. Provisions in the Plan
for adjustment with respect to stock subject to options and the related
provisions with respect to successors to the business of the Company are
hereby made applicable hereunder and are incorporated herein by reference.
14. EARLY DISPOSITION.
The Employee agrees to notify the Company in writing immediately after the
Employee transfers any Option Shares, if such transfer occurs on or before
the later of (a) the date two years after the Grant Date or (b) the date
one year after the date the Employee acquired such Option Shares. The
Employee also agrees to provide the Company with any information concerning
any such transfer required by the Company for tax purposes.
15. WITHHOLDING TAXES.
If the Company or any Related Corporation in its discretion determines that
it is obligated to withhold any tax in connection with the exercise of this
option, the making of a Disqualifying Disposition (as defined in Paragraph
18 of the Plan), the vesting or transfer of Option Shares acquired on the
exercise of this option, or the making of a distribution or other payment
with respect to the Option Shares, the Employee hereby agrees that the
Company or any Related Corporation may withhold from the Employee's wages
or other remuneration the appropriate amount of tax. At the discretion of
the Company or Related Corporation, the amount required to be withheld may
be withheld in cash from such wages or other remuneration or in kind from
the Common Stock or other property otherwise deliverable to the Employee on
exercise of this option. The Employee further agrees that, if the Company
or any Related Corporation does not withhold an amount from the Employee's
wages or other remuneration sufficient to satisfy the withholding
obligation of the Company or Related Corporation, the Employee will make
reimbursement on demand, in cash, for the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT.
If the Employee (or successor and assigns) or his or her legal
representative (the "Transferor") desires to transfer all or any part
of the Option Shares to any person other than the Company (an
"Offeror"), the Transferor shall: (i) obtain in writing an irrevocable
and unconditional bona fide offer (the "Offer") for the purchase
thereof from the Offeror; and (ii) give written notice (the "Option
Page of 8
<PAGE>
Notice") to the Company setting forth the Transferor's desire to
transfer such shares, which Option Notice shall be accompanied by a
photocopy of the Offer and shall set forth at least the name and
address of the Offeror and the price and terms of the bona fide offer.
Upon receipt of the Option Notice, the Company shall have an assignable
option to purchase any or all of such shares (the "Company Option
Shares") specified in the Option Notice, such option to be exercisable
by giving, within 90 days after receipt of the Option Notice, a written
counter-notice to the Transferor (the "Counter-Notice"). If the Company
elects to purchase any or all of such Company Option Shares, it shall
be obligated to purchase, and the Transferor shall be obligated to sell
to the Company, such Company Option Shares that the Company elects to
purchase as set forth in the Counter-Notice at a per share price equal
to the lesser of (i) the per share price (and on the same terms)
indicated in the Offer; or (ii) the Fair Market value (as defined in
Section 17(b) and using the date of the Option Notice as the date of
determination of Fair Market Value) of such shares as determined under
Section 17(b), in any case within 30 days of the date of delivery by
the Company of the Counter-Notice. If the Company elects to purchase
any or all of such Company Option Shares, it may, in its sole
discretion, pay the purchase price for such Company option shares in
accordance with the terms of a promissory note, such terms to be
determined solely by the Company; provided, however, that the payment
term of such promissory note shall not exceed ten (10) years.
(b) SALE OF OPTION SHARES TO OFFEROR.
The Transferor may, for 60 days after the expiration of the 90-day
period during which the Company may give the Counter-Notice, sell,
pursuant to the terms of the Offer, any or all of such Company Option
Shares not purchased or agreed to be purchased by the Company or its
assignee; PROVIDED, HOWEVER, that the Transferor shall not sell such
Company Option Shares to the Offeror if the Offeror is a competitor of
the Company and the Company gives a written notice to the Transferor,
within 90 days of its receipt of the Option Notice, stating that the
Transferor shall not sell such Company Option Shares to such Offeror;
and PROVIDED, FURTHER, that prior to the sale of such Company Option
Shares to the Offeror, the Offeror shall execute an agreement with the
Company pursuant to which the Offeror agrees to be subject to the
restrictions set forth in Sections 16, 17, 18 and 20 hereof. If any or
all of such Company Option Shares are not sold pursuant to an Offer
within the time permitted above, the unsold Company Option Shares shall
remain subject to the terms of this Section 16 and any future proposed
transfer must again comply with the provisions set forth herein.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination or exchange of shares, or the like,
the restrictions contained in this Section 16 shall apply with equal
force to additional and/or substitute securities, if any, received by
the Employee in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER COMPANY OPTION SHARES.
If the Transferor fails or refuses to deliver on a timely basis duly
endorsed certificates representing Company Option Shares to be sold to
the Company or its assignee pursuant to this
Section 16, the Company shall have the right to deposit the purchase
price for such Company Option Shares in a special account with any bank
or trust company in the Commonwealth of Massachusetts, giving notice of
such deposit to the Transferor, whereupon such Company Option Shares
shall be deemed to have been purchased by the Company. All such moneys
shall be held by the bank or trust company for the benefit of the
Transferor. All moneys deposited with the bank or trust company
remaining unclaimed for two years after the date of deposit shall be
repaid
Page of 8
<PAGE>
by the bank or trust company to the Company on demand, and the
Transferor shall thereafter look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first refusal
rights of the Company set forth in this Section 16 shall remain in
effect until such time, if ever, as an underwritten public offering is
made of shares of the Company's Common Stock pursuant to a registration
statement filed under the Securities Act of 1933 or a successor
statute, at which time this Section 16 and the right of first refusal
set forth herein will automatically expire.
17. COMPANY'S RIGHT OF REPURCHASE.
(a) RIGHT OF REPURCHASE.
The Company shall have the right (the "Repurchase Right") to repurchase
from the holder of any Option Shares (each a "Holder") any or all of
the Option Shares then owned by such Holder at any time by giving such
Holder a written notice (the "Repurchase Notice") at least 30 days
prior to the date of repurchase. The Repurchase Notice shall set forth
the number of Option Shares to be repurchased (the "Repurchase
Shares"), the Fair Market Value per share (determined in accordance
with Section 17(b) below as of the date of the Repurchase Notice) of
the Repurchase Shares and the date (the "Repurchase Date") on which
such Repurchase Shares are to be repurchased by the Company (such date
not to be more than 120 nor less than 30 days after the date of the
Repurchase Notice). On the Repurchase Date, the Company shall tender to
the Holder an amount equal to the number of Repurchase Shares
multiplied by the Fair Market Value per share; provided, however, that
the Company may pay the repurchase amount, in its sole discretion, in
accordance with the terms of a promissory note, such terms to be
determined solely by the Company (provided further that the payment
term of such promissory note shall not exceed ten (10) years). The
Company may assign the Repurchase Right to one or more persons and may
utilize a promissory note to effect its Repurchase right. Upon timely
exercise of the Repurchase Right in the manner provided in this Section
17(a), the Holder shall deliver to the Company the stock certificate or
certificates representing the Repurchase Shares, duly endorsed and free
and clear of any and all liens, charges and encumbrances.
(b) FAIR MARKET VALUE.
For purposes of this Agreement, the Fair Market Value of an Option
Share shall be determined in good faith by the Board of Directors of
the Company after taking into account all relevant factors including,
without limitation, the absence of an active trading market for the
shares of Common Stock, the restrictions on transfer of Option Shares
set forth herein and the valuation attached to other recent issuances
of securities by the Company. The determination by the Board of
Directors of Fair Market value shall be conclusive and binding.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
If there shall be any change in the Common Stock of the Company through
merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination or exchange of shares, or the like,
the restrictions contained in this Section 17 shall apply with equal
force to additional and/or substitute securities, if any, received by
the Employee in exchange for, or by virtue of his or her ownership of,
Option Shares.
(d) FAILURE TO DELIVER REPURCHASE SHARES.
If the Holder fails or refuses to deliver on a timely basis duly
endorsed certificates representing the Repurchase Shares to be
repurchased by the Company or its assignee pursuant to this
Page of 8
<PAGE>
Section 17, the Company shall have the right to deposit the repurchase
price for such Repurchase Shares in a special account with any bank or
trust company in the Commonwealth of Massachusetts, giving notice of
such deposit to the Holder, whereupon such Repurchase Shares shall be
deemed to have been purchased by the Company. All such moneys shall be
held by the bank or trust company for the benefit of the Holder. All
moneys deposited with the bank or trust company remaining unclaimed for
two years after the date of deposit shall be repaid by the bank or
trust company to the Company on demand, and the Holder shall thereafter
look only to the Company for payment.
(e) EXPIRATION OF COMPANY'S REPURCHASE RIGHT.
The Repurchase Right of the Company set forth in this Section 17 shall
remain in effect until such time, if ever, as an underwritten public
offering is made of shares of the Company's Common Stock pursuant to a
registration statement filed under the Securities Act or any successor
statute, at which time this Section 17 and the Repurchase Right set
forth herein will automatically terminate.
18. LOCK-UP AGREEMENT.
The Employee agrees that in connection with an underwritten public offering
of Common Stock, upon the request of the Company or the managing or lead
underwriter for such public offering, this option and the Option Shares may
not be sold, offered for sale or otherwise disposed of without the prior
written consent of the Company or such underwriter, as the case may be, for
at least 180 days after the effectiveness of the registration statement
filed in connection with such offering, or such longer period of time as
the Board of Directors may determine if all of the Company's directors and
officers agree to be similarly bound. The lock-up agreement established
pursuant to this Section 18 shall have perpetual duration.
19. PROVISION OF DOCUMENTATION TO EMPLOYEE.
By signing this Agreement the Employee acknowledges receipt of a copy of
this Agreement and a copy of the Plan.
20. MISCELLANEOUS.
(a) NOTICES.
All notices hereunder shall be in writing and shall be deemed given
when sent by certified or registered mail, postage prepaid, return
receipt requested, to the address set forth below. The addresses for
such notices may be changed from time to time by written notice given
in the manner provided for herein.
(b) ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the entire agreement between the parties
relative to the subject matter hereof, and supersedes all proposals,
written or oral, and all other communications between the parties
relating to the subject matter of this Agreement. This Agreement may be
modified, amended or rescinded only by a written agreement executed by
both parties.
(c) SEVERABILITY.
The invalidity, illegality or unenforceability of any provision of this
Agreement shall in no way affect the validity, legality or
enforceability of any other provision.
Page of 8
<PAGE>
(d) SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, subject to
the limitations set forth in Sections 9, 16, 17, and 20 hereof.
(e) GOVERNING LAW.
This Agreement shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to
the principles of the conflicts of laws thereof.
Page of 8
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
Breakaway Solutions, Inc.
50 Rowes Wharf
Boston, MA 02110
/s/ Wayne Saunders
Employee Signature
By: /s/ Sam Spector
Print Name of Employee Name:
Title:
Street Address
City State Zip Code
<PAGE>
- --------------------------------------------------------------------------------
BREAKAWAY SOLUTIONS, INC.
NOTICE OF GRANT OF STOCK OPTIONS ID: 04-3285165
AND OPTION AGREEMENT 50 Rowes Wharf
6th Floor
Boston, MA 02110
- --------------------------------------------------------------------------------
WAYNE B. SAUNDERS OPTION NUMBER: 00000251
40 BIRCHMONT STREET PLAN: 98
TYNGSBORO, MA 01879 ID: 9996
- --------------------------------------------------------------------------------
Effective 3/19/99 (the "Grant Date"), you (the "Employee") have been granted
a(n) Incentive Stock Option to 187,545 shares (the "Option Shares") of common
stock, par value $.0001 per share, of Breakaway Solution (the "Company"), at
$1.5675 per share.
The total option price of the shares granted is $293,976.79.
Shares in each period will become fully vested on the date shown.
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
------ --------- --------- ----------
<S> <C> <C> <C>
36,454 On Vest Date 3/19/00 3/19/09
27,341 Monthly 12/19/00 3/19/09
55,000 Monthly 12/19/01 3/19/09
55,000 Monthly 12/19/02 3/19/09
13,750 Monthly 3/19/03 3/19/09
</TABLE>
- --------------------------------------------------------------------------------
By your signature and the Company's signature below, you and the Company
agree that these options are granted under and governed by the terms and
conditions of the Company's Stock Option Plan as amended and the Option
Agreement, all of which are attached and made a part of this document.
- --------------------------------------------------------------------------------
/s/ Sam Spector April 1, 1999
- ------------------------- ---------------------
Breakaway Solutions, Inc. Date
/s/ Wayne B. Saunders April 1, 1999
- ------------------------- ---------------------
Wayne B. Saunders Date
<PAGE>
EXHIBIT 10.35
SUBLEASE AGREEMENT
------------------
THIS SUBLEASE AGREEMENT is entered into as of the 22nd day of July, 1998,
by and between EQUITY OFFICE PROPERTIES TRUST, a Maryland Real Estate
Investment Trust (hereinafter called the "Sublandlord") and THE COUNSELL
GROUP, a Delaware corporation, (hereinafter called the "Subtenant").
WITNESSETH:
-----------
WHEREAS, Sublandlord is presently the lessee (or tenant) of the premises
containing 27,484 square feet of Total Rentable Area on the sixth (6th) floor
of the building located at 50 Rowes Wharf (the "Building") and 281 square
feet of Net Rentable Area on lower level 4 of the building located at 30
Rowes Wharf pursuant to that certain lease dated October 1, 1995 entered into
by and between Rowes Wharf Associates, a Massachusetts general partnership
(hereinafter called "Overlandlord") and Beacon Properties Corporation (said
lease is hereinafter called the "Primary Lease"). Such Primary Lease
incorporates by reference that certain lease dated March 1, 1987 by and
between Overlandlord and TBC Holdings Limited Partnership, formerly known as
The Beacon Companies, as amended by a first amendment dated May 12, 1987, a
second amendment dated February 1, 1988 and a third amendment dated December
31, 1990 (the "Other Lease"). A copy of the Primary Lease (inclusive of the
Other Lease that is incorporated therein) is attached hereto as Exhibit "D"
and is by this reference incorporated herein. The Primary Lease is subject to
that certain ground lease dated July 25, 1985, as amended (the "Ground
Lease") by and between The Boston Redevelopment Authority, as "Ground Lessor"
and Overlandlord, as tenant; and
WHEREAS, Sublandlord is desirous of subletting to Subtenant office space
on the 6th floor of the Building as shown on Exhibit A attached hereto and
made a part hereof (hereinafter called the "Sub-Premises") and Subtenant is
desirous of subletting same from Sublandlord. For purposes hereof,
Sublandlord and Subtenant hereby agree that the square footage of the
Sub-Premises shall be deemed to be 17,853 square feet.
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, and intending to be legally bound,
Sublandlord and Subtenant agree as follows:
1. SUB-PREMISES. Sublandlord hereby sublets the Sub-Premises to
Subtenant and Subtenant hereby sublets the Sub-Premises from
Sublandlord. The Sub-Premises shall be used by Subtenant for general
office purposes and no other use. Subtenant shall not have the right
to exercise or cause Sublandlord to exercise any extension, renewal
or expansion options provided to Sublandlord under the Primary Lease.
2. TERM. The term of this Sublease shall commence on September 1, 1998
(the "Commencement Date") and end on September 30, 2002, unless
sooner terminated due to the provisions hereof. Sublandlord and
Subtenant acknowledge and agree that the Term, and Subtenant's
obligation to pay Base Rental, shall commence on the Commencement
Date notwithstanding the fact that Subtenant may not have started or
completed any improvements to the Sub-Premises prior to such date.
3. BASE RENTAL.
A. Subtenant shall pay Sublandlord Base Rental for the
Sub-Premises in accordance with the following schedule:
<TABLE>
<CAPTION>
Annual Rate Per Square
Period Monthly Installment Foot
------ ------------------- ----------------------
<S> <C> <C>
9/1/98 - 8/31/99 $55,046.75 $37.00
9/1/99 - 8/31/00 $56,534.50 $38.00
9/1/00 - 8/31/01 $58,022.25 $39.00
9/1/01 - 9/30/02 $59,510.00 $40.00
</TABLE>
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<PAGE>
All such Base Rental shall be paid by Subtenant on or before the
first day of each month without offset or deduction and without
notice or demand.
C. Subtenant shall also pay for all supplementary services ordered
by it and provided by Overlandlord. If Subtenant is billed for such
services directly by Overlandlord, Subtenant shall pay Overlandlord
for the cost thereof within the time period required by
Overlandlord. If Subtenant is billed for such services by
Sublandlord, Subtenant shall pay Sublandlord for such services
within ten (10) days after demand.
D. Rental payments shall be made payable to Equity Office
Properties Trust at 50 Rowes Wharf, 2nd Floor, Boston, MA 02110,
Attention: General Manager or to such other place as the Sublandlord
may from time to time designate.
4. ADDITIONAL RENTAL
A. With respect to each Operating Year (as defined in the Other
Lease) during the term of this Sublease, Subtenant shall, commencing
on the Commencement Date, pay to Sublandlord, as additional rent,
sixty-four and 96/100ths percent (64.96%) of the excess, if any
("Subtenant's Operating Expense Excess"), of the amount of Operating
Expense Excess payable by Sublandlord pursuant to Article 9 of the
Other Lease for such Operating Year over the actual amount of
Operating Expense Excess payable by Sublandlord pursuant to said
Article 9 for calendar year 1998. Payment of Subtenant's Operating
Expense Excess shall be made to Sublandlord within twenty (20) days
from the date that Sublandlord shall furnish to Subtenant a copy of
the information submitted by Overlandlord to Sublandlord as the
basis for Sublandlord's payments on account of Operating Expense
Excess for the Operating Year in question.
B. Whereas Sublandlord is required to pay estimated monthly
payments on account of Operating Expense Excess for any Operating
Year calculated on the basis of the most recent Operating Cost data
or budget available, Subtenant shall pay to Sublandlord, at the same
time and in the same manner that Base Rental is due, estimated
monthly payments on account of Subtenant's Operating Expense Excess
for any Operating Year, calculated on the basis of the most recent
Operating Cost data or budget available, as billed to Sublandlord by
Overlandlord. If, at the expiration of any Operating Year in respect
of which monthly installments of Subtenant's Operating Expense
Excess shall have been made as aforesaid, the total of such monthly
remittances is greater than the actual amount of Subtenant's
Operating Expense Excess for such year, Sublandlord shall credit any
such excess payments against the next installment(s) of any monies
due to Sublandlord hereunder; if the total of such remittances is
less than the actual amount of Subtenant's Operating Expense Excess
for such year. Subtenant shall pay the difference to Sublandlord
within twenty (20) days of billing therefor.
C. Electrical consumption in the Sub-Premises is currently
measured by an electrical submeter serving the entire Premises
leased by Sublandlord under the Primary Lease. During the Term of
this Sublease, Subtenant, on a monthly basis, shall pay to
Sublandlord, as additional rent, sixty-four and 96/100ths percent
(64.96%) of the total electricity bill with respect to the Premises
under the Primary Lease. Payment of Subtenant's share of the
electrical bill shall be made to Sublandlord within twenty (20) days
from the date that Sublandlord shall furnish to Subtenant a copy of
the electrical bill for the entire Premises and Subtenant's share
thereof with respect to the Sub-Premises. Sublandlord, at its sole
cost and expense, shall have the right to install a submeter, check
meter or similar device to measure the consumption of electricity by
Subtenant in the Sub-Premises. If Sublandlord elects to install such
submeter, check meter or other
2
<PAGE>
device. Subtenant shall pay for electricity with respect to the
Sub-Premises based upon the actual electricity consumed by Subtenant
in the Sub-Premises, as measured by such submeter, check meter or
other device.
5. REPRESENTATIONS, ETC.
A. Sublandlord hereby warrants and represents that the Primary
Lease is presently in full force and effect and without default on
the part of either the Sublandlord or the Overlandlord.
B. Sublandlord warrants and represents that Exhibit "D" attached
hereto is a true, correct and complete copy of the Primary Lease and
all amendments thereto.
C. Sublandlord represents, warrants and covenants that, provided
Subtenant is not in default hereunder beyond all applicable notice
and grace periods, it will not cause a termination of the Primary
Lease or Ground Lease, nor enter into any agreement that will modify
or amend the Primary Lease or Ground Lease so as to adversely affect
Subtenant's right to use and occupy the Sub-Premises or any other
rights of Subtenant under this Sublease Agreement, or increase or
materially affect the obligations of Subtenant under this Sublease
Agreement. Sublandlord agrees to indemnify, defend and hold
Subtenant harmless from and against any third party claim arising
from Sublandlord's use of the Sub-Premises or the conduct of its
business or from any activity, work or thing done by Sublandlord on
or about the Sub-Premises; except to the extent arising from
Subtenant's access to and/or use of the Sub-Premises or the conduct
of its business or from any activity, work or thing done, permitted
or suffered by Subtenant on or about the Sub-Premises, arising from
any breach of Subtenant's obligations hereunder, or from any claim
for injury or damage to person or property during the Term of this
Sublease Agreement while on or about the Sub-Premises; and except to
the extent resulting from or caused by the negligence or willful
misconduct of Subtenant or Subtenant's employees or agents. Provided
Subtenant is not in default of its obligations hereunder beyond the
expiration of any applicable notice and grace periods in the Lease,
Sublandlord shall also indemnify and hold Subtenant harmless from
and against any and all claims brought against Sublandlord and/or
Subtenant for the termination of the Primary Lease or Sublandlord's
and/or Subtenant's right to possession thereunder by reason of any
breach or default on the part of Sublandlord of the terms of the
Primary Lease, including, without limitation, the failure to pay
Rent on or before the date when due.
D. Sublandlord hereby warrants and represents to Subtenant that
(i) the execution of this Sublease will not result in a default of
the Ground Lease, and (ii) the approval or consent of Ground Lessor
is not required with respect to this Sublease or as a condition to
the effectiveness of this Sublease.
6. PRIMARY LEASE.
A. Except as set forth herein to the contrary, all the obligations
contained in the Primary Lease conferred and imposed upon
Sublandlord (as lessee or tenant therein) are hereby conferred and
imposed upon Subtenant. Except as provided herein, any rights
granted to Sublandlord (as lessee or tenant under the Primary Lease)
are hereby granted to Subtenant, which rights shall include the
right to receive all of the services to be provided to Sublandlord
under the Primary Lease. Notwithstanding the foregoing, the
following provisions of the Primary Lease are hereby specifically
excluded from the Sublease: Exhibit 1; Articles 2.2.1*; 4, as
amended, other than Article 4.9; 5.1-5** (provided that Subtenant
shall have the right to install kitchen equipment such as a
microwave and refrigerator); 6.6*; and 9 (except to the extent
necessary to define the amount and manner in which Sublandlord is
required to pay Operating Expense Excess to Overlandlord);
Ex. 3-37*; the Rider to the Other Lease; and the first, second and
third amendments to the Other Lease. Subtenant covenants and agrees
to fully and
3
<PAGE>
faithfully perform the terms and conditions of the Primary Lease and
the Sublease on its part to be performed. Subtenant shall not do or
cause to be done or suffer or permit any act to be done which would
or might cause the Primary Lease, or the rights of Sublandlord, as
lessee or tenant, under the Primary Lease, to be endangered,
canceled, terminated, forfeited or surrendered, or which would or
might cause Sublandlord to be in default thereunder or liable for
any damage, claim or penalty. Subtenant agrees, as an express
inducement for Sublandlord's executing this Sublease, that if
there is any conflict between the provisions of this Sublease and
the provisions of the Primary Lease which would permit Subtenant to
do or cause to be done or suffer or permit any act or things to be
done which is prohibited by the Primary Lease, then the provisions
of the Primary Lease shall prevail. If the Primary Lease terminates
or is terminated for any reason whatsoever, then this Sublease shall
terminate simultaneously therewith, whereupon (i) if Subtenant is
not in default under the terms and conditions of this Sublease, such
termination shall be without liability between Sublandlord and
Subtenant; or (ii) if Subtenant is in default under the terms and
conditions of this Sublease, the default provisions contained herein
shall control as to Subtenant's liability.
B. Sublandlord shall have no duty to perform any obligations of
the Overlandlord and shall under no circumstances be responsible for
or liable to Subtenant for any default, failure or delay on the part
of the Overlandlord in the performance of any obligations under the
Primary Lease, nor shall such default of the Overlandlord affect
this Sublease or waive or defer the performance of any of
Subtenant's obligations hereunder except as expressly set forth in
the Primary Lease; provided, nevertheless, that in the event of any
such default or failure of performance by Overlandlord, Sublandlord
agrees, upon notice from Subtenant, to make demand upon
Overlandlord to perform its obligations under the Primary Lease and,
provided that Subtenant specifically agrees to pay all costs of
Sublandlord, to take reasonable and appropriate legal action to
enforce the Primary Lease.
C. All services to the Sub-Premises shall be furnished by
Sublandlord hereunder only to the extent that such services are
furnished to Sublandlord, as lessee or tenant, under the Primary
Lease.
D. This Agreement of Sublease and all the rights of the Subtenant
hereunder are subject and subordinate to the Primary Lease.
Subtenant covenants and agrees to observe and perform all of the
covenants and obligations of the Sublandlord as tenant under the
Primary Lease. The failure of Subtenant to observe and perform the
covenants and obligations of the Primary Lease shall be a default
hereunder.
E. Provided Subtenant is not in default hereunder beyond all
applicable notice and grace periods; Sublandlord agrees not to do or
cause to be done or suffer or permit any act to be done which would
or might cause the Primary Lease, or the rights of Sublandlord, as
lessee or tenant, under the Primary Lease, to be endangered,
canceled, terminated, forfeited or surrendered, or which would or
might cause Sublandlord to be in default thereunder.
7. DEFAULT
A. If Subtenant defaults in the payment of any sums payable
hereunder when due and fails to cure such default within ten (10)
days after written notice thereof to Subtenant, then Sublandlord
may, at its option, terminate this Sublease and/or Subtenant's right
to possession of the Sub-Premises, in which event neither the
Subtenant nor any person claiming through or under the Subtenant by
virtue of any statute or an order of any court shall be entitled to
possession or to remain in possession of the Sub-Premises but shall
forthwith quit and surrender the Sub-Premises. If Subtenant defaults
in the performance of any of the non-monetary obligations imposed
upon it hereunder directly or by reference to the Primary Lease and
such failure continues for thirty (30) days after written notice
thereof to
4
<PAGE>
Subtenant, then Sublandlord may, at its option, terminate this
Sublease and/or Subtenant's right to possession of the Sub-Premises,
in which event neither the Subtenant nor any person claiming through
or under the Subtenant by virtue of any statute or an order of any
court shall be entitled to possession or to remain in possession of
the Sub-Premises but shall forthwith quit and surrender the
Sub-Premises.
B. In the event that the Subtenant shall default under this Sublease
and such default shall entitle the Sublandlord to terminate this
Sublease and/or take possession of the Sub-Premises as hereinabove
provided, the Sublandlord shall have the right to enter the
Sub-Premises by any legal means, remove the Subtenant's property and
effects, take and hold possession thereof, with or without
terminating this Sublease (at Sublandlord's option) and without
releasing the Subtenant, in whole or in part, from Subtenant's
obligations to pay rent and additional rent and all its other
obligations hereunder for the full term, relet the Sub Premises or
any part thereof, either in the name or for the account of the
Subtenant, for such rent and for such term or terms as the
Sublandlord may see fit. The Sublandlord shall not be required to
accept any tenant offered by the Subtenant or to observe any
instructions given by the Subtenant about such reletting. In any such
case, the Sublandlord may make such repairs, alterations and additions
in and to the Sub-Premises and redecorate the same as it sees fit. The
Subtenant shall pay the Sublandlord any deficiency between the rent
hereby reserved and covenanted to be paid and the net amount of the
rents, if any, collected on such reletting, for the balance of the
term of this Sublease, as well as any reasonable expenses incurred by
the Sublandlord in such reletting including, but not limited to
broker's fees, attorney's fees, the expense of repairing, altering
and redecorating the Sub-Premises and otherwise preparing the same
for re-rental. All such expenses shall be paid by the Subtenant as
additional rent upon demand by the Sublandlord. Any deficiency in
rental shall be paid in monthly installments, upon statements
rendered by the Sublandlord to the Subtenant. For the purpose of
determining the deficiency in rent, the rent reserved shall be deemed
to be the guaranteed minimum rental herein provided for, as reduced
by any rent collected by reletting. Any suit brought to collect the
amount of the deficiency for any one or more months shall not
preclude any subsequent suit to collect the deficiency for any
subsequent months.
C. If the Subtenant is in default of its obligations under this
Sublease, Sublandlord may cure the default and Subtenant shall
forthwith pay to Sublandlord, as additional rent, a sum of money
equal to all amounts expended by Sublandlord in curing such default.
If suit is brought by Sublandlord on account of any default of
Subtenant and if such default is established, Subtenant shall pay
to Sublandlord all expenses of such suit including without limitation
reasonable attorney's fees. Any payment by Subtenant of a sum of money
less than the entire amount due Sublandlord at the time of such payment
shall be applied to the obligations of Subtenant then furthest in
arrears. No endorsement or statement on any check or accompanying any
payment shall be deemed an accord and satisfaction and any payment
accepted by Sublandlord shall be without prejudice to Sublandlord's
right to obtain the balance due or pursue any other remedy available
to Sublandlord both in law and in equity.
D. If Subtenant defaults in any payment of rent or additional rent, or
any other payments to be made by Subtenant hereunder, interest shall
accrue thereon from the due date until paid at a fluctuating rate equal
to five (5%) percent over and above the Prime Rate, as hereinafter
defined. The term Prime Rate when used herein shall mean the
fluctuating annual rate of interest published by the largest national
bank in Boston, Massachusetts from time to time during the term of this
Agreement. Any change in such rate shall take effect on the date of such
change
E. If, at any time during the term of this Sublease, there shall be
filed by or against the Subtenant in any court pursuant to any statute
either of the United States or any state, a petition in bankruptcy or
insolvency or for the reorganization or for the appointment of a
receiver, trustee or liquidator of all or any portion of the
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Subtenant's property or if the Subtenant makes an assignment for the
benefit of creditors, or if the Subtenant admits in writing its
inability to pay its debts, and if, within sixty (60) days
thereafter, the Subtenant fails to secure a discharge thereof, this
Sublease, at the option of the Sublandlord, may be canceled and
terminated, in which event neither the Subtenant nor any person
claiming through or under the Subtenant by virtue of any statute or
an order of any court shall be entitled to possession or to remain
in possession of the Sub-Premises but shall forthwith quit and
surrender the Sub-Premises.
F. In addition to any and all remedies set forth herein.
Sublandlord shall have all remedies available at law or in equity,
and any and all remedies shall be cumulative and nonexclusive.
8. CONDITION OF THE SUB-PREMISES. Sublandlord makes no representations
with respect to this transaction or the Sub-Premises, except as
specifically set forth herein. Subtenant takes the Sub-Premises in
as "AS IS" condition, except that Sublandlord agrees to remedy any
existing violation in the Sub-Premises of any law, code or ordinance
of any governmental entity on the date hereof.
9. Access. Subtenant shall permit Sublandlord to have access to the
Sub-Premises at any time during the term hereof: (i) for the purpose
of inspecting the same, and (ii) to the extent Subtenant fails to
perform such obligations, for the purpose of performing Sublandlord
obligations under the Primary Lease. Notwithstanding the foregoing,
except in the event of an emergency, Sublandlord will provide
Subtenant with reasonable prior notice of such entry (which notice
may be given orally to an authorized representative of Subtenant).
Subtenant shall have the right to have a representative present
during any such entry. The foregoing, however, shall not be
construed as to limit Overlandlord's access rights to the
Sub-Premises under the Primary Lease.
10. ALTERATIONS.
A. Subtenant shall not make or cause to be made, either prior to
or during the term hereof, any alterations, installations (other
than office equipment), changes, replacements, additions or
improvements (structural or otherwise) in or to the Sub-Premises
without the prior written consent of Sublandlord (which consent will
not be unreasonably withheld, delayed or conditioned) and of
Overlandlord pursuant to the Primary Lease. Subject to the
conditions below, the cost of any alteration or other change in the
Sub-Premises shall be borne entirely by Subtenant. Upon the
termination of this Sublease, all alterations, installations and
trade fixtures made or installed by Subtenant may be removed, to the
extent permitted by Overlandlord under the Primary Lease, by
Subtenant, and any damage to the Sub-Premises caused by such removal
shall be repaired by Subtenant at its expense, and to the extent
required under the Primary Lease, the Sub-Premises shall be restored
to the condition existing prior to said alterations, installations or
trade fixtures, ordinary wear and tear excepted. If Subtenant does
not remove its property of every kind and description from the
Sub-Premises prior to the end of the Term, however ended, Subtenant
shall be conclusively presumed to have conveyed the same to
Sublandlord under this Sublease as a bill of sale without further
payment or credit by Sublandlord to Subtenant, and Sublandlord may
remove the same and Subtenant shall pay the expense of such removal
to Sublandlord upon demand. Subtenant's obligation to observe or
perform this covenant shall survive the expiration of the Term.
Sublandlord hereby agrees that Subtenant shall not be required to
remove the Initial Alterations to the Sub Premises, or any portion
thereof, unless Sublandlord advises Subtenant of such removal
obligation prior to or simultaneously with Sublandlord's approval of
Subtenant's plans for the Initial Alterations.
B. Upon the full and final execution of this Sublease by
Sublandlord and Subtenant and the Consent to Sublease by
Sublandlord, Subtenant and Overlandlord, Subtenant, subject to the
terms and conditions of Section 10.A. above, shall have the right to
occupy and perform alterations and improvements in
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the Sub-Premises (the "Initial Alterations"). Subtenant shall be
responsible for all elements of the design of Subtenant's plans
(including, without limitation, compliance with law, functionality
of design, the structural integrity of the design, the configuration
of the Sub-Premises and the placement of Subtenant's furniture,
appliances and equipment), and Sublandlord's and Overlandlord's
approval of Subtenant's plans shall in no event relieve Subtenant of
the responsibility for such design. Subtenant's occupancy of the
Sub-Premises for the period prior the Commencement Date shall be
subject to all of the terms and conditions of the Sublease, provided
that Subtenant shall not be required to pay Base Rental or
additional rental with respect to the period of time prior to the
Commencement Date.
C. Provided Subtenant is not in default, Sublandlord agrees to
contribute the sum of One Hundred Seventy-Eight Thousand Five
Hundred Thirty and 00/100 Dollars ($178,530.00) (the "Allowance")
toward the cost of performing the initial Alterations in the
Sub-Premises. The Allowance may only be used for the cost of
preparing design and construction documents and mechanical and
electrical plans for the Initial Alterations, for hard costs in
connection with the Initial Alterations, for costs incurred by
Subtenant in connection with its move into the Sub-Premises and for
the cost of installing telephone and computer cable and wire in the
Sub-Premises. The Allowance, less a 10% retainage (which retainage
shall be payable as part of the final draw), shall be paid to
Subtenant or, at Sublandlord's option, to the order of the general
contractor that performs the Initial Alterations, in periodic
disbursements within thirty (30) days after receipt of the following
documentation. (i) an application for payment and sworn statement of
contractor substantially in the form of AIA Document G-702 covering
all work for which disbursements is to be made to a date specified
therein: (ii) a certification from an AIA architect substantially in
the form of the Architect's Certificate for Payment which is located
on AIA Document G702, Application and Certificate of Payment; (iii)
Contractor's, subcontractor's and material supplier's waivers of
liens which shall cover all Initial Alterations for which
disbursement is being requested and all other statements and forms
required for compliance with the mechanics' lien laws of the State
of Massachusetts; (iv) a cost breakdown for each trade or
subcontractor performing the Initial Alterations; (v) plans and
specifications for the Initial Alterations, together with a
certificate from an AIA architect that such plans and specifications
comply in all material respects with all laws affecting the
Building, Property and Sub-Promises: (vi) copies of all construction
contracts for the Initial Alterations, together with copies of all
change orders, if any; and (vii) a request to disburse from
Subtenant containing an approval by Subtenant of the work done and a
good faith estimate of the cost to complete the Initial Alterations.
Upon completion of the Initial Alterations, and prior to final
disbursement of the Allowance, Subtenant shall furnish Sublandlord
with: (1) general contractor and architect's completion affidavits,
(2) full and final waivers of lien, (3) receipted bills covering all
labor and materials expended and used, (4) as-built plans of the
Initial Alterations, and (5) the certification of Subtenant and its
architect that the Initial Alterations have been installed in a good
and workmanlike manner in accordance with the approved plans, and in
accordance with applicable laws, codes and ordinances. In no event
shall Sublandlord be required to disburse the Allowance more than
one time per month. If the Initial Alterations exceed the Allowance,
Subtenant shall be entitled to the Allowance in accordance with the
terms hereof, but each individual disbursement of the Allowance shall
be disbursed in the proportion that the Allowance bears to the total
cost for the Initial Alterations, less the 10% retainage referenced
above. Notwithstanding anything herein to the contrary, Sublandlord
shall not be obligated to disburse any portion of the Allowance
during the continuance of an uncured default under the Lease, and
Sublandlord's obligation to disburse shall only resume when and if
such default is cured. In the event Subtenant does not use the
entire Allowance by December 31, 1999, any unused amount shall
accrue to the sole benefit of Sublandlord, it being understood that
Subtenant shall not be entitled to any credit, abatement or other
concession in connection therewith. Subtenant shall be responsible
for all applicable state sales or use taxes, if any, payable in
connection with the Initial Alterations and/or Allowance.
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<PAGE>
11. INSURANCE. Subtenant agrees to purchase and maintain during the term
of this Sublease the insurance required under Article 15 of
the document dated March 1, 1987 and to name Overlandlord and
Sublandlord as additional insureds on said insurance. Copies of the
certificates for such insurance shall be delivered to Sublandlord
upon the execution of this Sublease.
12. SECURITY DEPOSIT.
A. A Security Deposit in the amount of one hundred twenty-five
thousand and 00/100 dollars ($125,000.00) shall be delivered to
Sublandlord upon the execution of this Sublease by Subtenant. Such
Security Deposit shall be held by Sublandlord without liability for
interest and as security for the performance of Tenant's obligations
under this Sublease. The Security Deposit shall be in the form of
cash or in the form of a letter of credit. If Subtenant elects to
provide the Security Deposit in the form of a letter of credit, such
letter of credit shall (a) be in the form and substance of the
sample letter of credit attached hereto as Exhibit C, (b) name
Sublandlord as its beneficiary, (c) expire no earlier than thirty
(30) days after the Termination Date, and (d) be drawn on an
FDIC-insured financial institution satisfactory to Sublandlord. If
the initial term of the letter of credit will expire prior to thirty
(30) days after the termination date of this Sublease, Subtenant
shall from time to time, as necessary, renew or replace the original
and any subsequent letter of credit not less than thirty (30) days
prior to its stated expiration date so that it will remain in full
force and effect until thirty (30) days after the termination date
of the Sublease. If Subtenant fails to furnish such renewal or
replacement at least thirty (30) days prior to the stated expiration
date of the letter of credit then held by Sublandlord, Sublandlord
may draw upon such letter of credit and hold the proceeds thereof
(and such proceeds need not be segregated) as a Security Deposit
pursuant to the terms of this Article 12. Following any such draw
upon the letter of credit, however, Subtenant shall have the right
to substitute a letter of credit meeting the requirements set forth
herein for the cash Security Deposit then held by Sublandlord. Any
renewal of or replacement for the original or any subsequent letter
of credit shall meet the requirements for the original letter of
credit as set forth above, except that such replacement or renewal
shall be issued by a national bank reasonably satisfactory to
Sublandlord at the time of the issuance thereof.
B. Sublandlord may, from time to time, without prejudice to any
other remedy, use all or a portion of the Security Deposit to cure
any default by Subtenant that remains uncured after the expiration
of any applicable grace periods, including, without limitation, any
uncured default in connection with any arrearages of Rent, costs
incurred by Sublandlord to repair damages to the Sub-Premises caused
by Subtenant, and any costs incurred by Sublandlord to clean (other
than normal wear and tear) the Sub-Premises upon termination of this
Lease. Following any such application of the Security Deposit,
Subtenant shall, upon demand, either (i) restore the letter of
credit (if applicable) to its full amount, or (ii) provide
Sublandlord with an additional cash security deposit in an amount
equal to the amount of Security Deposit applied by Sublandlord. If
Subtenant is not in default at the termination of this Sublease,
Sublandlord shall return the Security Deposit, or the balance
thereof, to Subtenant within thirty (30) days after the later to
occur of the expiration of the Sublease or the date Subtenant
surrenders the Sub-Premises to Sublandlord in accordance with this
Sublease. If Sublandlord transfers its interest in the Sub-Premises
during the Lease Term, Sublandlord shall assign the Security Deposit
to the transferee and, provided the transferee accepts such
assignment and assumes Sublandlord's obligations with respect to the
return of the Security Deposit, Sublandlord shall thereafter
have no further liability for the return of such Security Deposit.
Upon request by Subtenant, Sublandlord shall provide Subtenant with
a copy of the assignment and assumption or other written
documentation that was entered into to effectuate the transfer of
the Security Deposit. Sublandlord shall not be required to segregate
the Security Deposit from its other accounts.
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13. SUBLEASE AND ASSIGNMENT. Subtenant shall not assign or further
sublease the Sub-Premises without the written consent of Sublandlord
(which consent shall not be unreasonably withheld, conditioned or
delayed) and the Overlandlord in accordance with the Primary Lease.
14. INDEMNITY. Subtenant hereby agrees to defend, indemnify and hold
Sublandlord harmless from and against any and all expense, loss,
claims or liability including reasonable attorneys' fees arising out
of or in connection with any act or omission of Subtenant, its
agents, contractors or employees including, but not limited to,
claims as a result of injury to or death of any person, property
damage, claims of employees of Subtenant or arising out of or in
connection with Subtenant's use and possession of the Sub-Premises,
or its breach of this Sublease (including the terms of the Primary
Lease).
15. NOTICES. All notices and demands of any kind which Sublandlord or
Subtenant may require to be served upon the other, shall be given by
depositing one copy of same in the United States mail, postage
prepaid, certified mail, return receipt requested, addressed as
follows:
To Sublandlord.
Equity Office Properties Management Corp.
Three Center Plaza
Suite 520
Boston, MA 02108
Attention: Property Manager
With a copy to:
Equity Office Properties Trust
Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Attention: Vice President--Legal
To Subtenant:
The Counsell Group
50 Rowes Wharf
Sixth Floor
Boston, MA 02110
Attn: Frank Selldorff, President and CEO
With a copy of any default notices to:
Anne Rickard Jackowitz, Esq.
Choate, Hall & Stewart
Exchange Place, 53 State Street
Boston, MA 02109
The place to which said notice shall be sent may be changed by
written notice given as hereinafter provided. All such mailed
notices shall become effective on the third day after the date of
postmark.
16. BROKER. Subtenant represents and warrants to Sublandlord that it
dealt with no broker or other person entitled to claim fees for such
services in connection with the negotiation, execution and delivery
of this Sublease, other than CB Commercial/Whittier Partners L.P.,
whose fees shall be paid by the Sublandlord. Subtenant agrees to
defend, indemnify and hold Sublandlord harmless from and against any
and all claims for finders' fees or brokerage or other commission
(other than a claim by CB Commercial/Whittier Partners L.P.) which may
at any time be asserted against Sublandlord founded upon the claim
that the substance of the
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<PAGE>
aforesaid representation of Subtenant is untrue, together with any
and all losses, damages, costs and expenses (including reasonable
attorneys' fees) relating to such claims or arising therefrom or
incurred by Sublandlord in connection with the enforcement of this
indemnification provision.
Sublandlord represents and warrants to Subtenant that it dealt with
no broker or other person entitled to claim fees for such services
in connection with the negotiation, execution and delivery of this
Sublease, other than CB Commercial/Whittier Partners L.P. whose fees
shall be paid by the Sublandlord. Sublandlord agrees to defend,
indemnify and hold Subtenant harmless from and against any and all
claims for finders' fees or brokerage or other commission (including
a claim by CB Commercial/Whittier Partners L.P) which may at any
time be asserted against Subtenant founded upon the claim that the
substance of the aforesaid representation of Sublandlord is untrue,
together with any and all losses, damages, costs and expenses
(including reasonable attorneys' fees) relating to such claims or
arising therefrom or incurred by Subtenant in connection with the
enforcement of this indemnification provision.
17. WAIVER. One or more waivers of any covenant or condition by
Sublandlord shall not be construed as a waiver of a subsequent
breach of the same or any other covenant or condition, and the
consent or approval by Sublandlord to or of any act by Subtenant
requiring Sublandlord's consent or approval shall not be construed
to waive or render unnecessary Sublandlord's consent or approval to
or of any subsequent similar act by Subtenant.
18. EFFECT. This Agreement shall be binding upon the parties hereto,
their heirs, executors, legal representatives, successors and
permitted assigns, and may not be altered, amended, terminated or
modified except by written instrument executed by each of the
parties hereto.
19. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Massachusetts.
20. RECORDING. This Agreement shall not be recorded in the Office of the
Recorder of Deeds or in any other office or place of public record,
and if Subtenant shall record this Agreement or cause or permit the
same to be recorded, Sublandlord may, at its option, elect to treat
such act as a breach of this Agreement.
21. HEADINGS. The headings for the various Paragraphs herein are for
reference only and are not part of this Agreement.
22. SEPARABILITY OF PROVISIONS. If any term or provision of this
Agreement or any application thereof shall be invalid or
unenforceable, the remainder of this Agreement and any other
application of such term or provision shall not be affected thereby.
All words used shall be understood and construed of such gender or
number as circumstances may require.
23. PARKING.
A. Subtenant hereby agrees to lease from Sublandlord up to five
(5) of the non-reserved parking spaces in the Building parking
garage (the "Garage") that are provided to Sublandlord under the
Primary Lease. Tenant may exercise its right to lease up to five (5)
of the non-reserved parking spaces by providing advance written
notice thereof to Sublandlord on or before August 30, 1999 (the
"Parking Option Date"), it being understood that Subtenant's right
to lease the spaces shall expire on the Parking Option Data. Such
notice of Sublandlord shall specify the number of spaces which
Subtenant elects to lease. If Subtenant's notice specifies less than
the maximum number of spaces made available to Subtenant hereunder,
Subtenant may elect to lease additional spaces (up to a maximum
aggregate of five (5) spaces) by providing subsequent notices to
Sublandlord, so long as each notice is delivered to Sublandlord
prior to the Parking Option Date.
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At the request of Sublandlord, Subtenant shall lease any
such spaces directly from the Overlandlord or the operator
of the Garage (the "Operator"). In such event, Subtenant
shall enter into a direct lease with Overlandlord or Operator
for such spaces.
B. Subtenant shall pay Sublandlord (or, at Sublandlord's
option, to Overlandlord or the Operator) Rent for each
non-reserved parking space at the initial rate of Three
Hundred Five and NO/100 Dollars ($305.00) per space per
month, plus any applicable tax imposed thereon. Such
monthly rate shall be subject to increase by Overlandlord
from time to time.
24. EFFECTIVE DATE. This Sublease shall only be effective upon
the execution and delivery hereof by the undersigned and
upon the consent thereto by the Overlandlord on the form
attached hereto as Exhibit B.
IN WITNESS WHEREOF, the parties have hereunto affixed their
hands and seals the day and year first above written.
SUBLANDLORD: EQUITY OFFICE PROPERTIES
TRUST, a Maryland real estate investment trust
By: /s/ Thomas Q. Bakke
------------------------------------------
Name: Thomas Q. Bakke
------------------------------------------
Title: Vice President
------------------------------------------
SUBTENANT: THE COUNSELL GROUP,
a Delaware corporation
By: /s/ Frank Selldorff
------------------------------------------
Name: Frank Selldorff
------------------------------------------
Title: CEO
------------------------------------------
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EXHIBIT "A"
SUB-PREMISES
[GRAPHIC]
12
<PAGE>
EXHIBIT "B"
LANDLORD CONSENT TO SUBLEASE
This Consent is entered into as of this 22nd day of July, 1998 by and
among Rowes Wharf Associates, a Massachusetts general partnership
("Landlord"), Equity Office Properties Trust, a Maryland real estate
investment trust ("Sublandlord"), and The Counsell Group, a Delaware
corporation ("Subtenant").
RECITALS:
A. Landlord and Sublandlord, as tenant, are parties to that certain lease
agreement dated October 1, 1995 (the "Lease") pursuant to which Landlord
has leased to Sublandlord certain premises containing approximately
27,484 square feet of Total Rentable Area on the sixth (6th) floor of the
building located at 50 Rowes Wharf (the "Building") and 281 square feet
of Net Rentable Area on lower level 4 of the building located at 30
Rowes Wharf (the "Premises").
B. Sublandlord and Subtenant have entered into (or are about to enter into)
that certain sublease agreement dated July 22, 1998 (the "Sublease
Agreement") pursuant to which Sublandlord has agreed to sublease to
Subtenant certain premises described as follows: approximately 17,853
rentable square feet on the 6th floor of the Building (the "Sublet
Premises") constituting a part of the Premises.
C. Sublandlord and Subtenant have requested Landlord's consent to the
Sublease Agreement.
D. Landlord has agreed to give such consent upon the terms and conditions
contained in this Consent.
NOW THEREFORE, in consideration of the foregoing preambles which by this
reference are incorporated herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged. Landlord hereby consents to the Sublease Agreement
subject to the following terms and conditions, all of which are hereby
acknowledged and agreed to by Sublandlord and Subtenant:
1. Sublease Agreement. Sublandlord and Subtenant hereby represent that
a true and complete copy of the Sublease Agreement hereto and made a
part hereof as Exhibit A.
2. Representations. Sublandlord hereby represents and warrants that
Sublandlord (i) has full power and authority to sublease the Sublet
Premises to Subtenant, (ii) has not transferred or conveyed its
interest in the Lease to any person or entity collaterally or
otherwise, and (iii) has full power and authority to enter into the
Sublease Agreement and this Consent. Subtenant hereby represents and
warrants that Subtenant has full power and authority to enter into the
Sublease Agreement and this Consent.
3. Indemnity and Insurance. Subtenant hereby assumes, with respect to
Landlord, all of the indemnity and insurance obligations of the
Sublandlord under the Lease with respect to the Sublet Premises,
provided that the foregoing shall not be construed as relieving or
releasing Sublandlord from any such obligations.
4. No Release. Nothing contained in the Sublease Agreement or this
Consent shall be construed as relieving or releasing Sublandlord from
any of its obligations under the Lease, it being expressly understood
and agreed that Sublandlord shall remain liable for such obligations
notwithstanding anything contained in the Sublease Agreement or this
Consent or any subsequent assignment(s), sublease(s) or transfers(s)
of the interest of the tenant under the Lease. Sublandlord shall be
responsible for the collection of all rent due it from Subtenant, and
for the performance of all the other terms and conditions of the
Sublease Agreement, it being understood that Landlord is not a party
to the Sublease Agreement and,
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notwithstanding anything to the contrary contained in the Sublease
Agreement is not bound by any terms or provisions contained in the
Sublease Agreement and is not obligated to Sublandlord or Subtenant
for any of the duties and obligations contained therein.
5. No Transfer. Subtenant shall not further sublease the Sublet Premises,
assign its interest as the Subtenant under the Sublease Agreement or
otherwise transfer its interest in the Sublet Premises or the Sublease
Agreement to any person or entity without the written consent of
Landlord, which Landlord may withhold in its sole discretion.
6. Lease. In no event shall the Sublease Agreement or this Consent be
construed as granting or conferring upon the Sublandlord or the
Subtenant any greater rights than those contained in the Lease nor
shall there be any diminution of the rights and privileges of the
Landlord under the Lease. Without limiting the scope of the preceding
sentence, any construction or alterations performed in or to the Sublet
Premises shall be performed with Landlord's prior written approval and
in accordance with the terms and conditions of the Lease.
7. Signage. Landlord, at Subtenant's expense, agrees to provide Subtenant
with building standard identification signage in the multi-tenant
directory sign on the floor on which the Sub-Premises are located. In
addition, Landlord shall provide Subtenant, at Subtenant's expense, with
three (3) lines on the Building lobby directory to identify Subtenant
and two (2) of Subtenant's officers.
8. Counterparts. This Consent may be executed in counterparts and shall
constitute an agreement binding on all parties notwithstanding that all
parties are not signatories to the original or the same counterpart
provided that all parties are furnished a copy or copies thereof
reflecting the signature of all parties.
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<PAGE>
IN WITNESS WHEREOF, Landlord, Sublandlord and Subtenant have executed
this Consent as of this 22nd day of July, 1998
LANDLORD:
ROWES WHARF ASSOCIATES, a Massachusetts
general partnership
By: Rowes Wharf Limited Partnership, a
Massachusetts limited partnership, a general partner
By: RWLP Corp., a Massachusetts corporation,
its general partner
By: /s/ Thomas Q. Bakke
-------------------------------------------------
Name: Thomas Q. Bakke
-------------------------------------------------
Title: Vice President
-------------------------------------------------
SUBLANDLORD: EQUITY OFFICE PROPERTIES
TRUST, a Maryland real estate investment trust
By: /s/ Thomas Q. Bakke
-------------------------------------------------
Name: Thomas Q. Bakke
-------------------------------------------------
Title: Vice President
-------------------------------------------------
SUBTENANT: THE COUNSELL GROUP,
a Delaware corporation
By: /s/ Frank Selldorff
-------------------------------------------------
Name: Frank Selldorff
-------------------------------------------------
Title: President
-------------------------------------------------
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EXHIBIT C
-------------------------------
[Name of Financial Institution]
Irrevocable Standby
Letter of Credit
No. __________________________
Issuance Date:________________
Expiration Date:______________
Applicant:____________________
Beneficiary
- -----------
EQUITY OFFICE PROPERTIES TRUST
Two North Riverside Plaza
Suite 2200
Chicago, Il 60606
Ladies/Gentlemen:
We hereby establish our Irrevocable Standby Letter of Credit in your
favor for the account of the above referenced Applicant in the amount of
$___________ available for payment at sight by your draft drawn on us when
accompanied by the following documents:
1. An original copy of this Irrevocable Standby Letter of Credit.
2. Beneficiary's dated statement purportedly signed by one of its officers
reading: "This draw in the amount of ________________ U.S. Dollars
($_______) under your Irrevocable Standby Letter of Credit No. ___________
represents funds due and owing to us as a result of the Applicant's
failure to comply with one or more of the terms of that certain lease by
and between _______________, as landlord, and ____________, as tenant."
It is a condition of this Irrevocable Standby Letter of Credit that it
will be considered automatically renewed for a one year period upon the
expiration date set forth above and upon each anniversary of such date for a
period up until October 31, 2002 (i.e. thirty (30) days after the expiration
of the term), unless at least sixty (60) days prior to such expiration date
or applicable anniversary thereof, we notify you in writing by certified
mail, return receipt requested, that we elect not to so renew this
Irrevocable Standby Letter of Credit. A copy of any such notice shall also be
sent to: Equity Office Properties, L.I.C., 2 North Riverside Plaza, Suite
2200, Chicago, IL 60606, Attention: Vice President Corporate Operations.
In addition to the foregoing, we understand and agree that you shall be
entitled to draw upon this Irrevocable Standby Letter of Credit in accordance
with 1. and 2. above in the event that we elect not to renew this Irrevocable
Standby Letter of Credit and, in addition, you provide us with a dated
statement purportedly signed by one of Beneficiary's officers stating that
the Applicant has failed to provide you with an acceptable substitute
irrevocable standby letter of credit in accordance with the terms of the
above referenced lease. We further acknowledge and agree that: (a) upon
receipt of the documentation required herein, we will honor your draws
against this Irrevocable Standby Letter of Credit without inquiry into the
accuracy of Beneficiary's signed statement and regardless of whether
Applicant disputes the content of such statement; (b) this Irrevocable
Standby Letter of Credit shall permit partial draws and, in the event you
elect to draw upon less than the full stated amount hereof, the stated amount
of this Irrevocable Standby Letter of Credit shall be automatically reduced
by the amount of such partial draw; and (c) you shall be entitled to assign
your interest in this Irrevocable Standby Letter of Credit from time to time
in accordance with our standard practices and procedures for the assignment
of letters of credit. In the event of an assignment, we reserve the right to
require reasonable evidence of such assignment as a condition to any draw
hereunder.
16
<PAGE>
EXHIBIT D
PRIMARY LEASE
Atlantic Avenue Building North - 30 Rowes Wharf
Atlantic Avenue Building South - 50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
FOURTH AMENDMENT
AND
ASSIGNMENT AND ASSUMPTION OF LEASE AND SUBLEASE
As of October 1, 1995
LANDLORD: Rowes Wharf Associates
TENANT: TBC Holdings Limited Partnership,
formerly known as The Beacon Companies
EXISTING
PREMISES: The entire sixth (6th) floor (south and
north) of the Building, substantially as
shown on Lease Plan, Exhibit 2, Sheet 1
dated March 1, 1987, and a storage area
on Lower Level 4 of Atlantic Avenue
Building North, substantially as shown
on Lease Plan, Exhibit 2, Second
Amendment, dated February 1, 1988
("Storage Premises").
LEASE
EXECUTION
DATE: March 1, 1987
TERMINATION
DATE: September 30, 2002
PREVIOUS
LEASE
AMENDMENTS: First Amendment dated May 12, 1987
Second Amendment dated February 1, 1988
Third Amendment dated December 31, 1990
DELETED
PREMISES: An area on the sixth floor of the
Atlantic Avenue Building South
containing 27,484 square feet of Total
Rentable Area, substantially as shown on
Lease Plan, Exhibit 2, Fourth Amendment
dated as of October 1, 1995, a copy of
which is attached hereto and
incorporated by reference herein, and
the Storage Premises, and the right to
use the mechanical room above the
Deleted Premises.
-1-
<PAGE>
REMAINDER
PREMISES: The Existing Premises, less the Deleted
Premises, containing 22,815 square feet
of Total Rentable Area, substantially as
shown on Lease Plan, Exhibit 2, Fourth
Amendment dated as of October 1, 1995.
WHEREAS, Tenant desires (i) to assign its interest in the Lease to
Landlord and (ii) to terminate the term of the Lease in respect of the
Deleted Premises;
WHEREAS, Landlord is willing (i) to assume Tenant's obligations under
the Lease and (ii) to agree to terminate the term of the Lease in respect of
the Deleted Premises;
NOW THEREFORE, the parties hereto hereby agree that the above-referenced
lease, as previously amended (the "Lease"), is hereby further amended as
follows:
1. ASSIGNMENT AND ASSUMPTION OF LEASE
Effective as of October 1, 1995, Tenant hereby assigns all of its
right, title and interest in the Lease to Landlord, and Landlord hereby
assumes all of the obligations of Tenant under the Lease and Landlord agrees
to perform and keep all covenants, conditions and agreements of Tenant under
the Lease. By execution of this Amendment, the parties hereto expressly
acknowledge that they do not intend that there be a merger of the Landlord's
interest and the Tenant's interest by reason of this Assignment. The parties
further expressly acknowledge that they intend that the Sublease, as defined
in Paragraph 2 hereof, not be affected by reason of this Assignment.
2. ASSIGNMENT AND ASSUMPTION OF SUBLEASE
A. Reference is made to sublease dated as of November 1, 1991, as
amended by a First Amendment to Sublease dated November 10, 1994 by and
between Tenant, as landlord, and Peabody & Arnold, as tenant (collectively,
the "Sublease"). Effective as of October 1, 1995, Tenant hereby assigns all
of its right, title and interest in the Sublease to Landlord, and Landlord
hereby assumes all of the obligations of Tenant under the Sublease and
Landlord agrees to perform and keep all covenants, conditions and agreements
of Tenant under the Sublease.
B. Tenant shall deliver to Landlord any rent or other payments
received by Tenant from Peabody & Arnold pursuant to the Sublease with
respect to any time period from and after October 1, 1995, in the form
received, duly endorsed to Landlord.
-2-
<PAGE>
2. TERMINATION OF LEASE IN RESPECT OF DELETED PREMISES
The term of the Lease in respect of the Deleted Premises is hereby
terminated effective as of September 30, 1995 ("Effective Termination Date").
Yearly Rent and other charges due under the Lease in respect or the Deleted
Premises shall be apportioned as of the Effective Termination Date.
3. BACK-RENT
Reference is made to the fact that Tenant owes Landlord Yearly Rent
and other charges due under the Lease in respect of the period from February
1, 1995 through the Effective Termination Date, as more particularly set
forth on Exhibit A, attached hereto and incorporated herein by reference
("Back Charges"). Tenant shall, on the date that Tenant executes and delivers
this Fourth Amendment to Landlord, pay to Landlord the Back Charges.
4. TERMINATION PAYMENT
In consideration of Landlord's agreement to terminate the term of
the Lease in respect of the Deleted Premises as of the Effective Termination
Date, Tenant shall, on the date that Tenant executes and delivers this
Fourth Amendment to Landlord, pay to Landlord One Million Two Hundred Fifty
Thousand and 00/100 ($1,250,000.00) Dollars ("Termination Payment").
5. GENERAL RELEASE
A. Tenant does hereby waive, release, relinquish, remise and
forever discharge Landlord, its successors and assigns, from all debts,
demands, actions, causes of action, suits, accounts, covenants, contracts,
agreements, damages and liabilities ("Claims") whatsoever of every name and
nature, in law and in equity which the Tenant or its successors or assigns
have presently or have had against Landlord, and its successors and assigns
through the date of this Fourth Amendment arising out of or in connection
with the Lease, other than Claims of third parties not known to Tenant as of
the date of this Fourth Amendment.
B. Landlord does hereby waive, release, relinquish, remise and
forever discharge Tenant, its successors and assigns, from all Claims
whatsoever of every name and nature, in law and in equity which Landlord or
its successors or assigns have presently or have had against Tenant and its
successors and assigns through the date of this Fourth Amendment arising out
of or in connection with the Lease, other than the payment of the Back
Charges and Termination Payment, and the Claims of third
-3-
<PAGE>
parties not known to Landlord as of the date of this Fourth Amendment.
As hereby amended, the Lease is ratified, confirmed and approved in all
respects.
EXECUTED under seal as of the date first above-written
LANDLORD: TENANT:
ROWES WHARF ASSOCIATES TBC HOLDINGS LIMITED PARTNERSHIP
By: The Equitable Life Assurance By: TBC Holdings, Inc.,
Society of the United States General Partner
By: /s/ By: /s/
------------------------- --------------------------
Its Investment Officer Name:
Title: Pres.
-4-
<PAGE>
[LETTERHEAD]
STATEMENT DATE
10/01/95 -
THE BEACON COMPANIES LEASE ID
50 ROWES WHARF 000037
SUITE 600
BOSTON, MA 02110
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE CODE DESCRIPTION AMOUNT DUE ITEMS PAID
<S> <C> <C> <C> <C>
02/01/95 OR ANN'L OPER EXCESS 8,608.55
02/01/95 BR RENTAL INCOME OFFICE 105,036.50
02/01/95 OC MTHLY OPERTNG EXCESS 15,059.00
03/01/95 BR RENTAL INCOME OFFICE 105,036.50
03/01/95 OC MTHLY OPERTNG EXCESS 15,059.00
04/01/95 BR RENTAL INCOME OFFICE 105,036.50
04/01/95 OC MTHLY OPERTNG EXCESS 15,059.00
05/01/95 BR RENTAL INCOME OFFICE 105,036.50
05/01/95 OC MTHLY OPERTNG EXCESS 15,059.00
06/01/95 BR RENTAL INCOME OFFICE 105,036.50
06/01/95 OC MTHLY OPERTNG EXCESS 15,059.00
07/01/95 BR RENTAL INCOME OFFICE 105,036.50
07/01/95 OC MTHLY OPERTNG EXCESS 15,059.00
08/01/95 BR RENTAL INCOME OFFICE 105,036.50
08/01/95 OC MTHLY OPERTNG EXCESS 15,059.00
/01/95 BR RENTAL INCOME OFFICE 105,036.50
/01/95 OC MTHLY OPERTNG EXCESS 15,059.00
-----------
$969,372.55
-----------
-----------
</TABLE>
<PAGE>
[GRAPHIC]
<PAGE>
OTHER LEASE
EXHIBIT 1. SHEET 1
Atlantic Avenue Building North - 30 Rowes Wharf
Atlantic Avenue Building South - 50 Rowes Wharf
(the "Building")
Boston, Massachusetts
REFERENCE DATA
Execution Date: March 1, 1987
Tenant: The Beacon Companies
----------------------------------------------------------
(name)
a Massachusetts Limited Partnership
----------------------------------------------------------
(description of business organization)
One Post Office Square, Boston, Massachusetts 02109
----------------------------------------------------------
(principal place of business mailing address)
LANDLORD: ROWES WHARF ASSOCIATES, a joint venture by and between The
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES (a
New York Corporation) and ROWES WHARF LIMITED PARTNERSHIP
(a Massachusetts limited partnership). Landlord is the
Tenant under a Ground Lease of the Project Site, as
hereinafter defined, dated July 25, 1985 by and between
the Boston Redevelopment Authority, as Landlord, and Rowes
Wharf Associates, as Tenant, notice of which is recorded
at Book 11846, Page 173 in the Suffolk Registry of Deeds;
and Landlord is the Tenant under an Office/Retail Unit
Lease of the Unit, as hereinafter defined, dated as of
July 25, 1985 by and between the Boston Redevelopment
Authority, as Landlord, and Rowes Wharf Associates, as
Tenant, notice of which is recorded at Book 11846, Page
180, in said Deeds. Whenever the term "Ground Lease" is
used in this Lease, such term shall mean the
above-referenced Ground Lease, during the term of said
Ground Lease, and shall then mean the above referenced
Official Retail Unit Lease during the term of said
official Retail Unit Lease.
PROJECT SITE: Premises situated on Atlantic Avenue, Boston
Massachusetts, constituting both land and water area, as
more particularly described in the Master Deed hereinafter
referenced.
PROJECT: The multi-use project (to be) constructed on the Project
Site.
UNIT: The Office/Retail Unit in that certain condominium
("Condominium") know as The Condominium at Rowes Wharf (to
be) created by the Master Deed referred to in the Ground
Lease, as more particularly described in the Office/Retail
Unit Lease. The Unit is located on the Project Site. The
portion of the Building in which the Premises are located
is contained within the Unit.
<PAGE>
EXHIBIT 1, SHEET 2
Atlantic Avenue Building North - 30 Rowes Wharf
Atlantic Avenue Building South - 50 Rowes Wharf
(the "Building")
Boston, Massachusetts
REFERENCE DATA
Tenant: The Beacon Companies
Execution Date: March 1, 1987
Art. 2 Premises: The entire sixth (6th) floor (south and north) of the
Building, substantially as shown on Lease Plan, Exhibit
2, Sheet 1.
Art. 3.1 Specified Commencement Date: SEPTEMBER 1, 1987
Art. 3.2 Termination Date: FIFTEEN (15) YEARS AFTER THE TERM COMMENCEMENT
DATE
Art. 4.3 Final Plans Date: FEBRUARY 20, 1987
Art. 5 Use of Premises: GENERAL BUSINESS OFFICES
Art. 6 Yearly Rent:
<TABLE>
<CAPTION>
LEASE YEARLY
YEAR* RENT
----- ------
<S> <C>
1** through 3 Thirty-Four ($34.00)
Dollars per square foot of
Total Rentable Area of the
premises per annum
4 through 5 Thirty-Six ($36.00)
Dollars per square foot of
Total Rentable Area of the
premises per annum
6 through 10 Forty-Five ($45.00)
Dollars per square foot of
Total Rentabe Area of the
premises per annum
</TABLE>
- -----------------
*For the purposes hereof, "Lease Year" shall be defined as any twelve (12)
month period commencing on the Term Commencement Date or on any anniversary
of the Term Commencement Date.
**Subject to Article 6-6* of the Lease.
<PAGE>
EXHIBIT 1, SHEET 3
Atlantic Avenue Building North - 30 Rowes Wharf
Atlantic Avenue Building South - 50 Rowes Wharf
(the "Building")
Boston, Massachusetts
REFERENCE DATA
Tenant: The Beacon Companies
Execution Date: March 1, 1987
(Art. 6 continued)
<TABLE>
<CAPTION>
Lease Yearly
Year* Rent
----- -----
<S> <C>
11 through 15 Fifty ($50.00) Dollars
per square foot of Total
Rentable Area of the
premises per annum
</TABLE>
Art. 7 Total Rentable Area: Sixth floor: 50,299 square feet
Art. 8 Electric current will not be furnished by Landlord to Tenant.
Art. 9 Operating Expense Escalation:
Operating Costs in the Base Year: The product of (x)
$10.00 multiplied by (y) the sum total (aggregate) of the Total
Rentable Areas of the Unit, excluding any areas designated by
Landlord for retail use.
Tenant's Proportionate Share: A fraction, the
numerator of which is the Total Rentable Area of the premises
and the denominator of which is the sum total (aggregate) of the
Total Rentable Areas of the Unit, excluding any areas designated
by Landlord for retail use.
Art. 12:
13(d);
15.2;
18 Additional Insured Parties: Boston Redevelopment Authority; The
Board of Managers of The Condominium at Rowes Wharf
- ---------------------------------------
For the purposes hereof, "Lease Year" shall be defined as any twelve (12)
month period commencing on the Term Commencement Date or on any anniversary
of the Term Commencement Date.
<PAGE>
EXHIBIT 1. SHEET 4
Atlantic Avenue Building North - 30 Rowes Wharf
Atlantic Avenue Building South - 50 Rowes Wharf
(the "Building")
Boston, Massachusetts
REFERENCE DATA
Tenant: The Beacon Companies
Execution Date: March 1, 1987
Art. 29.3 Broker: THE BEACON COMPANIES
Art. 29.5 Arbitration: MASSACHUSETTS: SUPERIOR COURT
Exhibit Dates: LEASE PLAN, EXHIBIT 2, SHEETS 1, 2 AND 3 DATED
MARCH 1, 1987
LANDLORD: TENANT:
ROWES WHARF ASSOCIATES THE BEACON COMPANIES
c/o Rowes Wharf Limited Partnership One Post Office Square
One Post Office Square Boston, Massachusetts 02109
Boston, Massachusetts 02109
/s/ /s/
By--------------------------------- By-----------------------------------
General Partner of (Name) (Title)
Rowes Wharf Limited Partnership Hereunto Duly Authorized
Date Signed: 4/8/87 Date Signed: 4/8/87
----------------------- -----------------------
<PAGE>
[GRAPHIC]
<PAGE>
[GRAPHIC]
<PAGE>
[GRAPHIC]
<PAGE>
THIS INDENTURE OF LEASE made and entered into on the Execution Date as
stated in Exhibit 1 and between the Landlord and the Tenant named in
Exhibit 1.
Landlord does hereby demise and lease to Tenant, and Tenant does hereby hire
and take from Landlord, the premises hereinafter mentioned and described
(hereinafter referred to as "premises"), upon and subject to the covenants,
agreements, terms, provisions and conditions of this Lease for the term
hereinafter stated:
1. REFERENCE DATA
Each reference in this Lease to any of the terms and titles contained in
any Exhibit attached to this Lease shall be deemed and construed to
incorporate the date stated under that term or title in such Exhibit.
2. DESCRIPTION OF DEMISED PREMISES
2.1 DEMISED PREMISES. The premises are that portion of the Building
(being constructed) as described in Exhibit 1 (as the same may from time to
time be constituted after changes therein, additions thereto and eliminations
therefrom pursuant to rights of Landlord hereinafter reserved) and is
hereinafter referred to as "Building", substantially as shown hatched or
outlined on the Lease Plan (Exhibit 2) hereto attached and incorporated by
reference as a part hereof.
2.2 APPURTENANT RIGHTS. Tenant shall have, as appurtenant to the
premises, rights to use in common, with others entitled thereto, subject to
reasonable rules from time to time made by Landlord of which Tenant is given
notice: (a) the common lobbies, hallways, stairways and elevators of the
portion of the Building which is located within the Unit, serving the
premises in common with others, (b) common walkways necessary for access to
the Building, and (c) if the premises include less than the entire rentable
area of any floor, the common toilets and other common facilities of such
floor; and no other appurtenant rights or easements.
2.2-1 In addition, Tenant shall have the right to use the
mechanical room above the south wharf portion of the
premises. Tenant shall have the right to use said
mechanical room on all of the same terms and
conditions applicable to the other premises demised
to Tenant under this Lease, except:
A. No Yearly Rent or Operating Expense Excess shall be
payable in respect of such area.
B. Landlord shall have no obligation to provide any services
(other than repairs as required under Article 8.7) to
such area.
C. Tenant shall take such area "as-is", without any
obligation on the part of Landlord to construct or
prepare such area for Tenant's use and occupancy.
2.3 EXCLUSIONS AND RESERVATIONS. All the perimeter walls of the
premises except the inner surfaces thereof, any balconies (except to the
extent same are shown as part of the premises on the Lease Plan (Exhibit 2)
in which event, however, Tenant's sole right with respect to such balconies
shall be the right to use such balconies), terraces or roofs adjacent to the
premises, and any space in or adjacent to the premises used for shafts,
stacks, pipes, conduits, wires and appurtenant fixtures, fan rooms, ducts,
electric or other utilities, sinks or other Building, Project, or Unit
facilities, and the use thereof, are expressly excluded from the premises and
reserved to Landlord. Landlord hereby reserves a right of access through the
premises for the purposes of operation, maintenance, decoration and repair.
2.3-1 Tenant shall have the nonexclusive right, without payment of
additional rent, but subject to obtaining the written
consent of the Board of Managers of the Condominium, on a
"first come-first serve" basis to use the shafts,
conduits, ducts and other core structural facilities
available (after meeting Landlord's Building requirements)
for such purposes as running its own internal telephone
and computer lines and other such lines, wires and
conduits. Landlord shall advise Tenant at the earliest
possible date of the availability of such space, if any,
in order to implement such right, as aforesaid, to Tenant.
3. TERM OF LEASE
3.1 DEFINITIONS. As used in this Lease the words and terms which
follow mean and include the following:
1
<PAGE>
(a) "Specified Commencement Date" -- The date (as stated in Exhibit 1)
on which it is estimated that the premises will be ready for Tenant's
occupancy for its use as stated in Exhibit 1.
(b) "Term Commencement Date" -- If the "Term Commencement Date" is a
date certain agreed upon by the parties at the time of the execution of this
Lease, such date shall be inserted in Exhibit 1; otherwise, the "Term
Commencement Date" is the date on which the premises are ready for Tenant's
occupancy (as defined in Article 4.2) for use as set forth in Exhibit 1. If
the premises are not ready for such occupancy but if, pursuant to permission
therefor duly given by Landlord, Tenant takes possession of the whole or any
part of the premises for use as set forth in Exhibit 1, "Term Commencement
Date" shall be the date on which Tenant takes such possession.
3.2 HABENDUM. TO HAVE AND TO HOLD the premises for a term of years
commencing on the Term Commencement Date and ending on the Termination Date
as stated in Exhibit 1 or on such earlier date upon which said term may
expire or be terminated pursuant to any of the conditions of limitation or
other provisions of this Lease or pursuant to law (which date for the
termination of the term hereof will hereafter be called "Termination Date").
Notwithstanding the foregoing, if the Termination Date as stated in Exhibit 1
shall fall on other than the last day of a calendar month, said Termination
Date shall be deemed to be the last day of the calendar month in which said
Termination Date occurs.
3.3 DECLARATION FIXING TERM COMMENCEMENT DATE. As soon as may be after
the execution date hereof, each of the parties hereto agrees, upon demand of
the other party, to join in the execution, in recordable form, of a statutory
notice, memorandum, etc. of lease and/or written declaration in which shall
be stated such Term Commencement Date and (if need be) the Termination Date.
If this Lease is terminated before the term expires, the parties shall
execute, deliver and record an instrument acknowledging such fact and the
date of termination of this Lease; and Tenant hereby appoints Landlord its
attorney-in-fact in its name and behalf to execute such instrument if Tenant
shall fail to execute and deliver such instrument after Landlord's request
therefor within ten (10) days.
4. READINESS FOR OCCUPANCY -- ENTRY BY TENANT PRIOR TO TERM COMMENCEMENT
DATE
4.1 COMPLETION DATE -- DELAYS. Subject to delay by causes beyond the
reasonable control of Landlord or caused by the action or inaction of Tenant,
Landlord shall use reasonable speed and diligence in the construction of the
Building and to have the premises ready for Tenant's occupancy on the
Specified Commencement Date. The failure to have the premises ready for
Tenant's occupancy on the Specified Commencement Date shall in no way affect
the validity of this Lease or the obligations of Tenant hereunder nor shall
the same be construed in any way to extend the term of this Lease. If the
premises are not ready for Tenant's occupancy within the meaning of Article
4.2 hereof on the Specified Commencement Date, Tenant shall not have any
claim against Landlord, and Landlord shall have no liability to Tenant, by
reason thereof.
4.2 WHEN PREMISES DEEMED READY. The premises shall be conclusively
deemed ready for Tenant's occupancy as soon as the initial installations and
painting to be done by Landlord (referred to the Exhibit 3, "Memorandum of
Work and Installations to be Initially Performed and Furnished in the
Premises", annexed hereto and made a part hereof) in the premises have been
substantially completed by Landlord insofar as is practicable in view of
delays or defaults, if any, of Tenant or its contractors, as hereinafter
specified, and the elevator, plumbing, air conditioning and electric
facilities are initially substantially available to Tenant, in accordance
with the obligations assumed
2
<PAGE>
4.4 PREPARATION OF PREMISES.
(a) By Landlord. Except as is otherwise herein provided or as may be
otherwise approved by the Landlord, all work necessary to prepare the
premises for Tenant's occupancy, including work to be performed at Tenant's
expense, shall be performed by contractors employed by Landlord.
1. Tenant shall have the right, subject to the provisions of
Articles 12 and 13 of the Lease, to engage its own
contractor to perform Over-Building-Standard-Work. In such
event, Landlord shall take all necessary reasonable
measures to the end that Landlord's contractors shall
cooperate in all ways with Tenant's contractors to avoid
any delay to the work being performed by Landlord's
contractors or conflict in any other way with the
performance of such work.
2. Landlord agrees to cause Landlord's contractor to
competitively bid each portion of
Over-Building-Standard-Work performed by Landlord's
contractor.
3. In the event that Tenant enters into a construction
contract with Beacon Construction Company Inc. for the
purpose of performing Over-Building-Standard-Work, any
such Over-Building-Standard-Work performed by Beacon
Construction Company Inc. pursuant to such contract shall
be, for all purposes of this Lease, treated as if such
work is work to be performed by Landlord in the initial
preparation of the premises for Tenant.
(b) By Tenant. Subject always to the provisions of Articles 4.2 and
4.3, if other than building standard work is to be performed in preparing the
premises for Tenant's occupancy by contractors other than those employed by
Landlord, Landlord will give Tenant reasonable advance notice of the date on
which the premises will be ready for such other contractors and a reasonable
time will be allowed from such date for doing the work to be performed by
such other contractors. Tenant acknowledges and agrees that all work
performed in the construction of the Project shall be performed in accordance
with the requirements of Section 33.2 of the Ground Lease, a copy of which is
attached hereto as Exhibit 6. In the event that Tenant engages any separate
contractors in the initial construction of the premises, Tenant and Tenant's
contractors shall comply with the provisions of the plan submitted by
Landlord to the Boston Redevelopment Authority as set forth in said Section
33.2. Tenant shall incorporate the requirement for such compliance in its
agreement with any contractor engaged by Tenant in the initial construction
of the premises.
(c) If any work, including but not by way of limitation, installation
of built-in equipment by the manufacturer or distributor thereof, shall be
performed by contractors not employed by Landlord, Tenant shall take all
necessary reasonable measures to the end that such contractor shall cooperate
in all ways with Landlord's contractors to avoid any delay to the work being
performed by Landlord's contractors or conflict in any other way with the
performance of such work.
4.5 QUALITY AND COST OF MATERIALS. If the premises shall not have been
constructed for a prior tenant, all materials and workmanship to be furnished
and installed by Landlord shall be in accordance with building standard as
detailed and defined in Exhibit 3 hereof. Any construction or finish of
previously constructed premises, whether by Landlord or Tenant, shall equal
or exceed the specifications and quantities provided in Exhibit 3. Subject to
Ex. 3-37*, Tenant shall bear all other costs of preparing the premises for
its occupancy in accordance with the final plans including, without
limitation, the cost of substitutes for any items specified in Exhibit 3.
4.6 TENANT'S DELAY -- ADDITIONAL COSTS. If Tenant fails or omits to
make timely submission to Landlord of the plans referred to in Article 4.3,
or other pertinent information, or delays in submitting any other plans or
specifications, or in supplying information, or in approving plans,
specifications or estimates, or in giving authorizations or fails to comply
with Section 4.4(c) hereof, or otherwise fails to honor or perform its
obligations under this Lease, any additional cost to Landlord in connection
with the completion of the premises in accordance with the terms of this
Lease and Exhibit 3 shall be promptly paid by Tenant to Landlord if such
additional cost is in whole or in part the result of such failure, omission
or delay of Tenant. For the purposes of the next preceding sentence, the
expression "additional cost to Landlord" shall mean the cost over and above
such cost as would have been the aggregate cost to Landlord of completing the
premises in accordance with the terms of this Lease and Exhibit 3 had there
been no such failure, omission or delay. Nothing contained in this Article
4.6 shall limit or qualify or prejudice any other covenants, agreements,
terms, provisions and conditions contained in this Lease, including, but not
limited to Article 4.2.
4.7 ENTRY BY TENANT PRIOR TO TERM COMMENCEMENT DATE. With Landlord's
prior written consent, which shall not be unreasonably withheld, Tenant shall
have the right to enter the premises prior to the Term Commencement Date,
during normal business hours and without payment of rent, to perform such
work or decoration as is to be performed by, or under the direction or
control of, Tenant
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and as is otherwise in compliance with the terms of this Lease. Such right of
entry shall be deemed a license from Landlord to Tenant, and any entry
thereunder shall be at the risk of Tenant.
4.8 CONCLUSIVENESS OF LANDLORD'S PERFORMANCE. Tenant shall be
conclusively deemed to have agreed that Landlord has performed all of its
obligations under this Article 4 unless not later than the end of the
calendar month next beginning after the Term Commencement Date Tenant shall
give Landlord written notice specifying the respects in which Landlord has
not performed any such obligation.
4.9 TENANT PAYMENTS OF CONSTRUCTION COST. Landlord shall have the same
rights and remedies which Landlord has upon the nonpayment of Yearly Rent and
other charges due under this Lease for nonpayment of any amounts which Tenant
is required to pay to Landlord or Landlord's contractor in connection with
the construction and initial preparation of the premises (including, without
limitation, any amounts which Tenant is required to pay in accordance with
Articles 4.5 and 4.6 hereof) or in connection with any construction in the
premises performed for Tenant by Landlord, Landlord's contractor or any other
person, firm or entity after the Term Commencement Date.
5. USE OF PREMISES
5.1 PERMITTED USE. only for the purposes as stated in Exhibit 1 and
for no other purposes. Service and utility areas (whether or not a part of
the premises) shall be used only for the particular purpose for which they
were designed. Without limiting the generality of the foregoing, Tenant
agrees that it shall not use the premises or any part thereof, or permit the
premises or any part thereof to be used for the preparation or dispensing of
food. Notwithstanding the foregoing, but subject to the other terms and
provisions of this Lease, Tenant may, with Landlord's prior written consent,
which consent shall not be unreasonably withheld. Tenant hereby acknowledging
that the Building or the Project is not engineered to provide any such
special venting.
5.2 PROHIBITED USES. Notwithstanding any other provision of this
Lease, Tenant shall not use, or suffer or permit the use or occupancy of, or
suffer or permit anything to be done in or anything to be brought into or
kept in or about the premises or the Building or any part thereof (i) which
would violate any of the covenants, agreements, terms, provisions and
conditions of this Lease, of the Ground Lease or otherwise applicable to or
binding upon the premises; (ii) for any unlawful purposes or in any unlawful
manner; (iii) which, in the reasonable judgment of Landlord shall in any way
(a) impair the appearance or reputation of the Project or (b) impair,
interfere with or otherwise diminish the quality of any of the Building or
Project services or the proper and economic heating, cleaning, air
conditioning or other servicing of the Building or premises, or with the use
or occupancy of any of the other areas of the Building, or occasion
discomfort, inconvenience or annoyance to, any of the other tenants or
occupants of the Building or of the Project; or (iv) which is inconsistent
with the maintenance of the Building and the Unit as an office building
complex of the first class in the quality of its maintenance, use, or
occupancy. Tenant shall not install or use any electrical or other equipment
of any kind which, in the reasonable judgment of Landlord, might cause any
such impairment, interference, discomfort, inconvenience or
annoyance.
5.3 LICENSES AND PERMITS. If any governmental license or permit shall
be required for the proper and lawful conduct of Tenant's business, and if
the failure to secure such license or permit would in any way affect
Landlord, the premises, the Building, the Project or Tenant's ability to
perform any of its obligations under this Lease, Tenant, at Tenant's expense,
shall duly procure and thereafter maintain
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such license and submit the same to inspection by Landlord. Tenant, at
Tenant's expense, shall at all times comply with the terms and conditions of
each such license or permit. Tenant shall furnish all data and information to
Governmental authorities and Landlord as requested in accordance with legal,
regulatory, licensing or other similar requirements as they relate to
Tenant's use or occupancy of the premises or the Building.
6. RENT
During the term of this Lease the Yearly Rent and other charges at the
rate stated in Exhibit 1, shall be payable by Tenant to Landlord by monthly
payments, as stated in Exhibit 1, in advance and without demand on the first
day of each month for and in respect of such month. The rent and other
charges reserved and convenanted to be paid under this Lease shall commence
on the date ("Rent Commencement Date") ten (10) months after the Term
Commence Date. If, by reason of any provisions of this Lease, the rent
reserved hereunder shall commence or terminate on any day other than the first
day of a calendar month, the rent for such calendar month shall be prorated.
The rent shall be payable to Landlord or, if Landlord shall so direct in
writing, to Landlord's agent or nominee, in lawful money of the United States
which shall be legal tender for payment of all debts and dues, public and
private, at the time of payment, at the office of Landlord or such place as
Landlord may designate, and the rent and other charges in all circumstances
shall be payable without any setoff or deduction whatsoever except as
otherwise expressly herein set forth. Rental and any other sums due hereunder
not paid within ten (10) days after the date due shall bear interest for each
month or fraction thereof from the due date until paid computed at the annual
rate of two percentage points over the so-called prime rate then currently
from time to time charged to its most favored corporate customers by the
largest national bank (N.A.) located in the city in which the Building is
located, or at any applicable lesser maximum legally permissible rate for
debts of this nature.
7. RENTABLE AREA -- ADJUSTMENT OF RENT
Total Rentable Area and Net Rentable Area of the premises shall be
determined in accordance with Exhibit 5.
8. SERVICES FURNISHED BY LANDLORD
8.1 ELECTRIC CURRENT.
(a) Landlord will require Tenant to contract with the company
supplying electric current for the purchase and obtaining by Tenant of
electric current directly from such company to be billed directly to, and
paid for by, Tenant.
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(d) Whether or not Landlord is furnishing electric current to
Tenant, if Tenant shall require electric current for use in the premises in
excess of such reasonable quantity to be furnished for such use as
hereinabove provided and if (i) in Landlord's reasonable judgment the
Project's facilities are inadequate for such excess requirements or (ii) such
excess use shall result in an additional burden on the Project's air
conditioning system and additional cost to Landlord on account thereof then,
as the case may be, (x) Landlord upon written request and at the sole cost
and expense of Tenant, will furnish and install such additional wire,
conduits, feeders, switchboards and appurtenances as reasonably may be
required to supply such additional requirements of Tenant if current therefor
be available to Landlord, provided that the same shall be permitted by
applicable laws and insurance regulations and shall not cause damage to the
Building, the Unit, or the Project or the premises or cause or create a
dangerous or hazardous condition or entail excessive or unreasonable
alterations or repairs or interfere with or disturb other tenants or
occupants of the Building, the Unit, or the Project or (y) Tenant shall
reimburse Landlord for such additional cost, as aforesaid.
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(e) Landlord, at Tenant's expense and upon Tenant's request, shall
purchase and install all replacement lamps of types generally commercially
available (including, but not limited to, incandescent and fluorescent) used
in the premises. (See Exhibit 3 in respect of initial lamping.)
(f) Landlord shall not in any way be liable or
responsible to Tenant for any loss, damage or expense which Tenant may
sustain or incur if the quantity, character, or supply of electrical energy
is changed or is no longer available or suitable for Tenant's requirements.
(g) Tenant agrees that it will not make any material alteration
or material addition to the electrical equipment and/or applicances in the
premises without the prior written consent of Landlord in each instance first
obtained, which consent will not be unreasonably withheld, and will promptly
advise Landlord of any other alteration or addition to such electrical
equipment and/or appliances.
8.2 WATER. Landlord shall furnish hot and cold water for ordinary
premises cleaning, toilet, lavatory and drinking purposes. All piping and
other equipment and facilities for use of water outside the Building core
will be installed and maintained by Landlord at Tenant's sole cost and
expense.
8.3 ELEVATORS, HEAT, CLEANING.
(a) Landlord at its expense shall: (i) provide necessary elevator
facilities (which may be manually or automatically operated, either or both,
as Landlord may from time to time elect) on Mondays through Fridays,
excepting legal holidays, from 8:00 a.m. to 6:00 p.m. and on Saturdays,
excepting legal holidays, from 8:00 a.m. to 1:00 p.m. (called "business
days") and have one elevator in operation available for Tenant's use,
non-exclusively, together with others having business in the Building, at
all other times; (ii) furnish heat (substantially equivalent to that being
furnished in comparably aged similarly equipped office buildings in the same
city) to the premises during the normal heating season on business days; and
(iii) cause the office areas of the premises to be cleaned on business days
(except on Saturdays) shall represent substantially the extent and scope of
the cleaning by Landlord referred to in this Article 8.3.
(b) The parties agree and acknowledge that, despite reasonable
precautions in selecting cleaning and maintenance contractors and personnel,
any property or equipment in the premises of a delicate, fragile or
vulnerable nature may nevertheless be damaged in the course of cleaning and
maintenance services being performed. Accordingly, Tenant shall take
reasonable protective precautions with such property and equipment
(including, without limitation, computers or other data processing components
or equipment and optical or electronic equipment, etc.), e.g., housing the
property and equipment in a separate, locked room, so as to render it
inaccessible to the Building's cleaning personnel.
8.4 AIR CONDITIONING. Landlord shall through the air conditioning
equipment of the Project furnish to and distribute in the premises air
conditioning as normal seasonal changes may require on
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business days during the hours as aforesaid in Article 8.3 when air
conditioning may reasonably be required for the comfortable occupancy of the
premises by Tenant. Tenant agrees to lower and close the blinds or drapes
when necessary because of the sun's position, whenever the air conditioning
system is in operation, and to cooperate fully with Landlord with regard to,
and to abide by all the reasonable regulations and requirements which Landlord
may prescribe for the proper functioning and protection of the air
conditioning system. The air conditioning system referred to in this Article
8.4 shall be capable of providing 76 DEG. F dry bulb and 50% relative
humidity with outside conditions of 88 DEG. F dry bulb and 71 DEG. F
wet bulb. The foregoing design conditions shall be based upon an occupancy
within each separately partitioned area in the premises of not more than one
person per 100 square feet of Net Rentable Area and upon a combined lighting
and standard electrical load not to exceed 2 1/2 watts per square foot of Net
Rentable Area. The quality and level of air-conditioning service provided
hereunder by Landlord to the premises shall be substantially equivalent to
that provided by other first-class office buildings in Boston.
8.4A Landlord will furnish all electric current to operate base-building
service equipment such as fans, air-handling equipment (not Tenant's special
HVAC), elevators and lighting in core areas.
8.5 ADDITIONAL HEAT, CLEANING AND AIR CONDITIONING SERVICES.
(a) Landlord will use reasonable efforts upon reasonable advance
written notice from Tenant of its requirements in that regard, to furnish
additional heat, cleaning or air conditioning services to the premises on days
and at times other than as above provided.
(b) Tenant will pay to Landlord a reasonable charge, based upon
Landlord's actual cost of such service, including any overhead factor, but
not including any profit for Landlord, (i) for any such additional heat,
cleaning or air conditioning service required by Tenant, (ii) for any extra
cleaning of the premises required because of the carelessness or indifference
of Tenant or because of the nature of Tenant's business, and (iii) for any
cleaning done at the request of Tenant of any portions of the premises which
may be used for storage, shipping room or other non-office purposes. If the
cost to Landlord for cleaning the premises shall be increased due to the
installation in the premises, at Tenant's request, of any materials or finish
other than those which are building standard, Tenant shall pay to Landlord an
amount equal to such increase in cost. Landlord agrees to arrange for Tenant
to obtain such additional cleaning services from the Building's cleaning
contractor at the same rates at which Landlord can obtain such additional
services under the terms of Landlord's contract with said Building cleaning
contractor.
8.6 ADDITIONAL AIR CONDITIONING EQUIPMENT. In the event Tenant requires
additional air conditioning for business machines, meeting rooms or other
special purposes, or because of occupancy or excess electrical loads, any
additional air conditioning units, chillers, condensers, compressors, duets,
piping and other equipment, such additional air conditioning equipment will
be installed and maintained by Landlord at Tenant's sole cost and expense,
but only if, Tenant has obtained Landlord's prior written consent, which
consent shall not be unreasonably withheld and if the same will not cause
damage or injury to the Project or create a dangerous or hazardous condition
or entail excessive or unreasonable alterations, repairs or expense or
interfere with or disturb other tenants; and Tenant shall reimburse Landlord
in such an amount as will compensate it for the cost incurred by it in
operating such additional air conditioning equipment.
8.7 REPAIRS. Except as otherwise provided in Articles 18 and 20, and
subject to Tenant's obligations in Article 14, Landlord shall keep and
maintain the roof, exterior walls, structural floor slabs, columns,
elevators, public stairways and corridors, lavatories, equipment (including,
without limitation, sanitary, electrical, heating, air conditioning, or other
systems, and the plate glass windows of the Building at the perimeter of the
Demised Premises [except that, subject to Tenant's rights under Article 19
hereof, such repair shall be Tenant's responsibility if the damage is due to
the negligence of Tenant, its agents, servants, contractors, invitees or
licensees]) and other common facilities of the Project in good condition and
repair. Notwithstanding the foregoing provisions of this Article 8.7, but
subject to Articles 18 and 20 hereof, the public lobbies, public corridors,
public bathrooms and other public areas serving Tenant shall be maintained in
a first-class condition and Landlord shall make all repairs including
interior and non-structural repairs which are necessitated by the wrongful,
unjustified or negligent actions of Landlord or its servants, employees or
agents.
8.8 INTERRUPTION OR CURTAILMENT OF SERVICES. When necessary by reason of
accident or emergency, or for repairs, alterations, replacements or
improvements which in the reasonable judgment of Landlord are desirable or
necessary to be made, or of difficulty or inability in securing supplies or
labor, or of strikes, or of any other cause beyond the reasonable control of
Landlord, whether such other cause be similar or dissimilar to those
hereinabove specifically mentioned until said cause has been removed,
Landlord reserves the right to interrupt, curtail, stop or suspend (i) the
furnishing of heating, elevator, air conditioning, and cleaning services and
(ii) the operation of the plumbing and electric
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systems. Landlord shall exercise reasonable diligence to eliminate the cause
of any such interruption, curtailment, stoppage or suspension, but, subject
to the provisions of the next sentence hereof, there shall be no diminution
or abatement of rent or other compensation due from Tenant to Landlord
hereunder, nor shall this Lease be affected or any of the Tenant's
obligations hereunder reduced, and the Landlord shall have no responsibility
or liability for any such interruption, curtailment, stoppage, or suspension
of services or systems. In the event that at any time more than 20% of the
premises lack heat or air conditioning when required hereunder or lack
lavatory facilities, water, electricity or elevator service and if such lack
continues for five (5) days consecutively and such lack is not caused by the
fault or neglect of Tenant, then rent and additional rent hereunder shall
abate proportionately with the impact of the deprivation on the fair rental
value of the premises with due consideration being given to the fact of
whether Tenant has actually removed its employees from such area and is not
using the same, such abatement to commence effective as of the inception of
such lack of service and shall continue until such service is restored.
8.9 ENERGY CONSERVATION. Notwithstanding anything to the contrary in
this Article 8 or in this Lease contained, Landlord may institute, and Tenant
shall comply with, such reasonable policies, programs and measures as may be
necessary, required, or expedient for the conservation and/or preservation of
energy or energy services, or as may be reasonably necessary or required to
comply with applicable codes, rules, regulations or standards, provided
however, this clause shall not be construed to allow the Landlord voluntarily
to comply with energy conservation programs which increase the heat in the
Building in the summer and increase the cold in the Building in the winter,
except to the extent that any such voluntary measures are substantially
uniformly adopted and followed in first-class office buildings in Boston.
8.10 MISCELLANEOUS. Other than air conditioning, all services provided
by Landlord to Tenant are based upon an assumed maximum premises population
of one person per one hundred fifty (150) square feet of Total Rentable Area,
which limit Tenant shall in no event exceed.
8.11 PERFORMANCE OF LANDLORD'S OBLIGATIONS. Wherever in this Article 8
or in Articles 18, 19, and 20 Landlord has an affirmative obligation or a
right to take discretionary action in connection with the performance of
services, maintenance, repairs, or insurance, Landlord shall either perform
such obligation or such obligation or discretionary action may be performed
by the responsible party.
8.12 SECURITY. Without making any guaranty, warranty or assurance of
the efficacy of its efforts under this paragraph, Landlord agrees to provide
a person to act as a full-time security guard for the Building on a
seven-day, 24-hours-per-day basis, and Landlord agrees to provide at least
one security guard in the lobby of the Building at all times between the
hours of 6:00 P.M. and midnight on business days.
9. ESCALATION
9.1 DEFINITIONS. As used in this Article 9, the words and terms
which follow mean and include the following:
(a) "Operating Year" shall mean a calendar year in which occurs
any part of the term of this Lease.
(b) "Operating Costs in the Base Year" shall be the amount as
stated in Exhibit 1.
(c) "Tenant's Proportionate Share" shall be the figure as stated
in Exhibit 1.
(d) "Operating Costs" shall mean all costs incurred and
expenditures of whatever nature made by Landlord or an Underlying Party, as
defined in Paragraph (a) of Article 23 of this Lease, in the operation and
management, for repair and replacements, cleaning and maintenance of the Unit
and the grounds of the Project, including, without limitation, vehicular and
pedestrian passageways included within the common areas of the Condominium,
related equipment, facilities and appurtenances, elevators, cooling and
heating equipment (not including, however, mortgage charges, brokerage
commissions, salaries of executives and owners not directly employed in the
management/operation of the Unit, the cost of work done by Landlord or an
Underlying Party for a particular tenant which is properly chargeable to such
tenant and such portion of expenditures as are not properly chargeable
against income), provided, however, that:
(i) If, during the term of this Lease, Landlord shall replace
a capital item which has worn out or become functionally
obsolete and make a capital expenditure(s), the total
amount of which is not properly includible in Operating
Costs for the Operating Year in which it was made, there
shall nevertheless be included in such Operating Costs and
in Operating Costs for each succeeding Operating Year the
amount, if any, by which the annual charge-off (determined
as hereinafter provided) of such expenditure (less insurance
proceeds, if any, collected by Landlord by reason of damage
to, or destruction of, the capital item being replaced)
exceeds the annual charge-off of the original cost of such
item being replaced; and
(ii) If a capital expenditure is made for (a) a new capital item
which does not replace another capital item which was worn
out, become functionally obsolete, etc., or (b) a capital
item that in whole or in part replaces another capital item
that has not yet worn out or become functionally obsolete,
then and in either such event there shall be included in
Operating Costs for each Operating Year after such
expenditure is made the annual charge-off of any such
capital expenditure. However, any such capital expenditure
under this clause (ii) (and the annual charge-off with
respect thereto) shall not be included in Operating Costs
unless such new capital item is (a) required by applicable
law or regulation; or (b) is reasonably projected to reduce
the cost of operating the Building, e.g.,
energy-conservation measures.
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(Annual charge-off shall be determined by (i) dividing the original cost of
the capital expenditure by the number of years of useful life thereof (The
useful life shall be reasonably determined by Landlord in accordance with
generally accepted accounting principles and practices in effect at the time
of acquisition of the capital item.); and (ii) adding to such quotient an
interest factor computed on the unamortized balance of such capital
expenditure at an annual rate of either one percentage point over the AA Bond
rate (Standard & Poor's corporate composite or, if unavailable, its
equivalent) as reported in the financial press at the time the capital
expenditure is made or, if the capital item is acquired through third-party
financing, then the actual (including fluctuating) rate paid by Landlord in
financing the acquisition of such capital item.) Operating Costs (and any
capital expenditure component thereof) shall not include costs of correcting
defects in the design or construction of the Building; any improvement in
respect of an area or service of which Tenant has no use, benefit or
enjoyment in common with other tenants in the Building provided that this
clause shall not apply to Common Area Charges as defined in Article 9.1(g);
all leasing costs including legal, advertising, brokerage, construction
costs, takeover, etc.; nor any item or type of service provided to another
tenant which is of a type or quantity which if provided to Tenant would be
paid for by Tenant as an additional charge (i.e. rather than being included
in Operating Costs) nor any expense properly chargeable to another tenant;
nor the costs of litigation to enforce lease terms; nor any expenses of the
managing agent's home office operation (which are intended to be covered by
the management fee, which is included in Operating Costs).
Wages (as stated below) shall not include any costs relating to or
accrued or incurred in respect of a time prior to the Term Commencement Date,
e.g., any unfunded past-service liability under ERISA.
At the request of the Tenant made within one (1) year after the receipt
by Tenant of the bill setting forth the actual amount of Operating Expense
Excess for any Operating Year, the Landlord shall provide a statement of
Operating Costs for such Operating Year, which statement shall include line
items for each Operating Cost category in accordance with Landlord's standard
accounting practice and procedures (and capital expenditure component
thereof) claimed by the Landlord for such year and for each capital
expenditure component claimed shall state sufficient information for the
Tenant to determine the validity thereof under this Section 9.1(d)-11*, and
which shall be certified as to accuracy by the chief financial officer of the
Landlord, or a general partner of the Landlord so long as the Landlord is a
general or limited partnership.
Operating Costs shall include, but not be limited to, the following:
Real Estate Taxes: The product of; (i) a fraction, the numerator of
which is the Total Rentable Area of the Unit, excluding the portions of the
Unit designated by Landlord for retail use, and the denominator of which is
the Total Rentable Area of the Unit, multiplied by (ii) the Real Estate Taxes
and other taxes, levies and assessments imposed upon the Unit and upon any
personal property of Landlord used in the operation thereof, or Landlord's
interest in the Unit or such personal property; charges, fees and assessments
for transit, housing, police, fire or other governmental services or
purported benefits to the Unit; service or user payments in lieu of taxes;
and any and all other taxes, levies, betterments, assessments and charges
arising from the ownership, leasing, operating, use or occupancy of the Unit
or based upon rentals derived therefrom, which are or shall be imposed by
National, State, Municipal or other authorities. As of the Execution Date,
Real Estate Taxes shall not include any franchise, rental, income or profit
tax, capital levy or excise, provided, however, that any of the same and any
other tax, excise, fee, levy, charge or assessment, however described, that
may in the future be levied or assessed as a substitute for or an addition
to, in whole or in part, any tax, levy or assessment which would otherwise
constitute Real Estate Taxes, whether or not now customary or in the
contemplation of the parties on the Execution Date of this Lease, shall
constitute Real Estate Taxes, but only to the extent calculated as if the
Landlord's interest in the Unit is the only real estate owned by Landlord.
Real Estate Taxes shall also include expenses of tax abatement or other
proceedings contesting assessments or levies. Until the fiscal/tax year in
which the Unit is assessed as a separate tax parcel by the City of Boston,
the real estate taxes allocable to the Unit shall be determined for any
fiscal/tax year as the product of forty-seven percent (47%) of the assessed
value of the Project, multiplied by the tax rate applicable to commercial
property in the City of Boston in respect of such fiscal/tax year.
Appropriate credit against Real Estate Taxes shall be given for any
refund obtained by reason of a reduction in any Real Estate Taxes by the
Assessors or the administrative, judicial or other governmental agency
responsible therefor. The original computations, as well as reimbursement or
payments of additional charges, if any, or allowances, if any, under the
provisions of Article 9.2 shall be based on the original assessed valuations
with adjustments to be made at a later date when
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the tax refund, if any, shall be paid to Landlord by the taxing authorities.
Expenditures for legal fees, court costs, reasonable survey, appraisal and
accounting fees and for other reasonable costs and expenses incurred in
obtaining the tax refund may be charged against the tax refund before the
adjustments are made for the Tax Period.
Upon request made by tenants in the Building occupying a total of at
least fifty percent (50%) of the Total Rentable Area of the unit and upon the
furnishing by such tenants of sufficient funds to adequately prosecute a tax
abatement proceeding, the Landlord will commence and prosecute such
proceeding and any abatements, adjustments or refunds secured will be treated
in accordance with the foregoing paragraph except that the tenants that shall
have contributed to the expenditures incurred by reason of such proceedings
shall first be entitled to credit or reimbursement to the extent of such
contribution, but not to exceed the amount of such abatement, adjustment or
refund.
TAXES (OTHER THAN REAL ESTATE TAXES): Sales, Federal Social Security,
Unemployment and Old Age Taxes and contributions and State Unemployment taxes
and contributions accruing to and paid by the Landlord on account of all
employees of Landlord who are employed in, about or on account of the Unit,
except that taxes levied upon the net income of the Landlord and taxes
withheld from employees, and "Taxes" as defined in Article 9.1 (d) shall not
be included herein.
WATER: All charges and rates connected with water supplied to the Unit and
related sewer use charges.
HEAT: All charges connected with heat supplied to the Unit.
WAGES: Wages and cost of employee benefits of all employees of the Landlord
who are employed in, about or on account of the Unit.
CLEANING: The cost of labor and material for cleaning the Unit, including
the interior of windows.
ELEVATOR MAINTENANCE: All expenses for or on account of the upkeep and
maintenance of all elevators in the Unit.
ELECTRICITY: The cost of all electric current for the operation of any
machine, appliance or device used for the operation of the premises and the
Unit, including the cost of electric current for the elevators,lights, air
conditioning and heating, but not including electric current which is paid
for directly to the utility by the user/tenant in the Unit. (If and so long
as Tenant is billed directly by the electric utility for its own consumption
as determined by its separate meter, then Operating Costs shall include only
Unit and public area electric current consumption and not any demised
premises electric current consumption. Wherever separate metering is
unlawful, prohibited by utility company regulation or tariff or is otherwise
impracticable, relevant consumption figures for the purposes of this Article
9 shall be determined by fair and reasonable allocations and engineering
estimates made by Landlord, Furthermore, if and to the extent that the
Operating-Costs-in-the-Base-Year figure shall include any component
representing the cost to the Landlord of electric current supplied to any
tenant's premises under so-called "rent-inclusion" lease arrangements then if
such cost is eliminated from Operating Costs in an Operating Year in
accordance with the foregoing provisions, the figure for Operating Costs in
the Base Year for the purposes of this Article 9 shall likewise be reduced by
the amount of such cost component.)
INSURANCE, ETC: Fire, casualty, liability and such other insurance as may
from time to time be required by lending institutions on first-class office
buildings in the City or Town wherein the Project is located, excluding,
however those insurance coverages which are included in Common Area Charges,
as hereinafter set forth, and all other expenses customarily incurred in
connection with the operation and maintenance of first-class office buildings
in the City or Town wherein the Project is located.
COMMON AREA CHARGES: Whereas the Unit is part of the Condominium, Operating
Costs shall include any common area and any other charges which Landlord is
required to pay to The Board of Managers of the Condominium ("Common Area
Charges"). Common Area Charges include, without limitation, the following
costs: all charges and rates connected with water supplied to the Unit and
related sewer use charges; all charges connected with air conditioning
supplied to the Unit, the costs of labor and material for cleaning the
grounds and paved areas of the Project and the
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exterior of windows; fire, causality, liability, and such other insurance as
may be required under the Underlying Instruments, as defined in Paragraph
(a) of Article 23. Capital expenditures which are included in Common Area
Charges shall be included in Operating Costs, subject to the following: (i)
if such capital expenditure is allocable solely to the Unit, then only the
annual charge-off in respect of such capital expenditure shall be included in
any Operating Year, as set forth above; (ii) if such capital expenditure is
borne by more than one unit owner in the Project, then, unless the capital
expenditure is being amortized by the Underlying Party, only the annual
charge-off in respect of such capital expenditure shall be included in any
Operating year, as set forth above; and (iii) capital expenditures, amortized
by an Underlying Party, are includible in Operating Costs in the Operating
Year in which they are included in Common Area Charges. Notwithstanding the
foregoing, Operating Costs shall not include the following Common Area
Charges: the costs of operating and maintaining the maritime facilities of
the project (as provided in Section 1(a)(5) of Article VI of the By-Laws of
the Condominium), the costs of operating and maintaining the parking garage
within the Project (as provided in Section 1(a)(2) of Article VI of the
By-Laws of the Condominium), and Development Impact Project Exactions
assessed by the City of Boston (as provided in Section 1(b) of Article VI of
the By-Laws of the Condominium).
REDUCTIONS IN OPERATING COSTS ON ACCOUNT OF RETAIL AREAS OF THE UNIT:
Operating Costs for any Operating Year shall be reduced by: (i) the product
of: (x) a fraction, the numerator of which is the Total Rentable Area of the
portion of the Unit designated by Landlord for retail use, and the
denominator of which is the Total Rentable Area of the Unit, multiplied by
(y) those Common Area Charges payable by Landlord in such Operating Year, and
(ii) the cost of any services not included in Common Area Charges rendered by
Landlord to such retail areas of the Unit.
9.2 Operating Expense Excess. If the Operating Costs in any Operating
year exceed the Operating Costs in the Basic Year, Tenant shall pay to
Landlord Tenant's Proportionate Share of such excess, such amount being
hereinafter referred to as "Operating Expense Excess." Operating Expense
Excess shall be due when billed by landlord. In implementation and not in
limitation of the foregoing, Tenant shall remit to Landlord pro rata monthly
installments on account of projected Operating Expense Excess, calculated by
LandLord on the basis of the most recent Operating Costs data or budget
available. If the total of such monthly remittances on account of any
Operating Year is greater than the actual Operating Expense Excess for such
Operating Year, Tenant may credit the difference against the next installment
of rent or other charges due to Landlord hereunder. If the total of such
remittances is less than actual Operating Expense Excess for such Operating
Year, Tenant shall pay the difference to Landlord when billed therefor.
9.3 Part Years. If the Term commencement Date or the Termination Date
occurs in the middle of an Operating Year, Tenant shall be liable for only
the portion of the Operating Expense Excess, in respect of such Operating
Year, represented by a fraction the numerator of which is the number of days
of the herein term which falls within the Operating Year and the denominator
of which is three hundred sixty-five (365).
9.4 Disputes, etc. Any disputes arising under this Article 9 may, at the
election of either party, be submitted to arbitration as hereinafter
provided. Any obligations under this Article 9 which shall not have been paid
at the expiration or sooner termination of the term of this Lease shall
survive such expiration and shall be paid when and as the amount of same
shall be determined to be due.
10. CHANGES OR ALTERATIONS BY LANDLORD
Landlord reserves the right, exercisable by itself, its nominee, or by
any Underlying Party, at any time and from time to time without the same
constituting an actual or constructive eviction and without incurring any
liability to Tenant therefor or otherwise affecting Tenant's obligations under
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this Lease, to make such changes, alterations, additions, improvements,
repairs or replacements in or to the Project (including the premises) and the
fixtures and equipment thereof, as well as in or to the street entrances,
halls, passages, elevators, escalators, and stairways thereof, as it may deem
necessary or desirable, and to change the arrangement and/or location of
entrances or passageways, doors and doorways, and corridors, elevators,
stairs, toilets, or other public parts of the Unit or of the Project,
provided, however, that there be no unreasonable obstruction of the right of
access to, or unreasonable interference with the use of the premises by
Tenant. Nothing contained in this Article 10 shall be deemed to relieve
Tenant of any duty, obligation or liability of Tenant with respect to making
any repair, replacement or improvement or complying with any law, order or
requirement of any governmental or other authority. Landlord reserves the
right to adopt and at any time and from time to time to change the name or
address of the Building and the Project. Neither this Lease nor any use by
Tenant shall give Tenant any right or easement for the use of any door or any
passage or any concourse connecting with any other building or to any public
convenience, and the use of such doors, passages and concourses and of such
conveniences may be regulated or discontinued at any time and from time to
time by Landlord without notice to Tenant and without affecting the
obligation of Tenant hereunder or incurring any liability to Tenant therefor,
provided, however, that there be no unreasonable obstruction of the right of
access to, or unreasonable interference with the use of the premises by
Tenant.
If at any time any windows of the premises are temporarily closed or
darkened for any reason whatsoever including but not limited to, Landlord's
own acts, Landlord shall not be liable for any damage Tenant may sustain
thereby and Tenant shall not be entitled to any compensation therefor nor
abatements of rent nor shall the same release Tenant from its obligations
hereunder nor constitute an eviction. "Temporary" as used herein means the
period reasonably required to effect a repair or alteration necessitating
such closing or darkening.
11. FIXTURES, EQUIPMENT AND IMPROVEMENTS -- REMOVAL BY TENANT
All fixtures, equipment, improvements and appurtenances attached to or
built into the premises prior to or during the term, whether by Landlord at
its expense or at the expense of Tenant (either or both) or by Tenant shall
be and remain part of the premises and shall not be removed by Tenant during
or at the end of the term unless otherwise expressly provided in this Lease.
All electric, telephone, telegraph, communication, radio, plumbing, heating
and sprinkling systems, fixtures and outlets, vaults, paneling, molding,
shelving, radiator enclosures, cork, rubber, linoleum and composition floors,
ventilating, silencing, air conditioning and cooling equipment, shall be
deemed to be included in such fixtures, equipment, improvements and
appurtenances, whether or not attached to or built into the premises.
Notwithstanding the foregoing, all communications equipment, all of Tenant's
free-standing air-conditioning units, carpets, drinking or tap water
facilities, food preparation equipment, furniture, trade fixtures or business
equipment may be removed by Tenant upon the condition that such removal shall
not materially damage the Building and on the further condition that any
damage to the premises caused by installation or such removal may be repaired
by the Landlord at the expense of Tenant if Landlord in fact repairs the
damage to make the same improvement available to a subsequent tenant of the
premises.
12. ALTERATIONS AND IMPROVEMENTS BY TENANT
Tenant shall make no structural or mechanical alterations in the
premises and shall perform no construction, without Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed.
Notwithstanding anything to the contrary herein contained, Tenant shall have
the right, without obtaining Landlord's consent, to decorate the premises
(i.e., carpeting, painting, wallpapering and similar surface treatments) upon
prior notice to Landlord. All contractors and mechanics doing any work in the
premises, including decoration, must be reasonably acceptable to Landlord.
Except in the case of structural alterations and alterations of the
mechanical system (other than the relocation of convectors and their
appurtenant ducts in small areas), Landlord shall not impose any supervision
charge on Tenant or its contractors and mechanics. Any such work, decoration,
additions and improvements shall be done at Tenant's sole cost and expense
and at such times and in such manner as Landlord may reasonably designate.
Tenant's contractors and mechanics will be given reasonable access to the
service elevator to bring materials to and from the premises.
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No installations or work shall be undertaken or begun by Tenant until: (i)
Landlord has approved written plans and specifications and a time schedule
therefor; (ii) Tenant has made provision for either written waivers of liens
from all contractors, laborers and suppliers of materials for such
installations or work, the filing of lien bonds on behalf of such
contractors, laborers and suppliers, or other appropriate protective measures
approved by Landlord. No amendments or additions to such plans and
specifications shall be made without the prior written consent of Landlord.
Landlord's consent and approval required under this Article 12 shall not be
unreasonably withheld. Tenant shall pay, as an additional charge, the entire
increase in real estate taxes on the Unit which shall, at any time prior to
or after the Term Commencement Date, result from or be attributable to any
alteration, addition or improvement to the premises made by or for the
account of Tenant in excess of the specifications and quantities provided in
Exhibit 3.
13. TENANT'S CONTRACTORS -- MECHANICS' AND OTHER LIENS -- STANDARD OF
TENANT'S PERFORMANCE -- COMPLIANCE WITH LAWS
Whenever Tenant shall make any alterations, decorations, installations,
removals, additions or improvements in or to the premises -- whether such
work be done prior to or after the Term Commencement Date -- Tenant will
strictly observe the following covenants and agreements:
(a)
(b) Any mechanic's lien filed against the premises or the Project
for work claimed to have been done for, or materials claimed to have been
furnished to, Tenant shall be discharged by Tenant within ten (10) days
thereafter, at Tenant's expense, by filing the bond required by law or
otherwise. If Tenant fails so to discharge any lien, Landlord may do so at
Tenant's expense and Tenant shall reimburse Landlord for any expense or cost
incurred by Landlord in so doing within fifteen (15) days after rendition of
a bill therefor.
(c) All installations or work done by Tenant shall be at its own
expense and shall at all times comply with (i) laws, rules, orders and
regulations of governmental authorities having jurisdiction thereof; (ii)
orders, rules and regulations of any Board of Fire Underwriters, or any other
body hereafter constituted exercising similar functions, and governing
insurance rating bureaus; (iii) Rules and Regulations of Landlord; and (iv)
plans and specifications prepared by and at the expense of Tenant theretofore
submitted to and approved by Landlord.
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(d) Tenant shall procure all necessary permits before undertaking
any work in the premises; do all of such work in a good and workmanlike
manner, employing materials of good quality and complying with all
governmental requirements; and defend, save harmless, exonerate and indemnify
Landlord, and the Additional Insured Parties (if any) listed on Exhibit 1,
from all injury, loss or damage to any person or property occasioned by or
growing out of such work. Tenant shall cause contractors employed by Tenant
to carry Worker's Compensation Insurance in accordance with statutory
requirements. Automobile Liability Insurance, and Comprehensive General
Liability Insurance, (which General Liability Insurance shall name Landlord
and the Additional Insured Parties (if any) listed on Exhibit 1 as additional
insured parties), covering such contractors on or about the premises in the
amounts stated in Article 15 hereof or in such other reasonable amounts as
Landlord shall require and to submit certificates evidencing such coverage to
Landlord prior to the commencement of such work.
14. REPAIRS BY TENANT -- FLOOR LOAD
14.1 REPAIRS BY TENANT. Tenant shall keep all and singular the premises
neat and clean (including periodic rug shampoo and waxing of tiled floors and
cleaning of blinds and drapes) and in such repair, order and condition as the
same are in on the Term Commencement Date or may be put in during the term
hereof, reasonable use and wearing thereof and damage by fire or by other
casualty excepted. Tenant shall make, as and when needed as a result of
misuse by, or neglect or improper conduct of, Tenant or Tenant's servants,
employees, agents, contractors, invitees, or licensees or otherwise, all
repairs in and about the premises necessary to preserve them in such repair,
order and condition, which repairs shall be in quality and class equal to the
original work. Landlord may elect, at the expense of Tenant, to make any such
repairs or to repair any damage or injury to the Building or the premises
caused by moving property of Tenant in or out of the Building, or by
installation or removal of furniture or other property, or by misuse by, or
neglect or improper conduct of, Tenant or Tenant's servants, employees,
agents, contractors, or licensees.
14.2 FLOOR LOAD -- HEAVY MACHINERY. Tenant shall not place a load upon
any floor of the premises exceeding the floor load per square foot of area
which such floor was designed to carry and which is allowed by law. Landlord
reserves the right to prescribe the weight and position of all business
machines and mechanical equipment, including safes, which shall be placed so
as to distribute the weight. Business machines and mechanical equipment shall
be placed and maintained by Tenant at Tenant's expense in settings sufficient
in Landlord's judgment to absorb and prevent vibration, noise and annoyance.
Tenant shall not move any safe, heavy machinery, heavy equipment, freight,
bulky matter, or fixtures into or out of the Building without Landlord's
prior written consent. If such safe, machinery, equipment, freight, bulky
matter or fixtures requires special handling, Tenant agrees to employ only
persons holding a Master Rigger's License to do said work, and that all work
in connection therewith shall comply with applicable laws and regulations.
Any such moving shall be at the sole risk and hazard of Tenant and Tenant
will defend, indemnify and save Landlord harmless against and from any
liability, loss, injury, claim or suit resulting directly or indirectly from
such moving. Proper placement of all such business machines, etc., in the
premises shall be Tenant's responsibility.
15. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION
15.1 GENERAL LIABILITY INSURANCE. Tenant shall procure, keep in force
and pay for Comprehensive General Liability Insurance insuring Tenant on an
occurrence basis against all claims and demands for personal injury liability
(including, without limitation, bodily injury, sickness, disease, and death)
or damage to property which may be claimed to have occurred from and after
the time Tenant and/or its contractors enter the premises in accordance with
Article 4 of this Lease, of not less than Two Million ($2,000,000) Dollars in
the event of personal injury to any number of persons or
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damage to property, arising out of any one occurrence, and from time to time
thereafter shall be not less than such higher amounts, if procurable, as may
be reasonably required by Landlord and are customarily carried by responsible
office tenants in the City or Town wherein the Project is located.
15.2 CERTIFICATES OF INSURANCE. Such insurance shall be effected with
insurers approved by Landlord, authorized to do business in the State wherein
the Project is situated under valid and enforceable policies wherein Tenant
names Landlord and the Additional Insured Parties (if any) as are listed on
Exhibit 1 as additional insureds. Such insurance shall provide that it shall
not be cancelled or modified without at least thirty (30) days' prior written
notice to each insured named therein. On or before the time Tenant and/or its
contractors enter the premises in accordance with Articles 4 and 14 of this
Lease and thereafter not less than fifteen (15) days prior to the expiration
date of each expiring policy, original copies of the policies provided for in
Article 15.1 issued by the respective insurers, or certificates of such
policies setting forth in full the provisions thereof and issued by such
insurers together with evidence satisfactory to Landlord of the payment of
all premiums for such policies, shall be delivered by Tenant to Landlord and
certificates as aforesaid of such policies shall upon request of Landlord, be
delivered by Tenant to the holder of any mortgage affecting the premises.
15.3 GENERAL. Tenant will save Landlord and the Additional Insured
Parties (if any) as are listed on Exhibit 1 harmless, and will exonerate,
defend and indemnify Landlord and said Additional Insured Parties, from and
against any and all claims, liabilities or penalties asserted by or on behalf
of any person, firm, corporation or public authority arising from the
Tenant's breach of the Lease or:
(a) On account of or based upon any injury to person, or loss of or
damage to property, sustained or occurring on the premises on account of or
based upon the act, omission, fault, negligence or misconduct of any person
whomsoever (other than Landlord, or Landlord's agents, employees, or
contractors);
(b) On account of or based upon any injury to person, or loss of or
damage to property, sustained or occurring elsewhere (other than on the
premises) in or about the Building, the Unit, or the Project (and, in
particular, without limiting the generality of the foregoing, on or about the
elevators, stairways, public corridors, sidewalks, concourses, arcades,
malls, galleries, vehicular tunnels, approaches, areaways, roof, or other
appurtenances and facilities used in connection with the Building, the Unit,
or the Project, or premises) arising out of the use or occupancy of the
Building, the Unit, or the Project, or premises by the Tenant, or by any
person claiming by, through or under Tenant, or on account of or based upon
the act, omission, fault, negligence or misconduct of Tenant, its agents,
employees or contractors; and
(c) On account of or based upon (including monies due on account of)
any work or thing whatsoever done (other than by Landlord or its contractors,
or agents or employees of either) on the premises during the term of this
Lease and during the period of time, if any, prior to the Term Commencement
Date that Tenant may have been given access to the premises.
(d) Tenant's obligations under this Article 15.3 shall be insured
either under the Comprehensive General Liability Insurance required under
Article 15.1, above, or by a contractual insurance rider or other coverage;
and certificates of insurance in respect thereof shall be provided by Tenant
to Landlord upon request.
15.4 PROPERTY OF TENANT. In addition to and not in limitation of the
foregoing. Tenant covenants and agrees that all Tenant's merchandise,
furniture, fixtures and property of every kind, nature and description
related to or arising out of Tenant's leasehold estate hereunder, which may
be in or upon the premises or Building, in the public corridors, or on the
sidewalks, areaways and approaches adja-
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cent thereto, shall be at the sole risk and hazard of Tenant, and that if the
whole or any part thereof shall be damaged, destroyed, stolen or removed from
any cause or reason whatsoever no part of said damage or loss shall be
charged to, or borne by, Landlord. Provided that Tenant shall insure its
property against loss or damage by fire with extended coverage and any other
perils as are generally commercially insurable from time to time in an amount
as will avoid application of co-insurance, and subject to Article 19 hereof,
Landlord shall repair or replace any damaged or destroyed property where
such damage or loss is caused by the negligence or misconduct of Landlord,
its agents, servants and employees, it being understood and agreed that
Landlord's liability hereunder shall be limited to typical, usual, standard
and ordinary types of office furniture and equipment and Landlord shall in no
event have any liability or responsibility for any unusually valuable, rare
or exotic property, works of art and the like; and in no event shall Landlord
be responsible for any consequential damages, particularly (without
limitation) in the event of any such damage to or destruction of computer or
electronic data processing equipment, in which event Landlord's
responsibility shall be limited to the repair or replacement of the
equipment. Provided Landlord is given notice thereof, Tenant may elect to
self-insure by means of a reasonable "so-called" deductible in which event
Tenant shall be deemed to have obtained the insurance specified above and
Tenant will itself absorb any such damage or loss to the extent of such
self-insurance.
15.5 BURSTING OF PIPES, ETC. Landlord shall not be liable for any injury
or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, electrical or electronic emanations or
disturbance, water, rain or snow or leaks from any part of the Building or
from the pipes, appliances, equipment or plumbing works or from the roof,
street or sub-surface or from any other place or caused by dampness,
vandalism, malicious mischief or by any other cause of whatever nature,
unless caused by or due to the negligence of Landlord, its agents, servants
or employees, and then only after (i) notice to Landlord of the condition
claimed to constitute negligence and (ii) the expiration of a reasonable time
after such notice has been received by Landlord without Landlord having taken
all reasonable and practicable means to cure or correct such condition,
provided, however, that no such notice shall be required in instances where
Landlord had actual knowledge or should have known of the condition resulting
in such injury, damage, etc. In no event shall Landlord be liable for any
loss, the risk of which is covered by Tenant's insurance or is required to be
so covered by this Lease; nor shall Landlord or its agents be liable for any
such damage caused by other tenants or persons in the Project or caused by
operations in construction of any private, public, or quasi-public work; nor
shall Landlord be liable for any latent defect in the premises, the Building,
the Unit, or in the Project, with respect to which Landlord is not negligent,
subject, however, to Landlord's obligations under Article 8.7.
15.6 REPAIRS AND ALTERATIONS -- NO DIMINUTION OF RENTAL VALUE. Except as
otherwise provided in Article 18, there shall be no allowance to Tenant for
diminution of rental value by reason of inconvenience, annoyance or injury to
Tenant arising from any repairs, alterations, additions, replacements or
improvements made by Landlord or any related work, Tenant or others in or to
any portion of the Building or premises or any property adjoining the
Building, or in or to fixtures, appurtenances, or equipment thereof, or for
failure of Landlord or others to make any repairs, alterations, additions or
improvements in or to any portion of the Building, of the Unit, of the
Project, or of the premises, or in or to the fixtures, appurtenances or
equipment thereof.
A. Landlord covenants that it will not permit any tenant to make
repairs or alterations which could reasonably be expected to
inconvenience, annoy or injure Tenant and that Landlord will take
any action to obtain a temporary restraining order and further
injunctive relief, if necessary, against any other tenant creating
such conditions. The foregoing sentence is not intended to reach the
usual and typical incidents of any repair/renovation work being
carried on elsewhere in the Building, e.g., the presence of workmen,
a minimal amount of construction materials, etc., and minor
inconveniences normally attendant to even a well-managed
construction project.
B. If Landlord's repair of the premises or the Building makes any
portion of the premises thereof untenantable for more than five (5)
consecutive business days and if Tenant does not in fact occupy and
utilize more than twenty-five percent (25%) of such untenantable
area of the premises, rent shall abate proportionately with respect
to the portion of the premises so rendered untenantable. Landlord
covenants that it will make all repairs to the premises or the
Building expeditiously and in a manner reasonably designed to
minimize inconvenience or annoyance to Tenant. Any ducts, flues and
shafts running through the premises shall be furred in (enclosed in
drywall, plaster, etc.) walls and ceilings and no other changes may
be made in the premises without the Tenant's prior written consent,
which consent shall not be unreasonably withheld, so long as the
change does not impact, except insubstantially, on executive
offices, reception areas or electronic or office equipment essential
to maintaining the Tenant's business.
16. ASSIGNMENT, MORTGAGING AND SUBLETTING
Tenant covenants and agrees that neither this Lease nor the term and
estate hereby granted, nor any interest herein or therein, will be assigned,
mortgaged, pledged, encumbered or otherwise transferred, voluntarily, by
operation of law or otherwise, and that neither the premises, nor any part
thereof will be encumbered in any manner by reason of any act or omission on
the part of Tenant, or used or occupied, or permitted to be used or occupied,
or utilized for desk space or for mailing privileges, by anyone other than
Tenant, or for any use or purpose other than as stated in Exhibit 1, or be
sublet, or offered or advertised for subletting. Notwithstanding anything to
the contrary in this Article 16 contained, provided that Tenant shall first
have given Landlord written notice of the proposed term for which it desires
to sublet the premises (or any portion thereof) and provided further that
Tenant shall first have offered in writing either to suspend the Lease PRO
FANTO for the period and with respect to the space involved in the proposed
subletting, or if such proposed subletting will be for the entire term of the
Lease, to terminate the Lease with respect to the space involved in the
proposed subletting and Landlord shall not, within thirty (30) days of
receipt of such offer, have accepted the same, Landlord agrees not to
unreasonably withhold its consent to a subletting of all or part of the
premises by Tenant to a person, firm, or corporation which, in Landlord's
reasonable opinion, is (i) financially responsible and of good reputation,
and (ii) is engaged in a business, the functional aspects of which, with
respect to the premises, are substantially similar to the use of other
premises made by other office space tenants in the Project. No such
subletting shall in any way decrease Tenant's primary liability as
party-tenant under the Lease. Notwithstanding the foregoing, it is hereby
expressly understood and agreed, however, that the assignment or transfer of
this Lease by operation of law or otherwise, and the term and estate hereby
granted to any entity into which Tenant is merged, or with which Tenant is
consolidated, or to which all of the assets are transferred, which entity
shall have a net worth at least equal to that of Tenant immediately prior to
such merger, consolidation, or transfer (such entity being hereinafter called
"Assignee"), shall not be deemed to be prohibited hereby if, and upon the
express condition that Assignee and Tenant shall promptly execute,
acknowledge and deliver to Landlord an agreement in form and substance
satisfactory to Landlord whereby Assignee shall agree to be independently
bound by and upon all the covenants, agreements, terms, provisions and
conditions set forth in this Lease on the part of Tenant to be performed, and
whereby Assignee shall expressly agree that the provisions of this Article
16 shall, notwithstanding such assignment or transfer, continue to be binding
upon it with respect to all future assignments and transfers.
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Subject to Article 26-32 hereof, if Tenant is an individual who uses
and/or occupies the premises with partners, or if Tenant is a partnership,
then:
(i) Each present and future partner shall be personally bound by and
upon all of the covenants, agreements, terms, provisions and conditions set
forth in this Lease on the part of Tenant to be performed; and
(ii) In confirmation of the foregoing, Landlord may (but without being
required to do so) request (and Tenant shall duly comply) that Tenant, at the
time that Tenant admits any new partner to its partnership, shall require
each such new partner to execute an agreement in form and substance
satisfactory to Landlord whereby such new partner shall agree to be
personally bound by and upon all of the covenants, agreements, terms,
provisions and conditions of this Lease on the part of Tenant to be
performed, without regard to the time when such new partner is admitted to
partnership or when any obligations under any such covenants, etc., accrue.
The listing of any name other than that of Tenant, whether on the doors
of the premises or on the Building directory, or otherwise, shall not operate
to vest in any such other person, firm or corporation any right or interest
in this Lease or in the premises or be deemed to effect or evidence any
consent of Landlord. Landlord shall provide a Building Directory on which
there shall be listed Tenant, other entities affiliated with Tenant,
subtenants, assignees and/or their officers or key employees.
If this Lease be assigned, or if the premises or any part thereof be
sublet or occupied by anybody other than Tenant, Landlord may, at any time
and from time to time, collect rent and other charges from the assignee,
subtenant or occupant, (provided that Landlord shall have no right to collect
any amounts from subtenants unless Tenant is in default of its obligations
under the Lease beyond applicable grace periods) and apply the net amount
collected to the rent and other charges herein reserved, then due and
hereafter becoming due, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of
the assignee, subtenant or occupant as a tenant, or a release of Tenant from
the further performance by Tenant of covenants on the part of Tenant herein
contained. Any consent by Landlord to a particular assignment or subletting
shall not in any way diminish the prohibition stated in the first sentence of
this Article 16 or the continuing liability of the Tenant named on Exhibit 1
as the party Tenant under this Lease. No assignment or subletting or use of
the premises by an affiliate of Tenant shall affect the purpose for which the
premises may be used as stated in Exhibit 1.
17. MISCELLANEOUS COVENANTS
Tenant covenants and agrees as follows:
17.1 RULES AND REGULATIONS. Tenant will faithfully observe and comply
with the Rules and Regulations, if any, annexed hereto and such other and
further reasonable Rules and Regulations as Landlord hereafter at any time or
from time to time may make and may communicate in writing to Tenant, which in
the reasonable judgment of Landlord shall be necessary for the reputation,
safety, care or appearance of the Building or the Project, or the
preservation of good order therein, or the operation of maintenance of the
Building or the Project, or the equipment thereof, or the comfort of tenants
or others in the Building or the Project, provided, however, that in the case
of any conflict between the provisions of this Lease and any such
regulations, the provisions of this Lease shall control, and provided further
that nothing contained in this Lease shall be construed to impose upon
Landlord, any liability in the event it is unable to enforce the rules and
regulations or the terms, covenants and conditions in any other lease as
against any other tenant, provided, however, that Landlord shall make
reasonable efforts by court proceedings and otherwise to enforce such
obligations, and Landlord shall, having made such efforts, not be liable to
Tenant for violation of the same by any other tenant, its servants,
employees, agents, contractors, visitors, invitees or licensees. Should
Tenant dispute the reasonableness of any future rule or regulation, such
dispute will be resolved by arbitration pursuant to Article 29 hereof.
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17.2 ACCESS TO PREMISES - SHORING. Tenant shall: (i) permit Landlord
and any Underlying Party to erect, use and maintain pipes, ducts and conduits
in and through the premises, provided the same do not materially reduce the
floor area or materially adversely affect the appearance thereof; (ii) upon
prior oral notice (except that no notice shall be required in emergency
situations), permit Landlord and any Underlying Party, and its
representatives, to have free and unrestricted access to and to enter upon
the premises at all reasonable hours for the purpose of inspection or of
making repairs, replacement or improvements in or to the premises or the
Project or equipment (including, without limitation, sanitary, electrical,
heating, air conditioning or other systems) or of complying with all laws,
orders and requirements of governmental or other authority or of exercising
any right reserved to Landlord by this Lease (including the right during the
progress of any such repairs, replacements or improvements or while
performing work and furnishing materials in connection with compliance with
any such laws, orders or requirements to take upon or through, or to keep and
store within, the premises all necessary materials, tools and equipment); and
(iii) permit Landlord, at reasonable times, to show the premises during
ordinary business hours to any existing or prospective Underlying Party,
space lessee, or purchaser of the Unit or any portion of the Project other
than individual dwelling units, or of the interest of Landlord therein, and
during the period of 12 months next preceding the Termination Date to any
person contemplating the leasing of the premises or any part thereof. In
cases of emergency where there is an imminent danger to person or property,
if Tenant shall not be personally present to open and permit an entry into
the premises at any time when for any reason an entry therein shall be
necessary or permissible, Landlord, Landlord's agents, or any Underlying
Party may enter the same by a master key, or may forcibly enter the same,
without rendering Landlord or such agents liable therefor (if during such
entry Landlord or Landlord's agents shall accord reasonable care to Tenant's
property), and without in any manner affecting the obligations and covenants
of this Lease. Landlord shall exercise its rights of access to the premises
permitted under any of the terms and provisions of this Lease in such manner
as to minimize to the extent practicable interference with Tenant's use and
occupation of the premises. If an excavation shall be made upon land adjacent
to the premises or shall be authorized to be made, Tenant shall afford to the
person causing or authorized to cause such excavation, license to enter upon
the premises for the purpose of doing such work as said person shall deem
necessary to preserve the Building and the Project from injury or damage and
to support the same by proper foundations without any claims for damages or
indemnity against Landlord, or diminution or abatement of rent.
Notwithstanding anything to the contrary contained in this Article 17.2:
(a) Landlord, its employees, representatives, servants, agents and
licensees may not enter the premises to perform any of the work referred to
in this Section 17.2 without having given Tenant reasonable advance written
notice describing the work to be done and stating the estimated commencement
and completion dates. The reasonableness of notice period shall be determined
by the nature of adjustment to Tenant's business operations which will be
necessitated by the work or the change but in no event shall be less than ten
(10) days except that in an emergency situation where the work or the change
must commence immediately to avoid or lessen an immediate danger to person or
property, the notice requirement shall be waived to the extent of or so long
as the emergency persists.
(b) Except in cases of emergency where there is an imminent danger to
life, limb or property:
(i) No such work may be performed within any security area
determined from time to time by Tenant without the continuous presence of an
authorized employee of Tenant. Tenant shall reasonably cooperate with
Landlord to enable Landlord to observe these restrictions.
(ii) Without first having obtained Tenant's written consent in each
instance, Landlord may not itself enter or allow, permit or invite others to
the premises for the purposes of inspecting, showing or viewing the premises
as contemplated and described in Section 17.2, except during Tenant's
business hours. Tenant shall have the right to require that any person
entering the premises for such purposes shall be continuously accompanied by
Tenant's representative.
17.3 DEFECTIVE CONDITIONS.
(a) ACCIDENTS TO SANITARY AND OTHER SYSTEMS. After becoming aware of
such facts, Tenant shall give to Landlord prompt notice of any fire or
accident in the premises or in the Building and of any damage to, or
defective conditioning in, any part or appurtenance of the Building
including, without limitation, sanitary, electrical, heating and air
conditioning or other systems located in, or passing through, the premises.
Except as otherwise provided in Articles 18 and 20, and subject to Tenant's
obligations in Article 14, such damage or defective condition shall be
remedied by Landlord with reasonable diligence, but if such damage or
defective condition was caused by Tenant or by the employees, licensees,
contractors or invitees of Tenant, the cost to remedy the same shall be paid
by Tenant.
(b) CONSTRUCTIVE EVICTION; NOTICE TO UNDERLYING PARTIES. Tenant shall
not be entitled to claim any eviction from the premises or any damages
arising from any such damage or defect unless the same (i) shall have been
occasioned by the negligence of the Landlord, its agents, servants or
employees and (ii) shall not, after notice to Landlord of the condition
claimed to constitute
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negligence, have been cured or corrected within a reasonable time after such
notice has been received by Landlord; and in case of a claim of eviction
unless such damage or defective condition shall have rendered the premises
untenantable and they shall not have been made tenantable by Landlord within
a reasonable time. In the event of any failure by Landlord to perform, fulfill
or observe any agreement by Landlord herein, in no event will the Landlord be
deemed to be in default under this Lease until Tenant shall have given
written notice of such failure to any Underlying Party of which Tenant shall
have been advised in writing and until a reasonable period of time shall have
elapsed following the giving of such notice, during which such Underlying
Party shall have the right, but shall not be obligated, to remedy such
failure.
17.4 SIGNS, BLINDS AND DRAPES. Tenant shall put no signs in any part of
the Building. Not signs or blinds may be put on or in any window or elsewhere
if visible from the exterior of the Building, nor may the building standard
drapes or blinds be removed by Tenant. Tenant may hang its own drapes,
provided that they shall not in any way interfere with the building standard
drapery or blinds or be visible from the exterior of the Building and that
such drapes are so hung and installed that when drawn, the building standard
drapery or blinds are automatically also drawn. Any signs or lettering in the
public corridors or on the doors shall conform to Landlord's building
standard design. Neither Landlord's name, nor the name of the Building or the
Project, or the name of any other structure erected therein shall be used
without Landlord's consent in any advertising material (except on business
stationery or as an address in advertising matter), nor shall any such name,
as aforesaid, be used in any undignified, confusing, detrimental or
misleading manner.
17.5 ESTOPPEL CERTIFICATE. Tenant shall at any time and from time to
time upon not less than ten (10) days' prior notice by Landlord to Tenant,
execute, acknowledge and deliver to Landlord a statement in writing
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), and the dates to which the Yearly
Rent and other charges have been paid in advance, if any, stating whether or
not Landlord is in default in performance of any covenant, agreement, term,
provision or condition contained in this Lease and, if so, specifying each
such default and such other facts as Landlord may reasonably request, it
being intended that any such statement delivered pursuant hereto may be
relied upon by any prospective purchaser of the Project or of the Unit or of
any interest of Landlord therein, any mortgagee or prospective mortgagee
thereof, any lessor or prospective lessor thereof, any lessee or prospective
lessee thereof, or any prospective assignee of any mortgage thereof. Time is
of the essence in respect of any such requested certificate. Tenant hereby
acknowledging the importance of such certificates in mortgage financing
arrangements, prospective sale and the like. Tenant hereby appoints Landlord
Tenant's attorney-in-fact in its name and behalf to execute such statement if
Tenant shall fail to execute such statement within such ten-(10)-day period.
Landlord shall at any time and from time to time upon not less than ten (10)
days' prior notice by Tenant to Landlord, execute, acknowledge and deliver to
Tenant a statement in writing certifying that this Lease is unmodified and in
full force and effect (or if there have been modifications, that the same is
in full force and effect as modified and stating the modifications), and the
dates to which the Yearly Rent and other charges have been paid in advance,
if any, and stating whether or not to the best knowledge of the signer of
such certificate Tenant is in default in performance of any covenant,
agreement, term, provision or condition contained in this Lease and, if so,
specifying each such default of which the signer may have knowledge, it being
intended that any such statement delivered pursuant hereto may be relied upon
by any transferee of the interest of Tenant in this Lease, any subtenant or
assignee thereof, or Tenant's independent accountants.
17.6 PROHIBITED MATERIALS AND PROPERTY. Tenant shall not bring or permit
to be brought or kept in or on the premises or elsewhere in the Building (i)
any inflammable, combustible or explosive fluid, material, chemical or
substance (except for standard office supplies stored in proper containers),
(ii) any unique, unusually valuable, rare or exotic property, work of art or
the like unless the same is fully insured under all-risk coverage or (iii)
any data processing, electronic, optical or other equipment or property of a
delicate, fragile or vulnerable nature unless the same are housed, shielded
and protected against harm and damage, whether by cleaning or maintenance
personnel, radiations or emanations from other equipment now or hereafter
installed in the Building, or otherwise. Nor shall Tenant cause or permit any
odors of cooking or other processes, or any unusual or other objectionable
odors to emanate from or permeate the premises. These restrictions shall not
apply to ordinary cleaning fluids used in business offices, provided they are
stored in suitable containers. No odor shall be deemed objectionable unless
it can be smelled outside the premises, e.g., in the premises demised to
another tenant or in any public or common area, etc.
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17.7 REQUIREMENTS OF LAW--FINES AND PENALTIES. Tenant at its sole
expense shall comply with all laws, rules, orders, and regulations,
including, without limitation, all energy-related requirements of Federal,
State, County and Municipal Authorities and with any direction of any public
officer or officers, pursuant to law, which shall impose any duty upon
Landlord or Tenant with respect to or arising out of Tenant's use of the
premises. If Tenant receives notice of any violation of law, ordinance, order
or regulation applicable to the premises, it shall give prompt notice thereof
to Landlord.
17.8 TENANT'S ACTS--EFFECT ON INSURANCE. Tenant shall not do or permit
to be done any act or thing upon the premises or elsewhere in the Building,
the Unit or the Project which will invalidate or be in conflict with any
insurance policies covering the Building, the Unit, or the Project and the
fixtures and property therein and shall not do, or permit to be done, any act
or thing upon the premises which shall subject Landlord to any liability or
responsibility for injury to any person or persons or to property by reason
of any business or operation being carried on upon said premises or for any
other reason. Tenant at its own expense shall comply with all rules, orders,
regulations and requirements of the Board of Fire Underwriters, or any other
similar body having jurisdiction, and shall not (i) do, or permit anything to
be done, in or upon the premises, or bring or keep anything therein, except
as now or hereafter permitted by the Fire Department, Board of Underwriters,
Fire Insurance Rating Organization, or other authority having jurisdiction,
and then only in such quantity and manner of storage as will not increase the
rate for any insurance applicable to the Building, the Unit, or the Project
or (ii) use the premises in a manner which shall increase such insurance
rates on the Building, the Unit, or the Project or on property located
therein, over that applicable when Tenant first took occupancy of the
premises hereunder. If by reason of the failure of Tenant to comply with the
provisions hereof the insurance rate applicable to any policy of insurance
shall at any time thereafter be higher than it otherwise would be, the Tenant
shall reimburse Landlord for that part of any insurance premiums thereafter
paid by Landlord, which shall have been charged because of such failure by
Tenant.
17.9 MISCELLANEOUS. Tenant shall not suffer or permit the premises or
any fixtures, equipment or utilities therein or serving the same, to be
overloaded,. Tenant shall not suffer or permit any employee,
contractor, business invitee or visitor to violate any covenant, agreement or
obligation of the Tenant under this Lease.
18. DAMAGE BY FIRE, ETC.
During the entire term of this Lease, and adjusting insurance coverages
to reflect current values from time to time: --(i) Landlord shall keep the
Building (excluding work, installations, improvements and betterments in the
premises which exceed the specifications provided in Exhibit 3,
[called "Over-Building-Standard Property"] and any other property installed
by or at the expense of Tenant) insured against loss or damage caused by any
peril covered under fire, extended coverage and all risk insurance in an
amount equal to at least eighty percent (80%) of the full insurable value
thereof above foundation walls; and (ii) Tenant shall keep its personal
property in and about the premises and the Over-Building-Standard Property
insured against loss or damage caused by any peril covered under fire,
extended coverage and all risk insurance in an amount equal to at least
eighty percent (80%) of the full insurable value thereof. Such Tenant's
insurance shall insure the interests of Landlord, the Additional Insured
Parties (if any) listed on Exhibit 1, and Tenant as their respective
interests may
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appear from time to time and shall name Landlord and the Additional Insured
Parties (if any) listed on Exhibit 1, as additional insured parties; and the
proceeds thereof shall be used only for the replacement or restoration of
such personal property and the Over-Building-Standard Property unless the
Lease is terminated by reason of such casualties.
If any portion of the premises required to be insured by Landlord under
the preceding paragraph shall be damaged by fire or other insured casualty,
Landlord shall proceed with diligence, subject to the then applicable
statutes, building codes, zoning ordinances, and regulations of any
governmental authority, and at the expense of Landlord (but only to the
extent of insurance proceeds made available to Landlord) to repair or cause
to be repaired such damage, provided, however, in respect of any
Over-Building-Standard Property as shall have been damaged by such fire or
other casualty and which (in the judgment of Landlord) can more effectively
be repaired as an integral part of Landlord's repair work on the premises,
that such repairs to Over-Building-Standard Property shall be performed by
Landlord but at Tenant's expense (provided however that if Landlord performs
such work, Landlord's fee for performing such work shall be comparable to the
fees charged by other contractors in Boston, Massachusetts performing
comparable work and Landlord shall competitively bid subcontracted portions
of the work, if possible to do so) in all other respects, all repairs to and
replacements of Tenant's property and Over-Building-Standard Property shall
be made by and at the expense of Tenant, except that to the extent that the
initial construction of the premises are covered by Landlord's insurance,
such repairs, etc., shall be at Landlord's expense payable out of Landlord's
insurance proceeds. If the premises or any part thereof shall have been
rendered unfit for use and occupation hereunder by reason of such damage the
rent or additional rent or a just and proportionate part thereof, according
to the nature and extent to which the premises shall have been so rendered
unfit, shall be suspended or abated until the premises (except as to the
property which is to be repaired by or at the expense of Tenant provided
however that such abatement shall continue until such property is restored in
the event that Landlord performs the work to restore such property except for
long-lead time items required by Tenant) shall have been restored as nearly
as practicably may be to the condition in which they were immediately prior
to such fire or other casualty (Tenant shall cooperate with Landlord and
Landlord's mortgagee in obtaining any insurance proceeds available in respect
of any fire or casualty and Tenant shall take all reasonable actions
necessary to collect such insurance proceeds). Landlord shall not be liable
for delays in the making of any such repairs which are due to government
regulation, casualties and strikes, unavailability of labor and materials,
and other causes beyond the reasonable control of Landlord, nor shall
Landlord be liable for any inconvenience or annoyance to Tenant or injury to
the business of Tenant resulting from delays in repairing such damage. If (i)
the premises are so damaged by fire or other casualty (whether or not
insured) at any time during the last thirty months of the term hereof that
the cost to repair such damage is reasonably estimated to exceed one-third of
the total Yearly Rent payable hereunder for the period from the estimated
date of restoration until the Termination Date, or (ii) the Project (whether
or not including any portion of the premises) is so damaged by fire or other
casualty (whether or not insured) that substantial alteration or
reconstruction or demolition of the Project shall in Landlord's judgment be
required, then and in either of such events, this Lease and the term hereof
may be terminated at the election of Landlord by a notice in writing of its
election so to terminate which shall be given by Landlord to Tenant within
sixty (60) days following such fire or other casualty, the effective
termination date of which shall be not less than thirty (30) days after the
day on which such termination notice is received by Tenant. If the Building
(whether or not including any portion of the premises) is so damaged by fire
or other casualty (whether or not insured) that the premises or such part as
substantially affects the continued operation in the usual course of Tenant's
business in the premises is rendered reasonably unfit for the usual conduct
of the Tenant's business, then Tenant may terminate this Lease (i) if the
reasonably estimated time that will be required to put the premises or such
portion thereof into a reasonably fit condition for the usual conduct of the
Tenant's business shall exceed one hundred eighty (180) days or (ii) if the
premises or such portion thereof has not been put into a reasonably fit
condition for the usual conduct of the Tenant's business within one hundred
eighty (180) days after the date of such fire or other casualty. Notice of
Tenant's election to terminate this Lease shall be given to Landlord within
sixty (60) days of such fire or other casualty or within sixty (60) days
after the expiration of such one-hundred-eighty-(180)-day period, as the case
may be, which notice shall designate an effective termination date which may
not be less than thirty (30) days nor more than one hundred eighty (180) days
after such termination notice is received by Landlord; and provided that the
premises of such portion thereof has not been put into a reasonably fit
condition for the usual conduct of the Tenant's business on or before such
effective date, this Lease and the term hereof shall cease and terminate on
such effective date. In the event of any termination, this Lease and the term
hereof shall expire as of such effective termination date as though that were
the Termination Date as stated in Exhibit I and the Yearly Rent shall be
apportioned as of such date; and if the premises or any part thereof shall
have been rendered unfit for use and occupation by reason of such damage the
rent and additional rent for the period from the date of the fire or other
casualty to the effective termination date, or a just and proportionate part
thereof, according to the nature and extent to which the premises shall have
been so rendered unfit, shall be abated. If requested by Tenant after the
Term Commencement Date, Landlord shall furnish Tenant with copies of such
certificates of insurance pertaining to the Building as are furnished to any
mortgagee or ground lessor of the Building.
The phrase "substantial alteration or reconstruction" in clause (ii),
above, shall mean such alteration or reconstruction as requires any
expenditure in excess of thirty percent (30%) of the insurable or replacement
value of the Project above foundation.
19. WAIVER OF SUBROGATION
In any case in which Tenant shall be obligated to pay to Landlord any
loss, cost, damage, liability, or expense suffered or incurred by Landlord,
Landlord shall allow to Tenant as an offset against
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the amount thereof (i) the net proceeds of any insurance collected by
Landlord for or on account of such loss, cost, damage, liability or expense,
provided that the allowance of such offset does not invalidate or prejudice
the policy or policies under which such proceeds were payable, and (ii)
[RIDER MISSING]
In any case in which Landlord shall be obligated to pay to Tenant any
loss, cost, damage, liability or expense suffered or incurred by Tenant,
Tenant shall allow to Landlord as an offset against the amount thereof (i)
the net proceeds of any insurance collected by Tenant for or on account of
such loss, cost, damage, liability, or expense, provided that the allowance
of such offset does not invalidate the policy or policies under which such
proceeds were payable and (ii) the amount of any loss, cost, damage,
liability or expense caused by a peril covered by fire insurance with the
broadest form of property insurance generally available on property in
buildings of the type of the Project, whether or not actually procured by
Tenant.
The parties hereto shall each procure an appropriate clause in, or
endorsement on, any property insurance policy covering the premises and the
Project and personal property, fixtures, and equipment located thereon and
therein, pursuant to which the insurance companies waive subrogation or
consent to a waiver of right of recovery. Having obtained such clauses and/or
endorsements each party hereby agrees that it will not make any claim
against or seek to recover from the other for any loss or damage to its
property or the property of others resulting from fire or other perils
covered by such property insurance.
20. CONDEMNATION - EMINENT DOMAIN
In the event that the premises or any part thereof, or the whole or any
part of the Project, shall be taken or appropriated by eminent domain or
shall be condemned for any public or quasi-public use, or (by virtue of any
such taking, appropriation or condemnation) shall suffer any damage (direct,
indirect or consequential) for which Landlord or Tenant shall be entitled to
compensation, then (and in any such event) this Lease and the term hereof may
be terminated at the election of Landlord by a notice in writing of its
election so to terminate which shall be given by Landlord to Tenant within
sixty (60) days following the date on which Landlord shall have received
notice of such taking, appropriation or condemnation. In the event that a
substantial part of the premises or of the means of access thereto shall be
so taken, appropriated or condemned, then (and in any such event) this Lease
and the term hereof may be terminated at the election of Tenant by a notice
in writing of its election so to terminate which shall be given by Tenant to
Landlord within sixty (60) days following the date on which Tenant shall have
received notice of such taking, appropriation or condemnation.
Upon the giving of any such notice of termination (either by Landlord or
Tenant) this Lease and the term thereof shall terminate the date on which
Tenant shall be required to vacate any part of the premises or shall be
deprived of a substantial part of the means of access thereto. In the event
of any such termination, this Lease and the term hereof shall expire as of
such effective termination date as though that were the Termination Date as
stated in Exhibit I, and the Yearly Rent shall be apportioned as of such
date. If neither party (having the right so to do) elects to terminate
Landlord will, with reasonable diligence and at Landlord's expense (but only
to the extent of taking proceeds made available to Landlord), restore the
remainder of the premises, or the remainder of the means of access, as nearly
as practicably may be to
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the same condition as obtained prior to such taking, appropriation or
condemnation in which event (i) the Total Rentable Area shall be adjusted as
in Exhibit 5 provided, (ii) a just proportion of the rent and additional
rent, according to the nature and extent of the taking, appropriation or
condemnation and the resulting permanent injury to the premises and the means
of access thereto, shall be permanently abated, and (iii) a just proportion
of the remainder of the Yearly Rent, according to the nature and extent of
the taking, appropriation or condemnation and the resultant injury sustained
by the premises and the means of access thereto, shall be abated until what
remains of the premises and the means of access thereto shall have been
restored as fully as may be for permanent use and occupation by Tenant
hereunder. Except for any award specifically reimbursing Tenant for moving or
relocation expenses, there are expressly reserved to Landlord all rights to
compensation and damages created, accrued or accruing by reason of any such
taking, appropriation or condemnation, in implementation and in confirmation
of which Tenant does hereby acknowledge that Landlord shall be entitled to
receive all such compensation and damages, grant to Landlord all and whatever
rights (if any) Tenant may have to such compensation and damages, and agree
to execute and deliver all and whatever further instruments of assignment as
Landlord may from time to time request. In the event of any taking of the
premises or any part thereof for temporary use: (ie., a taking for a period
of less than one hundred eighty (180) days) (i) this Lease shall be and
remain unaffected thereby, and (ii) Tenant shall be entitled to receive for
itself any award made for such use, provided, that if any taking is for a
period extending beyond the term of this Lease, such award shall be
apportioned between Landlord and Tenant as of the Termination Date or earlier
termination of this Lease.
(a) For the purposes of this Article 20-24, the following terms shall
have the following meanings:
"AWARD BALANCE" shall be the amount, if any, by which the total
compensation and damages awarded in respect of a permanent taking exceeds the
total of the portion of award allocable to the land on which the Building is
situated (i.e., as if the land were not improved but as encumbered by, for
example, all title matters) and all amounts payable in such event under bona
fide ground leases or underlying leases and under all bona fide mortgages or
other encumbrances which may now or hereafter be placed on, encumber or
affect the real property of which the premises are a part, or any part of
such real property.
"AREA RATIO" shall be a fraction having as numerator the number of
square feet of Total Rentable Area comprising the premises as of the date of
such taking and as denominator the total floor area of the entire Building
including office, commercial and public areas.
"PREMISES AWARD BALANCE" shall be that amount of the Award Balance
allocable to the premises determined by multiplying the Award Balance by the
Area Ratio.
"TENANT'S IMPROVEMENTS" shall be the unamortized portion, (calculated on
a straight-line basis over the remainder of the then current term of this
Lease, including any extension terms, the option for which Tenant has
exercised as of the date of such taking) of Tenant's costs of such Tenant's
improvements as may not be removed by Tenant under the terms of Article 11 of
this Lease, determined as of the date of the eminent domain taking.
"BUILDING BOOK VALUE" shall be the unamortized cost of the Building and
related facilities (calculated on a straight-line basis over a 40-year
period), determined as of the date of the eminent domain taking.
"PREMISES BOOK VALUE" shall be the product of Area Ratio multiplied by
Building Book Value.
21. DEFAULT
21.1 CONDITIONS OF LIMITATION -- RE-ENTRY -- TERMINATION. This Lease and
the herein term and estate are, upon the condition that if (a) subject to the
provisions of Article 21.7, Tenant shall neglect or fail to perform or
observe any of the Tenant's covenants or agreements herein, including
(without limitation) the covenants or agreements with regard to the payment
when due of rent, additional charges, reimbursement for increase in
Landlord's costs, or any other charge payable by Tenant to Landlord (all of
which shall be considered as part of Yearly Rent for the purposes of invoking
Landlord's statutory or other rights and remedies in respect of payment
defaults); or (b) Tenant shall desert or abandon the premises or the same
shall become vacant (whether or not the keys shall have been surrendered or
the rent shall have been paid); or (c) Tenant shall be involved in financial
difficulties as evidenced by an admission in writing by Tenant of Tenant's
inability to pay its debts generally as they become due, or by the making or
offering to make a composition of its debts with its creditors; or (d) Tenant
shall make an assignment or trust mortgage, or other conveyance or transfer
of like nature, of all or a substantial part of its property for the benefit
of its creditors, or (g) the leasehold hereby created shall be taken on
execution or by other process of law and shall not be revested in Tenant
within rent and additional rent days thereafter; or (h) a receiver,
sequesterer, trustee or similar officer shall be appointed by a court of
competent jurisdiction to take charge of all or any part of Tenant's property
and such appointment shall not be vacated within rent and additional rent
days; or (i) any proceeding shall be instituted by or against Tenant pursuant
to any of the provisions of any Act of Congress or State law relating to
bankruptcy, reorganizations, arrangements, compositions or other relief from
creditors, and, in the case of any proceeding instituted against it, if
Tenant shall fail to have such proceeding dismissed within days or if Tenant
is adjusted bankrupt or insolvent as a result of any such proceeding, or (j)
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any event shall occur or any contingency shall arise whereby this Lease, or
the term and estate thereby created, would (by operation of law or otherwise)
devolve upon or pass to any person, firm or corporation other than Tenant,
except as expressly permitted under Article 16 hereof -- then, and in any
such event (except as hereinafter in Article 21.2 otherwise provided)
Landlord may, by notice to Tenant, elect to terminate this Lease; and
thereupon (and without prejudice to any remedies which might otherwise be
available for arrears of rent or other charges due hereunder or preceding
breach of covenant or agreement and without prejudice to Tenant's liability
for damages as hereinafter stated), upon the giving of such notice, this
Lease shall terminate as of the date specified therein as though that were
the Termination Date as stated in Exhibit I. Without being taken or deemed to
be guilty of any manner of trespass or conversion, and without being liable
to indictment, prosecution or damages therefore, Landlord may, forcibly if
necessary, enter into and upon the premises (or any part thereof in the name
of the whole); repossess the same as of its former estate; and expel Tenant
and those claiming under Tenant. No default shall be deemed to have occurred
under subparagraphs (c), (d), (h) or (i) so long as the obligations of Tenant
under this Lease are being timely and duly paid or performed by or for the
account of Tenant.
21.2 DAMAGES -- ASSIGNMENT FOR BENEFIT OF CREDITORS. For the more
effectual securing to Landlord of the rent and other charges and payments
reserved hereunder, it is agreed as a further condition of this Lease that if
at any time Tenant shall make any transfer similar to or in the nature of an
assignment of its property for the benefit of its creditors, the term and
estate hereby created shall terminate ipso facto, without entry or other
action by Landlord; and notwithstanding any other provisions of this Lease,
Landlord shall forthwith upon such termination, without prejudice to any
remedies which might otherwise be available for arrears of rent or other
charges due hereunder or preceding breach of this Lease, be ipso facto
entitled to recover as liquidated damages the sum of (a) the amount described
in clause (x) of Article 21.3 and (b) (in view of the uncertainty of prompt
re-letting and the expense entailed in re-letting the premises) an amount
equal to the rent and other charges payable for and in respect of the
three-(3)-month period next preceding the date of termination, as aforesaid.
21.3 DAMAGES -- TERMINATION. Upon the termination of this Lease under the
provisions of this Article 21, then except as hereinabove in Article 21.2
otherwise provided, Tenant shall pay to Landlord the rent and other charges
payable by Tenant to Landlord up to the time of such termination, shall
continue to be liable for any preceding breach of covenant, and in addition,
shall pay to Landlord as damages, at the election of Landlord
either:
(x) the amount by which, at the time of the termination of this Lease
(or at any time thereafter if Landlord shall have initially elected damages
under subparagraph (y), below), (i) the aggregate of the rent and other
charges projected over the period commencing with such termination and ending
on the Termination Date as stated in Exhibit 1 which shall be discounted to
present value based upon a reasonable rate of interest exceeds (ii) the
aggregate projected rental value of the premises for such period which shall
be discounted to present value based upon a reasonable rate of interest.
or:
(y) amounts equal to the rent and other charges which would have been
payable by Tenant had this Lease not been so terminated, payable upon the due
dates therefor specified herein following such termination and until the
Termination Date as specified in Exhibit 1, provided, however, if Landlord
shall re-let the premises during such period, that Landlord shall credit
Tenant with the net
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rents received by Landlord from such re-letting, such net rents to be
determined by first deducting from the gross rents as and when received by
Landlord from such re-letting the expenses incurred or paid by Landlord in
terminating this Lease, as well as the expenses of re-letting, including
altering and preparing the premises for new tenants, brokers' commissions,
and all other similar and dissimilar expenses properly chargeable against the
premises and the rental therefrom, it being understood that any such
re-letting may be for a period equal to or shorter or longer than the
remaining term of this Lease; and provided, further, that (i) in no event
shall Tenant be entitled to receive any excess of such net rents over the
sums payable by Tenant to Landlord hereunder and (ii) in no event shall
Tenant be entitled in any suit for the collection of damages pursuant to this
Subparagraph (y) to a credit in respect of any net rents from a re-letting
except to the extent that such net rents are actually received by Landlord
prior to the commencement of such suit. If the premises or any part thereof
should be re-let in combination with other space, then proper apportionment
on a square foot area basis shall be made of the rent received from such
re-letting and of the expenses of reletting.
In calculating the rent and other charges under Subparagraph (x), above,
there shall be included, in addition to the Yearly Rent, Tax Excess and
Operating Expense Excess and all other considerations agreed to be paid or
performed by Tenant, on the assumption that all such amounts and
considerations would have remained constant (except as herein otherwise
provided) for the balance of the full term hereby granted.
Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not
been terminated hereunder.
Nothing herein contained shall be construed as limiting or precluding
the recovery by Landlord against Tenant of any sums or damages to which, in
addition to the damages particularly provided above. Landlord may lawfully be
entitled by reason of any default hereunder on the part of Tenant. Landlord
shall make reasonable efforts to mitigate damages following breach or default
by Tenant and termination of this Lease by reason thereof. Furthermore, in
the reletting of the premises, Landlord will incur only reasonable costs and
expenses.
21.4 FEES AND EXPENSES.
(a) If Tenant shall default in the performance of any covenant on
Tenant's part to be performed as in this Lease contained, Landlord may after
reasonable advance written notice (except that no prior notice shall be
required in an emergency situation) perform the same for the account of
Tenant. If Landlord at any time is compelled to pay or elects to pay any sum
of money, or do any act which will require the payment of any sum of money,
by reason of the failure of Tenant to comply with any provision hereof, or if
Landlord is compelled to or does incur any expense, including reasonable
attorneys' fees, in instituting, prosecuting, and/or defending any action or
proceeding instituted by reason of any default of Tenant hereunder, Tenant
shall on demand pay to Landlord by way of reimbursement the sum or sums so
paid by Landlord with all costs and damages, plus interest computed as
provided in Article 6 hereof.
A. If Landlord shall default in the performance of its maintenance
obligations to be performed under this Lease, which maintenance
obligations, if performed by Tenant, would not affect the
Building structure or the Building systems, then Tenant may,
after having given reasonable advance written notice to Landlord
and, thereafter, having given Landlord a reminder notice, cure
such default, and Landlord shall reimburse Tenant on demand for
the fair and reasonable cost of such curative steps. Any work to
be performed by Tenant pursuant to this Article 21.4-27 shall be
performed in accordance with Articles 12 and 13 of the Lease.
B. Landlord shall pay, upon demand by Tenant, reasonable attorney's
fees incurred by Tenant in connection with any lawsuit between
Landlord and Tenant where judgment is entered (final, and beyond
appeal) in favor of Tenant.
(b) Tenant shall pay Landlord's cost and expense, including reasonable
attorney's fees, incurred (i) in enforcing any obligation of Tenant under
this Lease or (ii) as a result of Landlord, without its fault, being made
party to any litigation pending by or against Tenant or any persons claiming
through or under Tenant.
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21.6 LANDLORD'S REMEDIES NOT EXCLUSIVE. The specified remedies to which
Landlord may resort hereunder are cumulative and are not intended to be
exclusive of any remedies or means of redress to which Landlord may at any
time be lawfully entitled, and Landlord may invoke any remedy (including the
remedy of specific performance) allowed at law or in equity as if specific
remedies were not herein provided for.
TENANT'S REMEDIES NOT EXCLUSIVE. The specified remedies to which
Tenant may resort hereunder, unless otherwise expressly provided, i.e., a
sole remedy provision, are cumulative and are not intended to be exclusive of
any remedies or means of redress to which Tenant may at any time be lawfully
entitled, and Tenant may invoke any remedy (including the remedy of specific
performance) allowed at law or in equity as if specific remedies were not
herein provided for.
21.7 GRACE PERIOD. Notwithstanding anything to the contrary in this
section contained, Landlord shall have no right to take any action to
terminate this Lease (a) for default by Tenant in the payment when due of any
sum of money unless Tenant shall fail to cure such default within ten (10)
days after written notice thereof is given by Landlord to Tenant, (b) for
default by Tenant in the performance of any covenant other than the covenant
to pay the sum of money unless Tenant shall fail to cure such default within
a period of thirty (30) days after written notice thereof given by Landlord
to Tenant, except when the nature of the default is such that remedial action
both can and should appropriately take place sooner, as indicated in such
written notice, or within such additional period as may reasonably be
required to cure such default (if because of governmental restrictions or any
other cause beyond the reasonable control of Tenant) the default is of such a
nature that it cannot be cured within such thirty (30) day period, provided,
however, (1) that there shall be no extension of time beyond such thirty (30)
day period for curing of any such default unless, within ten (10) days after
Tenant has knowledge of the situation, fact or circumstance which
necessitates such extension of the grace period and after the receipt of the
notice of default, Tenant in writing (i) shall specify the cause on account
of which the default cannot be cured during such period and shall advise
Landlord of its intention duly to institute all steps necessary to cure the
default and (ii) shall as soon as reasonably may be possible duly institute
and thereafter diligently prosecute to completion all steps necessary to cure
such default, provided, further, however, that the extension of Tenant's
grace period to cure any such default that cannot be cured within such thirty
(30) days shall not be forfeited for failure to send such notice to Landlord
if:
(a) the situation, fact or circumstances which necessitates the extension
either is or should have been known by Landlord;
Notwithstanding anything to the contrary in this Article 21.7 contained;
all statutory notice and grace periods (including, without limitation, the
provisions of Section 11 of Chapter 186 of the General Laws of Massachusetts)
are hereby waived by Tenant.
22. END OF TERM -- ABANDONED PROPERTY
Upon the expiration or other termination of the term of this Lease, Tenant
shall peaceably quit and surrender to Landlord the premises and all
alterations and additions thereto, broom clean, in good order, repair and
condition (except as provided herein and in Articles 18, 20 and 8.7) excepting
only ordinary wear and use and damage by fire or other casualty for which,
under other provisions of this Lease, Tenant has no responsibility of repair
or restoration. Tenant shall remove all of its property and shall repair any
damages to the premises or the Building caused by their installation or by
such removal. Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of the term of this Lease.
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Tenant will remove any personal property from the Building and the
premises upon or prior to the expiration or termination of this Lease and any
such property which shall remain in the Building or the premises thereafter
shall be conclusively deemed to have been abandoned, and may either be
retained by Landlord as its property or sold or otherwise disposed of in such
manner as Landlord may see fit. If any part thereof shall be sold, that
Landlord may receive and retain the proceeds of such sale and apply the same,
at its option, against the expenses of the sale, the cost of moving and
storage, any arrears of Yearly Rent, additional or other charges payable
hereunder by Tenant to Landlord and any damages to which Landlord may be
entitled under Article 21 hereof or pursuant to law.
If Tenant or anyone claiming under Tenant shall remain in possession of
the premises or any part thereof after the expiration or prior termination of
the term of this Lease without any agreement in writing between Landlord and
Tenant with respect thereto, then, prior to the acceptance of any payments
for rent or use and occupancy by Landlord, the person remaining in possession
shall be deemed a tenant at-sufferance. Whereas the parties hereby
acknowledge that Landlord may need the premises after the expiration or prior
termination of the term of the Lease for other tenants and that the damages
which Landlord may suffer as the result of Tenant's holding-over cannot be
determined as of the Execution Date hereof, in the event that Tenant so holds
over, Tenant shall pay to Landlord in addition to all rental and other
charges due and accrued under the Lease prior to the date of termination,
charges (based upon the fair market rental value of the premises) for use and
occupation of the premises thereafter and, in addition to such sums and any
and all other rights and remedies which Landlord may have at law or in
equity, an additional use and occupancy charge in the amount of fifty percent
(50%) of EITHER the Yearly Rent and other charges calculated (on a daily
basis) at the highest rate payable under the terms of this Lease, but
measured from the day on which Tenant's hold-over commenced and terminating
on the day on which Tenant vacates the premises OR the fair market rental
value of the premises for such period, WHICHEVER IS GREATER. Notwithstanding
the foregoing, Landlord shall have the right to elect to recover any other
damages which Landlord is permitted to recover under this Lease in lieu of
said liquidated damages by giving Tenant written notice of such election.
From and after the date on which Landlord gives Tenant such notice, said
liquidated damages shall cease to accrue and Tenant shall be liable to
Landlord for any damages recoverable under this Lease which accrue thereafter.
23. SUBORDINATION
(a) Subject to the election of any mortgagee, ground lessor, trustee,
or other underlying party-in-interest (collectively "Underlying Parties"), as
hereinafter provided for, this Lease is subject and subordinate in all
respects to all matters of record (including, without limitation, deeds and
land disposition agreements), ground leases and/or underlying leases,
including, without limitation, the Ground Lease, all mortgages, and any
condominium documents (including, without limitation, any master deed,
by-laws, rules and regulations, and any amendments or revisions thereto) any
of which may now or hereafter be placed on or affect such leases and/or the
Unit or Project of which the premises are a part, or any part of such real
property, and/or Landlord's interest or estate therein, and to each advance
made and/or hereafter to be made under any such mortgages, and to all
renewals, modifications, consolidations, replacements and extensions thereof
and all substitutions therefor (collectively "Underlying Instruments").
Notwithstanding anything to the contrary in this Lease contained, as to any
future mortgages, ground leases, or deeds of trust, the herein provided
subordination and attornment shall be effective only if the mortgagee, ground
lessor or trustee therein, as the case may be, agrees, by a written
instrument in the customary form of such mortgagee, ground lessor, or
trustee, which form shall be recordable ("Non-disturbance Agreement"), that,
so long as Tenant shall faithfully discharge the obligations of its part to
be kept and performed under the terms of this Lease, this Lease will not be
affected by any default in, termination, and/or foreclosure of, such mortgage,
ground lease, or deed of trust, as the case may be. This Article 23 shall be
self-operative and no further instrument or subordination shall be required. In
confirmation of such subordination, Tenant shall execute, acknowledge and
deliver promptly any certificate or instrument that Landlord and/or any
Underlying Party and/or its successor in interest may request. Tenant
acknowledges that, where applicable, any consent or approval hereafter given
by Landlord may be subject to the further consent or approval of Underlying
Parties; and the failure or refusal of an Underlying Party to give
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such consent or approval shall, notwithstanding anything to the contrary in
this Lease contained, constitute reasonable justification for Landlord's
withholding its consent of approval.
(b) Any such Underlying Party may from time to time subordinate or revoke
any such subordination of the Underlying Instrument held by it to this Lease.
Such subordination or revocation, as the case may be, shall be effected by
written notice to Tenant and by recording an instrument of subordination or
of such revocation, as the case may be, with the appropriate registry of deeds
or land records and to be effective without any further act or deed on the
part of Tenant. In confirmation of such subordination or of such revocation,
as the case may be. Tenant shall execute, acknowledge and promptly deliver
any certificate or instrument that Landlord or any Underlying Party may
request.
(c) Without limitation of any of the provisions of this Lease, if any
Underlying Party shall succeed to the interest of Landlord by reason of the
exercise of its rights under an Underlying Instrument (or the acceptance of
voluntary conveyance in lieu thereof) or any third party (including, without
limitation, any foreclosure purchaser or mortgage receiver) shall succeed to
such interest by reason of any such exercise or the expiration or sooner
termination of such Underlying Instrument, however caused, then such
successor may, upon notice and request to Tenant (which, in the case of a
ground lease, shall be within thirty (30) days after such expiration or
sooner termination), succeed to the interest of Landlord under this Lease,
provided, however, that such successor shall not: (i) be liable for any
previous act or omission of Landlord under this Lease; (ii) be subject to any
offset, defense, or counterclaim which shall theretofore have accrued to
Tenant against Landlord; (iii) have any obligation with respect to any
security deposit unless it shall have been paid over or physically delivered
to such successor; or (iv) be bound by any previous modification of this
Lease or by any previous payment of Yearly Rent for a period greater than one
(1) month, made without the consent of such Underlying Party where such
consent is required by applicable Underlying Instrument. In the event of such
succession to the interest of the Landlord-and notwithstanding that any such
Underlying Interest may antedate this Lease-the Tenant shall attorn to such
successor and shall ipso facto be and become bound directly to such successor
in interest to Landlord to perform and observe all the Tenant's obligations
under this Lease without the necessity of the execution of any further
instrument. Nevertheless, Tenant agrees at any time and from time to time
during the term hereof to execute a suitable instrument in confirmation of
Tenant's agreement to attorn, as aforesaid.
(d) [MISSING RIDER] Tenant hereby irrevocably constitutes and appoints
Landlord or any such Underlying Party, and their respective successors in
interest, acting singly, Tenant's attorney-in-fact to execute and deliver any
such certificate or instrument for, on behalf and in the name of Tenant, but
only if Tenant fails to execute, acknowledge and deliver any such certificate
or instrument within ten (10) days after Landlord or such Underlying Party
has made written request therefor.
(e) Notwithstanding anything to the contrary contained in this Article
23, if all or part of Landlord's estate and interest in the Unit shall be a
leasehold estate held under a ground lease, then: (i) The foregoing
subordination provisions of this Article 23 shall not apply to any mortgages
of the fee interest in said real property to which Landlord's leasehold
estate is not otherwise subject and subordinate; and (ii) the provisions of
the Article 23 shall in no way waive, abrogate or otherwise affect any
agreement by any ground lessor (x) not to terminate this Lease incident to
any termination of such ground lease prior to its term expiring or (y) not to
name or join Tenant in any action or proceeding by such ground lessor to
recover possession of such real property or for any other relief.
(f) Notwithstanding anything to the contrary contained in this
Article 23, if all or part of Landlord's estate and interest in the real
property of which the premises are a part shall be a condo-
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minium unit, then the provisions of this Article 23 shall in no way waive,
abrogate or otherwise affect any provision in the master deed to the effect
that (x) this Lease will not be terminated incident to any foreclosure by the
Board of Managers of the Condominium of the lien to secure common area
expenses or (y) Tenant shall not be named or joined in any action or
proceeding by said Board of Managers in connection with the collection of
common area expenses.
24. QUIET ENJOYMENT
Landlord covenants that if, and so long as, Tenant keeps and performs
each and every covenant, agreement, term, provision and condition herein
contained on the part and on behalf of Tenant to be kept and performed,
Tenant shall quietly enjoy the premises from and against the claims of all
persons claiming by, through or under Landlord subject, nevertheless, to the
covenants, agreements, terms, provisions and conditions of this Lease and to
the Underlying Instruments to which this Lease is subject and subordinate, as
hereinabove set forth.
Landlord warrants and represents to Tenant that Landlord has the right and
authority to enter into this Lease.
25. ENTIRE AGREEMENT -- WAIVER -- SURRENDER
25.1 ENTIRE AGREEMENT. This Lease and the Exhibits made a part hereof
contain the entire and only agreement between the parties and any and all
statements and representations, written and oral, including previous
correspondence and agreements between the parties hereto, are merged herein.
Tenant acknowledges that all representations and statements upon which it
relied in executing this Lease are contained herein and that the Tenant in no
way relied upon any other statements or representations, written or oral. Any
executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of this Lease in whole or in part unless
such executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
25.2 WAIVER. The failure of to seek redress for violation, or to insist
upon the strict performance, of any covenant or condition of this Lease, or
any of the Rules and Regulations promulgated hereunder, shall not prevent a
subsequent act, which would have originally constituted a violation, from
having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this Lease
shall not be deemed a waiver of such breach. The failure of Landlord to
enforce any of such Rules and Regulations against Tenant and/or any other
tenant in the Building shall not be deemed a waiver of any such Rules and
Regulations. No provisions of this Lease shall be deemed to have been waived
by unless such waiver be in writing signed by. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the stipulated
rent, nor shall any endorsement or statement on any check or any letter
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accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance of such rent or pursue any other
remedy in this Lease provided.
25.3 SURRENDER. No act or thing done by Landlord during the term hereby
demised shall be deemed an acceptance of a surrender of the premises, and no
agreement to accept such surrender shall be valid, unless in writing signed
by Landlord. No employee of Landlord or of Landlord's agents shall have any
power to accept the keys of the premises prior to the termination of this
Lease. The delivery of keys to any employee of Landlord or of Landlord's
agents shall not operate as a termination of the Lease or a surrender of the
premises.
26. INABILITY TO PERFORM -- EXCULPATORY CLAUSE
Except as provided in Article 4.1, 4.2, 8.8-10 and 15.6-18 hereof, this
Lease and the obligations of Tenant to pay rent hereunder and perform all the
other covenants, agreements, terms, provisions and conditions hereunder on
the part of Tenant to be performed shall in no way be affected, impaired or
excused because Landlord is unable to fulfill any of its obligations under
this Lease or is unable to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make or is delayed in
making any repairs, replacement, additions, alterations, improvements or
decorations or is unable to supply or is delayed in supplying any equipment
or fixtures if Landlord is prevented or delayed from so doing by reason of
strikes or labor troubles or any other similar or dissimilar cause whatsoever
beyond Landlord's reasonable control, including but not limited to,
governmental preemption in connection with a national emergency or by reason
of any rule, order or regulation of any department or subdivision thereof of
any governmental agency or by reason of the conditions of supply and demand
which have been or are affected by war, hostilities or other similar or
dissimilar emergency. In each such instance of inability of Landlord to
perform, Landlord shall exercise reasonable diligence to eliminate the cause
of such inability to perform. Except with respect to Tenant's obligations to
pay rental and other sums due under this Lease, the obligations of Landlord
to perform all the other covenants, agreements, terms, provisions and
conditions hereunder on the part of Landlord to be performed shall in no way
be affected, impaired or excused because Tenant is unable to fulfill any of
its obligations under this Lease or is unable to supply or is delayed in
supplying any service expressly or impliedly to be supplied or is unable to
make or is delayed in making any repairs, replacements, additions,
alterations, improvements or decorations or is unable to supply or is delayed
in supplying any equipment of fixtures if Tenant is prevented or delayed from
so doing by reason of strikes or labor troubles or any other similar or
dissimilar cause whatsoever beyond Tenant's reasonable control, including but
not limited to, governmental preemption in connection with a national
emergency or by reason of any rule, order or regulation of any department or
subdivision thereof of any governmental agency or by reason of the conditions
of supply and demand which have been or are affected by war, hostilities or
other similar or dissimilar emergency. In each such instance of inability of
Tenant to perform, Tenant shall exercise reasonable diligence to eliminate
the cause of such inability to perform.
Tenants shall neither assert nor seek to enforce any claim for breach of
this Lease against any of Landlord's assets other than Landlord's interest in
the Unit and in the uncollected rents, issues and profits thereof, and Tenant
agrees to look solely to such interest for the satisfaction of any liability
of Landlord under this Lease, it being specifically agreed that in no event
shall Landlord (or any of the officers, trustees, directors, partners,
beneficiaries, joint venturers, members, stockholders or other principals or
representatives, and the like, disclosed or undisclosed, thereof) ever be
personally liable for any such liability. This paragraph shall not limit any
right that Tenant might otherwise have to obtain injunctive relief against
Landlord or to take any other action which shall not involve the personal
liability of Landlord to respond in monetary damages from Landlord's assets
other than the Landlord's interest in the Unit, as aforesaid. In no event
shall Landlord (or any of the officers, trustees, directors, partners,
beneficiaries, joint venturers, members, stockholders or other principals or
representatives and the like, disclosed or undisclosed, thereof) ever be
liable for consequential damages. If by reason of Landlord's failure to
complete construction of the Project or premises, Landlord shall be held to
be in breach of this Lease, Tenant's sole and exclusive remedy shall be a
right to terminate this Lease. Notwithstanding anything to the contrary in
this Lease contained, Landlord shall neither assert nor seek to enforce any
claim for breach of this Lease against any of the personal assets of Tenant's
partners (i.e. other than the partnership assets of Tenant) for the
satisfaction of any liability of Tenant under this Lease, it being
specifically agreed that in no event shall Tenant's partners ever be
personally liable for any such liability. This paragraph shall not limit any
right that Landlord might otherwise have to obtain injunctive relief against
Tenant, to seek repossession of the premises in the event of the termination
of the Lease, or to take any other action which shall not involve the
personal liability of Tenant's partners.
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29.3 BROKER. Tenant represents and warrants that it has not directly or
indirectly dealt, with respect to the leasing of office space in the Building
or any Center, Office Park or other complex of which it is a part (called
"Building, etc." in this Article 29.3) with any broker or had its attention
called to the premises or other space to let in the Building, etc. by anyone
other than the broker, person or firm, if any, designated in Exhibit 1.
29.5 ARBITRATION. Any disputes relating to provisions or obligations in
this Lease as to which a specific provision for a reference to arbitration is
made herein shall be submitted to arbitration in accordance with the
provisions of applicable state law (as identified on Exhibit 1) as from time
to time amended. Arbitration proceedings, including the selection of an
arbitrator, shall be conducted pursuant to the rules, regulations and
procedures from time to time in effect as promulgated by the American
Arbitration Association. Prior written notice of application by either party
for arbitration shall be given to the other at least ten (10) days before
submission of the application to the said Association's office in the City
wherein the Project is situated (or the nearest other city having an
Association office). The arbitrator shall hear the parties and their
evidence. The decision of the arbitrator shall be binding and conclusive, and
judgment upon the award or decision of the arbitrator may be entered in the
appropriate court of law (as identified on Exhibit 1); and the parties
consent to the jurisdiction of such court and further agree that any process
or notice of motion or other application to the Court or a Judge thereof may
be served outside the State wherein the Project is situated by registered
mail or by personal service, provided a reasonable time for appearance is
allowed. The costs and expenses of each arbitration hereunder and their
apportionment between the parties shall be determined by the arbitrator in
his award or decision. No arbitrable dispute shall be deemed to have arisen
under this Lease prior to (i) the expiration of the period of twenty (20)
days after the date of the giving of written notice by the party asserting
the existence of the dispute together with a description thereof sufficient
for an understanding thereof; and (ii) where a Tenant payment (e.g.,
Operating Expense Excess under Article 9 hereof) is in issue, the amount
billed by Landlord having been paid by Tenant.
29.6 GOVERNING LAW. This Lease is made pursuant to, and shall be
governed by, and construed in accordance with, the laws of the State wherein
the Project is situated and any applicable local municipal rules,
regulations, by-laws, ordinances and the like.
29.7 ASSIGNMENT OF RENTS. With reference to any assignment by Landlord
of its interest in this Lease, or the rents payable hereunder, conditional in
nature or otherwise, which assignment is made to or held by a bank, trust
company, insurance company or other institutional lender holding an
Underlying Instrument on the Unit, Tenant agrees:
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(a) that the execution thereof by Landlord and the acceptance thereof
by such Underlying Party shall never be deemed an assumption by such
Underlying Party of any of the obligations of the Landlord thereunder, unless
such Underlying Party shall, by written notice sent to the Tenant,
specifically otherwise elect; and
(b) that, except as aforesaid, such Underlying Party shall be treated
as having assumed the Landlord's obligations thereunder only (i) upon and for
the period in respect of which such mortgagee and/or ground lessor is in
possession of the Building and receives rental payments hereunder, and in any
case, or (ii) upon foreclosure of such Underlying Party's mortgage or
termination of such Underlying Party's ground lease, as the case may be, and
the taking of possession of the demised premises after having given notice of
its exercise of the option stated in Article 23 hereof to succeed to the
interest of the Landlord under this Lease.
29.8 REPRESENTATION OF AUTHORITY. By his execution hereof each of the
signatories on behalf of the respective parties hereby warrants and
represents to the other that he is duly authorized to execute this Lease on
behalf of such party. If Tenant is a corporation, Tenant hereby appoints the
signatory whose name appears below on behalf of Tenant as Tenant's
attorney-in-fact for the purpose of executing this Lease for and on behalf of
Tenant.
IN WITNESS WHEREOF the parties hereto have executed this Indenture of
Lease in multiple copies, each to be considered an original hereof, as a
sealed instrument on the day and year noted in Exhibit 1 as the Execution
Date.
LANDLORD: ROWES WHARF ASSOCIATES TENANT: The Beacon Companies
By By
------------------------------- ----------------------------
A General Partner of (Name) (Title)
Rowes Wharf Limited Partnership Hereunto Duly Authorized
IF TENANT IS A CORPORATION, A SECRETARY'S OR CLERK'S CERTIFICATE OF THE
AUTHORITY AND THE INCUMBENCY OF THE PERSON SIGNING ON BEHALF OF TENANT SHOULD
BE ATTACHED.
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK
On the Execution Date stated in Exhibit 1, the person above signing this
Lease for and on behalf of the Tenant, to me personally known, did sign and
execute this Lease and, being by me duly sworn, did depose and say that is
the officer of the above named Tenant, as noted, and that he signed his name
hereto by order of the Board of Directors of said Tenant.
/s/
------------------------------
Notary Public
My Commission expires: 1/30/92
--------
35
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK
On the Execution Date stated in Exhibit 1, the person above signing this
Lease for and on behalf of Landlord to me personally known, did sign and
execute this Lease and, being by me duly sworn, did depose and say that he is
the duly authorized representative of Landlord.
/s/
------------------------------
Notary Public
My Commission expires: 1/30/92
--------
36
<PAGE>
EXHIBIT 3, SHEET 1
MEMORANDUM OF WORK AND INSTALLATIONS TO BE INITIALLY PERFORMED
AND FURNISHED IN THE PREMISES
A. Notwithstanding anything to the contrary in Article 4 or in Exhibit
3 contained, in addition to the quantities of materials set forth on Exhibit
3, Landlord shall provide and install up to Ten ($10.00) Dollars per square
foot of Total Rentable Area of the premises initially demised by Tenant of
additional quantities of items listed in Exhibit 3 in order to prepare the
premises in accordance with Tenant's final plans. In addition, Landlord shall
provide up to Ten ($10.00) Dollars per square foot of Total Rentable Area of
the premises initially demised by Tenant towards the cost of additional
leasehold improvements requested by Tenant in order to prepare the premises
in accordance with Tenant's final plans.
B. Tenant shall be entitled to a credit (i.e. against the cost of
constructing the premises or against Tenant's obligation to pay Yearly Rent
and other charges due under the Lease, at Tenant's election, equal to the sum
of: (i) the value of the Building standard items listed on Exhibit 3 (if any)
which are not used by Tenant, such value to be determined based upon the
quantities of such items set forth in Exhibit 3, plus (ii) any unused portion
of the above-referenced Ten ($10.00) Dollar per square foot of Total Rentable
Area construction contribution and (iii) the Ten ($10.00) Dollar per square
foot of Total Rentable Area construction contribution.
C. The Storage Premises shall be prepared in accordance with the
following specifications:
1. Smooth concrete floor.
2. Door with keyed lockset.
3. Adequate overhead lighting fixtures.
4. Demising walls.
D. Tenant shall, promptly upon request by Landlord, execute and deliver
to the City of Boston any affidavits and other documentation required to
obtain the Building permit allowing Landlord to perform Landlord's work on a
timely basis.
Landlord, at its expense shall furnish and install in accordance with
Tenant's plans, the following materials and work (or equal at Landlord's
election) -- all to be building standard unless otherwise expressly stated --
in the initial preparation of the premises for Tenant's occupancy.
A. EXTERIOR WALLS, LOBBY WALLS AND CORE WALLS
1. FINISH
The exposed surfaces are to receive a drywall finish. The toilet
rooms are to be finished with ceramic tile and drywall.
2. DOOR-FRAMES
Flush hollow metal doors 1-3/4" in thickness will be installed in
pressed metal door frames.
3. HARDWARE
Each swing door shall be provided with one and one-half pairs of
butts, a latch set, or lockset where required, and a doorstop where
required. A surface mounted door closer will be provided at such
locations as may be required by the local code. All hardware shall be
Sargent, Almet, Schlage, Yale or equal.
B. PARTITIONS AND DOORS
1. PARTITIONS SEPARATING PREMISES (DEMISING)
a. PARTITIONS
Partitions separating premises shall be constructed of metal
studs with two layers of 5/8" wallboard on each side extending
above the ceiling, with one layer of wallboard on each side
extended to the underside of the floor construction above, or
equal.
b. PRINCIPAL TENANT ENTRANCE DOOR
Each Tenant premises will be provided with one teak full-height,
solid core wood entrance door and glass sidelight in teak wood
frame (with provision for a building standard entrance sign),
installed with (two pairs of ball bearing butts, a lockset,
doorstop and concealed door closer.
c. SECONDARY EGRESS DOORS (WHERE REQUIRED)
All doors shall have pressed metal door frames. The doors shall
be teak, full-height, solid core wood doors and shall be
installed with two pairs of ball bearing butts, a lockset, a
doorstop and a concealed door closer.
d. LOCKS
Each door will be provided with a building standard lockset
master keyed to the building system, and shall be Sargent, Almet,
Schlage, Yale or equal.
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<PAGE>
EXHIBIT 3, SHEET 2
2. PARTITIONS SEPARATING OFFICES WITHIN SINGLE PREMISES
a. PARTITIONS
Partitions shall be constructed of metal studs with two layers of
5/8" wallboard, extending above the ceiling, on each side, or
equal
b. DOORS
The swing doors shall have pressed metal door frames. The doors
shall be teak full-height, solid core wood and shall be installed
with two pairs of ball bearing butts, a latch set and a doorstop.
The number of doors shall not exceed one door for each 25 linear
feet of allowed partitions (per Para. B.3. below). All hardware
shall be Sargent, Almet, Yale, Schlage or equal.
3. STANDARD QUALITY OF PARTITIONS
The total lineal footage of partitions shall not exceed one lineal
foot for each 15 square feet of (i) Net Rentable Area* for multi-
tenant floors or (ii) Gross Area*, not including building core area,
for single-tenant floors, as the case may be.
C. CEILINGS
1. Mechanically suspended, concealed spline, acoustic tile ceilings
shall be mineral fiber, Class "A" (incombustible), 12" x 12", square
edged.
2. The mechanical suspension system shall be of the concealed type.
D. LIGHTING
1. Landlord shall provide recessed fluorescent lighting fixtures
(2' x 4') with a large cell aluminum parabolic louver and three (3)
35-watt rapid start tubes with supply and return air feature to the
extent of one such fixture per 85 square feet (average) of (i) Net
Rentable Area for multi-tenant floors or (ii) Gross Area, not
including building core area, for single-tenant floors, as the case
may be.
2. Miscellaneous fixtures, fluorescent and/or incandescent shall be
installed in mechanical spaces, toilet areas, stairwell and utility
areas to conform to building operation requirements and existing
codes.
3. Wall switches of the single pole, quiet type to the extent of one
switch for each ten lighting fixtures averaged shall be installed by
Landlord. Each private office must have at least one wall switch
(which will be counted in this allowance).
- ---------------
*The terms "Gross Area" and "Net Rentable Area" used in computing allowances
under this Exhibit 3 refer to definitions appearing in Exhibit 5 of the Lease.
38
<PAGE>
EXHIBIT 3, SHEET 3
E. Electrical and Telephone
1. Duplex wall and floor receptacles (not to exceed one per 125 square
feet of (i) Net Rentable Area for multi-tenant floors or (ii) Gross
Area, not including building core area, for single-tenant floors, as
the case may be), shall be installed by Landlord. Not more than 10%
of the total number of such receptacles may be located in the floor.
2. Landlord will make the necessary provisions for wall and floor
telephone outlets (not to exceed one per 200 square feet of (i) Net
Rentable Area for multi-tenant floors or (ii) Gross Area, not
including building core area, for single-tenant floors, as the case
may be). Installation of the wiring and equipment by the telephone
company or other communication equipment supplier is the
responsibility of Tenant. Not more than 10% of the total number of
such outlets may be located in the floor.
3. Power wiring circuits, including terminal device (similar to the
208-volt, 30 AMP, 3-Phase, grounded) shall be made available to
Tenant in connection with Tenant's equipment at the rate of one per
6,000 square feet of (i) Net Rentable Area for multi-tenant floors or
(ii) Gross Area, not including core area, for single-tenant floors,
as the case may be.
F. Plumbing
1. Wet stacks are available on the typical office floor containing cold
water, waste, and vent piping. Tenant equipment can be connected at
these points by the Landlord at the Tenant's expense.
G. Painting and Wall Covering
1. All wall surfaces shall receive a finish coat of building standard
acrylic based spray applied, vinyl paint over one prime coat, or
equal. Door frames shall receive one coat of enamel over one prime
coat. Doors shall receive a natural finish of one coat of sealer and
one coat of varnish.
2. Paint colors shall be selected from a standard color chart with not
more than one accent color (flat paint) on one wall in each
individual office or room.
3. Where Tenant desires wall covering, Landlord shall initially prepare
walls to receive wall covering by application of sizing. Such wall
covering shall be furnished and installed at Tenant's expense. Wall
covering shall be subject to Landlord's approval prior to
installation.
4. Public areas, corridors and lobbies shall be finished in accordance
with the Landlord's Architect's finish schedule.
H. Sun-Control Blinds
Landlord shall furnish and install sun control blinds, including the
tracks therefore, in color selected by Landlord.
39
<PAGE>
EXHIBIT 3, SHEET 4
I. FLOOR FINISHES
The Tenant will provide within his premises, and at his expense
(furnished and installed), all floor coverings and vinyl, wood,
carpet or any other baseboard moldings.
J. MECHANICAL
1. Landlord will install in the interior office area, one supply troffer
or diffuser with 6 feet of flexible hose for every 200 square feet of
(i) Net Rentable Area for multi-tenant floors or (ii) Gross Area, not
including building core area, for single-tenant floors, as the case
may be, in any premises served by the building interior air
distribution system.
2. Landlord will install a sprinkler system for the public areas and
tenant premises to the extent of one head per 225 square feet of (i)
Net Rentable Area for multi-tenant floors or (ii) Gross Area, not
including building core area, for single-tenant floors, as the case
may be. Such head shall be a semi-recessed chrome pendant head. Heads
will be installed in accordance with approved Tenant's final plans
and all other governing agencies and regulations.
3. Toilet exhaust ductwork is available on each office floor for
Tenant-installed executive toilets. Connections to this ductwork will
be by the Landlord at the Tenant's expense.
40
<PAGE>
EXHIBIT 4, SHEET 1
BUILDING SERVICES
A. GENERAL CLEANING (MONDAY THROUGH FRIDAY -- EXCLUDING BUILDING HOLIDAYS)
1. All stone, ceramic, tile, marble, terrazzo and other unwaxed
flooring to be swept nightly, using approved dust-down preparation.
2. All wood, linoleum, vinyl-asbestos, vinyl and other similar types of
floors to be swept or dry mopped nightly, using dust-down
preparation; all carpeting and rugs in the main traffic areas
(corridors, reception areas, etc.) to be vacuumed nightly and all
other carpeted areas to be vacuumed at least once each week.
3. Wax all public areas monthly.
4. Hand dust all furniture, files and fixtures nightly.
5. Empty all waste receptacles nightly and remove waste paper and waste
materials, including folded paper boxes and cartons, to designated
area.
6. Empty and clean all ash trays and screen all sand urns nightly.
7. Wash and clean all water fountains and coolers nightly. Sinks and
floors adjacent to sinks to be washed nightly.
8. Hand dust all door and other ventilating louvers within reach, as
necessary, but not less often than monthly.
9. Dust all telephones as necessary.
10. Keep lockers and janitors sink rooms in a neat, orderly condition at
all times.
11. Wipe clean all bright metal work as necessary.
12. Check all stairwells throughout entire building nightly and keep in
clean condition.
13. Metal doors and trim of all public elevator cars to be properly
maintained and kept clean.
B. COMMON AREA LAVATORIES
1. Sweep and wash all lavatory floors nightly, using proper non-scented
disinfectants.
2. Clean all mirrors, powder shelves, bright work and enameled surfaces
in all lavatories nightly. Scour, wash and disinfect all basins,
bowls and urinals using non-scented disinfectants.
41
<PAGE>
EXHIBIT 4, SHEET 2
3. Police lavatories during the day with matron or porter to pick up
waste and replenish materials.
4. Wash all toilet seats nightly.
5. Fill toilet tissue holders nightly.
6. Empty paper towel receptacles nightly.
7. Empty sanitary disposal receptacles nightly.
8. Thoroughly clean all wall tile and stall surfaces as necessary.
C. HIGH DUSTING
Do all high dusting (not reached in nightly cleaning) quarterly which
includes the following:
1. Dust all pictures, frames, charts, graphs, and similar wall hangings.
2. Dust exposed pipes, ventilation and air conditioning louvres, ducts
and high moldings.
D. WINDOW CLEANING
1. All exterior windows (except for any retail/commercial areas) from
the second floor and above will be cleaned inside and outside
by-monthly except when cleaning is rendered impracticable by
inclement weather.
2. Entrance doors and elevator lobby glass to be cleaned daily and kept
in a clean condition at all times during the day.
3. Wipe down all window frames as necessary but not less often than
bi-monthly.
E. BUILDING LOBBIES
1. Floors to be swept and washed or vacuumed nightly, and machine
scrubbed according to Building Standard frequency.
2. Carpeting in passenger elevators to be vacuumed nightly.
3. Lobby walls to be dusted as often as necessary, but not less than
weekly.
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<PAGE>
EXHIBIT 4, SHEET 3
4. Screen and clean sand urns nightly.
5. Clean all unpainted metal work in a manner appropriate to original
finish.
F. PORTERS
Necessary number of day porters under supervision will be assigned for
the following services:
1. Service all public and operating space throughout the Building.
2. Keep elevators clean and neat during the day.
3. Maintain lobbies clean and, during wet weather, mopped dry to the
extent practicable.
4. Dust and rub down all elevator doors, frames, telephone booths and
directories daily.
5. Sweep sidewalks, ramps, etc. daily.
6. Clean roofs and setbacks as often as necessary.
7. Maintain firehose and equipment clean.
8. Lay and remove lobby runners as necessary.
9. Replenish toilet tissue, towels and other supplies in lavatories.
10. Maintain fan rooms, motor rooms and air conditioning rooms in clean
condition.
11. Check stairways and keep same neat and clean during the day.
12. Clean exterior columns, exterior signs and metal work, standpipe and
sprinkler system, walkways and stairs as necessary.
13. If directed by superintendent, fill towel and soap dispensers and
perform any emergency cleaning required.
43
<PAGE>
EXHIBIT 5, SHEET 1
RENTABLE AREA AND ADJUSTMENT OF RENT
(1) MEASUREMENT STANDARDS - SINGLE TENANCY FLOORS
Three steps, in sequence, are to be followed to determine the Total
Rentable Area: (i) Compute gross area; (ii) deduct certain areas; and
(iii) add applicable share of areas to be apportioned. (See below
paragraph (c).)
(a) GROSS AREA: The gross area of a floor shall be the entire area
within the exterior walls. If the exterior or demising wall consists
in whole or part of windows, fixed clear glass or other transparent
material, the measurement along the entire such wall shall be taken
to a line established by the horizontal plane of the inside of the
glass or other transparent material. If it consists solely of
non-transparent material, the measurement shall be taken to the
inside surface of the outer building wall. If a floor has no
exterior wall within the property line, measurements shall be taken
to the property line. If a floor has no full-height enclosing wall,
measurements shall be taken to the edge of the floor slab. All
shafts or penetrations, including their enclosing walls, containing
services only for non-office components shall not be included in the
gross area.
(b) DEDUCTIONS FROM GROSS AREA: The following non-rentable building
areas with on-half of their enclosing walls are to be deducted.
1. Public elevator shafts and associated elevator machine rooms.
2. Required egress stairways.
3. Areas within the gross area which are to be apportioned
pursuant to paragraph (c) below.
(c) AREAS TO BE APPORTIONED:
1. Common facilities including without limitation, all heating,
ventilating, air conditioning, mechanical, electrical, cooling
tower, telephone and other service floors, rooms or areas,
containing equipment or supplies (exclusive of any tenant's
special air conditioning or mechanical area or facilities) and
all public lobbies (including monumental stair and/or escalator),
loading and other common services areas, throughout and within the
Building including one-half of their enclosing walls, are to be
apportioned.
2. Whenever the height of any room or space used for a heating,
ventilating, air conditioning, mechanical, or electrical facility
above the ground floor shall exceed the average story height in
the Building by more than 25%, then the floor area of such room
or space shall be determined by multiplying the actual floor area
by the percentage that the height of the room or space exceeds
the average story height, and adding the area so determined to
the actual floor area of such room or space, however, if any
such rooms or spaces penetrate the next higher floor, then the
entire area of such room or space on both floors shall be
apportioned under this paragraph (c).
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<PAGE>
EXHIBIT 5, SHEET 2
(2) Measurement Standards - Multiple Occupancy Floors
The sum of the Total Rentable Area for two or more tenants on a floor
shall be the Total Rentable Area for that floor as computed in the
manner for single tenancy floors.
Three steps are to be followed to determine the Total Rentable Area for
each tenant on a multiple occupancy floor: (i) compute the Net
Rentable Area for such floor pursuant to (a) below; (ii) compute the
Net Rentable Area for each tenant pursuant to (b) below; and (iii)
multiply the Total Rentable Area of such floor by a fraction whose
numerator is the Net Rentable Area for such tenant and whose
denominator is the Net Rentable Area for such floor.
(a) NET RENTABLE AREA FOR ANY FLOOR: The Net Rentable Area shall
be the gross area as described for single tenancy floors less
the entire core area (measured to the finished enclosing walls
thereof, but excluding any part of the core rented to a tenant)
and public corridors measured to the corridor side of the
enclosing walls thereof.
(b) NET RENTABLE AREA FOR EACH TENANT: Exterior walls are to be
measured as described in the procedure for gross area.
Demising walls between tenants are to be equally divided.
Corridor walls to the finished corridor side are to be
included in the Net Rentable Area of each tenant.
(c) RETAIL AREA: The Total Rentable Area of a store or other
retail facility in the Building shall be computed in
accordance with the foregoing measurement standards for
multiple occupancy floors.
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<PAGE>
EXHIBIT 5, SHEET 3
(3) ADJUSTMENT OF TOTAL RENTABLE AREA AND RENT
(a) Either party, not later than the last day of the third calendar
month next beginning after the Term Commencement Date, may
request that a recomputation of the Total Rentable Area be made by
actual measurement of the premises in accordance with the standards
stated in Exhibit 5 and at that party's own cost and expense. If
the Total Rentable Area as so recomputed is more than or less than
the Total Rentable Area as originally stated in Exhibit 1 and the
Lease Plan, the Yearly Rent originally reserved hereunder shall be
recomputed by multiplying such Yearly Rent by a fraction which
shall have as the numerator the recomputed Total Rentable Area and
as the denominator the Total Rentable Area as originally stated in
Exhibit 1. The product of this multiplication shall be substituted
in Exhibit 1 for the Yearly Rent, retroactive to the date such rent
commenced. In addition, the Net Rentable Area and Total Rentable
Area figures stated in Exhibit 1 shall be appropriately changed.
Any payment due from either party to the other as a result of any
adjustments made hereunder shall be paid promptly upon rendition of
a statement by the party entitled to the additional rent, or rent
refund, as the case may be.
(b) If neither Landlord nor Tenant requests any adjustment as herein
provided within the time limits prescribed, then the Landlord and
Tenant shall be deemed to have consented to such Total Rentable
Areas as originally stated in Exhibit 1, and shall be deemed to
have waived any and all right to any adjustment or adjustments
pursuant to the provisions of this Exhibit 5.
(c) In the event of any adjustment pursuant to this Exhibit 5, Landlord
and Tenant shall promptly execute a lease amendment in recordable
form setting forth the recomputed figures resulting from such
adjustment.
(4) The measurement standards set forth on this Exhibit 5 are used for the
purpose of defining the area of the premises and do not uniformly
coincide with the boundaries of the Unit as set forth in the Master Deed
of the Condominium.
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<PAGE>
EXHIBIT 6, SHEET 1
Section 33.2 of the Ground Lease provides as follows (Rowes Wharf Associates
is the "Tenant" referred to in said Section 33.2 and the Boston Redevelopment
Authority is the "Landlord" referred to in said Section 33.2):
"33.2 Tenant has submitted and Landlord has approved a plan to ensure that
workers are employed in the construction of the Improvements so that the
worker hours on a craft-by-craft basis shall be performed as follows:
(a) at lease 50% of the total employee work hours in each trade by bona
fide City of Boston residents;
(b) at least 25% of the total employee work hours in each trade by
minorities;
(c) at least 10% of the total employee work hours in each trade by women.
For the purpose of this Section 33.2, worker hours shall include work
performed by persons filling apprenticeship and on-the-job training
positions. Such plan is as follows:
(a) Tenant shall incorporate in every general construction contract or
construction management agreement an enumeration of the foregoing
worker hour goals and shall impose a responsibility upon any such
general contractor or construction manager;
(i) to pursue the efforts enumerated in this Section 33.2 and
(ii) to incorporate such worker hour goals in all subcontracts and
impose upon all subcontractors the obligation to pursue such
efforts.
(b) Each Tenant, its contractor, and each subcontractor shall designate
an individual to serve as affirmative action officer for the purpose
of carrying out the efforts to achieve worker hour goals set forth
herein,
(c) Contemporaneously with the start of construction, the affirmative
action officers and other interested representatives of Tenant, its
Contractor and each subcontractor then selected shall hold a pre-job
conference with appropriate union representatives of the
construction trade unions for the purpose of reviewing the above
worker hour goals and the manning requirements for construction
activity over the life of the construction period.
(d) Each request for qualified construction workers made by any person
involved in the construction of the Improvements to a union hiring
hall or business agent shall contain a recitation of such worker
hour goals and a request that qualified referees for construction
positions be selected in the same proportion as such goals;
provided, however, that if at the time of any such manning request
the requesting party's workforce composition falls short of any one
or more of such goals, such manning request shall seek qualified
referees in such proportion among such categories as would be
necessary to more fully achieve such goals. In the event that the
union hiring hall or business agent to which or whom such a manning
request has been submitted fails to comply with such request, the
affirmative action officer of such requesting party shall seek to
verify that insufficient workers in the categories specified in
such request are then shown on the unemployed list maintained by
such union hiring hall or business agent by seeking to obtain an
affidavit from the union hiring hall representative or business
agent to such effect. Copies or any affidavit so obtained shall be
forwarded to Landlord's affirmative action officer.
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<PAGE>
EXHIBIT 6, SHEET 2
(c) All persons applying directly to the Contractor or any subcontractor
for employment in construction on the project who are not employed
by the party to whom application is made will be referred to
Landlord's affirmative action officer and a written record of such
referral shall be made, a copy of which shall be sent to such
officer.
Tenant, its contractors, and each subcontractor shall maintain records
reasonably necessary to ascertain compliance with the requirements of this
Section 33.2 for at least one year after the issuance of a Certificate of
Occupancy for the first premises to be occupied by a tenant under an
occupancy lease."
50
<PAGE>
RIDER TO LEASE
LANDLORD: Rowes Wharf Associates
TENANT: The Beacon Companies
The subject Lease is hereby amended as follows:
1. PARKING
During the term of the Lease, the Landlord will make available, at
Tenant's request, which request must be made within sixty (60) days of the
Term Commencement Date, monthly parking passes to Tenant for use in the
garage ("Garage") in the Project at the rate of one (1) pass per 1,000 square
feet of the Total Rental Area of the premises initially demised by Tenant and
one (1) pass per 1,000 square feet of the Total Rentable Area of the premises
demised by Tenant pursuant to its expansion options under this Rider (if and
to the extent that Tenant exercises such expansion options). With respect to
parking passes to which Tenant is entitled based upon the exercise of any of
its expansion options, Tenant shall be required to request said parking
passes within sixty (60) days of the Term Commencement Date in respect of the
premises on which Tenant's right to obtain such parking passes is based.
Tenant shall have no right to sublet, assign, or otherwise transfer said
parking passes except to approved subtenants. If Tenant fails timely to make
such request for any of said parking passes, Tenant shall have no right to
obtain such parking passes under this Paragraph 1. Said parking passes shall
be paid for by Tenant at the then current prevailing rate in the Garage, as
such rate may vary from time to time. If, for any
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<PAGE>
reason. Tenant shall fail timely to pay the charge for any of said parking
passes, Tenant shall have no further right to such parking passes under this
Paragraph 1. Said parking passes will be on an unassigned, non-reserved basis,
and shall be subject to the rules and regulations from time to time in force.
2. TENANT'S EXPANSION OPTIONS
On the condition (which condition Landlord may waive, at its election, by
written notice to Tenant at any time) that Tenant is not in default (beyond
the expiration of any applicable grace periods) of its covenants and
obligations under the Lease as of the time of option exercise, Tenant shall
have the following options to lease additional premises in the Building from
Landlord:
A. Definition of Expansion Areas
Fifth and Tenth Anniversaries of
Initial Term Commencement Date
--------------------------------
For the purposes hereof, the Expansion Areas shall be defined as
follows:
<TABLE>
<CAPTION>
Expansion Areas Location
--------------- ---------
<S> <C>
Fifth Anniversary
Expansion Area: Approximately one-half of the fifth
(5th) floor of the Atlantic Avenue
Building North (i.e. 30 Rowes Wharf),
containing approximately 8,950 square
feet of Total Rentable Area,
substantially as shown on Lease Plan,
Exhibit 2, Sheet 2.
Tenth Anniversary
Expansion Area: The remainder of the fifth (5th) floor
of the Atlantic Avenue Building North,
containing approximately 8,950 square
feet of Total Rentable Area,
substantially as shown on Lease Plan,
Exhibit 2, Sheet 2.
</TABLE>
-2-
<PAGE>
(2) Landlord shall have no right to extend the term of the lease
of an Expansion Area Tenant after Tenant has given timely notice exercising
its right to lease the Expansion Area occupied by such tenant.
O. NOTICE DATES
The Notice Date in respect of each Expansion Area shall be defined
as follows:
(1) If, as of the date twelve (12) months prior to the first day of
the Expiration Period in question, any portion of the Expansion Area is
vacant, the Notice Date in respect of such Expansion Area shall be the date
twelve (12) months prior to the first day of the Expiration Period applicable
to such Expansion Area.
(2) If, as of the date twelve (12) months prior to the first day of
the Expiration Period in question, all of an Expansion Area is occupied by an
Expansion Area Tenant(s), then the Notice Date in respect of such Expansion
Area shall be twelve (12) months prior to the earliest expiration date of the
lease of the Expansion Area Tenant of such Expansion Area. Landlord shall
advise Tenant, upon request of Tenant from time to time, of the expiration
dates of the terms of the leases of the tenants of the fifth (5th) floor of
the Building.
(3) Landlord shall, upon written request of Tenant, advise Tenant
of the expiration dates of the leases of all Expansion Area Tenants and of
the corresponding Notice Dates, if applicable, and the location of the
portion of the Expansion Area
-4-
<PAGE>
leased to such tenants. Notwithstanding anything to the contrary herein
contained, after Landlord has advised Tenant of a Notice Date in respect of
an Expansion Area, such Notice Date shall in no event occur earlier than the
date which Landlord has so advised Tenant.
E. LEASE PROVISIONS APPLYING TO EXPANSION AREAS
The leasing to Tenant of any Expansion Area shall be upon all the
same terms and conditions of the Lease (including, without limitation,
escalation bases) except as follows:
(1) TERM COMMENCEMENT DATE
If no tenants are occupying an Expansion Area, or any portion
thereof, during the applicable Expiration Period, the Term Commencement Date
in respect of such Expansion Area shall be the first day of the applicable
Expiration Period. Otherwise, the Term Commencement Date in respect of an
Expansion Area, or any portion thereof, shall be the later of: (i) the
expiration date of the lease of the tenant occupying such Expansion Area, or
portion thereof, and (ii) the date on which said tenant vacates such
Expansion Area or portion thereof. If said tenant holds over in an Expansion
Area after the expiration of the term of its Lease, then Landlord shall use
reasonable efforts (including commencing and diligently prosecuting summary
process proceedings) to cease possession of such Expansion Area.
(2) RENT COMMENCEMENT DATE
The Rent Commencement Date in respect of any Expansion Area, or
portion thereof, shall be the Term Commencement Date in respect of such
Expansion Area, or portion thereof.
-5-
<PAGE>
(3) YEARLY RENT
(a) FIFTH ANNIVERSARY EXPANSION AREA
The Yearly Rent for the Fifth Anniversary Expansion Area
for the period from the Term Commencement Date in respect of the Fifth
Anniversary Expansion Area through the day immediately preceding the tenth
(10th) anniversary of the Term Commencement Date in respect of the premises
initially demised by Tenant shall be determined in accordance with the Yearly
Rent rental rate which Tenant pays, from time to time, for all premises
initially demised to Tenant. From and after the tenth (10th) anniversary of
the Term Commencement Date in respect of the premises initially demised by
Tenant, the Yearly Rent in respect of the Fifth Anniversary Expansion Area
shall be based upon the Fair Market Rental Value, as defined in Paragraph 5
of this Rider, of the Fifth Anniversary Expansion Area, as of the tenth
(10th) anniversary of the Term Commencement Date in respect of the premises
initially demised by Tenant.
(b) TENTH ANNIVERSARY EXPANSION AREA
The Yearly Rent payable in respect of the Tenth
Anniversary Expansion Area shall be based upon the Fair Market Rental Value,
as defined in Paragraph 5 of this Rider, of such Expansion Area, as of the
Term Commencement Date in respect of such Expansion Area.
(4) CONSTRUCTION OF EXPANSION AREAS
Each Expansion Area shall be delivered by Landlord and accepted
by Tenant "as is", in its then (i.e. as of the Term
-6-
<PAGE>
Commencement Date in respect of such Expansion Area, or portion thereof)
state of construction, finish and decoration, without any obligation on the
part of Landlord to prepare or construct such Expansion Area for Tenant's
occupancy. In implementation of the foregoing, Landlord shall have no
obligation under Article 4, Ex. 3-37* and Exhibit 3 of the Lease in respect
of such Expansion Areas.
(6) EXECUTION OF LEASE AMENDMENTS
Notwithstanding the fact that Tenant's exercise of the
above-described expansion options shall be self-executing, as aforesaid, the
parties hereby agree promptly to execute a lease amendment reflecting the
addition of each such Expansion Area, adding the rental therefor, adjusting
Tenant's Proportionate Shares, and the other affected Exhibit 1 data, after
Tenant exercises its option in respect of such Expansion Area. The execution
of such lease amendments shall not be deemed to waive any of the conditions
to Tenant's exercise of the herein expansion options, unless otherwise
specifically provided in such lease amendments.
3. TENANT'S OPTIONS TO EXTEND THE TERM OF LEASE
A. On the condition (which condition Landlord may waive, at its
election, by written notice to Tenant at any time) that Tenant is not in
default (beyond the expiration of any applicable grace periods) of its
covenants and obligations under the Lease as of the time of option exercise,
Tenant shall have the option to extend the term of this Lease for two (2)
additional ten-(10)-year terms, the first such additional term commencing as
of the day
-7-
<PAGE>
after the expiration of the initial term of the Lease, and the second such
additional term commencing as of the day after the expiration of the first
such additional term. Tenant may exercise such option to extend by giving
Landlord written notice on or before the date twenty-four (24) months prior
to the expiration date of the then current term of the Lease. Upon the timely
giving of such notice, the term of this Lease shall be deemed extended upon
all of the terms and conditions of this Lease, except that the Yearly Rent
and Operating Costs in the Base Year during such additional terms shall be as
hereinafter set forth. If Tenant fails to give timely notice, as aforesaid,
Tenant shall have no right to extend the term of this Lease, time being of
the essence of this Paragraph 3.
B. YEARLY RENT DURING ADDITIONAL TERMS
The Yearly Rent payable during each such additional term shall be
based upon the Fair Market Rental Value, as defined in Paragraph 5 of this
Rider, of the premises then demised to Tenant as of the commencement of such
additional term, but in no event shall the sum of the Yearly Rent plus
escalation and other charges payable during such additional term be less than
the sum of the Yearly Rent plus escalations and other charges payable
immediately preceding the commencement of such additional term.
C. Tenant shall have no further option to extend the term of the Lease
other than the two ten-(10)-year additional terms herein provided.
D. Notwithstanding the fact that upon Tenant's exercise of the herein
options to extend the term of the Lease such extensions
-8-
<PAGE>
shall be self-executing, as aforesaid, the parties shall promptly execute a
lease amendment reflecting each such additional term after Tenant exercises
the herein options, except that the Yearly Rent payable in respect of each
such additional term and the Operating Costs in the Base Year during each
such additional term, shall not be set forth in said Amendment. Subsequently,
after such Yearly Rent and Operating Costs in the Base Year are determined,
the parties shall execute a written agreement confirming the same. The
execution of such lease amendments shall not be deemed to waive any of the
conditions to Tenant's exercise of its rights under this Paragraph 3, unless
otherwise specifically provided in such lease amendment.
4. TENANT'S RIGHT OF FIRST OFFER
On the condition (which condition Landlord may waive, at its
election, by written notice to Tenant at any time) that Tenant is not in
default (beyond the expiration of any applicable grace periods) of its
covenants and obligations under the Lease at the time that Landlord is
required to give Landlord's Notice, as hereinafter defined, Tenant shall have
the following right to lease RFO Premises, as hereinafter defined, when such
RFO Premises become available for lease to Tenant, as hereinafter defined.
A. DEFINITION OF RFO PREMISES
"RFO Premises" shall be defined as any separately demised area which
is contiguous, as hereinafter defined, to Tenant's premises and which becomes
available for lease to Tenant, as hereinafter defined, during the initial
term of this Lease. For the purposes of this Paragraph 4 "contiguous" shall
mean
-9-
<PAGE>
directly adjacent (either vertically or horizontally). For the purposes of
this Paragraph 4, an area shall be deemed to be "available for lease to
Tenant" if, during the initial term of this Lease, Landlord, in its sole
judgment, determines that such area will become available for leasing to
Tenant (i.e. when Landlord determines that the then current tenant of such
RFO Premises will vacate such RFO Premises, or any portion thereof, and when
Landlord intends to offer such premises for lease). In no event shall Tenant
have any rights under this Paragraph 4 on or after the date twelve (12)
months prior to the termination of the term of the Lease, as it may be
extended, pursuant to Paragraph 3 of this Rider, (i.e. Landlord shall have no
obligation to give Landlord's Notice, as hereinafter defined, to Tenant on or
after the date twelve (12) months prior to the termination of the term of the
Lease, as extended).
B. EXERCISE OF RIGHT TO LEASE RFO PREMISES
If Tenant has, within one hundred eighty (180) days prior to the
date that an RFO Premises becomes available for lease to Tenant, given
Landlord a written request ("Tenant's Request") advising Landlord that Tenant
is interested in leasing any RFO Premises, then Landlord shall give Tenant
written notice ("Landlord's Notice") at the time that Landlord determines, as
aforesaid, that RFO Premises will become available for lease to Tenant.
Notwithstanding anything to the contrary herein contained, Landlord shall
have no obligation to give Tenant Landlord's Notice in respect of any RFO
Premises unless Tenant has, within one hundred eighty (180) days prior to the
date that
-10-
<PAGE>
such RFO Premises become available for lease to Tenant, given Landlord
Tenant's Request. Tenant shall have the right to give Tenant's Request in
respect of any RFO Premises from time to time during the term of the Lease
until Tenant's right to lease such RFO Premises has lapsed. Landlord's Notice
shall set forth Landlord's designation of the Fair Market Rental Value (as
hereinafter defined) applicable to such RFO Premises, the Specified
Commencement Date in respect of such RFO Premises, the exact location of such
RFO Premises and the Termination Date in respect of such RFO Premises if such
Termination Date shall occur earlier than would otherwise have occurred
pursuant to Subparagraph C.(3)(A) of this Paragraph 4. Tenant shall have the
right, exercisable upon written notice ("Tenant's Exercise Notice") given to
Landlord within twenty (20) days after the receipt of Landlord's Notice, to
lease such RFO Premises. If Tenant fails timely to give Tenant's Exercise
Notice, Tenant shall have no further right to lease such RFO Premises
pursuant to this Paragraph 4. Upon the timely giving of such notice, Landlord
shall lease and demise to Tenant and Tenant shall hire and take from
Landlord, such RFO Premises, upon all of the same terms and conditions of the
Lease except as hereinafter set forth.
C. LEASE PROVISIONS APPLYING TO RFO PREMISES
The leasing to Tenant of any RFO Premises shall be upon all of the
same terms and conditions of the Lease, except as follows:
-11-
<PAGE>
(1) TERM COMMENCEMENT DATE
The Term Commencement Date in respect of any RFO Premises shall be
the later of: (x) the Specified Commencement Date in respect of such RFO
Premises as set forth in Landlord's Notice, or (y) the date that Landlord
delivers such RFO Premises to Tenant.
(2) RENT COMMENCEMENT DATE
The Rent Commencement Date in respect of any RFO Premises shall be
the Term Commencement Date in respect of such RFO Premises.
(3) TERMINATION DATE
A. The Termination Date in respect of any RFO Premises shall
be the Termination Date in respect of the premises initially demised by
Tenant, or such earlier or later date on which the Lease shall terminate
pursuant to the provisions of the Lease. Notwithstanding the foregoing,
if the RFO Premises would subsequently become an Expansion Area, the
Termination Date in respect of such RFO Premises shall be the day
immediately preceding the earliest date that the Term Commencement Date
could occur in respect of such Expansion Area.
B. Notwithstanding anything to the contrary herein contained,
if Landlord sets forth, in Landlord's Notice, an earlier Termination Date
in respect of an RFO Premises then, in such event, the Termination Date
in respect of such RFO Premises shall be the Termination Date set forth
-12-
<PAGE>
in Landlord's Notice, or such earlier date on which the Lease shall
terminate pursuant to the provisions of the Lease.
(4) YEARLY RENT
The Yearly Rent rental rate in respect of any RFO Premises shall be
based upon the Fair Market Rental Value, as defined in Paragraph 5 of
this Rider, of such RFO Premises as of the Term Commencement Date in
respect of such RFO Premises.
(5) CONDITION OF RFO PREMISES
Tenant shall take any RFO Premises "as-is" in its then (i.e. as of
the date of premises delivery) state of construction, finish, and
decoration, without any obligation on the part of Landlord to commence or
prepare any RFO Premises for Tenant's occupancy.
D. EXECUTION OF LEASE AMENDMENTS
Notwithstanding the fact that Tenant's exercise of the
above-described option to lease RFO Premises shall be self-executing, as
aforesaid, the parties hereby agree promptly to execute a lease amendment
reflecting the addition of any RFO Premises, except that the Yearly Rent
payable in respect of such RFO Premises and Operating Costs in the Base Year
in respect of such RFO Premises in respect of such RFO Premises may not be as
set forth in such Amendment. At the time that such Yearly rent and Operating
Costs in the Base Year are determined, the parties shall execute a written
agreement confirming the same. The Execution of such lease amendments shall
not be deemed to waive any of the conditions to Tenant's exercise of the
herein option to
-13-
<PAGE>
lease RFO Premises, unless otherwise specifically provided in such lease
amendments.
5. DEFINITION OF FAIR MARKET RENTAL VALUE
For the purposes of this Rider:
A. "Fair Market Rental Value" shall be computed as of the date in
question at the then current annual rental charge (i.e., the sum of Yearly
rent plus escalation and other charges), including provisions for subsequent
increases and other adjustments for new leases then currently being
negotiated or executed in comparable space located in the Project, or if no
new leases are then currently being negotiated or executed in such Project,
the Fair Market Rental Value shall be determined by reference to new leases
then currently being negotiated or executed for comparable space located in
first-class office buildings located in downtown Boston. In determining Fair
Market Rental Value, the following factors, among others, shall be taken into
account and given effect: size, location of premises, lease term, condition
of Building, and services provided by the Landlord.
B. Notwithstanding anything to the contrary herein contained, the
parties hereby agree that upon the determination of any Fair Market Rental
Value, Landlord shall have the right, exercisable by written notice to Tenant
on or before the time that Landlord gives Tenant its initial designation of
Fair Market Rental Value: to change Operating Costs in the Base Year as
stated on exhibit 1 from the amount stated on Exhibit 1 to an amount
-14-
<PAGE>
equal to the actual amount of Operating Costs for the immediately preceding
Operating Year.
If Landlord shall exercise such right, the amount of Yearly Rent payable
hereunder shall be commensurately adjusted to reflect such change in
Operating Costs in Base Year.
C. DISPUTE AS TO FAIR MARKET RENTAL VALUE
Landlord shall initially designate Fair Market Rental Value and
shall furnish data in support of such designation. If Tenant disagrees with
Landlord's designation of Fair Market Rental Value, Tenant shall have the
right, by written notice given within thirty (30) days after Tenant has been
notified of Landlord's designation, to submit such Fair Market Rental Value
to arbitration as follows: Fair Market Rental Value shall be determined by
impartial arbitrators, one to be chosen by the Landlord, one to be chosen by
Tenant, and a third to be selected, if necessary, as below provided. The
unanimous written decision of the two first chosen, without selection and
participation of a third arbitrator, or otherwise, the written decision of a
majority of three arbitrators chosen and selected as aforesaid, shall be
conclusive and binding upon Landlord and Tenant. Landlord and Tenant shall
each notify the other of its chosen arbitrator within ten (10) days following
the call for arbitration and, unless such two arbitrators shall have reached
unanimous decision within, thirty (30) days after their designation, they
shall so notify the then President of the Boston Bar Association (or such
organization as may succeed to said Boston Bar Association) and request him
to select an impartial third arbitrator, who shall be an office
-15-
<PAGE>
building owner, a real estate counsellor or a broker dealing with like types
of properties, to determine Fair Market Rental Value as herein defined. Such
third arbitrator and the first two chosen shall, subject to commercial
arbitration rules of the American Arbitration Association, hear the parties
and their evidence and render their decision within thirty (30) days
following the conclusion of such hearing and notify Landlord and Tenant
thereof. Landlord and Tenant shall bear the expense of the third arbitrator
(if any) equally. The fifth (5th) grammatical sentence of Article 29.5 of the
Lease is hereby incorporated by reference in this Subparagraph C. If the
dispute between the parties as to a Fair Market Rental Value has not been
resolved before the commencement of Tenant's obligation to pay rent based
upon such Fair Market Rental Value, then Tenant shall pay Yearly Rent and
other charges under the Lease in respect of the premises in question based
upon the Fair Market Rental Value designated by Landlord until either the
agreement of the parties as to the Fair Market Rental Value, or the decision
of the arbitrators, as the case may be, at which time Tenant shall pay any
underpayment of rent and other charges to Landlord, or Landlord shall refund
any overpayment of rent and other charges to Tenant.
6. STORAGE PREMISES
Landlord hereby demises and leases to Tenant and Tenant hereby hires and
takes from Landlord storage Premises ("Storage Premises") containing 2,000
square feet of Net Rentable Area. The Storage Premises are located on the
subbasement of the Building and are as shown on Lease Plan, Exhibit 2, Sheet 3.
Said demise
-16-
<PAGE>
of the Storage Premises shall be upon all of the same terms and
conditions of the Lease except:
A. The Term Commencement Date and the Rent Commencement Date in
respect of the Storage Premises shall be the Term Commencement Date in
respect of the premises initially demised to Tenant;
B. The Yearly Rent payable in respect of the Storage Premises shall be
as follows:
<TABLE>
<CAPTION>
Lease Year Yearly Rent Monthly Payment
---------- ----------- ---------------
<S> <C> <C>
1 $39,999.96 $3,333.33
2 $41,199.96 $3,433.33
3 $42,435.96 $3,536.33
4 $43,709.04 $3,642.42
5 $45,020.28 $3,751.69
6 $46,370.88 $3,864.24
7 $47,762.04 $3,980.17
8 $49,194.96 $4,099.58
9 $50,670.84 $4,222.57
10 $52,191.00 $4,349.25
</TABLE>
C. The Storage Premises shall be prepared by Landlord in accordance
with Paragraph C of Ex. 3-37;
D. Tenant shall have no obligation to pay Tax Excess or Operating
Expense Excess in respect of the Storage Premises;
E. Landlord shall have no obligation to provide any services to the
Storage Premises other than electricity for the electric lighting fixture in
the Storage Premises; and
F. Tenant shall use the Storage Premises for storage purposes in
connection with its use of the premises demised under the Lease and for no
other purpose whatsoever.
-17-
<PAGE>
Atlantic Avenue Building North - 30 Rowes Wharf
Atlantic Avenue Building South - 50 Rowes Wharf
Boston, Massachusetts 02110
("the Building")
FIRST AMENDMENT
May 12, 1987
<TABLE>
<S> <C> <C>
LANDLORD: Rowes Wharf Associates
TENANT: The Beacon Companies
EXISTING
PREMISES: The entire sixth (6th) floor (south and
north) of the Building, substantially as
shown on Lease Plan, Exhibit 2, Sheet 1
dated March 1, 1987.
ORIGINAL LEASE
LEASE EXECUTION
DATA DATE: March 1, 1987
PREVIOUS
LEASE
AMENDMENTS: None
</TABLE>
WHEREAS, the parties desire to redefine the Fifth Anniversary Expansion
Area and the Tenth Anniversary Expansion Area;
NOW THEREFORE, the parties hereby agree that the above-described lease
("the Lease") is hereby amended as follows:
1. REDEFINITION OF EXPANSION AREA
Subparagraph A of Paragraph 2 of the Rider to the Lease is hereby
deleted in its entirety and the following is substituted in its place:
A. For the purposes hereof, the Expansion Areas shall be defined
as follows:
<TABLE>
<CAPTION>
EXPANSION AREA LOCATION
-------------- --------
<S> <C>
Fifth Anniversary
Expansion Area: An area on the fifth (5th) floor
of the Atlantic Avenue Building
North (i.e. 30 Rowes Wharf),
containing approximately 5,467
square feet of Total Rentable Area,
substantially as shown on Lease Plan,
Exhibit 2, First
</TABLE>
-1-
<PAGE>
<TABLE>
<S> <C>
Amendment, Sheet 1 dated March 1,
1987, a copy of which is attached
hereto and incorporated herein by
reference.
Tenth Anniversary
Expansion Area: The remainder (i.e. other than the
Fifth Anniversary Expansion Area)
of the fifth (5th) floor of the
Atlantic Avenue Building North,
containing approximately 12,394
square feet of Total Rentable Area,
substantially as shown on Lease Plan,
Exhibit 2, First Amendment, Sheet 1
dated March 1, 1987.
</TABLE>
2. INTERNAL SUBLET AREA
A. Notwithstanding anything to the contrary herein contained, Tenant
shall have the right, with Landlord's prior consent, which consent shall not
be unreasonably withheld or delayed, but without first offering to terminate
or suspend the Lease, in accordance with Article 16-18* of the Lease, to (1)
sublet an Internal Sublet Area, as hereinafter defined, to a person, firm, or
corporation which, in Landlord's reasonable opinion, satisfies the
requirements of clauses (i), (ii) and (iii) of said Article 16-18* and to (2)
sublease the premises, or any portion thereof, to an Affiliated Entity, as
hereinafter defined, so long as such entity remains in such relationship to
Tenant.
B. For purposes of clause (1) of Subparagraph A hereof, "Internal
Sublet Area" shall consist of a portion of the premises containing
approximately 2,500 square feet of Total Rentable Area, having access to the
common areas of the Building only through Tenant's reception area and a
secondary fire exit, substantially as shown on Lease Plan, Exhibit 2, First
Amendment, Sheet 2 dated May 12, 1987, a copy of which is attached hereto and
incorporated herein by reference.
C. For the purposes of clause (2) of Subparagraph A hereof, an
"Affiliated Entity" shall be defined as any entity which is controlled by, is
under common control with, or which controls Tenant. For the purposes hereof,
control shall mean the direct or indirect ownership of more than fifty (50%)
percent of the beneficial interest of the entity in question.
As herein amended, the Lease is ratified, approved, and confirmed in all
respects.
-2-
<PAGE>
WHEREOF, the parties have hereunto set their hands and seals as of the
date first written above.
LANDLORD: TENANT:
ROWES WHARF ASSOCIATES THE BEACON COMPANIES
c/o Rowes Wharf Limited One Post Office Square
Partnership Boston, Massachusetts 02109
One Post Office Square
Boston, Massachusetts 02109
By /s/ Illegible By /s/ Illegible
------------------------------ -------------------------------
General Partner (Name) (Title)
Rowes Wharf Limited Partnership Hereunto Duly Authorized
Date Signed: JUNE 5, 1987 Date Signed: JUNE 5, 1987
-------------------- ---------------------
<PAGE>
[ROWES WHARF GRAPHIC]
LEASE PLAN
EXHIBIT 2
FIRST AMENDMENT
SHEET 1
TENANT: The Beacon
Companies
DATE: May 12, 1987
<PAGE>
[ROWES WHARF GRAPHIC]
LEASE PLAN
EXHIBIT 2
FIRST AMENDMENT
SHEET 2
TENANT: The Beacon
Companies
DATE: May 12, 1987
<PAGE>
Atlantic Avenue Building North - 30 Rowes Wharf
Atlantic Avenue Building South - 50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
SECOND AMENDMENT
February 1, 1988
- --------------------------------------
LANDLORD: Rowes Wharf Associates
TENANT: The Beacon Companies
EXISTING
PREMISES: The entire sixth (6th) floor (south and north)
of the Building, substantially as shown on Lease
Plan, Exhibit 2, Sheet 1 dated March 1, 1987 and
an area ("Existing Storage Premises") on the
subbasement of the Building, substantially as
shown on Lease Plan, Exhibit 2, Sheet 3 dated
March 1, 1987.
ORIGINAL TERM
LEASE COMMENCEMENT
DATA DATE: September 21, 1987
TERMINATION
DATE: September 30, 2002
LEASE
EXECUTION
DATE: March 1, 1987
PREVIOUS
LEASE
AMENDMENTS: First Amendment dated May 12, 1987
- --------------------------------------
RELOCATION
STORAGE
PREMISES: An area on Lower Level 4 of Atlantic Avenue
Building North, containing 281 square feet of
Net Rentable Area, substantially as shown on
Lease Plan, Exhibit 2, Second Amendment dated
February 1, 1988, a copy of which is attached
hereto and made a part hereof.
WHEREAS, Tenant desires to relocate from the Existing Storage Premises
to the Relocation Storage Premises
-1-
<PAGE>
WHEREAS, Landlord is willing to demise the Relocation Storage Premises
to Tenant upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, the above-described lease, as previously amended ("the
Lease"), is hereby further amended as follows:
1. DEMISE OF THE RELOCATION STORAGE PREMISES
Landlord hereby demises and leases to Tenant and Tenant hereby hires and
takes from Landlord, the Relocation Storage Premises for a term commencing as
of March 1, 1988 and terminating as of September 30, 2000. Said demise of the
Relocation Storage Premises shall be upon all of the same terms and
conditions of the Lease, except:
A. As of March 1, 1988, Subparagraph B of Paragraph 6 of the Rider
to the Lease is hereby deleted in its entirety and the following is
substituted in its place:
The Yearly Rent payable in respect of the Relocation Storage
Premises shall be as follows:
<TABLE>
<CAPTION>
Period Yearly Rent Monthly Payment
------ ----------- ---------------
<S> <C> <C>
March 1, 1988 -
September 20, 1988 $5,619.96 $468.33
September 21, 1988 -
September 20, 1989 $5,788.56 $482.38
September 21, 1989 -
September 20, 1990 $5,962.20 $496.85
September 21, 1990 -
September 20, 1991 $6,141.12 $511.76
September 21, 1991 -
September 20, 1992 $6,325.32 $527.11
September 21, 1992 -
September 20, 1993 $6,515.04 $542.93
September 21, 1993 -
September 20, 1994 $6,710.52 $559.21
September 21, 1994 -
September 20, 1995 $6,911.88 $575.99
September 21, 1995 -
September 20, 1996 $7,119.24 $593.27
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C>
September 21, 1996 -
September 20, 1997 $7,332.84 $611.07
September 21, 1997 -
September 20, 1998 $7,552.80 $629.40
September 21, 1998 -
September 20, 1999 $7,779.36 $648.28
September 21, 1999 -
September 20, 2000 $8,012.76 $667.73
September 21, 2000 -
September 20, 2001 $8,253.12 $687.76
September 21, 2001 -
September 30, 2002 $8,500.68 $708.39
</TABLE>
B. And any other provisions of the Lease inconsistent with this
Amendment or the state of facts contemplated hereby.
2. CONDITION OF RELOCATION PREMISES
Landlord shall, on or before March 1, 1988 prepare the Relocation
Storage Premises in accordance with the following specifications:
A. Smooth concrete floor.
B. Door with keyed lockset.
C. Adequate overhead lighting fixtures.
D. Demising walls.
3. TERMINATION OF LEASE IN RESPECT OF EXISTING PREMISES
The parties hereby agree that the term of the Lease in respect of the
Existing Storage Premises shall terminate effective as of February 29, 1988.
As of February 29, 1988 Landlord shall take back the Existing Storage
Premises from Tenant, and Tenant shall surrender the Existing Storage
Premises to Landlord. Yearly Rent due under the Lease in respect of the
Existing Storage Premises shall be apportioned as of February 29, 1988. On or
before February 29, 1988 Tenant shall vacate the Existing Storage Premises
and deliver the Existing Storage Premises to Landlord in the condition in
which Tenant is required pursuant to the Lease (including, without
limitation, Article 22 thereof) to deliver the premises at the expiration or
termination of the Lease.
4. As hereby amended, the Lease is ratified, confirmed and approved in
all respects.
-3-
<PAGE>
[GRAPHIC]
<PAGE>
Atlantic Avenue Building North - 30 Rowes Wharf
Atlantic Avenue Building South - 50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
THIRD AMENDMENT
December 31, 1990
- --------------------------------------
LANDLORD: Rowes Wharf Associates
TENANT: The Beacon Companies
EXISTING
PREMISES: The entire sixth (6th) floor (south and north)
of the Building, substantially as shown on
Lease Plan, Exhibit 2, Sheet 1, dated
March 1, 1987, and a storage area on
Lower Level 4 of Atlantic Avenue Building
North, substantially as shown on Lease Plan,
Exhibit 2, Second Amendment, dated
February 1, 1988.
ORIGINAL LEASE
LEASE EXECUTION
DATA DATE: March 1, 1987
TERM
COMMENCEMENT
DATE: September 21, 1987
TERMINATION
DATE: September 30, 2002
PREVIOUS
LEASE
AMENDMENTS: First Amendment dated May 12, 1987
Second Amendment dated February 1, 1988
- --------------------------------------
WHEREAS, Landlord has given Tenant an offer, pursuant to Paragraph 4 of
the Rider to the above-referenced lease, to lease certain space on the fifth
(5th) floor of Atlantic Avenue Building North (30 Rowes Wharf);
WHEREAS, Tenant desires not to exercise its right to lease such space
and further desires to relinquish its expansion options as contained in the
above-referenced lease.
NOW THEREFORE, the parties hereby agree that the above-referenced lease,
as previously amended (collectively, the "Lease"), is hereby further amended
as follows:
<PAGE>
1. RIGHT OF FIRST OFFER
Tenant hereby elects not to exercise its right, pursuant to
Paragraph 4 of the Rider to Lease, to lease an area containing 11,927 square
feet of Total Rentable Area on the fifth (5th) floor of Atlantic Avenue
Building North (30 Rowes Wharf), which area is substantially as shown on
Lease Plan, Exhibit 2, Third Amendment, dated December 31, 1990, a copy of
which is attached hereto and incorporated herein by reference.
2. EXPANSION OPTIONS
Landlord and Tenant hereby agree that Paragraph 2 of the Rider to
Lease is hereby deleted from the Lease in its entirety and shall be of no
further force or effect.
3. TITLES AND HEADINGS
Titles and paragraph headings are for reference purposes and the
convenience of the parties only and shall have no bearing upon nor force or
effect in respect of the interpretation and application of the substantive
provisions in this Amendment contained.
As hereby amended, the Lease is ratified, confirmed and approved in all
respects.
EXECUTED under deal as of the date first above-written.
LANDLORD: TENANT:
ROWES WHARF ASSOCIATES THE BEACON COMPANIES
By: /s/ Illegible By: /s/ Illegible
--------------------------------- -----------------------------
General Partner General Partner
Rowes Wharf Limited
Partnership
Date Signed: FEB 20, 1991 Date Signed: FEB 20, 1991
------------------------ --------------------
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<PAGE>
EXHIBIT 10.36
BREAKAWAY SOLUTIONS, INC.
S CORPORATION TERMINATION, TAX ALLOCATION
AND INDEMNIFICATION AGREEMENT
This S CORPORATION TERMINATION, TAX ALLOCATION AND INDEMNIFICATION
AGREEMENT (the "Agreement"), between Breakaway Solutions, Inc., a Delaware
corporation (the "Company"), and Frank Selldorf ("Stockholder,") (the Company
and the Stockholder are hereinafter referred to individually as a "party" and
collectively as the "parties").
WHEREAS, the Company is an S corporation, as defined in Section 1361 of the
Code (as hereinafter defined) and will continue to be an S corporation until the
Termination Date (as hereinafter defined); and
WHEREAS, Stockholder owns eighty-eight (88%) of the outstanding capital
stock of the Company; and
WHEREAS, it is anticipated that the Company will offer and sell to Internet
Capital Group, LLC, a Delaware limited liability company (collectively, the
"Investors"), shares of Series A Preferred Stock of the Company (the
"Financing"); and
WHEREAS, in connection with the closing of the Financing, the Stockholder
and the Company wish to revoke the Company's status as an S Corporation; and
WHEREAS, the Stockholder and the Company wish to enter into an agreement as
to the termination of the Company's status as an S corporation, the method used
to allocate the Company's income during its S Termination Year (as hereinafter
defined) pursuant to Code Section 1362(e)(3), and the indemnification of the
Company with respect to certain tax matters.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used herein, have the following
meanings:
"C SHORT YEAR" means the portion of the S Termination Year of the
Company beginning on the Termination Date and ending on December 31, 1999.
"CODE" means the Internal Revenue Code of 1986, as amended, and, in
the context of a state or local tax, a reference to the Code or a section of the
Code includes any similar applicable provision of state or local law.
<PAGE>
"EXCESS DISTRIBUTIONS" means the excess of cash or property
distributions by the Company to a Stockholder over the federal and state income
taxes paid (less amounts refunded or credited to such Stockholder) by the
Stockholder with respect to the taxable income of the Company for all periods
during which the Company has been an S corporation, including the S Short Year.
"S SHORT YEAR" means that portion of the S Termination Year of the
Company beginning on January 1, 1999, and ending on the Termination Date.
"S TERMINATION YEAR" means the Company's fiscal year beginning January
1, 1999.
"TAXES" means all taxes, however denominated, including any interest,
penalties or additions to tax that may become payable in respect therewith,
imposed by any federal, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income, payroll and employee
withholding, unemployment insurance, social security, sales and use, excise,
profits, value added, ad valorem, occupancy, disability, franchise, gross
receipts, environmental, occupation, real and personal property, stamp,
transfer, license, net worth, real property gains, capital, worker's
compensation taxes.
"TAX RETURNS" means all reports, estimates, information statements and
returns relating to, or required to be filed in connection with, any Taxes.
"TERMINATION DATE" means the date on which S corporation status of the
Company is terminated as a result of revocation of such status in accordance
with Section 1362(d)(1) of the Code or otherwise.
ARTICLE II
TERMINATION
2.1 TERMINATION OF S STATUS. The Company's S corporation status shall be
terminated as a result of revocation of such status pursuant to Section
1362(d)(1) of the Code. The Company agrees to execute and file with the Internal
Revenue Service an executed election in substantially the form attached hereto
as Exhibit A, prior to the Termination Date. The termination of the Company's S
corporation status shall be effective on the closing of the Financing.
2.2 STOCKHOLDER CONSENT. Stockholder agrees to execute and deliver to the
Company an executed consent in substantially the form attached hereto as Exhibit
B, prior to the Termination Date.
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<PAGE>
ARTICLE III
ALLOCATION OF INCOME
3.1 ALLOCATION ELECTION. The Company agrees to elect and the Stockholder
agrees to consent, pursuant to Section 1362(e)(3) of the Code, to allocate tax
items to its S Short Year and C Short Year pursuant to normal tax accounting
rules (the "closing of the books method") rather than by the pro rata allocation
method contained in Section 1362(e)(2) of the Code. The Company and Stockholder
agree to take all necessary actions under Treasury Regulation Section 1.1362-6
to cause such election and consents and the revocation election and consents to
be effective for federal income tax purposes, including the execution and
delivery, by Stockholder, to the Company of a consent in substantially the form
attached hereto as Exhibit C, prior to the Termination Date. Additionally, the
Company agrees to execute and attach to its tax return filed with the Internal
Revenue Service an executed election in substantially the form attached hereto
as Exhibit D.
ARTICLE IV
TAX RETURNS AND INDEMNIFICATION
4.1 FILING TAX RETURN FOR THE TERMINATION YEAR. The Company shall be
responsible for and shall effect the filing of all Tax Returns required to be
filed by the Company with respect to all taxable periods ending prior to, with
or within the Termination Year. The Company shall cause such returns to include
the Company's income from all sources for all periods covered by such returns.
4.2 STOCKHOLDER INDEMNIFICATION FOR TAX LIABILITIES. Except with respect to
any tax jurisdiction that does not recognize S corporation as pass-through
entities and to the extent any tax jurisdiction does not accord S corporation
tax treatment to nonresident stockholders, Stockholder hereby indemnifies and
agrees to hold the Company harmless from, against and in respect of any U.S.
federal or state income tax liability (including interest and penalties), if
any, resulting from the Company failing to qualify as an S corporation under
Code Section 1361(a)(1) (as enacted and in effect prior to the Termination Date)
for every taxable year on or before the Termination Date as to which the Company
filed or files Tax Returns claiming status as an S corporation, PROVIDED,
HOWEVER, that the total payments to be made by Stockholder pursuant to this
Section 4.2 shall not exceed the lesser of (i) the Excess Distributions received
by the Stockholder with respect to all taxable years in which such Stockholder
was a Stockholder and (ii) three hundred sixty-five thousand dollars ($365,000).
4.3 AUDIT AND CONTEST RIGHTS. The parties hereto shall cooperate with each
other in the conduct of any audit or other proceeding relating to Taxes. Within
ten (10) days of the notice of any proposed or threatened adjustment which could
give rise to a claim for indemnification under Section 4.2, the Company shall
notify the Stockhoklder
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<PAGE>
thereof and thereafter, the Stockholder shall have the right to control any
resulting proceedings and to determine when, whether and to what extent to
settle any such claim, assessment or dispute. The Company shall not make any
election, take any tax return position, or agree to any adjustment or
adjustments that would have the effect of increasing any tax liability with
respect to any period ending on or before the Termination Date without obtaining
the prior written consent of the Stockholder. The Company agrees to execute any
powers of attorney or other documents necessary to permit the Stockholder to
conduct such proceedings.
4.4 PAYMENTS. Stockholder shall make such payment required under Section
4.2 within thirty (30) days after the final determination of any tax liability
resulting in a claim for indemnification. For purposes of this section, "final
determination" shall mean any final tax assessment, judgment or decree by the
Internal Revenue Service or any court or administrative agency for which no
appeal or further hearing is possible or perfected, or a settlement with the
Internal Revenue Service, which settlement is consented to by the parties
hereto.
4.5 REFUNDS. The Company shall be entitled to any refund of Taxes imposed
on the Company, PROVIDED, that if Stockholder is required to make any payments
pursuant to Section 4.2 hereof and the Company thereafter receives a refund of
any Taxes to which such payments relate, the Company, within ten (10) days of
receipt of such refund, shall pay over to Stockholder such refund, including any
interest received with respect thereto.
ARTICLE V
[reserved]
ARTICLE VI
THIRD PARTY BENEFICIARIES
6.1 The parties agree that the holders of Series A Preferred Stock of the
Company are intended to be third party beneficiaries of this Agreement, and if
for any reason the Company fails to assert its rights pursuant to this
Agreement, any of such holders of Series A Preferred Stock shall have the right
to assert any and all of the Company's rights hereunder on behalf of the
Company.
-4-
<PAGE>
ARTICLE VII
MISCELLANEOUS
7.1 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which collectively shall
constitute an instrument representing the Agreement between the parties hereto.
7.2 CONSTRUCTION OF TERMS. Nothing herein expressed or implied is intended,
or shall be construed, to confer upon or give any person, form or corporation,
other than the parties hereto, the holders of Series A Preferred Stock of the
Company or their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
BREAKAWAY SOLUTIONS, INC.
By:/S/ GORDON BROOKS
-----------------------------
Gordon Brooks
Date: DECEMBER 23, 1998
---------------------------
STOCKHOLDER:
/S/ FRANK SELLDORF
- --------------------------------
Frank Selldorf
Date: DECEMBER 23, 1998
---------------------------
[SIGNATURE PAGE TO THE S CORPORATION TERMINATION, TAX ALLOCATION
AND INDEMNIFICATION AGREEMENT]
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<PAGE>
EXHIBIT 10.37
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN
A TRANSACTION WHICH QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE ACT AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER.
DATE: MAY 13, 1999 WARRANT TO PURCHASE
SHARES OF COMMON STOCK
BREAKAWAY SOLUTIONS, INC.
STOCK PURCHASE WARRANT
BREAKAWAY SOLUTIONS, INC., a Delaware corporation (the "Company"), hereby
certifies that, for value received, INTERNET CAPITAL GROUP, INC. (the "holder"),
or assigns, is entitled, subject to the terms set forth below, to purchase from
the Company, at any time and from time to time during the period beginning on
the earlier of (a) the closing date of the next round of equity financing
raising not less than $3,000,000 from third party investors other than holder
(the "Next Round Financing") or (b) September 30, 1999 and ending on September
30, 2006, in whole or in part, the following:
(x) if the closing date of the Next Round Financing occurs on or before
September 30, 1999, the number of shares of common stock, par value $0.0001 per
share, of the Company determined by dividing $600,000 by the average price per
share paid by third party investors other than the holder in the Next Round
Financing (the "Next Round Price Per Share"), at a purchase price per share
equal to the Next Round Price Per Share; or
(y) if the closing of the Next Round Financing has not occurred on or
before September 30, 1999, 252,101 shares of common stock, par value $0.0001 per
share, of the Company, at a purchase price of $2.38 per share.
"Purchase Price" shall mean the purchase price per share of common stock of the
Company payable hereunder as provided in paragraph (x) or (y) above, as
applicable, and the term "Common Stock" shall mean, unless the context otherwise
requires, the stock or other securities or property at the time deliverable upon
the exercise of this Warrant. Notwithstanding the foregoing, the Purchase Price
and the number and character of shares issuable under this Warrant are subject
to adjustment as set forth in Paragraph 3. This Warrant is herein called the
"Warrant."
<PAGE>
1. EXERCISE OF WARRANT. The purchase rights evidenced by this Warrant
shall be exercised by the holder hereof surrendering this Warrant, with the form
of subscription at the end hereof duly executed by such holder, to the Company
at its office at 50 Rowes Wharf, or such other address as the Company may
specify by written notice to the registered holder hereof, accompanied by
payment, in cash, by certified or official bank check or by wire transfer of an
amount equal to the Purchase Price multiplied by the number of shares being
purchased pursuant to such exercise of the Warrant.
1.1 PARTIAL EXERCISE. This Warrant may be exercised for less than
the full number of shares of Common Stock, in which case the number of shares
receivable upon the exercise of this Warrant as a whole, and the sum payable
upon the exercise of this Warrant as a whole, shall be proportionately reduced.
Upon any such partial exercise, the Company at its expense will forthwith issue
to the holder hereof a new Warrant or Warrants of like tenor calling for the
number of shares of Common Stock as to which rights have not been exercised,
such Warrant or Warrants to be issued in the name of the holder hereof or his
nominee (upon payment by such holder of any applicable transfer taxes).
1.2 NET ISSUE EXERCISE.
(1) In lieu of exercising this Warrant, holder may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
holder that number of shares of the Company's Common Stock computed using the
following formula:
X = Y(A-B)
-----
A
Where
X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under this
Warrant
A = the fair market value of one share of the Company's Common
Stock.
B = the Purchase Price (as adjusted to the date of such
calculations).
(2) For purposes of this Section, the fair market value of
one share of the Company's Common Stock shall be based on the average of the
closing
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<PAGE>
bid and asked prices of the Summary or the closing price quoted in the
Over-The-Counter Market Summary or the closing price quoted on any exchange on
which the Common Stock is listed, whichever is applicable, as published in the
Eastern Edition of The Wall Street Journal for the ten trading days prior to the
date of determination of fair market value. If the Common Stock is not traded
Over-The-Counter or on an exchange, the fair market value of the Company's
Common Stock shall be the price per share which the Company could obtain from a
willing buyer for shares sold by the Company from authorized but unissued
shares, as such price shall be agreed by the Company and the holder.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Warrant and payment of the Purchase Price, and in any
event within ten (10) days thereafter, the Company, at its expense, will cause
to be issued in the name of and delivered to the holder hereof a certificate or
certificates for the number of fully paid and non-assessable shares or other
securities or property to which such holder shall be entitled upon such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash in an amount determined in accordance with Paragraph
3.9 hereof. The Company agrees that the shares so purchased shall be deemed to
be issued to the holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been surrendered
and payment made for such shares as aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to prevent
dilution of the right granted hereunder, the Purchase Price shall be subject to
adjustment from time to time in accordance with this Paragraph 3. Upon each
adjustment of the Purchase Price pursuant to this Paragraph 3, the registered
Holder of this Warrant shall thereafter be entitled to acquire upon exercise, at
the Purchase Price resulting from such adjustment, the number of shares of the
Company's Common Stock obtainable by multiplying the Purchase Price in effect
immediately prior to such adjustment by the number of shares of the Company's
Common Stock acquirable immediately prior to such adjustment and dividing the
product thereof by the Purchase Price resulting from such adjustment.
3.1 ADJUSTMENT FOR ISSUE OR SALE OF COMMON STOCK AT LESS THAN
PURCHASE PRICE. Except as provided in Paragraph 3.2 or 3.5 below, if and
whenever on or after the date of issuance hereof the Company shall issue or
sell, or shall in accordance with subparagraphs 3.1(1) to (9), inclusive, be
deemed to have issued or sold, any shares of its Common Stock for a
consideration per share less than the Purchase Price in effect immediately prior
to the time of such issue or sale, then forthwith upon such issue or sale (the
"Triggering Transaction"), the Purchase Price shall, subject to subparagraphs
(1) to (9) of this Paragraph 3.1, be reduced to the Purchase Price (calculated
to the nearest tenth of a cent) determined by dividing:
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<PAGE>
(i) an amount equal to the sum of (x) the product derived by
multiplying the Number of Common Shares Deemed Outstanding immediately prior to
such Triggering Transaction by the Purchase Price then in effect, plus (y) the
consideration, if any, received by the Company upon consummation of such
Triggering Transaction, by
(ii) an amount equal to the sum of (x) the Number of Common
Shares Deemed Outstanding immediately prior to such Triggering Transaction plus
(y) the number of shares of Common Stock issued (or deemed to be issued in
accordance with subparagraphs 3.1(1) to (9)) in connection with the Triggering
Transaction.
For purposes of this Paragraph 3, the term "Number of Common Shares Deemed
Outstanding" at any given time shall mean the sum of (i) the number of shares of
the Company's Common Stock outstanding at such time, and (ii) the number of
shares of the Company's Common Stock deemed to be outstanding under
subparagraphs 3.1(1) to (9), inclusive, at such time.
For purposes of determining the adjusted Purchase Price under this
Paragraph 3.1, the following subsections (1) to (9), inclusive, shall be
applicable:
(1) In case the Company at any time shall in any manner
grant (whether directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of, Common Stock
or any stock or other securities convertible into or exchangeable for Common
Stock (such rights or options being herein called "Options" and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities"), whether or not such Options or the right to convert or exchange
any such Convertible Securities are immediately exercisable and the price per
share for which the Common Stock is issuable upon exercise, conversion or
exchange (determined by dividing (x) the total amount, if any, received or
receivable by the Company as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Company upon the exercise of all such Options, plus, in the case of such Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (y) the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or the conversion or exchange of such Convertible Securities) shall
be less than the Purchase Price in effect immediately prior to the time of the
granting of such Option, then the total maximum amount of Common Stock issuable
upon the exercise of such Options, or, in the case of Options for Convertible
Securities, upon the conversion or exchange of such Convertible Securities,
shall (as of the date of granting of such Options) be deemed to be outstanding
and to have been issued and sold by the Company for such price per share. No
adjustment of the Purchase Price
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<PAGE>
shall be made upon the actual issue of such shares of Common Stock or such
Convertible Securities upon the exercise of such Options, except as otherwise
provided in subparagraph (3) below.
(2) In case the Company at any time shall in any manner
issue (whether directly or by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange (determined by dividing (x)
the total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than the Purchase Price in effect immediately prior to the time of
such issue or sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities shall
(as of the date of the issue or sale of such Convertible Securities) be deemed
to be outstanding and to have been issued and sold by the Company for such price
per share. No adjustment of the Purchase Price shall be made upon the actual
issue of such Common Stock upon exercise of the rights to exchange or convert
under such Convertible Securities, except as otherwise provided in subparagraph
(3) below.
(3) If the purchase price provided for in any Options
referred to in subparagraph (1), the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities referred to in
subparagraphs (1) or (2), or the rate at which any Convertible Securities
referred to in subparagraph (1) or (2) are convertible into or exchangeable for
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution of the type set forth in
Paragraph 3.1 or 3.3), the Purchase Price in effect at the time of such change
shall forthwith be readjusted to the Purchase Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold. If the
purchase price provided for in any Option referred to in subparagraph (1) or the
rate at which any Convertible Securities referred to in subparagraphs (1) or (2)
are convertible into or exchangeable for Common Stock, shall be reduced at any
time under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon the exercise
of any such Option or upon conversion or exchange of any such Convertible
Security, the Purchase Price then in effect hereunder shall forthwith be
adjusted to such respective amount as would have been obtained had such Option
or Convertible Security never been issued as to such Common Stock and had
adjustments been made upon the
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<PAGE>
issuance of the shares of Common Stock delivered as aforesaid, but only if as a
result of such adjustment the Purchase Price then in effect hereunder is hereby
reduced.
(4) On the expiration of any Option or the termination of
any right to convert or exchange any Convertible Securities, the Purchase Price
then in effect hereunder shall forthwith be increased to the Purchase Price
which would have been in effect at the time of such expiration or termination
had such Option or Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination, never been issued.
(5) In case any Options shall be issued in connection with
the issue or sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
without consideration.
(6) In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Company therefor. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration as determined in good
faith by the Board of Directors of the Company. In case any shares of Common
Stock, Options or Convertible Securities shall be issued in connection with any
merger in which the Company is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such portion of
the net assets and business of the non-surviving corporation as shall be
attributed by the Board of Directors of the Company in good faith to such Common
Stock, Options or Convertible Securities, as the case may be.
(7) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held shall be considered
an issue or sale of Common Stock for the purpose of this Paragraph 3.1.
(8) In case the Company shall declare a dividend or make any
other distribution upon the stock of the Company payable in Common Stock,
Options, or Convertible Securities, then in such case any Common Stock, Options
or Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold without
consideration.
(9) For purposes of this Paragraph 3.1, in case the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them (x) to receive a dividend or other distribution payable in Common
Stock,
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<PAGE>
Options or in Convertible Securities, or (y) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date shall be deemed
to be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right or subscription or
purchase, as the case may be.
3.2 DIVIDENDS NOT PAID OUT OF EARNINGS OR EARNED SURPLUS. In the
event the Company shall declare a dividend upon the Common Stock (other than a
dividend payable in Common Stock covered by subparagraph 3.1(8)) payable
otherwise than out of earnings or earned surplus, determined in accordance with
generally accepted accounting principles, including the making of appropriate
deductions for minority interests, if any, in subsidiaries (herein referred to
as "Liquidating Dividends"), then, as soon as possible after the exercise of
this Warrant, the Company shall pay to the person exercising such Warrant an
amount equal to the aggregate value at the time of such exercise of all
Liquidating Dividends (including but not limited to the Common Stock which would
have been issued at the time of such earlier exercise and all other securities
which would have been issued with respect to such Common Stock by reason of
stock splits, stock dividends, mergers or reorganizations, or for any other
reason). For the purposes of this Paragraph 3.2, a dividend other than in cash
shall be considered payable out of earnings or earned surplus only to the extent
that such earnings or earned surplus are charged an amount equal to the fair
value of such dividend as determined in good faith by the Board of Directors of
the Company.
3.3 SUBDIVISIONS AND COMBINATIONS. In case the Company shall at
any time subdivide (other than by means of a dividend payable in Common Stock
covered by subparagraph 3.1(8)), its outstanding shares of Common Stock into a
greater number of shares, the Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and, conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Purchase Price in effect immediately prior to such
combination shall be proportionately increased.
3.4 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE OF ASSETS. If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, cash or other property with respect to
or m exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder of this Warrant shall have the right to acquire
and receive upon exercise of this Warrant such shares of stock, securities, cash
or other property issuable or payable (as part of
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<PAGE>
the reorganization, reclassification, consolidation, merger or sale) with
respect to or in exchange for such number of outstanding shares of the Company's
Common Stock as would have been received upon exercise of this Warrant at the
Purchase Price then in effect. The Company will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument mailed or delivered to the holder of this Warrant at the
last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase. If a purchase, tender or exchange offer is made to and accepted by the
holders of more than 50% of the outstanding shares of Common Stock of the
Company, the Company shall not effect any consolidation, merger or sale with the
person having made such offer or with any Affiliate of such person, unless prior
to the consummation of such consolidation, merger or sale the holder of this
Warrant shall have been given a reasonable opportunity to then elect to receive
upon the exercise of this Warrant either the stock, securities or assets then
issuable with respect to the Common Stock of the Company or the stock,
securities or assets, or the equivalent, issued to previous holders of the
Common Stock in accordance with such offer. For purposes hereof the term
"Affiliate" with respect to any given person shall mean any person controlling,
controlled by or under common control with the given person.
3.5 NO ADJUSTMENT FOR EXERCISE OF CERTAIN OPTIONS, WARRANTS, ETC.
The provisions of this Section 3 shall not apply to any Common Stock issued,
issuable or deemed outstanding under subparagraphs 3.1(1) to (9) inclusive: (i)
to any person pursuant to any stock option, stock purchase or similar plan or
arrangement for the benefit of employees, consultants or directors of the
Company or its subsidiaries or (ii) pursuant to options, warrants and conversion
rights in existence on the date of issuance hereof.
3.6 NOTICES OF RECORD DATE, ETC. In the event that:
(1) the Company shall declare any cash dividend upon its
Common Stock, or
(2) the Company shall declare any dividend upon its
Common Stock payable in stock or make any special dividend or other distribution
to the holders of its Common Stock, or
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights, or
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(4) there shall be any capital reorganization or
reclassification of the capital stock of the Company, including any subdivision
or combination of its outstanding shares of Common Stock, or consolidation or
merger of the Company with, or sale of all or substantially all of its assets
to, another corporation, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in connection with such event, the Company shall give to the holder of
this Warrant:
(i) at least ten (10) days' prior written notice of the date
on which the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, at least ten (10) days' prior written notice of the date when the
same shall take place. Such notice in accordance with the foregoing clause (i)
shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (ii)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be. Each such
written notice shall be given by first class mail, postage prepaid, addressed to
the holder of this Warrant at the address of such holder as shown on the books
of the Company.
3.7 GRANT, ISSUE OR SALE OF OPTIONS, CONVERTIBLE SECURITIES, OR
RIGHTS. If at any tune or from time to time on or after the date of issuance
hereof, the Company shall grant, issue or sell any Options, Convertible
Securities or rights to purchase property (the "Purchase Rights") pro rata to
the record holders of any class of Common Stock of the Company and such grants,
issuances or sales do not result in an adjustment of the Purchase Price under
Paragraph 3.1 hereof, then the holder of this Warrant shall be entitled to
acquire (within thirty (30) days after the later to occur of the initial
exercise date of such Purchase Rights or receipt by such holder of the notice
concerning Purchase Rights to which such holder shall be entitled under
Paragraph 3.6) and upon the terms applicable to such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could
have acquired if it had held the number of shares of Common Stock acquirable
upon exercise of this Warrant immediately before the grant, issuance or sale of
such
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Purchase Rights; provided that if any Purchase Rights were distributed to
holders of Common Stock without the payment of additional consideration by such
holders, corresponding Purchase Rights shall be distributed to the exercising
holder of this Warrant as soon as possible after such exercise and it shall not
be necessary for the exercising holder of this Warrant specifically to request
delivery of such rights; or
(ii) in the event that any such Purchase Rights shall have
expired or shall expire prior to the end of said thirty (30) day period, the
number of shares of Common Stock or the amount of property which such holder
could have acquired upon such exercise at the time or times at which the Company
granted, issued or sold such expired Purchase Rights.
3.8 ADJUSTMENT BY BOARD OF DIRECTORS. If any event occurs as to
which, in the opinion of the Board of Directors of the Company, the provisions
of this Section 3 are not strictly applicable or if strictly applicable would
not fairly protect the rights of the holder of this Warrant in accordance with
the essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to protect such
rights as aforesaid, but in no event shall any adjustment have the effect of
increasing the Purchase Price as otherwise determined pursuant to any of the
provisions of this Section 3 except in the case of a combination of shares of a
type contemplated in Paragraph 3.3 and then in no event to an amount larger than
the Purchase Price as adjusted pursuant to Paragraph 3.3.
3.9 FRACTIONAL SHARES. The Company shall not issue fractions of
shares of Common Stock upon exercise of this Warrant or scrip in lieu thereof.
If any fraction of a share of Common Stock would, except for the provisions of
this Paragraph 3.9, be issuable upon exercise of this Warrant, the Company shall
in lieu thereof pay to the person entitled thereto an amount in cash equal to
the current value of such fraction, calculated to the nearest one-hundredth
(1/100) of a share, to be computed (i) if the Common Stock is listed on any
national securities exchange on the basis of the last sales price of the Common
Stock on such exchange (or the quoted closing bid price if there shall have been
no sales) on the date of conversion, or (ii) if the Common Stock shall not be
listed, on the basis of the mean between the closing bid and asked prices for
the Common Stock on the date of conversion as reported by Nasdaq, or its
successor, and if there are not such closing bid and asked prices, on the basis
of the fair market value per share as determined by the Board of Directors of
the Company.
3.10 OFFICERS' STATEMENT AS TO ADJUSTMENTS. Whenever the Purchase
Price shall be adjusted as provided in Section 3 hereof, the Company shall
forthwith file at each office designated for the exercise of this Warrant, a
statement, signed by the Chairman of the Board, the President, any Vice
President or Treasurer of the Company, showing in reasonable detail the facts
requiring such adjustment and the
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Purchase Price that will be effective after such adjustment. The Company shall
also cause a notice setting forth any such adjustments to be sent by mail, first
class, postage prepaid, to the record holder of this Warrant at its address
appearing on the stock register. If such notice relates to an adjustment
resulting from an event referred to in Paragraph 3.6, such notice shall be
included as part of the notice required to be mailed and published under the
provisions of Paragraph 3.6 hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder hereof against dilution or other impairment. Without limiting the
generality of the foregoing, the Company will not increase the par value of any
shares of stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise, and at all times will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and non-assessable stock upon the exercise of this
Warrant.
5. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANTS. The Company
shall at all times reserve and keep available out of its authorized but unissued
stock, solely for the issuance and delivery upon the exercise of this Warrant
and other similar Warrants, such number of its duly authorized shares of Common
Stock as from time to time shall be issuable upon the exercise of this Warrant
and all other similar Warrants at the time outstanding. All of the shares of
Common Stock issuable upon exercise of this Warrant, when issued and delivered
in accordance with the terms hereof, will be duly authorized, validly issued,
fully-paid and non-assessable.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (m the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
8. REGISTRATION RIGHTS. All of the provisions of Section 3 of the
Investor Rights Agreement dated as of December 23, 1998 between the Company and
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the Purchaser (the "Investor Rights Agreement") shall apply equally to the
shares issuable upon exercise of this Warrant and any similar Warrants and each
reference in the Investor Rights Agreement to "Registrable Shares" shall mean
the Registrable Shares as defined in that agreement and the shares issuable upon
exercise of this Warrant and any similar Warrants, collectively as a single
class.
9. NEGOTIABILITY. This Warrant is issued upon the following terms, to
all of which each taker or owner hereof consents and agrees:
(a) Subject to the legend appearing on the first page hereof,
title to this Warrant may be transferred by endorsement (by the holder hereof
executing the form of assignment at the end hereof including guaranty of
signature) and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery. Absent an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the disposition of this Warrant or the shares of Common Stock issued or
issuable upon exercise hereof, the holder will not sell or transfer any or all
of such Warrant or shares, as the case may be, without first providing the
Company with an opinion of counsel (which may be counsel for the Company) to the
effect that such sale or transfer will be exempt from the registration and
prospectus delivery requirements of the Act. Each certificate representing
shares of Common Stock issued pursuant to this Warrant, unless at the same time
of exercise such Warrant Shares are registered under the Act, shall bear a
legend in substantially the following form on the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES
LAWS AND MAY BE TRANSFERRED OR RESOLD ONLY IN COMPLIANCE
WITH SUCH SECURITIES LAWS.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a certificate issued upon completion of
a distribution under a registration statement covering the securities
represented shall also bear such legend unless, in the opinion of counsel to the
Company, the securities represented thereby may be transferred as contemplated
by such holder without violation of the registration requirements of the Act.
(b) Any person in possession of this Warrant properly endorsed
is authorized to represent itself as absolute owner hereof and is granted
power to transfer absolute title hereto by endorsement and delivery hereof to
a bona fide purchaser hereof for value; each prior taker or owner waives and
renounces all of its equities or rights in this Warrant in favor of every
such bona fide purchaser, and every such bona fide purchaser shall acquire
title hereto and to all rights represented hereby.
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(c) Until this Warrant is transferred on the books of the Company,
the Company may treat the registered holder of this Warrant as the absolute
owner hereof for all purposes without being affected by any notice to the
contrary.
(d) Prior to the exercise of this Warrant, the holder hereof shall
not be entitled to any rights of a shareholder of the Company with respect to
shares for which this Warrant shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
(e) The Company shall not be required to pay any Federal or state
transfer tax or charge that may be payable in respect of any transfer involved
in the transfer or delivery of this Warrant or the issuance or conversion or
delivery of certificates for Common Stock in a name other than that of the
registered holder of this Warrant or to issue or deliver any certificates for
Common Stock upon the exercise of this Warrant until any and all such taxes and
charges shall have been paid by the holder of this Warrant or until it has been
established to the Company's satisfaction that no such tax or charge is due.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. This Warrant is
issued and delivered by the Company on the basis of the following:
(a) AUTHORIZATION AND DELIVERY. This Warrant has been duly
authorized and executed by the Company and when delivered will be the valid and
binding obligation of the Company enforceable in accordance with its terms;
(b) WARRANT SHARES. The shares of Common Stock to be issued
pursuant to this Warrant have been duly authorized and reserved for issuance by
the Company and, when issued and paid for in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
(c) RIGHTS AND PRIVILEGES. The rights, preferences, privileges and
restrictions granted to or imposed upon such shares of Common Stock and the
holders thereof are as set forth herein and in the Company's Articles of
Incorporation, and in the Common Stock and Warrant Purchase Agreement, true and
complete copies of which have been delivered to the original warrant holder; and
(d) NO INCONSISTENCY. The execution and delivery of this Warrant
are not, and the issuance of the shares of Common Stock upon exercise of this
Warrant in accordance with the terms hereof will not be, inconsistent with the
Company's Articles of Incorporation or by-laws, do not and will not contravene
any law, governmental rule or regulation, judgment or order applicable to the
Company, and do not and will not contravene any provision of, or constitute a
default under, any
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indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound or require the consent or approval of, the giving
of notice to, the registration with the taking of any action in respect of or
by, any Federal, state or local government authority or agency or other person.
11. REPRESENTATIONS AND WARRANTIES OF HOLDER.
(a) The holder hereby represents and warrants to the Company that
it has substantial knowledge, skill and experience in making investment
decisions of the type represented by this Warrant and the shares issuable upon
exercise of this Warrant, that it is capable of evaluating the risk of its
investment in this Warrant and the shares issuable upon exercise of this Warrant
and is able to bear the economic risk of such investment, including the risk of
losing the entire investment, that it is acquiring this Warrant and the shares
issuable upon exercise of this Warrant for its own account, and that this
Warrant and the shares issuable upon exercise of this Warrant are being acquired
by it for investment and not with a present view to any distribution thereof in
violation of applicable securities law. If the holder should in the future
decide to dispose of any of this Warrant and the shares issuable upon exercise
of this Warrant, it is understood that it may so do only in compliance with the
Act and applicable state securities laws. The holder represents and warrants
that it is an "Accredited Investor" as defined in Rule 501(a) under the Act.
(b) The holder understands that (i) this Warrant and the shares
issuable upon exercise of this Warrant have not been registered under the Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Act, (ii) this Warrant and the shares issuable upon exercise
of this Warrant must be held indefinitely unless a subsequent disposition
thereof is registered under the Act and applicable state securities laws or is
exempt from such registration (and, upon request, evidence satisfactory to the
Company is provided by such holder of the availability of such exemptions,
including, upon request, the delivery to the Company of opinions of counsel to
such holder, which opinions and counsel are satisfactory to the Company), and
(iii) this Warrant and the shares issuable upon exercise of this Warrant may
bear a legend to such effect.
12. SUBDIVISION OF RIGHTS. This Warrant (as well as any new warrants
issued pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the holder hereof, at the principal office of the Company
for any number of new warrants of like tenor and date representing in the
aggregate the right to subscribe for and purchase the number of shares of Common
Stock of the Company that may be subscribed for and purchased hereunder.
13. MAILING OF NOTICES. All notices and other communications from the
Company to the holder of this Warrant shall be mailed by first class certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last
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holder of this Warrant who shall have furnished an address to the Company in
writing.
14. HEADINGS. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect the meaning hereof.
15. CHANGE, WAIVER. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
16. GOVERNING LAW. This warrant shall be construed and enforced in
accordance with the laws of the State of Delaware.
BREAKAWAY SOLUTIONS, INC.
By:/s/ KEVIN COMERFORD
--------------------------
Name: Kevin Comerford
title: CFO
Dated: May 13, 1999
Attest:
/s/ JOHN N. NICKOLAS
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ACCEPTED AS OF THE DATE HEREOF:
INTERNET CAPITAL GROUP, INC.
By:/s/ DAVID D. GAITHMAN
--------------------------
Name: David D. Gaithman
Title: CFO
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[To be signed only upon exercise of Warrant]
To :
----------------------
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ____ shares of Common Stock of _____ and herewith makes
payment of $____ therefor, and requests that the certificates for such shares
be issued in the name of, and be delivered to __________, whose address
is ___________.
Dated:
-----------------------
By
- ----------------------------- -----------------------------------------
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant)
Address:
-------------------------------------------
-------------------------------------------
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[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto __________ the right represented by the within Warrant to purchased the
shares of the Common Stock of _______________ to which the within Warrant
relates, and appoints _______________ attorney to transfer said right on the
books of ________________ with full power of substitution in the premises.
Dated:
-----------------------
By
-----------------------------------------
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant)
Address:
-------------------------------------------
-------------------------------------------
In the presence of
- -----------------------------
Signature Guarantee
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EXHIBIT 10.38
STOCK PLEDGE AGREEMENT
This STOCK PLEDGE AGREEMENT, dated as of May 14, 1999 (this "PLEDGE
AGREEMENT"), is executed by William P. Loftus ("DEBTOR"), in favor of BREAKAWAY
SOLUTIONS, INC., a Delaware corporation ("SECURED PARTY").
RECITALS
A. Secured Party and Debtor were parties to an Agreement and Plan of
Reorganization dated May 14, 1999 (the "Agreement") whereby Debtor exchanged
shares in WPL Laboratories, Inc. for, among other things, 428,130 shares of
the common stock of Secured Party represented by Certificate Numbers __________
(the "Shares").
B. Pursuant to the Agreement, Debtor executed a Stock Restriction Agreement
and an election under Section 83(b) of the Internal Revenue Code and Secured
Party extended credit to Debtor in connection therewith.
C. Debtor has executed a promissory note, and expects to execute additional
promissory notes in connection with the foregoing (all of which will be
collectively referred to herein as the "NOTES").
D. In order to induce Secured Party to extend the credit evidenced by the
Notes, Debtor has agreed to enter into this Pledge Agreement and to pledge and
grant to Secured Party the security interest in the Collateral described below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtor hereby agrees with Secured Party as follows:
1. DEFINITIONS AND INTERPRETATION. Unless otherwise defined herein, all
other capitalized terms used herein and defined in the Notes shall have the
respective meanings given to those terms in the Notes, and all terms defined in
the Delaware Uniform Commercial Code (the "UCC") shall have the respective
meanings given to those terms in the UCC.
2. THE PLEDGE. To secure the Obligations (as defined in Section 3 hereof),
Debtor hereby pledges and assigns to Secured Party, and grants to Secured Party
a security interest in, all of Debtor's right, title and interest, whether now
existing or hereafter arising in all instruments, certificated and
uncertificated securities, money and general intangibles of, relating to or
arising from the following property (the "PLEDGED COLLATERAL"):
(a) The Shares received by the Debtor in connection with the Agreement
(the "PLEDGED SHARES");
<PAGE>
(b) All dividends (including cash dividends), other distributions
(including stock redemption proceeds), or other property, securities or
instruments in respect of or in exchange for the Pledged Shares, whether by way
of dividends, stock dividends, recapitalizations, mergers, consolidations,
split-ups, combinations or exchanges of shares or otherwise; and
(c) All proceeds of the foregoing ("PROCEEDS").
3. SECURITY FOR OBLIGATIONS. The obligations secured by this Pledge
Agreement (the "OBLIGATIONS") shall mean and include all loans, advances, debts,
liabilities and obligations, howsoever arising, owed by Debtor to Secured Party
of every kind and description (whether or not evidenced by any note or
instrument and whether or not for the payment of money), now existing or
hereafter arising under or pursuant to the terms of the Notes, including, all
interest, fees, charges, expenses, attorneys' fees and costs and accountants'
fees and costs chargeable to and payable by Debtor hereunder and thereunder, in
each case, whether direct or indirect, absolute or contingent, due or to become
due, and whether or not arising after the commencement of a proceeding under
Title 11 of the United States Code (11 U.S.C. Section 101 ET SEQ.), as amended
from time to time (including post-petition interest) and whether or not allowed
or allowable as a claim in any such proceeding.
4. DELIVERY OF PLEDGED COLLATERAL. All certificates or instruments
representing or evidencing the Pledged Collateral shall be delivered to Secured
Party and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to Secured Party.
5. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and warrants as
follows:
(a) ISSUANCE OF PLEDGED SHARES, ETC. The Pledged Shares are owned by
Debtor free and clear of any and all liens, pledges, encumbrances or charges,
and Debtor has not optioned or otherwise agreed to sell, hypothecate, pledge, or
otherwise encumber or dispose of the Pledged Shares.
(b) SECURITY INTEREST. The pledge of the Pledged Collateral creates a
valid security interest in the Pledged Collateral, which security interest is a
perfected and first priority security interest, securing the payment of the
Obligations and the obligations hereunder.
(c) RESTATEMENT OF REPRESENTATIONS AND WARRANTIES. On and as of the
date any property becomes Pledged Collateral, the foregoing representations and
warranties shall apply to such additional Pledged Collateral.
6. FURTHER ASSURANCES. Debtor agrees that at any time and from time to
time, at Debtor's expense, Debtor will promptly execute and deliver all further
instruments and documents, including without limitation all additional Pledged
Shares, and take all further action, that may be necessary or desirable, or that
Secured Party may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable Secured
Party to exercise and enforce its rights and remedies hereunder with respect to
any Pledged Collateral.
7. VOTING RIGHTS; ETC.
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(a) RIGHTS PRIOR TO AN EVENT OF DEFAULT. So long as no Event of
Default shall have occurred and be continuing, Debtor shall be entitled to
exercise any and all voting and other consensual rights pertaining to the
Pledged Shares or any part thereof for any purpose not inconsistent with the
terms of this Pledge Agreement.
(b) RIGHTS FOLLOWING AN EVENT OF DEFAULT. Upon the occurrence and
during the continuance of an Event of Default, all rights of Debtor to exercise
the voting and other consensual rights which it would otherwise be entitled to
exercise pursuant to Section 7(a) shall cease and all such rights shall
thereupon become vested in Secured Party which shall thereupon have the sole
right, but not the obligation, to exercise such voting and other consensual
rights.
8. EVENTS OF DEFAULT.
(a) EVENT OF DEFAULT. An Event of Default shall be deemed to have
occurred under this Pledge Agreement upon the occurrence and during the
continuance of a default under the Notes.
(b) RIGHTS UNDER THE UCC. In addition to all other rights granted
hereby, by the Notes and by law, Secured Party shall have, with respect to the
Pledged Collateral, the rights and obligations of a secured party under the UCC.
(c) SALE OF PLEDGED COLLATERAL. Debtor acknowledges and recognizes
that Secured Party may be unable to effect a public sale of all or a part of the
Pledged Shares and may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obligated to agree, among other
things, to acquire the Pledged Shares for their own account, for investment and
not with a view to the distribution or resale thereof. Debtor acknowledges that
any such private sales may be at prices and on terms less favorable to Secured
Party than those of public sales, and agrees that so long as such sales are made
in a commercially reasonable manner the Secured Party has no obligation to delay
sale of any Pledged Shares in order to register it for public sale under the
Securities Act of 1933, as amended or under any state securities law.
(d) NOTICE, ETC. In any case where notice of sale is required, ten
(10) days' notice shall be deemed reasonable notice. Secured Party may have
resort to the Pledged Collateral or any portion thereof with no requirement on
the part of Secured Party to proceed first against any other person (including
corporations and other business entities) or property.
(e) OTHER REMEDIES. Upon the occurrence and during the continuance of
an Event of Default, (i) at the request of Secured Party, Debtor shall assemble
and make available to Secured Party all records relating to the Pledged Shares
at any place or places reasonably specified by Secured Party, together with such
other information as Secured Party shall reasonably request concerning Debtor's
ownership of the Pledged Shares; and (ii) Secured Party or its nominee shall
have the right, but shall not be obligated, to vote or give consent with respect
to the Pledged Shares or any part thereof.
(f) Notwithstanding anything in this Agreement or the Notes to the
contrary, but without impairing the validity of the Notes, this Agreement or the
security interest created hereunder,
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upon the occurrence of an Event of Default, Secured Party will not hold Debtor
personally liable for payment of the obligations evidenced by the Notes or for
any other sums due under the Notes or this Agreement or as a result of an Event
of Default, and the sole recourse of Secured Party for any and all sych defaults
shall be by the exercise of the remedies provided in this Agreement.
9. SECURED PARTY APPOINTED ATTORNEY-IN-FACT.
Debtor hereby appoints Secured Party as Debtor's attorney-in-fact, with
full authority in the place and stead of Debtor and in the name of Debtor or
otherwise, from time to time in Secured Party's discretion and to the full
extent permitted by law to take any action and to execute any instrument which
Secured Party may deem reasonably necessary or advisable to accomplish the
purposes of this Pledge Agreement in accordance with the terms and provisions
hereof, including without limitation, to receive, endorse and collect all
instruments made payable to Debtor representing any dividend, interest payment
or other distribution in respect of the Pledged Collateral or any part thereof
and to give full discharge for the same.
Debtor hereby ratifies all reasonable actions that said attorney shall
lawfully do or cause to be done by virtue hereof. This power of attorney is a
power coupled with an interest and shall be irrevocable. The powers conferred on
Secured Party hereunder are solely to protect its interests in the Pledged
Collateral and shall not impose any duty upon Secured Party to exercise any such
powers. Secured Party shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and in no event shall
Secured Party or any of its officers, directors, employees or agents be
responsible to Debtor for any act or failure to act, except for gross negligence
or willful misconduct.
10. DISCHARGE OF DEBTOR. At such time as all of the principal and interest
on the Notes shall have been fully paid and performed and all of the other
Obligations have been satisfied in full, then all of Secured Party's rights and
interests in the Pledged Collateral as shall not have been transferred or
otherwise applied by Secured Party pursuant to the terms hereof and shall still
be held by Secured Party shall forthwith by transferred and delivered to Debtor,
and the right title and interest of Secured Party therein shall cease and
Secured Party shall (i) return to Debtor all certificates or other documents or
instruments in the possession of Secured Party for purposes of the perfection of
the security interest granted hereunder and (ii) prepare, execute and file with
the appropriate governmental authorities termination statements on Form UCC-3 to
terminate any financing statements on Form UCC-1 that may have been filed
pursuant to this Pledge Agreement.
11. MISCELLANEOUS.
(a) NOTICES. All notices, requests, demands, consents, instructions or
other communications to or upon Secured Party or Debtor under this Pledge
Agreement shall be in writing and telecopied, mailed or delivered to each party
at its telecopier number or address set forth below:
(i) if to the Secured Party, to:
-4-
<PAGE>
Breakaway Solutions, Inc.
50 Rowes Wharf
Boston MA 02110
Attn: Chief Executive Officer
Telephone No.: (617) 960-3400
Facsimile No.: (617) 960-3434
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attn: Elizabeth Flint
James C. Creigh
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(ii) if to the Debtor, to:
All such notices and communications shall be effective (a) when sent by Federal
Express or other overnight service of recognized standing, on the Business Day
following the deposit with such service; (b) when mailed by registered or
certified mail, first class postage prepaid and addressed as aforesaid through
the United States Postal Service, upon receipt; (c) when delivered by hand, upon
delivery; and (d) when telecopied, upon confirmation of receipt.
(b) NONWAIVER. No failure or delay on Secured Party's part in
exercising any right hereunder shall operate as a waiver thereof or of any other
right nor shall any single or partial exercise of any such right preclude any
other further exercise thereof or of any other right.
(c) AMENDMENTS AND WAIVERS. This Pledge Agreement may not be amended
or modified, nor may any of its terms be waived, except by written instruments
signed by Debtor and Secured Party. Each waiver or consent under any provision
hereof shall be effective only in the specific instances for the purpose for
which given.
(d) ASSIGNMENTS. This Pledge Agreement shall be binding upon and inure
to the benefit of Secured Party and Debtor and their respective successors and
assigns; PROVIDED, HOWEVER,
-5-
<PAGE>
that Debtor and Secured Party may sell, assign and delegate their respective
rights and obligations hereunder only as permitted by the Notes.
(e) CUMULATIVE RIGHTS, ETC. The rights, powers and remedies of Secured
Party under this Pledge Agreement shall be in addition to all rights, powers and
remedies given to Secured Party by virtue of any applicable law, rule or
regulation of any governmental authority, the Notes or any other agreement, all
of which rights, powers, and remedies shall be cumulative and may be exercised
successively or concurrently without impairing Secured Party's rights hereunder.
Debtor waives any right to require Secured Party to proceed against any Person
or to exhaust any Pledged Collateral or to pursue any remedy in Secured Party's
power.
(f) PAYMENTS FREE OF TAXES, ETC. All payments made by Debtor under
this Pledge Agreement shall be made by Debtor free and clear of and without
deduction for any and all present and future taxes, levies, charges, deductions
and withholdings. In addition, Debtor shall pay upon demand any stamp or other
taxes, levies or charges of any jurisdiction with respect to the execution,
delivery, registration, performance and enforcement of this Pledge Agreement.
Upon reasonable request by Secured Party, Debtor shall furnish evidence
satisfactory to Secured Party that all requisite authorizations and approvals
by, and notices to and filings with, governmental authorities and regulatory
bodies have been obtained and made and that all requisite taxes, levies and
charges have been paid.
(g) PARTIAL INVALIDITY. If any time any provision of this Pledge
Agreement is or becomes illegal, invalid or unenforceable in any respect under
the law or any jurisdiction, neither the legality, validity or enforceability of
the remaining provisions of this Pledge Agreement nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.
(h) EXPENSES. Each of Debtor and Secured Party shall bear its own
costs in connection with the preparation, execution and delivery of, and the
exercise of its duties under, this Pledge Agreement. Debtor shall pay on demand
all reasonable fees and expenses, including reasonable attorneys' fees and
expenses, incurred by Secured Party in the enforcement or attempted enforcement
of any of the Obligations or in preserving any of Secured Party's rights and
remedies (including, without limitation, all such fees and expenses incurred in
connection with any "workout" or restructuring affecting the Obligations or any
bankruptcy or similar proceeding involving Debtor or any of its subsidiaries).
(i) GOVERNING LAW. This Pledge Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without reference
to conflicts of law rules (except to the extent governed by the UCC).
(j) JURY TRIAL. EACH OF DEBTOR AND SECURED PARTY, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT.
-6-
<PAGE>
IN WITNESS WHEREOF, Debtor has caused this Pledge Agreement to be executed
as of the day and year first above written.
/s/ William P. Loftus
----------------------------------------------
Name: William Loftus
ACKNOWLEDGED:
BREAKAWAY SOLUTIONS, INC.
By: /s/ Gordon Brooks
---------------------------------------
Name: Gordon Brooks
Title: CEO
-7-
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, and pursuant to that certain Stock Pledge Agreement the
undersigned hereby sells, assigns and transfers unto _______________ [No. of
Shares --written out] ([No. of Shares -- numerals]) Shares of Common Stock of
Breakaway Solutions, Inc., a Delaware corporation, standing in the undersigned's
name on the books of the corporation represented by Certificate No. __________.
The undersigned hereby irrevocably constitutes and appoints _______________
attorney to transfer said stock on the books of said corporation with full power
of substitution in the premises.
Dated:
---------------------------
----------------------------------------------
Name:
<PAGE>
EXHIBIT 10.39
BREAKAWAY SOLUTIONS, INC.
STOCK RESTRICTION AGREEMENT
This Stock Restriction Agreement (this "AGREEMENT") is made as of May 14,
1999, by and between Breakaway Solutions, Inc., a Delaware corporation (the
"COMPANY"), and William P. Loftus (the "STOCKHOLDER").
WHEREAS, the Company, WPL Laboratories , Inc., a Pennsylvania corporation
("WPL") and Celtic Acquisition Corp., a Pennsylvania corporation ("MERGER SUB")
and the Stockholder, among others, have entered into an Agreement and Plan of
Reorganization (the "MERGER AGREEMENT") whereby WPL will merge with and into
Merger Sub (the "MERGER");
WHEREAS, the Stockholder will acquire an aggregate of 1,159,520 shares
of the Company's common stock at a price of $2.78 per share (the "ORIGINAL
PURCHASE PRICE") pursuant to the Merger;
WHEREAS, the Merger Agreement requires, as a condition to closing the
Merger, that the parties hereto enter into this Agreement;
WHEREAS, the Stockholder desires to induce the Company to close the
Merger and is willing to subject an aggregate of 445,968 shares ,
representing the total number of shares of the Company's common stock to be
acquired by the Stockholder in the Merger less the Stockholder's pro rata
proportion (based exclusively on the Outstanding Share Amount) of 50% of the
Aggregate Share Number (as defined in the Merger Agreement) (the "SHARES"), of
the Company's common stock to the repurchase option described herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1
REPURCHASE OPTION
1.1 In the event the Stockholder's employment ("CONTINUOUS STATUS") with
the Company is terminated by the Stockholder voluntarily or by the Company for
"CAUSE" (as defined below) before all of the Shares are released from the
Company's repurchase option (see Section 2), the Company shall, upon the date of
such termination, have an irrevocable, exclusive option for a period of sixty
(60) days from such date to repurchase up to that number of shares which
constitute the "UNRELEASED SHARES" (as defined in Section 2) at the Original
Purchase Price per share (the "REPURCHASE PRICE"). Such option shall be
exercised by the Company by delivering written notice to the Stockholder and, at
the Company's option, (i) by delivering to the Stockholder a check in the amount
of the aggregate Repurchase Price, or (ii) by the Company canceling an amount of
the Stockholder's indebtedness for borrowed money to the Company, if any, equal
to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so
that the
<PAGE>
combined payment and cancellation of indebtedness equals such aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price in any of the ways described above, the Company shall become
the legal and beneficial owner of the Unreleased Shares being repurchased and
all rights and interests therein or relating thereto, and the Company shall have
the right to retain and transfer to its own name the number of Unreleased Shares
being repurchased by the Company. For the purpose of this Section 1, "CAUSE"
shall mean: (i) the substantial and continuing failure, after thirty (30) days'
notice thereof, to render services to the Company or any subsidiary of the
Company in accordance with the terms or requirements of the Stockholder's
position and duties; (ii) gross negligence or willful misconduct in the
performance of Stockholder's duties or a breach of fiduciary duty to the Company
or any subsidiary of the Company; (iii) the commission of an act of embezzlement
or fraud; (iv) deliberate disregard of the written rules or policies of the
Company or any subsidiary of the Company which results in direct or indirect
loss, damage or injury to the Company or any subsidiary of the Company; (v) the
intentional unauthorized disclosure of any trade secret or confidential
information of the Company or any subsidiary of the Company; or (vi) the
conviction of a felony.
1.2 Whenever the Company shall have the right to repurchase the
Unreleased Shares hereunder, the Company may designate and assign one or more
employees, officers, directors or stockholders of the Company or other persons
or organizations to exercise all or a part of the Company's repurchase rights
under this Agreement and purchase all or a part of such Unreleased Shares.
SECTION 2
RELEASE OF SHARES FROM REPURCHASE OPTION
2.1 Twenty-five percent (25%) of the Shares shall be released from the
Company's repurchase option on the first anniversary of the date hereof and the
remaining Shares shall be released from the Company's repurchase option ratably
every month over an aggregate period of thirty-six (36) months, provided in each
case that the Stockholder's Continuous Status with the Company has not
terminated prior to the date of any such release, subject to Section 2.2 below.
2.2 Upon the occurrence of a Change of Control, all Unreleased Shares (as
defined below) shall be released from the Company's repurchase option in full.
For purpose of this Section 2.2, "Change of Control" shall mean the occurrence
of any of the following events:
(i) the approval by shareholders of the Company of a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation;
<PAGE>
(ii) any approval by the shareholders of the Company of a plan or
proposal for the liquidation or dissolution of the Company or an
agreement or agreements for the sale, lease, exchange, disposition
or other transfer (in one transaction or a series of transactions)
by the Company of all or substantially all of the assets of the
Company; or
(iii) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) becoming the
"beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing
50% or more of the total voting power represented by the Company's
then outstanding voting securities; PROVIDED HOWEVER, that this
section shall not apply to any person or persons who, either
individually or jointly, on the date of this Agreement
beneficially owned securities of the Company representing 50% or
more of the total voting power represented by the Company's then
outstanding voting securities.
2.3 In the event that the Company terminates Stockholder's employment
other than for Cause or materially reduces Stockholder's compensation and
benefits, then all of the Unreleased Shares (as defined below) shall immediately
be released from the Company's repurchase option.
2.4 Any of the Shares which have not yet been released from the Company's
repurchase option are referred to herein as "UNRELEASED SHARES".
SECTION 3
RESTRICTION ON TRANSFER
3.1 Except for the escrow described in Section 4 or the transfer of the
Shares to the Company or its assignees contemplated by this Agreement, none of
the Shares or any beneficial interest therein shall be transferred, encumbered
or otherwise disposed of in any way until the release of such Shares from the
Company's repurchase option in accordance with the provisions of this Agreement.
3.2 The Stockholder further agrees that, during the period of duration
(up to, but not exceeding, one hundred eighty (180) days) specified by the
Company and an underwriter of Common Stock or other securities of the Company,
following the date of the final prospectus which forms a part of a registration
statement of the Company filed under the Securities Act of 1933, as amended,
relating to the Company's initial public offering, the Stockholder shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, pledge, contract to sell (including, without limitation,
any short sale), grant any option, right or warrant, to purchase or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound)
(each a "Disposition") any of the Shares at any time during such period except
Common Stock included in such registration; provided that other officers of the
Company are prohibited from engaging in a Disposition to the same extent as
provided herein.
<PAGE>
SECTION 4
ESCROW OF SHARES
4.1 To ensure the availability for delivery of the Stockholder's
Unreleased Shares upon repurchase by the Company pursuant to the Company's
repurchase option under Section 1 above, the Stockholder shall, upon execution
of this Agreement, deliver and deposit with the Company the share certificates
representing the Unreleased Shares, together with the stock assignment duly
endorsed in blank, attached hereto as EXHIBIT A. The Unreleased Shares and stock
assignment shall be held by the Company pursuant to the terms of this Agreement.
4.2 The Company shall not be liable for any act it may do or omit to do
with respect to holding the Unreleased Shares in escrow and while acting in good
faith and in the exercise of its good faith judgment.
4.3 If the Company or any assignee exercises its repurchase option
hereunder, the Company, upon receipt of written notice of such option exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
4.4 When the repurchase option has been exercised or expires unexercised
or a portion of the Shares has been released from such repurchase option, upon
Stockholder's request the Company shall promptly cause a new certificate to be
issued for such released Shares and shall deliver such certificate to the
Company or the Stockholder, as the case may be.
4.5 Subject to the terms hereof, the Stockholder shall have all the
rights of a stockholder with respect to such Unreleased Shares while they are
held in escrow, including without limitation, the right to vote the Unreleased
Shares and receive any cash dividends declared thereon. If, from time to time
during the term of the Company's repurchase option, there is (i) any stock
dividend, stock split or other change in the Unreleased Shares, or (ii) any
acquisition, merger or sale of assets of the Company which does not release all
of the Unreleased Shares from the Company's repurchase option, any and all new,
substituted or additional securities to which the Stockholder is entitled by
reason of the Stockholder's ownership of the Unreleased Shares shall be
immediately subject to this Agreement, deposited with the Company and included
thereafter as "Unreleased Shares" for purposes of this Agreement and the
Company's repurchase option.
4.6 THE STOCKHOLDER ACKNOWLEDGES AND AGREES THAT THE RELEASE OF SHARES
FROM THE REPURCHASE OPTION OF THE COMPANY PURSUANT TO SECTION 2 HEREOF IS EARNED
ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OF THE COMPANY (EXCEPT AS PROVIDED IN
SECTION 2.2). THE STOCKHOLDER FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND
SHALL NOT INTERFERE WITH THE STOCKHOLDER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE
<PAGE>
THE STOCKHOLDER'S EMPLOYMENT RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
SECTION 5
MISCELLANEOUS
5.1 ENFORCEABILITY/SEVERABILITY. The parties hereto agree that each
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law. If any provision of this Agreement
shall nonetheless be held to be prohibited by or invalid under applicable law,
such provision shall be effective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
5.2 STOCKHOLDER REPRESENTATIONS. In connection with this Agreement, the
Stockholder understands that he (and not the Company) shall be responsible for
his own federal, state, local or foreign tax liability and any of his other tax
consequences that may arise as a result of the transactions contemplated by this
Agreement. Stockholder shall rely solely on the determinations of his tax
advisors or his own determinations, and not on any statements or representations
by the Company or any of its agents, with regard to all such tax matters.
STOCKHOLDER HAS REVIEWED SECTION 83 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, WITH HIS TAX ADVISOR.
5.3 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement constitutes
the entire agreement between the parties relative to the subject matter hereof
and supersedes any previous agreement among the parties. Subject to the
exceptions specifically set forth in this Agreement, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors and assigns of the parties.
5.4 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
entered into and wholly to be performed within the State of Delaware by Delaware
residents.
5.5 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
5.6 HEADINGS. The section headings of this Agreement are for convenience
and shall not by themselves determine the interpretation of this Agreement.
5.7 NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be conclusively deemed effectively given upon personal
delivery, or delivery by overnight courier, or five (5) days after deposit in
the United States mail, by registered or certified mail, postage prepaid,
addressed (i) if to the Company, as set forth below the Company's name on the
signature page of this Agreement and (ii) if to the Stockholder, to such address
as the Stockholder last provided the Company, or at such other address as the
parties may designate by ten (10) days' advance written notice to the other
parties.
<PAGE>
5.8 AMENDMENT OF AGREEMENT. Any provision of this Agreement may be
amended by a written instrument signed by the Company and by the Stockholder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date above set forth.
BREAKAWAY SOLUTIONS, INC.
50 Rowes Wharf
Boston, MA 02110
By: /s/ Gordon Brooks
--------------------------------------
Name: Gordon Brooks
--------------------------------------
Title: CEO
--------------------------------------
"STOCKHOLDER"
/s/ William P. Loftus
--------------------------------------------
Name: William P. Loftus
--------------------------------------
*STOCK RESTRICTION AGREEEMENT*
<PAGE>
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, ____________________, hereby sell, assign and
transfer unto ________________________________________ shares of the Common
Stock of Breakaway Systems, Inc. standing in my name on the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint the Secretary of Breakaway Systems, Inc. or
his or her designee, to transfer the said stock on the books of the within named
corporation with full power of substitution in the premises.
This assignment may be used only in accordance with the Repurchase
Agreement between the corporation and the undersigned dated May ___, 1999.
Dated: ____________________, ______ _______________________________________
Name:__________________________________
<PAGE>
EXHIBIT 10.40
BREAKAWAY SOLUTIONS, INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
JULY 2, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE
<C> <C>
1. RIGHTS OF INVESTOR...........................................................................................1
2. INFORMATION RIGHTS...........................................................................................1
2.1 Financial and Other Information.....................................................................1
2.2 Inspection..........................................................................................2
2.3 Termination of Certain Rights.......................................................................2
2.4 Transfer of Information Rights......................................................................2
3. REGISTRATION RIGHTS..........................................................................................2
3.1 Definitions.........................................................................................2
3.2 Requested Registration..............................................................................4
3.3 Piggyback Registrations.............................................................................6
3.4 Expenses of Registration............................................................................7
3.5 Form S-3 Registration...............................................................................7
3.6 Obligations of the Company..........................................................................8
3.7 Furnish Information.................................................................................9
3.8 Delay of Registration...............................................................................9
3.9 Indemnification.....................................................................................9
3.10 "Market Stand-Off"Agreement........................................................................11
3.11 Rule 144 Reporting.................................................................................12
3.12 Limitations on Subsequent Registration Rights......................................................12
3.13 Assignment of Registration Rights..................................................................12
3.14 Termination of Registration Rights.................................................................13
4. RIGHT OF FIRST OFFER TO SUBSCRIBE TO NEW ISSUANCES..........................................................13
4.1 General............................................................................................13
4.2 Certain Definitions................................................................................13
4.3 Mechanics of Right.................................................................................14
4.4 Termination........................................................................................15
4.5 Assignment.........................................................................................15
5. LEGENDS.....................................................................................................15
6. MISCELLANEOUS...............................................................................................15
6.1 Successors and Assigns.............................................................................15
6.2 Governing Law......................................................................................15
6.3 Counterparts.......................................................................................16
6.4 Titles and Subtitles...............................................................................16
6.5 Stock Splits, etc..................................................................................16
6.6 Notices............................................................................................16
-i-
<PAGE>
Table of Contents
(continued)
PAGE
<S> <C>
6.7 Attorneys'Fees.....................................................................................16
6.8 Amendments and Waivers.............................................................................16
6.9 Severability.......................................................................................17
6.10 Entire Agreement...................................................................................17
6.11 Further Assurances.................................................................................17
</TABLE>
-ii-
<PAGE>
BREAKAWAY SOLUTIONS, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investor Rights Agreement (the "AGREEMENT") is
made and entered into as of July 2, 1999 by and between Breakaway Solutions,
Inc., a Delaware corporation (the "COMPANY"), and the investors listed on
Exhibit A attached hereto (each an "INVESTOR" and together the "INVESTORS").
RECITALS
WHEREAS, upon the terms and subject to the conditions of a Series B
Preferred Stock Purchase Agreement of even date herewith (the "PURCHASE
AGREEMENT"), the purchasers are acquiring shares of the Company's Series B
Preferred Stock, par value $.0001 per Share;
WHEREAS, Internet Capital Group, Inc. ("ICG") and the Company entered
into an Investor Rights Agreement dated as of December 23, 1998 (the "PRIOR
AGREEMENT");
WHEREAS, as an inducement for the purchasers of the Series B Preferred
Stock to enter into the Purchase Agreement, the Company, ICG and all other
Investors desire to amend and restate the Prior Agreement as provided herein.
1. RIGHTS OF INVESTOR
The Company, ICG and all other Investors hereby amend and restate the
Prior Agreement and the Company hereby grants to the Investors the information
rights, registration rights and rights of first offer (collectively the
"INVESTORS' RIGHTS") contained herein. Each Investor accepts the Investors'
Rights, as applicable, and agrees to be bound by the obligations contained
herein.
2. INFORMATION RIGHTS.
2.1 FINANCIAL AND OTHER INFORMATION. The Company will provide
each Investor with the following information:
(a) ANNUAL REPORTS. As soon as practicable after the
end of each fiscal year, and in any event within ninety (90) days thereafter,
consolidated balance sheets of the Company and its subsidiaries, if any, as of
the end of such fiscal year, and consolidated statements of income,
stockholders' equity and cash flows of the Company and its subsidiaries, if any,
for such year, prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail and audited (without
qualification as to scope) by independent auditors of national standing selected
by the Company.
<PAGE>
(b) MONTHLY AND QUARTERLY REPORTS. As soon as
practicable after the end of each month and fiscal quarter, and in any event
within thirty (30) days and forty-five (45) days, respectively, thereafter, a
consolidated balance sheet of the Company and its subsidiaries, if any, as of
the end of each such period, consolidated statements of income, consolidated
statements of changes in financial condition, a consolidated statement of cash
flow of the Company and its subsidiaries and a statement of stockholders' equity
for such period and for the current fiscal year to date, and setting forth in
each case in comparative form the figures for corresponding periods in the
previous fiscal year, and setting forth in comparative form the budgeted
figures, prepared in accordance with generally accepted accounting principles
(other than for accompanying notes), subject to changes resulting from year-end
audit adjustments, all in reasonable detail and signed by the principal
financial or accounting officer of the Company.
(c) ANNUAL BUDGET. As soon as practicable, but in any
event thirty (30) days prior to the end of each fiscal year, a projected
operating budget and business plan for the next fiscal year, prepared on a
monthly basis, including balance sheets and sources and applications of funds
statements for such months and, as soon as prepared, any other budgets or
revised budgets prepared by the Company.
2.2 INSPECTION. The Company shall permit the Investor at the
Investor's expense to visit and inspect the Company's properties, to examine its
books of account and records and to discuss the Company's affairs, finances and
accounts with its officers, all at such reasonable times as may be requested by
the Investor; PROVIDED, HOWEVER, that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information that it
reasonably considers to be a trade secret or similar confidential information.
2.3 TERMINATION OF CERTAIN RIGHTS. The Company's obligations
under Section 2.1 and 2.2 herein will terminate upon the closing of the
Company's initial public offering of Common Stock pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"SECURITIES ACT") with a sales price per share of Common Stock (as adjusted for
combinations, stock dividends, subdivisions or split-ups) of at least $9.75 and
aggregate gross proceeds to the Company of at least $20,000,000 (the "COMPANY'S
INITIAL PUBLIC REGISTRATION").
2.4 TRANSFER OF INFORMATION RIGHTS. The information rights set
forth in this Section 2 shall not be assignable except in connection with a
transfer of Registrable Securities.
3. REGISTRATION RIGHTS.
3.1 DEFINITIONS.
(a) COMMON STOCK. The term "COMMON STOCK" means that
Common Stock of the Company.
-2-
<PAGE>
(b) EXCHANGE ACT. The term "EXCHANGE ACT" means the
Securities Exchange Act of 1934, as amended.
(c) FORM S-3. The term "FORM S-3" means such form
under the Securities Act as is in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
(d) HOLDER. For purposes of this Section 3, the term
"HOLDER" means any person owning of record Registrable Securities or any
transferee of record of such Registrable Securities to whom rights under this
Section 3 have been duly assigned in accordance with this Agreement.
(e) INITIATING HOLDER. The term "INITIATING HOLDER"
shall mean any Holder or Holders who in the aggregate are Holders (i) of not
less than 40% of the then outstanding Registrable Securities or (ii) of not less
than a majority of the Common Stock issued or issuable upon conversion of the
Series B Preferred Stock.
(f) PREFERRED STOCK. The term "PREFERRED STOCK" shall
mean the Series A and Series B Preferred Stock of the Company.
(g) REGISTRABLE SECURITIES. The term "REGISTRABLE
SECURITIES" means: all shares of Common Stock issued or issuable pursuant to the
conversion of Series A and Series B Preferred Stock and any shares of the Common
Stock of the Company or other securities issued or issuable in connection with
any stock split, stock dividend, recapitalization or similar event relating to
the foregoing; EXCLUDING in all cases, however, any such securities sold by a
person in a transaction in which rights under this Section 3 are not assigned in
accordance with this Agreement or any such securities sold to the public or sold
pursuant to Rule 144 promulgated under the Securities Act or eligible for sale
under Section (k) of Rule 144.
(h) REGISTRATION. The terms "REGISTER," "REGISTERED,"
and "REGISTRATION" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(i) REGISTRATION EXPENSES. "REGISTRATION EXPENSES"
shall mean all expenses incurred by the Company in complying with Sections 3.2,
3.3, 3.5 and 3.6 hereof, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
accountants for the Company, fees and expenses of one counsel for all the
Holders, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company, which shall be paid in any event by the
Company).
(j) SEC. The term "SEC" or "COMMISSION" means the
U.S. Securities and Exchange Commission.
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(k) SELLING EXPENSES. "SELLING EXPENSES" shall mean
all underwriting discounts and selling commissions applicable to the sale of
Registrable Securities.
3.2 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION BY INITIATING HOLDER. If
the Company shall receive from an Initiating Holder, at any time, a written
request that the Company effect any registration with respect to all or a part
of the Registrable Securities held by such Initiating Holder, the Company will:
(i) promptly give written notice of the
proposed registration, qualification or compliance to all other Holders of
Registrable Securities; and
(ii) as soon as practicable, use its best
efforts to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within 20 days after written notice
from the Company is given under Section 3.2(a)(i) above; PROVIDED, HOWEVER, that
the Company shall not be obligated to effect, or take any action to effect, any
such registration pursuant to this Section 3.2(a):
(a) In any particular jurisdiction in which
the Company would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance, unless the Company
is already subject to service in such jurisdiction and except as may be required
by the Securities Act or applicable rules or regulations thereunder;
(b) More than once in any one year period;
(c) After the Company has effected two (2)
such registrations pursuant to this Section 3.2 and such registrations have been
declared or ordered effective or withdrawn by such Initiating Holder;
(d) If the Registrable Securities requested
by all Holders to be registered pursuant to such request have an anticipated
aggregate offering price to the public of less than $5,000,000; or
(e) Prior to the earlier of the date that is
(i) three years after the date of this Agreement and (ii) six months after the
Company's Initial Public Registration.
The registration statement filed pursuant
to the request of the Initiating Holders may, subject to the provisions of
Section 3.2(b) below, include other securities of the Company which are held by
officers or directors of the Company or for the Company's own account or which
are held by persons
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who, by virtue of agreements with the Company, are entitled to include their
securities in any such registration, but the Company and such other holders
shall have no absolute right to include any of its Registrable Securities in any
such registration, and such securities shall not be included unless all the
securities requested by the Holders are included.
(b) UNDERWRITING; REQUEST BY INITIATING HOLDER. If
the Initiating Holder intends to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to Section 3.2(a) and the Company shall
include such information in the written notice referred to in Section 3.2(a). In
such event, the right of any Holder to include such Holder's Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holder and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in Section
3.6(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holder and reasonably acceptable to the Company.
Notwithstanding any other provision of Section 3.2, if the underwriter advises
the Company and the Initiating Holder in writing that marketing factors require
a limitation of the number of shares to be underwritten, then the Company shall
so advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares of Registrable Securities
that may be included in the underwriting shall be allocated among all Holders
thereof, including the Initiating Holder, in such proportion (as nearly as
practicable) among the Holders PRO RATA based on the amount of Registrable
Securities owned by each Holder.
(c) DEFERRAL OF FILING. Notwithstanding the
foregoing, if the Company shall furnish to the Holders requesting the filing of
a registration statement pursuant to Section 3.2(a), a certificate signed by the
President or Chief Executive Officer of the Company stating either (i) that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, or (ii) that the Company intends to file its initial
registration statement for the Company's Initial Public Registration within
ninety (90) days of notice of the Initiating Holder, then the Company shall have
the right to defer such filing for a period of not more than 90 days after
receipt of the request of the Initiating Holder; PROVIDED, HOWEVER, that the
Company may not utilize this right more than once in any twelve (12)-month
period.
(d) WITHDRAWAL BY HOLDER. Notwithstanding the
foregoing, any Holder shall have the right to withdraw from any registration of
Registrable Securities effected by the Company pursuant to this Section 3.2;
PROVIDED, HOWEVER, that such withdrawal shall not prevent such Holder from
participating in any registration in the future pursuant to this Section 3.2
except as such participation is limited by Section 3.2(a)(ii)A and 3.2(a)(ii)B.
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3.3 PIGGYBACK REGISTRATIONS.
(a) NOTICE. The Company shall notify all Holders of
Registrable Securities in writing at least 30 days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding any registration statement relating to any employee
benefit plan or a corporate reorganization) and will afford each such Holder an
opportunity to include in such registration statement all or any part of the
Registrable Securities then held by such Holder. Each Holder desiring to include
in any such registration statement all or any part of the Registrable Securities
held by such Holder shall, within 20 days after receipt of the above-described
notice from the Company, so notify the Company in writing, and in such notice
shall inform the Company of the number of Registrable Securities such Holder
wishes to include in such registration statement. If a Holder decides not to
include all of its Registrable Securities in any registration statement
thereafter filed by the Company, such Holder shall nevertheless continue to have
the right to include any Registrable Securities in any subsequent registration
statement or registration statements as may be filed by the Company with respect
to offerings of its securities, all upon the terms and conditions set forth
herein.
(b) UNDERWRITING. If a registration statement under which the
Company gives notice under Section 3.3 is for an underwritten offering, then the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 3.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter(s) determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, FIRST, to the
Company, SECOND, to each of the Holders of Registrable Securities requesting
inclusion of their Registrable Securities in such registration statement, to be
allocated among all Holders thereof PRO RATA based on the amount of Registrable
Securities of the Company owned by each Holder and THIRD, to each of the other
holders, including the officers and directors of the Company, of the Company's
securities, other than the Holders requesting inclusion of their Registrable
Securities in such registration statement, to be allocated among such other
holders thereof PRO RATA based on the number of shares owned by each such other
holder; PROVIDED, HOWEVER, that the right of the underwriters to exclude shares
(including Registrable Securities) from the registration and underwriting as
described above shall be restricted so that the number of Registrable Securities
included in any such registration is not reduced below twenty-five percent (25%)
of the shares included in the registration, except for a registration relating
to the Company's Initial Public Registration from which all Registrable
Securities may be excluded. Any Registrable Securities excluded or withdrawn
from such underwriting shall be excluded and withdrawn from the registration.
For any Holder which is a partnership or corporation, the partners,
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retired partners and stockholders of such Holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "HOLDER," and any
PRO RATA reduction with respect to such "HOLDER" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "HOLDER," as defined in this sentence.
(c) WITHDRAWAL BY THE COMPANY. The Company shall have
the right to withdraw any registration initiated by it under this Section.
(d) WITHDRAWAL BY HOLDER. Notwithstanding the
foregoing, any Holder shall have the right to withdraw from any registration of
Registrable Securities effected by the Company pursuant to this Section 3.3;
PROVIDED, HOWEVER, that such withdrawal shall not prevent such Holder from
participating in any registration in the future pursuant to this Section 3.3.
3.4 EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with two demand registrations (pursuant to Section 3.2),
all piggyback registrations (pursuant to Section 3.3) and four S-3 registrations
(pursuant to Section 3.5) shall be borne by the Company unless the expenses are
in connection with a registration subsequently withdrawn by the Holders in which
case, the Holders agree to reimburse the Company for such Registration Expenses,
and all Selling Expenses shall be borne by the Holders of the securities so
registered pro rata on the basis of the number of their shares so registered.
3.5 FORM S-3 REGISTRATION. In case the Company shall receive
from one or more Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holders,
provided the number of shares requested to be sold would have an aggregate price
to the public of at least $1,000,000, then the Company will:
(a) NOTICE. Promptly give written notice of the
proposed registration and the Holder's request therefor, and any related
qualification or compliance, to all other Holders of Registrable Securities; and
(b) REGISTRATION. As soon as practicable, use its
best efforts to effect such registration and all such qualifications and
compliances as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of the Holder's Registrable Securities
as are specified in such request together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request as are
specified in a written request received by the Company within 20 days after
written notice from the Company is given under Section 3.5(a) above; PROVIDED,
HOWEVER, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 3.5:
(i) if Form S-3 is not available for such
offering by the Holders;
(ii) if the Company shall furnish to the
Holders a certificate signed by the President or Chief Executive Officer of the
Company stating that in the good faith judgment
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of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its stockholders for such Form S-3 Registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for an aggregate of not more than
ninety (90) days after receipt of the request of the Holders; provided, however,
that the Company may not utilize this right more than once in any twelve
(12)-month period;
(iii) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance; or
(iv) if the Company has filed a registration
statement on Form S-3 relating to Registrable Securities within the twelve (12)
months preceding the request of the Holders.
Subject to the foregoing, the Company shall use its best efforts to file
a Form S-3 registration statement covering the Registrable Securities and
other securities so requested to be registered pursuant to this Section 3.5
as soon as practicable after receipt of the request the Holders for such
registration.
3.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect
the registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and keep such
registration statement effective until the distribution is completed, but not
more than 180 days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and all amendments and supplements thereto,
and such other documents as they may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by them that are included in
such registration.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, PROVIDED, HOWEVER, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
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(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event of which the Company has knowledge as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing and, following such notification,
promptly deliver to each Holder copies of all amendments or supplements referred
to in paragraphs (b) and (c) of this Section 3.6.
(g) Furnish, at the request of any Holder registering
Registrable Securities, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering addressed to the underwriters, if any, and if there are no
underwriters, to the Holders requesting registration of Registrable Securities
and (ii) a "comfort" letter dated as of such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed to the underwriters,
if any, and if there are no underwriters, to the Holders registering Registrable
Securities.
3.7 FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Sections 3.2, 3.3
or 3.5 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of Registrable Securities.
3.8 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 3.
3.9 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under Sections 3.2, 3.3 or 3.5:
(a) BY THE COMPANY. To the extent permitted by law,
the Company will indemnify and hold harmless each Holder, the partners, members,
officers and directors of each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any,
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who controls such Holder or underwriter within the meaning of the Securities Act
or the Exchange Act against any losses, claims, damages, or liabilities (joint
or several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "VIOLATION"):
(i) any untrue statement or alleged untrue
statement of a material fact contained or incorporated by reference in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto;
(ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or
(iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any federal or state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any federal or state securities law in connection with the
offering covered by such registration statement;
and the Company will reimburse each such Holder, partner, member, officer or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED
HOWEVER, that the indemnity agreement contained in this subsection 3.9(a)
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished in writing and expressly stated for use in connection
with such registration by such Holder, partner, member, officer, director,
underwriter or controlling person of such Holder.
(b) BY SELLING HOLDERS. To the extent permitted by
law, each selling Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration is being effected,
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
(as defined in the Securities Act) and any other Holder selling securities under
such registration statement or any of such other Holder's partners, members,
directors or officers or any person who controls such underwriter or other
Holder within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, member, partner or director, officer or controlling person of such
underwriter or other Holder may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
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information furnished by such Holder and stated to be specifically for use in
such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, partner, member, officer,
director or controlling person of such other Holder or underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action; PROVIDED, HOWEVER, that the indemnity agreement contained in this
subsection 3.9(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld; and
PROVIDED FURTHER, that the total amounts payable in indemnity by a Holder under
this Section 3.9(b) in respect of any Violation shall not exceed the net
proceeds received by such Holder in the registered offering out of which such
Violation arises.
(c) NOTICE. Promptly after receipt by an indemnified
party under this Section 3.9 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under Section 3.9,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if (i) the indemnifying party fails to assume the
defense of such action or (ii) if representation of such indemnified party by
the counsel retained by the indemnifying party would be inappropriate due to
actual or potential conflict of interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 3.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 3.9.
(d) SURVIVAL. The obligations of the Company and
Holders under this Section 3.9 shall survive the completion of any offering of
Registrable Securities in a registration statement, and otherwise.
3.10 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees
that it shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees, members, partners or affiliates of the Holder
who agree to be similarly bound) for up to 180 days following the date of the
final prospectus in connection with the registration statement of the Company
filed under the Securities Act; PROVIDED, HOWEVER, that such agreement shall be
applicable only to the first such registration statement of the Company that
covers securities to be sold on its behalf to the public in an underwritten
offering but not to Registrable Securities sold pursuant to such registration
statement and provided, further, that each officer and director of the Company
also agrees to such restrictions.
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The provisions of this Section 3.10 shall be binding upon any
transferee or assignee of any Registrable Securities, whether or not such
persons are entitled to registration rights pursuant to Section 3.13.
3.11 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(b) Use its best efforts to file with the Commission
in a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act (at any time after it has become subject
to such reporting requirements); and
(c) So long as a Holder owns any Registrable
Securities, to furnish to the Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to the reporting requirements of the Exchange Act), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration (at any time after the Company has
become subject to the reporting requirements of the Exchange Act).
3.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of at least a majority of the Common Stock issued
or issuable upon the conversion of the Series B Preferred Stock, enter into any
agreement with any holder or prospective holder of any securities of the Company
that would allow such holder or prospective holder (a) to include such
securities in any registration filed under this Section 3 hereof, unless, under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which is included, or (b) to make a demand registration to the Company.
Notwithstanding the foregoing, this Section 3.12 shall not apply to the grant of
registration rights on no more favourable terms and conditions than those
granted herein in connection with the issuance by the Company of a warrant to
Silicon Valley Bank to purchase up to 26,000 shares of Series B Preferred.
3.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights of a Holder
under this Section 3 may be assigned by any Holder to any party in a transfer
not involving a distribution or
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offering of such shares to the public and not made pursuant to Rule 144
promulgated under the Securities Act; PROVIDED, however, in each case that such
other party agrees in writing with the Company to be bound by all of the
provisions of this Section 3.
3.14 TERMINATION OF REGISTRATION RIGHTS. The registration
rights granted pursuant to Section 3 will terminate as to any Holder upon the
later to occur of (a) such time as the Company and the Holder are satisfied that
Rule 144(k) is available for the resale by the then-current Holder of the Common
Stock underlying all of the Preferred Stock, (b) the third-year anniversary
following the effective date of the Company's Initial Public Registration or (c)
such time as a Holder has less than one percent of the shares of the outstanding
Common Stock of the Company (assuming conversion of all Preferred Stock into
Common Stock) and can sell all of its remaining Registrable Securities under
Rule 144 during any three (3)-month period.
4. RIGHT OF FIRST OFFER TO SUBSCRIBE TO NEW ISSUANCES.
4.1 GENERAL. The Company hereby grants to each Investor the
right of first offer to purchase such Investor's pro rata share ("PRO RATA
SHARE") of New Securities (as defined in Section 4.2) that the Company may, from
time to time, propose to sell and issue. Such Investor's Pro Rata Share, for
purposes of this right of first offer, is the ratio that the number of shares of
Common Stock (assuming conversion of all Preferred Stock and securities
convertible into Common Stock but not including options or warrants to acquire
Common Stock) held by such Investor bears to the total number of shares of
Common Stock outstanding immediately prior to the time of issuance of such New
Securities (assuming conversion into Common Stock of all outstanding Preferred
Stock and any other securities convertible into Common Stock but not including
options or warrants to acquire Common Stock). This right of first offer shall be
subject to Sections 4.2, 4.3, 4.4 and 4.5 of this Agreement:
4.2 CERTAIN DEFINITIONS. For the purposes of Section 4:
"NEW SECURITIES" shall mean any Common Stock or any Preferred Stock of the
Company, whether or not now authorized, and any rights, options, or warrants to
purchase said Common Stock or Preferred Stock, and securities of any type
whatsoever that are, or may become, convertible into or exchangeable for Common
Stock or Preferred Stock; PROVIDED, HOWEVER, that "NEW SECURITIES" shall not
include (i) securities issuable upon conversion of or with respect to the Series
A or Series B Preferred Stock or upon conversion of or with respect to any other
Preferred Stock subsequently issued; (ii) securities offered to the public
pursuant to a registration statement filed under the Securities Act; (iii)
securities issued pursuant to the acquisition of another unaffiliated
corporation by the Company by merger, purchase of substantially all of the
assets, or other reorganization whereby the Company owns not less than 50% of
the voting power of the surviving corporation; (iv) shares of the Company's
Common Stock (or related options or warrants) issued to employees, officers,
directors, consultants, or other persons performing services for the Company
(including, but not by way of limitation, distributors and sales
representatives) pursuant to any stock offering, plan, or arrangement currently
in place or approved by a majority of the non-employee members of the Board of
Directors of the Company; PROVIDED, HOWEVER, that shares so issued may not
exceed 1,894,534
-13-
<PAGE>
shares (as adjusted for any stock dividends, combinations or splits with respect
to the Common Stock) plus such additional number of options as may again become
issuable under any such plan due to termination of options previously issued;
(v) securities issued pursuant to or in connection with any corporate
partnership, joint venture or licensing arrangement with a non-affiliate or in
connection with an unaffiliated equipment lease financing or bank debt into
which the Company may enter, but not exceeding one percent (1%) of the Company's
then outstanding securities; (vi) shares of the Company's Common Stock or
Preferred Stock issued in connection with any stock split, stock dividend, or
recapitalization by the Company; or (vii) securities issued upon exercise or
conversion of any New Securities.
4.3 MECHANICS OF RIGHT.
(a) NOTICES; PRO RATA RIGHTS. In the event that the
Company proposes to issue New Securities, it shall give each such Investor
written notice (the "FIRST NOTICE") of its intention, describing the type of New
Securities, the price, and the general terms upon which the Company proposes to
issue the same. Within 20 days after receipt of the First Notice, the Investor
shall give the Company written notice (the "INVESTOR NOTICE") of its intention
to purchase or obtain, at the price and on the terms specified in the Notice, a
number of shares equal to or less than its Pro Rata Share of the New Securities.
The Investor Notice shall be deemed a binding offer to purchase the number of
New Securities set forth therein. In addition, the Investor Notice shall state
whether an Investor wishes to purchase more than its Pro Rata Share of the New
Securities. The Company shall promptly give written notice to each Investor that
purchases its Pro Rata Share of the New Securities (a "FULL EXERCISING
INVESTOR") of the amount of New Securities, if any, that other Investors do not
elect to purchase in response to the First Notice (the "SECOND NOTICE"). Each
Fully-Exercising Investor shall notify the Company within 10 days of receipt of
the Second Notice if it would like to purchase any of the unsubscribed shares
and indicate the maximum number of unsubscribed shares it would like to
purchase. The Company shall inform the Fully-Exercising Investor of the total
number of unsubscribed shares available and provide the Fully-Exercising
Investor with an allocation of the unsubscribed shares based on the number of
shares of Common Stock (assuming conversion of all Preferred Stock into Common
Stock) held by each Fully-Exercising Investor.
(b) COMPANY RIGHT. To the extent that the Investors
fail to exercise in full the right of first offer as provided in Section 4.3(a)
hereof, the Company shall have 75 days thereafter to sell (or enter into an
agreement pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within 75 days) the New Securities in respect of which the
Investors' rights were not exercised, at a price and upon general terms no more
favorable to the purchasers thereof than specified in the First Notice. In the
event the Company has not sold the New Securities within said 75-day period (or
sold and issued New Securities in accordance with the foregoing within 75 days
from the date of said agreement), the Company shall not thereafter issue or sell
any New Securities, without first offering such securities to the Investors in
the manner provided above.
-14-
<PAGE>
(c) NO IMPAIRMENT. An Investor's failure to exercise
this right of first offer on any issuance of New Securities shall not adversely
affect the Investor's right of first offer to purchase subsequent issuances of
New Securities.
4.4 TERMINATION. The rights of first offer under this Section
4 shall not apply to and shall terminate upon the closing of the Company's
Initial Public Registration.
4.5 ASSIGNMENT. The right of first offer granted under this
Section 4 is nonassignable except to an affiliate or other entity under common
control with an Investor.
5. LEGENDS.
Each Investor understands that the share certificates evidencing any
Registrable Securities shall be endorsed with the following legends (in addition
to any legends required under applicable state securities laws):
(a) "THE SALE, TRANSFER OR ASSIGNMENT OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OR HIS PREDECESSOR IN
INTEREST. COPIES OF SUCH AGREEMENT MAY BE OBTAINED BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY."
(b) Any legend required to be place thereon by any
other applicable state securities laws.
6. ADDITIONAL SERIES B PREFERRED STOCK
6.1 ADDITIONAL SERIES B PREFERRED STOCK. The Company may issue
additional shares of Series B Preferred Stock to additional third parties no
later than July 14, 1999 on the terms and conditions contained in the Stock
Purchase Agreement dated July 2, 1999. Such additional purchaser(s) shall
execute a counterpart to the signature page of this Agreement and shall be
deemed to be party to and an Investor under this Agreement and be bound by the
terms hereof.
7. MISCELLANEOUS.
7.1 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and permitted
transferees and permitted assigns of the parties; PROVIDED THAT such permitted
assigns comply with the terms hereof.
7.2 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of Delaware as applied to contracts made and
to be performed entirely within that state between residents of that state.
-15-
<PAGE>
7.3 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
7.4 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
7.5 STOCK SPLITS, ETC. All share numbers used in this
Agreement are subject to adjustment in the case of any stock split, reverse
stock split, combination or similar events.
7.6 NOTICES. Any notice required or permitted to be given to a
party pursuant to the provisions of this Agreement will be in writing and will
be effective upon (i) the date of delivery by facsimile, or (ii) the business
day after deposit with a nationally-recognized courier or overnight service,
including Express Mail, for United States deliveries or (iii) five (5) business
days after deposit in the United States mail by registered or certified mail for
United States deliveries. All notices not delivered personally or by facsimile
will be sent with postage and other charges prepaid and properly addressed to
the party to be notified at the address set forth below such party's name on
EXHIBIT A to this Agreement or at such other address as such party may designate
by ten (10) days advance written notice to the other parties hereto. All notices
for delivery outside the United States will be sent by facsimile, or by
nationally recognized courier or overnight service. Any notice given hereunder
to more than one person will be deemed to have been given, for purposes of
counting time periods hereunder, on the date given to the last party required to
be given such notice. Notices to the Company will be marked to the attention of
the Chief Financial Officer. The Company may discharge its notice obligation
hereunder by giving notice to a transferor of Registrable Securities if it has
not been given an address of the transferee.
7.7 ATTORNEYS' FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
7.8 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the party against whom
enforcement of such amendment or waiver is sought; provided, however that with
respect to any Investor, the consent of the holders of more than eighty percent
(80%) of the shares of Series B Preferred shall be sufficient to bind any and
all Investors, other than Section 2.3 which shall require the consent of the
holders of at least two-thirds of the shares of Series B Preferred and Section
4.2(iv) which shall require the consent of the holders of a majority of the
shares of Series B Preferred; and provided, further, that where the amendment or
waiver affects a right or creates an obligation that is specific to a party
named herein (whether an individual, trust, partnership or corporation), the
amendment or waiver of such right or creation of such obligation shall require
the consent of such party.
-16-
<PAGE>
7.9 SEVERABILITY. If any provision of this Agreement is held
to be unenforceable under applicable law, then such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision was so excluded and shall be enforceable in accordance with its
terms.
7.10 ENTIRE AGREEMENT. This Agreement, together with all
Exhibits hereto, constitute the full and entire understanding and agreement
between the parties with respect to the subject matter hereof and supersedes all
prior negotiations, correspondence, agreements, understandings, duties or
obligations among the parties with respect to the subject matter hereof.
7.11 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of a party, the other parties shall execute and
deliver such instruments, documents or other writings as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement.
[Remainder of Page Intentionally Left Blank]
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement as of the date first above written.
BREAKAWAY SOLUTIONS, INC.
By: /s/ Kevin Comerford
-------------------
Kevin Comerford, Vice President,
Finance
[Signature Page to Breakaway Solutions, Inc. Investors' Rights Agreements]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement as of the date first above written.
INTERNET CAPITAL GROUP, INC.
By: /s/ Walter W. Buckley
------------------------------------
Walter W. Buckley, President and CEO
[Signature Page to Breakaway Solutions, Inc. Investors' Rights Agreements]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement as of the date first above written.
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ Roger Hurwitz
Name: Roger Hurwitz
Title: Vice President
[Signature Page to Breakaway Solutions, Inc. Investors' Rights Agreements]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement as of the date first above written.
MORGAN STANLEY VENTURE INVESTORS III, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital III, Inc.
its Institutional Managing Member
By: /s/ Debra Allen
MORGAN STANLEY VENTURE PARTNERS III, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital III, Inc.
its Institutional Managing Member
By: /s/ Debra Allen
THE MORGAN STANLEY VENTURE PARTNERS
ENTREPRENEUR FUND, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.
its General Partner
By: Morgan Stanley Venture Capital III, Inc.
its Institutional Managing Member
By: /s/ Debra Allen
MORGAN STANLEY DEAN WITTER EQUITY FUNDING, INC.
By: David Powers
Vice President
By: /s/ David Powers
[Signature Page to Breakaway Solutions, Inc. Investors' Rights Agreements]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement as of the date first above written.
INTERNET KATALYST LLC
By: /s/ Johnathan Kalman
Name: Johnathon Kalman
Title: Chairman & CEO
[Signature Page to Breakaway Solutions, Inc. Investors' Rights Agreements]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement as of the date first above written.
H & D INVESTMENTS 97
By: John M. Wescott, Jr.
Name: John M. Wescott, Jr.
Title: General Partner
[Signature Page to Breakaway Solutions, Inc. Investors' Rights Agreements]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement as of the date first above written.
INTEL CORPORATION.
By: /s/ Arvind Sodhani
Name: Arvind Sodhani
Title: Vice President and Treasurer
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement as of the date first above written.
OMEGA VENTURES III, L.L.C.
By: RS Omega III Holdings, L.L.C.,
Authorized Signatory
By:
----------------------------------
Managing Member
R.S. & CO. OFFSHORE OMEGA
VENTURES III
By: RS Omega III Holdings, L.L.C.,
Authorized Signatory
By:
----------------------------------
Managing Member
OMEGA BAYVIEW, L.L.C.
By: /s/ Terry B. Otter
----------------------------------
Managing Member
CROSSOVER FUND II, L.P.
By: Crossover Investment Management, L.L.C.
Its General Partner
By: /s/ Michael J. Stark
----------------------------------
Michael J. Stark, Managing Member
[Signature Page to Breakaway Solutions, Inc. Investors' Rights Agreements]
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
FIRST CLOSING
Name and Address of Investor
- -------------------------------------------------
Internet Capital Group, Inc.
435 Devon Park Drive
Wayne, PA
Attention: Walter Buckley
Telecopier: (610) 989-0112
GE CAPITAL EQUITY INVESTMENTS, INC.
120 Long Ridge Road
2nd Floor
Stamford, CT 06927
Attention: General Counsel
Telecopier: (203) 357-3047
OMEGA VENTURES III, L.L.C.
555 California Street
Suite 2350
San Francisco, CA 94104
Attention: Jason Sanders
Telecopier: (415) 676-2556
RS & CO. OFFSHORE OMEGA VENTURES III
555 California Street
Suite 2350
San Francisco, CA 94104
Attention: Jason Sanders
Telecopier: (415) 676-2556
OMEGA BAYVIEW, L.L.C.
555 California Street
Suite 2350
San Francisco, CA 94104
Attention: Jason Sanders
Telecopier: (415) 676-2556
CROSSOVER FUND II, L.P.
555 California Street
Suite 2350
<PAGE>
Name and Address of Investor
- -------------------------------------------------
San Francisco, CA 94104
Attention: Jason Sanders
Telecopier: (415) 676-2556
MORGAN STANLEY VENTURE PARTNERS III, L.P.
1221 Avenue of the Americas
33rd Floor
New York, NY 10020
Attention: Debra Abramovitz, Principal
Telecopier: (212) 762-7770
MORGAN STANLEY VENTURE INVESTORS III, L.P.
1221 Avenue of the Americas
33rd Floor
New York, NY 10020
Attention: Debra Abramovitz, Principal
Telecopier: (212) 762-7770
THE MORGAN STANLEY VENTURE PARTNERS ENTREPRENEUR FUND, L.P.
1221 Avenue of the Americas
33rd Floor
New York, NY 10020
Attention: Debra Abramovitz, Principal
Telecopier: (212) 762-7770
MORGAN STANLEY DEAN WITTER EQUITY FUNDING
1221 Avenue of the Americas
33rd Floor
New York, NY 10020
Attention: Debra Abramovitz, Principal
Telecopier: (212) 762-7770
-20-
<PAGE>
Name and Address of Investor
- -------------------------------------------------
INTERNET KATALYST LLC
4 Spring Mill Lane
Haverford, PA 19041
Attention: Jonathan Kalman
Telecopier: (610) 989-0112
H & D INVESTMENTS 97
60 State Street
Boston, MA 02109
Attention: Jay Westcott
Telecopier: (617) 526-5000
SECOND CLOSING
Name and Address of Investor
- -------------------------------------------------
INTEL CORPORATION
2200 Mission College Boulevard
Santa Clara, CA 95052-8199
Attention: Winston Damarillo
Telecopier: (408) 765-1399
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
Name Jurisdiction
---- ------------
Celtic Acquisition Corp. Pennsylvania
Web Yes, Inc. Massachusetts
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Breakaway Solutions, Inc.:
We consent to the use of our report on the financial statements of
Breakaway Solutions, Inc. as of December 31, 1997 and 1998 and for each of
the years in the three-year period ended December 31, 1998 dated June 30,
1999, except for note 11 which is as of July 12, 1999, included herein and to
the reference to our firm under the headings "Selected Financial Data" and
"Experts" in the prospectus.
/s/ KPMG LLP
Boston, Massachusetts
July 20, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Applica Corporation:
We consent to the use of our report on the financial statements of
Applica Corporation as of December 31, 1998 and from September 24, 1998
(inception) through December 31, 1998 dated June 30, 1999 included herein and
to the reference to our firm under the headings "Selected Financial Data" and
"Experts" in the prospectus.
/s/ KPMG LLP
Boston, Massachusetts
July 20, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
WPL Laboratories, Inc.:
We consent to the use of our report on the financial statements of WPL
Laboratories, Inc. as of December 31, 1997 and 1998 and for each of the years
then ended dated June 30, 1999 included herein and to the reference to our
firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG LLP
Boston, Massachusetts
July 20, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Web Yes, Inc.:
We consent to the use of our report on the consolidated financial
statements of Web Yes, Inc. and subsidiary as of December 31, 1997 and 1998
and for each of the years then ended dated June 30, 1999 included herein and
to the reference to our firm under the headings "Selected Financial Data" and
"Experts" in the prospectus.
/s/ KPMG LLP
Boston, Massachusetts
July 20, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 3,205,752 16,954
<SECURITIES> 0 0
<RECEIVABLES> 2,054,094 1,576,994
<ALLOWANCES> 142,560 131,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,997,313 2,148,041
<PP&E> 1,271,488 1,199,066
<DEPRECIATION> 360,001 645,500
<TOTAL-ASSETS> 8,439,743 2,742,484
<CURRENT-LIABILITIES> 2,299,808 1,762,624
<BONDS> 121,665 67,040
0 0
585 0
<COMMON> 742 960
<OTHER-SE> 6,016,943 911,860
<TOTAL-LIABILITY-AND-EQUITY> 8,439,743 2,742,484
<SALES> 0 0
<TOTAL-REVENUES> 3,111,035 10,017,947
<CGS> 0 0
<TOTAL-COSTS> 3,357,324 10,718,131
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,756 43,127
<INCOME-PRETAX> (235,513) (575,175)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (235,513) (575,175)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (235,513) (575,175)
<EPS-BASIC> (0.05) (0.07)
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
EXHIBIT 99.1
ARTHUR
ANDERSEN
-----------------------
Arthur Andersen LLP
-----------------------
July 21, 1999 225 Franklin Street
Boston MA 02110-2812
Office of the Chief Accountant 617 330 4000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sir/Madam:
We have read the two (2) paragraphs under the caption "Changes in Independent
Auditors" included in the Form S-1 dated July 21, 1999 of Breakaway
Solutions, Inc. filed with the Securities and Exchange Commission and are in
agreement with the statements pertaining to Arthur Andersen LLP contained
therein.
Very truly yours,
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Copy to:
Mr. Kevin Comerford
Breakaway Solutions, Inc.
<PAGE>
[LETTERHEAD OF BROWN & BROWN, LLP]
July 21, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Breakaway Solutions, Inc.
Dear Ladies and Gentlemen:
Brown & Brown, LLP agrees with the statements made by Breakaway Solutions,
Inc. in its Registration Statement on Form S-1 in response to Item 304(a) of
Regulation S-k, as filed with the Securities and Exchange Commission on the
date hereof.
Sincerely,
/s/ Brown & Brown, LLP
Brown & Brown, LLP
