<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1999
REGISTRATION NO. 333-83343
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION 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. / /
------------------------------
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 OCTOBER 1, 1999
3,000,000 SHARES
[LOGO]
COMMON STOCK
---------------------
BREAKAWAY SOLUTIONS, INC. IS OFFERING 3,000,000 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
$10.00 AND $12.00 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 6.
-----------------
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
450,000 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
DEUTSCHE BANC ALEX. BROWN
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY........................... 3
RISK FACTORS................................. 6
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS................................. 13
USE OF PROCEEDS.............................. 14
DIVIDEND POLICY.............................. 14
CAPITALIZATION............................... 15
DILUTION..................................... 16
SELECTED FINANCIAL DATA...................... 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................. 18
BUSINESS..................................... 28
<CAPTION>
PAGE
---------
<S> <C>
MANAGEMENT................................... 39
CERTAIN TRANSACTIONS......................... 49
PRINCIPAL STOCKHOLDERS....................... 53
DESCRIPTION OF CAPITAL STOCK................. 55
SHARES ELIGIBLE FOR FUTURE SALE.............. 58
UNDERWRITERS................................. 60
VALIDITY OF COMMON STOCK..................... 62
INTERESTS OF COUNSEL......................... 62
EXPERTS...................................... 62
CHANGES IN INDEPENDENT AUDITORS.............. 62
WHERE YOU CAN FIND MORE
INFORMATION................................ 63
INDEX TO FINANCIAL STATEMENTS................ F-1
</TABLE>
------------------------
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.
2
<PAGE>
[Narrative description of graphical material omitted in "electronically"
filed document
Description of the two page graphical foldout:
The following text appears across the top of the two page graphical foldout:
"Full Service Provider."
The following text is written across the top of the first page of the
foldout: "Breakaway Solutions" and is underlined with a thin line. The text
"Global Full Service Provider of e-Business Solutions" is centered under the
heading Breakaway Solutions.
The background of the page contains a globe of the earth showing Europe, Asia
and Africa which is superimposed on top of an additional globe of the earth
showing North America and South America.
The Breakaway Solutions logo appears in the bottom right hand corner of this
page.]
<PAGE>
There is a large circle in the middle of the second page of the foldout
(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 Solutions Approach." Breakaway
Solutions Approach is underlined with a line that runs from the middle of
this side of the foldout.
Located directly below the circle graphic is the following paragraph of text:
"Our Breakthrough Methodology surrounds each aspect of our full service
approach and is designed to ensure the rapid and cost-effective delivery of
high quality e-business solutions."
<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 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 problems in capitalizing on the
opportunity to do business on the Internet, known as e-business. These problems
include technological complexity, costs of implementation and support and the
scarcity of qualified professionals. We enable our growing enterprise clients to
solve these problems by combining high quality, cost effective Internet
professional services with our ability to host software applications installed
on our computers, known as application hosting. Because our growing enterprise
clients use our services to solve problems or achieve goals relating to doing
business on the Internet, we describe Breakaway as a provider of e-business
solutions rather than simply as a provider of services. Our combination of
professional services with our application hosting ability 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. Our professionals analyze the client's
markets, business processes and existing technology and provide practical
advice on how to use the Internet and other information technology most
effectively.
- BREAKAWAY INTERNET SOLUTIONS. Our professionals recommend, tailor and
integrate software applications from software vendors and design, develop
and integrate custom applications to assist our clients in using the
Internet in their businesses.
- BREAKAWAY CUSTOMER RELATIONSHIP MANAGEMENT SOLUTIONS FOR THE INTERNET,
REFERRED TO AS ECRM SOLUTIONS. Our professionals design, develop and
integrate this important type of software application to enable our
clients to use Internet technology to identify, acquire and retain
customers.
- DEDICATED BREAKAWAY APPLICATION HOSTING. We install, maintain and operate
both standard and custom software applications for our clients' use on
computer hardware which we locate in specially designed facilities.
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;
3
<PAGE>
- 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 170 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.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............................................... 3,000,000 shares
Common stock to be outstanding after the offering.................. 16,865,877 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 7,157,498 shares subject to outstanding options under our 1998
stock plan at a weighted average exercise price of $1.79 per share and 295,899
additional shares available for issuance under that plan. It also excludes
73,872 shares issuable upon the exercise of an outstanding warrant at an
exercise price of $8.13 per share.
ADDITIONAL INFORMATION
Except as set forth in the 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 four-for-five stock split to be effected prior to the offering;
and
- Reflects the conversion of all outstanding shares of our convertible
preferred stock into shares of common stock.
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.
4
<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 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 six months ended June 30, 1998 and 1999 give effect
to: (1) the acquisitions of Applica Corporation, WPL Laboratories, Inc. and Web
Yes, Inc., and (2) pro forma adjustments to the historical financial statements
as if they had occurred on January 1, 1998. The summary pro forma balance sheet
data as of June 30, 1999 gives effect to the issuance of our Series B Preferred
Stock as if it had occurred on June 30, 1999. The summary pro forma as adjusted
balance sheet data as of June 30, 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, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- ---------------------------------
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 $ 4,729 $ 5,803 $ 7,563
Income (loss) from operations.............. 664 1,016 (700) (4,188) 356 (1,383) (2,516)
Net income (loss).......................... 618 1,074 (575) (4,223) 357 (1,463) (2,518)
Net income (loss)
per share--basic and diluted............. $ 0.09 $ 0.17 $ (0.09) $ (0.48) $ 0.06 $ (0.16) $ (0.55)
Weighted average
shares outstanding....................... 6,641 6,413 6,340 8,885 6,413 8,885 4,587
Pro forma net income (loss)................ $ 371 $ 644 $ (380) $ (2,787) $ 214 $ (966) $ (1,662)
Pro forma net income (loss) per
share--basic and diluted................. $ 0.06 $ 0.10 $ (0.06) $ (0.31) $ 0.03 $ (0.11) $ (0.36)
<CAPTION>
1999 PRO
FORMA(1)
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 9,531
Income (loss) from operations.............. (3,560)
Net income (loss).......................... (3,632)
Net income (loss)
per share--basic and diluted............. $ (0.57)
Weighted average
shares outstanding....................... 6,380
Pro forma net income (loss)................ $ (2,397)
Pro forma net income (loss) per
share--basic and diluted................. $ (0.38)
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 1,808 $ 16,865 $ 46,305
Total assets................................................................. 23,385 38,442 67,882
Total long-term liabilities.................................................. 2,802 2,802 2,802
Stockholders' equity......................................................... 12,775 31,832 61,272
</TABLE>
- ------------------------------
(1) The pro forma weighted average shares outstanding for the year ended
December 31, 1998 and the six months ended June 30, 1998 and 1999 reflect
2,544,747 shares issued in connection with the acquisitions of Applica, WPL
and Web Yes.
5
<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.
OUR BUSINESS WILL SUFFER IF GROWING ENTERPRISES DO NOT ADOPT AND ACCEPT
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.
OUR BUSINESS WILL SUFFER IF GROWING ENTERPRISES DO NOT ACCEPT E-BUSINESS
SOLUTIONS
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 $2,517,965 for the
six months ended June 30, 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.
6
<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 approximately 27.0% of
our total revenues, and revenues from our five largest clients accounted for
54.0% of total revenues. During the six months ended June 30, 1999, revenues
from a single client accounted for approximately 25.0% of total revenues and
revenues from our five largest clients accounted for approximately 56.8% 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
7
<PAGE>
- The timing and cost of anticipated openings or expansions of new regional
offices and new Solution Centers.
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.
OUR GROWTH STRATEGY WILL FAIL IF WE ARE UNABLE TO OPEN SUCCESSFULLY NEW
REGIONAL OFFICES
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;
8
<PAGE>
- Refunds of monthly application hosting fees for failure to meet service
level obligations;
- 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 any of these software
vendors. As a result, those software vendors with whom we do not have
contractual arrangements can cease making their products available to us at
their discretion. Even in the case of software vendors with whom we do have
contractual arrangements, those arrangements are either terminable at will by
either party or are for terms of one year or less. In addition, these software
vendors 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.
OUR MARKETS ARE HIGHLY COMPETITIVE AND OUR FAILURE TO COMPETE SUCCESSFULLY
WILL LIMIT OUR ABILITY TO RETAIN AND INCREASE OUR MARKET SHARE
Our markets are new, rapidly evolving and highly competitive. We expect this
competition to persist and intensify in the future. Our failure to maintain and
enhance our competitive position will limit our ability to maintain and increase
our market share, which would result in serious harm to our business. 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.
Moreover, barriers to entry, particularly in the strategic consulting and
systems integration markets, are low. We therefore 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.
9
<PAGE>
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.
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 MAY LIMIT OUR ABILITY TO
MANAGE AND MAINTAIN OUR BUSINESS, MAY RESULT IN ADVERSE ACCOUNTING TREATMENT
AND MAY BE DIFFICULT TO INTEGRATE INTO 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.
10
<PAGE>
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST US, EVEN WITHOUT MERIT,
COULD COST A SIGNIFICANT AMOUNT OF MONEY TO DEFEND AND MAY 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 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.
OUR BUSINESS MAY SUFFER IF GROWTH IN THE USE OF THE INTERNET DECLINES
Our business is dependent upon continued growth in the use of the Internet
by our clients, prospective clients and their customers and suppliers. If the
number of users on the Internet does not increase and commerce over the Internet
does not become more accepted and widespread, demand for
11
<PAGE>
our services may decrease and, as a result, our revenues would decline. Factors
that may affect Internet usage or electronic commerce adoption include:
- Actual or perceived lack of security of information;
- Lack of access and ease of use;
- Congestion of Internet traffic;
- Inconsistent quality of service;
- Increases in access costs to the Internet;
- Excessive governmental regulation;
- Uncertainty regarding intellectual property ownership;
- Reluctance to adopt new business methods; and
- Costs associated with the obsolescence of existing infrastructure.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
FOR INVESTORS PURCHASING SHARES IN THIS OFFERING
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 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 AND COULD DELAY
OR PREVENT A CHANGE IN CORPORATE CONTROL THAT STOCKHOLDERS MAY BELIEVE WILL
IMPROVE MANAGEMENT AND COULD DEPRESS OUR STOCK PRICE BECAUSE PURCHASERS
CANNOT ACQUIRE A CONTROLLING INTEREST
When this offering is completed, our executive officers, directors and
stockholders who beneficially own more than 5.0% of our stock will, in the
aggregate, beneficially own shares representing approximately 71.3% of our
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. This control could have the
effect of delaying or preventing a change of control of Breakaway that
Stockholders may believe would result in better management. In addition, this
control could depress our stock price because purchasers will not be able to
acquire a controlling interest in Breakaway.
MANAGEMENT MAY INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH
WHICH YOU MAY DISAGREE
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.
12
<PAGE>
OUR STOCK PRICE COULD BE ADVERSELY AFFECTED BY SHARES BECOMING AVAILABLE FOR
SALE
Sales of a substantial number of shares of our common stock in the public
market after this offering could depress the market price of our common stock
and could impair our ability to raise capital through the sale of additional
equity securities. See "Shares Eligible for Future Sale."
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION WHICH COULD RESULT IN
SUBSTANTIAL COSTS AND DIVERT MANAGEMENT'S ATTENTION AND RESOURCES
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. Due to the potential volatility of our stock price, we may be the
target of securities litigation in the future. Securities litigation could
result in substantial costs and divert management's attention and resources.
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 46.4% of the aggregate price paid by all purchasers of
our stock but will own only approximately 17.8% of our common stock outstanding
after this offering. See "Dilution."
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.
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.
13
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of 3,000,000 shares of
common stock will be approximately $29,440,000, assuming an initial public
offering price of $11.00 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 $34,043,500.
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.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
- On an actual basis;
- On a pro forma basis to give effect to the issuance of our Series B
Preferred Stock; and
- On a pro forma as adjusted basis 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 3,000,000 shares of common stock in
this offering at an assumed initial public offering price of $11.00 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 June 30, 1999. It excludes 7,157,498 shares subject
to options outstanding under our 1998 stock plan at a weighted average exercise
price of $1.79 per share and 295,899 additional shares available for issuance
under that plan. It also excludes 73,872 shares issuable upon the exercise of an
outstanding warrant at an exercise price of $8.13 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 JUNE 30, 1999
-------------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- -------------
Short-term debt, including capital lease obligations--current
portion........................................................... $ 426,692 $ 426,692 $ 426,692
Long-term debt, including note payable to stockholder and capital
lease obligations--long-term portion.............................. 6,235,316 2,235,316 2,235,316
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, $0.000125 par value per share, 80,000,000
authorized, actual, pro forma and pro forma as adjusted;
8,393,198 issued and 6,837,998 outstanding, actual, 8,393,198
issued and 6,837,998 outstanding, pro forma, 18,421,077 issued
and 16,865,877 outstanding, pro forma as adjusted............... 1,049 1,049 1,424
Additional paid-in-capital.......................................... 15,579,982 34,636,708 64,077,211
Less: deferred compensation (289,112) (289,112) (289,112)
Less: treasury stock................................................ (32) (32) (32)
Retained earnings (deficit)......................................... (2,517,965) (2,517,965) (2,517,965)
------------- ------------- -------------
Total stockholders' equity.................................... 12,774,507 31,831,526 61,271,526
------------- ------------- -------------
Total capitalization.......................................... $ 19,009,823 $ 34,066,842 $ 63,506,842
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
15
<PAGE>
DILUTION
Our pro forma net tangible book value at June 30, 1999, was approximately
$17.2 million, or $2.51 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 the sale of our
Series B Preferred Stock. After giving effect to our sale of 3,000,000 shares of
common stock in this offering at an assumed initial public offering price of
$11.00 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 June 30, 1999 would
have been approximately $46.6, or $2.76 per share. This represents an immediate
increase in pro forma net tangible book value of $0.25 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$8.24 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.............. $ 11.00
Pro forma net tangible book value per share as of June 30,
1999..................................................... $ 2.51
Increase in pro forma net tangible book value per share
attributable to new investors............................ 0.25
---------
Pro forma net tangible book value per share after this
offering................................................. 2.76
---------
Dilution per share to new investors........................ $ 8.24
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999,
the total number of shares of common stock purchased from us after giving effect
to the automatic conversion of all shares of our preferred stock to common stock
on the closing of this offering. 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 $11.00 per share for
shares purchased in this offering, before deducting underwriting discounts and
estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 13,865,877 82.2% $38,195,691 53.6% $ 2.75
New investors...................... 3,000,000 17.8 33,000,000 46.4 11.00
----------- ------- ----------- -------
Total.......................... 16,865,877 100.0% $71,195,691 100.0%
----------- ------- ----------- -------
----------- ------- ----------- -------
</TABLE>
------------------------
The table above assumes no exercise of outstanding stock options. As of June
30, 1999, there were 7,157,498 shares of common stock subject to options
outstanding under our 1998 stock plan at a weighted average exercise price of
$1.79 per share. To the extent all of these options had been exercised as of
June 30, 1999, pro forma net tangible book value per share after this offering
would be $2.47 and total dilution per share to new investors would be $8.53.
16
<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 June 30, 1998 and 1999 and for each of the six 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 six months ended June 30, 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 six months ended
June 30, 1998 and 1999 give effect to: (1) the acquisitions of Applica
Corporation, WPL Laboratories, Inc., and Web Yes, Inc., and (2) pro forma
adjustments to the historical financial statements as if these items had
occurred on January 1, 1998. The selected unaudited pro forma balance sheet data
as of June 30, 1999 gives effect to the issuance of our Series B Preferred Stock
as if it had occurred on June 30, 1999.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
1994 1995 1996 1997 1998 PRO FORMA 1998
--------- --------- --------- --------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 959 $ 1,896 $ 3,462 $ 6,118 $ 10,018 $ 12,957 $ 4,729
Operating expenses:
Project personnel costs............................ 343 967 1,430 2,543 5,904 8,455 2,596
Direct project and other direct costs.............. -- -- -- -- -- 150 --
Selling, general and administrative................ 468 740 1,368 2,559 4,814 8,540 1,777
--------- --------- --------- --------- --------- ----------- ---------
Total operating expenses......................... 811 1,707 2,798 5,102 10,718 17,145 4,373
Income (loss) from operations........................ 148 189 664 1,016 (700) (4,188) 356
Interest income (expense), net....................... 1 8 (25) 60 (32) (192) 1
Other income (expense)............................... (1) -- (21) (2) 157 157 --
--------- --------- --------- --------- --------- ----------- ---------
Net income (loss).................................... $ 148 $ 197 $ 618 $ 1,074 $ (575) $ (4,223) $ 357
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
Net income (loss) per share--
basic and diluted.................................. $ 0.02 $ 0.03 $ 0.09 $ 0.17 $ (0.09) $ (0.48) $ 0.06
Weighted average shares outstanding.................. 7,680 7,680 6,641 6,413 6,340 8,885 6,413
Pro forma net income (loss).......................... $ 89 $ 118 $ 371 $ 644 $ (380) $ (2,787) $ 214
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
Pro forma net income (loss) per share--basic and
diluted............................................ $ 0.01 $ 0.01 $ 0.06 $ 0.10 $ (0.06) $ (0.31) $ 0.03
<CAPTION>
<S> <C> <C> <C>
1998 1999
PRO FORMA 1999 PRO FORMA
----------- --------- -----------
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 5,803 $ 7,563 $ 9,531
Operating expenses:
Project personnel costs............................ 3,469 3,617 4,587
Direct project and other direct costs.............. 50 -- 36
Selling, general and administrative................ 3,667 6,462 8,468
----------- --------- -----------
Total operating expenses......................... 7,186 10,079 13,091
Income (loss) from operations........................ (1,383) (2,516) (3,560)
Interest income (expense), net....................... (79) 5 (50)
Other income (expense)............................... (1) (7) (22)
----------- --------- -----------
Net income (loss).................................... $ (1,463) $ (2,518) $ (3,632)
----------- --------- -----------
----------- --------- -----------
Net income (loss) per share--
basic and diluted.................................. $ (0.16) $ (0.55) $ (0.57)
Weighted average shares outstanding.................. 8,885 4,587 6,380
Pro forma net income (loss).......................... $ (966) $ (1,662) $ (2,397)
----------- --------- -----------
----------- --------- -----------
Pro forma net income (loss) per share--basic and
diluted............................................ $ (0.11) $ (0.36) $ (0.38)
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30,
AS OF DECEMBER 31, 1999
----------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 ACTUAL
--------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 17 $ 94 $ 84 $ 879 $ 17 $ 1,808
Total assets.................................................. 325 740 1,120 2,533 2,742 23,385
Total long term liabilities................................... -- 69 55 84 67 2,802
Stockholders' equity.......................................... 149 332 948 1,492 913 12,775
<CAPTION>
<S> <C>
PRO FORMA
---------
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $16,865
Total assets.................................................. 38,442
Total long term liabilities................................... 2,802
Stockholders' equity.......................................... 31,832
</TABLE>
17
<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 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.
We are 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 Internet solutions and eCRM solutions 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. Our revenues attributable to time and materials
contracts and fixed fee contracts in the periods indicated have been as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C>
Time and materials.................................... $ 2,573 $ 4,289 $ 5,810 $ 2,562 $ 4,557
Percentage of revenues.............................. 74.3% 70.1% 58.0% 54.2% 60.3%
Fixed fee............................................. $ 889 $ 1,829 $ 4,208 $ 2,167 $ 3,006
Percentage of revenues.............................. 25.7% 29.9% 42.0% 45.8% 39.7%
--------- --------- --------- --------- ---------
Total revenues........................................ $ 3,462 $ 6,118 $ 10,018 $ 4,729 $ 7,563
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
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
18
<PAGE>
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 six months of 1999. We expect our reliance on a small number of 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.
We believe that we have achieved a number of important accomplishments since
making the strategic decision in 1998 to expand our service offerings and bring
in a new management team. These accomplishments include:
- The successful recruitment of a new President and Chief Executive Officer;
- The successful recruitment of other key senior executives, both through
acquisitions and independent hiring;
- The completion of three acquisitions which significantly extended our
Internet solutions service offering and added our application hosting
service capability;
- The development and implementation of proprietary business processes, such
as our Breakthrough Methodology, our Breakaway Solution Centers and our
Breakaway Knowledge Innovation Team;
- The creation of a sales and marketing department and the initiation of
efforts to increase awareness of the Breakaway Solutions brand;
- The expansion of our physical presence through the opening of new regional
offices and through acquisitions; and
- The achievement of record revenues in all four of our service offerings in
the second quarter of 1999.
We hope to build on these accomplishments 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. We discuss our strategy
for achieving that overall goal in "Business--Strategy." We are seeking to
increase revenues in the near term by continuing to:
- Increase our sales and marketing efforts;
- Expand our professional staff;
- Add to our existing application hosting infrastructure to increase our
capacity to provide application hosting services; and
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<PAGE>
- Open additional regional offices and Solution Centers.
We will need to make significant expenditures in connection with all of these
activities. In particular, expanding our application hosting capacity involves
capital expenditures for equipment and software as well as costs for leasing
facilities to house that equipment. These capital expenditures will result in
significant depreciation and amortization expenses. Thus, we do not expect to
achieve net profits within the near future. Our ability to achieve net profits
may be further delayed if the expenditures required to support our growth are
greater than we currently expect, if revenues grow more slowly than we currently
expect or as a result of the occurrence of one or more of the risks described
under "Risk Factors," beginning on page 7.
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. Applica had no revenues for the period beginning on its
inception, September 24, 1998 and ending on December 31, 1998. We acquired
Applica for 723,699 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. WPL had revenues of $2.6 million for the year ended
December 31, 1998 and $2,377,695 for the six months ended June 30, 1999.
The total acquisition consideration paid consisted of approximately $5.0
million in cash to be paid over a four-year period and 1,364,140 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 314,804 shares of our common stock
at an exercise price of $2.36 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. Web Yes had
revenues of $288,000 for the year ended December 31, 1998 and $325,544 for
the six months ended
20
<PAGE>
June 30, 1999. We acquired Web Yes for 492,491 shares of Breakaway's
common stock. Of the shares of our common stock issued to the former Web
Yes stockholders, 342,680 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 $14.7 million of intangible assets. Intangible assets are being
amortized over a three to five-year period from the date of each acquisition.
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>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------- --------------------
<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% 54.9% 47.8%
Selling, general and administrative................. 39.5% 41.8% 48.1% 37.6% 85.5%
Operating income (loss)............................. 19.2% 16.6% (7.0%) 7.5% (33.3%)
</TABLE>
The following table sets forth the revenues from our four service offerings
for each of the six quarters ended June 30, 1999:
<TABLE>
<CAPTION>
REVENUES FOR THREE MONTHS ENDED
------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
SERVICE OFFERING 1998 1998 1998 1998 1999 1999
- ------------------------------------- ----------- ----------- --------------- --------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Strategy and Systems Integration
Solutions.......................... $ 2,124 $ 2,605 $ 2,749 $ 2,540 $ 3,111 $ 4,416
Percentage of revenues............. 100.0% 100.0% 100.0% 100.0% 100.0% 99.2%
Application Hosting Solutions........ -- -- -- -- -- $ 36
Percentage of revenues............. -- -- -- -- -- 0.8%
----------- ----------- ------ ------ ----------- -----------
Total Revenues....................... $ 2,124 $ 2,605 $ 2,749 $ 2,540 $ 3,111 $ 4,452
----------- ----------- ------ ------ ----------- -----------
----------- ----------- ------ ------ ----------- -----------
</TABLE>
As the preceding table indicates, our revenues in the past were derived from
providing strategy and systems integration solutions services. We developed and
began implementation of our current strategy to become a leading full service
provider of Internet solutions for businesses in late 1998. As part of this
strategy, we acquired companies which gave us the ability to provide application
hosting services and expanded our ability to provide Internet solutions services
during the first six months of 1999. We began recognizing revenues from these
services in the second quarter of 1999. Because we are increasing our marketing
and sales strategy initiatives and are adding to our application hosting
infrastructure, we expect our revenue streams to increase.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES. Revenues for the six months ended June 30, 1999 increased by $2.9
million, or 61.7%, to $7.6 million from $4.7 million for the six months ended
June 30, 1998. The increase was due primarily to increased market demand for
Internet professional services and eCRMS solutions. We
21
<PAGE>
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 six months ended
June 30, 1999 increased by $1.0 million, or 38.5%, to $3.6 million from $2.6
million for the six months ended June 30, 1998. Project personnel costs
represented 47.8% of revenues for the six months ended June 30, 1999, as
compared to 54.9% of revenues for the six months ended June 30, 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 six months ended June 30,
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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the six months ended June 30, 1999 increased by $4.7
million, or 261.1%, to $6.5 million from $1.8 million for the six months ended
June 30, 1998. As a percentage of revenues, general and administrative expenses
increased from 37.6% in the 1998 period to 85.4% 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, the recruiting, hiring of a senior executive management team, the
hiring of dedicated sales and marketing employees, and the opening of a new
regional office in Dallas.
INTEREST INCOME, NET. Interest income, net, for the six months ended June
30, 1999 increased by $4,000, to $5,000 from $1,000 for the six months ended
June 30, 1998. The increase in 1999 was due primarily to interest income earned
on the invested portion of proceeds from our preferred stock financing in
January 1999.
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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1998 increased by $2.2 million, or 84.6%, to $4.8
million from $2.6 million for 1997. As a percentage of revenues, general and
administrative expenses increased from 41.8% in 1997 to 48.0% 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
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<PAGE>
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 $2.6 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 eCRM 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, 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, selling,
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 six quarters ended June 30, 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.
23
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
----------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER MARCH JUNE
31, 30, 30, 31, 31, 30,
1998 1998 1998 1998 1999 1999
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $2,124 $2,605 $2,749 $2,540 $3,111 $4,452
Operating expenses:
Project personnel costs......... 1,180 1,415 1,481 1,828 1,553 2,064
Selling, general and
administrative................ 791 987 1,557 1,479 1,804 4,658
------ ------ ------ ------ ------ ------
Total operating expenses...... 1,971 2,402 3,038 3,307 3,357 6,722
------ ------ ------ ------ ------ ------
Income (loss) from operations..... 153 203 (289 ) (767 ) (246 ) (2,270)
------ ------ ------ ------ ------ ------
Other income (expense)............ 4 (2 ) 155 (32 ) 11 (13)
------ ------ ------ ------ ------ ------
Net income (loss)................. $ 157 $ 201 $(134 ) $(799 ) $(235 ) $(2,283)
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES:
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Project personnel costs......... 55.6 54.3 53.9 72.0 49.9 46.4
Selling, general and
administrative................ 37.2 37.9 56.6 58.2 58.0 104.6
------ ------ ------ ------ ------ ------
Total operating expenses...... 92.8 92.2 110.5 130.2 107.9 151.0
------ ------ ------ ------ ------ ------
Income (loss) from operations..... 7.2 7.8 (10.5 ) (30.2 ) (7.9 ) (51.0)
------ ------ ------ ------ ------ ------
Other income (expense)............ 0.2 (0.1 ) 5.6 (1.3 ) 0.3 0.1
------ ------ ------ ------ ------ ------
Net income (loss)................. 7.4% 7.7% (4.9 )% (31.5 )% (7.6 )% (51.3)%
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</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 quarters ended March 31, 1999 and June 30, 1999 due to
increased demand for Internet professional services combined with incremental
revenues generated by Applica, WPL and Web Yes.
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 declined in that quarter.
Other than in the quarter ended December 31, 1998, project personnel costs as a
percentage of revenues remained relatively stable.
Selling, 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 selling, general and administrative expenses remained relatively
stable as a percentage of revenues. In the quarters ended March 31, 1999 and
June 30, 1999 selling, general and administrative expenses increased primarily
due to the hiring of dedicated sales and marketing and a number of other
administrative employees during recent periods and, for the quarter ended June
30, 1999, due to the hiring of five new executive officers and incremental
expenses associated with the operations of Applica, WPL and Web Yes, including
the addition of the administrative employees of Applica, WPL and Web Yes. In
July 1999, we issued 16,000 shares of common stock in consideration for a
license of technology and, as a result will incur a non-cash charge of
approximately $130,000, as a selling, general and administrative expense, in the
quarter ended September 30, 1999.
24
<PAGE>
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 $1.8 million at June 30, 1999. Our working
capital was $786,000 in 1996, $1.1 million in 1997, $385,000 in 1998. It was
$(1.3) million at June 30, 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 $2.6 million in the first six
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 six months ended June 30, 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 $1.4 million in the first six 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. In addition, in the first six months of
1999, we used $2.1 million in cash for acquired businesses.
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 September 1999, we entered into a Master Lease Agreement with Silicon
Valley Bank to finance up to $4 million of equipment and software. Leases under
the Master Lease Agreement will have terms of 36 months. Payments under the
leases will be determined based on an annual interest rate equal to the annual
rate on U.S. Treasury securities of a comparable term plus 2.5%. In connection
with the Master Lease Agreement we issued Silicon Valley Bank warrants to
purchase 10,909 shares of our common stock for $11.00 per share. The warrants
are exercisable until June 21, 2002.
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 $19.0 million. We intend to use the
proceeds for working capital and other general corporate purposes.
In May 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 converted into shares
of the Company's Series B Preferred Stock in the Company's July 1999 Series B
Preferred Stock Financing. See "Certain Transactions--Internet Capital Group"
and "--Preferred Stock Issuances." We used the proceeds to help finance our
acquisition of WPL and to fund operations.
25
<PAGE>
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.
MARKET RISK
To date, we have not utilized derivative financial instruments or derivative
commodity instruments. We do not expect to employ these or other strategies to
hedge market risk in the foreseeable future. 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 developed 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 hardware and software is year 2000 ready;
- Test our internal hardware and software which we believe have a
significant impact on our daily operations to assess whether it is year
2000 ready;
- Upgrade, remediate or replace any of our hardware 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 completed the inventory of hardware and software at all of our
locations and have determined that all of the inventoried hardware and
software which we believe have a significant impact on our daily
operations are year 2000 ready or can be made ready with minimal changes
or replacements, based on our vendors' web site certifications statements
and commercially available year 2000 testing products;
- 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 vendors which we deem to have a
significant business relationship with us. Of the approximately 20 vendors
we have identified, we have obtained web site certifications or made
written inquiries for information or assurances with respect to the year
2000 readiness of products or services that we purchase from those
vendors;
26
<PAGE>
- We have prepared test plans for date sensitive applications which we
believe have a significant impact on our daily operations and have
scheduled dates to perform this testing in the third quarter of 1999;
- We have completed an internal review to determine the commitments we have
made to our customers with respect to the year 2000 readiness of solutions
which we have provided to those customers; and
- We have formulated a business continuity plan that encompasses Breakaway's
strategy for preparation, notification and recovery in the event of a
failure due to the year 2000 issue. The plan includes procedures to
minimize downtime and expedite resumption of business operations and other
solutions for responding to internal failures in our internal information
technology department as well as widespread external failures related to
the year 2000 issue.
We have specific tasks to complete with respect to our year 2000 program,
including;
- Evaluations of questionnaires regarding year 2000 readiness to our
critical vendors as they are returned;
- Testing of our internal hardware and software which we believe have a
significant impact on our daily operations 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.
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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 170 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 59% from $7.8 billion in 1998 to
$78.5 billion in 2003.
Large companies which provide services to assist businesses in using
information technology, including the Internet, 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.
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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 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 SOLUTIONS BREAKAWAY INTERNET SOLUTIONS BREAKAWAY ECRM SOLUTIONS BREAKAWAY APPLICATION 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 management
- - Chief Information Officer applications - Customer self-service - High availability hosting
outsourcing - Interactive marketing - Order management facilities
- - Application portfolio - Content generation tools - Application performance
management - Site traffic analysis and optimization and reporting
- - Industry and competitive reporting - Security services
reviews - 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
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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.
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, we had one client, Partners HealthCare, which accounted for 10%
or more of our revenues. Our revenues from Partners HealthCare in 1998
represented approximately 27% of total revenues in that period. During the first
six months of 1999, we had two clients which accounted for 10% or more of our
revenues: Partners HealthCare, which represented approximately 25% of our
revenues in that period, and Giga Information Group, which represented
approximately 11% of our revenues in that period.
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.
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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 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 eCRM 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.
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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.
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.
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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 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,
Oracle, 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. Our
arrangements with many of these companies are informal and are not the subject
of definitive written agreements. For those companies with whom we do have
definitive written agreements, those agreements are either terminable at will by
either party or are for terms of one year or less. 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;
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- 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.
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. 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 five locations in the United States and five
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 September 30, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Gordon Brooks...................... 42 President, Chief Executive Officer and Director
Kevin Comerford.................... 35 Vice President, Administration, Chief Financial Officer, Treasurer and
Secretary
Babak Farzami...................... 32 Vice President, Corporate Development
Christopher Harding................ 34 Vice President, Field Operations
Dev Ittycheria..................... 32 Vice President, Application Hosting Services
Joseph J. Johnson.................. 43 Vice President, Chief People Officer
William Loftus..................... 35 Vice President, Internet Solutions
Wayne B. Saunders.................. 53 Vice President, eCRM Solutions
Adam Sholley....................... 40 Vice President, Marketing
Janet S. Tremlett.................. 43 Vice President, Strategy Solutions
Christopher H. Greendale........... 47 Chairman of the Board of Directors
Walter W. Buckley, III............. 39 Director
Frank Selldorff.................... 37 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.
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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 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.
JOSEPH J. JOHNSON has served as our Vice President and Chief People Officer
since September 1999. From June 1999 through August 1999, Mr. Johnson served as
a Vice President, Human Capital Management of Darwin Partners, a workforce
solutions provider. From July 1996 through May 1999, he served as the National
Practice Leader, Organizational Effectiveness for Cambridge Technology Partners.
From July 1993 through June 1996, he served as a Director in KPMG, Peat Marwick
LLP's organizational effectiveness consulting practice.
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.
ADAM SHOLLEY has served as our Vice President, Marketing since September
1999. From 1987 through August 1999, he served in various capacities, most
recently as an Executive Vice President, at Arnold Communications, Inc., an
advertising and communications firm.
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. Mr. Greendale serves as a director of Clarify Inc.
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
40
<PAGE>
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.
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 84,000 shares of common stock at an exercise price
(as adjusted for subsequent stock splits) of $0.68 on July 1, 1998 which
vested in full on January 1, 1999; and
- An option to purchase 554,400 shares of common stock at an exercise price
of $1.78 on February 18, 1999, all of which shares will vest on the
closing of this offering.
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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<PAGE>
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(1).......................................... $ 21,795 $ 125 2,446,800
President and Chief Executive Officer
Frank Selldorff........................................... 172,375 25,294 1,200,000
Former President and Chief Executive Officer
Patricia Purcell(2)....................................... 108,769 5,550 --
Former Vice President, Marketing and Sales
</TABLE>
- ------------------------
(1) Mr. Brooks joined Breakaway as its President and Chief Executive Officer in
October 1998.
(2) Ms. Purcell served Breakaway as its Vice President, Marketing and Sales from
March 1998 to November 1998.
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..................... 2,446,800(1) 50.0% $ 1.78 12/23/08 $ 2,739,027 $ 6,941,233
Frank Selldorff................... 1,200,000 24.5% 0.68 7/1/08 513,178 1,300,494
Patricia Purcell.................. -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The options to purchase an aggregate of 2,446,800 shares of common stock
which we granted to Mr. Brooks are either vested or will vest on the closing
of this offering.
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<PAGE>
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 "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 $1.78, 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................................ 611,700 1,835,100 $ 0 $ 0
Frank Selldorff.............................. 1,200,000 0 1,320,000 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 8,120,268 shares of our common stock pursuant
to stock options and other awards. As of June 30, 1999, options to purchase an
aggregate of 7,157,498 shares of our common stock at a weighted average exercise
price of $1.79 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 4,800,000 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 640,000 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.
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<PAGE>
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.
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:
- The assumption or substitution of all outstanding options by the acquiror;
- The termination of all unexercised options immediately prior to the
closing of the acquisition event;
- Appropriate cash payments to option holders, if our stockholders will
receive cash payments as consideration in the acquisition event; and
- The vesting in full of outstanding options prior to 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 400,000
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 one month 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.
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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 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 this agreement, Mr. Brooks' employment will continue
until November 30, 2000 unless Mr. Brooks resigns or we terminate his
employment. Mr. Brooks receives a base salary of $20,833 per month and 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. In addition, we granted Mr. Brooks stock options to purchase
2,446,800 shares of our common stock at a per share exercise price of $1.78.
On May 29, 1998 we entered into an employment agreement with Mr. Comerford.
Under the current terms of this agreement, Mr. Comerford receives a monthly
salary of $15,000 and is eligible to receive a bonus of up to 20% of his base
salary. In addition, we granted to Mr. Comerford the following options to
purchase our common stock:
- 72,000 shares at a per share exercise price of $0.68;
- 36,000 shares at a per share exercise price of $1.01; and
- 40,000 shares at a per share exercise price of $10.13.
On November 13, 1998 we accepted the resignation of Ms. Purcell, our former
Vice President of Sales and Marketing, in which capacity she directed all of our
sales and marketing programs and strategies. Under the terms of a letter
agreement with Ms. Purcell, she received salary 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.
On April 28, 1999, pursuant to the terms of a separation agreement of the
same date, Mr. Selldorff resigned as Executive Vice President, Strategic
Development of Breakaway, in which capacity he coordinated our acquisition
strategy and planned corporate development initiatives. Under the terms of this
agreement, Mr. Selldorff agreed to continue to serve as a director of Breakaway
and
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<PAGE>
agreed to waive his right under his December 11, 1998 employment agreement to
receive severance payments equal to one year's salary. In connection with Mr.
Selldorff's resignation, his employment agreement terminated. Prior to his
resignation, we granted Mr. Selldorff stock options to purchase 1,200,000 shares
of our common stock at a per share exercise price of $0.68.
On February 11, 1999 we entered into a one year employment agreement with
Ms. Tremlett. This agreement will automatically renew itself for successive one
year periods unless Ms. Tremlett resigns or we terminate her employment. Under
the terms of this agreement, Ms. Tremlett receives a base salary of $14,833 per
month and is 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. Pursuant to her employment agreement we
granted to Ms. Tremlett stock options to purchase 72,000 shares of our common
stock at a per share exercise price of $1.78. In addition, we granted Ms.
Tremlett stock options in September 1999 to purchase 40,000 shares of our common
stock at a per share exercise price of $10.13.
On February 17, 1999 we entered into an employment agreement with Mr.
Harding. Under the terms of this agreement, Mr. Harding's employment shall
continue until March 2001, and the agreement will renew itself for a two year
term expiring March 2003 unless Mr. Harding resigns or we terminate his
employment. Mr. Harding received a bonus of $50,000 upon commencing his
employment and 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. Pursuant to his employment agreement we granted to
Mr. Harding stock options to purchase 606,250 shares of our common stock, at a
per share exercise price of $1.78. 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
- A liquidation or dissolution of Breakaway,
any unvested options to purchase our common stock held by Mr. Harding will vest
in full.
On March 2, 1999 we entered into an employment agreement with Mr. Saunders.
Under the terms of this employment agreement, Mr. Saunders receives a base
salary of $17,500 per month and is eligible for a performance bonus of up to 30%
of his annual salary. Pursuant to his employment agreement, we granted to Mr.
Saunders stock options to purchase 176,000 shares of our common stock at a per
share exercise price of $1.96. If within twelve months after the occurrence of a
change of control of Breakaway Mr. Sanders is terminated or his duties are
materially reduced, his stock options will vest in full.
On March 25, 1999 we entered into an employment agreement with Mr. Farzami.
Under the terms of this agreement, Mr. Farzami will receive a base salary of
$15,833 per month and is eligible to receive a bonus of up to 30% of his annual
salary, subject to meeting specified performance targets. In addition, we
granted to Mr. Farzami stock options to purchase 338,408 shares of our common
stock at a per share exercise price of $1.96. 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
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- 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 this agreement, Mr. Ittycheria receives a base
salary of $15,833 per month and is eligible to receive a bonus of up to 30% of
his annual salary, subject to meeting specified performance targets. In
addition, we granted to Mr. Ittycheria stock options to purchase 253,806 shares
of our common stock at a per share exercise price of $1.96. 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 14, 1999, we entered into an employment agreement with Mr. Loftus.
Under the terms of this agreement, Mr. Loftus receives a base salary of $16,667
per month and is 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 September 10, 1999 we entered into an employment agreement with Mr.
Johnson. The agreement is for one year and automatically renews unless Mr.
Johnson resigns or we terminate his employment. Under the terms of this
agreement, Mr. Johnson receives a base salary of $16,667 per month and is
eligible to receive a bonus of up to 30% of his annual salary. In connection
with his employment, Mr. Johnson has been granted stock options to purchase
100,000 shares of our common stock at a per share exercise price of $11.00. If
after one year we terminate Mr. Johnson's employment without cause he will be
entitled to payments equal to six months of his base salary. In addition, after
one year Mr. Johnson may resign and treat his resignation as a termination by
the Company without cause, upon the occurrence of any of the following events:
- His salary or bonus eligibility is materially reduced; or
- A change in control of Breakaway or sale of all or substantially all of
our assets.
On September 12, 1999 we entered into an employment agreement with Mr.
Sholley. The agreement is for one year and automatically renews unless Mr.
Sholley resigns or we terminate his employment. Under the terms of this
agreement, Mr. Sholley receives a base salary of $16,667 per month and is
eligible to receive a bonus of up to 30% of his annual salary. In connection
with his employment, Mr. Sholley has been granted stock options to purchase
110,000 shares of our common stock at a per share exercise price of $11.00. If
after one year we terminate Mr. Sholley's employment without cause he will be
entitled to payments equal to six months of his base salary. In addition, after
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one year Mr. Sholley may resign and treat his resignation as a termination by
the Company without cause, upon the occurrence of any of the following events:
- His salary or bonus eligibility is materially reduced; or
- A change in control of Breakaway or sale of all or substantially all of
our assets.
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 beneficially owns 50.1% of our common
stock, assuming the conversion of all shares of our preferred stock to common
stock. After this offering, Internet Capital Group will beneficially own 41.2%
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 96,969
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 up to 73,872 shares of our common stock at a
per share exercise price of $8.13, as adjusted from time to time. The warrant
expires on September 30, 2006. 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 six months of 1999, our total revenues derived from
engagements with Internet Capital Group and its affiliates were approximately
$190,000.
All of the above transactions with Internet Capital Group were approved
unanimously by our Board of Directors and were on terms no less favorable to us
than could be obtained from unaffiliated third parties.
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.
The holders of shares of our Series A Preferred are entitled to various
rights and preferences, including, without limitation, a dividend preference of
$0.11 per share, a liquidation preference upon liquidations and change of
control events of $1.42 per share and the right to vote together with the
holders of our Series B Preferred Stock to elect two directors to our Board of
Directors. In addition, each share of Series A Preferred Stock can be converted,
at the holder's option, into a share of our common stock. All shares of Series A
Preferred Stock will be automatically converted into common stock immediately
prior to the closing of this offering.
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.
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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, 1999. Other major investors in this transaction included GE
Equity, Intel Corporation, entities affiliated with Crosslink Capital, Inc.
(formerly known as Omega Venture Partners) and entities affiliated with Morgan
Stanley.
The holders of shares of our Series B Preferred are entitled to various
rights and preferences, including, without limitation, a dividend preference of
$0.52 per share, a liquidation preference upon liquidations and change of
control events of $6.50 per share and the right to vote together with the
holders of our Series A Preferred Stock to elect two directors to our Board of
Directors. In addition, each share of Series B Preferred Stock can be converted,
at the holder's option, into a share of our common stock. All shares of Series B
Preferred Stock will be automatically converted into common stock immediately
prior to the closing of this offering.
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 723,699 shares of our common stock to the former stockholders of
Applica, including:
- 96,969 shares to Internet Capital Group;
- 165,615 shares to our Vice President, Corporate Development, Babak
Farzami; and
- 124,212 shares to our Vice President, Application Hosting Services, Dev
Ittycheria.
36,184 shares of our common stock are being held in escrow to secure
indemnification obligations to Breakaway under the agreement.
Immediately before the closing of this transaction, neither Mr. Farzami nor
Mr. Ittycheria was affiliated with Breakaway.
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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 1,364,140 shares of
our common stock, of which $3,399,905 in cash and 927,616 shares were issued to
William Loftus and $999,972 in cash and 272,828 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.
356,774 of the shares of common stock issued to William Loftus and 104,933
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 342,504 shares of our
common stock, in the case of William Loftus, and 100,736 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 4,226 shares of our common
stock at a per share exercise price of $2.36;
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- John Loftus, Sr.'s option became exercisable for 4,226 shares of our
common stock at a per share exercise price of $2.36; and
- Veena Loftus' option became exercisable for 8,452 shares of our common
stock at a per share exercise price of $2.36.
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 beneficially owns 21.4%
of our common stock. After this offering, Mr. Selldorff will beneficially own
17.7% of our common stock.
On May 26, 1999, Mr. Selldorff exercised a stock option to purchase 600,000
shares of common stock at a per share purchase price of $0.68 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 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 2,523,600
shares of our common stock at a per share repurchase price of $1.78, including
2,278,800 shares from Frank Selldorff and 120,000 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 9.1% of our common stock. After this offering, Mr.
Brooks will beneficially own 14.1% of our common stock. On March 5, 1999, Mr.
Brooks exercised a stock option to purchase 56,469 shares of common stock at a
per share purchase price of $1.78.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with all of our executive
officers. See "Executive Compensation--Employment Agreements."
STOCK OPTIONS
We have issued options under our 1998 Stock Plan and 1999 Stock Incentive
Plan to purchase an aggregate of 6,165,665 shares of our common stock to our
directors and executive officers at a per share weighted average exercise price
of $1.98. In addition, effective March 19, 1999 we issued to Thomas Harding, a
member of Christopher Harding's immediate family, an option to purchase 12,000
shares of common stock at a per share exercise price of $1.96.
AFFILIATE TRANSACTION POLICY
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)................................. 7,065,337 50.4% 43.3%(2)
Internet Capital Group, Inc.(3) ............................ 6,981,337 50.1 41.2
Walter W. Buckley, III(4)................................... 6,981,337 50.1 41.2
William Loftus.............................................. 927,616 6.7 5.5
Frank Selldorff(5).......................................... 3,697,200 24.5 20.5
Gordon Brooks(6)............................................ 1,354,300 9.1 14.1(7)
OTHER DIRECTORS AND EXECUTIVE OFFICERS:
Patricia Purcell............................................ 0.0 0.0 0.0
All executive officers and directors as a group (12 persons,
including one former executive officer)(8)................ 13,428,084 80.8 71.3(9)
</TABLE>
- ------------------------
(1) Consists of 84,000 shares subject to outstanding stock options which are
exercisable within the 60-day period following July 15, 1999 and 6,981,337
shares beneficially owned 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 554,400 shares subject to outstanding stock options which vest in
full upon the closing of this offering.
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(3) Includes 73,872 shares issuable upon the exercise of a warrant. The address
of Internet Capital Group, Inc. is 800 The Safeguard Building, 435 Devon
Park Drive, Wayne, Pennsylvania 19087.
(4) Consists of 6,981,337 shares beneficially owned 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 1,200,000 shares subject to outstanding stock options which are
exercisable within the 60-day period following July 15, 1999.
(6) Includes 1,297,830 shares subject to outstanding stock options which are
exercisable within the 60-day period following July 15, 1999.
(7) Includes 1,376,325 shares subject to outstanding stock options which vest in
full upon the closing of this offering.
(8) Includes an aggregate of 2,675,633 shares subject to outstanding stock
options which are exercisable within the 60-day period following July 15,
1999. Also includes 73,872 shares issuable upon the exercise of a warrant
held by Internet Capital Group and 6,907,465 shares held by Internet Capital
Group, all of which are attributable to two of our directors.
(9) Includes an aggregate of 1,930,725 shares subject to outstanding stock
options which vest in full upon the closing of this offering.
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DESCRIPTION OF CAPITAL STOCK
After this offering, the authorized capital stock of Breakaway will consist
of 80,000,000 shares of common stock, $0.000125 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:
- 6,837,998 shares of common stock held by 48 stockholders of record;
- options to purchase an aggregate of 7,157,498 shares of our common stock
with a weighted average per share exercise price of $1.79; and
- a warrant to purchase up to 73,872 shares of our common stock at a per
share exercise price of $8.13.
Except as otherwise indicated, the following information 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.
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
additional 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
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combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the 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 7,112,661 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
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with respect to our shares of common stock, and we are required to use our best
efforts to effect that registration. Further, holders may require us to file an
unlimited number of additional registration statements on Form S-3. 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. We
will bear all of the expenses incurred in connection with all exercises of these
registration rights, other than expenses incurred in connection with requested
registrations on Form S-3 after the fourth request. We do not expect that the
expenses we will incur in connection with any exercise of these registration
rights will exceed the expenses customarily incurred by companies registering
their securities. If the holders of registration rights request that we withdraw
a requested registration statement, those holders will bear the expenses of that
registration.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is BankBoston, N.A.
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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 of common stock
outstanding at June 30, 1999, there will be 16,865,877 shares of our common
stock outstanding (assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options or warrants to purchase common
stock). Of these outstanding shares, the 3,000,000 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 13,865,877 shares of common stock outstanding after this
offering are deemed "restricted securities" under Rule 144. Of these shares,
approximately 13,769,297 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 1,620,168
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.
Stockholders holding of record an aggregate of approximately 13,769,297
shares of common stock, including approximately 3,771,114 shares held of record
by our executive officers and directors (but excluding 9,656,970 shares
beneficially held but not held of record by such officers and directors), 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 168,658
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 400,000 shares of common stock
issuable under the purchase plan promptly following the date of this prospectus
and intend to file registration statements on Form S-8 relating to the aggregate
of 12,920,268 shares of common stock
58
<PAGE>
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.
WARRANTS
Upon the closing of this offering, there will be a warrant outstanding to
purchase 73,872 shares of common stock at a per share exercise price of $8.13.
On May 13, 2000, any shares purchased pursuant to the "cashless exercise"
feature of this outstanding warrant may be sold, subject to the requirements of
Rule 144. In addition, there will be another warrant outstanding to purchase
10,909 shares of common stock at a per share exercise price of $11.00. On
September 29, 2000, any shares purchased pursuant to the "cashless exercise"
feature of this outstanding warrant may be sold, subject to the requirements of
Rule 144.
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.
59
<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 Deutsche Bank Securities, 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..................................................................................
Deutsche Bank Securities, Inc........................................................................
----------
Total.............................................................................................. 3,000,000
----------
----------
</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 450,000
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 $1.25 million.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to eight 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.
Breakaway, 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.
60
<PAGE>
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 123,122
shares of common stock, for approximately $1,000,000, or $6.50 per share. These
shares will be subject to restrictions on transfer for a period of one year
after the date of this prospectus. 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
61
<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 investment partnership comprised of partners and senior executives 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, LLP 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, LLP 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, LLP and Arthur Andersen
LLP and through the periods prior to each of their replacement, we had no
disagreements with either of
62
<PAGE>
Brown & Brown, LLP 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, LLP
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 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.
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.
63
<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 June 30, 1999 (unaudited).............................. F-3
Statements of Operations for the years ended December 31, 1996, 1997 and 1998 and for the F-4
six months ended June 30, 1998 and 1999 (unaudited)......................................................
Statements of Stockholders' Equity for the years ended December 31, 1996, 1997 and 1998 and for the six F-5
months ended June 30, 1999 (unaudited)...................................................................
Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 and for the six months ended F-6
June 30, 1998 and 1999 (unaudited).......................................................................
Notes to Financial Statements.............................................................................. F-7
FINANCIAL STATEMENTS OF APPLICA CORPORATION
Independent Auditors' Report............................................................................... F-19
Balance Sheet as of December 31, 1998...................................................................... F-20
Statement of Operations from September 24, 1998 (inception) through December 31, 1998...................... F-21
Statement of Stockholders' Equity from September 24, 1998 (inception) through December 31, 1998............ F-22
Statement of Cash Flows from September 24, 1998 (inception) through December 31, 1998...................... F-23
Notes to Financial Statements.............................................................................. F-24
FINANCIAL STATEMENTS OF WPL LABORATORIES, INC.
Independent Auditors' Report............................................................................... F-27
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (unaudited)............................. F-28
Statements of Income for the years ended December 31, 1997 and 1998 and for the three months ended March F-29
31, 1998 and 1999 (unaudited)............................................................................
Statements of Stockholders' Equity for the years ended December 31, 1997 and 1998 and for the three months F-30
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-31
March 31, 1998 and 1999 (unaudited)......................................................................
Notes to Financial Statements.............................................................................. F-32
FINANCIAL STATEMENTS OF WEB YES, INC.
Independent Auditors' Report............................................................................... F-37
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (unaudited)................ F-38
Consolidated Statements of Income for the years ended December 31, 1997 and 1998 and for the three months F-39
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-40
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-41
months ended March 31, 1998 and 1999 (unaudited).........................................................
Notes to Consolidated Financial Statements................................................................. F-42
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS FOR BREAKAWAY SOLUTIONS, INC.
Basis of Presentation...................................................................................... F-47
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1999......................................... F-48
Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 1998 and for the F-49
six months ended June 30, 1999...........................................................................
Notes to Unaudited Pro Forma Consolidated Financial Statements............................................. F-51
</TABLE>
F-1
<PAGE>
When the transactions referred to in note 13 of the notes to the financial
statements have been consummated, we will be in a position to render the
following report:
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 and note 13
which is as of __________
F-2
<PAGE>
BREAKAWAY SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1997 1998 1999
---------- ---------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 879,136 $ 16,954 $ 1,808,083
Accounts receivable, net of allowance for doubtful accounts of
$65,000, $131,000 and $322,727 in 1997, 1998 and 1999,
respectively...................................................... 960,830 1,445,994 2,812,183
Unbilled revenues on contracts...................................... 232,258 625,609 1,536,768
Prepaid expenses.................................................... 27,858 46,211 74,878
Deferred offering costs............................................. -- -- 240,835
Advances to employees............................................... -- 13,273 17,700
---------- ---------- ------------
Total current assets.............................................. 2,100,082 2,148,041 6,490,447
Property and equipment, net........................................... 397,102 553,566 2,362,121
Intangible assets..................................................... -- -- 14,407,080
Other assets.......................................................... 35,726 40,877 125,673
---------- ---------- ------------
Total assets...................................................... $2,532,910 $2,742,484 $23,385,321
---------- ---------- ------------
---------- ---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit...................................................... $ -- $ 425,743 --
Note payable to stockholder......................................... -- -- $ 4,000,000
Notes payable....................................................... -- -- 143,185
Long-term debt--current portion..................................... 10,417 -- --
Capital lease obligation--current portion........................... 181,042 148,391 283,507
Accounts payable.................................................... 246,060 814,074 1,170,119
Accrued compensation and related benefits........................... 84,349 178,191 788,884
Accrued expenses.................................................... -- -- 1,156,080
Deferred revenue on contracts....................................... -- 196,225 78,723
Deferred tax liability--current portion............................. -- -- 188,750
Stockholder distributions payable................................... 434,843 -- --
---------- ---------- ------------
Total current liabilities......................................... 956,711 1,762,624 7,809,248
Due to stockholders................................................... -- -- 2,174,997
Capital lease obligation--long-term portion........................... 84,368 67,040 60,319
Deferred tax liability................................................ -- -- 566,250
---------- ---------- ------------
Total long-term liabilities....................................... 84,368 67,040 2,801,566
---------- ---------- ------------
Total liabilities................................................. 1,041,079 1,829,664 10,610,814
---------- ---------- ------------
Commitments and contingencies
Stockholders' equity:
Series A preferred stock $.0001 par value, 5,853,000 shares
authorized at December 31, 1998 and June 30, 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 $.000125 par value, 80,000,000 shares authorized,
7,680,000 shares issued in 1997 and 1998 and 8,393,198 shares
issued in 1999, 6,412,800, 6,124,800 and 6,837,998 shares
outstanding in 1997, 1998 and 1999, respectively.................. 960 960 1,049
Additional paid-in capital.......................................... -- -- 15,579,982
Less: deferred compensation......................................... -- -- (289,112)
Less: Treasury stock, at cost....................................... (26) (32) (32)
Retained earnings (deficit)......................................... 1,490,897 911,892 (2,517,965)
---------- ---------- ------------
Total stockholders' equity........................................ 1,491,831 912,820 12,774,507
---------- ---------- ------------
Total liabilities and stockholders' equity........................ $2,532,910 $2,742,484 $23,385,321
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
BREAKAWAY SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------------------- ---------------------------
<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 $ 4,728,687 $ 7,562,659
Operating expenses:
Project personnel costs................ 1,429,952 2,543,147 5,903,843 2,595,602 3,617,150
Selling, general and administrative
expenses............................. 1,368,120 2,559,328 4,814,288 1,777,056 6,461,521
------------ ------------ ------------- ------------ -------------
Total operating expenses............. 2,798,072 5,102,475 10,718,131 4,372,658 10,078,671
------------ ------------ ------------- ------------ -------------
Income (loss) from operations........ 664,062 1,015,583 (700,184) 356,029 (2,516,012)
Other income (expense):
Other income (expense)................. -- -- 160,000 -- (7,494)
Interest income........................ 3,684 92,823 11,191 10,682 59,510
Interest expense....................... (28,557) (32,725) (43,127) (9,361) (53,969)
Loss on disposal of equipment.......... (20,780) (2,030) (3,055) -- --
------------ ------------ ------------- ------------ -------------
Total other income (expense)......... (45,653) 58,068 125,009 1,321 (1,953)
------------ ------------ ------------- ------------ -------------
Net income (loss).................... $ 618,409 $ 1,073,651 $ (575,175) $ 357,350 $ (2,517,965)
------------ ------------ ------------- ------------ -------------
------------ ------------ ------------- ------------ -------------
Net income (loss) per share--basic and
diluted................................ $ 0.09 $ 0.17 $ (0.09) $ 0.06 $ (0.55)
Weighted average common shares
outstanding............................ 6,641,306 6,412,800 6,340,208 6,412,800 4,587,307
Pro forma information (unaudited)
(note 9):
Income (loss) before taxes, as
reported............................. $ 618,409 $ 1,073,651 $ (575,175) $ 357,350 $ (2,517,965)
Pro forma income taxes (benefit)....... 247,364 429,460 (195,560) 142,940 (856,108)
------------ ------------ ------------- ------------ -------------
Pro forma net income (loss).......... $ 371,045 $ 644,191 $ (379,615) $ 214,410 $ (1,661,857)
------------ ------------ ------------- ------------ -------------
------------ ------------ ------------- ------------ -------------
Pro forma net income (loss) per
share--basic and diluted............... $ 0.06 $ 0.10 $ (0.06) $ 0.03 $ (0.36)
Pro forma weighted average shares
outstanding............................ 6,641,306 6,412,800 6,340,208 6,412,800 4,587,307
</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
----------------- ------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
--------- ------ ---------- ------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995... -- $ -- 7,680,000 $960 $ -- $ --
Purchase of treasury
stock.................... -- -- -- -- -- --
Distributions to
stockholders............. -- -- -- -- -- --
Net income................. -- -- -- -- -- --
--------- ------ ---------- ------ ----------- --------------
Balance, December 31, 1996... -- -- 7,680,000 960 -- --
Distributions to
stockholders............. -- -- -- -- -- --
Net income................. -- -- -- -- -- --
--------- ------ ---------- ------ ----------- --------------
Balance, December 31, 1997... -- -- 7,680,000 960 -- --
Purchase of treasury
stock.................... -- -- -- -- -- --
Distributions to
stockholders............. -- -- -- -- -- --
Net loss................... -- -- -- -- -- --
--------- ------ ---------- ------ ----------- --------------
Balance, December 31, 1998... -- -- 7,680,000 960 -- --
S Corporation
termination.............. -- -- -- -- 911,892 --
Issuance of preferred
stock.................... 5,853,000 585 -- -- 8,291,360 --
Repurchase and retirement
of common stock.......... -- -- (2,523,600) (315) (4,468,665) --
Issuance of common stock
for acquired
businesses............... -- -- 2,544,747 318 9,192,467 --
Issuance of stock options
in connection with
acquisition.............. -- -- -- -- 763,402 --
Issuance of stock options
for services rendered.... -- -- -- -- 93,250 --
Issuance of common shares
for services............. -- -- 35,582 4 289,108 --
Exercise of stock options.. -- -- 656,469 82 507,168 --
Net loss................... -- -- -- -- -- --
--------- ------ ---------- ------ ----------- --------------
Balance, June 30, 1999
(Unaudited)................ 5,853,000 $585 8,393,198 1$,049 $15,579,982 $ (289,112)
--------- ------ ---------- ------ ----------- --------------
--------- ------ ---------- ------ ----------- --------------
<CAPTION>
TREASURY STOCK RETAINED TOTAL
--------------------- EARNINGS STOCKHOLDERS'
SHARES AMOUNT (DEFICIT) EQUITY
------------ ------ ---------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995... -- $ -- $ 330,815 $ 331,775
Purchase of treasury
stock.................... 1,267,200 (26) -- (26)
Distributions to
stockholders............. -- -- (1,841) (1,841)
Net income................. -- -- 618,409 618,409
------------ ------ ---------- -------------
Balance, December 31, 1996... 1,267,200 (26) 947,383 948,317
Distributions to
stockholders............. -- -- (530,137) (530,137)
Net income................. -- -- 1,073,651 1,073,651
------------ ------ ---------- -------------
Balance, December 31, 1997... 1,267,200 (26) 1,490,897 1,491,831
Purchase of treasury
stock.................... (288,000) (6) -- (6)
Distributions to
stockholders............. -- -- (3,830) (3,830)
Net loss................... -- -- (575,175) (575,175)
------------ ------ ---------- -------------
Balance, December 31, 1998... (1,555,200) (32) 911,892 912,820
S Corporation
termination.............. -- -- (911,892) --
Issuance of preferred
stock.................... -- -- -- 8,291,945
Repurchase and retirement
of common stock.......... -- -- -- (4,468,980)
Issuance of common stock
for acquired
businesses............... -- -- -- 9,192,785
Issuance of stock options
in connection with
acquisition.............. -- -- -- 763,402
Issuance of stock options
for services rendered.... -- -- -- 93,250
Issuance of common shares
for services............. -- -- -- --
Exercise of stock options.. -- -- -- 507,250
Net loss................... -- -- (2,517,965) (2,517,965)
------------ ------ ---------- -------------
Balance, June 30, 1999
(Unaudited)................ (1,555,200) $(32) $(2,517,965) $12,774,507
------------ ------ ---------- -------------
------------ ------ ---------- -------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
BREAKAWAY SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------------- ------------------------
<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) $ 357,350 $(2,517,965)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 46,484 254,217 332,994 123,208 528,168
Loss on disposal of fixed assets..................... 20,780 2,030 3,055 -- --
Compensation expense for issuance of common stock
options............................................ -- -- -- -- 93,250
Changes in operating assets and liabilities, net of
impact of acquisition of business:
Accounts receivable................................ (361,107) (471,676) (485,164) (1,153,859) (434,236)
Unbilled revenues on contracts..................... -- -- (393,351) -- (911,159)
Inventory.......................................... 12,831 -- -- -- --
Prepaid and other assets........................... (47,046) 69,096 (18,353) (114,596) (275,305)
Accounts payable................................... (39,707) 222,239 568,014 (46,855) 158,222
Accrued compensation and related benefits.......... -- 63,387 93,842 230,113 495,140
Accrued expenses................................... 1,500 -- -- 43,966 376,048
Deferred revenue on contracts...................... (77,070) -- 196,225 35,391 (117,502)
--------- ---------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities..................................... 175,074 1,212,944 (277,913) (525,282) (2,605,339)
--------- ---------- ----------- ----------- -----------
Cash flows from investing activities:
Cash paid for acquired businesses net of cash
acquired......................................... -- -- -- -- (2,103,165)
Purchases of property and equipment................ (18,950) (132,937) (502,461) (172,452) (1,396,557)
Proceeds from disposal of fixed assets............. -- 13,200 9,948 -- --
--------- ---------- ----------- ----------- -----------
Net cash used in investing activities............ (18,950) (119,737) (492,513) (172,452) (3,499,722)
--------- ---------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock............ -- -- -- -- 8,291,945
Proceeds from exercise of stock options.............. -- -- -- -- 507,250
Notes payable to stockholder......................... -- -- -- -- 4,000,000
Notes payable........................................ -- -- -- -- 1,556
Repurchase and retirement of common stock............ -- -- -- -- (4,468,980)
Advances to employees................................ -- -- (13,273) (87,882) (4,427)
Repayments of advances to employees.................. 163 -- -- -- --
Payments on current portion of long-term debt........ -- -- (10,417) (10,417) --
Proceeds from (repayments of) credit line............ (125,000) -- 425,743 330,000 (280,942)
(Increase) decrease in other assets.................. (216) (18,211) (5,151) 35,726 --
Distributions to stockholders........................ (1,841) (95,750) (438,673) (438,673) --
Repurchase of treasury stock......................... (26) -- (6) (6) --
Payments of capital lease obligations................ (38,813) (184,224) (49,979) (9,110) (150,212)
--------- ---------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities..................................... (165,733) (298,185) (91,756) (180,362) 7,896,190
--------- ---------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.................................... (9,609) 795,022 (862,182) (878,096) 1,791,129
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 $ 1,040 $ 1,808,083
--------- ---------- ----------- ----------- -----------
--------- ---------- ----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest............................... $ 28,557 $ 32,725 $ 43,127 $ 6,337 $ 35,587
--------- ---------- ----------- ----------- -----------
--------- ---------- ----------- ----------- -----------
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 businesses.......................... $ -- $ -- $ -- $ -- $ 9,192,785
--------- ---------- ----------- ----------- -----------
--------- ---------- ----------- ----------- -----------
Acquisition of businesses:
Assets acquired...................................... $ -- $ -- $ -- $ -- $16,358,192
Liabilities assumed and issued....................... -- -- -- -- (4,298,840)
Common stock and stock options issued................ -- -- -- -- (9,956,187)
--------- ---------- ----------- ----------- -----------
Net cash paid for acquisition of businesses...... $ -- $ -- $ -- $ -- $(2,103,165)
--------- ---------- ----------- ----------- -----------
--------- ---------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
AND JUNE 30, 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.
DEFERRED OFFERING COSTS
Deferred offering costs, which are specific incremental costs directly
attributable to a planned initial public offering, have been capitalized and
will be charged against the proceeds of the offering.
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 JUNE 30, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets relate to the Company's purchase of its wholly owned
subsidiaries: Applica Corporation, in March 1999, WPL Laboratories, Inc. in May
1999, and Web Yes, Inc. in June 1999, (see Note 11). Such costs are being
amortized on a straight-line basis over three to 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"),
F-8
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND JUNE 30, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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; 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 six months ended June 30, 1999, common stock equivalents of
674,474 for the year ended December 31, 1998 and 796,255 for the six months
ended June 30, 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 June 30, 1999 and for the six months ended
June 30, 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 JUNE 30, 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 Preferred Stock. The Series A Preferred Stock is entitled to receive
dividends at a rate of $.1136 per share, as and if declared. The Series A
Preferred Stock is voting and is convertible into shares of common stock at a
conversion rate of five shares of Series A Preferred Stock for four shares of
common stock, 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 $1.41667 per share. The Series A 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 8,120,268 shares. The
Stock Plan
F-10
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND JUNE 30, 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>
SIX MONTHS ENDED
JUNE 30, 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..................... -- $ -- 4,794,235 $1.25
Granted.............................................. 4,896,703 1.24 3,091,319 2.36
Exercised............................................ -- -- (656,469) 0.78
Forfeited............................................ (102,468) 0.76 (71,587) 0.69
--------- ---------
Outstanding at end of period........................... 4,794,235 1.25 7,157,498 1.79
--------- ---------
--------- ---------
Options exercisable at period end...................... 2,088,504 2,031,728
--------- ---------
--------- ---------
</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>
$ 0.68 2,221,195 9.5 years 1,460,004 $ 0.68
1.01 103,920 9.75 years 16,800 1.01
1.79 2,469,120 10 years 611,700 1.79
----------- ----------
4,794,235 9.76 years 2,088,504 $ 1.00
----------- ----------
----------- ----------
</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 JUNE 30, 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>
SIX MONTHS ENDED
JUNE 30, 1999
YEAR ENDED ----------------
DECEMBER 31, 1998
----------------- (UNAUDITED)
<S> <C> <C>
Net loss:
As reported........................................... $ (575,175) $ (2,517,965)
Pro forma............................................. (686,864) (2,846,968)
Loss per share:
As reported........................................... $ (0.07) $ (0.55)
Pro forma............................................. (0.09) (0.62)
</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 $240,447 and $510,239 for the six
months ended June 30, 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 JUNE 30, 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>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE
30,
------------------------------------- -----------
<S> <C> <C> <C> <C>
1996 1997 1998 1998
----- ----- ----- -----
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A..................................................................... -- 19% 27% 25%
Customer B..................................................................... 13% 10 -- --
Customer C..................................................................... 18 13 -- --
Customer D..................................................................... -- -- -- 16
Customer E..................................................................... -- -- -- --
<CAPTION>
<S> <C>
1999
-----
<S> <C>
Customer A..................................................................... 25%
Customer B..................................................................... --
Customer C..................................................................... --
Customer D..................................................................... --
Customer E..................................................................... 11
</TABLE>
F-13
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND JUNE 30, 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>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
Federal tax........................................ $ 210,259 $ 365,042 $ (195,560) $ 121,499 $ (856,108)
State taxes, net of federal........................ 37,105 64,418 -- 21,441 --
---------- ---------- ----------- ---------- -----------
$ 247,364 $ 429,460 $ (195,560) $ 142,940 $ (856,108)
---------- ---------- ----------- ---------- -----------
---------- ---------- ----------- ---------- -----------
</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.
On June 30, 1999, as a result of the acquisitions of Applica Corporation,
WPL Laboratories, Inc., and Web Yes, Inc., the Company has recorded a net tax
liability of $755,000. The net deferred tax liability is primarily attributable
to liabilities arising from cash-to-accrual conversion and the recording of
certain intangible assets offset by assets relating to net operating losses.
10. OPERATING SEGMENTS
Historically, the Company has operated in a single segment. With the
acquisitions of Applica Corporation and Web Yes, Inc., the Company expanded its
operations to include a second segment, application and web hosting. Revenues
from application and web hosting services amounted to $36,056 for the six months
ended June 30, 1999. Total assets related to the application and web hosting
business
F-14
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND JUNE 30, 1999 (UNAUDITED)
10. OPERATING SEGMENTS (CONTINUED)
are approximately $6,300,000 as of June 30, 1999, of which approximately
$5,500,000 represents intangible assets.
11. SUBSEQUENT EVENTS
SERIES A PREFERRED STOCK FINANCING
In January 1999, the Company issued 5,853,000 shares of Series A 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: 723,699 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, 1,364,140 shares of common stock and the assumption of
all outstanding WPL stock options, which became exercisable for 314,804
shares of the Company's common stock at an exercise price of $2.36 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, in July 1999 the Company
F-15
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND JUNE 30, 1999 (UNAUDITED)
11. SUBSEQUENT EVENTS (CONTINUED)
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.
- 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 456,908 shares of common
stock. Of the shares of common stock issued to the former Web Yes
stockholders, 342,680 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.
In addition, the Company issued 35,583 shares of common stock to
employees of Web Yes, Inc. The common stock is subject to restrictions
relating to employment. As a result, the fair value of the stock issued
has been recorded as deferred compensation and will be recognized as
compensation expense over the restriction period of four years.
RELATED PARTY TRANSACTIONS
On January 6, 1999, Internet Capital Group ("ICG"), holder of the Company's
Series A Preferred Stock, entered into an Option Agreement with the Company's
Chief Executive Officer. The Option Agreement grants the Chief Executive Officer
the right to purchase all or part of an aggregate of 284,195 shares of the
Series A Preferred Stock owned by ICG at an exercise price of $1.42. The option
vested immediately and expires seven years after the date of grant.
In May 1999, ICG provided $4,000,000 in advances which were converted into
equity in July, 1999. In connection with this transaction, the Company issued
ICG a warrant to purchase 73,872 shares of common stock at an exercise price of
$8.13 per share. During 1999 the Company provided information technology
consulting services to companies in which ICG holds equity interests ("ICG
Partner Companies"). For the six months ended June 30, 1999, revenues generated
for services provided to ICG Partner Companies amounted to approximately
$190,000.
SERIES B PREFERRED STOCK
In July 1999, the Company issued 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 $0.52 per share as and if declared.
The Series B Preferred Stock is voting and is convertible into shares of common
stock at a conversion rate of five shares of Series B Preferred Stock for four
shares of common stock, 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.
F-16
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND JUNE 30, 1999 (UNAUDITED)
11. SUBSEQUENT EVENTS (CONTINUED)
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 4,800,000 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 400,000 shares of common stock
to participating employees.
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>
BREAKAWAY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
AND JUNE 30, 1999 (UNAUDITED)
12. PURCHASE PRICE ALLOCATION (UNAUDITED)
In August 1999 the Company finalized the allocation of the tangible and
intangible assets of the Acquired Companies. As a result, the excess of purchase
price over the fair value of tangible assets and liabilities has been recorded
as intangible assets, as follows:
<TABLE>
<CAPTION>
APPLICA WPL WEB YES
------------ ------------ ------------
<S> <C> <C> <C>
Purchase consideration:
Cash............................................................. -- $ 4,674,997 $ 188,075
Issuance of common stock......................................... $ 1,417,998 4,825,811 3,712,378
------------ ------------ ------------
Total purchase consideration................................. 1,417,998 9,500,808 3,900,453
Direct cost of acquisition......................................... 159,159 105,654 179,210
------------ ------------ ------------
Total purchase price......................................... $ 1,577,157 $ 9,606,462 $ 4,079,663
------------ ------------ ------------
------------ ------------ ------------
Tangible assets and liabilities:
Cash and cash equivalents........................................ $ 147,422 $ 238,242 $ 11,171
Accounts receivable.............................................. -- 791,980 139,973
Prepaid expense.................................................. 20,429 -- --
Property and equipment........................................... 290,410 166,202 190,700
Other assets..................................................... 7,332 16,934 34,298
Notes payable.................................................... (141,629) -- --
Accounts payable................................................. (151,102) (35,751) (10,970)
Accrued expenses................................................. (33,679) (196,728) (33,080)
Deferred tax liability........................................... -- (567,000) (188,000)
Capital leases................................................... -- -- (133,806)
------------ ------------ ------------
Net tangible assets............................................ $ 139,183 $ 413,879 $ 10,286
Intangible assets:
Customer base.................................................... -- $ 1,037,000 $ 426,000
Workforce in place............................................... $ 201,000 445,000 206,000
------------ ------------ ------------
Goodwill......................................................... 1,236,974 7,710,583 3,437,377
------------ ------------ ------------
Total intangible assets...................................... 1,437,974 9,192,583 4,069,377
------------ ------------ ------------
Total purchase price......................................... $ 1,577,157 $ 9,606,462 $ 4,079,663
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Intangible assets will be amortized over the useful lives of three years for
both assembled workforce and customer base and five years for goodwill.
13. AUTHORIZED SHARE INCREASE AND STOCK SPLIT
In July 1999 the Board of Directors approved an increase in the number of
authorized common shares from 20,000,000 to 80,000,000, and is expected to
approve, in September 1999, a four-for-five stock split. All share data shown in
the accompanying financial statements have been retroactively restated to
reflect this stock split.
F-18
<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-19
<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 $0.001 par value, 5,000,000 shares authorized, 500,000 shares
issued and outstanding (liquidation preference of $500,000)................... 500,000
Common stock $0.001 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-20
<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-21
<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-22
<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-23
<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-24
<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 $0.05 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-25
<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
723,699 shares of Breakaway common stock issued in exchange for all of the
outstanding shares of the Company's common stock.
F-26
<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-27
<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 $0.01 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-28
<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
Selling, general and administrative.................... 232,040 534,235 64,604 95,418
------------ ------------ ------------ ------------
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-29
<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-30
<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-31
<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 $0.01 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-32
<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-33
<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-34
<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
YEARS ENDED MONTHS
DECEMBER ENDED MARCH
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 0.5%. Borrowings under
F-35
<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, 1,364,140
shares of common stock and the assumption of all outstanding WPL stock options,
which became exercisable for 314,804 shares of the Company's common stock at an
exercise price of $2.98 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-36
<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-37
<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-38
<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.................... $ (0.42) $ (0.37) $ 1.52 $ 0.04
Weighted average shares outstanding............................... 13,395 223,452 13,595 691,897
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<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-40
<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-41
<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-42
<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-43
<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
$1.00 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-44
<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-45
<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-46
<PAGE>
BREAKAWAY SOLUTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated statements of operations 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) as if they had occurred on
January 1, 1998. The unaudited pro forma consolidated balance sheet gives effect
to the issuance of the Company's Series B Preferred Stock as if it had occurred
on June 30, 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 estimate of fair value with any
excess purchase price being allocated to goodwill or other identifiable
intangible assets. 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-47
<PAGE>
BREAKAWAY SOLUTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
BREAKAWAY SERIES B
SOLUTIONS, FINANCING PRO FORMA
INC. ADJUSTMENT (1) CONSOLIDATED
------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................................. $ 1,808,083 $ 15,057,019(a) $16,865,102
Accounts receivable, net............................................... 2,812,183 -- 2,812,183
Unbilled revenues on contracts......................................... 1,536,768 -- 1,536,768
Prepaid expenses....................................................... 74,878 -- 74,878
Deferred offering costs................................................ 240,835 -- 240,835
Advances to employees.................................................. 17,700 -- 17,700
------------- -------------- ------------
Total current assets................................................. 6,490,447 15,057,019 21,547,466
Property and equipment, net.............................................. 2,362,121 -- 2,362,121
Intangible assets........................................................ 14,407,080 -- 14,407,080
Other assets............................................................. 125,673 -- 125,673
------------- -------------- ------------
Total assets......................................................... $23,385,321 $ 15,057,019 $38,442,340
------------- -------------- ------------
------------- -------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to stockholder............................................ $ 4,000,000 (4,000,000)(a) --
Notes payable.......................................................... 143,185 -- 143,185
Capital lease obligation--current portion.............................. 283,507 -- 283,507
Accounts payable....................................................... 1,170,119 -- 1,170,119
Accrued compensation and related benefits.............................. 788,884 -- 788,884
Accrued expenses....................................................... 1,156,080 -- 1,156,080
Deferred revenue on contracts.......................................... 78,723 -- 78,723
Deferred tax liability-current portion................................. 188,750 -- 188,750
------------- -------------- ------------
Total current liabilities............................................ 7,809,248 (4,000,000) 3,809,248
Capital lease obligation--long-term portion.............................. 60,319 -- 60,319
Due to stockholders...................................................... 2,174,997 -- 2,174,997
Deferred tax liability................................................... 566,250 -- 566,250
------------- -------------- ------------
Total long-term liabilities.......................................... 2,801,566 -- 2,801,566
------------- -------------- ------------
Total liabilities.................................................... 10,610,814 (4,000,000) 6,610,814
Commitments and contingencies
Stockholders' equity:
Series A preferred stock............................................... 585 -- 585
Series B preferred stock............................................... 293(a) 293
Common stock........................................................... 1,049 -- 1,049
Additional paid-in-capital............................................. 15,579,982 19,056,726(a) 34,636,708
Less: deferred compensation............................................ (289,112) -- (289,112)
Less: treasury stock................................................... (32) -- (32)
Retained earnings (deficit)............................................ (2,517,965) -- (2,517,965)
------------- -------------- ------------
Total stockholders' equity........................................... 12,774,507 19,057,019 31,831,526
------------- -------------- ------------
Total liabilities and stockholders' equity........................... $23,385,321 $ 15,057,019 $38,442,340
------------- -------------- ------------
------------- -------------- ------------
</TABLE>
- ------------------------------
(1) See Note 1 to unaudited pro forma consolidated financial statements.
F-48
<PAGE>
BREAKAWAY SOLUTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 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......................... $ 7,562,659 $ 400 $ 1,678,539 $ 289,488 $ -- $ 9,531,086
Operating expenses:
Project personnel costs........ 3,617,150 175,000 721,058 73,966 -- 4,587,174
Direct project costs........... -- -- -- 36,609 -- 36,609
Selling, general and admin
expenses..................... 6,479,874 152,238 631,273 54,150 1,149,798(a) 8,467,333
------------- ----------- ------------ ---------- ------------------ -------------
Total operating expenses..... 10,097,024 327,238 1,352,331 164,725 1,149,798 13,091,116
------------- ----------- ------------ ---------- ------------------ -------------
Income (loss) from operations.... (2,534,365) (326,838) 326,208 124,763 (1,149,798) (3,560,030)
Other income (expense):
Other income (expense)......... (7,494) -- -- 14,438 -- (21,932)
Interest income................ 59,510 -- 2,516 29 -- 62,055
Interest expense............... (35,616) -- -- (454) (76,125) (b) (112,195)
------------- ----------- ------------ ---------- ------------------ -------------
Total other income
(expense).................. 16,400 -- 2,516 (14,863) -- (72,072)
------------- ----------- ------------ ---------- ------------------ -------------
Net income (loss)................ $(2,517,965) $ (326,838) $ 328,724 $ 109,900 $ (1,225,923) $ (3,632,102)
------------- ----------- ------------ ---------- ------------------ -------------
------------- ----------- ------------ ---------- ------------------ -------------
Net income (loss)
per share--basic
and diluted.................... $ (0.55) $ (0.57)
Weighted average shares
outstanding.................... 4,587,307 6,379,509
Pro forma income information:
Income (loss) before taxes..... $(2,517,965) $ (3,632,102)
Income taxes(benefit).......... (856,108) (1,234,915)
------------- -------------
Net Income................... $(1,661,857) $ (2,397,187)
------------- -------------
------------- -------------
Net loss per share............... $ (0.36) $ (0.38)
</TABLE>
- ------------------------
(1) See Note 2 to unaudited pro forma consolidated financial statements.
F-49
<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(c) 8,454,677
Direct project costs............ -- -- -- 38,750 -- 38,750
Other direct costs.............. -- -- -- 111,650 -- 111,650
Selling, general and admin
expenses...................... 4,814,288 36,979 534,235 214,238 2,939,987(a) 8,539,727
------------- ---------- ------------ ---------- ------------------ -------------
Total operating expenses...... 10,718,131 36,979 2,253,899 364,638 3,771,157 17,144,804
------------- ---------- ------------ ---------- ------------------ -------------
Income (loss) from operations..... (700,184) (36,979) 396,516 (76,126) (3,771,157) (4,187,930)
Other income (expense):
Other income.................... 160,000 -- -- -- -- 160,000
Interest income................. 11,191 -- -- -- -- 11,191
Interest expense................ (43,127) -- (1,667) (6,449) (152,250) (b) (203,493)
Loss on disposal of equipment... (3,055) -- -- -- -- (3,055)
------------- ---------- ------------ ---------- ------------------ -------------
Total other income
(expense)................... 125,009 -- (1,667) (6,449) -- (35,357)
------------- ---------- ------------ ---------- ------------------ -------------
Net income (loss)............. $ (575,175) $ (36,979) $ 394,849 $ (82,575) $ (3,923,407) $ (4,223,287)
------------- ---------- ------------ ---------- ------------------ -------------
------------- ---------- ------------ ---------- ------------------ -------------
Net income (loss) per share--
basic and diluted............... $ (0.07) $ (0.48)
Weighted average shares
outstanding..................... 8,000,877 8,884,955
Pro forma income information:
Income (loss) before taxes...... $ (575,175) $ (4,223,287)
Income taxes (benefit).......... (195,560) (1,435,918)
------------- -------------
Net income.................... $ (379,615) $ (2,787,369)
------------- -------------
------------- -------------
Net loss per share................ $ (0.05) $ (0.31)
</TABLE>
- ------------------------
(1) See Note 2 to unaudited pro forma consolidated financial statements.
F-50
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Adjustments
The pro forma balance sheet adjustments as of June 30, 1999 consist of the
following: 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.
(b) Common Stock
At the closing of the proposed public offering of common stock, the Series A
and Series B preferred stock will be converted into common shares. The
following table summarizes the total number of shares of common stock
purchased from us after giving effect to the conversion of preferred stock
to common stock:
<TABLE>
<CAPTION>
SHARES CONSIDERATION
------------ -------------
<S> <C> <C>
Existing common stockholders................................................ 4,314,398 $ 1,653,942
Shares issued in business combinations...................................... 2,523,600 9,192,785
Series A preferred stock conversion......................................... 4,682,400 8,291,945
Series B preferred stock conversion......................................... 2,345,479 19,057,019
------------ -------------
13,865,877 $ 38,195,691
------------ -------------
------------ -------------
</TABLE>
The consideration paid differs from the common stock and additional
paid-in-capital on the accompanying consolidated pro forma balance sheet due
to an S Corporation termination benefit of $911,892 and a repurchase of
common stock for $4,468,980 during 1999.
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 six months ended June 30, 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
acquisitions of the Acquired Companies.
F-51
<PAGE>
BREAKAWAY SOLUTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS (CONTINUED)
In August 1999 the Company finalized the allocation of the tangible and
intangible assets of the Acquired Companies. As a result, the excess of the
total purchase price for each Acquired Company over the allocation of fair
values to the net assets has been recorded as intangible assets, as follows:
<TABLE>
<CAPTION>
APPLICA WPL WEB YES
------------ ------------ ------------
<S> <C> <C> <C>
Purchase consideration:
Cash............................................................. -- $ 4,674,997 $ 188,075
Issuance of common stock......................................... $ 1,417,998 4,825,811 3,712,378
------------ ------------ ------------
Total purchase consideration................................. 1,417,998 9,500,808 3,900,453
Direct cost of acquisition......................................... 159,159 105,654 179,210
------------ ------------ ------------
Total purchase price......................................... $ 1,577,157 $ 9,606,462 $ 4,079,663
------------ ------------ ------------
------------ ------------ ------------
Tangible assets and liabilities:
Cash and cash equivalents........................................ $ 147,422 $ 238,242 $ 11,171
Accounts receivable.............................................. -- 791,980 139,973
Prepaid expense.................................................. 20,429 -- --
Property and equipment........................................... 290,410 166,202 190,700
Other assets..................................................... 7,332 16,934 34,298
Notes payable.................................................... (141,629) -- --
Accounts payable................................................. (151,102) (35,751) (10,970)
Accrued expenses................................................. (33,679) (196,728) (33,080)
Deferred tax liability........................................... -- (567,000) (188,000)
Capital leases................................................... -- -- (133,806)
------------ ------------ ------------
Net tangible assets............................................ $ 139,183 $ 413,879 $ 10,286
Intangible assets:
Customer base.................................................... -- $ 1,037,000 $ 426,000
Workforce in place............................................... $ 201,000 445,000 206,000
------------ ------------ ------------
Goodwill......................................................... 1,236,974 7,710,583 3,437,377
------------ ------------ ------------
Total intangible assets...................................... 1,437,974 9,192,583 4,069,377
------------ ------------ ------------
Total purchase price......................................... $ 1,577,157 $ 9,606,462 $ 4,079,663
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Intangible assets will be amortized over the useful lives of three years for
both assembled workforce and customer base and five years for goodwill.
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.
(b) Adjustment for interest expense relating to the remaining cash consideration
payable to each stockholder, as described in (a).
(c) 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-52
<PAGE>
[Narrative description of graphic material omitted in electronically
filed document:
The page is divided into two columns, the left column being slightly wider
than the right column.
The heading "Breakaway Solutions Clients" is centered near the top of the
page. The heading is underlined with a line beginning at the far left of the
page.
Below and to the right of the heading "Breakaway Solutions Clients" is a
snapshot of a web page from Partners HealthCare System, under which is the
following text: "We designed for Partners HealthCare the Web-based research
management tool pictured above."
Below and to the left of the Partners Healthcare Web page is a snapshot of a
web page from VerticalNet, under which is the following text: "The
VerticalNet Web site allows professionals in various industries to access
information and conduct business transactions with others in the same
industry through the industry-specific links shown above."
Below and to the right of the VerticalNet web page and below the Partners
HealthCare web page is a snapshot of a web page from Plan Sponsor Exchange,
under which is the following text: "The PlanSponsorExchange.com Web site
featured above allows money managers, consultants, and their pension fund
clients to access industry information and communicate with each other
through a variety of forums."
Located at the bottom left center of the page is the Breakaway Solutions logo.]
<PAGE>
[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............................................ $ 11,510
NASD filing fee................................................. 4,640
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................................................... 63,850
---------
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. Except as otherwise indicated, the information set forth in this
Item 15 reflects the following four-for-five stock split of the Registrant's
common stock.
Prior to the consummation of this offering, the Registrant will effect a
four-for-five stock split of its common stock then outstanding in October 1999.
In connection with such stock split the Registrant will issue to its
stockholders then of record 0.8 of a share of common stock in exchange for each
share of common stock then outstanding and held of record by such stockholders.
No underwriters will be involved in this sale of securities. These securities
will be exempt from the registration provisions of the Securities Act pursuant
to Section 3(a)(9) thereof relative to exchanges by an issuer with its existing
security holders where no commission or other remuneration is paid or given
directly or indirectly for soliciting such exchange.
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.
II-2
<PAGE>
1. On January 6, 1999, the Registrant issued and sold 4,682,400 shares
of its Series A Preferred Stock, $0.000125 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 56,469 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
723,699 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. 36,184 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
1,364,140 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 600,000 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
492,490 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. 43,316 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 2,345,479 shares of its Series B Preferred Stock,
$0.000125 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.
8. On July 30, 1999, the Registrant issued 16,000 shares of its common
stock to The General Hospital Corporation in consideration for a
license of technology to the Registrant. The deemed value of the
shares paid for the license was $130,000.
(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 72,000 shares of its common stock at a
per share exercise price of $0.68.
(b) Effective July 1, 1998 the Registrant issued to Christopher H.
Greendale options to purchase up to 84,000 shares of its common
stock at a per share exercise price of $0.68.
(c) Effective July 1, 1998 the Registrant issued to Frank Selldorff
options to purchase up to 1,200,000 shares of its common stock at
a per share exercise price of $0.68.
II-3
<PAGE>
(d) Effective July 1, 1998 the Registrant issued to Janet Tremlett
options to purchase up to 36,000 shares of its common stock at a
per share exercise price of $0.68.
(e) Effective October 1, 1998 the Registrant issued to Kevin
Comerford options to purchase up to 36,000 shares of its common
stock at a per share exercise price of $1.01.
(f) Effective December 23, 1998 the Registrant issued to Gordon
Brooks options to purchase up to 611,700 shares of its common
stock at a per share exercise price of $1.78.
(g) Effective January 22, 1999 the Registrant issued to Janet
Tremlett options to purchase up to 18,000 shares of its common
stock at a per share exercise price of $1.78.
(h) Effective February 18, 1999 the Registrant issued to Christopher
H. Greendale options to purchase up to 554,400 shares of its
common stock at a per share exercise price of $1.78.
(i) Effective February 18, 1999 the Registrant issued to Christopher
Harding options to purchase up to 303,159 shares of its common
stock at a per share exercise price of $1.78.
(j) Effective March 19, 1999 the Registrant issued to Wayne B.
Saunders options to purchase up to 176,000 shares of its common
stock at a per share exercise price of $1.96.
(k) Effective March 25, 1999 the Registrant issued to Babak Farzami
options to purchase up to 338,408 shares of its common stock at a
per share exercise price of $1.96.
(l) Effective March 25, 1999 the Registrant issued to Dev Ittycheria
options to purchase up to 253,806 shares of its common stock at a
per share exercise price of $1.96.
2. Through September 30, 1999, the Registrant granted options to
purchase an aggregate of 4,087,315 shares of its common stock, net of
cancellations of 177,828 options, exercises of 667,536 options and
the options described in paragraph (b)1 above, at a per share
weighted average exercise price of $2.78 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 73,872
shares of common stock at a per share exercise price of $8.13.
3. On September 29, 1999 the Registrant issued to Silicon Valley Bank a
warrant to purchase stock for 10,909 shares of common stock at a per
share exercise price of $11.00.
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.
3.5 Form of Certificate of Amendment to Second Amended and Restated Certificate of Incorporation.
3.6 Form of Certificate of Amendment to Second Amended and Restated Certificate of Incorporation.
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.
10.41 Employment Agreement, dated September 10, 1999, by and between the Registrant and Joe Johnson.
10.42 Employment Agreement, dated September 12, 1999, by and between the Registrant and Adam Sholley.
10.43 Master Lease Agreement, dated as of September 29, 1999, by and between the Registrant and Silicon
Valley Bank.
10.44 Warrant to purchase the Registrant's common stock, dated September 29, 1999, issued by the Registrant
to Silicon Valley Bank.
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** Power of Attorney for Gordon Brooks
24.2** Power of Attorney for Christopher H. Greendale
24.3** Power of Attorney for Frank Selldorff
24.4** Power of Attorney for Walter W. Buckley, III
27.1** Financial Data Schedule for the year ended December 31, 1998 and the three months ended March 31, 1999.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<S> <C>
27.2** Financial Data Schedule for the six months ended June 30, 1999.
99.1** Letter of Arthur Andersen LLP
99.2** Letter of Brown & Brown LLP
</TABLE>
- ------------------------
** Previously filed.
*** Refiled herewith.
(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.
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 Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Boston,
Massachusetts, on this 1st day of October, 1999.
BREAKAWAY SOLUTIONS, INC.
By: /s/ KEVIN COMERFORD
-----------------------------------------
Kevin Comerford
Vice President, Administration, Chief
Financial Officer, Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed below 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 October 1, 1999
Gordon Brooks Officer) and Director
Vice President,
Administration, Chief
/s/ KEVIN COMERFORD Financial Officer,
- ------------------------------ Treasurer and Secretary October 1, 1999
Kevin Comerford (Principal Financial
Officer and Principal
Accounting Officer)
* Chairman of the Board of
- ------------------------------ Directors October 1, 1999
Christopher H. Greendale
* Director
- ------------------------------ October 1, 1999
Frank Selldorff
* Director
- ------------------------------ October 1, 1999
Walter W. Buckley, III
<TABLE>
<S> <C> <C> <C>
*By: /s/ KEVIN COMERFORD
-------------------------
Kevin Comerford
AS ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<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.
3.5 Form of Certificate of Amendment to Second Amended and Restated Certificate of Incorporation.
3.6 Form of Certificate of Amendment to Second Amended and Restated Certificate of Incorporation.
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.
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<S> <C>
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.
10.41 Employment Agreement, dated September 10, 1999, by and between the Registrant and Joe Johnson.
10.42 Employment Agreement, dated September 12, 1999, by and between the Registrant and Adam Sholley.
10.43 Master Lease Agreement, dated as of September 29, 1999, by and between the Registrant and Silicon
Valley Bank.
10.44 Warrant to purchase the Registrant's common stock, dated September 29, 1999, issued by the Registrant
to Silicon Valley Bank.
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** Power of Attorney for Gordon Brooks
24.2** Power of Attorney for Christopher H. Greendale
24.3** Power of Attorney for Frank Selldorff
24.4** Power of Attorney for Walter W. Buckley, III
27.1** Financial Data Schedule for the year ended December 31, 1998 and the three months ended March 31, 1999
27.2** Financial Data Schedule for the six months ended June 30, 1999
99.1** Letter of Arthur Andersen LLP
99.2** Letter of Brown & Brown, LLP
</TABLE>
- ------------------------
** Previously filed.
*** Refiled herewith.
<PAGE>
Exhibit 1.1
3,450,000 Shares
BREAKAWAY SOLUTIONS, INC.
COMMON STOCK, $0.000125 PAR VALUE PER SHARE
UNDERWRITING AGREEMENT
__________, 1999
<PAGE>
__________, 1999
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
Deutsche Bank Securities, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Breakaway Solutions, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the several underwriters (the "Underwriters")
named in Schedule I to this Underwriting Agreement (the "Agreement") 3,000,000
shares of its common stock, $0.000125 par value per share (the "Firm Shares").
The Company also proposes to issue and sell to the several Underwriters not more
than an additional 450,000 shares of its common stock, $0.000125 par value per
share (the "Additional Shares"), if and to the extent that you, as the managers
of this offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The shares of common
stock, $0.000125 par value per share, of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock."
The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, including a prospectus, relating to
the Shares. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
Morgan Stanley & Co. Incorporated ("Morgan Stanley") has agreed to
reserve a portion of the Shares to be purchased by it under this Agreement for
sale to the Company's directors,
<PAGE>
officers, employees and business associates and other parties related to the
Company (collectively, "Participants"), as set forth in the Prospectus under the
heading "Underwriters" (the "Directed Share Program"). The Shares to be sold by
Morgan Stanley and/or Dean Witter Reynolds, Inc., pursuant to the Directed Share
Program are referred to hereinafter as the "Directed Shares." Any Directed
Shares will be offered to the public by the Underwriters as set forth in the
Prospectus unless they are orally confirmed for purchase by any Participants by
the end of the business day on which this Agreement is executed.
1. Representations and Warranties. The Company represents and
warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the
Company's knowledge, threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and the
Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder and (iii) the
Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this paragraph
do not apply to statements or omissions in the Registration Statement or
the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority
to own its property and to conduct
-2-
<PAGE>
its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be
so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole; all of the
issued shares of capital stock of each subsidiary of the Company have been
duly and validly authorized and issued, are fully paid and non-assessable
and are owned of record directly by the Company, free and clear of all
liens, encumbrances, equities or claims (except for director qualifying
shares).
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid
and non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered and paid for by the Underwriters in accordance with the terms
of this Agreement, will be validly issued, fully paid and non-assessable,
and the issuance of such Shares will not be subject to any preemptive or
similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer and sale
of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(k) There are no (i) legal or governmental proceedings pending or,
to the Company's knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company
or any of its subsidiaries is
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subject that are required to be described in the Registration Statement or
the Prospectus and are not so described or (ii) statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(n) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms
and conditions of such permits, licenses or approvals would not, singly or
in the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(p) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement, and, if so
described, such rights have been waived.
(q) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company
and its subsidiaries have not
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incurred any material liability or obligation, direct or contingent, nor
entered into any material transaction not in the ordinary course of
business; (ii) the Company has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock other than ordinary and
customary dividends; and (iii) there has not been any material change in
the capital stock, short-term debt or long-term debt of the Company and
its subsidiaries, except in each case as described in the Prospectus.
(r) The Company and its subsidiaries have good and marketable title
to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; neither the Company nor its
subsidiaries own any real property; and any real property and buildings
held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are
not material and do not materially interfere with the use made and
proposed to be made of such property and buildings by the Company and its
subsidiaries, in each case except as described in the Prospectus.
(s) The Company and its subsidiaries own or possess, can acquire on
reasonable terms, or otherwise has the right to use all material patents,
patent rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks and trade names currently employed by them in connection with the
business now operated by them, and neither the Company nor any of its
subsidiaries has received any notice of, or has any knowledge of,
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(t) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in the Prospectus, or,
to the knowledge of the Company, is imminent; and the Company is not aware
of any existing, threatened or imminent labor disturbance by the employees
of any of its principal suppliers, manufacturers or contractors that could
have a material adverse effect on the Company and its subsidiaries, taken
as a whole.
(u) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as, in the Company's reasonable judgment, are prudent and
customary in the businesses in which they are engaged; neither the Company
nor any of its subsidiaries has been refused any insurance coverage sought
or applied for; and neither the Company nor any of its
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subsidiaries has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole, except as
described in the Prospectus.
(v) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, other than those which, if not so possessed, would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole, and neither the Company nor any of its subsidiaries has received
any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the Company and its subsidiaries,
taken as a whole, except as described the Prospectus.
(w) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(x) The accountants who have certified or shall certify the
financial statements filed or to be filed with the Commission as part of
the Registration Statement and the Prospectus are independent accountants
as required by the Securities Act. The consolidated financial statements
of the Company and its subsidiaries (together with the related notes
thereto) included in the Registration Statement present fairly the
financial position and results of operations of the Company and its
subsidiaries at the respective dates and for the respective periods to
which they apply, subject to normal year-end adjustments. Such financial
statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as otherwise stated therein. The pro forma financial information of
the Company and its subsidiaries included in the Registration Statement
has been prepared in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements, has been properly compiled
on the bases described therein and, in the opinion of the Company and its
subsidiaries, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein.
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(y) The Shares have been approved for listing on the Nasdaq National
Market, subject to official notice of issuance.
(z) The Registration Statement, the Prospectus and any preliminary
prospectus comply, and any amendments or supplements thereto will comply,
with any applicable laws or regulations of foreign jurisdictions in which
the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share
Program.
(aa) No consent, approval, authorization or order of, or
qualification with, any governmental body or agency, other than those
obtained, is required in connection with the offering of the Directed
Shares in any jurisdiction where the Directed Shares are being offered.
(bb) The Company has not offered, or caused Morgan Stanley to offer,
Shares to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business
with the Company, or (ii) a trade journalist or publication to write or
publish favorable information about the Company or its products.
(cc) The Company and its subsidiaries have implemented a program, as
described in the Prospectus, to analyze and address the risk that the
computer hardware and software used by them and each material supplier,
including financial service organizations, vendor or customer used or
serviced by them may be unable to recognize and properly execute date
sensitive functions involving certain dates prior to and any dates after
December 31, 1999 (the "Year 2000 Problem"), and the Company has no
reason to believe and does not believe that the Year 2000 Problem will
have a material adverse effect on the Company and its subsidiaries, taken
as a whole.
(dd) To the Company's knowledge, no officer or director of the
Company is in breach or violation of any employment agreement,
non-competition agreement, confidentiality agreement, or other agreement
restricting the nature or scope of employment to which such officer or
director is a party, and, to the Company's knowledge, the conduct of the
Company's business, as described in the Registration Statement and
Prospectus, will not result in a breach or violation of any such
agreement.
(ee) There are no outstanding options to acquire shares of capital
stock of the Company except as disclosed in the Registration Statement and
the Prospectus and except as have been granted under the 1998 Stock
Incentive Plan and 1999 Stock Incentive Plan since June 30, 1999.
2. Agreements to Sell and Purchase. The Company hereby agrees to
sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties
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herein contained, but subject to the conditions hereinafter stated, agrees,
severally and not jointly, to purchase from the Company the respective numbers
of Firm Shares set forth in Schedule I hereto opposite its name at $_______ a
share (the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to 450,000 Additional
Shares at the Purchase Price. If you, on behalf of the Underwriters, elect to
exercise such option, you shall so notify the Company in writing not later than
30 days after the date of this Agreement, which notice shall specify the number
of Additional Shares to be purchased by the Underwriters and the date on which
such shares are to be purchased. Such date may be the same as the Closing Date
(as defined below) but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (i) 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 or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder, (B) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof that is described in the
Prospectus or of which the Underwriters have been advised in writing or (C) the
issuance by the Company of shares of Common Stock or options to purchase shares
of Common Stock pursuant to the Company's stock plans as described in the
Prospectus, provided, that, the recipient of any such option or shares shall
exercise and deliver to you on or before the date of such issuance a "lock-up"
agreement substantially in the form of Exhibit A hereto.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the
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public initially at $_______________ a share (the "Public Offering Price") and
to certain dealers selected by you at a price that represents a concession not
in excess of $_______ a share under the Public Offering Price, and that any
Underwriter may allow, and such dealers may reallow, a concession, not in excess
of $______ a share, to any Underwriter or to certain other dealers.
4. Payment and Delivery. Payment for the Firm Shares shall be made
to the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on _____________, 1999, or at
such other time on the same or such other date, not later than _________, 1999,
as shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Closing Date". The closing of the offer and the
sale of the Firm Shares will be held at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts.
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 2 or at such other time on the same or on such other
date, in any event not later than _______, 1999, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "Option Closing Date". The closing of the offer and the sale of any
Additional Shares will be held at the offices of Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts.
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations of
the Company to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 4:30 p.m. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
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(i) if any of the Company's securities are rated by any
"nationally recognized statistical rating organization," as such
term is defined for purposes of Rule 436(g)(2) under the Securities
Act, then there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading
or of any review for a possible change that does not indicate the
direction of the possible change, in the rating according to such
security; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations
of the Company and its subsidiaries, taken as a whole, from that set
forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your
judgment, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 5(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date. The officer signing and delivering such certificate may
rely upon the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Hale and Dorr LLP, outside counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified as a foreign
corporation in [list states], which, to such counsel's knowledge are
the only jurisdictions in which the Company owns or leases real
property or maintains an office in the United States;
(ii) to such counsel's knowledge, the Company has no
subsidiaries except as set forth on Exhibit 21.1 of the Registration
Statement, and each domestic subsidiary of the Company listed on
Exhibit 21.1 has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus;
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(iii) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the
Prospectus;
(iv) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly
issued, fully paid and non-assessable;
(v) all of the issued shares of capital stock of each
subsidiary of the Company listed on Exhibit 21.1 have been duly and
validly authorized and issued, are fully paid and non-assessable and
are owned of record directly by the Company, and, to such counsel's
knowledge, are free and clear of all liens, encumbrances, equities
or claims, except as described in the Prospectus;
(vi) the Shares have been duly authorized and, when issued and
delivered and paid for by the Underwriters in accordance with the
terms of this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject
to any preemptive rights under the Delaware General Corporation Law,
the certificate of incorporation or by-laws of the Company or, to
such counsel's knowledge, similar right granted by contract;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the
certificate of incorporation or by-laws of the Company or any
agreement or other instrument binding upon the Company or any of its
subsidiaries that has been filed as an exhibit to the Registration
Statement, or, to such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over the Company or any subsidiary specifically naming the Company
or any of its subsidiaries or any of their properties, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by
the Company of its obligations under this Agreement, except such as
may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares;
(ix) the statements (A) in the Prospectus under the captions
"Description of Capital Stock" and the first, second, fourth,
seventh, ninth, eleventh and twelve paragraphs under "Underwriters"
and (B) in the Registration Statement in Items 14 and 15, in each
case insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly
present the
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information called for with respect to such legal matters, documents
and proceedings and fairly summarize the matters referred to
therein;
(x) after due inquiry, such counsel does not know of any legal
or governmental proceedings pending or threatened to which the
Company or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations,
contracts or other documents that are required by the Securities Act
or by the rules and regulations thereunder to be described in the
Registration Statement or the Prospectus or to be filed as exhibits
to the Registration Statement that are not described or filed as
required; and
(xi) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended;
In addition, such counsel shall state that, in connection with the
preparation of the Registration Statement and the Prospectus, such counsel
has participated in conferences with officers and representatives of the
Company, counsel for the Underwriters and the independent accountants of
the Company, at which conferences such counsel made inquiries of such
persons and others and discussed the contents of the Registration
Statement and the Prospectus. Such counsel shall also state that, while
the limitations inherent in the independent verification of factual
matters and the character of determinations involved in the registration
process are such that such counsel is not passing upon and does not assume
any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus
(other than the matters referred to in paragraph (ix)), subject to the
foregoing and based on such participation, inquiries and discussions, no
facts have come to such counsel's attention which have caused such counsel
to believe that the Registration Statement and the prospectus included
therein at the time the Registration Statement became effective (but after
giving effect to any changes incorporated pursuant to Rule 430A under the
Act), contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading (except that such
counsel shall express no such view with respect to the financial
statements, including the notes and schedules thereto, or any other
financial or statistical data included therein), that the Prospectus, as
of its date, contained any untrue statement of a material fact or omitted
to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (except that such counsel shall express no such view with
respect to the financial statement, including the notes and schedules
thereto, or any other financial or statistical data included therein), or
that the Registration Statement or the Prospectus, as
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of the Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading (except that such counsel shall express no such view
with respect to the financial statements, including the notes and
schedules thereto, or any other financial data included therein).
The Registration Statement and the Prospectus (other than the
financial statements, including the notes and schedules thereto, and other
financial data, as to which such counsel need not express an opinion)
comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations thereunder.
(d) The Underwriters shall have received on the Closing Date an
opinion from _____________, counsel to WPL Laboratories, Inc., a
Pennsylvania corporation ("WPL") dated the Closing Date, to the effect
that WPL has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation; and that all of the issued shares of capital stock of WPL
have been duly and validly authorized and issued, are fully paid and
non-assessable, and (except for directors' qualifying shares and except as
otherwise set forth in the Prospectus) are owned directly by the Company;
(d) The Underwriters shall have received on the Closing Date an
opinion of Ropes & Gray, counsel for the Underwriters, dated the Closing
Date, covering the matters referred to in Sections 5(c)(vi), 5(c)(vii),
5(c)(ix) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters") and the last two
unenumerated paragraphs of Section 5(c) above.
The opinion of Hale and Dorr LLP described in Section 5(c)
above shall be rendered to the Underwriters at the request of the Company
and shall so state therein.
(e) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the
Underwriters, from KPMG LLP, independent certified public accountants,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus; provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier than
the date hereof.
(f) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and each of the officers, directors and
beneficial owners of Common Stock of the Company (as defined and
determined according to Rule 13d-3 under the Exchange Act, except that a
180-day period shall be used rather than the 60-day period
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set forth therein) other than those individuals listed on Schedule II
hereto, relating to sales and certain other dispositions of shares of
Common Stock or certain other securities, delivered to you on or before
the date hereof, shall be in full force and effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares.
6. Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 12:00 p.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 6(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment
or supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will
furnish to the Company) to which Shares may have been sold by you on
behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
-14-
<PAGE>
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earnings statement covering the
twelve-month period ending September 30, 2000 that satisfies the
provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
(f) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of its obligations under
this Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of
the Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and
delivery of the Shares to the Underwriters, including any transfer or
other taxes payable thereon, (iii) the cost of printing or producing any
Blue Sky or Legal Investment memorandum in connection with the offer and
sale of the Shares under state securities laws and all expenses in
connection with the qualification of the Shares for offer and sale under
state securities laws as provided in Section 6(d) hereof, including filing
fees and the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with
the Blue Sky or Legal Investment memorandum, (iv) all filing fees and the
reasonable fees and disbursements of counsel to the Underwriters incurred
in connection with the review and qualification of the offering of the
Shares by the National Association of Securities Dealers, Inc., (v) all
fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all
costs and expenses incident to listing the Shares on the Nasdaq National
Market, (vi) the cost of printing certificates representing the Shares,
(vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to
investor presentations on any "road show" undertaken in connection with
the marketing of the offering of the Shares, including, without
limitation, expenses associated with the production of road show slides
and graphics, fees and expenses of any consultants engaged in connection
with the road show presentations with the prior approval of the Company,
travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered
in connection with the road show, (ix) all other costs and expenses
incident to the performance of the obligations of the Company hereunder
for which provision is not otherwise made in this Section, and (x) all
fees and disbursements of counsel incurred by the Underwriters in
connection with the Directed Share Program and stamp duties, similar taxes
or duties or other taxes, if any,
-15-
<PAGE>
incurred by the Underwriters in connection with the Directed Share
Program. It is understood, however, that except as provided in this
Section, Section 7 entitled "Indemnity and Contribution", and the last
paragraph of Section 10 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel,
stock transfer taxes payable on resale of any of the Shares by them and
any advertising expenses connected with any offers they may make.
(g) To place stop transfer orders on any Directed Shares that have
been sold to Participants subject to the three month restriction on sale,
transfer, assignment, pledge or hypothecation imposed by NASD Regulation,
Inc. under its Interpretative Material 2110-1 on free-riding and
withholding to the extent necessary to ensure compliance with the three
month restrictions. Morgan Stanley will notify the Company as to which
Participants will need to be so restricted.
(h) To comply with all applicable securities and other applicable
laws, rules and regulations in each jurisdiction in which the Directed
Shares are offered in connection with the Directed Share Program.
7. Indemnity and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from
and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action or
claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from
the Company to such Underwriter, but only with reference to information
relating to such Underwriter furnished to the Company in writing by such
Underwriter
-16-
<PAGE>
through you expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to Section 7(a) or 7(b), such
person (the "indemnified party") shall promptly notify the person against
whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party, upon request of the indemnified party, shall
retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii)
the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is
understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel)
for all such indemnified parties and that all such fees and expenses shall
be reimbursed as they are incurred. Such firm shall be designated in
writing by Morgan Stanley, in the case of parties indemnified pursuant to
Section 7(a), and by the Company, in the case of parties indemnified
pursuant to Section 7(b), in each case, unless such firm is retained
pursuant to the first paragraph of this Section 7(c). The indemnifying
party shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if there
be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have
been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in Section 7(a)
or 7(b) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other
-17-
<PAGE>
hand from the offering of the Shares or (ii) if the allocation provided by
clause 7(d)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause 7(d)(i) above but also the relative fault of the
Company on the one hand and of the Underwriters on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as
set forth in the table on the cover of the Prospectus, bear to the
aggregate Public Offering Price of the Shares. The relative fault of the
Company on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 7(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages that such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 7 are not
exclusive and shall not limit any rights or remedies which may otherwise
be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any
-18-
<PAGE>
termination of this Agreement, (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter or by or on
behalf of the Company, its officers or directors or any person controlling
the Company and (iii) acceptance of and payment for any of the Shares.
8. Directed Share Program Indemnification.
(a) The Company agrees to indemnify and hold harmless Morgan Stanley
and Dean Witter Reynolds, Inc., and each person, if any, who controls
Morgan Stanley or Dean Witter Reynolds, Inc., within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act
("Morgan Stanley Entities"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating
any such action or claim) (i) caused by any untrue statement or alleged
untrue statement of a material fact contained in any material prepared by
or with the consent of the Company for distribution to Participants in
connection with the Directed Share Program, or caused by any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; (ii)
caused by the failure of any Participant to pay for and accept delivery of
Directed Shares which, immediately following the effectiveness of the
Registration Statement, were subject to a properly confirmed agreement to
purchase or (ii) related to, arising out of, or in connection with the
Directed Share Program other than losses, claims, damages or liabilities
(or expenses relating thereto) that are finally judicially determined to
have resulted from the bad faith or negligence of Morgan Stanley Entities.
(b) In case any proceeding (including any governmental
investigation) shall be instituted involving any Morgan Stanley Entity in
respect of which indemnity may be sought pursuant to Section 8(a), the
Morgan Stanley Entity seeking indemnity shall promptly notify the Company
in writing, and the Company, upon request of the Morgan Stanley Entity,
shall retain counsel reasonably satisfactory to the Morgan Stanley Entity
to represent the Morgan Stanley Entity and any other person the Company
may designate in such proceeding and shall pay the fees and disbursements
of such counsel related to such proceeding. In any such proceeding, any
Morgan Stanley Entity shall have the right to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such
Morgan Stanley Entity unless (i) the Company shall have agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Company and the Morgan
Stanley Entity and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests
between them. The Company shall not, in respect of the legal expenses of
the Morgan Stanley Entities in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses
of more than one separate firm (in addition to any local counsel) for all
Morgan Stanley Entities. Any such firm for the Morgan Stanley Entities
shall be designated in writing by Morgan Stanley
-19-
<PAGE>
unless such firm is retained pursuant to the first sentence of this
Section 8(b). The Company shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the Company
agrees to indemnify the Morgan Stanley Entities from and against any loss
or liability by reason of such settlement or judgment. The Company shall
not, without the prior written consent of Morgan Stanley, effect any
settlement of any pending or threatened proceeding in respect of which any
Morgan Stanley Entity is or could have been a party and indemnity could
have been sought hereunder by such Morgan Stanley Entity, unless such
settlement includes an unconditional release of the Morgan Stanley
Entities from all liability on claims that are the subject matter of such
proceeding.
(c) To the extent the indemnification provided for in Section 8(a)
is unavailable to a Morgan Stanley Entity or insufficient in respect of
any losses, claims, damages or liabilities referred to therein, then the
Company, in lieu of indemnifying the Morgan Stanley Entity thereunder,
shall contribute to the amount paid or payable by the Morgan Stanley
Entity as a result of such losses, claims, damages or liabilities (i) in
such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Morgan Stanley Entities on
the other hand from the offering of the Directed Shares or (ii) if the
allocation provided by clause 8(c)(i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause 8(c)(i) above but also the relative fault
of the Company on the one hand and of the Morgan Stanley Entities on the
other hand in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and of the Morgan Stanley Entities on the other hand in
connection with the offering of the Directed Shares shall be deemed to be
in the same respective proportions as the net proceeds from the offering
of the Directed Shares (before deducting expenses) and the total
underwriting discounts and commissions received by the Morgan Stanley
Entities for the Directed Shares, bear to the aggregate Public Offering
Price of the Directed Shares. If the loss, claim, damage or liability is
caused by an untrue or alleged untrue statement of a material fact, the
relative fault of the Company on the one hand and the Morgan Stanley
Entities on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement or the
omission or alleged omission relates to information supplied by the
Company or by the Morgan Stanley Entities and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(d) The Company and the Morgan Stanley Entities agree that it would
not be just or equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation (even if the Morgan Stanley Entities
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in Section 8(c). The amount paid or payable by the Morgan
Stanley Entities as a result of the losses, claims, damages and
liabilities referred to in the
-20-
<PAGE>
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably
incurred by the Morgan Stanley Entities in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of
this Section 8, no Morgan Stanley Entity shall be required to contribute
any amount in excess of the amount by which the total price at which the
Directed Shares distributed to the public were offered to the public
exceeds the amount of any damages that such Morgan Stanley Entity has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The remedies provided for in this
Section 8 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any Morgan Stanley Entity at law or in
equity.
(e) The indemnity and contribution provisions contained in this
Section 8 shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement, (ii) any investigation made by
or on behalf of any Morgan Stanley Entity or the Company, its officers or
directors or any person controlling the Company and (iii) acceptance of
and payment for any of the Directed Shares.
9. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 8(a)(i) through 8(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
10. Effectiveness; Defaulting Underwriters. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall
-21-
<PAGE>
be obligated severally in the proportions that the number of Firm Shares set
forth opposite their respective names in Schedule I bears to the aggregate
number of Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased, and arrangements satisfactory to you and the Company for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
11. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
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<PAGE>
13. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
BREAKAWAY SOLUTIONS, INC.
By:_____________________________
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
Deutsche Bank Securities, Inc.
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:______________________________
Name:
Title:
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<PAGE>
SCHEDULE I
Number of
Firm Shares
Underwriter To Be
Purchased
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
Deutsche Bank Securities, Inc.
[NAMES OF OTHER UNDERWRITERS]
-------------------------
Total ........
=========================
24
<PAGE>
SCHEDULE II
[Individuals]
25
<PAGE>
Exhibit A
_______________, 1999
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
Deutsche Bank Securities, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") proposes to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Breakaway Solutions, Inc., a Delaware corporation
(the "Company"), providing for the public offering (the "Public Offering") by
the several Underwriters named therein, including Morgan Stanley (the
"Underwriters"), of shares (the "Shares") of the common stock, par value $0.0001
per share, of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, the undersigned will not, during the period
commencing on the date hereof and ending 180 days after the date of the final
prospectus relating to the Public Offering (the "Prospectus"), (1) 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, or (2) 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 in clause
(1) or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (a)
the sale of any Shares to the Underwriters pursuant to the Underwriting
Agreement, (b) transactions relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
Public Offering, or (c) the sale of any Shares acquired from the Underwriters.
In addition, the undersigned agrees that, without the prior written
consent of Morgan Stanley on behalf of the Underwriters, it will not, during the
period commencing on the date
26
<PAGE>
hereof and ending 180 days after the date of the Prospectus, make any demand for
or exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
Notwithstanding the foregoing (i) gifts and transfers by will or intestacy
or (ii) transfers to (A) the undersigned's members, partners, affiliates or
immediate family or (B) a trust, the beneficiaries of which are the undersigned
and/or members of the undersigned's immediate family, shall not be prohibited by
this agreement; provided, that (x) the donee or transferee agrees in writing to
be bound by the foregoing in the same manner as it applies to the undersigned
and (y) if the donor or transferor is a reporting person subject to Section
16(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), any gifts or
transfers made in accordance with this paragraph shall not require such person
to, and such person shall not voluntarily, file a report of such transaction on
Form 4 under the Exchange Act. "Immediate family" shall mean spouse, lineal
descendants, father, mother, brother or sister of the transferor and father,
mother, brother or sister of the transferor's spouse.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
This agreement shall automatically terminate on the date that the
Underwriting Agreement is terminated, in the event that the Underwriters do not
purchase the Shares and the Underwriting Agreement is terminated pursuant to its
terms.
Very truly yours,
____________________________
(Name)
____________________________
(Address)
27
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
BREAKAWAY SOLUTIONS, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
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:
By written action of the Board of Directors of the Corporation
resolutions were duly adopted, pursuant to Sections 141 and 242 of the General
Corporation Law of the State of Delaware, setting forth an amendment to the
Amended and Restated Certificate of Incorporation of the Corporation declaring
said amendment to be advisable and directing that it be submitted to and be
considered by the stockholders of the Corporation for approval. The stockholders
of the Corporation duly approved said proposed amendment by written consent in
accordance with Sections 228 and 242 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 amendment. The
resolutions setting forth the amendment are as follows:
<PAGE>
RESOLVED: That paragraph A of Article IV of the Amended and Restated
Certificate of Incorporation of the Corporation be and hereby is
deleted in its entirety and the following paragraph is inserted in
lieu thereof:
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 one hundred eight million, nine hundred
thirty-one thousand sixty-five (108,931,065) The total number of shares of
Common Stock that this Corporation is authorized to issue is one hundred million
(100,000,000). 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 $0.0001 per share.
RESOLVED: That Article IX of the Amended and Restated Certificate of
Incorporation of the Corporation be and hereby is deleted in its
entirety and the following Article IX is inserted in lieu thereof:
ARTICLE IX
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
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<PAGE>
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 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
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<PAGE>
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 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
-4-
<PAGE>
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 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.
-5-
<PAGE>
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 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
-6-
<PAGE>
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.
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.
* * * * *
-7-
<PAGE>
EXECUTED by the undersigned on this day of , 1999.
BREAKAWAY SOLUTIONS, INC.
By:_____________________________________
Gordon Brooks
President and Chief Executive Officer
-8-
<PAGE>
Exhibit 3.6
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BREAKAWAY SOLUTIONS, INC.
Breakaway Solutions, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware (the "Delaware Corporation Law"), does hereby certify
as follows:
1. By written action of the Board of Directors of the Corporation, a
resolution was duly adopted, pursuant to Sections 141 and 242 of the Delaware
Corporation Law, setting forth an amendment to the Amended and Restated
Certificate of Incorporation of the Corporation, as amended, declaring said
amendment to be advisable and directing that it be submitted to and be
considered by the stockholders of the Corporation for approval. The
stockholders of the Corporation duly approved said proposed amendment by
written consent in accordance with Sections 228 and 242 of the Delaware
Corporation Law, and written notice of such consent has been given to all
stockholders who have not consented in writing to said amendment. The
resolution setting forth the amendment is as follows:
RESOLVED: That the Amended and Restated Certificate of Incorporation of
the Corporation, as amended, be further amended by deleting the
first paragraph of Article FOURTH in its entirety and inserting
the following in lieu thereof:
"FOURTH. The total number of shares of all classes of
stock which the Corporation shall have authority to
issue is 85,000,000 shares, consisting of (i)
80,000,000 shares of Common Stock, $0.000125 par
value per share ("Common Stock"), and (ii) 5,000,000
shares of Preferred Stock, $0.0001 par value per
share ("Preferred Stock").
FURTHER
RESOLVED: That the Board of Directors hereby declares a four-for-five reverse
- -------- split of the Corporation's Common Stock, $0.0001 par value per
share (the "Common Stock"), effective upon the filing date (the
"Effective Date") of the Corporation's Certificate of Amendment of
Amended and Restated Certificate of Incorporation, such that
each five shares of Common Stock outstanding and held of record
by each stockholder of the Corporation (including treasury
<PAGE>
shares) immediately prior to the Effective Date shall represent four
shares of Common Stock from and after the Effective Date; and that the
proper officers of the Corporation be, and each of them acting singly
hereby is, authorized to execute, countersign, issue and deliver any
such documents as may be required to give effect to this resolution.
2. This Certificate of Amendment of Certificate of Incorporation of the
Corporation shall be effective immediately upon the filing hereof with the
Secretary of State of the State of Delaware.
EXECUTED by the undersigned on this day of September, 1999.
BREAKAWAY SOLUTIONS, INC.
By: ___________________________
Name: Gordon Brooks
Title: President and
Chief Executive Officer
<PAGE>
EXHIBIT 4.1
NUMBER SHARES
COMMON STOCK SEE REVERSE FOR
CERTAIN DEFINITIONS
[BREAKAWAY LOGO]
Breakaway Solutions, Inc.
THIS CERTIFICATE IS TRANSFERABLE
IN BOSTON, MA OR NEW YORK, NY CUSIP 106372 10 5
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
$0.000125 PAR VALUE PER SHARE, OF
BREAKAWAY SOLUTIONS, INC.
transferable upon the books of the Corporation by the holder hereof in person or
by its duly authorized attorney upon surrender of this certificate properly
endorsed or assigned. This Certificate and the shares represented hereby are
issued and shall be held subject to the laws of the State of Delaware and the
provisions of the Certificate of Incorporation and the By-Laws of the
Corporation, all as amended from time to time, to which the holder by acceptance
hereof assents. This Certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers
[Corporate Seal]
COUNTERSIGNED AND REGISTERED:
/s/ Gordon Brooks
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
/s/ Kevin Comerford
VICE PRESIDENT AND TREASURER
By /s/ William L. Goldberg
AUTHORIZED SIGNATURE
<PAGE>
BREAKAWAY SOLUTIONS, INC.
The Corporation has more than one class of stock authorized to be
issued. The Corporation will furnish without charge to each stockholder upon
written request a copy of the full text of the preferences, voting powers,
qualifications and special and relative rights of the shares of each class of
stock (and any series thereof) authorized to be issued by the Corporation as set
forth in the Certificate of Incorporation of the Corporation and amendments
thereto filed with the Secretary of State of the State of Delaware.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - .........Custodian........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of
survivorship and not as tenants under Uniform Gifts to Minors Act
in common .................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, HEREBY SELL, ASSIGN AND TRANSFER UNTO
-----------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------SHARES
OF THE COMMON STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT ATTORNEY TO TRANSFER THE SAID STOCK ON THE
BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE
PREMISES.
DATED
-----------------
NOTICE:
-------------------------------------------------------------
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED:
-------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
HALE AND DORR LLP
Counsellors At Law
60 State Street, Boston, Massachusetts 02109
TEL 617-526-6000 * FAX 617-526-5000
October 1, 1999
Breakaway Solutions, Inc.
50 Rowes Wharf, 6th Floor
Boston, Massachusetts 02110
Re: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-83343) (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of 3,450,000 shares of Common Stock, $0.000125 par value per share (the
"Shares"), of Breakaway Solutions, Inc., a Delaware corporation (the "Company"),
including 450,000 Shares issuable upon exercise of an over-allotment option
granted by the Company.
The Shares are to be sold by the Company pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into by and among the
Company and Morgan Stanley & Co. Incorporated, Lehman Brothers Inc. and Deutsche
Bank Securities, Inc., as representatives of the several underwriters named in
the Underwriting Agreement, the form of which has been filed as Exhibit 1.1 to
the Registration Statement.
We are acting as counsel for the Company in connection with the issue
and sale by the Company of the Shares. We have examined signed copies of the
Registration Statement as filed with the Commission. We have also examined and
relied upon the Underwriting Agreement, minutes of meetings of the stockholders
and the Board of Directors of the Company as provided to us by the Company,
stock record books of the Company as provided to us by the Company, the
Certificate of Incorporation and By-Laws of the Company, each as restated and/or
amended to
<PAGE>
date, and such other documents as we have deemed necessary for purposes of
rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
We assume that the appropriate action will be taken, prior to the offer
and sale of the Shares in accordance with the Underwriting Agreement, to
register and qualify the Shares for sale under all applicable state securities
or "blue sky" laws.
We express no opinion herein as to the laws of any state or
jurisdiction other than the state laws of the Commonwealth of Massachusetts, the
Delaware General Corporation Law statute and the federal laws of the United
States of America. To the extent that any other laws govern the matters as to
which we are opining herein, we have assumed that such laws are identical to the
state laws of the Commonwealth of Massachusetts, and we are expressing no
opinion herein as to whether such assumption is reasonable or correct.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance and, when the Shares are issued
and paid for in accordance with the terms and conditions of the Underwriting
Agreement, the Shares will be validly issued, fully paid and nonassessable.
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is in
effect.
Please note that we are opining only as to the matters expressly set
forth herein, and no opinion should be inferred as to any other matters. This
opinion is based upon currently existing statutes, rules, regulations and
judicial decisions, and we disclaim any obligation to advise you of any change
in any of these sources of law or subsequent legal or factual developments which
might affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Validity of Common
Stock." In giving such consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations of the Commission.
<PAGE>
Very truly yours,
HALE AND DORR LLP
/s/ HALE AND DORR LLP
<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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<PAGE>
(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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<PAGE>
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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<PAGE>
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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<PAGE>
(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.
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AMENDMENT NO. 1 TO THE 1999 STOCK INCENTIVE PLAN
OF BREAKAWAY SOLUTIONS, INC.
Subsection 8(c) of the 1999 Stock Incentive Plan (the "Plan") of
Breakaway Solutions, Inc. is hereby amended and restated in its entirety to
provide as follows:
"(c) Acquisition Events
(1) GENERAL. In the event of a consolidation or merger or sale
of all or substantially all of the assets of the Company in which
outstanding shares of Common Stock are exchanged for securities, cash
or other property of any other corporation or business entity or in the
event of a liquidation of the Company (each, an "Acquisition Event"),
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its
discretion, take any one or more of the following actions, as to
outstanding options: (i) provide that such options shall be assumed, or
equivalent options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), PROVIDED that any such options
substituted for Incentive Stock Options shall meet the requirements of
Section 424(a) of the Code, (ii) upon written notice to the optionees,
provide that all unexercised options will terminate immediately prior
to the consummation of such Acquisition Event unless exercised by the
optionee within a specified period following the date of such notice,
(iii) in the event of an Acquisition Event under the terms of which
holders of the Common Stock of the Company will receive upon
consummation thereof a cash payment for each share surrendered in the
merger (the "Acquisition Price"), make or provide for a cash payment to
the optionees equal to the difference between (A) the Acquisition Price
times the number of shares of Common Stock subject to such outstanding
options (to the extent then exercisable at prices not in excess of the
Acquisition Price) and (B) the aggregate exercise price of all such
outstanding options in exchange for the termination of such options,
and (iv) provide that all or any outstanding options shall become
exercisable in full immediately prior to such event."
<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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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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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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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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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.
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<PAGE>
AMENDMENT NO. 1 TO THE
1999 EMPLOYEE STOCK PURCHASE PLAN
OF BREAKAWAY SOLUTIONS, INC.
Subsection 2(b) of the 1999 Employee Stock Purchase Plan (the "Plan")
of Breakaway Solutions, Inc. is hereby amended and restated in its entirety to
provide as follows:
"(b) they have been employed by the Company or a Designated Subsidiary
for at least one month prior to enrolling in the Plan; and"
<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.
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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
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<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
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<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.
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<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
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<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.
/s/ Gordon Brooks
--------------------------
Gordon Brooks, President
Agreed to this 17th day of February, 1999
/s/ Chris Harding
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 10.15
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: /s/ Gordon Brooks
-----------------------------
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
Frank Selldorf
- -------------------------
Optionee
By: /s/ Frank Selldorf,
/s/ FRANK SELLDORFF /s/ Samuel Sprecher
- ------------------------- -------------------------
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
/s/ Kevin Comerford
- ------------------------
Employee
Kevin Comerford /s/ Samuel Spector
- ------------------------ 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 10.27
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: /s/ SAMUEL SPECTOR
- ------------------------- -------------------------
Print Name of Employee Name: Sam Spector
Title: Director of Human 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
Number of shares for which this
option is exercisable: 90,000
Vesting Schedule: One-fourth (1/4) of the shares underlying
this option shall vest and become
exercisable on the first anniversary
hereof, with the remainder to vest at the
rate of one-thirty-sixth (1/36) per month
thereafter.
<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.
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(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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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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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
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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
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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
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<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
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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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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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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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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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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/ Christopher Harding By: /s/ Samuel Spector
- --------------------------------- Name: Samuel Spector
Christopher Harding Title: Director of Human Resources
Print Name of Employee
Street Address
City State Zip Code
Attest:
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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
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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 a 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
/s/ Christopher Harding
- ---------------------------------
Employee
Christopher Harding By: /s/ Samuel Spector
- --------------------------------- -----------------------------
Print Name of Employee Name: Samuel Spector
Title: Director Human Resources
- ---------------------------------
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.
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-thirty-sixth (1/36) per month
thereafter.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
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-thirty-sixth (1/36) per month
thereafter.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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: /s/ Samuel Spector
--------------------------------
Name: Samuel Spector
Title: Director Human Resoources
- --------------------------------
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-thirty-sixth (1/36) per month
thereafter.
<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.
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(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
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<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: /s/ 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: /s/ Illegible
----------------------------------
Managing Member
R.S. & CO. OFFSHORE OMEGA
VENTURES III
By: RS Omega III Holdings, L.L.C.,
Authorized Signatory
By: /s/ Illegible
----------------------------------
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 10.41
[LETTERHEAD]
September 10, 1999
Mr. Joe Johnson
160 South Street
Hingham, MA 02043
Dear Joe:
Breakaway Solutions Inc. (the "Company") is pleased to offer to employ
you, effective September 14, 1999 as it's Chief People Officer. 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 $7916.66 per
pay period (which is equivalent to an annual base salary of $200,000 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
100,000 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
1999 Stock Plan.
<PAGE>
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. 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 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.
Attached for your review, as Attachment A, is the Breakaway Solutions,
Inc. Non-Disclosure, Non-Solicitation and Assignment Agreement (the "NDA"). 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 employer 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.
The term of this Agreement is one (1) year, commencing September 14,
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 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 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.
TERMINATION BY COMPANY WITHOUT "CAUSE"; TERMINATION BY MUTUAL DECISION;
TERMINATION FOR DEATH OR DISABILITY: If after one full year of employment, your
employment is terminated by the Company without a "Cause" as defined below, or
if after one full year of employment, 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 NDA 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 six months, (c) you will receive any bonus payable
under any plan in which you were participating or for which
<PAGE>
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
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. 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
<PAGE>
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.
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 / CEO
Agreed:/s/ Joe Johnson 9/15/99
------------------------- ----------------
Joe Johnson Date
<PAGE>
EXHIBIT 10.42
[LETTERHEAD]
September 12, 1999
Mr. Adam Sholley
77 Morton Road
Milton, MA 02186
Dear Adam:
Breakaway Solutions Inc. (the "Company") is pleased to offer to employ
you, effective September 20, 1999 as Vice President of Marketing pending
successful completion of references. 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 $8333.33 per
pay period (which is equivalent to an annual base salary of $200,000 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
110,000 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
1999 Stock Plan.
<PAGE>
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. 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 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.
Attached for your review, as Attachment A, is the Breakaway Solutions,
Inc. Non-Disclosure, Non-Solicitation Agreement (the "NDA"). 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 employer 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.
The term of this Agreement is one (1) year, commencing September 20,
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 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 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.
TERMINATION BY COMPANY WITHOUT "CAUSE"; TERMINATION BY MUTUAL DECISION;
TERMINATION FOR DEATH OR DISABILITY: If after one full year of employment, your
employment is terminated by the Company without a "Cause" as defined below, or
if after one full year of employment, 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 NDA 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 six months, (c) you will receive any bonus payable
under any plan in which you were participating or for which
<PAGE>
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
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. 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
<PAGE>
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.
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 9/14/99
- ------------------------- -----------------
Gordon Brooks Date
President / CEO
Agreed:/s/ Adam Sholley 9/15/99
----------------------------- -----------------
Adam Sholley Date
<PAGE>
EXHIBIT 10.43
MASTER LEASE AGREEMENT
This Master Lease Agreement ("Master Agreement"), dated as of
September 29, 1999, and referred to as Lease Number 0099026, is entered into
by and between Silicon Valley Bank ("Lessor"), with its principal place of
business at 3003 Tasman Drive, NC 400, Santa Clara, CA 95054 and Breakaway
Solutions Inc., a Delaware corporation ("Lessee"), with its principal place
of business at 50 Rowes Wharf, 6th Floor, Boston, MA 02110. As used herein,
all terms shall have the meanings set forth below.
"Acceptance Certificate" means the form of certificate provided by
Lessor to evidence Lessee's acceptance of the Equipment.
"Acceptance Date" the date the Lessee signs and delivers to Lessor the
Acceptance Certificate.
"Applicable Term" the Initial Term and any renewal or extension
thereof.
"Assignee" means any party to whom Lessor assigns Lessor's rights to
any Lease.
"Casualty" means any event upon which any Equipment is condemned,
taken, lost destroyed, stolen or damaged beyond repair.
"Claims" means any and all claims, actions, suits, proceedings, costs,
expenses (including court costs and reasonable attorneys' fees), damages,
obligations, penalties, injuries and liabilities, including actions based on
Lessor's strict liability in tort.
"Commitment Amount" means the aggregate Schedule Commitment Amounts up
to a maximum of $4,000,000 in the aggregate.
"Contingent Obligation' means, as applied to Lessee, any direct or
indirect liability, contingent or otherwise, of Lessee with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by Lessee, or
in respect of which Lessee is otherwise directly or indirectly liable; (ii) any
obligations with respect to undrawn letters of credit issued for the account of
Lessee; and (iii) all obligations arising under any interest rate, currency or
commodity swap agreement, interest rate cap agreement, interest rate collar
agreement, or other agreement or arrangement designated to protect Lessee
against fluctuation in interest rates, currency exchange rates or commodity
prices; provided that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determined amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof
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as determined by Lessee in good faith; provided that such amount shall not in
any event exceed the maximum amount of the obligations under the guarantee or
other support arrangement.
"Credit Extension" means each Lease, each loan under the Loan
Documents, and any other extension of credit by Lessor for the benefit of
Lessee.
"Current Assets" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Lessee and its subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Lessee and its subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Credit
Extensions, including all Indebtedness that is payable upon demand or within one
year from the date of determination thereof unless such Indebtedness is
renewable or extendable at the option of Lessee or any subsidiary to a date more
than one year from the date of determination, but excluding Subordinated Debt.
"Cut-off Date" means December 30, 1999.
"Default" means any of the events of default described in Section 16 of
this Master Agreement.
"Equipment" means the items of equipment leased under each Schedule.
For the purpose of this Master Agreement, Equipment shall mean both hardware and
software.
"Equipment Location" means the location of the Equipment specified in
each Schedule.
"First Payment Date" has the meaning set forth in the applicable
Schedule.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Imposition" means each license fee, assessment, and sales, use,
property, excise and other tax.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
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"Interim Rent" has the meaning, if any, set forth in Section 5 of the
Schedule.
"Initial Term" means the total monthly, quarterly or other term of each
Lease, as specified in the Schedule.
"Lease" means each Schedule.
"License" means collectively, if the Equipment includes any software, a
license identical to that held by Lessee relating to the use of any software,
technical information, confidential business information and other
documentation.
"Loan Documents" means that certain Loan and Security Agreement, dated
on or about the date hereof, between Lessor, as lender, and Lessee, as borrower,
together with all related agreements, instruments and documents and all
amendments and modifications thereto.
"Material Agreement" means collectively this Master Agreement, any
Lease, any Transaction Document, and Loan Document or any other agreement
between Lessee and Lessor, or any material agreement between Lessee and any
third party, specifically including, without limitation, any agreement or
agreements between Lessee and any third party which in the aggregate give the
third party the right, whether or not exercised, to accelerate any Indebtedness
exceeding $100,000.
"Original" means the single counterpart of the Schedule, including
Rider 1 attached thereto and incorporated therein by reference, marked
"Original."
"Purchase Documents" means collectively any purchase order, contract or
other documents Lessee has approved or entered into with the applicable
Supplier.
"Quick Assets" means, as of any applicable date, the consolidated cash,
cash equivalents, accounts receivable and investments with maturities of fewer
than 90 days of Lessee determined in accordance with GAAP.
"Rent" means the amounts payable by Lessee to Lessor for the Equipment.
"Rider 1" means the rider marked "Rider 1" which is attached to and
incorporated within each Schedule.
"Schedule" means each schedule containing the specific terms of each
individual lease.
"Schedule Commitment Amount" means, with respect to a Schedule, the
amount identified as such in the Schedule.
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<PAGE>
"Stipulated Loss Value" means the stipulated loss value of the
Equipment as specified in Rider 1 to the Schedule.
"Subordinated Debt" means any debt incurred by Lessee that is
subordinated to the debt owing by Lessee to Lessor on terms acceptable to Lessor
(and identified as being such by Lessee and Lessor).
"Supplier" means the seller of the applicable Equipment.
"Total Cost" means the Equipment acquisition cost including such
shipping, delivery, installation and other charges as Lessor shall have approved
set forth in Section 3 of the Schedule, as adjusted pursuant to Section 6 of
this Master Agreement.
"Tax Benefits" means collectively certain deductions, credits, and
other tax benefits as are provided in the Internal Revenue Code of 1986, as
amended, including without limitation, accelerated depreciation and interest
deductions to which Lessor may be entitled.
"Transaction Documents" means collectively this Master Agreement, all
Leases and all other related instruments or documents executed and/or delivered
hereunder or in connection herewith.
1. LEASE OF EQUIPMENT. This Master Agreement sets forth the
general terms and conditions which apply to the lease of
equipment from Lessor to Lessee. The specific terms of each
individual lease are set forth in a separate Schedule,
including the Equipment leased under the applicable Schedule.
Each Schedule constitutes a separate and distinct Lease,
enforceable according to its terms. In the event of any
conflict between the terms of this Master Agreement and any
related Schedule, the provisions of the applicable Schedule
shall govern. The parties agree that each Schedule
incorporates this Master Agreement by reference by listing
the lease number (as specified above) on the Schedule. A
Lease shall not become effective until accepted by Lessor.
Lessee may present proposed Equipment to Lessor for lease
pursuant hereto and under a Schedule, for a term with respect
to each Schedule of 36 months, with no more than one Schedule
per month entered into between Lessor and Lessee, for
Equipment as set forth in the Schedule in an amount equal to
the Schedule Commitment Amount, such Schedules to be entered
into between Lessor and Lessee from the date hereof up to the
Cut-Off Date and in an amount of the aggregate Schedule
Commitment Amounts not to exceed the Commitment Amount.
2. TERM. This Master Agreement shall commence upon the
execution hereof by both parties, and shall continue until
the full
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<PAGE>
performance of all terms hereunder. Initial Term shall be as
specified in each Schedule. The Applicable Term shall be
automatically extended for successive one-month periods
unless either party gives the other party sixty days' prior
written notice that it intends to terminate the Lease at the
end of the Applicable Term.
3. ACCEPTANCE. The Equipment is unconditionally accepted
under the Lease on the Acceptance Date. Lessee shall accept
the Equipment as soon as it is delivered or, if acceptance
requirements are specified in the applicable Purchase
Documents, as soon as such requirements are met. Upon the
execution of the Acceptance Certificate, Lessee shall
promptly deliver it to Lessor.
4. RENT; NON-CANCELABLE NET LEASE. As Rent for the
Equipment, Lessee agrees to pay the amounts specified in the
Schedule, which rent amounts shall be calculated, with
respect to each Schedule, using a rent factor equal to the
rate on U.S. Treasury securities of a comparable term plus
two and one-half percentage points (250 basis points). Lessee
acknowledges and agrees that all Leases hereunder are
non-cancelable net Leases, and Lessee agrees that its
obligation to pay Rent and all other amounts when due is
unconditional. Lessee is not entitled to abate or reduce rent
or any other amounts due, or to set off any charges against
those amounts. Lessee is not entitled to claim or assert any
recoupments, cross-claims, counterclaims or any other
defenses to any rent payments or other amounts due hereunder,
whether those defenses arise out of claims by Lessee against
Lessor, Supplier, this Master Agreement, any Schedule or
otherwise. If the Equipment is not properly installed, does
not operate as represented or warranted by Supplier or is
unsatisfactory for any reason whatsoever, Lessee shall make
any claim or account thereof solely against Supplier and
shall nevertheless pay all sums payable under any Lease.
Lessee hereby waives any such claims against Lessor and any
Assignee.
5. ASSIGNMENT OF PURCHASE DOCUMENTS. Lessee assigns to
Lessor all of Lessee's right, title and interest in and to
the Equipment described in the Purchase Documents and in the
Schedule. This assignment is an assignment of rights only,
and Lessee shall remain liable for all obligations under the
Purchase Documents, except that Lessor shall pay for the
Equipment within 30 days of the Acceptance Date or as
otherwise agreed by Lessor in writing. If Lessee has not
entered into Purchase Documents for such Equipment, Lessee
authorizes Lessor to act as Lessee's agent to execute such
Purchase Documents. Lessee also represents and warrants that
it has received and approved a copy of the Purchase
Documents, or has been advised by Lessor of (a) the name of
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<PAGE>
the Supplier of the Equipment, (b) that Lessee may have
rights under such Supplier's Purchase Documents, and (c) that
Lessee may contact the Supplier for information on such
rights. In addition, Lessee shall deliver to Lessor a
document acceptable to Lessor whereby Supplier acknowledges
and provides any consent required by Lessor or otherwise
necessary to such assignment. If the Equipment includes any
software, Supplier shall agree in such acknowledgment and
consent that upon the return of the Equipment to Lessor the
Supplier will either grant Lessor a License and permit Lessor
to assign such License to any subsequent end-user of the
Equipment, or grant any such subsequent end-user such a
License, but at no additional charge other than any regularly
scheduled fee or charge otherwise payable by Lessee; provided
that Lessee shall at all times remain liable to Supplier as
the licensee under its license, and Lessor shall not have any
obligation thereunder unless and until such license is
provided to Lessor in accordance with these provisions.
Lessor shall have no obligation or liability with respect to
Lessee's, or any subsequent third-party licensee's,
compliance under the applicable license. In addition, with
respect to any such software, Supplier shall agree that it
will not terminate Lessee's license thereof without first
providing 90 days' prior written notice to Lessor of any
intended termination and providing Lessor the right to cure
such breach by Lessee of its license as gave rise to such
notice of intended termination. Supplier shall also agree to
provide all software upgrades and modifications during the
Applicable Term to Lessee, or Lessor or other subsequent
licensee, on the same basis as offered to Supplier's other
commercial customers. Lessee agrees that neither Supplier nor
any salesperson or other employee or representative of
Supplier is an agent of Lessor, nor is any such person
authorized to waive or alter any terms of this Master
Agreement or any Lease.
6. ADJUSTMENTS. The Total Cost and Rent payment set forth
in each Schedule are estimates, and if the final invoice from
the Supplier specifies a Total Cost (including delivery,
installation, taxes and other charges) that is more or less
than such estimated Total Cost, Lessee hereby authorizes
Lessor to adjust accordingly the Total Cost and Rent payment
on the applicable Schedule. All references in this Agreement
and in any Schedule to Total Cost and Rent payment shall mean
the estimates thereof specified in the applicable Schedule,
as adjusted pursuant to this Section 6.
7. EQUIPMENT RETURN REQUIREMENTS. On or before the
termination of a Lease, Lessee shall pack the Equipment in
accordance with the manufacturer's guidelines and deliver
such Equipment (along with all operating manuals) to Lessor
at any destination within the continental
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United States designated by Lessor. All dismantling,
packaging, transportation, in-transit insurance and shipping
charges shall be borne by Lessee. All Equipment shall be
returned to Lessor in the same condition and working order as
when delivered to Lessee, reasonable wear and tear excepted,
and shall be certifiable for maintenance by the manufacturer
at its standard rates.
8. EQUIPMENT USE AND MAINTENANCE. Lessee is solely
responsible for the selection, installation, operation and
maintenance of the Equipment and all costs related thereto,
including shipping charges. Lessee shall at all times operate
and maintain the Equipment in good operating order, repair,
condition and appearance, normal wear and tear excepted, and
in accordance with its manufacturer's specifications and
recommendations. On reasonable prior notice to Lessee, Lessor
and Lessor's agents shall have the right, during Lessee's
business hours, to enter the premises where the Equipment is
located for the purpose of inspecting the Equipment and
observing its use. Lessee shall, at its expense, affix and
maintain in a prominent position on each item of Equipment
any tags or identifying labels provided by Lessor to indicate
Lessor's ownership of the Equipment. Lessee shall, at its
expense, enter into, maintain and enforce at all times a
maintenance agreement to service and maintain the Equipment,
upon terms and with a provider acceptable to Lessor.
9. EQUIPMENT OWNERSHIP; ATTACHMENTS; LOCATION. Lessor is
the sole owner of the Equipment and has sole title thereto.
Lessee covenants that it will not pledge or encumber the
Equipment or Lessor's interest in the Equipment in any manner
whatsoever nor permit any liens to be attached thereto.
Lessee shall not make any representation to any third-party
inconsistent with Lessor's sole ownership of the Equipment.
The Equipment shall remain Lessor's personal property whether
or not affixed to realty and shall not become or be made to
become a part of any real property on which it is placed
without Lessor's prior written consent. All additions,
attachments and accessories placed on the Equipment or
repairs made to the Equipment become a part thereof and
Lessor's property. Lessee shall maintain the Equipment so
that it may be removed from any building in which it is
placed without damage thereto. The Equipment will be located
at the Equipment Location, and Lessee shall not move it and
shall not permit it to be moved without the prior written
consent of Lessor, provided that in the event Lessee intends
to move the Equipment Location to another Equipment Location,
Lessee shall provide Lessor thirty (30) days prior notice of
where such Equipment is to be moved and shall execute such
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<PAGE>
documents as Lessor requires to enable Lessor to maintain
continued perfection of its interests in the Equipment.
10. INSURANCE. Lessee agrees to keep the Equipment insured
at Lessee's expense against all risks of loss, including
theft or damage from any cause whatsoever. Lessee agrees that
such insurance shall name Lessor as a loss payee, with a full
waiver of warranties (Form BFU-438 or comparable) and provide
coverage not less than the greater of the Stipulated Loss
Value of the Equipment and the then-current fair market value
of the Equipment. Lessee also agrees that it shall carry
public liability insurance in an amount consistent with
prudent business practices and customary to Lessee's
industry. Each policy shall provide that the insurance cannot
be canceled without at least thirty (30) days prior written
notice to Lessor. Upon request by Lessor, Lessee agrees to
furnish proof of insurance coverage, including a certificate
of insurance and a copy of the policy. If Lessee fails to
provide Lessor with such evidence, then Lessor will have the
right, but not the obligation, to have such insurance
protecting Lessor placed at Lessee's expense. Lessee's
expense shall include a full premium paid for such insurance
and any customary charges, costs or fees of Lessor. Lessee
agrees to pay such amounts in equal installments allocated to
each Rent payment (plus interest on such amounts at the
lesser of 1.5% per month or the maximum rate allowable under
applicable law). Lessee hereby appoints Lessor as its
attorney-in-fact to make any claim, receive payment or
execute or endorse all documents, checks or drafts for loss
or damage or return of any premium under such insurance and
to apply any such amounts to satisfy Lessee's obligations
under this Master Agreement or any Lease.
11. RISK OF LOSS. In the event of any Casualty, on the next
Rent payment date Lessee shall pay Lessor the Stipulated Loss
Value. Upon Lessor's full receipt of such Stipulated Loss
Value, the applicable Schedule shall terminate, and except as
provided in Section 21, Lessee shall be relieved of all
obligations under the applicable Schedule, and Lessor shall
transfer all its interest in the Equipment to Lessee "AS IS,
WHERE IS," and without any warranty, express or implied from
Lessor, other than the absence of any liens or claims by,
through, or under Lessor. In the event of a partial
destruction of or repairable damage to any Equipment, the
Lease shall continue with respect to such Equipment and
Lessee shall at its expense promptly cause such Equipment to
be repaired to a condition acceptable to Lessor. There shall
be no abatement of Rent in any such event. Lessee shall
immediately notify Lessor of any Casualty or partial
destruction or damage to any Equipment.
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12. TAXES. On behalf of Lessee Lessor shall file and pay all
Impositions now or hereafter imposed or assessed by any
foreign, federal, state or local government upon the
purchase, ownership, delivery, installation, leasing, rental,
use or sale of the Equipment, or the Rent or other charges
payable hereunder, whether assessed on Lessor or Lessee. As
additional Rent, Lessee shall reimburse Lessor for all
Impositions, together with any penalties or interest in
connection therewith attributable to Lessee's acts or failure
to act, excepting only any Imposition on or measured by the
net income of Lessor.
13. INDEMNITY. Lessee shall indemnify, defend and hold
harmless Lessor, its agents and assignees, from and against
any and all Claims, arising, directly or indirectly, out of
or connected with any matter involving this Master Agreement,
the Equipment or any Lease, including but not limited to: (a)
the selection, manufacture, purchase, acceptance, rejection,
ownership, delivery, lease, possession, maintenance, use,
condition, return or operation of the Equipment; (b) any
breach by Lessee of any representation, warranty or covenant
hereunder or any other Transaction Document; (c) any latent
defects or other defects in any Equipment, whether or not
discoverable by Lessor or by Lessee; (d) any patent,
trademark or copyright infringement; and (e) the condition of
any Equipment arising or existing during Lessee's use.
Notwithstanding the foregoing, Lessee shall have no indemnity
obligation with respect to any Claims which arise solely out
of the gross negligence or willful misconduct of Lessor.
14. DISCLAIMER OF WARRANTIES AND LESSEE WAIVERS. LESSEE
LEASES THE EQUIPMENT FROM LESSOR "AS IS" AND "WHERE IS."
LESSEE HEREBY AGREES THAT: EXCEPT AS TO QUIET ENJOYMENT,
LESSOR MAKES ABSOLUTELY NO WARRANTIES, EXPRESS OR IMPLIED TO
LESSEE; LESSOR SHALL NOT BE LIABLE FOR ANY FAILURE OF ANY
EQUIPMENT OR ANY DELAY IN ITS DELIVERY OR INSTALLATION OR ANY
BREACH OF ANY WARRANTY THAT SELLER MAY HAVE MADE; LESSEE HAS
SELECTED ALL EQUIPMENT WITHOUT LESSOR'S ASSISTANCE; LESSOR IS
NOT A MANUFACTURER OF ANY OF THE EQUIPMENT; LESSOR SHALL HAVE
NO LIABILITY TO LESSEE, LESSEE'S CUSTOMERS, OR ANY THIRD
PARTIES FOR ANY DIRECT, INDIRECT, SPECIAL OR CONSEQUENTIAL
DAMAGES ARISING OUT OF THIS AGREEMENT OR ANY SCHEDULE OR
CONCERNING ANY EQUIPMENT, OR FOR ANY DAMAGES BASED ON STRICT
OR ABSOLUTE TORT LIABILITY OR LESSOR'S NEGLIGENCE; LESSEE'S
SOLE RECOURSE FOR
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ANY AND ALL CLAIMS AND WARRANTIES RELATING TO THE EQUIPMENT
SHALL BE AGAINST SELLER. Lessor hereby assigns to Lessee for
the Applicable Term the right to enforce, provided that no
Default then exists under this Master Agreement or any Lease
and such enforcement is pursued in Lessee's name, any
representations, warranties and agreements made by the
Supplier pursuant to the Purchase Documents, and Lessee may
retain any recovery resulting from any such enforcement
efforts. LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES
CONFERRED UPON A LESSEE BY ARTICLE 2A (CALIFORNIA COMMERCIAL
CODE DIVISION 10) OF THE UNIFORM COMMERCIAL CODE (INCLUDING
LESSEE'S RIGHTS, CLAIMS AND DEFENSES UNDER UCC ARTICLE 2A
SECTIONS 508-522) AND ANY RIGHTS NOW OR HEREAFTER CONFERRED
BY STATUTE OR OTHERWISE THAT MAY LIMIT OR MODIFY LESSOR'S
RIGHTS AS DESCRIBED IN THIS SECTION OR OTHER SECTIONS OF THIS
MASTER AGREEMENT.
15. LESSEE WARRANTIES. Lessee represents, warrants and
covenants to Lessor that: (a) all equipment is leased for
business purposes only and not for personal, family or
household purposes; (b) Lessee is duly organized, validly
existing and in good standing under applicable law; (c)
Lessee has the power and authority to enter into the
Transaction Documents; (d) the Transaction Documents are
enforceable against Lessee in accordance with their terms and
do not violate or create a default under any instrument or
agreement binding on Lessee; (e) there are no pending or
threatened actions or proceedings before any court or
administrative agency which could have a material adverse
effect on Lessee or any Transaction Document, unless such
actions are disclosed to Lessor and consented to in writing
by Lessor; (f) Lessee shall comply in all material respects
with all laws and regulations the violation of which could
have a material adverse effect upon the Equipment or Lessee's
performance of its obligations under any Transaction
Document; (g) each Transaction Document shall be effective
against all creditors of Lessee under applicable law,
including fraudulent conveyance and bulk transfer laws, and
shall raise no presumption of fraud; (h) financial statements
and other related information furnished by Lessee shall be
prepared in accordance with generally accepted accounting
principles and shall fairly present Lessee's financial
position as of the dates given on such statements; (i) Lessee
shall furnish Lessor with its financial statements certified
by an officer of Lessee on a monthly basis (on a quarterly
basis if Lessee shall consummate an initial public offering
of its common stock) within thirty (30) days of the end of
each month (after the end of each quarter if such initial
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public offering occurs), and audited financial statements on
an annual basis within 90 days of the end of each fiscal
year, opinions of counsel, resolutions, and such other
information and documents as Lessor may reasonably request;
and (j) all Equipment is tangible personal property and shall
not become a fixture or real property under Lessee's use
thereof. Lessee shall be deemed to have reaffirmed the
foregoing warranties each time it executes any Transaction
Document.
16. DEFAULT. Any of the following shall constitute a Default
under this Master Agreement and all Leases: (a) Lessee fails
to pay any Rent payment or any other amount payable to Lessor
hereunder when due; or (b) Lessee commits a material default
under or a material breach of any of the other terms and
conditions of any Material Agreement; or (c) any material
representation or warranty made by Lessee in a Material
Agreement proves to be incorrect in any material respect when
made or reaffirmed; or (d) Lessee becomes insolvent or fails
generally to pay its debts as they become due; or (e) the
Equipment is levied against, seized or attached and the same
is not bonded against, released or stayed within ten days; or
(f) Lessee makes an assignment for the benefit of creditors,
whether voluntary or involuntary; or (g) a proceeding under
any bankruptcy, reorganization, arrangement of debt,
insolvency or receivership law is filed by or against Lessee
or Lessee takes any action to authorize any of the foregoing
matters and, if filed against Lessee, is not dismissed within
30 days; or (h) any letter of credit, guaranty, surety bond
or like instrument issued in support of a Lease is revoked,
breached, canceled or terminated; or (i) any guarantor,
surety or like third-party obligor under this Master
Agreement fails to fulfill any of the obligations of Lessor
which it agreed to perform; or (j) any breach or default
occurs under any of the Loan Documents; or (k) Lessee shall
fail to maintain, as of the last day of each calendar month,
a ratio of Quick Assets to Current Liabilities of at least
2.0 to 1.0.
17. REMEDIES. If a Default occurs, Lessor may, in its sole
discretion, exercise one or more of the following remedies:
(a) terminate this Master Agreement or any Lease; or (b) take
possession of, or render unusable, any Equipment wherever the
Equipment may be located, without demand or notice, without
any court order or other process of law and without liability
to Lessee for any damages occasioned by such action, and no
such action shall constitute a termination of any Lease; or
(c) require Lessee to deliver the Equipment to a location
specified by Lessor; or (d) declare the Stipulated Loss Value
for any or all Leases to be due and payable as liquidated
damages for loss of a bargain and not as a penalty and in
lieu of any further Rent payments under the applicable Lease
or Leases; or (e)
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proceed by court action to enforce performance by Lessee of
any Lease and/or to recover all damages and expenses incurred
by Lessor by reason of any Default; or (f) terminate any
other agreement that Lessor may have with Lessee; or (g)
exercise any other right or remedy available to Lessor at law
or in equity. Any Rent not received on or before the due date
shall bear interest at the lesser of 1.5% per month or the
highest interest rate legally permissible. Lessee shall pay
Lessor all costs and expenses that Lessor may incur to
maintain, safeguard or preserve the Equipment, and other
expenses incurred by Lessor in enforcing any of the terms,
conditions or provisions of this Agreement (including
reasonable legal fees and collection agency costs). Upon
repossession or surrender of any Equipment, Lessor shall
lease, sell or otherwise dispose of the Equipment in
compliance with applicable law and apply the net proceeds
thereof (after deducting all expenses, including reasonable
legal fees and costs, incurred in connection therewith) to
the amounts owed to Lessor hereunder; provided, however, that
Lessee shall remain liable to Lessor for any deficiency that
remains after any sale or lease of such Equipment. These
remedies are cumulative of every other right or remedy given
hereunder or now or hereafter existing at law or in equity or
by statute or otherwise, and may be enforced concurrently
therewith or from time to time.
18. PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee fails to
perform any of its obligations hereunder, Lessor may perform
any act or make any payment that Lessor deems reasonably
necessary for the maintenance and preservation of the
Equipment and Lessor's interests therein; provided that the
performance of any act or payment by Lessor shall not be
deemed a waiver of, or release Lessee from, the obligation at
issue. All sums so paid by Lessor, together with expenses
(including reasonable legal fees and costs) incurred by
Lessor in connection therewith, shall be considered Rent
hereunder, will bear interest at the lesser of 1.5% per month
or the highest interest rate legally permissible, and shall
be, without demand, immediately due and payable to Lessor by
Lessee.
19. ASSIGNMENT. Lessor may assign, pledge, transfer,
mortgage or otherwise convey any of its interest in this
Master Agreement, any Lease, Schedule or Equipment, in whole
or in part, without notice to or the consent of Lessee. If
any Lease is assigned, Lessee shall: (a) unless otherwise
specified by Lessor and Assignee, pay all amounts due under
the applicable Lease to such Assignee, notwithstanding any
defense, setoff or counterclaim whatsoever that Lessee may
have against Lessor or Assignee, all of which are hereby
waived by Lessee as to any Assignee; (b) not require the
Assignee to perform any obligations of
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Lessor, other than those that are expressly assumed in
writing by such Assignee; and (c) execute such
acknowledgments thereto as may be requested by Lessor. It is
further agreed that: (x) each Assignee shall be entitled to
all of Lessor's rights, powers and privileges under the
applicable Lease, to the extent assigned; (y) any Assignee
may reassign its rights and interests under the applicable
Lease with the same force and effect as the assignment
described herein; and (z) any payments received by the
Assignee from Lessee with respect to the assigned Lease
shall, to the extent thereof, discharge the obligations of
Lessee to Lessor with respect to the assigned Lease. Lessee
acknowledges that any assignment or transfer by Lessor or any
Assignee will not materially change Lessee's obligations
under the assigned Lease. Without Lessor's prior written
consent, Lessee shall not assign this Master Agreement or any
Lease or assign its rights in or sublet the Equipment or any
interest therein.
20. FURTHER ASSURANCES. Lessee shall promptly execute and
deliver to Lessor such further documents and take such
further action as Lessor may require in order to more
effectively carry out the intent and purpose of this Master
Agreement and any Lease, including executing and delivering
any and all financing statements which Lessor may request.
Upon demand, Lessee will promptly reimburse Lessor for any
filing or recording fees or expenses (including reasonable
legal fees and costs) incurred by Lessor in perfecting or
protecting its interests in the Equipment.
21. SURVIVAL. All representations, warranties and covenants
made by Lessee hereunder shall survive the termination of
this Agreement and shall remain in full force and effect. All
of Lessor's rights, privileges and indemnities, to the extent
they are fairly attributable to events or conditions
occurring or existing on or prior to the termination of this
Agreement, shall survive such termination and be enforceable
by Lessor and Lessor's successors and assigns.
22. WAIVER OF JURY TRIAL. LESSEE AND LESSOR HEREBY
EXPRESSLY WAIVE ANY RIGHT TO DEMAND A JURY TRIAL WITH RESPECT
TO ANY ACTION OR PROCEEDING INSTITUTED BY LESSOR OR LESSEE IN
CONNECTION WITH THIS MASTER LEASE OR ANY LEASE OR SCHEDULE.
23. CAPTIONS; COUNTERPARTS; LESSOR'S AFFILIATES. The
captions contained in this Agreement are for convenience only
and shall not affect the interpretation of this Master
Agreement. Only the Original shall be marked "Original," and
all other counterparts of the Schedule
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shall be marked as, and shall be, duplicates. To the extent
that any Schedule constitutes chattel paper (as such term is
defined in the Uniform Commercial Code in effect in the
applicable jurisdiction), no security interest in such
Schedule may be created through the transfer or possession of
any counterpart other than the Original.
24. MISCELLANEOUS. This Master Agreement and each Lease
hereunder shall be governed by the internal laws (as opposed
to conflicts of law provisions) of the state of California.
If any provision of this Master Agreement or any Schedule
shall be prohibited by or invalid under any law, such
provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Master
Agreement or any Lease. Lessor and Lessee consent to the
jurisdiction of any local, state or federal court located
within the County of Santa Clara, State of California, and
waive any objection relating to improper venue or forum non
conveniens to the conduct of any proceeding in any such
court. This Agreement and the other Transaction Documents
constitute the entire agreement between Lessor and Lessee
relating to the leasing of the Equipment, and supersede all
prior agreements relating thereto, whether written or oral,
and may not be amended or modified except in a writing signed
by the parties hereto. Any failure of Lessor to require
strict performance by Lessee, or any written waiver by Lessor
of any provision hereof, shall not constitute consent or
waiver of any other breach of the same or any other provision
hereof.
IN WITNESS WHEREOF, LESSOR AND LESSEE HAVE EXECUTED THIS MASTER
AGREEMENT AS OF THE DATE SPECIFIED.
LESSEE LESSOR
BREAKAWAY SOLUTIONS INC. SILICON VALLEY BANK
By: /s/ Kevin Comerford By: /s/ Doug Marshall
--------------------------- -----------------------
Title: Chief Financial Officer Title: Vice President
------------------------ --------------------
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SCHEDULE TO MASTER LEASE AGREEMENT
SCHEDULE NUMBER
------
Silicon Valley Bank ("Lessor") and Breakaway Solutions Inc.
("Lessee") are entering into this Schedule Number ____ as of __________, 1999,
in reference and as parties to that certain Master Lease Agreement, Lease Number
__________ (the "Master Agreement"). This Schedule and the Master Agreement
together comprise a separate Lease between the parties. The terms and conditions
of the Master Agreement are hereby incorporated by reference into this Schedule.
All initially-capitalized terms not defined in this Schedule shall have the
meanings assigned to them in the Master Agreement. In the event of any conflict
between the terms of the Master Agreement and this Schedule, the provisions of
this Schedule shall govern.
1. LEASE OF EQUIPMENT. Lessor agrees to lease to Lessee and
Lessee agrees to lease from Lessor the Equipment set forth in
this Schedule. This Lease will be governed by the Master
Agreement and this Schedule.
2. EQUIPMENT DESCRIPTION. Computer equipment, printers,
servers and/or software which are acceptable to Lessor.
3. Schedule Commitment Amount. $4,000,000, $2,000,000 of
which is currently available to Lessee, the other $2,000,000
of which shall be available to Lessee only upon the
consummation by Lessee of an initial public offering of the
stock of Lessee or the receipt by Lessee of not less than
$10,000,000 of new equity funds.
4. INITIAL TERM. The Initial Term shall commence on the
first payment date ("First Payment Date") which shall be the
earlier of (i) the first day of a calendar month following
the month in which the Lessee has fully utilized the Schedule
Commitment Amount, provided that if Lessee delivers an
Acceptance certificate on the first day of a calendar month
and such Acceptance Certificate results in full utilization
of the Schedule Commitment Amount, that date shall be deemed
such first day of a calendar month or (ii) in any event no
later than the Cut-off Date. The Initial Term for software
leased under this Schedule shall be 36 months and the Initial
Term for all other Equipment leased under this Schedule shall
be 36 months.
5. INTERIM RENT. Lessee shall pay to Lessor on the first
day of each calendar month, in arrears, Interim Rent payments
for each day during the period from and including the
Acceptance Date through and including the last day of the
calendar month prior to the First Payment
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Date. For purposes of this Schedule, "Interim Rent" shall be
an amount accruing on a daily basis equal to 0.0330% of the
amount drawn under this Schedule (as set forth in the
applicable Equipment Annex __).
6. RENT PAYMENTS. Lessee shall pay Lessor, in advance, on
the first day of each month the Rent payment for the Initial
Term. The first monthly Rent payment shall be due on the
First Payment Date. For purposes of this Schedule, (i) the
applicable monthly Rent payment for software financed under
this Schedule shall be _____% of the aggregate cost of such
software leased under the Equipment Annexes and (ii) the
applicable monthly Rent payment for all other Equipment
leased under this Schedule shall be _____% of the aggregate
cost of such Equipment financed under the Equipment Annexes.
Lessor's obligation to purchase and lease the Equipment is
subject to the Acceptance Date being on or before the Cut-Off
Date set forth in this Schedule.
7. CUT-OFF DATE. December 30, 1999.
8. END OF TERM PAYMENT. See Rider 1 for provisions
regarding payment at the end of the term of this Lease.
9. PURCHASE, RENEWAL AND RETURN. See Rider 1 for provisions
regarding purchase, renewal and return of the Equipment.
10. STIPULATED LOSS VALUE. See Rider 1 for provisions
regarding the Stipulated Loss Value of the Equipment.
11. COUNTERPARTS; ONE ORIGINAL; CHATTEL PAPER SECURITY
INTEREST. Only the Original, including Rider 1 attached
hereto and incorporated herein by reference, shall be marked
"Original," and all other counterparts hereof shall be marked
as, and shall be, duplicates. To the extent that this
Schedule constitutes chattel paper (as such term is defined
in the Uniform Commercial Code in effect in the applicable
jurisdiction), no security interest in this Schedule may be
created through the transfer or possession of any counterpart
other than the Original.
IN WITNESS WHEREOF, LESSOR AND LESSEE HAVE EXECUTED THIS
SCHEDULE AS OF THE DATE SPECIFIED.
LESSEE LESSOR
BREAKAWAY SOLUTIONS INC. SILICON VALLEY BANK
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By: By:
------------------------ -------------------------
Title: Title:
--------------------- ----------------------
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EQUIPMENT ANNEX __
This Equipment Annex ___to Schedule Number ___________ (the
"Schedule") to the Master Lease Agreement between Silicon Valley Bank ("Lessor")
and Breakaway Solutions Inc. ("Lessee") is attached to and made part of the
Schedule.
1. Total Cost. The Equipment acquisition cost including
such shipping, delivery, installation and other charges as
Lessor shall have approved: $_________________.
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EXHIBIT 10.44
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Breakaway Solutions, Inc.
Number of Shares: 13,636 (provided, that Holder shall not be entitled to
exercise this Warrant with respect to 5,454 of such shares unless and until the
second $2,000,000 of the Commitment Amount under and as defined in that certain
Master Lease Agreement, dated as of September 29, 1999, between Holder and the
Company, shall be available to the Company, such right to exercise this Warrant
with respect to such 5,454 shares to exist regardless of whether the Company in
fact utilizes such second $2,000,000 of the Commitment Amount)
Class of Stock: Common
Initial Exercise Price: $8.80 per share
Issue Date: September 29, 1999
Expiration Date: June 21, 2002
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.4.
1.3 INTENTIONALLY OMITTED
1.4 FAIR MARKET VALUE. If the Shares are traded in a public
market, the fair market value of the Shares shall be the closing price of the
Shares reported for the business day immediately before Holder delivers its
Notice of Exercise to the Company. If the Shares are not traded in a public
market, the Board of Directors of the Company shall determine fair market value
in its reasonable good faith judgment. The foregoing notwithstanding, if Holder
advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a reputable
investment banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall
be paid by Holder.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after
Holder exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
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1.6 REPLACEMENT OF WARRANTS. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, on
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE
COMPANY.
1.7.1. "ACQUISITION". For the purpose of this
Warrant, "Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. ASSUMPTION OF WARRANT. Upon the closing of
any Acquisition the successor entity shall assume the obligations of this
Warrant, and this Warrant shall be exercisable for the same securities, cash,
and property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or
pays a dividend on its common stock (or the Shares if the Shares are securities
other than common stock) payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
or, if the Shares are securities other than common stock, subdivides the Shares
in a transaction that increases the amount of common stock into which the Shares
are convertible, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned the Shares
of record as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding
Shares are combined or consolidated, by reclassification or otherwise, into a
lesser number of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price
and the number of Shares issuable upon exercise of this Warrant or, if the
Shares are Preferred Stock, the number of shares of common stock issuable upon
conversion of the Shares, shall be subject to adjustment, from time to time in
the manner set forth on Exhibit A in the event of Diluting Issuances (as defined
on Exhibit A).
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2.5 NO IMPAIRMENT. The Company shall not, by amendment of
its Articles of Incorporation or through a 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 under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be
issuable upon exercise or conversion of the Warrant and the number of Shares to
be issued shall be rounded down to the nearest whole Share. If a fractional
share interest arises upon any exercise or conversion of the Warrant, the
Company shall eliminate such fractional share interest by paying Holder amount
computed by multiplying the fractional interest by the fair market value of a
full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of
the Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first
page of this Warrant is not greater than (i) the price per share at which the
Shares were last issued in an arms-length transaction in which at least $500,000
of the Shares were sold and (ii) the fair market value of the Shares as of the
date of this Warrant.
(b) All Shares which may be issued upon the exercise
of the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
(c) The Capitalization Table attached to this Warrant
is true and complete as of the Issue Date.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any
time (a) to declare any dividend or distribution upon its common stock, whether
in cash, property, stock, or other securities and whether or not a regular cash
dividend; (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 common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) 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 will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
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3.3 INFORMATION RIGHTS. So long as the Holder holds this
Warrant and/or any of the Shares, and the Company is not subject to any
reporting requirements of the Securities and Exchange Act of 1934, the Company
shall deliver to the Holder (a) promptly after mailing, copies of all notices or
other written communications to the shareholders of the Company, (b) within
ninety (90) days after the end of each fiscal year of the Company, the annual
audited financial statements of the Company certified by independent public
accountants of recognized standing and (c) such other financial statements
required under and in accordance with any loan documents between Holder and the
Company (or if there are no such requirements [or if the subject loan(s) no
longer are outstanding]), then within forty-five (45) days after the end of each
of the first three quarters of each fiscal year, the Company's quarterly,
unaudited financial statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED.
The Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached, provided, that the Shares shall not
be subject to such registration rights in connection with any initial public
offering of the common stock of the Company.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable,
in whole or in part, at any time and from time to time on or before the
Expiration Date set forth above. The Company shall give Holder written notice of
Holder's right to exercise this Warrant in the form attached as Appendix 2 not
more than 90 days and not less than 30 days before the Expiration Date. If the
notice is not so given, the Expiration Date shall automatically be extended
until 30 days after the date the Company delivers the notice to Holder.
4.2 LEGENDS. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This
Warrant and the Shares issuable upon exercise this Warrant (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) may not
be transferred or assigned in whole or in part without compliance with
applicable federal and state securities laws by the transferor and the
transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, as reasonably requested by the Company). The Company shall not require
Holder to provide an opinion of counsel if the transfer is to an affiliate of
Holder or if there is no material question as to the availability of current
information as referenced in Rule 144(c), Holder represents that it has complied
with Rule 144(d) and (e) in reasonable detail, the selling broker represents
that it has complied with Rule 144(f), and the Company is provided with a copy
of Holder s notice of proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section
4.3 Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) at any time to Silicon Valley Bancshares
or The Silicon Valley Bank Foundation, or to any affiliate of Holder, or, to any
other transferee by giving the Company notice of the portion of the Warrant
being transferred setting forth the name, address and taxpayer identification
number of the transferee and surrendering this Warrant to the Company for
reissuance to the transferee(s) (and Holder if applicable). Unless the Company
is filing financial information with the SEC pursuant to the Securities Exchange
Act of 1934, the Company shall have the right to refuse to transfer any portion
of this Warrant to any person who directly competes with the Company.
4.5 NOTICES. All notices and other communications from the
Company to the Holder, or vice versa, shall be deemed delivered and effective
when given personally or mailed by first-class registered or certified mail,
postage prepaid, at such address as may have been furnished to the Company or
the Holder, as the case may
-4-
<PAGE>
be, in writing by the Company or such holder from time to time. All notices to
be provided under this Warrant shall be send to the following address:
Silicon Valley Bank
Attn: Treasury Department
3003 Tasman Drive
Santa Clara, CA 95054
4.6 WAIVER. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party all
costs incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to its principles regarding conflicts of law.
"COMPANY"
Breakaway Solutions, Inc.
By: /s/ Gordon Brooks
-------------------------------------
Name: Gordon Brooks
-------------------------------------
(Print)
Title: Chairman of the Board, President or Vice
President
By: /s/ Kevin Comerford
-------------------------------------
Name: Kevin Comerford
-------------------------------------
(Print)
Title: Chief Financial Officer, Secretary,
Assistant Treasurer or Assistant Secretary
-5-
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _____________ shares of
the Common/Preferred Series ___ [Strike one] Stock of ______________. pursuant
to the terms of the attached Warrant, and tenders herewith payment of the
purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to _____________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
-------------------------------------------
(Name)
-------------------------------------------
-------------------------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
----------------------------------
(Signature)
- --------------------
(Date)
-1-
<PAGE>
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
---------------,----
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear :
--------------------------
This is to advise you that the Warrant issued to you described below
will expire on _________________________, 19__.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
-------------------------------------------------
(Name of Issuer)
By:
-------------------------------------------------
Its:
-------------------------------------------------
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<PAGE>
EXHIBIT B
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon
conversion of the Shares, shall be deemed "registrable securities" or otherwise
entitled to "piggy back" registration rights in accordance with the terms of the
following agreement (the "Agreement") between the Company and its investor(s):
--------------------------------------------------------------
[Identify Agreement by date, title and parties. If no
Agreement exists, indicate by "none".]
The Company agrees that no amendments will be made to the Agreement
which would have an adverse impact on Holder's registration rights thereunder
without the consent of Holder. By acceptance of the Warrant to which this
Exhibit B is attached, Holder shall be deemed to be a party to the Agreement,
unless Holder otherwise elects not to become or to cease being a party thereto.
If no Agreement exists, then the Company and the Holder shall enter
into Holder's standard form of Registration Rights Agreement as in effect on the
Issue Date of the Warrant.
-1-
<PAGE>
EXHIBIT "A"
SILICON VALLEY BANK
ANTIDILUTION AGREEMENT
THIS ANTIDILUTION AGREEMENT is entered into as of September __, 1999 by
and between Silicon Valley Bank, a California-chartered bank ("Purchaser") and
the Company whose name appears on the last page of this Antidilution Agreement.
RECITALS
A. Concurrently with the execution of this Antidilution Agreement,
the Purchaser is purchasing from the Company a Warrant to Purchase Stock (the
"Warrant') pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company
desire to set forth the adjustment in the number of Shares issuable upon
exercise of the Warrant as a result of a Diluting Issuance (as defined in
Exhibit A to the Warrant).
C. Capitalized terms used herein shall have the same meaning as set
forth in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto mutually
agree as follows:
1. DEFINITIONS. As used in this Antidilution Agreement, the
following terms have the following respective meanings:
(a) "Option" means any right, option, or warrant to
subscribe for, purchase, or otherwise acquire common stock or Convertible
Securities.
(b) "Convertible Securities" means any evidences of
indebtedness, shares of stock, or other securities directly or indirectly
convertible into or exchangeable for common stock.
(c) "Issue" means to grant, issue, sell, assume,
or fix a record date for determining persons entitled to receive, any security
(including Options), whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all common stock
(including reissued shares) issued (or deemed to be issued pursuant to Section
2) after the date of the Warrant. Additional Common Shares does not include,
however, any common stock issued in a transaction described in Sections 2.1 and
2.2 of the Warrant; any common stock Issued upon conversion of preferred stock
outstanding on the date of the Warrant; the Shares; or common stock Issued as
incentive or in a nonfinancing transaction to employees, officers, directors, or
consultants to the Company.
(e) The shares of common stock ultimately Issuable
upon exercise of an Option (including the shares of common stock ultimately
Issuable upon conversion or exercise of a Convertible Security Issuable pursuant
to an Option) are deemed to be Issued when the Option is Issued. The shares of
common stock ultimately Issuable upon conversion or exercise of a Convertible
Security (other than a Convertible Security Issued pursuant to an Option) shall
be deemed Issued upon Issuance of the Convertible Security.
2. DEEMED ISSUANCE OF ADDITIONAL COMMON SHARES. The shares of common
stock ultimately Issuable upon exercise of an Option (including the shares of
common stock ultimately Issuable upon conversion or exercise of a Convertible
Security Issuable pursuant to an Option) are deemed to be Issued when the Option
is Issued. The shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security Issued
pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible
Security.
-1-
<PAGE>
The maximum amount of common stock Issuable is determined without regard to any
future adjustments permitted under the instrument creating the Options or
Convertible Securities.
3. ADJUSTMENT OF WARRANT PRICE FOR DILUTING ISSUANCES.
3.1 RATCHET ADJUSTMENT. If the Company issues Additional Common
Shares after the date of the Warrant and the consideration per Additional Common
Share (determined pursuant to Section 9) is less than the Warrant Price in
effect immediately before such Issue, the Warrant Price shall be reduced to the
lesser of:
(a) the amount of such consideration per Additional
Common Share; or
(b) if the Company's common stock is traded on a
national securities exchange or the National Association of Securities Dealers
Automated Quotation System, the last reported bid or sale price of the Company's
common stock on the first trading day following a public announcement of the
Issuance.
3.2 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of
the Warrant Price, the number of Shares issuable upon exercise of the Warrant
shall be increased to equal the quotient obtained by dividing (a) the product
resulting from multiplying (i) the number of Shares issuable upon exercise of
the Warrant and (ii) the Warrant Price, in each case as in effect immediately
before such adjustment, by (b) the adjusted Warrant Price.
3.3 SECURITIES DEEMED OUTSTANDING. For the purpose of this
Section 3, all securities issuable upon exercise of any outstanding Convertible
Securities or Options, warrants, or other rights to acquire securities of the
Company shall be deemed to be outstanding.
4. NO ADJUSTMENT FOR ISSUANCES FOLLOWING DEEMED ISSUANCES. No
adjustment to the Warrant Price shall be made upon the exercise of Options or
conversion of Convertible Securities.
5. ADJUSTMENT FOLLOWING CHANGES IN TERMS OF OPTIONS OR CONVERTIBLE
SECURITIES. If the consideration payable to, or the amount of common stock
Issuable by, the Company increases or decreases, respectively, pursuant to the
terms of any outstanding Options or Convertible Securities, the Warrant Price
shall be recomputed to reflect such increase or decrease. The recomputation
shall be made as of the time of the Issuance of the Options or Convertible
Securities. Any changes in the Warrant Price that occurred after such Issuance
because other Additional Common Shares were Issued or deemed Issued shall also
be recomputed.
6. RECOMPUTATION UPON EXPIRATION OF OPTIONS OR CONVERTIBLE
SECURITIES. The Warrant Price computed upon the original Issue of any Options or
Convertible Securities, and any subsequent adjustments based thereon, shall be
recomputed when any Options or rights of conversion under Convertible Securities
expire without having been exercised. In the case of Convertible Securities or
Options for common stock, the Warrant Price shall be recomputed as if the only
Additional Common Shares Issued were the shares of common stock actually Issued
upon the exercise of such securities, if any, and as if the only consideration
received therefor was the consideration actually received upon the Issue,
exercise or conversion of the Options or Convertible Securities. In the case of
Options for Convertible Securities, the Warrant Price shall be recomputed as if
the only Convertible Securities Issued were the Convertible Securities actually
Issued upon the exercise thereof, if any, and as if the only consideration
received therefor was the consideration actually received by the Company
(determined pursuant to Section 9), if any, upon the Issue of the Options for
the Convertible Securities.
7. LIMIT ON READJUSTMENTS. No readjustment of the Warrant Price
pursuant to Sections 5 or 6 shall increase the Warrant Price more than the
amount of any decrease made in respect of the Issue of any Options or
Convertible Securities.
8. 30 DAY OPTIONS. In the case of any Options that expire by their
terms not more than 30 days after the date of Issue thereof, no adjustment of
the Warrant Price shall be made until the expiration or exercise of all such
Options.
9. COMPUTATION OF CONSIDERATION. The consideration received by the
Company for the Issue of any Additional Common Shares shall be computed as
follows:
-2-
<PAGE>
(a) CASH shall be valued at the amount of cash received by the
Corporation, excluding amounts paid or payable for accrued interest or accrued
dividends.
(b) PROPERTY. Property other than cash shall be computed at the
fair market value thereof at the time of the Issue as determined in good faith
by the Board of Directors of the Company.
(c) MIXED CONSIDERATION. The consideration for Additional common
Shares Issued together with other property of the Company for consideration that
covers both shall be determined in good faith by the Board of Directors.
(d) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per
Additional Common Share for Options and Convertible Securities shall be
determined by dividing:
(i) the total amount, if any, received or receivable
by the Company for the Issue of the Options or Convertible Securities, plus the
minimum 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 Company upon
exercise of the Options or conversion of the Convertible Securities, by
(ii) the maximum amount 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) ultimately Issuable upon the
exercise of such Options or the conversion of such Convertible Securities.
10. GENERAL.
10.1 GOVERNING LAW. This Antidilution Agreement shall be
governed in all respects by the laws of the Commonwealth of Massachusetts as
such laws are applied to agreements between California residents entered into
and to be performed entirely within California.
10.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
10.3 ENTIRE AGREEMENT. Except as set forth below, this
Antidilution Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
10.4 NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by first class
mail, postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Purchaser at Purchaser's address as set forth below, or at
such other address as Purchaser shall have furnished to the Company in writing,
or (b) if to the Company, at the Company's address set forth below, or at such
other address as the Company shall have furnished to the Purchaser in writing.
10.5 SEVERABILITY. In case any provision of this Antidilution
Agreement shall be invalid, illegal, or unenforceable, the validity, legality
and enforceability of the remaining provisions of this Antidilution Agreement
shall not in any way be affected or impaired thereby.
10.6 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Antidilution Agreement.
10.7 COUNTERPARTS. This Antidilution Agreement may be executed
in any number of counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
-3-
<PAGE>
PURCHASER COMPANY
SILICON VALLEY BANK BREAKAWAY SOLUTIONS, INC.
By: By:
--------------------------
- -----------------------------
Name: Name:
------------------------
- -----------------------------
(Print): (Print):
---------------------
- -----------------------------
Title: Title:Chairman of the Board,
-----------------------
President or Vice President
Address: Address:
-4-
<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, included herein
and to the reference to our firm under the headings "Selected Financial Data"
and "Experts" in the prospectus.
/s/ KPMG
Boston, Massachusetts
October 1, 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
Boston, Massachusetts
October 1, 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
Boston, Massachusetts
October 1, 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
Boston, Massachusetts
October 1, 1999
