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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-40056
PROSPECTUS
2,300,044 SHARES
[LOGO]
COMMON STOCK
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THIS PROSPECTUS RELATES TO RESALES OF SHARES OF COMMON STOCK PREVIOUSLY ISSUED
BY BREAKAWAY SOLUTIONS, INC. WE WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF
THE SHARES.
THE SELLING STOCKHOLDERS IDENTIFIED IN THIS PROSPECTUS, OR THEIR PLEDGEES,
DONEES, TRANSFEREES OR OTHER SUCCESSORS-IN-INTEREST, MAY OFFER THE SHARES FROM
TIME TO TIME THROUGH PUBLIC OR PRIVATE TRANSACTIONS AT PREVAILING MARKET PRICES,
AT PRICES RELATED TO PREVAILING MARKET PRICES OR AT PRIVATELY NEGOTIATED PRICES.
WE DO NOT KNOW WHEN OR IN WHAT AMOUNTS A SELLING STOCKHOLDER MAY OFFER SHARES
FOR SALE. THE SELLING STOCKHOLDERS MAY NOT SELL ANY OR ALL OF THE SHARES OFFERED
BY THIS PROSPECTUS.
OUR COMMON STOCK IS TRADED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"BWAY." ON DECEMBER 1, 2000, THE CLOSING SALE PRICE OF THE COMMON STOCK ON
NASDAQ WAS $2.12 PER SHARE.
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INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 3.
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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.
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THE DATE OF THIS PROSPECTUS IS DECEMBER 3, 2000
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TABLE OF CONTENTS
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SUMMARY..................................................... 1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 2
RISK FACTORS................................................ 3
USE OF PROCEEDS............................................. 10
DILUTION.................................................... 10
SELLING STOCKHOLDERS........................................ 11
PLAN OF DISTRIBUTION........................................ 12
VALIDITY OF COMMON STOCK.................................... 13
INTERESTS OF COUNSEL........................................ 13
EXPERTS..................................................... 13
WHERE YOU CAN FIND MORE INFORMATION......................... 14
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 15
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
WHICH IS CONTAINED IN THIS PROSPECTUS. THE SELLING STOCKHOLDERS 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 OF ANY SALE OF THE
COMMON STOCK.
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS IMPORTANT FEATURES OF THIS OFFERING AND THE
INFORMATION INCLUDED IN THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF
THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF
INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS" ON PAGE 3 OF THIS
PROSPECTUS.
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
$500 million 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 and time required for 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. 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 three services which we offer to our clients are:
- BREAKAWAY STRATEGY SOLUTIONS. Our professionals analyze our 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 E-BUSINESS SOLUTIONS. Our professionals recommend, tailor and
integrate packaged software applications from software vendors as well as
design, develop and integrate our own custom e-business applications to
assist our clients in using the Internet in their businesses.
- BREAKAWAY APPLICATION HOSTING. We install, maintain and manage 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;
- 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 760 professionals who provide strategy solutions, e-business
solutions and application hosting services. We offer services through eleven
regional offices located in Boca Raton, Boston, Chicago,
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Dallas, Minneapolis, New York, Orlando, Philadelphia, Redwood Shores, California
and Washington, D.C. and Dublin, Ireland. Our seven Breakaway Solution Centers
are located in Boca Raton, Boston, Minneapolis, Philadelphia, Dallas, Redwood
Shores and Dublin. We provide application hosting solutions through eleven
facilities located in North America, Europe, Asia and Australia.
THE OFFERING
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2,300,044 shares
Common Stock offered by selling
stockholders.....................................
Use of proceeds ................................... Breakaway will not receive any proceeds from
the sale of shares in this offering.
Nasdaq National Market symbol...................... BWAY
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ADDITIONAL INFORMATION
Our principal executive offices are located at 50 Rowes Wharf, 6th 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 and should not be
considered to be part of this prospectus. Our Web site address is included in
this prospectus as an inactive textual reference only. Unless the context
otherwise requires, references in this prospectus to "Breakaway," "we," and
"our" refer to Breakaway and its subsidiaries.
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 in the section captioned "Risk
Factors," as well as any cautionary language elsewhere in this prospectus,
provide examples of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock you should be
aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could have an adverse effect on our business,
results of operations and financial position.
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RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER CAREFULLY THE RISKS AND UNCERTAINTIES DESCRIBED BELOW 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. We further expanded our consulting and systems implementation
services in connection with our acquisitions of Eggrock Partners, Inc. and
Zartis.com Limited in 2000. In part due to these recent significant changes, we
are subject to the risk that we will fail to successfully 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 incorporated by reference in this prospectus is based on the
separate pre-acquisition financial reports of the companies we acquired in 1999
and 2000. 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, 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 net losses of
$575,175 and $10.4 million for the fiscal years ended December 31, 1998 and
1999, respectively and a net loss of $20.1 million for the six months ended
June 30, 2000. We expect to continue to incur significant operating losses in
the foreseeable future. If we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual basis in the future.
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WE PLAN TO EXPAND RAPIDLY; IF WE CANNOT MANAGE OUR GROWTH SUCCESSFULLY, OUR
GROWTH MAY SLOW OR STOP
We have recently expanded our operations extensively. 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. In 1999, while no single client accounted for more than
10% of our total revenues, Internet Capital Group, which is our largest
shareholder and has two representatives on our board of directors, and related
companies accounted for 17.9% of total revenues. Revenues from our five largest
clients accounted for approximately 26% of total revenues in 1999 and
approximately 39.0% for the six months ended June 30, 2000. 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 application hosting and
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 multi-year contracts with application hosting
clients;
- our ability to collect accounts receivable from some of our growing
enterprise clients who, as a result of their short operating histories and
emerging businesses, have not paid us on a timely basis;
- 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;
- gains recognized and related compensation expenses we incur as a result of
our venture capital investments and commitments to employees based on the
performance of those investments;
- our ability to attract, train and retain skilled personnel in all areas of
our business;
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- our ability in a consistent and accurate manner to manage costs, including
personnel costs and support services costs; and
- the timing and cost of anticipated openings or expansions of new regional
offices and new Solution Centers.
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 a substantial portion 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 may from
time to time 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 NEW REGIONAL OFFICES
SUCCESSFULLY
A key component of our growth strategy is to open regional offices in new
U.S. and foreign 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.
WE FACE INCREASED RISKS IN CONDUCTING BUSINESS ABROAD WHICH MAY DAMAGE OUR
BUSINESS RESULTS
One component of our growth strategy is to expand into international
markets. We have opened an office in London and, in July 2000, we acquired
Zartis.com Limited, a Dublin, Ireland-based e-business consultancy. We believe
that we will face certain risks in doing business abroad that we do not face
domestically. Among the international risks we believe are most likely to affect
us are:
- costs and difficulties in staffing and managing international operations;
- strains on our financial and other systems to properly administer VAT and
other taxes, and different cost structures;
- unexpected changes in regulatory requirements;
- increased tariffs and other trade barriers;
- costs and delays of localizing products and offerings for local market and
the costs and difficulties in complying with local business customs;
- difficulties in enforcing contractual and intellectual property rights;
- heightened risks of political and economic instability and the possibility
of nationalization or expropriation of industries or properties;
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- potentially adverse tax consequences including restrictions on
repatriating earnings and the threat of "double taxation;"
- the burden of complying with a wide variety of foreign laws and
regulations, some of which may conflict with U.S. laws;
- currency issues, including fluctuations in current exchange rates and the
adoption of the Euro by many countries of the European Union by 2003; and
- restrictions on the import and export of sensitive U.S. technologies, such
as data security and encryption software and systems that we may wish to
deliver to our customers.
Any of these factors or other factors not listed here could damage our
business results. There can be no assurance that one or more of these factors
will not have a material adverse effect on our foreign operations, and,
consequentially, our business, operating results and financial condition.
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 name. To promote our name and brand
identity, we have expended considerable amounts and may increase our marketing
expenses. These expenses have caused and may likely cause our operating margins
to decline. If these efforts are not successful, we will not experience any
increase in revenues to offset these 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 or more of our clients could damage
our name and brand identity.
OUR FAILURE TO MEET CLIENT EXPECTATIONS OR DELIVER ERROR-FREE SERVICES COULD
RESULT IN LOSSES AND NEGATIVE PUBLICITY
Many of our engagements involve information technology solutions that are
critical to our clients' businesses. Any defects or errors in these solutions or
failure to meet clients' specifications or expectations could result in:
- delayed or lost revenues due to adverse client reaction;
- requirements to provide additional services to a client at no charge;
- refunds of monthly application hosting fees for failure to meet service
level obligations;
- negative publicity about Breakaway and our services, which could adversely
affect our ability to attract or retain clients; or
- 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 most 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 short terms. 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
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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 our products declines, our business and operating results 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 or condition reuse.
WE DEPEND ON A LIMITED NUMBER OF KEY PERSONNEL WHO HAVE RECENTLY JOINED US
AND WHOM WE MAY NOT BE ABLE TO RETAIN
Many members of our senior management joined us in 1999 and 2000. 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.
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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 seven companies, including DataCyr
Corporation in February 2000, Eggrock effective in April 2000, Zartis in
July 2000 and Norsec, Inc. in August 2000. 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.
Integrating the operations of an acquired business can be a complex process
that requires integration of service personnel, sales and marketing groups,
hosting infrastructure and service offerings and coordination of our development
efforts. Client satisfaction or performance problems with an acquired business
also could affect our reputation as a whole. In addition, any acquired business
could significantly underperform relative to our expectations.
WE MAY NOT BE ABLE TO DELIVER OUR APPLICATION HOSTING SERVICES IF THIRD
PARTIES DO NOT PROVIDE US WITH KEY COMPONENTS OF OUR HOSTING INFRASTRUCTURE
We depend on other companies to supply key components of the computer and
telecommunications equipment and the telecommunications services which we use to
provide our application hosting services. Some of these components are available
only from sole or limited sources in the quantities and quality we demand.
Although we lease redundant capacity from multiple suppliers, a disruption in
our ability to provide hosting services could prevent us from maintaining the
required standards of service, which would cause us to incur contractual
penalties.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST US, EVEN WITHOUT MERIT,
COULD COST A SIGNIFICANT AMOUNT OF MONEY TO DEFEND AND 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, as our business expands into foreign countries,
risks associated with protecting our intellectual property will increase.
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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 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 HAS BEEN VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
FOR INVESTORS PURCHASING SHARES IN THIS OFFERING
The trading price of our common stock has been, and 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. Prices for our 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.
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.
OUR EXISTING PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS
CURRENTLY CONTROL AND 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 greater than a majority of our
outstanding capital stock. As a result, these persons, acting together, will be
able to control all matters submitted to our stockholders for approval and to
control our management and affairs. For example, these persons, acting together,
will control the election and removal of directors and any merger, consolidation
or sale of all or substantially all of our assets. This control could have the
effect of delaying or preventing a change of control of Breakaway that
stockholders may believe would result in better
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management. In addition, this control could depress our stock price because
purchasers will not be able to acquire a controlling interest in us.
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 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.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the selling
stockholders offered pursuant to this prospectus.
The selling stockholders will pay any expenses incurred by the selling
stockholders for brokerage, accounting, tax services or any other expenses
incurred by the selling stockholders in disposing of the shares. We will bear
all other costs, fees and expenses incurred in effecting the registration of the
shares covered by this prospectus, including, without limitation, all
registration and filing fees, Nasdaq listing fees and fees and expenses of our
counsel and our accountants and of counsel to the selling stockholders.
DILUTION
This offering is for sales of stock by existing Breakaway stockholders on a
continuous or delayed basis in the future. Sales of common stock by stockholders
will not result in a change to the net tangible book value per share before and
after the distribution of shares by the selling stockholders. There will be no
change in net tangible book value per share attributable to cash payments made
by purchasers of the shares being offered. Prospective investors should be
aware, however, that the price of Breakaway shares may not bear any rational
relationship to net tangible book value per share.
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SELLING STOCKHOLDERS
The following table sets forth, to our knowledge, certain information about
the selling stockholders as of November 1, 2000.
We do not know when or in what amounts a selling stockholder may offer
shares for sale. The selling stockholders may not sell any or all of the shares
offered by this prospectus. Because the selling stockholders may offer all or
some of the shares pursuant to this offering, and because there are currently no
agreements, arrangements or understandings with respect to the sale of any of
the shares, we cannot estimate the number of the shares that will be held by the
selling stockholders after completion of the offering. However, for purposes of
this table, we have assumed that, after completion of the offering, none of the
shares covered by this prospectus will be held by the selling stockholders.
Beneficial ownership is determined in accordance with the rules of the SEC,
and includes voting or investment power with respect to shares. Shares of common
stock issuable under stock options that are exercisable within 60 days after
November 1, 2000 are deemed outstanding for computing the percentage ownership
of the person holding the options but are not deemed outstanding for computing
the percentage ownership of any other person. Unless otherwise indicated below,
to our knowledge, all persons named in the table have sole voting and investment
power with respect to their shares of common stock, except to the extent
authority is shared by spouses under applicable law. The inclusion of any shares
in this table does not constitute an admission of beneficial ownership for the
person named below.
<TABLE>
<CAPTION>
SHARES OF
SHARES OF COMMON STOCK
COMMON STOCK TO BE
BENEFICIALLY OWNED NUMBER OF BENEFICIALLY OWNED
PRIOR TO OFFERING SHARES OF AFTER OFFERING
---------------------- COMMON STOCK ----------------------
NAME OF SELLING STOCKHOLDER(1) NUMBER PERCENTAGE BEING OFFERED NUMBER PERCENTAGE
------------------------------ --------- ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
The Putnam OTC and Emerging Growth
Fund(2)............................. 3,321,880 7.2% 1,129,500 2,192,380 4.7%
Janet Tremlett(3)..................... 139,000 * 50,000 89,000 *
Babak Farzami(3)...................... 473,155 1.0 314,862 158,293 *
Dev Ittycheria (3).................... 474,804 1.0 228,198 246,606 *
John Loftus(3)........................ 497,109 1.1 486,656 10,453 *
Daniel Cronin(3)(4)................... 50,460 * 45,414 5,046 *
Arthur Conroy(3)(4)................... 50,460 * 45,414 5,046 *
</TABLE>
------------------------
* Represents less than 1% of the total.
(1) The term "selling stockholders" includes donees, pledges, transferees or
other successors-in-interest selling shares received after the date of this
prospectus from a selling stockholder as a gift, pledge, partnership
distribution or other non-sale related transfer.
(2) The Putnam OTC and Emerging Growth Fund is a mutual fund managed by Putnam
Investment Management, Inc. Putnam Investment Funds--Putnam VT OTC &
Emerging Growth Fund another mutual fund managed by Putnam Investment
Management, Inc. also owns 149,700 shares.
(3) Each of these selling stockholders is an employee of Breakaway.
(4) Includes 5,046 shares currently being held in escrow in connection with
Breakaway's acquisition of DataCyr Corporation.
Except as disclosed in the footnotes to the selling stockholder table above,
none of the other selling stockholders has held any position or office with, or
has otherwise had a material relationship with, us or any of our subsidiaries
within the past three years.
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PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered and sold from time to
time by the selling stockholders. The term "selling stockholders" includes
donees, pledgees, transferees or other successors-in-interest selling shares
received after the date of this prospectus from a selling stockholder as a gift,
pledge, partnership distribution or other non-sale related transfer. The selling
stockholders will act independently of us in making decisions with respect to
the timing, manner and size of each sale. Such sales may be made on one or more
exchanges or in the over-the-counter market or otherwise, at prices and under
terms then prevailing or at prices related to the then current market price or
in negotiated transactions. The selling stockholders may sell their shares by
one or more of, or a combination of, the following methods:
- purchases by a broker-dealer as principal and resale by such broker-dealer
for its own account pursuant to this prospectus;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- block trades in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
- an over-the-counter distribution in accordance with the rules of the
Nasdaq National Market;
- in privately negotiated transactions; and
- in options transactions.
In addition, any shares that qualify for sale pursuant to Rule 144 may be
sold under Rule 144 rather than pursuant to this prospectus.
To the extent required, this prospectus may be amended or supplemented from
time to time to describe a specific plan of distribution. In connection with
distributions of the shares or otherwise, the selling stockholders may enter
into hedging transactions with broker-dealers or other financial institutions.
In connection with such transactions, broker-dealers or other financial
institutions may engage in short sales of the common stock in the course of
hedging the positions they assume with selling stockholders. The selling
stockholders may also sell the common stock short and redeliver the shares to
close out such short positions. The selling stockholders may also enter into
option or other transactions with broker-dealers or other financial institutions
which require the delivery to such broker-dealer or other financial institution
of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or
amended to reflect such transaction). The selling stockholders may also pledge
shares to a broker-dealer or other financial institution, and, upon a default,
such broker-dealer or other financial institution, may effect sales of the
pledged shares pursuant to this prospectus (as supplemented or amended to
reflect such transaction).
In effecting sales, broker-dealers or agents engaged by the selling
stockholders may arrange for other broker-dealers to participate. Broker-dealers
or agents may receive commissions, discounts or concessions from the selling
stockholders in amounts to be negotiated immediately prior to the sale.
In order to comply with the securities laws of certain states, if
applicable, the shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
At the time a particular offer of shares is made, if required, a prospectus
supplement will be distributed that will set forth the number of shares being
offered and the terms of the offering, including the name of any underwriter,
dealer or agent, the purchase price paid by any underwriter, and discount,
commission and other item constituting compensation, any discount, commission or
concession allowed or reallowed or paid to any dealer, and the proposed selling
price to the public.
We have agreed to indemnify certain selling stockholders against certain
liabilities, including certain liabilities under the Securities Act.
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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.
INTERESTS OF COUNSEL
An investment partnership comprised of partners and senior executives of
Hale and Dorr LLP owns 15,390 shares of our common stock.
EXPERTS
The consolidated financial statements at December 31, 1998 and 1999 and for
each of the years in the three year period ended December 31, 1999, incorporated
by reference have been so incorporated in reliance upon the report of KPMG LLP,
independent certified public accountants, given 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, incorporated by
reference have been so incorporated in reliance upon the reports of KPMG LLP,
independent certified public accountants, given 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 incorporated herein by reference
have been so incorporated in reliance upon the report of KPMG LLP, independent
certified public accountants, given 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, incorporated
herein by reference have been so incorporated in reliance upon the report of
KPMG LLP, independent certified public accountants, given upon authority of said
firm as experts in auditing and accounting.
The financial statements of Eggrock Partners, Inc. as of December 31, 1998,
September 30, 1999 and December 31, 1999 incorporated herein by reference in
this prospectus by reference to the Registration Statement filed pursuant to
Rule 424(b) (Registration No. 333-40056) under the Securities Act of 1933, as
amended, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto and are
incorporated by reference herein in reliance upon said firm as experts in giving
said reports.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 under the Securities Act with respect to the common stock
offered by this prospectus. This prospectus, which is a part of the registration
statement does not contain all of the information set forth in the registration
statement. For further information about us and the common stock offered by this
prospectus, we refer you to the registration statement and the exhibits and
schedules filed as a part of the registration statement. Statements contained in
this prospectus as to the contents of any contract or other document filed as an
exhibit to the registration statement are not necessarily complete. If a
contract of document has been filed as an exhibit to the registration statement,
we refer you to the copy of the contract or document that has been filed. The
registration statement, including exhibits, may be inspected without charge at
the principal office of the Securities and Exchange Commission in Washington,
D.C. and copies of all or any part of which may be inspected and copied at the
public reference facilities maintained by the Securities and Exchange Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549,
and at the Commission's regional offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained as prescribed rates by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the public reference room by calling the
Commission at 1-800-SEC-0330. In addition, the Commission maintains a website at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission.
We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance therewith we are
required to file annual and quarterly reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information are available for inspection and copying at the Commission's public
reference rooms and the Commission's website referred to above.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC requires us to "incorporate" into this prospectus information that
we file with the SEC in other documents. This means that we can disclose
important information to you by referring to other documents that contain that
information. The information incorporated by reference is considered to be part
of this prospectus. Information contained in this prospectus and information
that we file with the SEC in the future and incorporate by reference in this
prospectus automatically updates and supersedes previously filed information. We
incorporate by reference the documents listed below and any future filings we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, prior to the sale of all the shares covered by this
prospectus.
(1) Our Annual Report on Form 10-K for the year ended December 31, 1999;
(2) Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
(3) Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000;
(4) Our Current Report on Form 8-K dated June 1, 2000;
(5) Our Current Report on Form 8-K dated November 13, 2000;
(6) Our prospectus filed pursuant to Rule 424(b)(2) of the Securities Act
(Registration No. 333-40056), dated August 7, 2000;
(7) All of our filings pursuant to the Exchange Act after the date of filing the
initial registration statement and prior to effectiveness of the
registration statement; and
(8) The description of our common stock contained in our Registration Statement
on Form 8-A filed on September 8, 1999, including the amendment thereto on
Form 8-A filed on October 4, 1999.
You may request a copy of these documents, which will be provided to you at
no cost, by contacting:
Breakaway Solutions, Inc.
50 Rowes Wharf
Boston, Massachusetts 02110
Attention: Investor Relations
Telephone: (617) 960-3400
www.breakaway.com
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