EXHIBIT 3
CLOSING AGREEMENT
The undersigned are parties to the certain Series A Preferred Stock
Purchase Agreement dated as of February 16, 2001 ("Purchase Agreement"). This
Closing Agreement ("Agreement") sets forth certain terms under which the parties
agree to proceed with the Closing. The term Closing Date shall mean and refer to
April 6, 2001; all other defined terms used but not defined herein shall have
the meanings ascribed to them in the Purchase Agreement.
Breakaway Solutions, Inc ("Breakaway") hereby acknowledges that a number of
the Purchasers' conditions to Closing, set forth in Section 5 of the Purchase
Agreement ("Conditions") and in the Plan, have not been satisfied, and that the
Purchasers therefore have no obligation to purchase the Initial Preferred Stock
or to take any of the other actions that the Purchase Agreement provides for
them to take. Breakaway is entering into this Agreement for the benefit of the
Purchasers, and to induce them to proceed with the Closing. Moreover, Breakaway
expressly acknowledges and agrees that the Purchasers have each relied, and will
continue to rely, upon the representations, warranties and agreements made by
Breakaway herein, in proceeding with the Closing and implementing the other
provisions of the Purchase Agreement.
Breakaway hereby represents, warrants and covenants as follows:
1. Breakaway has delivered to the Purchasers good standing or
qualification certificates for the following states: Arizona, California,
Colorado, Delaware, Florida, Minnesota, New York, Pennsylvania, Texas and
Wisconsin. Its good standing has lapsed in the following states due to its
failure to file annual reports: Massachusetts and Illinois, but steps to
reinstate it in good standing are currently in process and are expected to
be completed by May 10, 2001. Breakaway is precluded from the use of the
courts in such states, as a result. However, such preclusion shall not have
a material adverse effect upon its business.
2. An accurate and complete copy of the Report of Inspector relating
to Breakaway's Special Meeting of Stockholders held on April 2, 2001 is
attached hereto as Exhibit "A".
3. Attached hereto as Exhibit "B" are accurate and complete copies of
the notices given and filings made with The NASDAQ-Amex Market Group in
connection with the transactions contemplated under the Purchase Agreement.
Attached hereto as Exhibit "C" are accurate and complete copies of the
correspondence between Breakaway and The NASDAQ-Amex Market Group with
respect to Breakaway's issuance of shares of common stock to Invest, Inc.,
and the issuance of shares of Series A Preferred Stock to the Purchasers.
Attached hereto as Exhibit "D" are accurate and complete copies of the
correspondence from The NASDAQ-Amex Market Group to Breakaway with respect
to its
possible delisting due to non-compliance with The NASDAQ-Amex Market Group
listing requirement with respect to minimum stock price.
4. The Worker Adjustment Retraining Notification Act ("Act") has not
been triggered by nor is it applicable to any of the layoffs conducted by
Breakaway to this date in 2001, including sequential layoffs in the same
offices. It is anticipated that the Act will or may apply to the proposed
closings of its offices in Maynard, MA in April 2001. To the extent the Act
is applicable to such closings and such closings are effected, Breakaway
will provide all applicable and appropriate notices required under the Act.
5. Accurate and complete copies of resolutions adopted by Breakaway's
Board of Directors are attached hereto as Exhibit "E". Such resolutions
have not been altered, amended or repealed and remain in full force and
effect as of the date hereof. Breakaway maintains Primary Director and
Officer Liability Insurance in the amount of $5 million (per occurrence and
in the aggregate), and $25 million of Excess Director and Officer Liability
Insurance coverage. All such policies are fully paid and in force until
October 2001.
6. Breakaway is not in payment default under its equipment leasing
facilities with Silicon Valley Bank ("SVB") and Transamerica Equipment
Financial Services ("TEFS"). It is seeking to renegotiate its agreement
with SVB to eliminate the covenant default thereunder which persists.
Breakaway is seeking to terminate, pay down and refinance its facility with
TEFS. Breakaway is in default under its leasing agreements with Deutsche
Financial Services.
7. Breakaway has also requested from SVB a working capital line of
credit, secured by its accounts receivable, and access for various
Breakaway customers to financing from SVB for certain payments made by them
on those receivables. If it is unable to reach agreement with SVB on this
financing, it will proceed with discussions with ▇▇▇▇▇▇ Financial, Sunrock
Capital Corp and others, regarding a similar financing.
8. Through Argus Management, Breakaway has contacted approximately 66%
(200) of its trade creditors with claims in excess of $5000 to establish
payment plans, and has reached agreement or is in discussions with
virtually all of those approached, including a number of Breakaway's major
creditors. Argus Management continues to be engaged for this service by
Breakaway, under an "at will" contract permitting its termination without
penalty by Breakaway at any time.
9. For the duration of Phoenix Management Services, Inc's engagement
by Breakaway, all material disbursements to any vendors (by check or wire),
and the incurrence of any material absolute or contingent liability to any
person or entity, whether in a single or series of transactions, must be
approved in writing or be specifically authorized by a representative of
Phoenix.
10. Aptera has not to date exercised its option to extend the license
beyond the initial term under the Software License Agreement of December
15, 2001, or paid the $3 million license fee contemplated thereunder.
11. Breakaway will continue to research the bases for the purported
forgiveness of indebtedness to Katalyst, LLC, and will give notice to
rescind such forgiveness, and pursue full payment of the amount supposedly
forgiven, if it is determined not to have been duly or properly authorized.
12. The notes payable by Breakaway to the former Zartis shareholders
are being renegotiated, with the objective of significantly reducing the
aggregate obligation and/or restructuring the payment obligation such that
it can be met over a period of years.
13. Breakaway has provided to the Purchasers copies of the entire
contents of its minute books, including without limitations, those relating
to all meetings and consents of directors held or circulated during 2000,
and 2001 to date.
In consideration of the foregoing, and in reliance thereupon, the
Purchasers have elected to proceed with the Closing, notwithstanding that a
number of Conditions have not been satisfied, including without limitation the
Condition that there be no material adverse change in the financial condition of
Breakaway. By agreement, SCP will by fundings today and Monday April 9, 2001,
fund an aggregate of $2.9 million, and ICG will fund an aggregate of $1.45
million, in each case subject to such deductions and charges as are indicated to
Breakaway in connection with such fundings. Breakaway hereby reaffirms the Plan,
and acknowledges that by its terms, the Plan shall survive the Closing and
remain in effect until complied with in full to the satisfaction of the
Purchasers. The parties hereto agree that the Closing shall be fully effective,
upon consummation, notwithstanding that certain of the Conditions have not been
satisfied by Breakaway.
IN WITNESS WHEREOF, the Purchasers do hereby accept and agree to the
foregoing, and the parties have executed this Agreement on and as of April 6,
2001.
BREAKAWAY SOLUTIONS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive Officer
SCP PRIVATE EQUITY PARTNERS II, L.P.
By: SCP Private Equity II General Partner, L.P.,
its General Partner
By: SCP Private Equity II, LLC, its Manager
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Manager
ICG HOLDINGS, INC.
By: /s/ ▇▇▇▇▇ ▇. Nassau
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Name: ▇▇▇▇▇ ▇. Nassau
Title: Vice President and Secretary