EXHIBIT 3
SCP EQUITY PARTNERS II, L.P.
Building 300
000 Xxxxx Xxxx Xxxxx
Xxxxx, XX 00000
February 16, 2001
ICG Holdings, Inc.
Pencador Corporate Center
000 Xxxx Xxxxx, Xxxxx 0
Xxxxxx, XX 00000
Attention: Xxxxx Nassau
Re: Series A Preferred Stock Purchase Agreement
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Dear Mr. Nassau:
SCP Equity Partners II, L.P. ("SCP") and ICG Holdings, Inc. ("ICG") have
entered into a bridge financing facility with Breakaway Solutions, Inc., a
Delaware corporation (the "Company"), pursuant to which each of SCP and ICG have
made bridge loans to the Company and may make additional loans to the Company,
as evidenced and to be evidenced by the Company's promissory notes (the "Bridge
Notes"). The Bridge Notes held and to be held by SCP are referred to as the
"SCP Bridge Notes", and the Bridge Notes held and to be held by ICG are referred
to as the "ICG Bridge Notes". It is understood between SCP and ICG that all
fundings of new money to the Company under the Bridge Notes shall be on the
basis of $2 by SCP to every $1 by ICG. In recognition of the $2.4 million of new
money most recently advanced by ICG to the Company, SCP shall advance to the
Company on the date hereof, $4.8 million. All subsequent fundings under the
Bridge Notes shall maintain the same $2 to $1 relationship. ICG represents to
SCP that it has reserved sufficient funds to allow it to hereafter extend an
additional $2.6 million under the ICG Bridge Notes concurrently with advances of
$5.2 million by SCP, should it and SCP agree that the Company qualifies for such
advances.
SCP and ICG are this day entering into a Series A Preferred Stock Purchase
Agreement, among SCP, ICG, and the Company (the "Purchase Agreement"), pursuant
to which, inter alia, and subject to the terms and conditions set forth therein
(1) SCP and ICG have agreed to purchase an aggregate of 357,143 shares (the
"Initial Shares") of the Company's Series A Preferred Stock, $0.0001 par value
(the "Series A Stock"), (2) SCP has committed to purchase from the Company an
additional 71,429 shares of Series A Stock, and (3) SCP has agreed to purchase
an aggregate of 28,571,429 Warrants to purchase shares of Common Stock,
$0.000125 par value (the "Common Stock"), of which 21,428,571 Warrants are
referred to as the "Initial Warrants."
Section 1.2 of the Purchase Agreement provides that at the Closing of the
purchase of the Series A Stock, SCP and ICG (the "Purchasers") shall deliver the
Bridge Notes held by them to the Company for cancellation, and the outstanding
principal amounts of such Bridge Notes plus accrued interest shall be applied on
account of the purchase price of the Series A Stock. Section 1.2 further
provides that the balance of the purchase price of the Series A Stock is payable
in installments if, as and when the Company satisfies certain conditions.
At the Closing, SCP will purchase, inter alia, 60% of the Initial Shares
(the "SCP Initial Shares") and 60% of the Initial Warrants (the "SCP Initial
Warrants"), and ICG will purchase 40% of the Initial Shares (the "ICG Initial
Shares") and 40% of the Initial Warrants (the "ICG Initial Warrants"). SCP and
ICG recognize that certain circumstances could exist that would result in ICG
paying on account of the purchase price of the ICG Initial Shares ("ICG's
Purchase Contribution") an amount greater than 40% of the total amount paid by
both SCP and ICG on account of the purchase price of the Initial Shares ("Total
Purchase Contribution"). (The fraction obtained by dividing ICG's Percentage
Contribution by the Total Purchase Contribution is referred to as "ICG's
Contribution Share.")
In order to rectify potential disparities in the relative cash
contributions to the Company by SCP and ICG on account of the purchase price of
the Initial Shares, SCP and ICG agree that if (1) during a four-week period
following (a) the Closing or (b) such time as a Request (as defined in the
Purchase Agreement) or Requests in the amount necessary to satisfy SCP's funding
obligations under the proviso set forth in the last sentence of Section 1.2(b)
of the Purchase Agreement are made, no additional payments to the Company on
account of the purchase price of the Initial Shares are made because of either
the failure of the Company to satisfy the conditions precedent to such
additional payments or SCP's breach, (2) if SCP and ICG shall sooner agree that
the Company is unlikely to qualify for additional payments on account of the
purchase price for a period of at least that duration, or (3) if ICG shall have
made an additional payment to the Company on account of the purchase of the
Initial Shares in response to a valid Request and in the amount required to be
paid by ICG pursuant to the terms of Section 1.2(b) of the Purchase Agreement
and SCP does not pay the full amount that it is required to pay pursuant to the
terms of Section 1.2(b) of the Purchase Agreement in connection with such
Request within five (5) business days of ICG's payment, then SCP shall promptly
deliver to ICG a sufficient number of Initial Shares and a sufficient number of
Initial Warrants such that (1) the fraction obtained by dividing ICG's total
ownership of Initial Shares by the total number of Initial Shares owned by both
SCP and ICG shall equal ICG's Contribution Share, and (2) the fraction obtained
by dividing ICG's total ownership of Initial Warrants by the total number of
Initial Warrants owned by both SCP and ICG shall equal ICG's Contribution Share.
Should, for any reason, the situation be reversed and ICG's Purchase
Contribution be less than 40% on or after Closing, it shall rectify this
disparity by delivering Initial Shares and Initial Warrants to SCP in the same
fashion as SCP is obligated to do under the foregoing paragraph.
In the event that after a disparity is rectified in accordance with the
terms of this letter agreement the Company qualifies for additional payments on
account of the purchase price of
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the Initial Shares, ICG or SCP, as applicable, shall from time to time as
appropriate return to the other party such number of Initial Shares and Initial
Warrants so that after such payments, each party owns such number of Initial
Shares and Initial Warrants as corresponds with its respective Contribution
Share.
SCP shall support, and shall cause directors designated by it to support,
an agreement between ICG and the Company pursuant to which the board seat
currently occupied by Xxxxxx X. Xxxxxxx will be occupied by an ICG designee from
and after the time Xxxxxx X. Xxxxxxx vacates such seat until such time as ICG no
longer owns at least 10% of the Company on a primary basis. SCP shall vote its
shares on favor of, and cause the directors designated by it to vote in favor
of, such ICG designee.
If the foregoing correctly set forth our understanding, please sign where
indicated below.
Very truly yours,
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/ Xxxxx X. Xxxxxxx
____________________________________
Name: Xxxxx X. Xxxxxxx
___________________________
Title: Manager
____________________________
CONFIRMED AND AGREED TO:
ICG HOLDINGS, INC.
By: /s/ Xxxxx X. Nassau
________________________________
Name: Xxxxx X. Nassau
Title: Managing Director and General Counsel
Date: February 16, 2001
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