EXHIBIT 2
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into this 29th day of August, 2001, by and between SCP PRIVATE EQUITY PARTNERS
II, L.P., a Delaware limited partnership ("SCP"), ICG HOLDINGS, INC., a Delaware
corporation ("ICG"), INTERNET CAPITAL GROUP, INC., a Delaware corporation
("Internet Capital"), and BREAKAWAY SOLUTIONS, INC., a Delaware corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, SCP has executed and delivered to Silicon Valley Bank (the
"Bank") an Unconditional Guaranty of payment of all amounts, subject to
specified limitations, which the Company now or hereafter owes to the Bank under
(a) the Loan and Security Agreement, dated July 3, 2001, between the Bank and
the Company (the "Loan Agreement"), a copy of which is attached hereto as
Exhibit A, (b) the Loan Documents (as defined in the Loan Agreement), and (c)
the Master Lease Agreement (as defined in the Loan Agreement) (the Loan
Agreement, the Loan Documents, and the Master Lease Agreement being collectively
called the "Guaranteed Agreements") (such Unconditional Guaranty, a copy of
which is attached hereto as Exhibit B, being referred to as the "Guaranty");
WHEREAS, in connection with the execution and delivery of the Guaranty
by SCP, SCP and the Company entered into a Guarantee Issuance Agreement, dated
July 3, 2001, a copy of which is attached hereto as Exhibit C, pursuant to which
SCP agreed to execute and deliver the Guaranty and the Company agreed to issue
to SCP a warrant (the "Warrant") to purchase 20,000 shares of the Company's
Series A Preferred Stock, $0.0001 par value ("Series A Stock"), subject to
adjustment; and
WHEREAS, SCP has requested that ICG, a substantial stockholder of the
Company, participate in a portion of the Guaranty, and ICG is willing to do so
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants contained herein, and intending to be legally bound, the
parties agree as follows:
1. Indemnification.
(a) ICG shall indemnify SCP with respect to one-third (1/3) of any
loss or liability ("Indemnified Loss") SCP may suffer as a result of its
execution and delivery of the Guaranty, but only to the extent the Indemnified
Loss shall have been paid by SCP to the Bank or another party. The Indemnified
Loss shall include without limitation:
(i) any payment SCP shall make, or be called upon to make, to the
Bank (or any successor in interest) with respect to any obligation of
the Company under the Guaranteed Agreements (each, a "Guaranty
Payment"), whether such payment results from (A) SCP's voluntary
payment to the Bank of an amount or amounts which the Bank shall claim
is owing under the Guaranty or which SCP in good faith believes is
owing under the Guaranty, or (B) a judgment obtained by the Bank
against SCP with respect to the Guaranty;
(ii) any costs or expenses, including legal fees, reasonably
incurred by SCP in connection with any Guaranty Payment, any claim for
a Guaranty Payment, or any reimbursement by the Company of any Guaranty
Payment (such costs and expenses being referred to as "Guaranty
Expenses"); and
(iii) interest on Guaranty Payments and Guaranty Expenses from the
date of payment by SCP at a floating rate equal to the prime rate of
interest, as reported in The Wall Street Journal.
(b) Payment of all amounts due pursuant to paragraph (a) of this
Section 1 shall be made within five (5) business days after demand by SCP, which
demand shall state the amount of the payment due from ICG and shall be
accompanied by a description of the character of the payment in reasonable
detail.
(c) In the event that SCP shall be required, pursuant to the terms
of Section 10.5 of the Guaranty, either (i) to deposit and maintain with the
Bank cash, or (ii) to provide the Bank with an irrevocable letter of credit
acceptable to the Bank, in either case in such amount as the Bank determines
will secure the full amount of SCP's obligations under the Guaranty, then, upon
notice of such requirement, ICG shall deposit and maintain cash with the Bank or
shall provide an irrevocable letter of credit to the Bank in an amount equal to
one-third of the amount required by the Bank of SCP. If for any reason the Bank
shall not accept such cash deposit or letter of credit from ICG, ICG shall
deliver such cash deposit or letter of credit (in a form reasonably satisfactory
to SCP) to SCP as security for ICG's obligations under Section 1 of this
Agreement until such time as SCP shall no longer be required to maintain a cash
deposit or letter of credit with the Bank pursuant to Section 10.5 of the
Guaranty.
2. Notice of Guaranty Payments; Prior Consultation. SCP shall give ICG
notice in writing as soon as practicable of any claim made by the Bank against
SCP, and shall, to the extent practicable, consult with ICG prior to making any
Guaranty Payment; provided that SCP shall have sole discretion to make any
Guaranty Payment which it in good faith believes is due and payable or to settle
any claim made by the Bank with respect to a Guaranty Payment; and further
provided that failure by SCP to give ICG the foregoing notice shall not relieve
ICG of its obligation to make any payment required by Section 1.
3. Reimbursement of Guaranty Payments.
(a) Subject to the provisions of paragraphs (b) and (c) of this
Section 3, if and to the extent that SCP shall have made any Guaranty Payment or
incurred any Guaranty Expenses, SCP shall decide, in its sole discretion whether
and in what manner to proceed against the Company for reimbursement of all or
any portion of such Guaranty Payment or Guaranty Expenses. Promptly upon receipt
of any reimbursement of all or any portion of any Guaranty Payment or Guaranty
Expenses incurred ("Reimbursement"), other than from an affiliate of SCP, SCP
shall remit to ICG one-third of such Reimbursement less any amounts then due and
payable by ICG to SCP pursuant to Section 1; provided that SCP shall not be
obligated to remit to ICG any portion of a Reimbursement to the extent that such
Reimbursement is received by SCP following an Assignment of Claim (as defined
below, and relates to SCP's remaining two-thirds claim for Reimbursement, and
provided further that all remittances of Reimbursements to ICG shall be in made
in the form received by SCP (i.e., cash, securities, etc)
(b) In the event that (i) ICG shall have made all required payments
to SCP pursuant to Section 1; (ii) any such payment shall not have been
reimbursed to ICG pursuant to paragraph (a) of this Section 3 for a period of at
least six months following such payment by ICG to SCP, and (iii) no proceeding
in bankruptcy or insolvency shall have been commenced by or against the Company
prior to the end of such six month period, then ICG shall have the right, at any
time upon ten days prior notice, to require SCP to assign to ICP, in form
reasonably satisfactory to ICG, a one-third interest in SCP's rights against the
Company for Reimbursement. The Company hereby consents to such assignment
("Assignment of Claim").
(c) Following any Assignment of Claim, ICG shall have the full right
to take such action against the Company or any third party with respect to the
right to Reimbursement as it shall determine in its sole discretion; provided
that ICG agrees to consult with SCP prior to commencement of a lawsuit or the
taking of any legal action.
4. Guaranty by Internet Capital. Internet Capital hereby
unconditionally and irrevocably guarantees the timely payment by ICG, its
wholly-owned subsidiary, of any and all obligations of ICG under Section 1.
5. Warrant. SCP hereby assigns to ICG a one-third interest in the
Warrant, entitling ICG, upon exercise in accordance with the terms of the
Warrant, to purchase 6,667 shares of Series A Stock, subject to adjustment.
Promptly upon execution and delivery of this Agreement, SCP shall deliver the
Warrant to the Company, in proper form for transfer, with instructions to
reissue and deliver to ICG a Warrant for 6,667 shares of Series A Stock in the
form attached hereto as Exhibit D and to reissue and deliver to SCP a Warrant
for 13,333 shares of Series A Stock in the form attached hereto as Exhibit E.
6. Investment Representations of ICG. In order to induce the Company to
permit the transfer of one-third of the Warrant by SCP to ICG, ICG makes the
following covenants, agreements, representations and warranties for the benefit
of SCP and the Company:
(a) ICG understands that the Warrant, the Series A Stock underlying
the Warrant (the "Underlying Preferred Stock"), and the Company's Common Stock,
$0.000125 par value, into which shares of the Series A Stock are convertible
(the "Underlying Common Stock") have not been registered under the Securities
Act of 1933, as amended (the "Act"), and that the Warrant, the Underlying
Preferred Stock, and the Underlying Common Stock (together, the "Securities")
are being transferred to ICG (in the case of the Warrant) or issued to ICG (in
the case of the Underlying Preferred Stock and Underlying Common Stock) pursuant
to an exemption from registration which is applicable to transactions by an
issuer not involving any public offering, and that the Company's reliance on
this exemption is based in part on the representations made by ICG in this
Section. ICG represents and warrants that it is an "accredited investor" as that
term is defined under Rule 501 promulgated under the Act.
(b) ICG understands that the Securities have not been registered
under the "Blue Sky" or securities laws of any jurisdiction and that the
Securities are being issued pursuant to exemptions contained in such laws, and
that the Company's reliance on these exemptions is based in part on the
representations made by ICG in this Section.
(c) ICG has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of this
investment. ICG is aware that an investment in the Securities is highly
speculative and subject to substantial risks. ICG is capable of bearing the high
degree of economic risk and burdens of this investment, including but not
limited to the complete loss of all invested capital. The financial condition of
ICG is such that it is under no present or contemplated future need to dispose
of any portion of the Securities to satisfy any existing or contemplated
undertaking, need or indebtedness.
(d) ICG hereby represents and warrants that it is acquiring the
Warrant for its own account for investment purposes only and not for, with a
view to, or in connection with, any resale or distribution thereof and that ICG
has no present plans or intentions to sell, transfer, pledge, hypothecate or
otherwise dispose of any portion of the Securities.
(e) ICG understands and agrees that the Securities cannot be resold
or transferred unless they are registered under the Act and all applicable state
securities laws, or unless an exemption from registration is available, in which
case the Company may condition the transfer upon receipt of an opinion of
counsel (acceptable to the Company) that such registration is not required.
(f) ICG accepts the condition that the Company or its transfer
agent(s) will obtain "stop transfer" orders with respect to the Securities and
that each of the certificates for the Securities will bear conspicuous legends
in substantially the following form or another form reasonably determined by the
Company:
The securities represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
1933 or applicable state laws. Such securities may not be sold,
transferred, pledged or hypothecated unless the registration provisions
of said Act and laws have been complied with or unless an exemption
from registration is available, in which case the Corporation may
condition the transfer upon receipt of an opinion of counsel
(acceptable to the Corporation) that such registration is not required.
The Corportion will furnish to any shareholder upon request and without
charge a full statement of: (a) the designations, preferences,
limitations, and relative rights of the shares of each class or series
of shares authorized to be issued by the Corporation, (b) the
variations in the relative rights and preferences between the shares of
each such series, so far as the same have been fixed and determined,
and (c) the authority of the Board of Directors to fix and determine
the relative rights and preferences of subsequent series.
(g) ICG hereby agrees to indemnify the Company against and hold it
harmless from any loss or expense the Company may incur by reason of any sale or
disposition of the Securities by it which involves the Company in a violation of
any securities laws, rules, regulation or orders.
(h) ICG acknowledges that the Company has granted it access to all
information which ICG has requested and has offered ICG access to all
information which ICG might deem relevant to any investment decision with
respect to the Securities. ICG has investigated the Company and the business and
financial conditions concerning it and has knowledge of the Company's current
corporate activities and financial condition.
7. Parties in Interest, etc. All covenants and agreements in this
Agreement contained by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not. This Agreement embodies the entire agreement
and understanding between the parties hereto with regard to the subject matter
hereof and supersedes all prior agreements and understandings relating to the
subject matter hereof. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one agreement.
8. Notices. All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including telex,
telecopy and telegraphic communication) and shall be (as elected by the person
giving such notice) hand delivered by messenger or courier service (including
overnight courier such as Fed Ex), telecommunicated, or mailed (airmail if
international) by registered or certified mail (postage prepaid), return receipt
requested, addressed to the parties as specified below:
If to the Company:
Breakaway Solutions, Inc.
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Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
If to SCP:
SCP Private Equity Partners II, L.P.
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Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
If to ICG:
ICG Holdings, Inc.
Pencador Corporate Center
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Attention: ▇▇▇▇▇ Nassau
or to such other address as any party may designate by notice complying with the
terms of this Section. Each such notice shall be deemed delivered: (a) on the
date delivered if by personal delivery; (b) on the date of confirmed
transmission if by telex, telecopy or other telegraphic communication; and (c)
on the date upon which the return receipt is signed or delivery is refused or
the notice if designated by the postal authorities as not deliverable, as the
case may be, if mailed.
9. Amendments and Waivers. The terms and provisions of this Agreement
may be amended or modified, and the observance of any term of this Agreement may
be waived, only with the prior written consent of all of the parties hereto.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania for contracts made
and wholly to be performed therein, without regard to its conflicts of laws
provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BREAKAWAY SOLUTIONS, INC.
By: /s/ E.T. ▇▇▇▇▇▇▇▇
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Name: E.T. ▇▇▇▇▇▇▇▇
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Title: President
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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: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Title: Manager
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ICG HOLDINGS, INC.
By: /s/ ▇▇▇▇▇ ▇. Nassau
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Name: ▇▇▇▇▇ ▇. Nassau
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Title: Managing Director
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INTERNET CAPITAL GROUP, INC.
By: /s/ ▇▇▇▇▇ ▇. Nassau
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Name: ▇▇▇▇▇ ▇. Nassau
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Title: Managing Director
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