The company's stock, which has fallen sharply off its 52-week high of $85.50, was up 22 cents, or more than 19 percent, to $1.34 in early trading on the Nasdaq. But by the close, the stock was up just 3 cents, or almost 3 percent, to $1.16. Breakaway Solutions provides Internet business services, including e-business process and strategy analysis, e-commerce system development, and hosting of third-party business software.
The Boston-based company said it has signed agreements for $33 million in new financing, of which $3 million has closed. The remaining $30 million is subject to shareholder approval and other closing conditions. In the interim, the company will receive debt financing of up to $12.5 million, which will be converted into equity upon the closing of the deal.
According to Chief Executive Gordon Brooks, the funds will be used for ongoing operational expenses as the company continues to strive to reach profitability.
The deal provides for a $20 million equity investment for preferred stock by private equity firm SCP Private Equity Partners, which will also assume three positions on Breakaway's board of directors. A $10 million equity investment for preferred stock will come from Internet Capital Group, an original investor in the company. The figure includes the conversion of ICG's earlier debt financing to Breakaway into equity.
Both of the investments are expected to close in early April, pending approval by the Breakaway stockholders and the compliance by the company with a number of closing conditions. The equity investments will be made at 70 cents per share, on a common stock equivalent basis.
A $3 million equity investment for common stock by Invest has already been completed, Breakaway executives said.
Breakaway also said it is in the final stages of implementing cost-cutting measures--including staff cuts and office consolidations--that are expected to reduce expenses at an annualized rate of $45 million.