<PAGE>
As filed with the Securities and Exchange Commission on February 26, 1999
Registration No. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 4813 52-214-7716
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code Number) Identification Number)
</TABLE>
222 Sutter Street
San Francisco, California 94108
(415) 403-4003
(Address, including zip code, and telephone number of
Registrant's principal executive offices)
---------------
Michael W. Malaga
President and Chief Executive Officer
NorthPoint Communications Holdings, Inc.
222 Sutter Street
San Francisco, California 94108
(415) 403-4003
Fax: (415) 403-4004
(Name, addess, including ZIP code, and telephone number,
including area code, of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Michael W. Hall, Esq. Frank H. Golay, Jr., Esq.
Gregory K. Miller, Esq. Joshua A. Kreinberg, Esq.
Karen E. Eberle, Esq. Ondraus Jenkins, Esq.
Latham & Watkins Sullivan & Cromwell
135 Commonwealth Drive 1888 Century Park East, 21st Floor
Menlo Park, California 94025 Los Angeles, California 90067
(650) 328-4600 (310) 712-6600
Fax: (650) 463-2600 Fax: (310) 712-8800
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of the Form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ---------------------------------------------------------------------------------------------------
<CAPTION>
Proposed maximum
Title of shares to be aggregate Amount of
registered offering price(1) registration fee
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<S> <C> <C>
Common Stock, $.001 par value...................... $125,000,000 $34,750
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of determining the registration fee
pursuantto Rule 457(o) under the Securities Act of 1933.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this preliminary prospectus is not complete and +
+may be changed. These securities may not be sold until the registration +
+statement filed with the Securities and Exchange Commission is effective. The +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated February 26, 1999.
Shares
NorthPoint Communications Holdings, Inc.
Common Stock
------------
This is an initial public offering of shares of common stock of NorthPoint
Communications Holdings, Inc. All of the shares of common stock are
being sold by NorthPoint.
Prior to this offering, there has been no public market for the common stock.
We currently estimate that the initial public offering price will be between
$ and $ per share. Application has been made for quotation of the common
stock on the Nasdaq National Market under the symbol "NPNT".
See "Risk Factors" on page 10 to read about certain factors you should
consider before buying shares of the common stock.
------------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
------------
<TABLE>
<CAPTION>
Per Share Total
--------- ------
<S> <C> <C>
Initial public offering price.............................. $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to NorthPoint................... $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional shares from NorthPoint at the initial public offering price less
the underwriting discount.
------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
Goldman, Sachs & Co.
Morgan Stanley Dean Witter
Credit Suisse First Boston
------------
Prospectus dated , 1999.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information you
should consider before investing in the common stock. You should read the
entire prospectus carefully. Unless the context otherwise requires, in this
prospectus "NorthPoint," "we," "us" and "our" refer to NorthPoint
Communications Holdings, Inc. and its subsidiaries. We have assumed in this
prospectus that the merger of NorthPoint Communications, Inc. with and into
NorthPoint Merger Sub, Inc., a wholly owned subsidiary of NorthPoint
Communications Holdings, Inc., has been completed. We expect to complete this
reorganization in March 1999. Unless we indicate otherwise, the information in
this prospectus assumes the conversion of all outstanding shares of preferred
stock into common stock upon completion of this offering and that the
underwriters will not exercise their over-allotment option. You should refer to
the Appendix starting on page A-1 for definitions of technical and industry
terms we use in the prospectus.
The Company
We are a national, facilities-based provider of high speed, local data
network services. Our networks use digital subscriber line, or DSL, technology
to transport data at guaranteed speeds up to 25 times faster than common dial-
up modems. We market our network and data transport services to Internet
service providers, broadband data service providers and long-distance and local
telephone companies, whom we call network service providers, or NSPs. Our NSP
customers can use our fast, secure and reliable data networks to provide
economical, "always on" Internet access and other data-intensive applications
to end users, who are typically small- and medium-sized businesses, people who
work in home offices and telecommuters.
We are currently providing services in 12 metropolitan areas in the United
States and intend to offer service in a total of 28 metropolitan areas by the
end of this year. We have been and expect to be the first, or one of the first,
to offer DSL services in these markets. Our networks consist principally of
digital communications equipment that we own and install in telephone company
offices known as "central offices" and existing copper telephone lines that we
lease to connect our equipment with end users' premises. We will initially
install our equipment in the central offices with the highest density of
small- and medium-sized businesses in our 28 markets. We have already secured
and purchased space in of those central offices and intend to expand the
coverage of our networks in these markets over time by installing equipment in
additional central offices.
Upon completion of our planned expansion, our networks will be able to reach
approximately four million businesses and 30 million households, including more
than 80% of the small- and medium-sized businesses in our 28 markets. We have
already obtained required regulatory approvals, including competitive local
exchange carrier, or CLEC, authorizations, to offer services in each of those
markets. We are currently providing or have entered into agreements to provide
our services to more than NSPs and have connected over of their end users
to our networks.
NorthPoint was founded in May 1997 by former MFS/WorldCom executives who
developed and implemented the first commercial DSL service. We began offering
our network services in March 1998 and have since entered into strategic
relationships with @Work (a division of @Home), Intel and Verio. Each of these
companies and The Carlyle Group, Vulcan Ventures, Accel Partners, Benchmark
Capital, Greylock and others have invested in our company.
Demand for Data Networks
Data communications is the fastest growing segment of the telecommunications
industry. Businesses and other end users are increasingly using data-intensive
applications such as Internet
3
<PAGE>
access, intranets, extranets, telecommuting, virtual private networks, IP
telephony, e-commerce, e-mail, video conferencing and multimedia. Forrester
Research projects that the total market for data networking services and
Internet access will grow from $6.2 billion in 1997 to approximately $49.7
billion by 2002, of which approximately $27.9 billion will be generated from
services to businesses. To take full advantage of these productivity-enhancing
applications, small- and medium-sized businesses need fast, secure and
dedicated data connectivity. People using computers from their homes to connect
to corporate networks or to the Internet for in-home business purposes have
similar needs. We believe that local data transport solutions commonly used by
these end users, such as dial-up modems, ISDN lines and T1 service, are
inadequate because they are either too slow or too expensive, or both.
Our Solution
Unlike traditional telephone networks, which were originally designed to
carry voice traffic, our local networks are designed to carry data and provide
end users with:
. A range of fast data transport options, each of which has price-
performance characteristics superior to traditional options;
. the ability to upgrade data transmission speed, without adding hardware;
. ""always-on", dedicated connections to the Internet or other data
services;
. reliable performance over our continuously monitored network; and
. secure transport of sensitive business data.
Our networks and services offer a number of advantages to our NSP partners:
. access to end users in a wide geographic footprint through a single point
of interconnection in each market, enabling accelerated, capital-
efficient market entry;
. an electronic interface to our national pre-qualification, order entry,
customer support, provisioning, accounting and billing systems;
. assured data throughput and service level guarantees; and
. monitoring of our entire network from our control center.
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<PAGE>
Competitive Strengths
. We Are Rapidly Expanding to 28 Markets. We have initially targeted those
central offices in our 28 metropolitan areas with the highest density of
small- and medium-sized businesses. By focusing on these dense business
districts, we believe we can secure scarce central office space, launch
services in new markets more rapidly, maximize the return from network
deployment capital costs and enable our NSP customers to address a
significant portion of their target end users in each geographic market
quickly. We have already secured and purchased central office space in
of these central offices and are operational in central offices. We
intend to provide local data networks in each of our 28 markets by the
end of this year and expect to be the first, or one of the first, data
network providers to enter these markets.
. Our Networks are Designed for Business Needs. Our DSL equipment is well-
suited for business applications, because it provides fast data
transmission at symmetrical speeds to and from the end user. And as an
end user's needs evolve, we can remotely upgrade the speed of the
connection with no additional capital cost. Business end users expect
their connections to be reliable and their data to be secure. Our
networks provide these features.
. Our Network Architecture is Capital-Efficient and Modular. In deploying
our networks we do not rebuild elements, such as the copper wire
infrastructure, that we can lease inexpensively. Instead, we purchase
only the equipment that converts these elements into sophisticated data
networks. We are also able to achieve substantial cost savings because
our networks in each metropolitan area are based upon a common blueprint.
A significant portion of our capital expenditures are also "success-
based" because we incur them only as we add customers or end users. We
can extend the coverage of our network within our markets as demand
warrants by adding central offices with relatively modest incremental
capital and effort.
. Our Indirect Sales Model Enables Rapid Growth and Utilization of Our
Network. There are thousands of NSPs, most of whom do not own their own
local data transport networks, and who are, therefore, potential
NorthPoint customers. Many of these NSPs have substantial sales and
marketing organizations. We expect that our NSP customers will
collectively sell our services to more end users than we could on our
own, helping us to reach economies of scale more rapidly.
. We Offer Our Customers a Compelling Value Proposition. In order to
provide dedicated data services, NSPs would be required to make
significant investments to establish local infrastructures in each
metropolitan area. As a NorthPoint customer, however, an NSP can reduce
the capital investment required to reach its end users in our markets.
. Our Systems Support Our Customers. Our operational support systems, known
in the industry as OSS, serve as a single point of contact for our NSP
customers, providing easy pre-qualification of prospective end users,
efficient upgrades in service and rapid identification of service
problems. Our OSS is also designed to interface seamlessly with existing
NSP systems and provide a secure Web-based interface for order entry,
order tracking, trouble-ticketing, billing, network management, reporting
and marketing support.
. Our Partners Provide Added Expertise. We have strategic relationships
with @Work, Intel and Verio, which provide us with additional
technological, marketing and distribution expertise. We are working with
these partners and others to expand our product offerings by developing
enhanced transport solutions and providing additional value-added
services over our networks.
5
<PAGE>
. Our Management and Board Have Relevant Experience. NorthPoint was founded
by a team of six data communications executives from MFS/WorldCom and has
attracted officers and employees with substantial experience in data
networking, sales and marketing, regulatory affairs and operations. In
addition, our Board members, including the former Chairman of the Federal
Communications Commission, have significant experience in the
telecommunications and technology industries.
6
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered............. shares
Common stock to be outstanding
after the offering.............. shares
Use of proceeds.................. We will use the net proceeds from the
offering to continue the buildout of our
networks and for working capital and
general corporate purposes. See "Use of
Proceeds."
Dividend Policy.................. We intend to retain all future earnings to
fund the development and growth of our
business. Therefore, at this time we do not
anticipate paying cash dividends. See
"Dividend Policy."
Proposed Nasdaq National Market
symbol.......................... NPNT
</TABLE>
The shares of common stock to be outstanding after the offering are stated as
of February 24, 1999 and include shares of common stock to be issued upon
automatic conversion of preferred stock and convertible debt upon completion of
this offering. The shares of common stock outstanding exclude:
. 7,500,000 shares of common stock reserved for issuance under our 1997
Stock Option Plan, of which 7,044,237 shares were subject to outstanding
options;
. shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan; and
. 2,029,426 shares of common stock issuable upon exercise of outstanding
and contingent warrants.
NorthPoint is a Delaware corporation. The address of our principal executive
office is 222 Sutter Street, San Francisco, California 94108, and our telephone
number is (415) 403-4003. NorthPoint maintains a corporate website at
http://www.northpointcom.com.
NorthPoint Communications is our servicemark. This prospectus contains other
product names, trade names, trademarks and servicemarks of NorthPoint and of
other organizations.
Risk Factors
An investment in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 9 to read about certain factors you should consider
before buying shares of our common stock, including competitive, financial,
developmental, operational, technological, regulatory and other risks
associated with an emerging business.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except share and per share data)
The following summary consolidated financial data for the period from May 16,
1997 to December 31, 1997 and for the year ended December 31, 1998 have been
derived from our audited financial statements and the related notes, which are
included elsewhere in this prospectus. You should read the following
consolidated summary financial data together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and the related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Inception to Year Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Consolidated Statement of Operations Data:
Revenues(1)......................................... $ -- $ 931
Operating expenses:
Network expenses.................................. 56 3,970
Selling, marketing, general and administrative.... 1,374 18,339
Amortization of deferred compensation............. 29 844
Depreciation and amortization..................... 27 1,319
---------- -----------
Total operating expenses........................ 1,486 24,472
---------- -----------
Income (loss) from operations....................... (1,486) (23,541)
Interest income (expense)........................... 190 (2,366)
---------- -----------
Net income (loss)................................... $ (1,296) $ (25,907)
========== ===========
Net income (loss) per common share.................. $ (.13) $ (2.39)
Shares used in computing net income (loss) per
share.............................................. 9,659,360 10,835,309
Pro forma net income (loss) per common share(2)..... $ (.05) $ (.93)
Shares used in computing pro forma net income (loss)
per share(2)....................................... 26,110,081 27,963,726
Other Data:
EBITDA(3)........................................... $ (1,430) $ (21,378)
Capital expenditures................................ 701 41,550
Consolidated Cash Flow Data:
Provided by (used in) operating activities.......... $ (1,094) $ (11,363)
Provided by (used in) investing activities.......... (701) (41,550)
Provided by (used in) financing activities.......... 11,243 54,420
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998
------------------------------
Pro Pro Forma as
Actual Forma(4) Adjusted(5)
------- -------- ------------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents...................... $10,956 $ 80,726
Property and equipment, net.................... 46,078 46,078
Total assets................................... 60,502 130,272
Long-term obligations, including current
portion....................................... 54,034 59,428
Total stockholders' equity (deficit)........... (8,582) 55,794
</TABLE>
- --------
(1) Our revenues consist entirely of service revenues. We do not currently sell
end-user modems or other electronic equipment.
(2) The pro forma net loss per share reflects the conversion of the preferred
stock outstanding as of December 31, 1998 into common stock.
8
<PAGE>
(3) EBITDA consists of net loss excluding net interest, taxes, depreciation and
amortization (including amortization of deferred compensation). EBITDA is
provided because it is a measure of financial performance commonly used in
the telecommunications industry. We have presented EBITDA to enhance your
understanding of our operating results. You should not construe it as an
alternative to operating income as an indicator of our operating
performance or as an alternative to cash flows from operating activities as
a measure of liquidity. We may calculate EBITDA differently than other
companies. For further information, see our financial statements and
related notes elsewhere in this prospectus.
(4) The pro forma balance sheet information reflects:
. the issuance of convertible debt and equity securities in February 1999;
. the conversion upon the completion of this offering of all outstanding
preferred stock and convertible debt into common stock; and
. the anticipated closing of our $100,000,000 senior secured credit
facility in April 1999 and our anticipated initial drawdown of
$55,000,000 thereunder.
(5) In addition to the adjustment in Note (4) above, the pro forma as adjusted
balance sheet information reflects the receipt of estimated net proceeds of
$ from this offering, after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by NorthPoint.
9
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
consider the following factors carefully before deciding to purchase shares of
common stock. This prospectus contains forward-looking statements. These
statements include words such as "may," "will," "expect," "believe," "intend,"
"anticipate," "estimate" or similar words. These statements are based on our
current beliefs, expectations and assumptions and are subject to a number of
risks and uncertainties. Actual results and events may vary materially from
those discussed in the forward-looking statements. We discuss risks and
uncertainties that might cause such a difference below and elsewhere in this
prospectus.
We Cannot Predict Our Success Because We Have a Limited Operating History
We have a limited operating history. We were formed in May 1997 and entered
into our first interconnection agreement with an incumbent local exchange
carrier, or "ILEC," in August 1997. We began offering commercial services in
the San Francisco Bay Area in March 1998 and have subsequently launched our
services in 11 additional markets. Because of our limited operating history,
you have limited operating and financial data about our company upon which to
base an evaluation of our performance and an investment in our common stock.
You should consider our prospects in light of the risks, expenses and
difficulties encountered by new companies competing in rapidly evolving
markets. Our ability to provide dedicated data services to our customers and to
generate operating profits, positive cash flow and net income will depend on,
among other things, our ability to:
. develop our operational support systems, or "OSS," and other back office
systems;
. obtain collocation space in central offices and suitable copper wire
loops;
. build an adequate customer base;
. raise additional capital;
. maintain adequate operating margins;
. attract and retain qualified personnel;
. enter into and implement interconnection agreements with ILECs, some of
which are our competitors or potential competitors;
. expand the geographic coverage of our network;
. obtain governmental authorizations to operate as a competitive local
exchange carrier, or "CLEC," in new markets;
. continue to upgrade our technologies and enhance our product features;
and
. respond to technological changes and competitive market conditions.
We may be unable to achieve any or all of these objectives.
We Expect Our Operating Losses, Net Losses and Negative Cash Flow to Continue
We have generated substantial and increasing operating losses, net losses and
negative cash flow from inception to date and in our most recent fiscal period.
Our primary activities to date have included:
. procuring governmental authorizations and collocation space in central
offices;
. acquiring equipment and facilities;
10
<PAGE>
. hiring management and other key personnel;
. raising capital;
. developing, acquiring and integrating our OSS and other back office
systems; and
. negotiating interconnection agreements.
We will have to make significant capital expenditures to develop our
business, deploy our services and systems, and generate significant revenue. We
expect to continue to generate increasing operating losses, net losses and
negative cash flow while we develop, construct and expand our business and
until we establish a sufficient revenue-generating customer base.
For the year ended December 31, 1998, we had operating losses of
approximately $23,541,000, net losses of approximately $25,907,000, and
negative cash flow from operating and investing activities of approximately
$52,913,000. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." We may be unable to achieve or sustain
profitability or generate sufficient operating profit to meet our working
capital and debt service requirements, which could have a material adverse
effect on our business, prospects, financial condition and results of
operations. See "--Our Debt Creates Financial and Operating Risk."
We Cannot Predict Our Success Because Our Business Model is Unproven and Our
Market Is Developing
Our business strategy is unproven. To be successful, we must, among other
things, develop and market data networks and services that are widely accepted
by our NSP customers and their end users at prices that will yield a profit.
Because our business and the overall market for packet-based local data
communications services are in the early stages of development, our services
may not achieve commercial acceptance.
The Pricing for and Market Acceptance of Our Services Are Uncertain
Prices for digital communication services have fallen historically. We expect
prices in the industry in general, and for our existing and future services in
particular, to continue to fall. Accordingly, we cannot predict whether our
pricing schedule will prove to be viable, whether demand for our services will
materialize at the prices we would like to charge or whether we will be able to
sustain future pricing levels as competitors introduce competing services. In
addition, the prices for our services are in some cases higher than those
charged by our competitors, including services provided by ILECs. Many
customers and end users may be unwilling to pay our prices. We cannot assure
you that we will ever achieve profitability or generate positive cash flow. Our
failure to achieve or sustain desired pricing levels or to achieve or sustain
market acceptance could have a material adverse effect on our business,
prospects, financial condition and results of operations.
Our Operating Results In One or More Future Periods Are Likely to Fluctuate
Significantly and May Fail to Meet or Exceed the Expectations of Securities
Analysts or Investors
Our annual and quarterly operating results may fluctuate significantly in the
future as a result of numerous factors. These factors include:
. the rate at which we are able to add NSP customers;
. the timing, ability and willingness of ILECs to provide and construct the
required central office collocation facilities;
. the timing, ability and willingness of the ILECs to provide suitable
copper wire loops at favorable prices;
11
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. the success of our NSP customers in generating significant end user
demand;
. the prices our customers and, in turn, their end users are willing to pay
for our services;
. commercial availability of equipment and price of unbundled network
elements, or "UNEs";
. availability of financing to continue to fund expansion;
. customer and end user churn rates;
. co-marketing fees;
. the loss of NSP customers, any of which could account for a substantial
portion of our revenue;
. consolidation of our NSP customers;
. our ability to deploy our services on a timely basis to satisfy end user
demand;
. our ability to achieve and maintain targeted numbers of end users;
. the mix of line orders between lower margin and higher margin lines;
. the amount and timing of capital expenditures and other costs as we
expand our network;
. our or our competitors' introduction of new services;
. technical difficulties or network downtime;
. general economic conditions; and
. economic conditions specific to our industry.
Our operating results are sensitive to our prices and whether particular NSP
customers fulfill their volume commitments to us. We believe our financial
performance depends to a great extent on retaining NSP customers and on levels
of end user churn, which can vary due to a variety of factors, including
relocation of end users.
We may experience delays in the commencement and recognition of revenue
because the lead time to install telecommunication lines and to implement
certain services is controlled by third parties. In addition, we plan to
increase operating expenses to fund operations, sales, marketing, general and
administrative activities and infrastructure. If these expenses are not
accompanied by an increase in revenue, our business, prospects, financial
condition and results of operations will be adversely affected.
As a result, it is also likely that in some future quarters our operating
results will be below the expectations of securities analysts and investors. If
this happens, the trading price of our common stock would likely be materially
adversely affected.
Our Customers are Concentrated and We Depend on Them to Market and Sell Our
Network Services
We sell our services on a wholesale basis to NSPs. As of , 1999, we
were providing or had agreements to provide data transport solutions to more
than NSP customers. Our top NSP customers accounted for more than
% of our end user lines and % of our revenue. We anticipate that, as we
expand our business, our largest customers will continue to account for a
significant portion of our business. As a result of this concentration of our
customer base, a loss of or decrease in business from one or more of our NSP
customers could have a material adverse effect on our business, prospects,
financial condition and results of operations. We may be unable to attract
adequate numbers of new NSP customers or retain our existing NSP customers.
12
<PAGE>
Many of our agreements with our NSP customers are non-exclusive, and many of
our NSP customers are also customers of our competitors. Some of our NSP
customers have invested in our competitors. In addition, a number of our NSP
customers have committed to provide large numbers of end users in exchange for
price discounts. If the number of business and consumer end users of our
services provided through the NSP channel is significantly lower than our
forecast for any reason, or if the NSPs with which we have entered into such
arrangements are unsuccessful in competing for end users in their own intensely
competitive markets or experience other financial or operating difficulties,
our business, prospects, financial condition and results of operations would be
materially adversely affected.
We Will Need Significant Additional Funds, Which We May Be Unable to Obtain
We have raised approximately $130,000,000 in debt and equity since inception.
We believe our current capital resources, together with the proceeds of this
offering, the investments from our strategic partners and our anticipated
$100,000,000 senior secured credit facility, will be sufficient to fund our
aggregate capital requirements, including requirements to fund capital
expenditures, working capital, debt service and cash flow deficits, and for the
deployment and operation of our networks in targeted markets through the end of
1999. We intend to use the net proceeds from this offering, together with our
existing capital resources and credit facilities, to fund the buildout of our
networks and for working capital and general corporate purposes. However, we
may decide to seek additional capital during 1999 or 2000, the timing of which
will depend on market conditions, among other things. The actual amount and
timing of our future capital requirements may differ materially from our
current estimates as a result of, among other things, the demand for our
services and regulatory, technological and competitive developments, including
additional market developments and new opportunities, in our industry. We may
also need additional financing if:
. we alter the schedule, targets or scope of our network rollout plan;
. our plans or projections change or prove to be inaccurate; or
. we acquire other companies or businesses.
We may obtain additional financing through commercial bank borrowings,
equipment financing or the private or public sale of equity or debt securities.
We may be unsuccessful in raising sufficient additional capital at all or on
terms that we consider acceptable. In addition, the terms of additional
indebtedness may not be permitted by the terms of our financing agreements and
the terms of this indebtedness may impair our ability to develop our business.
If we fail to raise sufficient funds, we may be required to modify, delay or
abandon some of our expansion plans, which could have a material adverse effect
on our business, prospects, financial condition and results of operations.
Our debt agreements and other financing agreements contain and will contain
restrictions on our activities and financial covenants that we will be required
to meet. If we fail to comply with these requirements, we would be in default
and our obligations could be declared immediately due and payable. We may be
unable to make such required payments, or to raise sufficient funds from other
sources.
We May Be Unable to Manage Growth Effectively
If we are successful in implementing our business plan, our operations will
expand rapidly. This rapid expansion could place a significant strain on our
management, financial and other resources. Our ability to manage future growth,
if it occurs, will depend upon our ability to:
. control costs;
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. maintain regulatory compliance;
. implement and significantly expand our financial and operating systems;
. maintain our OSS; and
. expand, train and manage our employee base.
We may be unable to do these things successfully. In addition, we may not
successfully obtain, integrate and use our employees and management, operating
and financial resources. Our business, prospects, financial condition and
results of operations will be materially adversely affected if we are unable to
manage our growth effectively.
The Data Communications Industry is Undergoing Rapid Technological Changes and
New Technologies May Be Superior to the Technology We Use
The data communications industry is subject to rapid and significant
technological change. We cannot predict the effect of technological changes on
our business, such as continuing developments in DSL technology and alternative
technologies for providing high speed data communications, including cable
modem technology. Additionally, DSL technology has not yet developed widely
accepted standards.
We will rely on third parties, including some of our competitors and
potential competitors, to develop and provide us with access to communications
and networking technology. Our future success will depend, in part, on our
ability to anticipate or adapt to those changes. However, we may not obtain
access to new technology on a timely basis or on satisfactory terms. We may be
unable to adapt to technological changes or offer new services that meet
evolving customer demands and industry standards on a timely basis. If we fail
to adapt successfully to technological changes or obsolescence or fail to
obtain access to important technologies, our business, prospects, financial
condition and results of operations could be materially adversely affected.
We expect that new products and technologies will emerge in the market in
which we compete. These new products and technologies may be superior to the
products and technologies that we use or render them obsolete. In addition,
these products and technologies may not be compatible or operate in a manner
sufficient for us to execute our business plan.
We Depend on ILECs for Collocation Space
We believe the growth and success of our business will depend upon securing
physical collocation space for our equipment in the ILECs' central offices in
our target markets. We have experienced initial rejections of our applications
to obtain collocation space in some central offices. We believe we will
continue to receive rejections of requested physical collocation space as we
expand our existing and planned networks. Although to date a majority of our
collocation applications that were initially rejected have subsequently been
accepted, we cannot assure you that we will be successful in reversing the
pending rejections or any other rejected applications for collocation space in
desired central offices. Nor can we predict the extent of these rejections or
their impact on our ability to provide service availability in our target
markets. The rejection of our applications for collocation space has in the
past and could in the future result in delays and increased costs as we expand
our services in our target markets. This may materially adversely affect our
business, prospects, financial condition and results of operations.
As we grow, we may be unable to secure collocation space on a timely basis or
at all. In some cases, although physical collocation space is available, ILECs
have claimed that they must refurbish space to make it suitable for
collocation--for example, by adding separate entrances, removing asbestos or
obsolete machinery, or increasing power supply and air conditioning--which in
some
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cases has made the cost to obtain that physical collocation space prohibitively
expensive. We expect physical collocation space to become increasingly scarce
due to increasing demand from a growing number of CLECs.
We may have the option of virtual collocation--which is a space within a
central office where our equipment is intermingled with ILEC equipment and
maintained by ILEC technicians--in some or all of the central offices in which
we cannot obtain space for physical collocation. However, we believe that this
is a less attractive solution because of restrictions relating to equipment
ownership, installation and maintenance.
Even when space is available, we may face delays ranging from four months to
more than a year after we place an order before a collocation cage is made
available. If our applications for physical collocation space are rejected, or
the costs or delays associated with collocation become too expensive, our
expansion plans could be adversely affected, which could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
Broad service availability is also important to NSPs that want to provide
Internet access or other data services on a national or regional basis. Our
inability to obtain physical collocation space in a timely manner could have a
material adverse effect on our ability to attract and retain NSP customers.
Any disputes with ILECs over the types of equipment we seek to install in the
collocated space could also delay our installation and even impair our ability
to provide service in the manner we deem appropriate. These delays or refusals
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
We Depend on ILECs for Transmission Facilities and the Provision of Copper
Lines
Our strategy requires us to interconnect with and use an ILEC's local loops
to service the end users of our customers. Loops are copper telecommunications
lines between each central office and the premises of a particular end user.
Accordingly, we are highly dependent upon the technology and capabilities of
the ILEC to maintain our service standards. We are also dependent on
cooperation from the ILECs, including the provision and repair of transmission
facilities. The ILECs in turn rely significantly on unionized labor. Labor-
related issues and actions on the part of the ILECs have in the past, and in
the future may, adversely affect the ILEC's provision of services and network
components that we order. Our dependence on the ILECs has caused and could
continue to cause us to encounter delays in establishing our networks,
provisioning lines and upgrading our services. These delays could adversely
affect our relationships with our customers, harm our reputation or could
otherwise have a material adverse effect on our business, prospects, financial
condition and results of operations.
In particular, we have not yet established a history of ordering and
obtaining the provisioning and repair of very large volumes of DSL-capable
loops from any ILEC. We may not be able to obtain loops in a timely fashion or
the necessary loops in all instances. See "--The Quality, Pricing and
Availability of the ILEC Copper Lines Are Uncertain." We are not certain
whether we can successfully deploy DSL through digital loop carrier systems
("DLC") at higher speeds. DLC systems connect multiple copper lines to a fiber
link, which currently limits DSL to a maximum speed of 144 kbps. We cannot
assure you that we will be successful in doing so or whether the ordering and
provisioning processes we achieve will be satisfactory to retain and grow our
end user base and customer base. Any failure to do so could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
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Any types of disputes with ILECs over the types and speeds of DSL that we
seek to run over these copper lines could impair our ability to provide service
in the manner we deem appropriate. These delays or refusals could have a
material adverse effect on our business, prospects, financial condition and
results of operations.
We also do not have an established history of addressing the billing
practices of the different ILECs. As our network and customer base grow, we may
encounter billing disputes with the ILECs that could have a material adverse
effect on our business, prospects, financial condition and results of
operations.
We Depend on Interconnection Agreements with ILECs for the Success of Our
Strategy
The success of our strategy depends on our ability to enter into and renew
interconnection agreements with ILECs in each of our target markets on a timely
basis. We have entered into 21 interconnection agreements. Delays in obtaining
additional interconnection agreements would postpone our entry into a market,
which could have a material adverse effect on our business, prospects,
financial condition and results of operations. Interconnection agreements have
limited terms of two to three years and we cannot assure you that existing or
new agreements will be extended or negotiated on terms favorable to us.
Additionally, interconnection agreements are subject to interpretation by both
parties and differences in interpretation may arise that may not be resolved on
favorable terms to us. Interconnection agreements are also subject to state
commission, FCC and judicial oversight. These government bodies may modify the
terms or prices of our interconnection agreements in ways that adversely affect
our business, prospects, financial condition and results of operations. For
more information, see "Business--Government Regulation."
The Quality, Pricing and Availability of the ILEC Copper Lines Are Uncertain
Our strategy requires us to interconnect with and use an ILEC's copper
telecommunications lines to service the end users of our customers. Therefore,
we depend upon the technology and capabilities of the ILECs to maintain our
service standards. We are highly dependent on the quality and availability of
the ILECs' copper lines and the ILECs' maintenance of such lines. We cannot
assure you that we will be able to obtain the copper lines and the services we
require from the ILECs at all, or at quality levels, rates, terms and
conditions satisfactory to us. Our failure to obtain these lines and services
and satisfactory quality levels, rates, terms and conditions would have a
material adverse effect on our business, prospects, financial condition and
results of operations.
The nonrecurring and recurring monthly charges for DSL-capable lines that we
need vary greatly by market. These rates have been subject to the approval of
the appropriate state regulator, but a recent Supreme Court decision pertaining
to the FCC's rules interpreting the Telecommunications Act of 1996 has
reaffirmed the FCC's authority to govern the pricing of local telecommunication
services and unbundled network elements. The consequences of this Supreme Court
decision are presently unclear. Possible effects include substantial changes in
the prices of the unbundled network elements, including unbundled copper loops,
that we lease from the ILECs.
The rate approval processes for DSL-capable lines have typically involved a
lengthy review of the ILEC-proposed rates in each state. The rates approved
typically depend greatly on the ILEC's initial rate proposals and such factors
as the geographic deaveraging/averaging policy of the state regulator. These
rate approval proceedings are time-consuming and absorb scarce resources,
including legal personnel and cost experts as well as participation by our
management. In any event, we are subject to the risk that the nonrecurring and
recurring charges for DSL-capable lines will increase based on new rates
proposed by the ILECs and approved by the applicable regulator.
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We Depend on Growth in Demand for DSL-Based Services
The market for small- and medium-sized business, telecommuter and residential
Internet access is in the early stages of development. Because packet-based
high-speed digital communications services using copper telephone lines is a
relatively new and evolving market and because current and future competitors
are likely to introduce competing services, it is difficult for us to predict
the rate at which these markets will grow, if at all, or whether new or
increased competition will result in market saturation. Various providers of
high-speed digital communications services are testing products from various
suppliers for various applications, and it is unclear if DSL will offer the
same or more attractive price-performance characteristics. Certain critical
issues concerning commercial use of DSL for Internet access, including
security, reliability, ease, costs of access and quality of service, remain
unresolved and may impact the growth of DSL services. If the markets for our
services fail to develop, grow more slowly than anticipated or become saturated
with competitors, our business, prospects, financial condition and results of
operations could be materially adversely affected.
We Depend on Billing, Customer Service and Information Systems
Sophisticated back office information and processing systems are vital to our
growth and ability to monitor costs, bill customers, process customer orders
and achieve operating efficiencies. Our plans for the development and
implementation of our OSS rely, for the most part, on acquiring products and
services offered by third-party vendors and integrating those products and
services in-house to produce efficient operational solutions. However, we may
not successfully implement these systems on a timely basis or at all, and these
systems may not perform as expected. Failure of these vendors to deliver
proposed products and services in a timely and effective manner and at
acceptable costs, our failure to adequately identify all of our information and
processing needs, failure of our related processing or information systems, our
failure to effectively integrate these products or services, or our failure to
upgrade systems as necessary could have a material adverse effect on our
business, prospects, financial condition and results of operations. In
addition, our right to use these systems is dependent upon license agreements
with third-party vendors. Some of those agreements may be cancelable by the
vendor and the cancellation or nonrenewal of these agreements may have a
material adverse effect on our business, prospects, financial condition and
results of operations. Similar issues are applicable to the OSS and other back
office systems of our NSP customers, and to the interface between our systems
and those of our NSP customers. Therefore, failures at our NSP customers could
also have a material adverse effect on our business, prospects, financial
condition and results of operations.
Our Failure and the Failure of Third Parties to be Year 2000 Compliant Could
Negatively Impact Our Business
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, our
computer programs that have date-sensitive software and software of companies
into which our network is interconnected may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. We have assessed our systems and believe
them to be year 2000 compliant. However, if the systems of other companies on
whose services we depend or with whom our systems interconnect are not year
2000 compliant, it could have a material adverse effect on our business,
prospects, financial condition and results of operations. The year 2000 issue
is discussed at greater length in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impact of Year 2000 Issue."
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We May Be Unable to Expand Our Network Services Effectively and Provide High
Performance to a Substantial Number of End Users
Due to the limited deployment of our services, the ability of our DSL network
to connect and manage a substantial number of end users at high transmission
speeds is still unknown. While peak digital data transmission speeds across our
DSL network to and from the central office and the end user can exceed 1.5
megabits per second ("Mbps"), the actual data transmission speeds over our
network could be significantly slower and will depend on a variety of factors,
including:
. the type of DSL technology deployed;
. the distance an end user is located from a central office;
. the configuration of the telecommunications line being used;
. the existence of analog load coils;
. the number of bridged taps;
. the gauge of the copper wires; and
. the presence and severity of interfering transmissions on nearby lines.
As a result, our network may not be able to achieve and maintain the highest
possible digital transmission speed. Our failure to achieve or maintain high
speed digital transmissions would have a material adverse effect on our
business, prospects, financial condition and results of operations.
Our Success Depends on Our Retention of Certain Key Personnel and Our Ability
to Hire Additional Key Personnel
We are managed by a small number of key executive officers. Competition for
qualified employees and personnel in the data communications services industry
is intense, and there are a limited number of persons with knowledge of, and
experience in, this industry. We do not have employment agreements with any of
our employees. Any of our employees, including our senior management team
members, may terminate his or her employment with us at any time. We do not
have "key person" life insurance policies on any of our employees. The loss of
services of one or more of these key individuals could have a material adverse
effect on our business, prospects, financial condition and results of
operations.
We believe that our success will depend in large part on our ability to
develop an effective sales force and attract and retain other highly skilled
and qualified personnel. The industry in which we compete is characterized by a
high level of employee mobility and aggressive recruiting of skilled personnel.
We may be unable to hire or retain necessary personnel in the future. Our
inability to attract and retain key technical, sales, marketing, managerial and
other personnel would have a material adverse effect on our business,
prospects, financial condition and results of operations.
Industry Consolidation Could Adversely Affect Us
Consolidation of companies offering high speed local data transport is
occurring through acquisitions, joint ventures and licensing arrangements
involving our competitors and our NSP customers' competitors. We cannot predict
with any certainty how industry consolidation will affect us or our
competitors. We cannot assure that we will be able to compete successfully in
an increasingly consolidated industry. Any heightened competitive pressures
that we may face may have a material adverse effect on our business, prospects,
financial condition and results of operations. Additionally, because we rely on
our NSP customers' marketing channels to provide our services to business and
residential end users, if our NSP customers are adversely affected by
consolidation among and integration in the NSP market, our business, prospects,
financial condition and results of operations could be materially adversely
affected. See "--Our Customers Are Concentrated and We Depend on Them to Market
and Sell Our Network Services."
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We also cannot predict how industry consolidation and integration will affect
our NSP customers' demand for our services. Because many of our agreements with
our NSP customers are non-exclusive, and because many of our NSP customers are
also customers of our competitors, consolidation of our NSP customers with NSPs
who contract with our competitors could decrease our NSP customers' demand for
our services or result in our NSP customers terminating our strategic
agreements with them.
The Market in Which We Operate is Highly Competitive, and We May Not Be Able to
Compete Effectively, Especially Against Established Industry Competitors with
Significantly Greater Financial Resources
We face competition from many competitors with significantly greater
financial resources, well-established brand names and larger customer bases. We
also expect competition to intensify in the future. We expect significant
competition from other CLECs, ILECs, traditional and new national long distance
carriers ("IXCs"), cable modem service providers ("CMSPs"), ISPs, on-line
service providers ("OSPs"), and wireless and satellite data service providers
("WSDSPs").
Other Competitive Local Exchange Carriers. Other CLECs have entered and may
continue to enter the market and offer high speed data services using a
business strategy similar to ours. Some CLECs, including CLECs focusing on data
transport such as Rhythms NetConnections Inc., Covad Communications Group,
Inc., HarvardNet Inc., Dakota Services, Prism and Network Access Solutions,
have begun to offer DSL-based access services, and others are likely to do so
in the future. Certain of our customers, such as Concentric, have made
investments in our competitors, which may enhance their relationships with
these competitors at our expense. The Telecommunications Act of 1996
specifically grants any and all CLECs the right to negotiate interconnection
agreements with ILECs. The Telecommunications Act also allows CLECs to enter
into interconnection agreements which are identical in all respects to ours. In
addition, some CLECs have extensive fiber networks in many metropolitan areas
primarily providing high speed digital and voice circuits to large
corporations, and have interconnection agreements with ILECs pursuant to which
they have acquired collocation space in many of our markets.
Incumbent Local Exchange Carriers. The ILECs have an established brand name
and reputation for high quality in their service areas, possess significant
capital to deploy DSL equipment rapidly, have their own copper lines and can
bundle digital data services with their existing analog voice services to
achieve economies of scale in serving customers. In addition, most ILECs have
established or are establishing their own ISP businesses, and all of the
largest ILECs that are present in our target markets are conducting market
trials of or have commenced offering DSL-based access services. For example,
Pacific Bell and Southwestern Bell are offering commercial services in some
territories in which we offer services, U S WEST is offering DSL commercial
services and Ameritech has announced commercial DSL services in some areas of
Michigan and Illinois. We recognize that the ILECs have the potential to
quickly deploy DSL services and are in a position to offer service from central
offices where we may be unable to secure collocation space. In addition, the
FCC is considering establishing requirements for separate subsidiaries through
which the ILECs could provide DSL service on a largely deregulated basis. As a
result, we expect ILECs to be strong competitors in each of our target markets.
National Long Distance Carriers. Many of the leading traditional IXCs,
including MCI Communications Corporation (now known as MCI WorldCom, Inc./MFS,
UUNET Technologies, Inc.), AT&T Corp. (with Teleport Internet Services/TCG
CERFnet, Inc. and through its pending acquisition of Tele-Communications, Inc.
and joint venture with Time Warner, Inc.) and Sprint Communications Company,
L.P. (with EarthLink Network, Inc. and its announced ION network architecture),
are expanding their capabilities to support high speed, end-to-end data
networking services. They also have interconnection agreements with many of the
ILECs and a number of collocation spaces from
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which they could begin to offer competitive DSL services. The newer IXCs, such
as The Williams Companies, Inc., IXC Communications, Inc., Qwest Communications
International, Inc. and Level 3 Communications, Inc. are building and managing
high bandwidth, nationwide IP-based packet networks and partnering with ISPs to
offer services directly to the public. These companies could modify their
current business focus to include small- and medium-sized business customers
using DSL or other technologies in combination with their current fiber
networks.
Cable Modem Service Providers. CMSPs, such as @Home and Road Runner, Inc.
(with their cable partners), are deploying high speed Internet access services
over hybrid fiber coaxial cable networks. Where deployed, these networks
provide similar and in some cases higher speed Internet access than we provide.
They also offer these services at lower price points than our services. Actual
or prospective CMSP competition may have a significant negative effect on our
ability to secure customers and may create downward pressure on the prices we
can charge for our services.
Internet Service Providers. ISPs, such as GTE Internetworking (previously
known as BBN Corporation prior to its acquisition by GTE Corporation), UUNET (a
subsidiary of WorldCom, Inc.), Sprint (with EarthLink Network, Inc.),
Concentric Network Corporation, MindSpring Enterprises, Inc. and PSINet, Inc.,
provide Internet access to residential and business customers, generally using
the existing PSTN at ISDN speeds or below. Some regional ISPs, such as
HarvardNet Inc., InterAccess Co., Vitts Networks Inc. and Prism Solutions,
Inc., have begun offering DSL-based services. ISPs could become competing DSL
service providers if they attain CLEC certification in the states in which they
planned to operate.
On-line Service Providers. OSPs, such as America Online, Inc., Compuserve (a
subsidiary of America Online), Microsoft Service Network (a subsidiary of
Microsoft Corp.), Prodigy, Inc., and WebTV Networks, Inc. (a subsidiary of
Microsoft), provide, over the Internet and on proprietary on-line services,
content and applications ranging from news and sports to consumer video
conferencing. These services are designed for broad consumer access over
telecommunications-based transmission media, which enable digital services to
be provided to the significant number of consumers who have personal computers
with modems. In addition, OSPs provide Internet connectivity, ease-of-use and
consistency of environment. Many of these OSPs have developed their own access
networks for modem connections. AOL has announced that it will purchase DSL
services from Bell Atlantic. If these OSPs were to extend their owned access
networks to DSL, they would be our competitors.
Wireless and Satellite Data Service Providers. WSDSPs are developing wireless
and satellite-based Internet connectivity. We may face competition from
terrestrial wireless services, including Multi-channel Multipoint Distribution
System ("MMDS"), Local Multipoint Distribution System ("LMDS"), Wireless
Communication Service ("WCS") and point-to-point microwave systems. The FCC is
currently considering new rules to permit MMDS licensees to use their systems
to offer two-way services, including high speed data, rather than solely to
provide one-way video services. The FCC also has auctioned LMDS licenses in all
markets for wireless systems, which can be used for high speed data services.
In addition, companies such as Teligent, Inc., Advanced Radio Telecom Corp.,
WNP (which recently agreed to be acquired by NEXTLINK), and WinStar
Communications, Inc. hold point-to-point microwave licenses to provide fixed
wireless services such as voice, data and video conferencing.
We also may face competition from satellite-based systems. Motorola Satellite
Systems, Inc., Hughes Space and Communications Group (a subsidiary of General
Motors Corporation), Teledesic LLC and others have filed applications with the
FCC for global satellite networks which can be used to provide broadband voice
and data services.
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In January 1997, the FCC allocated 300 MHz of spectrum in the 5 GHz band for
unlicensed devices to provide short-range, high speed wireless digital
communications. These frequencies must be shared with incumbent users without
causing interference. Although the allocation is designed to facilitate the
creation of new wireless LANs, it is too early to predict what kind of
equipment might ultimately be manufactured and for what purposes it might be
used.
The telecommunications industry is subject to rapid and significant changes
in technology, and we cannot predict the effect of technological changes on our
business, such as continuing developments in DSL technology and alternative
technologies for providing high speed data communications. These technological
developments in the telecommunications industry could have a material adverse
effect on our competitive position and therefore on our business, prospects,
financial condition and results of operations.
Our Services are Subject to Government Regulation, and Changes in Current or
Future Laws or Regulations Could Restrict the Way We Operate Our Business
We are subject to federal, state and local regulation of our
telecommunications business. For more information see "Business--Government
Regulation." In general, regulation of the telecommunications industry is in a
state of flux. With the passage of the Telecommunications Act, Congress sought
to foster competition in the telecommunications industry. Congress also enacted
the Telecommunications Act for the purpose of promoting the deployment of
advanced telecommunications capabilities to all Americans. Implementation of
the Telecommunications Act is the subject of ongoing administrative proceedings
at the federal and state levels, litigation in federal and state courts, and
legislation in federal and state legislatures. We cannot predict the outcome of
the various proceedings, litigation and legislation or whether these
proceedings, litigation and legislation may adversely affect our business and
operations.
The Telecommunications Act has caused fundamental changes in the structure of
the markets for local exchange services. On January 25, 1999, the Supreme Court
largely reversed earlier decisions of the U.S. Court of Appeals for the Eighth
Circuit and held that the FCC has general jurisdiction to implement the local
competition provisions of the Telecommunications Act. The Supreme Court stated
that the FCC has authority to set pricing guidelines for CLECs to use various
portions of the ILEC's network to provide service. These portions of the ILEC's
network are called unbundled network elements. The Supreme Court also affirmed
the FCC's authority to prevent ILECs from refusing to sell to CLECs the ILECs'
existing combinations of network elements. The Supreme Court approved the FCC's
establishment of "pick and choose" rules regarding interconnection agreements
between ILECs and CLECs, which would permit a CLEC to "pick and choose" among
various terms of service in different interconnection agreements between the
ILEC and other CLECs. Although the Supreme Court affirmed the FCC's authority
to develop pricing guidelines, the Court did not evaluate the specific pricing
methodology adopted by the FCC and has remanded the case to the Eighth Circuit
for further consideration. The Eighth Circuit has not yet reinstated the FCC
rules that the Supreme Court affirmed, and several ILECs have asked the Eighth
Circuit not to reinstate those rules until further challenges have been
resolved. In its decision, the Supreme Court also vacated the FCC's rule that
identifies the unbundled network elements that ILECs must provide to CLECs. The
Supreme Court found that the FCC had not adequately considered certain
statutory criteria for requiring ILECs to make those network elements available
to CLECs. Thus, while the Supreme Court resolved many issues, including the
FCC's jurisdictional authority, other issues remain subject to further
consideration by the courts and the FCC, and we cannot predict the ultimate
disposition of these matters. We cannot determine at this time the possible
impact of this decision, including the portion dealing with unbundled network
elements, on existing interconnection agreements between ILECs and CLECs or on
agreements that may be negotiated in the future.
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Recently, various regional Bell operating companies, or "RBOCs," have filed
petitions with the FCC requesting regulatory relief in connection with the
provision of data services, including DSL services. In response to these
petitions, the FCC issued a decision that data services generally are
telecommunications services that, when provided by ILECs, are subject to the
FCC's interconnection rules, including the rule requiring that an ILEC's data
services be subject to unbundling and resale requirements. Petitions have been
filed with the FCC asking it to reconsider its decision in this regard. The FCC
has also initiated a proceeding to determine whether:
. ILECs will be able to escape their ILEC obligations by providing data
services through "truly" separate affiliates;
. new rules should be adopted to increase ILEC competitors access to
collocation and ILEC loops;
. the FCC will specifically require ILECs to unbundle their DSL equipment
and resell DSL services; and
. the FCC will grant the RBOCs relief in local access and transport areas,
or "LATAs," for the provision of data services.
A decision by the FCC on these issues is expected shortly. In addition, three
RBOCs have filed petitions with the FCC seeking relief from dominant carrier
regulation for their data services in certain regions. We cannot predict the
effect that these proceedings will have on our ability to obtain facilities and
services from ILECs and on the competition that we will face from ILECs.
Our Debt Creates Financial and Operating Risk
As of December 31, 1998, we had approximately $55,000,000 of indebtedness. We
anticipate incurring additional indebtedness in the future, including a
$100,000,000 senior secured credit facility that we expect to close in April
1999. See "Capitalization." After this offering and repayment of certain
existing indebtedness, and assuming we draw the entire $100,000,000 available
to us under our anticipated senior secured credit facility, we will have raised
approximately $ in equity securities and will have approximately
$105,000,000 of debt outstanding.
The degree to which we are leveraged could have important consequences to
holders of our common stock, including, but not limited to, the following:
. our ability to obtain additional financing or refinancing in the future
for capital expenditures, repayment of outstanding indebtedness, working
capital, acquisitions, general corporate or other purposes may be
materially limited or impaired;
. our cash flow, if any, may be unavailable for building our business, as a
substantial portion of our cash flow may be dedicated to the payment of
principal and interest on our indebtedness or other indebtedness that we
may incur in the future, and our failure to generate sufficient cash flow
to service such indebtedness could result in a default;
. our debt agreements will contain restrictions and financial covenants
which, if we fail to meet them, could result in our indebtedness being
declared due prematurely, at a time when we could not make the required
payments;
. our leverage may make us more vulnerable to economic downturns, may limit
our ability to withstand competitive pressures and may reduce our
flexibility in responding to changing business and economic conditions;
and
. we may be more highly leveraged than many of our competitors, which may
place us at a competitive disadvantage.
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A System Failure or Breach of Network Security Could Delay or Interrupt Service
to Our Customers
Our operations depend on our ability to avoid damages from fire, earthquakes,
floods, power losses, telecommunications failures, network software flaws,
transmission cable cuts and similar events. A natural disaster or other
unanticipated problems at our owned or leased facilities could cause
interruptions in our services. Additionally, failure of an ILEC or other
service provider, such as a CLEC, to provide communications capacity required
by us, as a result of a natural disaster, operational disruption or for any
other reason, could cause interruptions in our services. Any damage or failure
that causes interruptions in our services could have a material adverse effect
on our business, prospects, financial condition and results of operations.
Despite the implementation of security measures, our network may be
vulnerable to unauthorized access, computer viruses and other disruptive
problems. Corporate networks and NSPs have experienced, and may in the future
experience, interruptions in service as a result of accidental or intentional
actions of Internet users, current and former employees and others.
Unauthorized access could also potentially jeopardize the security of
confidential information stored in the computer systems of our customers, which
might result in liability to our customers, and also might deter potential
customers. Although we intend to implement security measures that are standard
within the telecommunications industry, we may be unable to implement such
measures in a timely manner or, if and when implemented, our security measures
may be circumvented. Eliminating computer viruses and alleviating other
security problems may require interruptions, delays or cessation of service to
our customers and these customers' end users. Any of the foregoing factors
relating to network security could have a material adverse effect on our
business, prospects, financial condition and results of operations.
We Depend on Third Parties for Equipment, Installation and Provision of Field
Service
We plan to purchase all of our equipment from various vendors and outsource
the installation and field service of our networks to third parties. We also
depend on the availability of fiber optic transmission facilities from third
parties to connect our equipment within and between metropolitan areas. Any
reduction or interruption in supply from any of our suppliers, such as Copper
Mountain Network, Inc., from which we purchase most of our digital subscriber
line access multiplexers ("DSLAMs"), or interruption in service from any
significant installer or field service provider, such as Lucent Technologies,
Inc., which will install and maintain our equipment in all of our markets,
could have a disruptive effect on our business, prospects, financial condition
and results of operations. Our suppliers may be unable to manufacture and
deliver the amount of equipment ordered or such supply may be insufficient to
meet demand. In addition, the pricing of the equipment we purchase may
substantially increase over time, increasing the costs we pay in the future, or
decrease over time, providing later market entrants with a cost advantage over
us. The availability and pricing of the equipment we purchase would be
adversely affected if our suppliers were to compete with us, or if our
competitors enter into exclusive or restrictive arrangements with our
suppliers. Although we believe that there are alternative suppliers for our
technologies, it could take a significant period of time to establish
relationships with alternative suppliers for each of our technologies and
substitute their technologies into our network. Any shortages in supply of
equipment or personnel, failures by suppliers to deliver quality products on a
timely basis, or our inability to develop alternative sources if and as
required would have a material adverse effect on our business, prospects,
financial condition and results of operations.
Uncertain Federal and State Tax and Other Surcharges on Our Services May
Increase Our Payment Obligations
Telecommunications providers are subject to a variety of complex federal and
state surcharges and fees on their gross revenues from interstate and
intrastate services, including regulatory fees,
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<PAGE>
and surcharges related to the support of universal service. A finding that we
misjudged the applicability of the surcharges and fees could increase our
payment obligations and have a material adverse effect on our business,
prospects, financial condition and results of operations.
Interference or Claims of Interference Could Harm Our Services
Certain technical laboratory tests and field experience indicate that some
types of DSL, in particular, asymmetrical digital subscriber line ("ADSL"), may
cause interference with and be interfered with by other signals present in an
ILEC's copper plant, usually with lines in close proximity. However, other
laboratory tests indicate that this equipment does not cause interference.
Citing this potential interference, some ILECs have imposed restrictions on the
use of ADSL technology for data transport over their copper lines based upon
end users' distance from the central office. We do not believe that our
symmetrical DSL ("SDSL") technology equipment poses the same types of
compatibility issues usually associated with ADSL because SDSL uses line coding
identical to that currently in use for ISDN and T1 lines. However,
compatibility complaints may be brought against our SDSL equipment. If ILECs
attempt to restrict our use of SDSL equipment or any technology or equipment we
seek to use in the future, our business, prospects, financial condition and
results of operations could be materially adversely affected.
Our Stock Price May Be Volatile
The price at which our common stock will trade will depend on many factors,
including:
. our historical and anticipated quarterly and annual operating results;
. variations between our actual results and analyst and investor
expectations;
. announcements by us or others and developments affecting our business;
. investor perceptions of our company and comparable public companies;
. changes in our industry; and
. general market and economic conditions.
Some of these factors are beyond our control. You should be aware that the
stock market has from time to time experienced extreme price and volume
fluctuations.
There Has Been No Prior Market for Our Common Stock
Prior to this offering, there has not been a public market for the common
stock. We are applying to list the common stock for trading on the Nasdaq
National Market. We do not know whether investor interest in NorthPoint will
lead to the development of a trading market or, if a trading market develops,
how liquid that market will be. We will determine the initial public offering
price for the shares of common stock through our negotiations with the
underwriters. You may not be able to sell your shares at or above the initial
public offering price. See "Underwriting."
The Price of Our Common Stock May Decline Due to Shares Eligible for Future
Sale
Sales of a large number of shares of common stock in our market after the
offering or the perception that sales may occur could cause the market price of
our common stock to drop.
shares of common stock will be outstanding immediately after the
offering, including shares of common stock to be issued upon completion of
the offering upon automatic conversion of preferred stock. The shares sold
in this offering (plus any shares issued upon exercise of the underwriters'
over-allotment option) will be freely tradeable, except for any such shares
held at any time by an "affiliate" of NorthPoint, as defined under Rule 144
under the
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<PAGE>
Securities Act. Of the remaining shares, are subject to lock-up agreements
in which the holders of the shares have agreed not to sell any shares for a
period of 180 days after the date of this prospectus without the prior written
consent of the representatives of the underwriters. The shares not subject to
lock-up agreements are "restricted securities" as defined in Rule 144 under the
Securities Act. These shares may be sold in the future without registration
under the Securities Act to the extent permitted by Rule 144 or an exemption
under the Securities Act.
After this offering, we intend to file registration statements on Form S-8
under the Securities Act to register the 7,500,000 shares of common stock that
are reserved for issuance under our 1997 Stock Option Plan, including shares
currently subject to outstanding options, and the shares reserved for
issuance under our 1999 Employee Stock Purchase Plan. We expect the
registration statements on Form S-8 to become effective immediately upon
filing. Options to purchase 1,690,286 shares of common stock either are vested
or vest within 60 days of February 26, 1999. Shares covered by the registration
statements on Form S-8 will be eligible for sale in the public markets, subject
to Rule 144 limitations applicable to affiliates as well as to the limitations
on sale and vesting described above. See "Management."
You Will Incur Immediate and Substantial Dilution
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of the common stock. Therefore, you will
incur immediate and substantial net tangible book value dilution. You may incur
additional dilution if holders of stock options, whether currently outstanding
or subsequently granted, exercise their options or if warrantholders exercise
their warrants to purchase common stock. See "Dilution" for more information.
Our Principal Stockholders and Management Own a Significant Percentage of
NorthPoint, and Will Be Able to Exercise Significant Influence Over NorthPoint
Our executive officers and directors and principal stockholders together will
beneficially own % of the common stock after completion of this offering, or
% if the over-allotment option is exercised in full. Accordingly, these
stockholders will be able to determine the composition of our Board of
Directors, will retain the voting power to approve all matters requiring
stockholder approval and will continue to have significant influence over our
affairs. This concentration of ownership could have the effect of delaying or
preventing a change in our control or otherwise discouraging a potential
acquirer from attempting to obtain control of us, which in turn could have a
material and adverse effect on the market price of the common stock or prevent
our stockholders from realizing a premium over the market prices for their
shares of common stock. See "Principal Stockholders" for information about the
ownership of common stock by our executive officers, directors and principal
stockholders.
Anti-Takeover Provisions Could Negatively Impact Our Stockholders
Certain provisions of our Certificate of Incorporation and Bylaws could make
it more difficult for a third party to acquire control of NorthPoint, even if a
change in control would be beneficial to stockholders. Prior to completion of
this offering, we will amend our Certificate of Incorporation to allow our
Board of Directors to issue, without stockholder approval, preferred stock with
terms set by the Board of Directors. The preferred stock could be issued
quickly with terms that delay or prevent the change in control of NorthPoint or
make removal of management more difficult. Also, the issuance of preferred
stock may cause the market price of the common stock to decrease. See
"Description of Capital Stock" for more information.
Forward-Looking Statements are Inherently Uncertain
This prospectus contains "forward-looking statements" as defined in Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. Although the safe
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<PAGE>
harbor provisions of Section 27A and Section 21E are not applicable to any
forward looking statements made in connection with the initial issuance of the
common stock offered by this prospectus, the safe harbors do apply to forward
looking statements made in connection with resales of the shares. Generally,
they can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "anticipates" or similar terms,
or by discussion of strategy that involves risks and uncertainties. We wish to
caution you that these forward-looking statements, such as our plans and
strategies, our anticipation of revenues from designated markets, statements
regarding the development of our business, the markets for our services and
products, our anticipated capital expenditures, possible changes in regulatory
requirements and other statements contained in this prospectus regarding
matters that are not historical facts, are only predictions and estimates
regarding future events and circumstances. Cautionary statements are disclosed
in this prospectus, including without limitation in connection with the
forward-looking statements included in this prospectus and under "Risk
Factors." We may not achieve future results, and actual events or results may
differ materially, as a result of risks we face. Such risks include, but are
not limited to, our ability to:
. successfully market our services to current and new NSP customers;
. interconnect with ILECs;
. further develop efficient OSS and other back office systems;
. provision new NSP customers and their end users;
. raise additional capital;
. maintain adequate operating margins;
. attract and retain qualified personnel;
. expand the geographic coverage of our network;
. respond to technological changes and competitive market conditions; and
. obtain collocation space and any required governmental authorizations,
franchises and permits, all in a timely manner, at reasonable costs and
on satisfactory terms and conditions.
Risks also include regulatory, legislative and judicial developments that
could cause our actual results to differ materially from the future results
indicated. All subsequent written and oral forward-looking statements
attributable to us are expressly qualified in their entirety by the cautionary
statements. You are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of their dates. We do not intend to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of common stock in this
offering will be approximately $ ($ if the underwriters exercise their
over-allotment option in full), based upon an assumed offering price per share
of $ and after deducting estimated underwriting discounts and commissions
and estimated offering expenses.
We intend to use the net proceeds from this offering to fund the buildout of
our networks, and for working capital and general corporate purposes.
Prior to the application of the net proceeds from the offering as described
above, the net proceeds from the offering will be invested in marketable,
investment-grade securities.
DIVIDEND POLICY
We have never paid any dividends and do not anticipate declaring or paying
cash dividends in the foreseeable future. We intend to retain future earnings,
if any, to reinvest in our business and repay indebtedness. Any determination
to declare or pay cash dividends will be at the discretion of our Board of
Directors, subject to compliance with our debt financing arrangements, and will
depend on our financial condition, results of operations, capital requirements
and such other factors as the Board of Directors considers relevant. Certain
covenants in our financing agreements will prohibit or limit our ability to
declare or pay cash dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth (A) our capitalization as of December 31,
1998; (B) our pro forma capitalization after giving effect to (1) the issuance
of preferred stock in February 1999, (2) the issuance to strategic investors of
subordinated debt convertible into common stock and (3) a stock split of
certain shares of preferred stock; (C) our pro forma capitalization after also
giving effect to (1) the automatic conversion of the outstanding convertible
preferred stock and convertible subordinated debt upon the closing of this
offering, and (2) the anticipated closing of our $100,000,000 senior secured
credit facility in April 1999 and our anticipated initial drawdown of
$55,000,000 thereunder; and (D) our as adjusted capitalization to reflect, in
addition, the receipt of the estimated net proceeds from the sale of common
stock in this offering, after deducting estimated underwriting discounts and
estimated offering expenses payable by NorthPoint. You should read this table
in conjunction with our consolidated financial statements and the related notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1998
-------------------------------------
(A) (B) (C) (D)
Pro Pro As
Actual Forma Forma Adjusted
------- -------- -------- --------
(dollars in thousands, except
per share amounts)
<S> <C> <C> <C> <C>
Cash and cash equivalents................ $10,956 $ 75,726 $ 80,726
Short term debt:
Current portion of capital lease
obligations........................... 1,191 1,191 1,191
Line of credit borrowings, net of
unamortized debt discount ............ 49,606 49,606 --
------- -------- --------
Total short term debt................ 50,797 50,797 1,191
Long term debt:
Capital lease obligations.............. 3,237 3,237 3,237
Senior secured credit facility......... -- -- 55,000
Convertible subordinated debt.......... -- 5,600 --
------- -------- --------
Total long term debt................. 3,237 8,837 58,237
Stockholders' equity (deficit):
Convertible Preferred Stock, $.001 par
value; 21,804,556 shares authorized,
17,110,691 shares issued and outstanding
(A) actual; 34,460,127 shares issued or
outstanding (B) pro forma; no shares
issued and outstanding (C) pro forma,
and (D) as adjusted(1).................. 17 35 0
Common Stock, $.001 par value; 75,000,000
shares authorized and 10,930,200 shares
issued and outstanding (A) actual; and
(B) pro forma; 45,644,872 shares issued
and outstanding (C) pro forma; and
shares issued and outstanding (D)
as adjusted(2).......................... 11 11 301
Common Stock Warrants(3)................. 2,065 2,065 2,065
Additional paid-in capital............... 22,117 81,260 86,614
Deferred compensation.................... (5,589) (5,589) (5,589)
Accumulated deficit...................... (27,203) (27,203) (27,597)
------- -------- --------
Total stockholders' equity (deficit)... (8,582) 50,579 55,794
------- -------- --------
Total capitalization................. $45,452 $110,213 $115,222
======= ======== ========
</TABLE>
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<PAGE>
- --------
(1) Excludes 407,902 shares of Series B preferred stock issuable upon exercise
of outstanding warrants as of December 31, 1998, assuming full vesting. See
note 8 to our consolidated financial statements.
(2) Excludes 7,130,132 total shares of common stock issuable upon exercise of
outstanding options under our 1997 Stock Option Plan as of February 24,
1999; shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan; and 2,029,426 shares of common stock issuable
upon exercise of outstanding and contingent warrants.
(3) Reflects the attribution of value to certain warrants issued in conjunction
with the bridge loan.
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<PAGE>
DILUTION
The pro forma net tangible book value of NorthPoint as of December 31, 1998
was $ or $ per share of outstanding common stock, after giving
effect to the adjustments shown in column (C) under Capitalization. The pro
forma net tangible book value per share represents our total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding on a pro forma basis. Dilution per share represents the difference
between the amount per share paid by investors in this offering and the pro
forma net tangible book value per share after the offering. After giving effect
to this offering at an assumed initial public offering price of $ per
share resulting in estimated net proceeds to NorthPoint of approximately
$ (after deducting estimated underwriting discounts and commissions and
offering expenses payable by NorthPoint), the as adjusted pro forma deficit in
net tangible book value at December 31, 1998 would have been $ or $
per share. This represents an immediate decrease in the net tangible book value
of $ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share to new investors purchasing shares at
the assumed initial public offering price. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $
Pro forma net tangible book value per share as of
December 31, 1998....................................... $
Increase per share attributable to new investors.........
-------
As adjusted pro forma net tangible book value per share
after the offering........................................
-------
Dilution per share to new investors........................ $
=======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31, 1998,
the difference between the existing stockholders and new investors with respect
to the number of shares of common stock purchased from NorthPoint, the total
consideration paid and the average price per share paid at an assumed initial
public offering price of $ per share (before deducting estimated underwriting
discounts and commissions and offering expenses payable by NorthPoint):
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration
--------------- -------------- Average Price
Number Percent Amount Percent per Share
------- ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... % $ % $
New investors...................
------- ----- ------ -----
Total......................... 100.0% $ 100.0%
======= ===== ====== =====
</TABLE>
The foregoing table assumes no exercise of stock options or warrants. As of
February 24, 1999, there were options and warrants outstanding to purchase
9,159,558 shares of common stock at a weighted average exercise price of $
per share. To the extent outstanding options and warrants are exercised, there
will be further dilution to new investors.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the period from May
16, 1997 (inception) to December 31, 1997 and for the year ended December 31,
1998 have been derived from our audited financial statements and the related
notes, which are included elsewhere in this prospectus. You should read the
following consolidated summary financial data together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the related notes included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Inception to Year Ended
December 31, December 31,
1997 1998
------------ ------------
($ in thousands, except
share
and per share data)
<S> <C> <C>
Consolidated Statement of Operations Data:
Revenues(1)......................................... $ -- $ 931
Operating expenses:
Network expenses.................................. 56 3,970
Selling, marketing, general and administrative.... 1,374 18,339
Amortization of deferred compensation............. 29 844
Depreciation and amortization..................... 27 1,319
---------- -----------
Total operating expenses........................ 1,486 24,472
---------- -----------
Income (loss) from operations....................... (1,486) (23,541)
Interest income (expense)........................... 190 (2,366)
---------- -----------
Net income (loss)................................... $ (1,296) $ (25,907)
========== ===========
Net income (loss) per common share.................. $ (.13) $ (2.39)
Shares used in computing net income (loss) per
share.............................................. 9,659,360 10,835,309
Pro forma net income (loss) per common share(2)..... $ (.05) $ (.93)
Shares used in computing pro forma net income (loss)
per share(2)....................................... 26,110,081 27,963,726
Other Data:
EBITDA(3)........................................... $ (1,430) $ (21,378)
Capital expenditures................................ 701 41,550
Consolidated Cash Flow Data:
Provided by (used in) operating activities.......... $ (1,094) $ (11,363)
Provided by (used in) investing activities.......... (701) (41,550)
Provided by (used in) financing activities.......... 11,243 54,420
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998
------------------------------
Pro Pro Forma as
Actual Forma(4) Adjusted(5)
------- ------- ------------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents...................... $10,956 $80,726
Property and equipment, net.................... 46,078 46,078
Total assets................................... 60,502 130,272
Long-term obligations, including current
portion....................................... 54,034 59,428
Total stockholders' equity (deficit)........... (8,582) 55,794
</TABLE>
- --------
(1) Our revenues consist entirely of service revenues. We do not currently sell
end user modems or other electronic equipment.
(2) The pro forma net loss per share reflects the conversion of the preferred
stock outstanding as of December 31, 1998 into common stock.
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<PAGE>
(3) EBITDA consists of net loss excluding net interest, taxes, depreciation and
amortization (including amortization of deferred compensation). EBITDA is
provided because it is a measure of financial performance commonly used in
the telecommunications industry. We have presented EBITDA to enhance your
understanding of our operating results. You should not construe it as an
alternative to operating income as an indicator of our operating
performance or as an alternative to cash flows from operating activities as
a measure of liquidity. We may calculate EBITDA differently than other
companies. For further information, see our consolidated financial
statements and related notes elsewhere in this prospectus.
(4) The pro forma balance sheet information reflects:
. the issuance of convertible debt and equity securities in February 1999;
. the conversion upon the completion of this offering of all outstanding
preferred stock and convertible debt into common stock; and
. the anticipated closing of our $100,000,000 senior secured credit
facility in April 1999 and our anticipated initial drawdown of
$55,000,000 thereunder.
(5) In addition to the adjustment in Note (4) above, the pro forma as adjusted
balance sheet information reflects the receipt of estimated net proceeds of
$ from this offering, after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by NorthPoint.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of NorthPoint's financial condition and
results of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our financial statements and related notes included
elsewhere in this prospectus. In the discussion below, we refer to the period
from inception to December 31, 1997 as "1997."
Overview
Since inception on May 16, 1997, our principal activities have included
developing our business plans, procuring governmental authorizations and
collocation space in central offices, raising capital, hiring management and
other key personnel, working on the design and development of our network
architecture and OSS, acquiring equipment and facilities, and negotiating
interconnection agreements. As a result of our development activities, we have
experienced operating losses. We expect to experience increasing operating
losses as we expand our operations.
We introduced our commercial services in March 1998 in the San Francisco Bay
Area. We subsequently launched service in eleven additional markets, including
the greater Los Angeles area, Boston, New York, Chicago, San Diego, Washington,
D.C., Dallas, Detroit, Houston, Cleveland and Austin. We intend to offer our
services in 16 additional metropolitan areas by year-end. Deployment of our
networks will require significant upfront capital expenditures. We have
targeted an initial central offices necessary to roll out services in our 28
targeted markets and an additional central offices that will allow us to
broaden our coverage in these markets. We have already secured and purchased
space in of these initial central offices.
The principal expenditures we incur when we enter any market include: the
establishment of a metropolitan node and the purchase and installation of
electronic switching equipment for that node; the procurement, design and
construction of the collocation cage in each central office; the purchase and
installation of the initial DSLAM and other network management equipment in
those cages. In addition, we will incur operations, sales and market
development expenses in order to enter a new market. Once we have deployed our
network in a market, the majority of our additional capital expenditures will
be dependent upon orders to connect new end users. These success-based capital
expenditures include DSL line cards, incremental DSLAM and network test
equipment, and nodal line cards. In addition to the capital expenditures
required to enter a market, we will be required to fund each market's cash flow
deficit as we build our customer base.
Financial performance will vary from market to market, and the time when we
will achieve positive EBITDA, if at all, will depend on factors such as the
size of the addressable market, the level of upfront sales and marketing
expenses, the number and sequencing of central offices built out, the cost of
the necessary infrastructure, the timing of market entry and the commercial
acceptance of our services.
Factors Affecting Future Operations
Revenues. We will derive our revenues from monthly recurring and nonrecurring
charges to our wholesale customers. Monthly recurring revenues consist of end-
user line fees for the NSPs' end users connected to our networks and
interconnection fees for each NSP connection to our node in each market.
Nonrecurring revenues include charges for the installation and activation of
new end users. Our revenues consist exclusively of service revenues. We do not
currently sell end user modems or other electronic equipment.
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<PAGE>
We seek to price our services competitively in relation to those of the ILECs
and other CLECs in each market. Current standard end user line prices that we
charge to our NSP customers for our services range from $75 per month for 160
kilobits per second ("kbps") service to $250 per month for 1.5 Mbps service,
before volume discounts. Although pricing will be an important part of our
strategy, we believe that customer relationships, customer care and consistent
quality will be the key to generating customer loyalty. During the past several
years, market prices for many telecommunications services have been declining,
which is a trend that we believe will likely continue. As prices decline for
any given speed of service, we expect that the total number of end users and
the proportion of our end users purchasing our higher-speed, higher-priced
services will increase. The cost to upgrade an end user's speed is minimal.
Network Expenses. Our network expenses consist of nonrecurring and monthly
recurring charges for the commodity transport elements we choose to lease
rather than own. Nonrecurring network expenses include inside wiring, transport
turn-up, circuit maintenance and repair, and loop start-up fees. We expect
these costs will be largely related to the activation of new central offices
and new end users. Monthly recurring network expenses include loop fees, rent,
power and other fees charged by ILECs, CLECs and other providers. As our
customer and end user base grows, we expect the largest element of network
expenses to be ILEC charges for leased copper lines, which have historically
been $3 to $40 per line per month, depending on the identity of the ILEC and
the location of the lines.
Selling, Marketing, General and Administrative Expenses. Our selling,
marketing, general and administrative expenses primarily consist of costs
related to selling, marketing, customer care, provisioning, billing,
regulatory, corporate administration, network engineering and maintenance.
Additionally, we incur other costs associated with administrative overhead,
office leases and bad debt. We expect that our selling, marketing, general and
administrative costs will grow significantly as we expand our operations and
that administrative overhead will be a large portion of these expenses during
the start-up phase of our business. However, we expect these expenses to
decline as a percentage of our revenue as we build our customer base and the
number of end users connected to our networks increases.
We plan to employ a regional sales team in each market we enter. To attract
and retain a highly qualified sales force, we plan to offer our sales and
customer care personnel a compensation package consisting of commissions and
stock options. We expect to incur significant selling and marketing costs as we
continue to expand our operations. In addition, we plan to offer sales
promotions, especially in the first few years as we establish our market
presence.
Amortization of Deferred Compensation. Deferred compensation arose as a
result of the granting of stock options to employees with exercise prices per
share subsequently determined to be below the fair values per share for
financial reporting purposes of our common stock at dates of grant. The
deferred compensation is being amortized over the vesting period of the
applicable options.
Depreciation and Amortization. We expect depreciation and amortization
expense to increase significantly as more of our network becomes operational
and as we increase capital expenditures to expand our network. Depreciation and
amortization expense includes: (1) depreciation of network infrastructure
equipment, (2) depreciation of information systems, furniture and fixtures, (3)
amortization of improvements to central offices, Network Control Center
facilities and corporate facilities, (4) amortization of central office
collocation space and improvements and (5) amortization of software.
Taxation. We have not generated any taxable income to date and therefore have
not paid any federal income taxes since inception. Use of our net operating
loss carryforwards, which begin to
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<PAGE>
expire in 2003, may be subject to limitations under Section 382 of the Internal
Revenue Code of 1986, as amended. We have recorded a full valuation allowance
on the deferred tax asset, consisting primarily of net operating loss
carryforwards, because of uncertainty regarding its recoverability.
Results of Operations
Revenues. We commercially introduced our services in March 1998. Accordingly,
we recognized no revenues in 1997. Revenues for the year ended December 31,
1998 were approximately $931,000, 75% of which consisted of recurring revenues
and did not include sales of end user modems or other electronic equipment.
Network Expenses. Network expenses were approximately $56,000 in 1997 and
$3,970,000 in the year ended December 31, 1998. These costs consisted primarily
of monthly rental costs for lines between end users and central offices,
between central offices and our metropolitan nodes, between our metropolitan
nodes and our NSPs, and end-user line installation and costs charged to us by
the ILECs.
Selling, Marketing, General and Administrative Expenses. Selling, marketing,
general and administrative expenses were approximately $1,374,000 for 1997 and
$18,340,000 for the year ended December 31, 1998. These expenses consisted
primarily of salaries and related expenses for the development of our business,
network architecture and software, the establishment of our management team and
the development of corporate identification, promotional and advertising
materials.
Amortization of Deferred Compensation. Amortization of deferred compensation
was $29,000 in 1997, and $844,000 for the year ended December 31, 1998. The
unamortized balance of $5,589,000 at December 31, 1998 will be amortized over
the vesting period of each grant.
Depreciation and Amortization. Depreciation and amortization expenses were
approximately $27,000 for 1997 and $1,319,000 for the year ended December 31,
1998. Such expenses consisted primarily of depreciation of network equipment,
information systems, office equipment, furniture and fixtures and amortization
of leasehold improvements.
Interest Income and Expense. We incurred minimal interest expense in 1997.
Interest expense was approximately $2,575,000. Interest expense for the year
ended December 31, 1998 includes amortization of $946,000 related to debt
discount recorded in conjunction with the issuance of bridge loan warrants (see
note 6 to our consolidated financial statements). Interest income was
approximately $190,000 for 1997 and $209,000 for the year ended December 31,
1998. This interest income was earned primarily from the proceeds raised in the
Series B preferred stock financing in August 1997.
35
<PAGE>
Quarterly Financial Information
The following table sets forth certain consolidated statements of operations
data for our most recent six quarters. This information has been derived from
our unaudited consolidated financial statements. In our management's opinion,
this unaudited information has been prepared on the same basis as the annual
consolidated financial statements and includes all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
information for the quarters presented. This information should be read in
conjunction with our consolidated financial statements and the related notes
included elsewhere in this prospectus. The operating results for any quarter
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Three Months Ended (dollars in 000's)
-------------------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30, December 31,
1997 1997 1998 1998 1998 1998
------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ 35 $ 128 $ 237 $ 531
------ ------ ------- ------- ------- --------
Operating expenses:
Network expenses....... 5 51 145 263 851 2,711
Selling, marketing,
general and
administrative........ 513 890 1,542 2,565 4,505 9,727
Amortization of
deferred
compensation.......... 2 27 51 105 277 411
Depreciation and
amortization.......... 6 22 77 195 321 726
------ ------ ------- ------- ------- --------
Total operating
expenses............. 524 963 1,815 3,128 5,954 13,575
------ ------ ------- ------- ------- --------
Loss from operations.. (524) (963) (1,780) (3,000) (5,717) (13,044)
Interest income......... 64 126 106 50 19 34
Interest expense........ -- (0) (30) (42) (806) (1,697)
------ ------ ------- ------- ------- --------
Net loss............ $ (460) $ (837) $(1,704) $(2,992) $(6,504) $(14,707)
====== ====== ======= ======= ======= ========
</TABLE>
We have generated greater revenues in each successive quarter in the last
four quarters, reflecting increases in the number of customers and end users.
Our network expenses have increased in every quarter, reflecting costs
associated with customer and end user growth and the deployment of our networks
in existing and new markets. Our selling, marketing, general and administrative
expenses have increased in every quarter and reflect sales and marketing costs
associated with the acquisition of customers and end users, including sales
commissions, and the development of regional and corporate infrastructure.
Depreciation and amortization has increased in each quarter, primarily
reflecting the purchase of equipment associated with the deployment of the our
networks. We have experienced increasing net losses on a quarterly basis as we
increased our capital expenditures and operating expenses. See "Risk Factors--
We Expect Our Operating Losses, Net Losses and Negative Cash Flow to Continue."
Liquidity and Capital Resources. Our operations have required substantial
capital investment for the procurement, design and construction of our central
office collocation cages, the purchase of telecommunications equipment and the
design and development of our networks. Capital expenditures were approximately
$41,550,000 for the year ended December 31, 1998. We expect that our capital
expenditures will be substantially higher in future periods in connection with
the purchase of infrastructure equipment necessary for the development and
expansion of our networks and the development of new markets.
We will have to make significant upfront capital expenditures to develop our
networks. In each market, we will initially target the central offices with the
highest density of small- and medium-sized businesses. We will expand into
other central offices when we obtain adequate demand or volume commitments from
our NSP customers. We will incur additional capital expenditures for building a
metropolitan node in each market and to expand the Network Control Center in
San Francisco.
36
<PAGE>
From inception to December 31, 1998, we financed our operations primarily
through private placements of $15,700,000 of equity securities, $50,700,000 of
debt securities and $5,200,000 of lease financings. As of December 31, 1998, we
had an accumulated operating deficit of $25,000,000 and cash and cash
equivalents of $10,956,000.
Net cash used in operating activities was $1,094,000 for 1997 and $11,363,000
for the year ended December 31, 1998. The net cash used in operations was
primarily due to net losses, offset in part by increases in accrued expenses.
The net cash used in investing activities was $701,000 in 1997 and $41,550,000
in the year ended December 31, 1998, primarily due to acquisitions of property
and equipment. Net cash provided by financing activities was $11,200,000 for
1997 related to the issuance of common and preferred stock. Net cash provided
by financing activities was approximately $54,420,000 for the year ended
December 31, 1998, of which $4,400,000 related to the issuance of preferred
stock and $50,700,000 related to borrowings, offset in part by the repayment of
certain capital lease obligations of approximately $745,000.
In July 1998, we entered into a bridge loan agreement with Morgan Stanley
Bridge Loan Fund, L.L.C. ("MSBLF") under which MSBLF agreed to provide up to
$50,000,000 of debt financing. The MBLSF bridge loan allows us to draw funds
and issue notes on an as needed basis. MSBLF received fees consisting of cash
and warrants. The MBLSF bridge loan requires us to issue warrants to MSBLF from
time to time under certain circumstances. As of December 31, 1998, we had drawn
down all $50,000,000 under the bridge loan and issued 1,150,000 warrants to
MSBLF (the "Bridge Warrants"). Proceeds from our anticipated $100,000,000
senior secured credit facility (described below) will be used to repay
principal (approximately $51,000,000 as of December 31, 1998) and interest on
all outstanding indebtedness under the bridge loan and other indebtedness. Upon
repayment of the bridge loan, it is expected that MSBLF will own warrants to
purchase 1,300,000 shares of common stock.
In July and August 1998, we completed two rounds of private financing
involving the issuance and sale of an aggregate of $4,402,000 of Series C
preferred stock. The terms of a subsequent investment were thereafter
documented and conditions precedent to the subsequent closing were fulfilled.
In February 1999, the subsequent round of Series C financing involved the
issuance and sale of an aggregate of $59,171,000 of Series C preferred stock.
Purchasers of our Series C preferred stock included, among others, funds
affiliated with @Home Corporation, Intel Corporation, Carlyle Partners II, L.P.
and Vulcan Ventures Incorporated.
In February 1999, we accepted a commitment letter from Goldman Sachs Credit
Partners L.P. and Newcourt Commercial Finance Corporation under which Goldman
Sachs and Newcourt agreed, subject to certain conditions, to provide a five-
year senior secured credit facility consisting of (A) a $50,000,000 senior
secured term loan facility and (B) a $50,000,000 senior secured revolving
credit facility that will convert into a senior secured term loan within six
months. The commitment letter contains a number of conditions to initial
funding. We expect the senior secured credit facility to close in April 1999.
We will use the proceeds of the senior secured credit facility to continue the
buildout of our networks, to repay the MBLSF bridge loan, to fund working
capital and for general corporate purposes. In connection with the senior
secured credit facility, we will merge NorthPoint Communications, Inc. with and
into NorthPoint Merger Sub, Inc., a wholly owned subsidiary of NorthPoint
Communications Holdings, Inc. We expect to complete this reorganization in
March 1999. We also expect to pledge to the lenders under the senior secured
credit facility the capital stock in NorthPoint Communications held by
NorthPoint Communications Holdings.
We believe that proceeds from this offering, together with existing capital
resources, the investments from our strategic partners and proceeds from our
anticipated senior secured credit facility, will be sufficient to fund our
expansion and operating deficits through the end of 1999. However, we may
decide to seek additional capital during 1999 or 2000, the timing of which will
depend upon market conditions, among other things. The actual amount and timing
of our future capital requirements may differ materially from our estimates as
a result of, among other things, the
37
<PAGE>
demand for our services and regulatory, technological and competitive
developments, including additional market developments and new opportunities,
in our industry. We may also need additional financing if:
. we alter the schedule, targets or scope of our network rollout plan;
. our plans or projections change or prove to be inaccurate; or
. we acquire other companies or businesses.
We may obtain additional financing through commercial bank borrowings,
equipment financing or the private or public sale of equity or debt securities.
We may be unsuccessful in raising sufficient additional capital. In
particular, we may be unable to raise additional capital on terms that we
consider acceptable, that are within the limitations contained in our financing
agreements and that will not impair our ability to develop our business. If we
fail to raise sufficient funds, we may need to modify, delay or abandon some of
our planned future expansion or expenditures, which could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
Impact of Year 2000 Issue. We believe that our computer systems and software
are year 2000 compliant. However, we cannot assess the impact of potential year
2000 problems on operators of public switched telephone networks, or "PSTNs,"
or other service providers (such as electric and utility) in the markets in
which we operate. Because our systems will be interconnected with those of
ILECs and other service providers, any disruption of operations in the computer
programs of these service providers would likely have an impact on our systems
in our markets. We cannot assure you that this impact will not have a material
adverse effect on our business, prospects, financial condition and results of
operations.
We have inventoried and tested our internally developed applications, vendor
developed applications, off-the-shelf software and hardware and believe that
our systems are year 2000 compliant. We have not reviewed our non-information
technology systems for year 2000 issues relating to embedded microprocessors.
To the extent that year 2000 issues exist, these systems may need to be
replaced or upgraded. Because our non-information technology systems were
implemented within the last two years, we do not expect to experience
significant year 2000 issues, although we cannot be certain about this.
We use third-party equipment and software and interact with ILECs that have
equipment and software that may not be year 2000 compliant. Failure of their
software or equipment to be year 2000 compliant could require us to incur
expenses and use our resources to correct problems. This would impact our
business, prospects, operating results and financial condition. We could also
be impacted by our business partner's year 2000 issues and their needs to
change their systems. We have not made any assessment of the year 2000 risks
associated with our third-party or ILEC equipment or software or with our NSP
customers, have not determined the risks associated with the reasonably likely
worst-case scenarios and have not made any contingency plans. However, we
intend to devise a year 2000 contingency plan prior to December 1999 and have
developed a year 2000 strategy.
In the normal course of doing business with our partners and suppliers, we
establish manual back-up processes (fax, phone, e-mail, etc.) for all critical
interconnections and business functions. These manual processes are designed to
replace our automated interfaces and processes in the event of a failure. We
plan to test these contingency procedures on a frequent basis to ensure that
they work properly in support of our business. Our contingency procedures will
be available if year 2000 problems occur in any of our partner or supplier
environments. In addition, we plan to conduct back-ups of all of our mission-
critical systems in advance, with the ability to revert to previous day
transactions to ensure minimal loss of corporate data if year 2000 problems
occur in our environment.
38
<PAGE>
Recently Issued Accounting Pronouncements
On January 1, 1998, we adopted SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income and its components in a financial statement that is displayed with the
same prominence as other financial statements. Comprehensive income as defined
in SFAS No. 130 includes all changes in equity (net assets) during a period
from nonowner sources. SFAS No. 130 is effective for years beginning after
December 15, 1997. Adoption of SFAS No. 130 did not have any material impact on
our financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides guidance
for determining whether computer software is internal-use software and
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. We have not yet determined the impact
of adopting SOP 98-1, which will be effective for our year ending December 31,
1999.
On April 3, 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs of Start-Up
Activities. SOP 98-5 provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. As we
have not capitalized such costs to date, the adoption of SOP 98-5 is not
expected to have an impact on our financial statements.
39
<PAGE>
BUSINESS
Overview
We are a national, facilities-based provider of high speed, local data
network services. Our networks use digital subscriber line, or DSL, technology
to transport data at guaranteed speeds up to 25 times faster than common dial-
up modems. We market our network and data transport services to Internet
service providers, broadband data service providers and long-distance local
telephone companies, whom we call network service providers, or NSPs. Our NSP
customers can use our fast, secure and reliable data networks to provide
economical, "always on" Internet access and other data-intensive applications
to end users, who are typically small- and medium-sized businesses, people who
work in home offices and telecommuters.
We are currently providing services in 12 metropolitan areas in the United
States and intend to offer service in a total of 28 metropolitan areas by the
end of this year. We have been and expect to be the first, or one of the first,
to offer DSL services in these markets. Our networks consist principally of
digital communications equipment that we own and install in telephone company
offices known as "central offices" and existing copper telephone lines that we
lease to connect our equipment with end users' premises. We will initially
install our equipment in the central offices with the highest density of
small- and medium-sized businesses in our 28 markets. We have already secured
and purchased space in of those central offices and intend to expand the
coverage of our networks in these markets over time by installing equipment in
additional central offices.
Upon completion of our planned expansion, our networks will be able to reach
approximately four million businesses and 30 million households, including more
than 80% of the small- and medium-sized businesses in our 28 markets. We have
already obtained required regulatory approvals, including CLEC authorizations,
to offer services in each of those markets. We are currently providing or have
entered into agreements to provide our services to more than NSPs and have
connected over of their end users to our networks.
Industry Overview
Data communications is the fastest growing segment of the telecommunications
industry. Home offices and telecommuters are increasingly demanding high-speed
data connections for applications such as Internet access, intranets,
extranets, telecommuting, virtual private networks, IP telephony, e-commerce,
e-mail, video conferencing and multimedia.
Internet penetration has increased substantially over the last several years,
and the number of Internet users worldwide reached nearly 140 million in 1998.
Forrester Research, Inc. projects that the total market for data networking
services and Internet access will grow from $6.2 billion in 1997 to
approximately $49.7 billion by 2002, of which approximately $27.9 billion will
be from services to businesses. Further, Forrester Research estimates that
Internet commerce revenue could reach $3.2 trillion by 2003.
Small- and Medium-Sized Businesses. We expect that a significant portion of
the growth in data communications will be generated by small- and medium-sized
businesses. Data communications, including the Internet, allow these businesses
to compete more effectively by streamlining communications among employees,
customers and suppliers. However, to take full advantage of these productivity-
enhancing applications and the Internet, small- and medium-sized businesses
need high-speed, secure and dedicated data connectivity.
Home Offices and Telecommuters. We expect that people using computers from
their homes to connect to corporate networks or to the Internet for in-home
business purposes will also be a significant source of demand for high-speed
data connectivity.
40
<PAGE>
According to International Data Corporation, or IDC, there were 26 million
residences with computers in their home offices in the U.S. in 1998, growing to
an estimated 40 million by 2002. A significant portion of people who work in
home offices and telecommuters need access to corporate networks and/or the
Internet for a variety of applications, including e-mail, databases and
corporate intranets. According to the Yankee Group, the market for remote
access services is expected to grow from $460 million in 1998 to $2 billion by
2002.
Traditionally, small- and medium-sized businesses, people who work in home
offices and telecommuters have relied on low-speed lines for data transport.
For example, according to IDC, approximately 78% of Internet access revenues
derived from small- and medium-sized businesses in 1997 were generated via the
public switched telephone network, or PSTN, and relatively slow 28.8 kbps to 56
kbps or ISDN modems. For higher speed connections, these end users have had to
purchase T1 or fractional T1 service, which is fast (up to 1.544 Mbps) and
"always on," but expensive (typically $300 to $1000 per month depending upon
distance and region).
Neither the slow PSTN nor the expensive T1 option is an adequate solution for
most small- and medium-sized businesses, people who work in home offices and
telecommuters. The lack of optimal price-performance solutions has left these
end users underserved: Often unwilling or unable to pay for expensive T1
service, they have been forced to settle for the PSTN and tolerate the local
data bottleneck.
Our Solution
We believe that our DSL networks and the wide range of price-performance data
transport options we provide meet the demands of this large, underserved group
of end users. We attach high-speed digital equipment at both ends of a copper
loop, allowing data transmission to bypass the components of the PSTN that are
responsible for creating the local data bottleneck. By using our services with
their own Internet access and other data applications, our NSP customers can
offer small- and medium-sized businesses, people who work in home offices and
telecommuters:
. A Range of Speed Options. We offer a wide range of data transport speeds,
each with price performance characteristics that are superior to
traditional options.
. Scaleable Services. End users have the ability to upgrade service to
higher performance levels without adding hardware.
. "Always On" Connectivity. Voice networks require a user or system to
dial a phone number and wait while the modem connects to a data service
provider. Our service is always on, providing instantaneous connections
and the capability to receive or transmit information continuously.
. Reliability. We can remotely monitor and troubleshoot an end user's
connection and can therefore ensure reliable performance.
. Secure Transport of Sensitive Business Data. We offer our services over
dedicated copper lines.
Our networks and services offer a number of advantages to our NSP partners
over alternative local access solutions, including:
. A Rapid, Capital-Efficient Method for Providing Service in a Metropolitan
Area. By connecting at one point to each of our metropolitan networks, an
NSP can immediately offer service to any end user within the geographic
boundaries served by central offices in which we have installed our
equipment. Using our networks in this way reduces the capital and
operating investment an NSP would otherwise need to reach end users in
our metropolitan areas.
41
<PAGE>
. Electronic Interfaces to Our National Operational Support Systems. We
provide our customers an electronic connection to our national pre-
qualification, order entry, customer support, provisioning, accounting
and billing systems. This provides streamlined operations and lower
overhead costs for our customers.
. Guaranteed Data Throughput and Service Quality. We guarantee data
throughput and low latency on our networks.
. Continuously Monitored Networks. We have triple-redundant remote
monitoring capabilities and continuously monitor the entire network from
our network control center.
Strategy
Our objective is to become the leading national provider of local data
networks and transport services to NSPs serving small- and medium-sized
businesses, people who work in home offices and telecommuters. To achieve this
objective, we will:
. Focus Initially on Business District Central Offices. Before entering a
market, we prepare a detailed, "bottom-up" analysis of that market's
central office service areas using industry data and business demographic
statistics. We use this analysis to identify attractive service areas and
develop a schedule for network deployment and expansion. We have
initially targeted central offices in our 28 target markets with the
highest density of small- and medium-sized businesses. Based upon our
analysis, we believe that when complete, our networks will be able to
reach approximately four million businesses, including more than 80% of
the small- and medium-sized businesses in our 28 markets. By focusing
initially on high-density business districts, we believe we can secure
collocation space in scarce central offices, open markets more rapidly,
maximize the return from network deployment capital costs and enable our
NSP customers to address a significant portion of their target end users
in each geographic market quickly.
. Enter Markets Early. We seek to obtain a "first mover" advantage by being
the first, or one of the first, DSL providers in our target markets to
offer optimized local data transport solutions. We believe that the first
mover advantage is valuable because after an NSP establishes a
relationship with a local data network service provider, there are costs
associated with adding additional providers or switching providers. We
are already providing services to NSPs in 12 metropolitan areas.
. Rapidly Establish a National Presence. Our goal is to offer local data
network and transport services to our NSP customers in 28 metropolitan
areas by year-end 1999. We expect that offering high speed local data
transport solutions in many metropolitan areas will make our services
more attractive to national and regional NSPs by enabling them to use our
single system interface and consistent provisioning procedures in each of
our markets. We are authorized to operate as a CLEC in all of our 28
target markets.
. Design Networks for Business End Users. Our networks are designed for
business users and business applications and have the appropriate
security, reliability and performance characteristics for those users and
applications. Currently, we are using a type of DSL technology that
permits symmetric data transmission--the same speed of data transport to
and from the end user--which we believe is the best-suited for most
business applications. We believe that business end users will not
compromise the security, reliability and performance of their data
connections and are willing to pay for those features.
. Focus On Wholesale Marketing. We market our local data transport
solutions on a wholesale basis to NSPs who, in turn, sell to and support
end users. By marketing to NSPs, we:
. minimize sales and marketing expenses by enabling our sales force to
focus on high-volume prospective wholesale customers;
42
<PAGE>
. amortize the cost of our fixed capital expenses over a large base of
end users more rapidly;
. minimize our end user support costs; and
. are able to achieve a nationwide presence more quickly.
. Provide Excellent Customer Service. We are dedicated to providing our NSP
customers and their end users superior customer support and service. Our
systems provide management reports and other critical, real-time data for
NSPs.
. Exploit Our Scaleable Systems. Our OSS has been designed to leverage
efficiencies inherent in our digital networks and can grow with our
business. We believe that these systems, including our electronic bonding
to ILECs, will minimize our overhead and increase both NSP customer and
end-user satisfaction. Our systems also give us the capability to monitor
usage by our NSPs' end users and will provide our NSPs with notice when
an end user's usage patterns indicate that an upgrade in speed is
warranted. These upgrades can be performed remotely and require no
additional capital expenditures.
. Enter Into Strategic Relationships. We have entered into strategic
relationships with @Work, Intel and Verio. We anticipate entering into
additional relationships. We believe that these relationships are
valuable because they involve guaranteed or targeted numbers of new end
users as well as provide technical, marketing and distribution expertise
and capital.
. Develop New Data Products and Solutions. We intend to expand our product
offerings by providing additional value-added services over our networks
and enhanced transport solutions.
Our Markets
We currently provide service in 12 metropolitan areas and intend to offer
services in a total of 28 metropolitan areas by the end of this year. We
believe that offering local data network and transport services in many areas
makes our services more attractive to national and regional NSPs because they
can use our single system interface and uniform provisioning procedures in each
of our markets. Our existing and planned markets for 1999 are:
<TABLE>
<CAPTION>
West Central East
---- ------- ----
<S> <C> <C>
Los Angeles(1)* Austin* Atlanta
Phoenix Chicago* Baltimore
Portland Cleveland* Boston*
Sacramento Columbus Miami/Fort Lauderdale
San Diego* Dallas* New York(3)*
San Francisco Bay Area(2)* Denver Philadelphia
Seattle Detroit* Raleigh-Durham
Houston* Tampa-St. Petersburg
Minneapolis Washington, D.C.(4)*
Pittsburgh
San Antonio
St. Louis
</TABLE>
- --------
(1) Includes Orange County.
(2) Includes San Francisco, Oakland and San Jose.
(3) Includes Western Connecticut and Northern New Jersey.
(4) Includes Northern Virginia.
* current markets
43
<PAGE>
Network Architecture
We establish each of our regional networks by installing, or "collocating,"
digital communications equipment in the ILEC central offices with the highest
density of small- and medium-sized businesses. Our equipment uses DSL
technology to transmit high speed data over existing copper telephone lines
between the central office and the end user. In turn, our equipment in each
central office is connected to our metropolitan node, where we are
interconnected to our NSP customers, typically with leased high speed fiber
optic transmission lines. For our NSP customers, having a single point of
interconnection with us in each city reduces their capital expenditures and
local network costs because we aggregate and disseminate their traffic to and
from a central place. By leasing and reusing the existing copper wire and fiber
optic infrastructure, we are able to use our capital to purchase and develop
value-added elements of the network, including packet switches, digital
communications equipment for each central office, and operations support
systems.
Set forth below is a diagram depicting the flow of data traffic in a local
metropolitan market.
[GRAPHIC DEPICTION OF NORTHPOINT'S NETWORK
ARCHITECTURE]
Our Equipment. We install DSL modems at the end user's premises and lease
copper wires from the ILEC. These wires run from the end user's premises to the
ILEC central office. Within each central office, we lease space and maintain
equipment that connects to the local copper wires. Our central office
equipment, known as a DSLAM, supplies the digital line code that enables high
speed data transport over copper lines, organizes that data into packets and
aggregates end-user traffic for transport to and from our metropolitan node.
Aggregated data traffic is transported between the central office and our
metropolitan node, where it is connected to an asynchronous transfer mode, or
"ATM," switch. Data traffic is aggregated from various central offices at the
metropolitan node and then transported to the NSPs over leased fiber optic
lines.
Central Office Installation. We have an contracted with Lucent to install our
equipment in all ILEC central offices in which we have space nationwide. Lucent
preconfigures this equipment in accordance with our blueprint and ships it to
our central offices for installation by Lucent's field operations personnel. We
maintain our own field operations personnel to oversee this process and for
subsequent maintenance and upgrades of the central office equipment.
Sales and Marketing
We provide local data network and transport services on a wholesale basis to
Internet service providers, broadband data service providers and long distance
and local telephone companies, whom we call network service providers, or
"NSPs." Our NSP customers bundle our services with Internet access or other
data-intensive applications for their customers, who are typically small- and
medium-sized businesses, people who work in home offices and telecommuters. We
are providing our services to NSPs and have connected of their end
users.
44
<PAGE>
Our Sales Staff. We sell exclusively through wholesale channels. Our indirect
sales and support model allows us to benefit from the sales and support
organization of our NSP customers. Our sales organization currently consists of
account executives who are responsible for securing new NSP customers and
assisting NSP customers in increasing the number of end users. The account
executives are supported by regional marketing managers who provide localized
marketing, competitive analysis, cooperative marketing programs, and sales
support within each of our 12 markets. We intend to increase the size of our
sales and marketing staff as we enter an additional 16 markets by year-end.
[GRAPHIC OF SYMMETRICAL PRODUCT OFFERINGS]
45
<PAGE>
Our Services. Our networks and data transport services have been designed to
enable our NSP customers to meet the rapidly increasing information needs of
their end users. By using NorthPoint's network, NSPs can offer "always on"
connections with better price-performance characteristics than dial-up and ISDN
modems and T1 connections. Our current range of services and pricing (before
volume discounts) in the San Francisco Bay Area (although pricing in other
markets may vary) is as follows:
<TABLE>
<CAPTION>
Speed Wholesale Maximum
Speed to From End Price Range
Service End user user $/mo. (feet) Use/Market
- ------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <S>
NorthPoint DSL 144 144 kbps 144 kbps 75 35,000 . ubiquitous flat-rate
service at ISDN speeds
- ------------------------------------------------------------------------------------
NorthPoint DSL 160 160 kbps 160 kbps 75 24,000 . always on e-mail and
web browsing solution
for individuals
- ------------------------------------------------------------------------------------
NorthPoint DSL 200 200 kbps 200 kbps 90 22,850 . small businesses of
less than four
employees with
standard e-mail and
web usage
- ------------------------------------------------------------------------------------
NorthPoint DSL 416 416 kbps 416 kbps 125 18,000 . e-mail and higher
bandwidth Internet
solution for small
businesses with less
than 10 employees
- ------------------------------------------------------------------------------------
NorthPoint DSL 784 784 kbps 784 kbps 165 13,500 . remote LAN access, web
surfing for businesses
under 25 employees
. supports high-
bandwidth intensive e-
commerce and video-
conferencing
applications
- ------------------------------------------------------------------------------------
NorthPoint DSL 1.04 1.04 Mbps 1.04 Mbps 199 12,350 . remote LAN access, web
surfing for businesses
under 50 employees
. supports large file
transfers and web
hosting
- ------------------------------------------------------------------------------------
NorthPoint DSL T1 1.54 Mbps 1.54 Mbps 250 10,000 . T1 performance
. pricing not distance-
sensitive
</TABLE>
Each of our services is symmetric, providing the same speed to and from the
end user. We believe that this design is well-suited for business data
applications such as Internet access, intranets, extranets, telecommuting,
virtual private networks, IP telephony, e-commerce, e-mail, video conferencing
and multimedia.
Performance Upgrades. We can remotely increase an end user's speed from 160
kbps through 1.54 Mbps using the same customer premise equipment ("CPE").
Remote upgrades allow an end user to have improved performance without service
interruptions or additional equipment investment. Approximately % of the end
users currently connected to our networks are within 10,000 feet of the central
office and can be upgraded to our fastest service. In general, we expect that
end users' needs will evolve over time, resulting in demand for faster
connections. The cost to upgrade an end user's speed is minimal and the cost to
provide faster service is not substantial.
The Value Proposition to NSPs. In addition to providing reliable, high
quality data network services, we also offer our NSP customers:
. Immediate, Capital-Efficient Access to Markets. In the past, NSPs would
have had to make significant capital investments to provide dedicated
data services in their targeted service areas.
46
<PAGE>
With a single connection to our metropolitan node, however, NSPs can
immediately provide high speed dedicated data services to end users
connected to each central office we serve in that metropolitan area. Using
our networks in this way reduces the capital investment an NSP would
otherwise need to reach end users in our metropolitan areas and enables
NSPs to provide services in any or all of our markets more quickly than if
they built their own network infrastructure.
. Single-Source Provider. With us as a partner, an NSP has a single-source
provider in each geographic market that we serve. Because we maintain the
physical connection with the incumbent telephone carrier in each market
and assume responsibility for managing all end-user installations and for
monitoring and managing our data networks, the NSP does not need to have
relationships with incumbent phone companies, inside wiring companies or
equipment maintenance and monitoring service providers.
. Avoidance of Regulatory Burden. In order to provide DSL service on their
own, ISPs and other data service providers would have to be authorized as
CLECs in each state in which they planned to provide service. NSPs who
partner with us avoid the costs, delays and complexities of achieving
CLEC status in each market.
. Transparent Service Delivery to End Users. Our automated order entry,
provisioning and maintenance systems are designed to allow NSPs to
interface directly with our support systems and provide their end users
with completely transparent service delivery. Our systems also enable our
NSP customers to pre-qualify prospective end users. The end user receives
a bill from the NSP and no bill from either the ILEC or NorthPoint.
. Electronic Interfaces to Our OSS. We have designed our national OSS to
interface directly with the NSP's existing provisioning, management,
accounting and billing systems. Our OSS also enables two-way trouble
ticketing and secure connections for both proactive and query-based
status checking on all aspects of service delivery and billing.
. Broad Range of Speeds and Prices. Our wide range of price-performance
options enables the NSP to appropriately match its service offering with
an end user's specific need for data transmission capacity. Options
available today from incumbent phone companies are more limited and often
fail to address the needs of small- and medium-sized businesses, people
who work in home offices and telecommuters.
. Identification of Service Upgrade Opportunities. As an end user's data
transmission needs evolve, our OSS tracks end user usage and identifies
opportunities on a timely basis for the NSP to recommend service upgrades
to its end users.
. Reliability and Guaranteed Data Throughput. We design our networks for
business-quality service, including 24 hours a day, 7 days a week
monitoring, triple-redundant network management links and guaranteed data
throughput and low latency.
. Secure Connections. Our network architecture enables NSPs to offer to
their end users applications that require a secure connection for
transmission of sensitive data.
. Marketing Support. We support our NSP customers by providing sales leads,
co-marketing programs and training for NSP sales and service
representatives.
Operations Support Systems
Our OSS is designed to be scaleable and provides us with significantly
enhanced operational efficiencies.
Connections to Our Customers. Our Web-based ordering system not only allows
NSPs to place orders on-line, but assists them in marketing the service to new
and existing end users, as well
47
<PAGE>
as pre-qualifying prospective end users for the maximum level of service that
will be available to them. Our systems also interface with our customers'
management, provisioning, accounting and billing systems. Our network
statistics allow the NSP to track historical usage and suggest service upgrades
based upon customer need.
Connections to the ILECs. We are currently testing electronic bonding
interfaces with Pacific Bell and Ameritech and plan to have similar interfaces
to all our ILEC suppliers by the end of 1999. This will provide us with a
single electronic ordering interface and will facilitate provisioning large
volumes of orders.
Deployment and Operations
To provide and monitor data transport services to end users, NSPs have
traditionally been required to coordinate multiple service and equipment
suppliers. We act as a single-source provider of an NSPs' local data networking
and transport needs, eliminating both complexity and inconvenience for our NSP
customers.
Interconnecting With New NSPs. When an NSP decides to use our services in a
metropolitan market, we arrange for the leasing, testing and monitoring of a
fiber connection between our metropolitan node in the area and the NSPs' local
point of presence. Our NSP customers pay a monthly fee for the connection and
for our data traffic aggregation and monitoring services.
Provisioning with the ILEC. We order from the ILECs and test copper wire
loops that link central offices and end users. In most cases, if the line is
not testing to our specifications at the time of provisioning or later, our
Network Control Center is able to help the ILEC pinpoint the source of the
problem.
End User Installation. We contract with third parties for the installation of
end users, including any necessary wiring inside end users' premises. Our
contractors also deliver, install and test the customer premise equipment and
test the connection over our DSL network. Our NSP customer generally pays an
installation charge to us and sells the modem and/or other customer premise
equipment to the end user.
Network Monitoring. We monitor all of our metropolitan networks from our
Network Control Center on a continuous basis, enabling us to identify and
resolve network problems before they affect our customers or their end users.
The Network Control Center maintains triple-redundant network management
visibility into each element of our networks, allowing us to provide reliable
service and efficient customer installation, as well as rapid responses to
customer inquiries.
Strategic Relationships
We have entered into strategic relationships with @Work, Intel and Verio. We
anticipate entering into additional relationships. We believe that these
relationships are valuable because they involve guaranteed or targeted numbers
of new end-user lines as well as provide additional technical, marketing and
distribution expertise and capital.
@Work. We have entered into a two-year strategic agreement with @Work (a
division of @Home) in which @Work has agreed to sell our services to its small-
and medium-sized business customers in our current and future markets and meet
targeted volume commitment levels. @Work offers businesses high speed data
services. In July 1998, @Home purchased shares of our Series C preferred stock.
Intel. We have entered into a strategic relationship with Intel, the world's
largest chip maker, a leading manufacturer of computer, networking and
communications products and a developer of the
48
<PAGE>
G.lite ADSL standard. We are working with Intel to enhance our service
offerings. In August 1998, Intel purchased shares of our Series C preferred
stock and acquired contingent warrants to purchase 94,475 shares of our common
stock at $3.53 per share, provided certain conditions are met.
Verio. In February 1999, we entered into a DSL joint marketing development
agreement with Verio Inc. Verio is a national Internet service provider. Under
the agreement, Verio designated NorthPoint as its preferred provider in certain
markets. Verio also committed to achieving certain numbers of end users in
those markets within a defined time period. In connection with this agreement,
Verio invested in a subordinated convertible promissory note of NorthPoint.
This note will convert automatically to our common stock upon the completion of
this offering.
Alternative Data Transport Technologies
We believe that our DSL-enabled networks offer price-performance
characteristics that are attractive to NSP customers for many of their end
users when compared with other options:
. Dial-up Analog Modems. Analog modems use the PSTN, and are the most
commonly used data transport technology today. Because the electronic
components of the PSTN limit data transmission speeds, however, these
traditional modems rarely exceed data throughput of 56 kbps. In addition,
modems generally require that the user or system dial a phone number to
connect with a data service, which creates delays in making connections
and may present security concerns.
. ISDN. ISDN is a technology that works with the legacy public switched
telephone network to send voice and data over existing copper wires at
speeds up to 144 kbps. ISDN is equal in speed or slower than all of our
services. ISDN is typically priced with usage charges, making an "always
on" connection with an ISDN modem prohibitively expensive.
. T1 Service. T1 service provides speeds up to 1.544 Mbps. T1 pricing has
traditionally been sensitive to the distance between an end user and its
service provider, creating marketing difficulties and pricing anomalies.
. Cable Modems. Cable modem networks have penetrated certain residential
markets, but only about half of all homes nationwide are wired for high-
capacity cable. In addition, we believe that many of our target business
end users are not passed by existing cable infrastructure. Moreover,
although cable modems offer high speed services, they operate over a
shared cable infrastructure and therefore cannot offer guaranteed
bandwidth or the network security features that we believe a majority of
our targeted end users demand. In addition, cable modems do not offer
symmetric bandwidth, which we believe is important for business
applications.
. Fiber. Fiber optic lines provide high speed data transport, but today
reach only a fraction of our target end users. Local fiber optic builds
have generally targeted large corporations based in downtown office
buildings. Moreover, even where fiber passes a building, our DSL-enabled
network may be more cost effective for small- to medium-sized businesses.
Wireless. Few of our target end users are served today by fixed wireless
infrastructure. We believe further rollout will be slowed by the need for fixed
wireless service providers to obtain roof rights and overcome technological
limitations and interference from terrain, obstructions and weather.
For more information about the highly competitive market in which we operate,
see "Risk Factors--The Market in Which We Operate is Highly Competitive, and We
May Not Be Able to Compete Effectively, Especially Against Established Industry
Competitors with Significantly Greater Financial Resources."
49
<PAGE>
Government Regulation
Overview. Our telecommunications services are subject to varying degrees of
federal, state and local regulation. The FCC and state utility commissions
regulate telecommunications common carriers. A telecommunications common
carrier is a company which offers telecommunications services to the public or
to all prospective users on standardized rates and terms. Our data transport
services are common carrier services.
The FCC exercises jurisdiction over telecommunications common carriers, and
their facilities and services, to the extent they are providing interstate or
international communications. The various state regulatory commissions retain
jurisdiction over telecommunications carriers, and their facilities and
services, to the extent they are used to provide communications that originate
and terminate within the same state. The degree of regulation varies from state
to state.
In recent years, the regulation of the telecommunications industry has been
in a state of flux as the United States Congress and various state legislatures
have passed laws seeking to foster greater competition in telecommunications
markets. The FCC and state utility commissions have adopted many new rules to
implement these new laws and encourage competition. These changes, which are
still incomplete, have created new opportunities and challenges for us and our
competitors. The following summary of regulatory developments and legislation
does not purport to describe all present and proposed federal, state and local
regulations and legislation affecting the telecommunications industry. Certain
of these and other existing federal and state regulations are currently the
subject of judicial proceedings, legislative hearings and administrative
proposals which could change, in varying degrees, the manner in which this
industry operates. Neither the outcome of these proceedings nor their impact
upon the telecommunications industry or us can be predicted at this time.
Federal Regulation. Although we currently are not subject to price cap or
rate of return regulation at the federal level and are not currently required
to obtain FCC authorization for the installation, acquisition or operation of
our network facilities, we nevertheless must comply with the requirements of
common carriage under the Communications Act of 1934 (the "Communications
Act"), as amended, to the extent we provide interstate services. Pursuant to
the Communications Act, we are subject to the general requirement that our
charges and regulations for communications services must be "just and
reasonable" and that we may not make any "unjust or unreasonable
discrimination" in our charges or regulations. Certain other specific
regulations applicable to us are discussed below. The FCC also has jurisdiction
to act upon complaints against any common carrier for failure to comply with
its statutory obligations.
Comprehensive amendments to the Communications Act were made by the
Telecommunications Act, which was signed into law on February 8, 1996. The
Telecommunications Act effected plenary changes in regulation at both the
federal and state levels that affect virtually every segment of the
telecommunications industry. The stated purpose of the Telecommunications Act
is to promote competition in all areas of telecommunications. While it may take
years for the industry to feel the full impact of the Telecommunications Act,
it is already clear that the legislation provides us with both new
opportunities and new challenges.
The Telecommunications Act greatly expands the FCC's interconnection
requirements on the ILECs. The Telecommunications Act requires the ILECs to:
(i) provide physical collocation, which allows companies such as us and other
interconnectors to install and maintain their own network termination equipment
in ILEC central offices, and virtual collocation only if requested or if
physical collocation is demonstrated to be technically infeasible; (ii)
unbundle components of their local service networks so that other providers of
local service can compete for a wide range of local services customers; (iii)
establish "wholesale" rates for their services to promote resale by CLECs
50
<PAGE>
and other competitors; (iv) establish number portability, which will allow a
customer to retain its existing phone number if it switches from the ILEC to a
competitive local service provider; (v) establish dialing parity, which ensures
that customers will not detect a quality difference in dialing telephone
numbers or accessing operators or emergency services; and (vi) provide
nondiscriminatory access to telephone poles, ducts, conduits and rights-of-way.
In addition, the Telecommunications Act requires ILECs to compensate
competitive carriers for traffic originated by ILECs and terminated on the
competitive carriers' network.
The FCC is charged with establishing national guidelines to implement certain
portions of the Telecommunications Act. The FCC issued its Interconnection
Order on August 8, 1996. On July 18, 1997, however, the United States Court of
Appeals for the Eighth Circuit issued a decision vacating the FCC's pricing
rules, as well as certain other portions of the FCC's interconnection rules, on
the grounds that the FCC had improperly intruded into matters reserved for
state jurisdiction. On January 25, 1999, the Supreme Court largely reversed the
Eighth Circuit's order, holding that the FCC has general jurisdiction to
implement the local competition provisions of the Telecommunications Act. In so
doing, the Supreme Court stated that the FCC has authority to set pricing
guidelines for unbundled network elements, to prevent ILECs from disaggregating
existing combinations of network elements, and to establish "pick and choose"
rules regarding interconnection agreements (which would permit a carrier
seeking interconnection to "pick and choose" among the terms of service from
various other interconnection agreements between the ILECs and other CLECs).
This action reestablishes the validity of many of the FCC rules vacated by the
Eighth Circuit. Although the Supreme Court affirmed the FCC's authority to
develop pricing guidelines, the Supreme Court did not evaluate the specific
pricing methodology adopted by the FCC and has remanded the case to the Eighth
Circuit for further consideration. In its decision, however, the Supreme Court
also vacated the FCC's rule that identifies the unbundled network elements that
ILECs must provide to CLECs. The Supreme Court found that the FCC had not
adequately considered certain statutory criteria for requiring ILECs to make
those network elements available to CLECs and must reexamine the matter. Thus,
while the Supreme Court resolved many issues, including the FCC's
jurisdictional authority, other issues remain subject to further consideration
by the courts and the FCC. The Eighth Circuit has not yet reinstated the FCC's
rules that were affirmed by the Supreme Court, and several ILECs have asked the
Eighth Circuit not to reinstate those rules until further legal challenges have
been resolved. We cannot predict the ultimate disposition of those matters. The
possible impact of this decision, including the portion dealing with unbundled
network elements, on existing interconnection agreements between ILECs and
CLECs or on agreements that may be negotiated in the future also cannot be
determined at this time.
As a result of the pro-competitive provisions of the Telecommunications Act,
we have been able to obtain authorizations to operate as a CLEC in California,
Colorado, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan,
Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Oregon,
Pennsylvania, Texas, Virginia, Washington and Washington D.C., and we have
filed for CLEC status in Arizona. We have signed interconnection agreements in
all these states except Illinois and Michigan, where we are procuring unbundled
network elements out of tariff.
The FCC has established different levels of regulation for dominant and non-
dominant carriers. Of domestic common carrier service providers, only GTE, the
RBOCs and other ILECs are classified as dominant carriers and all other
providers of domestic common carrier services, including us, are classified as
non-dominant carriers. As a non-dominant carrier, we are subject to less FCC
regulation than dominant carriers.
The Telecommunications Act also directs the FCC, in cooperation with state
regulators, to establish a Universal Service Fund that will provide subsidies
to carriers that provide service to under-served individuals and in high cost
areas. A portion of carriers' contributions to the Universal Service Fund also
will be used to provide telecommunications related facilities for schools,
libraries
51
<PAGE>
and certain rural health care providers. The FCC released its initial order in
June 1997. This order will require us to contribute to the Universal Service
Fund, but may also allow us to receive payments from the Fund if we are deemed
eligible. We also may provide service to under-served customers in lieu of
making Universal Service Fund payments. The FCC's implementation of universal
service requirements remains subject to judicial and additional FCC review.
Additional changes to the universal service regime, which would increase our
costs, could have adverse consequences for us.
Recently, various RBOCs have filed petitions with the FCC requesting
regulatory relief in connection with the provision of data services, including
DSL services. In response to these petitions, the FCC issued a decision that
data services generally are telecommunications services that, when provided by
ILECs, are subject to the FCC's interconnection rules, including the rule
requiring that an ILEC's data services be subject to unbundling and resale
requirements under the Telecommunications Act. Petitions have been filed with
the FCC asking it to reconsider its decision in this regard. The FCC has also
initiated a proceeding to determine whether ILECs will be able to avoid certain
of their obligations by providing data services through "truly" separate
affiliates, whether new rules should be adopted to increase ILEC competitors'
access to collocation and ILEC loops, whether the FCC will specifically require
ILECs to unbundle their DSL equipment and resell DSL services, and whether the
FCC will grant the RBOCs interLATA relief for the provision of data services. A
decision by the FCC on these issues is expected shortly. In addition, three
RBOCs have filed petitions with the FCC seeking relief from dominant carrier
regulation for their data services in certain regions. The effect that these
proceedings will have on our ability to obtain facilities and services from
ILECs and on the competition that we will face from ILECs cannot be predicted.
State Regulation. To the extent that we provide telecommunications services
which originate and terminate within the same state, we are subject to the
jurisdiction of that state's public service commission. As noted above, we have
obtained authorizations to operate as a CLEC in all of our 28 target markets.
We are not subject to price cap or rate of return regulation in any state in
which we are currently certificated to provide local exchange service.
The Telecommunications Act preempts state statutes and regulations that
prohibit or have the effect of prohibiting the provision of competitive local
services. As a result of this sweeping legislation, we will be free to provide
the full range of intrastate local and long distance services in all states in
which we currently operate, and in any states into which we may wish to expand.
While this action greatly increases our addressable customer base, it also
increases the amount of competition to which we may be subject.
Although the Telecommunications Act's prohibition of state barriers to
competitive entry took effect on February 8, 1996, various legal and policy
matters still must be resolved before the Telecommunications Act's policies
promoting local competition are fully implemented.
To the extent we provide intrastate services, we may be required to file
tariffs with the state public service commission setting forth the terms,
conditions and prices for services classified as intrastate. Like the FCC, most
states also consider complaints relating to a carrier's intrastate services or
rates.
As we expand our operations into other states, we may become subject to the
jurisdiction of their respective public service commissions for certain
services offered by us.
Local Government Authorizations. We may be required to obtain from municipal
authorities street opening and construction permits to install our facilities
in certain cities. In some of the areas where we provide service, we also may
be subject to municipal franchise requirements and may be required to pay
license or franchise fees based on a percentage of gross revenue or other
formula. The Telecommunications Act requires municipalities to charge
nondiscriminatory fees to all
52
<PAGE>
telecommunications providers, but it is uncertain how quickly this requirement
will be implemented by particular municipalities in which we operate or plan to
operate or whether it will be implemented without a legal challenge.
Employees
As of February 24, 1999, NorthPoint had 318 employees (including 13 hourly
personnel and consultants), employed in engineering, sales, marketing, customer
support and related activities, and general and administrative functions. None
of our employees are represented by a labor union, and we consider our
relations with our employees to be good. See "Risk Factors--Our Success Depends
on Our Retention of Certain Key Personnel and Our Ability to Hire Additional
Key Personnel."
Facilities
We are headquartered in facilities consisting of approximately 50,000 square
feet in the San Francisco Bay Area which we occupy under five-year leases. In
addition, we occupy 12,000 square feet in San Francisco under a two-year lease
and have short-term leases for our 25 regional offices. We consider this space
adequate for our current operations. We also lease space in a number of ILEC
central offices and private facilities in which we locate our equipment.
Legal Proceedings
We are not currently engaged in any material legal proceedings.
We are, however, subject to state commission, FCC and court decisions as they
relate to the interpretation and implementation of the Telecommunications Act,
the interpretation of CLEC
interconnection agreements in general and our interconnection agreements in
particular. In some cases, we may be deemed to be bound by the results of
ongoing proceedings of these bodies or the legal outcomes of other contested
interconnection agreements that are similar to our agreements. The results of
any of these proceedings could have a material adverse effect on our business,
prospects, financial condition and results of operations.
53
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, and their ages as of February 24, 1999,
are as follows:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<C> <C> <S>
Michael W. Malaga................ 34 President, Chief Executive Officer
and Chairman of the Board of
Directors
Herman W. Bluestein.............. 52 Chief Development Officer
William J. Euske................. 47 Chief Technical Officer
Nathan T. Gregory................ 47 Chief Network Architect
Henry P. Huff.................... 55 Chief Financial Officer and Vice
President, Finance
Robert F. Flood.................. 57 Vice President, Operations
Steven J. Gorosh................. 41 Vice President, General Counsel and
Secretary
Samuel M. Lamonica, Jr........... 47 Vice President, Information
Technology and Application
Development
Timothy M. Monahan............... 33 Vice President, Corporate Development
Richard J. Morris................ 32 Vice President, Engineering and
Program Management
John H. Stormer.................. 36 Vice President, Marketing
Ann W. Zeichner.................. 44 Vice President, Sales
Robert K. Dahl................... 58 Director
Reed E. Hundt.................... 50 Director
Andrew S. Rachleff............... 40 Director
Dino J. Vendetti................. 37 Director
J. Peter Wagner.................. 33 Director
Frank D. Yeary................... 35 Director
</TABLE>
Michael W. Malaga is a founder and has been the President and Chief Executive
Officer and Chairman of NorthPoint since June 1997. From June 1995 to June
1997, Mr. Malaga was employed at MFS Communications Company, Inc., most
recently as the Director of Strategic Development, where he led the strategic
and development efforts for xDSL, small-business Internet access, and switched
local services new business development. While at MFS, Mr. Malaga played a
principal role in integrating its purchase of UUNET Technologies, Inc., a
national ISP. Prior to joining MFS, Mr. Malaga worked at GenRad, Inc.'s
Structural Test Products Division from 1988 to June 1995.
Herman W. Bluestein has been the Chief Development Officer of NorthPoint
since September 1998. From October 1997 until joining NorthPoint, Mr. Bluestein
was Chief Executive Officer of Pacific Communications Services. From 1995
through 1997, Mr. Bluestein was Vice President of Wireless Strategy and
Development for MCI Communications Corp. (now known as MCI WorldCom, Inc.)
where he developed and executed MCI's wireless strategy, negotiated service
agreements with cellular and PCS providers and managed strategic relationships
with service providers. From 1994 to 1995, Mr. Bluestein was Vice President,
Business Development and Alliance General Manager for MCI's alliance with
British Telecommunications, plc. From 1989 to 1994, Mr. Bluestein was Vice
President of Strategic Business Development and Geographic Expansion for Centex
Telemanagement, Inc., a San Francisco-based telecommunications company that was
acquired by MFS in 1994.
54
<PAGE>
William J. Euske is a founder and has been the Chief Technical Officer of
NorthPoint since June 1997. From July 1992 to March 1997, he was the Senior
Vice President of Advanced Networks and Technology at MFS, where he led the
launch of MFS's xDSL services. As Vice President of Product Engineering for its
Data Services unit, he built one of the first commercial ATM networks, which
supported wire-speed LAN traffic, frame relay and variable bit rate voice
traffic. Prior to his employment at MFS, Mr. Euske was the Head of North
American Research and Development for British Telecom from November 1989 to
July 1992.
Nathan T. Gregory is a founder and has been the Chief Network Architect of
NorthPoint since June 1997. Mr. Gregory was with MFS beginning in September
1992, where he was responsible for the data architecture for the xDSL product
offering, including all equipment evaluation and testing, central office
configuration design, and service offering engineering specifications. Mr.
Gregory was also a principal member of the original MFS Data Services team
responsible for releasing the first commercial ATM service in the United States
as well as its worldwide frame relay product.
Henry P. Huff has been the Vice President, Finance and Chief Financial
Officer of NorthPoint since June 1998. Mr. Huff served as the Chief Financial
Officer of Fabrik Communications, Inc., a messaging service provider, from
October 1996 until June 1998 and as the Chief Financial Officer of Sierra
Ventures, a Menlo Park-based venture capital firm, from February 1992 to
September 1996. From August 1986 to February 1992, Mr. Huff was the Chief
Financial Officer of Centex.
Robert F. Flood is a founder and has been the Vice President, Operations of
NorthPoint since June 1997. Prior to joining NorthPoint, Mr. Flood was the Vice
President of Network Administration at MFS, where he was responsible for
traffic engineering, switch translations, capacity planning and network
infrastructure on both the local and long-distance portions of the network.
From 1990 until joining MFS in June 1994, Mr. Flood was Director of Engineering
and Customer Service at Centex where he was responsible for cost management,
provisioning, traffic engineering and customer service.
Steven J. Gorosh is a founder and has been the Vice President, General
Counsel and Secretary of NorthPoint since June 1997. From June 1994 to June
1997, Mr. Gorosh was the Senior Counsel for MFS Intelenet, where he helped set
regulatory strategy and obtain necessary local service regulatory authority for
the nation's largest alternative local service provider. From June 1991 to June
1994, Mr. Gorosh served as the Senior Counsel at Centex prior to its
acquisition by MFS. From April 1988 until joining Centex, Mr. Gorosh was an
attorney in the FCC Common Carrier and General Counsel Bureaus.
Samuel M. Lamonica, Jr. has been the Vice President, Information Technology
and Application Development of NorthPoint since May 1998. From March 1995 until
joining NorthPoint, Mr. Lamonica was employed at Network Equipment
Technologies, Inc. as a Senior Manager of application development for N.E.T.'s
customer service, engineering and sales and marketing organizations. From
January 1980 to February 1995, Mr. Lamonica served in various technical
capacities for Pacific Bell, including Pacific Bell Service Manager. He was
responsible for the design, development and implementation of projects
including 411 directory assistance systems, hotel billing systems, language
assistance bureau, automated pay-by-phone, message center mass market voice
mail and business market segmentation.
Timothy M. Monahan is a founder and has been the Vice President, Corporate
Development of NorthPoint since June 1998. From June 1997 until June 1998, Mr.
Monahan served as NorthPoint's Vice President, Finance and Chief Financial
Officer. Mr. Monahan was the Director of Corporate Development at MFS from 1996
to 1997, where he led the financial and planning aspects of its commercial xDSL
product and internal ISP creation project, forming an evaluation basis for the
55
<PAGE>
purchase of UUNET by MFS. From 1993 to 1996, Mr. Monahan was Assistant
Treasurer and Manager of Business Planning at MFS. Prior to joining MFS, from
June 1988 to June 1991, Mr. Monahan was a consultant with Booz, Allen &
Hamilton.
Richard J. Morris has been the Vice President, Engineering and Program
Management of NorthPoint since June 1997. From September 1994 until joining
NorthPoint, Mr. Morris was the Director of Data Product Development at MFS,
where he developed its xDSL product and led project teams in engineering
design, operations, provisioning and product rollout. He was also responsible
for the development of domestic and international data services of MFS,
including LAN extension over ATM, MAE Internet connectivity, ATM and frame
relay services. From 1990 until joining MFS, Mr. Morris was the Manager,
Broadband Networks for British Telecom, where he served as deployment project
manager and its representative on the European ATM deployment forums.
John H. Stormer has been the Vice President of Marketing of NorthPoint since
September 1998. Mr. Stormer was previously NorthPoint's Director of Business
Development since November 1997. From August 1991 to April 1996, Mr. Stormer
held several director positions at Sprint Corporation and later at Sprint
Telecommunications Venture (now known as Sprint PCS). At Sprint PCS, Mr.
Stormer led the early development of the consumer marketing strategy to launch
integrated wireless and wireline services. Prior to Sprint, Mr. Stormer held
management positions at AT&T Corporation in Business Marketing and Operator
Services, and at Marion Merrell Dow (now known as Hoechst Marion Rousell) in
Business Planning and Development.
Ann W. Zeichner has been the Vice President, Sales of NorthPoint since
September 1998. From September 1997 until September 1998, Ms. Zeichner served
as NorthPoint's Vice President, Sales and Marketing. From June 1995 to May
1997, Ms. Zeichner was President and Chief Executive Officer of Cambio
Networks, Inc., a supplier of network infrastructure documentation solutions.
From August 1993 to May 1995, Ms. Zeichner served as a Vice President of Sales
at Centrum, a remote-access startup company acquired by 3Com Corporation. After
the acquisition, she joined 3Com as Vice President of Sales for the Personal
Office Division in July 1994 and later was appointed as 3Com's Corporate
Director of Industry Marketing. Prior to that, she held Vice President Sales
positions at Ascend Communications, Inc., ADC Fibermux Corp. and Micom
Communications Corp.
Robert K. Dahl has served as a member of the Board of Directors since March
1998. Mr. Dahl has been a General Partner at Riviera Ventures, an Alameda-based
private investment and management firm, since February 1998, where he
specializes in investing in companies in the communications sector. From
December 1993 to July 1997, Mr. Dahl served as the Executive Vice President and
Chief Financial Officer for Ascend Communications, Inc. and from July 1997 to
January 1998, Mr. Dahl served as Ascend's Executive Vice President of Corporate
Planning. Mr. Dahl also serves as a director of Ascend, Momentum Business
Applications, Inc., the Bank of Alameda and several privately held companies.
Reed E. Hundt has served as a member of the Board of Directors since May
1998. Mr. Hundt served as Chairman of the FCC from 1993 to 1997. He currently
serves as senior advisor at McKinsey & Company, Inc., an international
consulting firm. Prior to joining the FCC, Mr. Hundt was a partner at Latham &
Watkins, an international law firm. Mr. Hundt also serves on the board of
directors of Allegiance Telecom, Inc., Ascend Communications and Novell, Inc.
Andrew S. Rachleff has served as a member of the Board of Directors since
August 1997. Since 1995, Mr. Rachleff has been a General Partner at Benchmark
Capital, a Menlo Park-based venture capital firm, where he specializes in
investing in companies in the communications industry. Prior to co-founding
Benchmark Capital, Mr. Rachleff spent ten years as a general partner with
Merrill, Pickard, Anderson & Eyre, a Menlo Park-based venture capital firm. Mr.
Rachleff serves on the boards of directors of several privately held companies.
56
<PAGE>
Dino J. Vendetti has served as a member of the Board of Directors since
February 1999. Mr. Vendetti has managed investments in the telecommunications,
cable and data networking industries for Vulcan Ventures, Inc. since May 1998.
From August 1997 until joining Vulcan Ventures, Mr. Vendetti was Vice President
and Research Analyst at Dain Rauscher covering the telecommunications industry.
From July 1996 to April 1997, Mr. Vendetti was Vice President of Product
Management at Metawave Communications Corporation. From October 1994 to July
1996, Mr. Vendetti served as Director of Business Development and Product
Management for Qualcomm, Inc., where he was responsible for the global
infrastructure product line.
J. Peter Wagner has served as a member of the Board of Directors since August
1997. Mr. Wagner joined Accel Partners, a San Francisco-based private equity
investing firm, in July 1996, and has been a General Partner since January
1998, where he specializes in investing in companies in the communications
sector, including networking, telecommunications and wireless technology. From
September 1992 to July 1996, Mr. Wagner was a Product Line Manager for Silicon
Graphics, Inc. Mr. Wagner also serves on the boards of directors of several
privately held companies.
Frank D. Yeary has served as a member of the Board of Directors since
February 1999. Mr. Yeary joined The Carlyle Group in 1998 as a Managing
Director and is in charge of Carlyle's domestic and global telecommunications
and media investments. From January 1995 to June 1998, Mr. Yeary was Managing
Director, Global Head of Telecommunications & Media and was a member of the
Investment Banking Management Committee at Salomon Smith Barney.
Board of Directors
Prior to the completion of this offering, we will amend our Certificate of
Incorporation in order to divide our Directors into three classes. Two Class I
Directors will hold office initially for a term expiring at the annual meeting
of stockholders in 1999. Three Class II Directors will hold office initially
for a term expiring at the annual meeting of stockholders in 2000. Three Class
III Directors will hold office initially for a term expiring at the annual
meeting of stockholders in 2001. The members of each class will hold office
until their successors are duly elected and qualified. At each annual meeting
of NorthPoint stockholders, the successors to the class of Directors whose term
expires at the meeting will be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their election.
Committees of the Board of Directors
In February 1999, the Board of Directors established an Audit Committee and a
Compensation Committee. The Audit Committee consists of Messrs. Dahl, Rachleff
and Yeary, all of whom are outside directors of the Company. The Audit
Committee recommends engagement of NorthPoint's independent auditors and
approves the services performed by such auditors and reviews and evaluates
NorthPoint's accounting policies and its systems of internal accounting
controls. The Compensation Committee consists of Messrs. Hundt, Wagner and
Vendetti, all of whom are outside directors of NorthPoint. The Compensation
Committee makes recommendations to the Board of Directors in connection with
matters of compensation, including determining the compensation of NorthPoint's
executive officers.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between the Board of Directors or the
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past. Messrs. Hundt, Wagner and Vendetti are affiliated with Charles Ross
Partners, Accel Partners and Vulcan Ventures, respectively, which are holders
of our Preferred Stock. See "Certain Transactions."
57
<PAGE>
Executive Compensation
The following table sets forth information concerning compensation of our
Chief Executive Officer and the top four other highly compensated executive
officers whose salary and incentive compensation exceeded $100,000 for the year
ended December 31, 1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
---------------- -----------------
Shares Underlying All Other
Name And Principal Position Salary Bonus Options Compensation
--------------------------- -------- ------- ----------------- ------------
<S> <C> <C> <C> <C>
Michael W. Malaga............ $140,000 $14,215 -- --
President, CEO and Chairman
of the Board
of Directors
Herman W. Bluestein.......... $ 60,769 $20,000 350,000 $105,491(1)
Chief Development Officer
Robert F. Flood.............. $125,000 $12,692 -- --
Vice President, Operations
Samuel M. Lamonica, Jr. ..... $138,769 $13,877 15,000 --
Vice President, Information
Technology
and Application Development
Richard J. Morris............ $124,846 $12,485 -- --
Vice President, Engineering
and Program
Management
</TABLE>
- --------
(1) Consists of relocation expenses for which we reimbursed Mr. Bluestein.
Option Grants and Exercises
The following table provides information concerning grants of options to
purchase our common stock made during the fiscal year ended December 31, 1998
to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value At Assumed
Options Annual Rates of Stock
Granted To Exercise Price Appreciation
Options Employees or Base For Option Term(1)
Granted In Fiscal Price Expiration ---------------------
Name (#) Year ($/SH) Date 5% ($) 10% ($)
---- ------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Malaga....... -- -- -- -- -- --
Herman W. Bluestein..... 350,000 8.7% $1.25 9/14/08 $1,354,284 $2,285,930
Robert F. Flood......... -- -- -- -- -- --
Samuel M. Lamonica,
Jr..................... 15,000 0.04% $1.25 8/27/08 64,556 107,872
Richard J. Morris....... -- -- -- -- -- --
</TABLE>
- --------
(1) Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, based on the SEC rules. Actual gains if any, on stock option
exercises are dependent on the future performance of the common stock,
overall market conditions and the option-holders' continued employment
through the vesting period. The amounts reflected in this table may not
necessarily be achieved.
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<PAGE>
The following table provides information concerning exercises of options to
purchase our common stock in the fiscal year ended December 31, 1998, and
unexercised options held as of December 31, 1998, by the Named Executive
Officers.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-The-Money Options at
Held at December 31, 1998 December 31, 1998(1)
--------------------------------- ---------------------------------
Name Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
---- --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Michael W. Malaga....... -- -- -- --
Herman W. Bluestein..... -- 350,000 $ 0 $675,500
Robert F. Flood......... -- -- -- --
Samuel M. Lamonica,
Jr..................... 11,250 48,750 34,988 133,913
Richard J. Morris....... 300,000 100,000 933,000 311,000
</TABLE>
- --------
(1) The value of the unexercised in-the-money options is based on fair market
value at December 31, 1998, as determined by the Board of Directors, and is
net of the exercise price of such options.
1997 Stock Option Plan
Our 1997 Stock Option Plan (the "Plan") was adopted by the Board of Directors
and approved by the stockholders in September 1997. A total of 7,500,000 shares
of common stock has been reserved for issuance under the Plan. As of February
24, 1999, options to purchase 7,130,132 shares of common stock were outstanding
under the Plan, and no shares had been issued upon exercise of previously
granted options.
The Plan provides for grants to employees of NorthPoint (including officers
and employee directors) of "incentive stock options" ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and for grants of nonstatutory stock options ("NSOs") to employees
(including officers and employee directors) and consultants (including non-
employee directors) of NorthPoint.
The Plan is administered by the Board of Directors or a committee of the
Board of Directors (the "Administrator"). The Plan is currently being
administered by the Board of Directors. The Administrator may determine the
terms of the options granted, including the exercise price, the number of
shares subject to each option and the exercisability of the option. The
Administrator also has the full power to select the individuals to whom options
will be granted and to make any combination of grants to any participants.
Options generally have a term of ten years. One-fourth of the shares subject
to the option vest on the one-year anniversary of the vesting commencement date
and 1/48th of the shares subject to the option vest on each monthly anniversary
of the vesting commencement date thereafter.
The option exercise price may not be less than 100% of the fair market value
of the common stock on the date of grant; provided, however, that NSOs may be
granted at exercise prices of not less than 85% of the fair market value on the
date the option is granted. In the case of an ISO or NSO granted to a person
who at the time of the grant owns stock representing more than 10% of the total
combined voting power of all classes of stock of NorthPoint, the option
exercise price for each share covered by such option may not be less than 110%
of the fair market value of a share of common stock on the date of grant of
such option.
59
<PAGE>
The term of an option is determined by the specific option agreement;
provided, however, the term may not be longer than ten years. Furthermore, the
maximum term for an option granted to an optionee is five years, if at the time
of the grant the optionee owns more than 10% of the total combined voting power
of all classes of stock of NorthPoint. No option may be exercised by any person
after its term expires.
In the event of a sale of all or substantially all of the assets of
NorthPoint, or the merger of NorthPoint with or into another corporation, each
option must be assumed or an equivalent option substituted by the successor
corporation. If the successor corporation does not agree to assume the option
or to substitute an equivalent option, the option will terminate upon the
consummation of the merger or sale of assets; provided, however, the
Administrator has the discretion to decide to accelerate the vesting of the
option to make it exercisable as to some or all of the shares subject to the
option.
1999 Employee Stock Purchase Plan
NorthPoint's 1999 Employee Stock Purchase Plan (the "1999 Purchase Plan") was
adopted by the Board of Directors in 1999 and approved by the
stockholders in 1999. A total of shares of common stock have
been reserved for issuance under the 1999 Purchase Plan. As of the date of this
prospectus, no shares have been issued under the 1999 Purchase Plan.
The 1999 Purchase Plan, which is intended to qualify under Section 423 of the
Code, contains consecutive six-month offering periods. The offering periods
generally start on January 1 and July 1 of each year, except for the first
offering period, which will commence on the effective date of this offering and
will end on June 30, 1999.
Employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, no employee may be granted a right
to purchase stock under the 1999 Purchase Plan (1) to the extent that,
immediately after the grant of the right to purchase stock, the employee would
own (or be treated as owning) stock possessing 5% or more of the total combined
voting power or value of all classes of the capital stock of NorthPoint or (2)
to the extent that his or her rights to purchase stock under all employee stock
purchase plans of NorthPoint (or any subsidiary or parent corporation of
NorthPoint), accrues at a rate which exceed $25,000 worth of stock for each
calendar year. The 1999 Purchase Plan permits participants to purchase common
stock through payroll deductions of up to % of the participant's base
compensation. Base compensation is defined as the participant's gross base
compensation, excluding overtime payments, sales commissions, incentive
compensation, bonuses, expense reimbursements, fringe benefits and other
special payments. The maximum number of shares a participant may purchase with
respect to a single offering period is shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the 1999 Purchase Plan is 85% of the lesser of the fair market
value of the common stock (1) at the beginning of the offering period or (2) at
the end of the offering period. Participants may end their participation at any
time other than the final ten days of an offering period, and they will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with NorthPoint.
Rights to purchase stock granted under the 1999 Purchase Plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the 1999 Purchase Plan. The 1999
Purchase Plan provides that, in the event of a merger of NorthPoint with or
into another corporation or a sale of substantially all of NorthPoint's assets,
each outstanding right to purchase stock may be assumed or substituted for by
the successor corporation.
60
<PAGE>
The Board of Directors has the authority to amend or terminate the 1999
Purchase Plan. However, no such action by the Board of Directors may adversely
affect any outstanding rights to purchase stock under the 1999 Purchase Plan,
except that the Board of Directors may terminate an offering period on any
exercise date if the Board determines that the termination of the 1999 Purchase
Plan is in the best interests of NorthPoint and its stockholders.
Notwithstanding anything to the contrary, the Board of Directors may in its
sole discretion amend the 1999 Purchase Plan to the extent necessary and
desirable to avoid unfavorable financial accounting consequences by altering
the purchase price for any offering period, shortening any offering period or
allocating remaining shares among the participants.
Limitation on Liability and Indemnification Matters
NorthPoint's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. NorthPoint's Bylaws provide
that NorthPoint shall indemnify each of its directors and officers against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was a director or officer
of NorthPoint or serving as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise at NorthPoint's request.
NorthPoint has also entered into agreements to indemnify directors and certain
executive officers.
61
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of February 24, 1999
with respect to the beneficial ownership of our common stock and as adjusted to
reflect the conversion of outstanding preferred stock into common stock
immediately prior to the completion of this offering by:
. each person known by us to own beneficially more than five percent, in
the aggregate, of the outstanding shares of our common stock, assuming
the conversion of all preferred stock into common stock,
. our directors and our Named Executive Officers, and
. all executive officers and directors as group.
Share ownership in each case includes shares issuable upon exercise of
outstanding options and warrants that are exercisable within 60 days of
February 24, 1999 as described in the footnotes below. Percentage of ownership
is calculated pursuant to SEC Rule 13d-3(d)(1). Certain of the outstanding
shares of our capital stock are subject to a voting agreement. The address for
all executive officers and directors is c/o NorthPoint Communications, Inc.,
222 Sutter Street, San Francisco, CA 94108.
<TABLE>
<CAPTION>
Percent Ownership
Shares -----------------------
Beneficially Before the After the
Name Owned(1) Offering(1) Offering(1)
---- ------------ ----------- -----------
<S> <C> <C> <C>
Accel Partners(2)....................... 5,333,154 11.7%
428 University Avenue
Palo Alto, CA 94301
Benchmark Capital(3).................... 5,333,153 11.7%
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
The Carlyle Group(4).................... 10,623,229 23.4%
9 West 57th Street, 32nd Floor
New York, NY 10019
Greylock IX Limited Partnership......... 5,333,152 11.7%
One Federal Street
Boston, MA 02110
Vulcan Ventures Incorporated(5)......... 4,552,811 10.0%
110 110th Avenue, N.E., Suite 650
Bellevue, WA 98004
Michael W. Malaga....................... 3,318,114 7.3%
Herman W. Bluestein..................... 0 *
Robert K. Dahl(6)....................... 91,032 *
Robert F. Flood......................... 1,839,739 4.1%
Reed E. Hundt(7)........................ 56,657 *
Samuel M. Lamonica, Jr. ................ 15,000 *
Richard J. Morris....................... 366,667 *
Andrew S. Rachleff(3)................... 5,333,153 11.7%
Dino J. Vendetti(8)..................... 14,164 *
J. Peter Wagner(2)...................... 5,333,154 11.7%
Frank D. Yeary(4)....................... 10,623,229 23.4%
All directors and executive officers as
a group (19 persons)(9)(10)............ 33,573,680 74.0%
</TABLE>
- --------
* Less than 1%.
62
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the
SEC, which generally attribute beneficial ownership of securities to
persons who possess sole or shared voting power or investment power with
respect to those securities and include shares of common stock issuable
pursuant to the exercise of stock options or warrants that are immediately
exercisable or exercisable within 60 days. Unless otherwise indicated, the
persons or entities identified in this table have sole voting and
investment power with respect to all shares shown as beneficially owned by
them. Percentage ownership calculations before and after the offering are
based on 45,390,326 shares and shares, respectively, of common
stock outstanding.
(2) Consists of 5,333,154 shares held by various affiliates of Accel Partners.
Mr. Wagner, a General Partner of Accel Partners, may be deemed to have
voting and investment power over the shares held by Accel Partners and its
affiliates. Mr. Wagner disclaims beneficial interest in such shares,
except to the extent of his interest in Accel Partners.
(3) Consists of 4,679,170 shares held by Benchmark Capital Partners, L.P.
("BCP") and 653,983 shares held by Benchmark Founders' Fund, L.P. ("BFF").
Mr. Rachleff, a Managing Member of Benchmark Capital Management Co., LLC,
the General Partner of BCP and BFF, may be deemed to have voting and
investment power over the shares held by BCP and BFF and its affiliates.
Mr. Rachleff disclaims beneficial interest in such shares, except to the
extent of his interest in Benchmark Capital Management Co., LLC.
(4) Consists of 10,623,229 shares held by various affiliates of The Carlyle
Group. Mr. Yeary, a director of NorthPoint, is a General Partner of The
Carlyle Group. Mr. Yeary disclaims beneficial interest in such shares,
except to the extent of his interest in The Carlyle Group and its
affiliates.
(5) Consists of 4,552,811 shares held by Vulcan Ventures Incorporated.
(6) Consists of 56,657 shares held by The Dahl Family Trust dated October 31,
1989, as amended May 3, 1990. Mr. Dahl is the Trustee of The Dahl Family
Trust.
(7) Consists of 56,657 shares held by Charles Ross Partners Investment Fund
Number 1. Mr. Hundt, a General Partner of Charles Ross Partners, may be
deemed to have voting and investment power over the shares held by Charles
Ross Partners Investment Fund Number 1. Mr. Hundt disclaims beneficial
interest in such shares, except to the extent of his interest in Charles
Ross Partners.
(8) Mr. Vendetti was appointed by Vulcan Ventures as its representative on
NorthPoint's Board of Directors.
(9) Includes 1,023,852 shares of common stock subject to options that are
exercisable within 60 days of February 24, 1999.
(10) Includes 4,679,170 shares held by BCP; 653,983 shares held by BFF;
5,333,154 shares held by affiliates of Accel Partners; 10,623,229 shares
held by various affiliates of the Carlyle Group; and 117,329 shares held
by Ellmore C. Patterson Partners. Andrew Rachleff, a director of
NorthPoint, is a Managing Member of Benchmark Capital Management Co., LLC,
the General Partner of BCP and BFF. Peter Wagner, a director of
NorthPoint, is a General Partner of Accel Partners. Frank Yeary, a
director of NorthPoint, is a General Partner of The Carlyle Group.
63
<PAGE>
CERTAIN TRANSACTIONS
Issuance of Stock Options
On September 23, 1997, we adopted our 1997 Stock Option Plan. We have
reserved 7,500,000 shares of common stock for issuance under the Plan. On
February 26, 1998, we granted an option to purchase 110,000 shares of common
stock at an exercise price of $0.07 per share to Robert Dahl, a Director of
NorthPoint. On May 15, 1998, we granted an option to purchase 110,000 shares of
common stock at an exercise price of $0.20 per share to Reed Hundt, a Director
of NorthPoint. On June 1, 1998, we granted an option to purchase 325,000 shares
of common stock at an exercise price of $0.20 per share to Henry P. Huff, Vice
President, Finance and Chief Financial Officer of NorthPoint. On September 14,
1998, we granted an option to purchase 350,000 shares of common stock at an
exercise price of $1.25 per share to Herman W. Bluestein, Chief Development
Officer of NorthPoint.
Issuance of Series C Preferred Stock
On February 19, 1999, we sold 16,762,381 shares of Series C preferred stock
at a purchase price of $3.53 per share. Purchasers of the Series C preferred
stock included funds affiliated with The Carlyle Group (10,623,229 shares).
Other purchasers of the Series C preferred stock included Vulcan Ventures
Incorporated (4,552,811 shares), Benchmark Capital Partners, L.P. (124,274
shares), Benchmark Founders' Fund, L.P. (17,369 shares), funds affiliated with
Accel Partners (141,643 shares), The Dahl Family Trust Dated October 31, 1989,
as amended May 3, 1990 (56,657 shares), Dino Vendetti (14,164 shares) and The
Sierra Ventures Mgmt. Co. 1989 Deferred Savings Plan FBO Henry P. Huff (7,082
shares). Andrew Rachleff, Frank Yeary, Peter Wagner and Dino Vendetti, each of
whom currently serves as a member of the Board of Directors, are affiliated
with Benchmark Capital, The Carlyle Group, Accel Partners and Vulcan Ventures,
respectively. Upon the completion of this offering, all outstanding shares of
Series C preferred stock will automatically convert into shares of common
stock.
Registration Rights
Some holders of common stock issuable upon conversion of preferred stock and
upon exercise of certain warrants are entitled to registration rights. See
"Description of Capital Stock--Registration Rights."
Vendor Relations
Greylock IX Limited Partnership, a principal stockholder of NorthPoint, owns
more than 10% of the capital stock of Copper Mountain, a vendor of NorthPoint.
Our payments to Copper Mountain for the year ended December 31, 1998 totaled
approximately $8,490,467. We believe that the transactions with Copper Mountain
were completed on an arm's-length basis.
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common stock
outstanding. The shares sold in the offering ( shares assuming no
exercise of the underwriters' over-allotment option) will be freely tradable
without restriction under the Securities Act, except for any such shares held
at any time by an "affiliate" of NorthPoint, as this term is defined under Rule
144 under the Securities Act.
We issued and sold the remaining 45,390,326 shares in private transactions.
This number of shares does not include shares that may be issued upon
conversion of convertible debt. These shares may be publicly sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144. In general, under Rule 144, as
currently in effect, a person who has beneficially owned shares for at least
one year, including an "affiliate," as that term is defined in Rule 144, is
entitled to sell, within any three-month period, a number of "restricted"
shares that does not exceed the greater of one percent (1%) of the then
outstanding shares of common stock or the average weekly trading volume during
the four calendar weeks preceding such sale. Sales under Rule 144 are subject
to manner of sale limitations, notice requirements and the availability of
current public information about NorthPoint. Rule 144(k) provides that a person
who is not deemed an "affiliate" and who has beneficially owned shares for at
least two years is entitled to sell such shares at any time under Rule 144
without regard to the limitations described above. Of the 45,390,326 remaining
shares outstanding, affiliates beneficially own approximately 95% of such
shares. Of the shares owned by non-affiliates, no shares have been held by such
non-affiliates in excess of two years. See "Risk Factors--The Price of Our
Common Stock May Decline Due to Shares Eligible for Future Sale."
Any employee, officer, director, advisor or consultant to NorthPoint who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits non-
affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after NorthPoint becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934.
As of February 24, 1999, there were outstanding stock options to purchase an
aggregate of 7,044,237 shares of common stock, of which 1,641,444 are presently
exercisable or exercisable within 60 days. All outstanding stock options are
held by our executive officers or employees. Following the offering, we intend
to file registration statements on Form S-8 covering the 7,500,000 shares of
common stock issuable under our Stock Option Plan (including shares subject to
outstanding options) and the shares reserved for issuance under our 1999
Employee Stock Purchase Plan, thus permitting the resale of such shares in the
public market without restriction under the Securities Act.
NorthPoint, and NorthPoint's executive officers and directors and its large
stockholders, have agreed with the underwriters, subject to certain exceptions,
not to sell or otherwise dispose of any shares of NorthPoint's common stock for
a period of 180 days from the completion of this offering without the prior
written consent of the representatives of the underwriters. The lock-up
agreements by persons other than NorthPoint cover an aggregate of shares.
Prior to this offering, there has been no public market for the common stock.
We are unable to estimate the number of shares that may be sold in the future
by our existing stockholders or the effect, if any, that sales of shares by
such stockholders will have on the market price of the common stock prevailing
from time to time. Sales of substantial amounts of common stock by existing
stockholders could adversely affect prevailing market prices.
65
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary describes the material terms of our capital stock.
However, it does not purport to be complete and is qualified in its entirety by
reference to the actual terms of the capital stock contained in our Certificate
of Incorporation and other agreements referenced below. The following summary
gives effect to the conversion of all outstanding shares of preferred stock
into common stock upon the completion of this offering.
Upon the completion of this offering, after giving effect to the amendment of
our Certificate of Incorporation, the authorized capital stock of NorthPoint
will consist of 75,000,000 shares of common stock and shares of
preferred stock. As of February 24, 1999, there were nine holders of record of
common stock. The common stock and the preferred stock each have a par value of
$0.001 per share. As of February 24, 1999, there were 45,390,326 shares of
common stock outstanding. As of February 24, 1999, options to purchase
7,044,237 shares of common stock were outstanding. Upon the completion of this
offering, no shares of preferred stock will be outstanding. We also have
certain other warrants and contingent warrants as described below.
Common Stock
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferential rights with respect to any outstanding preferred stock, holders of
common stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of NorthPoint's liquidation, dissolution or
winding up or NorthPoint's acquisition by another entity (including any
reorganization, merger or consolidation or sale of stock) or sale of all or
substantially all of NorthPoint's assets, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and satisfaction of preferential rights of the holders of any outstanding
preferred stock. The common stock has no preemptive or conversion rights or
other subscription rights. The outstanding shares of common stock are fully
paid and non-assessable, and the shares of common stock offered hereby will,
upon the completion of this offering, be fully paid and non-assessable.
Preferred Stock
Upon the completion of this offering, all outstanding shares of Series B and
Series C preferred stock will automatically convert on a one-for-one basis into
34,460,127 shares of common stock. See notes 9 and 14 of the notes to our
financial statements for a description of the currently outstanding preferred
stock.
Prior to the completion of this offering, we will amend our Certificate of
Incorporation in order to provide that our preferred stock will be divisible
into and issuable in one or more series. The rights and preferences of the
different series may be established by the Board of Directors without further
action by the stockholders. The Board of Directors will be authorized with
respect to each series to fix and determine, among other things:
. its dividend rate;
. its liquidation preference;
. whether or not the shares will be convertible into, or exchangeable for,
any other securities; and
. whether or not the shares will have voting rights, and, if so, the
conditions under which the shares will vote as a separate class.
66
<PAGE>
We believe that the Board of Directors' ability to issue preferred stock on
such a wide variety of terms will enable the preferred stock to be used for
important corporate purposes, such as financing acquisitions or raising
additional capital. However, were it inclined to do so, the Board of Directors
could issue all or part of the preferred stock with (among other things)
substantial voting power or advantageous conversion rights. This stock could be
issued to persons deemed by the Board of Directors likely to support current
management in a contest for control of the company, either as a precautionary
measure or in response to a specific takeover threat. NorthPoint has no current
plans to issue preferred stock for any purpose.
Bridge Warrants
Holders of Bridge Warrants may purchase shares of common stock for an
exercise price of $.01 per share for up to 250,000 shares, $6.67 per share for
an additional 942,857 shares and, it is expected, $6.67 per share for an
additional 107,143 shares. The Bridge Warrants expire in July 2003. Holders of
unexercised Bridge Warrants are not entitled to receive dividends or other
distributions or to receive notice of any meeting of stockholders. Holders of
unexercised Bridge Warrants also do not have voting or any other rights of
stockholders. The exercise price and number of shares of common stock issuable
upon exercise of the Bridge Warrants are subject to adjustment under certain
circumstances.
Other Warrants
In connection with an equipment lease, we have issued warrants to purchase an
aggregate of 407,902 shares of Series B preferred stock at an exercise price of
$0.675 per share. We have issued contingent warrants to Intel to purchase
94,475 shares of common stock at an exercise price of $3.53 per share, provided
certain conditions are met. Certain other holders of our warrants will be
entitled to an increase in the number of their warrants under antidilution
provisions. These provisions are expected to cause the issuance of warrants to
purchase approximately 227,000 shares of common stock at a weighted average
exercise price of $6.41 per share.
Registration Rights
Pursuant to the Fourth Amended and Restated Rights Agreement dated February
19, 1999 (the "Rights Agreement"), as of February 24, 1999, holders of
47,085,560 shares of common stock issued or issuable upon conversion of Series
B preferred stock and Series C preferred stock or exercise of Bridge Warrants
and certain other outstanding warrants (collectively, the "Rights Holders") are
entitled to certain registration rights with respect to such shares
("Registrable Securities").
Company Registration. If we propose to register any of our or a holder's
common stock under the Securities Act, the Rights Holders are entitled to
notice of such proposed registration and the opportunity to include the
Registrable Securities in the registration. If the registration involves an
underwriting, the underwriters have the right to limit shares proposed to be
included in the registration and underwriting by the Rights Holders to 20% of
the total number of securities included in such registration and underwriting,
unless such offering is the initial public offering of our securities in which
case the Rights Holders may be excluded if no other stockholders' securities
are included.
Requested Registration. At any time after the earlier of (1) six months after
the effective date of the first registration statement for a public offering of
common stock or (2) June 30, 2001, if the holders of at least 20% of the
Registrable Securities relating to the Series B preferred stock and Series C
preferred stock or the holders of at least 40% of the Registrable Securities
relating to the Bridge Warrants request that we file a registration statement,
we are required to use our best efforts to cause such shares to be registered,
subject to certain conditions and limitations. The holders of the Registrable
Securities relating to the Series B preferred stock and Series C preferred
stock and
67
<PAGE>
of the Registrable Securities relating to the Bridge Warrants are each entitled
to two such demand registrations. If, in an underwritten public offering, the
underwriters require a limitation on the number of securities to be included in
the registration, then the number of shares of Registrable Securities that may
be included in the registration and underwriting will be allocated (1) among
all Rights Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by the Rights Holders at the time of
filing the registration statement in the case of a registration requested by
the holders of Registrable Securities relating to the Series B preferred stock
and Series C preferred stock, and (2) first to the holders of Registrable
Securities relating to the Bridge Warrants and then among all other Rights
Holders in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Rights Holders at the time of filing the
registration statement in the case of a registration requested by the holders
of Registrable Securities relating to the Bridge Warrants.
Registration on Form S-3. The Rights Holders have the right to require us to
register all or a portion of their Registrable Securities on Form S-3 when this
form becomes available to us, provided that the aggregate proceeds of such
registration are expected to exceed $1,000,000 or cover all remaining
Registrable Securities relating to the Bridge Warrants and provided that we are
not required to effect more than one such registration in any twelve-month
period.
Termination of Registration Rights. The registration rights terminate as to
any Rights Holder five years following a bona fide firm underwritten public
offering of shares of common stock registered under the Securities Act,
provided the per share public offering price is not less than $5.75 as adjusted
to reflect subsequent stock dividends, stock splits or recapitalizations and
the aggregate offering price, net of underwriting discounts and commissions,
exceeds $50,000,000.
Certificate of Incorporation, Bylaw and Statutory Provisions Affecting
Stockholders
Prior to completion of this offering, we will amend our Certificate of
Incorporation in order to divide the Board of Directors into three classes of
directors serving staggered three-year terms. Under the Delaware General
Corporation Law ("DGCL"), directors serving on a classified board can be
removed only for cause.
Our Certificate of Incorporation and Bylaws will also provide that
stockholder action can be taken only at an annual or special meeting of
stockholders and cannot be taken by written consent in lieu of a meeting. The
Certificate of Incorporation and Bylaws will also:
. provide that special meetings of the stockholders may be called only by a
resolution adopted by a majority of the Board of Directors;
. establish an advance notice procedure for stockholder proposals;
. require that certain business combinations be approved by supermajority
vote; and
. reserve to the Board the exclusive right to change the number of
directors or to fill vacancies on the Board.
NorthPoint is a Delaware corporation and is subject to Section 203 of the
DGCL, which generally prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time that the person became an interested
stockholder, unless:
. before such time the Board of Directors of the corporation approved
either the business combination or the transaction in which the person
became an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested person owns at least
85% of the voting stock of the corporation
68
<PAGE>
outstanding at the time the transaction commenced, excluding shares owned
by persons who are directors and also officers of the corporation and by
certain employee stock plans; or
. at or after such time the business combination is approved by the Board
of Directors of the corporation and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock of the
corporation that is not owned by the interested stockholder.
A "business combination" generally includes mergers, asset sales and similar
transactions between the corporation and the interested stockholder, and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of the corporation's outstanding voting stock or
who is an affiliate or associate of the corporation and, together with his or
her affiliates and associates, has owned 15% or more of the corporation's
outstanding voting stock within three years.
The provisions of the Certificate of Incorporation, Bylaws and DGCL
described above would make more difficult or discourage a proxy contest or
acquisition of control by a holder of a substantial block of our stock or the
removal of the incumbent Board of Directors. Such provisions could also have
the effect of discouraging an outsider from making a tender offer or otherwise
attempting to obtain control of NorthPoint, even though such an attempt might
be beneficial to us and our stockholders.
Our Certificate of Incorporation and Bylaws also:
. eliminate the personal liability of directors for monetary damages
resulting from breaches of fiduciary duty to the extent permitted by the
DGCL; and
. indemnify directors and officers to the fullest extent permitted by
Section 145 of the DGCL, including in circumstances in which
indemnification is otherwise discretionary.
We believe that these provisions are necessary to attract and retain
qualified directors and officers. We have also entered into agreements to
indemnify our directors and certain of our officers.
Transfer Agent and Registrar
is the transfer agent and registrar for the common stock.
69
<PAGE>
LEGAL MATTERS
The validity of the common stock being offered hereby will be passed upon for
NorthPoint by Latham & Watkins, Menlo Park, California and for the underwriters
by Sullivan & Cromwell, Los Angeles, California. Certain legal matters will be
passed upon for NorthPoint by Steven J. Gorosh, our General Counsel. Certain
Latham & Watkins attorneys hold shares of NorthPoint's common stock.
EXPERTS
The financial statements of NorthPoint Communications, Inc. as of December
31, 1997 and 1998, for the period from May 16, 1997 (date of inception) to
December 31, 1997, and for the year ended December 31, 1998 have been included
in this registration statement and the related prospectus in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, appearing
elsewhere herein, and upon the authority of that firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Registration Statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all the information set forth in
the Registration Statement, certain portions of which are omitted as permitted
by the rules and regulations of the SEC. For further information about
NorthPoint and the shares offered by this prospectus, you should refer to the
Registration Statement, including the exhibits and schedules filed with the
Registration Statement. Statements made in this prospectus regarding the
contents of any contract or any other document referred to herein or therein
are not necessarily complete, and in each instance reference is made to the
copy of such contract or document filed as an exhibit to the registration
statement or such other document, each such statement being qualified in all
respects by such reference. You may obtain copies of the Registration Statement
(of which this prospectus is a part), together with such exhibits and
schedules, upon payment of the fee prescribed by the SEC, or you may examine
these documents without charge at the office of the SEC.
After the offering is completed, NorthPoint will be subject to the
informational requirements of the Securities Exchange Act of 1934 and will be
required to file annual and quarterly reports, proxy statements and other
information with the SEC. You can inspect and copy reports and other
information filed by NorthPoint with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0300. The SEC also maintains an Internet site at http://www.sec.gov
that contains reports, proxy and information statements regarding issuers,
including NorthPoint, that file electronically with the SEC.
70
<PAGE>
NORTHPOINT COMMUNICATIONS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Accountants' Report........................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998.............. F-3
Consolidated Statements of Operations for the period from May 16, 1997
(date of inception) through December 31, 1997 and for the year ended
December 31, 1998........................................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the period
from May 16, 1997 (date of inception) through December 31, 1997 and for
the year ended December 31, 1998......................................... F-5
Consolidated Statements of Cash Flows for the period from May 16, 1997
(date of inception) through December 31, 1997 and for the year ended
December 31, 1998........................................................ F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
Report of Independent Accountants
To the Board of Directors and Stockholders of
NorthPoint Communications, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
NorthPoint Communications, Inc. and its wholly-owned subsidiary (the Company)
as of December 31, 1998 and 1997, and the results of their operations and their
cash flows for the year ended December 31, 1998 and for the period from May 16,
1997 (date of inception) through December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
February 24, 1999
F-2
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1997 1998 1998
----------- ------------ ------------
(Pro Forma)
Assets (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............ $ 9,448,259 $ 10,955,655
Accounts receivable, net of an
allowance of $0 and $18,640,
respectively........................ -- 523,261
Prepaid expenses and other assets.... 59,005 2,649,268
----------- ------------
Total current assets................ 9,507,264 14,128,184
Property and equipment, net........... 1,775,732 46,077,796
Deposits.............................. 72,941 295,520
----------- ------------
Total assets........................ $11,355,937 $ 60,501,500
=========== ============
Liabilities and Stockholders' Equity
(Deficit)
Current liabilities:
Accounts payable, including related
party payables of $86,423 and
$5,189,469, respectively............ $ 277,820 $ 9,379,322
Accrued expenses..................... -- 5,481,033
Deferred revenue..................... -- 188,754
Capital lease obligations, current
portion............................. 236,339 1,190,739
Line of credit borrowings, net of
unamortized debt discount of $0 and
$1,118,542, respectively............ -- 49,606,458
----------- ------------
Total current liabilities........... 514,159 65,846,306
----------- ------------
Capital lease obligations, long-term
portion.............................. 865,558 3,237,340
Line of credit borrowings, long-term
portion.............................. 1,000 --
----------- ------------
Total liabilities................... 1,380,717 69,083,646
----------- ------------
Commitments and contingencies (Note
7).
Stockholders' equity (deficit):
Convertible preferred stock, $0.001
par value, 21,804,556 shares
authorized, 16,450,721 and
17,110,691 shares issued and
outstanding at December 31, 1997 and
1998, respectively, zero shares
proforma; liquidation preference of
$15,492,710......................... $ 16,451 $ 17,111 $ --
Common stock, $0.001 par value,
50,000,000 shares authorized,
10,820,000 and 10,930,200 shares
issued and outstanding at December
31, 1997 and 1998, respectively, and
28,040,891 proforma................. 10,820 10,930 28,041
Common stock warrants................ -- 2,065,000 2,065,000
Additional paid-in capital........... 11,417,036 22,116,727 22,116,727
Deferred compensation................ (172,957) (5,588,714) (5,588,714)
Accumulated deficit.................. (1,296,130) (27,203,200) (27,203,200)
----------- ------------ ------------
Total stockholders' equity
(deficit).......................... 9,975,220 (8,582,146) $ (8,582,146)
----------- ------------ ------------
Total liabilities and stockholders'
equity (deficit)................... $11,355,937 $ 60,501,500
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
May 16, 1997
(date of inception) to Year ended
December 31, 1997 December 31, 1998
---------------------- -----------------
<S> <C> <C>
Revenues.............................. $ -- $ 930,776
Operating expenses:
Network expenses.................... 55,553 3,970,339
Selling, marketing, general and
administrative..................... 1,373,782 18,339,817
Amortization of deferred
compensation....................... 29,473 843,519
Depreciation and amortization....... 27,179 1,318,575
----------- ------------
Total operating expenses............ 1,485,987 24,472,250
----------- ------------
Loss from operations................ (1,485,987) (23,541,474)
Interest income....................... 189,874 209,124
Interest expense...................... (17) (2,574,720)
----------- ------------
Net loss............................ $(1,296,130) $(25,907,070)
=========== ============
Net loss per common share--basic and
diluted.............................. $ (0.13) $ (2.39)
=========== ============
Weighted average shares used in
computing net loss per common share--
basic and diluted.................... 9,659,360 10,835,309
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Common Total
------------------ ------------------ Paid-in Stock Deferred Accumulated Stockholders'
Shares Amount Shares Amount Capital Warrants Compensation Deficit Equity (Deficit)
---------- ------- ---------- ------- ----------- ---------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
inception (May
16, 1997)........ -- $ -- -- $ -- $ -- $ $ -- $ -- $ --
Issuance of
common stock.... 5,000,000 5,000 95,000 100,000
Common stock
split of 2.0178
for 1........... 5,089,000 5,089 (5,089) --
Issuance of
preferred stock
Series B........ 16,450,721 16,451 11,074,256 11,090,707
Issuance of
common stock.... 731,000 731 50,439 51,170
Deferred
compensation.... 202,430 (202,430) --
Amortization of
deferred
compensation.... 29,473 29,473
Net loss........ (1,296,130) (1,296,130)
---------- ------- ---------- ------- ----------- ---------- ----------- ------------ ------------
Balances at
December 31,
1997............. 16,450,721 16,451 10,820,000 10,820 11,417,036 (172,957) (1,296,130) 9,975,220
Issuance of
common stock.... 110,200 110 39,075 39,185
Issuance of
preferred stock
Series C........ 659,970 660 4,401,340 4,402,000
Issuance of
common stock
warrants in
conjunction with
bridge loan..... 2,065,000 2,065,000
Deferred
compensation.... 6,259,276 (6,259,276) --
Amortization of
deferred
compensation.... 843,519 843,519
Net loss........ (25,907,070) (25,907,070)
---------- ------- ---------- ------- ----------- ---------- ----------- ------------ ------------
Balances at
December 31,
1998............. 17,110,691 $17,111 10,930,200 $10,930 $22,116,727 $2,065,000 $(5,588,714) $(27,203,200) $ (8,582,146)
========== ======= ========== ======= =========== ========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
May 16, 1997
(date of
inception) to Year ended
December 31, December 31,
1997 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (1,296,130) $ (25,907,070)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................... 27,179 1,318,575
Amortization of deferred compensation........... 29,473 843,519
Amortization of debt discount................... -- 946,458
Changes in assets and liabilities:
Accounts receivable............................. -- (523,261)
Prepaid expenses and other assets............... (59,005) (2,590,263)
Deposits........................................ (72,941) (222,579)
Accounts payable................................ -- 9,101,502
Accrued expenses................................ 277,820 5,481,033
Deferred revenue................................ -- 188,754
------------ -------------
Net cash used in operating activities.......... (1,093,604) (11,363,332)
------------ -------------
Cash flows from investing activities:
Purchase of property and equipment............... (701,014) (41,549,724)
------------ -------------
Net cash used in investing activities.......... (701,014) (41,549,724)
------------ -------------
Cash flows from financing activities:
Proceeds from issuance of common and preferred
stock........................................... 11,241,877 4,441,185
Borrowings from line of credit................... 1,000 50,724,000
Principal payments on capital lease obligations.. -- (744,733)
------------ -------------
Net cash provided in financing activities...... 11,242,877 54,420,452
------------ -------------
Net increase in cash and cash equivalents......... 9,448,259 1,507,396
Cash and cash equivalents at beginning of period.. -- 9,448,259
------------ -------------
Cash and cash equivalents at end of period........ $ 9,448,259 $ 10,955,655
============ =============
Supplemental cash flow information and noncash ac-
tivities:
Fixed assets obtained through capital lease...... $ 1,101,897 $ 4,085,092
============ =============
Warrants issued for bridge loan.................. $ -- $ 2,065,000
============ =============
Income taxes paid................................ $ 800 $ 800
============ =============
Interest paid.................................... $ 17 $ 992,437
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
The Company
NorthPoint Communications, Inc. was formed in May 1997 to provide high speed
network and data transport services, allowing Internet Service Providers
(ISPs), broadband data service providers and long distance and local phone
companies (collectively, network service providers or NSPs) to meet the rapidly
increasing information needs of small and medium-sized businesses, people who
work in home offices and telecommuters.
Basis of Presentation
The consolidated financial statements include the accounts of NorthPoint
Communications, Inc. and its wholly-owned subsidiary (the Company). All
material intercompany accounts and transactions have been eliminated.
The Company was considered a development stage company in 1997. Although the
Company was incorporated on May 16, 1997, principal operations did not
effectively begin until August 1997. These principal activities included
developing business plans, procuring governmental authorizations and central
office collocation space and improvements, raising capital, hiring management
and other key personnel, working on the design and development of the Company's
network architecture and operations support system, acquiring equipment and
facilities and negotiating interconnection agreements. In March 1998, the
Company began generating revenue from providing transport services to NSP
customers.
Certain prior year balances have been reclassified to conform with the
current year presentation.
Pro Forma Balance Sheet (unaudited):
The accompanying unaudited pro forma balance sheet at December 31, 1998
reflects the assumed conversion of the Series B and Series C preferred stock
into common stock as of December 31, 1998.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Business Risks and Credit Concentrations
The Company's operations are subject to significant risks and uncertainties
including competitive, financial, developmental, operational, technological,
regulatory and other risks associated with an emerging business.
As of December 31, 1998, the Company's cash and cash equivalents are
deposited with one financial institution in the form of demand deposits and
money market accounts. At December 31, 1998, the Company had bank deposits of
$10,855,655 in excess of federally insured limits.
F-7
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company sells its services on a wholesale basis to NSPs. For the year
ended December 31, 1998, two NSP customers accounted for 70% of revenue. These
same customers accounted for 55% of accounts receivable at December 31, 1998.
The Company is dependent upon a small number of major suppliers and service
providers.
Cash and Cash Equivalents
The Company considers all highly liquid monetary instruments with an original
maturity of three months or less at the date of purchase to be cash
equivalents.
Property and Equipment
Property and equipment, including property and equipment under capital
leases, are recorded at cost and depreciated using the straight-line method
over the shorter of their useful lives or, for leased assets, the remaining
lease term. The estimated useful life is three years for software, and five
years for all other property and equipment. Maintenance and repairs are charged
to expense as incurred, and improvements and betterments are capitalized. When
assets are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in operations in the period realized.
Central office collocation space and improvements represent payments to
secure central office space for location of certain Company equipment. These
fees are amortized over their estimated useful lives of five years.
The Company capitalizes costs associated with the design and implementation
of the Company's network including internally and externally developed
software. Capitalized external software costs include the actual costs to
purchase existing software from vendors. Capitalized internal software costs
generally include personnel costs incurred in the enhancement and
implementation of purchased software packages. As of December 31, 1997 and
1998, no internal costs have been capitalized.
Long-Lived Assets
Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, requires that long-lived assets and certain intangible assets
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If undiscounted expected
future cash flows are less than the carrying value of the assets, an impairment
loss is to be recognized based on the fair value of the assets. No impairment
losses have been recognized to date.
Revenues
Revenues from transport services are recognized when the services are
provided. Payments received in advance of providing services are recorded as
deferred revenue until the period such services are provided. Revenues related
to equipment installation services is recognized when the installation is
completed.
F-8
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising and Sales Promotion Costs
Advertising and sales promotion costs are expensed as incurred and totaled $0
and $281,539 in 1997 and 1998, respectively.
Income Taxes
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS No.
109). Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
Fair Value of Financial Instruments
Amounts reported for cash and cash equivalents, accounts receivable, accounts
payable, line of credit borrowings, and other accrued expenses are considered
to approximate fair value primarily due to their short maturities. Based on
borrowing rates currently available to the Company for loans with similar
terms, the carrying value of the capital lease obligations approximates fair
value.
Earnings (Loss) Per Share
The Company computes net loss per share pursuant to SFAS No. 128, Earnings
Per Share. Basic net loss per share is computed by dividing income or loss
applicable to common stockholders by the weighted average number of shares of
the Company's common stock outstanding during the period after having given
consideration to shares subject to repurchase. Diluted net loss per share is
determined in the same manner as basic net loss per share except that the
number of shares is increased assuming exercise of dilutive stock options and
warrants using the treasury stock method and conversion of the Company's
convertible preferred stock.
The following table presents the calculation of basic and diluted net loss
per share:
<TABLE>
<CAPTION>
May 16, 1997
(date of inception) Year ended
to December 31, 1997 December 31, 1998
-------------------- -----------------
<S> <C> <C>
Net loss............................ $ (1,296,130) $(25,907,070)
------------ ------------
Basic & Diluted:
Weighted average shares of common
stock outstanding................ 9,659,360 10,853,035
Less weighted average shares
subject to repurchase............ -- 17,726
------------ ------------
Weighted average shares used in
computing basic and diluted net
loss per share................... 9,659,360 10,835,309
------------ ------------
Basic and diluted net loss per
share.......................... $ (0.13) $ (2.39)
============ ============
</TABLE>
F-9
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The dilutive effect of options, warrants and convertible preferred stock has
not been considered as their effect would be antidilutive for all periods
presented. See Notes 9 and 10.
Recently Issued Accounting Pronouncements:
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 provides guidance
for determining whether computer software is internal-use software and on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The Company has not yet determined the
impact of adopting SOP 98-1, which will be effective for the Company's year
ending December 31, 1999.
On April 3, 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, (SOP 98-5), Reporting on the Costs of Start-Up
Activities, which provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. SOP-98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. As the
Company has not capitalized such costs to date, the adoption of SOP 98-5 is not
expected to have an impact on the financial statements of the Company.
3. Property and Equipment:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Networking equipment................................. $ 146,890 $22,856,460
Central office collocation space and improvements.... 459,051 14,706,047
Computers and software............................... 72,099 2,488,542
Leasehold improvements............................... 4,848 1,244,924
Furniture, fixtures and office equipment............. 18,126 938,877
Property and equipment under capital leases:
Networking equipment................................ 564,568 3,184,894
Central office collocation space and improvements... 221,908 892,537
Furniture, fixtures and equipment................... 285,032 987,888
Leasehold improvements.............................. 30,389 121,670
---------- -----------
Total property and equipment....................... 1,802,911 47,421,839
Less accumulated depreciation and amortization....... (27,179) (1,344,043)
---------- -----------
Property and equipment, net........................ $1,775,732 $46,077,796
========== ===========
</TABLE>
Included in accumulated depreciation and amortization is $22,759 and $630,121
of accumulated depreciation and amortization relating to property and equipment
under capital leases as of December 31, 1997 and 1998, respectively (See Note
8).
Depreciation and amortization expense was $27,179 and $1,318,575 for the
period from May 16, 1997 (date of inception) to December 31, 1997 and for the
year ended December 31, 1998, respectively, including amortization of software
of $236 and $88,099, respectively.
F-10
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4.Income Taxes:
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
May 16, 1997
(date of
(inception) to Year ended
December 31, 1997 December 31, 1998
----------------- -----------------
<S> <C> <C>
Current tax expense:
Federal.............................. $ -- $ --
State................................ 800 800
--------- ------------
800 800
Deferred tax expense:
Federal.............................. (542,607) (8,461,154)
State................................ -- (1,444,736)
Valuation allowance for deferred tax
assets.............................. 542,607 9,905,890
--------- ------------
Net tax expense.................... $ 800 $ 800
========= ============
The primary components of temporary differences which give rise to deferred
taxes are as follows:
<CAPTION>
December 31,
-----------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
Noncurrent deferred tax assets
(liabilities):
Net operating loss carryforwards..... $ 632,091 $ 9,827,384
Depreciation......................... (89,484) (81,222)
Accrued liabilities.................. -- 702,335
--------- ------------
Gross deferred tax asset........... 542,607 10,448,497
Valuation allowance.................. (542,607) (10,448,497)
--------- ------------
Net deferred tax asset............. $ 0 $ 0
========= ============
</TABLE>
Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has recorded a valuation
allowance against its net deferred tax asset at both December 31, 1997 and
1998. Management evaluates the recoverability of the deferred tax asset and the
level of the valuation allowance. At such time as it is determined that it is
more likely than not that the deferred tax asset will be realizable, the
valuation allowance will be reduced.
At December 31, 1997 and 1998, the Company had net operating loss
carryforwards of approximately $1,475,000 and $23,195,000, respectively, for
both federal and state income tax purposes. The federal carryforwards expire in
the years 2012 through 2018. For federal and state tax purposes, a portion of
the Company's net operating loss may be subject to certain limitations on
annual utilization in case of changes in ownership, as defined by federal and
state tax laws.
F-11
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the provision for income taxes to the federal statutory
rate is as follows:
<TABLE>
<CAPTION>
May 16, 1997
(date of
(inception) to Year ended
December 31, December 31,
1997 1998
-------------- ------------
<S> <C> <C>
Provision computed at
federal statutory
rate................... $ (542,607) $ (8,808,404)
State taxes, net of
federal tax benefit.... -- (1,444,736)
Change in valuation
allowance.............. 542,607 9,905,890
Permanent difference.... 335,668
Others.................. -- 11,582
---------- ------------
Net tax provision....... $ 0 $ 0
========== ============
</TABLE>
5.Line of Credit
The Company has a bank line of credit collateralized by accounts receivable,
equipment, and inventories. The line requires monthly payments of interest
only, at prime plus 1.5%, and any unpaid principal and interest will be due on
May 1, 1999. The line has a maximum amount available of $1,000,000, of which
$275,000 is designated under an available standby letter of credit at
December 31, 1998. The letter of credit expires on February 28, 1999. The
amount outstanding under the bank line of credit was $1,000 and $725,000 as of
December 31, 1997 and 1998, respectively, and the interest rate in effect was
10% and 9.25%, respectively.
6.Bridge Loan
In July 1998, the Company finalized a commitment from an investment bank to
provide up to $50,000,000 of debt financing (the "Bridge Loan"). The Bridge
Loan carries interest at 10% per annum through January 15, 1999. The interest
rate increases to 11.5% by July 15, 1999 at which date the Bridge Loan is
payable. If not paid by July 15, 1999, the Bridge Loan converts into Senior
Rollover Notes, Series A and B with principal balances of $15,000,000 and
$35,000,000 respectively and the interest rate increases by 50 basis points at
the end of each three month period for which the Bridge Loan remains
outstanding. As of December 31, 1998, the Company has drawn down the entire
$50,000,000 available under its bridge loan commitment.
The Bridge Loan contains various business and financial covenants including,
among other things, (i) limitations on dividends, redemptions and repurchases
of capital stock, (ii) limitations on the incurrence of indebtedness, liens,
leases and sale-leaseback transactions and (iii) limitations on capital
expenditures.
In connection with the Bridge Loan, the Company issued warrants (the Bridge
Loan Warrants) to purchase 1,000,000 shares of common stock to this bank, at an
exercise price of $0.01 per share for the first 250,000 shares, and $6.67 for
the remainder. Upon draw down of funds in excess of $15,000,000, the Company is
required to issue warrants to purchase up to 600,000 additional shares of
common stock at a price of $6.67. The amount of additional warrants issued is
based on the outstanding principal of the bridge loan, divided by $35 million
and multiplied by 150,000, as of each three month anniversary of each draw
date.
In connection with the grant of these warrants, the Company has recognized a
discount of $2,065,000 to the bridge loan, which is amortized over the life of
the loan term. Amortization of this discount amounted to $0 and $946,458 in
1997 and 1998, respectively.
F-12
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under the terms of the loan, 1,150,000 warrants have been issued, none of
which have been exercised as of December 31, 1998. (Note 10)
7. Commitments and Contingencies
The Company is subject to state public utilities commission, Federal
Communications Commission and court decisions as they relate to the
interpretation and implementation of the Telecommunications Act, the
interpretation of CLEC interconnection agreements in general and the Company's
interconnection agreements in particular. In some cases the Company may be
bound by the results of ongoing proceedings of these bodies or the legal
outcomes of other contested interconnection agreements that are similar to the
Company's agreements. The Company cannot estimate the effect, if any, of these
proceedings.
8. Capital and Operating Leases
During 1997 and 1998, the Company entered into capital leases for computer
and other telecommunications equipment. The equipment is pledged as collateral
for the lease commitment.
The Company leases office space under noncancelable operating leases. Rent
expense under operating leases was $56,838 and $830,655 for the period from May
16, 1997 (date of inception) to December 31, 1997 and for the year ended
December 31, 1998, respectively, which includes $3,879 and $272,983 in sublease
rent expense, respectively. The following is a schedule of future minimum lease
payments under capital and operating leases for the years ending December 31,
1998:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------- ----------
<S> <C> <C>
1999.................................................. $1,512,058 $2,171,043
2000.................................................. 1,512,058 1,622,769
2001.................................................. 1,512,058 1,532,353
2002.................................................. 557,719 1,582,097
2003.................................................. -- 462,486
---------- ----------
Total minimum lease payments.......................... 5,093,893 $7,370,748
==========
Less amount representing interest..................... 665,814
----------
Present value of minimum lease payments............... 4,428,079
Less current portion of capital lease obligations..... 1,190,739
----------
Long-term portion of capital lease obligations........ $3,237,340
==========
</TABLE>
9. Convertible Preferred Stock
The Company has authorized 21,804,556 shares of Preferred Stock, of which
17,006,954 shares are designated Series B Preferred Stock (Series B Stock) and
4,797,602 shares are designated as Series C Preferred Stock (Series C Stock).
At December 31, 1998, 16,450,721 shares of Series B Stock were outstanding and
659,970 shares of Series C Stock were outstanding.
F-13
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Dividends
The holders of Series B Stock and Series C Stock are entitled to receive
noncumulative dividends in preference to any dividend on common stock, at an
annual rate equal to the greater of (i) $0.08 or $0.80 per share, respectively,
in the case of the Series B Stock or Series C Stock or (ii) a per share amount
equal to the per share amount paid on any other outstanding shares of capital
stock of the Company, when and if declared by the Board of Directors. No such
dividends have been declared or paid to date.
Liquidation Preference
In the event of any liquidation, dissolution, or winding up of the Company,
the holders of the preferred stock are entitled to receive, in preference to
the holders of common stock, $.67417772 per share for each share of Series B
stock and $6.67 per share for each share of Series C Stock ($15,492,710 in
total), plus all declared but unpaid dividends, if any. Preferred Series B and
Series C holders are then entitled to receive assets and funds of the Company
in proportion to the number of shares as if converted pursuant to the following
paragraph.
Redemption Rights
The convertible preferred stock is not redeemable.
Conversion Rights
The number of shares of common stock into which each share of Series B Stock
and Series C may be converted is equal to the original purchase price of the
stock divided by the conversion price in effect on the date of conversion. Each
share of Preferred Stock will convert into common stock, at the then applicable
conversion rate, (i) in the event of the closing of an underwritten public
offering of any of the Company's equity securities, (ii) upon the election of
the holders of at least a majority of the then outstanding shares of Preferred
Stock, or (iii) at anytime at the option of the holder.
The Preferred Stock also carries provisions which protect the holders of such
securities from dilution caused by capital reorganizations, stock splits, or
other such capital changes.
Voting Rights
The holders of preferred stock are entitled to vote on all matters and
entitled to the number of votes equal to the number of shares of common stock
into which the preferred stock could be converted pursuant to the conversion
rights. Except as otherwise required by law, the holders of the preferred stock
have voting rights equal to those of the common stockholders.
The holders of preferred stock have the right to elect three members of the
Board of Directors and the holders of the shares of common stock have the right
to elect one member of the Board of Directors. Any additional directors shall
be elected by holders of both classes of stock.
10.Stock Warrants
Equipment Lease Warrants
The Company has agreed to issue warrants to purchase up to 556,233 shares of
Series B preferred stock to an equipment lease provider, at an exercise price
of $0.675 per share. As of December 31, 1998, warrants to purchase 407,902
shares had been issued, all of which are immediately exercisable. As the fair
value of these warrants was determined to be immaterial at date of issuance, no
charge was recorded.
F-14
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warrants vest based on the aggregate amounts drawn under the lease facility
up to $7,500,000 as follows: 37,082 fully paid and nonassessable shares of
Preferred Stock vest upon the funding of any portion of each incremental
$500,000 drawn in the aggregate under the facility, and any remaining unvested
warrants will vest on March 31, 1999. In the event that (i) the Company
terminates its right to draw down any unused portion available under the
facility before March 31, 1999; and (ii) at the time of such termination the
amounts drawn representing software and tenant improvements do not exceed 35%
of the aggregate amount drawn under the facility, the remaining unvested
warrants will be cancelled. If however at the time of termination the amounts
drawn representing software and tenant improvements are in excess of 35% of the
aggregate amount drawn under the facility warrants will vest to the maximum of
556,233 shares of Preferred Stock.
Bridge Loan Warrants
In conjunction with the Bridge Loan (Note 6) the Company issued warrants to
purchase 250,000 shares of common stock for an exercise price of $.01 per
share, and 900,000 shares of common stock for an exercise price of $6.67 per
share. The Bridge Loan Warrants are exercisable immediately and expire in July
2003. The exercise price and number of shares of common stock issuable upon
exercise of these warrants are subject to adjustment under certain
circumstances.
Contingent Warrants
The Company has agreed to issue warrants to purchase up to 50,000 shares of
its common stock at a price of $6.67 per share to one of its shareholders,
contingent on the introduction of DSL services in certain markets by the
Company and the placement of a purchase order by this shareholder for a certain
number of DSL end users in those markets, prior to September 30, 1999. No
warrants have been issued under this agreement at December 31, 1998. In
February 1999, the Company increased the number of shares purchasable under the
warrants to 94,475 and reduced the exercise price to $3.53 per share.
11. Stock Options
In September 1997, the Company adopted the 1997 Stock Option Plan under which
the Board of Directors may grant options to purchase common stock either as
incentive stock options to employees and directors or nonstatutory stock
options to employees, directors, and consultants. Options granted as incentive
stock options are issued at an exercise price between 100% and 110% of fair
market value, as determined by the Board of Directors. Nonstatutory options are
issued at between 85% and 110% of their fair market value. At December 31, 1997
and 1998, 3,642,062 and 7,500,000 shares of common stock, respectively, have
been authorized for the exercise of stock options.
Generally, options granted under this plan become exercisable at a rate of
1/4 of the total at the end of twelve months from the vesting commencement
date, and 1/48 of the total per month thereafter of employment. Options
generally expire ten years from the date of the grant except in the case of an
incentive stock option granted to an optionee who, at the time of the option is
granted, owns stock representing more than ten percent of the voting power of
all classes of stock outstanding. In this case, the term of the option is 5
years from the date of the grant.
F-15
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes activity under the Company's stock option plan
for the period from May 16, 1997 (date of inception) to December 31, 1997 and
for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Shares Number of Average
available Options Exercise
for Grant Outstanding Price
---------- ----------- --------
<S> <C> <C> <C>
Reserved for issuance....................... 3,642,062 --
Granted.................................... (2,280,000) 2,280,000 $0.07
Exercised.................................. -- --
Cancelled.................................. -- --
---------- --------- -----
Balances as of December 31, 1997............ 1,362,062 2,280,000 $0.07
Reserved for issuance....................... 3,857,938 --
Granted.................................... (4,039,150) 4,039,150 $0.66
Exercised.................................. -- (107,500) $0.34
Canceled................................... 96,875 (96,875) $0.23
---------- --------- -----
Balances as of December 31, 1998............ 1,277,725 6,114,775 $0.45
========== ========= =====
</TABLE>
The following table summarizes information with respect to stock options
outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- -----------------------
Weighted
Average
Remaining Weighted Weighted
Range of Number Contractual Average Number Average
Exercise Outstanding Life Exercise Exercisable Exercise
Prices at 12/31/98 (Years) Price at 12/31/98 Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.07 3,386,125 8.86 $ .07 905,842 $ .07
$.20 708,500 9.41 $ .20 325,000 $ .20
$.50 - $.80 480,500 9.51 $ .71 -- --
$1.25 - $1.50 1,539,650 9.70 $1.33 -- --
--------- ---------
6,114,775 9.18 $ .45 1,230,842 $ .10
========= =========
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB No. 25), Accounting for Stock Options Issued to Employees and related
interpretations in accounting for its employee stock options. Under APB No. 25,
compensation expense is recognized based on the amount by which the fair value
of the underlying common stock exceeds the exercise price of the stock options
at the measurement date, which in the case of employee stock options is
typically the date of grant. For financial reporting purposes, the Company has
determined that the deemed fair market value on the date of grant of employee
stock options was in excess of the exercise price of the options. As a result,
the Company recorded deferred compensation of $202,430 and $6,259,276, for the
period from May 16, 1997 to December 31, 1997 and for the year ended December
31, 1998, respectively. This amount was recorded as a reduction of
stockholders' equity and is being amortized as a charge to operations over the
vesting period of the applicable options.
During the period from inception to December 31, 1997 and the year ended
December 31, 1998, the Company recognized $29,473 and $843,519, respectively,
of stock compensation expense.
F-16
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SFAS No. 123, Accounting for Stock-Based Compensation, encourages adoption of
a fair value-based method for valuing the cost of stock-based compensation.
However, it allows companies to continue to use the intrinsic value method
under APB No. 25 for options granted to employees and disclose pro forma net
earnings and earnings per share in accordance with SFAS No. 123. Had
compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123, the Company's net earnings and
earnings per share would have been as follows:
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Net loss as reported............................ $(1,296,130) $(25,907,070)
Pro forma net loss.............................. (1,309,238) (26,395,384)
Net loss per share as reported, basic and
diluted ....................................... (0.13) (2.39)
Pro forma net loss per share, basic and
diluted........................................ (0.14) (2.44)
</TABLE>
The weighted average fair value of stock options granted during the period
from May 16, 1997 (date of inception) to December 31, 1997 and during the year
ended December 31, 1998 was $0.02 and $0.14, respectively.
The effects of applying SFAS No. 123 for the pro forma disclosures are not
representative of the effects expected on reported net earnings and earnings
per share in future years, since valuations are based on highly subjective
assumptions about the future, including stock price volatility and exercise
patterns.
The Company used the Black-Scholes option pricing model to determine the fair
value of grants made in 1997 and 1998. The following assumptions were applied
in determining the pro forma compensation cost:
<TABLE>
<CAPTION>
1997 1998
---- -----
<S> <C> <C>
Weighted average risk-free interest rate.......................... 5.7% 5.25%
Expected dividend yield........................................... 0% 0%
Expected option life in years..................................... 5 5
</TABLE>
Because the Company does not have actively traded equity securities,
volatility is not considered in determining the fair value of stock-based
awards to employees.
12.Employee Benefit Plan
In January 1997, the Company established the NorthPoint Communications 401(k)
plan (the Plan) which covers substantially all employees. Under the Plan,
employees are permitted to contribute up to 20% of gross compensation not to
exceed the annual 402(g) limitation for any plan year. Discretionary
contributions may be made by the Company as determined by the Board of
Directors. No contributions were made by the Company during 1997 and 1998.
13.Related Party Transactions
In 1997 and 1998, legal fees of approximately $76,804 and $114,831,
respectively, were paid to a law firm which, along with two partners of the
firm, is a Series B preferred stockholder in the Company.
A principal stockholder of the Company owns more than 10% of the capital
stock of a vendor of the Company. The Company's payments to the vendor for the
period from May 16, 1997 (date of inception) to December 31, 1997, and for the
year ended December 31, 1998 totaled approximately $203,000 and $8,490,467,
respectively.
F-17
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14.Subsequent Events
Common Stock
In January 1999, the Company increased the authorized number of shares of
common stock to 75,000,000.
From January 1, 1999 to February 24, 1999, the Company granted to certain
employees options to purchase an aggregate of 976,857 shares of common stock at
an exercise price of $1.50 to $14.00 per share. A compensation charge will be
recorded in connection with certain of these grants.
Pursuant to the terms of the Bridge Loan Agreement (Note 6), the Company has
issued an additional 42,857 common stock warrants. Total common stock warrants
issued through February 24, 1998 under the Bridge Loan Agreement are 1,192,857.
Preferred Stock
In January 1999, the Company declared a 1.889518-to-1 Series C preferred
stock split and increased the authorized number of shares of preferred stock to
35,761,600.
On February 19, 1999, the Company issued 16,762,381 shares of Series C
preferred stock at a price of $3.53 per share. In connection with the issuance
of Series C preferred stock the Company issued certain rights to holders of
47,085,560 shares of common stock issued or issuable upon conversion of Series
B preferred stock and Series C preferred stock or exercise of Bridge Warrants
and certain other outstanding options and warrants (collectively, the "Rights
Holders"). The Rights Holders are entitled to notification if the Company
proposes to register any of its or a holder's common stock under the Securities
Act. In addition, subject to certain conditions and limitations, they can also
require the Company to include their shares in such a registration, or a later
registration, or use its best efforts to cause such shares to be registered.
Certain other holders of warrants are entitled to an increase in the number
of their warrants under antidilution provisions. These provisions are expected
to cause the issuance of warrants to purchase approximately 227,000 shares of
common stock at a weighted average exercise price of $6.41 per share.
Credit Facility
In February 1999, the Company accepted a letter of commitment from two banks
under which the banks agreed to provide a five-year senior secured credit
facility consisting of (a) a $50,000,000 senior secured term loan facility and
(b) a $50,000,000 senior secured revolving credit facility that will convert
into a senior secured loan six months from the date of issuance. The Company
expects the senior secured facility to close in April 1999.
Joint Marketing Agreement
In February 1999, the Company entered into a DSL joint marketing development
agreement with a national Internet service provider. Under this agreement the
Internet service provider designated the Company as its preferred supplier in
certain markets, and has committed to achieving a certain number of end users
within a defined time period. In connection with this agreement, the Company
issued a subordinated convertible promissory note in the amount of $5.6 million
to this Internet service provider. This note converts into common stock in the
event of an initial public offering of the Company's stock or upon an earlier
sale of the Company at a conversion rate equal to the then outstanding
principal amount, plus accrued interest, of the note divided by the initial
price of the Company's common stock to the public or other sale price.
F-18
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NorthPoint Communications Holdings, Inc.
On February 24, 1999, the Board of Directors approved the merger of
NorthPoint Communications, Inc. with and into NorthPoint Merger Sub, Inc., a
wholly owned subsidiary of NorthPoint Communications Holdings, Inc. This
reorganization is expected to be completed in March, 1999.
F-19
<PAGE>
UNDERWRITING
NorthPoint and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., Morgan Stanley &
Co. Incorporated and Credit Suisse First Boston Corporation are the
representatives of the Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Morgan Stanley & Co. Incorporated...........................
Credit Suisse First Boston Corporation......................
---
Total.....................................................
===
</TABLE>
----------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from NorthPoint to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set
forth in the table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the underwriters by NorthPoint. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares.
<TABLE>
<CAPTION>
Paid by NorthPoint
------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total.............................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per share
from the initial public offering price. If all the shares are not sold at the
initial offering price, the representatives may change the offering price and
the other selling terms.
NorthPoint and NorthPoint's executive officers and directors and its largest
stockholders have agreed with the underwriters not to dispose of or hedge any
of their common stock or securities convertible into or exchangeable for shares
of common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of the representatives and except that (1) holders
of warrants outstanding on the date of this prospectus may exercise those
warrants and (2) we may issue our common stock or securities convertible into
or exchangeable for shares of our common stock in connection with strategic
relationships and acquisitions of businesses, technologies or products
complementary to those of ours, so long as the recipients of such securities
agree to be bound by a lock-up agreement for the remainder of the 180-day lock-
up period. The lock-up agreement by NorthPoint does not apply to any existing
employee benefit plans. The lock-up agreements by persons other than NorthPoint
cover an aggregate of shares. See "Shares Eligible for Future Sale" for a
discussion of certain transfer restrictions.
U-1
<PAGE>
Prior to this offering, there has been no public market for the shares. The
initial public offering price has been negotiated among NorthPoint and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be NorthPoint's historical performance, estimates of the
business potential and earnings prospects of NorthPoint, an assessment of
NorthPoint's management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
The common stock will be quoted on the Nasdaq National Market under the
symbol "NPNT."
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of common
stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq in
the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed five
percent of the total number of shares offered.
NorthPoint estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $ .
Certain of the underwriters or their affiliates have in the past and may in
the future provide investment banking or other services for the Company. In
July 1998, an affiliate of Morgan Stanley & Co. Incorporated made a $50,000,000
bridge loan to NorthPoint, and in February 1999 an affiliate of Goldman, Sachs
& Co. committed to provide half of a $100,000,000 secured credit facility to
NorthPoint. These are described in greater detail in "Management's Discussion
and Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources." NorthPoint paid or will pay fees and other considerations
in connection with these transactions.
NorthPoint has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
U-2
<PAGE>
APPENDIX
NORTHPOINT COMMUNICATIONS, INC.
GLOSSARY OF TERMS
ADSL (Asymmetrical Digital Subscriber Line)--A high speed transmission
technology using existing twisted pair lines that permits simultaneous POTS and
high speed data communication. A much higher data rate is employed downstream
than upstream.
Asynchronous Transfer Mode (ATM)--A protocol that segments digital
information into 53-byte cells (5-byte header and 48-byte payload) that are
switched throughout a network over virtual circuits. ATM can accommodate
multiple types of media (voice, video, data).
Bandwidth--Refers to the maximum amount of data that can be transferred
through a communication channel at a given time. It is usually measured in bits
per second for digital communication.
Broadband--A transmission channel that has a bandwidth greater than a voice-
grade line of 3 KHz. A broadband line can carry numerous voice, video and data
channels simultaneously through digital or analog signals.
CMSP--Cable Modem Service Provider such as @Home or Road Runner, Inc.
Central Office--ILEC facility where end user lines are terminated.
CLEC (Competitive Local Exchange Carrier)--Category of telephone service
provider (carrier) that offers services similar to those of the ILEC, as
allowed by recent changes in telecommunications law and regulation.
Collocation--A location serving as the interface point for a CLEC network's
interconnection to that of the ILEC. Collocation can be (1) physical, in which
the CLEC places and directly maintains equipment in the ILEC central office, or
(2) virtual, in which the CLEC leases space in the ILEC central office but the
equipment is owned and maintained by the ILEC.
CPE (Customer Premise Equipment)--Terminal equipment supplied by either the
customer or supplier, which is connected to the telecommunications network.
DSLAM (Digital Subscriber Line Access Multiplexer)--A platform that provides
for high-speed data transmission over traditional twisted-pair wiring.
DSL (Digital Subscriber Line)--The non-loaded, local-loop cooper connection
between the NSP and the customer premises. DSL provides high-speed digital data
access over twisted-pair wiring.
FCC (Federal Communications Commission)--The U.S. government agency charged
with the oversight of interstate communications originating in the U.S.
Frame Relay--A high-speed packet-switched data communications protocol.
GHz (Gigahertz)--One billion cycles per second.
G.lite--A specification to define a standard for a mass market version of
ADSL which is interoperable with full rate ADSL but is not as fast. The
specification is intended to reduce the installation complexity and cost of a
consumer DSL solution.
A-1
<PAGE>
ILEC (Incumbent Local Exchange Carrier)--The local exchange carrier that was
the monopoly carrier in a region, prior to the opening of local exchange
services to competition.
Interconnection (Co-Carrier) Agreement--A contract between an ILEC and a CLEC
for the interconnection of the two networks and CLEC access to ILEC UNEs. These
agreements set out the financial and operational aspects of such
interconnection and access.
ISP (Internet Service Provider)--A vendor that provides end users access to
the Internet.
ISDN (Integrated Services Digital Network)--Telecommunication service that
uses digital transmission and switching technology to provide voice and data
communications at speeds up to 144 Kbps.
IXC (Interexchange Carrier)--Facilities-based long distance/interLATA
carriers (e.g., AT&T, MCI WorldCom and Sprint), who also provide intraLATA toll
service.
Kbps (Kilobits per second)--One thousand bits per second.
KHz (Kilohertz)--One thousand cycles per second.
LMDS (Local Multipoint Distribution System)--A wireless two-way broadband
technology, operating in the 28-GHz and 31-GHz frequency bands, designed to
provide transmission of voice, high-speed data and video (wireless cable TV).
Local Loop--A generic term for the connection between the customer's premises
and the provider's serving central office.
Mbps (Megabits Per Second)--One million bits per second.
MMDS (Multi-channel Multiport Distribution System)--Also known as wireless
cable. MMDS is a delivery system that delivers up to 33channels of video
programming via microwave transmission. MMDS systems operate a band of radio
spectrum that ranges from 2.5 billion cycles a second to 7 billion. That band
can only be used for broadcast (one-way) communications.
NSP (Network Service Provider)--A collective term for Internet access service
providers (ISPs), broadband data service providers, long distance and local
exchange carriers.
OSS (Operations Support System)--A back office system that interfaces with
existing NSP provisioning, management, accounting and billing systems, and
provides a secure Web-based interface for order entry, order tracking, trouble-
ticketing, billing, network management, reporting and marketing support.
POTS (Plain Old Telephone Service)--Standard telephone service over the PSTN,
with an analog bandwidth of less than 4 Khz.
PSTN (Public Switched Telephone Network)--A network shared among many users
who can use telephones to establish connections between two points. Also known
as the dial network.
PUC (Public Utility Commission)--A state regulatory administrative body,
established in most states, which regulates utilities that include telephone
companies providing intrastate services. It is also known as Public Service
Commission.
A-2
<PAGE>
RBOCs (Regional Bell Operating Companies)--ILECs created by AT&T's
divestiture of its local exchange business. The remaining RBOCs include
BellSouth, Bell Atlantic Corporation, Ameritech Corporation, U S WEST
Communications, Inc. and SBC Communications, Inc.
SDSL (Symmetric Digital Subscriber Line)--A technology that provides high
bandwidth, bi-directional transmission over one copper wire pair for speeds up
to T1 services. SDSL is capable of accommodating applications that require
identical downstream and upstream speeds, such as video conferencing or
collaborative computing (i.e., remote LAN access).
T1--A digital transmission link with a capacity of 1.544 Mbps.
UNEs (Unbundled Network Elements)--The various portions of an ILEC's network
that a CLEC can lease for purposes of building a facilities-based competitive
network, including copper lines, central office collocation space, inter-office
transport, operational support systems, local switching and rights of way.
A-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 10
Use of Proceeds.......................................................... 27
Dividend Policy.......................................................... 27
Capitalization........................................................... 28
Dilution................................................................. 30
Selected Consolidated Financial Data..................................... 31
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 33
Business................................................................. 40
Management............................................................... 54
Principal Stockholders................................................... 62
Certain Transactions..................................................... 64
Shares Eligible for Future Sale.......................................... 65
Description of Capital Stock............................................. 66
Legal Matters............................................................ 70
Experts.................................................................. 70
Where You Can Find More Information...................................... 70
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
Appendix................................................................. A-1
</TABLE>
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
NorthPoint Communications Holdings, Inc.
Common Stock
------------
[LOGO]
------------
Goldman, Sachs & Co.
Morgan Stanley Dean Witter
Credit Suisse First Boston
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the Company in connection with the distribution of
the securities being registered are as set forth in the following table:
<TABLE>
<S> <C>
Securities and Exchange Commission Fee.............................. $34,750
NASD Filing Fee..................................................... 13,000
Nasdaq National Market Listing Fee..................................
*Legal Fees and Expenses............................................
*Accounting Fees and Expenses.......................................
*Printing Expenses..................................................
*Blue Sky Fees and Expenses.........................................
*Registrar and Transfer Agent Fees and Expenses.....................
*Miscellaneous......................................................
-------
*Total............................................................ $
=======
</TABLE>
- --------
* Estimated.
Item 14. Indemnification of Directors and Officers
As permitted by Section 145 of the Delaware General Corporation Law (the
"DGCL"), the Company's Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors to the Company or its
Stockholders for monetary damages for breach of fiduciary duty as a director.
In addition, as permitted by the DGCL, the Bylaws of the Company provide that
(1) the Company shall indemnify each of its directors and officers against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of the
Company; (2) the Company shall have the power to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the Company; (3)
expenses incurred in defending any action or proceeding for which
indemnification is required or permitted by the Bylaws shall be paid by the
Company in advance of final disposition of the action or proceeding upon
receipt of an undertaking by or on behalf of the indemnified party to repay
such amount if ultimately he is not entitled to indemnification; and (4) the
rights conferred in the Bylaws are not exclusive and the Company is authorized
to enter into indemnification agreements with its directors, officers and
employees. The Bylaws permit the Company to maintain director and officer
liability insurance on behalf of any person who is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, office, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the Company would have
the power or the obligation to indemnify him or her against such liability
under the indemnification provisions of the DGCL.
The Company has obtained a policy of directors' and officers' liability
insurance for its directors and officers to insure directors and officers
against the costs of defense, settlement or payment of a judgment under certain
circumstances.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
Since February 1996, the Registrant has issued and sold unregistered
securities as follows:
(1) The Company issued an aggregate of 16,762,381 shares of Series C
preferred stock in a private placement on February 19, 1999. The
consideration received for such shares was $59,171,204.93.
(2) The Company issued an aggregate of 680,169 (giving effect to a stock
split effected in connection with the February 1999 Series C preferred
stock issuance) shares of Series C preferred stock in a private placement
in August 1998 to Intel Corporation and Mr. Howell. The consideration
received for such shares was $2,400,996.57.
(3) The Company issued an aggregate of 566,855 (giving effect to a stock
split effected in connection with the February 1999 Series C preferred
stock issuance) shares of Series C preferred stock in a private placement
in July 1998 to At Home Corporation. The consideration received for such
shares was $2,000,998.15.
(4) The Company issued an aggregate of 16,382,921 shares of Series B
preferred stock in a private placement in August 1997 to Benchmark Capital
Partners, L.P., Benchmark Founder's Fund, L.P., Accel V. L.P., Accel
Internet/Strategic Technology Fund, L.P., Accel Keiretsu V L.P., Accel
Investors' 97 L.P., Ellmore C. Patterson Partners, Greylock lX Limited
Partnership, Stanford University, Messrs. Euske, Flood, Gregory, Malaga and
Monahan, VLG Investments and Ms. Chinn. The consideration received for such
shares was $11,045,000.33.
(5) The Company issued an aggregate of 50,000 shares of Series B
preferred stock in a private placement in October 1997 to Mr. Larango and
Ms. Zeichner, trustees of the Zeichner-Larango Family Trust, dated July 28,
1997. The consideration received for such shares was $33,708.89.
(6) The Company issued an aggregate of 17,800 shares of Series B
preferred stock in a private placement in December 1997 to Mr. Hall. The
consideration received for such shares was $12,000.36.
(7) The Company issued an aggregate of 5,820,000 shares of Series A
preferred stock in a private placement in June 1997 to Benchmark Capital
Partners, L.P., Benchmark Founder's Fund, L.P., Accel V. L.P., Accel
Internet/Strategic Technology Fund, L.P., Accel Keiretsu V. L.P., Accel
Investors' 97 L.P., Ellmore C. Patterson Partners, Greylock lX Limited
Partnership, Stanford University, Messrs. Euske, Flood, Gregory, Malaga and
Monahan, VLG Investments and Ms. Chinn. The consideration received for such
shares was $582,000.00. All of such shares of Series A preferred stock were
first sold to certain of the purchasers of Series B preferred stock and
then exchanged for certain of the shares of Series B preferred stock. Since
August 23, 1997, the Company has had no shares of Series A preferred stock
outstanding.
(8) From September 1997 through February 1999, the Company granted stock
options to purchase an aggregate of 7,296,007 shares of common stock to
employees, consultants and directors with exercise prices ranging from
$0.07 to $1.50 per share pursuant to the Company's 1997 Stock Option Plan.
No underwriters were used in connection with these sales and issuances. The
sales and issuances of these securities were exempt from registration under the
Securities Act pursuant to (1) Rule 701 promulgated thereunder on the basis
that these options were offered and sold either pursuant to a written
compensatory benefit plan or pursuant to written contracts relating to
consideration, as provided by Rule 701, or (2) Section 4(2) thereof, on the
basis that the transactions did not involve a public offering.
II-2
<PAGE>
Item 16. Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Fifth Amended and Restated Certificate of Incorporation of NorthPoint
Communications, Inc.*
3.2 Bylaws of NorthPoint Communications, Inc.*
4.1 Form of Specimen Common Stock Certificate of NorthPoint Communications,
Inc.
5.1 Opinion of Latham & Watkins.*
9.1 Amended and Restated Voting Agreement among NorthPoint Communications,
Inc. and certain of its stockholders, dated February 19, 1999.
10.1 1999 Equity Participation Plan of NorthPoint Communications, Inc.*
10.2 1997 Stock Option Plan of NorthPoint Communications, Inc.
10.3 Amended and Restated Series C Preferred Stock Purchase Agreement among
NorthPoint Communications, Inc. and certain of its stockholders, dated
January 20, 1999.
10.4 Third Amended and Restated Right of First Refusal and Co-Sale Agreement
among NorthPoint Communications, Inc. and certain of its stockholders,
dated February 19, 1999.
10.5 Fourth Amended and Restated Rights Agreement among NorthPoint
Communications, Inc. and certain of its stockholders, dated February 19,
1999.*
10.6 Side letter relating to the purchase of Series C preferred stock between
NorthPoint Communications, Inc. and Vulcan Ventures Incorporated, dated
February 19, 1999.
10.7 Side letter relating to the purchase of Series C preferred stock among
NorthPoint Communications, Inc. and certain of its stockholders, dated
February 19, 1999.
10.8 Side letter relating to mirror warrants among NorthPoint Communications,
Inc. and certain of its stockholders, dated February 19, 1999.
10.9 Series B Preferred Stock Purchase Agreement among NorthPoint
Communications, Inc. and certain of its stockholders, dated August 13,
1997.*
10.10 Second Series B Preferred Stock Purchase Agreement among NorthPoint
Communications, Inc. and certain of its stockholders, dated August 13,
1997.*
10.11 Board Observer Agreement between NorthPoint Communications, Inc. and
Intel Corporation, dated August 26, 1998.
10.12 Subordinated Convertible Promissory Note made by NorthPoint
Communications, Inc. in favor of Verio, Inc., dated February 1999.*
10.13 Note Purchase Agreement between NorthPoint Communications, Inc. and
Morgan Stanley Senior Funding, Inc., dated July 10, 1998.*
10.14 Form of Indemnification Agreement.
10.15 Series C Preferred Stock Purchase Warrant Agreement between NorthPoint
Communications, Inc. and Intel Corporation, dated August 26, 1998.
10.16 Side letter relating to information rights between NorthPoint
Communications, Inc. and Intel Corporation, dated January 19, 1999.
10.17 Addendum to Series C Preferred Stock Purchase Agreement among NorthPoint
Communications, Inc. and certain of its stockholders, dated August 26,
1998.
10.18 Subscription Agreement between NorthPoint Communications, Inc. and CNA
Trust FBO Michael W. Hall, dated December 31, 1997.
10.19 401(k) Plan of NorthPoint Communications, Inc.*
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
11.1 Statement regarding Computation of Per Share Earnings.
21 Subsidiaries.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Latham & Watkins (included in Exhibit 5.1).*
24.1 Powers of Attorney (contained on the signature page of this
Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
Item 17. Undertakings
The undersigned hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of San Francisco, state of
California, on February 26, 1999.
NORTHPOINT COMMUNICATIONS, INC.
/s/ Michael W. Malaga
By: _________________________________
Michael W. Malaga
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint Henry P. Huff and Steven J. Gorosh,
and each of them, with full power of substitution and full power to act without
the other, his true and lawful attorney-in-fact and agent to act for him in his
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file this Registration Statement, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in order to effectuate the same as fully, to
all intents and purposes, as they or he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by each of the following persons in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael W. Malaga President, Chief Executive February 26, 1999
____________________________________ Officer and Director
Michael W. Malaga (Principal Executive
Officer)
/s/ Henry P. Huff Chief Financial Officer and February 26, 1999
____________________________________ Vice President, Finance
Henry P. Huff (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Robert K. Dahl Director February 26, 1999
____________________________________
Robert K. Dahl
/s/ Reed H. Hundt Director February 26, 1999
____________________________________
Reed H. Hundt
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Andrew S. Rachleff Director February 26, 1999
____________________________________
Andrew S. Rachleff
/s/ Dino J. Vendetti Director February 26, 1999
____________________________________
Dino J. Vendetti
/s/ J. Peter Wagner Director February 26, 1999
____________________________________
J. Peter Wagner
/s/ Frank D. Yeary Director February 26, 1999
____________________________________
Frank D. Yeary
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Fifth Amended and Restated Certificate of Incorporation of NorthPoint
Communications, Inc.*
3.2 Bylaws of NorthPoint Communications, Inc.*
4.1 Form of Specimen Common Stock Certificate of NorthPoint
Communications, Inc.
5.1 Opinion of Latham & Watkins.*
9.1 Amended and Restated Voting Agreement among NorthPoint Communications,
Inc. and certain of its stockholders, dated February 19, 1999.
10.1 1999 Equity Participation Plan of NorthPoint Communications, Inc.*
10.2 1997 Stock Option Plan of NorthPoint Communications, Inc.
10.3 Amended and Restated Series C Preferred Stock Purchase Agreement among
NorthPoint Communications, Inc. and certain of its stockholders, dated
January 20, 1999.
10.4 Third Amended and Restated Right of First Refusal and Co-Sale
Agreement among NorthPoint Communications, Inc. and certain of its
stockholders, dated February 19, 1999.
10.5 Fourth Amended and Restated Rights Agreement among NorthPoint
Communications, Inc. and certain of its stockholders, dated February
19, 1999.*
10.6 Side letter relating to the purchase of Series C preferred stock
between NorthPoint Communications, Inc. and Vulcan Ventures
Incorporated, dated February 19, 1999.
10.7 Side letter relating to the purchase of Series C preferred stock among
NorthPoint Communications, Inc. and certain of its stockholders, dated
February 19, 1999.
10.8 Side letter relating to mirror warrants among NorthPoint
Communications, Inc. and certain of its stockholders, dated February
19, 1999.
10.9 Series B Preferred Stock Purchase Agreement among NorthPoint
Communications, Inc. and certain of its stockholders, dated August 13,
1997.*
10.10 Second Series B Preferred Stock Purchase Agreement among NorthPoint
Communications, Inc. and certain of its stockholders, dated August 13,
1997.*
10.11 Board Observer Agreement between NorthPoint Communications, Inc. and
Intel Corporation, dated August 26, 1998.
10.12 Subordinated Convertible Promissory Note made by NorthPoint
Communications, Inc. in favor of Verio, Inc., dated February 1999.*
10.13 Note Purchase Agreement between NorthPoint Communications, Inc. and
Morgan Stanley Senior Funding, Inc., dated July 10, 1998.*
10.14 Form of Indemnification Agreement.
10.15 Series C Preferred Stock Purchase Warrant Agreement between NorthPoint
Communications, Inc. and Intel Corporation, dated August 26, 1998.
10.16 Side letter relating to information rights between NorthPoint
Communications, Inc. and Intel Corporation, dated January 19, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.17 Addendum to Series C Preferred Stock Purchase Agreement among
NorthPoint Communications, Inc. and certain of its stockholders,
dated August 26, 1998.
10.18 Subscription Agreement between NorthPoint Communications, Inc. and CNA
Trust FBO Michael W. Hall, dated December 31, 1997.
10.19 401(k) Plan of NorthPoint Communications, Inc.*
11.1 Statement regarding Computation of Per Share Earnings.
21 Subsidiaries.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Latham & Watkins (included in Exhibit 5.1).*
24.1 Powers of Attorney (contained on the signature page of this
Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 4.1
Number [CertificateNumber] *[NumberShares]* Shares
NORTHPOINT COMMUNICATIONS, INC.
A Delaware Corporation
THIS CERTIFIES THAT [ShareholderName] is the record holder of
[SharesSpelled] ([NumberShares]) shares of Common Stock of NorthPoint
Communications, Inc. transferable only on the books of the Corporation by the
holder, in person, or by duly authorized attorney, upon surrender of this
certificate properly endorsed or assigned.
This certificate and the shares represented hereby are issued and shall be
held subject to all the provisions of the Certificate of Incorporation and the
Bylaws of the Corporation and any amendments thereto, to all of which the holder
of this certificate, by acceptance hereof, assents.
A statement of all of the rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes and/or series of shares of
stock of the Corporation and upon the holders thereof may be obtained by any
stockholder upon request and without charge, at the principal office of the
Corporation, and the Corporation will furnish any stockholder, upon request and
without charge, a copy of such statement.
WITNESS the Seal of the Corporation and the signatures of its duly authorized
officers this [Day] day of [Month], 19[Year].
- ---------------------------------- -----------------------------------
Steven Gorosh, Secretary Michael Malaga, President
<PAGE>
FOR VALUE RECEIVED HEREBY SELL,
---------------------------------------------
ASSIGN AND TRANSFER UNTO SHARES
-----------------------------------------------
REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT ATTORNEY TO TRANSFER THE SAID SHARES ON THE
----------------------------
SHARE REGISTER OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION
IN THE PREMISES.
DATED , 19
------------ --
--------------------------------------
(Signature)
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE,
DISTRIBUTION OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY
OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND
THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE
IS SO EXEMPT.
<PAGE>
EXHIBIT 9.1
NORTHPOINT COMMUNICATIONS, INC.
AMENDED AND RESTATED VOTING AGREEMENT
-------------------------------------
This Amended and Restated Voting Agreement (the "Agreement") is made and
---------
entered into as of the 19th day of February, 1999, by and among NorthPoint
Communications, Inc., a Delaware corporation (the "Company"), William J. Euske,
-------
Robert Flood, Steven Gorosh, Nathan Gregory, Michael Malaga and Timothy Monahan
(collectively, the "Founders" and individually, a "Founder"), the holders of
-------- -------
shares of Series B Preferred Stock of the Company (the "Series B Investors") and
------------------
the holders of shares of Series C Preferred Stock of the Company (the "Series C
--------
Investors" and collectively with the Series B Investors, the "Investors" and
- --------- ---------
individually, an "Investor").
--------
RECITALS
--------
1. The Company, the Founders and the Series B Investors entered into a
Voting Agreement dated as of August 13, 1997 (the "Original Agreement").
------------------
2. The Company and the Series C Investors have entered into an Amended and
Restated Series C Preferred Stock Purchase Agreement (the "Purchase Agreement")
------------------
dated January 20, 1999 pursuant to which the Company has sold or desires to
sell to the Series C Investors and the Series C Investors have purchased or
desire to purchase from the Company shares of the Company's Series C Preferred
Stock. A condition to the Series C Investors' obligations under the Purchase
Agreement is that the Company, the Founders and the Investors enter into this
Agreement for the purpose of setting forth the terms and conditions pursuant to
which the Investors and the Founders shall vote their shares of the Company's
voting stock in favor of certain designees to the Company's Board of Directors.
The Company, the Investors and the Founders each desire to facilitate the voting
arrangements set forth in this Agreement, and the sale and purchase of shares of
Series C Preferred Stock pursuant to the Purchase Agreement by amending and
restating the Original Agreement as set forth herein.
AGREEMENT
---------
The parties hereby agree as follows:
1. Board Representation.
--------------------
(a) Series B Investors. With respect to the three (3) members of the
------------------
Company's Board of Directors the Company's Certificate of Incorporation provides
are to be elected by the holders of Series B Preferred Stock voting together as
a single class on an as-converted basis, the Investors agree to vote or act with
respect to their shares of Preferred Stock of the Company and to cause the
directors designated by each them to act so as to elect (or appoint to fill a
vacancy) one (1) member of the Company's Board of Directors designated by each
of (i) Accel Partners, (ii) Benchmark Capital and (iii) Greylock Management
Corporation (collectively, the "Series B Preferred Directors").
----------------------------
<PAGE>
(b) Series C Investors.
------------------
(i) With respect to the two (2) members of the Company's Board of
Directors the Company's Certificate of Incorporation provides are to be elected
by the holders of Series C Preferred Stock voting together as a single class on
an as-converted basis, the Investors agree to vote or act with respect to their
shares of Preferred Stock of the Company and to cause the directors designated
by each of them to act so as to elect (or appoint to fill a vacancy) one (1)
member of the Company's Board of Directors designated by each of (i) Carlyle-
NorthPoint Partners, L.P. and (ii) Vulcan Ventures Incorporated (collectively,
the "Series C Preferred Directors" and together with the Series B Preferred
----------------------------
Directors, the "Preferred Directors").
-------------------
(ii) If at any time during the term of this Agreement the Board of
Directors shall designate an executive committee or committee performing
substantially similar functions for any purposes, the Investors and the Founders
agree to cause the directors designated by each of them to act so as to elect or
appoint the director designated by Carlyle-NorthPoint Partners, L.P. as a member
of such executive or other committee.
(c) Founders. With respect to the one (1) member of the Company's Board of
--------
Directors the Company's Certificate of Incorporation provides is to be elected
by the holders of Common Stock (including Common Stock, if any, issued upon
conversion of Preferred Stock), the Founders and the Investors agree to vote or
act with respect to their shares of Common Stock of the Company and to cause the
directors designated by each of them to act so as to elect (or appoint to fill a
vacancy) the Company's Chief Executive Officer as a member of the Company's
Board of Directors (the "Common Director").
---------------
(d) Investors and Founders. The Investors and Founders agree to vote or
----------------------
act with respect to their shares of Common Stock and Preferred Stock and to
cause the directors designated by each of them to act so as to elect (or appoint
to fill a vacancy) any remaining members (or such other additional members of
the Board of Directors as are authorized by the Company's Bylaws) of the
Company's Board of Directors designated by agreement of sixty-six and two-thirds
percent (66 2/3%) of the Preferred Directors and Common Director as a group, who
shall have relevant experience in the industry in which the Company operates.
2. Change in Number of Directors. The Founders and the Investors will not
-----------------------------
vote for any amendment or change to the Bylaws or Certificate of Incorporation
of the Company providing for the election of more or less than eight (8)
directors, or any other amendment or change to the Bylaws or Certificate of
Incorporation of the Company inconsistent with the terms of this Agreement,
unless such amendment or change is unanimously approved by the Preferred
Directors and Common Director.
3. Legends. Each certificate representing shares of the Company's capital
-------
stock held by Founders or Investors shall be endorsed by the Company with a
legend reading as follows:
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT BY AND AMONG
THE COMPANY, THE FOUNDERS AND THE INVESTORS (A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES
THE PERSON ACCEPTING SUCH INTEREST SHALL BE
<PAGE>
DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID
VOTING AGREEMENT."
4. Termination. This Agreement shall terminate upon the earlier of (a) the
-----------
consummation of the Company's initial public offering on a firm underwriting
basis of any of its Common Stock, the public offering price of which is not less
than $5.75 per share (adjusted to reflect subsequent stock dividends, stock
splits, recapitalizations or similar transactions) and which results in
aggregate cash proceeds to the Company of at least $50,000,000 (net of
underwriting discounts and commissions), or (b) ten (10) years from the date
hereof.
5. Amendments; Waivers. Any term hereof may be amended or waived with the
-------------------
written consent of (i) the Company, (ii) holders of at least a majority of the
shares of Common Stock issuable or issued upon the conversion of the Company's
Series B Preferred Stock, (iii) holders of at least sixty-six and two-thirds
percent (66 2/3%) of the shares of Common Stock issuable or issued upon
conversion of the Company's Series C Preferred Stock, and (iv) holders of a
majority of the outstanding shares of Common Stock of the Company then owned by
the Founders as a group (or their respective successors and assigns). Any
amendment or waiver effected in accordance with this Section 5 shall be binding
upon the Company, the Investors and the Founders, and each of their respective
successors and assigns.
6. Notices. Any notice required or permitted by this Agreement shall be
-------
in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's address as set forth on the books of the Company, or as
subsequently modified by written notice.
7. Severability. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
8. Governing Law. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of law.
9. Counterparts. This Agreement may be executed in two (2) or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
10. Successors and Assigns. The terms and conditions of this Agreement
----------------------
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
<PAGE>
11. Attorney's Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements (including all fees, costs and expenses of appeals) in
addition to any other relief to which such party may be entitled.
12. Carlyle Entities One Investor. For purposes of this Agreement,
-----------------------------
Carlyle Partners II, L.P., a Delaware limited partnership, Carlyle Partners III,
L.P., a Delaware limited partnership, State Board of Administration of Florida,
Carlyle Investment Group, L.P., a Delaware limited partnership, Carlyle
International Partners II, L.P., a Cayman Islands limited partnership, Carlyle
International Partners III, L.P., a Cayman Islands limited partnership, C/S
International Partners, a Cayman Islands general partnership, Carlyle-NorthPoint
Partners, L.P., a Delaware limited partnership, Carlyle-NorthPoint International
Partners, L.P., a Cayman Islands limited partnership, Carlyle Venture Partners,
LP, a Cayman Islands limited partnership, Carlyle U.S. Venture Partners, LP, a
Delaware limited partnership, C/S Venture Partners, LP, a Cayman Islands limited
partnership and Carlyle Venture Coinvestment, LLC, a Delaware limited liability
company (collectively, the "Carlyle Entities") shall be considered as a single
Investor; provided, however, that the Company shall be protected in relying on
the instructions of, and notices received from, Carlyle-NorthPoint Partners,
L.P., a Delaware limited partnership, in connection with the exercise of any
rights or privileges of the Carlyle Entities hereunder.
13. Termination of Original Agreement. By execution of this Agreement
---------------------------------
below, the parties acknowledge and agree that the Original Agreement shall be
terminated and shall be of no further force or effect.
[Signature Page Follows]
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
COMPANY:
NORTHPOINT COMMUNICATIONS, INC.
By: /S/ NORTHPOINT COMMUNICATIONS, INC.
--------------------------
Title:
-----------------------
Address:
222 Sutter Street
7th Floor
San Francisco, CA 94108
INVESTORS:
BENCHMARK CAPITAL PARTNERS, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By:/S/ BENCHMARK CAPITAL PARTNERS, L.P.
------------------------------------
Member
BENCHMARK FOUNDERS' FUND, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By:/S/ BENCHMARK FOUNDERS' FUND, L.P.
----------------------------------
Member
ACCEL V L.P.
By: Accel V Associates L.L.C.
Its General Partner
By:/S/ ACCEL V L.P.
----------------
Managing Member
<PAGE>
ACCEL INTERNET/STRATEGIC TECHNOLOGY FUND L.P.
By: Accel Internet/Strategic Technology Fund Associates L.L.C.
Its General Partner
By:/S/ ACCEL INTERNET/STRATEGIC TECHNOLOGY FUND L.P.
-------------------------------------------------
Managing Member
ACCEL KEIRETSU V L.P.
By: Accel Keiretsu V Associates L.L.C.
Its General Partner
By:/S/ ACCEL KEIRETSU V L.P.
-------------------------
Managing Member
ACCEL INVESTORS `97 L.P.
By:/S/ ACCEL INVESTORS `97 L.P.
----------------------------
General Partner
ELLMORE C. PATTERSON PARTNERS
By:/S/ ELLMORE C. PATTERSON PARTNERS
---------------------------------
General Partner
GREYLOCK IX LIMITED PARTNERSHIP
By: Greylock IX GP Limited Partnership, its General Partner
By:/S/ GREYLOCK IX LIMITED PARTNERSHIP
-----------------------------------
General Partner
<PAGE>
WILLIAM EUSKE
/S/ WILLIAM EUSKE
- ---------------------------------------------
(Signature)
ROBERT FLOOD
/S/ ROBERT FLOOD
- ---------------------------------------------
(Signature)
STEVEN GOROSH
/S/ STEVEN GOROSH
- ---------------------------------------------
(Signature)
NATHAN GREGORY
/S/ NATHAN GREGORY
- ---------------------------------------------
(Signature)
MICHAEL MALAGA
/S/ MICHAEL MALAGA
- ---------------------------------------------
(Signature)
TIMOTHY MONAHAN
/S/ TIMOTHY MONAHAN
- ---------------------------------------------
(Signature)
<PAGE>
PAUL A. LARANGO AND ANN W. ZEICHNER,
TRUSTEES OF THE ZEICHNER-LARANGO FAMILY TRUST,
UDT, DATED JULY 28, 1997
By: Ann W. Zeichner, Trustee
/S/ PAUL A. LARANGO AND ANN W. ZEICHNER,
TRUSTEES OF THE ZEICHNER-LARANGO FAMILY TRUST,
UDT, DATED JULY 28, 1997
- ---------------------------------------------
(Signature)
AT HOME CORPORATION
By: /S/ AT HOME CORPORATION
----------------------------------------
----------------------------------------
(Print Name)
----------------------------------------
Title
<PAGE>
INTEL CORPORATION
By: /S/ INTEL CORPORATION
----------------------------------------
(Print Name)
----------------------------------------
Title
/S/ Lawrence M. Howell
- --------------------------------
Lawrence M. Howell
VULCAN VENTURES INCORPORATED
By: /S/ VULCAN VENTURES INCORPORATED
----------------------------------------
----------------------------------------
(Print Name)
----------------------------------------
Title
NEWCOURT COMMERCIAL FINANCE CORPORATION
By: /S/ NEWCOURT COMMERCIAL FINANCE CORPORATION
-------------------------------------------
----------------------------------------
(Print Name)
----------------------------------------
Title
<PAGE>
1187415 ONTARIO INC.
By: /S/ 1187415 ONTARIO INC.
----------------------------------------
----------------------------------------
(Print Name)
----------------------------------------
Title
/S/ William Hiller
- -----------------------------------
William Hiller
THE DAHL FAMILY TRUST DATED OCTOBER 31, 1989,
AS AMENDED MAY 3, 1990
By: Robert K. Dahl as Trustee for the Dahl Family Trust
/S/ THE DAHL FAMILY TRUST DATED OCTOBER 31, 1989,
AS AMENDED MAY 3, 1990
- ---------------------------------------------
(Signature)
CHARLES ROSS PARTNERS
By: /S/ CHARLES ROSS PARTNERS
----------------------------------------
----------------------------------------
(Print Name)
----------------------------------------
Title
- -----------------------------------
Reed Hundt
LEAD VENTURES
By: /S/ LEAD VENTURES
----------------------------------------
----------------------------------------
(Print Name)
----------------------------------------
Title
<PAGE>
CNATRUST, TTEE FBO VENTURE LAW GROUP 401(K) PLAN MICHAEL W. HALL
By:
/S/ CNATRUST, TTEE FBO VENTURE LAW GROUP 401(K) PLAN MICHAEL W. HALL
- --------------------------------------------------------------------
(Signature)
THE SIERRA VENTURES MGMT. CO.
1989 DEFERRED SAVINGS PLAN FBO HENRY P. HUFF
By:
/S/ THE SIERRA VENTURES MGMT. CO.
1989 DEFERRED SAVINGS PLAN FBO HENRY P. HUFF
- ---------------------------------------------
(Signature)
EXETER CAPITAL PARTNERS IV, L.P.
By: Exeter IV Advisors, L.P.
By: Exeter IV Advisors, Inc.
By:/S/ EXETER CAPITAL PARTNERS IV, L.P.
------------------------------------------
Keith R. Fox, President
/S/ Mory Ejabat
- -----------------------------------
Mory Ejabat
/S/ Dino Vendetti
- -----------------------------------
Dino Vendetti
CARLYLE PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE PARTNERS II, L.P.
______________________________
Title: Managing Director
<PAGE>
CARLYLE PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE PARTNERS III, L.P.
______________________________
Title: Managing Director
STATE BOARD OF ADMINISTRATION OF FLORIDA
By: Carlyle Investment Management LLC
Its Manager
By: /S/ STATE BOARD OF ADMINISTRATION OF FLORIDA
____________________________________________
Title: Managing Director
CARLYLE INVESTMENT GROUP, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INVESTMENT GROUP, L.P.
__________________________________
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INTERNATIONAL PARTNERS II, L.P.
___________________________________________
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INTERNATIONAL PARTNERS III, L.P.
____________________________________________
Title: Managing Director
<PAGE>
C/S INTERNATIONAL PARTNERS
By: TC Group, L.L.C.
Its General Partner
By: /S/ C/S INTERNATIONAL PARTNERS
______________________________
Title: Managing Director
CARLYLE-NORTHPOINT PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE-NORTHPOINT PARTNERS, L.P.
_____________________________________
Title: Managing Director
CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
___________________________________________________
Title: Managing Director
CARLYLE VENTURE PARTNERS, LP
By: TCG Ventures, Limited
Its General Partner
By: /S/ CARLYLE VENTURE PARTNERS, LP
________________________________
Title: Attorney in Fact
CARLYLE U.S. VENTURE PARTNERS, LP
By: TCG Ventures, LLC
Its General Partner
By: /S/ CARLYLE U.S. VENTURE PARTNERS, LP
_____________________________________
Title: Managing Director
<PAGE>
C/S VENTURE PARTNERS, LP
By: TCG Ventures, Limited
Its General Partner
By: /S/ C/S VENTURE PARTNERS, LP
______________________________
Title: Attorney in Fact
CARLYLE VENTURE COINVESTMENT, LLC
By: TCG Ventures, LLC
Its Manager
By: /S/ CARLYLE VENTURE COINVESTMENT, LLC
_____________________________________
Title: Managing Director
FOUNDERS:
WILLIAM EUSKE
/S/ WILLIAM EUSKE
- ---------------------------------------------
(Signature)
ROBERT FLOOD
/S/ ROBERT FLOOD
- ---------------------------------------------
(Signature)
STEVEN GOROSH
/S/ STEVEN GOROSH
- ---------------------------------------------
(Signature)
NATHAN GREGORY
/S/ NATHAN GREGORY
- ---------------------------------------------
(Signature)
<PAGE>
MICHAEL MALAGA
/S/ MICHAEL MALAGA
- ---------------------------------------------
(Signature)
TIMOTHY MONAHAN
/S/ TIMOTHY MONAHAN
- ---------------------------------------------
(Signature)
<PAGE>
EXHIBIT 10.2
NORTHPOINT COMMUNICATIONS, INC.
1997 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1997 Stock Option Plan are
--------------------
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) or Section 4(b) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means NorthPoint Communications, Inc., a Delaware
-------
corporation.
(g) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not; provided, however, that if and in the
event the Company registers any class of any equity security pursuant to the
Exchange Act, the term Consultant shall thereafter not include directors who are
not compensated for their services or are paid only a director's fee by the
Company.
(h) "Continuous Status as an Employee or Consultant" means the absence
----------------------------------------------
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any
other leave of absence approved by the Administrator, provided that such leave
is for a period of not more than ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Subsidiaries or their respective
<PAGE>
successors. For purposes of this Plan, a change in status from an Employee to a
Consultant or from a Consultant to an Employee will not constitute an
interruption of Continuous Status as an Employee or Consultant.
(i) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company, with the
status of employment determined based upon such minimum number of hours or
periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee to a
director shall not be sufficient to constitute "employment" of such director by
the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the fair market value
-----------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but
not on the National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
for the last market trading day prior to the time of determination, as reported
in The Wall Street Journal or such other source as the Administrator deems
reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(n) "Option" means a stock option granted pursuant to the Plan.
------
(o) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(p) "Optionee" means an Employee or Consultant who receives an Option.
--------
<PAGE>
(q) "Parent" means a "parent corporation," whether now or hereafter
------ ------------------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(r) "Plan" means this 1997 Stock Option Plan.
----
(s) "Reporting Person" means an officer, director, or greater than ten
----------------
percent stockholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
(t) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as the same may be amended from time to time, or any successor provision.
(u) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(v) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(w) "Subsidiary" means a "subsidiary corporation," whether now or
---------- ----------------------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 7,500,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should
expire or become unexercisable for any reason without having been exercised in
full, the unpurchased Shares that were subject thereto shall, unless the Plan
shall have been terminated, become available for future grant under the Plan.
In addition, any shares of Common Stock which are retained by the Company upon
exercise of an Option in order to satisfy the exercise or purchase price for
such Option or any withholding taxes due with respect to such exercise shall be
treated as not issued and shall continue to be available under the Plan. Shares
repurchased by the Company pursuant to any repurchase right which the Company
may have shall not be available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which the
----------------------
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a committee appointed by the Board.
(b) Plan Procedure After the Date, if any, Upon Which the Company
-------------------------------------------------------------
Becomes Subject to the Exchange Act.
- -----------------------------------
(i) Multiple Administrative Bodies. If permitted by
------------------------------
Rule 16b-3, grants under the Plan may be made by different bodies with respect
to directors, non-director officers and Employees or Consultants who are not
Reporting Persons.
<PAGE>
(ii) Administration With Respect to Reporting Persons. With
------------------------------------------------
respect to grants of Options to Employees who are Reporting Persons, such grants
shall be made by (A) the Board if the Board may make grants to Reporting Persons
under the Plan in compliance with Rule 16b-3, or (B) a Committee designated by
the Board to make grants to Reporting Persons under the Plan, which Committee
shall be constituted in such a manner as to permit grants under the Plan to
comply with Rule 16b-3. Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board. From time to
time the Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies, however caused, and remove all members
of the Committee and thereafter directly make grants to Reporting Persons under
the Plan, all to the extent permitted by Rule 16b-3.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options to Employees or Consultants
- ---------
who are not Reporting Persons, the Plan shall be administered by (A) the Board
or (B) a Committee designated by the Board, which Committee shall be constituted
in such a manner as to satisfy the legal requirements relating to the
administration of incentive stock option plans, if any, of applicable corporate
and securities laws, of the Code and of any applicable Stock Exchange (the
"Applicable Laws"). Once appointed, such Committee shall continue to serve in
---------------
its designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option granted hereunder;
<PAGE>
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to construe and interpret the terms of the Plan and
Options granted under the Plan; and
(x) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options to participants who are foreign
nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs.
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
holders of Options.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options may be granted
--------------------
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option may, if he
or she is otherwise eligible, be granted additional Options.
(b) Type of Option. Each Option shall be designated in the written
--------------
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Company or any Parent
or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) Employment Relationship. The Plan shall not confer upon any
-----------------------
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with such
Optionee's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
<PAGE>
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Parent or Subsidiary, the per Share exercise price shall be no less than
one hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than eighty-five percent (85%) of the Fair Market Value per
Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note (subject to the provisions of Section 153 of the
Delaware General Corporation Law), (4) other Shares that (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender or such other period as may be
required to avoid a charge to the Company's earnings, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate
<PAGE>
exercise price of the Shares as to which such Option shall be exercised, (5)
authorization for the Company to retain from the total number of Shares as to
which the Option is exercised that number of Shares having a Fair Market Value
on the date of exercise equal to the exercise price for the total number of
Shares as to which the Option is exercised, (6) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price and any applicable income or employment taxes, (7) delivery of an
irrevocable subscription agreement for the Shares that irrevocably obligates the
option holder to take and pay for the Shares not more than twelve (12) months
after the date of delivery of the subscription agreement, (8) any combination of
the foregoing methods of payment, or (9) such other consideration and method of
payment for the issuance of Shares to the extent permitted under Applicable
Laws. In making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan; provided that such Option shall become exercisable at the rate of
at least twenty percent (20%) per year over five (5) years from the date the
Option is granted. In the event that any of the Shares issued upon exercise of
an Option should be subject to a right of repurchase in the Company's favor,
such repurchase right shall lapse at the rate of at least twenty percent (20%)
per year over five (5) years from the date the Option is granted.
Notwithstanding the above, in the case of an Option granted to an officer,
director or Consultant of the Company or any Parent or Subsidiary of the
Company, the Option may become fully exercisable, and a repurchase right, if
any, in favor of the Company shall lapse, at any time or during any period
established by the Administrator.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
<PAGE>
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment or Consulting Relationship. Subject to
----------------------------------------------------
Section 9(c), in the event of termination of an Optionee's Continuous Status as
an Employee or Consultant with the Company, such Optionee may, but only within
three (3) months (or such other period of time not less than thirty (30) days as
is determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option and not
exceeding three (3) months) after the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that the Optionee
was entitled to exercise it at the date of such termination. To the extent that
the Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate. No
termination shall be deemed to occur and this Section 9(b) shall not apply if
(i) the Optionee is a Consultant who becomes an Employee; or (ii) the Optionee
is an Employee who becomes a Consultant.
(c) Disability of Optionee.
----------------------
(i) Notwithstanding Section 9(b) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), such Optionee may, but only within twelve (12)
months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. To the extent that the Optionee was not
entitled to exercise the Option at the date of termination, or if the Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), such Optionee may, but only within six (6) months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option ("ISO") (within the meaning of Section
---
422 of the Code) within three (3) months of the date of such termination, the
Option will not qualify for ISO treatment under the Code. To the extent that the
Optionee was not entitled to exercise the Option at the date of termination, or
if the Optionee does not exercise such Option to the extent so entitled within
six months (6) from the date of termination, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Status as an Employee or Consultant since the
date of grant of the Option,
<PAGE>
or within thirty (30) days following termination of an Optionee's Continuous
Status as an Employee or Consultant, the Option may be exercised, at any time
within six (6) months following the date of death (but in no event later than
the expiration date of the term of such Option as set forth in the Option
Agreement), by such Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of death or, if earlier, the date
of termination of Optionee's Continuous Status as an Employee or Consultant. To
the extent that the Optionee was not entitled to exercise the Option at the date
of death or termination, as the case may be, or if the Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall comply
----------
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash or check payment, or (b) out of the Optionee's
current compensation, (c) if permitted by the Administrator, in its discretion,
by surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six (6)
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than the Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option, if any, that number of
Shares having a fair market value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
--------
Any surrender by a Reporting Person of previously owned Shares to satisfy
tax withholding obligations arising upon exercise of this Option must comply
with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
<PAGE>
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option is exercised but such Optionee
shall be unconditionally obligated to tender back to the Company the proper
number of Shares on the Tax Date.
11. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or that have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination, recapitalization or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale of all
------------------------
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's stockholders, each outstanding Option shall be assumed or an
equivalent option or right shall be substituted by such successor corporation or
a parent or subsidiary of such successor corporation, unless the successor
corporation does not agree to assume the Option or to substitute an equivalent
option, in which case such Option shall terminate upon the consummation of the
merger or sale of assets; provided, however, that the Administrator may
determine, in the exercise of its sole discretion,
<PAGE>
that the Optionee shall have the right to exercise the Option as to some or all
of the Optioned Stock, including Shares as to which the Option would not
otherwise be exercisable.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
12. Non-Transferability of Options. Options may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised or purchased
during the lifetime of the Optionee only by the Optionee.
13. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board;
provided, however, that in the case of any Incentive Stock Option, the grant
date shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Authority to Amend or Terminate. The Board may at any time amend,
-------------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of any Stock Exchange), the Company shall obtain stockholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options already granted, unless mutually
agreed otherwise between the Optionee and the Board, which agreement must be in
writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any Stock Exchange.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares
<PAGE>
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by law.
16. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. Agreements. Options shall be evidenced by written agreements in such
----------
form as the Administrator shall approve from time to time.
18. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any Stock Exchange upon which the Common Stock is listed. All Options
issued under the Plan shall become void in the event such approval is not
obtained.
19. Information and Documents to Optionees. The Company shall provide
--------------------------------------
financial statements at least annually to each Optionee during the period such
Optionee has one or more Options outstanding, and in the case of an individual
who acquired Shares pursuant to the Plan, during the period such individual owns
such Shares. The Company shall not be required to provide such information if
the issuance of Options under the Plan is limited to key employees whose duties
in connection with the Company assure their access to equivalent information.
In addition, at the time of issuance of any securities under the Plan, the
Company shall provide to the Optionee a copy of the Plan and a copy of any
agreement(s) pursuant to which securities granted under the Plan are issued.
<PAGE>
EXHIBIT 10.3
NORTHPOINT COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
January 20, 1999
- --------------------------------------------------------------------------------
<PAGE>
NORTHPOINT COMMUICATIONS, INC.
AMENDED AND RESTATED SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Amended and Restated Series C Preferred Stock Purchase Agreement is
made as of January 20, 1999 by and among NorthPoint Communications, Inc., a
Delaware corporation (the "Company") and the parties listed on Attachment 1 to
------- ------------
this Agreement (each, a "Purchaser" and collectively, the "Purchasers").
--------- ----------
RECITALS
--------
1. The Company and certain of the Purchasers (the "Original Purchasers")
-------------------
entered into a Series C Preferred Stock Purchase Agreement dated as of June 26,
1998 (the "Original Purchase Agreement").
----------------------------
2. The Company and the Original Purchasers each desire to facilitate the
sale and purchase of additional shares of Series C Preferred Stock by amending
and restating the Original Agreement as set forth herein.
3. The Purchasers other than the Original Purchasers desire to purchase
from the Company, and the Company desires to sell to such Purchasers, additional
shares of the Company's Series C Preferred Stock.
AGREEMENT
---------
The parties hereby agree as follows:
SECTION 1
Authorization and Sale of Series C Preferred Stock
--------------------------------------------------
1.1 Authorization. The Company has authorized or will authorize the sale
-------------
and issuance of up to 18,198,413 shares of its Series C Preferred Stock (the
"Shares" or "Series C Preferred"), having the rights, privileges and preferences
- ------- ------------------
as set forth in the Fifth Amended and Restated Certificate of Incorporation (the
"Restated Certificate") in the form attached to this Agreement as Exhibit A.
-------------------- ---------
1.2 Sale of Series C Preferred. Subject to the terms and conditions of
--------------------------
this Agreement, each Purchaser, severally, has purchased or agrees to purchase
at the First, Second or Third Closing (as defined below), as set forth on
Attachment 1, and the Company has sold and issued or agrees to sell and issue to
- ------------
each Purchaser, at the First, Second or Third Closing, as applicable, the number
of shares of the Company's Series C Preferred set forth opposite such
Purchaser's name on Attachment 1 at a purchase price of $3.53 per Share.
------------
<PAGE>
SECTION 2
Closing Dates; Delivery
-----------------------
2.1 Closing Dates. The first closing of the purchase and sale of the
-------------
Shares under this Agreement was held at the offices of Venture Law Group, A
Professional Corporation, 2800 Sand Hill Road, Menlo Park, California at 3:00
p.m., on June 26, 1998, (the "First Closing"). The second closing of the
-------------
purchase and sale of the Shares under this Agreement was held at the offices of
Venture Law Group, A Professional Corporation, 2800 Sand Hill Road, Menlo Park,
California at 3:00 p.m. on August 26, 1998 (the "Second Closing"). The third
--------------
closing of the purchase and sale of the Shares under this Agreement ("Third
-----
Closing") shall be held at the offices of Latham & Watkins, 135 Commonwealth
- -------
Drive, Menlo Park, California on the third business day following notice by the
Company to each of the Purchasers of the satisfaction of the condition set forth
in Section 5.11 of this Agreement, subject to the satisfaction of the conditions
to closing set forth in Sections 5 and 6 of this Agreement or the waiver thereof
by the party or parties entitled to waive any such conditions. Each of the
First Closing, the Second Closing and the Third Closing are referred to herein
as a "Closing," and the dates of each Closing are referred to herein as a
-------
"Closing Date."
- -------------
2.2 Delivery. At each Closing, the Company will deliver to each
--------
Purchaser, in addition to the other items to be delivered pursuant to Sections 5
and 6 of this Agreement, a certificate or certificates representing the number
of Shares to be purchased by such Purchaser at the Closing, against delivery to
the Company by such Purchaser of payment by check or wire transfer payable to
the Company in the amount set forth opposite such Purchaser's name on Attachment
----------
1.
- -
SECTION 3
Representations and Warranties of the Company
---------------------------------------------
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit B, the Company hereby represents and warrants to each of the Purchasers
- ---------
as follows:
3.1 Organization and Standing; Certificate and Bylaws. The Company is a
-------------------------------------------------
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of Delaware and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted and as proposed to
be conducted. The Company is qualified or licensed as a foreign corporation in
all jurisdictions where the nature of its business or property makes such
qualification or licensing necessary and where the failure to do so would have a
material adverse effect (financial or otherwise) on the business, property,
prospects, assets or liabilities of the Company. The Company has made available
to the Purchasers copies of its Certificate of Incorporation and Bylaws. Said
copies are true, correct and complete and contain all amendments, modifications
and restatements through the Closing Date.
3.2 Corporate Power. The Company has all requisite legal and corporate
---------------
power to execute and deliver this Agreement, to sell and issue the Shares
hereunder, to issue the Common
-2-
<PAGE>
Stock issuable upon conversion of the Shares and to carry out and perform its
obligations under the terms of this Agreement and the Related Documents (as
herein defined).
3.3 Capitalization. The authorized capital stock of the Company will
--------------
consist, immediately prior to the Third Closing, of: 75,000,000 shares of Common
Stock, of which 10,930,200 shares are issued and outstanding; and 35,761,600
shares of Preferred Stock, 17,563,187 of which have been designated Series B
Preferred Stock, 16,450,721 of which are issued and outstanding, and 18,198,413
shares of Series C Preferred Stock, 1,247,024 of which are issued and
outstanding (after giving effect to the stock split described in the Restated
Certificate). All issued and outstanding shares have been duly authorized and
validly issued, and are fully paid and nonassessable. The Company has reserved
17,563,187 shares of Common Stock for issuance upon conversion of the Series B
Preferred Stock and 18,198,413 shares of Common Stock for issuance upon
conversion of the Series C Preferred Stock. The Series C Preferred will have
the rights, preferences, privileges and restrictions set forth in the Restated
Certificate. All outstanding securities of the Company were issued in
compliance with applicable federal and state securities laws. The Company has
reserved 7,500,000 shares of Common Stock for issuance under a 1997 Stock Option
Plan approved and adopted by the Board of Directors of the Company on September
23, 1997. Options to purchase an aggregate of 6,744,181 shares of Common Stock
have been granted under the 1997 Stock Option Plan. Except as described above
or as set forth in the Third Amended and Restated Rights Agreement dated June
26, 1998, there are no preemptive rights, options or warrants or other
conversion privileges or rights presently outstanding to purchase any capital
stock of the Company. The Company is not obligated to repurchase any shares of
its capital stock or any other securities. Except for the Voting Agreement
dated August 13, 1997 and the Amended and Restated Voting Agreement in the form
attached hereto as Exhibit E (the "Voting Agreement"), the Company is not a
--------- ----------------
party to, or subject to, any agreement or understanding and, to the Company's
knowledge, there is no agreement or understanding between any person and/or
entities, which affects or relates to the voting or giving of written consents
with respect to any security of the Company or by any director of the Company.
3.4 Authorization. All corporate action on the part of the Company, its
-------------
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement, the Restated Certificate, the Fourth Amended
and Restated Rights Agreement in the form attached hereto as Exhibit C (the
---------
"Rights Agreement"), the Third Amended and Restated Right of First Refusal and
- -----------------
Co-Sale Agreement in the form attached hereto as Exhibit D (the "Co-Sale
--------- -------
Agreement"), the Voting Agreement and any other agreement, certificate,
- ---------
instrument or documents to be executed and delivered in connection therewith or
pursuant thereto (collectively, with the Rights Agreement, the Restated
Certificate, the Co-Sale Agreement and the Voting Agreement, the "Related
-------
Documents") by the Company, the authorization, sale, issuance and delivery of
- ---------
the Shares (and the Common Stock issuable upon conversion of the Shares) and the
performance of all of the Company's obligations under this Agreement and the
Related Documents has been taken. This Agreement and the Related Documents when
executed and delivered by the Company, shall constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms. The Shares, when issued in compliance with the provisions of the
Restated Certificate, will be validly issued and will be
-3-
<PAGE>
fully paid and nonassessable and will have the rights, preferences and
privileges described in the Restated Certificate. The shares of Common Stock
issuable upon conversion of the Shares have been duly and validly reserved and,
when issued in compliance with the provisions of the Restated Certificate, will
be validly issued, fully paid and nonassessable, and the Shares and such Common
Stock will be free of any liens or encumbrances other than those created by or
imposed upon the holders thereof through no action of the Company; provided,
however, that the Shares (and the Common Stock issuable upon conversion thereof)
may be subject to restrictions on transfer under state and/or federal securities
laws as set forth herein. The Shares are not subject to any preemptive rights or
rights of first refusal. No further corporate action on the part of the Company,
its directors or its stockholders is necessary in connection with the issuance
and delivery of the shares of Common Stock by the Company issuable upon
conversion of the Shares. The NorthPoint Communications, Inc. Detailed
Shareholder List as of Wednesday, December 30,1998, setting forth the list of
holders of record of all outstanding shares of capital stock and any other
securities convertible or exchangeable into any capital stock of the Company,
including, without limitation, any warrants or options to purchase Common Stock
or any such securities, previously delivered to counsel for the Purchasers, is a
true and accurate list of such record holders as of such date. The current
officers and directors of the Company are as set forth in Section 3.4 of the
Schedule of Exceptions.
3.5 Financial Statements. The Company has made available to the
--------------------
Purchasers its audited financial statements (including balance sheet, income
statement and statement of cash flows) as of December 31, 1997 and for the
fiscal year ended December 31, 1997 and its unaudited financial statements
(including balance sheet, income statement and statement of cash flows) as of
October 31, 1998 and for the ten-month period ended October 31, 1998
(collectively, the "Financial Statements"). The Financial Statements have been
--------------------
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated, except that the unaudited
Financial Statements may not contain all footnotes required by generally
accepted accounting principles. The Financial Statements fairly present the
financial condition and operating results of the Company as of the dates, and
for the periods, indicated therein. Except as set forth in the Financial
Statements, the Company has no material liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to October 31, 1998 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate are not
material to the financial condition or operating results of the Company.
3.6 Changes. Since October 31, 1998, there has not been:
-------
(a) any change in the business, assets, properties, liabilities,
condition (financial or otherwise), operating results or prospects of the
Company from that reflected in the Financial Statements, except changes in the
ordinary course of business that have not been, in the aggregate, materially
adverse;
-4-
<PAGE>
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, assets, properties,
liabilities, prospects, condition (financial or otherwise) or operating results
of the Company;
(c) any waiver (or partial waiver) or compromise by the Company of
a valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the business, properties, prospects or
financial condition of the Company;
(e) any change to a material contract, agreement or arrangement of
the Company by which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer or
key employee of the Company; and the Company is not aware of any impending
resignation or termination of employment of any such officer or key employee;
(i) any mortgage, pledge, transfer of a security interest in or
lien, created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(j) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances of expenses
made in the ordinary course of its business;
(k) any declaration, setting aside or payment or other distribution
in respect to any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by the Company;
(l) any receipt by the Company of notice that there has been a
cancellation of an order for its services or a loss of a customer of the
Company, the cancellation or loss of which would have a material adverse effect
on the business, assets, properties, liabilities, prospects, condition
(financial or otherwise) or operating results of the Company;
(m) any labor organization, activity or labor trouble;
(n) any change in the line of business of the Company;
(o) to the Company's knowledge, any other event or condition of any
character which has materially and adversely affected or could be reasonably
expected to
-5-
<PAGE>
materially and adversely affect, the business, assets, properties, liabilities,
prospects, condition (financial or otherwise) or operating results of the
Company; or
(p) any arrangement or commitment by the Company to do any of the
things described in this Section 3.6.
3.7 Patents and Other Intangible Assets. The Company has sufficient title
-----------------------------------
and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted
without any known conflict with or infringement of the rights of others. There
are no outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights and processes of any other person or entity. The Company has not received
any communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor the delivery of this Agreement, the Rights Agreement, the Co-Sale Agreement
or the Voting Agreement, nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business as proposed,
will, to the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company.
3.8 Compliance with Other Instruments, None Burdensome, Etc. The Company
-------------------------------------------------------
is not in violation, breach or default (with or without the passage of time and
giving of notice or both) of any term of its Certificate of Incorporation or
Bylaws, each as amended and in effect on and as of the Closing, or in any
material respect of any term or provision of any material mortgage,
indebtedness, indenture, contract, agreement, instrument, judgment or decree,
order, statute, rule, law or regulation applicable to the Company. The Company
is in compliance in all material respects with all judgments, decrees,
governmental orders, laws, statutes, rules and regulations by which it is bound
or to which it or any of its properties or assets is subject, except where the
failure to be in such compliance would not have a material adverse effect on the
business, assets, properties, liabilities, prospects, condition (financial or
otherwise) or operating results of the Company. The execution, delivery and
performance of and compliance with this Agreement and the Related Documents, and
the issuance of the Shares and the Common Stock issuable upon conversion of the
Shares, have not resulted and will not result in any violation of, or conflict
with, or constitute a breach or default (with or without the passage of time and
giving of notice or both) under, (a) the Restated Certificate or By-Laws of the
Company or (b) any
-6-
<PAGE>
material mortgage, indebtedness, indenture, contract, agreement, instrument,
judgment or decree, order, statute, rule, law or regulation applicable to the
Company or result in the creation of, any mortgage, pledge, lien, encumbrance or
charge upon any of the properties or assets of the Company; and there is no such
violation or default which materially and adversely affects the business of the
Company as conducted or as proposed to be conducted, or any of the Company's
properties or assets.
3.9 Litigation, Etc. There are no actions, suits, proceedings or
----------------
investigations pending against the Company or its properties (nor, to the best
of the Company's knowledge, against officers of the Company) before any court or
governmental agency (nor, to the best of the Company's knowledge, is there any
reasonable basis therefor or threat thereof), and none which questions the
validity of this Agreement, the Rights Agreement, the Co-Sale Agreement, the
Voting Agreement or any other Related Document or any action taken or to be
taken in connection herewith, nor is the Company aware that there is any basis
for the foregoing. The foregoing includes, without limitation, actions, suits,
proceedings or investigations pending or threatened (or any basis therefor known
to the Company) involving the prior employment of any of the Company's
employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
3.10 Employees. No employee or consultant of the Company is in violation
---------
of any term of any employment, employment contract, patent disclosure agreement
or any other contract or agreement relating to the relationship of any such
person with the Company or, to the Company's knowledge, with any other party
because of the nature of the business conducted or to be conducted by the
Company. To the Company's knowledge, each Employee Plan and Compensation
Arrangement has been administered in compliance with its own terms and in
material compliance with the provisions of ERISA, the Code and any other
applicable Federal or state laws. Neither the Company nor any ERISA Affiliate
is contributing to, is required to contribute to, or has contributed within the
last six (6) years to, any: (i) Employee Plan subject to Title IV of ERISA;
(ii) Employee Plan or Compensation Agreement that provides medical or death
benefit coverage to former employees of the Company, except to the extent
required by Section 4980B of the Code; or (iii) multiple employer welfare
arrangement as defined in ERISA Section 3(40). Except as otherwise disclosed in
Section 3.10 of the Schedule of Exceptions, the Company has not entered into any
agreement with any employee or director which provides for any payment upon the
occurrence of (i) any sale of stock or assets of the Company; (ii) any change of
control of the Company; or (iii) any registration of the Company's stock under
the Securities Act. Neither the execution and delivery of this Agreement and
the Related Documents nor the consummation of the transactions contemplated
hereby and thereby will (i) result in any material payment (including, without
limitation, severance or unemployment compensation) becoming due to any director
or employee of the Company; (ii) result in the acceleration of vesting under any
Employee Plan or Compensation Arrangement; or (iii) materially increase any
benefits otherwise payable under any Employee Plan; and any such payment or
increase in
-7-
<PAGE>
benefits is fully deductible under the Code, including but not limited to
Sections 162, 280G and 404. For purposes of this Agreement, the following terms
shall have the meaning indicated: (i) "Employee Plan" shall
-------------
mean any retirement or welfare plan or arrangement or any other employee benefit
plan as defined in Section 3(3) of ERISA to which the Company or any ERISA
Affiliate contributes or to which the Company or any ERISA Affiliate sponsors,
maintains or otherwise is bound; (ii) "Code" shall mean the Internal Revenue
----
Code of 1986, as amended, any successor thereto and any regulations promulgated
thereunder; (iii) "Compensation Arrangement" shall mean any plan or compensation
------------------------
arrangement other than an Employee Plan, whether written or unwritten, which
provides to employees, former employees, officers, directors and stockholders of
the Company or any ERISA Affiliate any compensation or other benefits, whether
deferred or not, in excess of base salary or wages, including, but not limited
to, any bonus or incentive plan, stock rights plan, deferred compensation
arrangement, life insurance, stock purchase plan, severance pay plan and any
other employee fringe benefit plan; (iv) "ERISA" shall mean the Employee
-----
Retirement Income Security Act of 1974, as amended, any successor thereto and
any regulations promulgated thereunder; and (v) "ERISA Affiliate" shall mean any
---------------
trade or business related to the Company under the terms of Sections 414(b),
(c), (m) or (o) of the Code.
3.11 Consent, Etc. No consent, approval, license or authorization of or
-------------
designation, declaration, registration or filing with any court or governmental
authority or any party to any Contract is required to be obtained by the Company
in connection with the valid execution and delivery of this Agreement and the
Related Documents, or the offer, sale or issuance of the Shares (and the Common
Stock issuable upon conversion of the Shares), or the consummation of any other
transaction contemplated by this Agreement and the Related Documents, except for
filing of the Restated Certificate in the office of the Secretary of State of
the State of Delaware and filing of such notice as required by Section 25102(f)
of the California Corporate Securities Law of 1968, and the compliance with
other applicable blue sky laws.
3.12 Offering. Subject to the accuracy of the Purchasers' representations
--------
in Section 4 of this Agreement, the offer, sale and issuance of the Shares to
be issued in conformity with the terms of this Agreement and the issuance of the
Common Stock to be issued upon conversion of the Shares, constitute transactions
exempt from the registration requirements of Section 5 of the Securities Act of
1933, as amended (the "Securities Act"). Neither the Company nor anyone acting
--------------
on its behalf has sold Shares or similar securities or will sell, offer to sell
or solicit offers to buy the Shares or similar securities to, or solicit offers
with respect thereto from, any Person so as to bring the issuance and sales of
the Shares and the shares of Common Stock issuable upon conversion of the Shares
under the registration provisions of the Securities Act and/or applicable state
securities laws.
3.13 Brokers or Finders; Other Offers. The Company has not incurred, and
--------------------------------
will not incur, directly or indirectly, as a result of any action taken by the
Company, any liability for brokerage or finders' fees or agents' commissions or
any similar charges in connection with this Agreement.
-8-
<PAGE>
3.14 Disclosure. The Company has fully provided the Purchasers with all
----------
the information that the Purchasers have requested for deciding whether to
purchase the Series C Preferred and all information that the Company believes is
reasonably necessary to enable the Purchasers to make such decision. None of
this Agreement, the Related Documents or the Exhibits attached hereto, any
certificate furnished or to be furnished to the Purchasers at the Closing or any
information provided by the Company to any Purchaser in connection with such
Purchaser's due diligence review of the Company contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made. There is no fact known to the Company
that has not been disclosed to the Purchasers in writing that materially
adversely affects or could materially adversely affect the business, assets,
properties, liabilities, prospects, condition (financial or otherwise) or
operating results of the Company.
3.15 No Conflict of Interest. The Company is not indebted, directly or
-----------------------
indirectly, to any of its officers, directors, or holders of 5% or more of the
equity or voting power of the Company or to their respective spouses, parents,
children or siblings or their respective affiliates, in any amount whatsoever.
None of said officers, directors or holders, or any members of their immediate
families or, to the best of the Company's knowledge, their respective
affiliates, are indebted, directly or indirectly, to the Company (other than in
connection with purchases of the Company's stock) or, to the best of the
Company's knowledge, have any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation which competes with the
Company except that officers, directors and/or stockholders of the Company may
own stock in publicly traded companies which may compete with the Company. To
the best of the Company's knowledge, no officer, director or holder of 5% or
more of the equity or voting power of the Company or any member of their
immediate families or any of their respective affiliates, is, directly or
indirectly, interested in any material contract with the Company. The Company
is not a guarantor or indemnitor of any indebtedness of any other person, firm
or corporation.
3.16 Subsidiaries. The Company does not presently own or control, directly
------------
or indirectly, any interest in any other corporation, association, or other
business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
3.17 Proprietary Information Agreements. Each employee, officer and
----------------------------------
consultant of the Company has executed a Confidential Information and Invention
Assignment Agreement in the form made available to the Purchasers. The Company,
after reasonable investigation, is not aware that any of its employees or
consultants is in violation thereof.
3.18 Outstanding Indebtedness. The Company has not (i) incurred any
------------------------
indebtedness in excess of $50,000, or (ii) sold, exchanged or otherwise disposed
of any of its assets or rights. Morgan Stanley Senior Funding, Inc. is the
registered holder of all Series A and Series B Senior Increasing Rate Notes due
July 15, 1999 (collectively, the "Notes") issued pursuant to the Note Purchase
-----
Agreement dated as of July 10, 1998 (the "Note Purchase Agreement").
-----------------------
-9-
<PAGE>
3.19 Agreements; Action. Except for agreements explicitly contemplated
------------------
hereby and by the Rights Agreement, the Co-Sale Agreement and Voting Agreement,
and except as set forth in the Third Amended and Restated Rights Agreement dated
June 26, 1998, the Second Amended and Restated Right of First Refusal and Co-
Sale Agreement dated June 26, 1998 and the Voting Agreement dated August 13,
1997, there are no agreements, understandings or proposed transactions between
the Company and any of its officers, directors, 5% or greater stockholders,
affiliates, immediate family members or, to the Company's knowledge, any
affiliate thereof, except for agreements with respect to the purchase of the
Company's securities by such persons.
There are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company is a
party or by which it is bound that may involve (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess of $50,000 individually or
in the aggregate, or (ii) the license of any patent, copyright, trade secret or
other proprietary right to or from the Company, or (iii) provisions restricting
or affecting the development, manufacture or distribution of the Company's
products or services, or (iv) indemnification by the Company with respect to
infringements of proprietary rights.
For the purposes of subsections (i) and (ii) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections.
The Company is not a party to and is not bound by any contract, agreement
or instrument, or subject to any restriction under its Restated Certificate or
Bylaws that adversely affects its business as now conducted or as proposed to be
conducted, its properties or its financial condition.
All material Contracts are legally valid and binding and in full force and
effect in all material respects, enforceable against the Company in accordance
with their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) to the extent the indemnification provisions
contained in the Rights Agreement may be limited by applicable federal or state
securities laws. The Company is in compliance with all material Contracts in
all material respects and is not in breach or default in any material respect
thereunder. The Company has not been notified by any party thereto of any such
party's intention or desire to terminate or modify in any material respect any
of such material Contracts nor does the Company have knowledge of a breach by
any party to such Contracts, or of any claim or threat that the Company has
breached any such Contracts.
3.20 Permits. The Company has all franchises, permits, licenses, and any
-------
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial
-10-
<PAGE>
condition of the Company, and the Company believes that it can obtain, without
undue burden or expense, any similar authority for the conduct of its business
as planned to be conducted. Without limiting the foregoing, the Company holds
currently valid certificates from the appropriate public utilities commissions
in the states identified in Section 3.20 of the Schedule of Exceptions necessary
and sufficient to permit it to conduct its business as currently conducted and
has applications pending in the states identified in Section 3.20 of the
Schedule of Exceptions that would be necessary to permit the Company to conduct
business in such states substantially as its business is currently conducted.
The Company is not currently conducting business in any state where it has not
obtained a valid certificate from the appropriate public utilities commission.
The Company is not in default in any material respect under any of such
franchises, permits, licenses, or other similar authority. The execution,
delivery and performance of and compliance with this Agreement and the Related
Documents, and the issuance of the Shares and the Common Stock issuable upon
conversion of the Shares, have not resulted in and will not result in
suspension, revocation, impairment, forfeiture or nonrenewal of any such
franchise, permit, license or similar authority.
3.21 Registration Rights and Voting Rights. Except as provided in the
-------------------------------------
Rights Agreement and in the Third Amended and Restated Rights Agreement dated
June 26, 1998, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity. To the Company's
knowledge, except as provided in the Voting Agreement and in the Voting
Agreement dated August 13, 1997, no stockholders of the Company have entered
into any agreements with respect to the voting of capital shares of the Company.
3.22 Corporate Documents. The Restated Certificate of Incorporation and
-------------------
Bylaws of the Company are in the forms made available to the Purchasers.
3.23 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens that arise in the ordinary course of business and do
not materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances and, to the best knowledge of
the Company, the other party to any such lease in not in material default
thereunder. The Real Property includes sufficient access to the facilities
necessary to conduct the operations of the Company in the manner in which they
are currently operated. There is no pending or, to the knowledge of the
Company, threatened condemnation or similar proceeding affecting any Real
Property. The use of the Real Property as currently used is in compliance with
applicable zoning and land-use laws in all material respects.
3.24 Insurance. The Company has in full force and effect fire, casualty
---------
and liability insurance policies issued by insurers of recognized
responsibility, with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed in the case of fire and casualty insurance and in such
amounts as are carried by companies in positions similar to the Company with
respect to liability
-11-
<PAGE>
insurance. The Company has not been refused any insurance coverage sought or
applied for, and the Company has no reason to believe that it will be unable to
renew its existing insurance coverage as and when the same shall expire upon
terms at least as favorable as those currently in effect, other than possible
increases in premiums that do not result from any act or omission of the
Company.
3.25 Minute Books. The copies of the minutes of the Company made
------------
available to the Purchasers contain a complete summary of all meetings of
directors and stockholders of the Company and all actions by written consent
without a meeting by the directors and stockholders since the time of
incorporation of the Company and reflect all transactions referred to in such
minutes accurately in all material respects.
3.26 Tariffs; Customer Contracts. The Company has filed tariffs, in
---------------------------
appropriate form, in each state in which it provides service to customers.
3.27 Taxes. The Company has filed or caused to be filed all required Tax
-----
Returns with the appropriate governmental agencies in all jurisdictions in which
such Tax Returns are required to be filed by the Company, and all Taxes shown on
such Tax Returns have been properly accrued or paid to the extent such Taxes
have become due. The Company has not executed any waiver or extensions of any
statute of limitations on the assessment or collection of any Tax or with
respect to any liability arising therefrom. None of the federal, state or local
income Tax Returns for the Company has been audited by any taxing authority,
including the United States Internal Revenue Service. For purposes of this
Section 3.27, "Taxes" means any federal, state, or local taxes, assessments,
-----
interest, penalties, deficiencies, fees and other governmental charges or
impositions; and "Tax Return" means any federal, state, or local tax return,
----------
report, statement and other similar filings required to be filed by the Company
with respect to Taxes.
3.28 Labor Agreements and Actions. The Company is not bound by or subject
----------------------------
to (and none of its assets or properties is bound by or subject to) any written
or oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the Company's knowledge, has
sought to represent any of the employees, representatives or agents of the
Company. The Company does not have any collective bargaining agreements covering
any of its employees. The Company is not aware that any officer or key employee,
or that any group of key employees, intends to terminate their employment with
the Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. The employment of each officer and employee
of the Company is terminable at the will of the Company. The Company has
complied with all applicable state and federal equal employment opportunity and
other laws related to employment. The Company does not have any deferred
compensation, pension, profit sharing, bonus, issuance, severance or other
similar employee benefit plan or obligation covering any of its employees or
plans subject to the Employee Retirement Income Security Act of 1974. The
Company does not have any agreements or arrangements with persons titled as
independent contractors or consultants, as a result of which, by virtue of the
control exercised by the Company, the type of work performed by the persons or
any other circumstances, said persons could reasonably be deemed to be employees
of the Company. The Company is not engaged in any unfair labor practice which
could adversely
-12-
<PAGE>
affect the business, earnings, prospects, properties or condition (financial or
otherwise) of the Company. There is (a) no unfair labor practice complaint
pending or, to the knowledge of the Company threatened, against the Company or
before the National Labor Relations Board which could adversely affect the
business, earnings, prospects, properties or condition (financial or otherwise)
of the Company and (b) no strike, labor dispute, slow down or stoppage is
pending or, to the knowledge of the Company, threatened against the Company. The
Company's relations with its employees are good.
3.29 Projections. All projections and expressions of opinion or
-----------
predictions relating to the future sales and financial performance of the
Company previously delivered to the Purchasers by the Company or its
representatives were made in good faith and prepared on a reasonable basis by
the Company. The Company knows of no facts or circumstances that as of the date
hereof or as of any Closing (other than general economic conditions) would
adversely affect the Company's ability to meet its projections.
3.30 Intentionally omitted.
3.31 Environmental. Neither the Company nor, to the best of the Company's
-------------
knowledge, any other Person has ever caused or permitted any Hazardous Material
to be disposed of on or under any real property owned, leased or operated by the
Company in any manner not permitted by all applicable laws and no such real
property has ever been used by the Company or, to the best of the Company's
knowledge, by any other Person as (a) a disposal site or permanent storage site
for any Hazardous Material or (b) a temporary storage site for any Hazardous
Material. All Hazardous Materials used or generated by the Company or, to the
best of the Company's knowledge, any business merged into or otherwise acquired
by the Company, have been generated, accumulated, stored, transported, treated,
recycled and disposed of in compliance with all applicable laws and regulations,
the violation of which has any reasonable likelihood of having a material
adverse effect on the business, assets, properties, liabilities, prospects,
condition (financial or otherwise) or operating results of the Company. Neither
this Agreement, the Related Documents nor the transactions contemplated hereby
and thereby will result in any obligations for site assessment or cleanup, or
notification to or consent of any governmental agency or third party under any
transaction-triggered Environmental Law known to the Company.
3.32 Interconnection Agreements. The Company has in full force and effect
--------------------------
legally valid and binding interconnection agreements with the incumbent local
exchange carriers ("ILECs") set forth in Section 3.32 of the Schedule of
-----
Exceptions pursuant to which the Company has the right to obtain sufficient
unbundled network elements to conduct its business as currently conducted,
including, without limitation, access to local loops. As of the date hereof, the
Company has obtained legally valid and binding agreements through, without
limitation, its interconnection agreements, master collocation agreements and
physical collocation tariffs currently on file at state or federal regulatory
agencies, to collocate equipment cages in 458 ILEC central offices, which are
sufficient for the Company to conduct its business as currently conducted. The
Company has ordered collocation for equipment cages at 159 ILEC central offices,
and has complied with the physical collocation application procedures and
-13-
<PAGE>
practices of each of the related ILECs in order to obtain such collocation which
will allow it to conduct its business in such cities in a manner substantially
similar to the manner in which its business is currently conducted.
SECTION 4
Representations, Warranties and Covenants of the Purchasers
-----------------------------------------------------------
4.1 Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby represents and warrants to the Company with respect to itself only and
not with respect to any other Purchaser with respect to the purchase of the
Shares to be purchased by it as follows:
(a) Experience. Purchaser has substantial experience in evaluating
----------
and investing in private placement transactions so that Purchaser is capable of
evaluating the merits and risks of Purchaser's investment in the Company.
Purchaser, by reason of its business or financial experience or the business or
financial experience of its professional advisors who are unaffiliated with and
who are not compensated by the Company or any affiliate or selling agent of the
Company, directly or indirectly, has the capacity to protect its own interests
in connection with the purchase of the Shares under this Agreement.
(b) Investment. Purchaser is acquiring the Shares and the
----------
underlying Common Stock for investment for Purchaser's own account, not as a
nominee or agent, and not with the view to, or for resale in connection with,
any distribution thereof. Purchaser understands that the Shares and the
underlying Common Stock have not been, and will not be, registered under the
Securities Act by reason of a specific exemption therefrom, and that any such
exemption would depend, among other things, upon the bona fide nature of the
investment intent and the accuracy of such Purchaser's representations as
expressed in this Agreement. Purchaser has not been formed for the specific
purpose of acquiring the Shares or the underlying Common Stock.
(c) Rule 144. Purchaser acknowledges that the Shares and the
--------
underlying Common Stock must be held indefinitely unless subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser is aware of the provisions of Rule 144 promulgated under the
Securities Act which permit limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things, the existence of a public market for the shares, the availability
of certain current public information about the Company, the resale occurring
not less than one year after a party has purchased and paid for the security to
be sold, the sale being effected through a "broker's transaction" or in
transactions directly with a "market maker" (as provided by Rule 144(f)) and the
number of shares being sold during any three-month period not exceeding
specified limitations.
(d) No Public Market. Purchaser understands that no public
----------------
market now exists for any of the securities issued by the Company, that the
Company has made no assurances that a public market will ever exist for the
Shares or the underlying Common Stock and that, even if such a public market
exists at some future time, the Company may not then be satisfying the current
public information requirements of Rule 144.
-14-
<PAGE>
(e) Access to Data. Purchaser and its representatives have met
--------------
with representatives of the Company and thereby have had the opportunity to ask
questions of, and receive answers from, said representatives concerning the
Company and the terms and conditions of this transaction as well as to obtain
any information requested by Purchaser. Any questions raised by Purchaser or its
representatives concerning the transaction have been answered to the
satisfaction of Purchaser and its representatives. Purchaser's decision to
purchase the Shares is based in part on the answers to such questions as
Purchaser and its representatives have raised concerning the transaction and on
its own evaluation of the risks and merits of the purchase and the Company's
proposed business activities. Notwithstanding the foregoing, no investigation
made by or on behalf of any Purchaser shall in any way affect any
representations, warranties, covenants or agreements made by the Company
pursuant to this Agreement and the Related Documents.
(f) Authorization. This Agreement when executed and delivered by
-------------
the Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
(g) Brokers or Finders. The Company has not incurred, and will not
------------------
incur, directly or indirectly, as a result of any action taken by the Purchaser
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement.
(h) Accredited Investor. Purchaser is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
SECTION 5
Conditions to Closing of Purchasers
-----------------------------------
Subject to Section 8.4 below, each Purchaser's obligations to purchase its
Shares at the Closing are, at the option of Purchasers of at least 66 2/3% of
the Series C Preferred Stock, subject to the fulfillment or waiver as of the
Closing Date of the following conditions (provided, however, that no Purchaser
shall be entitled to rely on the failure of any of such conditions to be
fulfilled if such failure is the result of a breach by such Purchaser of any of
its representations, warranties, covenants or agreements under this Agreement):
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 3 of this Agreement qualified by
materiality shall be true and correct and the representations and warranties
made by the Company in Section 3 of this Agreement not qualified by materiality
shall be true and correct in all material respects, in each case when made, and
on the Closing Date with the same force and effect as if they had been made on
and as of said date.
-15-
<PAGE>
5.2 Covenants. All covenants, agreements and conditions contained in this
---------
Agreement to be performed by the Company on or prior to the Closing Date shall
have been performed or complied with in all material respects.
5.3 Compliance Certificate. The Company shall have delivered to the
----------------------
Purchasers a certificate of the Company, executed by the President of the
Company, dated the Closing Date, and certifying, among other things, the
fulfillment of the conditions specified in Sections 5.1 and 5.2 of this
Agreement.
5.4 Blue Sky. The Company shall have obtained all necessary Blue Sky law
--------
permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the Shares and the Common Stock issuable upon
conversion of the Shares.
5.5 Certificate of Incorporation. Prior to the Third Closing, the
----------------------------
Restated Certificate shall have been filed with the Secretary of State of the
State of Delaware.
5.6 Rights Agreement. Prior to or at the Third Closing, the Company, the
----------------
holders of at least a majority of the outstanding shares of the Registrable
Securities (as defined in the Rights Agreement) and Morgan Stanley shall have
executed and delivered the Rights Agreement.
5.7 Opinions of Company Counsel. At the Closing, the Purchasers shall
---------------------------
have received (i) from Latham & Watkins, counsel for the Company, an opinion,
dated as of the Closing, in substantially the form of Exhibit F and (ii) from
---------
Steven Gorosh, Vice President and General Counsel of the Company, an opinion,
dated as of the Closing, in substantially the form of Exhibit G.
---------
5.8 Right of First Refusal and Co-Sale Agreement. Prior to the Third
--------------------------------------------
Closing, the Company, holders of a majority of the outstanding shares of Series
B Preferred Stock and Series C Preferred Stock, Morgan Stanley and the
Purchasers, and William Euske, Robert Flood, Steven Gorosh, Nathan Gregory,
Michael Malaga and Timothy Monahan shall have executed and delivered the Co-Sale
Agreement.
5.9 Voting Agreement. Prior to or at the Third Closing, the Company,
----------------
holders of a majority of the shares of Common Stock issuable or issued upon the
conversion of the Series B Preferred Stock and Series C Preferred Stock and
holders of a majority of the outstanding shares of Common Stock then owned by
the Founders as a group (or their respective successors or assigns) and the
Purchasers shall have executed and delivered the Voting Agreement.
5.10 Board of Directors. As of the Third Closing, the Board of Directors
------------------
of the Company shall be comprised of Robert Dahl, Roger Evans, Reed Hundt,
Michael Malaga, Andrew Rachleff, Dino Vendetti, Peter Wagner and Frank D. Yeary.
5.11 Newcourt Financing. At or prior to the Third Closing, the Company
------------------
and Newcourt Commercial Finance Corporation ("Newcourt") shall have executed and
--------
delivered a binding commitment letter providing for Newcourt or a syndicate of
lenders to lend the Company at least $100 million (the "Newcourt Loan"), on
-------------
terms and subject to conditions
-16-
<PAGE>
(including, without limitation, covenants and negative covenants and conditions
that no material disruption of or material adverse change in financial, banking
or capital market conditions generally affecting credit facilities similar to
the Newcourt Loan shall have occurred or be continuing) reasonably satisfactory
to Purchasers of at least 66 2/3% of the Shares; provided, however, that such
commitment letter and the Newcourt Loan shall not contain any provision
permitting Newcourt or such syndicate to change, alter, amend or delete any of
the terms or conditions of the Newcourt Loan in order to facilitate or enable
the syndication of all or any part of the commitments or loans thereunder or any
provision conditioning the Newcourt Loan on Newcourt's or such syndicate's
satisfactory completion of their due diligence review of the Company; provided
further, however, that the foregoing condition shall be deemed satisfied in the
event that Newcourt or such syndicate actually lends the Company at least $40
million under the Newcourt Loan based on a definitive loan agreement reasonably
satisfactory to Purchasers of at least 66 2/3% of the Shares.
5.12 Satisfactory Completion of Due Diligence. Each of the Purchasers
----------------------------------------
shall have satisfactorily completed its due diligence investigation and review
of the Company's business, properties, prospects and financial condition and
shall be satisfied with the results of that investigation and review.
5.13 Consents. The Company shall have obtained the Required Consents from
--------
the Georgia Public Service Commission and the New York Public Service
Commission.
5.14 Secretary's Certificate. The Company shall have delivered to the
-----------------------
Purchasers a certificate of the Company, executed by the Secretary or an
assistant secretary of the Company, dated the Closing Date, and certifying,
among other things, copies of resolutions of the stockholders and Board of
Directors of the Company authorizing and approving the execution and delivery by
the Company of this Agreement and the Related Documents, including, without
limitation, the issuance and sale of the Shares and the issuance of the shares
of Common Stock upon conversion of the Shares.
5.15 Minimum Investment. The Purchasers shall have tendered at the First
------------------
Closing, the Second Closing and the Third Closing aggregate consideration of not
less than $55,500,000 for purchase of the Shares, including at least
$1,499,999.37 from existing venture capital investors in the Company.
5.16 Directors' and Officers' Insurance. The Company shall have obtained
----------------------------------
a policy of directors' and officers' insurance in form and substance and from an
insurer, in each case, reasonably acceptable to the Majority Purchaser.
5.17 Original Purchasers. Each Original Purchaser shall have executed and
-------------------
delivered this Agreement.
5.18 Note Purchase Agreement Waiver. The Company shall have obtained a
------------------------------
waiver from the holders of all the Notes of any obligation under the Note
Purchase Agreement to redeem or repurchase any Notes as a result of the sale of
the Shares or the consummation of any of the transactions contemplated by this
Agreement or any of the Related Documents; provided,
-17-
<PAGE>
however, that that no such waiver shall be required in the event that the
closing of the Newcourt Loan occurs simultaneously with the Third Closing
hereunder and the proceeds of the Newcourt Loan are used to redeem or repurchase
the Notes in full and satisfy all of the Company's obligations under the Notes
and the Note Purchase Agreement.
5.19 Carlyle Side Letter Agreements. Prior to or at the Third Closing,
------------------------------
the Company and the Carlyle Entities shall have entered into two side letter
agreements in substantially the forms of Exhibit H and Exhibit I hereto.
--------- ---------
5.20 Vulcan Side Letter Agreement. Prior to or at the Third Closing, the
----------------------------
Company and Vulcan Ventures Incorporated shall have entered into a side letter
agreement in substantially the form of Exhibit J hereto.
---------
5.21 Final Date of Third Closing. The Third Closing shall have occurred
---------------------------
on or prior to the 90th day following execution of this Agreement by the Company
and the Purchasers; provided, however, that if this condition is not satisfied,
this Agreement shall terminate and the parties shall be free to pursue any
remedies they may have hereunder, at equity or at law.
SECTION 6
Conditions to Closing of Company
--------------------------------
The Company's obligation to sell and issue the Shares at the Closing is, at
the option of the Company, subject to the fulfillment or waiver of the following
conditions (provided, however, that the Company shall not be entitled to rely on
the failure of any of such conditions to be fulfilled if such failure is the
result of a breach by the Company of any of its representations, warranties,
covenants or agreements under this Agreement):
6.1 Representations. The representations made by the Purchasers in
---------------
Section 4 of this Agreement shall be true and correct when made, and shall be
true and correct on the Closing Date.
6.2 Blue Sky. The Company shall have obtained all necessary Blue Sky law
--------
permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the Shares and the Common Stock issuable upon
conversion of the Shares.
6.3 Certificate of Incorporation. Prior to the Third Closing, the
----------------------------
Restated Certificate shall have been filed with the Secretary of State of the
State of Delaware.
6.4 Covenants. Prior to or at the Third Closing, all covenants,
---------
agreements and conditions contained in this Agreement to be performed by the
Purchasers on or prior to the Closing Date shall have been performed or complied
with in all material respects.
6.5 Rights Agreement. The Purchasers shall have executed and delivered
----------------
the Rights Agreement.
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<PAGE>
SECTION 7
Covenants of the Company
------------------------
7.1 Information Rights. The Company hereby covenants and agrees as
------------------
follows:
The Company will mail by first class, postage prepaid the following
reports to the Purchasers:
(a) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company and in any
event within forty-five (45) days thereafter, a consolidated balance sheet of
the Company and its subsidiaries, if any, as of the end of each such quarterly
period, and consolidated statements of income and consolidated statements of
cash flows of the Company and its subsidiaries for such period and for the
current fiscal year to date, prepared in accordance with generally accepted
accounting principles consistently applied (other than for accompanying notes),
all in reasonable detail.
(b) As soon as practicable after the end of each fiscal month,
and in any event within thirty (30) days thereafter, an unaudited consolidated
balance sheet of the Company as at the end of such month, and unaudited
consolidated statements of income and unaudited consolidated statements of cash
flows for such month and for the current fiscal year to date. Such financial
statements shall be prepared in accordance with generally accepted accounting
principles consistently applied (other than accompanying notes), all in
reasonable detail.
(c) As soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget for the next fiscal year,
prepared on a monthly basis, including balance sheets, income statements and
statements of cash flows for such months and, as soon as prepared, any other
budgets or revised budgets prepared by the Company.
(d) In addition, each Purchaser holding 20% or more of the Series C
Preferred shall be entitled to attend one meeting each calendar quarter with the
Company's Chief Executive Officer and Chief Financial Officer, and other members
of senior management of the Company as reasonably requested by such Purchaser
for the purpose of reviewing the Company's business, operations, financial and
operating results and condition.
(e) The information rights set forth in this Section 7.1 may not be
transferred, except to an affiliate of a Purchaser which holds Shares, without
the prior written consent of the Company, not to be unreasonably withheld.
(f) The information rights set forth in this Section 7.1
shall terminate on and be of no further force or effect upon the earlier of (i)
the consummation of the Company's sale of its Common Stock in an underwritten
public offering pursuant to an effective registration statement filed under the
Securities Act (provided the per share public offering price is not less than
$5.75 (as adjusted to reflect subsequent stock dividends, stock splits,
recapitalizations or similar transactions) and which results in aggregate cash
proceeds to the Company of at least $50,000,000, net of underwriting discounts
and commissions), immediately subsequent to which the Company shall be obligated
to file annual and quarterly reports with the Commission
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<PAGE>
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or (ii) the registration by the Company of a class
------------
of its equity securities under Section 12(b) or 12(g) of the Exchange Act.
7.2 Protective Rights. If, after the date of the Third Closing, the
-----------------
Company grants to any holder of shares of the Company's Preferred Stock any
rights regarding anti-dilution protection on terms more favorable than those set
forth in the Restated Certificate, then the Company shall take such action as
may be necessary to grant the Purchasers such equivalent rights.
7.3 Other Actions.
-------------
(a) The Company shall take all actions necessary to fulfill the
conditions to closing to be fulfilled by it set forth in Section 5 of this
Agreement, including, without limitation, the permits, qualifications and
exemptions set forth in Section 5.4 and the Required Consents set forth in
Section 5.13, and shall refrain from taking any action that would prevent
satisfaction of any such condition;
(b) The Company shall provide the Majority Purchaser with copies of
all documents related to the Newcourt Loan as the Majority Purchaser shall
reasonably request and shall keep the Majority Purchaser apprised of all
material developments related to the negotiation, execution, delivery and
performance thereof and borrowings thereunder.
(c) The Company shall take all actions necessary to obtain the
consent of the New Jersey Board of Public Utilities Commission and the
Pennsylvania Public Service Commission to the execution and delivery of this
Agreement and the Related Documents and the consummation of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Shares to the Purchasers and the issuance of any shares of Common Stock upon
the conversion thereof.
7.4 Directors' and Officers' Insurance. At the request of the Majority
----------------------------------
Purchaser, the Company shall maintain directors' and officers' insurance issued
by insurers of recognized responsibility in such amounts and on such terms as
are carried by companies in positions similar to the Company and reasonably
acceptable to the Majority Purchaser.
7.5 Board Committees. In the event that the Company's Board of Directors
----------------
forms an Executive Committee, the member of the Company's Board of Directors
designated by the Majority Purchaser shall be appointed as a member of such
Executive Committee.
7.6 Consents. The Company shall effect the filing of the Restated
--------
Certificate in the office of the Secretary of State of the State of Delaware and
filing of such notice as required by Section 25102(f) of the California
Corporate Securities law of 1968, and the compliance with other applicable blue
sky laws within the applicable time periods therefor in accordance with
applicable law.
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<PAGE>
7.7 Proprietary Information Agreements. The Company will use its best
----------------------------------
efforts to prevent any violation by any of its employees or consultants of their
Confidential Information and Invention Assignment Agreements.
7.8 Tariffs. The Company will continue to file tariffs, in appropriate
-------
form, in each state in which it provides service to customers, to the extent
required by law.
7.9 Use of Proceeds. The Company shall use the proceeds from the sale of
---------------
the Shares for working capital and general corporate purposes, including, but
not limited to, acquisitions, joint ventures, strategic partnerships and
investments in businesses, products and technologies that are complimentary to
those of the Company (but excluding any acquisitions, joint ventures, strategic
partnerships and investments that are not consistent with the Company's business
plan as then in effect). The Company shall not use the proceeds from the sale
of the Shares to repay or redeem any indebtedness of the Company outstanding as
of the date hereof, including, without limitation, to redeem any outstanding
Notes, including, without limitation, pursuant to Section 7.3 of the Note
Purchase Agreement.
SECTION 8
Miscellaneous
-------------
8.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California.
8.2 Survival. The representations, warranties, covenants and agreements
--------
made in this Agreement shall survive the execution and delivery of this
Agreement and the Closing and shall in no way be limited, diminished or affected
by any investigation made by or on behalf of the Purchasers.
8.3 Successors and Assigns. Except as otherwise provided in this
----------------------
Agreement, the provisions of this Agreement shall inure to the benefit of, and
be binding upon, the successors, assigns, heirs, executors and administrators of
the parties to this Agreement; provided, however, that the right of any
Purchaser to purchase its Shares shall not be assignable, except to an affiliate
of such Purchaser, without the prior written consent of the Company.
8.4 Entire Agreement, Amendment. This Agreement and the other documents
---------------------------
delivered pursuant to this Agreement and in connection herewith, including the
Related Documents, at the Closing constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof, and supersede all prior agreements, and no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein. Except as
expressly provided in this Agreement, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought; provided, however, that holders of
at least 66 2/3% of the outstanding Series C Preferred Stock (or shares of
Common Stock issued upon conversion of such Shares) may, with the written
consent of the Company, waive, modify or amend on behalf of all holders, any
provisions hereof,
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<PAGE>
so long as the effect thereof will be that all such holders will be treated
equally and, provided, further, that Purchasers of at least 66 2/3% of the
Series C Preferred Stock, on behalf of all Purchasers, shall be entitled to
waive the condition set forth in Section 5.15 in their sole discretion and
without complying with any other limitations set forth in this Section 8.4 or
Section 5.
8.5 Notices, Etc. All notices and other communications required or
-------------
permitted under this Agreement shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, or otherwise delivered by hand,
by messenger or by facsimile (subsequently confirmed by telephone), addressed or
transmitted (a) if to a Purchaser, at such address or facsimile number as the
Purchaser shall have furnished to the Company in writing, or (b) if to any other
holder of any Shares, at such address or facsimile number as such holder shall
have furnished the Company in writing, or, until any such holder so furnishes an
address or facsimile number to the Company, then to and at the address or
facsimile number of the last holder of such Shares who has so furnished an
address or facsimile number to the Company, or (c) if to the Company, one copy
should be sent to its offices and addressed to the attention of the President,
or at such other address or facsimile number as the Company shall have furnished
to the Purchasers.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and postage prepaid as
aforesaid.
8.6 Delays or Omissions. Except as expressly provided in this Agreement,
-------------------
no delay or omission to exercise any right, power or remedy accruing to any
holder of any Shares, upon any breach or default of the Company under this
Agreement, shall impair any such right, power or remedy of such holder nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
8.7 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
-----------------------------------
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE
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RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
8.8 Expenses. At the Third Closing, the Company shall pay the reasonable
--------
fees and expenses of (i) TC Group, LLC and affiliates incurred with respect to
this Agreement, the documents referred to herein and the transactions
contemplated hereby and thereby, in an amount not to exceed $75,000, (ii) Dow
Lohnes & Albertson, PLLC incurred with respect to this Agreement, the documents
referred to herein and the transactions contemplated hereby and thereby, in an
amount not to exceed $20,000 and (iii) Gunderson, Dettmer, Stough, Villeneuve,
Franklin & Hachigian, LLP incurred with respect to this Agreement, the documents
referred to herein and the transactions contemplated hereby and thereby in an
amount not to exceed $20,000.
8.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
8.10 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
8.11 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
8.12 Further Assurances. Upon request of the Company or any of the
------------------
Purchasers, all parties hereto agree to promptly execute and deliver all such
other instruments and take all such other actions as any party hereto may
reasonably request from time to time in order to effectuate and carry out the
purposes, privileges, restrictions, rights and duties of the parties and the
other provisions of this Agreement and the Related Documents. Without limiting
the foregoing, until the consummation of the Third Closing, the Company shall
provide each Purchaser and its authorized representatives access to, and the
right to inspect and investigate, the Company and its books and records upon
reasonable notice and during normal business hours, and shall furnish or cause
to be furnished to each Purchaser and its authorized representatives all
information relating to the Company as it may reasonably request, such access
and inspection to be for purposes of allowing each Purchaser to complete its due
diligence review of the Company and not to unreasonably interfere with the
business or operations of the Company.
8.13 Specific Performance. The parties hereby declare that it is
--------------------
impossible to measure in money the damages which will accrue to a party hereto
by reason of a failure to perform any of the obligations under this Agreement
and that a breach hereof shall cause irreparable injury and, in addition to any
other right or remedy available to the parties hereto at law or in equity, any
injured party hereunder shall be entitled to enforcement by court injunction or
specific performance of the obligations of the parties hereunder, without the
necessity for positing a bond. Notwithstanding the foregoing sentence, nothing
herein shall be construed as prohibiting any injured party hereunder from also
pursuing any other rights or remedies for such breach or threatened breach,
including receiving damages and attorneys' fees. The election of any remedy
-23-
<PAGE>
shall not be construed as a waiver on the part of any injured party hereunder of
any right such party might otherwise have at law or in equity, which rights and
remedies shall be cumulative.
8.14 Defaulting Purchaser. Notwithstanding anything to the contrary
--------------------
contained in this Agreement, if, on the date of the Third Closing, any one or
more of the Purchasers shall fail or refuse to purchase the Shares that it has
agreed to purchase hereunder on such date, and the aggregate number of Shares
which such defaulting Purchaser or Purchasers agreed but failed or refused to
purchase on such date is not more than twenty-five percent (25%) of the
aggregate number of the Shares to be purchased on such date, the other
Purchasers which purchase Shares on such date may, but shall not be obligated,
severally, in the proportion that the number of Shares set forth opposite the
name of such Purchaser on Attachment 1 bears to the total number of Shares to be
------------
purchased by all Purchasers on such date, purchase the Shares which such
defaulting Purchaser or Purchasers agreed but failed or refused to purchase on
such date by delivering written notice to the Company of such Purchaser's
intention to purchase such Shares.
8.15 Defined Terms. For purposes of this Agreement:
-------------
(a) "Contracts" means all contracts, leases, non-governmental
---------
licenses, mortgages, evidences of indebtedness, indentures, instruments and
other agreements (including leases for personal or real property and employment
agreements), written or oral (including any amendments and other modifications
thereto) of the Company or to which the Company is a party or that are binding
upon the Company and that relate to or affect the business or operations of the
Company, and that are in effect on the date of this Agreement and on the Closing
Date.
(b) "Environmental Law" shall mean the Resource Conservation and
-----------------
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization
Act of 1986, the Federal Water Pollution Control Act, the Toxic Substances
Control Act and any other federal, state or local statue, regulation, ordinance,
order or decree relating to the environment, as now or hereafter in effect.
(c) "Hazardous Material" shall mean (i) any asbestos or insulation
------------------
or other material composed of or containing asbestos and (ii) any petroleum
product and any hazardous, toxic or dangerous waste, substance or material
defined as such in (or for purposes of) the Comprehensive Environmental
Response, Compensation and Liability Act, any so-called "Superfund" or
"Superlien" law, or any other Environmental Law, now or hereafter in effect.
(d) "Majority Purchaser" shall mean any one or more of the Carlyle
------------------
Entities (as defined in Section 8.17 below) and any of their respective
affiliates.
(e) "Real Property" means (a) all fee estates in real property, and
-------------
all buildings and other improvements thereon, owned, leased or held by the
Company that are used or useful in the business or operations of the Company;
and (b) leases of any real property under which the Company is the lessee that
are used or useful in the business or operations of the Company; together with
any additions thereto between the date of this Agreement and the Closing.
-24-
<PAGE>
(f) "Required Consents" shall mean those consents, approvals,
-----------------
licenses, authorizations, designations, declarations, registrations or filings
set forth in Section 3.11 of the Schedule of Exceptions.
8.16 Termination of Original Agreement. By execution of this Agreement
---------------------------------
below, the Company and the Original Purchasers acknowledge and agree that the
Original Agreement shall be terminated and shall be of no further force or
effect and hereby waive and release each other and the Purchasers participating
in the Third Closing from any claims, rights or obligations they may now or
hereafter have related to or arising from the Original Agreement; provided,
however, that, in consideration of the foregoing, the Original Purchasers shall
enjoy all of the rights and privileges of this Agreement as if this Agreement
had governed the purchase of the Shares by the Original Purchasers.
8.17 Carlyle Entities One Holder. For purposes of this Agreement, Carlyle
---------------------------
Partners II, L.P., a Delaware limited partnership, Carlyle Partners III, L.P., a
Delaware limited partnership, State Board of Administration of Florida, Carlyle
Investment Group, L.P., a Delaware limited partnership, Carlyle International
Partners II, L.P., a Cayman Islands limited partnership, Carlyle International
Partners III, L.P., a Cayman Islands limited partnership, C/S International
Partners, a Cayman Islands general partnership, Carlyle-NorthPoint Partners,
L.P., a Delaware limited partnership, Carlyle-NorthPoint International Partners,
L.P., a Cayman Islands limited partnership, Carlyle Venture Partners, LP, a
Cayman Islands limited partnership, Carlyle U.S. Venture Partners, LP, a
Delaware limited partnership, C/S Venture Partners, LP, a Cayman Islands limited
partnership and Carlyle Venture Coinvestment, LLC, a Delaware limited liability
company (collectively, the "Carlyle Entities") shall be considered as a single
Purchaser; provided, however, that the Company shall be protected in relying on
the instructions of, and notices received from, Carlyle-NorthPoint Partners,
L.P., a Delaware limited partnership, in connection with the exercise of any
rights or privileges of the Carlyle Entities hereunder.
[Signature Pages Follow]
-25-
<PAGE>
The foregoing Amended and Restated Series C Preferred Stock Purchase
Agreement is hereby executed as of the date first above written.
"COMPANY"
NORTHPOINT COMMUNICATIONS, INC.,
a Delaware corporation
By: /S/ NORTHPOINT COMMUNICATIONS, INC.,
------------------------------------
Title: --------------------------------
"PURCHASERS"
AT HOME CORPORATION
By: /S/ AT HOME CORPORATION
--------------------------------
--------------------------------
(Print Name)
--------------------------------
Title
-26-
<PAGE>
INTEL CORPORATION
By: /S/ INTEL CORPORATION
--------------------------------
--------------------------------
(Print Name)
--------------------------------
Title
- --------------------------------
Lawrence M. Howell
VULCAN VENTURES INCORPORATED
By: /S/ VULCAN VENTURES INCORPORATED
--------------------------------
--------------------------------
(Print Name)
--------------------------------
Title
-27-
<PAGE>
NEWCOURT COMMERCIAL FINANCE CORPORATION
By: /S/ NEWCOURT COMMERCIAL FINANCE CORPORATION
-------------------------------------------
--------------------------------
(Print Name)
--------------------------------
Title
BENCHMARK CAPITAL PARTNERS, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: /S/ BENCHMARK CAPITAL PARTNERS, L.P.
------------------------------------
Member
BENCHMARK FOUNDERS' FUND, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: /S/ BENCHMARK FOUNDERS' FUND, L.P.
----------------------------------
Member
ACCEL V L.P.
By: Accel V Associates L.L.C.
Its General Partner
By: /S/ ACCEL V L.P.
--------------------------------
Managing Member
-28-
<PAGE>
ACCEL INTERNET/STRATEGIC TECHNOLOGY FUND L.P.
By: Accel Internet/Strategic Technology Fund Associates L.L.C.
Its General Partner
By: /S/ ACCEL INTERNET/STRATEGIC TECHNOLOGY FUND L.P.
-------------------------------------------------
Managing Member
ACCEL KEIRETSU V L.P.
By: Accel Keiretsu V Associates L.L.C.
Its General Partner
By: /S/ ACCEL KEIRETSU V L.P.
--------------------------------
Managing Member
ACCEL INVESTORS `97 L.P.
By: /S/ ACCEL INVESTORS `97 L.P.
--------------------------------
General Partner
ELLMORE C. PATTERSON PARTNERS
By: /S/ ELLMORE C. PATTERSON PARTNERS
---------------------------------
General Partner
-29-
<PAGE>
GREYLOCK IX LIMITED PARTNERSHIP
By: Greylock IX GP Limited Partnership, its General Partner
By: /S/ GREYLOCK IX LIMITED PARTNERSHIP
-----------------------------------
General Partner
1187415 ONTARIO INC.
By: /S/ 1187415 ONTARIO INC.
--------------------------------
--------------------------------
(Print Name)
--------------------------------
Title
/S/ William Hiller
- --------------------------------
William Hiller
THE DAHL FAMILY TRUST DATED OCTOBER 31, 1989,
AS AMENDED MAY 3, 1990
By: Robert K. Dahl as Trustee for the Dahl Family Trust
/S/ THE DAHL FAMILY TRUST DATED OCTOBER 31, 1989,
AS AMENDED MAY 3, 1990
- -------------------------------------------------
(Signature)
-30-
<PAGE>
CHARLES ROSS PARTNERS
By: /S/ CHARLES ROSS PARTNERS
--------------------------------
--------------------------------
(Print Name)
--------------------------------
Title
LEAD VENTURES
By: /S/ LEAD VENTURES
--------------------------------
--------------------------------
(Print Name)
--------------------------------
Title
-31-
<PAGE>
CNATRUST, TTEE FBO VENTURE LAW GROUP 401(K) PLAN MICHAEL W. HALL
By:
/S/ CNATRUST, TTEE FBO VENTURE LAW GROUP 401(K) PLAN MICHAEL W. HALL
- --------------------------------------------------------------------
(Signature)
THE SIERRA VENTURES MGMT. CO.
1989 DEFERRED SAVINGS PLAN FBO HENRY P. HUFF
By:
/S/ THE SIERRA VENTURES MGMT. CO.
1989 DEFERRED SAVINGS PLAN FBO HENRY P. HUFF
- --------------------------------------------
(Signature)
EXETER CAPITAL PARTNERS IV, L.P.
By: Exeter IV Advisors, L.P.
By: Exeter IV Advisors, Inc.
By: /S/ EXETER CAPITAL PARTNERS IV, L.P.
------------------------------------
Keith R. Fox, President
/S/ Mory Ejabat
- --------------------------------
Mory Ejabat
/S/ Dino Vendetti
- --------------------------------
Dino Vendetti
-32-
<PAGE>
CARLYLE PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE PARTNERS II, L.P.
--------------------------------
Title: Managing Director
CARLYLE PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE PARTNERS III, L.P.
--------------------------------
Title: Managing Director
STATE BOARD OF ADMINISTRATION OF FLORIDA
By: Carlyle Investment Management LLC
Its Manager
By: /S/ STATE BOARD OF ADMINISTRATION OF FLORIDA
--------------------------------------------
Title: Managing Director
CARLYLE INVESTMENT GROUP, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INVESTMENT GROUP, L.P.
-----------------------------------
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INTERNATIONAL PARTNERS II, L.P.
-------------------------------------------
Title: Managing Director
-33-
<PAGE>
CARLYLE INTERNATIONAL PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
/S/ CARLYLE INTERNATIONAL PARTNERS III, L.P.
By: --------------------------------------------
Title: Managing Director
C/S INTERNATIONAL PARTNERS
By: TC Group, L.L.C.
Its General Partner
/S/ C/S INTERNATIONAL PARTNERS
By: --------------------------------
Title: Managing Director
CARLYLE-NORTHPOINT PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
/S/ CARLYLE-NORTHPOINT PARTNERS, L.P.
By: -------------------------------------
Title: Managing Director
CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
/S/ CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
By: ---------------------------------------------------
Title: Managing Director
CARLYLE VENTURE PARTNERS, LP
By: TCG Ventures, Limited
Its General Partner
/S/ CARLYLE VENTURE PARTNERS, LP
By: --------------------------------
Title: Attorney in Fact
-34-
<PAGE>
CARLYLE U.S. VENTURE PARTNERS, LP
By: TCG Ventures, LLC
Its General Partner
/S/ CARLYLE U.S. VENTURE PARTNERS, LP
By: -------------------------------------
Title: Managing Director
C/S VENTURE PARTNERS, LP
By: TCG Ventures, Limited
Its General Partner
/S/ C/S VENTURE PARTNERS, LP
By: --------------------------------
Title: Attorney in Fact
CARLYLE VENTURE COINVESTMENT, LLC
By: TCG Ventures, LLC
Its Manager
/S/ CARLYLE VENTURE COINVESTMENT, LLC
By: -------------------------------------
Title: Managing Director
-35-
<PAGE>
<PAGE>
ATTACHMENT 1
------------
SCHEDULE OF PURCHASERS
----------------------
First Closing - June 26, 1998:
- -----------------------------
<TABLE>
<CAPTION>
Name/Address No. of Shares Purchase Price
------------- ------------- --------------
<S> <C> <C>
At Home Corporation 566,855 $2,000,998.15
First Closing Total: 566,855 $2,000,998.15
- ------------------- ------- -------------
</TABLE>
Second Closing - August 26, 1998:
- --------------------------------
<TABLE>
<CAPTION>
Name/Address No. of Shares Purchase Price
------------- ------------- --------------
<S> <C> <C>
Intel Corporation 566,855 $2,000,998.15
Lawrence M. Howell 113,314 $ 399,998.42
Second Closing Total: 680,169 $2,400,996.57
- -------------------- ------- -------------
</TABLE>
-36-
<PAGE>
Third Closing - February 19, 1999:
- ---------------------------------
<TABLE>
<CAPTION>
Name/Address No. of Shares Purchase Price
------------- ------------- --------------
<S> <C> <C>
Carlyle Partners II, L.P. 2,575,746 $ 9,092,383.38
Carlyle Partners III, L.P. 117,008 $ 413,038.24
State Board of Administration of Florida 1,093,570 $ 3,860,302.10
Carlyle Investment Group, L.P. 2,736 $ 9,658.08
Carlyle International Partners II, L.P. 2,178,333 $ 7,689,515.49
Carlyle International Partners III, L.P. 116,340 $ 410,680.20
C/S International Partners 487,213 $ 1,719,861.89
Carlyle-NorthPoint Partners, L.P. 899,878 $ 3,176,569.34
Carlyle-NorthPoint International Partners, L.P. 319,544 $ 1,127,990.32
Carlyle Venture Partners, LP 1,495,014 $ 5,277,399.42
Carlyle U.S. Venture Partners, LP 198,278 $ 699,921.34
CS Venture Partners, LP 311,065 $ 1,098,059.45
Carlyle Venture Coinvestment, LLC 120,289 $ 424,620.17
Vulcan Ventures Incorporated 4,249,291 $14,999,997.23
Newcourt Commercial Finance Corporation 424,929 $ 1,499,999.37
Greylock 141,643 $ 499,999.79
Benchmark Capital Partners, L.P. 124,274 $ 438,687.22
Benchmark Founders' Fund, L.P. 17,369 $ 61,312.57
Accel V L.P. 111,190 $ 392,500.70
Accel Internet/Strategic Technology Fund L.P. 14,731 $ 52,000.43
Accel Investors '97 L.P. 6,799 $ 24,000.47
Accel Keiretsu V L.P. 5,807 $ 20,498.71
Ellmore C. Patterson Partners 3,116 $ 10,999.48
1187415 Ontario Inc. 70,821 $ 249,998.13
Mory Ejabat 56,657 $ 199,999.21
Lawrence M. Howell 99,149 $ 349,995.97
The Dahl Family Trust Dated October 31, 1989, as 56,657 $ 199,999.21
amended May 3, 1990
Charles Ross Partners Investment Fund Number 1 56,657 $ 199,999.21
William Hiller 28,328 $ 99,997.84
Lead Ventures 28,328 $ 99,997.84
CNA Trust FBO Michael W. Hall 14,164 $ 49,998.92
Dino Vendetti 14,164 $ 49,998.92
The Sierra Ventures Mgmt. Co. 1989 Deferred Savings 7,082 $ 24,999.46
Plan FBO Henry P. Huff
Exeter Capital Partners IV, L.P. 304,476 $ 1,074,800.28
Third Closing Total: 15,750,646 $55,599,780.38
- ------------------- ---------- --------------
TOTAL ALL CLOSINGS: 16,997,670 $60,001,775.10
- ------------------ ========== ==============
</TABLE>
-37-
<PAGE>
Exhibit 10.4
NORTHPOINT COMMUNICATIONS, INC.
THIRD AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
-----------------------------------------------------------------------
This Third Amended and Restated Right of First Refusal and Co-Sale
Agreement (the "Agreement") is made and entered into as of February 19, 1999 by
---------
and among William Euske, Robert Flood, Steven Gorosh, Nathan Gregory, Michael
Malaga and Timothy Monahan (collectively, the "Founders" and individually, a
--------
"Founder"), NorthPoint Communications, Inc., a Delaware corporation (the
- --------
"Company"), the holders of Series B Preferred Stock of the Company (the "Series
- -------- ------
B Investors"), Morgan Stanley Bridge Fund L.L.C. and Morgan Stanley Senior
- -----------
Funding, Inc. (collectively, "Morgan Stanley") and the purchasers of Series C
--------------
Preferred Stock of the Company (the "Series C Investors" and collectively with
------------------
the Series B Investors, Morgan Stanley and the holders of warrants to initially
purchase 1,085,714 and 2/7 shares of Common Stock of the Company issued to
Morgan Stanley in connection with a letter agreement dated May 20, 1998 and in
connection with the Senior Increasing Rate Notes of the Company and any other
warrants that may hereafter be issued in connection with the Senior Increasing
Rate Notes of the Company (collectively, the "Warrants"), the "Investors" and
-------- ---------
individually, an "Investor").
--------
RECITALS
--------
1. The Company, the Founders, the Series B Investors, certain of the Series C
Investors and Morgan Stanley entered into a Second Amended and Restated Right of
First Refusal and Co-Sale Agreement dated as of June 26, 1998 (the "Prior
-----
Agreement").
- ---------
2. The Company and the Series C Investors have entered into an Amended and
Restated Series C Preferred Stock Purchase Agreement (the "Purchase Agreement")
------------------
dated January 20, 1999 pursuant to which the Company desires to sell to certain
of the Series C Investors and such Series C Investors desire to purchase from
the Company additional shares of the Company's Series C Preferred Stock.
3. In order to induce the Series C Investors to execute the Purchase
Agreement, the Company, the Founders, the Series B Investors, certain existing
Series C Investors and Morgan Stanley have agreed to grant rights of first
refusal and co-sale to the Series C Investors by amending and restating the
Prior Agreement as set forth herein.
4. Morgan Stanley Bridge Fund L.L.C. has assigned its rights under this
Agreement to Morgan Stanley Senior Funding, Inc.
<PAGE>
AGREEMENT
---------
The parties hereby agree as follows:
1. Sales by Founders.
-----------------
(a) Notice of Sales; Assignment of Company Right of First Refusal.
-------------------------------------------------------------
(i) After the date of this Agreement, should any Founder propose to
accept one or more bona fide offers (collectively, a "Purchase Offer") from any
--------------
person to purchase shares of the Company's Common Stock (the "Shares") from such
------
Founder (other than as set forth in subsection 1(e) hereof), such Founder shall
promptly deliver a notice (the "Notice") to the Company and each Investor
------
stating the terms and conditions of such Purchase Offer including, without
limitation, the number of Shares to be sold or transferred, the nature of such
sale or transfer, the consideration to be paid, and the name and address of each
prospective purchaser or transferee and, in addition, a subsequent Notice in the
event there has been any material change to any of the foregoing information.
In the event that the sale or transfer is being made pursuant to the provisions
of subsection (e) hereof, the Notice shall state the exception under which such
sale or transfer is being made.
(ii) The Company agrees that in the event that the Company declines to
exercise in full the Right of First Refusal set forth in Section 3 of the Common
Stock Purchase Agreement between such Founder and the Company (the "Right of
--------
First Refusal"), the Company will provide each Investor with notice of such
- -------------
determination at least fifteen (15) days prior to the end of the period in which
the Right of First Refusal expires under such Common Stock Purchase Agreement.
Each Investor other than Morgan Stanley and any other holder of the Warrants
shall then have the right, exercisable by notice to the Company prior to the end
of such period, to exercise such Right of First Refusal as the Company's
assignee on a pro rata basis (based upon the number of Conversion Shares (as
defined below) held by such Investor relative to the aggregate number of
Conversion Shares held by all Investors other than Morgan Stanley and any other
holder of the Warrants); provided that if fewer than all Investors (other than
Morgan Stanley and any other holder of the Warrants) elect to participate, the
Shares that would otherwise be allocated to non-participating Investors shall be
allocated to each participating Investor (each, a "Participating Investor") at
----------------------
such Participating Investor's option in a manner such that each Participating
Investor is entitled to purchase at least such Participating Investor's pro rata
portion of such unallocated Shares (based upon the number of Conversion Shares
held by all Participating Investors) or such different number of Shares as the
Participating Investors shall mutually agree. The procedures set forth in this
Section 1(a)(ii) with respect to Participating Investors shall be repeated as
necessary until all of the Shares initially subject to this Section 1(a)(ii)
have been purchased or until the final successive Participating Investor has
declined to exercise his or her rights hereunder with respect to any remaining
Shares subject to this Section 1(a)(ii), whichever shall first occur. Upon
expiration or exercise of the Right of First Refusal, the Company will provide
notice to all Investors and the Founders as to whether or not the Right of First
Refusal has been exercised by the Company or the Investors.
<PAGE>
(b) Co-Sale Right. To the extent that the Right of First Refusal is
-------------
not exercised by the Company or the Investors, each Investor shall have the
right (the "Co-Sale Right"), exercisable upon written notice to the Company
-------------
within fifteen (15) business days after the expiration of the Right of First
Refusal, to participate in such Founder's sale of Shares pursuant to the
specified terms and conditions of such Purchase Offer; provided, however, that
any such Investor exercising its Co-Sale Right shall not, in connection with
such sale, be obligated to agree to any joint and several liability or
obligation to indemnify the purchaser of such Shares, and any several liability
of such Investor related to any such sale shall in no event exceed the net
proceeds from such sale to be received by such Investor. To the extent an
Investor exercises such Co-Sale Right in accordance with the terms and
conditions set forth below, the number of Shares which such Founder may sell
pursuant to such Purchase Offer shall be correspondingly reduced. The Co-Sale
Right of each Investor shall be subject to the following terms and conditions:
(i) Calculation of Shares. Each Investor may sell all or any part of
---------------------
that number of shares of Common Stock of the Company issuable or issued (i) upon
conversion of Preferred Stock (including Preferred Stock issuable upon exercise
of warrants), (ii) upon exercise of the Warrants, or (iii) in connection with
any stock dividend, stock split or other reclassification thereof (all of which
are referred to herein as the "Conversion Shares") equal to (i) to the extent
-----------------
that proceeds to such Investor from all prior sales of securities pursuant to
this Agreement are less than such Investor's Aggregate Purchase Price, an amount
equal to the total amount of shares covered by the Purchase Offer, multiplied by
such Investor's Capital Return Ratio, plus (ii) to the extent that the number of
shares covered by the Purchase Offer exceeds the amount obtained from the
application of clause (i) above with respect to all Investors requesting to
include securities in the sale pursuant to such Purchase Offer, an amount equal
to (A) the total amount of shares covered by the Purchase Offer, less the total
amount of securities of all Investors to be included in such sale pursuant to
clause (i) above, multiplied by (B) such Investor's Sale Ratio. For purposes
hereof, as of any date of determination, an Investor's "Aggregate Purchase
------------------
Price" is an amount equal to the aggregate purchase price paid to the Company as
- -----
consideration for all securities held by such Investor; an Investor's "Capital
-------
Return Ratio" is a fraction, the numerator of which is such Investor's Aggregate
- ------------
Purchase Price and the denominator of which is the sum of the Aggregate Purchase
Prices for all Investors and Founders; and an Investor's "Sale Ratio" is a
----------
fraction, the numerator of which is the amount of securities of the Company held
by such Investor and the denominator of which is the aggregate amount of
securities held by all Investors and Founders. The provisions of this Agreement
do not confer any co-sale rights with respect to any shares of Common Stock or
other securities held by an Investor that are not Conversion Shares.
(ii) Delivery of Certificates. Each Investor may effect its
------------------------
participation in the sale by delivering to the selling Founder for transfer to
the purchase offeror one or more certificates, properly endorsed for transfer,
which represent the number of shares of Preferred Stock, Warrants or Common
Stock issued upon conversion or exercise thereof, which such Investor elects to
sell.
<PAGE>
(c) Transfer. The stock or warrant certificate or certificates which
--------
the Investor delivers to the selling Founder pursuant to Section 1(b) shall be
delivered by such Founder to the purchase offeror in consummation of the sale
pursuant to the terms and conditions specified in the Notice, and such Founder
shall promptly thereafter remit to such Investor that portion of the sale
proceeds to which such Investor is entitled by reason of its participation in
such sale. To the extent that any prospective purchaser or purchasers prohibits
such assignment or otherwise refuses to purchase shares of capital stock or
Warrants of the Company from an Investor exercising its Co-Sale Right hereunder,
the selling Founder or Founders shall not sell to such prospective purchaser or
purchasers any shares of Company stock or Warrants unless and until,
simultaneously with such sale, the selling Founder or Founders shall purchase
such shares or Warrants from such Investor for the same consideration and on the
same terms and conditions as the proposed transfer described in the Notice
(which terms and conditions shall be no less favorable than those governing the
sale to the purchaser by the Founder or Founders).
(d) No Adverse Effect. The exercise or non-exercise of the rights of
-----------------
the Investors hereunder to participate in one or more sales of Shares made by a
Founder shall not adversely affect their rights to participate in subsequent
sales of Common Stock by a Founder.
(e) Permitted Transactions. The provisions of Section 1 of this
----------------------
Agreement shall not pertain or apply to:
(i) any pledge of the Company's Common Stock made by a Founder
pursuant to a bona fide loan transaction which creates a mere security interest;
provided, however, that the provisions of Section 1 of this Agreement shall
pertain and apply to any foreclosure, sale or realization on or in respect of
such Common Stock pursuant to any such pledge;
(ii) any repurchase of Common Stock by the Company;
(iii) any bona fide gift;
(iv) any transfer to a Founder's Immediate Family (as defined
below) or a trust for the benefit of such Founder's Immediate Family ("Immediate
---------
Family" as used herein shall mean spouse, lineal descendant or antecedent,
- ------
father, mother, brother or sister); or
(v) any sale or transfer of shares of Common Stock among the
Founders.
provided however, that (x) the Founder(s) shall inform the Investors of such
- ----------------
pledge, transfer or gift prior to effecting it, and (y) the pledgee, transferee
or donee (collectively, the "Permitted Transferees") shall furnish the Investors
---------------------
with a written agreement to be bound by and comply with all provisions of this
Agreement applicable to the Founders.
2. Prohibited Transfers. Any attempt by a Founder to transfer Shares in
--------------------
violation of Section 1 hereof shall be void and the Company agrees it will not
effect such a transfer nor will it treat any alleged transferee as the holder of
such shares without the
<PAGE>
written consent of the holders of a majority of the Conversion Shares. In the
event a Founder should sell any Shares in contravention of the co-sale rights of
the Investors under Section 1 (a "Prohibited Transfer"), the Investors, in
--------------------
addition to such other remedies as may be available at law, in equity or
hereunder, shall have the put option provided below, and the Founder shall be
bound by the applicable provisions of such option.
In the event of a Prohibited Transfer, each Investor shall have the
right to sell to the Founder the type and number of shares equal to the number
of shares each Investor would have been entitled to transfer to the third-party
transferee(s) under Section 1 hereof had the Prohibited Transfer been effected
pursuant to and in compliance with the terms hereof. Such sale shall be made on
the following terms and conditions:
The price per share at which the shares are to be sold to the Founder
shall be equal to the price per share paid by the third-party transferee(s) to
the Founder in the Prohibited Transfer. The Founder shall also reimburse each
Investor for any and all fees and expenses, including legal fees and expenses,
incurred pursuant to the exercise or the attempted exercise of the Investor's
rights under Section 1.
Within ninety (90) days after the later of the dates on which the
Investor (A) received notice of the Prohibited Transfer or (B) otherwise become
aware of the Prohibited Transfer, each Investor shall, if exercising the option
created hereby, deliver to the Founder the certificate or certificates
representing shares to be sold, each certificate to be properly endorsed for
transfer.
The Founder shall, upon receipt of the certificate or certificates for
the shares to be sold by an Investor, pursuant to this Section, pay the
aggregate purchase price therefor and the amount of reimbursable fees and
expenses, as specified in subparagraph (b)(i), in cash or by other means
acceptable to the Investor.
3. Legended Certificates. Each certificate representing shares of the
---------------------
Common Stock of the Company now or hereafter owned by the Founders or issued to
any Permitted Transferee pursuant to Section 1(e) shall be endorsed with the
following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT BY AND
BETWEEN THE STOCKHOLDER, THE COMPANY AND CERTAIN HOLDERS OF PREFERRED
STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY."
The foregoing legend shall be removed upon termination of this Agreement in
accordance with the provisions of Section 4(a).
<PAGE>
4. Miscellaneous Provisions.
------------------------
(a) Termination. This Agreement shall terminate upon the earliest to
-----------
occur of any one of the following events (and shall not apply to any transfer by
a Founder in connection with any such event):
(i) The liquidation, dissolution or indefinite cessation of the
business operations of the Company;
(ii) The execution by the Company of a general assignment for the
benefit of creditors or the appointment of a receiver or trustee to take
possession of the property and assets of the Company;
(iii) The closing of the Company's initial public offering of
securities (provided the per share public offering price is not less than $5.75
(as adjusted to reflect subsequent stock dividends, stock splits,
recapitalizations or similar transactions) and such offering results in
aggregate cash proceeds to the Company of at least $50,000,000, net of
underwriting discounts and commissions); provided that all shares of the
--------
Company's Preferred Stock are converted into and all Warrants are exercised for
shares of Common Stock prior to or in connection with such offering; and
(iv) The closing of any acquisition, merger, reorganization or
other transaction which results in the stockholders of the Company immediately
prior to such transaction owning less than 50% of the Company's voting stock
immediately after such transaction.
(b) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's address as set forth on the books of the Company, or as
subsequently modified by written notice.
(c) Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of, and be binding upon, the respective
successors and assigns of the parties. The rights of the Investors hereunder
shall be assignable only (i) by each of such Investors to any other Investor or
any affiliate of any Investor or (ii) an assignee or transferee who acquires not
less than 50,000 shares of the Company's Common Stock (as adjusted for stock
splits, stock dividends and the like, and assuming conversion of all Preferred
Stock held by such Investor); provided that such limitation shall not apply to
--------
transfers by an Investor to a wholly-owned subsidiary, affiliate or constituent
partner (including limited partners) or member of such Investor, if all such
transferees or assignees irrevocably agree in writing to appoint a single
representative as their attorney-in-fact for the purpose of receiving any
notices and exercising their rights under this Agreement.
<PAGE>
(d) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(e) Modifications and Amendments. Any term hereof may be amended or
----------------------------
waived only with the written consent of the Company and (i) holders of at least
66 2/3% of the outstanding Series C Preferred Stock voting as a class, (ii)
holders of at least a majority of the outstanding Series B Preferred Stock
voting as a class, (iii) holders of a majority of the shares issued or issuable
upon exercise of the Warrants, and (iv) holders of a majority of the outstanding
Founders' Shares (or their respective successors and assigns), each voting
separately as a class. Any amendment or waiver effected in accordance with this
Section 4(e) shall be binding upon the Company, the holders of Series B
Preferred Stock, the holders of the Warrants or any shares issued upon exercise
of the Warrants, the holders of Series C Preferred Stock and any holder of
Founders' Shares, and each of their respective successors and assigns.
(f) Attorney's Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements (including all fees, costs and expenses of appeals) in
addition to any other relief to which such party may be entitled.
(g) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(h) Counterparts. This Agreement may be executed in two (2) or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
(i) Approval of Restructuring. In connection with the Newcourt Loan
-------------------------
(as defined in the Purchase Agreement), the Company intends to consummate a tax-
free reorganization (such reorganization, as more completely described in this
paragraph (i), the "Reorganization") within the meaning of Section 368(a) of the
--------------
Internal Revenue Code of 1986, as amended, pursuant to which the Company will be
merged with and into a Delaware corporation ("Merger Sub"), which shall be a
----------
wholly owned subsidiary of another Delaware corporation ("Parent"), or Merger
------
Sub shall be merged with and into the Company, with the Company as the surviving
corporation of such merger and as a result of which each of the holders of
capital stock and other securities (including, without limitation, options and
warrants) of the Company immediately prior to the consummation of the
Reorganization shall become the only holders of capital stock and other
securities (including, without limitation, options and warrants) of Parent
immediately after the consummation of such Reorganization, each holding the same
number of shares of capital stock and other securities (including, without
limitation,
<PAGE>
options and warrants) of the Parent with the same rights, privileges, terms and
conditions as the shares of capital stock and other securities (including,
without limitation, options and warrants) of the Company held by such holders
immediately prior to the consummation of the Reorganization. The Certificate of
Incorporation and bylaws of Parent shall be identical in substance (except for
the name of the Parent and the date of incorporation thereof) to the Certificate
of Incorporation and bylaws, respectively, of the Company immediately prior to
the consummation of the Reorganization, and the Board of Directors of Parent
shall be identical to the Board of Directors of the Company immediately prior to
the consummation of the Reorganization. Parent and Merger Sub shall be formed by
the Company solely for the purpose of engaging in the transactions contemplated
by the Newcourt Loan. Immediately prior to the consummation of the
Reorganization, all of the capital stock of Merger Sub shall be owned directly
by Parent and, as of the effective date of the Reorganization, there will not be
any outstanding or authorized options, warrants, calls, rights, commitments or
any other agreements of any character to or by which Merger Sub or Parent is a
party or may be bound requiring either of them to issue, transfer, sell,
purchase, redeem or acquire any shares of capital stock or any securities or
rights convertible into, exchangeable for, or evidencing the right to subscribe
for or acquire, any shares of either of them, except for the issuance of shares
of capital stock to the holders of shares of capital stock of the Company as
described herein. Immediately prior to the effective date of the Reorganization,
except for obligations or liabilities incurred in connection with their
respective incorporations or organizations and the transactions contemplated by
the Reorganization as described herein, neither Parent nor Merger Sub will have
incurred, directly or indirectly through any subsidiary or affiliate or
otherwise, any obligations or liabilities or engaged in any business or
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any person or entity. At no time prior to the effective time
of the Reorganization will Parent or Merger Sub own any material assets other
than an amount of cash necessary to incorporate Parent and Merger Sub and to pay
the expenses of the Reorganization attributable to Parent and Merger Sub if the
Reorganization is consummated. Parent is not expected to engage in any operating
activity other than (a) owning all of the capital stock of the Company, (b)
issuing high yield debt securities on such terms and conditions as the Board of
Directors of Parent shall determine and (c) other activities incidental to the
foregoing as the Board of Directors of Parent shall determine. Concurrently with
the consummation of the Reorganization, all agreements and understandings
related to voting, sale, registration rights, the issuance of warrants and
options and other matters executed and delivered in connection with the Third
Closing (as defined in the Purchase Agreement) shall be replaced with identical
agreements, except that Parent shall undertake and assume the Company's rights,
obligations and liabilities thereunder (collectively, the "Replacement
-----------
Agreements"). In connection with the Newcourt Loan, it is currently contemplated
- ----------
that Parent would pledge to the lenders thereunder its shares of capital stock
in the Company. All documents necessary to effect and consummate the
Reorganization shall be made available to each Investor and the Founders as soon
as possible by the Company. Each Investor and Founder hereby consents to the
Reorganization as described in this paragraph (i) and agrees to execute and
deliver such further consents and documents (including, without limitation, the
Replacement Documents) requested by the Company as are reasonably necessary to
effect the Reorganization, the cost and expenses of any Investor or Founder
incurred in connection therewith to be borne by the Company.
<PAGE>
(j) Carlyle Entities One Investor. For purposes of this Agreement,
-----------------------------
Carlyle Partners II, L.P., a Delaware limited partnership, Carlyle Partners III,
L.P., a Delaware limited partnership, State Board of Administration of Florida,
Carlyle Investment Group, L.P., a Delaware limited partnership, Carlyle
International Partners II, L.P., a Cayman Islands limited partnership, Carlyle
International Partners III, L.P., a Cayman Islands limited partnership, C/S
International Partners, a Cayman Islands general partnership, Carlyle-NorthPoint
Partners, L.P., a Delaware limited partnership, Carlyle-NorthPoint International
Partners, L.P., a Cayman Islands limited partnership, Carlyle Venture Partners,
LP, a Cayman Islands limited partnership, Carlyle U.S. Venture Partners, LP, a
Delaware limited partnership, C/S Venture Partners, LP, a Cayman Islands limited
partnership and Carlyle Venture Coinvestment, LLC, a Delaware limited liability
company (collectively, the "Carlyle Entities") shall be considered as a single
Investor; provided, however, that the Company shall be protected in relying on
the instructions of, and notices received from, Carlyle-NorthPoint Partners,
L.P., a Delaware limited partnership, in connection with the exercise of any
rights or privileges of the Carlyle Entities hereunder.
(k) Termination of Prior Agreement. By execution of this Agreement
------------------------------
below, the parties acknowledge and agree that the Prior Agreement shall be
terminated and shall be of no further force or effect.
<PAGE>
The parties have executed this Third Amended and Restated Co-Sale Agreement as
of the date first written above.
COMPANY:
NORTHPOINT COMMUNICATIONS, INC.
By: /S/ NORTHPOINT COMMUNICATIONS, INC.
------------------------------------
Title:
-------------------------------
Company Address:
222 Sutter Street
7th Floor
San Francisco, CA 94108
SERIES B INVESTORS:
BENCHMARK CAPITAL PARTNERS, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: /S/ BENCHMARK CAPITAL PARTNERS, L.P.
-------------------------------
Member
BENCHMARK FOUNDERS' FUND, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: /S/ BENCHMARK FOUNDERS' FUND, L.P.
-------------------------------
Member
<PAGE>
ACCEL V L.P.
By: Accel V Associates L.L.C.
Its General Partner
By: /S/ ACCEL V L.P.
-------------------------------
Managing Member
ACCEL INTERNET/STRATEGIC TECHNOLOGY FUND L.P.
By: Accel Internet/Strategic Technology Fund Associates L.L.C.
Its General Partner
By: /s/ ACCEL INTERNET/STRATEGIC TECHNOLOGY FUND L.P.
-------------------------------------------------
Managing Member
ACCEL KEIRETSU V L.P.
By: Accel Keiretsu V Associates L.L.C.
Its General Partner
By: /S/ ACCEL KEIRETSU V L.P.
-------------------------------
Managing Member
ACCEL INVESTORS `97 L.P.
By: /S/ ACCEL INVESTORS '97 L.P.
-------------------------------
General Partner
ELLMORE C. PATTERSON PARTNERS
By: /S/ ELLIMORE C. PATTERSON PARTNERS
----------------------------------
General Partner
<PAGE>
GREYLOCK IX LIMITED PARTNERSHIP
By: Greylock IX GP Limited Partnership, its General Partner
By: /S/ GREYLOCK IX LIMITED PARTNERSIP
---------------------------------
General Partner
WILLIAM EUSKE
/S/ WILLIAM EUSKE
- -------------------------------------
(Signature)
ROBERT FLOOD
/S/ ROBERT FLOOD
- -------------------------------------
(Signature)
<PAGE>
NATHAN GREGORY
/S/ NATHAN GREGORY
- -------------------------------------
(Signature)
MICHAEL MALAGA
/S/ MICHAEL MALAGA
- -------------------------------------
(Signature)
TIMOTHY MONAHAN
/S/ TIMOTHY MONAHAN
- -------------------------------------
(Signature)
PAUL A. LARANGO AND ANN W. ZEICHNER,
TRUSTEES OF THE ZEICHNER-LARRANGO FAMILY TRUST,
UDT, DATED JULY 28, 1997
By: Ann W. Zeichner, Trustee
/S/ PAUL A. LARANGO AND ANN W. ZEICHNER,
TRUSTEES OF THE ZEICHNER-LARRANGO FAMILY TRUST
UDT, DATED JULY 28, 1997
- ----------------------------------------------------
(Signature)
<PAGE>
MORGAN STANLEY:
MORGAN STANLEY BRIDGE FUND L.L.C.
- -------------------------------------
(Print Title)
/S/ MORGAN STANLEY BRIDGE FUND L.L.C.
- -------------------------------------
(Signature)
MORGAN STANLEY SENIOR FUNDING, INC.
- -------------------------------------
(Print Title)
/S/ MORGAN STANLEY SENIOR FUNDING, INC.
- ---------------------------------------
(Signature)
<PAGE>
SERIES C INVESTORS:
AT HOME CORPORATION
- -------------------------------------
(Print Title)
/S/ AT HOME CORPORATION
- -------------------------------------
(Signature)
INTEL CORPORATION
- -------------------------------------
(Print Title)
/S/ INTEL CORPORATION
- -------------------------------------
(Signature)
/S/ Lawrence M. Howell
- -------------------------------------
Lawrence M. Howell
VULCAN VENTURES INCORPORATED
- -------------------------------------
(Print Title)
/S/ VULCAN VENTURES INCORPORATED
- -------------------------------------
(Signature)
<PAGE>
BENCHMARK CAPITAL PARTNERS, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: /S/ BENCHMARK CAPITAL PARTNERS, L.P.
--------------------------------
Member
BENCHMARK FOUNDERS' FUND, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: /S/ BENCHMARK FOUNDERS' FUND, L.P.
----------------------------------
Member
ACCEL V L.P.
By: Accel V Associates L.L.C.
Its General Partner
By: /S/ ACCEL V L.P.
--------------------------------
Managing Member
ACCEL INTERNET/STRATEGIC TECHNOLOGY FUND L.P.
By: Accel Internet/Strategic Technology Fund Associates L.L.C.
Its General Partner
By: /S/ ACCEL INTERNET/STRATEGIC TECHNOLOGY FUND L.P.
-------------------------------------------------
Managing Member
<PAGE>
ACCEL KEIRETSU V L.P.
By: Accel Keiretsu V Associates L.L.C.
Its General Partner
By: /S/ ACCEL KEIRETSU V L.P.
--------------------------------
Managing Member
ACCEL INVESTORS `97 L.P.
By: /S/ ACCEL INVESTORS `97 L.P.
--------------------------------
General Partner
ELLMORE C. PATTERSON PARTNERS
By: /S/ ELLMORE C. PATTERSON PARTNERS
--------------------------------
General Partner
GREYLOCK IX LIMITED PARTNERSHIP
By: Greylock IX GP Limited Partnership, its General Partner
By: /S/ GREYLOCK IX LIMITED PARTNERSHIP
--------------------------------
General Partner
NEWCOURT COMMERCIAL FINANCE CORPORATION
By: /S/ NEWCOURT COMMERCIAL FINANCE CORPORATION
-------------------------------------------
--------------------------------
(Print Name)
--------------------------------
Title
<PAGE>
1187415 Ontario Inc.
By: /s/ 1187415 Ontario Inc.
--------------------------------
--------------------------------
(Print Name)
--------------------------------
Title
/S/ William Hiller
- -------------------------------
William Hiller
THE DAHL FAMILY TRUST DATED OCTOBER 31, 1989,
AS AMENDED MAY 3, 1990
By: Robert K. Dahl as Trustee for the Dahl Family Trust
/S/ THE DAHL FAMILY TRUST DATED OCTOBER 31, 1989,
AS AMENDED MAY 3, 1990
- --------------------------------------
(Signature)
CHARLES ROSS PARTNERS
By: /S/ CHARLES ROSS PARTNERS
--------------------------------
--------------------------------
(Print Name)
--------------------------------
Title
LEAD VENTURES
By: /S/ LEAD VENTURES
--------------------------------
--------------------------------
(Print Name)
--------------------------------
Title
<PAGE>
CNATRUST, TTEE FBO VENTURE LAW GROUP 401(K) PLAN MICHAEL W. HALL
By:
/S/ CNATRUST, TTEE FBO VENTURE LAW GROUP 401(K) PLAN MICHAEL W. HALL
- --------------------------------------
(Signature)
THE SIERRA VENTURES MGMT. CO.
1989 DEFERRED SAVINGS PLAN FBO HENRY P. HUFF
By:
/S/ THE SIERRA VENTURES MGMT. CO.
1989 DEFERRED SAVINGS PLAN FBO HENRY P. HUFF
- --------------------------------------
(Signature)
EXETER CAPITAL PARTNERS IV, L.P.
By: Exeter IV Advisors, L.P.
By: Exeter IV Advisors, Inc.
By: /S/ EXETER CAPITAL PARTNERS IV, L.P.
-----------------------------------
Keith R. Fox, President
/S/ Mory Ejabat
- -------------------------------
Mory Ejabat
/S/ Dino Vendetti
- -------------------------------
Dino Vendetti
CARLYLE PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE PARTNERS II, L.P.
______________________________
Title: Managing Director
<PAGE>
CARLYLE PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE PARTNERS III, L.P.
_________________________
Title: Managing Director
STATE BOARD OF ADMINISTRATION OF FLORIDA
By: Carlyle Investment Management LLC
Its Manager
By: /S/ STATE BOARD OF ADMINISTRATION OF FLORIDA
_________________________
Title: Managing Director
CARLYLE INVESTMENT GROUP, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INVESTMENT GROUP, L.P.
_________________________
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INTERNATIONAL PARTNERS II, L.P.
_________________________
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INTERNATIONAL PARTNERS III, L.P.
_________________________
Title: Managing Director
<PAGE>
C/S INTERNATIONAL PARTNERS
By: TC Group, L.L.C.
Its General Partner
By: /S/ C/S INTERNATIONAL PARTNERS
______________________________
Title: Managing Director
CARLYLE-NORTHPOINT PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE-NORTHPOINT PARTNERS, L.P.
______________________________
Title: Managing Director
CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
______________________________
Title: Managing Director
CARLYLE VENTURE PARTNERS, LP
By: TCG Ventures, Limited
Its General Partner
By: /S/ CARLYLE VENTURE PARTNERS, LP
______________________________
Title: Attorney in Fact
CARLYLE U.S. VENTURE PARTNERS, LP
By: TCG Ventures, LLC
Its General Partner
By: /S/ CARLYLE U.S. VENTURE PARTNERS, LP
______________________________
Title: Managing Director
<PAGE>
C/S VENTURE PARTNERS, LP
By: TCG Ventures, Limited
Its General Partner
By: /S/ C/S VENTURE PARTNERS, LP
______________________________
Title: Attorney in Fact
CARLYLE VENTURE COINVESTMENT, LLC
By: TCG Ventures, LLC
Its Manager
By: /S/ CARLYLE VENTURE COINVESTMENT, LLC
______________________________
Title: Managing Director
FOUNDERS:
ROBERT FLOOD
/S/ ROBERT FLOOD
- ---------------------------------------
(Signature)
STEVEN GOROSH
/S/ STEVEN GOROSH
- ---------------------------------------
(Signature)
NATHAN GREGORY
/S/ NATHAN GREGORY
- ---------------------------------------
(Signature)
<PAGE>
MICHAEL MALAGA
/S/ MICHAEL MALAGA
- ---------------------------------------
(Signature)
TIMOTHY MONAHAN
/S/ TIMOTHY MONAHAN
- ---------------------------------------
(Signature)
<PAGE>
EXHIBIT 10.6
February 19, 1999
Vulcan Ventures Incorporated
110--110th Avenue, N.E.
Suite 650
Bellevue, WA 98004-5862
NorthPoint Communications, Inc.
-------------------------------
Ladies and Gentlemen:
This letter will confirm our agreement that effective upon and subject to
the purchase by Vulcan Ventures Incorporated ("Vulcan") of an aggregate of
------
4,249,291 shares of Series C Preferred Stock of NorthPoint Communications, Inc.
(the "Company"), Vulcan will be entitled to the following contractual rights, in
-------
addition to any rights granted pursuant to that certain Amended and Restated
Series C Preferred Stock Purchase Agreement dated as of January 20, 1999 by and
among the Company and the purchasers listed on Attachment 1 thereto (the
"Purchase Agreement") and any of the agreements contemplated thereby:
------------------
1. Purchase of Shares. As of the Third Closing, the Company agrees to
------------------
sell to Vulcan, and Vulcan agree to purchase, an additional 303,520 shares of
Series C Preferred Stock of the Company (the "Purchase Shares") at a purchase
---------------
price of $3.53 per Purchase Share. With respect to the purchase of the Purchase
Shares hereunder, Vulcan and the Purchase Shares shall be entitled to all
benefits and rights to which Vulcan and the Shares are entitled under the
Purchase Agreement and the Related Documents as if the Purchase Shares were
Shares thereunder and this Agreement were set forth therein.
2. Definitions. Capitalized terms used herein but not otherwise defined
-----------
shall have the meanings assigned to such terms in the Purchase Agreement.
3. Specific Performance. Each of the parties hereto agrees that in the
--------------------
event of any breach or default or threatened breach or threatened default by the
Company of any covenant, agreement, obligation or other provision set forth
herein, that monetary damages are not adequate remedies to compensate Vulcan and
Vulcan shall be entitled (in addition to any other remedy that may be available
to it) to (i) a decree or order of specific performance or other equitable
relief to enforce the observance and performance of such covenant, agreement,
obligation or other provision, and (ii) an injunction restraining such breach or
threatened breach, without in either case, the posting of any bond and, to the
extent permissible by applicable law, each party waives any objection to the
imposition of such relief.
[Signature Pages Follow]
<PAGE>
Very truly yours,
NORTHPOINT COMMUNICATIONS, INC.
By: /S/ NORTHPOINT COMMUNICATIONS, INC.
_____________________________________
Title:
Accepted and agreed:
- -------------------
VULCAN VENTURES INCORPORATED
By: /S/ VULCAN VENTURES INCORPORATED
__________________________________
Title:
SIGNATURE PAGE TO VULCAN SIDE LETTER
-2-
<PAGE>
EXHIBIT 10.7
February 19, 1999
The Carlyle Group
9 West 57th Street
32nd Floor
New York, NY 10019
NorthPoint Communications, Inc.
-------------------------------
Ladies and Gentlemen:
This letter will confirm our agreement that effective upon and subject to
the purchase by Carlyle Partners II, L.P., a Delaware limited partnership,
Carlyle Partners III, L.P., a Delaware limited partnership, State Board of
Administration of Florida, Carlyle Investment Group, L.P., a Delaware limited
partnership, Carlyle International Partners II, L.P., a Cayman Islands limited
partnership, Carlyle International Partners III, L.P., a Cayman Islands limited
partnership, C/S International Partners, a Cayman Islands general partnership,
Carlyle-NorthPoint Partners, L.P., a Delaware limited partnership, Carlyle-
NorthPoint International Partners, L.P., a Cayman Islands limited partnership,
Carlyle Venture Partners, LP, a Cayman Islands limited partnership, Carlyle U.S.
Venture Partners, LP, a Delaware limited partnership, C/S Venture Partners, LP,
a Cayman Islands limited partnership and Carlyle Venture Coinvestment, LLC, a
Delaware limited liability company (collectively, "Carlyle") of an aggregate of
-------
9,915,014 shares of Series C Preferred Stock of NorthPoint Communications, Inc.
(the "Company"), Carlyle will be entitled to the following contractual rights,
-------
in addition to any rights granted pursuant to that certain Amended and Restated
Series C Preferred Stock Purchase Agreement dated as of January 20, 1999 by and
among the Company and the purchasers listed on Attachment 1 thereto (the
"Purchase Agreement") and any of the agreements contemplated thereby:
- -------------------
1. Purchase of Shares. As of the Third Closing, the Company agrees to
------------------
sell to Carlyle Partners II, L.P., a Delaware limited partnership, Carlyle
Partners III, L.P., a Delaware limited partnership, State Board of
Administration of Florida, Carlyle Investment Group, L.P., a Delaware limited
partnership, Carlyle International Partners II, L.P., a Cayman Islands limited
partnership, Carlyle International Partners III, L.P., a Cayman Islands limited
partnership, C/S International Partners, a Cayman Islands general partnership,
Carlyle-NorthPoint Partners, L.P., a Delaware limited partnership, and Carlyle-
NorthPoint International Partners, L.P., a Cayman Islands limited partnership
(collectively, the "Carlyle Fund II Entities"), and the Carlyle Fund II Entities
------------------------
agree to purchase, an additional 708,215 shares of Series C Preferred Stock of
the Company (the "Purchase Shares") at a purchase price of $3.53 per Purchase
---------------
Share. The Purchase Shares shall be allocated among the Carlyle Fund II
Entities as set forth in a notice to be provided by Carlyle to the Company prior
to the Third Closing. With respect to the purchase of the Purchase Shares
hereunder, the Carlyle Fund II Entities and the Purchase Shares shall be
entitled to all benefits and rights to which Carlyle and the Shares are entitled
under the Purchase
<PAGE>
Agreement and the Related Documents as if the Purchase Shares were Shares
thereunder and this Agreement were set forth therein.
2. Definitions. Capitalized terms used herein but not otherwise defined
-----------
shall have the meanings assigned to such terms in the Purchase Agreement.
3. Specific Performance. Each of the parties hereto agrees that in the
--------------------
event of any breach or default or threatened breach or threatened default by the
Company of any covenant, agreement, obligation or other provision set forth
herein, that monetary damages are not adequate remedies to compensate the
Carlyle Fund II Entities and the Carlyle Fund II Entities shall be entitled (in
addition to any other remedy that may be available to it) to (i) a decree or
order of specific performance or other equitable relief to enforce the
observance and performance of such covenant, agreement, obligation or other
provision, and (ii) an injunction restraining such breach or threatened breach,
without in either case, the posting of any bond and, to the extent permissible
by applicable law, each party waives any objection to the imposition of such
relief.
[Signature Pages Follow]
-2-
<PAGE>
Very truly yours,
NORTHPOINT COMMUNICATIONS, INC.
By:/S/ NORTHPOINT COMMUNICATIONS, INC.
-----------------------------------------
Title:
Accepted and agreed:
- -------------------
CARLYLE PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE PARTNERS II, L.P.
------------------------------
Title: Managing Director
CARLYLE PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE PARTNERS III, L.P.
------------------------------
Title: Managing Director
STATE BOARD OF ADMINISTRATION OF FLORIDA
By: Carlyle Investment Management LLC
Its Manager
By: /S/ STATE BOARD OF ADMINISTRATION OF FLORIDA
--------------------------------------------
Title: Managing Director
CARLYLE INVESTMENT GROUP, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INVESTMENT GROUP, L.P.
----------------------------------
Title: Managing Director
-3-
<PAGE>
CARLYLE INTERNATIONAL PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INTERNATIONAL PARTNERS II, L.P.
------------------------------
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INTERNATIONAL PARTNERS III, L.P.
------------------------------
Title: Managing Director
C/S INTERNATIONAL PARTNERS
By: TC Group, L.L.C.
Its General Partner
By: /S/ C/S INTERNATIONAL PARTNERS
------------------------------
Title: Managing Director
CARLYLE-NORTHPOINT PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE-NORTHPOINT PARTNERS, L.P.
------------------------------
Title: Managing Director
CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
------------------------------
Title: Managing Director
-4-
<PAGE>
EXHIBIT 10.8
February 19, 1999
The Carlyle Group
9 West 57th Street
32nd Floor
New York, NY 10019
NorthPoint Communications, Inc.
-------------------------------
Ladies and Gentlemen:
This letter will confirm our agreement that effective upon and subject to
the purchase by Carlyle Partners II, L.P., a Delaware limited partnership,
Carlyle Partners III, L.P., a Delaware limited partnership, State Board of
Administration of Florida, Carlyle Investment Group, L.P., a Delaware limited
partnership, Carlyle International Partners II, L.P., a Cayman Islands limited
partnership, Carlyle International Partners III, L.P., a Cayman Islands limited
partnership, C/S International Partners, a Cayman Islands general partnership,
Carlyle-NorthPoint Partners, L.P., a Delaware limited partnership, Carlyle-
NorthPoint International Partners, L.P., a Cayman Islands limited partnership,
Carlyle Venture Partners, LP, a Cayman Islands limited partnership, Carlyle U.S.
Venture Partners, LP, a Delaware limited partnership, C/S Venture Partners, LP,
a Cayman Islands limited partnership and Carlyle Venture Coinvestment, LLC, a
Delaware limited liability company (collectively, "Carlyle") of an aggregate of
-------
9,915,014 shares of Series C Preferred Stock of NorthPoint Communications, Inc.
(the "Company"), and in consideration for the transactions contemplated by the
-------
Purchase Agreement (as defined below), Carlyle will be entitled to the following
contractual rights, in addition to any rights granted pursuant to that certain
Amended and Restated Series C Preferred Stock Purchase Agreement dated as of
January 20, 1999 by and among the Company and the purchasers listed on
Attachment 1 thereto (the "Purchase Agreement") and any of the agreements
------------------
contemplated thereby:
1. Mirror Warrants. In the event that (i) Comdisco, Inc. ("Comdisco")
--------------- --------
purchases in excess of 407,902 shares of Series B Preferred Stock of the Company
by means of exercise of that certain warrant to purchase up to 556,233 shares of
the Company's Series B Preferred Stock currently held by Comdisco (the "Comdisco
--------
Warrant"), (ii) Morgan Stanley Bridge Fund L.L.C. or Morgan Stanley Senior
- -------
Funding, Inc. (collectively, "MSSF") purchases in excess of 250,000 shares of
----
Common Stock of the Company by means of exercise of those certain warrants to
purchase Common Stock of the Company issued to MSSF pursuant to that certain
Note Purchase Agreement dated July 15, 1998 between the Company and MSSF (the
"Bridge Warrants") or (iii) Intel Corporation ("Intel") exercises any part of
--------------- -----
that certain warrant to purchase up to 94,475 shares of the Company's Series C
Preferred Stock currently held by Intel (the "Intel Warrant" and collectively
-------------
with the Comdisco Warrant and the Bridge Warrants, the "Warrants"), then,
--------
simultaneously with the issuance of shares of the Company's Series B Preferred
Stock, Common Stock or Series C Preferred Stock to Comdisco, MSSF or Intel as
the case may be with respect to the Warrant exercised, the Company shall
promptly after the exercise of any of the Warrants,
<PAGE>
provide Carlyle with written notice of the exercise thereof and issue to Carlyle
a warrant (the "Mirror Warrant") to purchase a number of shares of the type of
--------------
capital stock of the Company subject to the exercised Warrant such that,
notwithstanding anything to the contrary, Carlyle shall be issued a number and
type of shares upon exercise of such Mirror Warrant that shall result in Carlyle
holding immediately after the exercise of such Mirror Warrant, (A) in the case
of shares being exercised under the Comdisco Warrant, to the extent of the
excess of such shares over 407,902 shares, (B) in the case of the Bridge
Warrants, to the extent of such shares over 250,000 shares, and (C) in all other
cases, to the extent of all shares being exercised under the applicable Warrant,
that number of shares of the type of capital stock of the Company which was
subject to the exercised Warrant outstanding immediately after the exercise of
the Mirror Warrant such that Carlyle's fully diluted ownership percentage in the
Company after the exercise of such Warrant is equal to Carlyle's fully diluted
ownership percentage in the Company immediately prior to the exercise of such
Warrant. In all other respects, each Mirror Warrant shall be on the same terms
and conditions as the Comdisco Warrant, the Bridge Warrants or the Intel
Warrant, as the case may be, including with respect to exercise price; provided,
however, that such Mirror Warrants shall be exercisable, in whole or in part, at
any time on or after the date of issuance of capital stock of the Company giving
rise to the Company's obligation to issue the Mirror Warrants pursuant hereto.
For purposes of this letter, any of the events set forth in clauses (i), (ii) or
(iii) of this Section 1 may hereinafter be referred to as a "Warrant Exercise
----------------
Event."
- -----
2. Definitions. Capitalized terms used herein but not otherwise defined
-----------
shall have the meanings assigned to such terms in the Purchase Agreement.
3. Specific Performance. Each of the parties hereto agrees that in the
--------------------
event of any breach or default or threatened breach or threatened default by the
Company of any covenant, agreement, obligation or other provision set forth
herein, that monetary damages are not adequate remedies to compensate Carlyle
and Carlyle shall be entitled (in addition to any other remedy that may be
available to it) to (i) a decree or order of specific performance or other
equitable relief to enforce the observance and performance of such covenant,
agreement, obligation or other provision, and (ii) an injunction restraining
such breach or threatened breach, without in either case, the posting of any
bond and, to the extent permissible by applicable law, each party waives any
objection to the imposition of such relief.
4. Reservation and Authorization of Stock. The Company shall at all
--------------------------------------
times reserve and keep available for issue upon the exercise of the Mirror
Warrant such number of its authorized but unissued securities deliverable upon
exercise of the Mirror Warrant as will be sufficient to permit the exercise in
full of the Mirror Warrant, and the Company will ensure that all such securities
will, at all times, be duly approved for listing subject to official notice of
issuance on each securities exchange, if any, on which such securities are then
listed.
5. Certain Approvals. If the issuance or sale of any securities issuable
-----------------
upon the exercise of the Mirror Warrant requires registration or approval of any
governmental authority, or the taking of any other action under the laws of the
United States of America or any political subdivision thereof, before such
securities may be validly offered or sold in compliance with
-2-
<PAGE>
such laws, then the Company covenants that it will, in good faith and as
expeditiously as reasonably practicable, endeavor to secure and maintain such
registration or approval or to take such other action, as the case may be.
6. No Merger, Consolidation or Sale of Assets of the Company. The
---------------------------------------------------------
Company will not (a) liquidate, dissolve or wind up, (b) enter into a
transaction or agreement for the acquisition of a majority of the capital stock
or voting power of the Company by another person or entity by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger, consolidation or purchase of stock, (c) sell,
exchange or otherwise dispose of all or substantially all of its assets,
properties or business, unless, (i) in the case of clause (a) above, the Company
first allows Carlyle to exercise the Mirror Warrants and (ii) in the case of
clause (b), the person or entity resulting from such reorganization, merger or
consolidation or the person or entity purchasing such capital stock or voting
power and, in the case of clause (c), the person or entity to whom the Company
sells or disposes or with which the Company exchanges, its assets, properties or
business, shall in each case expressly assume the due and punctual performance
and observance of each and every covenant and condition of this letter to be
performed and observed by the Company and agree not to treat the Mirror Warrants
and the holders of the Mirror Warrants differently from the Warrants and the
holders of the Warrants, by supplemental agreement satisfactory in form and
substance to Carlyle (as long as it or any of its affiliates shall hold a Mirror
Warrant) and executed and delivered to Carlyle (as long as it or any of its
affiliates shall hold a Mirror Warrant).
7. Rights, Preferences and Privileges. The Company shall not alter or
----------------------------------
change the rights, preferences or privileges of the Warrants, and shall not
alter or change the rights, preferences or privileges of the Common Stock,
Series B Preferred Stock or Series C Preferred Stock so as to affect adversely
the Mirror Warrant.
8. Other Rights. Notwithstanding anything to the contrary contained
------------
herein, Carlyle shall have all the rights and privileges of, and be treated by
the Company for all purposes as, a holder of Mirror Warrants from and after the
occurrence of a Warrant Exercise Event, whether or not the Company issues the
notice or Mirror Warrants to Carlyle as required by Section 1.
[Signature Pages Follow]
-3-
<PAGE>
Very truly yours,
NORTHPOINT COMMUNICATIONS, INC.
By: /S/ NORTHPOINT COMMUNICATIONS, INC.
------------------------------------
Title:
Accepted and agreed:
- -------------------
CARLYLE PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE PARTNERS II, L.P.
---------------------------------------------
Title: Managing Director
CARLYLE PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE PARTNERS III, L.P.
---------------------------------------------
Title: Managing Director
STATE BOARD OF ADMINISTRATION OF FLORIDA
By: Carlyle Investment Management LLC
Its Manager
By: /S/ STATE BOARD OF ADMINISTRATION OF FLORIDA
---------------------------------------------
Title: Managing Director
CARLYLE INVESTMENT GROUP, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INVESTMENT GROUP, L.P.
---------------------------------------------
Title: Managing Director
SIGNATURE PAGE TO CARLYLE MIRROR WARRANT SIDE LETTER
-4-
<PAGE>
CARLYLE INTERNATIONAL PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INTERNATIONAL PARTNERS II, L.P.
______________________________
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE INTERNATIONAL PARTNERS III, L.P.
______________________________
Title: Managing Director
C/S INTERNATIONAL PARTNERS
By: TC Group, L.L.C.
Its General Partner
By: /S/ C/S INTERNATIONAL PARTNERS
______________________________
Title: Managing Director
CARLYLE-NORTHPOINT PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE-NORTHPOINT PARTNERS, L.P.
______________________________
Title: Managing Director
CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: /S/ CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
______________________________
Title: Managing Director
SIGNATURE PAGE TO CARLYLE MIRROR WARRANT SIDE LETTER
-5-
<PAGE>
CARLYLE VENTURE PARTNERS, LP
By: TCG Ventures, Limited
Its General Partner
By: /S/ CARLYLE VENTURE PARTNERS, LP
______________________________
Title: Attorney in Fact
CARLYLE U.S. VENTURE PARTNERS, LP
By: TCG Ventures, LLC
Its General Partner
By: /S/ CARLYLE U.S. VENTURE PARTNERS, LP
______________________________
Title: Managing Director
C/S VENTURE PARTNERS, LP
By: TCG Ventures, Limited
Its General Partner
By: /S/ C/S VENTURE PARTNERS, LP
______________________________
Title: Attorney in Fact
CARLYLE VENTURE COINVESTMENT, LLC
By: TCG Ventures, LLC
Its Manager
By: /S/ CARLYLE VENTURE COINVESTMENT, LLC
______________________________
Title: Managing Director
SIGNATURE PAGE TO CARLYLE MIRROR WARRANT SIDE LETTER
-6-
<PAGE>
EXHIBIT 10.11
August 26, 1998
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052-8119
NorthPoint Communications, Inc. - Board Observer Rights and Other
-----------------------------------------------------------------
Matters
-------
Ladies and Gentlemen:
This letter will confirm our agreement that effective upon and subject
to the purchase by Intel Corporation ("Intel") of an aggregate of 300,000 shares
-----
of Series C Preferred Stock of NorthPoint Communications, Inc. (the "Company"),
-------
Intel will be entitled to the following contractual rights, in addition to any
rights granted pursuant to that certain Series C Preferred Stock Purchase
Agreement dated as of June 26, 1998 by and among the Company, Intel, Larry
Howell and the purchasers listed on Attachment 1 thereto (the "Purchase
--------
Agreement") and any of the agreements contemplated thereby:
- ---------
1. Board Observer Rights. Intel shall have the right to designate
---------------------
one representative reasonably acceptable to the Company (the "Intel
-----
Representative") to attend all meetings of the Company's Board of Directors and
- --------------
committees of the Board of Directors in a nonvoting observer capacity, and, in
this respect, the Company shall give the Intel Representative, concurrently with
the members of the Board, copies of all notices, agendas, minutes, consents and
other material that the Company provides to its directors; provided, however,
-------- -------
that the Company reserves the right to exclude the Intel Representative from any
meeting or portion thereof, and deny the Intel Representative access to any
material, if (i) the Company believes upon advice of counsel that such exclusion
or denial of access is reasonably necessary to preserve the attorney-client
privilege or (ii) Intel's presence is reasonably likely to result in a material
conflict of interest in the good faith determination of the Board. Exchanges of
confidential and proprietary information between the company and the Intel
Representative shall be governed by the terms of the Corporate Non-Disclosure
Agreement No. 98801 dated July 6, 1998 executed by the Company and Intel (the
"CNDA"), and any Confidential Information Transmittal Records provided in
-----
connection therewith.
The Company acknowledges that Intel will likely have, from time to
time, information that may be of interest to the Company ("Information")
-----------
regarding a wide variety of matters including, by way of example only, (i)
Intel's technologies, plans and services, and plans and strategies relating
thereto, (ii) current and future investments Intel has made, may make, may
consider or may become aware of with respect to other companies and other
technologies, products and services, including, without limitation,
technologies, products and services that may be competitive with the Company's,
and (iii) developments with respect to the technologies, products and services,
and plans and strategies relating thereto, of other companies, including,
without limitation, companies that may be competitive with the Company. The
Company
<PAGE>
recognizes that a portion of such Information may be of interest to the Company.
Such Information may or may not be known by the Intel Representative. The
Company, as a material part of the consideration for Intel's investment, agrees
that Intel and the Intel Representative shall have no duty to disclose any
Information to the Company or permit the Company to participate in any projects
or investments based on any Information, or to otherwise take advantage of any
opportunity that may be of interest to the Company if it were aware of such
Information, and hereby waives, to the extent permitted by law, any claim based
on the corporate opportunity doctrine or otherwise that could limit Intel's
ability to pursue opportunities based on such Information or that would require
Intel or the Intel Representative to disclose any such Information to the
Company or offer any opportunity relating thereto to the Company.
2. Termination of Board Observer Rights. The foregoing Board
------------------------------------
observer rights shall terminate and be of no further force or effect upon the
consummation of the sale of the Company's securities pursuant to a registration
statement filed by the Company under the Securities Act of 1933, as amended, in
connection with the firm commitment underwritten offering of its securities to
the general public.
3. Confidentiality.
---------------
(a) Disclosure of Terms. The terms and conditions of Intel's
-------------------
investment in the Company (the "Financing Terms"), including the existence of
---------------
any of the agreements entered into by Intel in connection therewith, shall be
considered confidential information and shall not be disclosed by Intel or the
Company except in accordance with the provisions set forth below.
(b) Press Releases, Etc. Within 60 days of the closing of Intel's
-------------------
investment in the Company (the "Closing"), the Company may issue a press release
-------
disclosing that Intel has invested in the Company; provided that the release
does not disclose any of the Financing Terms and is approved in advance in
writing by Intel. Intel, at its sole discretion, may provide an executive quote
or other material regarding its investment in the Company. No other
announcement regarding Intel in a press release, conference, advertisement,
announcement, professional or trade publication, mass marketing materials or
otherwise to the general public may be made without Intel's prior written
consent.
(c) Permitted Disclosures. Notwithstanding the foregoing, (i) Intel
---------------------
or the Company may disclose any of the Financing Terms to its current or bona
fide prospective investors, employees, investment bankers, lenders, accountants
and attorneys, in each case only where such persons or entities are under
appropriate nondisclosure obligations; (ii) Intel or the Company may disclosure
(other than in a press release or other public announcement described in
subsection (b)) solely the fact that Intel is an investor in the Company to any
third parties without the requirement for the consent of Intel or the Company or
nondisclosure obligations; and (iii) Intel may disclose its investment in the
Company and the Financing Terms to third parties or to the public at its sole
discretion and, if it does so, the Company shall have the right to disclose to
third parties any such information disclosed in a press release or other public
announcement by Intel.
<PAGE>
(d) Legally Compelled Disclosure. In the event that Intel or the
----------------------------
Company is requested or becomes legally compelled (including without limitation,
pursuant to securities laws and regulations) to disclose the existence of
Intel's investment in the Company, the existence of any of the agreements
entered into by Intel in connection therewith or any of the Financing Terms in
contravention of the provisions of this Section 3, such party (the "Disclosing
----------
Party") shall provide the other party (the "Non-Disclosing Party") with prompt
- ----- --------------------
written notice of that fact so that the appropriate party may seek (with the
cooperation and reasonable efforts of the other party) a protective order,
confidential treatment or other appropriate remedy. In such event, the
Disclosing Party shall furnish only that portion of the information which it is
legally required and shall exercise reasonable efforts to obtain reliable
assurance that confidential treatment will be accorded such information to the
extent reasonably requested by the Non-Disclosing Party.
(e) Other Information. The provision of this Section 3 shall be in
-----------------
addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by Intel or the Company with respect to the
transactions contemplated hereby. Additional disclosures and exchange of
confidential information between the Company and Intel (including, without
limitation, any exchanges of information with the Intel Representative) shall be
governed by the terms of the CNDA and any Confidential Information Transmittal
Records provided in connection therewith.
(f) Other Stockholders. The Company shall use its best efforts to
------------------
ensure that its other stockholders abide by the terms of this Section 3.
4. Additional Representations and Warranties. Except as set forth on
-----------------------------------------
the updated Schedule of Exceptions attached as Exhibit A to the Compliance
Certificate of even date herewith, the Company hereby represents and warrants to
Intel as follows:
(a) Patents and Other Intangible Assets. To the Company's knowledge,
-----------------------------------
the Company has sufficient title and ownership of all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes necessary for its business as now conducted and as proposed
to be conducted without any conflict with or infringement of the rights of
others. To the Company's knowledge, no third party has any ownership right,
title, interest, claim in or lien on any of the Company's patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes, and the Company has taken, and in the future the Company
will use commercially reasonable efforts to take, all steps reasonably necessary
to preserve its legal rights in, and the secrecy of, all its patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
proprietary rights and processes, except for those for which disclosure is
required for legitimate business or legal reasons. There are no outstanding
options, licenses, or agreements of any kind relating to the foregoing, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. The Company is not obligated to pay
any royalties or other payments to third parties with respect to the marketing,
sale, distribution, manufacture, license or use of any patent, trademark,
service mark, trade name, copyright, trade secret, information, proprietary
right or process or any other property or rights. To the Company's knowledge,
the Company has not
<PAGE>
violated or infringed, and isn't currently violating or infringing, any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights or processes of any other person or entity. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. The Company is not aware
that any of its employees or consultants is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, or any other restriction that would interfere with the use of his or her
best efforts to carry out his or her duties for the Company or to promote the
interests of the Company or that would conflict with the Company's business as
proposed to be conducted. Neither the execution nor delivery of this Agreement,
the Rights Agreement or the Co-Sale Agreement, nor the carrying on of the
Company's business by the employees or consultants of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees or consultants is now obligated. The Company does not
believe it is or will be necessary to utilize any inventions of any of its
employees (or people it currently intends to hire) made prior to their
employment by the Company. To the Company's knowledge, at no time during the
conception or reduction of any of the Company's patents, trademarks, service
marks, trade names, copyrights, trade secrets, information, proprietary rights
or process to practice was any developer, inventor or other contributor to such
patents operating under any grants from any governmental entity or agency or
private source, performing research sponsored by any governmental entity or
agency or private source or subject to any employment agreement or invention
assignment or nondisclosure agreement or other obligation with any third party
that could adversely affect the Company's rights in such patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes.
(b) Tax Matters. The provisions for taxes in the Financial Statements
-----------
are sufficient for the payment of all accrued and unpaid federal, state, county
and local taxes of the Company, whether or not assessed or disputed as of the
date of each such balance sheet. There have been no examinations or audits of
any tax returns or reports by any applicable federal, state or local
governmental agency. The Company has duly filed all federal, state, county and
local tax returns required to have been filed by it and paid all taxes shown to
be due on such returns. There are in effect no waivers of applicable statues of
limitations with respect to taxes for any year.
5. Expenses. At the closing of Intel's investment in the Company,
--------
the Company shall pay the reasonable fees and expenses of one special counsel to
Intel incurred with respect to this letter agreement, the Purchase Agreement,
the documents referred to therein and the transactions contemplated thereby and
hereby, provided the Company shall not be obligated to pay any such fees and
expense to the extent they exceed $10,000.
6. Inspection Rights. The Company hereby agrees that Intel shall
-----------------
have standard inspection rights.
<PAGE>
7. Protective Rights. If, after the closing date of Intel's
-----------------
investment in the Company, the Company grants to any purchaser of the Company's
Preferred Stock terms more favorable than the terms under which Intel has made
its investment (including, but not limited to, liquidation preference
provisions, price-based anti-dilution protection, superior voting rights and
superior registration rights), then the Company shall take such action as may be
necessary to grant Intel such equivalent rights. This Section 7 shall terminate
and have no further force or effect after such time following July 1, 1998 as
the Company shall have sold shares of its Preferred Stock having a value, in the
aggregate (including all Shares sold under the Purchase Agreement), of $14
million.
8. Common Stock Purchase Agreement. The Company hereby agrees that
-------------------------------
the terms contained in Section 3(d) beginning with the phrase, "provided,
however" until the end of such section of those certain Common Stock Purchase
Agreements dated as of June 4, 1997 between the Company and each Founder (as
defined in the Co-Sale Agreement), will not apply to or be enforced against
Intel in connection with any right of first refusal granted to Intel in the Co-
Sale Agreement.
9. Indemnification Pursuant to Rights Agreement.
--------------------------------------------
(a) Limitation on Indemnification to the Company. The Company hereby
--------------------------------------------
agrees that, notwithstanding Section 1.12 of that certain Third Amended and
Restated Rights Agreement dated as of June 26, 1998 among the Company, a
majority of the holders of the Registrable Securities (as defined therein) and
Morgan Stanley Bridge Fund L.L.C. (the "Rights Agreement"), Intel's obligation
----------------
to indemnify or contribute any amounts to the Company, any Holder (as defined in
the Rights Agreement), any director, officer or control person of the Company,
any underwriter or any other person under Section 1.12 of the Rights Agreement
shall be limited to the net proceeds received by Intel in the registered
offering in which the indemnification or contribution obligation arose.
(b) Amendment to the Rights Agreement. The Company hereby agrees that
---------------------------------
it will use its best efforts to amend the Rights Agreement by September 30, 1998
so that the indemnification or contribution obligations of all Holders
(including Intel) pursuant to Section 1.12 of the Rights Agreement are limited
to the net proceeds received by any such Holder in the registered offering in
which the indemnification or contribution obligation arose.
10. Definitions. Capitalized terms used herein but not otherwise
-----------
defined shall have the meanings assigned to such terms in the Purchase
Agreement.
[Signature Pages Follow]
<PAGE>
Very truly yours,
NORTHPOINT COMMUNICATIONS, INC.
By: /S/ NORTHPOINT COMMUNICATIONS, INC.
___________________________________
Title: ___________________________
Accepted and agreed:
- -------------------
INTEL CORPORATION
By: /S/ INTEL CORPORATION
____________________________
Title: ___________________________
SIGNATURE PAGE TO NORTHPOINT SIDE LETTER
<PAGE>
EXHIBIT 10.14
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of [Date] by
---------
and between NorthPoint Communications, Inc., a Delaware corporation (the
"Company"), and [Indemnitee] (the "Indemnitee").
- -------- ----------
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding, that
Indemnitee had reasonable cause to believe that Indemnitee's conduct was
unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. No Employment Rights. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
3. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby. Any advances to be made under this
Agreement shall be paid by the Company to Indemnitee within twenty (20) days
following delivery of a written request therefor by Indemnitee to the Company.
<PAGE>
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company and shall be given in accordance with the provisions of
Section 12(d) below. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for indemnification, is not
paid in full by the Company within forty-five (45) days after a written request
for payment thereof has first been received by the Company, Indemnitee may, but
need not, at any time thereafter bring an action against the Company to recover
the unpaid amount of the claim and, subject to Section 11 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Section 3(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by
<PAGE>
Indemnitee, upon the delivery to Indemnitee of written notice of its election so
to do. After delivery of such notice, approval of such counsel by Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ counsel in any such proceeding at Indemnitee's
expense; and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
4. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
<PAGE>
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
---
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
7. Officer and Director Liability Insurance. The Company shall, from time
----------------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. Severability. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a
<PAGE>
right to indemnification under this Agreement or any other statute or law or
otherwise as required under Section 145 of the Delaware General Corporation Law,
but such indemnification or advancement of expenses may be provided by the
Company in specific cases if the Board of Directors finds it to be appropriate;
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) Claims under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
-------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
-----------------
shall include employee benefit plans; references to "fines" shall include any
-----
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
-------------------------------------
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
---
opposed to the best interests of the Company" as referred to in this Agreement.
- --------------------------------------------
<PAGE>
11. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
12. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) Notices. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(e) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
<PAGE>
(g) Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
to effectively bring suit to enforce such rights.
[Signature Page Follows]
<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
NorthPoint Communications, Inc.
By:
--------------------------------------
Title:
-----------------------------------
Address: 222 Sutter Street, 7th Floor
San Francisco, CA 94108
AGREED TO AND ACCEPTED:
[Indemnitee]
- ------------------------------
(Signature)
Address:
- ------------------------------
- ------------------------------
<PAGE>
EXHIBIT 10.15
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
- ------------------------------------------------------------------------------
Date of Issuance: August 26, 1998 Number of Shares: 50,000
(subject to adjustment per below agreement)
NORTHPOINT COMMUNICATIONS, INC.
Series C Preferred Stock Purchase Warrant
-----------------------------------------
NorthPoint Communications, Inc. (the "Company"), for value received,
-------
hereby certifies that Intel Corporation, or its registered assigns (the
"Registered Holder"), is entitled, subject to the terms set forth below, to
- ------------------
purchase from the Company up to 50,000 shares (as adjusted from time to time
pursuant to the provisions of this Warrant) of Series C Preferred Stock of the
Company, at a purchase price of $6.67 per share. The shares purchasable upon
exercise of this Warrant and the purchase price per share, as adjusted from time
to time pursuant to the provisions of this Warrant, are sometimes hereinafter
referred to as the "Warrant Stock" and the "Purchase Price," respectively.
------------- --------------
1. Exercise.
--------
(a) Eligibility to Exercise. This Warrant shall vest and become
-----------------------
exercisable as follows:
(i) This Warrant shall vest and become exercisable by the
Registered Holder as to 25,000 shares of Warrant Stock at any time on or after
September 30, 1999 and prior to the Expiration Date (as defined below)
provided that by September 30, 1999 either (A) Intel Corporation, a Delaware
corporation ("Intel"), has placed a good faith purchase order for the Company's
-----
digital subscriber line ("DSL") services covering at least 100 end users in the
---
Phoenix market that the Company is technically capable of serving, or (B) the
Company and Intel mutually determine in good faith that the Company has failed
to use its best efforts to launch its DSL services in the Phoenix market in
accordance with that certain Warrant-for-End User Agreement between the
Company and Intel dated as of August 26, 1998 (the "End User Agreement").
------------------
(ii) This Warrant shall vest and become exercisable by the
Registered Holder as to 25,000 shares of Warrant Stock at any time on or after
September 30, 1999 and prior to the Expiration Date provided that by September
30, 1999 either (A) Intel has placed a good faith purchase order for the
Company's DSL services covering at least 100 end users in the
<PAGE>
Portland market that the Company is technically capable of serving, or (B) the
Company and Intel mutually determine in good faith that the Company has failed
to use its best efforts to launch its DSL services in the Portland market in
accordance with the End User Agreement.
(iii) This Warrant shall not be exercisable as to any shares
of Warrant Stock that have not vested and become exercisable as of September 30,
1999 in accordance with either (i) or (ii) above.
(b) Manner of Exercise. Subject to the provisions of Section 1(a)
------------------
above, this Warrant may be exercised by the Registered Holder, in whole or in
part, by surrendering this Warrant, with the notice of exercise appended hereto
as Exhibit A duly executed by such Registered Holder or by such Registered
---------
Holder's duly authorized attorney, at the principal office of the Company, or at
such other office or agency as the Company may designate, accompanied by payment
in full of the Purchase Price payable in respect of the number of shares of
Warrant Stock purchased upon such exercise. The Purchase Price may be paid by
cash, check, wire transfer or by the surrender of promissory notes or other
instruments representing indebtedness of the Company to the Registered Holder.
(c) Effective Time of Exercise. Each exercise of this Warrant
--------------------------
shall be deemed to have been effected immediately prior to the close of business
on the day on which this Warrant shall have been surrendered to the Company as
provided in Section 1(b) above. At such time, the person or persons in whose
name or names any certificates for Warrant Stock shall be issuable upon such
exercise as provided in Section 1(e) below shall be deemed to have become the
holder or holders of record of the Warrant Stock represented by such
certificates.
(d) Net Issue Exercise.
------------------
(i) In lieu of exercising this Warrant in the manner provided
above in Section 1(b), the Registered Holder may elect to exchange all or some
of this Warrant for shares of Warrant Stock equal to the value of the portion of
this Warrant being exchanged on the date of exchange by tender of this Warrant
for the portion being exchanged at the principal office of the Company together
with notice of such election, in which event the Company shall issue to the
Registered Holder a number of shares of Warrant Stock computed using the
following formula:
X = Y (A - B)
---------
A
Where X = The number of shares of Warrant Stock to be issued to the
Registered Holder.
Y = The number of shares of Warrant Stock purchasable under the
portion of this Warrant being exchanged (at the date of such
calculation).
A = The fair market value of one share of Warrant Stock (at the
date of such calculation).
B = The Purchase Price (as adjusted to the date of such
calculation).
<PAGE>
(ii) For purposes of this Section 1(d), the fair market value of
one share of Warrant Stock on the date of calculation shall mean:
(A) if the exercise is in connection with an initial public
offering of the Company's Warrant Stock, and if the Company's Registration
Statement relating to such public offering has been declared effective by the
Securities and Exchange Commission, then the fair market value per share of
Warrant Stock shall be the initial "Price to Public" specified in the final
prospectus with respect to the offering;
(B) if this Warrant is exercised after, and not in
connection with, the Company's initial public offering, and if the Company's
Warrant Stock is traded on a securities exchange or The Nasdaq Stock Market or
actively traded over-the-counter:
(1) if the Company's Warrant Stock is traded on a
securities exchange or The Nasdaq Stock Market, the fair market value shall be
deemed to be the average of the closing prices over a 30 day period ending three
days before date of calculation; or
(2) if the Company's Warrant Stock is actively traded
over-the-counter, the fair market value shall be deemed to be the average of the
closing bid or sales price (whichever is applicable) over the 30 day period
ending three days before the date of calculation; or
(C) if neither (A) nor (B) is applicable, the fair market
value shall be at the highest price per share which the Company could obtain on
the date of calculation from a willing buyer (not a current employee or
director) for shares of Warrant Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by the Board of Directors of the
Company.
(e) "Easy Sale" Exercise. In lieu of the payment methods set forth in
-------------------
Sections 1(b) and 1(c) above, when permitted by law and applicable regulations
(including Nasdaq Stock Market and National Association of Securities Dealers,
Inc. ("NASD') rules), the Registered Holder may pay the Purchase Price through a
----
"same day sale" commitment from the Registered Holder (and if applicable a
broker-dealer that is a member of the NASD (an "NASD Dealer")), whereby the
-----------
Registered Holder irrevocably elects to exercise this Warrant and to sell a
portion of the Warrant Stock so purchased to pay for the Purchase Price and the
Registered Holder (or, if applicable, the NASD Dealer) commits upon sale (or, in
the case of the NASD Dealer, upon receipt) of such Warrant Stock to forward the
Purchase Price directly to the Company.
(f) Delivery to Holder. As soon as practicable after the exercise of
------------------
this Warrant in whole or in part, and in any event within ten days thereafter,
the Company at its expense will cause to be issued in the name of, and delivered
to, the Registered Holder, or as such Registered Holder (upon payment by such
Registered Holder of any applicable transfer taxes) may direct:
<PAGE>
(i) a certificate or certificates for the number of shares of
Warrant Stock to which such Registered Holder shall be entitled, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of shares of Warrant Stock equal (without
giving effect to any adjustment therein) to the number of such shares called for
on the face of this Warrant minus the number of such shares purchased by the
Registered Holder upon such exercise as provided in Section 1(b), 1(d) or 1(e)
above.
2. Adjustments.
-----------
(a) Stock Splits and Dividends. If outstanding shares of the
--------------------------
Company's Warrant Stock shall be subdivided into a greater number of shares or a
dividend in Warrant Stock shall be paid in respect of Warrant Stock, the
Purchase Price in effect immediately prior to such subdivision or at the record
date of such dividend shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend be
proportionately reduced. If outstanding shares of Warrant Stock shall be
combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased. When any
adjustment is required to be made in the Purchase Price, the number of shares of
Warrant Stock purchasable upon the exercise of this Warrant shall be changed to
the number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) Reclassification, Etc. In case of any reclassification or
----------------------
change of the outstanding securities of the Company or of any reorganization of
the Company (or any other corporation the stock or securities of which are at
the time receivable upon the exercise of this Warrant) or any similar corporate
reorganization on or after the date hereof, then and in each such case the
holder of this Warrant, upon the exercise hereof at any time after the
consummation of such reclassification, change, reorganization, merger or
conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise hereof prior to such
consummation, the stock or other securities or property to which such holder
would have been entitled upon such consummation if such holder had exercised
this Warrant immediately prior thereto, all subject to further adjustment as
provided in Section 2(a); and in each such case, the terms of this Section 2
shall be applicable to the shares of stock or other securities properly
receivable upon the exercise of this Warrant after such consummation.
(c) Adjustment for Capital Reorganization, Merger or
------------------------------------------------
Consolidation. In case of any capital reorganization of the capital stock of the
- -------------
Company (other than a combination, reclassification, exchange or subdivision of
shares otherwise provided for herein), or any merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all the assets of the Company then, and in each such case, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the
<PAGE>
Registered Holder of this Warrant shall thereafter be entitled to receive upon
exercise of this Warrant, during the period specified herein and upon payment of
the Purchase Price then in effect, the number of shares of stock or other
securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 2. The foregoing provisions of this Section 2(c) shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the Registered Holder hereof for shares in connection
with any such transaction is in a form other than cash or marketable securities,
then the value of such consideration shall be determined in good faith by the
Company's Board of Directors. In all events, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant with respect to the rights and
interests of the Registered Holder after the transaction, to the end that the
provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.
(d) Adjustment Certificate. When any adjustment is required to be
----------------------
made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the
Company shall promptly mail to the Registered Holder a certificate setting forth
(i) a brief statement of the facts requiring such adjustment, (ii) the Purchase
Price after such adjustment and (iii) the kind and amount of stock or other
securities or property into which this Warrant shall be exercisable after such
adjustment.
3. Transfers.
---------
(a) Unregistered Security. Each holder of this Warrant
---------------------
acknowledges that this Warrant and the Warrant Stock have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and agrees
not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose
of this Warrant or any Warrant Stock issued upon its exercise in the absence of
(i) an effective registration statement under the Securities Act as to this
Warrant or such Warrant Stock and registration or qualification of this Warrant
or such Warrant Stock under any applicable U.S. federal or state securities law
then in effect or (ii) an opinion of counsel, satisfactory to the Company, that
such registration and qualification are not required. Each certificate or other
instrument for Warrant Stock issued upon the exercise of this Warrant shall bear
a legend substantially to the foregoing effect.
(b) Transferability. Subject to the provisions of Section 3(a)
---------------
hereof this Warrant and all rights hereunder are transferable, in whole or in
part, upon surrender of the Warrant with a properly executed assignment (in the
form of Exhibit B hereto) at the principal office of the Company.
---------
<PAGE>
(c) Warrant Register. The Company will maintain a register
----------------
containing the names and addresses of the Registered Holders of this Warrant.
Until any transfer of this Warrant is made in the warrant register, the Company
may treat the Registered Holder of this Warrant as the absolute owner hereof for
all purposes; provided, however, that if this Warrant is properly assigned in
-------- -------
blank, the Company may (but shall not be required to) treat the bearer hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary. Any Registered Holder may change such Registered Holder's address as
shown on the warrant register by written notice to the Company requesting such
change.
4. No Impairment. The Company will not, by amendment of its charter
-------------
or through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
5. Termination. This Warrant (and the right to purchase securities
-----------
upon exercise hereof) shall terminate at 5:00 p.m. Pacific Time on August 26,
2003.
6. Representations and Warranties. Except as set forth on the
------------------------------
Schedule of Exceptions attached as Exhibit A to that certain Compliance
---------
Certificate of even date herewith, the Company hereby represents and warrants to
Intel as follows:
(a) Corporate Power. The Company will have at the Date of
---------------
Issuance all requisite legal and corporate power to execute and deliver this
Warrant, to sell and issue the Warrant Stock, to issue the Common Stock issuable
upon conversion of the Warrant Stock and to carry out and perform its
obligations under the terms of this Warrant.
(b) Authorization. All corporate action on the part of the
-------------
Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Warrant by the Company, the
authorization, sale, issuance and delivery of the Warrant Stock (and the Common
Stock issuable upon conversion of the Warrant Stock) and the performance of all
of the Company's obligations under this Warrant has been taken or will be taken
prior to the Date of Issuance. This Warrant, when executed and delivered by the
Company, shall constitute a valid and binding obligations of the Company
enforceable against the Company in accordance with its terms. The Warrant Stock,
when issued in compliance with the provisions of this Warrant, will be validly
issued and will be fully paid and nonassessable and will have the rights,
preferences and privileges described in the Company's Fourth Amended and
Restated Certificate of Incorporation (the "Restated Certificate"). The shares
--------------------
of Common Stock issuable upon conversion of the Warrant Stock have been duly and
validly reserved and, when issued in compliance with the provisions of this
Warrant and the Restated Certificate, will be validly issued, fully paid and
nonassessable, and the Warrant Stock and such Common Stock will be free of any
liens or encumbrances other than those created by or imposed upon the holders
thereof through no action of the Company; provided, however, that the Warrant
Stock (and the Common Stock issuable upon conversion thereof) may be subject to
restrictions on transfer under state and/or federal securities laws. The Warrant
Stock is not subject to any preemptive rights or rights of first refusal.
<PAGE>
(c) Series C Preferred Stock Purchase Agreement. All
-------------------------------------------
representations and warranties expressed in Section 3 of that certain Series C
Preferred Stock Purchase Agreement dated as of June 26, 1998 between the Company
and the purchasers of Series C Preferred Stock, and Section 4 of that certain
side letter dated as of August 26, 1998 between the Company and Intel are true
and correct as of the date hereof.
7. Notices of Certain Transactions. In case:
-------------------------------
(a) the Company shall take a record of the holders of its Warrant
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right, to subscribe for or purchase any shares of stock of any class
or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company, any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the surviving entity), or any transfer of all or substantially all of the
assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,then, and in each such case, the Company will mail or
cause to be mailed to the Registered Holder of this Warrant a notice specifying,
as the case may be, (i) the date on which a record is to be taken for the
purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Warrant Stock (or such other
stock or securities at the time deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up) are to be determined. Such notice shall be mailed at least ten days
prior to the record date or effective date for the event specified in such
notice.
8. Reservation of Stock. The Company will at all times reserve and
--------------------
keep available, solely for the issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant,
including, without limitation, the shares of Common Stock issuable upon
conversion of the Warrant Stock.
9. Exchange of Warrants. Upon the surrender by the Registered
--------------------
Holder of any Warrant or Warrants, properly endorsed, to the Company at the
principal office of the Company, the Company will, subject to the provisions of
Section 3 hereof, issue and deliver to or upon the order of such Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the
<PAGE>
name of such Registered Holder or as such Registered Holder (upon payment by
such Registered Holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Warrant
Stock called for on the face or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. Notices. Any notice required or permitted by this Warrant shall
-------
be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
48 hours after being deposited in the regular mail as certified or registered
mail (airmail if sent internationally) with postage prepaid, addressed (a) if to
the Registered Holder, to the address of the Registered Holder most recently
furnished in writing to the Company and (b) if to the Company, to the address
set forth below or subsequently modified by written notice to the Registered
Holder.
12. No Rights as Stockholder. Until the exercise of this Warrant,
------------------------
the Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
13. No Fractional Shares. No fractional shares of Warrant Stock will
--------------------
be issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Warrant Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
14. Amendment or Waiver. Any term of this Warrant may be amended or
-------------------
waived only by an instrument in writing signed by the party against which
enforcement of the amendment or waiver is sought.
15. Headings. The headings in this Warrant are for purposes of
--------
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
16. Governing Law. This Warrant shall be governed, construed and
-------------
interpreted in accordance with the laws of the State of California, without
giving effect to principles of conflicts of law.
[Signature Page Follows]
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
By:/S/ NORTHPOINT COMMUNICATIONS, INC.
-----------------------------------
Title:
----------------------------
Address: 222 Sutter Street
7th Floor
San Francisco, CA 94108
Fax Number: (415) 403-4004
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
NORTHPOINT COMMUNICATIONS, INC. DATED:__________
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant for, and to purchase thereunder, the
securities of NorthPoint Communications, Inc., as provided for therein, and
(check the applicable box):
[ ] Tenders herewith payment of the exercise price in full in the form of
cash or a certified or official bank check in same-day funds in the amount
of $____________ for _________ such securities.
[ ] Elects the Net Issue Exercise option pursuant to Section 1(d) of the
Warrant, and accordingly requests delivery of a net of ______________ of
such securities, according to the following calculation:
X = Y (A-B) ( ) = (____) [(_____) - (_____)]
------- ---------------------------
A (_____)
Where X = the number of shares of Warrant Stock to be issued to the
Registered Holder.
Y = the number of shares of Warrant Stock purchasable under the
portion of the Warrant being exchanged (at the date of such
calculation).
A = the fair market value of one share of the Company's Warrant Stock
(at the date of such calculation).
B = Purchase Price (as adjusted to the date of such calculation).
[ ] Elects the Easy Sale Exercise option pursuant to Section 1(e) of the
Warrant, and accordingly requests delivery of a net of ______________ of
such securities.
Please issue a certificate or certificates for such securities in the name of,
and pay any cash for any fractional share to (please print name, address and
social security number):
Name:
-----------------------------------
Address:
-----------------------------------
Signature:
-----------------------------------
Note: The above signature should correspond exactly with the name on the first
page of this Warrant or with the name of the assignee appearing in the
assignment form below.
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder rounded up to the
next higher whole number of shares.
<PAGE>
EXHIBIT B
---------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, _________________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant with respect to the number of shares of Warrant Stock covered
thereby set forth below, to:
Name of Assignee Address/Fax Number No. of Shares
---------------- ------------------ -------------
Dated:_________________ Signature:
------------------------
------------------------
Witness:
------------------------
<PAGE>
EXHIBIT 10.16
January 19, 1999
Intel Corporation
2200 Mission College Boulevard
Santa Clara, California 95052-8119
Re: NorthPoint Communications, Inc.-Information Rights After IPO
Ladies and Gentlemen:
This letter will confirm our agreement that effective upon the signing
of that certain Amended and Restated Series C Preferred Stock Purchase
Agreement, dated as of January 19, 1999 (the "Amended Agreement"), by and
between, among others, Intel Corporation ("Intel") and NorthPoint
Communications, Inc. ("NorthPoint"), and in consideration for the termination of
the Series C Preferred Stock Purchase Agreement, dated as of June 26, 1998 (the
"Original Agreement"), Intel shall receive from NorthPoint, upon the termination
of the information rights set forth in Section 7.1 of the Amended Agreement,
copies of NorthPoint's 10-K's, 10-Q's, 8-K's and Annual Reports to Shareholders
promptly after such documents are filed with the Securities and Exchange
Commission.
Very truly yours,
NORTHPOINT COMMUNICATIONS, INC.
By: /S/ Henry P. Huff
-----------------------------------
Title: Chief Financial Officer
-----------------------------------
Agreed and accepted:
- -------------------
INTEL CORPORATION
By: /S/ INTEL CORPORATION
---------------------------
Title: ------------------------
<PAGE>
recognizes that a portion of such Information may be of interest to the Company.
Such Information may or may not be known by the Intel Representative. The
Company, as a material part of the consideration for Intel's investment, agrees
that Intel and the Intel Representative shall have no duty to disclose any
Information to the Company or permit the Company to participate in any projects
or investments based on any Information, or to otherwise take advantage of any
opportunity that may be of interest to the Company if it were aware of such
Information, and hereby waives, to the extent permitted by law, any claim based
on the corporate opportunity doctrine or otherwise that could limit Intel's
ability to pursue opportunities based on such Information or that would require
Intel or the Intel Representative to disclose any such Information to the
Company or offer any opportunity relating thereto to the Company.
2. Termination of Board Observer Rights. The foregoing Board
------------------------------------
observer rights shall terminate and be of no further force or effect upon the
consummation of the sale of the Company's securities pursuant to a registration
statement filed by the Company under the Securities Act of 1933, as amended, in
connection with the firm commitment underwritten offering of its securities to
the general public.
3. Confidentiality.
---------------
(a) Disclosure of Terms. The terms and conditions of Intel's
-------------------
investment in the Company (the "Financing Terms"), including the existence of
---------------
any of the agreements entered into by Intel in connection therewith, shall be
considered confidential information and shall not be disclosed by Intel or the
Company except in accordance with the provisions set forth below.
(b) Press Releases, Etc. Within 60 days of the closing of Intel's
-------------------
investment in the Company (the "Closing"), the Company may issue a press release
-------
disclosing that Intel has invested in the Company; provided that the release
does not disclose any of the Financing Terms and is approved in advance in
writing by Intel. Intel, at its sole discretion, may provide an executive quote
or other material regarding its investment in the Company. No other
announcement regarding Intel in a press release, conference, advertisement,
announcement, professional or trade publication, mass marketing materials or
otherwise to the general public may be made without Intel's prior written
consent.
(c) Permitted Disclosures. Notwithstanding the foregoing, (i) Intel
---------------------
or the Company may disclose any of the Financing Terms to its current or bona
fide prospective investors, employees, investment bankers, lenders, accountants
and attorneys, in each case only where such persons or entities are under
appropriate nondisclosure obligations; (ii) Intel or the Company may disclosure
(other than in a press release or other public announcement described in
subsection (b)) solely the fact that Intel is an investor in the Company to any
third parties without the requirement for the consent of Intel or the Company or
nondisclosure obligations; and (iii) Intel may disclose its investment in the
Company and the Financing Terms to third parties or to the public at its sole
discretion and, if it does so, the Company shall have the right to disclose to
third parties any such information disclosed in a press release or other public
announcement by Intel.
<PAGE>
(d) Legally Compelled Disclosure. In the event that Intel or the
----------------------------
Company is requested or becomes legally compelled (including without limitation,
pursuant to securities laws and regulations) to disclose the existence of
Intel's investment in the Company, the existence of any of the agreements
entered into by Intel in connection therewith or any of the Financing Terms in
contravention of the provisions of this Section 3, such party (the "Disclosing
----------
Party") shall provide the other party (the "Non-Disclosing Party") with prompt
- ----- --------------------
written notice of that fact so that the appropriate party may seek (with the
cooperation and reasonable efforts of the other party) a protective order,
confidential treatment or other appropriate remedy. In such event, the
Disclosing Party shall furnish only that portion of the information which it is
legally required and shall exercise reasonable efforts to obtain reliable
assurance that confidential treatment will be accorded such information to the
extent reasonably requested by the Non-Disclosing Party.
(e) Other Information. The provision of this Section 3 shall be in
-----------------
addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by Intel or the Company with respect to the
transactions contemplated hereby. Additional disclosures and exchange of
confidential information between the Company and Intel (including, without
limitation, any exchanges of information with the Intel Representative) shall be
governed by the terms of the CNDA and any Confidential Information Transmittal
Records provided in connection therewith.
(f) Other Stockholders. The Company shall use its best efforts to
------------------
ensure that its other stockholders abide by the terms of this Section 3.
4. Additional Representations and Warranties. Except as set forth on
-----------------------------------------
the updated Schedule of Exceptions attached as Exhibit A to the Compliance
Certificate of even date herewith, the Company hereby represents and warrants to
Intel as follows:
(a) Patents and Other Intangible Assets. To the Company's knowledge,
-----------------------------------
the Company has sufficient title and ownership of all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes necessary for its business as now conducted and as proposed
to be conducted without any conflict with or infringement of the rights of
others. To the Company's knowledge, no third party has any ownership right,
title, interest, claim in or lien on any of the Company's patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes, and the Company has taken, and in the future the Company
will use commercially reasonable efforts to take, all steps reasonably necessary
to preserve its legal rights in, and the secrecy of, all its patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
proprietary rights and processes, except for those for which disclosure is
required for legitimate business or legal reasons. There are no outstanding
options, licenses, or agreements of any kind relating to the foregoing, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. The Company is not obligated to pay
any royalties or other payments to third parties with respect to the marketing,
sale, distribution, manufacture, license or use of any patent, trademark,
service mark, trade name, copyright, trade secret, information, proprietary
right or process or any other property or rights. To the Company's knowledge,
the Company has not
<PAGE>
violated or infringed, and isn't currently violating or infringing, any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights or processes of any other person or entity. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. The Company is not aware
that any of its employees or consultants is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, or any other restriction that would interfere with the use of his or her
best efforts to carry out his or her duties for the Company or to promote the
interests of the Company or that would conflict with the Company's business as
proposed to be conducted. Neither the execution nor delivery of this Agreement,
the Rights Agreement or the Co-Sale Agreement, nor the carrying on of the
Company's business by the employees or consultants of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees or consultants is now obligated. The Company does not
believe it is or will be necessary to utilize any inventions of any of its
employees (or people it currently intends to hire) made prior to their
employment by the Company. To the Company's knowledge, at no time during the
conception or reduction of any of the Company's patents, trademarks, service
marks, trade names, copyrights, trade secrets, information, proprietary rights
or process to practice was any developer, inventor or other contributor to such
patents operating under any grants from any governmental entity or agency or
private source, performing research sponsored by any governmental entity or
agency or private source or subject to any employment agreement or invention
assignment or nondisclosure agreement or other obligation with any third party
that could adversely affect the Company's rights in such patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes.
(b) Tax Matters. The provisions for taxes in the Financial Statements
-----------
are sufficient for the payment of all accrued and unpaid federal, state, county
and local taxes of the Company, whether or not assessed or disputed as of the
date of each such balance sheet. There have been no examinations or audits of
any tax returns or reports by any applicable federal, state or local
governmental agency. The Company has duly filed all federal, state, county and
local tax returns required to have been filed by it and paid all taxes shown to
be due on such returns. There are in effect no waivers of applicable statues of
limitations with respect to taxes for any year.
5. Expenses. At the closing of Intel's investment in the Company,
--------
the Company shall pay the reasonable fees and expenses of one special counsel to
Intel incurred with respect to this letter agreement, the Purchase Agreement,
the documents referred to therein and the transactions contemplated thereby and
hereby, provided the Company shall not be obligated to pay any such fees and
expense to the extent they exceed $10,000.
6. Inspection Rights. The Company hereby agrees that Intel shall
-----------------
have standard inspection rights.
<PAGE>
7. Protective Rights. If, after the closing date of Intel's
-----------------
investment in the Company, the Company grants to any purchaser of the Company's
Preferred Stock terms more favorable than the terms under which Intel has made
its investment (including, but not limited to, liquidation preference
provisions, price-based anti-dilution protection, superior voting rights and
superior registration rights), then the Company shall take such action as may be
necessary to grant Intel such equivalent rights. This Section 7 shall terminate
and have no further force or effect after such time following July 1, 1998 as
the Company shall have sold shares of its Preferred Stock having a value, in the
aggregate (including all Shares sold under the Purchase Agreement), of $14
million.
8. Common Stock Purchase Agreement. The Company hereby agrees that
-------------------------------
the terms contained in Section 3(d) beginning with the phrase, "provided,
however" until the end of such section of those certain Common Stock Purchase
Agreements dated as of June 4, 1997 between the Company and each Founder (as
defined in the Co-Sale Agreement), will not apply to or be enforced against
Intel in connection with any right of first refusal granted to Intel in the Co-
Sale Agreement.
9. Indemnification Pursuant to Rights Agreement.
--------------------------------------------
(a) Limitation on Indemnification to the Company. The Company hereby
--------------------------------------------
agrees that, notwithstanding Section 1.12 of that certain Third Amended and
Restated Rights Agreement dated as of June 26, 1998 among the Company, a
majority of the holders of the Registrable Securities (as defined therein) and
Morgan Stanley Bridge Fund L.L.C. (the "Rights Agreement"), Intel's obligation
----------------
to indemnify or contribute any amounts to the Company, any Holder (as defined in
the Rights Agreement), any director, officer or control person of the Company,
any underwriter or any other person under Section 1.12 of the Rights Agreement
shall be limited to the net proceeds received by Intel in the registered
offering in which the indemnification or contribution obligation arose.
(b) Amendment to the Rights Agreement. The Company hereby agrees that
---------------------------------
it will use its best efforts to amend the Rights Agreement by September 30, 1998
so that the indemnification or contribution obligations of all Holders
(including Intel) pursuant to Section 1.12 of the Rights Agreement are limited
to the net proceeds received by any such Holder in the registered offering in
which the indemnification or contribution obligation arose.
10. Definitions. Capitalized terms used herein but not otherwise
-----------
defined shall have the meanings assigned to such terms in the Purchase
Agreement.
[Signature Pages Follow]
<PAGE>
Very truly yours,
NORTHPOINT COMMUNICATIONS, INC.
By: _____________________________
Title: ___________________________
Accepted and agreed:
- -------------------
INTEL CORPORATION
By: ____________________________
Title: ___________________________
SIGNATURE PAGE TO NORTHPOINT SIDE LETTER
<PAGE>
EXHIBIT 10.17
NORTHPOINT COMMUNICATIONS, INC.
ADDENDUM TO SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
------------------
This Addendum to Series C Preferred Stock Purchase Agreement (the
"Addendum") is made as of the 26th day of August, 1998 by and among NorthPoint
--------
Communications, Inc., a Delaware corporation (the "Company"), and the entities
-------
or individuals listed on the signature page attached hereto (the "Additional
----------
Purchasers").
- ----------
RECITALS
--------
On June 26, 1998, the Company entered into a Series C Preferred Stock
Purchase Agreement (the "Purchase Agreement") with certain Purchasers (as
------------------
defined in the Purchase Agreement). The Purchase Agreement provides in Section
2.3 thereof that under conditions set forth therein, additional investors may
become parties to the Purchase Agreement at any time on or before September 30,
1998.
AGREEMENT
---------
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
1. Subject to the terms and conditions herein, the Company will issue and
sell to each of the Additional Purchasers, and each Additional Purchaser will
purchase from the Company, the number of shares of Series C Preferred Stock (the
"Additional Shares"), set forth opposite the Additional Purchaser's name on the
-----------------
Schedule of Additional Investors attached hereto as Exhibit A. In accordance
---------
with the Purchase Agreement, all such sales shall be made on the terms and
conditions set forth in the Purchase Agreement. Each of the Additional
Purchasers, by their signatures hereto, shall hereby (i) become parties to the
Purchase Agreement, (ii) be considered a "Purchaser" for all purposes under the
---------
Purchase Agreement and (iii) have all the rights and obligations of a Purchaser
thereunder. The Additional Shares acquired by the Additional Purchasers
hereunder shall be considered "Shares" for all purposes under the Purchase
------
Agreement, as amended.
2. Each subsequent closing (each, a "Subsequent Closing") of the purchase
------------------
and sale of Additional Shares to the Additional Purchasers shall be held at the
principal offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park,
California, at 2:00 p.m., on August 26, 1998, or at such other time and place as
the Company and the Additional Purchasers participating in such Subsequent
Closing may agree. At each Subsequent Closing, the Company and the Additional
Purchasers will take the following actions:
(a) The Company will deliver to each Additional Purchaser a
certificate representing the number of Additional Shares set forth opposite such
Additional Purchaser's
<PAGE>
name on Exhibit A, against payment of the purchase price therefor by each
---------
Additional Purchaser by check or wire transfer to the Company.
(b) The Additional Purchaser will deliver to the Company manually
signed signature pages to the Purchase Agreement, the Third Amended and Restated
Rights Agreement and the Second Amended and Restated Right of First Refusal and
Co-Sale Agreement, thereby entitling the Additional Purchaser to the rights and
subjecting the Additional Purchaser to the obligations under such agreements.
(c) The Company will deliver to the Additional Purchasers a
certificate of the Company, executed by a senior officer of the Company and
dated as of the Subsequent Closing, to the effect that the representations and
warranties of the Company contained in the Purchase Agreement were true and
correct in all material respects when made and are true and correct in all
material respects as of the date of the certificate.
3. This Addendum may be executed in any number of counterparts, each of
which may be executed by less than all of the Additional Purchasers, each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
[Signature Page Follows]
<PAGE>
The parties hereto have executed this Addendum as of the date first set
forth above.
NORTHPOINT COMMUNICATIONS, INC.
By:/S/ NORTHPOINT COMMUNICATIONS, INC.
-----------------------------------------
Title:
-------------------------------------
ADDITIONAL PURCHASERS:
INTEL CORPORATION
By:/S/ INTEL CORPORATION
-----------------------------------------
Title:
--------------------------------------
/S/ Larry Howell
----------------------------------------
Larry Howell
SIGNATURE PAGE TO ADDENDUM TO PURCHASE AGREEMENT
<PAGE>
EXHIBIT A
---------
SCHEDULE OF ADDITIONAL INVESTORS
--------------------------------
Second Closing - August 26, 1998:
- --------------------------------
<TABLE>
<CAPTION>
Name/Address No. of Shares Purchase Price
------------- -------------- ---------------
<S> <C> <C>
Intel Corporation 300,000 $2,001,000.00
2200 Mission College Blvd.
Santa Clara, CA 95052-8119
Larry Howell 59,970 $ 399,999.90
177 Steuart Street, Suite 700
San Francisco, CA 94105-1206
Second Closing Total: 359,970 $2,400,999.90
- ----------------------------------------------------- ------- -------------
</TABLE>
<PAGE>
EXHIBIT 10.18
NORTHPOINT COMMUNICATIONS, INC.
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "Agreement") is made between NorthPoint
---------
Communications, Inc., a Delaware corporation (the "Company"), and CNA Trust FBO
-------
Michael W. Hall ("Purchaser").
---------
1. Subject to the terms and conditions of this Agreement, the Company
agrees to sell to Purchaser, and Purchaser agrees to purchase from the Company,
17,800 shares of Series B Preferred Stock (the "Shares"), at a price of
------
$0.67417772 per Share, for an aggregate purchase price of $12,000.36. The
Series B Preferred Stock shall have the rights provided in the Company's
Certificate of Incorporation, as amended, a copy of which has been made
available to Purchaser. As soon as practicable after all necessary regulatory
approvals for the issuance of the Shares have been obtained, the Company shall
notify Purchaser and Purchaser shall promptly deliver to the Company an executed
copy of this Agreement and payment in the form of cash, check or wire transfer
for the Shares being purchased.
2. Representations of Purchaser. Purchaser hereby represents and warrants
----------------------------
to the Company with respect to the purchase of the Shares as follows:
(a) Experience. Purchaser has experience in evaluating and investing
----------
in private placement transactions so that Purchaser is capable of evaluating the
merits and risks of Purchaser's investment in the Company. Purchaser, by reason
of its business or financial experience or the business or financial experience
of its professional advisors who are unaffiliated with and who are not
compensated by the Company or any affiliate or selling agent of the Company,
directly or indirectly, has the capacity to protect its own interests in
connection with the purchase of the Shares hereunder.
(b) Investment. Purchaser is acquiring the Shares for investment for
----------
Purchaser's own account, not as a nominee or agent, and not with the view to, or
for resale in connection with, any distribution thereof. Purchaser understands
that the Shares to be purchased (and the underlying Common Stock) have not been,
and will not be, registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of a specific exemption from the registration
- ---------------
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of Purchaser's
representations as expressed herein. Purchaser has not been formed for the
specific purpose of acquiring the Shares (or the underlying Common Stock).
(c) Rule 144. Purchaser acknowledges that the Shares and the
--------
underlying Common Stock must be held indefinitely unless subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser is aware of the provisions of Rule 144 promulgated under the
Securities Act which permit limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including a
requirement that
<PAGE>
the securities be held prior to resale for the applicable holding periods
specified in Rule 144, the existence of a public market for the shares, and, in
some cases, the availability of certain current public information about the
Company, compliance with the manner of sale requirements of Rule 144, and the
number of shares being sold during any three-month period not exceeding
specified limitations.
(d) No Public Market. Purchaser understands that no public market now
----------------
exists for any of the securities issued by the Company, that the Company has
made no assurances that a public market will ever exist for the Shares (or the
underlying Common Stock) and that, even if such a public market exists at some
future time, the Company may not then be satisfying the current public
information requirements of Rule 144.
(e) Access to Data. Purchaser and its representatives have met with
--------------
representatives of the Company and thereby have had the opportunity to ask
questions of, and receive answers from, said representatives concerning the
Company and the terms and conditions of this transaction as well as to obtain
any information requested by Purchaser. Any questions raised by Purchaser or
its representatives concerning the transaction have been answered to the
satisfaction of Purchaser and its representatives. Purchaser's decision to
purchase the Shares is based in part on the answers to such questions as
Purchaser and its representatives have raised concerning the transaction and on
its own evaluation of the risks and merits of the purchase and the Company's
proposed business activities.
(f) Authorization. This Agreement, when executed and delivered by
-------------
Purchaser, will constitute a valid and legally binding obligation of Purchaser,
enforceable in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
(g) Tax Consequences. Purchaser has reviewed with its own tax
----------------
advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents and understands that Purchaser (and not the
Company) shall be responsible for Purchaser's own tax liability that may arise
as a result of this investment or the transactions contemplated by this
Agreement.
3. Representation of Company. The Company hereby represents and warrants
-------------------------
to Purchaser as follows:
(a) Authorization. The Company is a corporation duly organized,
-------------
validly existing in good standing under the laws of the State of Delaware. All
corporate action on the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution and delivery of this
Agreement, the performance of all obligations of the Company hereunder and the
authorization, issuance and delivery of the Shares (and the Common Stock
issuable upon conversion of the Shares) has been taken and this Agreement
constitutes a valid
<PAGE>
and legally binding obligation of the Company, enforceable against the Company
in accordance with its terms.
(b) Valid Issuance of Securities. The Shares being issued to
----------------------------
Purchaser hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable and free of any liens or encumbrances;
provided, however, that the Shares may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein. Based in part
upon the representations of Purchaser in this Agreement, the Shares will be
issued in compliance with all applicable federal and state securities laws. The
Common Stock issuable upon conversion of the Series B Preferred Stock has been
duly and validly reserved for issuance, and upon issuance in accordance with
the terms of the Company's Certificate of Incorporation, as amended, shall be
duly and validly issued, fully paid and non-assessable and free of any liens or
encumbrances (provided, however, that such Common Stock may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein) and will be issued in compliance with all applicable federal and state
securities laws.
(c) The execution, delivery and performance of this Agreement does not
and will not conflict with or result in any breach of any of, constitute a
default under, or result in a violation of: any obligation or commitment to any
third party; any law or judgement applicable to the Company; any law, statute,
rule, regulation, judgement or decree to which the Company is subject; or the
charter documents or bylaws of the Company or any securities by the Company.
4. Qualification of Securities. The sale of the securities which are the
---------------------------
subject of this Agreement has not been qualified with the Commissioner of
Corporations of the State of California, and the issuance of such securities or
the payment or receipt of any part of the consideration therefor prior to such
qualification is unlawful unless the sale of securities is exempt from the
qualification by Section 25100, 25102 or 25105 of the California Corporations
Code. The rights of all parties to this Agreement are expressly conditioned
upon such qualification being obtained, unless the sale is so exempt.
5. Legends. Purchaser acknowledges and understands that the certificate
-------
evidencing the Series B Preferred Stock (and Common Stock issuable upon
conversion thereof) shall bear the following legends (and any other legends
required under state securities laws in the opinion of legal counsel for the
Company):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
(WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT STATING
THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
<PAGE>
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."
6. General. This Agreement shall be governed by the laws of the State of
-------
California, is not assignable by either party and represents the entire
agreement between the parties. This Agreement may only be modified or amended
in writing with the consent of the Company and Purchaser.
In witness whereof, the parties have executed this Agreement on December
31, 1997.
"Company" NORTHPOINT COMMUNICATIONS, INC.
a Delaware corporation
By: /s/ NORTHPOINT COMMUNICATIONS, INC.
-------------------------------------
Title:
-----------------------------
"Purchaser" CNA TRUST FBO MICHAEL W. HALL
By: /s/ CNA TRUST FBO MICHAEL W. HALL
-----------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT 11.1
SCHEDULE REGARDING COMPUTATION OF PER SHARE EARNINGS
(000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
1998 1997
-------- --------
<S> <C> <C>
Net income (loss) $ (1,296) $(25,907)
-------- --------
Weighted average common shares 9,659 10,835
Common equivalent shares:
Dilutive Stock options -- --
Dilutive Warrants -- --
-------- --------
Common and common equivalent shares 9,659 10,835
======== ========
Earnings (loss) per common and common
equivalent share $ (.13) $ (2.39)
======== ========
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated February 24, 1999, on our audits of the financial statements of
NorthPoint Communications, Inc. as of December 31, 1997 and 1998, for the
period from May 16, 1997 (date of inception) through December 31, 1997, and for
the year ended December 31, 1998. We also consent to the references to our firm
under the captions "Experts" and "Selected Financial Data."
/s/ PricewaterhouseCoopers LLP
San Francisco, California
February , 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> MAY-16-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 9,448,259 10,955,655
<SECURITIES> 0 0
<RECEIVABLES> 0 541,901
<ALLOWANCES> 0 (18,640)
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,507,264 14,128,184
<PP&E> 1,802,911 47,421,839
<DEPRECIATION> 27,179 (1,344,043)
<TOTAL-ASSETS> 11,355,937 60,501,500
<CURRENT-LIABILITIES> 514,159 65,846,306
<BONDS> 0 0
0 0
16,451 17,111
<COMMON> 10,820 10,930
<OTHER-SE> 9,947,949 (8,580,714)
<TOTAL-LIABILITY-AND-EQUITY> 11,355,937 (60,530,973)
<SALES> 0 930,776
<TOTAL-REVENUES> 0 930,776
<CGS> 0 0
<TOTAL-COSTS> 55,553 3,970,339
<OTHER-EXPENSES> 1,430,434 20,501,911
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17 2,574,720
<INCOME-PRETAX> (1,296,130) (25,907,070)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,296,130) (25,907,070)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,296,130) (25,907,070)
<EPS-PRIMARY> (.13) (2.39)
<EPS-DILUTED> (.13) (2.39)
</TABLE>
